Cash hand-out money waiting to be collected Public finance Page 4
Tuesday, June 21 2016 Year V Nr. 1069 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai
www.macaubusinessdaily.com
Gaming
Energy sector
IP lawsuit
Bernstein: MGM Cotai opening possibly put off to Q2 Page 7
Apple legal setback in mainland could fuel Chinese competitors Page 8
Putin mulls selling share of giant Rosneft to China and India Page 16
Muddy pond
Macao Foundation
1.6 per cent of Macau’s annual gross gaming revenue goes to funding the Macao Foundation. From hundreds of thousands of patacas in the 1980s, the amount has risen to billions in the last decade. Legislator Au Kam San has slammed the policy as being “outdated” and argues there is a lack of transparency for the subsidies awarded and its management has become “a VIP club” of higher public employees, financial tycoons and big associations. Page 3
Red alert
Unclear grounds
Scam or investment The Portuguese Securities Market Commission (CMVM) has issued a warning about Pacific Tycoon, a Hong Kong company that promises a return of 12 per cent to those who want to invest in shipping container leasing. Page 5
Legislators oppose the non-mandatory contribution pension fund scheme proposed by the government. Some argue the current economic climate is not favourable and employees with shorter work contracts will be at a disadvantage. The discussion at the Legislative Assembly will continue today.
Six months make a year
Non-mandatory pensions Page 2
20,510.20 +340.22 (1.69%)
Power Assets Holdings Ltd
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Wharf Holdings Ltd/The
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Belle International Holdings
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Sands China Ltd
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China Mengniu Dairy Co Ltd
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MTR Corp Ltd
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Cheung Kong Infrastructure
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Sun Hung Kai Properties Ltd
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Hengan International Group
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Want Want China Holdings
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HSBC Holdings PLC
+3.46%
Bank of East Asia Ltd/The
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Link REIT
0.00%
China Mobile Ltd
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China Petroleum & Chemical
+3.10%
CK Hutchison Holdings Ltd
+1.97%
Li & Fung Ltd
0.00%
Bank of Communications
28° 31° 26° 31° 25° 31° 26° 31° 27° 31°
+0.19%
+1.01%
Today
Source: Bloomberg
HK Hang Seng Index June 20, 2016
Wed
Thu
I SSN 2226-8294
Fri
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Source: AccuWeather
Acquisition wave A national hunger for overseas acquisitions is challenging imaginations and pockets. During the first six months of this year, Chinese spending on foreign global assets fully outgrew 2015 figures. Page 9
2 Business Daily Tuesday, June 21 2016
Macau Pensions Discussions on non-mandatory pension fund draft continue today
Not a good time for new pensions Legislators oppose non-mandatory contribution pension fund arguing the current economic climate is not favourable and employees with shorter work contracts will be at a disadvantage. Nelson Moura nelson.moura@macaubusinessdaily.com
D
uring yesterday’s Legislative Assembly (AL) plenary session, many legislators voiced their opposition to the
non-mandatory contribution pension fund, arguing that it will create more pressure for SME’s and places employees with shorter work contracts at a disadvantage. Under the proposed non-mandatory fund scheme, in the case of termination of a work contract, if an
employee has completed three years of contributions, they would be entitled to 30 per cent of the employer’s contribution amount. The worker would then receive an added 10 per cent for every year of work, and would be able to receive 100 per cent of the employer’s share after a 10-year period is completed, according to the Social Security Fund (FSS). “So employees with only three years can’t get the contributions even in the case where their work contract was terminated due to the
bankruptcy of the company? What about restaurants and construction sites where labour contracts tend to be shorter? It means they don’t get a dime? That should be adjusted,” legislator Ella Lei Cheng stated. The President of the Administrative Committee of the FSS, Iong Kong Io, then responded that the new scheme was designed so that “workers can get compensation related to the time they spend in their position, with experienced workers having a bigger advantage.”
Not the best timing
While some legislators believe the new pension system should be enforced immediately, others believe the measure shouldn’t be applied at all, due to the current retracting economy in Macau. The proposed pension scheme says companies and employers will be awarded fiscal benefits if they agree to contribute, in cooperation with their employees, a minimum of 10 per cent of the salary amount to an individual’s retirement fund. Legislator Kou Hoi In stated it “is not the best timing” to apply this measure, as SME’s are already facing a lot of “pressure” due to the economic climate. “Companies are already facing having to pay for non-resident worker hiring fees, pregnancy leave. [This measure would] just pressure the employers who I think will be at a disadvantage. Maybe in three years is better to present this law since now the economy is so bad.” Further discussions on the proposed pension scheme will resume today.
Housing Public housing delays worry legislators
Public housing wanted Legislators raise issue of lack of public housing construction in Macau, while 19,000 candidates await delayed units promised by the government. Nelson Moura nelson.moura@macaubusinessdaily.com
At yesterday’s Legislative Assembly (LA) plenary session, legislators raised the issue of the lack of public housing, delays in the attribution of housing units to 19,000 residents, and the current “unrealistic” offer of private housing. Legislator Kwan Tsui Hang stated there has been a registered increase in demand for public housing in the “last ten years”, while population dissatisfaction regarding delays in public housing units has also increased, with 19,000 applicants still waiting for promised apartments. The legislator then gave the Cheng I building situation as an “example related to the problem, with the project starting in 2012, it’s completion delayed to 2014, and total completion “only finalised last year” with the residents who purchased some of its units “complaining about the successive delays”. “In the beginning of February, the government said in a Legislative Assembly (LA) meeting the Cheng I building was being inspected and that after its reception licence was awarded it would be delivered to the Housing Bureau (IH). We’re in the end of June and there’s no more news about the project, even after we’ve asked plenty of times,” Kwan Tsui Hang stated. The legislator also mentioned that the Cheng I building wasn’t an “isolated case”, with many projects related to the 19,000 planned housing units seeing delays in their
completion since last year, and some buildings even awaiting completion of “cover construction.”
Budget private housing missing
Legislator Ho Ion Sang blamed the current housing problem on an “irrational” offer and demand system for budget housing, with the market being flooded with “high end” constructions that don’t meet residents’ housing needs. “In the 1980’s, the market offered an average of 5,266 private housing
units per year, increasing to 8,917 in the 1990’s, but with the sudden economic transformations in the 16 years after the handover to China, only 32,763 units were built, with an average of 2,047 units per year,” Ho Ion Sang stated. The legislator added that 2015 saw the “highest number” of private housing units built, a total of 5,265, but that their large average size of 114 square meters didn’t correspond to the needs of local residents who “generally look for housing with an average of 65 square meters”. “Although the government has promised the construction of 4,600 public housing units in the short term and 28,000 in the long term in the New Area Zone A, this will take time and won’t satisfy the housing needs of the residents,” Ho Ion Sang declared, suggesting the government should focus on budget housing in the short
term and correct the current uneven offer of private housing.
Public housing at the greyhound racetrack
Legislator Ella Lei Cheng I even suggested that the “17,000 square meter space” of the controversial greyhound racetrack should be used to ease the increasing demographic density caused by public housing construction in the Ilha Verde and Fai Chi Kei areas. “Of those units, 3,612 are occupied. 770 are waiting for a license to be used. And 3,170 still have their ceilings under construction,” said Ms. Lei. She suggested community buildings and projects such as schools and social service institutions should be built in the racetrack area, due to the “falling racetrack revenues” and lack of “social benefits” from the track.
Business Daily Tuesday, June 21 2016 3
Macau Macao Foundation Legislator demands more transparency of Foundation account
“VIP club” Legislator Au Kam San believes awarding 1.6 per cent of annual gaming revenue to the Macao Foundation is an “outdated” measure, stating that there is a lack of transparency for the subsidies awarded by the Foundation and its processes don’t follow MSAR regulations.
T
he Macao Foundation receives an unreasonable amou n t o f f unds an d there should be a more transparent process regarding the subsidies it awards, legislator Au Kam San stated in yesterday’s Legislative Assembly (LA) plenary session. “Recently the Macao Foundation conceded a subsidy of 100 million yuan (MOP123 million/US$15.4 million) to Jinan University. Why does the Macao Foundation have so much money? How are the billions of patacas spent by it awarded every year and how are they spent by the associations, private universities and private hospitals, which receive those funds every year?” questioned legislator Au Kam San, a former member of the New Democratic Macau Association. The legislator stated that the policy, which mandates that 1.6 per cent of the city’s gross gaming revenue is to be awarded to the Macao Foundation,
is “outdated”, since in the 1980s or 1990’s gaming revenue was between “MOP10 million or MOP20 million” while currently it is around “MOP200 billion to MOP300 billion.” “Just take into account the situation in 2014, when total gaming revenue was more than MOP300 billion and 1.6 per cent represented MOP5 billion. In 2015, even with the downturn in gaming revenues, the Macao Foundation received easily more than MOP3 billion. These are public funds, with no oversight, depending only of a Trustees Council where the Chief Executive is the President,” Au Kam San added.
“A VIP club”
The legislator believes the current management of the Macao Foundation has been transformed into a “VIP club” composed of “higher public employees, finance tycoons and big associations,” which due to their “complicity” make oversight impossible.
Plenary session of the Legislative Assembly holds discussion and vote on the amendment to the External Trade Law and proposal for the Non-mandatory Central Provident Fund System. Legislation
External Trade Law amendment passed unanimously Legislators passed the revisions to the Foreign Trade Law yesterday at the plenary session of the Legislative Assembly. The amendment introduces an ATA carnet system to simplify Customs clearance in order to promote the local MICE and logistics industry. The ATA is a system that enables the free movement of goods across frontiers and their temporary admission to a Customs territory with relief from duties and taxes. The goods are
covered by a single document known as the ATA carnet that is secured by an international guarantee system. Local authorities believe that with the development of the SAR as a more open and international territory, as well as the government’s determination to diversify the local economy, such policies should be able to better facilitate foreign exhibitors and businesses in order to benefit the local MICE and logistics industries.
