Macau Business Daily June 29, 2016

Three plots in ZAPE to be jointly developed Urban planning Page 2

Wednesday, June 29 2016 Year V Nr. 1075 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Gaming

www.macaubusinessdaily.com

EU stance

Crown wins approval for Sydney casino aimed at Asian gamblers Page 7

Chancellor Angela Merkel: Brexit negotiations won’t be based on the principle of cherry-picking Page 14

Strategic links

Adidas and Wanda sign deal to promote sport in China Page 16

It’s the Government’s Call

Telecommunications

CTM will be entitled to mammoth compensation. Perhaps as much as MOP3 bln should the gov’t terminate the public telecommunications services concession this year. Otherwise, the contract will automatically be renewed until 2021. Legislators have slammed the gov’t for countenancing the ‘unfair deal’. Options now seem limited.

Page 3

No big deal

The UK voted for Brexit last week.

But Macau property agents say no big deal.

With investment in United Kingdom property as yet unaffected. Overseas property is becoming less appealing to Macau residents, they say, as housing prices pick up around the world. And Macau prices tumble.

Land lease expiring soon

Business Shun Tak MD Pansy Ho has taken the offensive. Ascribing the long delay of the Nam Van project to gov’t foot-dragging. And heritage protection considerations. If the land is reclaimed by the gov’t the company may take legal action. Page 6

Yuan and Brexit

Property Page 5

HK Hang Seng Index June 28, 2016

20,172.46 -54.84 (-0.27%) Worst Performers

Li & Fung Ltd

6.55%

China Mengniu Dairy Co Ltd

1.25%

Cheung Kong Infrastructure

-2.63%

CK Hutchison Holdings Ltd

-1.80%

Tingyi Cayman Islands

3.57%

CLP Holdings Ltd

0.86%

Cathay Pacific Airways Ltd

-2.52%

Sands China Ltd

-1.75%

Want Want China Holdings

2.10%

Sino Land Co Ltd

0.66%

Galaxy Entertainment Group

-2.20%

Lenovo Group Ltd

-1.72%

Belle International Holdings

1.66%

New World Development

0.53%

China Unicom Hong Kong

-2.02%

Bank of China Ltd

-1.33%

Link REIT

1.45%

BOC Hong Kong Holdings

0.44%

China Resources Power

-1.96%

Kunlun Energy Co Ltd

-1.13%

28° 31° 28° 31° 28° 31° 28° 31° 28° 31° Today

Source: Bloomberg

Best Performers

Thu

Fri

I SSN 2226-8294

Sat

Sun

Source: AccuWeather

Monetary policy Chinese central bank plans on currency are being deeply affected by the British referendum. The People’s Bank of China now has to contend with a falling euro and the risk of capital outflows. Mainland think tanks are to redesign a strategy for the rest of the year. Page 8

2 Business Daily Wednesday, June 29 2016

Macau Construction Height limit of possible construction in ZAPE set at 60 metres

Change of heart Urban Planning Committee may approve development project planned for a 3,876 square metre area in the ZAPE district after new information came to light.

Nelson Moura nelson.moura@macaubusinessdaily.com

T

he urban development plan for three plots of land in the ZAPE (Zona de Aterros do Porto Exterior) district on the Macau Peninsula could be approved after new information on the project was provided by the Public Works and Transport Bureau (DSSOPT) at the 7th Plenary Session held by the Urban Planning Committee yesterday.

The development plan for a nonindustrial project in the 3,876 square metre area comprising three land plots near Lotus Square had been rejected by the Urban Planning Committee in a previous session.

However, after the introduction of some missing details during yesterday’s session by the DSSOPT, the committee admitted changing its decision on the urban development plan.

“After the discussion we noticed maybe our presentation wasn’t very

clear. There won’t be an expansion of the land plots, which will be developed as one land plot, and there will be a road with 10 metres reserved for pedestrians between the buildings. In the 1980’s to 1990’s there was no need to calculate the shadow calculation so the height of some of the buildings weren’t built that way, but on this project we want all the new buildings to take into consideration the shadow effect, so we placed the height limit at 60 metres,” DSSOPT deputy director Cheong Ion Man told the committee.

Shuttle bus issue

A member of the Social Services Advisory Committee of the Northern District, Chan Tak Seng, said the new details would require a different response from the committee.

He also agreed with the plan exploring the three land plots as one, and with the reclaiming of 491 square metres from Rua de Luis Gonzaga Gomes in front of the projected buildings for pedestrian use.

However, Chan Tak Seng stated that since casino shuttle buses were the main issue worrying residents in the area any construction in the plots should consider this concern.

Committee member Wu Chou Kit

also agreed that the shuttle bus issues should be addressed, suggesting the possible use of a future building parking lot for shuttle bus parking.

“I agree with the development; I think they’re the last plots in the ZAPE area without being developed.

There’s a lack of commercial areas and if there was a big shopping mall in the future building with the possibility of using its parking lot to park the buses it could be an advantage. We have to discuss this with the owner if there could be a win-win situation for him and the residents,” Wu Chou Kit stated during the session.

Can you see the Guia Lighthouse?

For architect and committee member Rui Leão one of the main issues concerning construction on the land plots on that ZAPE area was if any of the planned towers would reduce the view to the Guia Lighthouse from the street and if the ground floor of the future building would be accessible to pedestrians.

In response, the DSSOPT deputy director stated that the Guia Lighthouse view was an “important issue” and that after conferring with the Cultural Affairs Bureau (IC) it was one of the reasons a 60-metre height limited had been imposed.

“As for pedestrian access it would be similar to other buildings in the area, around the building’s arcade,” Cheong Ion Man added.

Infrastructure Still no official date for Pac On Ferry Terminal expansion to be fully operational

Slow boat to China Pac On Ferry Terminal starts phased management process by Marine and Water Bureau.

Nelson Moura nelson.moura@macaubusinessdaily.com

The Pac On Ferry Terminal in Taipa has started to partially be

managed by the Marine and Water Bureau (DSAMA), the Infrastructure Development Office (GDI) has confirmed to Business Daily.

The terminal offices, parking lot

and some waiting rooms have started being managed by DSAMA, with the management of the Ferry Terminal being undertaken in phases.

In March, the GDI told Portugueselanguage newspaper Tribuna de Macau that after the main construction works were finished “six months would be necessary to co-ordinate with different government departments, ferry operators and other related entities in the preparation process of the

terminal.”

Now DSAMA has confirmed it has been conducting inspections in the terminal expansion area, with the area management proceeding step by step. However, neither DSAMA or GDI have provided to Business Daily a date for when the ferry expansion will fully fall under DSAMA management.

Ferries are waiting

Construction on the Pac On Ferry Terminal started in 2005, with an initial plan to take little more than a year to complete, but in 2007 the government opted to open a temporary ferry terminal - which is still in operation - and planned a bigger ferry terminal expansion.

In 2010, a contract for the ferry terminal expansion was awarded by the government to Zhen Hwa Construction Co. Ltd., for MOP1.6 billion (US$200 million) - to be finished in 2013.

However, the expansion suffered several delays, with its planned operational start postponed to 2017, with the GID at the time justifying the delays on lack of human resources and climate factors.

Th e i n i t i a l b u d g e t f o r t h e ferry expansion was fixed at MOP583 million while the latest GID statements inform that the construction works have already cost MOP3.2 billion, mainly due to the expansion of the checkpoint building, illumination changes and a fire protection system for the helicopter pad in the terminal.

Business Daily Wednesday, June 29 2016 3

Macau

Telecommunication Legislators slam gov’t for signing unfair contract with CTM

Expensive breakup fee If the government terminates its concession contract with CTM this year, it may result in MOP3 bln compensation to the company, according to legislators.

T

he Macau Government has little choice. Either stick with the contact until 2021, or terminate it this year and pay compensation of as much as MOP3 billion (US$375.4 million).

Legislators of the Public Administrative Affairs Committee a r e c u r r e n t l y di sc u ssi n g th e telecommunications services. A

lot of problems seem to have been created with the city’s major operator and public telecommunications services concession contract holder Companhia de Telecomunicações de Macau SARL (CTM).

“The legislators of the committee feel that the contract that the government made with CTM was very unfair… What we want is for the market to have fair competition, [and

Raimundo Arrais do Rosário, Secretary for Transport and Public Works

Tax refunds

Overseas tourists to enjoy tax refund in Guangdong Foreign tourists, including those from Hong Kong and Macau, will be entitled to a nine per cent rebate.

Annie Lao annie.lao@macaubusinessdaily.com

Guangdong Province excluding Shenzhen in southern China will launch a tax refund service for oversea tourists from this Friday, according to a press release published by the Department of Finance of Guangdong Province yesterday.

Foreign tourists and those from Hong Kong, Macau and Taiwan who stay in Mainland China for less than 183 days will be entitled to a 11 per cent rebate on goods purchased with value added tax (VAT) at designated department stores, while two per cent of the VAT will be deducted as a handling charge.

The minimum amount of purchase is 500 renminbi (US$75) per day from one designated store. The refund is only valid when the purchase is made within 90 days before departure.

T o u ri sts ca n c l ai m th e tax

refunds from Guangzhou Baiyun International Airport, Guangzhou Nansha Port and Jiuzhou Port in Zhuhai City. Guangdong Province plans to gradually include other ports and stores in the future.

According to official data, the province has the largest number of tourists visiting Mainland China. In 2015, Guangdong Province recorded 105 million tourist arrivals, accounting for 78.5 per cent of total tourists in Mainland China.

Of those, foreign tourists accounted for 6.6 million, representing 25.4 per cent in total. In addition, tourists from Hong Kong, Macau and Taiwan reached 98.56 million, accounting for 91.4 per cent of total tourists in Mainland China.

On January 1, 2011, the pilot tax refund programme was first launched in Hainan Province, the southern island in Mainland China. Beijing and Shanghai also rolled out the policy on July 1, 2015.

a] better telecommunications service that citizens can enjoy, and room for fees to decrease,” said legislator Chan Meng Kam, President of the Committee, as reported by local public broadcaster TDM. Mr. Chan added that their perception of the contract being unfair is not to urge the government to terminate the contract right away, or more problems may ensue.

No turning back

Unless there is a serious violation of the law or in it is in the public interest the concession contract will automatically be renewed for another five years, confirmed Secretary for Transport and Public Works Raimundo Arrais do Rosário after attending the meeting at the Legislative Assembly yesterday.

The Secretary added that even if the contract is to be terminated due to some necessary reasons regarding the public interest, clause 4 of Article 4 of the contract mandates that CTM will be entitled to compensation from the government.

