Non-resident workers increase 1.7 pct y-o-y in May Labour Page 2
Tuesday, June 28 2016 Year V Nr. 1074 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Gaming
Steve Wynn: Wynn Palace to open on August 22 Page 6
www.macaubusinessdaily.com
Weaker data
Independent agency
Profits of China’s major industrial firms rose less in May than in April Page 8
BRICS are preparing a new ratings agency adapted to the requirements of developing countries Page 9
Letter to Secretary
Transport
Uber Macau appeals to its users to express their support for the service to the Secretary for Transport and Public Works, in order to ‘encourage the government to develop legislation to regulate the ride-sharing industry.’ Page 7
Slightly fewer gaming workers
Labour The number of local workers engaged in the gaming industry dropped 0.9 pct to 83,800 from March to May, compared with February to April. The city’s total labour force fell slightly by 0.3 per cent to 396,200. The local unemployment rate stood at 1.9 per cent as at the end of May.’ Page 2
Premier on Brexit
Stability wish Britain’s vote to leave the European Union has increased uncertainty in the global economy, and China hopes for a united and stable EU and a prosperous United Kingdom, Chinese Premier Li Keqiang said yesterday. Li also called for global efforts to cope with the challenges. Page 10
Invest cautiously
Legislator Au Kam San says regulations should be set up and listed clearly so that the Guangdong-Macau Co-operative Development Fund can be operated smoothly and effectively. The Macau government plans to inject 20 billion yuan into the fund, with an investment period of 10 years.
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2 Business Daily Tuesday, June 28 2016
Macau In Brief Delta-bridge
Gov’t dispatches MOP41 mln for quantity surveying of delta-bridge border The government has granted a MOP41 million-worth contract to Rider Levett Bucknall Macau Ltd to provide quantity surveying services for the city’s border administrative area of the Hong KongZhuhai-Macau Bridge. According to yesterday’s Official Gazette, the government’s contract with the surveyor will last for three years. The authorities will pay MOP25 million to the company this year, and the other MOP11.9 million and MOP4.1 million will be settled in 2017 and 2018, respectively. Last December, the MSAR government signed a memorandum with Zhuhai authorities, agreeing to appoint a Zhuhai unit, Zhuhai Gree Hong Kong, Zhuhai and Macao Bridge Man-made Island-Development Co., Ltd, to build the city’s border control area for the bridge. A previous announcement by the Infrastructure Development Office (GDI) indicated that the design, supervision, quality control and quantity surveying of the border works for the super bridge would still be awarded to local units. K.L. Infrastructure
Taipa LRT water supply contract for MOP8.7 million The government’s contract with the Macao Water Supply Company, Ltd. for the Taipa Light Rail Transit (LRT) system water supply will extend into 2017 at a value of MOP8.7 million (US$1 million), according to an Official Gazette dispatch. The contract payment for “Construction of the Taipa LRT Stations Water Supply” will be divided into two payments, with MOP4.35 million being paid this year and the other half in 2017, the dispatch stated. Last week, the Secretary for Transport and Public Works, Raimundo do Rosário stated that construction of the Taipa section of the LRT, comprising 11 stations and covering a distance of 9.3km, is planned to be completed in 2019, at an estimated cost of MOP11 billion, with MOP8 billion having already been spent. N.M. DSAT
PwC Macau offering consultancy services for analysis of bus trips The consultancy services contract for ‘Data on Bus Trips for Independent Analysis and Assessment’ from October 2015 to July 2018 has been granted to PwC PricewaterhouseCoopers Macau, according to the government’s Official Gazette published yesterday. The dispatch was signed by Chief Executive, Fernando Chui Sai On. The total amount of MOP5.3 million (US$ 0.6 million) will be divided into three installments to be paid over three consecutive years, with MOP1.2 million paid in 2016, MOP2 million in 2017 and MOP2 million 2018. The service fees paid will be classified under the ‘Research, Consulting and Translation’ account by the Transport Bureau (DSAT). A.L.
Employment
Unemployment rate unchanged at 1.9 pct as at May-end Between March and May, the number of workers engaged in the gaming industry dropped slightly compared to the previous period. Kam Leong kamleong@macaubusinessdaily.com
T
he local unemployment rate stood at 1.9 per cent as at the end of May. While total employment in the gaming industry registered a slight decrease, employment in the wholesale & retail trade posted an increase, the latest official data released yesterday by the Statistics and Census Service (DSEC) shows. From March to May, the city’s total labour force fell slightly by 0.3 per cent to 396,200 compared to 397,300 for February to April. Of the total, 388,600 were employed, down by 1,000 compared to the previous period. On the other hand, the total number of unemployed people was 7,600, a decrease of 100 from the previous period. According to DSEC, fresh
labour force entrants searching for their first jobs accounted for 5.1 per cent of the total unemployed population, which rose slightly by 0.1 percentage points period-on-period.
Fewer gaming workers
During the three month period, a total of 83,100 local workers were employed in the gaming industry, including junket activities, a drop of 0.9 per cent compared to 83,800 for February to April. In addition, the number of workers in the construction field fell by 0.4 per cent period-on-period from 47,700 to 47,500. Employment in restaurants and similar activities was also down by 2.9 per cent year-on-year from 27,800 to 27,000. The city’s hotel establishments also saw their total number of workers decrease by 0.5 per cent period-onperiod to 29,000 compared to 29,200
for the previous period. Nevertheless, there were more workers employed in the wholesale & retail trade sectors in the three month period, with the total number growing by 1.5 per cent period-onperiod from 41,800 to 42,400. In terms of proportion, the gaming, recreational and cultural industry made up 24.5 per cent of the local employed population, followed by hotels, restaurants and similar activities, and construction, accounting for 14.4 per cent and 12.2 per cent of the total, respectively. Other employed workers were primarily engaged in real estate and business activities, public administration and social security and domestic work as at the end of May, representing 7.9 per cent, 7.1 per cent and 6.3 per cent of the total, respectively. On a year-on-year comparison, the city’s unemployment rate and underemployment rate rose by 0.1 and 0.2 percentage points respectively between March and May, while the labour force participation rate declined by 2 percentage points.
Labour
Number of non-resident workers in May increases 1.7 pct y-o-y The total number of non-resident workers in Macau in May increased by 1.7 per cent year-on-year to 182,344, according to the latest data from the Public Security Police (PSP) released by the Labour Affairs Bureau (DSAL). Imported workers from Mainland China continued to account for the majority at 117,858, followed by 25,059 from the Philippines and 14,524 from Vietnam. When compared to April, the overall number of non-residents decreased by 0.6 per cent. Workers from Mainland China and the Philippines increased by 1 per cent and 0.4 per cent monthto-month, while the number of Vietnamese workers decreased by 0.8 per cent. The majority of Mainland Chinese residents were working in the construction sector, while Philippine and Vietnamese nationals worked
mainly as domestic workers. Overall, the majority of nonresidents were working in the hotel
and restaurant sector, followed by 44,747 people in the construction sector, and 23,721 in the domestic worker area. Outside of Asia, the United States made up the biggest number of nonresidents working in Macau, with 399 people, followed by the United Kingdom with 315 people. N.M.
Business Daily Tuesday, June 28 2016 3
Macau Development Fund
Diversifying the investment of excess reserves Scholar says investment return and risk should be clearly stated for the Guangdong-Macau Co-operative Development Fund. Annie Lao annie.lao@macaubusinessdaily.com
T
h e M a c a u SA R government is planning to use its excess reserves to invest in the Guangdong-Macau Cooperative Development Fund, as part of the SAR’s Five-year Plan to establish a Macau Investment and Development Fund in 2019, according to last week’s announcement by the office of the Secretary for Finance and Economy. In terms of the share of investment in the Fund, Macau will be designated as a ‘Qualified Foreign Limited Partner (QFLP)’ to buy the shares in the Fund, while Guangdong will be represented by Guangdong Hengjian Investment Holdings Co., Ltd. and Guangdong Namyue Group Cp., Ltd. as a normal partner. According to the statement by the Secretary’s office, Guangdong Hengjian Investment Holdings Co., Ltd. has been established under the authority of the Guangdong Provincial Government and is funded solely by the
Guangdong State-owned Assets Supervision and Administration Commission. The Fund will be primarily invested in key infrastructure projects in Guangdong province, and also the development of Free Trade Zones (FTZ) in the province. The provisional investment scale is 20 billion yuan (US$3 billion / MOP24 billion), with an investment period of 10 years.
Stable investment
Macau’s fiscal reserves stood at MOP345 billion in 2015, including excess reserves of about MOP210 billion. Using about 10 to 20 billion yuan or 5 per cent to 10 per cent, for investments is considered to be appropriate, according to Prof. Ricardo Siu Chi Sen, Associate Professor of Business Economics in the Faculty of Business Administration at University of Macau. Prof. Siu told Business Daily that the Guangdong Stateowned Assets Supervision and Administration Commission and the Monetary Authority of Macau (AMCM) should assess the risk and return of investing
in the Guangdong-Macau Co-operative Development Fund, and expectations should not be too high. “We should not expect too much on the return since it is the first time for the SAR government to set up a Development Fund, therefore, a high return will not be possible, but it can surely diversify the investment of fiscal reserves more than before,” Prof. Siu commented. In addition, Legislator Au Kam San suggested that the details of the GuangdongMacau Co-operative Development Fund should be discussed at the Legislative Assembly, and the public should be consulted before the government makes a final
decision on how to invest. “Only the surface information of the D ev e l o p m e n t F u n d i s not enough. The risk and return of the Fund should be published for the public to view and discuss at the Legislative Assembly,” the legislator told Business Daily. Currently, there are no relevant criteria and indications on how to further invest in the Fund. These regulations should also be set up and listed clearly in order to facilitate directions on how to use the Fund more effectively, the legislator suggests. However, Prof. Siu argues that it would not be effective to have discussions at the Legislative Assembly before
a final decision on the Development Fund is made by the Guangdong Stateowned Assets Supervision and Administration Commission and AMCM. Prof. Sui says the Guangdong State-owned Assets Supervision and Administration Commission and AMCM have the financial expertise to decide how much money should be invested in the Fund, which in turn will make the process of investment more effective. Furthermore, Macau still lacks proper regulations for investing its excess reserves so there is still room to improve the current regulations and policies to better facilitate investing excess reserves Prof. Sui says.