The current Macao Foundation Trustees Council has three legislator members - Chan Meng Kam, Angela Leong On Kei and José Chui Sai Peng - while Chui Sai Cheong and Vong Hin Fai are the two members of the Macao Foundation Fiscal Council. The legislator added that he recently attempted to obtain more information on how a private university had applied to the Macao Foundation for funds for technology development, but he failed to receive a response or an expenses report from the Macao Foundation “even with his status as legislator”. The refusal to provide the information was allegedly justified with the explanation that the requested documents were the university’s private property, according to the legislator. “If I as a legislator can’t get that information from the Macao Foundation, how can I obtain them from the university? This demonstrates clearly that the Macao Foundation is covering up for the university,” Au Kam San stated, believing that this is against the SAR regulations on public expenditure.
Legislator proposes education subsidies change
Legislator Ma Chi Seng stated that post-graduate scholarships awarded by the Macao Foundation should follow the same regulations as the “Special Merit Scholarship” awarded by the Education and Youth Bureau (DSEJ). Currently, Macau students taking bachelor courses in overseas universities in the top 100 ranking are entitled to a renewable annual stipend of MOP300,000, while
“The Macao Foundation, a public entity, has been transformed into a VIP club of higher public employees, financial tycoons and big associations” Au Kam San, legislator The current account publication l a w stat es that ‘ass o c i at i o n s benefiting from public entities’ subsidies have to publish their expenses the next month they a r e a p p r o v e d, ” ac c o r d i n g t o government information, something the legislator believes hasn’t been done since the time of the previous Chief Executive (CE) Edmund Ho.
post-graduate scholarships receive a fixed amount of MOP57,000, regardless of the ranking and fees demanded by the university. The legislator proposed the same renewable system for the bachelor scholarships. The legislator also suggested similar scholarship systems as in Hong Kong and Mainland China, where as well as university fees, meals, accommodation, transport and other living expenses are also covered.
4 Business Daily Tuesday, June 21 2016
Macau In Brief Immigration
Macau residents enter Australia using E-Channel Starting from yesterday, Macau SAR electronic passport holders can use Australia’s automated immigration clearance system, which will expedite the process of immigration clearance for Macau residents, according to a statement issued by the SAR government yesterday. In line with the immigration facilitation that Australia has granted to Macau residents, effective on the same day, Australian passport holders can also use Macau’s automated immigration clearance system. The Public Security Police Force, the Public Security Forces Affairs Bureau and the Identification Services Bureau say they have been maintaining close communications and cooperation with the Australian Government on studying the technical requirements of using each other’s automated immigration clearance systems.
Public Finance Cash handout money waiting to be collected
Money in the waiting room More than MOP251 million worth of government cash handouts haven't been collected since 2008. Nelson Moura nelson.moura@macaubusinessdaily.com
W
h i le t h e M SA R government is preparing next month’s new round of cash handouts, more than MOP251 million worth (US$31.4 million) still hasn’t been collected by Macau residents since 2008, according to news agency Lusa. According to data sent to the news agency by the Financial Services Bureau (DSF), from 2008 until the end of 2015, a total of 37,866 cheques weren’t collected or deposited, amounting to a total value of MOP251.1 million. Since last year until the current month, 13,466 cheques weren’t cashed out (including those that were not collected or deposited), representing an amount of MOP110 million worth of cash handouts still awaiting collection.
The number of non-cashed out cheques registered each year has also increased, with 2,319 non-cashed out cheques registered in 2008 and 5,967 in 2014. Only between 2010 and 2011 did the number of non-cashed out cheques decrease from 3,513 to 3,050, according to Lusa.
Spreading the wealth throughout the village
With the aim of distributing the wealth generated from the gaming industry to residents, since 2008 the Macau government has distributed cheques of varying amounts to the population every year, with permanent residents – those born in Macau or living in the city for more than seven years - currently receiving MOP9,000 each, and non-permanent residents receiving MOP5,400 each. The measure, entitled Wealth Partaking Scheme, calculates the amounts according to the finances of the Special Administrative Region
as they pertain to the previous fiscal year. This year’s distribution amount totals MOP5.94 million, with distribution starting on July 4, beginning by bank transfer to public administration employees and subsidy beneficiaries. Later, cheques will be sent to residents in order according to their date of birth, DSF data stated. Eligible residents need to be MSAR Resident Identity Card (BIR) holders. Currently, the territory has 623,524 permanent residents and 62,058 nonpermanent residents. The 181,646 non-resident workers living in the city do not receive the handout, according to Lusa. Last year, Secretary for Economy and Finance Lionel Leong Vai Tac stated that the 2016 cash handout amounts could suffer an adjustment due to a possible decrease in the fiscal surplus as a result of declining gaming revenues, but this year’s cash handout amounts have not been changed from last year, even though gross gaming receipts fell 9.6 per cent to MOP18.4 billion in May, completing a two-year continuous decline.
Society
Gov’t to terminate subsidies for Sin Fong homeowners from August The deputy director of the Social Welfare Bureau Au Chi Keung said on Sunday that the government would stop distributing temporary subsidies to the homeowners of Sin Fong Garden from August, as the rebuilding plan of the residence is gradually implemented. According to the official, the government has given out a total of MOP24.5 million (US$3 million) to subsidize the homeowners who were forced to evacuate after one of the supporting pillars of the residence collapsed in 2012. Mr. Au added that the government is trying to recover its expenditure from the possible responsible party via the courts. SMEs
Registration is open for 21st MIF The 21st Macao International Trade & Investment Fair (MIF) will take place from October 20 to 22 at the Convention and Exhibition Centre of The Venetian Macao-Resort-Hotel, organized by The Macau Trade and Investment Promotion Institute (IPIM), according to a press release published by IPIM. Registration for participants is now open. About 100 booths are available for local SMEs to take part in the 21st MIF to sell ‘Made in Macau’, ‘Macau brand’ and ‘Macau business agent’ branded products. Products from Portuguese-speaking countries, including souvenirs, food, cultural and creative products, electronic products and handicrafts will also be prioritised. Registration is open until July 4.
Business
SME’s young entrepreneur’s incubator now on social media The “Business Incubator Centre for Young People” (CINJ) will now be available for consultation on an online platform, Facebook and a WeChat account, through the “MacaoYouthIncubation” tag or QR code scanning, according to a Macao Economic Services (DSE) release. The centre was created by the MSAR government in June of last year as an information platform for young entrepreneurs to find complementary support measures for startup creation. Now CINJ will have information available on social media regarding its services,
including consultation support by experienced entrepreneurs and business managers. The centre
also provides formation courses for aspiring young entrepreneurs in cooperation with the Macau Productivity and Technology transfer Center, with an Export and Import Procedures course staring on July 7 and Entrepreneurship Planning and Preparation courses starting on August 8 and 31. N.M.
Business Daily Tuesday, June 21 2016 5
Macau
Pacific Tycoon
Shipping container leasing: scam or hot investment? “Scam”, “red alert” and even a warning from the Portuguese Securities Market Commission regarding the activities of Hong Kong’s Pacific Tycoon, which promises at least 12 per cent profit monthly. João Paulo Meneses in Portugal putaoya@hotmail.com
H
ave you heard about Pacific Tycoon? If you are the kind of person who is always looking out for hot new investment opportunities, then maybe you have already heard about this Hong Kong company that promises a return of 12 per cent to those who want to invest in shipping container leasing. The problem is that Pacific Tycoon has been related to a scam and the Internet is full of red flags when we search its name online. And it’s not only on the Internet. This month, the Portuguese Securities Market Commission (CMVM) issued a warning about this company, saying it “is not permitted to engage in any activity of trading contracts for investment in tangible assets in Portuguese territory” and that “all persons and entities who have established a business relationship with this entity may contact the CMVM”. Business Daily contacted CMVM to learn more about this warning and the Head of Communications, São Igreja, went on to explain that it “appears on a request for information/ clarification sent to the CMVM by investors on possible commercialization of contracts (for the sale and rental of containers with guaranteed profitability) in Portugal”. These kinds of “trading contracts relating to tangible assets” are subject to a specific Portuguese legal framework and Pacific Tycoon does not meet those legal requirements. The CMVM Head of Communications confided to this newspaper that the Portuguese Securities Market Commission “analysed publicly available information (company website), requested clarification and more information on the company and concluded the need to issue the statement in question”.
What says Pacific Tycoon?
Pacific Tycoon did not answer our call, but has plenty of information on its website.
First: how it works.
“You need US$4100 to get started. This gives you ownership of one container that we rent out to
cargo transporters and traders. You lease the container to us and we sublease it to the industry”. After that, “there are two options available to you, the rate of return on your outlay is dependent on the option you choose”: 12 per cent Fixed Lease or Maximised Rental Agreement (“We rent the containers to cargo transporters with urgent demands due to lack of container availability. Returns to the container owner are set at 30 per cent of the net rental income, but variable in nature”). Whatever the option, Pacific Tycoon promises “your container belongs to you and is insured on land and sea” and the payment is made “on the 23rd of every month”.
Second: the accusations of scamming.
The company only recognizes as dangers “the obvious risks” that include “fluctuations in demand and market related currency risks. Currency risk applies when your currency devalues against the US Dollar, thus making your principal investment costlier and inversely if the US Dollar has devalued when you sell”. But the last of its “FAQ” questions gets to the point: “Why are the terms ponzi and red alert associated with shipping container leasing?” The answer: “Shipping container leasing has historically remained a carefully guarded secret of wealthy investors and well-established investment firms. When the markets tumbled in 2008, investors and financial institutions pulled their profitable (and unaffected) investments out of the shipping industry – along with multiple forms of alternative investments, a precautionary move to cover the sizable losses sustained in other markets. This was a common shift that penetrated the entire investment economy, leaving asset management companies like Pacific Tycoon, looking for new investors for their investment opportunities. Unfortunately, as a result they also became exposed to terms such as ponzi and red-alert investment, due to a lack of industry knowledge and common information surrounding this type of investment. Pacific Tycoon fields such industry slurs openly and transparently, hosting
their retrospective performance data here”.
What say investors?
