China’s bank lending rebounds Loan growth Page 8
Thrusday, June 16 2016 Year V Nr. 1066 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai AMCM
Foreign exchange reserves down 0.8 pct m-o-m at May-end Page 2
Gaming
Crown to spin off international assets including Melco stake Page 6
www.macaubusinessdaily.com
Garlic stock
Mainland investors find a shelter during troubled financial times in the garlic market Page 16
East Timor charm Platform
Strategic location, incentivised policies, and still young. The Portuguese-speaking country in Asia aims to reach out globally, and Macau can also help to serve as a platform. A seminar in Macau discusses business opportunities in the country. Page 5
Not puffing away
Bye-bye birdie Locals still have a low awareness of avian flu and how to prevent it. IACM aims to enhance promotions during the period when live poultry will gradually be substituted for frozen meat in Macau markets.
Smoking ban While legislators reveal that the majority of the members of the sub-committee in charge of discussing the bill remain supportive of smoking lounges in casinos, local concern group insists that it cannot fully prevent harm. Page 2
Delayed MSCI
Food safety Page 4
20,467.52 +79.99 (0.39%)
Tencent Holdings Ltd
+2.79%
Belle International Holdings
+1.42%
China Unicom Hong Kong
China Resources Land Ltd
-0.78%
Link REIT
+1.90%
China Construction Bank
+1.38%
Li & Fung Ltd
-1.09%
PetroChina Co Ltd
-0.75%
CLP Holdings Ltd
+1.73%
China Mengniu Dairy Co Ltd
+1.37%
Power Assets Holdings Ltd
-1.08%
Bank of East Asia Ltd/The
-0.70%
-1.71%
Lenovo Group Ltd +1.69%
+2.84%
Sino Land Co Ltd
+1.17%
Hong Kong Exchanges and
-0.98%
Hang Seng Bank Ltd
-0.68%
Kunlun Energy Co Ltd
+1.44%
Want Want China Holdings
+1.13%
Cathay Pacific Airways Ltd
-0.83%
China Mobile Ltd
-0.58%
28° 31° 28° 31° 28° 31° 27° 31° 28° 31° Today
Source: Bloomberg
HK Hang Seng Index June 15, 2016
Fri
Sat
I SSN 2226-8294
Sun
Mon
Source: AccuWeather
Stock benchmark Global equity indexes provider MSCI announced that it will delay including China A-shares in the MSCI Emerging Markets (EM) Index. In its 2016 market classification review released Tuesday, MSCI said that Chinese authorities have introduced significant improvements in the accessibility of the China A-shares market, but “investors would like to see further improvements.” Page 8
2 Business Daily Thursday, June 16 2016
Macau Banks
BPI Macau sees 54.5pct decrease in profits in 2015 y-o-y
3.6 per cent compared to 2014, down to MOP2.8 billion. Nevertheless, the Macau branch’s parent company BPI S.A closed 2015 with US$264.8 million, its best The Macau offshore branch of Portuguese bank BPI result in three years and the fifth highest since its S.A recorded a MOP285.6 million (US$35.7 million) profit for the whole of 2015, a 54.5 per cent decrease in establishment, thanks to a 13.6 per cent year-on-year profits year-on-year, according to a company financial increase in contributions from international branches to US$160.2 million. BPI S.A. also stated in the financial report released yesterday in the Official Gazette. The report that its Macau branch ‘has contributed as BPI Macau branch also registered a total of MOP6 billion in total assets, a 67.8 per cent decrease year-on- a business platform between Mainland China and year, while total operational costs decreased slightly by Portuguese-speaking countries.’ N.M.
Smoking-ban Majority of AL sub-committee remains supportive of smoking lounges in casinos
Tobacco-control group: smoking lounges cannot fully prevent harm
T
he director of Smoke-free & Healthy Life Association of Macau, Joy Choi, claimed yesterday that she does not believe smoking lounges inside local casinos can prevent second-hand smoke, according to local broadcaster TDM Radio. Speaking to reporters on the sidelines of a press briefing, the association director said the efficacy of a casino smoking lounge would depend
on whether the original air motion systems of a property were set up to cater for smoking rooms. Otherwise, there would be technical difficulties in linking such rooms to the systems. Near the end of last month, the second standing committee of the Legislative Assembly (AL) – the body in charge of discussing the details of a universal smoking ban bill for casinos – claimed seven of its nine members support the establishment of smoking
lounges if it can be ensured that the smoke from these rooms will not spread to outside areas. Following the latest meeting on Tuesday, the AL sub-committee president, Chan Chak Mo, told reporters that the stance of the committee members remained the same.
Support for the economy’s sake
According to Mr. Chan, the legislators supporting smoking lounges know very well that such arrangements do not 100 per cent prevent second-hand smoke, but they are worried a full smoking ban would further dampen the government’s tax revenues from the gaming sector. The bill has been under consideration by the standing committee for nearly one year, after it passed the first reading last July. Denying that the committee was
purposely delaying submitting the bill for final reading, the legislator said on Tuesday that his committee would draft the submission to the government after one more meeting. At present, smoking is prohibited on the mass gaming floors of local casinos, and is only permitted in smoking lounges and VIP rooms. The government-backed bill, meanwhile, proposes to ban smoking in all indoor areas of gaming venues, as well as eliminating the current smoking lounges. On the other hand, the tobacco control group announced in the press briefing yesterday that the 8th Cross-Strait Conference on Tobacco Control would take place next Thursday and Friday, with government officials from the four cities meeting to exchange experiences on tobacco control.
Monetary
Foreign exchange reserves down 0.8 pct m-o-m at May-end The city’s foreign exchange reserves amounted to MOP150.5 billion (US$18.8 billion) as at the end of May, down by 0.8 per cent compared to MOP151.7 billion one month ago, according to a preliminary estimation by the Monetary Authority of Macau (AMCM). Nevertheless, compared to the MOP139.1 million as at the end of May 2015, the latest amount of foreign exchange reserves held by the Special Administrative Region indicates an increase of 8.2 per cent. As at the end of last month, the city’s foreign exchange reserves represented 12 times the currency in circulation, or 105.9 per cent of Pataca M2 of April-end this year,
according to AMCM. ‘M2’ refers to that part of the money supply that includes physical coins and currency, as well as readily liquid assets such as on-demand bank deposits and money held in cheque accounts, plus all timerelated deposits, savings deposits, and non-institutional money market funds. Meanwhile, the trade-weighted effective exchange rate index for the Pataca grew by 0.47 points month-tomonth, or 1.59 points year-on-year, to 105.36 for the month. This increase suggests that the local currency generally appreciated against the currencies of the city’s major trading partners. K.L.
Business Daily Thursday, June 16 2016 3
Macau IACM Live poultry to be substituted for frozen poultry
Different taste Authorities say public awareness of avian flu still low. Annie Lao annie.lao@macaubusinessdaily.com
T
he results of a questionnaire survey on ‘Substitution of Supply of Live Poultry with Frozen Poultry’ were published by the Civic and Municipal Affairs Bureau (IACM) at a press conference yesterday. The study was conducted by the research team of Macao Polytechnic Institute (IPM) with an aim to understand the overall acceptance of local residents towards the new policy. However, no exact date has been confirmed for the implementation of a new policy to eliminate live poultry, Albino de Campos Pereira, Head of the Department of Food and Animal Inspection and Control of IACM revealed during a press conference yesterday.
last year. A total of 1,026 local residents and 187 local eateries were interviewed. About 80 per cent of the interviewees had no preference as to what kind of poultry was used in the local eateries, and 70 per cent of the interviewed eateries said they used frozen poultry. In addition, ‘food safety and hygiene ’and a ‘comfortable and hygienic environment for purchase’ were the main factors for consideration when purchasing poultry meat local residents stated, accounting for 80 per cent and 70 per cent of responses respectively.
Response to new policy R e g a r d i n g
t h e
implementation of the new policy in the future, most residents (57 per cent) said they did not oppose the idea, and 24 per cent of them agreed with the policy, although a majority of local residents said they do have a habit of eating live poultry. Sixty-seven per cent of the interviewees stated that they ate freshly slaughtered poultry frequently, with chicken being the most popular choice. IACM concluded that the interviewed residents who did not oppose the implementation of the new policy in the future, accounted for the majority, after taking eating preferences and buying habits into consideration.
Low alert
The awareness of the risk of transmitting avian influenza through live poultry is still low among residents. According to the survey, about half of the interviewees gave
Different tastes
Most local residents do not object to eating frozen poultry when eating out. In fact, food safety and hygienic environments are the main considerations when buying poultry meat, according to the results of the survey. The survey was done in November and December
Labour a 10,000-signature petition
We don’t want them Two gaming labour unions calling for no foreign dealers. Gaming labour union Forefront of Macau Gaming (FMG) together with the Union of New Macau Gaming Workers Rights, presented a petition to the government headquarters yesterday at noon, urging authorities to cut the number of non-resident workers in the city, as well as requesting legislator Cheang Chi Keong to withdraw his recent remarks that non-resident dealers should be allowed. FMG and the Union of New Macau Gaming Workers Rights - which is headed by gaming labour activist Cloee Chao – told reporters yesterday that they had collected nearly 10,000 signatures from casino workers from all six major gaming corporations in four days. “Local labourers’ remuneration is suppressed whilst their ability to bargain [for better wages and rights] is also limited,” the two labour groups wrote in a statement. “Despite the fact that gaming workers are not being directly pressured by the import of non-resident workers
at the moment, we need to stand up to voice our demands or we will lose our jobs eventually one day,” they added. In an interview with local Chinese-language newspaper Macao Daily published last Tuesday, Mr. Cheang, an indirectly-elected legislator, suggested that the government should allow a certain number of non-resident workers to be dealers. The businessman, who is also a member of the Executive Council, explained that the hiring of non-resident workers for dealer positions could prevent local workers from being immediately fired as gaming corporations face pressures from declining revenues. But the remarks by the legislative member triggered dispute in the community. The government released a statement last Tuesday clarifying that its policy to not allow non-local workers to be employed in dealer positions would not be changed. Another local gaming labour group, the Power of the Macao Gaming Association also petitioned the government headquarters last Friday, urging the government to stay firm in its stance. K.L.
wrong answers to the knowledge questions relating to the spread of the virus through live poultry. Furthermore, the survey shows that interviewees who had a higher level of understanding of the risks were in favor of the implementation of the new policy in the future, with 43 per cent of them agreeing and only 33 per cent of them opposed to the policy. Ms. Lek Hou Leong, Public Health Physician of the Health Bureau advised the government to reinforce
education and the promotion of the new policy in the community, as avian influenza can cause illness and fatalities in humans, as well as economic losses.