The compensation amount would be 2.5 times of the average profit that CTM made in its recent three fiscal years before tax. According to legislator Chan Meng Kam, this compensation could be as much as MOP3 billion.

Raimundo do Rosário added that the government has not yet made a decision on whether the concession contract with CTM would be renewed automatically but wishes to discuss with legislators ways to improve the telecommunications service for the public.

4 Business Daily Wednesday, June 29 2016

Macau Opinion

José I. Duarte

New track The Secretary of Transport and Public Works just made a few announcements concerning the future of the light rail transit system. On a positive note, they were not just vague or implausible promises, as so often in the past. But not all is clear now, either.

First, he stated the construction priorities: to finish the Taipa track, which should happen this year. Then, make a connection to Barra and, finally, extend the line to Seac Pai Van, in Coloane. A decision on the track on the Macau side is delayed to some moment later this year. Neither the timelines for Barra and Coloane nor specific operation dates were, based on media reports, revealed. On the budget, briefly, we were reassured that the updated estimates include “all” the costs.

On these specific targets, there is little to disagree with.

The connection to Coloane is a natural corollary of the recent developments there.

If the current assault on Coloane is wise and desirable or whether there should be resistance to the increased urban encroachment on that area are separate matters altogether. With the already existing concentration of buildings around Seac Pai Van the extension advantages are obvious. The connection to Barra, using the existing bridge, is also a no-brainer.

However, determining how the Barra terminal articulates with the transportation network on the Peninsula, or considering if the light rail track should be built on the Macau side at all, are different questions. They remain unanswered. Whether a final decision has not been taken, or the administration feels premature or sensitive to disclosing that information at this juncture, these are questions that deserve further probing.

All this may look not much.

Any public project should have a clear statement about its priorities, costs and timetable.

How can that be remarkable and need to be highlighted?

First, remember the office in charge was often accused of not budgeting properly, to put it mildly. And the announcement of investment plans or policies, in general, are repeatedly marred by an abuse of adjectives and a dearth of concrete commitments.

Within that frame, then, the current declarations are almost refreshingly pleasing, even if we might say they reflect merely good administrative practice. More than a deserved accolade to the new administration’s approach to these matters, this is a reminder that another practice is still pervasive in certain sectors of the administration, where many seem to follow the motto ‘Nobody can be blamed for missing vague promises.’

José I. Duarte is an economist and permanent contributor to this newspaper.

Law Currently 20.8pct of detainees in Coloane Prison held on pre-trial detention

Precocious detention A Portuguese lawyer says the number of prisoners in pre-trial detention in Macau is “excessive” and that new methods such as electronic bracelets should be implemented.

Nelson Moura nelson.moura@macaubusinessdaily.com

The number of pre-trial prisoners in Macau is “excessive” and more modern methods such as electronic bracelets should be adopted by local authorities, Portuguese lawyer João Miguel Barros has stated according to news agency Lusa.

Barros, a former Judicial Assessor for the President of the Legislative Assembly (AL) and former Secretary General of the Macau Lawyers Association (AAM), believes Macau should start “looking at alternatives” for pre-trial detention, since in a lot of cases upon detention before trial

“the degree of culpability has not yet been assessed”, removing the presumption of innocence of the defendants, Lusa reported.

According to Lusa Coloane Prison housed 1,302 detainees as of May 31, of whom 271 are in pre-trial detention, representing 20.8 per cent of the prison population. It was also revealed that the majority of detainees are not Macau residents, with only 413 from the city, nearly a third of the prison population.

“There’s no advantage for the excessive use of pre-trial detention. In Portugal electronic bracelets started being widely used and I believe they would be an interesting alternative,”

Barros stated on the sidelines of the presentation of his new book ‘Judicial System’ focused on the Portuguese judicial situation.

Reforming the system

The Portuguese lawyer also said the current Basic Law of the Judicial Organisation in Macau has a “misadjusted paradigm” and should be reformed for the future, maybe using “methodologies used in Portugal” as a model.

Barros believes the current judicial law system implemented in 1984 fails to give the proper importance to “judicial employees” and “lawyers” and therefore it should be totally restructured, Lusa reported.

“It’s possible to improve every day with an improved and more efficient system. That is accomplished through quality magistrates, quality lawyers and processual celerity. But, of course, if the system is not adequate the day to day functioning is going to suffer,” Barros stated.

Retail

Veeko profit down 42.5 pct Veeko recorded a 4.8 per cent decrease year-on-year in terms of fashion business turnover to HK$401 million from HK$421 million.

Annie Lao annie.lao@macaubusinessdaily.com

Veeko International Holdings Ltd., a clothing and cosmetics company, recorded a decrease of 42.5 per cent in profit year-on-year during its fiscal year 2015/2016 ended 31 March, to HK$58.93 million (US$7.6 million) from HK$102.44 million, according to its annul financial report released on the Hong Kong Stock Exchange.

The gross profit margin of Hong Kong and Macau fell by 0.9 percentage points to 68.4 per cent year-on-year.

The turnover of the Hong Kong and Macau market in the fashion business decreased to HK$401 million from HK$421 million year-on-year, representing a decrease of 4.8 per cent.

The fashion retail business in Hong Kong and Macau accounted for 79.6 per cent of total turnover in the fashion business of Veeko. As of March 31, Veeko had a total of 82 stores operating in Hong Kong and Macau, the same amount of stores as in 2015.

Weakened consumption

In addition, the cosmetics business recorded a segment profit of HK$94 million, representing a decline of 14.9 per cent year-on-year from HK$110 million, mainly due to a decline in the

consumer power of Hong Kong and Macau regions. There were four Colourmix stores in Macau as of March 31. The company says the cosmetics business still contributed substantial profit to Veeko.

The company says the overall fall in profit is mostly due to the depreciation of the renminbi weakenin the consumption power of tourists from Mainland China, resulting in a decrease in the number of trips to Hong Kong and Macau.

The company expects the challenges faced by the retail business to continue for a certain period of time due to the weak consumption sentiment of local residents and tourists, including the depreciation of some Asian currencies enabling more visitors and locals to travel to other regions in Asia.

Business Daily Wednesday, June 29 2016 5

Macau

Property

Realtors: UK housing market stable despite ‘Brexit’ Following the ‘Brexit’ referendum last week, Macau’s property agents believe that the property investment environment of the United Kingdom (UK) has yet to be affected.

Kam Leong kamleong@macaubusinessdaily.com

T

he UK’s vote to leave the European Union (EU) last Friday has triggered turmoil in the country’s currency exchange rate and its stock market; however, its own property market, especially for overseas investors, is not overly impacted at least for the short term.

“Brexit has not much affected the UK housing market as real estate is usually for long-term investment.

Hence, no immediate impact is apparent,” the head of residential at Jones Lang LaSalle (JLL) Macau, Jeff Wong Chi Wai, told Business Daily yesterday.

According to the local-based realtor, Macau residents buying properties in the UK are usually parents purchasing homes for their children studying in the country, in addition to investors eyeing the country’s comparatively higher rental return rate than the Special Administrative Region.

“We haven’t seen local investors suddenly gain interest in British property or panicked into selling their current real estate there even though the pound’s exchange rate is fluctuating,” the property agent claimed.

Local investors observing

Nevertheless, Mr. Wong added that uncertainty about the future of the UK after its referendum to leave the EU will lead local as well as other overseas investors to step back from the country’s home market and observe - which may result in a decrease of housing transactions there. “[Home buyers] may be worried whether education [regulations] in the UK would be changed after Brexit, whether London’s position as an international financial centre would be affected, as well as whether the number of foreign labourers would be restricted,” the JLL Macau residential head analysed.

He explained that these three considerations, however, may only affect the investment return rate in the UK property market in the long

term since the country still has a long way to go before officially leaving the EU. According to Bloomberg, the pound once touched its near 31-year low at US$1.3121 on Monday despite rising 0.5 per cent to US$1.3288 as of 7:04 am London time yesterday.

Return remains stable

Jennifer Un, a senior regional director of Ricacorp (Macau) Properties Ltd., also told Business Daily that the aftershocks of Brexit would not overly affect local investors’ returns from the UK home market.

“The drop in the value of the pound will not have a big influence on the investment return rate of local homebuyers who possess properties there because most of the developers would have guaranteed the return rate when residents bought the units,” Ms. Un said.

“Investors would now prefer observing whether the exchange rate of the pound will drop further for the next move, or whether developers there will release promotion discounts to attract new homebuyers,” she added.

Enquiries up on Japanese properties

As local investors’ attitude to the UK housing market is now a bit reserved,

another property agent form the city saw Macau residents’ enquiries on Japanese residential units rebound over the past weekend as the yen surged.

“During the past weekend, we received notable increases in enquiries for Japanese properties, despite the fact that the Japanese yen was soaring after Brexit,” a regional director specialising in overseas property with Greatest Properties Ltd, Amigo Lei, said.

“Overseas property is becoming less appealing to Macau residents as general housing prices in the world are going up” Jeff Wong Chi Wai, head of residential at Jones Lang LaSalle (JLL) Macau The Japanese yen, which is often bought in times of turmoil, touched a 32-month high of 99.02 against the greenback on Friday after the referendum, according to Bloomberg.

“For local residents buying overseas properties, they would have different

preferences of destinations during different periods of time. Their interest in the Japanese housing market has been a bit low in recent months. But Brexit has surprisingly stimulated the demand again,” the real estate agent told us.

Weaker investment sentiment

In fact, the three property agents all indicated that local residents’ investment sentiment on overseas properties is weaker than before due to the increase in the city’s own housing supply and decrease in local home prices.

“Overseas property is becoming less appealing to Macau residents as general housing prices in the world are going up,” Jeff Wong said.

According to the realtor, the rental return rate in UK’s second-tier cities such as Manchester, which once reached 8 per cent, is now down to some 5 per cent.

“Despite their return rate still being higher than Macau, the gap is narrowing…On the other hand, due to the economic downturn in Macau, the city’s housing prices have registered certain drops increasing local units’ attractiveness for local investors,” he claimed.

“With the increased supply in the local housing market, residents would prefer keeping their capital inside the territory rather than investing outside,” Ms. Un indicated.

She added that the local sentiment in purchasing overseas properties has been weakening with housing t ra n s a c t i o n s i n t h e S p e c i a l Administrative Region rebounding.

6 Business Daily Wednesday, June 29 2016

Macau Business

Pansy Ho: Shun Tak may fight for Nam Van land Ms. Ho also commented she believes there won’t be further serious delay to MGM Cotai.

Pansy Ho

Gaming

A

cting a s M a n ag i n g Director (MD) of Shun Tak Holdings Ltd., Pansy Ho Chiu King said that as a listed company, Shun Tak would have to study and make a decision regarding seeking legal means to safeguard the interests of the group if its land plots on Nam Van are to be taken back by the government.