Hundreds (thousands?) of investors have commented about Pacific Tycoon on the Internet, with a range of opinions. There are comments like: “what I did discover during my extensive research, was a good opportunity to invest and a company that makes a strong commitment to investors, that (in my personal experience) is reinforced by consistent monthly payments and industry
leading customer service”. And then others who suspect the company of being a scam: “Forgive me if I am a little harsh in my investigative and opinionated analysis, but I want to share what I learned about this company on one page and present to readers who are sceptical what I thought about this company. Remember, it’s not defamation or libel if it’s true or even thought logically to be true. You, of course, are free to make up your own mind”. Business Daily newspaper also contacted the Monetary Authority of Macau, but AMCM said that it “does not have any information about the company, which is not an authorised financial institution in Macau”.
6 Business Daily Tuesday, June 21 2016
Macau Aviation The Taiwanese airline to halt Macau-Taiwan routes from October-end
TransAsia Airways leaving local market
T
aiwan-based airline TransAsia Airways is to halt its flights to the city from October 30, the carrier’s operator TransAsia Airways Corporation announced yesterday. According to the statement, the decision to suspend the MacauTaiwan routes was made after “evaluating the operating benefits”. The announcement states that the airline’s routes to Okinawa, Japan and Guiyang, China will also be halted from the end of October. At present, TransAsia Airways connects the Special Administrative Region to three Taiwanese cities, with three daily round-trip flights to Taipei, eleven weekly round-trip flights to Kaohsiung and three weekly round-trip flights to Taichung. The company added in the announcement that it would provide necessary assistance to passengers who have bought tickets for the affected flights. The exit of TransAsia Airways from the local aviation market suggests there will only be three carriers left providing Macau-Taiwan flights, including local flag carrier Air Macau, Taiwanese-based Eva Air, and Taiwanese budget airline Tigerair. On July 11 last year, TransAsia Airways Corp’s wholly-owned budget carrier V Air also suspended its flights between Macau and Taiwan after just three months of operating the route, due to an unsatisfactory passenger load factor and failing to get a favourable flight time slot. On the other hand, the company also announced yesterday the promotion of the airline’s deputy general manager and pilot, Liu Dongming, to the official general manager position. K.L.
Liu Dongming, General Manager at TransAsia Airways
Gaming Angela Leong: Macau Jockey Club to introduce new strategies as revenues drop
Slowing horse racing Angela Leong On Kei, the vice chairperson of Macau Horse Racing Co. Ltd, admitted that revenues of the company operating the Macau Jockey Club have indeed been decreasing, claiming the operator would announce new business strategies in the new season to improve the downturn. Speaking to reporters on the sidelines of a public event on Sunday, the company executive stated that the continuous declines in horse-racing revenues have been caused by the overall economic environment of the Special Administrative Region, local broadcaster TDM reported. “We have given certain pressure to the Club’s chief executive, [Thomas Li Chu Kwan], telling him to be more
innovative as a chief executive, such as to think about how we can introduce more diversified offers to improve the revenues,” Ms. Leong said. “We hope to bring out more activities as well. But currently, we haven’t come up with a certain proposal,” she added. According to the official data released by the Gaming Inspection and Coordination Bureau (DICJ), the Macau Jockey Club only generated some MOP36 million (US$4.5 million) in gross revenues for the first quarter of this year, a plunge of 33 per cent compared to MOP54 million one year ago. In addition, for the whole year of 2015, its total revenues were slashed by 59 per cent year-on-year
to MOP125 million. Macau Horse Racing Co. Ltd. has held the monopoly for horseracing betting in the city since 1978. When its previous horserace-betting concession expired last August, the government extended its contract until 2017. But the Club has failed to make an annual profit since 2005. As revenues have been dropping, the losses of the company have been increasing. For 2014, the Club lost MOP51.25 million compared to a loss of MOP41.4 million in 2013.
Canidrome fate decided by year-end
At a same event on Sunday, the director of DICJ, Paulo Martins Chan, revealed that the government would make a decision on whether to renew or scrap the existing concession for
Macau (Yat Yuen) Canidrome by the end of this year. According to the gaming official, the government has already received the results of a study conducted by the University of Macau ‘on the importance and influence of the Canidrome on the territory as a World Centre for Tourism and Leisure’. Mr. Chan said that the authorities are now studying the results, adding that any positive or negative opinions on the issue would be considered. He expects a decision will be made before the concession of the operator expires on December 31. Angela Leong, who is also the managing director and deputy p r esi d e n t o f th e Ca n i d r o m e, responded that her company would cooperate with the government’s decisions.
Business Daily Tuesday, June 21 2016 7
Macau Gaming
Bernstein: MGM Cotai opening possibly put off to Q2 The investment firm said MGM China's new gaming project will possibly only open in the second quarter of next year rather than late-first quarter.
T
he opening of MGM Cotai could possibly be further postponed to the second q u a rt e r o f n ext y ea r, according to the latest report released by brokerage Sanford C. Bernstein. “MGM China expects to complete all the government processes by the end of this year and maintains its target date of late [-first quarter of] 2017, though there is the possibility that the opening may trickle into [the second quarter],” the investment firm wrote, after attending MGM Resorts International’s Analyst and Investor Day presentation last week. The HK$24-billion (US$3 billion) new project of MGM was originally slated to be unveiled at the end of this year, but this February the company announced that it would postpone the opening until the end of the first quarter in 2017. At the beginning of May, speaking on a teleconference for the company’s results for the previous quarter, the Chief Executive Officer of MGM China, Grant Bowie, said that the construction of the Cotai project was estimated to be completed at the end of this October or early November. According to the Bernstein report, the gaming corporation has also decided to delay the buildout of four floors in one section of the building, which were originally designated for
a casino and restaurant. “MGM has decided to determine the use of the space at a later point in time, depending on market conditions,” analysts Vitaly Umansky, Simon Zhang and Clifford Kurz wrote. They added that the management
of the gaming operator expected that most of the facilities in MGM Cotai would be operational at its opening, but not its mansion, which would only be completed two to three months after the opening.
Increased room supply not a problem
According to the report, the MGM China CEO is not worried about the increasing supply of hotel rooms in the territory in the coming years, as
it is exactly what the city needs. “Despite an additional [some 14,000] or so of room inventory that will be added over the next few years , [Mr. Bowie] believes Macau is still critically undersupplied in terms of room capacity - especially when we compare Macau’s [around 30,000] hotel room supply to Las Vegas’ [some 150,000] rooms,” the analysts wrote. Mr. Bowie believes the increase in local hotel room supply will actually help to increase the number of overnight visitors to the city, in addition to further driving the local MICE business that would support mid-week occupancy, the report reads.
8 Business Daily Tuesday, June 21 2016
Greater China Expansion pace
Outbound M&A beats 2015 record with six months to spare Chinese acquirers announced US$111.5 billion worth of deals in 2015 from 632 transactions, according to Thomson Reuters. Denny Thomas
I
n less than six months of 2016, China’s appetite for overseas acquisitions has already outgrown last year’s record, as deal-hungry mainland buyers chase global assets such as real estate, chemicals and high-end technology. China National Chemical Corp’s US$43 billion bid for Swiss agrichemicals maker Syngenta makes up almost 40 per cent of this year’s US$111.6 billion total, but even without that deal the pace has quickened. Bankers and lawyers say there could, however, be some slowdown in the second half, as mainland buyers face heightened scrutiny at home and abroad. China International Capital Corp, the country’s biggest investment bank, expects outbound deals to hit US$150 billion this year. Chinese acquirers announced US$111.5 billion worth of deals in 2015 from 632 transactions, according to Thomson Reuters data. Completed deals, on which banks are paid fees, last year stood at US$73 billion, compared with US$45.6 billion so far this year. Some recent Chinese technology deals have met with opposition, however, which could turn some buyers cautious.
Midea Group Co’s efforts to buy out German industrial robot maker Kuka, for example, provoked a political furore in Germany, and the company has had to offer numerous guarantees on preserving local sites and jobs. “We expect outbound M&A activities will continue to rise, but not at the nose-bleeding rate of the first quarter of 2016,” said David Wu, head of corporate finance, China, for ING Bank. China’s desire to temper the outflow of its foreign reserves, which dropped more than half a trillion dollars last year, could also curb deals.
Lawyers say the State Administration of Foreign Exchange (SAFE), the custodian of the country’s US$3.19 trillion reserves, is anxious that the deal outflows could weigh on the yuan currency. “ SA F E c a n c e l l e d t h e f o r m a l approval process for outbound transactions some time ago, but they are monitoring flows going out quite carefully, given the recent surge in money leaving the country,” said Andrew McGinty, a partner at Shanghai-based partner at law firm Hogan Lovells International. Uncertainty surrounding the outcome of this week’s referendum in Britain over its membership of the European Union and the upcoming U.S. presidential elections in November are also factors likely to slow Chinese
overseas purchases, bankers say. After many years of focusing on the booming domestic economy, Chinese companies are increasingly looking to diversify their revenues as growth at home slipped to a 25-year low. Chinese state-owned and private companies are also looking to upgrade their manufacturing prowess with overseas technology. Other big purchases announced by China Inc this year include HNA Group’s US$6.3 billion acquisition of Ingram Micro Inc and Haier Group’s US$5.4 billion bid for General Electric Co’s appliances unit. “Whether it be from the private sector, government or even middle market firms, this expansion is strategic and long-term focused,” said John Kim, head of M&A, Asia ex-Japan at Goldman Sachs. “The appetite is particularly voracious for technology, media, healthcare and financial services, and for the foreseeable future it won’t be going away,” he added. Reuters
Mainland’s lawsuit
Apple’s loss in patent fight seen emboldening rivals Company’s spokeswoman last week said the company had appealed the ruling and its products are available for sale in China. David Ramli and Selina Wang
Apple Inc.’s loss in a Chinese patent dispute may spell more legal trouble ahead as fast-rising local rivals get bolder in taking on the world’s largest technology company. The Beijing Intellectual Property Office ruled last week that some Apple devices violate the design patents of little-known Chinese smartphone vendor Shenzhen Baili. While the iPhone maker appealed to keep its best-selling gadgets on the market, it could face a rising tide of lawsuits and a threat to its sales if the ruling creates a precedent, according to Counterpoint Research. The ruling is the latest headache for Apple in China, where it already faces aggressive rivals and a slowing economy in its biggest market outside the U.S. The nation’s patent and intellectual property laws are murky and courts have already ruled against the company over the name of iconic products such
as the iPhone. Baili is just one of scores of smartphone brands trying to cash in on the country’s mobile boom. Legitimate lawsuits are on the rise as Chinese companies build up their intellectual property through research and development, said James Yan, Beijing-based research director at Counterpoint. Apple should sell about two to three million units of the iPhone 6 and iPhone 6 Plus in each of the second and third quarters in China, about 30 per cent of overall sales, Counterpoint estimates. “Chinese makers have been building their own IP pools over the past years and are able to somehow fight against industry giants,” he said. “Apple isn’t willing to publicly lose an IP case in China and the best option for them is to offer settlement fees.” Xiaomi Corp. and Huawei Technologies Co. are among those that have bulked up their patent portfolios, through deals with foreign companies,
acquisitions or intense research. Beijing-based Xiaomi alone applied for more than 3,700 patents in 2015 and this month struck a deal for nearly 1,500 patents with Microsoft Corp. In May, Huawei filed a patent lawsuit against Samsung Electronics Co. in the U.S. and China. Apple representatives in China didn’t respond to multiple e-mails seeking comment and phone calls were directed to voice-mail. Kristin Huguet, an Apple spokeswoman, last week said the company had appealed the ruling and its products are available for sale in China.