Raise awareness
The most effective way to prevent humans from avian flu is to ‘separate’ poultry from humans in order to reduce the possibility of an outbreak and minimize the threat to local residents in the future, Ms. Leong explained during the press conference. IACM says it will start carrying out work to strengthen awareness of avian influenza and promotion of frozen poultry products, increasing frozen poultry stalls in markets and consulting with the industry closely in regards to the new policy, especially in relation to the impact on the current stall owners selling live poultry in the markets. About 8000 live poultry are imported to Macau each day. 7,316 tonnes of frozen poultry was imported to Macau in 2015; on average, 610 tonnes was imported each month, according to Albino.
4 Business Daily Thursday, June 16 2016
Macau Opinion
Infrastructure
Public tender for Macau Peninsula waste treatment station delayed again
Ashley Sutherland-Winch Bring On Broadway The Tony Awards, Broadway’s biggest night, is loved around the world. As a theatre lover, I found myself scrambling on Monday morning to find the international broadcast of the awards show, only to find it missing from the television line up. Perhaps it will be played later this week on Macau cable, but thanks to the glorious internet age, I was able to catch most of the show online. Broadway is booming in the United States and West End, and tours around the globe are selling out in record numbers. In Las Vegas, Broadway show performances presented by Steve Wynn and the Sands Corporation were slow to start. Las Vegas tourists were more drawn to the excitement and mystique of circus and showgirls than musical theatre and plays, but after several years of failed productions, Vegas took a long look at the demand. In 2012, the landscape of Broadway theatre changed in Sin City with the opening of the Smith Center for Performing Arts. What analysts identified was that residents of Las Vegas craved theatre, but in a casino environment where longrunning resident shows were established, locals would see a show once or twice but they wouldn’t want to keep seeing repeated performances of the same show. They wanted diversity: plays, musicals, revues - and the Smith Center answered the call. The mega theatre paved the way for national and international Broadway tours to find a home in Las Vegas. Now, Las Vegas locals can delight in at least nine or ten different productions per year at the Smith. What Vegas learned was that locals desired theatre and the city needed to find a solution. Do we have similar desires here in Macau? As the entertainment industry develops in our city, we may see a growing local desire to increase our musical theatre, play and opera options. This summer, the Venetian Theatre is hosting “Shrek the Musical” and “Blue Man Group” and when Wynn Palace opens, perhaps Mr. Wynn will choose to host touring shows as well. Currently, there are 29 Broadway tours in the world, and as locals, we must support the efforts to bring these shows to Macau. We cannot rely on tourists to fill the seats; we must. We want to expose our community to live theatre, and traveling shows are the perfect answer. If we show a demand, the international theatre community will fight for our patronage. I say, “Let’s bring more Broadway to Macau!” Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Submission of applications for the public tender for ‘Operation and Maintenance of the Water Waste Treatment Station in the Macau peninsula’ will have to wait until June 22, as the public tender opening date has been delayed again by the Environmental Protection Bureau (DSPA), according to a dispatch in the Official Gazette. The further delay was announced in a release approved
by the DSPA Director, Raymond Tam Vai Man, after the original public tender opening date on June 7 was also cancelled. The public tender involves a twoyear contract starting on October 1 and ending on September 30, 2018, for water treatment on the Macau Peninsula, according to an Official Gazette released on April 20. Applicants are required to be registered water treatment companies in the MSAR territory, and have to submit a MOP5 million deposit with the application. N.M.
Labour Ella Lei: non-resident wages should be reviewed
Wage discrepancy The legislator argues that new standards for minimum wages should be set up for non-resident workers in the construction industry. Annie Lao annie.lao@macaubusinessdaily.com
T
he government should provide reasons why low-paid non-resident workers who receive wages less than the mandated minimum wage are allowed to work in the construction industry, legislator Ella Lei Cheng urged in her enquiry to the government. She said in her enquiry that in 2005, the government had already
set up a minimum daily wage for non-resident workers working in the construction industry of MOP450 (US$56.3) and MOP11,700 per month counting 26 working days. But this standard has not been changed for over 10 years, and is now considered to be lower than what construction workers should be getting today. The legislator argues that according to official data from the Government Human Resources Office (GRH) and the Public Security Police Force (PSP)
in 2015, only about 70 per cent of non-resident workers hired in the construction industry earned a salary of MOP11,700 per month, while 5,000 non-resident workers, about 10.8 per cent, earned less than MOP11,700 each month. Furthermore, last year, there were a number of professional job positions, which hired non-resident workers for electrical, painting, cement and plaster jobs, but only paid MOP8,000 per month, an amount even lower than the set minimum wage. The legislator questioned how the government could ensure the protection of local employment through its policies, if it allowed the lowpaid non-resident workers in the city to be paid below minimum wage. Therefore, the legislator suggested the government should publicly indicate an approved updated standard of minimum wages for non-resident workers.
Infrastructure
Legislator questions high service fees paid to HK MTR for LRT Si Ka Lon asks the government to explain the MOP470 million payment which is almost six times more than the original budget. Annie Lao annie.lao@macaubusinessdaily.com
Legislator Si Ka Lon submitted a written enquiry to request the government to explain why the management and technical assistance services contract of the Light Rail Transit (LRT) project granted to Hong Kong MTR Corporation Limited is worth MOP470 million (US$58.8 million). Mr. Si said that according to the audit report on the third phase of the LRT published by the Commission of Audit (CA), the Transportation Infrastructure Office (GIT) offered MOP176 million to the company for project management and technical support of the LRT. However it was later found that the level of supervision was not sufficient, because the company did not have enough staff - about two to 24 workers less than what was promised in the contract - resulting
in a poor level of service performance that did not meet expectations. In April this year, the government decided not to continue the contract with the company. Before that, the government had renewed the contract two times for a total of 87
months, resulting in a due payment totaling MOP290 million. But the legislator pointed out that the duration of the service provided by Hong Kong MTR was only for 24 months. On average, the government will pay 5.8 times more than the amount paid to the previous provider. The legislator asked the government to give an explanation for the high service fees paid to Hong Kong MTR. In addition, the legislator suggested the government should have stronger punitive measures in place as a deterrent to prevent delays in case Hong Kong MTR does not provide the service before the end of the contract.
Business Daily Thursday, June 16 2016 5
Macau Business Entrepreneurs meet to discuss East Timor business
Exploring East Timor Seminar joins together business people from Macau, Portuguese-speaking countries and East Timor to explore business opportunities in the young country. Nelson Moura nelson.moura@macaubusinessdaily.com
I
n her presentation before the seminar, Macao Trade and Investment Promotion Institute (IPIM) Executive Director Gloria Ung stated that last year commercial trade between China and East Timor was higher than US$100 million (MOP799 million), and comprised mainly of exports of electrical equipment, machinery, cars and steel to China. A seminar to promote business in East Timor brought together business people from Macau and Portuguese-speaking countries in order to discuss business opportunities in the young Asian country. Organised by the Macao Trade and Investment Promotion Institute (IPIM) in cooperation with the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao), the seminar tried to demonstrate East Timor’s strongest business advantages, with three entrepreneurs invited to share their experiences in the region, and give advice on how to invest in the country.
“Get to know East Timor, go there, know the people, even without any person on location create an entity in the country for future meetings, and know the area to invest in and the people connected to it.” Goncalo Neves Lestro, lawyer and International Senior Associate at CRA Global law firm “East Timor is strategically located as the only Portuguese language country in Asia, and the seminar aims to present investment and development opportunities in the young country,” the East Timor Delegate at Forum Macao, Danilo Afonso-Henriques, told Business Daily, adding he hoped the shared experiences could help future entrepreneurs in the region.
Strategic location
Both Gloria Ung and Danilo Afonso-Henriques described East Timor as strategically situated in Southeast Asia, at the crossing between the Pacific and Indian Oceans, and rich in natural resources such as natural gas and oil. “Our investment priorities are in tourism, the oil industry, precious minerals and construction materials. We’re also looking for investments in the agricultural sector and fishing, since 85 per cent of the population works in that sector. In fact we’ve
Group photo of the event organisers
IPIM Executive Director Gloria Ung’s presentation
worked for more than a year with Zhejiang province for commercial fishing exploration, since Mainland China is one of the biggest business partners with East Timor and its influence is growing,” the East Timor Delegate from Forum Macao told Business Daily. IPIM’s Executive Director Gloria Ung also mentioned that the seminar was part of a strategy to implement a ‘go global’ direction, with Macau looking to intensity its singular advantages as a service platform for economic and commercial cooperation between Mainland China and Portuguese-speaking countries.
Business advantages
East Timor, a young country which got its independence from Indonesia in 2002, was described at the seminar as a developing country with business potential, with double digit economic growth last year and currently undergoing a government-led strategic development plan until 2030, in order to enhance its core infrastructure, human resources and the private sector in its strongest economic sectors including agriculture, tourism and the oil and gas sector. “East Timor has developed a lot since its independence in 2002, with a great improvement in safety and stability. Its current development plan has seen the government make serious investments in infrastructure, making the country more attractive to foreign investment. Also the private investment law in East Timor is very simple and attractive in terms of customs taxes,” Goncalo Neves Lestro, a Portuguese lawyer and International Senior Associate at CRA Global told Business Daily.
an investment certificate for international investors, providing fiscal and customs benefits if an investment proposal is accepted by the East Timor Investment and Export Promotion Agency. According to data presented at the seminar, applications for the certificates take 30 days at a cost of US$20,000, allowing any investment to be made in 180 days after being approved. “Timor has good advantages for investment such as a good fiscal customs structure, trade taxes are very beneficial, and the government is reforming investment law in order to put the country at the level of other countries with good business conditions,” Danilo Afonso-Henriques told Business Daily.
