Wynn promises summer bonus to employees. Gaming Page 5
Monday, July 11 2016 Year V Nr. 1083 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Infrastructure
Gov’t opens public tender for storage warehouse Page 2
Retail
Bauhaus sees significant drop in sales from SARs Page 5
www.macaubusinessdaily.com
Shanghai meeting
G20 nations pledge to boost trade despite growing protectionism Page 16
Health system
Authorities fight against increasing Chinese citizens’ medical bills Pages 8 & 9
A new leaf Interview | Traditional Chinese Medicine
A balance of humanity and nature - these are the requirements for traditional Chinese medicine to grow in the SAR, with a strong potential for the city to become a hub, says Zhang Junqing, Director of the Macau Traditional Chinese Medicine Society. The current ‘low’ level of practice in the SAR can only be developed into an industry over time, with no ‘short-term’ benefits, if the government adopts ‘a very different mind-set’. Pages 6 & 7
A downward spiral
Flying high
Drone filming businesses worry that new legislation will impose too many restrictions on a sector that they consider needs more common sense and responsibility from drone owners. Meanwhile, clients of the drone-photography business often don’t consider the necessity for safety or abiding by the rules.
Consumer confidence Local residents’ confidence in the city’s economy continues to drop amidst the economic downturn seen in the second quarter of this year. Meanwhile, residents are increasingly concerned about the employment situation in the territory, the latest consumer confidence index survey conducted by the University of Science and Technology (MUST) shows. Page 3
Riding the bus
Transportation The number of gaming operator shuttle-bus routes in the city has decreased to 59, according to information revealed by the director of he Transport Bureau (DSAT). Earlier this year, the DSAT director said that the government was planning to cut the number of gaming shuttle-bus routes to 58 within the year, down from a total of over 70 routes previously. Page 5
Drones Page 4
Prices prompt policy stimulus
HK Hang Seng Index July 8, 2016
20,564.17 -142.75 (-0.69%) Worst Performers
Galaxy Entertainment Group
+0.67%
Hang Lung Properties Ltd
+0.26%
Belle International Holdings
-2.26%
CK Hutchison Holdings Ltd
-1.74%
Link REIT
+0.56%
China Resources Land Ltd
+0.11%
Henderson Land Develop-
-2.16%
China Unicom Hong Kong
-1.72%
Lenovo Group Ltd
+0.43%
Hengan International Group
+0.00%
China Shenhua Energy Co
-2.12%
China Merchants Holdings
-1.67%
Tencent Holdings Ltd
+0.40%
Sino Land Co Ltd
+0.00%
Bank of East Asia Ltd/The
-2.02%
China Mengniu Dairy Co Ltd
-1.65%
Li & Fung Ltd
+0.27%
AIA Group Ltd
Hong Kong & China Gas Co
-1.97%
China Petroleum & Chemical
-1.64%
-0.11%
28° 31° 28° 31° 28° 32° 28° 32° 28° 32° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
China’s inflation Moderate price data released yesterday may prompt policy makers to use mild policy stimulus to achieve growth targets, economists predict. China’s consumer price index, a main gauge of inflation, grew 1.9 percent year on year in June, according to the National Bureau of Statistics. Page 8
2 Business Daily Monday, July 11 2016
Macau Construction
Entrepreneurs
Improvement needed for local startups New research shows a moderate Entrepreneurship Index in the city. Annie Lao annie.lao@macaubusinessdaily.com
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he latest research on the city’s Entrepreneurship Index shows that in the last four years about 70 per cent of entrepreneurs aged 25 to 44 said that their motivation for starting their own business was to
improve their living standards, not to rely on it as their only form of income. On average, these entrepreneurs hired five full-time employees for their businesses, according to a report on TDM Chinese Radio yesterday. Ranging in value from from 0 to 100, the Entrepreneurship Index results for the city gave it a score of 48.6,
Politics
CE to attend Legislative Assembly on July 27 Chief Executive Fernando Chui Sai On is to attend a plenary session of the Legislative Assembly (AL) on July 27 to answer questions from legislators regarding the government’s administration and a number of social issues. Local broadcaster TDM will provide live coverage of the event. Typically,
each year the city’s top official attends two question and answer sessions at the Legislative Assembly - in April and August, respectively. In addition to these sessions, the Chief Executive delivers the Policy Address for the upcoming fiscal year every November.
considered as average. In terms of the local business environment, government assistance and expected return on investment, the respondents rated these levels as moderate. The results show that the overall view of respondents regarding the entrepreneurial environment in the city is generally average, with much room for improvement. The interviewees generally wanted the government to provide better support via the services entrepreneurs utilize in running their businesses, such as improving financing mechanisms and offering assistance within the business environment. “There is room for continual exploration and improvement based on the current situation, the research shows,” Angus Cheong, director of eRS e-Research Lab said at the press conference yesterday. In addition, the research suggests that the government provide more additional support and businessr e l at e d i n f o r m ati o n t o l o ca l entrepreneurs in order to foster entrepreneurship as a potential driver of the city’s economy, as well as for the government to provide more entrepreneurship training. The Entrepreneurship Index aims to understand the overall level of entrepreneurial activities in the city, through continual assessment. The overall goal is to improve the success rate of entrepreneurship in the city, including reducing start-up costs and business risks, according to the SMEs Service Platform. The SMEs Service Platform commissioned eRS e-Research Lab, a local research consultancy, to conduct the research, which was co-consulted on by the Faculty of Business Administration from University of Macau.
DSF storage warehouse relocation Public tender applications open for DSF storage warehouse. Annie Lao annie.lao@macaubusinessdaily.com
In order to further facilitate the workload demands of the Financial Services Bureau (DSF), the Land, Public Works and Transport Bureau (DSSOPT) plans to build a storage warehouse for the DSF in Ilha Verde, according to a press release published by the DSSOPT yesterday. The construction project is now open for public tender, with the closing date for applications on July 28. The official public tender will be held on July 29 from 9.30am at the DSSOPT’s conference room. The new warehouse will be located in between Estrada Marginal da Ilha Verde and Rua das Camélias, occupying an area of 290 square meters, including the new one-story warehouse building covering 180 square meters, according to DSSOPT. The Bureau plans to start construction at the end of this year for a period of about 180 days. The construction works will include flattening the land, erecting fencing, and constructing the warehouse, bathrooms, and basic water and electricity facilities. The previous DSF storage warehouse, located between Avenida Dr. Rodrigo Rodrigues and Estrada do Reservatorio, was demolished in order to build a new power station for the Conde de São Januário Central Hospital (CHCSJ).
Business Daily Monday, July 11 2016 3
Macau
Consumer confidence
Q2 consumer confidence in employment & economy drops further
Consumers not so confident In particular, residents are increasingly worried about the city’s employment situation, in addition to being more pessimistic about the local economy. Kam Leong kamleong@macaubusinessdaily.com
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ocal residents’ confidence in the city’s economy continues to drop amidst the economic downturn seen in the second quarter of this year. Meanwhile residents are increasingly concerned about employment in the territory, the latest survey on Macau’s consumer confidence index conducted by the University of Science and Technology (MUST) shows. Between April and June, the overall consumer confidence index of the Special Administrative Region amounted to 82.56 out of 200, decreasing by 1.72 per cent quarter-to-quarter, suggesting a decline in overall local consumer confidence. According to MUST, the index is calculated based on six indicators, namely: ‘local economy’, ‘employment’, ‘price levels’, ‘living standards’, ‘housing purchase’ and ‘stock investment’. Index scores below 100 suggest a lack of confidence, while scores over 100 imply a positive outlook. Among the six indicators, local consumer confidence in employment registered the most notable drop, down by 3.4 per cent quarter-toquarter to 94.9 – despite it formerly being one of the highest-performing indicators. The University explained that the drop implies an increase in local consumers’ pessimistic feelings about the employment situation, despite the unemployment rate of the Special Administrative Region still hovering at 1.9 per cent between March and May. In addition, residents’ overall confidence in the city’s economy continued its downward trend from the first quarter of the year, falling by 3.21 per cent quarter-to-quarter to 85.8 following the ongoing decline in the city’s general economic performance indicators, such as Gross Domestic Product. ‘The sub-index declined continuously from the fourth quarter of 2014 to the third quarter of 2015, and just bottomed out in the fourth quarter of 2015. But it failed to go
up further and declined again in the first two quarters of 2016, implying a big increase of Macao consumers’ pessimistic feelings about the local economy’s overall performance,’ the survey reported. The findings by the tertiary institute also indicate that local consumers are more concerned about inflation in the near future, with the confidence index for consumer prices falling by 0.89 per cent quarter-to-quarter to 75.06.
Least confident in housing purchases
Other data from the study shows that residents’ confidence in home buying remained the lowest among the six sub-indexes during the quarter, declining by 0.47 per cent year-onyear to 68.31. The drop ended the upward trend the sub-index had shown for the previous six quarters. ‘[It] suggests a slight increase of the negative sentiment among potential residential home buyers,’ the survey reads. ‘This could also be partly supported by the latest statistics that the average price per square meter of useable area of residential flats dropped by 4.2 per cent in the first quarter of 2016 and the average price per residential flat fell by 13 per cent last year in the local real estate market,’ MUST added in the report. General local consumer confidence in stock investment also posted a quarter-to-quarter decrease of 2.16 per cent, reflecting a decline in the willingness of local consumers to invest in the volatile stock market, according to MUST. Nevertheless, consumer confidence in living standards went up by 0.22 per cent quarter-to-quarter to 96.28 for the three months, indicating a slight decrease in inflationary pressure on local residents’ standards of living.
More education, more consumer confidence
The survey also found that the higher the education level of the respondents, the higher their confidence - the same result found in the previous 31 quarterly reports. ‘So focusing more on education and training as well as motivating and supporting citizens’ continuous
learning and self-improvement should be of fundamental importance for increasing Macau consumers’ confidence,’ the report reads. ‘To increase local consumers’ confidence, Macau should further deepen regional cooperation with Mainland China and Hong Kong, p r o m o t e m o d e rat e ec o n o m i c diversification, reduce the effect
of external uncertain factors on the local economy, consolidate its antiinflation results and also beware of the deflation risk,’ MUST suggests. It added that improving the balance between housing supply and demand, as well as encouraging youth entrepreneurship, are also key to boosting local consumer confidence.