Stinging defeat
The defeat is striking also because Apple aggressively defends its technology patents, most notably in a series of lawsuits across four continents against arch-foe Samsung. The iPhone in particular is credited with pioneering the modern smartphone revolution.
“Chinese makers have been building their own IP pools over the past years and are able to somehow fight against industry giants” James Yan, Beijing-based research director at Counterpoint It’s another sign that Chinese officials are scrutinizing the company more closely and comes as Apple - already trying to reverse a slowdown in iPhone sales - prepares to roll out the next version of its iconic device. China shut Apple’s book and movie
service in April for violating foreign publishing regulations, and last month a Beijing court ruled that a little-known accessories maker could use the IPHONE label for a range of wallets and purses. In 2012, Apple paid US$60 million to Proview International Holdings Ltd. to settle a dispute over the right to the iPad name. And billionaire Carl Icahn said in April he unloaded his position in the company because of concerns about its relationship with China. In the face of such obstacles, Apple has made efforts to remain on good terms with the Chinese government, including a visit by Chief Executive Officer Tim Cook in May that coincided with a US$1 billion investment in the country’s biggest car-sharing service, Didi Chuxing Technology Co. In 2013, Cook apologized after state media accused Apple of shoddy customer service and inadequate warranties. Apple should really have caught the potential patent violation before it reached the courts, said Benjamin Bai, the head of Allen & Overy’s IP practice. “They should’ve found the patent and dealt with it - this should never be a surprise,” said Bai, who previously had Apple as a client at his former firm. But “there are a lot more things Apple can do to get out of this mess. You pay license fees and settle this mess. The second is to appeal and in the meantime try to invalidate the patent.” Time is on Apple’s side. The case could take as long as four years to wend its way through the appeals system, said Ted Chwu, an intellectual property specialist at Bird and Bird. This would render the iPhone 6 and iPhone 6 Plus models obsolete by the time a final decision emerges. But the larger danger may come from elsewhere: Apple could face stronger cases and bigger potential damages as its rivals grow savvier on the nuances of Chinese IP litigation. “It’s all part of the process whereby Chinese companies, Chinese patentees and Chinese litigants get more experienced in how to use the various forms of IP enforcements properly,” Chwu said. Bloomberg News
Business Daily Tuesday, June 21 2016 9
Greater China Consumption
In Brief
Mainlanders plan to maintain or increase spending The consumption of those aged 18 to 30 years old is growing at a 14 per cent annual rate. Most Chinese consumers will continue to spend, albeit a bit slower, this year despite slowing economic growth and market volatility, according to research by Boston Consulting Group (BCG). About three-quarters of Chinese consumers plan to maintain or increase their spending in 2016, down slightly from 81 per cent in 2015, according to the consumer sentiment survey conducted by the BCG Centre for Customer Insight.
“Consumption in 2016 will be tantamount to consumers’ moving from the fast lane to the middle lane on the economic highway. They are not pulling into the emergency lane”
of upper-middle-class (UMC) households and small-city MACs, and the emergence of a new generation of younger, happier to spend, sophisticated consumers. By 2020, UMC and affluent households will have almost doubled to about 100 million and will account for 30 per cent of the urban population. The spending intentions of this group will remain constant, and the spending growth rate of 17 per cent will be rapid. Almost 30 per cent - the same as in 2015 - are planning to spend more this year. A big reason for the spending resilience among UMC and affluent consumers is that half of UMC consumers and three-quarters of affluent consumers are employed in the highend service sector. China’s younger generation is growing quickly in both numbers and income. Those aged 18 to 30 years old will likely make up more than one-third of the urban population by 2020. Their consumption is growing at a 14 per cent annual rate - twice the pace of the “last generation,” those older than 35.
The young generation’s share of total consumption is projected to increase from 45 per cent to 53 per cent by 2020. “Consumption in 2016 will be tantamount to consumers’ moving from the fast lane to the middle lane on the economic highway. They are not pulling into the emergency lane,” said Jeff Walters, a BCG partner who oversaw the research. Chinese consumers like to trade up, but the mix of objects of desire is undergoing some transition, the survey found. Infant and baby products, consumer electronics and financial services remain the top three that consumers are most likely to trade up. Personal care products, such as skin care and beauty, and travel and vacations are moving up the list, too. Cars and durable goods are moving down, perhaps indicating that consumers are postponing big-ticket purchases. Recent stock market volatility has had little impact on Chinese consumers’ daily lives, including consumption, while housing-market stability is a much more critical consideration for Chinese consumers, who continue to be optimistic about housing prices, the survey showed. Xinhua
Jeff Walters, a Boston Consulting Group partner
The two principal drivers of growth are that consumers have more disposable income and they are willing to spend more, led by upper-middle-class and affluent households, younger consumers, and those employed in high-paying services, the survey pointed out. More than 40 per cent of Chinese urban households are in the middle class and affluent (MAC) category. Meanwhile, China is seeing the rise
FX regulator
Capital outflow pressure has gradually eased Pressure on China’s crossborder capital outflows has gradually eased, China’s foreign exchanged regulator said yesterday, after data showed commercial banks’ foreign exchange sales dropped in May. China’s commercial banks sold a net US$12.5 billion worth of foreign exchange in May, versus net sales of US$23.7 billion in April, data from the State Administration of Foreign Exchange (SAFE) showed. “This year, China’s cross-border capital outflow pressure has eased, better reflecting the economy’s fundamentals,” SAFE said in a statement on its website. Companies’ efforts to deleverage their foreign debt also slowed, SAFE said. Liquidity injection
Central bank pumps money into market China’s central bank yesterday pumped more money into the market to provide liquidity. The People’s Bank of China (PBOC) conducted seven-day reverse repurchase agreements (repo) worth 170 billion yuan (around US$25 billion), a process by which central banks purchase securities from banks with an agreement to resell them in the future. The reverse repos were priced to yield 2.25 per cent, unchanged from Friday’s injection of 40 billion yuan, according to a PBOC statement. Reverse repos worth 110 billion yuan matured yesterday, so the central bank has effectively injected 60 billion yuan into the market. GDP
CICC lowers 2016 growth forecast
Monetary Authority
Developer mortgages draw Hong Kong central bank’s scrutiny Property developers in Hong Kong are not subject to the same constraints in lending as banks Frederik Balfour and Alfred Liu
A jump in mortgage lending by Hong Kong developers has drawn the attention of the city’s de facto central bank, which urged greater vigilance among banks that finance property companies. “Developers providing mortgages to home buyers will indirectly increase banks’ potential credit risks,” Hong Kong Monetary Authority Deputy Chief Executive Arthur Yuen wrote in an article posted yesterday on its website. “We have been in communication with banks to study whether we will need appropriate measures to strengthen
risk management over banks financing developers that provide high mortgage lending.” Sun Hung Kai Properties Ltd., Hong Kong’s largest developer, is offering mortgages worth as much as 120 per cent of a home’s value at one of its projects. Such incentives have risen in popularity as property prices dropped more than 13 per cent since peaking in September and sales dried up. Henderson Land Development Co., Kowloon Development Co. and Cheung Kong Property Holdings Ltd. started offering financing of up to 90 per cent of values last year as prices started to decline.
Property developers in Hong Kong are not subject to the same constraints in lending as banks, which fall under the purview of the HKMA. Developers have been able to circumvent government cooling measures which restrict traditional bank mortgages on properties costing less than HK$10 million (about US$1.3 million) to 60 per cent of their value.
“Developers providing mortgages to home buyers will indirectly increase banks’ potential credit risks” Arthur Yuen, Hong Kong Monetary Authority Deputy Chief Executive The HKMA’s warning came even as some analysts say the impact of developer-backed mortgages is limited. In a June 16 research note, Morgan Stanley cited data from mortgage brokerage firm MReferral that showed just 7.9 per cent of home buyers took primary mortgages offered by developers’ finance arms from November to March. “Not that many people actually choose these mortgages,” said Henry Mok, Hong Kong director of capital markets at Jones Lang LaSalle Inc. Bloomberg News
China International Capital Corp. (CICC) yesterday lowered the forecast for China’s real GDP growth in 2016 from 6.9 per cent to 6.7 per cent. The downward adjustment was “largely driven by the softer-thanexpected global demand recovery,” CICC said in a research note. Consumption demand is expected to be largely stable, government investment may continue to register stronger growth than that of the private sector, and export demand may remain weak in the latter half of this year due to political uncertainties in Europe and the United States, the CICC said. Expert opinion
Real estate destocking has a long way to go China has a long way to go in destocking its real estate inventories given the huge overhang of unsold homes, property experts have said. “The destocking efforts should pay more attention to sales instead of prices,” David D. Li, Centre for China in the World Economy director, was quoted yesterday by People’s Daily. By the end of May, 721.69 million square meters of property was still unsold, although this is 5.21 million square meters lower than a month earlier, data from the National Bureau of Statistics showed.
