Gov’t strives to submit six bills by year-end Politics Page 3
Wednesday, August 31 2016 Year V Nr. 1120 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Wastewater
Gov’t decides to scrap upgrade of wastewater treatment plant on Peninsula Page 2
www.macaubusinessdaily.com
Olympics
Insurance
Gold medallists receive MOP14 million from association and private donations Page 2
China Life and AIA International dominate insurance market in H1 Page 5
Economy
A quarter drop in exports. Driven by weak external demand and slow domestic consumption. Resulting in a 7.1 pct drop in GDP in Q2. But still an improvement on a Q1 y-o-y contraction of 13.3 pct. Suggesting recovery in the MSAR economy. Private spending was cautious, while public construction increased 40 pct and investment in equipment jumped almost 60 pct in the quarter. Page 4
Authorities say ShenzhenHong Kong exchanges link to be operative in November Page 9
Results
ICBC and Bank of China confirm flat profit growth Page 16
DICJ head on MB.tv
Director Paulo Chan speaks to MB.tv about the restructuring of the Gaming and Inspection Co-ordination Bureau. About preparing for the “next boom”. And the slowdown in revenues and how to seize opportunities. In an extended interview available today on www.macaubusiness.com the DICJ Director explores this “different world” - and seeking stronger junkets with roots in the MSAR.
High noon for Uber
Transportation Car-hailing application Uber Macau has accumulated over 10,000 signatures. Petitioning for legal acceptance of its operational concept in the territory. But the Transport Bureau is having none of it. Stating that the law must be upheld. It announced that on-call taxi licence grants will be announced in Q4. Page 3
Shun Tak awash in red ink
Interim results TurboJET operator Shun Tak Holdings fell heavily into the red in H1. Having posted profits of over HK$380 mln for the same period last year. Revenue was down more than 12 per cent y-o-y to HK$1.87 billion. While the group’s property business fell 41 pct y-o-y. Occupancy of the group’s Mandarin Oriental and Grand Coloane Resort reached 38 pct and 53 pct vis-à-vis a city average of 80 pct for the period. Page 6
FTZ catalyst
Foreign investment China’s Standing Committee of the National People’s Congress. It’s currently working on modifications to the most important laws for foreign investment. Authorities are mulling extending business practices in Free Trade Zones to the rest of the country. Page 8
Interview Page 6
HK Hang Seng Index August 30, 2016
23,016.11 +194.77 (+0.85%) Worst Performers
Sands China Ltd
+3.51%
China Overseas Land &
+1.56%
Tingyi Cayman Islands
-5.82%
Cathay Pacific Airways Ltd
-0.36%
Bank of Communications
+2.43%
Ping An Insurance Group Co
+1.51%
Cheung Kong Infrastructure
-1.42%
CNOOC Ltd
-0.21%
China Shenhua Energy Co
+2.35%
Bank of China Ltd
+1.47%
China Mengniu Dairy Co Ltd
-1.07%
Belle International Holdings
-0.20%
Tencent Holdings Ltd
+1.69%
Hang Lung Properties Ltd
+1.37%
Hengan International Group
-0.67%
Want Want China Holdings
China Resources Land Ltd
+1.59%
AIA Group Ltd
+1.24%
CITIC Ltd
-0.48%
Cheung Kong Property
-0.19% +0.00%
27° 30° 27° 31° 26° 32° 26° 31° 26° 31° Today
Source: Bloomberg
Best Performers
Wed
Thu
I SSN 2226-8294
Fri
Sat
Source: AccuWeather
Stock markets
2 Business Daily Wednesday, August 31 2016
Macau Border Crossing Gongbei Customs: Macau vehicles to enter Hengqin by year-end
The long and winding road By October at the earliest, or December by the latest, Macau-licensed vehicles can travel freely in Hengqin, according to the neighbouring city’s Customs.
T
he Z h u h a i G o n g b e i Customs Chief says that single licence plate vehicles registered in Macau could travel in Hengqin freely as early as October, according to a report by public broadcaster TDM Chinese news.
Zhao Min, Deputy Director of the Guangdong Sub-administration of China Customs and Director of Gongbei Customs, says that the policy is under final review by the Central Government and the Customs services have prepared for the measure to take place.
“From the look of the process of how the whole thing is going, it’s hopeful for the measure [for Macau vehicles to travel in Hengqin] to be put into practice by the end of this year. The earliest in October, the latest by December,” said Mr. Zhao. “Now we’re just in the final stage of finetuning the work arrangement with regard to vehicle management and insurance”.
Indefinite closure
Apropos Wanzai Port, which once
Gongbei Customs appoints supervisors
Gongbei Customs has appointed 25 special supervisors, of whom nine are from Macau. Gongbei Customs Chief Zhao Min says that there are over 3,000 staff members working at Gongbei Customs, and that it can be difficult to manage the team. The organ has started inviting
offered a maritime border crossing between the Inner Harbour in Macau and Wanzai in Zhuhai, Mr. Zhao said that the Customs is unaware of the border’s fate. Wanzai Port was shut down at the beginning of this year due to “safety concerns raised by the aging facilities at Wanzai Port”. Mr. Zhao added that the e s t a b l i s h m e n t, d ev e l o p m e n t a n d o p e rati o n o f th e Wa n zai Port was decided by Zhuahi Municipal Government and that t h e M a i n l a n d C u st o m s b o d y hasn’t heard from the government regarding arrangements for that border.
special supervisors to monitor and provide suggestions on their work, with the intention of improving the service of the Customs body. The 25 supervisors, originating from Zhuhai, Zhongshan and Macau are from all walks of life, notes the group, including Lao Ngai Leong, who is also a Macau National People’s Congress delegate.