Spreading advice
One of the local Macau business people sharing advice on doing business in East Timor was Chan Kuok Sang, a representative of Ngai Tin Enterprise-Chelsea, a Macau registered company specialising in developing aroma products and fragrances. The local company started producing a medicinal oil based on the Fukui nut from East Timor, used for hair application and protection, and exported mainly to Mainland China. Chan described how he made connections with East Timor producers through the Macao International Trade & Investment Fair (MIF), and has recently started exporting the product to Mainland China. “When we started doing the product promotion, nobody knew about
Luring incentives
The representative from CRA Global, the first law firm to provide legal advice to foreign investors interested in doing business in East Timor, highlighted beneficial tax incentives as one of the policies by the East Timor government to attract investment, with a current maximum limit on corporate profit tax set at 10 per cent, and a customs tax rate of 2.5 per cent. Current legal reforms also include
East Timor Delegate at Forum Macao, Danilo Afonso-Henriques
it and in the beginning it wasn’t easy to enter the Mainland China market. You need a lot of documents to enter so you need to make sure all customs documents are prepared. If only one or two documents are missing there’s no chance. However we’ve managed to use Macau as a platform to enter the Mainland China market and other world markets,” Chan stated in his presentation. Subhash Mishra from NTM Industries Unipessoal Lda, a salt producing company from East Timor, believes that as new state, the country has “everything up to investment, especially in the hotel industry,” advising potential entrepreneurs to make sure they properly research the area they want to invest in, get to know the trade laws in the country and use IPIM for advice. For lawyer Goncalo Neves Lestro the advice was as simple as “get to know East Timor, go there, know the people, even without any person on location create an entity in the country for future meetings, and know the area to invest in and the people connected to it.”
Not everything is roses
However not all experiences are positive, with the President of the International Lusophone Markets Business Association (ACIML), Eduardo Ambrosio sharing the issues he had while importing coffee from East Timor. “We’ve been involved in the coffee business in East Timor for 15 years, and faced many problems importing it from the country. There’s a lot of competition and the amount we can ship is very small. Also, East Timor needs better medical facilities, since most people have to go to Australia to receive health care, so it really needs investment for a major hospital in the country,” the ACIML president stated in the meeting. Ambrosio also highlighted some issues doing bank transfers to the country, which can be very slow, and described how East Timor still needs a lot of investment in education in order to create more qualified human resources.
6 Business Daily Thursday, June 16 2016
Macau Divestiture New listed company to house most of its domestic assets
Crown to spin off international assets including Melco stake The move could cushion those operations from the downturn in Asian gambling hub Macau which has hammered its shares.
C
asino operator Crown Resorts Ltd. will spin off international assets including its US$2 billion stake in Melco Crown Entertainment Ltd. under a plan to increase returns for controlling shareholder James Packer. The newly listed entity is also set to house Crown’s planned Las Vegas development, a 20 percent stake in Japanese restaurant Nobu and half of U.K. casino operator Aspers Group, the Melbournebased company said in a statement Wednesday. The gaming firm has a 27 percent stake in Nasdaq-listed Melco, which runs casinos in Macau and the Philippines. Chairman Robert Rankin said the split was designed to isolate Crown’s Australian casino business from the wider group, which he said investors had undervalued because of a gambling downturn in Macau. Shares in Crown, which is controlled by Packer’s closely-held investment company Consolidated Press Holdings Ltd., have tumbled 37 per cent since January 2014. The newly separated international business “will be set up as a growth asset and probably be given a reasonable-sized war chest to expand in Asia and Las Vegas,” Evan Lucas, a market strategist at IG Ltd. in Melbourne, said by phone. “The
Australian assets are humming along nicely enough, but you would not describe them as a great growth story.” Shareholders would own equity in the new international entity proportionate to their Crown stakes,
the company said. After the spinoff, Crown would hold gambling resorts in Melbourne, Perth and a planned luxury hotel-casino in Sydney. London casino Aspinalls and Crown’s online gaming operations such as CrownBet would also be part of this entity. “The proposed demerger reflects the different nature of Crown Resorts’ controlled Australian operating assets from its international investments,” Rankin said in the statement. “The
Crown Resorts share price has been highly correlated to the performance of its investment in Macau.” Crown also said that it will explore a potential initial public offering of 49 per cent of a property trust that would hold its Australian hotels, apart from Crown Towers Melbourne. It also plans to immediately implement a policy to return all of its net income to shareholders through dividend payments, the company said. Bloomberg News
Business Daily Thursday, June 16 2016 7
Macau
Gaming
Success Dragon withdraws placing HK$220-mln convertible bonds
G
aming s e r v i c e s firm Success Dragon International Holdings Ltd., formerly known as C Y Foundation, announced on Tuesday the termination of its placing of convertible bonds amounting to a maximum of HK$220 million (US$27.5 million). According to its filing with the Hong Kong Stock Exchange, the termination is due to the fact that the company and the placing agents “are
unable to agree on some of the key commercial terms of the placing”. Success Dragon announced on June 2 that it had agreed to the issue, while the placing agents had conditionally agreed to subscribe to the convertible bonds based on a conversion price of HK$0.83 per conversion share. The company claimed then that the placing, of which maximum net proceeds might total HK$211 million, “will be used for the development and
expansion of the group’s business, investment and general working capital of the group”. “The Board considers that the termination of the placing will not have any material adverse impact on the operation, business or financial position of the group,” it wrote in Tuesday’s filing, adding “the company will consider all appropriate means of financing for the group’s activities, including but not limited to equity and debt and hybrid financing”.
According to the June 2 filing, the placing agents were Kingsway Financial Services Group Limited, BaoQiao Partners Capital Limited and Opus Capital Limited. For its 2015/16 fiscal year, the gaming service firm posted a widened net loss of HK$231.5 million, compared to a net loss of HK$47.3 million one year ago, due to the worsening performance of its outsourced process management business primarily operating in Macau. K.L.
by the two parties released this January disclosed that the tender process for the project was clouded with uncertainty given the current political situation and the fact that the approval process of the region's Urban Planning Mater Plan would have an impact on the casino tender granting timeframe. “Melco and/or MelcoLot will make further announcements in relation
to the Project,” the two companies wrote in the Tuesday filing. MelcoLot had also submitted a bid for the casino project via a joint venture with Spanish company Veremonte España SL in 2014. However, the partnership of the companies was terminated last October. MelcoLot said at that time that it would make a ‘solo’ bid for the gaming license in Spain. K.L.
Gaming
MelcoLot & Melco Int’l share deal for Spanish casino bid axed MelcoLot Ltd and Melco International Development Ltd have jointly announced that their share deal for a casino bid near Barcelona in Spain has been terminated due to uncertainty related to the tender process. “As the timetable of the tender process for the casino authorization and the development of the project remain relatively uncertain in the current political situation in Catalonia… Melco and MelcoLot agreed to immediately terminate the share purchase Agreement,” the two companies, both controlled by local gaming entrepreneur Lawrence Ho Yau Lung, told the Hong Kong Stock Exchange after trading hours on Tuesday. Last October, the two Hong
Lawrence Ho Yau Lung
Kong-listed companies reached a deal that MeloLot would purchase 99 per cent of the issued capital stake of Melco International’s subsidiary – Melco Property Development - for HK$502.9 million (US$62.9 million). Melco Property is one of the bidders for the gaming license to develop a hotel and casino complex in BCN World, a new recreation and tourism centre development in the Spanish region proposed by the Catalan government. The October announcement indicated that the conditions for the deal required that Melco Property should be granted a gaming license from the Catalan government before June 30 this year. But another joint-announcement
8 Business Daily Thursday, June 16 2016
Greater China Borrowing data
May new yuan loans beat forecasts But money supply growth slows.
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hinese banks extended 985.5 billion yuan (US$149.56 billion) in new yuan loans in May, exceeding analysts’ expectations and well above the previous month’s levels, as the central bank keeps policy accommodative to support the slowing economy. The central bank has pledged to keep policy slightly loose to support activity, even after an article in the People’s Daily in May quoted an “authoritative person” as warning that China may suffer a financial crisis or recession if the government relies too much on debt-fuelled stimulus. Economists polled by Reuters had expected new loans would climb to 750 billion yuan last month, from a sixmonth low of 556 billion yuan in April. The central bank also said yesterday that broad M2 money supply (M2) grew 11.8 per cent from a year earlier, down from April’s 12.8 per cent. Analysts had expected May growth of 12.5 per cent. Outstanding yuan loans grew 14.4 per cent by month-end on an annual basis, versus expectations of 14.2 per cent. Banks doled out a record 4.6 trillion yuan in new loans in first quarter, but levels in April were much lower than expected, adding to fears that Beijing was taking a more cautious approach on stimulus. The economy has shown some signs of steadying in recent months but
remains uneven, and analysts believe continued fiscal and monetary support is needed to support growth. Data on Monday showed growth in China’s fixed-asset investment has slipped below 10 per cent for the first time since 2000 while investment by private firms slowed to a record low, raising the possibility that the government may have to ramp up fiscal stimulus further, even if that adds to concerns about mounting debt.
Key Points C. bank seen keep policy accommodative to support growth May new loans 985.5 billion yuan, vs f’cast 750 billion yuan May M2 money supply +11.8 per cent y/y, vs f’cast 12.5 per cent May TSF 659.9 billion yuan, vs 751 billion yuan in April
The economy grew 6.7 per cent in the first quarter from a year earlier, the slowest since the global financial crisis. The PBOC is aiming for annual M2 growth of around 13 per cent this year, pointing to continued accommodative policy as Beijing pledges to embark on a painful economic restructuring that could throw millions of people out of work. Total social financing (TSF), another important indicator of China’s credit expansion, fell to 659.9 billion yuan in May from 751 billion yuan in April. Reuters
Index decision
MSCI says A shares still not ready for benchmark Many analysts had put the chances of inclusion at 50 per cent or higher. Michelle Price
China has failed again to convince U.S. index provider MSCI Inc to add local Chinese shares to its key emerging market index, and the company could not say when it was likely to give the green light, as global investors raised fresh objections. The index company said on Tuesday that China still had to do more to make its markets accessible to foreign investors. Th a t i s a b l o w f o r C h i n e s e policymakers who have rushed to address MSCI’s concerns over the past six months in the hope that inclusion in the Emerging Markets Index, tracked by US$1.5 trillion in global assets, could
draw up to US$400 billion into China’s stocks over the next decade. Chinese shares seemed to shrug off the news, however, rising more than 1 per cent in morning trade. Market-watchers and analysts said the surprise decision, the third year running it has said no, highlighted reservations among global institutional investors about yuan-denominated assets and Beijing’s commitment and ability to implement capital markets reform. China’s markets have had a turbulent 12 months, with a 40 per cent crash in stocks, followed by heavy state intervention and an unprecedented exodus of capital that has put pressure on the Chinese currency. “The decision highlights a much
bigger issue, which is the resistance among global investors to allocate into yuan assets, despite the fact China is home to the world’s second-largest equity market and third-largest bond market,” said Peter Alexander, CEO of investment consultancy Z-Ben Advisors in Shanghai. He added that the decision put global investors “on the wrong side of history”. China’s securities regulator said yesterday any global benchmark index that doesn’t include China A shares is incomplete, but the decision wouldn’t affect reforms to open its markets. Remy Briand, MSCI global head of research, told reporters yesterday that China’s reform programme was moving in the right direction but investors had concerns over the process for allocating investment quotas and monthly limits on repatriating capital. He said investors also needed more time to assess if new share suspension rules would be effective in preventing a repeat of last summer, when more than half of China’s listed companies halted trading in their stocks to sit out the crash. “There have been a lot of significant improvements made recently by the Chinese authorities to improve accessibility for global investors; however, some of them are relatively recent, so we need a little bit of time to assess the effectiveness of these measures,” Briand said.