She was speaking to reporters on the sidelines of a public event yesterday, as reported by public broadcaster TDM Chinese Radio News.

Its long awaited Harbour Mile scheme – on a waterside plot linking its partowned One Central development to its Macau Tower complex – has been delayed “due to the government’s Master Plan of the area”.

The site - coded C and D concession – will expire next month and faces the

Analysts predict June gaming revenue to drop 11 per cent at most

Bernstein: Wynn Palace may get 250 new gaming tables Brokerage Sanford C. Bernstein estimates that Wynn Palace may be awarded a similar number of new gaming tables as Galaxy Phase II and Studio City.

Kam Leong kamleong@macaubusinessdaily.com

Analysts at Sanford C. Bernstein expect gaming operator Wynn Macau Ltd. to get around 250 new gaming tables from the government for its new Wynn Palace Cotai project slated to open near the end of August.

On Monday, a filing by Wynn Macau with the Hong Kong Stock Exchange announced that the opening of the new Cotai casino-resort is slated for August 22, without revealing information on its gaming facilities.

“Based on the number of new tables awarded to Galaxy Macau Phase II (150) and Studio City (250), we believe Wynn Palace could receive a similar number of tables of about some 250 and another some 140 tables could be transferred from Wynn Macau for a total of 400 tables,” brokerage analysts Vitaly Umansky, Simon Zhang and Clifford Kurz wrote in the firm’s latest weekly updates.

The investment firm added that they remain of the view that the increase in the city’s new hotel supply will drive the growth of overnight visitors to the territory, which will be a key driver of mass demand for the next decade.

Official data from the city’s Statistic and Census Service (DSEC) reveals

total visitor numbers in Macau registered a year-on-year fall of 2.8 per cent to 2.48 million for last month, while overnight tourists jumped 3.8 per cent year-on-year to 1.2 million.

“We believe the Light Rail [Transit] and the [Hong Kong-Zhuhai-Macau] Bridge will play an important role in attracting long-haul mass visitors to Cotai, where integrated resorts will have been built as Macau’s new tourist attractions,” the report reads.

11-pct fall

On the other hand, the Hong Kongbased analysts predict the city’s gross gaming revenue will post a year-onyear decline of some 10 to 11 per cent for this month.

“Our channel checks indicate that Macau’s gross gaming revenue month-to-date is some MOP13.5 billion…Assuming an average daily revenue of MOP470 to550 million for the remainder of this month, [gross gaming revenue for June] would be MOP15.4 billion to MOP15.7 billion.

Meanwhile, investment firm Wells Fargo Securities is predicting that the Special Administrative Region will see gaming revenue decline by a maximum 11 per cent year-on-year for this month.

“We estimate average daily

revenues are tracking at around MOP53 million month-to-date. We now expect June revenues of around MOP15.5 billion to MOP16 billion, implying a decrease of 8 per cent to 11 per cent year-on-year,” the firm’s analysts Cameron McKnight, Daniel Adam and Robert J. Shore wrote in a report released last week.

possibility of being reclaimed by the government based on the new Land Law. The MD claimed that the group has been preparing for the project since 2007 and that the delays were beyond their control.

“During the developing process, the project encountered the government land reclamation. Later, it was suspended again due to the World Heritage recognition [meaning] the plot had to be redesigned to protect the landscape in order to comply with the regulations. The development of the project has been delayed, but we have been very co-operative. From our point of view, we shouldn’t be punished,” said Ms. Ho.

“No more serious delay”

Also acting as the co-chairperson and an executive director of MGM China Holdings Ltd., Ms Ho commented that the scheduled opening of the gaming operator’s Cotai project will not face any more serious delay.

MGM said in February it would delay opening the US$3 billion gambling complex to the first three months of 2017 from a target of by the end of this year. MGM Cotai was previously scheduled to be launched in the fourth quarter of 2015.

Ms. Ho commented that the construction has been moving on smoothly and according to the group’s calculations the new agenda is achievable. However, she added, it would be subject to the finalising stage of the project but believes it won’t experience more serious delay.

Business Daily Wednesday, June 29 2016 7

Macau Junket

Iao Kun: Jeju casino acquisition to diversify business outside MSAR The junket operator reckons its deal with Bloomberry for a South Korean casino-resort and gaming concession could provide the company with a new way out.

Kam Leong kamleong@macaubusinessdaily.com

L

ocal junket operator Iao Kun Group Holding Co. Ltd. (IHGK) said its deal to acquire Jeju Sun Hotel & Casino in South Korea is ‘the optimal way to diversify outside of Macau,’ according to its announcement released on Monday. ‘[Iao Kun] determined that the acquisition of the Jeju Sun Hotel & Casino and obtaining the nonexpiring gaming licence was the optimal way to diversify outside of Macau given the quality of the property and its close proximity (five minutes drive) to Jeju International Airport,’ the Nasdaq-listed junket promoter wrote in the release.

Last week, Philippine gaming operator Bloomberry Resorts Corporation told the stock exchange there that Iao Kun is to buy the casino-resort on the island, including the gaming concession, from the company for US$102 million (MOP814.8 million). ‘[Iao Kun] shall be the first Macau gaming operator to have a gaming licence in Jeju, and ownership of the gaming licence will be an additional valuable asset for IKGH as it can be transferred to other potential locations in Jeju,’ the junket operator perceives.

According to Iao Kun, the gaming licence that it is to acquire from Bloomberry will enable the company to operate an unlimited number of gaming tables, subject to regulatory approval.

The operator also announced that it is to ‘to finalise its funding arrangements for the acquisition within the next few weeks.’

Australia

Crown wins approval for Sydney casino aimed at Asian gamblers Australian mogul James Packer won approval Tuesday for a towering six-star hotel and casino complex on Sydney harbour aimed at Asian high-rollers, with work expected to begin shortly.

The New South Wales state government legislated to site the Crown Sydney Hotel Resort on foreshore land previously earmarked as public open space in 2013.

The casino, which will sit at Barangaroo on the northwestern edge of Sydney’s central business district, was then awarded a 99-year gambling licence.

In signing off on the Aus$1.5 billion (US$1.1 billion) project, the Planning Assessment Commission Tuesday ordered a number of changes to increase public areas around the 71-storey building.

These conditions, which include widening a public promenade on the foreshore, ensured the “public good has been given a more equal status with the private good”, it said.

The amended development would deliver a variety of open spaces “while also achieving the government’s stated goal to support a highend tourist and gaming facility on

the site in a building of design excellence”, it added.

Crown Resorts has previously said the casino would help attract Asian high net worth travellers to Sydney, in particular from China, and create more than 1,000 jobs.

The company, which this month said it would separate its “high-performing” local assets from its international businesses, namely casinos in under-performing Macau, welcomed the decision and said it would move quickly to start work.

“For too long Sydney has suffered from a lack of luxury tourism accommodation and Crown Sydney will help turn that around,” chairman Robert Rankin said in a statement.

“We will now move quickly to begin excavation work. We are expecting to complete construction and open in early 2021.”

The company plans to build a structure housing a six-star, 350-room hotel, a restricted gaming facility, 66 residential apartments as well as shops and a carpark.

Billionaire Packer, who is engaged to pop diva Mariah Carey, owns 53 per cent of Crown Resorts but resigned as chairman in 2015.

James Packer

‘The company expects hotel and gaming operations to generate positive cash flow post-acquisition.

Further, IKGH believes that the funding structure to be finalised should cause the acquisition to be accretive to earnings per share,’ it added.

VIP pioneer

On the other hand, the company hinted in the announcement that it is mulling developing the VIP gaming segment on the Korean island. ‘IKGH sees significant potential to rapidly grow VIP operations on the island, given that VIP gaming in Jeju is

currently underdeveloped,’ it said.

Claiming it had been seeking to diversify its operations outside of the Special Administrative Region, the company explained its decision to operate on the Korean island is due to its accessibility for Mainland Chinese gamblers as well as the lower gaming tax there.

Currently, the junket operator operates five VIP rooms in Macau, raking in some US$1.83 billion in rolling chip turnover for the first five months of the year, representing a decline of 46 per cent year-on-year.

In addition, for the first quarter of this year, the Nasdaq-listed operator posted a net loss of US$3.5 million, compared to a net income of UIS$13.1 million one year ago. Apart from Macau, Iao Kun operates gaming businesses in Perth and Melbourne in Australia.

8 Business Daily Wednesday, June 29 2016

Greater China

Currencies agitation

Yuan pressures intensify as British deal blow to PBOC policy A one percentage point drop in the EU’s gross domestic product growth could take 0.2 percentage points off China’s GDP growth.

B

rexit is upending China’s yuan policy.

Af t e r B r i ta i n ’ s sh o c k vote for secession, officials in Beijing are contending with a slumping euro and mounting economic uncertainty in Europe, just as a surging dollar raises the risk of capital outflows. That’s forcing a deviation from China’s strategy for much of this year, where authorities maintained limited gains versus the greenback to buoy confidence in the yuan’s stability, while guiding depreciation against the currencies of its trading partners helped bolster exports.

“With the fundamentals of the yuan pointing to depreciation, further pressure from Brexit is likely to pose challenges to the PBOC in terms of its policy direction - whether to let market supply and demand play their roles and lead to faster depreciation, or to prioritize stabilization,” said Li Liuyang, Shanghai-based market analyst at Bank of Tokyo-Mitsubishi UFJ (China) Ltd. While speculation Brexit will force the Federal Reserve to wait longer to

raise interest rates may eventually spur a weaker greenback, haven demand is sending the dollar soaring so far. The yuan has slumped 1.2 per cent to a five-year low versus the U.S. currency since last week’s vote, and rallied 2.4 per cent against the euro.

“The second round of capital outflows has started” Kevin Lai, Hong Kong-based chief economist for Asia ex-Japan at Daiwa Capital For now, some banks are taking another look at their projections for the yuan. Bank of America Corp. sees the currency dropping about 5 per cent to 7 per dollar at the end of the year, compared with a previous estimate of 6.9, as China seeks greater export competitiveness. Australia & New

Zealand Banking Group Ltd. said its 6.65 projection is under review, while UBS Group AG predicts the yuan will fall to 6.8 faster than it previously expected as China cuts reserve requirements to ease funding conditions.

Outflow concern

Faster declines risk reigniting a vicious cycle where expectations for further weakness quicken capital outflows.

An estimated US$1 trillion left China in 2015 after the yuan’s unexpected devaluation in August prompted mainland investors to seek foreign assets and companies to pay down overseas debt.

“The second round of capital outflows has started,” said Kevin Lai, Hong Kong-based chief economist for Asia ex-Japan at Daiwa Capital Markets.

