Macau Business Daily June 27, 2016 by Business Daily

Local air passenger volume jumps 16 pct as of mid-June Aviation Page 2

Monday, June 27 2016 Year V Nr. 1073 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Hospitality

www.macaubusinessdaily.com

Business mood

Wynn Palace accepting bookings from August 23 Page 3

AIIB

Business confidence in China grows again after two years Page 10

Chinese backed development bank starts first projects Page 16

Reflecting on Brexit Report

In a dramatic referendum last week, the UK voted to leave the EU, leaving many shocked and surprised. The Secretary for Economy and Finance, Lionel Leong Vai Tac visited the headquarters of the Macau Monetary Authority and expects minimal impact for the SAR. Meanwhile Brits living in Macau and Macau residents living in the UK have mixed views on the historic vote. Pages 6 to 9

Postponed hearing

Nam Van Development Company Ltd. announced that it was going to hold a public discussion on the local Land Law, then later postponed the event due to “the event having triggered discussions off the subject and the confrontation of different opinions”. A spokesperson responsible for the event denied that the public meeting was intended to challenge the government.

Startup opportunities

Interview The chairman of the Macau New Technologies Incubation Centre (Manetic) Dr. Chau Yau Chuk sees gaming and tourism as the only path for success for Macau entrepreneurs. The business intelligence expert also believes too much government help can spoil local startups, while a more flexible work visa for qualified foreign workers is essential for the city’s economic development. Pages 4 & 5

Land law Page 3

On currency dynamism

HK Hang Seng Index June 24, 2016

20,259.13 -609.21 (-2.92%) Worst Performers

Link REIT

+0.40%

Sun Hung Kai Properties Ltd

-0.45%

HSBC Holdings PLC

-6.59%

CNOOC Ltd

-3.93%

Hong Kong & China Gas Co

+0.30%

China Merchants Holdings

-0.49%

Cheung Kong Infrastructure

-5.48%

China Unicom Hong Kong

-3.90%

CLP Holdings Ltd

+0.20%

Tingyi Cayman Islands

-0.59%

CK Hutchison Holdings Ltd

-5.07%

Bank of East Asia Ltd/The

-3.72%

-0.19%

Wharf Holdings Ltd/The

-0.98%

Power Assets Holdings Ltd

-4.76%

China Mobile Ltd

-3.68%

-0.40%

Hang Lung Properties Ltd

-1.05%

PetroChina Co Ltd

-4.43%

Cathay Pacific Airways Ltd

-3.66%

Want Want China Holdings MTR Corp Ltd

27° 32° 28° 31° 28° 31° 28° 30° 27° 30° Today

Source: Bloomberg

Best Performers

Tue

Wed

I SSN 2226-8294

Thu

Fri

Source: AccuWeather

Monetary stance People’s Bank of China Governor Zhou Xiaochuan elaborated on the national monetary policy during an IMF meeting in Washington on Friday. The head of the central bank said the country will develop a dynamic monetary policy that reflects the economic environment. Page 10

2 Business Daily Monday, June 27 2016

Macau In Brief Real estate

Midland Macau plans to close one more office The general manager of real estate agency Midland Macau, Brian Chu, disclosed that the realtor is planning to shut down one more office in the city due to the company’s continuing fiscal imbalances. In an interview with Chinese-language newspaper Macao Daily published last week, the executive said the company's business operations could not break even here in Macau. Having combined with another sister-firm, Hong Kong Property, the company only has some five stores in the territory at the moment, while the number of staff it employs totals around 40. In the middle of the month, the parent company of the property firm, Midland Holdings Ltd, told the Hong Kong Stock Exchange that it had recorded a net loss attributable to equity holders of some HK$130 million (US$16.2 million) for the first five months of the year. In the same filing it stated that it expected it will remain in the red for the first half of the year due to continuous declines in property sales. K.L.

Aviation CAM: “The departure of TransAsia Airways and Thai Smile will not have much impact”

Local air passenger volume jumps 16 pct as of mid-June The growth in air passenger volume is attributable to Macau-Taiwan routes, as well as Macau-Thailand routes. Kam Leong kamleong@macaubusinessdaily.com

he city’s airport registered an increase in passenger volume of 16 per cent yearon-year from this January till mid-June, driven by passenger growth on routes to Taiwan and Thailand, according to Macau International Airport Co. Ltd (CAM). In a press release last Friday, the operator, however, did not release the exact passenger numbers for the period. It added that aircraft movements at the local airport had recorded a year-on-year growth of six per cent during the same period. A previous announcement by CAM indicated that for the first five months of the year passenger traffic had increased by 8.6 per cent to 528,000, and aircraft movements had risen by 5.7 per cent to 4,800 movements. Friday’s announcement noted that passenger growth for the first five

and a half months was due to a 25 per cent year-on-year increase in the number of passengers on MacauTaiwan routes. According to CAM, a total of 830,000 passengers were recorded using Macau-Taiwan aviation services during the period, with average load factors for such flight routes reaching 75 per cent. Most of the passengers flying on these routes were Taiwan residents, accounting for 55 per cent, followed by Mainland Chinese passengers and Macau residents, making up 30 per cent and 15 per cent of the total, respectively. In addition, passenger numbers for Macau-Thailand routes posted a year-on-year growth of 28 per cent to 380,000 passengers as of midJune, with the average load factor also equaling 75 per cent. Sixty per cent of the passengers using the routes were Mainland Chinese, followed by local residents and Thai nationals.

Forum Macao

New Forum Macao Secretary-General appointed Xu Yingzhen will be appointed as SecretaryGeneral for the Forum for Economic and Trade Co-operation between China and Portuguesespeaking Countries (Forum Macao), according to local broadcaster TDM. The decision was announced during a meeting last week in Beijing between the Ministry of Commerce of the People’s Republic of China (MOFCOM), a Forum Macao delegation and ambassadors from Portuguese-speaking countries in the city. Xu Yingzhen, previously in charge of Forum Macao’s South America department, will replace Chang Hexi as Forum Macao’s SecretaryGeneral before the 5th Ministerial Convention in November. N.M. IACM

IACM opens new online store The Civic and Municipal Affairs Bureau (IACM) has established a new online store as a shopping platform for people from around the world to purchase IACM’s products, books and catalogues, according to a press release published by the Bureau. The store also sells products from the IACM Gift Shop. Customers can pay online using the Electronic Payment Platform operated by Macao Postal Savings and other credit card payment options. In addition, mobile versions of the online store service are also available in Portuguese and English enabling residents and tourists to have easy access to the latest news and to make purchases at any time. A.L.

M ea n w hi l e, th e n u m b e r o f passengers to Mainland China from Macau has also increased by three per cent year-on-year.

Not much impact

On the other hand, the operator remarked in the statement that the announced suspension of flights to the Special Administrative Region by Taiwan-based carrier TransAsia Airways and Thailand-based Thai Smile would not have a significant effect on the city’s aviation market. “From the air passenger market perspective, temporarily, it will not bring much impact to [the local airport]. Air passengers to Taiwan will redistribute naturally to other airlines,” CAM wrote, indicating that some currently existing operators of Macau-Taiwan routes are planning to increase their flights during the fourth quarter of the year. Last week, the Taiwanese airline announced that it would halt all its flights to the city from October 30, due to commercial considerations. Meanwhile, earlier this month, Thai Smile confirmed to Business Daily that its air connections between Macau and Suvarnabhumi Airport in Bangkok would be suspended after September. “Thailand is a popular tourist destination, MIA has nine daily flights from Macau to Bangkok… The withdrawal of Thai Smile will certainly reduce passengers’ choices, but the existing frequency of air passenger flight services between Macau and Bangkok should be able to satisfy the needs of our passengers,” the local airport operator believes. According to CAM, the average load factor for TransAsia during the first five and a half months of the year was 67 per cent, indicating a decrease of 17 per cent year-on-year-year, while the airline’s passenger numbers grew by 60 per cent year-on-year. Furthermore, the average load factor for Thai Smile was 63 per cent during the period, representing a year-on-year increase of 20 per cent. The airline’s passenger traffic also jumped by 10 per cent yearon-year.

Retail

Bauhaus annual net profit down nearly 60 pct H o n g K o n g c l o thi n g r etai l e r Bauhaus International (Holdings) Ltd saw its annual net profit plummet by 59.1 per cent to HK$52.9 million (US$6.6 million) for its past fiscal year, due to the plunge in the company’s earnings from the Hong Kong and Macau markets. According to its filing with the Hong Kong Stock Exchange last Friday, the retailer’s total turnover posted a year-on-year decrease of 5 per cent to HK$1.5 billion for the fiscal year ended March 31, compared to some HK$1.59 billion one year ago. “As a result of Mainland China’s uncertain economic prospects, instability of financial markets and the appreciation of the Hong Kong dollar against other Asian currencies (including the Renminbi), the consumer spending momentum obviously deteriorated during the year under review and resulted in highly volatile and discount-driven retail dynamics,” it claimed. For the financial year, the clothing seller generated some HK$1.03 billion from its sales in Hong Kong and Macau, which represents a year-on-year decrease of 8.8 per cent compared to HK1.13 billion one year ago. In addition, the company claimed that a negative same-store-sales

growth rate of some 9 per cent was recorded in the two cities. The decreases in sales in the two cities led to a slump in the company’s profit before tax from the segment, down by 46.6 per cent year-on-year to HK$99.6 million. As at the end of March, Bauhaus was operating 214 self-managed outlets, including 86 stores in Hong Kong and Macau, 94 in Taiwan and 34 in Mainland China, as well as 11 franchised outlets in the country.

The company’s turnover derived from the Mainland China market also registered a decline of 2.8 per cent year-on-year to HK$128.8 million, but turnover from Taiwan jumped by 9.2 per cent year-onyear to HK$342.2 million for the year, according to the filing. The retailer proposed a final dividend of HK6.0 cents per ordinary share to its shareholders, which is down by 56 per cent year-on-year compared to HK$13.5 per cents for the 2014/15 financial year. K.L.