New objections
MSCI this year raised new objections to a rule that requires foreign investors to seek approval from the country’s stock exchanges before launching products based on A shares, which MSCI says could reduce investors’ ability to hedge exposure. “This is a very big problem for investors, and the removal of these requirements is necessary for inclusion,” Briand said. He added that the company could not commit to a timeline for inclusion and could not rule out the possibility that new issues may arise as discussions
continued. Under an industry consultation relaunched in April, MSCI had proposed adding 5 per cent of the free float value of 421 A shares, which would have accounted for 1.1 per cent of its benchmark index. If the decision had gone China’s way, the change would have taken effect in June 2017. Expectations that MSCI would say yes this time climbed after Chinese authorities rushed through a series of fixes over the past five months, including relaxing the country’s quotabased foreign investment scheme, clarifying foreign ownership rights, and tightening up share suspension rules. “Recent developments over the past weeks definitely skewed the decision closer to the favorable side in our view, so we are slightly surprised by this negative outcome,” said Caroline Yu Maurer, head of Greater China equities at BNP Paribas Investment Partners in Hong Kong. Many analysts had put the chances of inclusion at 50 per cent or higher, with Goldman Sachs raising the odds to 70 per cent last month. In a note published on Wednesday, HSBC said it had “underestimated the resistance from the global investment community”. Tuesday’s outcome highlighted growing divisions among global investors, with local China managers saying the decision process appeared to be driven by the concerns of MSCI’s U.S. client base, though the index is tracked globally. Francois Perrin, portfolio manager, greater China markets, at East Capital, said MSCI put too much emphasis on the remaining problems with the QFII scheme and the product pre-approval issue. “It seems that many of these objections are coming from passive managers, based out of the United States.” MSCI said investors beyond Asia do tend to have more reservations, but it takes into account a range of investor feedback. BlackRock, the world’s largest passive manager, said: “As a long-term investor, we would welcome further progress in facilitating broader participation in the nation’s domestic stock markets for international investors.” Reuters
Business Daily Thursday, June 16 2016 9
Greater China Government economist
Debt risks are manageable but steps needed China’s government debt was equivalent to 39.4 per cent of GDP in 2015. China’s debt risks are under control given its high savings rate, but steps are needed to tackle exceptionally high corporate liabilities, an influential government economist said yesterday. “The possibility of having a debt crisis in China is small,” Li Yang from the Chinese Academy of Social Sciences (CASS), a top government think-tank, told a news conference. “China is a country with a high savings rate and its debt problem is mostly internal, which is totally different from countries with low savings,” Li said.
as saying in May. China’s total debts amounted to 168.5 trillion yuan (US$25.6 trillion) at the end of 2015, equivalent to 249 per cent of gross domestic product, according to Li’s estimates. China’s savings rate is close to 50 per cent and the government still has sizeable assets at hands to deal with debt problems. He estimated that China’s net sovereign assets at 103.3 trillion yuan. The debt-to-GDP ratio of China’s corporate sector was estimated at 131 per cent in 2015, and as high as 156 per
In Brief cent if liabilities of local government financing vehicles were included, Li said. “If there are problems in corporate debt, banks will have problems immediately. If banks have problems, government finances will have problems as banks are owned by the state,” he said. The International Monetary Fund called on Beijing this week to act quickly to tackle mounting corporate debt which it estimates has swelled to about 145 per cent of gross domestic product. China’s government debt was equivalent to 39.4 per cent of GDP in 2015, and the ratio was as high as 56.8 per cent based on a broader definition, Li said, without elaborating. Li said China should set up a unified task force to deal with its debt issues and the government should tread warily in allowing firms to convert debt into equity. Reuters
‘China’s savings rate is close to 50 per cent and the government still has sizeable assets at hands to deal with debt problems’
Light industry profit up in 2015 China’s light industry grew steadily in 2015, with the total profit of major enterprises rising 7.57 per cent year on year to 1.49 trillion yuan (US$225.75 billion), official data revealed yesterday. Food manufacturing, plastic production and wine-making led the growth, with profits exceeding 180 billion, 130 billion and 100 billion yuan, respectively, according to an annual report released by the China National Light Industry Council. The total export volume of major products in the light industry accounted for 26.3 per cent of the total national export volume in 2015, the report showed. FX regulator
Beijing to reform corporate foreign debt China’s foreign exchange regulator said it will reform management of corporate foreign debt settlements, according to a statement posted on the State Administration of Foreign Exchange website yesterday. China will unify its domestic financial institutions’ FX settlement policy under its capital account, the statement also said. The reforms are aimed at improving crossborder investment and supporting the real economy, a separate statement also posted on the website said.
Global investors are increasingly worried about mounting debt in China, with continued efforts by authorities to stimulate the economy threatening to amplify the problem. Policymakers in Beijing also appear more aware of the risks. China may suffer from a financial crisis and economic recession if the government relies too much on debtfuelled stimulus, the official People’s Daily quoted an “authoritative person”
Shopping forecast
Retail sales to see stable growth in 2016
Diplomacy
President Xi to sign deals on Eastern Europe visit Chinese firms are finding a warm welcome in central and east Europe. Chinese President Xi Jinping is expected to sign a series of agreements in areas ranging from trade to civil aviation during a visit to Serbia and Poland starting this week, diplomats said yesterday, as China looks to bolster its presence in central and eastern Europe. Central and east European countries are competing for Chinese investment in everything from banking to beer, looking to lure firms in need of new markets while securing a foothold for their own products in the huge but difficult Chinese market. Xi is expected to sign agreements in education, finance and technology, among other fields. Chinese foreign direct investment to Europe hit a record high in 2015 of around 20 billion euros (US$22.45 billion), a 44 per cent annual rise. Germany, Britain and France accounted for almost half the total, according to a report by Germany’s Mercator Institute
Official data
for China Studies and the U.S.-based Rhodium Group. Only snippets of investment went to central and eastern Europe, but as Chinese firms look to diversify as the economy slows, volumes are growing, thanks to deals in infrastructure, energy, finance, real estate and travel. Firms are finding a warm welcome in central and east Europe. In Hungary, the Chinese have a currency clearing centre. Hungary and Serbia have signed a deal with China to build a high-speed railway from Belgrade to Budapest. Hungary has also issued bonds in the Chinese currency. In April, China’s Hebei Iron & Steel Group signed a 46 million euro deal to buy a Serbian steel plant. Also in April, China Everbright Group, a state-backed financial firm, bought into Albania’s international airport. In Germany by contrast, there are political concerns about losing key
Chinese President Xi Jinping will visit to Serbia and Poland starting this week
expertise to China as a growing number of Chinese companies seek to buy German industrial technology. “This (visit) shows the great importance China’s leaders and government place on the development of China-Europe relations,” said Assistant Foreign Minister Liu Haixing in a briefing. “We believe this visit will push forward the development of China-European relations to a great extent.”
“This (visit) shows the great importance China’s leaders and government place on the development of China-Europe relations” Liu Haixing, China’s Assistant Foreign Minister The Chinese have also created a “16+1” forum - their way of communicating with multiple central and east European states, with a total population of around 120 million. But the relationship has not all been plain sailing. Ahead of Xi’s visit to the Czech Republic in March, unknown activists defaced dozens of Chinese flags with black paint. Police also arrested 12 people who replaced Chinese flags with Tibetan ones along the main route from Prague’s airport. Xi will also visit Uzbekistan, where he will attend a summit of the Chinese and Russia-led security bloc, the Shanghai Cooperation Organisation. Reuters
China’s retail sales will see stable growth for the remainder of 2016, state news agency Xinhua said, citing a Commerce Ministry official. Growth in online retail sales is particularly strong, the official said, according to the Xinhua report yesterday. Data earlier this week showed that despite strong car sales in May, consumption softened slightly with retail sales growth easing to 10.0 per cent.
Alibaba share sale
SoftBank sees up to US$2.4 billion profit SoftBank Group Corp said yesterday it expects to book profit of 200 billion yen to 250 billion yen (US$1.9 billion to US$2.4 billion) this financial year from the sale of shares in Alibaba Group Holding Ltd. The Japanese telecommunications company earlier this month said it planned to sell US$10 billion worth of Alibaba shares to help cut interest-bearing debt, reducing its stake in the Chinese e-commerce firm to around 27 per cent from 32.2 per cent. The expected profit will come from the sale of US$3.4 billion worth of Alibaba shares.
10 Business Daily Thursday, June 16 2016
Greater China
Investment
Pump-priming fans “vicious cycle” debt-and-growth fears The government has already pledged to expand its budget deficit to 3 per cent of GDP this year.