4 Business Daily Tuesday, June 28 2016
Macau In Brief Social welfare
Pension allowance up to MOP8,000 The SAR government raised the city’s pension allowance to MOP8,000 (US$1,000) this year, up from MOP7,500 in 2015, according to a press release published by the Social Welfare Bureau yesterday. Elderly beneficiaries living in Macau will be automatically granted the allowance from October without having to provide any proof that they are still alive. However, elderly beneficiaries who live overseas need to apply for ‘a proof of life’ certificate before August 31, to be able to receive the allowance. New applicants for the pension should apply for the allowance before August 31 to be eligible to receive it. At the end of May, the total number of Macau senior citizens eligible to receive the allowance was about 71,000. The bureau estimates that approximately MOP568 million will be paid out in pension allowances to these elderly residents. Education
Subsidies for free education increase Allowances and tuition subsidies for local free education have been adjusted, according to a dispatch signed by the Chief Executive, Fernando Chui Sai On issued in the government’s Official Gazette yesterday. According to the new regulations, a class with 25 to 35 students will be allocated MOP913,600 (US$ 114,329) at pre-school level and some MOP1 million at primary school level respectively. Secondary education level classes will be allocated MOP1.22 million and high school education classes will be allocated MOP1.39 million. In addition, tuition subsidies for students have also been adjusted for preschool education, primary education and high school education to MOP18,400, MOP20,500 and MOP22,800 respectively. The new allowance levels will come into effect from September 1. IACM
New twins pandas born Macau’s resident giant panda, Xinxin gave birth to twins on Sunday afternoon, according to a press release published by the Civic and Municipal Affairs Bureau (IACM). The twins were born to a pair of giant pandas, male panda Kaikai and his partner Xinxin, who were presented as gifts to Macau from the central government. After an incubation period of more than three months, Xinxin gave birth to the elder baby panda weighing 135 grams, and the younger one weighing 53.8 grams. Both are currently in the intensive care center and are in good health condition. IACM said Xinxin and her babies still need a quiet environment in which to rest, and as a result, the Macao Giant Panda Pavilion will continue to be closed until further notice. A.L.
Public project
Legislator demands Alto de Coloane environment report to be made public The Alto de Coloane project has not yet been passed to the Urban Planning Committee for review. Annie Lao annie.lao@macaubusinessdaily.com
L
egislator Si Ka Lon submitted a written enquiry regarding Alto de Coloane, a one-hundred-meter highrise residential project. He asked the government why the project has been submitted for review by the Urban Planning Committee, even though the public has expressed concerns about the environmental impact of the development. The legislator suggested in the enquiry that the project should
be passed to the Urban Planning Committee to reconsider and listen to more opinions regarding the protection of the public interest. He also asked whether the Land, Public Works and Transport Bureau (DSSPOT) can coordinate with the project developer to disclose the full environmental impact evaluation report and opinions from the Environmental Protection Bureau (DSPA) on the impact of this project, so that the public can review it. Li Canfeng, the director of DSSPOT replied to the legislator’s enquiry, saying that since the Urban Planning
Law took effect, the Bureau has not received any applications for an alignment plan for the project from the developer. Mr. Li said that in accordance with the procedural requirements, an application for the alignment plan must be submitted to DSSPOT first in order to start the process. Otherwise, the government will not pass the project to the Urban Planning Committee for consideration, Mr. Li explained. Mr. Li also stated that if DSPA finds that the environmental impact evaluation report does not comply with the relevant technical requirements of the developer, the developer will be required to make changes and improvements based on the report.
Tobacco control
Government will not drop the smoking ban bill The Secretary for Social Affairs and Culture reiterates the smoking ban bill won’t be abandoned despite disagreements between lawmakers regarding smoking in casinos. Nelson Moura nelson.moura@macaubusinessdaily.com
The Secretary for Social Affairs and Culture, Alexis Tam Chon Weng has stated the smoking ban bill won’t be abandoned despite disagreements between lawmakers, adding that the
government would be open to new proposals, TDM reported. In a statement to the local broadcaster during the inauguration of the new Social Welfare Institute Education House, Alexis Tam revealed that the government could be open to new approaches to the smoking
ban, after previously stating that a full smoking ban was the principal aim of the new bill. The smoking ban bill has been under revaluation by the Legislative Ass e m b l y ’ s s ec o n d sta n d i n g committee since July of last year, with the issue of a full smoking ban on mass market gaming floors being the most contentious. Last month, the chairman of the sub-committee, Chan Chak Mo told reporters that the majority of the members of the committee supported the establishment of smoking lounges in local casinos, while only two members supported a total smoking ban, as reported by Business Daily. Now Alexis Tam has revealed that, although the main focus is still on a total smoking ban due to secondhand smoking health concerns, the government would be open to new suggestions and will not abandon the bill. “For sure the government is not dropping the bill, because the bill has passed the first reading already. The committee right now is discussing the details. And we hold an objective and open-minded stance to whatever suggestions they’ve got. Because some organisations told us they have the conditions to set up smoking lounges, I want to see what these suggestions and conditions are,” Mr. Tam told TDM.
Business Daily Tuesday, June 28 2016 5
Macau Protest Secretary for Security wants to see more restrictions on public protests
Avoiding the question New Macau Association Vice-President sees the recent statements by Secretary for Security demanding more limits on the right to protest as a way to avoid discussing the issues raised by the protesters. Nelson Moura nelson.moura@macaubusinessdaily.com
P
roposed restrictions on the right to assembly are a way to “avoid the issues raised by protesters”, New Macau Association VicePresident Jason Teng Hei Chao told Business Daily. The statement by the prodemocratic political party VicePresident comes in response to comments made by Secretary for Security Wong Sio Chak in an interview with local broadcaster TDM, announcing that the appointment of a new Chief Prosecutor would be used to place more limits on the right to protest. The Secretary for Security stated that the new limits would be due to the recent public disobedience cases by protesters who took part in a demonstration last May, including New Macau Association President Scott Chiang.
Jinan University through the Macao Foundation. Wong Sio Chak also defended the police action during the protest, stating that after “many police warnings,” protesters still occupied a main road during the protest, blocking access to cars and pedestrians, even though
the Court of Final Appeal (TUI) had previously declared the road in front of the AL off limits to protesters. Therefore the protest organisers are being justly investigated by the authorities for public disobedience. According to Jason Chao however, the TUI should never have made the ruling since “the right to assembly is a human right and should be respected.” “Unfortunately, in the past few months some abuse has been seen in Macau. The court failed to overturn an illegal restriction by the police two months ago, which shows how the authorities want to limit freedom of
A human right
According to the Secretary, protesters gathered illegally for the May 15 protest in front of the Legislative Assembly (AL) Building, to protest the government’s recent donation of 100 million yuan (MOP123 million/ US$15.4 million) to Guangzhou-based
New Macau Association President Scott Chiang, during the protest in May
expression. [New Macau Association] can’t see any irregularities with Scott Chiang or other protesters of obstruction during the action,” Jason Chang told Business Daily.
Avoiding the issue
F o r Ja s o n C h a o , t h e p o l i c e investigation of Scott Chiang and the other protest organisers is a way for the government to avoid addressing the issues raised by the demonstration. “I deeply regret the Secretary’s comments and we will do our best to protect this basic human right. The government is reluctant to address the issue being protested. On the other hand, they seldom protect the protesters raising the issue,” Jason Chang told Business Daily.
6 Business Daily Tuesday, June 28 2016
Macau Gaming
Wynn Palace opening on August 22
Wynn Palace is slated to be unveiled on August 22, gaming operator Wynn Macau Ltd announced in a filing to the Hong Kong Stock Exchange yesterday. “The Company expects that the opening of Wynn Palace will help launch a new era of prosperity
for Macau, attracting more international tourists to the city and further supporting its development as a world center of tourism and leisure,” its chairman Steve Wynn wrote. The new 28-storey casinoresort project in Cotai, at an investment cost of US$4.1 billion (MOP32.7 billion), will feature a total of 1,076 rooms and suites.
Retail COD’s new retail area will open in phases between June and September
City of Dreams opens new luxury retail space The City of Dreams extension will provide the “largest collection of luxury brands in Cotai” according to Melco Crown Entertainment Limited CEO Lawrence Ho. Nelson Moura nelson.moura@macaubusinessdaily.com
M
elco Crown Entertainment Limited (MCE) has officially announced a phased opening of its new retail area expansion at City of Dreams between June and September, according to a press release. The new space, three times bigger than the previous retail area, will be managed and operated by T Galleria from luxury travel retailer DFS Group, majority owned by luxury conglomerate Moët Hennessy Louis Vuitton (LVMH). In the press release, Lawrence Ho, Chairman and Chief Executive Officer of MCE stated that the space,
created in partnership with DFS, would feature the “largest collection of luxury brands in Cotai”. Philippe Schaus, DFS Group’s Chairman and CEO considers the space to be a first in Macau “in terms of providing a curated and modern product selection across the major luxury categories, targeting new and experienced travellers alike.” “T Galleria by DFS, City of Dreams will combine the breadth of a luxury shopping mall with the personalised service of a high-end department store,” Schaus noted in the press release.