Business Daily Monday, June 27 2016 3

Macau Land Law Major Nam Van land awardee puts off self-organised public meeting on Land Law

Too many conflicts can’t be solved

A spokesperson responsible for the event, which aimed to discuss the “endless conflicts” created by the new Land Law, denied that the public discussion was intended to challenge the government. Kam Leong kamleong@macaubusinessdaily.com

he major land awardee for the city’s reclamation areas of Zone C and Zone D, Nam Van Development Company Ltd, announced last Thursday that it was going to hold a public discussion on the local Land Law, yet on Friday it announced that

it was postponing the event due to “the event having triggered [online discussions] off the subject and the confrontation of different opinions”. A press invitation from the company released last Thursday stated that its decision to organise a public meeting on the city’s new Land Law was due to “social problems and endless conflicts that have been popping up since the implementation of the

Hotels

Wynn Palace starts accepting bookings from August 23 Currently the lowest room rate for the first weekend after opening is MOP3,283. The 1,076 rooms and suites at Wynn Resorts Ltd’s (WYNN) new Cotai gaming resort, Wynn Palace, are now available for bookings from August 23, according to the resort’s website. WYNN had announced its new US$4.1 billion (MOP32.7 billion) 28-storey hotel would open in the third quarter of 2016 and it seems at least that visitors now have a date for possible room bookings. However Brokerage Union Gaming Securities Asia Ltd. believes that the hotel might not yet be ‘where it wants to be in terms of operating labor’ due

to pending additional work permits for foreign labor, and that upon opening, the whole room capacity will not be available. Yesterday at 5pm, the hotel website showed room rates per night for the four available room categories on the first weekend after the Wynn Palace opening were MOP3,283 for a Palace King Room, MOP5,961 for the Fountain Suite King, MOP5,961 for the Parlor Suite and MOP31,918 for the Fountain Parlor Suite. According to data from the Macao Government Tourism Office (MGTO), average room rates in 5-star hotels stood at MOP1,899 in April, down 13.3 per cent from last year, while in a report last week, Wells Fargo predicted average room rates for Wynn Macau in August would be around MOP1,824, a decrease of 3.7 per cent year-on-year. Union Gaming also stated it is ‘keenly focused’ on the opening of Wynn Palace and the Parisian Macao, predicted for the third week of September, considering the two properties to be the ‘most likely to be able to grow the market.’ N.M.

Gaming

Dynam Japan to repurchase up to 10 pct of shares Hong Kong-listed pachinko hall operator Dynam Japan Holdings Ltd announced last Friday that it is to repurchase up to 10 per cent of its issued shares on the stock market, at a cost of some HK$600 million (US$75 million). According to its filing, the aggregate number of shares that could be repurchased is up to some 76.6 million

shares. “The Board believes that implementing the proposed share repurchase as a part of the company’s measures to increase return to the Shareholders would create benefits to the Shareholders,” the Japanese company said in the announcement. The gaming hall operator also believes the repurchase could be conducted “with its own resources,” adding that the company’s financial position will enable it to maintain “sufficient financial resources for the continued growth of the Company’s operations”. K.L.

law, which are seriously affecting the future development of Macau’s politics and economy”. However, just one day later, the company announced in another press release that the event had been postponed, as the number of parties interested in participating had exceeded the company’s arranged venue capacity. The company further noted that postponing the event was due to considerations of public order.

Not fighting

According to the company’s official website, Nam Van Development and its subsidiaries hold land concessions for 11 out of 17 land plots in Zone C, and two out of five in Zone D. Last November, the Secretary for Transport and Public Works, Raimundo do Rosario said that the government intended to reclaim a total of 14 plots in Zone C and Zone D after these concessions expired at the end of this July, as these plots have been left undeveloped. Nam Van Development, however, indicated on its official website that the government should be liable for

causing these land plots to be undeveloped. It claimed that the government had been delaying issuing certain permits for the company to kick off its development of the plots. When questioned by Business Daily last Friday afternoon, the spokesperson for the event, Wong I Mun, denied that the planned public meeting was an attempt to try to fight against the government’s intention to take back the land plots. “We think that those holding opposite opinions should also be able to express themselves,” he said. With the implementation of the city’s new Land Law in March 2014, no extensions are allowed for temporary or conditional land concessions, which carry a validity of 25 years, if developers fail to complete their projects on their sites. Thus, such sites will be reclaimed by the government.

High-profile guests

A number of high-profile guests had in fact been invited by Nam Van Development to attend the now-postponed event including the company’s president and the president of the Macau Lawyers Association Jorge Neto Valente. The president of the Macau General Association of Real Estate, Chong Sio Kin, the president of the Association of Property Agents and Realty Developers of Macau, Ung Choi Kun, and the president of the Macao Association of Building Contractors and Developers, Paul Tse See Fan were also invited. In addition, representatives from the local branch of Bank of China, The Industrial and Commercial Bank of China (Macau) Limited, Tai Fung Bank and Banco Nacional Ultramarino were invited to speak at the event, as well as two legislators from the legal field, Gabriel Tong and Leonel Alves.

4 Business Daily Monday, June 27 2016

Macau Startups Macau incubation centre Chairman points to gaming and tourism as the right path for local startups

“Talented people won’t come here to get your MOP9,000 cash handout!” Recently, Galaxy Entertainment Group Foundation launched the “GEG Venture Philanthropy Fund”. Partnering with the Macau New Technologies Incubation Centre (Manetic) and the University of Macau, the gaming group hopes to select local businesses and help them develop their technology and business ideas. Business Daily decided to ask Manetic’s Chairman Dr. Yau Chuk about his views on startups and entrepreneurship in Macau, and what he thinks is missing in the local innovation ecosystem. Appeals for diversification from the government aside, the computer science and Big Data expert believes local technology startups should focus on gaming and tourism, and sees flexible work visa policies as an essential part of economic development. Nelson Moura nelson.moura@macaubusinessdaily.com Photos by: Gonçalo Lobo Pinheiro

ow was Manetic born? Because I have Australian nationality, in 2000 the Australian government started discussing if I could start a technology organisation to incubate technology ideas for the Chinese market. They offered a lot of support, but the idea wasn’t in progress yet when I talked to Edmund Ho Hau Wah (former MSAR Chief Executive). At the time I had a consulting company serving big companies in Macau and told him my idea for the Australian government, and all of a sudden he asked why I didn’t run something like that in Macau, as it would be easier to access China. So the idea started. From then on it was very quick; in one month we had an agreement and he offered a lot of support in terms of policy and infrastructure. So instead of having a technology centre in Australia, I had one in Macau with Manetic.

we can see that only about 26 have survived, which is not bad for technology companies, in a field where everything moves really fast, and honestly and it’s not easy to have a company survive for a long time. At present, Manetic has a total of 49 companies being incubated in areas covering information technology, environmental technology, biotechnology, design and consultancy. Is there an area Manetic considers more important or more worthy of

investment? Macau is small, so if we just focused on one area, we might restrict ourselves and our startups, so it’s better to allow a more diverse structure. However, I believe we can still focus a little bit more on one or two areas for better results, as we want to change ourselves and think of different directions. The two hot areas are Information Technology off course, and the other is environmental related businesses. These two areas are important, but I have a feeling it

is still hard to push companies to be very successful here, and the reason is that Macau itself is very small. The business size here is not enough to create a big company. IT is a big area and there are so many applications and sectors people can enter, but you rarely become a company like Oracle or Microsoft, or smaller. So our next step is to encourage startups to be more focused on tourism and gaming oriented IT. This particular area is Macau’s main business and we can say we’re number one in that field in the world. From now on, I will encourage startups to rely more on our main industry, rather than to diversify into different angles. I can see that from this year on, we will put more resources into setting up infrastructure and partnerships with different major organisations so they can provide the elements for our startups. Is that why you decided to partner with Galaxy Entertainment Group Foundation for the “GEG Venture Philanthropy Fund”? They approached us some time

How does Manetic gets its funding, and what is its budget? We get some funding through the Macao Foundation, although we mostly fund ourselves through some consulting work. Last year we spent about MOP20 million (US$2.5 million), with about MOP9 million coming from the Macao Foundation, and the rest from us.

“Business belongs to startups, so they ought to have their own perception and initiative. They should drive themselves instead of being pushed. The government has already offered enough support to startups, we shouldn’t spoil the kids” Since its inception in 2001, how many companies have been successfully created through Manetic? In the past 15 years we have actually incubated 150 companies, not many compared to many other places, but Macau is a small city so it is already a lot. We believed 50 of them could actually become operational companies and pursue their businesses, but after 15 years

Dr. Yau Chuk, Chairman of the Macau New Technologies Incubation Centre (Manetic)

Business Daily Monday, June 27 2016 5

Macau ago. At that time we thought that we would have to find ways each side could contribute, otherwise I didn’t think a partnership would’ve been formed. After thinking for some months and discussing with their Director of Business Development William Yu, we decided that instead of having them investing in our startups, they could support the projects of our startups. They’re not investing in the company, but supporting some visible projects. This way we can be more application oriented, rather than just investing in a shell company with a floating idea. We wanted to see something come out of the cooperation. When we proposed this, they liked it. What are the requirements you use to decide what companies to recommend to the “GEG Venture Philanthropy Fund”? We suggest that our startups write a proposal describing their product first. Based on that we will challenge them as to whether the product can solve a target problem. If it’s only an idea from their head, without a real solution for a problem outside, we probably can’t fund them. If they can describe the problem clearly and carefully, we will examine their proposed technology product and see if these two will work together and solve it. This is the basic process for selecting our incubatees. Did Galaxy specify that they wanted gaming focused startups from Manetic? I encourage them to work together with us in that direction. If the problem is gaming-oriented, obviously I’ll encourage Galaxy to examine if the proposed product is really useful.

“Talented people won’t come here to get your MOP9,000 cash handout! They come to pursue a career and help the society, they actually contribute more than what you pay them.” One of the targets of the Five-Year Development Plan of the MSAR government is to diversify the local economy outside of gaming. Doesn’t this approach go against that? Shouldn’t Manetic be focused on companies targeting other areas? To be frank with you, for us to develop startups outside of gaming, is very hard. We try to develop something associated with gaming or in relation to the tourism industry, since that sector is closely connected, directly or indirectly, to other business sectors like resorts or theme parks. If we encourage small startups to look at the current or future situation and understand the existing problems in order to propose solutions for that business sector, they will have more chance of success. Otherwise, if they focus on areas unrelated to the current booming business, the chance to leverage the momentum will be very restricted. I want them to

The “GEG Venture Philanthropy Fund”, is a partnership launched in March this year between the Galaxy Entertainment Group Foundation, the University of Macau and Manetic, in order to incubate and select local businesses. Companies recommended by Manetic will be assessed by the University of Macau and after being chosen will receive help to pursue and expand their business

leverage the mainstream momentum. Therefore I think they shouldn’t move too far from the principal economy in Macau and try to work closely with that industry. That way they can take part in that sector, and they can improve each other. Could you give an example of how technology could be used to help reverse the decreasing gaming or tourism revenues? We have 30 million people coming to Macau every year and luckily our industry is already organised so well to engage this tourism. Therefore we have a lot of customer data, and a lot of business development that can be done by analysing this customer Big Data. If the gaming industry wants to diversify, they have this information to help them. Shouldn’t the return on investment be used by the projects to expand their businesses, instead of being injected back into the fund? That’s Galaxy’s idea, they don’t really want to take returns from individuals, but they want to give individuals the responsibility to look after the future development in the community. They suggested that and it can be organised that way. I’m not very keen on that part at this stage. My focus is on helping the startups develop. Do you believe Macau has the right kind of support for startups at the moment? Honestly, there is very strong support for startups from different sources. We have two different government bodies, the Science and Technology Foundation, which provides research money for individuals, the majority of beneficiaries being University members, although they also support individual companies. This money is very useful, since as long as you are working on your project, you don’t need to return it. The other is the new Business Incubation Centre for Youth, which

ideas. The venture philanthropy fund has stated that return on investment on successful ventures from the program will be returned to the fund in order to further invest in other ventures, but no fixed investment amount has been revealed by Galaxy. According to the fund website, current capital is around MOP30.9 million, with a commitment for a further MOP1 billion.

