Melco Crown launches its first local SME Open Day Business matching Page 4
Monday, June 20 2016 Year V Nr. 1068 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Gaming
www.macaubusinessdaily.com Official trip
China-U.S. trade
Gov’t plans punishments for gaming violations, regulator says Page 5
President Xi’s visit to Serbia results in 22 deals and a currency swap agreement Page 9
U.S. Trade Representative’s office says investment talks “continue to be productive” Page 8
Transaction rebound Property
Average housing prices dropped 14.3 pct y-o-y to MOP77,203 per square metre in May, leading to a rebound in transaction numbers. May marks the second consecutive month since the market slump, where over a thousand home sales were made. Page 3
Still a long way to go
Need to study more The government has withdrawn the drafted framework for interregional mutual legal assistance. Sonia Chan explains that local authorities need to further study cross-strait legal differences
Interview One of the most experienced Portuguese lawyers in Macau, Pedro Leal, shares his views on recent legal issues in the city, such as the requirements for Portuguese law professionals to practice law in the territory, the absence of the presumption of innocence in Macau, the case of Ho Chio Meng and the need for reform in the Court of Final Appeal. Pages 6 & 7
Second-tier push
Politics Page 2
20,169.98 +131.56 (0.66%)
China Shenhua Energy Co
+3.96%
Hang Lung Properties Ltd
+1.80%
Kunlun Energy Co Ltd
-0.96%
Wharf Holdings Ltd/The
-0.45%
HSBC Holdings PLC
+2.80%
Cathay Pacific Airways Ltd
+1.74%
CNOOC Ltd
-0.77%
Power Assets Holdings Ltd
-0.42%
Hengan International Group
+2.37%
Lenovo Group Ltd
+1.72%
CLP Holdings Ltd
-0.73%
Swire Pacific Ltd
-0.42%
Bank of Communications
+1.84%
Sino Land Co Ltd
+1.69%
China Construction Bank
-0.59%
Tingyi Cayman Islands
-0.30%
New World Development
+1.81%
China Unicom Hong Kong
+1.54%
Sun Hung Kai Properties Ltd
-0.46%
Li & Fung Ltd
-0.28%
27° 31° 28° 31° 27° 31° 27° 31° 27° 31° Today
Source: Bloomberg
HK Hang Seng Index June 17, 2016
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Real estate China’s home prices rose in fewer cities in May than in the previous month, with gains in some second-tier locations surpassing those in Shanghai and Shenzhen. New-home prices, excluding affordable homes, climbed in 60 of the 70 cities tracked by the government, down from 65 in April, the National Bureau of Statistics said Saturday. Page 8
2 Business Daily Monday, June 20 2016
Macau Aussie-election
to the consulate, up to 10,000 SARs-based Australians eligible Australian voters are able to cast votes for Federal Election from today expected to vote in Hong Kong Australians living in Hong Kong and Macau will be able to cast early votes for their country’s 2016 Federal Election from today, at polling booths set up at the Australian Consulate-General in Wan Chai, Hong Kong. According
Politics
Gov’t withdraws drafted framework for interregional mutual legal assistance
Withdrawn for more studies Secretary Chan Hoi Fan says the government has taken back the bill from the legislative body as it wants to prepare more grounds for future mutual extradition treaties with Hong Kong and the Mainland. Kam Leong kamleong@macaubusinessdaily.com
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over the next two weeks. The federal election will take place on July 2. The Australian Consulate said the Hong Kong – Macau region has the second largest population of Australian voters outside Australia.
he government has withdrawn a bill defining the framework for interregional mutual legal assistance in criminal matters from the Legislative Assembly (AL) because authorities need to further study the cross-strait legal differences, according to the Secretary for Administration and Justice Sonia Chan Hoi Fan. Last week, the government announced that it had withdrawn the bill from the legislative body at the beginning of this month, after the bill had been sent to legislators for discussion at the beginning of the year.
“[The bill aims] to establish necessary legal bases for the [implementation] of mutual legal assistance in criminal matters for the cross-strait two coasts and four places. However, the law systems are hugely different in different jurisdictions. [We] thus need to consider such differences fully and to seek a balance for maintaining the integrity of our own law system,” reads a statement released last Friday by the Secretariat for Administration and Justice.
with Hong Kong and the Mainland are still on the table. “A deeper study into the bill will allow the [local law] to coordinate with certain principles in our mutual legal assistance deals with Hong Kong and the Mainland,” Secretary Chan said on the sidelines of a public event last Saturday, adding that the aim is to make the bill more operationally effective. The official also admitted that the time taken to discuss such deals has been longer than expected as a result of the legal differences between the various jurisdictions. I n F r i d a y ’ s sta t e m e n t, t h e
S ec r eta ri at c l ai m e d that th e g o v e r n m e n t w o u l d c o n ti n u e studying different proposals for cooperation despite the withdrawal of the bill. The bill, which was announced by the Executive Council last December, is designed with the purpose of facilitating mutual assistance in criminal matters between Macau and the other jurisdictions of the People’s Republic of China due to increasing cross-border criminality. The AL president Ho Iat Seng said this March that the legislative body had not yet scheduled a time to discuss the bill, as they were handling more than ten bills, even though the government had handed in the draft after Chinese New Year in February.
More study needed
According to the Secretariat, the MSAR government believes there is a need to conduct further studies on the withdrawn bill as negotiations regarding the mutual extradition deals
Trade
Mainland to exempt duty on more goods of Macau origin About 134 more items originating from Macau will be able to be exported to Mainland China with zero-tariffs from July 1 this year, Macau Economic Services said in a press release on Friday. Under the framework of the Mainland and Macau Closer Economic Partnership Arrangement (CEPA) implemented in 2004, the new varieties of goods of Macau origin to be on the zero-tariff list will include foods, textiles, printing materials, horologe and pens.
It is noted that products made of raw materials from Portuguese-speaking countries will be regarded as originating from Macau. Analysts believe that more foreign investors will set up manufacturing businesses here, and take advantage of the tariff-free policy to exploit the mainland market. Statistics show that the value of Macau’s zero-tariff exports to the Mainland have reached MOP707 million (US88.47 million) since 2004, with tax abatement amounting to MOP53.43 million. Xinhua
Business Daily Monday, June 20 2016 3
Macau Property May’s home sales surpass one thousand transactions again
Buy while they are cheaper The continuous drop in housing prices has stimulated a rebound in total home transactions, with the number staying at the one-thousand level for a second consecutive month. Kam Leong kamleong@macaubusinessdaily.com
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acau’s housing market kept rebounding in May, with the total number of transactions reaching over 1,000 for the second consecutive month as average home prices continued going down, according to the latest official data released last Friday by the Financial Services Bureau (DSF). Last month, the number of housing transactions totalled 1,036, a jump of 78 per cent compared to 582 transactions in the same period a year ago, despite the number falling slightly by 4.7 per cent compared to 1,087 transactions in April this year. Meanwhile, average housing prices dropped by 14.3 per cent year-onyear to MOP77,203, down from MOP90,134 per square metre. On a month-on-month comparison, the cost of buying a residential unit in the city fell by some two percentage points on average, down from MOP78,745 per square metre.
By location
In terms of area, 784 of the transactions were made on residential properties located on the Macau Peninsula, climbing 76.2 per cent year-on-year yet falling by 1.13 per cent monthon-month. The average cost of units on the Peninsula amounted to
MOP74,795 per square metre, 12.7 per cent cheaper compared to one year ago, and 2.2 per cent cheaper than one month ago. In addition, the number of housing transactions in Taipa, which amounted to 219, soared by 116.8 per cent year-on-year but dropped by 13 per cent month-on-month. Average housing prices there were MOP78,842 per square metre, which is down by 18.5 per cent year-on-year, or 1.27 per cent month-on-month. Homes in Coloane remained the costliest – with average prices
reaching MOP101,327 per square metre. Nevertheless, compared to MOP109,918 per square metre for May 2015, the value declined by 7.8 per cent, in addition to a monthon-month decrease of 1.26 per cent. Analysed by district, residential units in Doca do Lam Mau were the most, costing some MOP93,994 per square metre. Meanwhile, those in the central district were the cheapest, with average prices amounting to some MOP56,500 per square metre due to the generally older age of properties there.
By type
The majority of residential properties sold and purchased in the month of May were completed units, amounting to 954 of the total, up by 95.9 per cent year-on-year yet down
by 4.5 per cent month-on-month. The average cost for such properties was some MOP74,962 per square metre, 10.9 per cent cheaper than one year ago. Compared to MOP75,627 per square metre in April, the average cost went down slightly by 0.88 per cent.
14.3 pct Average May housing price drop y-o-y
In addition, the average price for units under construction was MOP101,638 for the month, a decline of 11.7 per cent year-on-year, or 8.53 per cent month-on-month. The number of transactions on these types of units was 82, a fall of 13.6 per cent year-on-year, or 6.8 per cent month-on-month.
4 Business Daily Monday, June 20 2016
Macau SMEs Melco Crown launches its first local SME Open Day
Procurement partnership program still being tested
Some local SMEs question the effect of such business matching events by gaming operators, saying the number of orders received is not satisfactory. Annie Lao annie.lao@macaubusinessdaily.com
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ollowin g o n f r o m Sands China, MGM Macau and Wynn Macau who have all held events since last year, Melco Crown Entertainment is the fourth Macau casino operator to cooperate with the Macao Chamber of Commerce i n l a u n ch i n g a p r o c u r e m e n t partnership program. The program aims to support
local small and medium enterprises (SMEs) in response to the Macau SAR government’s Five-Year Plan. A business matching event was held on Friday at Studio City. However, some SME participants at the event said that the impact of such programs remains to be seen. Cherry Wong, procurement manager of World Class Sales and Purchasing Consultant Company Ltd., which sells kitchen appliances, told Business Daily that after attending SME Open Days hosted by other gaming
operators, she still finds the events less effective than expected. Ms. Wong found that only providing her product price list to the gaming operator’s procurement team was not enough, and she suggested that the procurement selection process needs to be made more transparent. “If our potential buyers could see our products in person, it would be better for us to introduce our products in detail. Therefore, only submitting a price list of items is not enough and we don’t have enough time to introduce our products to them,” said Ms. Wong. Ms. Wong also revealed that her company has not received any orders yet, despite having attended all the SME Open Days held by other gaming operators. Ms. Wong finds this ‘passive selling ’way of doing business harder, without knowing what their buyers really want and what their internal procedures are for selecting the products.