Beauty knows no price
The T Galleria will include a 23,000 square foot area with nearly 70 beauty and fragrance brands including Sulwhasoo, Laneige and HERA,
with MCE describing it as the “largest beauty hall in Southern China.” In terms of fashion, after the June opening, the new retail area will feature 31 international brands including Louis Vuitton, Dior, Prada, Miu Miu and Fendi. There will also be a male-only multibranded, lifestyle area providing ready-to-wear, accessories, shoes, watches and grooming. The company’s press release also predicts that by the end of the year the jewellery area will be fully operational, with products from Tiffany & Co. and Van Cleef & Arpels, and new watch boutiques
from Audemars Piguet and Vacheron Constantin.
Shoes galore
The space will offer over 50 men’s and women’s shoe brands across two floors, with brands such as Aquazzura and Rupert Sanderson. The press release describes the area as the “largest shoe salon in Hong Kong and Macau”. Business Daily questioned MCE on the cost of the expansion and its predicted customer attendance for the new retail space, but no response was received when this newspaper went to print.
Business Daily Tuesday, June 28 2016 7
Macau Transportation Ride-sharing app pleads to be regulated
Uber Macau: Dear Secretary Rosário The ride-sharing company encourages riders to appeal to the government to develop ridesharing legislation to regulate the industry.
“
D
ear S e c r e t a r y Rosário, as a resident of Macau, I’m writing to express my support for Uber. I love the service for many reasons, including the fact that…” In an email sent to Uber Macau riders by Uber Macau General Manager, Trasy Lou, several email templates entitled “I support Uber in Macau” with the Transport Bureau (DSAT) as the recipient, have been prepared for supporters of Uber to “help Secretary Rosário understand why you love Uber” in the hope that this “will encourage him to work with us on developing ridesharing regulations so that you can continue enjoying Uber service in Macau.” “Since our arrival to Macau in late October 2015, tens of thousands of Macau residents, as well as tourists from over 150 cities, have relied on Uber,” Uber Macau’s email reads. “Unfortunately, sometimes members of the police may not understand our service – they impose steep fines on drivers and disrupt the journeys of riders.” Eight months have passed since Uber first launched its services in the city, yet the Transport Bureau (DSAT) and Public Security Police Force (PSP) have maintained the position that the business model of Uber is illegal, according to the existing laws of the territory. However, back when Uber first arrived, Secretary of Transport and Public Works, Raimundo do Rosário appeared to leave the door sufficiently ajar for the Uber service as long as it did not infringe upon the law, commenting “in Macau, we are not at one extreme or the other… we need to understand the details of how the service is provided”, Business Daily reported.
would be legalized, citing successful examples in nearby regions, such as in Singapore and Manila. At a media luncheon held yesterday, Ms. Lou told reporters that the Macau operation team has actively met with local legislators and members of the executive council, who according to her, have expressed support for Uber Macau.
However, legislation on taxi regulations has been one of the main hurdles, with the Macau government seemingly at loss for what to do when facing ‘something new’. “Ridesharing applications - these new technologies or innovations, are not yet included in the current [Macau] laws and regulations,” said Ms. Lou. “When a government faces something new, they need time to digest as well. Eight months
is not that long. We are still in the process of discussion. We want them to understand that this service can contribute to Macau and is welcomed by residents and tourists so that they will come up with a regulation for the whole industry.” “All in all, we very much want to be regulated,” added the Uber Macau GM.
“All in all, we very much want to be regulated” Trasy Lou, General Manager of Uber Macau
Regulations needed
Trasy Lou, GM of Uber Macau stated that she was optimistic that the service
Uber Macau App pop-up as presented yesterday
Crime
Secretary for Security: Taxi Infractions still the main crime issue Secretary for Security Wong Sio Chak still considers the fight against taxi infractions the most important issue for authorities. Nelson Moura nelson.moura@macaubusinessdaily.com
Fighting taxi infringements is still one of the main tasks for the authorities,
since they “tarnish Macau’s image”, Secretary for Security Wong Sio Chak stated in an interview with local broadcaster TDM. “In the first quarter of 2015, the
number of cases related to taxi infringements was 1,724. Until the first quarter of this year it had decreased to 1,277. This number is still considered very high and we can’t be satisfied with this. On the other hand, even with more effort, it will continue to exist,” Wong Sio Chak told TDM. According to data provided by the Public Security Police (PSP), of the
1,277 taxi infractions registered in the first quarter of this year, 472 were related to drivers refusing passengers, 416 were for overcharging and 93 were for illegal transport services, including Uber.
Gaming revenue drop not affecting safety
The Secretary for Security also said the decline in gaming revenues hasn’t led to negative consequences for the security of Macau’s society. “The security situation is considered to be really good. When we assessed the crime rate in 2015, we saw a decrease of 2.6 per cent in comparison to 2014. In the first quarter of [2016] there was a decrease of 7.1 per cent in comparison to the same period last year. The crime rate in general is decreasing,” Wong Sio Chak stated. In May, PSP data revealed that although general crime rates have decreased in the first half of 2016, gaming related abductions increased 33 per cent year-on-year, with the authorities registering 89 cases, while loan sharking cases were also revealed to have increased 55 per cent. At the time, Wong Sio Chak considered that the gaming sector “readjustment” could lead to an increase in gaming related crimes.
8 Business Daily Tuesday, June 28 2016
Greater China Reform drive
Industrial profit growth eases Chinese industrial firms’ debt at the end of May was 4.9 per cent higher than at the same point last year.
P
rofits of Chinese industrial companies rose 3.7 per cent in May from a year e a r l i e r, s l o w i n g from April’s pace and adding to concerns that the world’s second-largest economy may be losing some momentum. A return to profit growth in the first quarter and a strong jump in March in particular had fuelled hopes China’s economy was perking up, but data since then has suggested it may be stabilising at best. Profits in May rose to 537.2 billion yuan (US$81.21 billion), the statistics bureau said yesterday. In the first five months of this year, profits rose 6.4 per cent compared with the same
period last year, the National Bureau of Statistics said on its website. But the performance was uneven across sectors, with profits in the mining sector falling 93.8 per cent from a year earlier, the bureau said. Industrial profits in JanuaryApril rose 6.5 per cent from a year earlier, with April up 4.2 per cent. “Growth in industrial profits slowed down slightly in May compared with the previous month, but positive changes have emerged from the industrial sectors,” NBS official
Key Points May industrial profits +3.7 pct y/y vs April’s 4.2 pct
He Ping said in a statement accompanying the data. He added that profits of energy and raw material sectors including coal, steel and non-ferrous industries saw a resumption of growth in May. In May, profits of the coal mining sector grew 2.5 times from a year earlier, snapping a falling streak over the past few years, the bureau said. The pick-up in profits in these sectors might be an indication that Beijing’s efforts to remove excessive capacity, particularly in the coal and steel sectors, may be starting to have an effect. The central government will earmark 27.64 billion yuan to help local governments pay for
capacity closures in these two sectors this year. Ch i n a’ s t o p ec o n o m i c planner said on Sunday that it planned to cut steel capacity by 45 million tonnes and lower coal output capacity by 280 million tonnes. Chinese industrial firms’ debt at the end of May was 4.9 per cent higher than at the same point last year. Th e data c o v e rs l a rg e enterprises with annual revenue of more than 20
million yuan from their main operations. Profits at China’s stateowned firms fell 9.6 per cent in the first five months of 2016 from a year earlier, wider than the a 8.4 per cent fall in the first four months, the Ministry of Finance said last week. Producer prices fell at their slowest rate in May since November 2014, supported by a government investment spree and higher commodity prices. On a monthly basis, producer prices rose 0.5 per cent, the third increase in a row. Reuters
Jan-May industrial profits +6.4 pct y/y Debt of industrial firms at end-May +4.9 pct y/y
Bond markets
Credit ratings hold back billions in foreign investment Foreign investors hold about 17 billion yuan in Chinese corporate debt on the interbank market. Michelle Chen
China has opened its corporate bond market to foreign investors but billions of dollars in potential inflows are being held back because they are wary of the credit ratings applied by domestic credit rating agencies. About 80 per cent of Chinese companies are rated AA, the thirdhighest rating, or above, by domestic ratings agencies, largely because historically the government has rarely allowed a company to default on its obligations. International ratings agencies only assess a few Chinese bonds, but where they do, the ratings compared with domestic agencies vary sharply another reason foreign investors are wary of committing money to the market. “We definitely will not adopt China domestic ratings, which can not differentiate good companies from bad ones. We still need to rely on international ratings and our internal analysis when entering onshore market,” said Penny Chen, a fixedincome fund manager at Manulife Asset
Management in Taiwan. At the end of May, China’s central bank announced operational details to open up the US$6 trillion interbank bond market to foreign investors at a time when China is trying to deter capital flight following last year’s stock market crash. Foreign investors hold about 17 billion yuan (US$2.5 billion) in Chinese corporate debt on the interbank market. But they hold about 620 billion yuan, or 2 per cent, of the overall Chinese debt market, mostly in government bonds or policy bank bonds. By comparison, foreign investors own about 6.5 per cent of South Korea’s debt and 4.5 per cent of India’s debt. “We are very cautious on China corporate bonds as most of them do not have an international rating and would prefer not to touch it unless we have to,” said a fund manager in Hong Kong who invests in China’s government bonds. More than a quarter of China’s outstanding debt is made up of corporate bonds. If foreign investors put a similar proportion of their debt portfolio into corporate bonds, it would amount to
between US$20-US$30 billion, the fund manager said. Even where a firm is rated by both domestic and international ratings agencies, the assessment varies sharply. For example, Yanzhou Coal is rated AAA by domestic ratings agencies Dagong Global Credit Rating and China Chengxin International Credit, the highest possible rating that indicates the lowest level of risk for an investor.