provides zero-interest loans to help startups kick-off their projects and businesses. Manetic normally doesn’t give out money, but we do a lot of surface support, to help them run their businesses and improve their skill sets and mindset. For instance, we run internal self-development programs every two weeks, where we invite guest speakers, and I sit there and interact with our incubatees, to help

“To be frank to you, for us to develop startups outside of gaming, is very hard.” theme expand their ideas further and help them understand different types of constraints and improvements. These kinds of programs are even more important than money, because without the right mindset and skill you cannot pursue your career further. I personally look at this kind of development more than just money. What is your opinion on government initiatives to help entrepreneurship and startups? Do they really help, or is the most important thing the startup and the entrepreneur itself? I prefer that the government doesn’t actively intervene. I prefer a little bit of startup support, and that’s enough. Business belongs to startups, so they ought to have their own perception and initiative. They should drive themselves instead of being pushed. The government has already offered enough support to startups, we shouldn’t spoil the kids. We should only encourage them. What could be changed to foment more innovation in the territory? I think the traditional education system has to be changed a little bit. The conventional university and education systems are very general, for example if you attend an MBA program course, they teach you marketing, accounting, how to establish improvement systems for organisations, management skills all very generic. Once the graduate gets out into the real world here, our system is basically focused on tourism and gaming, very specific, so that generic model creates a big gap, and a lot of stuff you learn at university

will hardly be used. You may say that everywhere is the same, but in Hong Kong, if you learn something at university and you specialise in some industry, then you can choose your career and go into that. If you like the transportation industry and use mathematics to calculate all the transportation handling, you can go into transportation and use your special skills. But in Macau the transportation system is so small, we don’t need so many planners from university, and you probably can’t land in that industry. The only way is to go to casinos or hotels, and that’s were most graduates end up. Maybe we can still retain some of the generic elements of the university system, but we may need more focus on the special characteristics of Macau’s society, so we can help those graduates to contribute to the industry, and push that industry to better levels. It would probably be hard for universities to change, but maybe the government and the industries could form some kind of middle man or organisation to help bridge the gaps with hands-on projects. Countries with good innovation ecosystems tend to have flexible work visa policies. Do you think there should be a more flexible work visa permit scheme in Macau? Yes I do. Macau is a small city but luckily we’re first class in gaming and tourism. In the past 10 years we have received a lot of expats helping us to build this empire, but in recent years suddenly it seems our visa system doesn’t encourage offering visas to foreign workers. This restricts the development of this city to a more advanced level. If you look at Singapore, back in the 1980s, it wasn’t that important in Asia, but in the 1990s they started changing their policies, absorbing talent from everywhere. At that time, a lot of Hong Kong professionals migrated there and for 20 odd years you saw Singapore occupy a high level in the regional rankings in Asia and the world. This is a result of policies attracting external talent. Talen ted people w on ’t come here to get your MOP9,000 cash handout! They come to pursue a career and help the society, they actually contribute more than what you pay them. So the government should change this, although only for talented expatriates. It would be really beneficial and could really take us to a world class level; without that we’re all empty talk.

6 Business Daily Monday, June 27 2016

brexit

Brexit in Macau British in Macau see minimal impact on their life in the SAR

How do UK people in Macau feel about Brexit? Whether voting to leave or stay, nobody wants to see a divided United Kingdom. Joanne Kuai joannekuai@macaubusinessdaily.com

“

rexit ” s e e m s t o have dominated the media headlines and even dinner party conversations during the past weekend. Here in Macau, Business Daily talked with some British nationals living in town about their opinions on the subject. “I was shocked by the results, I listened to the results live on the BBC, and every hour until it got announced, it looked bleak for people that wanted to stay from an early stage when the results were coming through. I knew it would be tight but I thought that we would still be in the EU,” said Hannah Birt, who “wanted to vote to stay, but unfortunately never received the postal vote in time”. Leaving Macau for the UK in two weeks, Ms. Birt says she is not sure how long she will be staying there for, and “if things don’t improve drastically and decisions are not formally made by the government within the next two years, I will look for another job overseas again.” Her view is shared by Chris Gooda, who doubts the referendum will have much impact on his life here in Macau, but calls the result “a social disaster and cements my opinion that I’ll likely never live in the UK again”.

Connected world

Mr. Gooda voted for the UK to remain in the EU and is “devastated by the result of the referendum” and believes “it was a victory for nationalism over collaboration”. “The result has legitimised the campaign rhetoric of xenophobia and hate and caused terrible damage to British society and its reputation

in the world. The Britain that I’ve watched on the news from afar isn’t recognisable as the country that I grew up in,” said Mr. Gooda. Having worked in a variety of countries across the world, both in and outside of the EU, Mr. Gooda says he believes “we live in an ever more connected world based on growing collaboration and the mutual support of different nations” and “the EU, whilst not perfect, is a big part of that”. “I’m heartened that the vast majority of young people in the UK appear to want to continue this journey,” said Mr. Gooda. “It is a shame that the country appears to have been hijacked by the misleading promises of the Leave

Macau people in the UK

For some Macau people living in the UK at the moment, they were able to witness the event as it happened and as it is still happening. A Remain supporter but not entitled to vote, Shirley Chu shared with Business Daily how she felt the result hit the people in London. “On Friday, all my colleagues were upset and worried because of the result. Given that there is so much uncertainty and economic instability, locals are devastated about the news,” said Ms. Chu. However, she expects the result won’t affect her in the short term, “but the uncertainty ahead makes me think if I should settle elsewhere”. For Diana Pereira, who recently arrived in the UK and is planning to stay for two more years, when the exit may actually happen, she expects the impact to be minimal,

campaign. I hope that UK politicians find a way to reverse this decision without dividing the country further,” he added. Also feeling disappointed, is Meg Davies, who voted Remain, calling the result “a terrible reflection on what I thought Britain was like as a nation.” “The result is an embarrassment and promotes a very xenophobic attitude towards nations that have helped build Britain - not scrounged from Her. Without immigrants the NHS [National Health Service] would fall apart,” Ms. Davies told Business Daily. “The jobs that some say immigrants are ‘stealing’ are considered to be too hard, with too many hours and with too little pay. The percentage of immigrants on benefits is minuscule in comparison to the amount of British persons seeking benefits.”

“Since the result, there has been a huge rise in racist and xenophobic remarks and bullying in schools - a totally backward attitude for the next generation to have,” she added.

other than some concerns about rising living costs, flight ticket prices, and the housing market, which is still uncertain, as “it’s just a prediction”. The biggest shock for Ms. Pereira was the fact that some people cast their votes without being properly informed. “I witnessed a lot of dumbness,” she said. “There are people admitting they didn’t know their vote would count and they regret it. What the hell.”

moment - the pound crashing and the FTSE [Financial Times Stock Exchange – British stock market],” said Mr. Ferreira. “At the moment I earn less as the pound has crashed, however, I decided to bet on it and change my savings into pounds until it bounces back seeking to make at least a 10 per cent profit.” “I believe that there will be a massive EU inward movement of people to the UK [in the next two years] because people can stay once they are here before the UK leaves for good”, he added. “The housing market will grow stronger in the next two years as the pound is cheaper and there will be a high demand for housing, but the bubble will burst once the UK actually exits. But they will probably stay in the EEA [European Economic Area] so nothing will happen apart from market volatility.”

Betting against

Dennis Ferreira, a Macau resident who was eligible to vote in the referendum as he is a Canadian passport holder living in the UK, declined to reveal his vote to Business Daily, as “it’s the basis of democracy to have a silent vote.” However, he went on to explain, “I do have an interest in the UK staying in the EU as I’m an EU national”. “The impact is being seen at the

Out vote

Having voted to Leave, Chris Martin was however surprised by the result. “I expected the results to be a Remain win, however the outs won it marginally and it was closer than I thought it would be. It just goes to show the division in the UK at the moment as to what is best to do,” Mr. Martin told Business Daily. Expecting minimal impact as a working visa is still required for him as an expat here in Macau, Mr. Martin says “In the short term, it increases my wage here with regards to the pound, but in the long term nothing really changes.”

Business Daily Monday, June 27 2016 7

brexit able to govern our own laws once again,” he added. Another British national Business Daily talked to told us, “I tried to register to vote but I’ve been living outside of the UK for more than 15 years and therefore wasn’t eligible. I would have voted, without a doubt, to leave the European Union.”

‘We’re supposed to be the United Kingdom, but we’re very divided at the moment.’ However, the source requested to remain anonymous, as “many people are too emotional about this vote in my country and they think that everyone that wanted to leave the EU is a racist. I don’t really want that to happen to me.” At this post-Brexit stage, Mr. Martin says “I don’t get why the Remainers are petitioning for a revote...is it a case of keep going until we get the result that we want? That’s not the way it should go.” “In the long run, I think and hope

the pound and the markets will find their equilibrium again and that British industry will begin to rise again. Now we will be looking to our own exports and imports and not so much to the demands and regulations of the EU. We will be

United Kingdom

Explaining the reason behind their intended Leave vote, the British expat explains that “this decision was purely based on the fact that our country should be allowed to make its

own decisions and our government should be held accountable for those decisions; that’s what democracy is supposed to mean.” “I don’t like the power afforded to the EU, and think regions and communities should be able to make policies that work best for them on a local level. Any benefits of being in the EU were minimal at best and now we will rejoin the WTO on our own behalf,” the source explained. Despite being pleased with the result, the British national is worried about the division the referendum has caused, for “it was a close result and some people are not taking the outcome well.” “We’re supposed to be the United Kingdom, but we’re very divided at the moment. The media coverage in the UK leading up to the vote wasn’t exactly impartial and it was more of a campaign of fear urging us to remain. The reaction to it has also been far too emotional and over the top, with everyone suddenly thinking they are an expert in economics,” the British expat living in Macau added. “For me, it will have no impact [for living in Macau]. Apart from a fluctuation in the pound, not much changes. Rich people will still be rich and poor people will still be poor,” the person added.

The Secretary for Economy and Finance, Mr Lionel Leong Vai Tac (1st right), holds a meeting to gain a better understanding of Macau’s economic and financial arrangements, following the United Kingdom’s vote to leave the European Union. IBS Economic impact SAR Gov’t initiates response mechanism to Brexit

Gov’t forecasts “limited impact” on Macau economy The public are urged to pay extra attention in the near future regarding risk management, in particular when investing in stock markets. Following the United Kingdom’s vote to leave the European Union, the Macau SAR government says it is paying close attention to the latest developments. “The Government has initiated a response mechanism to address any possible economic impact from this event on Macau,” reads a statement from the office of the Secretary for Economy and Finance.