C
hina is cranking up state spending on infrastructure to support economic growth as private-sector investment falters, raising concerns that reforms to the inefficient state sector are being kicked further down the road by the resulting build-up in debt. Policy insiders say the slowdown in private investment is particularly worrying, since Beijing’s extra spending was designed to shore up investor confidence and spur private spending, not to repeat the experience of 2008-09, when a 4 trillion yuan (US$610 billion) stimulus package saddled the economy with a mountain of debt. “We are relying on infrastructure investment to support growth, but we cannot rely too much on this. We need to motivate private investors,” said an influential economist at a top government think-tank. The figures for fixed-asset investment, which slipped below 10 per cent for the first time since 2000
in January-May, show a two-track economy: private investment rose only 3.9 per cent, the weakest on record, while investment by stateowned enterprises (SOEs), jumped 23.3 per cent. Chinese leaders are walking a tightrope, trying to spur growth to create jobs, prevent debt defaults and factory closures, but facing pressure to push painful structural reforms and reduce overcapacity to put the world’s second-largest economy on a more balanced and sustainable footing. The government has already pledged to expand its budget deficit to 3 per cent of GDP this year to help hit its growth target of 6.5-7 per cent, and some analysts expect it to exceed that after government spending jumped 17.8 per cent in May, up from 4.5 per cent in April. Efforts to lure private capital into infrastructure projects via public-private partnerships have had little success due to poor returns and a lack of protection for investors’ interests,
analysts say. But relying on state investment could undermine Beijing’s efforts to contain rising debt levels in the economy, policy insiders say. Deleveraging is among the top five tasks listed by the government for 2016 and is a long-term goal in its new five-year plan, but most economists expect debt levels to climb further.
Key Points China’s fiscal stimulus aims to spur private investment Jan-May private investment rose 3.9 pct, weakest on record But investment by state-owned firms jumped 23.3 pct State spending to support economy piling up debt in SOEs “If we blindly boost infrastructure investment, there could be a new round of over-building and debt problems,” said an economic advisor to China’s parliament. China’s Finance Ministry did not respond to a request for comment.
The reliance on state firms to bolster the economy raises questions about Beijing’s commitment to overhauling the inefficient state sector and opening up more lucrative industries to private investors. Chinese leaders unveiled sweeping reform plans in late 2013 to let market forces play a bigger role in the economy, and pledged to achieve results by 2020, but analysts see little progress in pushing through more difficult changes. “There is no linkage between the two (government pledges and private company actions). There’s a mismatch between the government and the market. I don’t see it turning around,” said Zhou Hao, senior Asia emerging market economist at Commerzbank. He said the most important factor for private firms was the outlook for global demand and China’s economy. Bai Chongen, an economist at Tsinghua University and policy adviser to China’s central bank, in April cautioned against relying on the subsidised state sector for growth, citing its poor returns on investment and falling productivity. “You have this vicious cycle - from lower growth potential to stimulus, to less improvement in efficiency, to a further decline in growth potential. We are in danger of being stuck in this trap,” he told an economic seminar. Reuters
M&A
Midea wants only 49 per cent of Kuka The company is preparing to publish its offer today but will not for now include a pledge to have an upper limit in the bid documents. China’s Midea Group Co Ltd wants a stake of no more than 49 per cent in German industrial robot maker Kuka and will resell any shares it acquires beyond that threshold, German coalition sources said on Tuesday. The government sources, speaking on condition of anonymity, said this would allow Kuka to continue to retain a strong German anchor investor. Shares in Kuka fell 3.4 per cent to 102.45 euros on Tuesday, one of the leading decliners in the German midcap index, which was down 1.3 per cent. Midea plans to offer 115 euros (US$128.97) per Kuka share. Kuka has become the latest and biggest German industrial technology group to be targeted by a Chinese buyer, fanning a furious debate over Chinese takeovers in Europe.
Midea is preparing to publish its offer today, but will not for now include a pledge to have an upper limit in the bid documents, two people familiar with the plans told Reuters on Tuesday.
Key Points Midea targeting stake of at least 30 per cent in Kuka Plans to sell any shares beyond 49 per cent threshold - sources Midea says ultimate level of stake depends on offer take-up Midea to publish bid documents today - sources Kuka declines to comment Kuka shares down 2.8 per cent
Midea has said it wants a stake of at least 30 per cent in Kuka. Achieving that will oblige it, under German takeover law, to make a takeover offer for the rest of the company. It said in a statement: “Midea has clearly stated that its intentions are to have a meaningful stake in Kuka above 30 per cent. The ultimate level of our shareholding will depend o n t h e l ev e l o f K u k a shareholders that tender into the offer.” Kuka, which is 25 per cent owned by German engineering group Voith and 10 per cent by billionaire businessman Friedhelm Loh, declined to comment. The US$5-billion bid has prompted some politicians to call for tougher restrictions to protect technology deemed critical for its future economic success from falling into Chinese hands. Economy Minister Sigmar Gabriel said earlier this month that an effort was underway to find an alternative European bidder for Kuka, but so far no-one
else has come forward. Chancellor Angela Merkel said during a visit to Beijing on Monday there was a general openness towards
investments from China, but it was expected that the country open up and offer the same investment conditions. Reuters
German Economy Minister Sigmar Gabriel said earlier this month that an effort was underway to find an alternative European bidder for Kuka
Business Daily Thursday, June 16 2016 11
Asia Official survey
Economists trim 2016, 2017 Singapore growth forecasts The median forecast for private consumption was cut to 2.5 per cent growth this year.
E
conomists trimmed their forecasts for Singapore’s 2016 and 2017 growth, while downgrading their views on exports as well as private consumption for this year, a central bank survey showed yesterday. Th e m e di a n f o r ecast o f 22 economists surveyed by the Monetary
Authority of Singapore (MAS) was for gross domestic product (GDP) to grow 1.8 per cent in 2016, down from the 1.9 per cent expected in the previous survey published in March. The median forecast for GDP growth in 2017 was also lowered to 2.1 per cent, down from 2.5 per cent in the previous survey.
The government expects full-year GDP growth of 1.0-3.0 per cent this year. Economists’ median forecast for non-oil domestic exports was for a contraction of 2.1 per cent in 2016, down from the previous forecast for growth of 0.2 per cent. In late May, Singapore slashed its export forecasts for this year after the trade-reliant economy barely grew in the first quarter, heightening uncertainty over the economic
outlook. The median forecast for private consumption was cut to 2.5 per cent growth this year, from 3.2 per cent growth in the previous survey. The manufacturing sector was not expected to grow at all this year, still an improvement from the previous median forecast for a contraction of 2.7 per cent.
Key Points Economists trim 2016, 2017 GDP growth forecasts -MAS survey GDP growth in 2016 seen at 1.8 pct vs 1.9 pct previously Median 2016 headline CPI view -0.4 pct vs -0.2 pct previously Core CPI 2016 median forecast unchanged at +0.8 pct Economists also lowered their forecasts on the all-items consumer price index (CPI). However, they kept unchanged their outlook for core inflation, which is seen as the focus of the central bank’s monetary policy. The headline consumer inflation rate was seen at -0.4 per cent yearon-year in 2016, down from -0.2 per cent in the March survey. Core inflation was expected to come in at 0.8 per cent in 2016, unchanged from the previous central bank survey. In 2017, all-items CPI was expected to rise to 1.0 per cent, while core inflation was seen edging up to 1.2 per cent, according to the latest MAS survey. Economists expect the Singapore dollar to trade at S$1.40 against the U.S. dollar at end-2016. It was around S$1.35 yesterday. Reuters
Expansion drive
Virgin Australia seeks funds to cut debt as it eyes China growth Cutting the cost of servicing debt could make a significant contribution to efforts to steer the carrier towards lasting profitability. Jonathan Barrett and Byron Kaye
The country’s second-biggest airline, is tapping investors in a cash call worth more than 80 per cent of its market value, aiming to cut debt and cover restructuring costs as it targets lucrative Chinese tourist traffic. The airline said yesterday it would ask shareholders to subscribe to a fully underwritten rights issue worth A$852 million (US$628 million), compared with an existing market capitalisation of about A$1 billion. Shares tumbled as the dilutive impact sank in. The move should ease a debt pile built up during a costly battle for customers with market leader Qantas Airways. It also comes as Chinese investors close in on control of nearly 40 per cent of the airline, stoking debate on foreign ownership. “They had to do it because their debt has been an issue, so they had to bite the bullet,” said Bill Keenan, general manager of equities and researcher at Lonsec Stockbroking. “The issue is the heavy dilution. It always takes the stock price a long time to recover.” Under the proposal, the outcome
of a wide-ranging capital review, shareholders will be offered stock at A$0.21 per share, a 28.8 per cent discount to Tuesday’s close. The rights issue comes hard on the heels of last month’s sale of a stake to China’s HNA Aviation for A$159 million, raising fund-raising efforts to over A$1 billion.
Key Points Equal to more than 80 per cent of pre-rights issue market value Follows A$159 mln share placement to China’s HNA Aviation Shares sink on dilution; ‘biting bullet’ on debt welcomed Most big investors sign up; Etihad Airways yet to commit Virgin Australia said HNA Aviation was among major shareholders who have committed to the rights issue. Chinese conglomerate Nanshan Group, which last week agreed to buy a stake of nearly 20 per cent from
Air New Zealand has also signed up for the deal, Virgin Australia said. But as a new boardroom takes shape at the airline, 24 per cent stakeholder Etihad Airways has yet to commit to the issue, Virgin Australia said. “The balance of the funds will be used to pay down debt,” Chief Executive Officer John Borghetti told reporters. According to Thomson Reuters data, Virgin Australia’s longterm debt stood at A$2.4 billion at end-2015, giving it a debt-to-equity ratio at the time of 3.07 versus an airline industry median of 1.43. Borghetti said moves to restructure the business, as it targets growth in
Chinese tourism traffic in partnership with its new investor HNA, will involve a “realignment” of an unspecified number of jobs. Savings will also come from reducing the number of aircraft types in its fleet, he said. Cutting the cost of servicing debt could make a significant contribution to Borghetti’s efforts to steer the carrier towards lasting profitability. Virgin Australia returned to net profit in the first half of its fiscal year, ended December 2015, after racking up three years of annual losses in its bruising price war with Qantas. Reuters
12 Business Daily Thursday, June 16 2016
Asia In Brief
Commerce figures
Indonesia revises April trade surplus Indonesia’s statistics bureau yesterday revised up the country’s exports and imports in April, and slightly lowered its calculation for the trade surplus that month. The bureau said April trade surplus was around US$660 million, down from the roughly US$670 million it reported a month ago. April’s exports were amended to US$11.47 billion from US$11.45 billion, while imports were updated to US$10.81 billion from US$10.78 billion. Earlier yesterday, the bureau said Southeast Asia’s largest economy had a trade surplus of around US$375.6 million in May.