4 Business Daily Monday, July 11 2016
Macau Business Gaming operators and creative industries are the biggest clients for drone filming services
Eyes in the sky Drone filming businesses in Macau hope that new legislation, currently under discussion by the Civil Aviation Authority of Macao SAR (AACM), won’t impose too many restrictions on a sector that they consider needs more common sense and responsibility from drone owners. Nelson Moura nelson.moura@macaubusinessdaily.com
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rofessional d r o n e filming businesses told Business Daily that they fear amateur and irresponsible drone use could lead to the government enforcing strict regulations, which could harm a business that is still fighting to be sustainable. The government is currently discussing a draft bill to impose restrictions on the flying area for drones - restricting flights within high-risk areas such as the airport - but no date has yet been revealed for the results. “The new law regarding drone operations is still in discussion by the Civil Aviation Authority (AACM), with no date yet established for its release,” an AACM representative told Business Daily.
Setting the bar high
Currently, any operator wanting to use drones for commercial filming purposes has to apply for permission from the Cultural Affairs Bureau (IC) 20 days in advance of the shooting date, with only broadcast newsfilming being exempt from this regulation. In cases where the drone weight exceeds seven kilograms, the operator needs authorization from the AACM, while for unmanned aerial vehicles or model aircraft under the seven kilo limit, this is not necessary. Current regulations also prohibit model airplanes or unmanned vehicles flying in the air space within 500 meters of the heliport at the Hong Kong and Macau ferry terminals, the Macau International Airport and the hangar on Coloane island. However there are no specific regulations for drones, with the bill – currently under discussion – not only covering possible area restrictions for drone flights, but also privacy issues - preventing drone operators from producing images – photographs or video footage – that involve people’s private lives without their express consent.
“Drones are still seen a bit like toys, where anyone can go to a shop, buy a drone for MOP5,000 (US$625) and think they can fly over crowded areas. But a drone normally weighs four to five kilos and goes as high as 400 meters. If the battery fails and falls, it can kill someone.” Pedro Luz, President of Megalight Interactive Productions
Professional drone pilots
For André Branco, co-founder of Crane Productions – a company based in Macau and specializing in aerial photography - new regulations would help to make the drone filming industry more professional, but he hopes that the government doesn’t impose measures that are too restrictive. Branco is part of a team that has been operating drones since 2013 founding Crane Productions in 2015. Branco has witnessed the growth in the drone trend over recent years, noticing the negative side effects of drone usage - placing remote controlled flying vehicles in the hands of people that might use them irresponsibly. “The drone trend has led to a lot of people buying their own toys, operating them with a low level of responsibility, thinking that they can just fly it in densely populated areas like Senado Square,” Branco tells Business Daily. The Crane Productions producer fears that the amateur level of many drone operators in Macau will make the government impose more restrictive measures in the new drone law, a sentiment echoed by Pedro Luz from Megalight Interactive Productions. “Drones are still seen a bit like toys, where anyone can go into a shop, buy a drone for MOP5,000 (US$625) and think they can fly over crowded areas. But a drone normally weighs four to five kilos and goes as high as 400 meters. If the battery fails and falls, it can kill someone,” Pedro tells Business Daily. For the Megalight President, the current legislation is acceptable and new regulations are welcomed by the sector, suggesting insurance should become mandatory and that a certificate or course for flying the devices should be required. “However I wouldn’t like to see too restrictive measures - such as flying a test circuit [to test pilots’ skill]. Having common sense and being responsible are the most important [aspects] and we just need
to make sure that operators have a minimum standard of technique. It would already be good if the new law, besides protecting residents, would also protect the activity - instead of completely removing it from the territory,” Luz tells Business Daily.
Saved by the resort
Both drone filming professionals see the current business in Macau as not “really sustainable”, with the sector being kept aloft mainly by gaming operators asking for construction filming or creative coverage of their new gaming resorts, and the rest of the projects being occasional creative productions or commercials. One of the projects that Crane Productions worked on was the opening of Studio City in Cotai, and Megalight contributed a lot of aerial footage to a documentary about the life of English artist George Chinnery in Macau.
“You go to a public tender for a commercial spot and you see a lot of items specifying that 50 per cent of how they evaluate whether they will choose you, is the price you’re asking. The government is choosing audiovisual projects like choosing bricks for house construction.” Pedro Luz, President of Megalight Interactive Productions
The two companies sometimes buy their drones online or build their own with parts bought from Hong Kong, claiming Macau still has a lack of specialised drone stores. “Business has developed a lot, especially with the new resort construction, company promotional videos, and documentaries, but it’s still not a sustainable business. We always try to show projects that don’t
involve aerial filming how they can benefit from a different perspective. A crane-held camera is limited, but a drone camera has almost unlimited angles,” Branco tells Business Daily.
Amateurs in the sky
For Luz the market is not saturated with professional drone operators, but with amateur operators. “Anybody can buy a drone and place a camera on it, but what matters is how you use it. Drone filming is like any audiovisual sector, it depends of the quality of the operator.” The two filming professionals agree that this lack of common sense in regards to what is acceptable while flying a drone even goes as far as the clients, who generally lack awareness of the requirements of drone usage. “When we have a scheduled filming, our main concern is safety. We have already rejected a lot of rushed projects where minimum safety requirements - like strong winds, rain – were not taken into account. A lot of times we have to tell clients that their request can’t happen at that time,” Branco tells Business Daily. For Crane Productions, any project needs to have at least one or two operators, for safety and insurance purposes, and the company keeps in contact with the Macau International Airport Co. Ltd. (CAM), informing them where and when the drones will be operated.
Professional drones
Professionalism is seen by the drone filming operators as something missing from the drone filming market, but for Luz this is something the government also doesn’t take into account in its aerial audio-visual projects. “For example - you go to a public tender for a commercial spot and you see a lot of items specifying that 50 per cent of how they evaluate whether they will choose you, is the price you’re asking. The government is choosing audio-visual projects like choosing bricks for house construction. It’s like this in any area in Macau, but quality productions take time and money,” Luz tells Business Daily. The drone-filming producer also claims that TDM rents out some of its filming drones at very low prices, something possible because of the big amount of government funds it receives, giving TDM an “unfair advantage” in the sector. Business Daily questioned TDM whether it rented out drones for private or commercial use, but no response was received by the time we went to print.
Business Daily Monday, July 11 2016 5
Macau Transport
Gaming shuttle-bus routes down to 59
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he number of gaming shuttle-bus routes in the city has decreased to 59, according to information revealed by the director of Transport Bureau (DSAT), Kelvin Lam Hin San. Earlier this year, the DSAT director had said that the government was planning to cut the number of gaming shuttle-bus routes to 58 within the year, down from a total of over 70 routes before. In his response to legislator Wong Kit Cheng’s written enquiry, the transport official said the cut in the number of shuttle bus routes represents a decrease in the total number of some 10.77. The directly-elected legislator also suggested in her interpellation that the government should cap the number of gaming shuttle buses, in addition to independently releasing the total number of buses in circulation. But Mr. Lam replied that the bureau
would need to study the viability of setting a cap with the department in charge of importing tour buses. Meanwhile, he said that the release of the numbers on gaming shuttle-buses will depend on research from the vehicle-import department and the local statistics body.
‘The Bureau will continue communicating with gaming corporations and pay attention to their execution of cutting down the shuttle bus number, as well as their promotion of joint shuttle-bus services amongst themselves,’ the DSAT head wrote.
At the beginning of last month three local gaming operators - namely Galaxy Entertainment Group, Melco Crown Entertainment and Sands China Ltd - launched a joint shuttle bus route named ‘Cotai Connection’ for guests and residents travelling within the Cotai Strip. K.L.
Gaming
Wynn Macau dispenses ‘summer bonus’ Local gaming operator Wynn Macau is to issue its workers a ‘summer bonus’ on July 15, which will be equivalent to the employee’s salary
for one month, a press release from the company states. Ac c o r d i n g t o t h e g a m i n g corporation, nearly 9,000 of the
Retail
Bauhaus same-store sales down in Q1 Clothing retailer Bauhaus International Holdings Ltd saw overall sales drop in its major markets for the first quarter of its fiscal year, which ended June 30. In particular, the most significant decrease was recorded in its market segments for Hong Kong and Macau. According to a filing with the Hong Kong Stock Exchange last week, the retailer’s same-store sales in the two Special Administrative Regions posted a decline of 15 per cent year-onyear, compared to a drop of 9 per cent for the same period one year ago. The company did not disclose in the filing any specific information in terms of financial results during the period, such as revenue or profit. As at the end of June, Bauhaus operated a total of 86 stores in the two
cities, a number unchanged from one year ago. For the three months, the retailer’s same-store sales in the Mainland also dropped 6 per cent year-on-year, while those of Taiwan were down by 5 per cent compared to the same quarter last year. Meanwhile the company’s self-managed stores in the Mainland decreased in number by three yearon-year to 31, while those in Taiwan also dropped by one year-on-year to a total of 93. Last fiscal year, the retailer suffered a plunge of 59.1 per cent in its annual net profits to HK$52.9 million (US$6.59 million), with sales in Hong Kong and Macau falling by 8.8 per cent year-on-year to HK$1.03 billion. K.L.
Customs
Macao Customs Services launches official WeChat account The Macao Customs Service launched its official WeChat account today, aiming to further assist the public through social media channels, giving access to the latest information provided by the Macao Customs Service, according to a press release published by the
department. The service has also been set up to facilitate visitor enquiries about the immigration policies and procedures in Macau, notes the release. The WeChat account offers online services to the public including information regarding approval of requests for vehicle border passes as well as expiration dates, all accessible through WeChat. Members of the public accessing the account can also submit their feedback and upload pictures from their smartphones through the app. A.L.
workers in Wynn Macau and Wynn Palace will benefit from the summer bonus. However, senior management for the company are not covered in the bonus scheme. ‘Despite ongoing challenges faced by the industry, this bonus is being awarded as the company looks forward to the opening of Wynn Palace on August 22, and to celebrate Wynn Macau’s 10th
anniversary on September 6,’ the operator wrote. At the beginning of this year, the company also dispensed a ‘winter bonus’ to its employees, also equivalent to one month’s salary of each worker. Both the ‘summer bonus’ and the ‘winter bonus’ from the operator are part of the company’s guaranteed annual bonus scheme - equalling two-month’s salary for employees covered under the scheme; the program will last until 2017. K.L.