Public Project
No large-scale wastewater treatment Gov’t decides not to take on a large-scale upgrade on the wastewater treatment plant citing space and cost. Annie Lao annie.lao@macaubusinessdaily.com
The Environmental Protection Bureau has decided not to carry out a large scale-upgrade on the wastewater treatment plant on the Macau Peninsula, according to its director, Vong Man Hung. In a reply to legislator Si Ka Lon’s written enquiry, the official explained that the decision was made in consideration of the plant’s current condition, the limitation of space and related construction costs. But he added that the government
the government. Meanwhile, the Bureau director also revealed in his reply that the government is studying how to build
a new wastewater treatment plant on the southern tip of the artificial island of the Hong Kong-Zhuhai-Macau Bridge. The new plant is expected to handle the biological treatment of around 300,000 cubic metres per day, according to Mr. Vong.
would introduce certain equipment into the plant to optimise the facility’s current ability for sewage treatment without carrying out much construction. According to Mr. Vong, the improvement works for the plant are expected to be completed in 2021. In the written enquiry, the directly elected legislator questioned the government’s expansion plan for the wastewater treatment plant, enquiring how the authorities could increase the current daily sewage treatment rate of 50 per cent to 60 per cent as announced recently by
Society Macau welcomes Olympic medallists with MOP14 mln cheque
Society
Olympic medallists interact with local residents
crowds greeted the delegation upon their arrival at the Macau Outer Harbour Ferry Terminal.
High-rise casts pall on lighthouse
Olympic team charms
A concern group is criticising the height of a building located on the Guia Lighthouse hill, on the Calçada do Gaio, as expressed in a statement through All About Macau Media. Work on the building, which is located next to the Hotel Royal complex and lies on the road leading up to the public hospital, has been halted for eight years, yet its height has still been retained, notes the publication. The concern group says if the guidelines set on height limits for the protection of the heritage site by the Chief Executive aren’t respected then the integrity of the commitment of the government to protect the cultural heritage of the city could be affected and set a precedent for further incursions on height limits.
Chinese Olympic medallists were given a MOP14 million (US$1.7 million) cheque by Chief Executive Fernando Chui Sai On in appreciation of their efforts. The cheque was presented during the welcome banquet at Macau East Asian Games Dome on Monday. According to government information, the amount of the cheque is a result of donations from various entities: Henry Fok Foundation (MOP5 million), Chinese Enterprises Association of Macau (MOP3million), the family of Ma Man Kei (MOP2 million)
Chan Meng Kam (MOP1 million), Lei Chi Keong (MOP1 million), Tai Fung Bank (MOP1 million) and Fong Chi Keong (MOP1 million). The Olympians arrived in Macau on Monday afternoon for a four-day visit. The 64-member delegation includes 42 Rio Olympic gold medallists and coaches, badminton player Lin Dan and sprint athlete Su Bingtian, as well as Fu Yuanhui - the swimmer who become an Internet buzz because of her humorous expression and speech – who will meet local citizens during the visit. Cheering
At the welcome banquet, Chief Executive Chui Sai On said that the elite Mainland athletes’ visit to Macau would enable local residents to have a close look at their demeanour and to understand what efforts they have made in their journey to victory. He also urged local youth to learn from the athletes in their outlook on life. The delegation felt the enthusiasm and affection of Macau compatriots upon their arrival, said Liu Peng, minister of the General Administration of Sport of China. He believes that the Mainland and Macau will continue to strengthen exchanges and increase co-operation in sports and other fields. The delegation of Mainland Olympians attended ‘A Date with Youth’ activity to share their experiences in training and competition yesterday morning, as well as interacting with Macau citizens during the evening party. The athletes will visit six communities to meet local teenagers, communicate with citizens and showcase their sporting abilities today. In the Rio Olympic Games, the Chinese delegation won 26 gold, 18 silver and 26 bronze medals. Chinese athletes set five world records and 12 Olympic records, winning, in addition, the first gold medal for China in bicycling and men’s Taekwondo. Agencies
Business Daily Wednesday, August 31 2016 3
Macau Transport Over 10,000 sign online petition to support Uber Macau
Uber: Should I stay or should I go . . . Transport Bureau says they ‘respect citizens’ right to voice out their opinions but the city’s transportation has to run legally’. Joanne Kuai joannekuai@macaubusinessdaily.com
C
ar-hailing application Uber Macau initiated an online petition yesterday. Over 10,000 people had signed by the time this newspaper went to press. They are voicing their support for the ride-sharing service to continue operating in Macau.
“Without a clear path to regulatory progress and with the continued impact and heavy enforcement on riders and drivers, we face a difficult decision” Trasy Lou Walsh, General Manager of Uber Macau Uber previously disclosed to local legislators that it is to cease its service on September 9 in the Special
Administrative Region ‘if the negotiation with the government does not progress’. The service has been deemed illegal in the city and is subject to fines when drivers are caught. Launched in Macau last October, Uber said in a public letter yesterday that it currently has over 2,000 fulltime and part-time driver partners in the territory, who have earned a cumulative of MOP21 million (US$2.63 million) in fares. However, the Secretariat for Security said last week that local police had prosecuted 379 cases of Uber drivers providing unlicensed taxi services in the past 10 months, adding that the company had paid over MOP10 million in penalties to the authorities. According to the local laws, drivers providing unlicensed taxi services in the city will receive a fine of MOP30,000 if they are caught, whilst Uber has been paying the fines for their drivers caught by police.
“Critical moment”
“This is a critical moment for Uber in Macau. Riders and drivers, locals and tourists have embraced us; however, without a clear path to regulatory progress and with the continued impact and heavy enforcement on riders and drivers, we face a difficult decision,” said Trasy Lou Walsh, Uber Macau General Manager, in a statement. Yesterday, a Transport Bureau (DSAT) representative reiterated the
Law
Six bills pending debate The six proposed bills are to be submitted to AL this year. Annie Lao annie.lao@macaubusinessdaily.com
The government is striving to submit the remaining six bills that it proposed earlier to the Legislative Assembly (AL) by year-end, the deputy director of Legal Affairs Bureau Leong Pou Ieng said in a reply to legislator Ella Lei Cheng I’s interpellation. During the 2016 legislative term, the authorities proposed a total of eight bills but only two bills were submitted to the city’s legislature for discussion. These two bills are the asset-freezing law implemented yesterday and the bill revising the private notary law that is pending a final reading by legislators. Ms. Lei expressed her worries in
the enquiry that the remaining six bills would become invalid if the Assembly could not complete their discussions on these bills before this four-year tenure of the legislature ends next August. She thus urged the government to submit the bills to the legislature as soon as possible. The six ‘leftovers’ include the bill amending the budget framework law as well as a bill tightening the city’s anti-money laundering regulations. ‘The Legal Affairs Bureau has been closely communicating and exchanging opinions with related bodies proposing the bills . . . in order to hand in these bills to the Legislative Assembly within this year,’ the Bureau’s deputy head wrote in her reply. She added that that the government would strengthen its co-operation with the legislature on the city’s midterm legislative plan, execution of annual legislative plans as well as submission of bills.