Policy chief
Japan must focus on reforms rather than easing A private survey shows that a majority of 55 per cent forecast more easing on July 29. Yoshiaki Nohara and Maiko Takahashi
A
benomics ne e ds t o accelerate its efforts on structural reforms rather than counting on further monetary stimulus to spur growth, according to the policy chief of the ruling Liberal Democratic Party. “To me, it’s structural reforms and the growth strategy rather than monetary easing,” Tomomi Inada, chairwoman of the LDP’s policy research council, said in an interview yesterday in Tokyo. “I don’t think there’s much time left for structural reforms.” Inada, 57, said she’s neutral on the
Bank of Japan’s (BOJ) policy decision today. The LDP has no reference to monetary policy in its campaign platform for the upper-house election next month, in contrast to other recent national elections. That’s because “the monetary policy has achieved an effect. It’s well known and so we didn’t see the need to write it down in our pledge,” Inada said. She said she supports the central bank’s efforts to achieve its 2 per cent inflation target, including the introduction of a negative interest rate. This can help people, for example, by lowering borrowing costs for housing loans, she said,
but added that policy makers need to better explain how the measure works.
Negative rates
“I think negative rates are hard to understand,” Inada said. “Some people still think that means their bank deposits get negative interest rates.” A B l o o m b e rg s u rv e y o f 40 economists conducted June 6-10 shows that a majority of 55 per cent forecast more easing on July 29, while 27.5 per cent project a change as soon as today. A strengthening yen amid global economic risks also is putting pressure on the BOJ to act. “I think foreign exchange has been stabilizing somewhat,” Inada said. “But abrupt, unstable moves are not desirable. We need to watch carefully and need to take firm action if needed.” Bloomberg News
CPI
Malaysia’s May inflation slows Malaysia’s consumer price index rose 2.0 per cent in May from a year earlier, but the pace of gains slowed for the third consecutive month, government data showed yesterday. The figure was in line with the median forecast in a Reuters poll, and down slightly from April’s 2.1 per cent rise. May’s inflation was attributed to higher prices of alcohol and tobacco products and food, which were offset by a decline in transport costs, according to data from the Statistics Department. Inflation reached a seven-year peak of 4.2 per cent in February. Fiscal outlook
S.Korea tax revenue seen beating forecasts South Korea’s tax revenue this year will be some 10 trillion won (US$8.52 billion) more than earlier expected, a high ranking finance ministry official told Reuters yesterday. “Our tax revenue situation has been good throughout the first half of the year,” the official told Reuters. “The second half of the year may not yield as much revenue as we saw in the first half, but we expect to exceed our budget goal by around 10 trillion won.”
“I think foreign exchange has been stabilizing somewhat... But abrupt, unstable moves are not desirable.” Tomomi Inada, chairwoman of the LDP’s policy research council
Tomomi Inada, chairwoman of the LDP’s policy research council
Infant formula
New Zealand’s a2 Milk lifts forecasts on China demand The company sells through online retailers and in shops in mainland. New Zealand dairy company a2 Milk raised its full-year revenue and profit forecasts yesterday as demand from China remains strong, sending its shares soaring as much as 19 per cent to their biggest one-day gains in six months. The company, which sells specialized liquid milk and infant formula, now expects group revenue to be in a
Forex
Malaysia to adopt new spot fixing system Malaysia’s central bank announced yesterday a new spot fixing methodology for U.S. dollar/Malaysian ringgit trade effective on July 18, which will be based on the weighted average volume of transactions by domestic financial institutions. Bank Negara Malaysia said in a statement that the new methodology is more transparent and better reflects underlying trades during the day.
‘Operating EBITDA will be in a range of NZ$52 million to NZ$54 million’ The company produces liquid milk and milk formula containing a protein which some drinkers consider to be easier to digest than regular milk. Key markets for its flagship Platinum infant formula include Australia and China. a2 Milk said yesterday that it continues to perform strongly, despite the fact that China has imposed a series of regulations to tighten supervision of baby formula, requiring producers to register and secure permits to sell their products. The company sells through online retailers and in shops in China. The quality of milk and infant formula in China has been a sensitive topic after a series of scandals from 2008 when milk contaminated by the industrial chemical melamine killed at least six children and caused thousands to fall ill. Reuters
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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range of NZ$350 million (US$244.16 million) to NZ$360 million versus a prior forecast of NZ$335 million to NZ$350 million given in February. The company is due to report results for the year ending June 30, 2016, in August. Operating EBITDA will be in a range of NZ$52 million to NZ$54 million, it said, versus a NZ$45 million to NZ$49 million range it forecast in February. The new forecasts, its fourth revision in the current financial year, come as plunging dairy prices hurt farmer incomes but bolster the
earnings of companies that benefit from low ingredients costs. Dairy giant Fonterra reported a 123 per cent jump in its first-half net profit in March helped by demand for its higher-value products, but it continued to pay its farmer shareholders a below break-even price for their milk.
Business Daily Thursday, June 16 2016 13
Asia
Semiconductors industry
India dials back chip ambitions as investors spurn plant funding National plans in electronics manufacturing include cutting net imports to zero by 2020, from about US$40 billion last year. Himank Sharma
India’s ambitious plan to be a major player in semiconductors, taking on the Chinese and churning out locallymade chips for a new generation of smartphone users, has proved to be a little too ambitious. The government boldly announced three years ago it would host two new US$5 billion chip plants as part of a project to become a global manufacturing powerhouse, creating thousands of jobs, reducing its need for imports and taking on global rivals such as Taiwan Semiconductor Manufacturing and GlobalFoundries. But potential investors have not materialised, put off by India’s wobbly infrastructure, unstable power supply, bureaucratic red tape and poor planning, according to analysts and industry insiders. Just weeks after Jaypee Infratech, which was partnering IBM Corp and Israel’s Tower Jazz, abandoned plans for one of the big chip plants,
STMicroelectronics NV is set to scrap plans to build the other US$5 billion plant as its main local partner failed to raise enough money from sceptical investors, government officials said. “We’ve had a lot of issues with the original (semiconductor) plan,” a top official at India’s Department of Electronics and Information Technology (DEITY) told Reuters. “The technology curve has moved ahead in the last three years, the global environment has changed and China has emerged as a big player.” Two other officials at the department said a consortium led by Indian start-up Hindustan Semiconductor Manufacturing Co (HSMC) with STMicro and Malaysia’s Silterra had not been able to raise the funding for the plant, and it might be scrapped. Investors doubted the potential of the Indian government’s plan to set up a 22 nanometre (nm) chip fabricator as the industry’s cutting-edge
manufacturing has already shifted to smaller 14 nm chips, and is expected to move to sub-10 nm in the next three years, the officials said. “Our original estimates for chip demand were incorrect, and we decided to postpone our plant until 2020 since there’s no market for semiconductors in India yet,” HSMC founder Deven Verma told Reuters. Verma said the consortium had not yet closed financing for the plant, but had commitments for only 40 per cent of the required funding. Operations had been expected to start this year. STMicro declined to comment.
courted foreign manufacturers including Apple Inc to set up plants in India, though analysts say the country needs first to bulk up its component making capabilities.
Key Points STMicro to scrap US$5 bln India chip plant-govt officials STMicro’s local partner says raised 40 per cent of required funding India now seeks to attract low-tech component firms-officials
India is now toning down its ambitions and setting its sights on low-end chip making, the government officials said. DEITY plans to attract low-tech component companies including makers of printed circuit boards (PCBs), integrated circuits and analog chips. “If we target manufacturers of electronic components to look at India for their global production, we can start by manufacturing components such as PCBs and ICs locally, and that will give a muchneeded boost to manufacturing in India,” said one of the two top government officials. To that end, the government has
“It’s crazy if India thinks it can compete with China on something like chip manufacturing when our electronics industry is a shambles,” said Ganesh Ramamoorthy, an analyst at research firm Gartner. India’s ambitions in electronics manufacturing include cutting net imports to zero by 2020, from about US$40 billion last year. It is the world’s fastest growing smartphone market with over 100 million sold last year but almost all of those phones’ chips and circuits are imported. Prime Minister Narendra Modi has attracted some phone makers, including Chinese smartphone maker Xiaomi, to set up assembly plants in India. Samsung Electronics also manufactures some smartphones locally. Reuters
anytime soon, which the MSCI has asked for. “Stability in foreign exchange trading is imperative as South Korea is a small open economy, and much of our economy relies on trade,” said the vice chairman. “It is a tough task for us to change our foreign exchange trading system completely and allow offshore won trade soon.” South Korean authorities have been
pressing to get the Korea Exchange included in MSCI’s developed market index since last year. However the task has proven tricky, including hurdles like the inclusion of 24-hour trading of the won currency that MSCI has asked to see before promoting South Korea to the advanced markets index. Jeong said South Korea would go ahead in plans to introduce the omnibus account system next year, which it hopes will enhance convenience for foreign investors trading in local stock markets. Reuters
Lowering ambitions
Benchmark
South Korea also excluded from MSCI index Domestic authorities have been pressing to get the Korea Exchange included in MSCI’s developed market index since last year. South Korea said yesterday the inclusion of its stock markets in the MSCI developed market index will be difficult in the near-term after the nation failed to be placed on the review list. Financial Services Commission’s Vice Chairman Jeong Eun-bo said Seoul has to be mindful of foreign exchange volatility in trying to meet some of the criteria set by MSCI for inclusion.
“Looking at these circumstances, we see South Korea’s inclusion in the MSCI’s developed market index will be difficult in the near term.” Jeong said it will be hard to make offshore trading possible for the won
Key Points S.Korea failed to place on MSCI’s review list for developed mkt index ‘Difficult’ for S.Korea to make offshore won trading possible in near term “Despite recent efforts by the government and stock exchange regarding the convertibility of the won and the usage of stock price information, it has been decided these have not been enough,” Jeong said in opening remarks at a meeting to discuss the outcome of the MSCI decision.
South Korea Stock Exchange trading lobby
14 Business Daily Thursday, June 16 2016
International In Brief Federal accountancy
Russia’s budget deficit widens
Russia’s federal budget deficit amounted to 1.486 trillion rubles (about US$22 billion), or 4.6 percent of the country’s gross domestic product, in the first five months of 2016, the state news agency TASS reported yesterday. Federal revenue totalled 4.64 trillion rubles (about US$71 billion) between January and May, while federal expenses reached 6.13 trillion rubles (about US$93 billion), it said. According to the Russian Finance Ministry, the country’s budget deficit amounted to 350.36 billion rubles (about US$5.33 billion), or 5.5 percent of the Russian GDP, in May 2016. Mozambique
Malawi suffering from Renamo attacks The government of Malawi says it is suffering losses because of the attacks blamed on Mozambique’s opposition party, Renamo, on some roads in the centre of Mozambique, Rádio Moçambique (RM) said yesterday. Malawi’s transport minister, Malison Ndau, quoted by the radio yesterday, said that five trucks carrying goods had been set on fire in recent days by Renamo fighters. Ndau said Malawi’s authorities would be speaking to Mozambique shortly about the insecurity on Mozambique’s roads. Malawi depends on the port of Beira and the region’s roadways for international trade as it has no direct access to the sea.