0.35 pct of Macau’s foreign currency reserves are held in British pounds

“The Government expects only a limited impact on Macau regarding the consequences of the referendum held yesterday (last Thursday) on the U.K.’s membership of the E.U,” reads the statement. “In particular, Macau holds only a small amount of sterling (British pounds) in the city’s portfolio of foreign currency reserves: only 0.35 per cent of Macau’s MOP150.5 billion (US$18.8 billion) in foreign currency reserves is held in sterling.” The government added that Macau

has little direct trade with the U.K. Furthermore, the city’s economy is unlikely to be greatly affected in direct terms by changes in stock markets that are responsive to conditions in the U.K.

If necessary

The Secretary for Economy and Finance, Lionel Leong Vai Tac said the SAR government would take all necessary measures in order to ensure the stability of Macau’s economy and finances. The secretary paid a visit to the headquarters of the Macau Monetary Authority last Friday, “in order to gain a better understanding of Macau’s arrangements and strategy for minimising any economic risk to the city stemming from external events”. His office also stated that Mr. Leong had briefed the Chief Executive, Fernando Chui Sai On, on Macau’s arrangements regarding this issue. The government says Macau’s sound public finances, well-established fiscal reserve system, stable linked exchange rate system, and healthy financial system enable the Government to cope with volatility in international markets. As of April, Macau had estimated

fiscal reserves of MOP436.22 billion. This figure does not include the MOP29.29 billion surplus from the fiscal year of 2015. The Government says it is closely monitoring updates in the international economy, in order to update

– in a timely manner – its investment portfolio. Members of the public are urged to pay extra attention in the near future regarding risk management, in particular when investing in stock markets.

Business No immediate impact on Macau-UK trade

BBAM: UK still a good business partner Chairman of the British Business Association of Macao (BBAM), Henry Brockman, says there won’t be any immediate impact from Brexit, particularly in Macau. He adds that BBAM will continue to be an active member of the Macau European Chamber of Commerce (MECC), where Mr. Brockman also serves as the Vice President of the Supervisory Board. BBAM was launched in July 2006 and was established to promote and represent British business interests in the region. Mr. Brockman explains that as a founding member of the MECC, which was established in 2013, it was drafted in the initial document that BBAM would remain a member of the MECC even if the UK was not a member of the EU. While saying the impact of Brexit here in Macau would be “minimal”, Mr. Brockman indicated that changes would be seen in Europe. “A lot depends on the kind of deal the UK

agrees with the EU after exit, for example, in terms of trade or movement of people,” he says. However, Mr. Brockman stressed that he is “confident that the UK is still a great place to do business with”. Though he was personally not entitled to cast a vote in the referendum as he has been living outside of Britain for more than 15 years, Mr. Brockman indicated that BBAM as a business and trade organization remains neutral on the political decision and outcomes of the referendum on the United Kingdom’s membership of the European Union. He added that whatever the results, he believes that people have the intention for common good and agrees with German Chancellor Angela Merkel’s remarks that the European Union has “no need to be particularly nasty in any way” in its negotiations with Britain about its exit from the bloc.

8 Business Daily Monday, June 27 2016

brexit

Chancellor Of The Exchequer George Osborne during last visit to China Financial services

Sino-UK linkages at risk Britain has sold itself to China as its “best friend in Europe”. Michelle Price

ritain’s shock vote to leave the European Union could derail a raft of financial services projects agreed between China and the United Kingdom, which for years has marketed itself to Beijing as its best economic and financial friend in Europe. The “Leave” camp clinched 52 per cent of the vote at this week’s referendum on whether the UK should remain a member of the EU, confounding traders and bookmakers who had expected Britons would opt to stay and sparking turmoil in global markets. Britain now faces a long period of uncertainty, as the government begins an two-year process to renegotiate its relationship with the EU, which allows goods and services to be freely traded within the bloc. Friday’s result also threatens to redefine Britain’s growing financial

services relationship with China, which has agreed to a number of joint projects as part of the China-UK Economic and Financial Dialogue (EFD) programme to deepen economic ties between the two counties, based largely on the UK’s membership of the EU.

Key Points UK and China have agreed a raft of financial services projects Brexit threatens London’s status as leading offshore yuan hub Chinese banks likely to rethink London operations Civil servants “scrambling” to assess impact on projects- source Last year, the British government and China’s Vice Premier Ma Kai announced plans to launch a London-Shanghai

e q u i t y t ra di n g l i n k, a m u t u a l recognition scheme for distributing funds products, cooperation on crosslisting exchange products, measures to “cement” London as a yuan clearing hub, and a commitment on the part of several Chinese financial firms to set up bases in London - in addition to strategic Chinese infrastructure investments. The UK Treasury said last year’s agreement ushered in a “golden era” for relations between the two countries. But these projects are now in doubt amid uncertainty over the UK’s future access to the EU single financial market, said sources and consultants. “Inward investment by China into the UK under the dialogue has been focused on infrastructure projects and I wouldn’t expect that should change with Brexit, but on financial services projects with China, that’s at significant risk now,” said Andrew Naylor, a Singapore-based executive director at Cicero Group, a consultancy that has been helping Asian financial firms weigh the Brexit risks. Asked about the impact of the “Brexit”

vote on the EFD during a news briefing in Beijing on Friday, Chinese foreign ministry spokeswoman Hua Chunying said: “I think the relevant countries and their departments need time to have a conscientious study of this new situation. “We are willing to continue cooperating with Britain to promote progress in cooperation in all areas. At the same time, we will of course keep proactively developing relations with EU countries as is our consistent policy.” China’s State Council Information Office, the Chinese Ministry of Finance and the UK Treasury did not immediately respond to requests for comment.

much as 7.2 per cent to 99.02 per dollar on Friday, and climbed against all 16 of its major peers, before closing at 102.22. After four consecutive years of

declines, the yen has advanced almost 18 per cent this year against the greenback in the best performance among developed nations, amid concern a Brexit would drag down already-tepid

Best friend in Europe

Britain has sold itself to China as its “best friend in Europe”, marketing the country’s premier financial services industry and its function as a gateway to the EU single market. But Brexit now risks unravelling EU financial services agreements that have helped turn Britain into Europe’s

Currency observed

Japan considers unilateral yen intervention Authorities voiced growing concern at the yen’s surge past 100 per dollar for the first time since November 2013. Yuko Takeo

Japan’s government and central bank are considering measures, including unilateral intervention in the currency market, to counter any abrupt gains in the yen, the Nikkei newspaper reported. Intervention may take place if yen demand jumps abruptly following U.K.’s vote to leave the European Union, and there is enough pressure on the economy and inflation, the newspaper reported Saturday. It cited an unnamed Finance Ministry official as saying action is possible even without U.S. approval in a “fight’’ to protect ‘‘national interests.” Calls to the ministry and the Bank of Japan outside business hours weren’t answered. Japanese authorities voiced growing concern at the yen’s surge past 100 per dollar for the first time since November 2013 as the U.K. voted to leave the EU on Friday. While Finance Minister Taro Aso said he’s ready to act in markets if needed, he declined to comment

on potential unilateral intervention or coordinated action with Group of Seven counterparts. Japan’s Ministry of Finance views unilateral intervention as an unlikely tool in the event of a surge in the yen should the U.K. vote to leave the European Union, people familiar with the matter said before the referendum. A joint intervention with G-7 partners would be preferred, and it’s unlikely they would be supportive of Japan selling yen on its own, they said.

G7 Chiefs

G7 finance chiefs said after a conference call on Friday they will “continue to consult closely on market movements and financial stability, and cooperate as appropriate.” Officials recognized that “excessive volatility and disorderly movements in exchange rates” can harm economic and financial stability and pledged to use “established liquidity instruments” to support the functioning of markets. Japan’s currency strengthened as

Business Daily Monday, June 27 2016 9

it Brexit financial powerhouse, accounting for a quarter of all EU financial services income, according to the Bank of England. For now, a financial services company with a licence or ‘passport’ to operate in Britain can automatically offer its products and services throughout the EU, reducing compliance and operational costs. Britain could now lose that critical access, making the country less attractive to China as a partner to help promote its financial clout abroad. “Where Brexit could really have an adverse impact, is with respect to Chinese banks that have led the way in setting up operations in London for renminbi finance, and that is more contingent upon the UK being a member of the EU,” said Naylor. “These banks have set up in London to have access to the EU, and you could well imagine them saying now ‘why did we bother?’” On Friday, China’s official news agency Xinhua noted that Brexit could affect the internationalisation of the yuan, considering the role London has played in the process to date. “Brexit will challenge London’s position as a premier global financial centre, which may encumber the pace of the renminbi’s internationalisation,” Xinhua said. Asia-Pacific companies spent more than US$1.7 billion on greenfield UK wholesale financial services investments in 2011-15, with China the largest average investor, according to FT data source fDi Markets, excluding M&A activity.

Why be in London?

One Beijing-based European official said Chinese financial services providers would now inevitably rethink their London plans. “What’s the point of being in London if you don’t have access to the single market?” the official said. For its part, however, Britain is likely to be more eager than ever to make a success of these projects and further deepen its ties with Beijing, having alienated its EU trading partners. “Much will depend on the nature of the revised relationship between the UK and the remaining EU Member States,” said Martin Lane, managing partner, Europe, at law firm K&L Gates. “Having said that, from the British side, we can perhaps expect an even greater commitment to doing business with China given the now unsettled nature of the UK’s relationship with the EU.” Reuters

‘After four consecutive years of declines, the yen has advanced almost 18 per cent this year against the greenback’

Analyst Roundup

Implications for Asia’s economies

could push the central bank into action to defend the ringgit. “Policy rate hikes would come onto the agenda,” it said.

Japan is a key victim of Brexit, with Tokyo’s Topix index expected to be more volatile than most in Asia, says Morgan Stanley.

INDONESIA

David Roman

The U.K.’s vote to leave the European Union may lead to unexpected challenges for Asian economies, with Japan likely to bear the brunt of pressure, mainly because of a stronger yen, analysts say.

CHINA

With growth in the world’s second-largest economy stabilizing and debt concerns mounting, Brexit may lead to more bumps along the way. UBS AG: The People’s Bank of China will likely cut its reserve requirement ratio to ease domestic liquidity as part of a coordinated global monetary easing. The yuan may depreciate further against the U.S. dollar, but the export industry faces possible woes as internal divisions in the EU curtails demand, and the value of shipments falls. “There is some potential for a gap to open up between the volume of exports to the EU and nominal US dollar exports if the Euro weakens against the US dollar,” it said. Australia and New Zealand Banking Group: China is likely to use conventional and unconventional monetary policy tools. It can also exhibit its status as a global citizen and signal its willingness to lift market sentiment due to Brexit.

JAPAN

Already facing subdued economic growth and inflation, the Bank of Japan was projected to ease monetary policy further in coming weeks. Morgan Stanley: Japan is a key victim of Brexit, with Tokyo’s Topix index expected to be more volatile than most in Asia. A stronger yen could be a persistent headache going forward, and the effect can be significant: for every move of one yen against the dollar, earnings forecasts for companies on the Topix can fall by 65 basis points. UBS: Delays to U.S. interest-rate increases because of global uncertainty may be an additional driver of the yen. But a 16 per cent fall in local-currency terms for Topix, to 1,100 points, would leave valuations close to lows in the pre-Abenomics era, which presents a buying opportunity. “Much depends on any move in monetary policy from the Bank of Japan or intervention from the MOF to stem the yen’s likely rise,” it said.