government’s stance that the service is illegal when questioned about the Uber online petition by reporters following a closed-door meeting of the Traffic Affairs Consultative Committee. “We respect the citizens’ right to voice their opinion, but the city’s transportation has to be operated in accordance with the law,” said Antonio Ho Chan Tou, Functional
DSAT: on-call taxi licence to be announced in Q4
The Transport Bureau (DSAT) issued a statement yesterday, saying that the results of the special taxi service licence grants are expected to be announced in the fourth quarter of this year and such service could be put into operation in the first half of next year. DSAT says that to cater to the needs of residents requiring online-hailing of cars, the government has requested that
Chief of the Transport Management Division at the Traffic Management Department of DSAT. A public protest organised by the Macao Community Development Initiative (MCDI) led by local legislator Au Kam San to support ride-sharing mobile application Uber’s continued operation in Macau has been planned for this coming Sunday, September 4.
bidders not only provide on-call taxis but also develop mobile applications so that residents can call for taxi services via different channels. In addition, the DSAT said that the authorities have already informed 250 successful bidders of their eight-year taxi licences. The Bureau says these taxis are expected to be put into operation in the fourth quarter of this year. The public tender for the 250 taxi licences was launched in March this year.
4 Business Daily Wednesday, August 31 2016
Macau GDP
Macau’s GDP showing signs of recovery The city’s economic growth saw a y-o-y decrease of 7.1 pct in Q2. Annie Lao annie.lao@macaubusinessdaily.com
T
he city’s Gross Domestic Product (GDP) dipped 7.1 per cent for the second quarter of this year, according to the latest data released by the Statistics and Census Service (DSEC). Despite the drop, GDP posted a better performance than in the previous quarter, in which it contracted 13.3 per cent. The DSEC indicates that the decline is due to a decrease in service exports and investment, as well as a lower comparison base from last year. The amount of goods exported dropped by 24.7 per cent yearon-year as weak external demand continued to show similar rates as in the first quarter. The city’s export of
gaming services and other tourism services also decreased, by 12 per cent and 7.4 per cent year-on-year, respectively.
Private expenditure decreases
Domestic demand continued to slow due to the city’s economic adjustment, notes the data published by the DSEC, with private expenditure falling 2.2 per cent year-on-year. Households tightened belts on non-essential items, causing a significant decrease
in expenditure on durable goods. The city’s overall investment declined, as evidenced by a 15.2 per cent year-on-year decrease in gross fixed capital formation, caused by a significant 18.4 per cent decrease in total private investment. This was mainly concentrated on construction and equipment, which saw subsequent 19.1 and 12.7 per cent year-on-year falls, respectively, as major tourism and entertainment related construction projects were
completed in the quarter. Government investment, however, increased by 41.7 per cent year-onyear for the quarter, driven by a 40 per cent increase in investment in public construction projects and a 59.5 per cent increase in equipment investment.
caused by a considerable decline seen last year due to the impact of the Middle East Respiratory Syndrome in the Republic of Korea. The number of local residents travelling to Mainland China and Malaysia dropped by 32.1 per cent and 46.9 per cent year-on-year, respectively. Meanwhile, the average occupancy of hotels and guesthouses reached 86.8 per cent in the month of July, up 4.0 percentage points year-onyear, which is also the highest singlemonth figure since November 2014.
The total number of guests who checked into hotels and guesthouses last month reached 1,042,000, with the highest occupancy rate registered by the city’s 4-star hotels - at 90.6 per cent last month. The significant increase in visitors from the Republic of Korea has led a 49.1 per cent year-on-year increase in Korean guests at hostels and guesthouses - to 24,600. Guests from Mainland China made up 62.1 per cent of the total, while 17.5 per cent of total guests came from Hong Kong during the month.
Contraction
Private spending was conducted more cautiously, demonstrating a 16.2 per cent year-on-year drop in the import of goods, further affected by fewer visitors spending in the city, although this was still a smaller drop than that seen in the first quarter. Exports of services from the SAR also declined during the quarter, with a 9.5 per cent contraction, year-onyear, a slight recovery from the 13.7 per cent year-on-year drop seen in the first quarter, while the city’s import of services slowed, from the 4.8 per cent year-on-year rise of the first quarter to a 2 per cent year-onyear increase in the second quarter.
Tourism
Korean package tours to MSAR rocketed in July Package tour visitors from the Republic of Korea soared by 161.0 per cent to 30,000 year-on-year last month. Cecilia U cecilia.u@macaubusinessdaily.com
month rebounded to a total of 4,100 - posting nearly a 37-fold year-onyear increase for the month of July this year. The notable increase was
Package tour visitors from the Republic of Korea posted a notable increase of 161.0 per cent in July reaching 30,000, as compared to 11,400 in the same period last year, according to the latest data released yesterday by the Statistics and Census Services (DSEC). By contrast, visitors from Mainland China and Taiwan who were also travelling to the city on package tours declined 27 per cent and 25.6 per cent year-on-year, respectively. For outbound residents travelling outside the city 109,000 used the services of travel agencies, a 16.5 per cent fall vis-a-vis July 2015, of which 39.5 per cent travelled on package tours. The number of Macau residents who travelled to the Republic of Korea on package tours during the
Travel agency EGL profits hit by appreciation of Japanese yen
A yen for Japan Hong Kong listed travel company EGL Holdings Company Limited (EGL) registered a 39.3 per cent year-on-year decrease in gross profit in the first six months of 2016, mainly due to Japan’s currency appreciation Nelson Moura nelson.moura@macaubusinessdaily.com
Travel company EGL Holdings Company Limited (EGL) saw a 82.1 per cent year-on-year decrease in profit in the first six months of 2016, for HK$15.07 million (US$1.94 million/MOP15.53 million) according to the group’s filing with the Hong Kong Stock Exchange. EGL’s revenues for the first halfyear amounted to HK$817.3 million, a 4.4 per cent year-on-year decrease from the same period last year. According to the release, most of
EGL’s revenues are generated by Hong Kong and Macau customers through package tours and free independent travellers packages, individual travel elements and ancillary travel related products and services.