“Brexit affects the whole of Europe, and Europe plus the U.K. is quite a big market. You can’t underestimate the impact.”

Export risk

Some 15.6 per cent of China’s overseas sales are destined for the EU, while 2.6 per cent go to the U.K., according to Bloomberg Intelligence. Based on historical relations, a one percentage point drop in the EU’s gross domestic product growth could take 0.2 percentage points off China’s GDP

growth.

The PBOC will step in to slow yuan depreciation if needed, said Roy Teo, a Singapore-based strategist at ABN Amro Bank NV, the yuan’s top forecaster. The central bank was seen selling dollars and verbally supporting the yuan in January and August, when depreciation concerns exacerbated capital outflow pressures.

“A similar picture of how they managed to control volatility in the past year will repeat,” said Teo. “In this increased uncertainty it’s also not in the interest of China to devalue because that will magnify capital outflows, which is the last thing they want.”

Derivative markets are reflecting expectations for quicker declines.

Twelve-month non-deliverable forward points jumped to a threemonth high Monday, while threemonth implied volatility also rose to the highest since April.

China wants to preserve the yuan’s trade-weighted depreciation, said Ray Farris, Singapore-based head of Asia macro strategy at Credit Suisse Group AG. Chinese policy makers have guided the yuan to a 5.6 per cent decline against an index of its trading partners this year as exports fell every month apart from March. The 13-currency gauge fell to a 20-month low last week.

“The government is much more focused on the recent path of depreciation for the nominal effective exchange rate - the Chinese yuan versus its basket - than it is on trying to act as an anchor of stability,” Farris said. Bloomberg News

Experts’ outlook

U.K. decision seen as a negative, or an opportunity After Britain’s vote to leave the European Union roiled global markets, economists are grappling with how best to gauge the potential impact on China.

Views range from downbeat scenarios such as Brexit contagion weakening the yuan or undermining exports, to optimistic ones where China emerges as a safe haven amid the storm.

Beyond the currency impact, economists are trying to untangle other issues such as whether China benefits from a likely delay of U.S. interest rate hikes, how it will respond to market turbulence, and whether the domestic economy and capital flows will suffer.

Here’s what some China watchers are saying:

‘Bad news’

David Dollar, a senior fellow at the Washington-based Brookings Institution who previously was the U.S. Treasury attaché in Beijing and World Bank country director for China: “Brexit is bad news for China, but I would not exaggerate the impact. It ushers in a period of more uncertainty in the global economy and probably slower growth, and that will affect China through trade. In addition, China had bet on the U.K. as the best entry point into the European market, and that no longer looks like a good bet. But China’s economy is primarily driven by domestic consumption now, so the effects will not be that great.”

“Probably China will use a bit more stimulus, especially credit for real estate and other investment, to maintain its

growth. I would expect the tradeweighted yuan to rise as other parts of the world face more headwinds than China faces. China’s large capital outflow is likely to continue.”

‘Capital outflows’

Arthur Kroeber, the founding partner and managing director at research firm Gavekal Dragonomics.

“The only major impact that we can identify is on the currency. To the extent that Brexit triggers a broadbased dollar rally that’s sustained, that makes management of the exchange rate harder. If the dollar goes up a lot then Chinese corporations have a lot more incentive to hold dollars rather than renminbi. They would start to shift money one way or another from renminbi into dollars, and that gets recorded as a capital outflow. Then in order to maintain the exchange rate the People’s Bank has to spend reserves.”

“If you are spending them at a US$100 billion a month as they were at the peak in January and February they probably have about six months of spendable reserves before they get to a point where they say it’s not worth it any more. Based on what we’ve seen so far it doesn’t seem like the Brexit outcome is large enough to make that a high risk in the next month or so but who knows?”

‘Dramatic moves’

Luke Spajic, head of portfolio management for emerging Asia at Pimco in Singapore:

“The more worrying factor is global demand, especially with export demand falling off so dramatically over the last year. The currency has weakened notably in the last few months. We expect currency weakening to continue.

Chinese policy makers are very keen on suppressing volatility, so dramatic moves in global markets will be met with a response to dampen the moves.”

“China should see this as a chance to enhance its role as a global team player, looking to coordinate with other policy making peers in terms of liquidity provision and elevated dialogue.”

‘New pressure’

Kenneth Courtis, former Asia vice chairman at Goldman Sachs Group Inc. and now chairman of Starfort Holdings: “Exports are going to weaken, because all the rest of the world, major markets, are going to weaken. That’s going to put huge new pressure on China’s broad economy, the manufacturing sector.

The People’s Bank of China is going to have to adopt even easier monetary policy. If Japan devalues, what will Korea do? Will they sit on their hands?

What will Taiwan do? Will they sit on their hands? We’re facing a radioactive economic and political chain reaction.”

along with the pound, the renminbi will also be under pressure. Brexit also shows that it’s hard to anticipate black swans as China’s technocrats try to do. They had been preparing for a Fed rate hike, but a somewhat different shock hit which may require a different response.”

‘Safe haven’

Stephen Jen, co-founder of SLJ Macro Partners LLP in London and a

“Brexit is bad news for China, but I would not exaggerate the impact.”

David Dollar, a senior fellow at Brookings Institution

‘Black swans’

Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance: “The value of China’s foreignexchange reserves just dropped significantly. If the euro devalues

U.K. Prime Minister David Cameron

Business Daily Wednesday, June 29 2016 9

Greater China Commodities markets

In Brief

Futures rally on hopes of protection measures Some analysts pointed to better supply and demand, and firmer markets overseas.

Manolo Serapio Jr

Commodity futures in China from steel to soymeal rallied yesterday, as investors bet on countries bringing in measures to counter the shock to markets and economies from Britain’s vote to leave the European Union.

Chinese steel futures jumped for a second day, while the rally spread to other commodities.

“I think there is a fresh wave of speculation,” said Yang Zhijiang, an analyst at China Merchant Futures.

China’s commodities markets had recently calmed after a roller-coaster ride started in April, when soaring prices and volumes prompted exchanges to curb speculative activity.

Yang said there were expectations that countries will boost liquidity or take other steps to counter the impact of the British vote.

Other analysts pointed to better supply and

demand, and firmer markets overseas.

In the steel market, the most-traded rebar on the Shanghai Futures Exchange closed up 2.5 per cent at 2,265 yuan (US$341) a tonne, after touching a seven-week high of 2,288 yuan.

Key Points Steel, iron ore futures extend sharp gains Soymeal, soybeans lead agriculture commodities higher Expectations of improved liquidity to counter Brexit The most-active iron ore on the Dalian Commodity Exchange climbed 4.4 per cent to end at 419 yuan a tonne, after also hitting a seven-week peak of 423 yuan.

Both contracts surged by their 6 per cent ceiling on Monday, following news of a planned restructuring by steelmakers Baosteel Group and Wuhan Iron

and Steel Group, reflecting China’s efforts to consolidate its steel sector.

Chinese steel inventories dropped 1.4 per cent to 8.84 million tonnes on June 24 from the prior week, said Argonaut Securities analyst Helen Lau. Inventories have fallen for the past five weeks, said Lau, adding that the utilisation rate at China’s blast furnaces is also 9 percentage points below the same period last year.

“Against these low steel inventory and low utilization rates, there is room for steel prices to increase in our view, given that current steel prices are around 30 per cent lower than the same period last year,” Lau said in a note.

Among agriculture commodities, Dalian soymeal rose 5.2 per cent, while cotton and rapeseed meal - both traded in Zhengzhou - advanced 4.1 per cent and 5 per cent, respectively.

Dalian soybeans gained 2.9 per cent after rising as much as 3.5 per cent intraday to the highest since September.

Dalian egg surged 2.6 per cent and palm olein climbed 2.7 per cent.

The gains in Chinese-traded soybeans eclipsed Chicago soy which hit a oneweek high on forecasts of dry U.S. weather and Chinese demand. Reuters

Stock Markets

Regulator denies reports of new FX restrictions The Shanghai branch of China’s foreign exchange regulator yesterday said there have been no changes to rules on individuals purchasing foreign exchange in the city.

The comment was in response to unspecified reports of new foreign exchange purchase restrictions in Shanghai.

The Shanghai branch of the State Administration of Foreign Exchange said that it supports qualified firms investing overseas and the healthy development of foreign investment. Chinese individuals are allowed to purchase US$50,000 annually with no restrictions, while amounts larger than that require more documentation.

Shenzhen Metro deal

Shenzhen bourse queries Vanke shareholders The Shenzhen Stock Exchange said it is seeking clarification from China Vanke’s two largest shareholders as to whether they are acting in concert to block the company’s US$6.9 billion deal with Shenzhen Metro. Fearing a hostile takeover bid by financial conglomerate Baoneng, Vanke’s management has announced a deal with Shenzhen Metro Group that would make the subway operator its largest shareholder while the stakes held by Baoneng and stateowned China Resources would be diluted. Striking back, Baoneng has called for the ouster of Vanke’s board.

Export restrictions

U.S. extends ZTE reprieve

former International Monetary Fund economist: “The People’s Bank of China ought to let the renminbi depreciate with the dollar. That was the whole point about adopting such a basket reference regime, to cope with situations like this one. I’m personally unconvinced that global trade or growth would be undermined by Brexit. Asset prices might come under pressure, but central banks might take coordinated actions

to counter this. I actually think China could be the safe haven.”

“and Britain will be keen on securing favorable trade deals post-exit.”

‘Contagion hurts’

‘More protectionist’

Geoffrey Yu, a London-based currency strategist at UBS Group AG: For China, the U.K vote will have “a lot of downside if market contagion hurts emerging markets further, through FX transmission or other channels.”

Brexit creates an opportunity to strengthen the U.K.-China relationship,

Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA in Hong Kong: “China’s growing strategic relation with the U.K. was mainly to enter the rest of EU.” Now that’s no longer possible, and even counterproductive.

“This is the first and most immediate impact for China. The most lasting and important one though is that Europe will become much more protectionist without the U.K., especially versus China.”

‘Some hiccups’

Raymond Yeung, a senior economist with Australia & New Zealand Banking Group Ltd. in Hong Kong: The vote won’t “affect China’s economic outlook immediately.

However, as corporates in the U.K. and Europe start to re-engineer their business models, the economic impact will start to bite, resulting in some hiccups to the global supply chains.”