6 Business Daily Monday, July 11 2016
Macau Interview Zhang Junqing: “for traditional Chinese medicine, first we need to inherit the culture, then we can talk about development”
Seeking balance
The essence of traditional Chinese medicine lies in the knowledge of the balance between humanity and nature, and while Macau has the potential to become a traditional Chinese medicine hub, the guiding principal and methodology has to be set up in accordance with traditional Chinese culture. The most important first step is to inherit and study the legacy rather than to focus on innovation or integration, says Zhang Junqing, Director of the Macau Traditional Chinese Medicine Society and the Macau Acupuncture Society. The Chinese medicine doctor told Business Daily that he believes education is the key, progressing from there to research, clinical areas, pharmaceutical applications, the industry based around it and the culture it embodies. Joanne Kuai joannekuai@macaubusinessdaily.com
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he local government has been pledging to develop traditional Chinese medicine within the SAR. What’s your point of view on this matter? Ever since Xi Jinping stepped into the position of Chinese president and advocated the use of traditional Chinese medicine, this field has attracted more attention - since some of the belief in it was stripped away during the Cultural Revolution, as well as by an ‘invasion’ of western culture. The benefit of promoting traditional Chinese medicine is practical – it helps people to better take care of themselves and, as a result, save the country a huge amount of resources in health care. For Macau to advocate traditional Chinese medicine, the idea now is to help diversify the economy and structurally adjust the city’s industries. However, from my observation, traditional Chinese medicine in Macau is rather different from Mainland China. I came from Fujian province decades ago. Before I started practicing on my own, I was working at Tung Sin Tong (Historical Archive and Charity). I found out that the doctors there were rather conservative. Every year I would schedule at least one trip to go to a seminar or a workshop to study, and they found it surprising and thought it unnecessary. Not all of them, but most of them still think traditional Chinese medicine is simply a clinical tool or measure. They are not in command of the essence of traditional Chinese medicine. The so-called: ‘traditional Chinese medicine industry’ that the Macau government is trying to develop still remains as the lowest form of traditional Chinese medicine. Look at the Hengqin Traditional Chinese Medicine Industrial Park or the company that they are running. There are all amateurs. They are outsiders of this world and what they are trying to do is not real traditional Chinese medicine.
“Traditional Chinese medicine is about the balance of humanity and nature. It’s not a theory. It’s not a philosophy. It’s rather metaphysical.” What is real traditional Chinese medicine then? It would take us days to talk about it. But briefly, traditional Chinese medicine is about the balance of humanity and nature. It’s not a theory. It’s not a philosophy. It’s rather metaphysical. Simply put, it
can be reflected by a combination of appearance, Qi (vital energy), and spirit. Traces of traditional Chinese medicine date back to the origins of human life, when they learned how to use wood to make fire. We have the Yellow Emperor’s Inner Canon, the oldest remaining work of Chinese medical theory. It was compiled around the first century BC, written in the form of dialogues between the legendary Yellow Emperor and his ministers. It offers explanations on the relationship between humans, their environment, and the cosmos, on the contents of the body, on human vitality and pathology, on the symptoms of illness, and on how to make diagnostic and therapeutic decisions in light of all these factors. And we have historical physicians like Sun Simiao who wrote a handbook on how to become a
traditional Chinese medicine doctor. For traditional Chinese medicine, first we need to study, fully comprehend the knowledge and inherit the culture, and then we can talk about its development. Do you think Macau has the potential to make a contribution to traditional Chinese medicine? Not only do I think Macau has the potential to become a traditional Chinese medicine hub, I think now is the perfect time to do so. Traditional Chinese medicine is gradually being revived in China, and even becoming increasingly prevalent in the western world. The central government has set the goal for the Macau SAR to become a world tourism and leisure hub and has given huge support for Macau to develop its traditional Chinese medicine industry. It is even
part of the national development strategy – the twelfth five-year plan. The local government has also listed traditional Chinese medicine as a main direction for diversifying its economy. With the collaboration of the Guangdong government, some efforts are already being made. With the economic development of the SAR, the government is sitting on a huge fiscal surplus. In addition, Macau is a small place. An administrative decision can be delivered relatively easier than elsewhere in China. These advantages have given Macau the perfect edge to become a base for a world-class traditional Chinese medicine hub, from education, clinical medicine, pharmaceutical trading, regimen and health care, to medical tourism. Macau can become the most important window for traditional Chinese medicine to the world. How can this be achieved? We need to understand the purpose of developing traditional Chinese medicine. In a cost-effective economic sense, the benefits won’t show in the short-term. However, it’s a long and important journey that we must go through to have this treasure preserved in traditional Chinese culture. The SAR government and the Chief Executive have to be resolved to adopt a very different mind-set. They need a think-tank that is really in command of real traditional Chinese medicine. Without the right decisions being made, everything will be in vain. This consultancy group must have elites that have a traditional
Business Daily Monday, July 11 2016 7
Macau
“Education will be the key point in preserving and developing traditional Chinese medicine.”
Chinese medicine way of thinking. To be honest, there are not many of these kinds of talents left in the academic field as a lot of them have been ‘polluted’ by the western medicine way of thinking. They remain at the lowest level of appliance of traditional Chinese medicine and only focus on herbs and acupuncture instead of the study of humanity and the environment. The real masters are in civilian society. They know the traditional culture and ideology, are in command of the laws of the development of traditional Chinese medicine, and they can adapt to the modern reality and use scientific measures and management to lead people. How can good Chinese medicine talent be evaluated? Is there a standardized mechanism? Traditional Chinese medicine is not to do with standards. However, of course a good doctor can be evaluated by cures. It [traditional Chinese medicine] has to be effective in clinical medicine to have the strong base of support among society it possesses now. One thing on which I agree with the current administration is that it restricts western medicine doctors to use traditional Chinese medicine ways and vice versa. This helps doctors in each field to focus on studying their own methodology and solve any problems using their own ways. To give you an example: when a western doctor detects a tumour, the way they know how to do deal with it is for a surgeon to remove it. They don’t know how to take care of the human body once the surgery is done. The person may still be in very poor health. From a Chinese medicine
point of view, sometimes surgery can cause more harm as it breaks the Qi. We [Chinese medicine doctors] may search for ways for people to live with the tumour and relieve the symptoms. Sickness is a symptom of ever-evolving human bodies. It’s a reflection of a moment of change. Sometimes we need to assimilate the negative parts and make them positive instead of eliminating them, as a war would probably cause more harm to oneself.
“Not only do I think Macau has the potential to become a traditional Chinese medicine hub, I think now is the perfect time to do so.” One thing I have suggested over the years is for the SAR government to establish a Macau Traditional Chinese Medicine Management Bureau. In an administrative sense, it would be running in parallel with the Health Bureau. This new bureau would, in general, organize and plan the development of traditional Chinese medicine. With the talents in command of the essence of culture that I mentioned, the blueprint for traditional Chinese medicine can be drawn. Education will be the breakthrough point. You’ve mentioned that in the academic field, traditional Chinese
medicine is ‘polluted’. How can this be addressed through education? Education will be the key point in preserving and developing traditional Chinese medicine. They [the students] need to be taught the culture of traditional Chinese medicine. I’ve also suggested the establishment of a Traditional Chinese Medicine Institute. The students could be immersed in traditional Chinese culture first, and then be provided with chances to practice and gain more experience in clinical medicine. What are the next steps? With the establishment of the Macau Traditional Chinese Medicine Management Bureau, we would solve the problem of top-level decisionmaking and provide the grounds for the traditional Chinese medicine hub to be built. With the institute, we would have a strong talent base. Then we need a hospital exclusively dedicated to traditional Chinese medicine. With the help of the masters, a group of traditional Chinese medicine doctors will be naturalized in clinical medicine, hence giving a reputation to Macau [in this area]. As for the pharmaceutical side, it’s also very critical for us to trace the past and to adopt traditional ways. This would play an important role in adjusting the industrial structures of Macau, as it would provide many employment opportunities. The traditional pharmaceutical methodology of traditional Chinese medicine gives great important to the whole process. Some medicine needs to be made in repeated procedures, such as being dried and steamed nine times. It can be really time consuming, but that’s where the effectiveness of the medicine comes from. It’s simple
but not easy. This can be applied in family workshops hence giving Macau families other jobs aside from working in casinos. The supply chain needs to be strictly monitored, as we should only produce products of the best quality. The Chinese medicine or health care products made here can be supplied to the local market and exported elsewhere - in Mainland China or the world. It would have a very high cost to produce. The amount of the products would be low, but as long as the quality is good and truly cures, it would for sure be recognized by consumers. Those would be the prospects we are eyeing. In addition, a regimen/ health care village could be established in Coloane or Hengqin. With thousands of years of history, traditional Chinese medicine has developed many practices for people to create better health conditions without the use of western medicine. There is acupuncture, tui na, qigong, cupping, Gua Sha and many more practices in addition to herbal medicine, food therapy, etc. We can put the best facilities for overall health care, body checks and diagnoses to build the health care village into a world-class health centre. The village could also add cultural elements to promote traditional Chinese culture. Regular seminars and workshops could be held. Museums and temples with educational contents could be on display. From there, we could even develop medical tourism. People could come here for body check-ups, for traditional Chinese medicine treatments, for health care products or even just come here to relax. It would help to realize the ultimate goal of a world tourism and leisure hub.
8 Business Daily Monday, July 11 2016
Greater China Price index
Consumer inflation eases further “Of course, further policy easing is still on the cards, and we hold our view that the PBOC will cut both interest rates and reserve rate requirement this month,” Zhou said. Other economists say authorities should use fiscal policy to boost growth, adding that question marks remain over the effectiveness of further monetary easing.
Producer prices Key Points Consumer inflation remains soft, weak growth June CPI + 1.9 pct y/y vs Reuters poll +1.8 pct, May +2.0 pct Producer prices -2.6 pct y/y vs poll -2.5 pct, May -2.8 pct
The producer price index dropped 2.6 per cent from a year earlier.
C
h ina’ s J u n e c o n s u m e r inflation grew at its slowest pace since January as increases in food prices eased, while producer prices extended their decline, reinforcing economists’ views that more government stimulus steps will be needed to support the economy. The consumer price index (CPI) rose 1.9 per cent in June from a year earlier, compared with a 2.0 per cent increase in May, the National Bureau of Statistics said yesterday. Analysts had expected a 1.8 per cent gain, a Reuters poll showed.