Keep up the fight
Another participant, Ivone Yu, chairman of Fat Kei Groups Frozen Foods Company Ltd, told Business Daily that she had attended all the previous Open Days and had recently
received three orders from gaming operators last month. Ms. Yu revealed it has been almost one year since Sands China kicked off the initiative of purchasing local goods and services over those provided by overseas companies, but the amount of orders she has received is relatively small for her business. Ms. Yu also finds it hard to sell her products through the event. “They tend to buy seafood products from other big Hong Kong and American suppliers in bulk, ” Ms. Yu explained. In addition, layers of purchasing decision making in gaming operators’ procurement departments makes it hard for Ms. Yu and other local suppliers to predict the amount of orders coming from them, which does not help to improve her sales. “It is hard for us to foresee what they need from us. Our price list needs to go through several procurement managers before we get our first orders,” Ms. Yu revealed.
Priority to locals
Melco Crown Entertainment’s procurement partnership program is also supported by the Macao Economics Service (DSE), Macao Trade and Investment Promotion Institute (IPIM) and Macau Productivity and Technology Transfer Centre (CPTTM). A series of Open Days and Vendor Experience Tours will be offered from June onwards, including an Open Day to exclusively offer special support, guidance and advice to young entrepreneurs. Mr. Ted Chan, Chief Operating Officer of Melco Crown Entertainment said at the event, “Melco Crown Entertainment’s procurement policy has always been giving priority to local SMEs. We will continue to organize Open Days and Vendor Experience Tours for other categories to fulfill our goal of increasing the number of our SME vendors,” Over 300 local SMEs from food & beverage, hotel operations and marketing sectors participated in the business matching sessions at the event, introducing their products and services to the company’s supply chain teams. MGM Macau will hold another Local SME Open Day this Friday.
Commerce
E-Supplier Forum to be held next month The ‘Cross-Border E-Supplier Forum’, which aims to help local enterprises develop in the Mainland China market, will be held on July 8 at the Macau Tower Convention and Entertainment Center, according to a press release published by the Financial Services Bureau (DSF) on Friday. E-business is becoming a major way of doing business, and DSF believes it can create opportunities for crossborder e-suppliers to build up their international brands in Mainland
China. This event is organized by DSF, the Macau Trade and Investment P r o m o t i o n I n st i t u t e ( I P I M ) , Transferência Electrónica de Dados Macau Edi Van S.A. (TEDMEV) and Bank of China Macau. Applications are still open for local small and medium-sized enterprises (SMEs) to sign up. Several well-known Mainland Chinese e-suppliers such as Vipshop, Yihaodian, Mia, Kaola and GTD will take part in the forum. A.L.
Commerce
Promoting local youth business in Guangdong The ‘Jointly Promoting Guangdong and Macau Youth Business Incubator and Cooperation Agreement’ was signed at Hong Kong University of Science and Technology (HKUST) Fok Ying Tung Research Institute (FYTRI) in Guangdong, during a ceremony to establish the Guangdong, Hong Kong and Macau Innovation and Entrepreneurship Union College, according to a press release published by Macao Economic Services (DSE).
The objective of the agreement is to promote the integrated development of innovative entrepreneurship by Macau youth in Guangzhou, in order to further strengthen exchange and cooperation between the two regions. The collaboration can help enhance the interaction of youth in the two regions to stimulate innovative ideas and promote entrepreneurial development, Deputy Director of DSE, Lau Wai Meng said during the ceremony. A.L.
Business Daily Monday, June 20 2016 5
Macau
Gaming
Gov’t plans punishments for gaming violations, regulator says DICJ vows to improve gaming legislation, plug gaps in outdated laws and bring in new regulations.
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acau’s government plans to introduce penalties for violations in its US$30 billion gaming industry, as it plugs gaps in outdated laws including one banning phone-betting at casinos. Responding to a June 2 Bloomberg report that Macau’s junket operators, which lend money to high rollers, are continuing to violate a ban last month on using mobile phones at betting tables, the Gaming Inspection and Coordination said it will “complete supplementary laws for violations and related penalties that weren’t previously included, amend outdated rules, and bring in new regulations.” Macau has been trying to reign in an industry that’s 4.5 times larger than the Las Vegas Strip amid China’s campaign against corruption, which has included clampdowns on illegal money outflows via the city. That crackdown led to a two-year gaming revenue slump as mainland gamblers avoided Macau, hurting profits for casinos such as those operated by
SJM Holdings Ltd. and Melco Crown Entertainment Ltd.
Rubbing salt in the wound
The planned penalties “will further hurt the revenue of the struggling industry in the short term,” said Daiwa Capital Markets Hong Kong Ltd. analyst Jamie Soo. If the ban on phone-betting is more strictly enforced, along with penalties, the negative impact may be incrementally felt in the months ahead, he said. The gaming regulator currently only advises its enforcement agents to issue verbal warnings to violators of the ban on phone-betting, a practice which contributes about 20 per cent of gaming promoters’ revenue, Soo said in a telephone interview. Phone betting helps gamblers skirt China’s currency controls, as promoters conduct card games via wireless earpieces connected to mobile phones for high-stakes VIP clients. While a 2001 Macau law banned the practice, it doesn’t come with sanctions. There was no enforcement as long as operators reported the bets
Gaming
Success Dragon terminates share acquisition deal for Vietnamese hotel Gaming services firm Success Dragon Holdings Ltd has cancelled its share acquisition deal to purchase a 45 per cent interest in a five-star hotel and land development in Vietnam, it told the Hong Kong Stock Exchange last week. At the end of March, the company, formerly known as C Y Foundation, announced that it was to acquire the entire issued share capital in Vabis Building Consultants and Engineering Ltd – which would have given it a 45-per cent stake in a company owning a five-star hotel project and a plot of land in Danang, Vietnam. The Hong Kong-listed company said the termination of the deal is due to the fact that the vendor, Ngoc Nguyen, ‘has difficulty in obtaining the requisite consent for the implementation of the reorganisation’. The consideration for the proposednow-terminated acquisition was
US$14.1 million (HK$112.8 million). The targeted hotel project, One Opera Danang Hotel, is a 24-storey hotel and commercial complex located in the Hai Chau district of Da Nang City, Vietnam, while the land plot that was to be acquired is located adjacent to the hotel for ‘hotel construction usage or such other compatible use as may be approved by the relevant authorities in Vietnam’. ‘The Board considers that the termination of the Acquisition will not have any material adverse impact on the operation, business nor financial position of the Group,’ the company stated in the filing. 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.
and the identities of the gamblers to the regulator, according to legislator Jose Maria Pereira Coutinho. Hong Kong-listed gaming promoter Jimei International Entertainment Group Ltd. fell as much as 3.8 per cent to HK$2.29. The Bloomberg Intelligence index of Macau casino stocks rose 0.2 per cent. Under Macau’s 2001 law, casino operators are responsible for making sure junket operators obey the regulation even though the gaming promoters operate the rooms independently of the casinos. The May ban doesn’t lay out the responsibilities
of casinos to enforce the ban. By comparison, Singapore’s prohibition against phone betting, which took effect last year, calls for a fine of up to S$5,000 (US$3,700) and six months in jail for the gambler and as much as S$200,000 and up to five years in jail for those who facilitate remote gambling. Macau’s gaming industry “has room to improve,” and the government will further strengthen regulation through the use of technology to monitor loopholes, and enhancing staff training to raise efficiency, according to the gambling regulator’s statement. The industry’s development and regulation need to fit Macau’s goal of becoming a global tourism center and all regulations can only be applied after obtaining social consensus, the regulator said. Bloomberg
6 Business Daily Monday, June 20 2016
Macau Law
“The presumption of innocence exists for everyone, white collar or blue collar” A lawyer in Macau for 19 years and a member of the Macau Lawyers Association (AAM) for 16 years, Pedro Leal is one of the most experienced law professionals in Macau, having practiced law here before and after the handover of the territory to China. With a passion for penal law, Leal has been involved in some historic and high-profile Macau court cases, including defending famous triad member Wan Kuok Koi, also known as Broken Tooth, and defending the father of the former Secretary for Transport and Public Works accused of corruption, Ao Man Long. In an interview with Business Daily, the Portuguese lawyer offers his opinions on recent legal issues in Macau, such as the requirement that Portuguese law professionals practice law in the territory, the absence of the presumption of innocence in Macau, the case against former Prosecutor General of the Public Prosecutions Office Ho Chio Meng, and the need for reform in the Court of Final Appeal (TUI). The experienced lawyer also shares his views on the territory’s drug policy, the abuse of pre-trial detention and the extradition of suspects from Macau. Nelson Moura nelson.moura@macaubusinessdaily.com Photos by: Cheong Kam Ka
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here does your passion for penal law come from? I always loved crime cases. I remember I loved a TV series called Perry Mason when I was a kid. Even to this day, the TV series I watch are all related to criminal court cases. In crime cases there is a lot of contact with
clients in court, and with witnesses. However, here we sometimes lose the spontaneity a bit, since if we see the witness lying, we can’t intervene immediately as we have to wait for the translation. Although I can understand a bit of Cantonese, I can’t ask questions in Chinese. How do you see the current process against former Prosecutor General Ho Chio Meng? The presumption of innocence exists for everyone, white collar or blue
collar. Even if it had to be a court made up of all the judges in Macau, there needs to be the possibility of appeal for those kinds of decisions. I t’ s i n t e r est i n g b eca u s e, w e Portuguese lawyers, saw Ho Chio Meng say every year in his speech at the judicial year opening that there is a need for more Chinese language in Macau’s laws, which always seemed like an indirect attack on us, yet now we are his biggest defenders. I haven’t seen a Chinese lawyer sticking his head out to defend Ho Chio Meng,
again because of the absence of the presumption of innocence. I d o n ’ t u n d e rsta n d w h y th e Commission Against Corruption (CCAC) had to do a press conference about the prosecutor’s arrest, saying that he was trying to get out of the city. If the court is under a justice seal, it can’t be discussed like that. It was the same with Ao Man Long ten years ago, and it is something that should’ve been already reformed, with the TUI acting as prosecutor, criminal judge and interrogator. I just don’t understand the resistance to changing this system. Should Ho Chio Meng be judged as prosecutor? That’s something the AAM President, Jorge Neto Valente, has stated a lot. When it comes to facing trial, Ho Chio Meng is considered a prosecutor. When it is regarding pre-trial detention he isn’t. This ugly situation could be easily avoided by just saying that he could be free while awaiting trial, but couldn’t leave Macau. The police could just put a guard watching him 24-7 and that’s it. Does the Macau judicial system abuse pre-trial detention? There is an exaggerated use of pre-trial detention, which should only be used in some cases, but it’s almost the general rule now. Of course in homicide cases, or cases where there is a big risk of the accused escaping, it is justified. In Macau, if pre-trial detention is declared, rarely is it revoked, and I haven’t seen any case when it has happened. Some lawyers have been stating that they don’t know how Ho Chio Meng managed to be the top prosecutor, as they had witnessed many suspect cases on his part. Do you share that opinion? As a lawyer I have to say I never had any bad experiences with the prosecutor or heard about any corruption. In fact, most of the accusations are related to his adjudication of public works. But as the AAM President has stated, if there was corruption at that level, there could’ve been corruption in court cases, especially because nobody controls the Public Prosecutions Office (Macau MP) activities, and there is no last appeal process.