SOUTH KOREA

The Bank of Korea made a pre-emptive cut in interest rates earlier this month as it prepared for the possible negative effect of corporate restructuring on economic activities and sentiment. Finance Minister Yoo Il Ho said on Friday the government has sufficient policy measures to respond to financial market volatility. Scotiabank: Markets typically sell off at times of risk aversion, and the won was the worst-performing currency in Asia on Friday. The bottom for the won may be at 1,200 per dollar, but policy reaction should be muted, according to Scotiabank. “Out-of-schedule monetary easing not likely in Asia as rates in most of the region already very low,” it said.

SINGAPORE Japan’s Finance Minister Taro Aso said he’s ready to act in markets if needed

global growth. It gained at the start of the year on speculation China and the U.S., the world’s largest economies, would struggle to overcome headwinds. Bloomberg News

The city-state is heavily dependent on global trade and authorities are struggling to get economic growth going after the economy expanded a little above zero in the first quarter. Nomura Holdings Inc: Demand for highly-rated Singapore bonds may surge, as the country is widely seen as a triple-A safe haven. Falling yields in developed-market securities should drive Singapore’s in the same direction.

Also, “a weaker currency will help push front-end rates higher,” it said.

MALAYSIA

The economy remains on a solid footing despite weak commodity prices and the currency has recovered strongly this year after sliding in 2015. The central bank extended trading hours for the ringgit on Friday and said there was ample liquidity in domestic markets. Capital Economics Ltd.: Malaysia has a large amount of short-term external debt and, like Indonesia, also a relatively high level of foreign-currency debt. An extended period of market volatility

Indonesia’s central bank surprised economists last week when it cut interest rates to help spur lending and stimulate economic growth. State Street Corp: An anticipated rise in bond yields may make them more attractive for yield-starved investors down the line. Indonesia still looks like an outperformer, with the central bank biased toward rate cuts to support economic growth and given benign inflation. “Bonds still look attractive but the currency might be different and you might see currency hedging,” it said. S&P Global Ratings: Southeast Asian firms, especially Indonesian ones, could find it more difficult to refinance and sell U.S. dollar bonds as their currencies fall. “The direct impact on the area’s companies is limited as most don’t have operations in the U.K.,” it said. Bloomberg News

10 Business Daily Monday, June 27 2016

Greater China PBOC survey

Business confidence picks up in Q2 A separate central bank survey published on Friday showed that a bankers’ confidence index rose to 43.7 per cent in the second quarter.

usiness confidence among entrepreneurs in China has picked up for the first time in more than two years in the second quarter of 2016, according to surveys by the People’s Bank of China (PBOC) published on Friday. The entrepreneurs’ confidence index rose to 49 per cent in the second quarter, 5.3 percentage points higher than in the first quarter, one central bank survey showed. That is the first rise in confidence since the first quarter of 2014, according to central bank data. China’s economic growth slowed to 6.7 per cent in the first quarter - the weakest since the global financial crisis. Chinese officials have pledged to keep up support for the economy, although recent data has soothed fears of a sharp slowdown in China’s economy.

A separate central bank survey published on Friday showed that a bankers’ confidence index rose to 43.7 per cent in the second quarter, 5.6 percentage points higher than in January-March.

The survey showed 21.2 per cent of bankers believed monetary policy would be relatively loose in the third quarter of this year. The central bank has cut interest rates six times since November 2014 and reduced the amount of cash that banks must set aside as reserves. Another survey by the central bank showed that 53.4 per cent of households rated housing prices as “unacceptably” high, up 2.6

percentage points from the first quarter. The proportion of residents prepared to buy property in the next three months rose to 15.1 per cent in the second quarter, 1.5 percentage points higher than the previous quarter, the survey showed. The central bank surveys were carried out prior to Britain’s vote on Friday to leave the European Union. Reuters

The survey showed 21.2 per cent of bankers believed monetary policy would be relatively loose in the third quarter of this year

Monetary policy

Central bank chief sees ‘dynamic’ adjustments Zhou said PBOC’s independence was sometimes under pressure due to its multiple objectives that create “tensions” with other government agencies. David Lawder and Howard Schneider

A more flexible yuan currency is important for China’s development and reforms and monetary policy will be adjusted “in a dynamic way” to meet those goals, People’s Bank of China (PBOC) Governor Zhou Xiaochuan said. Zhou, in a lecture at the International Monetary Fund on Friday, said the PBOC was listening to advice from foreign finance officials, but noted the central bank was pulled in many directions with multiple objectives, creating “tensions.”

“We are paying close attention to international discussions on Chinese monetary policy and will adjust our policy in a dynamic way to meet the demand of China’s economy, reform and development,” Zhou said. China had been criticized for years for keeping its yuan artificially low against the dollar, but since devaluations last August and in January roiled markets, the PBOC has spent hundreds of billions of dollars in foreign exchange reserves to prop up the yuan’s value. Zhou has also pledged to avoid devaluations to gain a trade advantage.

Zhou said yuan exchange rate policy should serve China’s “overall development strategy,” including its transition to a market economy. He added that it was important that “the exchange rate policy is meeting the higher requirement of the market economy. Which means that the exchange rate must be more flexible, and the convenience and flow of current account, capital account money can be more free.” But Zhou said the central bank’s independence was sometimes under pressure due to its multiple objectives that create “tensions” with other government agencies. These include maintaining growth and price stability, maintaining the balance of payments, reforming the banking sector and developing financial markets. “If a central bank has multiple

International Monetary Fund (IMF) Managing Director Christine Lagarde(R) and People’s Bank of China Governor Zhou Xiaochuan (L) participate in the Michel Camdessus Central Banking Lecture, at the IMF Headquarters in Washington, DC., USA, 24 June 2016.

objectives, it may be harder to be immune from the political reality,” he said. “Ultimately the transition to a market economy will by and large be completed.” Once this happens, the PBOC’s objectives will be simplified and it will become more like a western central bank, he said. Regarding the “Brexit” vote, Zhou said the PBOC was closely monitoring events and more study was needed to fully understand the implications of the decision.

Leverage

China’s high corporate debt was due to the traditional reliance on bank lending and debt financing as the capital market remains less developed, given the country’s relatively high savings rate, Zhou said during a question-and-answer session hosted by IMF Managing Director Christine Lagarde. “China’s leverage levels are relatively high compared with other developing countries, which has its rationality. But the rapid rise in leverage is very dangerous,” according to a transcript of Zhou’s comments published on the central bank’s website. China’s total debt load rose to 250 per cent of gross domestic product (GDP) last year, and the IMF recently warned that the high corporate debt ratio of 145 per cent of GDP could lead to slower economic growth if not addressed. Zhou said the size of China’s shadow banking sector was relatively small, accounting for 20 per cent of total banking assets and 30 per cent of total loans. “However, the shadow banking sector is growing very rapidly recently, due partly to regulatory arbitrage and regulatory vacuum,” he said adding that Chinese banks and insurance firms have rushed to tap the lucrative shadow lending business. Reuters

Business Daily Monday, June 27 2016 11

Greater China Official trip

In Brief

Russia secures energy deals as Putin visits Beijing ChemChina would take a 40 per cent stake in Rosneft’s planned petrochemical complex VNHK in Russia’s Far East. Denis Dyomkin

Russia and China sealed a raft of energy deals during President Vladimir Putin’s visit to Beijing on Saturday, strengthening economic ties while pledging to preserve the strategic balance of power among nations. The deals involve the sale of stakes in a number of Russian projects to Chinese firms, an oil supply contract and joint investments in petrochemical projects in Russia. Rosneft, Russia’s top oil producer, agreed with China National Chemical Corporation (ChemChina) that ChemChina would take a 40 per cent stake in Rosneft’s planned petrochemical complex VNHK in Russia’s Far East.

‘Russia was China’s largest crude oil supplier in May for a third month in a row, having surpassed imports from Saudi Arabia’ The deal would help Rosneft finance the project and get access to the markets of the Asia-Pacific region, the Russian firm said in a statement. They also signed a new one-year contract under which Rosneft could supply up to 2.4 million tonnes of crude oil to ChemChina between

August 1, 2016, and July 31, 2017. Rosneft and Beijing Enterprises Group Company Limited agreed the key terms of a potential sale of a 20 per cent stake in Rosneft’s oil producing subsidiary, Verkhnechonskneftegaz, to a unit of Beijing Gas Group. The Russian firm also signed a framework agreement with Sinopec regarding the construction of a gas processing and petrochemical plant in East Siberia, aiming to set up a joint venture in 2017 focused on the Russian and Chinese markets. Rosneft CEO Igor Sechin said his company did not plan to reduce its crude supplies to China and would defend its market position amid competition with Saudi Arabia, Qatar, Iraq, and Iran. “We will stick to the volumes we have agreed on. It’s around 40 million

tonnes (per year),” TASS news agency quoted Sechin as saying. Russia was China’s largest crude oil supplier in May for a third month in a row, having surpassed imports from Saudi Arabia.

Global balance

Although economic cooperation was the focus at Putin’s talks with Chinese President Xi Jinping, the leaders also agreed to strengthen global strategic stability. A statement on the Kremlin website from the two governments called on nations to strictly abide by the norms of international law, keep military capabilities at the minimum level required for national security and refrain from steps aimed at expanding existing military-political alliances. The countries’ central banks also signed a memorandum of understanding on setting up a yuan clearing mechanism in Russia that they said would be beneficial to cross-border trade and investment. Reuters

Central bank to keep liquidity ample China will keep its domestic liquidity reasonable and ample, its central bank said in a statement on Friday on Britain’s vote to leave the European Union. The People’s Bank of China said it will strengthen communication with other central banks and continue to use various monetary policy tools. China will maintain prudent monetary policy, will keep the yuan basically stable and will further improve the market-based yuan mechanism, the PBOC said. The central bank has pledged to let market forces play a bigger role in setting yuan exchange rate. Oil industry

Crude oil output drops China’s crude oil output dropped 7.4 per cent year on year to 16.76 million tonnes in May, data from the top economic planner showed. This brings the total output for the first five months of 2016 to 84.19 million tonnes, down 4 per cent from the same period last year, the National Development and Reform Commission said. The drop came amid plans by China’s oil giants to reduce oil output due to flagging crude oil prices in 2015. Sinopec plans to cut production by 7.5 per cent this year, while PetroChina aims to reduce output by 4.8 per cent. VAT

Russian President Vladimir Putin (L) changes documents with Chinese President Xi Jinping at the end of a joint press briefing in Beijing’s Great Hall of the People on June 25, 2016.