Consumer inflation has remained low compared with the official target of around 3 per cent for this year, indicating persistently weak demand in the world’s second-largest economy. Food prices were up 4.6 per cent in June, compared with a 5.9 per cent gain in the previous month. Prices of China’s staple meat pork rose 30.1 per cent, compared with a 33.6 per cent increase in May. But recent flooding in China “is likely to push vegetable and fruit prices higher in the coming months,” ANZ economists Raymond Yeung and Louis Lam wrote in a research note. Non-food prices inched up 1.2 per cent in June versus May’s 1.1 per cent gain. “In our view, while China reiterates the importance of supply-side reform
due to debt and overcapacity concerns, the authorities still need to stimulate demand in order to achieve its growth target,” Zhou Hao, senior Asia emerging market economist at Commerzbank in Singapore, said in a note. The People’s Bank of China (PBOC) last cut interest rates on Oct. 23, the seventh time since late 2014, as the government took steps to counter slowing economic growth. China’s leaders have set an economic growth target of 6.5 per cent to 7 per cent for 2016. The economy expanded 6.9 per cent last year, its slowest pace in a quarter of a century. A top government-backed think tank forecast in late June that consumer prices will likely rise 2 per cent for the year, while the long decline in producer prices will ease.
In June, the producer price index (PPI) dropped 2.6 per cent from a year earlier. Analysts had expected PPI to fall 2.5 per cent. The decline extended a falling streak to 51 consecutive months, though it continued to moderate, suggesting strains on companies’ profits may be easing. The PPI eased 2.8 per cent in May. Producer prices for mining fell 8.2 per cent in June from a year earlier, while raw materials dropped 6.1 per cent. China is due to release its secondquarter gross domestic product (GDP) data on July 15, along with figures for June’s industrial output, investment and retail sales. Most analysts say GDP growth likely edged lower in the second quarter from 6.7 per cent in the first on a year-on-year basis, with June data showing a slight loss of momentum from May. The China Academy of Social Sciences (CASS) predicted that the economy will grow about 6.6 per cent in 2016, decelerating from last year. Worries about a potential economic fallout from Britain’s decision to leave the European Union last month have reinforced expectations Beijing will roll out more policy support soon. Reuters
Medical financing
Healthcare costs forcing patients into crippling debt Official data show up to 44 per cent of families pushed into poverty were impoverished by illness. Adam Jourdan and Ben Hirschler
As China’s medical bills rise steeply, outpacing government insurance provision, patients and their families are increasingly turning to loans to pay for healthcare, adding to the country’s growing burden of consumer debt. While public health insurance reaches nearly all of China’s 1.4 billion people,
its coverage is basic, leaving patients liable for about half of total healthcare spending, with the proportion rising further for serious or chronic diseases such as cancer and diabetes. That is likely to get significantly worse as the personal healthcare bill soars almost fourfold to 12.7 trillion yuan (US$1.9 trillion) by 2025, according to Boston Consulting Group estimates. For many, like Li Xinjin, a construction materials trader whose son was diagnosed with leukaemia in 2009, that means taking on crippling debt. Li, from Cangzhou in Hebei province, scoured local papers and websites for small lenders to finance his son’s costly
treatment at a specialist hospital in Beijing, running up debts of more than 1.7 million yuan, about 10 times his typical annual income. “At that time, borrowing money and having to make repayments, I was very stressed. Every day I worried about this,” said Li, 47, adding that he and his wife had at times slept rough on the streets near the hospital. “But I couldn’t let my son down. I had to try to save him,” he said. Li’s boy died last year. The debts will weigh him down for a few more years yet. Medical loans are just part of China’s debt mountain - consumer borrowing has tripled since 2010 to nearly 21 trillion yuan, and in eight years household debt relative to the economy has doubled to nearly 40 per cent - but they are growing. That is luring big companies like Ping An Insurance Group, as well as small loan firms and P2P platforms, as China’s traditional savings culture proves inadequate to the challenge of such heavy costs. The stress is particularly apparent in lower-tier cities and rural areas where insurance has failed to keep pace with rising costs, said Andrew Chen, Shanghai-based healthcare head for consultancy Parthenon-EY. “It’s a storm waiting to happen where patients from rural areas will have huge
financial burdens they didn’t have to face before,” he said, adding people would often take second mortgages on their homes or turn to community finance schemes.
Roots of poverty
China’s government has moved to ramp up rural health insurance, boost coverage for major illnesses and put pressure on drug companies to slash prices, but it is an uphill battle. Official data show up to 44 per cent of families pushed into poverty were impoverished by illness. The Ministry of Health, which did not immediately respond to requests for comment, is currently investigating the impact of these costs on the country’s labour force. “Typically, what happens in China is the whole family contributes when someone gets a severe disease like cancer,” Severin Schwan, chief executive of Roche Holding AG, the world’s biggest maker of cancer drugs, told Reuters. “When it comes to innovative medicines, the financial burden is just too much. Families can go broke.” Roche itself has schemes in China to make cancer drugs more affordable, including an insurance scheme developed with Swiss Re. There are no reliable figures for total healthcare lending, as lenders
Business Daily Monday, July 11 2016 9
Greater China Monetary guidance
In Brief
Central bank queries some banks on MLF demand An editorial in the state-owned China Securities Journal earlier last week said that a slower increase in money supply was likely in the second half. Nathaniel Taplin
The People’s Bank of China has queried some banks on their demand for medium term lending facility (MLF) loans later in July, multiple sources with direct knowledge of the matter told Reuters on Friday. China’s central bank has increasingly relied on MLF loans to guide medium-term interest rates and manage liquidity in the banking system. They are typically for periods from three months to one-year long.
More broad-based easing tools such as cuts to banks’ reserve requirement ratios release too much liquidity into the banking system at a time when policymakers are trying to manage rising credit risks and avoid sharp yuan depreciation, analysts say. “The MLF is a frequently employed monetary instrument, and financial institutions can indicate their demand for any maturities at any time,” said the central bank’s press office in an emailed statement, without confirming or denying it had made inquiries.
“The central bank inquiring on financial institutions’ demand is an everyday form of communication, it does not represent a monetary policy signal” People’s Bank of China
“The central bank comprehensively considers liquidity conditions in the banking system and other factors when choosing the amount to offer, in order to maintain banking sector liquidity at a sufficient and reasonable level and guide financial institutions to increase support towards key or weak economic sectors. “Therefore, the central bank inquiring on financial institutions’ demand is an everyday form of communication, it does not represent a monetary policy signal. “When we conduct MLF operations, we release the result to the public the same day in a timely, open and transparent fashion. In order to serve evolving market demand, in the future the central bank’s movements will be more closely aligned with financial institutions. This is a part of the central bank’s market communication, it is not necessary to over analyse it.” Sources said the loans would be offered on July 13 and July 18, when previous MLF loans would come due. “As things stand and pending another internal or external shock we expect (the PBOC) to support the economy by sticking to its box of liquidity management tools and a managed depreciation of the renminbi rather than anything more dramatic,” wrote Gilliam C. Hamilton, head of the Beijing office of NSBO China Policy Research in a note on Thursday. An editorial in the state-owned China Securities Journal earlier last week said that a slower increase in money supply was likely in the second half, and the central bank would continue to rely on MLFs to manage banking sector liquidity. Reuters
Trade
Taiwan exports slip again despite higher shipments to U.S.
Legal responsibility
Regulator tells insurers to strengthen disclosure Chinese insurers should strengthen disclosures on transactions in response to new investment strategies they have developed in a fast expanding market, the industry’s regulator said. Insurers need to increase the scope and standard of disclosures and strengthen legal responsibility, the China Insurance Regulatory Commission said in a notice posted on its website on Friday. Years of breakneck growth for China’s top insurers has been partly fuelled by a splurge on risky investment products that could punch multi-billion-dollar holes in their balance sheets if the slowing economy triggers heavy debt defaults, a Reuters survey found. M&A
EU set to clear Italian mobile telecoms merger Hong Kong tycoon Li Kashing’s CK Hutchison Holdings and Vimpelcom are set to win EU antitrust approval for their deal to merge their rival Italian mobile network operators after agreeing concessions to help a new competitor break into the market, two people familiar with the matter said on Friday. Approval of the 21.8-billion-euro (US$24.07 billion) deal to merge Hutchison’s 3 Italia with Vimpelcom’s Wind Telecommunicazioni would be welcome news for the industry after the European Commission blocked Hutchison’s similar deal in the UK to merge its Three UK subsidiary with Telefonica’s O2 UK. Stock markets
Exports to China dropped 4.5 per cent, an improvement from May’s 10.2 per cent decline. Faith Hung and Jeanny Kao
do not usually advance the money for healthcare-specific purposes. “If you want to use it for medical bills, cosmetic surgery or plastic surgery that’s all fine,” says Ping An Puhui, which advertises that its loans can “alleviate the pain of illness” and “bring new hope to sick families”. But there is plenty of anecdotal evidence from online lenders that it is a growing segment. “Our loan numbers have risen steadily, and no small number of people have used these for medical purposes,” said Li Jin, a customer service worker at peer-to-peer (P2P) lender ppdai.com. “Healthcare costs are high, and lots of people don’t have good state cover, so they need a loan.” China Minsheng Banking Corp has launched a healthcare loan scheme in the western city of Chengdu, while Shanghai Pharmaceuticals Holding Co Ltd rolled out a loan scheme in April to help patients access expensive drugs. Some desperate patients are pawning their personal belongings. “They use things of various value from jewellery to purses and even cars,” said Chen Yi, an office worker at online lender minbaodai.cn. “Previously the majority of people were looking for extra cash flow for their business, but last year and this we’ve seen a rise in healthcare loans.” Reuters
Taiwan’s exports contracted for the 17th month in a row in June as demand remains weak from China and other key markets for the island’s technology products, suggesting further interest rate cuts may be needed. Exports in June fell 2.1 per cent from a year earlier, according to the finance ministry. That was less than the 2.6 per cent slide forecast in a Reuters poll and May’s 9.6 per cent drop. The June decline was the smallest since the streak of contractions began in February 2015. “Global economic growth pace is slow, but semiconductor market momentum recovered and prices of agricultural and industrial raw materials have stopped falling,” the ministry said. During the first half of 2016, Taiwan’s exports fell 9.1 per cent from a year earlier. Exports traditionally are bigger in the second half than in the first due to shipments of electronics items before Christmas. However, the prospects for the rest of this year are not bright. The government has estimated that exports - Taiwan’s dominant growth driver - will shrink 3.65 per cent this year.