10 Business Daily Tuesday, June 21 2016
Greater China
Taiwan’s signature technology firms continue to remain cautious on their outlook
Trade data
Taiwan’s export orders fall again while outlook remains hazy Weakness in orders from key markets China, the United States and Europe persisted, but the declines narrowed Liang-Sa Loh and Jeanny Kao
T
aiwan’s export orders sank for the 14th straight month, as global demand for the island’s technology products stayed weak, keeping up the pressure on policymakers to support the economy. The declines in May in overall orders and from key markets mostly narrowed, but economists said this may not reflect stronger demand and the external outlook remains murky. The government has cut the economic growth outlook three times
so far and analysts expect the central bank is on track to deliver its fourth rate cut in a row when it meets next week. May export orders fell 5.8 per cent from a year earlier, halving from April’s 11.1 per cent pace, but was in line with the 5.85 per cent drop forecast by economists in a Reuters poll. “It looks like the situation in the second half will be better than the first, but because the base is extremely low, it won’t signal a rebound in real demand,” said Lucas Lee, senior analyst with Mega International
Investment Services in Taipei. Taiwan’s signature technology firms continue to remain cautious on their outlook and have yet to indicate that their customers have stepped up key component orders beyond the usual restocking ahead of new product launches and the shopping season that gets under way in the second half of the year. Weakness in orders from key markets China, the United States and Europe persisted, but the declines narrowed in May. Orders from Japan continued their doubledigit percentage fall, data from the economics ministry showed yesterday. Orders for information and communication goods were down 3.5 per cent in May from a year earlier, while those for electronics goods fell
3.1 per cent. Taiwan’s orders offer an indication of exports two to three months ahead and is a gauge of coming technology demand. “Orders will still remain negative in June,” L.J. Lin, director of the ministry’s statistics department, told a news conference, even as the ministry estimated that the value of orders this month should exceed May’s levels. She estimated June orders may reach US$33.8 billion to US$34.3 billion, compared with May’s US$33.73 billion. DBS economists said ahead of the data that Taiwan’s central bank will likely pay close attention to downside growth risks, particularly from global uncertainties, including the UK’s referendum on whether to stay in the European Union. The economists expect the policy discount rate to reach 1.25 per cent later this year with two more rate cuts to help bolster Taiwan’s consumption and investment. Reuters
Board division
Shareholder steps up opposition to Vanke’s white knight deal China Resources on Saturday challenged statement that the deal had been approved. China Vanke’s second-biggest shareholder increased its opposition to a planned US$6.9 billion purchase by China’s biggest property company that would see it issue shares to a white knight, raising doubts whether
the deal will go ahead. State-owned China Resources Group, which owns 15.3 per cent of Vanke and has three board seats, voted against the deal by Vanke to buy a unit of Shenzhen Metro Group
by issuing new shares which would make the state-owned subway operator its largest shareholder. Vanke said on Friday the deal was approved by its board, with seven “yes” votes out of 10. Th e d ea l c a m e a s Va n k e’ s management fights to retain control of the company in a battle with its current biggest shareholder, financial
“Over two-third of the board should be eight people...so China Resource thinks this proposal has not been approved” China Resources said in a statement posted in its Weibo account
Vanke is China’s biggest property company
conglomerate Baoneng, whose shares would be diluted to 19.3 per cent after the deal completes. Shenzhen Metro and China Resources would hold 20.6 per cent and 12.1 per cent, respectively. But China Resources on Saturday challenged Vanke’s statement that the transaction had been approved, saying the two-third majority of votes requirement had not been met if the 11th board member who abstained from voting is taken into consideration. “Over two-third of the board should be eight people...so China Resource thinks this proposal has not been approved,” China Resources said in a statement posted in its Weibo account. “China Resources expresses strong dismay to Vanke announcing an approval of the deal before serious consideration of its board directors’ opinions,” the company said, adding it will continue to vote “no” in the next board meeting and the shareholder meeting to block the deal. China Resources’ comments add uncertainty to the deal as Baoneng is also likely to vote against it, analysts said. “We believe the relationship (of the management) will become increasingly tense,” Citi analyst Oscar Choi said in a report on Sunday, adding the purchase will dilute Vanke’s earnings per share by 6-21 per cent in 2016-2018 and net asset value per share by 1.8 per cent. Reuters
Business Daily Tuesday, June 21 2016 11
Asia Weak exports
Japan returns to trade deficit Exports fell 11.3 per cent, marking the eighth straight monthly decline.
J
apan fell into a trade deficit in May, the first since January, the finance ministry said yesterday, as renewed yen strength pressured exports. Japanese exports fell for all major regions, including the nation’s biggest trading partner China, as concerns linger over a slowdown in the largest Asian economy as well as other emerging markets. The government of Prime Minister Shinzo Abe has actively attempted to talk down the yen’s strength, with ministers repeatedly suggesting that
Tokyo could step into the market to weaken the currency, as they rush to safeguard the fragile economy ahead of a July parliamentary election. A rising yen dents Japanese exports by making the country’s products more expensive in overseas markets and thus less competitive. The currency, often seen as a safe haven, has broadly gained in recent months, partially on fears over the state of the global economy and more recently on concerns over a possible British exit from the European Union in a referendum this week.
Abe was also preparing to launch further stimulus, as his controversial big-spending and easy money policy blitz, known as “Abenomics”, has failed to pull Japan out of its prolonged economic malaise more than three years after the programs began. “The stronger yen lowered export revenues and rising energy prices lifted import values,” said Marcel Thieliant, senior Japan economist at Capital Economics. Expected recovery of oil prices should pull Japan into further deficit in the future, he said. For May, Japan logged a deficit of 40.72 billion yen (US$389 million), compared with a trade surplus of
“The stronger yen lowered export revenues and rising energy prices lifted import values” Marcel Thieliant, senior Japan economist at Capital Economics Tokyo containers harbor
823.18 billion yen in April, as exports of steel and semiconductors declined, the ministry said. However, it was smaller than the deficit of 215.35 billion yen seen in May 2015. Exports fell 11.3 per cent, marking the eighth straight monthly decline, with the rising yen blamed as “the main reason”, Thieliant said. The value of steel shipments dropped 24.1 per cent, while electronic parts such as semiconductors shrank 20.0 per cent, the ministry said. China-bound exports fell 14.9 per cent, led by a dip in optical equipment exports such as lenses, while imports fell 9.7 per cent, leaving a trade deficit of 401.1 billion yen, according to the ministry. Major Japanese brokerage SMBC Nikko Securities said the trend of moderate recovery in exports remained intact, despite May’s decline, thanks largely to a solid US economy. IT product inventories in the US market have started to fall, leading to inventory adjustment in Taiwan and elsewhere in Asia, said Junichi Makino, chief economist at the brokerage. “The silicon cycle is expected to bottom out soon, which should lift Japan’s electronics exports,” he said. The general state of the US economy should also boost Japanese machinery exports, he said, while healthy auto sales there should also support Japan’s vehicle exports. Japanese exports to the US fell 10.7 per cent while imports also fell 8.5 per cent. Japanese imports, meanwhile, fell 13.8 per cent, the 17th straight monthly drop, but the speed of the fall was slower than the 23.3 per cent seen in April. AFP
Trade surplus
Thailand’s winning mix: Tourism and cheap oil The current-account surplus in the first quarter ballooned to an annualized 10.2 per cent of gross domestic product. Enda Curran
When it comes to hefty trade surpluses, the likes of China, Japan, Germany and South Korea make the list of usual suspects. But without much fanfare, Thailand has run up the biggest currentaccount surplus among major emerging markets. The current-account surplus in the first quarter ballooned to an annualized 10.2 per cent of gross domestic product, an improvement that Richard Iley, chief economist for Asia at BNP Paribas, describes as “phenomenal.” Much of the buffer is down to a steep fall in oil prices - Thailand relies on crude imports for more than 80 per cent of its energy needs - and a surge in tourism fuelled by Chinese shoppers. The nation attracted 7.9 million visitors from China last year, a 70 per cent increase from 2014. Thailand has been using the windfall to replenish its foreignexchange reserves by about US$20 billion this year, providing a key
bulwark if it faces a sudden surge in capital outflows or foreign-exchange market volatility. The increase in reserves has been the fastest of any
other emerging market, according to BNP. It’s not all good news though. The current-account data also reflects a reluctance by companies and households to spend the dividend from cheaper energy, indicating a deeper malaise in the economy. Thailand remains under military rule two years after a coup and political
‘Savings rates soared to 33 per cent of GDP in the first quarter BNP data’
uncertainty has eroded confidence. Savings rates soared to 33 per cent of GDP in the first quarter, while investment has slid, according to BNP. “This unsavoury pincer movement is a private-sector phenomenon with depressed animal spirits leaving corporations unwilling to expand investment and households to increase spending, despite the boost to real incomes produced by lower commodity prices,” said Iley. Bloomberg
12 Business Daily Tuesday, June 21 2016
Asia In Brief Employment
Vietnam creates over 613,000 jobs in 5 months Vietnam created some 613,800 jobs in the first five months of 2016, down 3.8 per cent year-on-year, according to Vietnam’s Ministry of Labour, Invalids and Social Affairs (MoLISA) yesterday. The five-month figure accounted for 38.3 per cent of the whole year’s estimate, Deputy Minister of MoLISA Dao Hong Lan was quoted by local Bao Dau Tu (Vietnam Investment Review) online newspaper yesterday. Among the figure, as many as 573,000 labours work domestically, down 4 per cent year-on-year while the rest of 40,800 labours work overseas, down 1.2 per cent year-on-year.
Royal Commission
For Australia’s big banks election may open Pandora’s box probe Bank executives have rejected the calls for a probe, saying consistent industry regulation offers the best solution. Swati Pandey and Jonathan Barrett
A
ustralia’s four leading banks face the biggest test to their dominance since the 2008 global financial crisis as politicians calling for a public inquiry into how they operate look set to emerge from national elections in July with decisive influence.