“There is an exaggerated use of pre-trial detention, which should only be used in some cases but it’s almost the rule now.” You defended the father of Ao Man Long, the former minister for transport and public works, and have previously criticised the absence of the presumption of innocence in Macau for the accused. Do you believe that this is a recurring problem in court cases in Macau? I usually criticise the absence of the presumption of innocence in Macau, meaning that in Macau someone is considered a suspect in a case, and the Macau Public Procecutions Office (MP), starting with the police, places that person in an embarrassing situation with a hood on their head, handcuffed, behind a table with the apprehended goods in a press conference, stating that this person, using a certain nickname, did this and that, with the
Business Daily Monday, June 20 2016 7
Macau Macau MP sending an informative notice after the press conference. This presents the person to the public as an already accused person in a court case. Why is this done? If the case details are under judicial secrecy until the indictments are made public, then no details about the case can be discussed, but we do, meaning that this person is judged first in the court of public opinion. This shocks me.
“Chinese lawyers just don’t have access to the same reference books as Portuguese lawyers, so that limits them a bit.” What other justice issues in Macau’s court system concern you? Another situation is when someone is considered a defendant in a case, which means they are not considered guilty: if they are a Macau resident no problem; they might go to prison, or have their passport removed etc. However if they are a non-resident, a Blue Card (Temporary Work Permit) holder, or a Portuguese citizen, they are screwed, and get deported. This is horrible since that person hasn’t even faced trial. They’re just being questioned as a defendant, and immediately lose some of their rights. I’ve had many similar cases, and this is something the Secretary for Administration and Justice should focus on, where defendants are deported from Macau and sometimes are even blocked from re-entering for five years, after only being interrogated as a defendant. For me this is an obvious absence of the presumption of innocence. The Macau MP supports this system, since there is an article in the penal code stating that the defendant can declare that they agree to face trial in absentia, but the Macau MP makes the defendants sign a release, without any idea of what they are stating, agreeing to this trial in their absence. So the defendant is at a disadvantage because they are expelled from the territory and can’t attend their own court trial, which is where their defense should happen. There’s been a lot of discussion about bringing more Portuguese judges, lawyers and public prosecutors here, with the recent visit of the Attorney General of the Portuguese Republic, Joana Marques Vidal, and the new rules for lawyer admission exams for Portuguese lawyers. Do you believe a larger number of Portuguese law professionals would be beneficial or negative to Macau? Portuguese lawyers have long fought to increase the number of decisions made in Portuguese, and for quality lawyers and judges from Portugal to come to Macau. I’m not saying local Macau lawyers and judges are not good, but they generally don’t have the ideal experience. Let me just say, without sounding prejudiced, I think the Chinese law course doesn’t give the same experience as the Portuguese one. Why? Because Chinese lawyers just don’t have access to the same reference books as Portuguese lawyers, so that limits them a bit. In terms of prosecutors, I believe if there were enough prosecutor delegates, of which there are currently only three, we wouldn’t have court cases expiring, which happens a lot. That happens because there’s a lot of work to do, and in this case there should be more people. I think there has been a certain reluctance to bring magistrates from Portugal, when in fact the first Chinese magistrates in
Macau learned from Portuguese magistrates. Macau has enough money and there are a lot of delayed court cases and inexperienced magistrates, so I think the territory can only profit from Portuguese law professionals coming.
“In all honesty, China didn’t close the money tap, they just started controlling the cash capital being moved out of the country to, for example, the United States, which is basic anti-money laundering control. Sooner or later it was going to happen.” In 2013 the protocol between the Portuguese Lawyer Association (OA) and the AAM, which allowed the entry of Portuguese lawyers to work in local offices, was suspended due to the high number of arrivals of Portuguese professionals. Do you think it should be easier for Portuguese lawyers to work in Macau? Good Portuguese lawyers can do good anywhere Portuguese is the main language, so it’s our case. I don’t know if there was any pressure on the AAM to cease the protocol with Portugal, but there were a lot Portuguese lawyers that had just finished law school who just needed to be registered there and could come here to work, passing over Chinese lawyers, which wasn’t fair for them since they had worked and studied here, and were suddenly passed over like this. So I think the fairest method is the new one, with Portuguese lawyers simply doing the same law exam as local lawyers, or just becoming paralegals in law offices helping out while studying for the exam. What is your opinion about the new requirements of five years of
experience needed for lawyers to become notaries in Macau? For me, five years of experience is nothing, they should have 10 years of experience. As an experienced notary, I know civil law is complicated and demands a lot of responsibility. I don’t think there is a lack of notaries in Macau though. I’ve been a notary since 1995 and I have had very little work in that area. What exists is a lack of notaries who write and understand Chinese.
have the capacity to properly check if any money laundering is happening. There’s been a lot of talk about China stopping the money flow to Macau, and that the VIP business is suffering. In all honesty, China didn’t close the money tap, they just started controlling the cash capital being moved out of the country to, for example, the United States, which is basic anti-money laundering control. Sooner or later it was going to happen.
For a long time, you’ve argued that law societies should be allowed in Macau. Do you think that issue will be resolved soon? I’ve been hearing about this issue for almost 20 years, and I’ve seen a legal proposal related to it. Honestly for me, it doesn’t make a difference, since I don’t work in a law society, but there has been a lot of reluctance from most law offices who might be harmed by allowing law societies. So maybe that’s why the situation still remains, although everybody knows a lot of law offices in Macau function like law societies.
You’ve also argued a lot that the current drug laws in Macau are too strict. Do you still believe that? I’m totally anti-drugs, but what’s happening in Macau is that we consider a drug trafficker and someone selling small amounts of drugs to friends at a party as the same thing. A drug mule is not the same as someone who went to China and bought a small amount of drugs for personal consumption. The law is too broad and prison sentences of between three to 15 years are just too strict. Something that happens in Macau and is unbelievable, is small time drug dealers and consumers are treated the same as big time drug dealers.
What is your opinion about the debated new asset freezing law, and the offshore accounts issue in Macau raised by the Panama Papers? I guess it’s related with the fight against terrorism and gun sales, but luckily Macau hasn’t shown any indication it faces a terrorism threat, so if the law is made to prevent offshore accounts, the government should say so. Let’s say if a Macau citizen opens an offshore account in Panama, it’s not a crime in Macau or in Panama. What has to be properly assessed is if that account is being used to avoid taxes. You’ve mentioned previously the problem in Macau is not an absence of laws, but the enforcement of the existing laws. Would you care to explain? For example, there are laws that already prohibit money laundering, that lack enforcement. Take law offices for example; in Macau a lot of times clients want to pay in cash because there is not a tradition of writing cheques here. If I go to the bank today to deposit MOP100,000 (US$12,511) or MOP200,000 there will probably be some questions and I’ll respond that it’s payments from my clients. So the banks already
“I think the territory can only profit from Portuguese law professionals coming here.” Do you consider that Macau still truly has a judicial system that is independent from the Chinese legal system, or is that independence being eroded? Can the Basic Law withstand pressure from China when it comes to the deportation of suspects, for example? There are pro-China and anti-China people in the political sphere in Macau, and some TUI decisions state that you can't take somebody who is wanted in China and deport them there. But I know that has happened with justifications like their ID has expired, even though it’s not true. What actually happened was the extradition of a wanted person, and that goes against the laws of the TUI. That’s what’s more worrying.
8 Business Daily Monday, June 20 2016
Greater China Real estate
Home prices rise faster in May as smaller cities join rally The southern city of Shenzhen remained the top performer Clare Jim
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izzling home price rises in China’s biggest cities showed signs of easing in May but sharp gains appeared to be spreading to smaller cities, making policymakers’ job harder as they look to support the faltering economy without inflating bubbles. The recovery in China’s property market since late last year has been a rare bright spot in the world’s second-largest economy, which has been slowing amid weak demand at home and abroad, cooling investment and excess industrial capacity. Average new home prices in 70 major cities climbed 6.9 per cent last month from a year ago, accelerating from April’s 6.2 per cent rise, according to Reuters calculations based on data from the National Statistics Bureau (NBS) on Saturday. The NBS data showed 50 of the 70 major cities it tracks saw year-on-year price gains, up from 46 in April. “The average (price) growth of new homes in first-tier cities started to narrow, while it continued to widen in second- and third-tier,” said Liu Jianwei, a senior NBS statistician. The southern city of Shenzhen remained the top performer, with prices surging 53.2 per cent from a year
tightened rules last month on purchases of second homes. The eastern cities of Nanjing and Suzhou have put limits on how much developers can offer in land auctions. But CITIC Bank’s Liao said he did not expect widespread tightening across the country just yet, saying overall prices in second-tiers were still well below those in top cities. Some small cities which have a glut of unsold homes may even need continued support to encourage homebuyers, he added. China’s top banks are lending more to homebuyers and developers than at any time since at least the global financial crisis, making them vulnerable to a property market downturn if prices overheat.