Search engines

Government tightens controls on Internet ads The Cyberspace Administration of China said search engines should investigate the “aptitude” of clients offering paid-for ads China’s internet regulator said on Saturday that search engines should tighten management of paid-for ads in search results, making clear which results are paid-for and limiting their numbers. The Chinese government already exercises widespread controls over the Internet and has sought to codify that policy in law. Chinese regulators last month imposed limits on the number of lucrative healthcare adverts carried by Baidu Inc following the death

Brexit

of a student who underwent an experimental cancer treatment which he found using China’s biggest internet search engine. Wei Zexi, 21, died in April of a rare form of cancer, and the case sparked widespread public anger. The Cyberspace Administration of China said search engines should investigate the “aptitude” of clients offering paid-for ads, set a clear upper limit on such ads and clearly distinguish which are paid-for ads and which come from “natural

searches”. “ I n t e r n et s ea rch p r o vi d e rs should earnestly accept corporate responsibility towards society, and strengthen their own management in accordance with the law and rules, to provide objective, fair and authoritative search results to users,” it said. Users have been particularly concerned with medical ads, which are a threat to people’s health, the regulator added. Baidu said in a statement that it was committed to providing the best search experience and will fully comply with the law. “Baidu will work closely with government agencies, Internet users and the community to uphold a healthy Internet environment, and strive to provide objective, impartial, and authoritative search results to our users,” it said. Search engines also have other problems, the regulator said. “Some search results contain rumours, obscenities, pornography, violence, murder, terrorism and other illegal information,” it said. “ S o m e s ea rc h r e s u l t s l a c k objectivity and fairness, go against corporate morals and standards, misleading and influencing people’s judgement.” Officials say Internet restrictions, including the blocking of popular foreign sites like Google and Facebook, are needed to ensure security in the face of rising threats, such as terrorism. Foreign governments and business groups have pointed to restrictions on the Internet as a broader trade issue. Reuters

Heilongjiang to launch tourists tax refund Heilongjiang will begin to issue tax rebates for overseas visitors on July 1, to boost inbound tourism to the north-eastern province. According to Heilongjiang Provincial Office of the State Administration of Taxation, overseas tourists visiting the cities of Harbin, Heihe and Suifenhe will enjoy VAT refunds on purchases from specific shops. Foreign tourists and those from Hong Kong, Macau and Taiwan who stay on the Chinese mainland for fewer than 183 days can claim up to 11 per cent back on goods bought at designated department stores. The minimum purchase for the rebate is 500 yuan (US$75.60) at one store in one day. Commodities

Lithium prices to surge in mainland The explosive growth of new energy vehicle (NEV) sales in China is expected to push up demand for lithium batteries and lithium products over the next few years, analysts say. Over the past two years, the government released a slew of measures to promote the burgeoning sector, including subsidies, tax cuts and favourable number plate allocation. Driven by the incentives, output and sales of NEVs climbed 131.4 per cent and 134.1 per cent to 132,000 and 126,000 in the first five months of this year, according to China Association of Automobile Manufacturers.

12 Business Daily Monday, June 27 2016

Greater China

Premium tactics

Mainland insurers run “Titanic” risks for titanic returns Top insurers in China get more than half of their premium income from life insurance products. Sumeet Chatterjee

ears of breakneck growth for China’s top insurers has been partly fuelled by a splurge on risky investment products that could punch multi-billion-dollar holes in their balance sheets if the slowing economy triggers heavy debt defaults. Industry premiums have increased by an average 13.4 per cent a year since 2010, according to the China Insurance Regulatory Commission (CIRC), but in an environment of low interest rates and unreliable stock markets, insurers have increasingly looked to alternative investments to make the returns they need to service their growing business. A Reuters survey of the accounts of the top five listed insurers including Ping An Insurance Group Co and New China Life Insurance showed their holding of assets other than shares, bonds and cash had more than quadrupled in five years to 984 billion yuan (US$150 billion). These alternative investments which include opaque, risky shadow banking-linked assets such as trust schemes and wealth management products (WMP) - account for roughly 16 per cent of the top five’s total assets, up from 5 per cent in 2011,

the second-largest asset class after fixed-income products, the survey showed. Analysts say the bulk of these investments including WMPs and the negotiable certificates of deposit, created by banks, are channelled to debt-laden state-owned and private firms at rising risk of default. The insurers’ investments in these assets comes at a time when banks’ non-performing loans are already at an 11-year-high of nearly 2 per cent, according to official figures, and many analysts believe the situation is much worse, as some banks are slow to recognise problem loans or park them off balance sheet. Assets such as project asset-backed plans, trust schemes and WMPs are also difficult to turn into cash in a downturn since they lack a secondary market and have long investment horizons. “The growing investment in risky, higher-return assets is the Titanic, and when it goes down it will take more than one lifeboat,” said Thomas Monaco, portfolio manager for Chinese equity at Hong Kong-based Nighthawk Capital. “The real problem for insurance companies is that the overall investment yields are coming down in China, so they are going out of the credit risk curve. They are going for

Aggressive strategies

Top insurers in China, including state-owned China Life and People’s Insurance Group of China Co Ltd, get more than half of their premium income from life insurance products. To generate premium growth, some have been pushing short-term policies with high returns. “To be able to offer such high-return products to customers, they have to adopt a more aggressive investment strategy to earn a high yield,” said Sally Yim, senior vice-president for Asia financial institutions at Moody’s Investors Service. Stocks and bonds are not meeting insurers’ requirements; the Shanghai market is down 19.4 per cent this year, Asia’s worst-performing market, while yields on 10-year government bonds fell 98.2 basis points in 2014 and 78.6 basis points in 2015. Edmond Law, insurance sector analyst at UOB Kay Hian (Hong Kong), said while investments in government bonds would return about 3 per cent, some WMPs offered 4-5 per cent, along with “very high risk”. New China Life Insurance posted a more than fivefold jump in investment in products such as unlisted equity investments, trust products and WMPs last year compared with 2014. In contrast, its investment in

Key Points Top insurers quadruple investment in alternative assets in 5 years Alternative investment assets include shadow banking products Regulators cracking down on shadow banking amid debt worries The company did not respond to Reuters request for comment on its risk control measures. To be sure, not all non-traditional alternate investments are risky; the insurers that Reuters surveyed don’t provide a breakdown of “alternate investments” category, and earn steady returns on commercial property and infrastructure projects. But the industry regulator is also taking action to ensure they take adequate care of their US$2 trillion in assets - a sum equivalent to about a fifth of China’s GDP. CIRC has launched an inspection of insurers’ risk controls over stock, private equity and real estate investments, the official Shanghai Securities News reported earlier this month. Reuters

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higher interest rate bets, and a lot of them could go bad.” The top five Chinese insurers did not respond to requests for comment.

term deposits fell 23.7 per cent, and stocks dropped nearly 2 per cent, according to its latest annual report. It posted a 34.3 per cent rise in 2015 profit, mainly thanks to income on investments. New China Life said in the report, however, that since early 2015 it had “drastically tightened its risk appetite for non-standard assets” and regularly assessed and stress-tested their exposure.

Business Daily Monday, June 27 2016 13

Asia Elections

Australian PM urges stability vote in national poll Domestic economic issues such as tax and the funding of education and health care have dominated the campaign. Jane Wardell

Australian Prime Minister Malcolm Turnbull yesterday used “Brexit” shockwaves to urge voters to return his government with a majority at a July 2 election, arguing only stable government can deliver jobs, economic growth and tough border controls. After a tight eight-week campaign, Turnbull’s Liberal Party-led coalition is facing a strong challenge from the opposition Labour party and popular independents who could win enough seats to hold the balance of power in the upper house Senate. The poll comes as Australia attempts to rebalance its economy away from a once-in-a-generation mining boom stymied by tumbling commodities prices. Domestic economic issues such as tax and the funding of education and health care have dominated the campaign.

Border security has also been a hot button issue, giving rise to the return of far right political groups, even though the numbers of asylum seekers trying to reach Australia pales in comparison to those fleeing to western Europe. “The opportunities have never been greater, but so is the competition, and so are the uncertainties,” Turnbull said in a speech in Sydney. “The shockwaves in the past 48 hours from Britain’s vote to leave the European Union are a sharp reminder of the volatility in the global economy,” he added. Britain’s vote to exit the EU has sent political and financial shockwaves around the world. “This is a time which demands stable majority government,” said Turnbull. Turnbull prompted the election by dissolving both houses of Parliament in May, blaming intransigent independents in the Senate for

“The shockwaves in the past 48 hours from Britain’s vote to leave the European Union are a sharp reminder of the volatility in the global economy”

blocking his agenda. But he may not find himself any better situated after the poll due to the growing appeal of independent Nick Xenophon, whose new party is fielding almost 50 candidates. Xenophon could emerge as kingmaker in a hung parliament if opinion polls putting Turnbull’s Liberal-National coalition neck-andneck with opposition Labour prove correct. A further destabilising factor could be the return of far right parties, including Pauline Hanson’s One Nation, which are campaigning on anti-immigration, anti-Muslim agendas. Turnbull’s speech in Sydney coincided with clashes in Melbourne between anti-immigration and antiracism protesters. Hundreds of riot police were drafted in to keep the groups separate, arresting several people as scuffles broke out and Australian flags were burned. Australia has seen a revolving door of political leadership in recent years. If Turnbull loses on July 2, the change in prime minister would be the fifth since 2010. Reuters

Australian Prime Minister and Leader of the Liberal Party Malcolm Turnbull gestures as he speaks at the Coalition Campaign Launch in Sydney, Australia, 26 June 2016

Fight for control

Lotte chairman beats back brother’s third attempt at ouster

current directors of the board including Shin Dong Bin, SDJ Corporation, which represents the older brother, said Saturday in an e-mailed-statement.

Firm’s identity as a Korean company founded in Japan has also divided the family.

Divided family

Lotte Holdings Co. shareholders voted to leave Lotte Group Chairman Shin Dong Bin in his post of director of the holding company, Lotte Group said in a statement, rejecting a third bid by his brother to seize control of the family-run South Korean conglomerate amid a government probe into possible bribery and embezzlement. Shareholders of the Tokyo-based Lotte unit rejected former Lotte Holdings Vice Chairman Shin Dong Joo’s proposal to oust seven current directors of the board including Shin Dong Bin and Lotte Holdings President Takayuki Tsukuda. Shin Dong Joo, 62, intended to form a new board including himself at the company meeting Saturday, a Lotte Group spokesman, who cannot be named because of company policy, said by phone. The decision leaves his brother, Shin Dong Bin, 61, at the helm of a retail-to-plastics empire dogged by a government probe that has prompted it to postpone a US$4.5 billion initial

World Bank loan

Vietnam granted credit to face green growth agenda The World Bank (WB) will help Vietnam strengthen its climate change and green growth agenda with a US$90-million credit for policy reforms, said WB Vietnam on Saturday. This is the first in a series of three credits that will support climate change and green growth policy actions in Vietnam, said the WB, adding that it will fund implementation of policies to improve integrated coastal zone planning and management, public investments related to climate change and green growth, protection of water resources and greater water use efficiency, as well as coastal forest development. Energy plans

Myanmar expects to increase natural gas production Myanmar has expected to produce 675.615 billion cubic feet of natural gas from four natural gas projects of the country in the next fiscal year 2017-2018, official media reported Saturday. The four projects are Yetagun project in the Andaman Sea, Shwe project in Bay of Bengal, Yadana offshore in the Andaman Sea and Zawtika project, the largest overseas offshore producing gas field in the Gulf of Mottama. According to the country’s second five-year national development plan (2016-2021), these projects are estimated to produce 515.015 billion cubic feet of natural gas for export and another 160.60 billion for local consumption in the FY 2017-2018. Infrastructure

Malcolm Turnbull, Australian Prime Minister

Sohee Kim

In Brief

public offering at its hotel unit, and to scrap a major acquisition by its chemicals arm. Shin Dong Bin’s victory in the Japan vote Saturday is key because of Lotte Holdings’ shares in other affiliates in the group, which has 89 Korean units with more than 100 trillion won (US$85 billion) in assets.