The calls for a special parliamentary investigation, known as a Royal Commission, follow a series of poor conduct charges levelled at big banks, from giving consumers bad financial advice to claims of rate-rigging by three of the top four lenders. A Royal Commission with far-reaching powers could be a headache for the “Big Four” - Commonwealth Bank of Australia (CBA),
Westpac Banking Corp, Australia and New Zealand Banking Group (ANZ) and National Australia Bank (NAB). The four are behind 80 per cent of the country’s lending and have scored strong profit growth for years. “A Royal Commission is very negative because anything can be opened up, so I understand why banks are so keen to avoid it at all costs,” said Omkar Joshi, who manages A$1 billion (US$738 million) at Watermark Funds Management. Under Royal Commissions, executives can be compelled to attend public hearings and answer questions under oath. Findings can trigger major
Inflation
South Korea May producer prices fall South Korean producer prices fell in May in annual terms at a pace in line with their April decline, central bank data showed yesterday. The producer price index for May fell 3.1 per cent from a year ago, which compared with a 3.0 per cent fall in April, upwardly revised from a 3.1 per cent fall. The same index in monthly terms showed no change in May, slowing from a revised 0.3 per cent gain in the previous month. IPO
Cemex Philippines unit to go public Cemex Holdings Philippines, a subsidiary of Mexican cement giant Cemex, will launch today an up to US$526 million initial public offering, IFR reported yesterday, citing a person close to the deal. The company is offering 2.03 billion shares in an indicative range of 10.50 pesos to 12.00 pesos each, added IFR, a Thomson Reuters publication. Cemex Holdings Philippines has secured US$125 million from seven cornerstone investors for the IPO, IFR said. The company didn’t immediately reply to a Reuters emailed request for comment on the deal. Auto industry
Tesla prepares for South Korea debut Tesla Motor Inc. is preparing for its debut in South Korea as the U.S. electric-car maker looks to challenge Hyundai Motor Co. at home. The maker of Model S sedans listed on its website four new positions for sales and engineering in South Korea and one recruiter for the country, who’ll be based in Japan. Tesla has registered its corporation and plans to set up an office in Seoul, the company said in an e-mailed response to questions, declining to provide details of its plans.
Beyond Abenomics
IMF says Japan needs bold reforms to spark economic revival Prime Minister ‘third arrow’ of structural reforms have been slow to make headway. Tetsushi Kajimoto and Stanley White
The International Monetary Fund yesterday said the Japanese government’s quest to revitalise its economy faces a long slog in the absence of ‘bold’ structural reforms, and urged Tokyo to move income policies and labour market reform to the forefront. The global lender called for a more flexible monetary policy framework with the Bank of Japan abandoning a specific calendar date for achieving its 2 per cent inflation target. “Under current policies, the high nominal growth goal, the inflation target, and the primary budget surplus objective all remain out of reach within the timeframe set by the authorities,” the IMF said in a statement after “Article 4” annual consultations on economic policy with Japan. The IMF’s sober assessment comes as the effectiveness of Prime Minister Shinzo Abe’s reflationary policies dubbed Abenomics face renewed doubts as inflation has ground to a virtual halt and growth has remained anaemic. While unprecedented monetary expansion and fiscal stimulus met
“Without bolder structural reforms and credible fiscal consolidation, domestic demand could remain sluggish” IMF statement
“This year’s consultation, however, highlighted continuing challenges that Abenomics faces in the effort to achieve its goals, the objectives of higher growth, higher inflation and fiscal sustainability.” It added that Japan would need to raise the sales tax - currently at 8 per cent - to at least 15 per cent to strike the right balance between growth and fiscal sustainability. The appreciation of the real effective exchange rate since the start of this year has moved it towards a level broadly in line with medium-term fundamentals, it added. “Without bolder structural reforms and credible fiscal consolidation, domestic demand could remain sluggish, and any further monetary easing could lead to overreliance on depreciation of the yen,” the IMF said. 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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with some initial success, Abe’s ‘third arrow’ of structural reforms have been slow to make headway. “Abenomics has made progress in revitalising Japanese economy,” David Lipton, the first deputy managing director of the IMF, told a press conference in Tokyo.
Business Daily Tuesday, June 21 2016 13
Asia reforms: a police regulator was established after a Royal Commission into the New South Wales Police in 1995 uncovered widespread corruption. Polls predict a tight race in the July 2 federal election. While the ruling Liberal-National coalition does not support a public inquiry into banks, even if it emerges from the ballot as the leading political force it could be outvoted on the issue in parliament, with both the main opposition Labour Party and key independent lawmakers backing a comprehensive probe. “I think we need to have a robust Royal Commission,” Senator Nick Xenophon, whose newly created party, Nick Xenophon Team, could have the balance of power in the Senate, told Reuters. “It should be about how do we better protect consumers, how do we strengthen those non-’Big Four’ banks as well in relative terms?” Pauline Hanson, leader of the right-wing One Nation party and well placed to win a seat in Australia’s Senate, also supports a wide-ranging inquiry. “We definitely have to have one. That’s high on our agenda,” Hanson told Reuters. Officials at the four main lenders did not respond to Reuters’ requests for comment for this story.
Domestic shield
Bank executives have rejected the calls for a probe, saying consistent industry regulation offers the best solution. “We are not denying there have been problems, we are not denying there has to be on-going scrutiny of the industry,” Australian Bankers’ Association Chief Executive Steven Münchenberg said earlier this year. “The question is do we need a Royal Commission to do that? No, we do not.” NAB’s CEO Andrew Thorburn said in a statement in April a Royal Commission would be a “serious distraction”, while ANZ CEO Shayne Elliott said such an inquiry could damage Australia’s standing among global investors.
Key Points ‘Big Four’ face most serious test since 2008 global crisis Key politicians back wide-ranging industry investigation Royal Commission urged after series of misconduct cases Major lenders say no need for “distraction” of probe Australian banking sector one of most concentrated markets The market grip of Australia’s main banks - among the tightest of all developed economies - has left the sector in the political spotlight before. The big four’s domestic scale helped shield them from the 2008 financial crisis, and has kept them largely insulated from competition with overseas rivals and financial technology disruptors. A financial services inquiry in 2014 found the banking sector was concentrated to a level that could create risks to both the stability and the degree of competition in the financial system. But banks have returned as an issue in the election campaign: public trust has been damaged by incidents including bad advice that led to thousands of customers losing savings and rejected insurance claims. The Australian Securities and Investments Commission is also pursuing court actions against NAB, ANZ and Westpac over alleged manipulation of the bank bill swap rate, Australia’s equivalent to Libor, for their financial advantage - an allegation the three banks refute. Against that backdrop the concern for banks is that a Royal Commission has the ability to continually widen the scope of its investigation. Reuters
Replacing Governor
Wanted: An independent central bank chief to champion Indian reforms The Reserve Bank is not statutorily independent from the government but has long enjoyed wide latitude. Rafael Nam and Neha Dasgupta
As India seeks a new central bank chief, many investors are pushing a clear message: the successor to Raghuram Rajan may lack his gravitas, but must defend the Reserve Bank of India’s autonomy at a critical juncture in its history. Under Rajan, who unexpectedly announced on Saturday he would step down when his tenure ends in September, the RBI has started to institutionalise its decision-making and reduce the power of the governor, including through the introduction of an inflation target that will guide monetary policy decisions. But Rajan’s announcement, in a letter to staff, has spread confusion and stunned RBI and government officials. It also follows strident criticism of Rajan from right-wing members of Prime Minister Narendra Modi’s Bharatiya Janata Party, prompting investors to ask whether politics played a role in his departure. That is putting the question of the RBI’s autonomy front and centre, especially as Rajan may not get to see through the next plank of his reform plan - the creation of a monetary policy committee to set interest rates, which was passed into law last month but whose final composition has yet to be announced. Th e RB I i s n o t st a t u t o r i l y independent from the government but has long enjoyed wide latitude. “The choice of successor must be based on finding a leader that will continue the new monetary project, targeting lower inflation,” said the head of portfolio management for emerging Asia at PIMCO, Luke Spajic, who sees finding the right mix of experience, deft thought leadership and personal charisma that satisfies all camps as a daunting challenge. India can ill afford to pick wrong or drag its feet on a replacement. It has attracted more than US$60 billion in foreign portfolio investments since Rajan’s appointment in September 2013 and some investors could start getting skittish.
Policy continuity
Deputy Governor Urjit Patel is currently seen as a top contender, a decision that would likely mollify investors because he penned the report that laid out recommendations for the new monetary policy framework adopted by Rajan. The final decision is expected to be taken by Modi himself, and a source close to the Prime Minister said an independent successor would be
picked. “He (Modi) does not want to give the job to a conservative economist, and clearly wants an independent thinker. The new governor will not be a puppet in the hands of the government,” he told Reuters. Nonetheless, questions linger as India transitions to letting a new monetary policy committee set rates. Under the current six-member structure agreed by Rajan and the government and written into law,
three members would come from the RBI, including the Governor. The other three will be nominated by a government panel although the Governor would have a say in the selection. However, the Governor would have the tie-casting vote in monetary policy decisions, meaning Rajan’s successor would face more pulls and pressures. Still, a senior policy maker who works closely with Rajan said all RBI governors have ultimately proven to be independent as they conform to an institution that has long taken pride in its autonomy. “It is the chair (of the RBI Governor) which is the prime driver, not who employs you,” he said. Reuters
14 Business Daily Tuesday, June 21 2016
International In Brief Law approval
Portugal’s public workers back to seven-hour day The law re-establishing a 35-hour week for the state sector was published yesterday and comes into force on 1 July. The law was passed in parliament on 2 June by all the leftwing parties and rejected by the parties that were in the previous coalition government. Upon approving the law, the president of Portugal said that “only the future will tell if the rules ensure that there is no effect on the budget” one of the government’s promises, or if there will be a sudden increase in overtime. Angola’s securities
Slight drop in debt auctions The government debt auctioned by Angola’s central bank (Banco Nacional de Angola -BNA) dropped slightly last week to 58 billion kwanzas (€308 million), with T-bill yields still over 18% a year. The BNA sold 46 billion kwanzas (€244.6 million) in Treasury bills and 8.4 billion kwanzas (€44.6 million) in bonds. The average yields on the T-bills varied between 14.32% for a maturity of 91 days and 18.38% for 364 days (18.29% last week), while the five-year bonds were going for up to 7.75%. The hard currency that the BNA pumped into the commercial banks fell 75% last week to €56 million, and it only sold them euros. Finance ministry
German economy had good start to Q2 The German economy had a good start to the second quarter and its upswing is likely to continue albeit at a slower pace than in the first three months of the year, the Finance Ministry said yesterday. Europe’s largest economy grew 0.7 percent between January and March, its strongest quarterly rate in two years, as soaring private consumption, higher construction investment and state spending on migrants more than offset weak foreign trade. The government expects domestic demand to drive an overall economic expansion of 1.7 percent in 2016, on a par with last year. Entertainment
Six Flags seeks to open Saudi theme parks U.S. theme park company Six Flags Entertainment Corp plans to expand to Saudi Arabia, its chief executive told Saudi-owned Arabiya TV yesterday, bringing roller coasters and bumper cars to the ultraconservative kingdom. “We’re very honoured to be provided with an opportunity to enter into a partnership to bring Six Flags to the kingdom ... Our parks can provide the entertainment to which Saudis aspire,” CEO John Duffey said. His comments were dubbed into Arabic. Duffey did not elaborate on the terms of the partnership.