Japan impact
EGL’s CEO Yuen Man Ying stated that the company’s results were ‘hit hard’ by the significant increase of costs driven by the appreciation of the Japanese yen, the strong demand for travelling to Japan worldwide, and the increase of competition in the tourism industry. In the first half of 2016 package tours
to Japan remained EGL’s main source of revenue, comprising 64.2 per cent of total revenue and amounting to HK$524.6 million. Due to Japan’s currency appreciation, however, EGL’s gross profit from Japanese tours in the first six months of 2016 decreased 51 per cent year-on-year to HK$58.9 million.
Asia based
Other Asian destination package tours amounted to 14.2 per cent of total revenue totalling HK$116.1 million for a gross profit year-on-year decrease of 20.4 per cent in the first half of 2016 to HK$19.7 million. “In the light of a tough business environment, [EGL] will be more cautious in consolidating its core business in order to diversify the revenue base of its business. It will also adopt an effective cost control strategy to enhance [EGL’s] competitiveness and expand its customer base,” Yuen stated in the release. The company runs EGL Tours (Macau) Co. Ltd. The EGL group’s
CEO stated that in the first half of 2016 the travel company had established a subsidiary in Mainland China which will begin operations “shortly and to mainly operate inbound travel” in Mainland China.
Business Daily Wednesday, August 31 2016 5
Macau
Insurance THE LIFE INSURANCE SECTOR POSTS A NOTABLE INCREASE IN PREMIUMS
Business for local insurance market doubles The life insurance market was dominated by China Life Insurance and AIA International in the first six months of the year. Kam Leong kamleong@macaubusinessdaily.com
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he city’s insurance sector saw business expand by 54.2 per cent year-onyear for the first half of the year, generating total gross premiums of MOP10.4 billion (US$1.3 billion/HK$10.1 billion), driven by the growth of the life insurance segment, according to the latest official data released by the Monetary Authority of Macau (AMCM). For the first half of this year, the life insurance market raked in total gross premiums of MOP9.3 billion, which had surged by 65 per cent year-on-year when compared to the MOP5.7 billion
posted in the same period a year ago. Meanwhile, gross claims of the sector remained flat at MOP1.3 billion during the period vis-à-vis the same period of last year. Of the total, claims for death accounted for 35 per cent, reaching MOP431.8 million, followed by insurers’ dividends and maturity to policyholders, at MOP336.7 million and MOP301.2 million, respectively. However, non-life insurers saw their business stagnate in the six months. Total gross premiums of the sector amounted to MOP1.19 billion, down MOP614,000 from the same period one year ago. Of the total non-life premiums, 36.5 per cent was generated by the comprehensive insurance of
property in the amount of MOP409.3 million, followed by employees’ compensation of MOP250.3 million, accounting for 22.3 per cent of the total. In addition, the non-life sector registered a year-on-year decrease of 3.7 per cent in gross claims to MOP345.6 million in the six months.
China Life dominant ‘life’ player
Analysed by insurers, the life insurance market was dominated by China Life Insurance (Overseas) Co. Ltd. and AIA International Ltd. China Life generated MOP6.4 billion in gross premiums during the six months, surging 90 per cent yearon-year. In addition, the premiums it generated accounted for 68 per cent of the segment total. Meanwhile, total claims that the insurer met in the period decreased by 32.6 per cent year-on-year to MOP234.4 million. AIA saw its gross premiums
jump 13.8 per cent year-on-year to MOP1.46 billion in the period, while total claims on the company recorded a year-on-year increase of 5.7 per cent to MOP581.5 million. China Taiping Insurance (Macau) Company Ltd. was the biggest player in the non-life insurance market during the period despite the insurer seeing its gross premiums for the period fall 1.4 per cent year-on-year to MOP330.5 million. The second biggest non-life insurer in the market was Luen Fung Hang Insurance Company Ltd., whose gross premiums grew 12 per cent year-on-year to MOP321.2 million for the six months. Non-life insurance company AIG Insurance Hong Kong Ltd. saw its loss ratio reach 99.2 per cent in the sixmonth period, while Macau Insurance Company Ltd’s loss ratio, the second highest in the sector, amounted to 66.1 per cent in the period.
6 Business Daily Wednesday, August 31 2016
Macau Gaming
Game on New bills, new rules, new standards. And a house restructuring to face the new developments of the gaming industry in Macau, explains DICJ Director Paulo Martins Chan to MacauBusiness TV.
M
acau knows what to do in these less exciting times in terms of gaming growth, explains Paulo Martins Chan when we sit down in his office for an exclusive interview. The new 53-year old Director of the Gaming and Inspection Co-ordination Bureau (DICJ) explains that now is the time to take advantage of the slower pace to “prepare ourselves”. It’s time to revise the law, better regulate the environment of the gaming industry and “prepare for the next boom”, he tells MacauBusiness TV - the newest online video news portal - and to the publications under the business news group that this newspaper is also part. Noting he was “very surprised” when he received the invitation to replace former chief regulator M a n u e l J o a q u i m d a s N ev e s, Paulo Martins Chan sees a “lot of
challenges” ahead and a “completely different world” to the one he was accustomed to, says the former Assistant Prosecutor.
Mr. Chan is not worried about the future of gaming here nor about the regional competition. After all, even with the slowdown in the VIP take and overall revenues results are far from being bad just not as good as when the city was enjoying double-digit growth. Nevertheless, opportunities can arise when “people work harder” to overcome difficulties. And DICJ has its own target, he tells our multimedia group. New bills are on the way, especially one that will further regulate junket activity,
i m p o si n g n e w r u l e s . “ W e’ r e looking for stronger junkets. Financially. And also some roots in Macau, which means that a certain percentage of shares should belong to Macau residents”. DICJ restructuring and changes in slot machine standards are also in the works, he comments. For the TV interview, go today to www.macaubusiness.com. The extensive interview will be available in the September editions of Macau Business and Business Intelligence. P. A. A.