Key Points May new home prices +6.9 pct y/y vs April +6.2 pct earlier, slower than the 62.4 per cent rise in April. But on a month-on-month basis, prices were up just 0.5 per cent after April’s 2.3 per cent rise, evidence that property cooling measures introduced by some big cities recently are starting to bite. Shenzhen and Shanghai have tightened downpayment requirements for second homes and raised the eligibility bar for non-residents to purchase properties. Shanghai prices rose 27.7 per cent on-year, easing from 28 per cent in April. The monthly gain cooled to 1.9 per cent from 3.1 per cent. “Easing growth in first-tier cities is a good thing, preventing a bubble from inflating,” said Liao Qun, China chief
economist of CITIC Bank International in Hong Kong. While the cooling trend in megacities may be good news for policymakers in Beijing, the survey showed sharp price rises are now spreading to other parts of the country. The coastal city of Xiamen surpassed the top-tier cities and saw the second highest price rise of 28 per cent. Prices in second-tier cities Nanjing and Hefei also rose over 20 per cent, more than the 19.5 per cent seen in Beijing. The spillover of higher prices to major second-tier cities is fuelling speculation that local governments there may also tighten restrictions on home purchases soon. The government of Tongzhou, the eastern suburban district of Beijing,
Shenzhen, Shanghai price growth slows from April Xiamen prices +28 pct to become No.2 performer Price surge in 2nd-tier cities not a concern yet - economist Investment growth in Chinese real estate slowed in May for the first time since December on a year-on-year basis as tightening measures in big cities took their toll. China’s housing market is a crucial engine of growth, accounting for around 15 per cent of gross domestic product. Authorities hope a healthier property market will help support growth, even as the broader economy continues to decelerate. Reuters
Negative list
U.S. sees investment talks ‘productive’ after new offers American businesses have complained about Chinese ownership restrictions in key areas such as financial services, health insurance, agriculture, and audio-visual David Lawder
Bilateral investment talks between the United States and China “continue to be productive,” the U.S. Trade Representative’s office said on Friday after the two sides exchanged new offers this week. A USTR spokeswoman said U.S. and Chinese negotiators exchanged revised “negative lists” of sectors that would stay off-limits from foreign investment as they try to reach a deal for a bilateral investment treaty.
“China will need to demonstrate the substantial liberalization of its investment market, ensure that U.S. firms can compete on a level playing field, and address other key priorities to facilitate the progress and successful conclusion of a mutually beneficial and high standard BIT,” the USTR spokeswoman said in a statement. Obama administration officials and U.S. companies have complained that China has over 100 sectors of its economy closed to U.S. investment and that these must be narrowed
U.S. Treasury Secretary Jack Lew on Thursday said that “the jury is still out” on the merits of China’s latest negative list
substantially to reach a treaty deal. Chinese officials have said that U.S. security reviews of Chinese acquisitions of American firms are too onerous, particularly for investment in hightechnology sectors. The USTR statement did not specify any new sectors that China had offered to open to U.S. investment
‘Obama administration officials and U.S. companies have complained that China has over 100 sectors of its economy closed to U.S. investment’
or divulge other details of Beijing’s latest offer. U.S. businesses have complained about Chinese ownership restrictions in key areas such as financial services, health insurance, agriculture, and audio-visual, while the Chinese side has complained about limited market access in certain U.S. sectors such as transportation, radio communications, natural resources and high-technology companies. U.S. Treasury Secretary Jack Lew on Thursday said that “the jury is still out” on the merits of China’s latest negative list, and that Beijing’s negotiating stance in the bilateral investment treaty talks were “one important barometer” in China’s commitment to reform its economy and open it to foreign competition. Lew also has said that time was running short to complete a treaty deal during the final months of the Obama administration and that an optimum time to reach an agreement was prior to a G20 leaders summit in China in early September. Reuters
Business Daily Monday, June 20 2016 9
Greater China Official visit
In Brief
President Xi highlights Serbia trade as Beijing signs 22 deals The president said China would support Serbia’s bid to join the European Union Aleksandar Vasovic
China sought to strengthen its economic presence in central and eastern Europe on Saturday by signing 22 agreements on finance and infrastructure with Serbia. The deals, in areas such as currency swaps, renewable energy and highway construction, came during a visit to Serbia by Chinese President Xi Jinping. Beijing sees the visit as part of its
One Belt, One Road initiative, which is intended to open new foreign trade links for Chinese firms as its own economy slows. At a ceremony in Belgrade’s Palace of Serbia, Xi said the Balkan country had a significant role to play in this, while Serbian President Tomislav Nikolic said his country was ready to become one of China’s most important partners in the initiative. China has already invested more than US$1 billion, mostly in the form of soft loans, to finance road building and energy projects in Serbia. On Saturday, Serbia’s energy minister signed a deal to finance renewable energy sources and to build Serbia’s first waste-to-energy plant as it seeks
Chinese President Xi Jinping delivers a speech after receiving a medal from Serbian president Tomislav Nikolic (unseen) during their meeting at the Palace of Serbia in Belgrade, on saturday
to replace its aging coal-fired power plants to meet green energy targets. Serbia’s central bank governor, Jorgovanka Tabakovic, signed a currency swap deal aimed at boosting trade and investment, while the China Communications Construction Co signed a deal to build a section of a ring road in Belgrade. Serbia’s minister for infrastructure, Zorana Mihajlovic, said China was interested in building a port on the Danube river as well as an industrial zone, but details were not announced.
‘Serbia’s central bank governor, Jorgovanka Tabakovic, signed a currency swap deal aimed at boosting trade and investment’ In April, China’s Hebei Iron & Steel (HESTEEL) signed a 46-million euro deal to buy a steel plant located on the Danube, an investment which analysts said opened door for Chinese investment in Serbia’s ailing metals sector. “China and Serbia are traditionally friendly nations. Our intention is to raise our strategic partnership to a higher level,” Xi said, adding that the two countries agreed that their presidents should meet once a year to discuss ways to work together including “military cooperation.” Xi said China would support Serbia’s bid to join the European Union. Reuters
Shanghai summit
The meeting, hosted in the first week of September, has become China’s biggest diplomatic event of the year.
China ordered at least 255 Shanghai-based industrial facilities, including part of a major oil refinery operated by Sinopec Corp, to shut for 14 days to reduce pollution ahead of the G20 summit, according to an official document reviewed by Reuters. The document, issued by the Shanghai Environment Protection Bureau, has ordered a wide range of companies from power and petrochemical plants to logistics firms to shut down between August 24 and September 6 for the upcoming G20 meet in Hangzhou. Authorities in neighbouring Zhejiang and Jiangsu province are set to issue similar orders to limit air pollution and safety hazards within a 300 km radius from Hangzhou, according to industry and government officials. China has previously shut down factories and limited the operation of heavy equipment ahead of high-profile diplomatic and sporting events - such as meetings of the Asia-Pacific Economic Cooperation and the Beijing Summer Olympics of 2008 - to cut the choking smog that afflicts many
Ant Financial looks to buy stake in payments firm Alibaba’s financial services affiliate is seeking to buy a 20 per cent stake in Ascend Money, an online payment provider based in Thailand, according to a notice on the website of China’s Ministry of Commerce. Alipay (Hong Kong) Holding Limited, part of Alibaba Group Holding Ltd’s Ant Financial Services Group, is also seeking an option to increase its stake in Ascend to 30 per cent at a later date. No further details on the dollar value of the deal, the approval process or a timeframe were given. Sale ban
Apple says iPhones still available Apple Inc said its iPhone 6 and 6 Plus were still available for sale in China after Beijing’s intellectual property regulators barred their sales saying the designs had infringed a patent held by a Chinese company. “We appealed an administrative order from a regional patent tribunal in Beijing last month and as a result the order has been stayed pending review by the Beijing IP Court,” Apple said in a statement on Friday. The notice, dated May 19, banning sales of certain iPhone models in Beijing was posted on a Chinese government website. Securities regulator
Authorities orders 255 industrial facilities to shut for G20
Meng Meng and Chen Aizhu
M&A
of its cities. “Longer-term China needs to work out a market-based approach to tackle pollution rather than an ad-hoc order. Apart from social responsibilities, business has its profit and loss to take care,” said Jing Chunmei, a researcher with China Centre for International Economic Exchanges. The G20 summit, hosted in the first week of September, has become China’s biggest diplomatic event of the year and is expected to gather together world leaders like Chinese President Xi Jinping and U.S. President Barack Obama. Shanghai Petrochemical Corp, a subsidiary refinery of state refiner Sinopec Corp, will reduce its capacity by 50 per cent, or about 120,000 barrels per day (bpd), for the G20 event during those two weeks, the document from the environment bureau said. Coal-fired power plants in the area that do not meet emissions standards will be fully closed over the two weeks, it also said, and the usage of heavy machinery will be reduced by 30 per cent across Shanghai. An official with Sinopec’s Jinling
Petrochemical Corp, another major refinery based in the city of Nanjing in neighbouring Jiangsu province, said his firm was also asked by local authorities to “appropriately reduce throughput”, but was not given any specific reduction size. The ruling came from local governments, rather than from Sinopec Corp, the official said. Shanghai Petrochemical, according to the environment bureau’s document, will be closing a 120,000 bpd crude unit, a 3.9 million tonne-per-year (tpy) residue hydrocracking unit, a 3.5 million tpy catalytic cracking unit, and another dozen or so secondary refining facilities.
Other refineries, industries
Sinopec also operates in the vicinity the 440,000 bpd Zhenhai refinery, 270,000 bpd Shanghai Gaoqiao refinery and 250,000 bpd Yangzi Petrochemical Corp. A spokesman for Sinopec said the company was not immediately able to comment. The 255 factories based in Shanghai, about 200 km from Hangzhou, cover sectors like chemicals, building materials, pharmaceuticals and printing, according to the document. Operation of heavy machinery in the Jinshan district will be cut in half during the summit period, and sailings of dry bulk ships below 200 tonnes, oil tankers above 600 tonnes and all chemical tankers will be suspended. The government is offering no subsidies for the shutdowns, according to four plants contacted by Reuters. “We will try to reschedule plant maintenance to that two weeks to minimise the production loss,” said Shi Yan, a manager at Budenheim Fine Chemicals (Shanghai) Co. Ltd. Other areas, including the port city Ningbo, have also issued lists of factory shutdowns ahead of the G20 summit in addition to the closures set for Shanghai, according to an official at the Ningbo Environmental Bureau. Reuters
Beijing to curb speculation around backdoor listings China’s securities regulator will tighten regulations on major restructurings by listed companies to curb speculation around shell companies used for backdoor listings, the official Securities Times reported on its website. The rules are expected to make it more difficult for Chinese companies listed abroad to relist in China after privatisation, a trend partly triggered by arbitrage opportunities from the valuation gap between Chinese and overseas stock markets. The China Securities Regulatory Commission (CSRC) will bar companies from raising money from external sources in backdoor listings, in a bid to ensure financial strength of the parties involved, the newspaper said. Russian central banker
Official recommends Beijing to float yuan
China should float its yuan currency even if there are no easy recipes for doing so, Ksenia Yudayeva, first deputy governor of the Russian central bank, told CNBC on Friday. Yudayeva also said that she and Deputy Finance Minister Sergei Storchak would visit China next week to discuss Russia’s experience in floating its currency with Chinese officials. “I was one of those who introduced the floating currency in Russia and I think the same needs to be done with the yuan,” she said during a TV debate at the St Petersburg International Economic Forum.