Brexit sprint
Britain’s “In” campaign wins more support Prime Minister David Cameron, who is leading the “In” campaign, has focused on the economic argument. Carmakers and soccer chiefs threw their weight behind the campaign for Britain to stay in the European Union yesterday, as opinion polls showing the “Remain” camp gaining ground buoyed shares and sterling three days ahead of the referendum. A senior politician also announced she was defecting to the Remain group, accusing those campaigning to leave the EU of spreading lies, hate and xenophobia. Britons will cast their votes on Thursday in a referendum that will not only shape the country’s role in world trade and affairs but also determine the future of the EU, which has struggled to maintain unity over migration and financial crises. Both sides restarted campaigning on Sunday after a three-day suspension
to honour pro-EU lawmaker Jo Cox who was killed in the street by a man heard shouting: “Britain first. Keep Britain independent. Britain always comes first”. Opinion polls last week suggested the “Out” campaign had made headway in a debate that has polarised Britain. But polling at the weekend - some carried out after the murder - suggested the “In” camp had recovered momentum. The probability of a British vote to remain in the European Union, implied by Betfair betting odds, rose to 74.6 per cent yesterday, up from 60-67 per cent on Friday. Sterling rose 2 per cent against the dollar yesterday, putting it on track for its biggest one-day gain for more than seven years, while the FTSE was
up more than 2.5 per cent. Prime Minister David Cameron, who is leading the “In” campaign, has focused on the economic argument, telling voters that a Brexit would hurt wages and jobs and lead to a decade of uncertainty. His cause was bolstered yesterday by senior executives of several carmakers, including Jaguar Land Rover, Toyota, BMW and Vauxhall, releasing statements urging Britons to stay in the EU. Their trade body, the Society of Motor Manufacturers and Traders, also backed EU membership, saying would be best for business and British jobs. “We firmly believe Britain would be better off if it remained an active and influential member of the EU, shaping European regulations,” said BMW sales chief Ian Robertson. The head of England’s top soccer division - the Premier League - also weighed in, saying that its 20 clubs wanted to stay in the bloc. “Are we better acting like we want to play our part in the world and be worldly citizens, or do we want to send a signal to the world that says, actually, we’re kind of pulling the drawbridge up here?” Richard Scudamore told BBC radio. Bloomberg News
“Are we better acting like we want to play our part in the world and be worldly citizens, or do we want to send a signal to the world that says, actually, we’re kind of pulling the drawbridge up here?” Richard Scudamore, head of Premier League
U.K. Prime Minister David Cameron
Weak framework
Banks face harsher penalties in Denmark The government is creating a task force that will include representatives from the Tax Ministry, Business Ministry and the Financial Supervisory Authority. Peter Levring
D e n m a r k’ s g o v e r n m e n t a n d regulator are looking into tougher laws including the option of imposing harsher penalties on banks after repeated breaches by Nordea Bank AB suggested the existing framework is too weak. Business Minister Troels Lund Poulsen met with the head of the Financial Supervisory Authority (FSA), Jesper Berg, on Sunday to discuss measures that could be enforced. The talks followed news last week that Nordea had been reported to police by the regulator after an inspection in 2015 revealed Scandinavia’s biggest bank had failed to comply with anti-money laundering rules. The bank has already been fined in Sweden for similar breaches. “Banks historically haven’t focused adequately on this area,” Berg said in an interview on Sunday.
Nordea’s missteps
Nordea said on June 17 it was cooperating with the authorities and adding 300 people to its compliance unit. Chief Executive Officer Casper von Koskull, who has run Nordea since November, said he found the breaches “unacceptable” and
pledged to make compliance “an absolute top priority.” He said the bank had initially “underestimated the complexity” of the task. Danske Bank A/S, Denmark’s biggest lender and Scandinavia’s largest bank after Nordea, was reported to police in March for failing to comply with anti-money laundering laws. The bank said at the time it was cooperating with the authorities and improving systems to meet the “ mounting challenges.” The government, which is also looking into the practices of eight banks operating in Denmark in connection with the Panama leaks, is creating a task force that will include representatives from the Tax Ministry, Business Ministry and the FSA. Poulsen said it was likely that the Tax Ministry and the FSA will need to work more closely together in the future to ensure banks stay on the right side of the law.
Hidden ‘dirt’
Berg said it would be naïve to think there isn’t more “dirt” hidden in the banking industry that subsequent reviews will uncover. “We don’t have access to information from all tax-haven countries so new cases could appear.” Denmark’ FSA, which unlike its
counterpart in neighbouring Sweden has so far not had the option of handing out fines, may now be empowered to do so. Berlingske reported that a maximum fine of 50 million kroner (US$7.6 million) was being discussed.
“It is unacceptable that a number of Danish banks, in clear contravention of the law, apparently continue to be at risk of assisting in money laundering” Troels Lund Poulsen, Danish Business Minister
“It is unacceptable that a number of Danish banks, in clear contravention of the law, apparently continue to be at risk of assisting in money laundering,” Poulsen said in a statement on Sunday. “I find it worrying that the FSA’s initial report concludes that a number of the banks reviewed have a culture that lacks an adequate focus on the importance of anti-money laundering rules.” Bloomberg News
Business Daily Tuesday, June 21 2016 15
Opinion Business Wires
New Zealand Herald The Prime Minister (of New Zealand) has raised the prospect of Chinese companies funding and building infrastructure in a bid to speed Auckland development. He says an urban development authority is an option as is allowing companies - including from China - to directly fund and build some of the city’s infrastructure. “If Auckland is going to grow at a consistently faster rate than it historically has, it needs to build the infrastructure to match that more ambitious growth rate,” Prime Minister said at a lunch hosted by the Chinese Chamber of Commerce.
The Times of India India has received US$55 billion in FDI in the last two years, External Affairs minister Sushma Swaraj said on Sunday, noting enhanced economic engagement with countries across the world has been a major priority area of the government’s foreign policy. Swaraj addressed an annual press. The External Affairs minister said government had touched base with 140 countries in the past year and listed India’s growing ties with nations in the African continent, countries of the Gulf region and Pacific islands as major achievements.
Whatever the reason, “Rexit” is bad news for India
A
The Star Net foreign inflow of foreign funds into Malaysian equities so far in 2016 has been reduced to only RM100.6mil as at June 17, says MIDF Equities Research, which is the lowest since February 26. Foreign selling in Bursa extended for the eighth consecutive week. The net amount offloaded by foreign investors increased substantially to –RM1.012bil last week from –RM169.9mil the week prior. “It was the third largest selling since September 25, 2015. The estimates are based on transactions in the open market which excluded off market deals,” said the research house.
Viet Nam News The Ministry of Industry and Trade and the United Nations Industrial Development Organisation (UNIDO) launched a project Friday to support the Vietnamese Government in building industrial strategies. The project aims to improve the quality of industrial development strategies and policies to increase the local industry’s competitiveness, thus contributing to reducing poverty and improving gender equality by generating new production activities and jobs. The three-year project, with a total investment of nearly US$1.1 million, includes US$980,000 from the Republic of Korea’s Official Development Fund through UNIDO, and a corresponding fund of US$100,000 will be covered by Việt Nam.