Key Points Most Chinese corporate bond ratings imply little credit risk Chinese government historically has rarely allowed defaults Central bank opens up bond market to foreign investors But foreign investors wary of corporate bonds owing to ratings
But it is rated BB- by Standard & Poor’s Ratings Services, 13th in its risk rankings and non-investment grade. “When I was a fund manager and went to do road shows, every time it was like a joke when I told them more than 50 per cent of Chinese onshore
bonds are rated AA or above,” said Meng Xiaoning, chief executive at TF International Securities in Hong Kong. China did not allow a bond default until March 2014, when Chaori Solar said it was unable to make interest payments on its bonds. Since then the government has allowed other defaults as it gently lets market forces exert greater influence. Ariel Yang, overseas business general manager at China Chengxin, said the increased risks in the market offered domestic agencies an opportunity. “We hope to see more defaults as we can then differentiate our ratings to show different risks and that is the value of us rating agencies,” Yang said in an interview. At present, international rating agencies face regulatory barriers to offer ratings on China onshore bonds. Moody’s and Fitch officials said they are not licensed credit rating agencies in China. S&P declined to comment.
Positive signs
China’s three main domestic ratings agencies - China Chengxin, Dagong and United Ratings - dominate ratings with an aggregate market share of over 90 per cent. United Ratings was not immediately available to comment. Now that the government is allowing more defaults, China Chengxin and Dagong have begun to assign both global scale ratings and national scale ratings to yuan-denominated bonds issued by foreigners on the mainland, known as panda bonds. “What we are trying to do is mapping between international ratings and national ratings,” said Warut Promboon, chief rating officer at Dagong in Hong Kong. National scale ratings assess macro risks and cross-industry risk comparison in China; while global scale ratings consider macro risks and crossindustry risks in different countries, similar to the approach of international agencies. “We will consider introducing global scale ratings to onshore yuan bonds issued by domestic companies as well so that foreign investors can tell the difference of two firms that are both rated AAA under national scale,” Yang said. Reuters
Business Daily Tuesday, June 28 2016 9
Greater China Borrowing costs
In Brief
BRICS eye a new rating company Developing nations say they receive harsher assessments than their developed counterparts. Vrishti Beniwal
The BRICS nations are looking to set up a new credit-rating company in an effort to break the dominance of the big three developed-nation firms. Seeking to lower borrowing costs they say are excessively high thanks to the assessments of S&P Global Ratings, Fitch Ratings and Moody’s Investors Service, the group including Brazil, Russia, India, China and South Africa aims to create a competitor with a different fee structure. The creation of a ratings company that doesn’t rely on revenue from clients who want their debt assessed “is actively under discussion,” Yaduvendra Mathur, chairman and managing director of the Export-Import Bank of India, said by phone on June 16. The government-backed lender is part of a working group studying the feasibility of a new credit-assessment company before the next BRICS summit due in October. The biggest hurdle for a BRICS credit-assessment company would be convincing U.S. and European investors that the ratings are assigned without government pressure. Critics of S&P, Fitch and Moody’s say they are beholden to the companies they rate because their revenue comes from these clients.
emerging markets are limited by a reliance on external funding, which often leaves them with less flexibility to address economic and political volatility. “Any rating agency must establish a reputation for independence, and the management of conflicts of interest,” Daniel Noonan, a Fitch spokesman, said in a June 16 e-mail. Fitch “believes strongly in healthy competition,” he added. S&P and Moody’s, both based in New York, didn’t answer e-mailed questions sent June 16. Developing nations say they receive harsher assessments than their developed counterparts, which makes borrowing more costly for them because corporate ratings are capped at the sovereign level.
More expensive
“My bonds are more expensive than many other countries,” said Mathur, whose foreign-currency debt is ultimately priced at India’s lowerrating level despite an AAA rating from Crisil Ltd. - a unit of S&P that only gives ratings on debt issued within India. “This is not the right architecture.”
Crisil is spearheading research into the new pricing model for the BRICS ratings company and will share its findings with the EXIM Bank, Mathur said. A final decision on the structure will be taken by political leaders in the grouping, he added, without providing further details on alternative pricing models. Crisil declined to comment on its research. The big three credit-rating companies currently control more than 90 per cent of the market, and have been criticized for assigning top ratings to risky debt that triggered the 2008 financial crisis.
‘The big three credit-rating companies currently control more than 90 per cent of the market’ In recent years, BRICS nations have clashed with international assessors. Russia started its own rating agency this year after condemning its downgrade to junk as politically motivated, while one of China’s three biggest credit-assessment companies currently rates U.S. foreign-currency government debt lower than both China and Russia. Bloomberg News
“It will take a while for the BRICS credit rating agency to acquire that sort of credibility,” said Rajrishi Singhal, senior fellow for Geoeconomics Studies at Gateway House. “It won’t happen from day one. Investors will be watching very closely how they rate and what are the processes they have undertaken.” U.K.-based Fitch said the ratings of
China’s central bank yesterday pumped 100 billion yuan (US$15.12 billion) into the market to provide liquidity. The People’s Bank of China (PBOC) put 270 billion yuan into seven-day reverse repos, a process by which central banks purchase securities from banks with an agreement to sell them back in the future. The reverse repo was priced to yield 2.25 per cent, according to a PBOC statement. Reverse repos worth 170 billion yuan mature yesterday, so the central bank has effectively injected 100 billion yuan into the market.
Civil code guideline submitted to top legislature China’s citizens are on their way to getting a civil code as a draft of rules stipulating the code’s basic principles was submitted to the country’s top legislature for first reading yesterday. The National People’s Congress Standing Committee will consider the draft general rules at its bi-monthly session, which runs until Saturday. The civil code, a collection of laws designed to cover private law, will be implemented once the legislation is complete. Joint ventures
Beijing may lift cap on foreign carmaker stakes
Fight for control
Baoneng shareholders seek to oust Vanke board China’s securities regulator said on Friday that the stock exchange had started an inquiry into the firm’s restructuring plan.
A bitter fight for control of China Vanke Co Ltd, the country’s largest property firm, intensified further this week with firms representing its largest shareholder bloc calling for the ouster of its board. Seeking to retain control, Vanke’s management this month announced a US$6.9 billion deal with white knight Shenzhen Metro Group that would make the subway operator its biggest shareholder with 20.6 per cent of the company and dilute holdings of rival blocs. The deal faces opposition from two shareholder groups - firms owned by financial conglomerate Baoneng which are likely to see their combined holdings fall to 19.3 per cent from their current 24.3 per cent as well as stateowned China Resources Group which could see its holding fall to 12.1 per cent from 15.2 per cent. The deal has also come under regulatory scrutiny. The Baoneng firms, Shenzhen Jushenghua Co Ltd and Foresea Life Insurance Co Ltd, are seeking to oust founder and chairman, Wang Shi and the rest of the board, and have called for an extraordinary general meeting, Vanke said in a statement late on Sunday. Vanke, a company that booked US$28 billion in revenue last year, said it will respond to the request within 10 days. It held its annual general meeting yesterday.
PBOC pumps 100 billion yuan into market
Legislation draft
‘Healthy competition’
Clare Jim
Liquidity injection
“Baoneng is trying to increase its bargaining power, seeking to join hands with China Resources and force their common enemy off the board,” said UOB Kay Hian analyst David Yang. But Yang said he thought Baoneng’s chances of success were low with this tactic as it requires a two-thirds approval from the board which is currently dominated by Vanke management. China Resources did not immediately respond to a request for comment on the Baoneng move. China Resources has previously challenged Vanke’s assertion that the deal with Shenzhen Metro has been approved, arguing that the two-third majority of votes requirement was not
met since a board member abstained from voting. There is also doubt about whether Vanke management’s deal with Shenzhen Metro will sail through smoothly given regulatory concerns.
Key Points Vanke deal with Shenzhen Metro opposed by two shareholder blocs Deal with Shenzhen Metro also under regulatory scrutiny Vanke to respond to Baoneng board ouster request in 10 days China’s securities regulator said on Friday that the stock exchange had started an inquiry into the firm’s restructuring plan, and it was looking into details of Vanke’s board meeting, and the function of independent directors. Reuters
China’s government is considering the removal of caps on stakes foreign carmakers can own in joint ventures with local partners, potentially loosening a policy criticized for shielding state-owned companies from competition and building their own brands. Xu Shaoshi, chairman of the National Development and Reform Commission, said the government is looking into lifting the 50 per cent cap in an interview at a World Economic Forum event in Tianjin. China has mandated that foreign players enter joint ventures with domestic partners to operate in the country since 1994. Steel industry
Government eyes merger to create rival to ArcelorMittal China’s second and sixthlargest steelmakers by output said they are in restructuring talks, which could presage a merger that would create the nation’s biggest mill and a company with the scale to rival the likes of ArcelorMittal SA. Trading was suspended in the listed units of state-run Shanghai Baosteel Group Corp. and Wuhan Iron & Steel Group Corp. as their parents discuss “strategic restructuring,” according to separate statements on Sunday to the Shanghai Stock Exchange, which didn’t elaborate further. The two companies had a combined market value of US$16.3 billion as of Friday’s close, and capacity of more than 70 million metric tons.
10 Business Daily Tuesday, June 28 2016
Greater China Global economy
Premier Li sees increasing uncertainties after Brexit He said China’s US$10 trillion-plus economy is operating in a stable way.
C
hina’s Premier Li Keqiang said global uncertainties have increased after the U.K.’s vote to leave the European Union and said his nation has ample tools to meet challenges facing the economy. The impact on global financial markets has already shown up and measures are needed to ensure stability in the international economy, Li said yesterday at the World Economic Forum in Tianjin.