Elusive recovery
In late May, Taiwan trimmed its economic growth target for 2016 to 1.06 per cent from 1.47 per cent. For Taiwan, “the outlook for a real recovery remains elusive,” DBS Bank in Singapore said on Thursday. “The risk of China’s slowdown hasn’t subsided. The Brexit-related uncertainties have emerged of late.” Taiwan’s central bank last week trimmed interest rates for the fourth consecutive meeting, saying fiscal stimulus and economic restructuring were also needed to revive the economy. It cut the discount rate by 0.125 percentage point to 1.375 per cent, a level last seen in mid-2010. In June, demand from key markets for Taiwan products remained tepid. Exports to China dropped 4.5 per cent, an improvement from May’s 10.2 per cent decline. Shipments to the U.S. were up 3.1 per cent, compared with the previous month’s 8 per cent slide. Exports to Japan rose 0.8 per cent, from contraction of 8.9 per cent in May, and those to Europe edged up 0.1 per cent, less than the previous 2.1 per cent advance. Reuters
First domestic firm to be delisted over IPO fraud China’s securities regulator said on Friday it will force Dan Dong Xin Tai Electric to delist for initial public offering (IPO) fraud, the first company to be removed from the Chinese stock market due to issues over IPO disclosure. In a move to clean up the market, the China Securities Regulatory Commission (CSRC) has fined and reprimanded 17 current and former officials in Xin Tai Electric for forging financial data for their IPO in 2014, CSRC said in a statement on Friday. The CSRC also fined and confiscated underwriting fees of Industrial Securities Co Ltd, one of China’s major brokerages and underwriter for Xin Tai Electric’s IPO. Financing
Central bank says to keep reasonable growth in credit China’s central bank reaffirmed on Friday that it will maintain reasonable growth in bank credit and social financing as the economy still faces downward pressure. Some Chinese provinces and municipalities “have relatively big reliance on real estate and infrastructure investment”, the central bank said in a report on regional financial operations. Debt levels were rising rapidly in some regions, it said. The authorities will take steps to ward off regional and systemic financial risks, the central bank added.
10 Business Daily Monday, July 11 2016
Greater China Entrepreneurs
Jack Ma says lawsuits, probes help Alibaba to be understood Ma was speaking after the first day of a two-day philanthropy conference hosted by the Alibaba Foundation. Engen Tham
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awsuits and investigations are an opportunity for Alibaba Group Holding Ltd to be better understood, founder and executive chairman Jack Ma said in an interview on Saturday. The U.S. Securities and Exchange Commission (SEC) launched a probe earlier this year into the Chinese e-commerce firm’s accounting practices to determine whether they violated federal laws. Questions about Alibaba’s growth rate and its
relations with affiliated companies have dogged the firm for years. “If you want to sue us, sue us,” Ma said. “It’s an opportunity for us to let them understand what we’re doing,” he told Reuters, saying he had complied with SEC requests but did not know when the U.S. agency would respond with a finding. Ma was speaking after the first day of a two-day philanthropy conference hosted by the Alibaba Foundation, a charitable organization established by the group.
He said Alibaba had been transparent and provided the SEC with everything it had asked for. In 2014, the now 51-year-old Ma and Alibaba co-founder Joe Tsai pledged share options worth about US$3 billion at the time to a newly established charitable trust in the biggest donation of its kind in China. It took the Jack Ma Foundation a year to register, said Ma. China boasts more billionaires than anywhere else in the world, yet lags in public philanthropy as the wealthy prefer to keep a low profile. Ma, who has a net worth of US$21.8 billion according to the 2015 Forbes Rich List, said Chinese culture warns that nothing good will come of having a high profile, adding that his dad sent
him a message on Friday advising him to keep his low. Ma said that many private non-government organizations in China were not considered “authentic”. “We find the system does not work, so people stop and say what am I going to do, so sometimes people like us, we do it on our own,” said Ma. Critics say the environment in China for NGOs has become more restrictive this year. In new laws governing charities and non-government agencies brought in in the first half of the year, the government has sought to rein in groups that endanger national security, which commentators say gives Beijing the right to close groups as they wish. In April this year, the founder of China’s Tencent Holdings Ltd, Pony Ma, said he plans to donate 100 million company shares, worth more than US$2 billion, to a new charity fund in the second biggest philanthropic pledge after Jack Ma’s. Reuters
“It’s an opportunity for us to let them understand what we’re doing” Jack Ma, Alibaba’s founder
M&A
National companies among bidders for Leroy-Somer Wolong Electric, which has bought several smaller companies this year, would, if successful in the sale, add to a string of recent Chinese acquisitions in Europe. Arno Schuetze and Gilles Guillaume
Emerson Electric’s alternator business Leroy-Somer is expected to attract firm offers from two Chinese companies and a buyout group in a potential 1 billion euro (US$1.1 bln) deal, people close to the matter said. Private equity group Clayton Dubilier & Rice (CD&R), as well as Wolong Electric and another Chinese company are conducting due diligence on Leroy-Somer and preparing to submit final bids this month, the sources said.
Key Points Buyout group CD&D and Chinese groups to bid -sources One CD&D partner held senior position at Emerson Wolong latest in slew of Chinese groups eyeing Europe Emerson wants to focus its business on process automation and heating and air conditioning. In April it launched the sale of its Motors and Drives unit, which consists mainly of Leroy-Somer which makes alternators for power producers and industrial applications. It aims
to chose a buyer before the August summer break, one of the sources said. CD&R declined to comment, while Emerson and Wolong were not immediately available for comment. Strategic buyers often have an edge over private equity groups in such acquisitions as they are usually able to reap cost savings from combining their own with the acquired business.
In this case, however, private equity investor CD&R is seen as having the advantage of deep knowledge of the business. One of its partners, James G. Berges, is a former vice chairman and president of Emerson, where he was among executives responsible for the company’s motors and appliance components businesses. George Tamke, a retired operating partner at CD&R, is a former co-CEO of Emerson. Wolong Electric, which has bought several smaller companies this year, would, if successful in the sale, add to a string of recent Chinese acquisitions in Europe.
They include home appliance maker Midea’s planned purchase of German robots maker Kuka, China Three Gorges’ acquisition of offshore wind group Meerwind and the sale of Italian soccer club Inter Milan to Chinese electronics retailer Suning Commerce Group Co Ltd. Given Leroy-Somer’s exposure to military activities, the French government may need to give its green light before any deal can be completed, sources familiar with the matter have said. A spokesman for the French economy ministry was not immediately available for comment. Reuters
Business Daily Monday, July 11 2016 11
Asia
“India and China have a fair amount of discontent. Until this is resolved, the Asian Century is going to be very elusive” C. Uday Bhaskar, Indian security analyst
Global economy
China, India eye Asian Century as Brexit rattles old order Rising economic stars Indonesia and the Philippines are growing at around five per cent a year, while Europe remains sluggish. Emily Ford
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ritain’s vote to leave the European Union and simmering discontent in other Western countries is seen as hastening the arrival of an “Asian Century”, analysts say, led by the rise of China and India. By 2050, Asia will account for over half the world’s GDP, almost double that of 2011, according to the Asian Development Bank, with three billion newly affluent citizens. The EU and other powerful collectives such as the United Nations, NATO, IMF and World Bank hark back to the post-World War II era, with a vision of cooperation leading to peace, prosperity and security. But the churning currents of globalisation and institutions’ reluctance to reform have left Asian nations feeling that they are not well-represented and looking to form new alliances. “The old system which kept the West rich and safe is under threat,” said Neelam Deo, a former ambassador and director at Gateway House think-tank in Mumbai. “The British voting to leave the EU in the way they did will impact the old institutions which were set up
after World War II and intended to entrench Western power,” she said. Brexit has summoned the spectre of a domino-like departure of other members of the EU, pounded by the migrant and euro crises, as well as a fragmenting United Kingdom, should Scotland vote for independence. A resurgent Russia, which is angered by EU- and US-imposed sanctions and has friendly ties with China and India, has hailed the Brexit vote as it looks for cracks to exploit.
‘Decline of Europe’
As the “American Century” got underway after WWII, following imperial Britain before it, China was writhing in the chaos of civil war and colonial India was just gaining independence. Now China is the world’s second-largest economy, set to overtake the US in around a decade, while India will be the world’s most populous nation by 2022. The IMF named the Chinese renminbi a reserve currency - a main world currency - last November, joining the pound, dollar, euro and yen. Rising economic stars Indonesia and the Philippines are growing at
around five per cent a year, while Europe remains sluggish. Yet emerging markets argue that IMF voting reforms still don’t give them a big enough voice, while India laments its lack of a permanent seat on the UN Security Council. Three centuries ago, before the industrial revolution, Asia was the dominant power, far away from the twin Atlantic centres. With a name that harks back to those days, Beijing’s flagship “One Belt, One Road” policy seeks to revive the ancient Silk Road trade route with huge investment from central Asia to Europe. In January China opened the Asian Infrastructure Investment Bank, seen as rivalling the World Bank or the Japan-led Asian Development Bank, seeking to expand its financial clout. Describing itself as “a bank conceived for the 21st century”, AIIB has attracted 57 members including Britain and Australia -- with the notable exclusions of the United States and Japan.
‘Romantic vision’
Asia’s growing clout rests on various assumptions, including that nations continue on the same economic trajectory and aren’t derailed by unforeseen financial crises. Other threats include rising inequality, the middle-income trap - where an economy gets stuck at a certain stage of development - and
competition for natural resources. Tensions between rivals China and India were highlighted in June when Beijing blocked New Delhi’s entry to the Nuclear Suppliers Group, a trade group of 48 nations. “India and China have a fair amount of discontent. Until this is resolved, the Asian Century is going to be very elusive,” C. Uday Bhaskar, a leading Indian security analyst told AFP. And the West will vigorously defend itself after Brexit, with US President Obama insisting at a NATO summit Friday that the earthquake will not harm transatlantic unity. World Bank chief Jim Yong Kim used a visit to New Delhi in the aftermath to warn against nations “looking inward”. But the US is feeling similar pulls, with presidential candidate Donald Trump playing to a desire to retrench from globalisation and immigration by pledging to bring back manufacturing and build a wall with Mexico. Some see a drift back towards sovereign nation states hostile to outside forces - seen in the mantra of “take back control from Brussels” that won the Brexit vote. “We had this romantic vision to be one world - it is clearly over, nation member states have come back with a vengeance,” said Samir Saran, a senior fellow at the Observer Research Foundation in New Delhi. “It is something we are witnessing around the world.” AFP
12 Business Daily Monday, July 11 2016
Asia Triple jeopardy
Australia’s banks face ratings, funding, political headwinds The big banks, long among the world’s largest and most profitable, are also vulnerable to the changing political landscape. Swati Pandey
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ustralia’s big banks might have hoped for a better 2016 after raising a record A$20 billion (US$15 billion) in new equity last year. How wrong they were. This week alone Australia’s “Big Four” - National Australia Bank, Commonwealth Bank, Westpac Banking Corp and ANZ Banking Group - faced calls to raise further capital, threats to their credit ratings and a sharp surge in political uncertainty. Ratings agency Standard & Poor’s on Thursday put major Australian banks’ ratings on negative outlook, implying a one in three chance of losing their AA- ratings within two years. A downgrade would make the cost of financing more expensive for the “Big Four” at a time when regulators want them to put aside more cash to weather any repeat of the global financial crisis. Raising capital will likely hit profits and make it more difficult for the banks to continue to distribute chunky dividends, which are a key source of revenue stream for shareholders such as the country’s pension funds. As revenue growth slows and the risk of loan impairments rise, the downgrade “presents another
downside risk for the sector and is likely to impede an improvement in sentiment,” Deutsche Bank analyst Andrew Triggs said. The big banks, long among the world’s largest and most profitable, are also vulnerable to the changing political landscape. Tough new scrutiny is likely in the wake of Australia’s knife-edge weekend election as a disparate group of lawmakers push for a wide-ranging inquiry into mis-selling, misconduct and market dominance concerns.