ll too often, the stewards of India’s economy have been short of credibility. Politicians’ promises of economic reform are rarely fulfilled, bureaucrats’ assurances are widely disbelieved, and even India’s growth numbers have become objects of suspicion. Of late, one institution and its leader had proven exceptions to this rule: the Reserve Bank of India and its governor, Raghuram Rajan. That’s why the government’s decision to push Rajan out the door constitutes self-harm of monumental proportions. Rajan, as with much else during his tenure, broke the news of his departure unconventionally, in a letter to the central bank’s employees well in advance of the government’s announcement of any decision. Clearly, if Prime Minister Narendra Modi’s government would not confirm him, then he had little reason to hang about waiting for the inevitable. His letter subtly and gracefully made clear that he felt unwelcome: Rajan wrote that he was “open” to staying on, but following “consultations with the government,” had decided to leave. Rajan becomes the first RBI governor since India’s economic liberalization began more than two decades ago not to serve an extended, five-year term. The decision to grant an additional two years to a governor serving a three-year term had become almost automatic. W o rst o f a l l , th e M o di government appears to have chosen to break this nascent (and healthy) tradition for the poorest of reasons: its unease with Rajan’s independence. Rajan had discomfited the g ove rnm e nt on seve ra l occasions - most notably, when he delivered a widelyshared speech arguing for freedom of expression and the tolerance of different ideas and beliefs. The address merely restated basic liberal principles and linked national progress to an open and diverse marketplace of ideas. But many in India’s Hindu nationalist ruling party took it as a direct affront. That Rajan had served as a top economic advisor in the previous administration, run by the nominally liberal Congress party, didn’t help. Whatever their personal beliefs, Modi and his more urbane ministers, such as Finance Minister Arun Jaitley, have signally failed to prevent the more radical members of the ruling Bharatiya Janata Party from attacking anything and anyone they see as not Indian enough - whether beef-eating Muslims or foreign-educated economists. Rajan, although he has never given up Indian citizenship and has always had one eye on public service, became the target of noisy condemnations issued by powerful BJP leaders. He had little reason not to suppose the government wanted him out; even a relatively mild statement tempering euphoria over India’s economic numbers was harshly criticized by a raft of senior ministers, including Jaitley. Rajan was forced to apologize. The best-case scenario is worrying enough: that Modi and Jaitley were upset about Rajan’s hawkishness on interest rates and allowed him to
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Mihir Sharma India’s columnist for Bloomberg View
be attacked, knowing they could then replace him with someone more malleable. If so, the RBI’s hardwon independence on monetary policy - preserved and strengthened by successive governors sparring with profligate politicians in New Delhi - has been undermined, perhaps fatally. That the best-case scenario is so dire tells you exactly how big a disaster Rajan’s forced exit is. There are more worrying possibilities. Rajan, as an economics professor, studied and wrote against crony capitalism. As RBI governor, he’s been working diligently to clean up the balance sheets of Indian banks stressed by bad lending to politically influential tycoons. The effort provoked some resistance, with the government warning that banks - 70 per cent of which are state-owned - were reluctant to bring bad loans into the open for fear that the original lending might invite criminal prosecution. While Rajan did caution against a “witchhunt” targeting bankers who had done nothing wrong, this might have been viewed by the government as not enough of a compromise on his part. If so, India’s vital battle against cronyism and bad lending risks being watered down or abandoned, with dangerous consequences for the entire financial sector. And then there’s the hardto-dismiss possibility that the government chose the anti-Rajan campaigners as instruments in a larger effort to install pliant economic managers across the board. Even the Prime Minister’s admirers will admit that Modi doesn’t encourage too much independent thought among his deputies. When he came to power, he passed over many of the most accomplished economic managers in his party - such as former Finance Minister Yashwant Sinha and ex-privatization czar Arun Shourie - for the finance portfolio. Jaitley, who got it instead, is a lawyer, but more importantly someone who can be trusted not to speak out of turn. Now, appointments of bureaucrats and regulators have to get Modi’s personal seal of approval - and only his - in a departure from previous custom. The outspoken Rajan may simply have been too much of a maverick for comfort. Either way, the apparent and unfortunate message is that within India’s government, commitment and loyalty is prized over competence. This is dangerous indeed. In an increasingly uncertain world, it’s crucial for emerging markets to maintain credibility. Those that appear to value transparent and skilled economic leadership are the ones that will survive coming storms. The circumstances of Rajan’s departure have seriously devalued India’s credibility. “Rexit,” as wags in Mumbai have called it, could prove as damaging in its own way to India as Brexit would be to Britain. Bloomberg News
The apparent and unfortunate message is that within India’s government, commitment and loyalty is prized over competence
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16 Business Daily Tuesday, June 21 2016
Closing M&A
Putin said to weigh US$11 billion Rosneft sale to China, India Complications related to sanctions may delay the sale.
bulk of which was acquired in 2013. “This would be a logical choice,” said Vladimir Tikhomirov, chief economist at BCS Financial Group, a Moscow brokerage.
ladimir Putin is considering selling part of Russia’s corporate crown jewels to China and India as the president struggles to meet spending commitments before his possible re-election bid in less than two years. Russia is seeking buyers for 19.5 percent of state oil champion Rosneft OJSC and would prefer a joint deal with the two nations leading the growth in global energy demand, two people familiar with the matter said. Officials in Moscow expect to raise at least 700 billion roubles (US$11 billion) from the sale, which would set a privatization record for the country. Bringing two of Asia’s three largest economies into Rosneft, which pumps more crude than Exxon Mobil Corp., would help Putin cover budget shortfalls while strengthening his geopolitical hand at a time when conflicts in Ukraine and Syria have driven relations with the U.S. and Europe to a post-Cold War low. It would also balance the near 20 percent stake held by London-based BP Plc, the
‘Not rivals’
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China and India have both publicly expressed interest in the Rosneft sale, which would cement their footholds inside the world’s largest energy exporter, although neither side has said whether a joint deal is being considered. On Friday, Indian Oil Minister Dharmendra Pradhan said one couldn’t be ruled out. “We are not rivals,” Pradhan said in an interview at Putin’s annual economic forum in St. Petersburg, adding that India’s Oil & Natural Gas Corp. and China National Petroleum Corp. already have joint projects and more “would be nice.” Russia’s energy strategy tilted toward Asia after western penalties over Ukraine curbed access to funding and demand in Europe flat-lined even as prices tumbled. The focus so far has been on boosting oil and gas supplies to China, the region’s largest market and a pivotal financier for Rosneft, whose ability to tap international capital markets is restricted by sanctions. CNPC, based in Beijing, said in April it was studying the possibility of
Reform drive
participating in the privatization, but didn’t elaborate. China has provided Rosneft and other Russian energy companies with more than US$100 billion in loans and prepayments for supplies over the past decade, money that helped fund the acquisitions that turned the state-run company into the world’s largest publicly traded oil producer by output three years ago. While Russia’s oil trade with India, by contrast, has been minimal, that’s starting to change now that the country is replacing China as the centre of global growth. The International Energy Agency predicts India, the fastest-growing major economy, will consume 4.2 million barrels a day this year, surpassing Japan’s 4.1 million, and use an additional 6 million a day by 2040, compared with 4.8 million barrels a day more for China.
Two partners
Last month, India’s largest oil company, ONGC, agreed to pay Rosneft US$1.27 billion for 15 percent of Vankor, one of the largest Russian oil fields to go into production in the last quarter century. And in St. Petersburg on Friday, Rosneft agreed to sell another 23.9 percent of the project to three other Indian companies - Oil India Ltd., Indian Oil Corp. and Bharat PetroResources Ltd. The terms weren’t disclosed, but two
Deflation challenge
people involved in the deal valued it at US$2.02 billion, the same price ratio ONGC paid. Rosneft Chairman Andrey Belousov, who is also an aide to Putin, said last month that Russia would prefer to sell the stake to two strategic partners, without elaborating. Energy Minister Alexander Novak said in an interview in St. Petersburg that Russia would welcome interest from both China and India, but declined to comment on the possibility of a joint deal.
“India and China aim to boost ties with Russia, while Russia’s options for investors in Rosneft are quite narrow.” Vladimir Tikhomirov, chief economist at BCS Financial Group BP plans to keep its stake unchanged, Chief Executive Officer Bob Dudley said in St. Petersburg, adding that a possible deal with India and China “is completely up to the Russian Federation.” Complications related to sanctions may delay the sale, which would still leave Russia’s government with control of the company, until next year, one person involved in the planning said. Other options, such as offering some shares to the public, are being considered, another person said. “If oil prices stay at current levels at least until the end of the year Russia’s budget deficit will not be as critical as its Finance Ministry predicts,” BCS’s Tikhomirov said. “So Rosneft sale could wait until the next year, when oil will likely grow further.” Still, Economy Minister Alexei Ulyukayev said Friday he expects a deal this year, reflecting the urgency Putin expressed in April. Putin said then that he wants to complete the transaction as soon as a strategic partner can be found who isn’t a “cheapskate.” “We need the money,” Putin said at the time. Bloomberg News
FDI rules
Philippine government seeks Japan’s central bank head India unveils broad overhaul to shore up growth admits failed to meet inflation target foreign investment reforms Philippine President-elect Rodrigo Duterte’s new economic team yesterday promised sweeping changes to boost infrastructure, fix traffic woes, improve investment frameworks and maintain the country’s robust economic growth. Duterte won the country’s May 9 presidential election but his victory has raised doubts about how the crime-busting former mayor with a background in law plans to manage one of Asia’s fastest-growing economies. Though the Philippines under outgoing President Benigno Aquino has seen annual growth of more than six per cent on average, the economy is still fraught with out of date infrastructure, graft and protectionism, which Duterte’s technocrats have pledged to tackle. “Contracts will be respected, good governance will be delivered, corporate taxes will be lowered,” incoming Finance Secretary Carlos Dominguez told a business forum in Davao, where Duterte has been mayor for more than 20 years. Incoming Economic Planning Secretary Ernesto Pernia said the domestic economy could grow 6.5 per cent this year, below the 6.8-7.8 per cent target due to “adjustment pains.” Reuters
Bank of Japan (BOJ) Governor Haruhiko Kuroda acknowledged for the first time that the central bank failed to hit its inflation target in the two-year timeframe set in 2013, underscoring the challenges of eradicating the country’s sticky deflationary mind-set. He also said responding to deflationary pressures and firmly stabilising inflation expectations at desired levels has become an “unprecedentedly difficult challenge” not just for the BOJ but many other central banks. In theory, inflation expectations should respond immediately to monetary policy changes if the central bank’s commitment to aggressive monetary easing is deemed credible by markets. “However, inflation expectations observed in practice are highly sticky and change only slowly,” Kuroda said in a speech yesterday at Japan’s Keio University, acknowledging that changing the public’s perception that deflation will persist has been more challenging than anticipated. Kuroda also said it was difficult for central banks to present policy options for all contingencies in advance, as the policy response to unanticipated events tends to involve a complex package of policies. Reuters
India announced yesterday sweeping reforms to rules on foreign direct investment, opening up its defence and civil aviation sectors to complete outside ownership and clearing the way for Apple to open stores in the country. The move comes two days after central bank governor Raghuram Rajan, a darling of financial markets but under pressure from political opponents at home, announced he would not seek another term, a surprise move that raised concerns about whether reforms he set in motion will stall. Prime Minister Narendra Modi hailed the changes to the foreign direct investment (FDI) rules, stressing his government’s reform credentials. He tweeted that the changes would make India “the most open economy in the world for FDI” and provide a “major impetus to employment and job creation”. “These changes are fairly significant, particularly if you look at them in the context of what happened over the weekend with Governor Rajan’s decision to step down,” said Shilan Shah, India economist at Capital Economics in Singapore. The new reform measures also relax restrictions on inbound investments in pharmaceuticals and single-brand retail. Reuters