On China, he reiterated that the nation will be able to maintain mediumto high-speed growth rates and has room to apply proactive fiscal measures. “China hopes to see a united, steady European Union as well as a stable and prosperous United Kingdom,” Li said, adding that nations should improve policy coordination. “No country can depart from the world economy to promote development of itself. So we need to join forces.”
Responding to a surge in the dollar as investors rush to avoid risk, the fixing rate of the Chinese yuan tumbled yesterday by the most since August, when the country overhauled the way the exchange rate is decided.
China vulnerable
Slowing growth and capital outflows make the nation vulnerable to the effects of the Brexit vote, according to Bloomberg Intelligence economists Fielding Chen and Tom Orlik. If Brexit does trigger a significant adverse impact on European demand and global investor sentiment, China
could be among the Asian economies least well-placed to respond, they say. Li said China’s US$10 trillion-plus economy is operating in a stable way and the employment market remains healthy as 5.77 million new jobs were created in the first five months of the year. The government is capable of keeping the yuan at a reasonable, balanced level, and there’s no basis for long-term devaluation, he said, reiterating his past comments and those of other policy makers.
“No country can depart from the world economy to promote development of itself. So we need to join forces.” Li Keqiang, China’s Premier
Founder and executive chairman of the World Economic Forum Klaus Schwab (R) shakes hands with Chinese Premier Li Keqiang (L) during the World Economic Forum in Tianjin yesterday.
“We have policy instruments to help us meet all potential challenges,” Li said, noting that China’s central government debt ratio remains low. “There’s still room for the central government to do more to implement proactive fiscal policy.” Li said it’s important to cut overcapacity in steel, coal and other industries that have surplus production. Such companies must take measures to make sure workers can be re-employed and local governments should help take care of those staff, he said. “China’s economy has become so big,” Li said, adding that shortterm volatility can’t be avoided and the high-speed growth boosted by old engines isn’t sustainable. “Medium to high speed is already good enough to produce jobs and increase wages.” Bloomberg News
Semiconductor industry
Tech powerhouse Tsinghua bets billions on R&D The company aims to become the world’s No. 3 chipmaker after Intel Corp and Samsung Electronics Co. Elias Glenn
State-backed Chinese technology group Tsinghua Holdings plans to spend US$7.5 billion on research and development over the next five years, accelerating China’s drive to build a high-value semiconductor industry to challenge global chip making rivals.
“This is a key time for China’s economy. We must restructure, but it will be very painful.” Xu Jinghong, Tsinghua Unigroup chairman As the firm that controls acquisitive chip supplier Tsinghua Unigroup outlined the target, its chairman, Xu Jinghong, also said China has been too slow to reform its economy, and must move faster to promote highmargin tech operations rather than cheap manufacturing. In the chip development drive - a strategic priority for Beijing - Tsinghua Unigroup aims to become the world’s
No. 3 chipmaker after Intel Corp and Samsung Electronics Co. The firm has proposed buying stakes worth nearly US$1 billion in two Taiwanese chip firms - deals now under review by a new Taipei government that is less friendly toward China. Speaking to Reuters on the sidelines of a World Economic Forum gathering in Tianjin on Sunday, Xu said the pace of progress in China in broad economic terms was too slow. The old investment-led growth model produces diminishing returns
and ever-larger amounts of debt, Xu said. “This is a key time for China’s economy. We must restructure, but it will be very painful. Industries facing over-production must be restructured, while new industries need support,” Xu said. Controlled by Tsinghua University in Beijing, Tsinghua says it operates on market principles but is still a stateowned behemoth: revenue topped 70 billion yuan (US$10.5 billion) last year. As well as pledging 50 billion yuan in research and development spending over the next five years, Tsinghua will set up a 10 billion yuan fund to support commercialisation of new technology.
Xu said Tsinghua had also kicked off a plan to open 1,000 start-up incubation centres in 100 cities in China. Officials in Beijing acknowledge the urgent need to pursue more productive new technologies, and ensure a level playing field for private firms. China could add US$5.6 trillion to gross domestic product, and US$5.1 trillion of new income for households, by 2030, if it can switch to a productivity-led growth model, the McKinsey Global Institute said earlier this month. However, Xu said progress has been too slow. “We need to step up reform. We should let the market decide how resources are allocated. We need a fair market, and improved legal environment,” said Xu. Reuters
Business Daily Tuesday, June 28 2016 11
Asia Currency defence
Japan PM Abe instructs to take FX steps as needed Abe summoned Aso and Bank of Japan Deputy Governor Hiroshi Nakaso to discuss how to deal with the market turbulence caused by Brexit. Minami Funakoshi and Tetsushi Kajimoto
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apanese Prime Minister Shinzo Abe said yesterday he has instructed Finance Minister Taro Aso to watch currency markets “ever more closely” and take steps if necessary, in the wake of Britain’s historic vote to leave the European Union. Abe’s comments at an emergency meeting between the government and the Bank of Japan (BOJ) come as some analysts raised the possibility of the BOJ holding an unscheduled policy review ahead of the regular meeting later in July to offer additional stimulus. “Risks and uncertainty remain in financial markets,” Abe said. “We need to continue to work toward market stability,” he said, signaling Tokyo’s readiness to conduct yen-selling intervention in the market if it deems yen rises as excessive. Abe summoned Aso and Bank of Japan Deputy Governor Hiroshi Nakaso to discuss how to deal with the market turbulence caused by Brexit. The yen briefly soared above the key threshold of 100 to the dollar on Friday as investors hoarded the safe-haven currency after the Brexit
vote, adding to headaches for Japanese policymakers worried about the effect a strong yen could have on exports. “I was instructed by the prime minister to take various, aggressive responses to ensure stability in financial and currency markets,” Aso told reporters after the meeting.
Nakaso said the BOJ remained in close contact with other central banks to ensure global financial markets had ample liquidity. The deputy governor, who was speaking to reporters after the meeting, declined to comment on whether the BOJ would hold an emergency rate review to expand monetary stimulus. Some analysts say the central bank could hold an emergency meeting to expand stimulus further if the BOJ tankan business survey on July
1 confirms worsening of the domestic economy and prices. “There’s 30 percent chance of BOJ holding an extra policy meeting,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. “We have expected the BOJ to ease again in July. And Brexit further raised the possibility of BOJ action as it adds to risks to Japan’s economic outlook,” she said.
Key Points Govt, BOJ meet to discuss markets after Brexit Authorities wary of strong yen’s impact on exports Investors seek clues on BOJ easing, FX intervention But analysts say it will be difficult for Tokyo to intervene in currency markets to stem the yen’s strength given the risks of it being labelled a currency manipulator. Japanese authorities argue that their action to stem excessive yen strength would be in line with G7/G7 agreements on currency stability. However, U.S. Treasury Secretary Jack Lew warned against currency intervention earlier this month, describing market moves as orderly at a time when Tokyo raised concerns about excess volatility in the exchange rates. “Unlike Switzerland, Japan as the G7 chair finds it hard to intervene in currency markets as that would prompt other countries to label Tokyo a currency manipulator. Even if it intervened, it would not have a lasting impact on markets,” Muguruma said. Reuters
Opinion survey
Turnbull takes election lead after UK poll The ruling coalition leads Labour by 51 percent to 49 percent on a two-party preferred basis. Adam Haigh and Jason Scott
Prime Minister Malcolm Turnbull’s government edged ahead in an opinion poll less than a week before Australia’s election, as he used Britain’s decision to leave the European Union to warn voters they face economic peril without stable government. “The upheaval reminds us there are many things in the global economy over which we have no control,” Turnbull said in a speech Sunday. “Calm heads, steady hands, stable government and a strong economic plan are critical for Australia to withstand any repercussions.” A poll published yesterday put Turnbull’s Liberal-National coalition narrowly ahead of the main opposition Labour party for the first time in the eight-week campaign. The coalition leads Labour by 51 percent to 49 percent on a two-party preferred basis, from being neck and neck a week earlier, according to the published in the Australian newspaper. Economic security may now be among the most important concerns
for Australian voters, according to IG Ltd. The planned secession of Britain from the European Union may help secure a Turnbull victory, said IG analyst Angus Nicholson. The aftershocks of last week’s referendum are beginning to ricochet through Europe and are reshaping the U.K.’s political landscape after Prime Minister David Cameron announced his intention to resign. The result surprised financial markets and flummoxed everyone from pollsters to betting firms.
leader Bill Shorten on 30 percent, according to the poll. The survey of 1,713 people, conducted from June 23 to June 26, has a margin of error of plus or minus 2.4 percentage points. The government is expected to win a second-term in office in the July 2 election. The coalition holds 90 seats in the 150-member lower house, and opinion polls indicate Labour is unlikely to pick up enough seats to
overturn its majority. Sh o r t e n s o u g ht t o c o u n t e r Turnbull’s claims the coalition offered Australia the best chance of stability. “You cannot have stability without unity and you certainly cannot have stability when your party is not united,” Shorten said in a speech on Sunday. “Our party is united, the Liberals are not united. The single biggest risk to the Australian economy in the next three years is three more years of a divided Liberal government.” Bloomberg News
Turning tide
The referendum is a sign that the tide has turned against globalization, Credit Suisse Group AG’s Australian unit said in a report yesterday. “Most European countries have seen growing support for antisystem parties and U.S. presidential candidates are expressing scepticism over free trade,” the report said. “By comparison, Australia remains an island of political and capitalist stability in a disillusioned Western world.” Turnbull is ahead as preferred prime minister, with 45 percent to Labour
Australian Prime Minister Malcolm Turnbull stands in front of a billboard of himself in Adelaide, Australia, yesterday.