Brexit campaign
UK finance head warns of tax hikes, spending cuts Osborne said the basic rate of income tax would rise 2 percentage points to 22 per cent. William Schomberg
B
ritish finance minister George Osborne, battling to keep the country in the EU, warned voters that he will take new austerity measures if they decide to leave the bloc in next week’s referendum. With opinion polls showing momentum swinging to the “Out” camp, Osborne intensified the tone of his warnings about the consequences of a so-called Brexit, saying he would respond by increasing taxes and cutting spending. “Quitting the EU would hit investment, hurt families and harm the British economy,” he was due to say in a speech yesterday. “I would have a responsibility to try to restore stability to the public finances and that would mean an emergency budget where we would have to increase taxes and cut spending,” he said, according to excerpts of the speech which were
sent to media by the Britain Stronger in Europe campaign. An opinion poll published late on Tuesday showed the once doubledigit lead of the “In” campaign had narrowed to just 1 percentage point. Other polls have shown the “Out” camp ahead, reducing the value of sterling and wiping billions of dollars off global stock markets. Osborne detailed 30 billion pounds’ worth of fiscal measures, half from tax increases and half from lower spending, that he said would be necessary to offset the impact on the budget as estimated by independent forecasters. He said the basic rate of income tax would rise 2 percentage points to 22 per cent and the higher rate would go up by 3 percentage points to 43 per cent. Inheritance tax rates and duties on alcohol and petrol would also rise. Spending on health, education and defence, so far largely shielded from Osborne’s six-year push to reduce
Public spending
Spain’s debt surpasses 100 per cent Spain’s public debt rose above 100 percent in the first quarter to its highest level in 20 years, the central bank said yesterday as Madrid faces an EU sanctions threat for public overspending. Debt as a proportion of economic output hit 100.5 percent in the first quarter up from 99.2 percent at the end of 2015, the bank said in a statement. It had already surpassed the symbolic 100-percent mark in the first quarter of 2015, when it hit 100.2 percent. Spain’s public debt stood at 1.09 trillion euros (US$1.23 trillion) at the end of March. Tourism
Cuba sees 2 million foreign visitors Cuba has seen 2 million foreign visitors as of June 12 this year, reaching the goal 27 days earlier compared with last year, the Ministry of Tourism of Cuba announced Tuesday. Cuba has received 94,000 U.S. travellers so far this year, a 93 percent surge from the same period of last year, just behind Canada, Germany and Britain in terms of visitor number. Restored diplomatic ties between the two nations have encouraged more Americans to visit the island despite travel restrictions still in place.
Britain’s budget deficit, would be cut 2 per cent, and pensions spending would face a similar reduction, he said. Osborne was due to speak alongside his predecessor as finance minister, Alistair Darling, who oversaw Britain’s descent into the financial crisis.
Key Points Osborne outlines 30 billion-pound squeeze Finance minister deepens warnings about Brexit Former Labour finmin says more worried than in 2008 “Out” campaigner says no need for more austerity “I am even more worried now than I was in 2008,” Darling was due to say. “The Leave campaign has no idea, no plan whatsoever. Any political party seeking election on such a flimsy and fraudulent prospectus would have been torn to pieces by now.” Campaigners who want Britain to leave the EU say the economy would flourish and the government could spend more on sectors such as health if it no longer had to pay into the EU budget. They have accused Osborne, Prime Minister David Cameron and institutions from the International Monetary Fund to the Bank of England of trying to scare voters by warning of dire economic consequences if Britain leaves the EU. John Mann, a pro-Brexit lawmaker from the opposition Labour Party, slammed Darling, who used to represent Labour in parliament, for planning to join Osborne. “Instead he should be joining us in campaigning to leave the EU to help remove the need for further Osborne-imposed austerity,” he said. Reuters
Consumer spending
U.S. retail sales point to strong domestic demand But households cut back on purchases of building materials and garden equipment, as well as furniture. U.S. retail sales rose strongly in May as Americans bought automobiles and a range of other goods, even as they paid more for gasoline, suggesting that economic growth was gaining steam despite a sharp slowdown in job creation. Other data on Tuesday hinted at a steady build-up of inflation pressures, with import prices recording their largest increase in just over four years in May as the drag from a strong dollar and lower oil prices fades. The Commerce Department said retail sales increased 0.5 per cent last month after surging by an unrevised 1.3 per cent in April. The second straight month of gains boosted sales 2.5 per cent from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales rose a solid 0.4 per cent last month after an upwardly revised 1.0 per cent increase in April. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have risen 0.9 per cent in April. Economists had forecast both overall retail and core sales gaining 0.3 per cent last month.
In a separate report, the Labour Department said import prices increased 1.4 per cent last month, the largest rise since March 2012, after advancing 0.7 per cent in April. In the 12 months through May, import prices fell 5.0 per cent, the smallest decline since November 2014. While May’s weak employment report has all but ruled out an interest rate increase at this meeting, the steady flow of upbeat economic reports keeps a hike in July on the table. The economy added only 38,000 jobs in May, the smallest gain since September 2010.
Strong consumer spending eyed
Economists said based on May’s broad increase in retail sales, consumer spending in the second quarter was growing between a 3 per cent and 4 per cent annualized rate. As a result, the Atlanta Fed raised its second-quarter GDP growth estimate by three-tenths of a percentage point to a 2.8 per cent rate. The economy grew at a 0.8 per cent rate in the first quarter. Strong sales are also helping businesses reduce an inventory overhang. While that will hurt GDP
growth in the short-term, it should give businesses room to order more goods from factories in the future and boost production. In another report, the Commerce Department said inventories gained 0.1 per cent in April after rising 0.3 per cent in March. Business sales rose 0.9 per cent in April, the largest increase since February 2014, advancing for a second straight month.
Key Points Retail sales increase 0.5 per cent in May Core retail sales rise 0.4 per cent, April revised up Retail sales gain broad-based, but building materials fall Import prices jump 1.4 per cent; export prices rise 1.1 per cent Retail sales in May were buoyed by a 0.5 per cent increase in auto sales. Receipts at service stations increased 2.1 per cent, reflecting recent increases in gasoline prices. Americans also bought clothing and spent on online purchases. They boosted discretionary spending, splurging on sporting goods and hobbies, frequenting restaurants and bars, and buying electronics and appliances. Reuters
Business Daily Thursday, June 16 2016 15
Opinion Business Wires
The Phnom Penh Post A (Cambodian) Ministry of Economy and Finance official revealed that the national budget will increase to about US$4.6 billion for 2017, a 6.9 per cent increase compared to this year – a figure that mirrors the country’s planned economic growth. Vongsey Vissoth, secretary of state for the ministry, announced the budget figure on the side-lines of the National Assembly’s seminar on the Macroeconomic Framework. However, he declined to give a detailed breakdown for the government’s planned spending. Addressing the seminar, Finance Minister Aun Pornmonrith said that the government will prioritise increasing civil servants salaries to US$250 a month by the end of 2018.
Taipei Times The Ministry of Foreign Affairs said President Tsai Ing-wen would interact naturally with representatives of China and other nations without diplomatic ties with Taiwan at the inauguration ceremony of the newly expanded Panama Canal later this month, as it released more details of Tsai’s first overseas state visit. According to Tsai’s itinerary, she is to embark on her nine-day trip on Friday next week and arrive the next day in Panama, where she is scheduled to attend the inauguration ceremony on June 26 before departing for Paraguay the next day.
Financial scarcity amid plenty
W
The Straits Times Sales of new private homes in May (in Singapore) rose sharply on the back of healthy demand for projects launched during the month. Developers sold 1,056 units last month, compared with the 745 units moved in April, data from the Urban Redevelopment Authority (URA) showed yesterday. The top-selling private residential projects last month were new launches: Gem Residences in Toa Payoh which sold 312 units, and Stars of Kovan in Upper Serangoon Road with 76 units changing hands. New homes on the cityfringe accounted for more than half of the sales at 582 units.
The Asahi Shimbun The prospect of Britain exiting the European Union has alarm bells ringing in financial markets across the world as well as Japanese businesses. Heads of Japanese companies doing business in Britain have been voicing their concerns at a possible exit. Tatsuya Tanaka, the president of Fujitsu Ltd., which has an information technology service based in Britain, said a vote to quit the EU would have “a tremendous impact on our business.” The British unit serves the whole of Europe and employs 14,000 people.
ith interest rates at all-time lows and central banks buying everything that moves, the world is awash with credit. Yet, paradoxically, a dangerous shortage of international liquidity is putting the global economy at risk. “International liquidity” refers to high-quality assets accepted around the world for paying import bills and servicing foreign debts. These are the same assets that central banks use when intervening in foreign-exchange markets. They serve as reliable stores of value for international investors. They provide pricing benchmarks in financial markets. And they are widely accepted as collateral for cross-border loans. The key difference between these international assets and liquid assets in general, then, is that only the former are accepted in a large number of different countries and regularly used in transactions between them. The single most important form of international liquidity is, of course, US government bonds, which are held by banks, firms, and other countries’ governments. More generally, international liquidity comprises the liabilities of OECD countries’ central banks (their “high-powered money”), those countries’ AAA-rated and AArated central-government bonds, the debt securities of supranational organizations like the World Bank and regional development banks, and gold in official and private hands. But add them up and you immediately come to a startling conclusion. International liquidity has plummeted from nearly 60% of global GDP in 2009 to barely 30% today. This change is due, equally, to downgrades in the ratings of heavily indebted crisis countries’ government bonds, which make them unattractive for use in international transactions, and the inelasticity of other sources of supply. Observers are perplexed by why global trade, having long grown faster than world GDP, is now expanding more slowly. They are also struggling to understand an unprecedented decline in global capital flows. A shortage of international liquidity, by making it harder to finance and settle these cross-border transactions, is one explanation. Urging the US government to issue more debt is no solution; doing so would only threaten rating downgrades and make foreign investors reluctant to hold US Treasury bonds. Alternatively, one could urge crisis countries whose bonds have lost their investment-grade status to repair their finances so that these securities are again attractive for financing international transactions. But financial strengthening takes time even for the most committed government, as any Greek official can tell you. Can privately-issued obligations – high-grade corporate bonds, for example – supplement official
“
Barry Eichengreen a professor at the University of California, Berkeley, and the University of Cambridge.