Key Points S&P puts major banks’ credit rating on negative outlook Ratings downgrade would raise banks’ cost of funds Banks will need A$7.3-A$31.2 bln to boost capital-analysts Aussie bank shares among worst performers on the ASX Deutsche’s Triggs expects approximately a 2 per cent profit impact on average if major banks’ ratings were to be downgraded by one notch. Offshore wholesale funding accounts for around one-fifth of Australia’s major banks’ total funding with local deposits and equity accounting for over 60 per cent.
Gathering storm
Five analysts surveyed by Reuters after the rating outlook change estimated the “Big Four” will collectively need between A$7.3 billion to A$31.2 billion in additional equity over the next 2-3 years to create a large enough buffer to shield them from a repeat of the 2008/09 financial crisis. Concerns centre around their exposure to the property market, where a potential bubble is building up in Sydney and Melbourne. “It would be prudent for Australian (banks) to continue to plan for the likelihood of strengthened capital
requirements in some areas,” the Australian Prudential Regulatory Authority (APRA) said in a study published this week. Following the record equity raisings in 2015, Australia’s major banks Common Equity Tier ratio - a measure of balance sheet strength - has risen to 13.5 per cent as at December 2015 from 11.7 per cent in 2014. While that puts them among the top quartile of international banks, they remain below the likes of UBS and Royal Bank of Scotland at over 15 per cent, and more than 20 per cent for Swedish banks such as Swedbank and Svenska Handelsbanken.
Sign of the times
Hedge funds are increasingly adding banks to their short positions on concerns of a housing bubble and rising loan impairments as the country transitions away from a mining boom, ASX data shows. No wonder bank shares, once investor darlings, are now among the worst performers on the benchmark index, down 15-17 per cent this year. Moody’s in June said a rebound in property prices along with elevated household debt was “credit negative” and that the likelihood of an outright downward correction in house prices was rising. Australian banks are at risk as about two thirds of their balance sheets is exposed to mortgages. Banks are turning cautious about lending to certain segments including property developers and have tightened lending criteria in recent months, thanks to increased supervision by regulators. Reuters
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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The cost of funding for Australian banks has risen even as the official cash rate has dropped to record lows of 1.75 per cent. This is because the market prices in a higher risk of defaults for the banks. Meanwhile, banks lending rates are being squeezed by the rate cuts. S&P’s outlook change “shows why we cannot take international confidence in Australia for granted,” Steven Munchenberg, chief executive of Australian Bankers’ Association said in an emailed statement. “It also highlights why an unpredictable and uncertain royal commission into banks is a risky proposition. Banks will continue to work to ensure they meet the required capital levels to remain unquestionably strong.” On Friday, Standard & Poor’s said CBA, Westpac and NAB could hang on to their ratings but they would each need to raise between A$7 billion and A$8 billion in fresh capital over the next two years.
Business Daily Monday, July 11 2016 13
Asia In Brief
“Nevertheless, 2016 growth should be higher than 2012-2014 level as Vietnam’s economy gradually recovers from the bottom” SSI Securities report
GDP
Vietnam’s 2016 economy seen slowing Exports this year could rise 7 per cent, below the government’s target. Ho Binh Minh
Vietnam’s economic growth in 2016 is expected to slow to 6.2-6.3 per cent, after expanding last year at the fastest pace in eight years, as export and industrial production growth is projected to fall short of target, a government official said on Friday. Vietnam’s economy is widely seen as among the most resilient in a turbulent Asia, but government data released last week showed that the El Nino-linked drought had hit rice and coffee production. First-half growth cooled to an estimated 5.52 per cent, from 6.32 per cent in 2015, the government said. Exports this year could rise 7 per
cent, below the government’s target, while rising consumer prices and a higher crude oil price could boost the annual inflation rate to 5.0-5.5 per cent, Le Quoc Phuong, deputy head of the trade ministry’s information centre, told Reuters. “The costs of health service and education will continue to rise as scheduled,” Phuong said, confirming an earlier state media report. His forecast is slightly below a projection of 8 per cent given by the Industry and Trade Minister Tran Tuan Anh at a cabinet meeting last Friday. The Vietnamese government has targeted to keep annual inflation at 5 per cent and is striving to boost exports by 10 per cent this year to ensure economic growth of 6.7 per cent. The Southeast Asian country’s economy, driven by exports, grew 6.68 per cent last year, the fastest since 2007, based on revised government
data, but exports rose just 7.9 per cent, below the 10 per cent target. Vietnam is the world’s largest exporter of robusta coffee, black pepper and cashew nuts and ranks the third-largest in exporting rice after India and Thailand. Vietnam’s industrial output is forecast to grow 8 per cent this year, Phuong said, after expanding 9.8 per cent in 2015. An economic slowdown in the first half of 2016 is seen as a stabilising process after the 2015 peak, leading brokerage SSI Securities said in a weekly report issued last Monday. “Nevertheless, 2016 growth should be higher than 2012-2014 level as Vietnam’s economy gradually recovers from the bottom,” the report said. SSI Securities Vietnam’s saw GDP growth at 6.2 per cent this year and recovering to 6.6 per cent in 2017 thanks to economic reforms and free trade agreements. Reuters
Sentiment
Japan’s service-sector mood weakens It was especially low on fears that a stronger yen and lower stock prices triggered by the Brexit would dampen already weak consumer spending. Sentiment in Japan’s service sector hit a new low in June due to a stronger yen and weaker stock prices following Britain’s surprise vote to leave the European Union, adding to headaches for policymakers already worried about sputtering economic growth. The survey of workers such as taxi drivers, hotel workers and restaurant staff - dubbed “economy watchers” for their proximity to consumer and retail trends - showed their confidence fell 1.8 points from the previous month to 41.2 in June.
‘The outlook index, which indicates the level of confidence in future conditions, tumbled 5.8 points to 41.5 in June, the worst level since March 2014’ It was the lowest reading since October 2014, data released on Friday by the Cabinet Office showed. Japanese policymakers and markets have been on high alert about the Brexit-induced market turmoil, prompting the country’s top currency diplomat, Masatsugu Asakawa, to warn earlier on Friday
that the government was ready to respond to any speculative moves in the foreign exchange market. Sentiment in the service sector and the retail industry was especially low on fears that a stronger yen and lower stock prices triggered by the Brexit would dampen already weak consumer spending. “There are more uncertainties in economic outlook following the Brexit, and the wealthy are refraining from spending. There are few factors to stimulate spending among the middle class as well. Even though the sales tax hike was delayed again, it’s difficult to think that the situation would improve in the future,” said a respondent from the retail industry. The outlook index, which indicates the level of confidence in future
conditions, tumbled 5.8 points to 41.5 in June, the worst level since March 2014, as worries about a post-Brexit market turmoil and the global economy cast a shadow over sentiment in the service sector. Poor service-sector sentiment in June comes after data released earlier in the day showed gains in priceadjusted real wages slowed further in May. Weak service-sector sentiment and sluggish wage growth are bad news for Prime Minister Shinzo Abe, who has struggled to beat two decades of deflation and boost spending through his reflationary Abenomics policy. “Wages aren’t changing and bonuses aren’t increasing. Consumers’ desire to spend is lowering. They don’t feel they want to buy anything, so the economy doesn’t improve,” said another respondent from the retail industry. The lacklustre data also ramps up pressure on Abe’s government before elections to the upper house this Sunday and the announcement of an economic stimulus package this autumn. Reuters
Trade
U.S. seeks trade sanctions in India poultry dispute The United States is seeking trade sanctions against India after winning a dispute at the World Trade Organization regarding Indian restrictions on imports of U.S. poultry meat, eggs and live pigs, the WTO said on Friday. The United States has requested a WTO meeting on July 19 to launch the claim for compensation, according to an agenda circulated by the WTO. The agenda did not give any details, but the U.S. Trade Representative’s office has previously said U.S. annual exports of poultry meat to India could exceed US$300 million once the restrictions are removed. M&A
Orix buys U.S. housing tax credit syndicator Japanese financial services company Orix Corp has bought Boston Financial Investment Management, a U.S. money manager specialised in tax credit investments for low-income housing suppliers, two sources said on Saturday. Orix paid several hundred million dollars to buy Boston Financial Investment Management, said the sources, who had direct knowledge of the deal but were not authorised to discuss the matter publicly. The U.S. Low Income Housing Tax Credit (LIHTC) program gives tax credits for new construction and rehabilitation of rental housing for low-income households. Health test
Philippine gov’t employees to take mandatory drug tests Philippine government is open for mandatory drug testing of its over 1.5 million employees to regain the trust of the public, a senior government official said Saturday. There were calls from some quarters to allow government employees to also undergo drug testing amid the intensified campaign of the new administration of President Rodrigo Duterte against illegal drugs. Presidential Spokesperson Ernesto Abella, in an interview over a state-run radio station, said the proposal was a welcome development “just to prove to the people that all government workers are proper.” India states
Kerala imposes fat tax on junk food The southern Indian state of Kerala has become the first in the country to impose “fat tax” on junk and fast food items, in a bid to help obese people shed flab. The state government recently introduced a “fat tax” of 14.5 per cent on eateries and restaurants that sell junk food items like burgers, pizzas and doughnuts, a government official said Saturday. “The new tariff will apply to multinational food chains like McDonald’s and Domino’s, but it’s up to them to pass on the cost to customers by raising prices,” he said, on condition of anonymity.