‘Breathing room’

Wei Hou, an analyst with Sanford C. Bernstein in Hong Kong, wrote in a research note: “Financial market turmoil created

by Brexit will slow (or possibly even reverse) the interest rate hike cycle in the U.S. Over the next few quarters, this will reduce the liquidity drain pressure on China from an renminbi devaluation perspective. If this is the case, then the Chinese government can focus more on domestic issues and on pushing reforms as they have promised.” Bloomberg News

The U.S. government has extended through August 30 a reprieve to ZTE Corp on tough export restrictions imposed on the Chinese smartphone maker in March for allegedly breaking sanctions against Iran, the Commerce Department said on Monday.

The renewed Commerce Department license allows ZTE to continue exporting equipment containing U.S. technology. The agency said in March that its first reprieve could be extended if the company cooperated with the government. Experts had said U.S. export restrictions were some of the toughest ever applied and would have caused disruption across ZTE’s sprawling global supply chain.

Pumping money

Central bank injects liquidity into market China’s central bank yesterday continued to pump money into the inter-bank market to provide more liquidity. The People’s Bank of China (PBOC) put 180 billion yuan (around US$28 billion) 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. Yesterday’s interbank market, the benchmark overnight Shanghai Interbank Offered Rate (Shibor) was up 0.2 basis point to 2.04 per cent.

10 Business Daily Wednesday, June 29 2016

Greater China

Infrastructure

Buffett-backed BYD enters mainland monorail market BYD will utilize its core technology in electric vehicles, batteries and materials to build the monorail systems, its Chairman said.

B

YD Co. , th e e l ect ri ccar maker that counts Warren Buffett’s Berkshire Hathaway Inc. as a shareholder, is in talks with several of China’s smaller cities on building monorail systems to preempt traffic congestion spurred by rapid growth in automobile ownership.

Monorail systems are a potential 3 trillion yuan (US$450 billion) market in China, based on an average 70-kilometre network in each of an estimated 300 cities, and will become a new major growth area for the company, according to Chairman Wang Chuanfu.

The elevated single-rail tracks can be built on road dividers and are especially suited for smaller, less-developed cities because they cost one-sixth the price of a subway system and are cheaper to maintain,

Wang said. With the number of vehicles growing at an average annual rate of 15 per cent in such cities and road space at only 1 per cent, these urban areas are on course for the same gridlock gripping major Chinese cities like Beijing if they don’t adopt light transit, he said.

“Many third- and fourth-tier cities have approached us to discuss monorail,” Wang said in an interview Monday in Tianjin, adding those discussions are preliminary. “For many of these cities facing traffic congestion and financial constraints, if you can’t go underground, you have to go above.”

EV start-ups

After leading BYD to top electric vehicle sales in China, Wang is steering the company into monorail as an area where he sees high barriers to entry and fewer competitors. This

foray is taking place as industry sales of new-energy vehicles more than tripled last year, attracting a wave of start-ups touting their plans to build battery-powered cars. Besides autos, BYD’s other businesses include producing handsets and storage batteries.

said Steve Man, an auto analyst with Bloomberg Intelligence. “The foray into electric monorail expands the company’s electric propulsion and battery businesses.”

Monorail elsewhere in Asia includes the system operated by Bangkok’s BTS Group Holdings Pcl, which uses 208 railcars built by Siemens AG and CRRC Corp. in Thailand’s capital, according to its website. BYD’s competitors in monorail-making will include Bombardier Inc. and Hitachi Ltd., Wang said.

Shenzhen line

“Expanding into this new area further extends BYD’s product line-up and brings new opportunities” Xu Yingbo, chief analyst at Citic Securities Co.

“BYD is taking advantage of its relationships with municipalities and the know-how in urban public transport that it’s built through the years marketing electric buses,”

BYD will utilize its core technology in electric vehicles, batteries and materials to build the monorail systems, which will be paid for by local governments, he said. The company will begin operating a 4.4-kilometer line at its base in the south-eastern China city of Shenzhen in September, he said.

An eight-carriage train will be able to carry about 1,600 standing passengers.

“Expanding into this new area further extends BYD’s product lineup and brings new opportunities,” said Xu Yingbo, chief analyst at Citic Securities Co. in Beijing. “The challenge is whether and how quickly Chinese cities will embrace such new transportation options.” Bloomberg News

Pharmaceutical

Pfizer bolsters domestic presence with biotech plant The new facility will be company’s first biotechnology centre in Asia and third globally.

Pfizer Inc. will invest US$350 million in eastern China on a plant for biotechnology drugs, bolstering its presence in the world’s second largest pharmaceutical market despite slowing economic growth in the country and rising pressure on prices for medicines.

The new facility in eastern Hangzhou city is expected to be completed in 2018 and will manufacture biologics, or complex medicines made from living organisms, as well as cheaper copycat versions known as biosimilars for patients in China and across

the world, Pfizer said in an e-mailed statement yesterday.

These products will address major public health concerns such as oncology, the New York-based drugmakers said, without naming specific drugs. Biologics are underutilized in China, accounting for 4 per cent of medicines prescribed in the country, compared with 22 per cent in the U.S., according to the company.

A government-led campaign to reduce prices damped sales in China’s pharmaceutical industry and the nation’s economy has also slowed,

leading to weaker sales growth in the country for drugmakers from Pfizer to the U.K.’s GlaxoSmithKline Plc and AstraZeneca Plc last year. Still, multinationals including Novartis AG continue to invest in China, where a rising middle class is boosting spending on health care.

“China is one of the fastest growing pharmaceutical markets in the world and the ongoing China healthcare reform will continue to drive the expansion of China’s pharmaceutical industry, including research and development,” Pfizer said in a separate e-mail.

The new Pfizer facility will be its first biotechnology centre in Asia and third globally, the company said.

Novartis unveiled a US$1 billion campus in Shanghai this month, after Merck & Co. opened a new research and development centre on the outskirts of Beijing in April.

“The ongoing China healthcare reform will continue to drive the expansion of China’s pharmaceutical industry, including research and development,” Pfizer statement A slow approval process in China has delayed the entry of some cutting-edge new medicines by foreign drugmakers. The Chinese regulator recently began taking steps to ease the problem, pledging to fast-track some much-needed therapies such as new drugs for hepatitis C, although it hasn’t given any firm timelines.

“We are glad to see that the Chinese authorities have recently issued a series of new policies to address this so called ‘drug lag,’ such as encouraging international multi-centred clinical trial application and supporting simultaneous native and international clinical trials,” Pfizer said. Bloomberg News

Business Daily Wednesday, June 29 2016 11

Asia Supplementary budget

South Korea proposes extra shield against risks The supplementary budget will be spent on stimulus measures including a big retail spending drive.

Christine Kim

S

outh Korea will propose a supplementary budget of around 10 trillion won (US$8.44 billion) to parliament soon, the government said yesterday, as it tackles Brexit turmoil in financial markets, weak exports, and a corporate overhaul of the country’s shipping and shipbuilding industries.

President Park Geun-hye called on all government ministries to have the supplementary budget ready as soon as possible.

“Unrest in global financial markets has been growing from Brexit.

Uncertainties over the Chinese economy and geopolitical risks from North Korea are still pressuring our economy,” she said at a meeting of economy-related officials and lawmakers.

“The economic situation inside and outside our country is more serious than ever. If we do not take extraordinary measures there are concerns growth and employment will contract in the second half of the year,” The supplementary budget will

be spent on stimulus measures including a big retail spending drive, rebates on appliances, a tax incentive to replace older diesel cars, and additional unemployment benefits for shipbuilding workers.

The extra budget will be mostly funded from a surplus in tax revenue for the first half of the year, avoiding the need to sell more treasury bonds and run up additional government debt.

“This looks like the finance ministry just pushed the ball over to the Bank of Korea again,” said Stephen Lee, an economist at Samsung Securities.

“What I’m a bit concerned about is that tax revenue going forward might not be as great as it was in the first half of the year...We might face some difficulties later if the Brexit

aftermath on exports and capex is worse than expected.”

Lee said the Bank of Korea may face pressure to cut interest rates again after it lowered them to a record low 1.25 per cent to bolster economic growth earlier this month.

Finance Minister Yoo Il-ho said last week a supplementary budget would have to be ratified before mid-July to have maximum effect. Lawmakers in both ruling and opposition parties favour the extra budget.

Reflecting more difficult conditions inside and outside the country, the finance ministry lowered its growth forecast for this year to 2.8 per cent from the 3.1 per cent projected in December last year.

Inflation for 2016 was also

South Korean President Park Geun-hye (C-L) speaks at a meeting with her senior secretaries at the presidential office Cheong Wa Dae in Seoul, 27 June 2016. Park called for tight crisis management to deal with any negative impact from Brexit.

downgraded to 1.1 per cent from 1.5 per cent forecast previously.

The extra budget comes as the latest buffer against possible fallout from the corporate restructuring of the country’s struggling shipping and shipbuilding firms. Earlier this month, the government and central bank said they would create an 11 trillion won fund to support two state-run banks most exposed to these industries.

Key Points Govt plans roughly 10 trln won extra budget Extra budget funds to mostly come from surplus tax revenue Mkts unfazed by govt plans as widely expected President calls for fast action regarding extra budget Lee noted global financial markets were reacting more sensitively to political events around the world.

He saw a danger of volatility spiking again when Italy holds its own referendum regarding constitutional reforms in October and from the U.S. presidential election on November 8.

To keep capital flows from rocking the economy, the government said it will continue with plans to ease the cap on the foreign currency forward positions local banks can hold from 40 per cent from the current 30 per cent starting July.

It will also pass an amendment in September to temporarily lower an existing levy on foreign exchange borrowings by banks, securities firms, creditors and insurance companies. The levy aims to reduce sudden volatility in markets. Reuters

Consumers’ mood

Brexit dampens confidence in Australia Improvement in the labour market is likely to be a key factor behind the recent improvement in confidence, says analyst.

Britain’s decision to leave the European Union (EU) has had little effect on Australian consumer confidence according to the latest A NZ- R o y M o rga n A u st ra l i a n consumer confidence rating released yesterday.

“The strength in confidence reflects the solid momentum in Australia’s economy” Felicity Emmett, ANZ head of Australian economics Consumer confidence declined 1.7 per cent in the week ending June 26, however, it is still above its monthly average.

ANZ head of Australian economics Felicity Emmett said in a statement yesterday that the turmoil in financial

markets and concerns over the global economic outlook, spurred by the UK’s decision to leave the EU have not significantly affected Australian consumers.

“Confidence eased only marginally last week and remains close to a

multi-year high,” Emmett said.

“The strength in confidence reflects the solid momentum in Australia’s economy.”

She noted that the improvement in the labour market is likely to be a key factor behind the recent improvement in confidence, in addition to low interest rates and the on-going strength in the housing market.

“That said, as a small open economy Australia remains vulnerable to the fortunes of the global economy,” Emmett noted.