Interim result The conglomerate has posted an interim net loss of HK$53 mln
Shun Tak sinks into the red in H1 The Hong Kong-based company saw its propertyrelated business slashed in the six months, while other major segments such as hospitality and transportation also went down. Kam Leong kamleong@macaubusinessdaily.com
Hong Kong-listed conglomerate Shun Tak Ltd. fell into the red for the first half of the year, posting a net loss attributable to owners of HK$53 million (US$6.6 million) from a net profit of HK$387 million recorded one year ago. According to a filing with the Hong Kong Stock Exchange yesterday the company’s total revenue was down 12.2 per cent year-on-year to HK$1.87 billion compared to HK$2.12 billion one year ago. In particular, the group’s revenue generated by its property business plummeted 41.1 per cent year-onyear to MOP217.7 million for the six months.
For the company’s residential Nova Park in Taipa, it said 82 per cent of the units were handed over to homeowners as at the end of June. In addition to the decrease in its
property-provision business, the conglomerate saw its other major businesses slow down during the six months.
Fewer ferry passengers
According to the filing, Shun Tak’s revenue generated by passenger transportation services declined by 7.1 per cent year-on-year to HK$1.1 billion from HK$1.18 billion. ‘The transportation division operated against considerable headwinds in the first six months of 2016, underscored by a contraction in tourist arrivals to Hong Kong
Energy
Sinopec takes 21.6 pct y-o-y hit in H1 profits Chinese oil group China Petroleum & Chemical Corp. (Sinopec) registered a 21.6 per cent year-on-year fall in profits for the first half of 2016, for a total of RMB19.9 billion (MOP23.8 billion/US$2.9 billion) according to a company filing with the Hong Kong Stock Exchange. The fall in profits was justified by
falling oil prices worldwide and a weak recovery of the world economy, according to the interim report. ‘In the first half of 2016, international crude prices recorded a sharp decline from prices in the first half of 2015, and bottomed out during the period,’ the Sinopec interim report stated.
According to the oil company, the average price of a North Sea crude oil barrel in the first six months of 2016 amounted to US$39.81(MOP318.05) per barrel, 31.2 per cent less than in the same period of last year. The largest oil producer in China, PetroChina, announced last week a fall of 97.9 per cent in profits in the first half of the year vis-a-vis the same period last year to RMB531 million, according to news agency Lusa. Sinopec saw a total of RMB879.2 billion in turnover and operating revenue for the period, a 15.6 per cent decline According to its interim report, Sinopec believes China will register a steady economic growth in the second half of 2016, boosting internal demand for refined oil products and petrochemical products. The company believes that low international oil prices are ‘likely to persist’ due to an oil ‘worldwide oversupply’. N.M.
and Macau, as well as a setback in domestic spending clouded by economic uncertainties,’ the company remarked. Its ferry company, TurboJet, provided service for some 6.4 million passengers on the Macau-Hong Kong routes during the six months, down 8 per cent year-on-year. ‘Tourists’ interests were dampened by a strong local currency as well as heightened competition by other Asian destinations,’ it explained in the filing.
Low occupancy of local hotels
Meanwhile, the company’s revenue derived from its hospitality business went down by 4.8 per cent year-onyear to HK$362.6 million. The company operates two 5-star hotels in Macau – namely, the Mandarin Oriental on the Macau Peninsula and Grand Coloane Resort in Coloane. The two hotels both registered occupancy rates lower than the market average. According to the filing, the average occupancy rate of Mandarin Oriental amounted to only 38 per cent for the first half of the year, whilst that of Grand Coloane reached some 53 per cent. For the same period, the average hotel occupancy at local 5-star hotels was 78.7 per cent, according to official data from Macao Government Tourism Office. The company explained that the low occupancy rate of Mandarin Oriental was due to ‘fierce competition from newly opened integrated resorts’. Th e c o m p a n y ’ s i n v est m e n t businesses dropped by 2.2 per cent year-on-year to HK$187 million in the six months.
A difficult half
‘The first six months of 2016 have been a difficult period for businesses,’ the company stated in the filing. ‘In Macau, the fragile economy is still grappling with the impact of China’s austerity drive, and new hospitality facilities are entering the market with demand lagging behind,’ it wrote. The Hong Kong-listed enterprise added that it would exercise ‘extra discipline in the second half of the year to control costs and pace its investments to safeguard shareholders’ interests’. For the six months, the company did not propose any dividend for its shareholders.