10 Business Daily Monday, June 20 2016
Greater China Regional partnership
Bid to get a Beijing-backed Asia trade pact delayed The original aim had been to wrap up by the end of 2015 Rebecca Howard and Charlotte Greenfield
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raft of thorny issues including market access and trade barriers makes it very unlikely 16 AsiaPacific countries can hammer out a proposed economic “partnership” by the end of this year. The week-long 13th round of negotiations to create a Regional Comprehensive Economic Partnership (RCEP), under way in Auckland, New Zealand, ended on Saturday. The talks kicked off in 2013.
December a pact acceptable to the 10 governments in the Association of Southeast Asian Nations (ASEAN) plus China, Japan, South Korea, India, Australia and New Zealand. “This is a very complex negotiation,” said New Zealand chief trade negotiator Mark Trainor, noting that the countries involved range from some of the world’s least developed to some of the richest. “It is a difficult process to bring it in to land, given those complexities,” he said on Friday.
Stephen Jacobi, director of the New Zealand International Business Forum, said while negotiators are working to an end-year deadline, it is “difficult to see how they’ll pull all the pieces together in time.”
Not ready to close
Deborah Elms, executive director of the private Singapore-based Asian Trade Centre, said progress wasn’t anywhere near enough for a 2016 deal. “If we are just talking about some countries making adjustments to initial offers we are not ready to close. We are not in that ballpark,” she said. In addition to trade, intellectual
property provisions are also an issue. Medecins Sans Frontieres warns that India will be negatively impacted if some intellectual property provisions are included as access to affordable medicine could be severely restricted. New Zealand Trade Minister Todd McClay told Reuters there could be an agreement by year-end but the “challenge will be the quality of the outcome, the quality of the deal”. He said New Zealand is not “willing to forego a high quality outcome for an issue of timing.” China and India, not in the unratified Trans-Pacific Partnership agreement, have been keen to help create RCEP. He Ping, a trade expert at Fudan University in Shanghai, said the New Zealand meeting should have marked the “final sprint” toward a deal but “right now it seems it is hard to get that sense of urgency with RCEP.” Reuters
“If we are just talking about some countries making adjustments to initial offers we are not ready to close. We are not in that ballpark” Deborah Elms, executive director of the private Singapore-based Asian Trade Centre
The original aim had been to wrap up by the end of 2015 a trade deal that involves a total population of more than 3 billion and annual trade volume of over US$17 trillion. But there’s no sign of progress that would produce even by this
Financial products
Climate goals trigger launch of new derivatives The nation currently has seven regional pilot carbon markets. China’s clean energy pledges are prompting a supply of new financing tools to fund the estimated 43 trillion yuan (US$6.53 trillion) needed to switch from heavy, polluting industries to clean projects. The Beijing Environment Exchange endorsed a call option backed by
20,000 local carbon permits on Thursday, the first of its kind in China, which was bought by trading firm CMB Sinolink. Rival bourse, the Shanghai Environment and Energy Exchange, also plans to launch four forward contracts to trade over the counter
(OTC), backed by Shanghai permits which expire in each quarter of 2017, according to the Shanghai Clearing House. China, the world biggest energy consumer, wants to increase clean energy use in power generation to 35 per cent by 2020 from the current 27 per cent. To try and meet the capital requirement for this economic restructuring, China plans a national carbon market by 2017 which will cover all provinces and nearly 10,000 of the most carbon-intensive companies mainly in power, steel and oil industries. China currently has seven regional
“There must be strong demand for underlying spot products to launch futures” Zhang Yubin, vice general manager of the China Futures market Monitoring Center
China, the world biggest energy consumer, wants to increase clean energy use in power generation to 35 per cent by 2020 from the current 27 per cent
pilot carbon markets. Market information provider ICIS forecasts China’s national market will open at 40 yuan for trading of the China Carbon Allowances in 2017, and increase to 65 yuan in 2021. ICIS launched a weekly price assessment on Thursday, hoping to set a reference benchmark price for carbon credits to be delivered in March 2018 in the national market. The German bourse EEX is in talks with its members interested in positioning in China, according to a development plan seen by Reuters. The plan would offer cash settled futures contracts on Chinese carbon credits this year, denominated in renminbi or euros, and backed by the ICIS price index. “European carbon traders hedge their power contracts as much as five years ahead, whereas China depends on progress in liberalising its energy market in order to drive hedge trading by local utilities,” said a trader in an international company. But China’s regional pilot carbon markets have seen prices come under pressure, due to over-allocation caused by worse than expected economic performance, and patchy liquidity. Total turnover has been stagnant at 7.8 billion yuan in the three years’ pilot phase, Hubei Emission Exchange data shows. “There must be strong demand for underlying spot products to launch futures,” Zhang Yubin, vice general manager of the China Futures market Monitoring Center, said on Thursday. “The capital turnover for offering commodity futures are at tens of billion yuan.” Reuters
Business Daily Monday, June 20 2016 11
Asia
Raghuram Rajan, Governor of the Reserve Bank of India, reacts a media conference after the second bi-monthly monetary policy statement at the RBI head office earlier this month. Reserve Bank of India
Indian central bank chief to step down in surprise move It will be the first time since 1992 that an RBI governor has departed after a single three-year term. Devidutta Tripathy and Suvashree Choudhury
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ndia’s “rock star” central bank governor Raghuram Rajan, feted by foreign investors but under pressure from political opponents at home, stunned government officials and colleagues on Saturday by announcing he would step down after just one three-year term. Rajan, a former chief economist at the International Monetary Fund, is held in high esteem by policymakers and investors at home and abroad for overhauling the way the Reserve Bank of India (RBI) operates.
Key Points RBI governor says will step down when term ends on Sept. 4 Seven candidates on long list of replacements - source Says will return to academia; still ready to serve country Announcement unexpected; markets likely to open lower But he has faced mounting criticism from a faction within Prime Minister Narendra Modi’s ruling party for keeping interest rates high and over a perception that he had begun to stray into politics. In a letter to RBI staff, Rajan said he planned to return to academia, even as he noted two of his actions
- the creation of a monetary policy committee to set interest rates and the clean-up of the heavily indebted banking sector - remained unfinished. “While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016,” Rajan wrote. “I will, of course, always be available to serve my country when needed.” A senior government official told Reuters there were seven candidates on an initial long list to replace Rajan.
“Rexit”
Whi l e th e r e ha d b e e n s o m e speculation Rajan might not stay for a second term - dubbed “Rexit” in a nod to Britain’s vote on European Union membership - government officials said they were surprised by the timing and manner of the announcement. “Rajan put this in an open letter. It’s his decision and we will do what best can be done,” said one senior aide to Modi. Hailed as a “rock star” and “James Bond” by India’s media when he was appointed by the previous Congress government in September 2013, Rajan won praise for his sure-footed handling of the country’s worst currency crisis in more than two decades. “The government appreciates the good work done by him and respects his decision. A decision on
his successor would be announced shortly,” Finance Minister Arun Jaitley said in a tweet on Saturday. P. Chidambaram, the Congress finance minister who appointed Rajan, said he was profoundly saddened by the decision. “I am not surprised at all. The government had invited this development through a craftily planned campaign of insinuations, baseless allegation and puerile attacks on a distinguished academic and economist,” he said in a tweet.
“Say goodbye!”
Rajan, who is on leave from the University of Chicago, had faced strident criticism from right-wing members of Modi’s Bharatiya Janata Party, including parliament member Subramanian Swamy, who has waged a campaign against his economic policies. Swamy, a Hindu nationalist and former Harvard economist, tweeted his delight that Rajan “has said he will go back to U.S. Whatever fig leaf he wants for hiding the reality we should not grudge it. Say goodbye!” Swamy had described Rajan as “mentally not fully Indian”. Another senior official said Rajan’s criticism of rising intolerance in India was seen as direct interference in politics, complicating a decision on whether to re-appoint him. “I wasn’t aware of this and I don’t think any of us were,” said a senior policymaker who works closely with Rajan. “Looks like the government has taken a decision and he (Rajan) came to know about it and then sent this letter.” Still, Rajan was known to have a good working relationship with Modi, who called the RBI governor a “good teacher” on economic matters, and
officials had previously told Reuters that Modi’s administration would re-appoint the governor, should he wish to stay on. ManyofRajan’skeyaccomplishments have come in close collaboration with the Modi government. Rajan pushed for inflation targeting to tackle India’s history of volatile prices, which was then made law by the government last year.
Long list
“It’s a volatile period and as an investor I feel this was unnecessary. His term was ending in September anyway, they could have waited until then,” Salman Ahmed, chief investment strategist at Lombard Odier Asset Management in London, said. “What Mr Rajan wanted was to build a stronger institution and that cannot be one person, the market understands that. What’s unnerving is the timing,” he said, adding he expected at least a 1.5-2.0 per cent fall in the rupee. “My recommendation to the government is to appoint a successor as soon as possible. Mr Rajan brought a lot of credibility to that post and if we have a name with a similar CV, that will go a long way to reassure markets.” In a move to pre-empt concerns the government lacked a credible field of replacements, the senior official said the candidates on the long list to succeed Rajan included RBI Deputy Governor Urjit Patel and Arundhati Bhattacharya, who is chair of State Bank of India, the country’s largest bank. The others are Vijay Kelkar, Rakesh Mohan, Ashok Lahiri, Subir Gokarn and Ashok Chawla, said the official, speaking on condition of anonymity due to the sensitivity of the matter. They are mostly veterans of the RBI, the Indian civil service or the two major global financial bodies, the International Monetary Fund and World Bank. Reuters
12 Business Daily Monday, June 20 2016
Asia Trade data
Singapore May exports post surprise jump Growth in the pharmaceutical trade helped give a lift to May exports. Masayuki Kitano
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in gapor e ’ s e x p o r t s unexpectedly jumped in May, helped by gold and pharmaceuticals shipments, though analysts remain pessimistic about the trade outlook amid persistently sluggish global demand. Non-oil domestic exports grew 11.6 per cent in May from a year earlier, the trade agency International Enterprise Singapore said on Friday in a statement. That beat the median forecast of a 2.3 per cent contraction in a Reuters poll.
Key Points
but sustainable drivers of external demand are still lacking, said Selena Ling, head of treasury research and strategy for OCBC Bank. “Full year, IE Singapore is looking for a contraction and so are we,” Ling said. Exports of non-electronic goods rose 19.0 per cent in May from a year earlier. This was led by exports of prefabricated buildings, non-monetary gold and pharmaceuticals. Exports of non-monetary gold rose 436.7 per cent from a year earlier. The jump in gold exports was probably a reflection of selling of the precious commodity by Singaporebased dealers and traders for profittaking, said Alvin Liew, an analyst for United Overseas Bank.