12 Business Daily Tuesday, June 28 2016
Asia In Brief Commerce
NZ posts wider than expected trade surplus New Zealand posted a wider than expected trade surplus in May, with both exports and imports stronger than forecast. The monthly trade surplus was NZ$358 million (US$254 million) in May, data from Statistics New Zealand showed yesterday, while the trade deficit in the year to May was NZ$3.633 billion. Economists polled by Reuters had forecast a monthly surplus of NZ$164 million and a deficit for the year to May of NZ$3.85 billion. The strength in both exports and imports “suggests that the economy has pretty good momentum and it’s positive for economic activity in the second quarter,” said BNZ economist Doug Steel. Brexit impact
S.Korea’s president orders all measures to stabilise markets South Korean President Park Geun-hye said yesterday all available measures must be taken to stabilise financial markets to minimize the fallout from Britain’s vote to leave the European Union last week. But Asia’s fourthlargest economy retains strong fundamentals, which should help it weather the shocks from Britain’s decision, Park said at a weekly meeting with her top advisors, the presidential Blue House said in a statement. Central bank
Sri Lanka predicts uncertainty for next 2 years Sri Lankan Central Bank yesterday predicts uncertain economic situation caused by Brexit will last for at least two years in Sri Lanka. The latest report submitted to Sri Lankan Prime Minister Ranil Wickremesinghe said it would take at least two years for the UK to leave the EU as per section 50 of the Lisbon Agreement and, therefore, the global economic crisis that had already begun would last for two years. As 40 per cent of Sri Lanka’s exports to Europe go to the UK, with the fall of the pound sterling, Sri Lanka would definitely be affected, the report said. Sariah compliant
Maybank jointly arranges construction financing
Asia markets
Pimco, JPMorgan see regional bond stability appealing The fallout from Friday’s surprise referendum result was less dramatic than previous shocks. Lianting Tu
T
he relative stability of Asian dollar bonds after Britain’s vote to leave the European Union shows how rising local demand is shielding the region’s debt from global market volatility, Pacific Investment Management Co. and JPMorgan Chase & Co. say. “I see very limited impact on Asian bonds from Brexit,” said Ben Sy, the head of fixed income, currencies and commodities at the private banking arm of JPMorgan in Hong Kong. “Asian bonds continue to be underpinned by strong technical and local bids, and flight to quality.” The investor base of Asian bonds has become localized, protecting the notes from global shocks as
“It’s mostly Asians that are buying Asian credit” Desmond Soon, the head of investment management in Asia outside of Japan at Western Asset Management Co. in Singapore
Past worse
The fallout from Friday’s surprise referendum result was less dramatic than previous shocks. The yield spread for investment-grade notes issued by Asian companies over Treasuries widened 12 basis points Friday, the biggest jump in four months, to 238, according to JPMorgan indexes. That’s still down from this year’s high of 259 on February 11, when investors were
Central bank head
India cuts governor shortlist to four candidates One official from Prime Minister’s office said that current governor was expected to join the search committee to appoint three external members of a new six-member RBI Monetary Policy Committee. Douglas Busvine and Rupam Jain
The Indian government has narrowed down its list of candidates to become the next governor of the Reserve Bank of India (RBI) to four, a senior government official told Reuters. A new Monetary Policy Committee (MPC) also will be chosen soon, the official said. The moves seek to ensure policy continuity after RBI chief Raghuram Rajan shocked markets 10 days ago when he announced he would not seek reappointment in September. The failure of negotiations on his possible return had sparked fears that Rajan’s departure could put at risk the inflation-targeting central
Malayan Banking Bhd (Maybank) said yesterday that it jointly led a consortium of lenders to provide the first syndicated Shariah-compliant construction financing in New York City totalling US$219 million. Maybank, Malaysia’s largest lender by assets, said in a statement that the financing was for development of a 43-storey luxury building called Tribeca condominium tower in Manhattan, developed by Soho Properties. Construction of the 665-foot tall tower will commence in mid-2016 and is scheduled for completion in 2018, the bank said in a statement. The financing comprised a US$174 million senior construction loan and a US$45 million mezzanine loan, the statement added.
banker’s gains in stabilising Asia’s third-largest economy over the past three years. Sending a reassuring message to markets, the official said that the list of candidates to replace Rajan had been whittled down to four - three of them central bank veterans, with the other the head of the country’s largest commercial bank. The four were current RBI Deputy Governor Urjit Patel, former deputy governors Rakesh Mohan and Subir Gokarn, and State Bank of India Chair Arundhati Bhattacharya. Another official from Prime Minister Narendra Modi’s office said that Rajan was expected to join the search committee to appoint three external
members of a new six-member RBI Monetary Policy Committee. The objective was to ensure that the MPC is constituted as soon as possible, before the appointment of Rajan’s successor, both officials said, speaking on condition of anonymity due to the sensitivity of the matter. “We are very hopeful that the present governor will be a member of this search committee,” the first official said, adding that if all goes well the new panel would be formed by August 1.
Key Points Patel, Mohan, Gokarn, Bhattarcharya still in running Accelerated moves to appoint new MPC - officials Outgoing RBI chief expected to join search committee - officials Continuity sought ahead of Rajan’s departure in Sept If that timetable holds, it would mean that the MPC is in place in time for the last bi-monthly policy meeting that Rajan is expected to chair in early August. Under the finance bill passed this year, three members of the MPC would be RBI insiders, headed by the governor. The three external members would be chosen by a search committee comprising Modi’s cabinet secretary, the RBI governor, the secretary of the finance ministry’s department of economic affairs and three outside experts chosen by the government. The makeup of the MPC, which would assume responsibility for setting interest rates, was the result of a hard-fought compromise between the RBI and the finance ministry. The RBI governor’s vote would be decisive in the event of a tie. Reuters
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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regional investors tend to favour familiar securities during market turmoil. In 2015, wealth held by high net-worth individuals in the AsiaPacific region surged 10 per cent to US$17.4 trillion, surpassing North America, according to Capgemini SA. Equity fund managers are also
betting Asian shares will rebound because local investors dominate and the turmoil may delay an increase in U.S. Federal Reserve interest rates. “It’s mostly Asians that are buying Asian credit,” said Desmond Soon, the head of investment management in Asia outside of Japan at Western Asset Management Co. in Singapore. “It tends to be a bit more stable because there is a natural home bias, a feeling that they know the company and they know the country.”
Business Daily Tuesday, June 28 2016 13
Asia
worried over China’s yuan. While 10-day volatility on the spread spiked to 30 per cent on Friday, it is well below the 89 per cent seen in 2013’s rout triggered by Fed tightening signals. The 100-day volatility for the same index fallen to 15.9 per cent from 48.5 per cent in during the ‘taper tantrum.’ The Markit iTraxx Asia Index of credit-default swaps insuring corporate and sovereign bonds from non-payment rose 14 basis points Friday, the most in three months.
Even so, that was less than the 18 basis point jump in Europe that was the biggest increase since 2008. Yields on Asian high-yield corporate bonds climbed just one basis point on average on Friday, according to JPMorgan’s indexes.
‘Generally unmoved’
“In the very short term, we expect to see Asian spreads trade wider with global credit markets, albeit with a lower beta,” or lower volatility than the broader market, said Luke
Spajic, Pimco’s head of portfolio management for emerging Asia in Singapore. “From a fundamental perspective, the drivers of value, both default probability and recovery value, are generally unmoved by Brexit in Asia.” Reduced supply this year will also support bond performance in Asia, Spajic said. Issuance of debentures denominated in dollars, euro and yen dropped 18 per cent this year to $90.6 billion, according to Bloombergcompiled data.
Stratton Street Capital expects Asia’s high-grade bonds to be a major beneficiary as investors seeks to reduce risk. “Many investors will be looking for safe credits as an alternative and Asia is home to many of the world’s safest credits,” said Andy Seaman, the manager of Stratton Street Capital’s Renminbi Bond Fund. His fund returned 8.6 per cent on average over the past five years, beating 95 per cent of his peers. Bloomberg News
June 30 and no more than US$5 billion in the 2017 financial year. “BHP is effectively letting the market know it will be spending more of a lower capex budget on exploration, emphasising petroleum and copper,” said Shaw and Partners mining analyst Peter O’Connor. “It’s where they see the best growth.” Big miners such as BHP and Rio Tinto haven’t ruled out large acquisitions, but have noted few so-called tier-one assets up for sale by rival companies hit harder by a downturn in the sector. “M&A isn’t off the agenda, but BHP isn’t waiting around for the next big opportunity,” O’Connor said. Separately, Rio Tinto group executive for growth & innovation,
Stephen McIntosh, told the Citi briefing the company was seeing a renewed focus on greenfield projects and a bias toward copper.