Business Daily Wednesday, August 31 2016 7
Macau Gaming
Wynn’s new US$4.2 billion casino-resort off to slow start
W
ynn Resorts Ltd.’s US$4.2 billion (MOP33.5 billion/ H K $ 32 . 6 bi l l i o n ) resort is drawing lacklustre numbers of new tourists and may be taking business from local rivals, said analysts who are tracking activity in the casino’s first few days. The part of the casino floor catering to mass market customers at the Wynn Palace “felt slow” relative to other recent openings, Union Gaming analyst Grant Govertsen said in a research note Monday. The new casino has led to a marginal increase in mass-market customers in the MSAR, while the VIP business in the city remained flat, according to Kenneth Fong of Credit Suisse. Premium customers at the new resort could mainly be coming from Wynn’s older casino on the peninsula, analyst Praveen Choudhary of Morgan Stanley said in a note dated Sunday. The Wynn Palace, the most expensive property yet from billionaire Steve Wynn, opened on Aug. 22 amid a slump in gambling in Macau. Betting in the former Portuguese colony has fallen by 36 per cent over the past two years after a government crackdown
on corruption on Mainland China prompted a sharp drop in business. Wynn and other casino operators have said they believe new casinos will attract more tourists to the region. A spokesman for Wynn Resorts didn’t return a call seeking comment, while Wynn Macau Ltd.’s spokesman didn’t immediately respond to a request for comment. Wynn Macau shares fell as much as 0.5 per cent to HK$11.02 in Hong Kong trading, while the city’s benchmark
Hang Seng Index rose 0.5 per cent. Wynn Resorts shares are down 6.6 per cent since the casino’s opening, while the Macau unit fell 8.6 per cent over the period. The 1,700-room resort features floral sculptures that move and a US$100 million (MOP799 million/HK$775.6 million) fountain show. A spa offers a US$450 (MOP3,600/HK$3,500) facial using gold leaf and crushed diamonds. Walk-in traffic may be impaired by light rail construction in front of the resort,
Govertsen said in his note. Visitors are balking at the cost of a gondola ride to the resort and the long walk around the lake to get to the entrance, he said. Unlike competitors such as Las Vegas Sands Corp. Chairman Sheldon Adelson and MGM Resorts International Chairman Jim Murren, who have said they believe a turnaround is under way in Macau, Wynn was more cautious in an interview before the new casino’s opening. “The last two places that opened did not cause the market to grow, did they? No. Will this one? Good question,” Wynn said. “We’ll get an answer to that in September or October. I’m anxious to see it myself.” Bloomberg
Philippines Casino operators ordered for higher licence fees to the government
PAGCOR to privatize casinos Meanwhile, Pagcor has ordered the four casinos at Entertainment City to immediately restore the 10 pct license fee cut that was granted to them by the previous administration. The Philippine Government will sell casinos operated by the Philippine Amusement and Gaming Corporation (Pagcor) as it plans to focus solely on their regulatory function, reported the Philippine Star. Pagcor chair Andrea Domingo, said the funds to be raised from the privatizing casinos will help support the government’s proposed 3.35 trillion peso (US$72.11 billion) 2017 national budget. As reported by the local publication, Domingo did not say how much the government will earn from the privatization of government casinos but she gave lawmakers an idea of the yearly revenues of governmentowned casinos. “ Fi n a n c e S e c r e t a r y C a r l o s Dominguez has told us to privatize Pagcor-owned casinos,” Domingo told legislators during a recent budget briefing at the Philippines’ House of Representatives. “We are now preparing the template for the planned privatization so we can maximise the benefits for the government,” she said. Since the sale of Pagcor-run casinos will mean losing billions in earnings, Domingo said Pagcor
will try to recoup the loss through other gaming projects, like offshore e-games strictly limited to foreigners.
Higher licence fee
Meanwhile, according to a report from the Manila Bulletin, Pagcor has ordered the four casinos at Entertainment City to immediately restore the 10 per cent licence fee cut granted to them by the previous administration. The lowering of licence fees came in May 2014, after the Bureau of Internal Revenue (BIR) imposed 30 per cent income tax on gaming companies. Before the reduction, Pagcor had originally proposed a 15 per cent share from casinos’ gross gaming revenues from high roller tables and junket operations and 25 per cent on gross gaming income from nonhigh roller tables, slot machines and electronic gaming machines. Quoted by the publication, Domingo said the regulator had already notified the operators of the four casinos Travellers International Hotel Group Inc., Bloomberry Resorts and Hotels Inc., MCE Leisure (Philippines) Corp., and Tiger Resorts Leisure and Entertainment Inc. - about the order. Domingo said that gaming casino
operators would have to honour their contract with Pagcor and pay the appropriate licence fees as agreed between the regulator and the private entities. She added that Pagcor, a state-owned
and controlled company, is mandated by law to follow the order by government auditors. “What’s in the contract should be followed and what the auditor is saying should be followed,” Domingo said.
8 Business Daily Wednesday, August 31 2016
Greater China In Brief Business practices
Private investment funds to conduct ‘self-inspection’ Chinese private investment funds will conduct a “selfinspection” of their business practices in compliance with a directive from the State Council, China’s cabinet, according to a notice posted on the website of the Asset Management Association of China. The scope of the inspection will include advertising practices, fundraising from prohibited investor classes, and other prohibited practices. The inspection initiative follows a finding by China’s securities regulator that some funds had regularly violated regulations, the Association said. The notice also requested the funds to strengthen their internal risk management and to boost training in awareness of regulations and societal responsibility. Private equity
KKR names Ming Lu as sole head for Asia KKR & Co has named Ming Lu as the sole head of its Asia private equity business, as other co-head David Liu has decided to leave the firm, the U.S. buyout firm said in a statement yesterday. Julian Wolhardt, another senior KKR executive in Asia, is also leaving the firm at the end of the year, and together with David will set up a new China-focused investment firm, KKR said. KKR, which has completed US$10 billion worth of transactions in Asia since starting in the region in 2005, also named four new hires. Congress
New environmental tax benefits proposed China’s parliament has proposed increasing tax benefits for companies that cut pollution by more than the national standard, state media reported on Monday, the first details of a much-anticipated new code aimed at curbing the country’s emissions. If the plan is passed by the National People’s Congress, China’s top legislator, companies that reduce emissions to half of the national requirement would only pay half the taxes levied for air, water and soil pollution, Xinhua said. Companies in the agricultural and transport sectors would be excluded from the new tax law, state radio said. Results
Largest cinema chain reports surging H1 revenue Wanda Cinema Line, China’s largest cinema chain, reported surging revenue in the first half of 2016 due to the country’s booming film market. The company raked in 5.72 billion yuan (US$856 million) in the January-June period, up 64.12 per cent year on year, according to a financial statement released Monday night. The majority of Wanda Cinema Line’s revenue came from box office, which reached 4 billion yuan in H1, up 40.6 per cent year on year, while non-box-office businesses such as games and advertising grew to reach about one-third of total revenue, the statement said.