“Even though the domestic consumption of gold is very small, Singapore is a big regional player in the gold trade. And gold was a clear beneficiary of the uncertain environment in the first half of 2016,” Liew said in a research note, adding that gold has been one of the bestperforming assets in 2016, with gains of nearly 21 per cent. “The high gold price could have led to gold dishoarding, incentivising sellers to come out to take advantage of the surge in gold prices,” he added. The numbers show exports of nonmonetary gold totalled S$389.95 million (US$288.81 million) in May, up from S$72.66 million in May 2015. For the whole of 2015, non-monetary gold exports totalled S$1.07 billion. The top three major export destination for gold in May were Switzerland, Malaysia and China.
Last month, Singapore slashed its exports forecasts for this year. IE Singapore expects non-oil domestic exports to contract 3.0-5.0 per cent, down from previous projections of a 0.0-2.0 per cent expansion. Exports to China, Singapore’s top overseas market, fell 10.1 per cent in May from a year earlier, after declining 7.4 per cent in April. That came even as China’s imports in May reported the smallest decline since they turned negative in November 2014, spurring some hopes of a pick-up in domestic demand in the world’s second-largest economy. Shipments to the United States grew 9.1 per cent last month on-year, compared with a 7.0 per cent slide in April. Sales to Europe contracted 14.0 per cent in May after gaining 20.6 per cent in April. Reuters
May NODX +11.6 pct y/y vs -2.3 pct forecast May NODX +16.8 pct m/m sadj vs +2.6 pct forecast NODX to U.S. +9.1 pct y/y vs -7.0 pct y/y April NODX to China -10.1 pct y/y, to Europe -14.0 pct y/y On a month-on-month, seasonally adjusted basis, non-oil domestic exports in May expanded 16.8 per cent, well above the median forecast of 2.6 per cent growth. Growth in the pharmaceutical trade, a typically volatile data series due to highly variable export batch sizes, helped give a lift to May exports,
Money management
Japanese households creep towards riskier investments Cash deposits grew 1.3 per cent to 894 trillion yen. Thomas Wilson and Stanley White
Japanese households put more money into stocks and mutual funds in the January to March quarter but the value of their assets fell for the first time in more than five years due to a stronger yen and weakening stock market, data showed on Friday. The Bank of Japan (BOJ) data showing tentative signs of a move towards riskier assets is a first glimpse into the movement of funds in Japan since the central bank announced its negative interest rate policy in January. Total household assets fell 0.6 per cent to 1,706 trillion yen (US$16.3 trillion) from the same period a year earlier as the value of investments in
riskier assets such as mutual funds declined. Cash deposits grew 1.3 per cent to 894 trillion yen. The value of investments in mutual funds dropped 3.7 per cent to 92 trillion yen, the first fall in four years. Assets held in stocks fell 9.9 per cent to 153 trillion yen, their steepest fall since the height of the global financial crisis in 2009. Household assets include cash, bank savings, foreign currency savings, stocks, investment trusts, pensions, insurance and overseas securities. The BOJ attributed the fall in household assets to a stronger yen and weaker stock market. The Nikkei average lost more than 9 per cent in the first three months of the year,
less money to spare for investments, Aida said, adding it was too soon to draw any conclusions on the role played by negative interest rates in the slight shift towards riskier assets.
Key Points Household asset value falls 0.6 per cent to 1,706 trln yen 614 bln yen flows into stocks and mutual funds in Jan-March Too soon to see full impact of negative rates - economists In February, the BOJ started charging commercial banks 0.1 per cent interest on a small portion of reserves they keep at the central bank in a bid to stimulate lending and meet its 2 per cent inflation target. Negative rates do not apply to savings deposits for households, but it initially sparked a lot of concern among individual investors about how to save and invest. The BOJ is also buying government debt at an annual pace of 80 trillion yen as part of its quantitative easing programme. When BOJ Governor Haruhiko Kuroda launched quantitative easing in early 2013, he said one aim of monetary policy was to encourage portfolio rebalancing. But the BOJ’s data showed little progress in getting corporate Japan to use its cash reserves for investment. Cash and savings at non-financial companies rose to a record high of 261 trillion yen in January-March. 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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as low oil prices and growth fears stalked investors. “Risk-taking activity has been limited,” said Takuji Aida, chief economist at Societe General Securities in Tokyo. “But households are thinking that yield levels are too low, so there has been some movement from cash to investment.” The BOJ’s negative interest rate policy, designed to force yields and other interest rates lower, took effect in mid-February. Cash inflows to stocks and mutual funds totalled 614 billion yen between January-March versus net outflows of 239 billion yen the previous quarter, suggesting that some Japanese savers are testing the waters of investments in higher-yield assets. However, the falling value of household assets means savers have
Business Daily Monday, June 20 2016 13
Asia In Brief
‘The country, which has about 103 million active mobile numbers, is expected to import 16 million to 17 million smartphones in 2016’
Mobile banking
Thailand’s telecoms regulator, c. bank join forces to boost cyber security The country has about 10 million mobile banking users out of the 67 million population. Thailand’s telecoms regulator and central bank said on Friday they had agreed steps to improve cyber security for electronic transactions via mobile phones as the country pursues a goal to become a cashless society. A finger print scan will be among the measures to be introduced to protect mobile users from scams, and it should be ready for service in December, Takorn Tantasith, secretary-general of the regulator, told a news conference. The regulator National Broadcasting and Telecommunication Commission will also examine the service fees that telecoms operators charge customers to ensure fair treatment, he said. Thailand has about 10 million
mobile banking users out of the 67 million population and the number is expected to rise after a strong growth of average 73 per cent annually in the past 5 years, Bank of Thailand Governor Veerathai Santiprabhob said. The cooperation will support the country’s electronic payment policy after the central bank and Thai commercial banks announced on Wednesday a plan to offer a new money-transfer system, PromptPay, Veerathai said. PromptPay, previously known as AnyID scheme, is seen as the first stage to transfer Thailand into a cashless society. It will enable people to use national ID or mobile phone numbers for
payments to buy goods and money transfers, and it will open for registration on July 15 before services start on October 31. The launch of super high-speed fourth generation mobile services is the main driver pushing up growth in mobile banking and electronic commerce in Thailand, Takorn said. Thailand, the second-largest smartphone market in Southeast Asia, has imported more than 77 million smartphones since 3G services were launched by operators in 2013, Takorn said. The country, which has about 103 million active mobile numbers, is expected to import 16 million to 17 million smartphones in 2016, lower than about 20 million last year, as the market is becoming saturated as many Thais have more than one mobile phone, he said. Reuters
Exports slow
Indonesian coffee trade to focus on niche markets The delay in harvesting has constrained Indonesian robusta export flows. Bernadette Christina Munthe and David Brough
Indonesia’s robusta coffee shipments are expected to remain slow in coming weeks due to fierce competition from Vietnamese supplies, prompting traders to focus on domestic and niche markets such as Egypt. Indonesia is the world’s No. 3 robusta producer after Vietnam and Brazil. The Indonesian robusta harvest started around a month late, delayed by dry weather, and farmers have focused mainly on domestic sales in time for the Muslim fasting month of Ramadan now under way, trade sources said. They quoted cash premiums of grade 2 Vietnamese robusta at US$50 over September futures, compared with US$110-150 over for grade 4 Indonesian, 80 defects coffee.
Key Points Indonesia robusta harvest started a month late Trade sees strong domestic market for Indonesian robusta “Price is the second problem (facing Indonesian exports). The first issue is about certainty of supply,” said Moelyono Soesilo, purchasing and operational director at PT Taman Delta Indonesia, a coffee exporter based in Central Java.
“Indonesian robusta exports are slow because of the weaker production due to the El Niño weather pattern and the late start of harvesting,” said Shweta Upadhyaya, agricultural commodities analyst at Agrimoney. The main harvest, which usually occurs in May-June, was expected to take place in July-August this year. The main focus of sales was currently to the domestic market. “The internal market in Indonesia is very strong and almost 50 per cent of the crop is retained and roasted there,” a European physical trader said. Indonesia exports its coffee to other
Asian countries, including India for the low grades, the European trader added. Despite the competitiveness of Vietnamese supplies, Indonesia was expected to maintain strong sales to markets such as Egypt which have an established taste for its bigger, better quality beans. “If you are used to a certain taste, you take what you prefer,” the European trader said, referring to the Egyptian market for Indonesian robusta. The higher price of Indonesian robusta would not hold back sales, said Pranoto Soenarto, vice-chairman of the Association of Indonesian Coffee Exporters and Producers (AICE). “No matter how much coffee Indonesia produces, the market will absorb it,” he said. Reuters
GDP
Indonesia c.bank’s easing to add up growth Interest rate cuts by Indonesia’s central bank and policies to bolster lending should add up to 0.2 per cent of growth to Southeast Asia’s largest economy this year, a senior official said. Bank Indonesia has cut benchmark interest rates four times this year, by a total of 100 basis points (bps), most recently on Thursday. “This year, between 0.1-0.2 per cent will be contributed from those easing,” Juda Agung, the central bank’s executive director of monetary and economic policy, told Reuters late on Friday. The central bank has also unveiled measures to boost slowing loan growth. Strategy
Mitsubishi Heavy Industries open to defence partnerships Mitsubishi Heavy Industries Ltd should have pushed harder to market its defence technology to win a US$40 billion submarine sale to Australia, and is open to partnerships with U.S. defence companies, Chief Executive Shunichi Miyanaga said on Friday. In a wide-ranging interview with Reuters journalists, Miyanaga said the industrial conglomerate, known as MHI, likely will continue investing in the United States whatever the outcome of the U.S. presidential election on Nov. 8, and expressed frustration about overstated automobile mileage readings on vehicles made by Mitsubishi Motors Corp, which it has a 12.6 per cent stake in but does not control. Trade
Brunei exports fall by 22.6 per cent in April Brunei’s exports fell by 22.6 per cent to 512.3 million Brunei dollars (US$379.8 million) in April from last month owing to lower mineral fuel exports, according to the Department of Economic Planning and Development (JPKE) on Saturday. The JPKE said exports of mineral fuel, which accounted for the largest chunk of exports, hit 455.3 million Brunei dollars (US$337.5 million) in April, 19.6 per cent lower than in March. Brunei’s total trade balance for April stood at 195.9 million Brunei dollars (US$145.2 million), which is down by 36.4 per cent compared to March. Government investigation
India launches probe into phone-tapping scandal India has launched a major probe into an alleged phone tapping scandal that targeted senior Ministers, top bureaucrats and corporate honchos between 2001 and 2006. Sources said yesterday that the Indian Home Ministry ordered the probe recently in the wake of a complaint to Prime Minister Narendra Modi’s office that corporate giant Essar Group had allegedly tapped phones of a number of senior ministers, top officials and industrialists over five years. “The probe report will be handed over to the Prime Minister’s Office,” the sources said.