“Global volatility is the biggest driver of local uncertainty, and with

our measure of uncertainty picking up sharply recently we will be closely monitoring further developments in confidence.”

CommSec economist Savanth Sebastian added the fall was driven largely by the uncertainty surrounding Britain’s decision to leave the European Union.

“The slide in share markets on Friday, currency market volatility and media scrutiny over the weekend about the ramifications of the ‘vote’ has resulted in households taking on a more cautious tone,” Sebastian said. Xinhua

12 Business Daily Wednesday, June 29 2016

Asia Stimulus plan

Japan eyes help for small businesses A rising yen threatens Japan’s economy because it weighs on exporters earnings and increases deflationary pressure.

Stanley White and Tetsushi Kajimoto

J

apan is likely to include assistance for small businesses in an economic stimulus package it will compile after Britain’s shock vote to leave the European Union, Economy Minister Nobuteru Ishihara said yesterday.

Japanese policymakers also said financial markets are starting to calm down after the Brexit vote last week, but repeated that they want to remain ready to respond to a further sudden jump in the yen, which could jeopardise the economy.

Ishihara, speaking to reporters, did not answer questions on the size of the stimulus package or how it would be funded, but sources have told Reuters the government is willing to spend at least 10 trillion yen (US$98.00 billion) due to worries about exports, domestic demand and Japanese firms operating in Britain.

“There are concerns about lessening the impact of the British referendum on Japan’s small- and medium-sized companies,” Ishihara said.

“Taking steps to provide liquidity to small firms could be a big factor in economic stimulus steps that we compile.”

Ishihara spoke after a meeting of the Council on Economic and Fiscal Policy, the government’s top advisory panel.

Before Britain’s referendum last week, Prime Minister Shinzo Abe had said he planned bold stimulus steps this autumn to revive his economic

agenda, and now the stakes have risen.

Japan’s government is on edge as Brexit initially caused declines in global stocks and pushed the yen to a 2-1/2-year high versus the dollar.

There have not been any serious signs of a liquidity crunch yet, but policymakers are closely monitoring market moves, Ishihara said.

Companies asked the Bank of Japan to loan them US$1.47 billion in its regular dollar-supplying operation yesterday, far greater than its last such operation before Britain’s vote.

While high compared with recent periods, yesterday’s amount was still less than the tens of billions of dollars that the BOJ supplied in operations

after the collapse of Lehman Brothers in 2008.

A rising yen threatens Japan’s economy because it weighs on exporters earnings and increases deflationary pressure by lowering import prices.

Key Points Japan govt considering stimulus after Brexit vote turmoil Strong yen, market turmoil threaten Japan’s economy Economy Minister Ishihara does not comment on size of stimulus “Extremely nervous moves are seen in the forex market,” Japan’s top government spokesman Yoshihide Suga said.

“So that such moves do not

continue, we will closely watch markets with a sense of urgency and even more attention than before, and will respond firmly as needed.”

Sterling has suffered a much more brutal sell-off, tumbling to the lowest in more than 30 years versus the dollar.

Uncertainty about the economic relationship between Britain and the EU, combined with confusion over who will replace outgoing British Prime Minister David Cameron could further test the Group of Seven’s crisis response mechanism.

“Before G7 held an emergency conference call, each country had little idea about how much foreign reserves the Bank of England has to support the pound and we thought we might need to jointly support it in case of selling,” Japanese Finance Minister Taro Aso said.

“In fact, Britain did not ask for joint intervention to support the British pond.” Reuters

Tanker activity

Traders to fill Asia’s oil storage in Q3 The number of tankers used for oil storage around Singapore fell to 30 this month from 40 in May. Oil traders plan to fill storage tanks and ships with crude in the third quarter to ride out a low demand season in Asia, hoping to cash out in the fourth quarter when prices rise, shipping and trading sources said yesterday.

At least two trading houses have chartered super tankers to store crude off Singapore, taking advantage of lower freight rates and spot crude prices. More oil is expected to head into regional tanks ahead of the September to November refinery maintenance season.

“Traders are trying to bottom-fish

(for crude bargains) and store for one to two months before re-selling,” a trader with a western firm said.

Clearlake, the tanker chartering arm of Gunvor, has chartered the 308,596 deadweight tonne (dwt) Very Large Crude Carrier (VLCC) Arenza XXVII at US$33,000 per day for one to four months, a Singaporebased shipbroker said. VLCCs can hold up to 2 million barrels.

ST Shipping, Glencore’s shipping arm, booked the 300,133 dwt Plata Glory for a month at US$22,000 a day and has the option to extend at daily rates of US$26,000 and US$29,000 for

Weak demand

Crude supply disruptions and strong global consumption have sped up the pace of a market re-balancing, narrowing the gap between prompt and future-dated prices, leading traders to release stored oil starting in June.

The number of tankers used for

Key Points Drop in spot crude prices, freight rates prompt oil storage Asia Q3 oil demand to drop on planned refinery maintenance Gunvor, Glencore charter 2 VLCCs to store oil for few months Traders eye higher prices in Q4 on winter demand Unsold crude cargoes for loading in August have piled up as Asian refiners head for maintenance. Spot differentials for August-loading cargoes have dropped after monthly prices from Middle East crude sellers rose. About 1 million barrels a day of processing capacity in Asia will be shut for maintenance in October, according to Reuters calculations.

Russian ESPO crude and Abu Dhabi’s Murban are seen as prime candidates for storage as traders bet on a price rebound.

Still, the current contango structure might not fully cover storage costs, making it risky to hold onto oil for long.

“They will need to manage oil in storage actively since the contango has only widened for prompt months,” a Singapore-based trader said. Reuters

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the second and third month, brokers said.

Rates for a one-year VLCC charter have fallen by almost US$20,000 since January, to between US$38,000 and US$42,000 a day last week, according to shipping services firm Clarkson. They were US$47,500 per day a year ago, Clarkson data showed.

oil storage around Singapore fell to 30 this month from 40 in May, live shipping data on the Eikon terminal compiled by the Reuters Oil and Analytics team showed.

Business Daily Wednesday, June 29 2016 13

Asia Costs cut

In Brief

Fidelity, JP Morgan embrace Asian bond e-trading The global shift to trading debt online is a pressing issue for Asia.

Lianting Tu and Denise Wee

Fidelity International and JPMorgan Chase & Co. are among bond investors warming to electronic trading systems in Asia.

More than 70 per cent of the bond transactions for JPMorgan’s private banking arm are handled through such systems, compared with around 20 per cent seven to eight years ago. The Asian fixed-income team of Fidelity saw similar trades grow five-fold since 2007. The Singapore Exchange Ltd. has been recruiting more participants to its debt platform since its launch in December.

“Electronic trading improves productivity, offers more transparency and cuts costs,” said Ben Sy, the head of fixed income, currencies and commodities at the private banking arm of JPMorgan in Hong Kong. “So there are a lot of economic incentives for both the sell-side and the buy-side.”

The global shift to trading debt online is a pressing issue for Asia, where issuance is jumping even as the retreat of U.S. and European banks from market-making weighs on liquidity.

Asia’s relatively low adoption rate for automated matching of buyers and sellers means it has potential for faster growth, according to Tradeweb Markets LLC, an operator of electronic trading platforms for fixed income and derivatives markets.

Electronic platforms allow dealers to put in bid and offer prices for bonds.

Buyers can then confirm an order online and the system will automatically process the documentation.

This saves time spent on the phone and the cost of manual settlement.

Only about 30 per cent for trades in Asian bonds denominated in dollars, euro and yen are handled online, compared with 80 per cent of the volume for foreign exchange deals

in Asia, according to Greenwich Associates LLC, a financial services consultancy. Currency trades are concentrated on a few exchange-rate pairs, whereas the company note market is fragmented with tens of thousands of unique debentures.

“So there are a lot of economic incentives for both the sell-side and the buy-side.”

Ben Sy, head of fixed income, currencies and commodities at the private banking arm of JPMorgan in Hong Kong Electronic bond trades are more efficient for small trades, while for large deals it’s still better to go through a broker, according to Bryan Collins, Hong Kong-based portfolio manager at Fidelity, which has US$273 billion of assets under management.

Issuance of bonds denominated in dollar, euro and yen in Asian countries excluding Japan rose to US$174

billion last year, 2.5 times the amount sold in 2011, according to Bloomberg-compiled data. Asian issuers have sold US$90.6 billion notes so far this year denominated in those three currencies. Trading by regional investors in Asian bonds in the currencies fell about 9 per cent between mid-2014 and mid-2015 from the year-earlier period, Greenwich Associates said, as international banks including Barclays Plc and Royal Bank of Scotland Plc trim some regional activities.

Andrew Bernard, the Hong Kongbased head of Asia for Tradeweb, said that while e-trading of bonds in Asia is growing faster than in developed markets such as the U.S. and Europe, there are hurdles for further expansion. Asia’s regulatory environment is fragmented with each nation having its own authorities, whereas the U.S. and Europe markets are largely homogeneous under similar rules.

“The role of physical market-making continues to diminish as more alternative liquidity providers are coming on board,” Tsai Li Renn, the head of fixed income trading at the Singapore Exchange, said in a forum in Hong Kong on June 14. “Just calling each other on the phone is simply going to take too much time and there is too much operational risk involved in that now.” Bloomberg News

Trade

South Korean export decline expected to worsen Inflation in June is expected to show few signs of flaring up.

South Korea’s exports in June are forecast to have declined at a sharper pace than they did in May on an annual basis, leaving Asia’s fourthlargest economy falling back on government stimulus for now to maintain growth.

The median forecast in a Reuters poll yesterday showed the pace of decline in shipments expected to accelerate to 8.3 per cent after falling 6.0 per cent in May. Forecasts ranged from falls of 3.3 per cent to 14.0 per cent. No analyst has projected a rise, compared with the previous month when the median forecast was for a gain.

South Korean exports have been falling since January last year, prompting concerns over the longterm health of the economy.

“Exports will find it difficult to escape this sluggishness for a while as countries are playing ‘each to his own,’ stressed further by Brexit,” said Na Jung-hyeok, an economist at Hyundai Securities.

The median forecast from the Reuters poll projected imports to have dropped 9.5 per cent, compared with a 9.0 per cent fall in May. Inflation in June is expected to show few signs of flaring up, as the

same poll forecast a 0.8 per cent gain, unchanged from the previous month.

Tepid inflation may place more pressure on the Bank of Korea to cut rates further although the central bank has firmly expressed the weak inflation is due to supply-side factors.

The central bank lowered interest rates for the first time since June last year earlier this month to a record low 1.25 per cent as worries mounted over slowing growth due to poor exports and an on-going restructuring of the country’s massive but ailing shipping and shipbuilding sectors.