Currencies
Yuan bears emerge from hibernation as Fed imperils G-20 calm Some weakness in the yuan wouldn’t be negative for China. Justina Lee
T
he yuan’s recent stability may be coming to an end. Derivative markets are pointing to renewed bets on yuan depreciation, with a three-month measure of expected price swings poised for the biggest monthly increase since January. Other indicators, such as the premium on options to sell the yuan over those to buy and the discount of forward contracts over the spot rate, have also climbed, indicating rising expectations for declines. The increased pessimism comes after a period of calm that sent the measures to the lowest in at least nine months as the Federal Reserve held off on raising interest rates and investors bet that China would steady the yuan before it hosts a Group of 20 meeting in September. Traders are probing the People’s Bank of China’s willingness to allow the yuan to fall between the G-20 gathering and the currency’s entry into the International Monetary Fund’s Special Drawing Rights on October 1, especially with the chances of Fed action increasing. “After G-20 ends next Monday, the market may want to test how much yuan depreciation the PBOC can tolerate,” said Gao Qi, a strategist at Scotiabank in Singapore. “China doesn’t want the yuan to move too much during G-20 and become a topic of discussion. SDR’s impact will be smaller than G-20.” Some weakness in the yuan wouldn’t be negative for China, which is trying to invigorate an economy growing at the slowest pace in more than 20 years. Data on exports, industrial production and retail sales all fell short of economists’ estimates in July. The median forecast in a Bloomberg survey is for the yuan to decline 1 per cent the rest of this year. The dollar rallied the most since June on Friday after Fed Chair Janet Yellen said the case for raising U.S. borrowing costs is getting stronger and Fed Vice
Chairman Stanley Fischer indicated an increase in September is possible. Fed funds futures are now pricing in a 36 per cent chance of tightening next month, and 61 per cent for an increase by year-end. “You have more pressure from the stronger dollar,” said Dennis Tan, a foreign-exchange strategist at Barclays Plc in Singapore. “Then you may have onshore markets trying to predict more depreciation ahead, and you have capital flows following that expectation.”
PBOC resistance
Speculators may be discouraged by the PBOC’s efforts to curb one-way bets. The central bank has been seen stepping into the market to limit declines since it devalued the yuan in August last year, and is suspected of using its daily fixing recently to prop up the currency. On Monday, it set the reference rate at a stronger level than that predicted by both Scotiabank and Australia & New Zealand Banking Group Ltd. The fixing suggests policy makers will stop the yuan from weakening beyond 6.7 to the greenback, said Iris Pang, senior economist for Greater China at Natixis SA. “What is at least very obvious is that people betting against the yuan have been losing money,” said Teck
Leng Tan, a currency strategist at UBS Wealth Management in Singapore. “After repeated reassurances, people are now accustomed to the idea that depreciation in a moderate range is actually the best idea in the sense that it wouldn’t really cause pressure on capital outflows.” The onshore spot rate has weakened 0.6 per cent in August to 6.6788 Tuesday. Its 90-day implied volatility is set for the biggest monthly increase since January, when a series of weaker fixings sent the exchange rate into a tumble. The gap between one-year offshore yuan forwards and the spot rate - the so-called forward points - rose to 1,219, compared with a twoyear low of 1,000 reached August 10.
Bears prepare
Offshore yuan bears have already started building short positions to speculate on declines after the G-20 gathering, according to Ken Cheung, a strategist at Mizuho Bank Ltd. in Hong Kong. “The China data for July demonstrated China growth momentum has been weakening,” he wrote in a note. “The PBOC might have a less strong intention to maintain yuan stability after the G-20 summit, and allow yuan depreciation again if expectations remain well-anchored.” Bloomberg News
Securities regulator
Shenzhen-Hong Kong link expected to start in November The daily limits for the Shenzhen link will be the same as for Shanghai’s, 13 billion yuan for orders going north to the mainland and 10.5 billion yuan for southbound traffic. The long-awaited link between stock markets in Hong Kong and the mainland city of Shenzhen is expected to start in mid- to late November, according to China’s markets regulator. Technical preparations for the link will take place from August to November,
with the program scheduled to begin that month, according to a presentation slide at a China Securities Regulatory Commission (CSRC) press briefing in Beijing. Hong Kong’s exchange operator said when the program was approved on August 16 that preparations would take about four months. No official
start date has previously been given. The link, the second after Hong Kong-Shanghai, is another step in China’s efforts to open its markets to the global financial community. Barriers to foreigners wanting to trade the US$6.4 trillion of mainland equities were one of the reasons that MSCI Inc. decided not to include the shares in its global benchmark indexes in June. Authorities in Beijing have also kept tight control over how much money leaves the country. Hong Kong Exchanges & Clearing Ltd. said yesterday it will be all set for a November start.
Daily Limits
“The commencement of SZ Connect is subject to market readiness and regulators’ approval,” a spokeswoman for HKEX said by e-mail. “We expect the Hong Kong market should be ready in the second half of November based on our latest assessment.” Delays to the tentative schedule are possible, with officials in Hong Kong having previously indicated start dates that subsequently fell by the wayside. The daily limits for the Shenzhen link will be the same as for Shanghai’s, 13 billion yuan (US$1.9 billion) for orders going north to the mainland and 10.5 billion yuan for southbound traffic. The connect will also include small-cap companies listed in Hong Kong that have a market value of more than HK$5 billion (US$645 million). Bloomberg News
Business Daily Wednesday, August 31 2016 9
Greater China Business legislation
Standing Committee reviews inbound investment laws The Ministry of Commerce said it will work on a nationwide negative list for foreign investment, if the top legislature passes the bill. Chinese legislators began their first reading of draft amendments to four laws regulating foreign and Taiwanese investment Monday. During its bimonthly session, the National People’s Congress (NPC) Standing Committee will consider provisions that may allow foreign and Taiwanese investors to start businesses across China as easily as in the four free trade zones (FTZ). The four laws include the Law on Foreign-Capital Enterprises, the Law on Chinese-Foreign Equity Joint Ventures, the Law on Chinese-Foreign Contractual Joint Ventures, and the Law on the Protection of Investment of Taiwan Compatriots. In two temporary resolutions in 2013 and 2014, the NPC Standing Committee authorized the State Council to bypass these laws and allow foreign and Taiwanese investors to establish firms in Shanghai, Guangdong, Tianjin
and Fujian FTZs without government approval. Such investors are only required to report business plans to local regulators as long as their business is not on a “negative list.” The first temporary adjustment will expire on September 30 and the government now needs a new,