‘Lotte Group’s businesses include the country’s largest department store chain, luxury hotels and the Lotte World Adventure theme park’ Shin Dong Joo will keep fighting “to normalize” the business of Lotte Group and to seek to oust

Lotte’s identity as a Korean company founded in Japan has also divided the family, with Shin Dong Joo insisting that it is the wish of his father, Shin Kyuk Ho, to consolidate control of the company within Korea. Shin Kyuk Ho, 93, founded Lotte in Japan in 1948 as a maker of chewing gum and sweets. Shin Dong Joo had previously been in charge of the Japanese side of the business, while Shin Dong Bin had control of the group in Korea. Dong Joo was ousted in January 2015, setting the stage for his attempts to mount a comeback he claims has their father’s blessing. Shin Dong Bin, who has an MBA from Columbia University in New York and a bachelor’s from Tokyo’s Aoyama Gakuin University, last week vowed to complete the IPO of its hotel unit this year. Shin Dong Joo, also an Aoyama Gakuin graduate, has an MBA from the Fu Foundation School of Engineering, and speaks Japanese better than the Korean language. Shin Kyuk Ho in March lost his board seats at Hotel Lotte Co. and Lotte Confectionary Co. as attempts by Shin Dong Joo to push his younger brother out backfired. Bloomberg News

Bangladeshi PM inaugurates metro rail in Dhaka Bangladeshi Prime Minister Sheikh Hasina has inaugurated construction work for the country’s first metro rail service in capital Dhaka. Through a video conference yesterday from a function in Dhaka’s Bangabandhu International Conference Centre, Hasina inaugurated the construction work of the metro rail service which is expected to transport 60,000 passengers an hour. In the first phase of the US$2.5 billion, 11 kilometres would be completed by 2019 and 4.4 kilometres by 2020. The remaining 4.7 kilometres are expected to be completed by 2022. Monetary authority

Singapore ready to curb excessive volatility Singapore’s central bank said on Friday it was ready to curb excessive volatility in the Singapore dollar and will provide additional liquidity to the banking system if needed after Britain voted to leave the European Union. The Monetary Authority of Singapore said the currency remained within its policy band and interbank markets continued to function in an orderly manner, while the banking system remained “sound.” “The liquidity positions of the major banks in Singapore are healthy, and overall banking system liquidity remains adequate. MAS will provide additional liquidity to the banking system if needed,” it said in a statement.

14 Business Daily Monday, June 27 2016

International In Brief Peace talks

Colombia to offer tax breaks for development Colombia will offer tax incentives to companies that get involved in infrastructure and social service projects in areas left underdeveloped or scarred by the country’s 50-year armed conflict, a government official said. The government and leftist Revolutionary Armed Forces of Colombia, or FARC, rebels, signed a landmark ceasefire agreement in Havana this week, clearing the way for a final peace accord as soon as next month. Rafael Pardo, a veteran politician, was appointed by President Juan Manuel Santos as the country’s post-conflict minister last year. In comments to Reuters, late on Friday, he said the tax plan will take effect once the final peace deal is in place. IMF

Urgent action needed as Mozambique’s growth dips The International Monetary Fund has called for urgent action to stem Mozambique’s deteriorating economic performance, after revelations of US$1.4 billion in hidden debt saw donor nations suspending aid to the country. In a statement released Friday, the IMF recommended “an urgent and decisive package of policy measures to avoid a further deterioration in economic performance”. Mozambique’s growth is forecast to drop to 4.5 percent this year - down from 6.6 percent last year - while rising inflation reached 16 percent in May.

BIS forum

Central bank group argues for branch closures to lift profits Banks say pressure from regulators to hold higher levels of capital is making a return to sustainable profitability harder. Huw Jones

anks should shut branches to help lift flagging profits and get on a healthier longterm footing, an influential global central banking forum said in a report yesterday. Closing bank branches is politically sensitive, particularly in Europe, with a backlash in countries including France, Spain and Britain where opponents say remote areas or regions where people are less well off have been targeted. A Reuters analysis showed British banks are disproportionately closing branches in the lowest-income areas, while expanding in wealthier ones. The Bank for International Settlements, which represents the world’s major central banks, said that now banks have reinforced their capital reserves, it is time for them to focus on profits. Persistently low interest rates, anaemic economic growth and too many souring loans on balance sheets were holding back a recovery in profits, meaning banks need to pursue other ways to lift revenues, the BIS said in its annual report.

“It will be critical to cut excess capacity. One gauge of potential overcapacity is the density of bank branches.” Lenders in Europe are already taking action. Deutsche Bank and Spain’s Santander are among the latest major European banks most recently looking to make significant branch closures. BIS figures in the report showed

“It will be critical to cut excess capacity. One gauge of potential overcapacity is the density of bank branches.” Bank for International Settlements report the number of bank branches per 100,000 adults in Spain and Italy was 60 to 70, compared with fewer than 40 in Japan and the United States.

Its comments chime with European regulators who say Europe is “overbanked”, suggesting that lenders should consolidate sooner rather than later to tackle poor profitability. The BIS said the scale of cuts so far have been “rather limited” compared with past crises. After the onset of the Nordic banking crisis in 1991, banks in Finland cut the number of branches by more than 40 per cent within four years and slashed operating expenses by half. The Basel Committee of global banking regulators, based at the BIS in Basel, Switzerland, is completing its post-crisis bank capital rules, which lenders say will lead to “Basel IV” or another step-up in costly requirements. Banks say pressure from regulators to hold higher levels of capital is making a return to sustainable profitability harder, but the BIS report rejects this argument. The BIS says higher capital levels translate into better credit ratings for banks, helping to push down funding costs and increase availability of credit for the economy. There was “ample room” for Basel when it comes to finalising these requirements, as research showed that additional bank capital yields sizeable economic benefits if phased in gradually, the report added. Reuters

Saudi Arabia

JPMorgan, Citi, HSBC selected to arrange bond sale Saudi Arabia appointed JPMorgan Chase & Co., HSBC Holdings Plc and Citigroup Inc. to arrange its first international bond sale, people with knowledge of the matter said, asking not to be identified as the decision isn’t public. The banks declined to comment, while calls to Saudi Arabia’s finance ministry outside office hours weren’t immediately returned. Saudi Arabia is shoring up its finances after the slump in oil prices. It has outlined an economic transformation plan that includes increasing government debt to 30 percent of economic output by 2020 from 7.7 percent. Foreign minister

British cabinet to remain in post Foreign Secretary Philip Hammond said yesterday Britain’s cabinet, which was split over whether the country should vote to leave the European Union, would remain in place until a new prime minister was in office. “Obviously a new prime minister will select his own cabinet and all of us will remain in office until that point and then the new prime minister will make his decision,” Hammond told ITV television in response to a question about whether finance minister George Osborne would remain in post.

Bank for International Settlements headquarters

Lawsuit

TransCanada files billionaire suit over US rejection of pipeline The Calgary-based company is seeking US$15 billion for losses it says it suffered because of the rejection. TransCanada has formally filed a US$15 billion suit against the US government for blocking its controversial project for an oil pipeline linking Canada with the Gulf of Mexico, legal documents show. The company first announced its intention to sue in January, but then sought negotiations toward “an amicable settlement of the dispute” surrounding the Keystone XL pipeline, according to legal documents posted on its website. Unable to settle, the company formally filed suit late Friday, asserting that denial of a permit to complete the pipeline was “unjustified” under the North American Free Trade Agreement (NAFTA), and that the decision also exceeded US President Barack

Obama’s constitutional powers. The suit is based on Chapter 11 of NAFTA - the 1994 trade pact between the United States, Canada and Mexico - which aims to protect foreign investors from potential losses. The Calgary-based company is seeking US$15 billion for losses it says it suffered because of the pipeline’s rejection. The decision to block the pipeline, which came seven years after the company first submitted the project, marred US-Canada relations and angered many in the oil industry in both countries. The pipeline would have carried crude oil from the Alberta tar sands deposits all the way to the US Gulf Coast. The US government’s blocking of the 1,900 kilometres

Alberta-Nebraska section effectively undermined the entire project. Environmentalists have assailed the project - and the move to sue - arguing that the Alberta deposits produce some of the “dirtiest” crude in the world.

‘The decision to block the pipeline marred US-Canada relations and angered many in the oil industry in both countries’ In its latest filings, TransCanada argued that the US government’s decision was not based on technical analysis, but “was symbolic, and based merely on the desire to make the US appear strong on climate change.” A summit that brings together th e l ea d e rs o f NA FTA’ s th r e e countries will be held next week in Ottawa. AFP

Business Daily Monday, June 27 2016 15

Opinion Business Wires

Taipei Times Beijing rejected Taiwan’s protest over Cambodia handing over Taiwanese fraud suspects to Chinese authorities, saying for the first time that the cross-strait communications mechanism “has been suspended” since the new government took office in Taipei last month. China’s Taiwan Affairs Office spokesperson An Fengshan made the remark while answering reporters’ questions about Taipei’s protest over Cambodia’s decision to accept Beijing’s demand and send Taiwanese telecommunications fraud suspects to China for prosecution. The mechanism for contact and communication between China and Taiwan “has been suspended” since May 20, as Taipei has not recognized the socalled “1992 consensus.”

The Korea Herald South Korea on Saturday said it will keep close tabs on the impact of the Brexit on the local market and take actions swiftly and firmly to minimize its fallout if needed. “For now, the uncertainties (on Britain’s exit from the European Union) are big, and we cannot predict the consequences,” the government said. On Saturday, officials from the finance and industry ministries, as well as the central bank (pictured), held a gathering to check the repercussions of Britain’s vote to leave the EU.

Thanh Nien News Vietnam’s rice exports in 2016 could fall 13.2 per cent from a year earlier to 5.7 million tonnes as supply was dampened by drought and salination, a government news website reported on Friday. Rice exports in January-June by Vietnam, the world’s third-biggest exporter of the grain after India and Thailand, is seen down 8.4 per cent annually at 2.73 million tons, the website quoted the Vietnam Food Association as saying. The annual estimate is lower than the association’s earlier forecast of 6.5 million tons as Vietnam suffers from its worst drought in 90 years.