forms of international liquidity? This question dates back to the 1990s, when observers quaintly worried that the US government, by running surpluses, might retire its entire stock of debt. It turned out that central banks and governments, in particular, were reluctant to hold private-label securities, even when these instruments had investment-grade ratings. The reason is simple: Privately-issued assets without the backing of a government with the power of the purse might look safe in normal times; but, following a shock, they could quickly be reassessed as risky. Others suggest that the International Monetary Fund could augment the supply of international liquidity by issuing Special Drawing Rights (SDR). SDRs are accounting units made up of US dollars, British pounds, euros, Japanese yen, and Chinese renminbi. They can be credited to the accounts of IMF member countries, which are obliged to accept them in cross-border transactions under the Fund’s Articles of Agreement. Voilà: problem solved. Or not. There are no private markets in SDRs. To use them, a holder has to exchange them for, say, dollars in a transaction with the US government. As a result, no additional liquidity is created. The corresponding amount of dollar currency or deposits is simply transferred from one set of hands to another – from the US Treasury to the foreign holder. Meanwhile, the world as a whole has gained no additional liquid resources. Things would be different if, instead of allocating SDRs to governments, the IMF could sell them directly to central banks like the Fed, which, in return, would provide the Fund with additional dollars, which the Fund could then distribute among its members. But while this is a neat solution in principle, the Fed and its political masters would surely be reluctant to cede control of the money printing press in practice. Probably the most practical solution is to permit the IMF to borrow on private financial markets and use the proceeds to issue additional SDRs. With member governments collectively guaranteeing its obligations, its bonds would be as good as gold. To be sure, for their guarantee to be credible, members would have to commit to recapitalizing the Fund if it ever took losses on its loans. But, then, nothing is free. Globalization’s benefits are sometimes exaggerated, but there have been important benefits. Failure to address the international liquidity problem could jeopardize all that has been accomplished.
Observers are perplexed by why global trade, having long grown faster than world GDP, is now expanding more slowly.
”
Project Syndicate
16 Business Daily Thursday, June 16 2016
Closing Scenting success
Some mainland investors switch from stocks to garlic China’s garlic market is difficult to track as there is no official data or clarity on acreage and no centralised pricing.
Y
ang Fei doubled his money last year buying and selling in the unofficial garlic capital of the world. He did pretty well the year before, too, and the year before that. One of a few dozen garlic agents in Jinxiang, in China’s eastern Shandong province, 34-year-old Yang is at the centre of a trade that has attracted a small group of retail investors, mainly wealthy businessmen, seeking a surer bet than China’s volatile stock and real estate markets. When prices are low around the spring harvest, investors buy as much of the crop as they can, put it into store, and release it on to the market when prices rise later in the year. “Manipulating the garlic market and hyping the price is pretty simple compared to the stock market and real estate. Many of my clients have stocked tens of thousands of tonnes of garlic and don’t sell it until the price rises,” another agent, Liu Yunfei, told Reuters. Yang’s profits and those of his dozen or so clients ballooned to 7 million yuan (US$1.07 million) last year, when the price of garlic rose to 10.6 yuan (US$1.62) per kilogram. “For the last three years, our investors have made money, we
made a 100 per cent profit last year,” said Yang, who has built five warehouses for garlic storage and plans another four. This year, though, may be different. The one-way bet on garlic has lured many new investors, driving prices up to a record 13.4 yuan/kg in March, much earlier than usual. Also, frosts in China at the turn of the year hit plantings and yields, and that could squeeze margins when the investors’ stored garlic comes on to the market later. Agents said there were more investors this year, and they were spending more to buy up the garlic crop. “This year, garlic prices are especially high,” said an agent named Yan Jianhua. “A lot of people have been looking for me. I know one person from Guangdong who wants to store around 5,000 tonnes. Last year, he stored less than 1,000 tonnes.”
‘Garlic economy’ boom
With a population of around 640,000 and no previous claim to fame other than proximity to the provincial capital, Jinxiang has boomed. It produced 1.69 million tonnes of garlic last year, around 7 per cent of
China’s total - and more than the whole of South Korea, the world’s third-largest producer. China’s annual crop of around 25 million tonnes dominates the global market. Garlic fields stretch out around Jinxiang, and at harvest time the air is filled with dust kicked up by trucks ferrying the crop to market and storage. The town also grows onions and hot peppers. As production around Jinxiang has doubled in a decade, the ‘garlic economy’ has sprouted new villas, auto dealerships and modern retail space. “Garlic has made Jinxiang richer in the last two years,” said Su Xiuling, a local grower who makes some extra money by peeling garlic at the market once the crop is in. “There’s a huge change. Our roads are wider ... and even farmers now build bigger homes.” Garlic is a staple in Asia’s diet, used in everything from the ubiquitous monosodium glutamate (MSG) to desserts. Believed to have medicinal healing powers, it’s even added to foot salve. It’s easy to grow, harvest, transport and store. Modern cold stores - some bigger than a soccer pitch - can keep it fresh for up to two years, giving investors a longer window to sell into. Zheng Xiang from Chengdu in south-western Sichuan - a more than 2-hour flight away - is one of those investors who converge on Jinxiang each year to meet their agents, inspect
“Manipulating the garlic market and hyping the price is pretty simple compared to the stock market and real estate” Liu Yunfei, “garlic agent”
the crop and check on prices. “I came to inspect the market and see how big the harvest is and whether the price has increased,” Zheng said over dinner, with heaps of stir-fried garlic. Zheng invested 300,000 yuan (US$45,664) in garlic last year and plans to spend up to 2 million yuan this year - hoping to recoup some of the 60,000 yuan he lost on the stock market when property shares fell. “Isn’t everybody switching from stocks to agriculture commodities now? It’s the trend. Speculating with garlic is similar to stocks, but (physical) garlic is not as unreliable as futures (trading),” he said. But not everyone gets to share in the spoils. Garlic farmers see little of the profits once their crops are lifted. They typically sell their garlic for around 4.4 yuan/kg, according to local official media.
Opaque market
China’s garlic market is difficult to track as there is no official data or clarity on acreage and no centralised pricing. That can exacerbate wild price swings as in some of China’s other nascent, casino-like futures markets. And the scale of production in places like Jinxiang is felt thousands of miles from China among rival growers who accuse a hands-off government of failing to regulate the crop or control the “dumping” of cheap exports. “The Jinxiang government is paying close attention to garlic prices, but isn’t regulating and controlling the market. It is trying to guide planting and trade,” said a local commerce official who gave only his surname, Li. Yu Li, a spokesperson, said the Dalian Commodity Exchange has no plans to add garlic futures, and pays little attention to the crop. As more money pours in, next year’s garlic acreage is expected to increase again, potentially squeezing margins, but not by enough to deter investors. “You can buy garlic pretty much any year and still make money,” said Wang Xiaoying, an investor who owns four Jinxiang warehouses. “If you invest a million, you’ll make a million, it’s that simple,” she says. Reuters
Fashion retailer
Bond default
Angola
Zara owner Inditex’s profits beat expectations
Debt investors pressure Opposition calls for inquiry Evergreen underwriter ICBC into daughter’s promotion
Spanish clothes retailer Inditex, owner of the Zara store chain, posted yesterday a 6.0-percent rise in its first-quarter net profit due to higher sales around the globe. The world’s largest fashion retailer by sales said profit for the quarter ending April 30 rose to 554 million euros (US$621 million) from 521 million euros a year earlier. The company, which operates eight store brands including upmarket label Massimo Dutti and teen chain Bershka, said sales reached 4.9 billion euros, a 12-percent increase on the same period in 2015. Sales were up by 17 percent in constant currency terms which irons out currency fluctuations. “Inditex achieved a strong operating performance, with like-for-like sales growth in all geographies,” the company said in a statement. Sales remained strong in the start of the second quarter, advancing 15 percent in constant currency terms between May 1 and June 13, the company said in a statement. Inditex said it opened stores in Aruba, Nicaragua and Paraguay in the first quarter, extending its reach to 91 markets and 7,085 shops. AFP
Industrial and Commercial Bank of China Ltd (ICBC), the main underwriter for a defaulted bond by shipbuilder Evergreen Industries Holding Group, will hold a second meeting with debt investors this week following accusations it failed to fulfil due diligence and disclosure requirements. Evergreen’s default in May, along with those of several other prominent state-owned companies recently, have raised concerns that local governments and Beijing will not bailout bondholders, leading angry investors to train their fire on underwriters instead. ICBC posted a notice announcing the meeting on Friday in the coastal city of Ningbo on the website of one of China’s main bond clearinghouses. But in a separate letter to ICBC seen by Reuters, bondholders demanded that ICBC headquarters, rather than the underwriting Ningbo branch, take charge of the meeting and explain why problems at Evergreen subsidiaries were not disclosed earlier. Although an Evergreen subsidiary failed to repay a 49.4 million yuan (US$7.49 million) loan to China Merchants Bank in December, Evergreen did not publicly disclose this information to bond investors until March. Reuters
Angolan opposition party UNITA has called for a parliamentary inquiry into Sonangol, saying the state-owned oil company “has been used as a vehicle for various transactions” that are “not in line with its mission and against the law”. The call comes a week after Isabel dos Santos took office as chair of the board of directors by appointment from her father and head of state, José Eduardo dos Santos, as part of the company’s restructuring. UNITA said the call was backed by a memorandum identifying “some of the deals conducted by Sonangol or the family of José Eduardo dos Santos”, such as the China International Fund Limited (CIF), “which began managing credit lines and reconstruction projects under the command of general Hélder Vieira Dias ‘Kopelipa’ (minister of state and head of presidential security)”. The main opposition party also pointed towards cases such as the “transfer of wealth Angola had in Portuguese bank BPI to the president’s daughter, Isabel dos Santos”, and her purchase of Zon Multimédia in Portugal in 2012, or the transfer of “Angolan money in Sonangol Pesquisa e Produção to Marta dos Santos, Eduardo dos Santos’ sister, through a company called Prodoil”. Lusa