14 Business Daily Monday, July 11 2016
International In Brief New trade index
WTO suggests sluggish Q3 world trade growth The World Trade Organization on Friday forecast sluggish trade growth in the third quarter of 2016 as it published a quarterly trade barometer for the first time. The World Trade Organization Index showed a current reading of 99.0, slightly below trend and with a downward tendency in the most recent data, it said. Readings of above 100 indicate trade growth in line with medium-term trends. World goods trade was 1.0 per cent lower in the first quarter of this year than in the first quarter of 2015, the WTO said. Brexit
IMF cuts euro zone growth outlook The International Monetary Fund on Friday cut its euro zone growth outlook for the next two years over uncertainties sparked by Britain’s vote to leave the European Union, and warned that the conditions could worsen if confusion continues to reign in financial markets. In its annual policy review of the 19-country euro currency bloc, the IMF said it now expects 2016 growth of 1.6 per cent, down from the previous forecast of 1.7 per cent, while the 2017 growth forecast will drop to 1.4 per cent from 1.7 per cent previously.
Employment
U.S. labour market nearing full strength Measures of inflation expectations, seen as key to future actual inflation, have fallen. Ann Saphir
U
.S. employers have been adding enough jobs over the last six months to put the economy on track to full employment by the end of this year, but that prospect alone is unlikely to get the Federal Reserve to step on the brakes with interest-rate hikes. A team of researchers at the Chicago Fed, headed by Dan Aaronson, estimated in April that the U.S. economy was about a million jobs shy of the Fed’s full employment goal. June’s outsize jobs gain, reported Friday, lifts the average monthly jobs increase over the past 6 months to 172,000. While that’s a step down from the 200,000 or more jobs added monthly last year, it still well outpaces the 50,000 new jobs a month needed to accommodate population growth, based on Aaronson’s estimate. That puts the economy on pace to reach full employment by December. But Fed officials have already
suggested that uncertainty over the global impact of Britain’s intended withdrawal from the European Union will keep them on policy hold for the time being. Wall Street’s top banks unanimously expect the Fed to leave interest rates unchanged at their next two meetings in July and September and are almost evenly split over whether there will be a rate rise by year end, a Reuters poll on Friday showed. Stubbornly low inflation, and hints that inflation expectations have dropped, also has policymakers inclined to wait. The Fed targets 2-per cent inflation but, while underlying measures of inflation have firmed in recent months, most measures suggest it still has some ways to go. “I want to be more convinced that the underlying rate of inflation is around 2 per cent,” Fed Governor Daniel Tarullo said in Washington last week. The 12-month average of the Dallas Fed’s trimmed mean PCE inflation rate, which some Fed officials follow as a measure of underlying inflation, registered 1.8 per cent in May. Measures of inflation expectations, seen as key to future actual inflation, have fallen. A market measure of bond investors’ 10-year inflation outlook, known as the 5-year, 5-year
forward inflation breakeven rate, fell to 1.45 per cent earlier last week, down from a recent peak of 1.8 per cent on April 29. Friday’s jobs report offered little cheer on the inflation front, with hourly wages rising only 2 cents in June, far less than could be expected if labor markets were tightening enough to begin pushing upwards on overall prices. “We’d like to see a little more inflation,” New York Fed President William Dudley said on Tuesday when speaking with employers and bankers in Binghamton, New York. “But we don’t want inflation without wage gains.” History shows that the Fed has typically allowed the unemployment rate to dip below what is seen as a sustainable level during expansions. This would allow the labour market to tighten further and could provide the extra oomph needed to lift prices higher. Traders are betting as much. Even after the strong June jobs report they see a less-than-even chance of even one rate hike before next June, based on futures tied to the Fed’s policy rate. Forecasts from Fed officials also suggest history will repeat. Unemployment ticked up to 4.9 per cent in June, Friday’s report showed. Fed forecasts from last month show policymakers expect unemployment to be below that level, which they see as sustainable in the long run, until 2018. Reuters
“I want to be more convinced that the underlying rate of inflation is around 2 per cent”
Energy
Argentina’s Macri defends energy rate hikes President Mauricio Macri on Saturday defended his move to hike Argentina’s energy rates as a “painful” but necessary part of fixing the economy after years of mismanagement under his leftist predecessor. Macri’s remarks came two days after an Argentine court halted price increases for gas and electricity, hurting his drive to narrow the fiscal deficit by cutting energy subsidies. The dispute will likely end up in the Supreme Court. “If there had been an alternative I would have taken it, but there was no alternative,” Macri said in a speech marking the country’s bicentennial independence day celebration. Property
Bank of England considers curbs on property funds The Bank of England is considering curbs on withdrawals from property investment funds after Britain’s vote to leave the European Union roiled the sector, the Sunday Telegraph newspaper said late on Saturday. The paper said it understood that the BoE was considering “enforced notice periods before redemptions, slashing the price for investors who rush to the door, or additional liquidity requirements for funds”. A spokeswoman for the central bank declined to comment on the report, and the newspaper did not give a source for its information.
Daniel Tarullo, Fed Governor
Revolving doors
Barroso slammed over Goldman Sachs Brexit job His appointment drew criticism from across the political spectrum. Charlotte Plantive
Former European Commission president Jose Manuel Barroso faced a wave of criticism Saturday after it emerged that he will advise US investment bank Goldman Sachs on the fallout from Brexit. Barroso, who also served as Portugal’s prime minister, will become a non-executive chairman of Goldman Sachs International (GSI), the bank’s international arm based in London. “Jose Manuel brings immense insights and experience to Goldman Sachs, including a deep understanding of Europe,” GSI co-chief executives, Michael Sherwood and Richard Gnodde, said in a statement. But his appointment drew criticism from across the political spectrum. Pedro Filipe Soares, a leader in Portugal’s radical Left Bloc that supports the ruling leftist coalition, said: “This nomination shows that the European elite of which Barroso is part knows no shame.” France’s foreign trade minister Matthias Fekl, meanwhile, tweeted:
“Serving the people badly, serving yourself at Goldman Sachs: Barroso, an obscene representative of an old Europe that our representative will change.” Fekl’s socialist colleagues in the European Parliament also condemned Barroso’s move, calling it “scandalous”.
‘Boon for europhobes’
“We call for the rules to be changed to prevent the appointment of former European commissioners,” French socialist Euro MPs wrote in a joint statement, adding that the “revolving door system strongly resembles a conflict of interest”. Barroso served as president of the European Commission for a decade until 2014 - steering it through the global financial crisis - and before that as Portugal’s prime minister between 2002 and 2004. “After having spent more than 30 years in politics and public service, it is an interesting and stimulating challenge that will allow me to use my skills for a global financial institution,” Barroso told Portuguese daily Expresso. Goldman Sachs was heavily involved in selling complex financial products, including subprime mortgages that contributed to the world financial crisis in 2008.
Left-wing French daily Liberation described Barroso’s appointment as “the worst timing for the Union and a boon for europhobes,” adding that it was tantamount to giving Europe “the finger”.
“We call for the rules to be changed to prevent the appointment of former European commissioners” French socialist Euro MPs joint statement
Marine Le Pen, leader of France’s far-right National Front (FN) party, said on Twitter that the appointment was “nothing surprising for people who know that the EU does not serve people but high finance”. Despite the chorus of criticism, Barroso’s appointment adheres to the European Commission’s rules that specify that commissioners remain accountable to the body for 18 months after the end of their term. AFP
Business Daily Monday, July 11 2016 15
Opinion Business Wires
Taipei Times Taipei’s Chiang Kai-shek Memorial Hall should be transformed into a research centre and museum for all of the nation’s presidents, New Power Party (NPP) caucus whip Hsu Yungming said yesterday, adding that the memorial’s name could be temporarily preserved alongside the statue of former president Chiang Kai-shek. “Having a memorial dedicated to this one leader isn’t appropriate because we don’t have any other similar memorials. It would be better to start dedicating the site to all former presidents and transition content to remove all traces of the authoritarian tradition of reverence to Chiang Kaishek,” Hsu said.
Britain’s moment of truth The Times of India With private investment yet to pick up, Finance Minister Arun Jaitley on Saturday wondered whether it is desirable to continue offering high interest rates on savings that translate into higher cost of lending and sluggishness in the economy. India, he said, has “peculiar” characteristics of having “quite high” percentage of domestic savings. “Now, whether domestic savings are only to be used by such instruments which give you a higher return and create an interest regime which is extremely costly and makes the economy sluggish, or higher returns are to be got from such instruments as funds, bonds, shares,” he asked.
The Korea Herald The wealth of South Korea’s 50 richest people by stock assets fell sharply this year, mostly led by the three children of Samsung Group Chairman due to the slumping equity of major affiliates, industry data showed Saturday. The combined equity value of the 50 wealthiest people was tallied at 151.43 trillion won (US$130.88 billion) as of Friday, wiping out 2.65 trillion won from January 4, according to the data compiled by Seoul-based corporate tracker Chaebul.com. Lee Jae-yong, the vice chairman of tech giant Samsung Electronics Co., saw his assets drop from 7.61 trillion won to 6.39 trillion won.
Philstar State-run Philippine Deposit Insurance Corp. (PDIC) said depositors of banks ordered closed by the Bangko Sentral ng Pilipinas (BSP) now have quicker access to their insured deposits. PDIC president Cristina Que Orbeta said Republic Act 10846 that amended its charter provides payment of deposit insurance would now be based on depositors’ records and not just solely on the basis of records maintained by the closed bank. Orbeta said this addresses the inconvenience caused to depositors by the absence of deposit records of closed banks or by irregularities in the recording, documentation and deposit recordkeeping of a closed bank.