Philstar Macroeconomic assumptions are unlikely to be affected by the UK’s historic vote to leave the European Union once outgoing and incoming economic managers meet beginning this week. For the Aquino administration, Budget Secretary Florencio Abad said the meeting on Wednesday will finalize the proposed P3.35-trillion national budget for next year. “We will discuss the proposed 2017 budget...It may likely be to officially submit the (proposal) to the new administration,” Abad said in a text message last Friday. His successor, Benjamin Diokno, said the inter-agency Development Budget Coordination Committee of the Duterte administration will meet on its first week in power.

Former London Mayor Boris Johnson (C) and wife Marina Wheeler (R) attend a polling station in North London. Johnson has been a key figure in the Vote Leave campaign in the EU Referendum.

Britain’s democratic failure

he real lunacy of the United Kingdom’s vote to leave the European Union was not that British leaders dared to ask their populace to weigh the benefits of membership against the immigration pressures it presents. Rather, it was the absurdly low bar for exit, requiring only a simple majority. Given voter turnout of 70 per cent, this meant that the leave campaign won with only 36 per cent of eligible voters backing it. This isn’t democracy; it is Russian roulette for republics. A decision of enormous consequence – far greater even than amending a country’s constitution (of course, the United Kingdom lacks a written one) – has been made without any appropriate checks and balances. Does the vote have to be repeated after a year to be sure? No. Does a majority in Parliament have to support Brexit? Apparently not. Did the UK’s population really know what they were voting on? Absolutely not. Indeed, no one has any idea of the consequences, both for the UK in the global trading system, or the effect on domestic political stability. I am afraid it is not going to be a pretty picture. Mind you, citizens of the West are blessed to live in a time of peace: changing circumstances and priorities can be addressed through democratic processes instead of foreign and civil wars. But what, exactly, is a fair, democratic process for making irreversible, nationdefining decisions? Is it really enough to get 52 per cent to vote for breakup on a rainy day? In terms of durability and conviction of preferences, most societies place greater hurdles in the way of a couple seeking a divorce than Prime Minister David Cameron’s government did on the decision to leave the EU. Brexiteers did not invent this game; there is ample precedent, including Scotland in 2014 and Quebec in 1995. But, until now, the gun’s cylinder never stopped on the bullet. Now that it has, it is time to rethink the rules of the game. The idea that somehow any decision reached anytime by majority rule is necessarily “democratic” is a perversion of the term. Modern democracies have evolved systems of checks and balances to protect the interests of minorities and to avoid making uninformed decisions with catastrophic consequences. The greater and more lasting the decision, the higher the hurdles. That’s why enacting, say, a constitutional amendment generally requires clearing far higher hurdles than passing a spending bill. Yet the current international standard for breaking up a country is arguably less demanding than a vote for lowering the drinking age. With Europe now facing the risk of a slew of further breakup votes, an urgent question is whether there is a better way to make these decisions. I polled several leading political scientists to see whether there is any academic consensus; unfortunately, the short answer is no.

“

Kenneth Rogoff a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.

For one thing, the Brexit decision may have looked simple on the ballot, but in truth no one knows what comes next after a leave vote. What we do know is that, in practice, most countries require a “supermajority” for nation-defining decisions, not a mere 51 per cent. There is no universal figure like 60 per cent, but the general principle is that, at a bare minimum, the majority ought to be demonstrably stable. A country should not be making fundamental, irreversible changes based on a razor-thin minority that might prevail only during a brief window of emotion. Even if the UK economy does not fall into outright recession after this vote (the pound’s decline might cushion the initial blow), there is every chance that the resulting economic and political disorder will give some who voted to leave “buyers’ remorse.” Si n c e a n ci e n t ti m es, philosophers have tried to devise systems to try to balance the strengths of majority rule against the need to ensure that informed parties get a larger say in critical decisions, not to mention that minority voices are heard. In the S p a r ta n a s s e m b l i e s o f ancient Greece, votes were cast by acclamation. People could modulate their voice to reflect the intensity of their preferences, with a presiding officer carefully listening and then declaring the outcome. It was imperfect, but maybe better than what just happened in the UK. By some accounts, Sparta’s sister state, Athens, had implemented the purest historical example of democracy. All classes were given equal votes (albeit only males). Ultimately, though, after some catastrophic war decisions, Athenians saw a need to give more power to independent bodies. What should the UK have done if the question of EU membership had to be asked (which by the way, it didn’t)? Surely, the hurdle should have been a lot higher; for example, Brexit should have required, say, two popular votes spaced out over at least two years, followed by a 60 per cent vote in the House of Commons. If Brexit still prevailed, at least we could know it was not just a one-time snapshot of a fragment of the population. The UK vote has thrown Europe into turmoil. A lot will depend on how the world reacts and how the UK government manages to reconstitute itself. It is important to take stock not just of the outcome, though, but of the process. Any action to redefine a long-standing arrangement on a country’s borders ought to require a lot more than a simple majority in a one-time vote. The current international norm of simple majority rule is, as we have just seen, a formula for chaos. Project Syndicate

The idea that somehow any decision reached anytime by majority rule is necessarily “democratic” is a perversion of the term

”

16 Business Daily Monday, June 27 2016

Closing Central bank head

PBOC to study Alibaba’s shadow-banking activities

had with International Monetary Fund Managing Director Christine Lagarde in Washington. China’s central bank will study shadow-banking Alibaba applied for and was granted banking and payment licenses, he said. “But according activities at Alibaba Group Holding Ltd. as it to the definition of FSB about shadow banking... tries to ensure a fair environment exists for we see some of the phenomena for the maturity competition in the industry, Governor Zhou transformation, or the leverage is too high, and Xiaochuan said. Alibaba engages in activities the capital requirements are different from that fall under the Financial Stability Board’s traditional banking,” Zhou said in the video on (FSB) definition of shadow banking and are the IMF’s website. “So you know it gives signals subject to different capital requirements than for many others to follow. Sooner or later I think traditional banks, Zhou said. The central bank governor’s comments were carried in a Chinese- we are going to study on this issue, to set up a language translation of an interview in English he more equal footing competition.” Bloomberg News

AIIB

China touts new bank’s greater understanding of developing world The AIIB’s board approved its first four deals worth US$509 million on Friday. Ben Blanchard

he China-led Asian Infrastructure Investment Bank (AIIB) will be different from institutions like the World Bank because it has a greater understanding of the developing world’s needs, officials said yesterday at its first annual meeting. Chinese President Xi Jinping proposed the bank two years ago and it began operations in January, with 57 founding member countries and US$100 billion in committed capital, which it plans to invest in projects across the region.

“The AIIB needs to establish its comparative advantage relative to existing multilateral development banks like the World Bank” Lou Jiwei, Chinese Finance Minister The AIIB, which intends to invest US$1.2 billion this year, has said it is aiming to meet international standards of governance, though

some members say there is still work to be done. Speaking on the final day of the bank’s inaugural annual meeting, Chinese Finance Minister Lou Jiwei said the AIIB needed to establish its niche. “The AIIB needs to establish its comparative advantage relative to existing multilateral development banks like the World Bank,” Lou said. “...Compared with the Asian Development Bank, World Bank and other multilateral development banks, the AIIB’s advantage lies in its keener understanding of the successful experience and lessons of developing countries’ years of development.” The AIIB’s board approved its first four deals worth US$509 million on Friday, with three projects cofinanced with the World Bank, the Asian Development Bank, the United Kingdom Department for International Development and the European Bank for Reconstruction and Development. The co-financed projects are a slum renovation in Indonesia and highway construction in Pakistan and Tajikistan. A power grid upgrade project in Bangladesh will be solely AIIB financed. AIIB President Jin Liqun said it was the focus on infrastructure that specifically marked out the bank as different and that they were committed to the concept of international best practice. “The question is, how do you define

Stock markets

international best practice? I will not agree to anything which could be considered international best practice unless this kind best practice incorporates the development experience of China and many countries in Asia and elsewhere over the last three or four decades,” Jin said. “So our bank would like to have

the development experience, the socalled international best practice, reflecting the experience of China, India (and) so many countries in Asia. So we should have a different model of development.” The AIIB is also looking to expand its numbers this year and will take applications for new members through the end of September. Reuters

Chinese President Xi Jinping (pictured during opening sessions last year) proposed the bank two years ago and it began operations in January

Political impasse

Law enforcement

Egypt’s bourse suspends European Parliament urges trading on 70 stocks after collapse Britain to begin exit Tuesday

Myanmar torches drugs worth nearly US$60 million

The Egyptian Exchange suspended yesterday trading on 70 stocks minutes after the start of the trading session as they fell by the maximum drop level allowed in a single session, state-run MENA news agency reported. According to MENA, the bourse continued downward trend with losses amounting to 16 billion pounds (about US$1.8 billion) in the first minutes of yesterday’s session prompted by the negative effects of Britain’s exit from the European Union on the world stock markets. Earlier in the day, MENA reported that the market capital lost 14 billion pounds in the first two minutes of the session to hit 378.2 billion pounds against 392.2 billion pounds. The market capital kept going down to hit 376.3 billion pounds after dozens of stocks fell by more than 10 percent, which is the maximum drop level allowed in a single session The exit of Britain from the EU has negatively affected global stock markets, with experts expecting that Britain’s divorce with EU will paralyze several world, and mainly European, economies for a long period of time. Xinhua

Myanmar police yesterday torched drugs with a street value of nearly US$60 million as authorities struggle to tackle t h e s c o u rg e o f p o p p y c u l t i va t i o n a n d sh u t d o w n p i l l l ab o rat o r i e s i n l a w l e s s border zones. The impoverished nation remains the world’s s ec o n d bi gg est p r o d u c e r o f o p i u m f r o m w hi ch h e r o i n i s m a d e, acc o r di n g t o th e United Nations. Decades of corrupt military rule and continuing civil wars with ethnic rebels are blamed for fuelling the drugs trade. To mark the UN’s annual anti-drugs day, seized drugs and precursor chemicals were burnt in three places across Myanmar. Over half a ton of opium and 80 kilogrammes of heroin was torched along with 768 kg of methamphetamines and 10 million other stimulant pills, a police official told AFP, adding the haul was worth around US$57 million. At a ceremony in the capital Naypyidaw, Vice-President Myint Swe conceded the battle to stem drug production was far from being won. AFP

The European Parliament’s chief called yesterday for British Prime Minister David Cameron to begin formal proceedings to leave the EU at a summit this week. Martin Schulz told German newspaper Bild am Sonntag that a period of limbo over Brexit would “lead to even more insecurity and thus endanger jobs”. “Hesitating simply to accommodate the party tactics of the British conservatives hurts everyone,” he said. “That is why we expect the British government to now deliver. The summit on Tuesday is the right time.” The four biggest groups in the European Parliament have also drawn up a draft resolution calling for Cameron to set the Brexit ball rolling on Tuesday, Germany’s Frankfurter Allgemeine Sonntagszeitung reported. This was crucial, the groups wrote, “to avoid damaging uncertainty for all and to preserve the integrity of the union”. They added that “no new relationship of whatever kind between the United Kingdom and the EU can be agreed before (Britain’s) exit accord has been completed”. AFP