Industrial output is expected to rebound a seasonally adjusted 0.3

per cent in May in monthly terms, mainly due to base effects as factory output declined 1.3 per cent in April.

Key Points May industrial output seen +0.3 pct s/adj m/m June exports seen -8.3 pct y/y, imports -9.5 pct y/y June CPI seen +0.8 pct y/y Data for industrial output will be released on June 30, while trade and inflation numbers will be announced July 1. Reuters

Fiscal policy

Sri Lanka to impose capital gains tax on stocks Sri Lanka intends to impose a capital gains tax on profits from equities, a senior government minister said late on Monday, as the government attempts to shore up its finances to qualify for an IMF loan. Sri Lanka’s cabinet approved reintroducing a capital gains tax on land early this month, but has not said whether it would be imposed on profits from buying and selling equities. “We don’t know the details of it right now, but there will definitely be a capital gains tax on land transactions plus the stock exchange,” Patali Champika Ranawaka, a development minister, said.

Shopping mood

South Korea consumer sentiment unchanged Consumer sentiment for June stayed unchanged from May, a central bank survey showed, as poll respondents remained pessimistic about their current and future living conditions. The composite consumer sentiment index (CCSI) for June stood at 99, steady from May, which had been a three-month low, the Bank of Korea said.

A reading below 100 indicates consumers who expect economic and living conditions to deteriorate in the coming month outnumber those who see them improving. Nearly all index readings for sub-indices stayed unchanged in June from the previous month.

Japan tax

Revenue undershoots earlier estimate Japan’s national tax revenue for the last fiscal year that ended in March has been confirmed at 56.3 trillion yen (US$553.75 billion), undershooting the government’s earlier estimate as yen rises hurt corporate profits, government sources told Reuters. Lower tax receipts will likely affect funding for the additional spending the government is planning to compile later this year to support the economy, which is struggling with weak domestic demand, a stronger yen and external risks such as Brexit. In recent years the government has tapped bigger-than-expected tax revenues for financing extra stimulus budgets.

Traffic congestion

Duterte administration mulls using cable cars The administration of the President-elect Rodrigo Duterte is mulling to use cable cars to ease the crippling traffic in Metro Manila, his aide said yesterday.

Incoming Transportation Secretary Arthur Tugade said in a TV interview that installing cable cars similar to that in Bolivia is “being seriously looking into” by the Duterte administration.

In fact, he said that he has already started initial talks with the officials of the company that could build the project. He said that the cable cars can be operational in just 18 months.

14 Business Daily Wednesday, June 29 2016

International In Brief Drillers unpaid

Venezuela’s oil output decline accelerates Venezuela’s oil output, already the lowest since 2009, is set to slide further this year as contractors scale back drilling after the cash-strapped country fell more than US$1 billion behind in payments.

The Latin American nation’s oil production, which generates 95 per cent of export revenue, will decline by about 11 per cent to 2.1 million barrels a day by the end of the year, Barclays Plc estimates. Output is falling largely because oil-services companies aren’t being paid, according to the International Energy Agency. “The situation is becoming more and more difficult for oil services in Venezuela,” Baptiste Lebacq, an analyst at Natixis SA in Paris, said.

Liquidity

German Chancellor

EU ‘strong enough’ to survive Brexit Merkel underlined that London would not be able to dictate the terms of its ties to the EU.

G

erman Chancellor Angela Merkel said yesterdaythat the EU could survive a Brexit and warned Britain the union would not tolerate “cherry-picking’ in upcoming negotiations on their future relations.

“The EU is strong enough to withstand Britain’s withdrawal,” she told parliament ahead of a crisis summit of the 28 member states in Brussels.

“It is also strong enough to successfully defend its interests in the world in future.”

Expressing strong confidence in the union as it confronts the first defection since its founding, Merkel

said the EU would continue to be a guarantor of “peace, prosperity and stability” in Europe.

She again expressed her regret that Britain had voted in a referendum last week to quit the bloc but underlined that it would not be able to dictate the terms of its ties to the EU. “We will ensure there are no negotiations based on the principle of cherry-picking,” she said to applause.

“There must be and will be a noticeable difference between whether a country wants to be a member of the European Union family or not.”

She added: “Anyone wishing to leave this family cannot expect to

lose all the obligations but keep the privileges.”

Merkel also said access to Europe’s common market depends on “accepting Europe’s fundamental freedoms and the other rules and commitments that go with it”.

“This applies to Britain as it does to everyone else,” she said.

A non-EU country can join the common market if its accepts the freedoms of people, goods, services and capital, she added, mentioning the example of Norway.

Merkel, who had huddled with the leaders of France and Italy Monday in the aftermath of the shock referendum, said the three biggest economies on the continent had agreed on a “common position” on the approach to the Brexit vote.

She said she hoped the Brussels summit would take place in that spirit of unity, and said the EU’s goal should aim to complete reforms of the bloc in time for the 60th anniversary of the Rome Treaty laying its foundations in March 2017. AFP

Russia to raise reserve ratios for banks Russia’s central bank will raise from August the reserve ratios it sets for banks’ liabilities in roubles and foreign currency, in a move to tighten liquidity which could help it meet its inflation target. The bank said the reserve ratios would be raised by 0.75 percentage points, following two increases in the ratios for foreigncurrency liabilities earlier this year. The change means the reserve ratio for banks’ rouble liabilities will be at 5 per cent, while for foreign-currency liabilities the ratio will be 6 per cent for liabilities to individuals and 7 per cent for other liabilities.

Oil industry

Total wins bid to operate Qatar’s field Qatar Petroleum chose Total SA to operate the country’s biggest oil field and replace AP Moeller-Maersk A/S in running the reservoir responsible for more than 40 per cent of the OPEC nation’s output.

Paris-based Total, which beat competitors including Royal Dutch Shell Plc, won a 30 per cent stake in the al-Shaheen joint venture with state-run Qatar Petroleum, Saad alKaabi, Qatar Petroleum’s chief executive officer, told reporters at the signing ceremony in Doha. The venture will start in July 2017. Crude output in Qatar, the world’s biggest exporter of liquefied natural gas, has declined over the past eight years.

Airport reform

Slim bidding for Mexico City runway contracts Carlos Slim’s construction arm has teamed up with three local builders to bid for two runways for Mexico City’s new airport worth a combined US$1.56 billion, sources say, seeking to snap up major infrastructure projects that survived government cuts. Carso Infraestructura y Construcción, which is part of Slim’s Grupo Carso, has agreed to form a consortium with Grupo Gia, Promotora y Desarrolladora Mexicana (Prodemex) and Grupo Hermes, according to sources. The new airport is aimed at turning Mexico City into a major regional hub that handles around 50 million passengers a year from 2020 when it is slated to open.

“We will ensure there are no negotiations based on the principle of cherry‑picking” German Chancellor Angela Merkel delivers a government declaration on Brexit at the German Bundestag Parliament in Berlin, Germany, yesterday.

Angela Merkel, German Chancellor

Transparency drive

U.S. SEC adopts rule on oil, mining payments to foreign governments The SEC said its new regulation is in line with approaches used in the European Union and Canada.

Lisa Lambert

The U.S. Securities and Exchange Commission on Monday approved a rule requiring oil, gas and mining companies to disclose payments made to foreign governments, capping a process stalled in the courts for years.

The rule requires companies to state publicly starting in 2018 how much they pay governments in taxes, royalties and other types of fees for exploration, extraction and other activities.

It will “provide enhanced transparency,” SEC Chair Mary Jo White said in a statement.

Frustrated with delays, human rights group Oxfam in 2014 sued the SEC over the rule, which was mandated by the Dodd-Frank Wall Street Reform Law passed four years earlier. In September, a federal judge ordered the commission to fast-track the rule, setting Monday as a deadline. Regulators released a draft in December.

“After six years, we are very pleased to see the SEC release final rules that align with those in other markets by requiring fully public,

company-by-company, project-level reporting with no categorical exemptions,” said Ian Gary, associate policy director at Oxfam America, in a statement. “This is a huge victory for investors and for citizens in resource-rich countries around the

“After six years, we are very pleased to see the SEC release final rules that align with those in other markets by requiring fully public, companyby-company, project-level reporting” Ian Gary, associate policy director at Oxfam America

world who wish to follow the money their governments receive from oil and mining companies.”

The rule will cover major corporations such as Exxon, Chevron and Shell, as well as state-owned companies in China and Brazil, according to Oxfam.

Under the final rules, “resource extraction” companies must disclose payments made to further the commercial development of oil, natural gas or minerals and that total more than $100,000 during a single fiscal year for each of their projects.

Those payments can include taxes, royalties, fees, bonuses, dividends and social responsibility payments.

Companies must disclose payments made by their subsidiaries, or any other entities they control, as well.

The rule exempts a company from reporting payment information for a firm it has acquired in the first year after the acquisition, and also allows companies to delay disclosure for a year on payments related to exploration.

The SEC said its new regulation is in line with approaches used in the European Union and Canada. The Dodd-Frank Wall Street reform law included a requirement for extraction companies to report annually on their payments to foreign governments as a way to combat corruption in places where oil drilling and mining dominate the local economy. Reuters

Business Daily Wednesday, June 29 2016 15

Opinion Business Wires

Taipei Times Consumer confidence weakened to 78.36 this month, its lowest in two-and-a-half years, as disappointing economic data led people to adopt a pessimistic outlook on stock investments, a survey by National Central University showed. The latest consumer confidence index represented a decline of 1.46 points from last month, with all six sub-indices retreating, the monthly survey found. The sub-index on stock investments showed the biggest decline, falling 6.5 points to 61.2 this month as uneasy sentiment built up after research institutes cut global and national GDP growth forecasts for this year.

The Star The Malaysian Association of Money Services Business (Persatuan Perniagaan Perkhidmatan Wang Malaysia) has assured the public there is sufficient supply of the British Pound Sterling in the market to meet the current demand.

It said yesterday that due to Britain’s exit from the European Union, the exchange rates for the Pound Sterling along with other major currencies have seen significant volatility. The association also said the licensed money changers and wholesale currency businesses in Malaysia will continue to monitor the situation and take steps to address challenges to the local currency exchange market and respond to the consumers’ needs.

“The biggest slowdown in GDP growth came before Xi’s campaign started at the end of 2012, not after.”

Might graft actually be good for China’s growth?

No

S Viet Nam News Exports of agricultural, forestry and fishery products in the first half of 2016 rose 5.4 per cent year-on-year to US$15.05 billion, according to the Ministry of Agriculture and Rural Development. The export value of major agricultural produce was US$7.32 billion, up 5.1 per cent from the same period last year, while the seafood export value reached US$3.07 billion, up 3.8 per cent. Major forestry products in the period contributed US$3.33 billion to the total export value, down 0.1 per cent. According to the ministry, coffee, pepper, cashew nuts and seafood were sectors that showed strong growth.