14 Business Daily Monday, June 20 2016
International In Brief Olympics
Brazil plans emergency funds for Rio The Brazilian government plans to transfer 2.9 billion reais (US$849 million) in emergency funds to the state of Rio de Janeiro to pay for infrastructure and security during the Olympic Games, a government official told Reuters on Saturday. A day earlier the governor of Rio declared a state of financial emergency as a drop in revenues caused by a crippling recession and a slump in oil prices has left state coffers depleted ahead of the games that start on August 5. Rio’s financial crisis threatens to disrupt public services during the Olympics. EU
Excessive deficit decision delayed until next month The European Union council of finance ministers (Ecofin) decided on Friday to close the Excessive Deficit Procedures against Cyprus, Ireland and Slovenia and to delay any position regarding Spain and Portugal, Jeroen Dijsselbloem announced. “We briefly analysed the European Commission references to review the targets, included in the specific recommendations per country for Spain and Portugal. We took note of the Commission’s proposals, but we decided to delay the discussion about this information until the Commission publishes its formal proposals about the EDP for these two countries, which should happen in early July”, the acting chairman of Ecofin said.
New market
U.S. regulator approves IEX as national stock exchange Rival exchanges could be adversely affected by an additional exchange that will eat into the revenue pie from market data fees.
T
he U.S. Securities and Exchange Commission has approved alternative trading group IEX Group Inc’s request to launch a new U.S. public stock exchange, in a move likely to intensify arguments over current market structure. IEX, made famous by Michael Lewis’ 2014 book “Flash Boys: A Wall Street Revolt,” is notable because it would be the only exchange in the United States to include a so-called speed bump - a 350 millionths-ofa-second delay in all incoming and outgoing orders. According to IEX, that delay protects investors from high-frequency traders who can pick up on trading signals and use their faster technology to electronically front-run slower investors. The SEC approved the speed bump under what it called an interpretation of Regulation NMS, for National Market System, which disallowed intentional delays of price displays. Despite that regulation, the agency said it had determined that “a small delay will not prevent investors from accessing stock prices in a fair and efficient manner.” “We are grateful and humbled by the support we’ve received from the
investor community, without it, we may have faced a different result,” said Brad Katsuyama, co-founder and chief executive of IEX. “This is a milestone for all of those who have supported IEX and we look forward to becoming a stock exchange, which will provide us the opportunity to have an even greater impact on the markets.” In related decisions, the SEC said it will now consider delays of less that one millisecond at a “de minimis” level and will also conduct a study within two years to determine the effect of intentional delays on market quality, including asset pricing. Other exchanges, including Nasdaq, the New York Stock Exchange and BATS Global Markets, have vigorously opposed the idea of IEX gaining regulatory approval as a U.S. stock exchange. Nasdaq has suggested that any SEC approval could be legally challenged but a source familiar with the SEC believed its authority could withstand any challenge. Rival exchanges could be adversely affected by an additional exchange that will eat into the revenue pie from market data fees, while IEX’s speed bump - which will affect the speed of orders throughout the system
“We are grateful and humbled by the support we’ve received from the investor community, without it, we may have faced a different result”
Lawsuit
U.S. ends criminal case against FedEx The U.S. Department of Justice on Friday dismissed all criminal charges against FedEx Corp in a case where the company was accused of shipping packages from illegal online pharmacies despite repeated warnings, according to a court filing. Trial had begun earlier last week in San Francisco federal court, and FedEx faced a potential US$1.6 billion in penalties. A Justice Department spokesman declined to comment on the reasons for the abrupt dismissal. In a statement, FedEx spokesman Patrick Fitzgerald said the company has always been innocent and the case should never have been brought. M&A
Bayer explores sale of radiology business Bayer AG, the German chemicals and healthcare company trying to acquire Monsanto Co, is exploring a sale of its radiology supplies unit that could be worth more than US$3 billion, according to people familiar with the matter. Bayer has said it does not need to sell assets to finance its US$62 billion bid for Monsanto but has stressed that the strategic reviews of its businesses would continue as usual. The company is in talks with investment banks about hiring a financial adviser to explore strategic alternatives for the radiology supplies business, including a sale, the sources said this week.
- could dampen trading volumes and hit revenue. Nasdaq declined comment on the decision while a Bats spokesman said, “Bats congratulates IEX and appreciates the significant changes they made to their application to address industry concerns.” The approval marks the first time in three years that the SEC has sanctioned a new trading exchange. The most recent approval was when International Securities Exchange’s options exchange, ISE Gemini, received the green light in July 2013. It also opens the door for other exchanges to petition for their own speed bumps. The SEC source said “if you do this for one you have to do it for all”, but declined to speculate about whether other exchanges would want their own. The IEX decision comes as the biggest exchanges have been losing market share to private trading venues, called dark pools, and other newer exchanges. The New York Stock Exchange and NYSE Arca, for example, combined for about 29 per cent of market share in 2009, based on trading volume. They now have about 24 per cent market share this year, according to Rosenblatt Securities data. IEX expects to implement trading in all stock symbols on September 2, ceasing operations of the IEX Alternative Trading System (ATS), also known as a dark pool, according to its website. Reuters
Other exchanges, including Nasdaq, the New York Stock Exchange and BATS Global Markets, have vigorously opposed the idea of IEX gaining regulatory approval
Brad Katsuyama, co-founder and chief executive of IEX
European Banking Authority
EU watchdog to leave London in case of Brexit Britain votes on June 23 on whether to stay in the 28-member bloc. The European Union’s banking watchdog will move from London to another European capital if Britain decides to quit the bloc in a referendum this week, its chairman said in an interview published yesterday. The London-based EBA, founded in 2011 as a reaction to the global financial crisis, operates as a pan-EU regulator, writing and coordinating banking rules across the bloc. “If the British should decide to leave the EU, we actually would have to move to another European capital,” Andrea Enria, head of the European Banking Authority (EBA), told the German newspaper Welt am Sonntag. While betting odds have consistently indicated a vote to remain in the EU, opinion pollsters have so far painted
contradictory pictures of how Britons will vote. The EBA is currently working on an EU single rulebook aimed at ensuring a level playing field for all banks across the 28-country bloc’s capital market. “This work needs to be completed irrespective of the result of the referendum,” said Enria, an Italian national. “We must ensure that there are no different rules between the countries that have the euro and those that do not have it.” Enria said the European banking sector was more stable now than five years ago, but there was still need for consolidation. “If you look at the balance sheets of banks, you could actually ask yourself whether such low profitability and such low return
on investment are sustainable in the long term,” he said. Banks should speed up their efforts to deal with non-performing loans and change their internal business culture in order to avoid future scandals and fines, Enria said.
“If the British should decide to leave the EU, we actually would have to move to another European capital” Andrea Enria, head of the European Banking Authority
That banks have hardly made any progress in these two areas is the reason why the European Central Bank (ECB) is struggling to boost lending and generate more growth despite its bond-purchase programme, he added. Reuters
Business Daily Monday, June 20 2016 15
Opinion Business Wires
Taipei Times Chinese investment in MediaTek, a leading handset chipmaker, should be blocked to prevent technology transfer, New Power Party (NPP) legislators, an academic and members of the Economic Democracy Union said yesterday, adding that any exceptions made for the firm would set a dangerous precedent. “Our semiconductor design industry has a large market in China and it faces a huge amount of pressure to allow direct Chinese investment. Taiwanese government regulations are their strongest defence, because it enables them to tell Chinese firms that no is no and there is nothing they can do,” NPP Executive Chairman Huang Kuo-chang said.
“Larger markets provide a greater incentive for investors and traders to enter, and for governments to provide new public goods”
The Gulf States’ expat dividend
Thanh Nien News In a new effort to collect back taxes from businesses, authorities in Hanoi are considering banning companies from starting new projects until all dues are paid, local media reported. Details about the plan were sketchy, but news website VnExpress said the city’s tax office has apparently had problems with collecting unpaid taxes from real estate businesses in particular. Since last year scores of property developers have been named and shamed into paying tax dues. Many however have not fulfilled their obligations while continuing to work on new projects, it said.
The Korea Herald South Korea’s agricultural and fisheries exports to the United States are on a steep increase, data showed Saturday, an apparent indication of the benefits from the bilateral free trade agreement between the two countries that went into effect four years ago. In the first four months of the year, shipments of South Korean agricultural and fisheries goods to the U.S. came to 310 million, up 9.8 per cent from the same period last year, according to the data from the Los Angeles branch of the state-run Korea Agro-Fisheries and Food Trade Corp.
Philstar Property and real estate consultancy firm Pinnacle Real Estate Consulting Services Inc. expects the real estate sector (in Philippines) to post a doubledigit growth this year. In 2015, the real estate sector expanded 12.7 per cent, boosting the strong 5.9 per cent growth in the total gross revenue index of key industries. “After more than a decade of economic growth and several years of real estate boom, everyone is anticipating the positive political climate to sustain this growth. While growth may not be phenomenal due to higher base, stable growth is more than welcome,” Pinnacle said in a report.