Mining
BHP lifts exploration spending Separately, Rio Tinto group executive for growth & innovation, Stephen McIntosh, told was seeing a renewed focus on greenfield projects and a bias toward copper. BHP Billiton said yesterday it plans to boost its exploration budget by 29 per cent to around US$900 million next year, as the global miner counts on new finds of oil and copper to drive growth in a tough market rather than mergers and acquisitions. The figure represents 18 per cent of BHP’s total capital budget of US$5 billion over fiscal 2017 and comes amid efforts by big miners to maintain growth while tightening balance sheets. In December, BHP had projected total fiscal 2016 exploration spending of US$700 million. The lift in exploration spending comes as a flurry of M&A deals earlier this year slows, with fewer assets than expected coming up for sale, leaving mining companies to rely on
their own projects to grow. Petroleum exploration by BHP will focus on deep-water basins in the Gulf of Mexico, the Caribbean and the Northern Beagle basin, off the coast of Western Australia, the company’s head of geoscience, Laura Tyler, told a Citigroup investors’ briefing. Copper exploration is targeting deposits in Chile, Peru, the United States, Canada and South Australia, according to Tyler. “We are investing at a time when most in our sector continue to reduce discretionary spend,” Tyler said. Earlier this year, BHP Chief Executive Andrew Mackenzie told investors he anticipated capital and exploration spending of around US$7 billion in the financial year ending
Key Points BHP ups exploration budget to US$900 mln Focus on oil and copper Says investing more in exploration while others cut “However this is not our exclusive focus and we still have a significant proportion of our expenditure on other commodities,” McIntosh said. Reuters
14 Business Daily Tuesday, June 28 2016
International In Brief Oil price rise
Nigeria seeks US$40-US$50 billion investment Nigeria is seeking US$40 billion to US$50 billion in investment in oil projects as the OPEC producer said it raised crude output to as much as 1.9 million barrels a day as of two days ago. The African producer signed a potential deal for US$8.5 billion of investment with China North Industries Group Corp., Nigerian State Minister for Petroleum Resources Emmanuel Ibe Kachikwu said in a Bloomberg television interview in Beijing yesterday. The country’s crude output should rise to 2.2 million barrels a day next month if repairs to a pipeline are completed, he said. Financial remedy
Italy readying plan to help banks Italy is readying a plan to steady its banking sector, a vulnerable target for sellers after Britain’s vote to leave the European Union raised fears of a market rout in the euro zone’s weaker economies, local newspapers said yesterday. Italian bank stocks slumped on Friday on the outcome of the Brexit referendum, with UniCredit and Intesa Sanpaolo falling more than 20 percent each. Banking stocks opened mostly higher yesterday in choppy trade. The industry is perceived as particularly vulnerable because it is saddled with 360 billion euros (US$400 billion) of bad loans, a third of the euro zone’s total. Netanyahu
Turkey deal ‘immense’ for Israeli economy Prime Minister Benjamin Netanyahu confirmed yesterday that Israel has agreed a deal to thaw relations with Turkey and said it would be a huge boost for the economy. Speaking in Rome after talks with US Secretary of State John Kerry, Netanyahu told reporters: “I think it’s an important step here to normalise relations.” Earlier, an Israeli official had said Israel and Turkey reached a deal on Sunday to normalise ties that soured in 2010 after a deadly Israeli raid on a Turkish aid ship heading to Gaza. Commerce
Panama Canal to bring in billionaire annual revenue The expanded Panama Canal is expected to bring in more than US$2 billion in annual revenue by 2021, the staterun Panama News Agency reported on Sunday, citing figures from the Panama Canal Authority. The canal’s larger lane, made to accommodate Neopanamax container cargo ships, was inaugurated on Sunday, witnessed by thousands of Panamanians and representatives from the China Ocean Shipping Company (COSCO), whose ship made history by becoming the first to sail through the expanded waterway. At the ceremony, Panamanian President Juan Carlos Varela presented COSCO with an award commemorating the historic event.
Vote aftermath
Leave leaders back Carney, Osborne as UK grapples with fallout The yield on 10-year British government bonds fell below 1 percent for the first time as investors continued to seek safe places to put their money. William Schomberg and Ana Nicolaci da Costa
T
he leaders of the campaign to get Britain out of the European Union sought to ease concerns about the country’s uncertain economic future by giving public backing to Bank of England Governor Mark Carney and finance minister George Osborne. In the run-up to last week’s referendum, Carney and Osborne incensed Leave campaigners by warning that a vote to pull out of the EU would hit the economy. Carney faced a call for his resignation from one lawmaker from the ruling Conservative Party during the campaign, and last week the official Vote Leave campaign released a video attacking Carney over his previous employment with Goldman Sachs. But Boris Johnson, who is now considered the front-runner to become Britain’s next prime minister after steering the Leave campaign to victory, used his first comments since the vote to heap praise on the Canadian. “Most sensible people can see that Bank of England Governor Mark Carney has done a superb job - and now that the referendum is over, he will be able to continue his work without being in the political firing-line,” Johnson wrote in a column in the Daily Telegraph newspaper. A few hours later, justice minister Michael Gove, who led Vote Leave with Johnson, praised Osborne for saying that Britain would cope with the turmoil caused by the referendum result. “I listened to the chancellor and I found his words incredibly reassuring,” Gove told a crowd of reporters as he left his house.
“The chancellor’s statement ... provided the reassurance that people need, and I am looking forward to hearing from the prime minister later.” Osborne said the world’s fifth-biggest economy would cope with the volatility that lay ahead and he would not rush into an emergency round of tax hikes and spending cuts, something he had raised as a possibility in the referendum campaign as he sought to persuade voters to vote to remain in the EU. Osborne also said he would address his future in the Conservative Party in the coming days. Investors have responded with alarm to the 52-48 percent vote in favour of Britain leaving the EU on Thursday and the subsequent sense of political vacuum after Prime Minister David Cameron said he would resign. Sterling fell by more than 8 percent against the dollar on Friday and was down by a further 2 percent yesterday although it briefly edged up after Osborne’s comments.
Not everyone agreed that Carney should remain at the BoE, including Nigel Farage, leader of the UK Independence Party, which has campaigned to leave the European Union for years. “I don’t want to be disparaging about one of your nationals,” Farage told Canada’s Global and Mail newspaper in an interview.
“Most sensible people can see that Bank of England Governor Mark Carney has done a superb job” Boris Johnson, former London mayor and a leader of Leave vote option “I don’t think the governor of the Bank of England behaved in an independent manner during this campaign at all. And I think there will be some real questions in Parliament about whether it’s appropriate for him to continue in that role.” Reuters
Sterling fell by more than 8 percent against the dollar on Friday and was down by a further 2 percent yesterday
‘Three Amigos’ meeting
Only 1-in-4 Canadians support NAFTA The matter has also become a lightning rod issue in the election campaign to replace U.S. President Barack Obama. Only one-in-four Canadians say the North American Free Trade Agreement (NAFTA) is good for their country, and more than one-third want it renegotiated, according to polling results released ahead of a North American leaders’ Summit on Wednesday. The survey from the Angus Reid Institute yesterday come as protectionist sentiment swells in the United States, where voters at both ends of the political spectrum question the economic benefits of NAFTA. The U.S. Congress is hesitating to ratify a new 12-nation trade pact, the Trans-Pacific Partnership (TPP), which also includes Canada and Mexico. Trade has long been a focus at the so-called “Three Amigos” summits between NAFTA members, Canada, the United States and Mexico, held this year in Ottawa. The matter has also become a lightning rod issue in the election campaign to replace U.S. President Barack Obama, who wants Congress
to ratify TPP before he leaves office on January 20. Republican Donald Trump, his party’s presumptive nominee for 2016, has attacked the TPP and describes NAFTA as a disaster that needs to be renegotiated or shelved. Democratic front-runner Hillary Clinton has also said she opposes the TPP. Angus Reid Institute’s poll showed also one-quarter of Canadians feel NAFTA hurts the country, while half were either unsure or feel the deal has had no impact either way. The institute’s executive director, Shachi Kurl, said the survey contrasts with past polls on other trade deals, in which Canadians were more likely to support than oppose them. “Is this simply a gap in policy makers’ adequately convincing Canadians that this has been a good deal?” she said. “Is NAFTA an exception in that Canadians see the specific trade deal as a bad deal? These are questions that we have to
think on.” Kurl added the poll raises the question of whether Canadians are concerned about the effects of NAFTA in itself or whether their opinion is part of the global “grumpy view” on trade, citing U.S. anti-free-trade sentiments.
‘A private survey’s results contrasts with past polls on other trade deals, in which Canadians were more likely to support than oppose them’ Angus Reid said it conducted the online survey with a representative sample of 1,519 Canadian adults who are its members. The survey has a margin of error of 2.5 percentage points, 19 times out of 20. Reuters
Business Daily Tuesday, June 28 2016 15
Opinion Business Wires
The Times Of India India needs over US$1.5 trillion in investment in the next 10 years to bridge infrastructure gap as the government intends to connect seven hundred thousand villages with roads by 2019 as part of a massive modernization plan, finance minister Arun Jaitley (pictured) said on Sunday. “We have been able to sustain growth in the phase of global slowdown essentially on the strength of the infrastructure creation in India where the gap is huge,” Jaitley, who is in China to attend the meeting of board of governors of AIIB, said.
A news ticker in Times Square shows a headline about the ‘Brexit’ referendum passed in the United Kingdom to leave the European Union in New York, New York, USA, 24 June 2016.
Will America win or lose from Brexit?
Bangkok Post The Fiscal Policy Office (FPO) is considering reviewing the blanket living allowance for the elderly in order to cease paying the subsidy to those with sufficient income and reallocating this portion to others. The proposal is aimed at paying a higher living allowance to those whose income is not enough to lead a comfortable post-retirement life, Krisada Chinavicharana, director-general of the FPO, said. Giving senior citizens a higher living allowance is the focus of the planned adjustment to the subsidy, he said, adding that the government’s budget is not the main source of providing the living allowance to elderly people.
The Phnom Penh Post While Cambodia’s crowded banking sector has enjoyed strong growth, the majority of consumers surveyed have cited dissatisfaction with banking services as a main impediment for the sector’s confidence and future growth. A representative survey presented at the eighth annual Banking and Microfinance Awards on Friday showed that 70 per cent of consumers believed that overall service was lacking. The study focused not only on day-to-day branch service – which scored low for staff quality – but also ATM infrastructure and digital banking capabilities.
Jakarta Globe Indonesia is set to start exporting tropical fruit to New Zealand as part of the archipelago’s efforts reduce a trade deficit with the South Pacific island nation, a trade ministry senior official said after negotiations last week. The two countries have been involved in a series of negotiations on a trade and investment framework since 2007, aimed, among others, at increasing the value of bilateral trade to Rp 40 trillion (US$2.9 billion) by 2024. But growth has stagnated with total trade values barely inching from the US$1.1 billion mark over the past five years, with an average US$320 million deficit for Indonesia, the ministry’s data shows.