The Asahi Shimbun Demand for “drone schools” is taking off (in Japan) as people seek to learn to operate the unmanned flying vehicles after strict regulations were introduced following a series of accidents and complaints.

Although spreading the use of drones is a part of the government’s economic growth strategy, their use is restricted, making it difficult to fly the pilotless planes in urban areas. Meanwhile, many companies are considering using drones for their businesses, and schools that teach the relevant rules and how to fly drones safely are currently thronging with clients from those firms.

ome critics dismiss President Xi Jinping’s massive anti-graft campaign as a political witch hunt directed at his enemies.

Others have a different complaint: They argue that bribes and favours have historically served as the grease in the wheels of China’s growth. By disrupting the traditional flow of business, they contend, Xi’s graft enforcers have brought the country’s economic engine grinding to a halt.

The good news is that those critics are wrong, as a more careful look at the data makes clear. The bad news is that the government’s own efforts to revive growth risk replenishing corruption at its source.

The case for graft, as it were, is superficially plausible.

Like a light-fingered version of Adam Smith’s invisible hand, thieving officials have an incentive to spur economic activity. The real estate and infrastructure projects that line their pockets also contribute to a blistering pace of investment.

If millions of tax dollars have gone into banquets of sea cucumber and baijiu - a throat-scorching Chinese liquor - such extravagance at least boosts consumption. Now investigators have frightened cadres into cancelling investment projects and contenting themselves, as Xi has urged, with four dishes and a soup. Consumption, investment and growth have all taken a hit.

The numbers, however, tell a different story.

Drawing on data from ChinaFile, provincial prosecutors, and the National Bureau of Statistics, Bloomberg Intelligence Economics has assembled a unique data set on corruption and growth over the last decade. Even given the occasionally patchy nature of the data, it’s clear that the corruption crackdown isn’t to blame for China’s slowdown.

Investigators have targeted a whole range of provinces for scrutiny. Yet growth has slowed in some, such as coal-mining Shanxi, and not others like export-hub Guangdong. The national data points in the same direction: The biggest slowdown in GDP growth came before Xi’s campaign started at the end of 2012, not after.

This shouldn’t be a huge surprise. In Africa, Latin America, and Eastern Europe, graft is rightly seen as adding to the cost and uncertainty of doing business, inequality and social stress, thus presenting a barrier to development. It’s hardly likely that China would have discovered a unique form of pro-growth corruption.

The problem is what the data also confirms about the roots of corruption. Provinces where the

“

Tom Orlik a Bloomberg columnist

state accounts for a large share of industry and employment, and where growth is reliant on debt-fuelled investment - all areas where lessdeveloped inland provinces score worse - not surprisingly tend to suffer higher levels of graft.

With billions in revenue and opaque governance, state-owned companies present obvious opportunities for rent-seeking and embezzlement.

So do the arcane off-balance sheet structures that local governments use to borrow money.

Even as Xi’s graft-busters con tin ue to target both “tigers” and “flies” - highlevel officials and their lowly counterparts - other government policies are channelling more resources into the state sector. Plans for wider reform of stateowned enterprises remain on the drawing board, and there’s no intention to expose behemoths in energy, finance and other strategic sectors to market forces. Investment by state-owned companies is up more than 23 per cent year-on-year in the first five months of 2016. By contrast, spending by private-sector firms has slowed dramatically, growing less than 4 per cent.

The government’s strategy might make sense as a stopgap solution, a classic Keynesian stimulus as state spending fills the gap left by retreating private firms. But as the state sector’s role in the economy grows, so too will opportunities for graft.

A short-term boost to growth could well lead to a longer-term drag.

Clean governance requires addressing the conditions that encourage corruption, not just the symptoms. Some worthy initiatives are already underway. By pushing local governments to replace trillions of yuan in shadowy debt with lower-interest bonds, the Ministry of Finance is making their borrowing more transparent. Efforts to cut red tape are also removing opportunities for venal officials to extract corrupt rents.

Shrinking the government’s direct role in the economy is a tall order: State-owned enterprises play an entrenched role in China’s economic, financial, political and social networks. But difficulties haven’t deterred Xi from cracking down on some of the most politically influential figures in China. They shouldn’t stop him from overhauling the state sector either. Bloomberg News

With billions in revenue and opaque governance, state-owned companies present obvious opportunities for rent-seeking and embezzlement

”

16 Business Daily Wednesday, June 29 2016

Closing Avoiding tailspin

Premier Li says won’t allow ‘rollercoaster’ markets

“It’s important for all of us to work together to strengthen confidence, prevent the spread of panic, and to maintain the stability Chinese Premier Li Keqiang said yesterday of capital markets.” he wouldn’t allow the post-Brexit panic The assurance came as the post-Brexit that roiled global currencies and stocks to turmoil that swept global markets and sent send the country’s financial markets into the pound sterling to a three-decade low a tailspin, an indication authorities would intervene if needed to prevent market chaos. last week abated.

China’s financial markets were subject to “It’s hard to avoid short-term volatility in wild downturns in 2015 and early 2016 as China’s capital markets, but we won’t allow regulators struggled to manage speculative rollercoaster rides and drastic changes in the capital markets,” said Li, speaking at the investment and amid wider concerns about World Economic Forum in the city of Tianjin. the economy. Reuters

Sport promotion

Adidas strikes strategic deal with Wanda Wanda is boosting its investment in athletic events, marketing and stadium construction.

Emma Thomasson

G

erman sportswear firm Adidas has signed a deal with the Wanda business empire of China’s richest man Wang Jianlin to sponsor two of Wanda’s endurance events, promote soccer and basketball in the country and open stores in Wanda’s malls.

Th e ag r e e m e n t a n n o u n c e d yesterday is the latest move by Adidas

to try to strengthen its position as it goes head-to-head with bigger rival Nike in basketball-obsessed China.

China was the fastest growing market for Adidas in 2015, with sales up 18 per cent to 2.5 billion euros (US$2.76 billion), 15 per cent of the group total.

Adidas said it would become the sole sports brand sponsor of two Ironman triathlon events in China this year and also work with Wanda to support the development of soccer and basketball

in China and worldwide.

Adidas and Wanda also signed a partnership to jointly develop their business in cities across China. Wanda will support Adidas plans to open more stores in its malls and other properties.

“Both Wanda and Adidas share a number of common goals, both in a commercial sense and in our genuine desire to nurture sport not only in China but around the world,” Wang said.

China’s government is seeking to transform the country’s sports sector into a 5 trillion-yuan (US$752 billion) business by 2025.

China’s richest man Wang Jianlin

Wanda is boosting its investment in athletic events, marketing and stadium construction as part of a broader effort to develop what it calls its “cultural industry” arm, which Wang wants to build into a core business.

It owns a 20 per cent stake in Spanish soccer club Atlético de Madrid, one of a growing number of investments by Chinese groups in European soccer.

Key Points China was fastest growing market for Adidas in 2015 China government seeks to boost sports Adidas to sponsor Wanda Ironman events in China Adidas to open more stores in Wanda malls Adidas said it would expand its grassroots activities in China after last year agreeing a partnership with the government to promote soccer in schools.

Former England captain David Beckham, a long-time Adidas representative, opened a new store in Guangzhou on Monday and played with 30 students from a local primary school yesterday.

While Adidas’s sports-inspired fashion is popular in China, it is at a disadvantage to its larger rival in the country as soccer - the sport in which it has its roots - is far less popular there than basketball, which Nike dominates.

Earlier this month, Wanda signed a partnership deal with basketball’s international governing body (FIBA).

In March, Wanda became the first Chinese top level sponsor of FIFA, the world soccer governing body.

Adidas is also a FIFA sponsor. Reuters

Tax policy

Protectionism

Vietnam Inc

Indonesia launches amnesty to bring home billions

China threatens WTO case over U.S. steel duties

Over 31,000 enterprises halt operation

Government is launching a tax amnesty programme that the government, facing a sizable budget shortfall, is counting on to bring home billions of dollars citizens have parked overseas.

The nine-month programme, approved yesterday by parliament, offers citizens low rates for paying some penalty on assets at home or abroad that have not been previously declared.

There’s a scale of payments that gives the lowest penalty rates for people who pay the quickest, and to those who don’t just declare foreign assets but bring the money home.

The government is offering 2-5 per cent rates for assets repatriated by March 2017. Those assets must be kept in Indonesia for three years in banks appointed as managers, and can be invested in several ways including government and corporate bonds.

For individuals joining the amnesty, the government will pardon their unpaid income tax, value added tax and luxury tax.

Some US$200 billion in Indonesian money is thought to be stashed in Singapore and wealth managers have been anxious an Indonesian amnesty might lead to an outflow of assets. Reuters

China could file suit at the World Trade Organization in order to protect its steel industry, the Commerce Ministry said yesterday, after the United States said some steel imports from China were hitting U.S. producers.

The U.S. International Trade Commission said on Friday that imports of corrosion-resistant steel from China and four other countries were harming U.S. producers, the final step in the imposition of U.S. anti-dumping and anti-subsidy duties.

The U.S. Commerce Department had already slapped duties of up to 450 per cent on the steel products from China and duties ranging from 3 per cent to 92 per cent on corrosionresistant steel from Italy, India, South Korea and Taiwan.

The ministry said Washington’s large anti-dumping and anti-subsidy duties would force Chinese companies to pull this type of steel product out of the U.S. market.

“China’s steel industry export interests will suffer a serious impact and the Chinese steel industry is strongly opposed to this,” the ministry said in a statement posted to its website. Reuters

As many as 31,119 enterprises are estimated to halt their operation in the first half of 2016 in Vietnam, up 15 per cent year-onyear, said the General Statistics Office (GSO) yesterday.

Among the figure, a total of 12,203 enterprises have registered to suspend operation for a certain period, up 37.1 per cent year-on-year while other 18,916 enterprises stop operation, up 4.2 per cent year-on-year.

The number of those that have finished dissolving procedures hits 5,507, up 17 per cent year-on-year.

M ea n w hi l e, f r o m Ja n u a r y t o J u n e, th e number of those resuming operation is 14,902, up 75.2 per cent year-on-year, posting the highest rise over the past few years, assessed GSO. In the first half of 2015, the figure was up 2.2 per cent compared to that of the same period in 2014.

At the same time, in six-month period, as many as 54,501 enterprises have been established, with total registered capital of 427.8 trillion Vietnamese dong (US$19.18 billion), up 20 per cent in volume and 51.5 per cent in value year-on-year. Xinhua