H
ow should policymakers in the Middle East’s Gulf States manage their countries’ large expatriate workforces? In Saudi Arabia, foreign nationals account for roughly one-third of the population. In Qatar and the United Arab Emirates, nine out of every ten residents is an expatriate. Should these countries’ governments continue to invest heavily in developing indigenous labour forces, with the aim of decreasing dependency on foreign workers? The extraordinarily high proportion of foreign labour within the Gulf Cooperation Council (GCC) countries is often considered problematic, because, as some see it, it threatens local cultures and national identities, holds down wages, and impedes the development of domestic skills and talent. With so many trades and professions dominated by relatively cheap overseas labour, the indigenous population is often left with few occupational domains offering competitive wages. These tend to be predominantly in the public sector, where oil revenues are used to maintain high pay and attractive working conditions. But an important dimension of the policy debate within the region risks being overlooked: The Gulf States’ large foreign populations are not just workers; they are also consumers. By inflating the population of the countries in which they live, expatriate workers are helping drive economic growth. In fact, the GCC benefits from a double expat dividend: not just a diverse consumer base on the demand side, but also a flexible, youthful workforce on the supply side. As a result, following the rapid decline in oil prices of recent years, companies could lay off thousands of workers without having to worry about raising the unemployment rate or putting a substantial burden on government coffers. This unique feature of GCC labour markets enhances the region’s ability to adapt and adjust to fluctuating economic cycles. Because GCC countries can afford to expand their workforces without running the risk that the share of their elderly population will increase over the long run, they enjoy constant young-to-old and consumerto-producer “support ratios.” Moreover, public and private investment in the region – in infrastructure, education, health, and other services – has been geared toward the existing consumer base, inflated by the expat population. Those inflows are now causing the GCC population to grow four times faster than in emerging markets and the United States, seven times faster than in China, and ten times faster than in the eurozone. This trend is expected to continue, with annual population growth in the GCC averaging 1.8 per cent – twice the average for emerging markets. And, according to an IMF study, population growth
“
Sami Mahroum Director of the Innovation & Policy Initiative at INSEAD
in the Middle East and North Africa between 1970 and 2000 has raised the annual rate of growth of output per effective consumer by about 0.5-0.6 percentage points. Larger consumer markets have sufficient economies of scale and diversity to make the introduction of new products and services into the region economically viable. They have the added benefit of generating what the economist Amar Bhidé calls venturesome consumption: demand-led entrepreneurship and innovation. Economies of scale also allow the delivery of health, education, and other services, such as entertainment and leisure, at lower prices. And larger markets provide a greater incentive for investors and traders to enter, and for governments to provide new public goods. If not for expat populations in rural and remote areas, there would have been little reason to invest in roads, schools, and hospitals – let alone parks, libraries, and theatres. GCC countries have made such investments for the past four or five decades, and on-going construction projects in the GCC are estimated to run in the trillions of dollars. In education, enrolment in K-12 schools across the GCC rose from 2.7 million in 2003 to 10.7 million in 2012, a compound annual growth rate of 16.5 per cent. Investment in this sector stands at around US$150 billion. In health care, total spending in the region is expected to increase to US$133 billion per year by 2018. The foreign population also provides a humancapital dividend to the local population, as talented expats introduce knowledge and innovation in sectors that the GCC wants to develop. Research from MIT has shown that an increase in population size is an important driver of technological progress. And studies in Japan indicate that higher population densities create stronger incentives for individuals to become entrepreneurs; a 10 per cent increase in population density increases the share of people who wish to become entrepreneurs by approximately 1 per cent. The GCC’s expat dividend could grow much bigger – but only if governments in the region establish the necessary mechanisms. Such mechanisms should be designed to maximize the benefits that foreign nationals provide. Work-and-retire or invest-and-retire visas, for example, would encourage expats to save and accumulate pension funds – thereby enabling them to contribute even more significantly to the region’s rapid economic growth. Project Syndicate
The Gulf States’ large foreign populations are not just workers; they are also consumers
”
16 Business Daily Monday, June 20 2016
Closing Regional poll
Malaysia’s Najib wins by-elections, boosting grip on party The vote was the first test of public support for Najib on peninsular Malaysia after a year of political turmoil over funding scandals. Shamim Adam and Niluksi Koswanage
M
alaysian P r i m e Minister Najib Razak’s coalition won a pair of by-elections on Saturday with bigger majorities, helping him solidify his grip on power. Voters in Sungai Besar in Selangor state and Kuala Kangsar in the northern Perak region opted to keep ruling party lawmakers in the seats, with wider majorities than the 2013 federal election, according to the Election Commission. The polls came after a helicopter crash last month killed incumbents from Najib’s United Malays National Organisation. The vote was the first test of public support for Najib on peninsular Malaysia after a year of political turmoil over funding scandals. The size of the wins suggests Najib retains support within the broader Barisan Nasional coalition led by UMNO.
at Universiti Utara Malaysia. “It will validate his position that despite all the problems he’s facing, they are able to win. Otherwise, his status will be in the balance, especially as president of UMNO.”
Sarawak win
Barisan Nasional also secured a bigger majority in recent elections in Malaysia’s biggest state of Sarawak, but the vote across the South China Sea on Borneo island was dominated by local issues. Voters on the peninsula are more attuned to the turmoil surrounding the premier.
“Many Chinese are not happy with the way the opposition has been going” Ibrahim Suffian, an analyst at the Merdeka Center for Opinion Research in Kuala Lumpur “Now, with these two huge majority wins, and BN’s landslide 72 out of 82 seat Sarawak election win last month, the people have shown their confidence for and trust in BN,” Najib
said early yesterday in a statement. “They rejected Tun Mahathir’s lies, they rejected his unworkable coalition of former enemies, and they rejected the incoherent opposition.” Ministers in Najib’s cabinet made daily trips to the two constituencies before election day, shaking hands and at times handing out bags of rice and other aid to the poor. They sought to counter an opposition focusing on questions about Najib’s credibility. In a Twitter post on Friday, Najib told voters not to taken in by what he called the opposition’s games.
‘Better access’
“I support the opposition more than BN, but you have to also think about who has better access to the government, who can get more things done and who can improve your life,” said Mei, an ethnic Chinese fruit seller in Sekinchan town in Sungai Besar who would give only a partial name. “You have to look out for your own interests, and not what the prime minister did or didn’t do.” A divided opposition made it easier for BN coalition to win, and the presence of multiple candidates assisted it. Two opposition groups ran against UMNO for both seats, while an independent candidate turned Kuala Kangsar into a four-cornered battle.
Lower turnout
Still, turnout in the semi-urban constituencies was between 71 and 74 per cent for the two seats, lower than the Election Commission’s forecast of 75 per cent and shy of levels above 80 per cent recorded in 2013. That was due to voters living in other cities and outside Malaysia who didn’t return to cast a ballot, official news agency Bernama said, citing EC Chairman Mohd Hashim Abdullah. Former leader Mahathir Mohamad has recently lost traction in his bid to convince party officials that Najib is a liability and will cost them a reign unbroken since 1957. Most UMNO divisional chiefs back the premier, even amid concerns about slowing growth and its impact on ethnic Malays, the cornerstone of the party. “Najib desperately needs these wins,” said Ahmad Martadha Mohamed, dean of the college of law, government and international studies
Malaysian Prime Minister Najib Razak
UMNO won Sungai Besar in 2013 in a straight fight, and Kuala Kangsar in a three-way race, both by narrow margins.
Religious issues
UMNO held Sungai Besar by 9,191 votes, compared with a 399 vote majority in 2013. In Kuala Kangsar, its candidate - the widow of the parliamentarian who died in the helicopter crash - had 6,969 more votes than her nearest rival even though her Islamic mourning period meant she couldn’t campaign in public. Racial and religious issues are coming to the fore of Malaysian politics, including the past two weeks of campaigning. UMNO, in power since independence, won the 2013 ballot by its slimmest-ever result as Chinese and Indian electors deserted Najib’s coalition. Since then, Najib has wooed the Malay majority. He’s reached out to the opposition Parti Islam seMalaysia and proposed they work to promote Islam’s doctrines. PAS, which is pushing for the Islamic penal code to be implemented in a state it controls, also competed on Saturday. Under PAS’s hudud laws, adulterers and apostates could face death by stoning, while those found guilty of theft could have their hands amputated. About 68 per cent of voters in Kuala Kangsar are Malay, 24 per cent are Chinese, and Indians and other ethnicities make up the rest, according to the Bernama news agency. In Sungai Besar, Malays make up about 67 per cent of voters, while 31 per cent are Chinese and the rest minority groups. “ Th e i n fi ghti n g w i thi n th e opposition dampened the mood,” said Ibrahim Suffian, an analyst at the Merdeka Center for Opinion Research in Kuala Lumpur. “A lot of young voters, the outstation voters just didn’t come back to vote, there is a lot of disillusionment,” he said. “Many Chinese are not happy with the way the opposition has been going. BN has used the infighting to their advantage, and Najib is on much firmer ground than he was just after the general elections in 2013 even with the 1MDB issues,” Ibrahim said. Bloomberg News
Stock markets
China’s securities
Development
ICBC lists US$400 million bond on Nasdaq Dubai
Hang Seng to form first Bangladesh signs World Bank foreign majority-owned fund loan for economic zones
Nasdaq Dubai said yesterday that it welcomed the listing of a US$400 million conventional bond by the Industrial and Commercial Bank of China (ICBC), the world’s biggest lender in relation to assets. This listing marked the second bond to be listed by ICBC on the Middle East’s international exchange, following a US$500 million listing in May 2015, said Nasdaq Dubai in an e-mailed statement. The exchange is the only international market by regulatory standards in the Middle East. The new listing underlines the continuing expansion of capital markets links between the UAE and China, as well as the success of Dubai in positioning itself as the leading financial centre in the Middle East. Hamed Ali, Chief Executive of Nasdaq Dubai, said Nasdaq Dubai provides ICBC with high regional and global visibility as well as close links with investors everywhere. In 2008, ICBC was the first of the biggest four Chinese lenders establishing its Middle East headquarters in the banking free zone DIFC in Dubai. The Nasdaq Dubai is a licensed market of the DIFC. Xinhua
China’s securities regulator has approved a plan by Hang Seng Bank and a Chinese partner to form the first fund management company that will be majority owned by a foreign firm in a special development zone in southern China, according to a posting on the zone’s website. The fund management company will be founded in Shenzhen’s Qianhai special development zone, with Hang Seng Bank holding 70 per cent ownership of the company and state-run Shenzhen Qianhai Financial Holdings Co owning the remaining stake, the posting on Saturday said. The approval marks the latest step toward linking the financial hub of Hong Kong with rapid development in the mainland. China’s central government approved the Qianhai zone in 2010 specifically to promote cross-border development of the service industry in partnership with Hong Kong. While Hong Kong is separately administered from mainland China under the “one country, two systems” policy, the two have become increasingly economically and politically integrated since the British returned the former colony to China in 1997. Reuters
The Bangladeshi government has signed a US$130 million additional financing agreement with the World Bank to scale up support for the recently licensed and new economic zones to attract foreign and domestic investment as well as to create more jobs in the manufacturing sector. The additional financing to the Private Sector Development Support Project (PSDSP) will help develop new Economic Zones through identifying, licensing, and negotiating Public-Private Partnership for economic zone development, said the World Bank yesterday. In the last two years, it said PSDSP helped with the licensing of 16 Economic Zones and Hi-Tech Parks, and with the assessment of 33 new sites for development as Economic Zones over the next several years. “Bangladesh needs to create more and better jobs in the manufacturing sector to accelerate growth and poverty reduction. The economic zones play a critical role in attracting private investment and creating jobs, as the benefits are many. For example, the new zones have reduced the time to register a business by 82 per cent.” said Rajashree Paralkar, acting World Bank country director for Bangladesh. Xinhua