B
ritain’s vote to leave the European Union has put the country’s role in Europe in limbo. Every day that passes deepens the impasse between the United Kingdom and the EU and makes the future more uncertain. The EU leadership would like to move the process along and has called on the UK to immediately take steps to do so, as outlined in Article 50, the memberwithdrawal provision of the Treaty of Lisbon. The UK side is in disarray and first must choose a new leader now that Prime Minister David Cameron has announced his resignation. But most British politicians have come to accept the outcome of the “Brexit” referendum, and that the will of the voters must now be carried out in a manner that best upholds Britain’s national interests. Because the EU’s internal market has always been a key priority for the UK, one widely discussed option, which has cross-party support, is the so-called the “Norway model”: membership in the European Economic Area (EEA). Under the EEA arrangement, Norway (along with Iceland) has full, unfettered access to the EU’s single market, including for financial services. But access to the internal market also requires EEA members to accept full freedom of movement not only for goods, services, and capital, but also for workers. Would the Norway option be better for Britain than full EU membership? A simple thought experiment might help: go back four decades and assume that France had vetoed UK membership in the EU, and that the UK had joined the EEA instead. Under this scenario, the Brexit referendum would have been on whether the UK should remain in the EEA. Would the arguments offered by this hypothetical “Leave” campaign have been any different? The real Leave campaign’s arguments focused on three issues: the UK’s contributions to the EU budget, free movement for workers, and national sovereignty. Let’s consider them in turn. The Leave campaign argued that the money the UK contributes to the EU budget as a member state could be better spent at home. This same argument would apply against EEA membership. In fact, the UK’s financial contribution to the EU is actually smaller, relative to its national income, than Norway’s under the EEA. The Leave campaign also claimed that free movement of labour heightens the supposed dangers of terrorism and higher unemployment for British workers. But the provisions governing labour mobility in the EU apply to Norway and all EEA countries as well. To the extent that freedom of movement was the key reason for leaving the EU, the Norway model would be equally unacceptable. This brings us to the Leave campaign’s third argument and central theme: “getting back control” of the rules and regulations governing Britain’s economy. This objective would be an even stronger argument against EEA membership than it was against EU membership. Under the EEA, the UK would still have to abide by
“
Daniel Gros Director of the Centre for European Policy Studies
the rules and regulations set in Brussels, but it would have far less say in their creation than it does as an EU member. In fact, within the EU, Britain had considerable influence over financial services, the most important industry in its economy. “Getting back control” was also directed against the EU Court of Justice in Luxembourg, whose judgments, by convention, have precedence over judgments by national courts. But the EEA also has its own court, whose judgments are binding on EEA member states. In short, all the arguments against EU membership also apply, often with even more force, against EEA membership. Still, some countries do choose this option. The Norwegians have consistently preferred to remain in the EEA, and have voted more than once, by large majorities, against joining the EU. Denmark has been a similar case since 1992, when Danish voters rejected eurozone membership under the Maastricht Treaty. Now, the Danish krone is so tightly linked to the euro that Denmark’s central bank has effectively lost its independence. By joining the euro, Denmark would at least have gained a seat at the table. The Swiss rejected even EEA membership in a referendum; however, to do business with the EU on the level it wanted, the Swiss government later had to accept most of the EEA rules anyway, including the free movement of people and contributions to the EU budget. As these real-world examples show, no country that wants to benefit from the European project has been able to have its cake and eat it. Open borders and economic integration require common rules. A “spaghetti bowl” of different à la carte arrangements would not work for a continent of more than 30 small and medium-size countries and more than 500 million people. The EU provides this set of common rules, buttressed by common institutions that give every country, even the smallest, a say. This is the balancing act of sovereignty in Europe: Each state remains formally sovereign, but if it wants to prosper economically, it must accept the common norms and regulations that enable Europe’s intensive cross-border division of labour. Of course, Europe is more than just a free-trade area; it is also a hub of shared social and cultural life. This is why freedom of movement is so appealing, not only from an economic point of view. Some smaller countries have abdicated their role in influencing Europe’s future. But it is surprising to see a country with such a long history of global leadership as Britain suddenly withdrawing into itself. Having abandoned its historical role in shaping Europe’s future, will the UK really be content to remain on the side-lines? Project Syndicate
A ‘spaghetti bowl’ of different à la carte arrangements would not work for a continent of more than 30 small and medium-size countries and more than 500 million people
”
16 Business Daily Monday, July 11 2016
Closing Olympics
More than 70 per cent of tickets sold for Rio
Mayor of Rio de Janeiro Eduardo Paes runs in front a screen during the inauguration of the Museum of the Olympic City
scenario would be to sell out all events but if we reach the level of London, we More than 70 per cent of the total tickets will be happy,” Ferreti said. “Our revenue target from ticket sales is close to being available for next month’s Olympic Games in Rio de Janeiro have been sold, achieved. We know that many people according to organizers. Fans have spent buy tickets at the last minute. In the next 960 million reais (around US$290 million) few weeks the actual events will be more visible and we hope that will trigger on 4.3 million tickets, Rio 2016 ticketing director Donovan Ferreti said. Another 1.7 sales,” he added. Ticket prices for the million tickets are still available. The figure August 5-21 Games range from less than is still some way short of the mark set at US$20 for sailing, tennis and modern pentathlon to US$1,400 for the best seats the London 2012 Games, when 86 per cent of total tickets were sold. “The ideal at the opening ceremony. Xinhua
Shanghai meeting
G20 seeks to enhance trade growth in face of protectionism The ministers discussed the need to address overcapacity, particularly in the steel sector. David Stanway and John Ruwitch
I
n the face of a “worrying” rise in protectionism, trade ministers from the world’s major economies have agreed to cut trade costs, increase policy coordination and enhance financing, China’s Commerce Minister Gao Hucheng said yesterday. The Group of 20 trade ministers, who wrapped up a two-day meeting in Shanghai yesterday, approved a broad trade growth strategy aimed at reversing a slowing in global trade, and backed guiding principles for global investment policymaking. “The global recovery continues, but it remains uneven and falls
short of our ambition for strong, sustainable and balanced growth. Downside risks and vulnerabilities persist,” the ministers said in a joint statement. “We agree that we need to do more to achieve our common objectives for global growth, stability and prosperity.” The spectre of protectionism has loomed large over global trade amid sluggish economic growth and is a pressing concern for China. The country’s huge but struggling steel sector has relied on exports to offset the impact of slowing domestic demand, but it has been accused of using unfair pricing to push foreign competitors out of business. The ministers discussed the need to
address overcapacity, particularly in the steel sector, but some disagreed about the need for specific new commitments to resolve the problem, said one senior trade official involved in the talks, declining to be identified because details of the discussions had not been made public. The joint statement reflected China’s concerns that the country was being singled out for blame for a glut that has led to a collapse in global prices, noting instead that excess capacity in steel and other industries is “a global issue which requires collective responses”, and that subsidies and government support could cause distortions. The United States has been a vocal critic of China’s excess capacity, saying its pledges have not gone far enough to resolve the problem. U.S. Trade Representative Michael Froman said in a statement that
Gao Hucheng (C) China’s Minister of Commerce, speaks at the opening session of the G20 Trade Ministers Meeting in Shanghai
the G20 had “added to the chorus of voices calling for tackling the root causes of excess capacity for the benefit of both developing and developed countries”. Chinese trade officials have repeatedly stressed that the country has been the victim of overzealous anti-dumping actions by foreign countries, which fail to take into account Chinese efficiency or its low labour and production costs.
Key Points Agrees to cut trade costs, increase policy coordination, enhance financing Global recovery remains uneven - joint statement Global forex not mentioned in discussions - senior trade official The trade growth strategy adopted by the ministers spelled out broad principles for stimulating trade, including lowering costs, boosting trade finance and stimulating the service sector. The investment policymaking guiding principles urged governments to avoid protectionism in relation to cross-border investment and establish “non-discriminatory, transparent and predictable” conditions for investment. Global foreign exchange rates, in flux since Britain’s referendum to leave the European Union, were not mentioned in the joint statement, and the senior trade official involved in the talks said the issue had not been discussed. On Britain’s exit vote, UK and EU representatives in Shanghai were at pains to stress that they would come up with a “sensible and mature new arrangement”, South Africa’s Minister for Trade and Industry Rob Davies told Reuters on Saturday. Reuters
Health
Election
Divestitures
Coffee impedes hearing recovery from noise
Australia’s Turnbull declares victory as vote count continues
HP to consider selling some of its software assets
Coffee lovers who like to attend rock music concerts or work at airports should be cautious now as a recent study indicates that caffeine causes serious impact on hearing. According to a research by the McGill University in Canada, regular caffeine consumption can greatly impede hearing recovery from loud noise, even making the damage permanent. “When the ear is exposed to loud noise, it can suffer from a temporary hearing reduction, also called auditory temporary threshold shift. This disorder is usually reversible in the first 72 hours after the exposure, but if symptoms persist, the damage could become permanent,” Dr. Faisal Zawawi, an otolaryngologist at McGill, told a press release. The researchers found this impact through an experiment on guinea pigs. They grouped the pigs and tested them in environments of noise without coffee, and noise with coffee. The noise the animals were exposed to for one hour per day is similar as what people hear at a rock concert. After eight days, significant difference of hearing loss is recorded between the two groups, according to the research team. Xinhua
Australian Prime Minister Malcolm Turnbull declared victory in national elections, saying his Liberal-National coalition had won the most seats in the lower house of parliament. “We’ve won this election,” Turnbull told reporters in Sydney yesterday, following a concession speech by opposition leader Bill Shorten. It’s still unclear whether Turnbull will lead a majority government or one that needs the support of smaller parties and independents. The coalition has won 74 of 150 House of Representative seats and is projected to take 76, or the slimmest majority, according to the Australian Broadcasting Corp. With about 80 percent of votes counted, the ABC has called 66 seats for Labour, five to other parties, while another five remain too close to call. The nation has been politically paralyzed since the July 2 ballot failed to produce a clear winner, forcing electoral officials to comb through postal votes to determine the outcome. “There is a difference between a small majority and a minority,” said Martin Drum, a senior political lecturer at Notre Dame University in Perth. “A small majority means more stability.” Bloomberg News
Hewlett Packard Enterprise Co. is considering a sale of some of its software assets as it continues to slim down its operations, according to people familiar with the matter. The divestitures would come from a portfolio of acquisitions made over roughly the last decade, including Autonomy, Mercury Interactive and Vertica Systems, said the people, who asked not to be identified because the matter is private. A sale process is in the preliminary stages and may not result in any deals, the people said. Chief Executive Officer Meg Whitman has been pushing the company to reduce its size and become nimbler to help it better take on rivals such as Dell Inc. and navigate the changing demands of corporate customers. After splitting from sister company HP Inc. in November, she announced in May she will spin off and merge its business-services division with Computer Sciences Corp. in a deal valued at US$8.5 billion for HPE shareholders. The overall software business has been showing some improvement. While sales declined 13 percent in the quarter ended April 30, in constant currency it climbed 2 percent when adjusted for past divestitures and acquisitions, CFO said. Bloomberg News