T
he British vote to leave the European Union has shaken world financial markets. The immediate and medium-term prospects for economic growth in the United Kingdom are severely diminished, and the impact on the rest of Europe will be negative. Some of the obvious political winners from Brexit are people who do not like Western Europe and what it stands for. Ironically, the United States – Europe’s greatest ally and the EU’s largest trading partner – may also end up as a beneficiary, though not if Donald Trump, the presumptive Republican nominee, wins the presidential election in November. Britain has a population of just over 65 million people and what was, at least until Thursday, the world’s fifth-largest national economy, with annual GDP totalling nearly US$3 trillion. In the context of a US$75 trillion global economy, Britain’s is a relatively small, open one that relies heavily on foreign trade – annual exports are typically in the range of 28-30 per cent of economic activity. That is now likely to change. The EU accounts for about half of Britain’s exports, and the prospects for continued full market access are dim. Trade in goods may be affected, but the impact on exports of services – including financial services – will be more severe. In principle, Britain could now negotiate a great deal of market access, but this would almost certainly require accepting rules made in Brussels – which is just what the British voted against. Growth in the UK will consequently be lower and for a long period of time. The direct impact on the world economy is likely to be limited by the fact that other countries will to some extent gain from Britain’s loss. For example, the UK was until recently one of the top destinations for foreign direct investment, precisely because companies saw it as a good base from which to sell into the rest of Western Europe. The UK’s attractiveness – and the creation of good jobs that resulted from it – will now decline. The big political loser is obviously the EU itself, which, without one-sixth of its current GDP, will fall in the economic rankings from just below the US to around – or some would say below – the level of China (measured using current exchange rates). The precise policy reaction of EU leaders is unclear; but, given the inept way the eurozone crisis has been handled since 2010, a return to more dynamic growth seems unlikely. A weaker Europe is bad for the world – and people like Vladimir Putin who hold democracy in contempt are undoubtedly smiling today. But many authoritarian regimes are funded by the export of natural resources. Slower global growth
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Simon Johnson a professor at MIT’s Sloan School of Management
and consequently lower oil prices are not good for countries such as Putin’s Russia and Iran. And China remains an economy where growth is very much based on the export of manufactured goods to richer countries, so a slowdown in the UK and the EU does not favour the Chinese, either. In geopolitical and economic terms, the US is potentially the biggest winner from the disintegration of the EU. The US rose to global predominance as Europeans fought one another and their empires declined. The post-1945 US role was challenged first by the Soviet Union, which, for a time, posed a real technological challenge. Today, Russia has a small – and shrinking – economy and a population in decline. Next up was 1980s Japan, with its innovative management p ra c t i c e s a n d w e l l - r u n companies. Japan is much richer than Russia today, but it, too, remains mired in economic malaise and may be trapped in a perpetual downward demographic spiral. Leaders of the EU have, in recent times, seen themselves as a rival to the US on the global stage. The question now is which parts of Europe will stick together and on what basis. Prosperity is based on people and ideas. Who can attract the most talented people, educate them and their children, and give as many individuals as possible the opportunity to work productively? The US has some serious problems, but absorbing immigrants and encouraging creativity have been among its main strengths for more than 200 years. The UK has also been a relatively open society in recent decades, and many of its younger people would like that to continue. But older people, living outside large urban areas, have voted instead to build barriers and – to a significant extent – attempt to close off the country from the rest of the world. The politics of the US presidential election are obviously quite different from those of the UK’s Brexit debate. But Trump is offering a strikingly similar vision to that of Nigel Farage, head of the UK Independence Party – and on Friday both of them seemed equally delighted with the outcome of the referendum. The choice that Americans will make in November now comes into clearer focus. Will voters heed the siren song of Trump – and do great damage to the US economy and to the world by embracing a self-destructive effort to wall themselves off from the world? Or will they choose prosperity and a leading global role? Project Syndicate
In geopolitical and economic terms, the US is potentially the biggest winner from the disintegration of the EU.
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16 Business Daily Tuesday, June 28 2016
Closing Renewing government
Malaysian Prime Minister reshuffles cabinet
50, appointed minister in charge of the Economic Planning Unit. In total Najib made Scandal-hit Malaysian Prime Minister Najib four new ministerial appointments and picked six deputy ministers. Johari Abdul Razak (pictured) yesterday announced a Ghani becomes second finance minister, cabinet reshuffle, including promoting a Noh Omar was appointed urban wellbeing trusted ally to manage the economy, in what analysts said could be preparation for minister and Mah Siew Keong was made a snap election. Najib, 62, who has survived plantation industries and commodities minister. Analysts and lawmakers said a massive financial scandal linked to state the shake-up indicated Najib’s growing investment fund 1Malaysia Development confidence he could weather the 1MDB Berhad (1MDB), said the shake-up would bolster his administration. The reshuffle saw scandal, raising the prospect of a snap influential lawmaker Abdul Rahman Dahlan, election before one is due in 2018. AFP
Manufacturing index
Official PMI seen dropping to 4-month low More recent data, however, has shown that growth remains fragile.
G
rowt h i n C h i n a’ s manufacturing sector likely stalled in June, a Reuters poll showed, adding to expectations that Beijing will have to roll out more stimulus to boost the sluggish economy. Th e o ffi ci a l m a n u fact u ri n g Purchasing Managers’ Index (PMI) is expected to have slipped to a fourmonth low of 50.0 in June from 50.1 in May, according to the medium forecast of 32 analysts polled by Reuters. That would fall right on the 50.0 mark that separates expansion in activity from contraction on a monthly basis.
June’s activity reflects worries that momentum in the world’s secondlargest economy has continued to slow. “Fixed asset investment, trade and output data all pointed to the fact that growth in the economy has slightly eased,” Zhou Jingtong, a researcher with Bank of China said, adding that a drop in commodities would drag
on the PMI reading in June. Weaker-than-forecast data might prompt China to ramp up its growing fiscal spending even further and loosen monetary policy again, Zhou said. Uncertainties about the global economy have also spiked after Britain voted last week to leave the European Union. While it is not expected to have an immediate impact on China, prolonged uncertainty could dent business confidence and hurt demand in Western Europe, one
of China’s biggest markets. The official manufacturing PMI data will be released on July 1, along with the official services PMI. China’s statistic bureau will release secondquarter gross domestic product figures on July 15. The Markit/Caixin PMI, a private gauge of manufacturing activity, also is due on July 1. Analysts expect it to dip to 49.1 from 49.2 in May, suggesting activity at China’s factories shrank for a 16th straight month. Reuters
Key Points China official PMI seen at 50.0 June vs 50.1 in May Stalling growth would add to expectations of more stimulus Data due on July 1 at 0100 GMT C h i n a’ s m a n u f a c t u r i n g activity had expanded for three consecutive months from March to May, after seven months of prolonged contraction, fuelling hopes that government attempts to stimulate the economy were gaining traction. More recent data, however, has shown that growth remains fragile, and the tepid forecast for
Private survey
Official data
Law enforcement
One fifth of British businesses may move operations abroad
Mainland’s service trade deficit narrows
Mainland, Hong Kong police to enhance two-way reporting
One fifth of British business leaders are considering moving operations abroad after the country’s shock decision to leave the EU, according to a survey from a leading business lobby group. The Institute of Directors (IoD), which polled more than a thousand of its members between Friday and Sunday, added one in four planned to freeze recruitment following the surprise referendum result. Almost two thirds or 64 per cent of IoD members think the result is negative for their business, while 23 per cent think it is positive. Nine per cent say it makes no difference. “Businesses will be busy working out how they are going to adapt and succeed after the referendum result,” said Simon Walker, IoD director general. “But we can’t sugar-coat this, many of our members are feeling anxious. “A majority of business leaders think the vote for Brexit is bad for them, and as a result plans for investment and hiring are being put on hold or scaled back.” More than a third of IoD members said the referendum vote will cause them to cut investment, against one in 10 who said they will increase investment. AFP
China continued to see a deficit in foreign service trade in May, but the figure narrowed for a second month, official data showed yesterday. Income from trade in services stood at US$22.6 billion last month, while expenditure was US$41.7 billion, resulting in a deficit of US$19.1 billion, according to the State Administration of Foreign Exchange. The deficit came down from US$21 billion seen in March and US$20.3 billion in April. The total deficit in the first five months of 2016 stood at US$97.1 billion, the data showed. Distinct from merchandise trade, trade in services refers to the sale and delivery of intangible products such as transportation, tourism, telecommunications, construction, advertising, computing and accounting. China’s service trade volume grew from US$362.4 billion in 2010 to US$713 billion in 2015, doubling the average international growth speed. The country is aiming to lift its service trade volume to over US$1 trillion by 2020. The State Council has pledged measures to improve the development of trade in services, including gradually opening up the finance, education, culture and medical treatment sectors. Xinhua
Authorities from the mainland and Hong Kong Special Administration Region (SAR) agreed to consultations on enhancing a two-way reporting mechanism launched in 2000. According to a statement released by the Ministry of Public Security on the mainland yesterday, it will invite delegates from Hong Kong to discuss relevant issues. Since January 2000, when the two-way reporting mechanism signed by the ministry and the Security Bureau of the Hong Kong SAR government took effect, the two sides have increased communication in handling suspected crimes by residents from the other side. According to a statement from the ministry, a total of 6,172 Hong Kong residents placed under “coercive measures” on the mainland had been reported to Hong Kong police by the end of 2015. “Coercive measures” may include summons by force, bail, residential surveillance, detention and arrest, according to the Supreme People’s Procuratorate (SPP). In the same period, 6,934 mainland residents who were put under “coercive measures” in Hong Kong had been reported to mainland police. Xinhua