long-term legal basis, proven to be “effective”. “The trials in the four FTZs had notable effects in the last two years,” China’s Minister of Commerce Gao Hucheng told the lawmakers Monday. The time required to set up a business in the FTZs was reduced to less than three days from more than 20 days. In the first half of 2016, a total of 4,923 foreign-funded firms were established in the four FTZs, investing 359 billion yuan (about US$54 billion). According to a poll conducted by the
Development Research Centre of the State Council, 90.9 per cent of firms surveyed said the new mechanisms encouraged foreign companies to “increase” or “substantially increase” investment in China. All respondents believed it is now “easier” or “much easier” to start a business. Now it is time to expand the trials, Gao told the NPC session. The proposed expansion comes at a time when the total world foreign investment this year will likely drop by 10 per cent to 15 per cent, according to a report by the United Nations Conference on Trade and Development. In the first half of 2016, foreign investment in China grew 5.1 per cent, slowing from 6.4 per cent for the whole of 2015. “The expansion of the negative list mechanism will increase China’s attractiveness for foreign investment,” said Xing Houyuan, a researcher with the Chinese Ministry of Commerce (MOC). The MOC said it will work on a nationwide negative list for foreign investment, if the top legislature passes the bill. Th e b r o a d e r ca n c e l l at i o n o f government approvals will be a test for China’s capability to regulate foreignfunded business and ward off risks, according to Ye. Reuters
10 Business Daily Wednesday, August 31 2016
Greater China
‘Hong Kong home prices are 9.4 per cent below their September peak’ - Centaline Property Agency
Nomura report
Hong Kong housing prices to fall further 10pct Mortgage rates in Hong Kong may rise after Fed Chair Janet Yellen said last week the case to raise interest U.S. rates is getting stronger. Frederik Balfour
H
ong Kong home prices will fall a further 10 per cent as a pipeline of new developments is met by stalling income growth and looming interest rate hikes, Nomura Holdings Inc. said in a report. “We are bearish on the physical property market, on a weakening economy, deteriorating
affordability, declining retail sales and stagnant real household income growth,” analysts led by Jeffrey Gao wrote in a note yesterday. Prices will decline over the medium term, the analysts said, without being more specific. Gao said in an interview earlier this month that a rebound in property prices during the second quarter was just a pause in a multi-year correction. Hong Kong home
prices are 9.4 per cent below their September peak, having fallen as much as 12.8 per cent at the end of March, according to data from Centaline Property Agency Ltd. Mortgage rates in Hong Kong, which are linked to the Federal R es e rv e rat e vi a th e p egg e d currency, may rise after Fed Chair Janet Yellen said last week the case to raise interest U.S. rates is getting stronger. Nomura also sounded a bearish note on Hong Kong’s retail property market, predicting a 5 per cent drop in rental returns in fiscal 2017, as tourist arrivals decline and sales fall. Office rents may also fall as much as
5 per cent as leasing demand slows, the report said. Despite the negative outlook, Nomura remains “positive on HK property names overall,” citing their healthy debt levels, solid balance sheets and potential for share buybacks. The analysts’ top picks are Sun Hung Kai Properties Ltd. and Kerry Properties Ltd., which are both trading at a discount to their net asset value. Sun Hung Kai Properties shares have risen 17 per cent this year and Kerry Properties have gained 6.9 per cent, outperforming an 11 per cent increase by the Hang Seng Property Index. Bloomberg News
M&A
Zhongwang USA enters U.S. aluminium market with Aleris buy Zhongwang produces extrusions for the automotive sector, and recently built a rolling mill in China for auto body sheet. Luc Cohen
Zhongwang USA LLC, backed by Chinese aluminium magnate Liu Zhongtian, said on Monday it would buy U.S. aluminium company Aleris Corp in a bet by the billionaire that the nascent U.S. automotive aluminium sector will be the industry’s next big growth market. The US$2.33 billion deal comes as Liu and Zhongwang International Group Ltd, the parent of Zhongwang USA, are embroiled in a dispute over U.S. import duties amid broader trade tensions between the U.S. aluminium industry and China. It marks the biggest entry by a Chinese company into the U.S. aluminium industry since trade tensions began ramping up in recent years. Zhongwang International is parent of China Zhongwang Holdings Ltd, the world’s second-largest producer of aluminium extrusions. It has been accused of evading U.S. import duties on extruded products, prompting an investigation by the U.S. Department of Commerce (DOC). The acquisition has strategic importance because Aleris is in the midst of a US$350 million expansion of its Lewisport, Kentucky rolling mill to produce automotive body sheet for U.S. auto manufacturers. It hopes to produce 200,000 tonnes per year and begin shipping in 2017. Liu said in a statement that Aleris is “well-positioned to capitalize on the positive demand trends we see globally.” Auto manufacturers like Ford
Motor Co have been moving toward aluminium, which is lighter than steel, to reduce body weight of autos in order to improve gasoline mileage, which will reduce emissions. Aleris has been owned by a group of funds including Oaktree Capital Management LP and Apollo Management LP since it emerged from bankruptcy in 2010. It has plants in the United States, Europe and Asia and supplies fabricated products to the aerospace, construction, automotive and defence industries. Sean Stack, chief executive officer of the Cleveland-based company, said the transition to strategic ownership from private equity would allow it to focus on long-term investments in the U.S. automotive market and aerospace market in China “without worrying about the next quarter’s performance.” Zhongwang produces extrusions for the automotive sector, and recently built a rolling mill in China for auto
body sheet. Stack said the two parties have not yet gotten into the details of how they might collaborate. Extrusion is the process of shaping aluminium by forcing it to flow through an opening in a die. Aleris’s mill in Zhenjiang, China mainly serves the aerospace sector, and is licensed to supply Bombardier Inc., Boeing Co and Airbus Group SE. Zhongwang USA is majority-owned by Liu, China Zhongwang’s founder. He has a net worth of US$3.1 billion, according to Forbes. The company will pay US$1.11 billion in cash and take on Aleris’s US$1.22 billion in net debt.
Trade dispute
Upstream smelters and downstream extruders in the United States have both argued that subsidized Chinese aluminium production has depressed global prices and presented unfair competition. China Zhongwang - the subsidiary that is not the purchaser of Aleris - is the subject of an on-going investigation by the U.S. Department of Commerce (DOC) into allegations from industry group the U.S. Aluminium Extruders Council (AEC), that the company evaded U.S. import
tariffs on aluminium extrusions. Jeff Henderson, president of the AEC, said on Monday the deal “raises very serious concerns for the entire industry.” China Zhongwang has denied the allegations. Zhongwang USA LLC is not owned by China Zhongwang, but the two are related through Zhongwang International and Liu. Stack said Zhongwang had assured Aleris that it denies the allegations and was cooperating with the DOC to resolve the case. He emphasized that the two were separate companies despite the link to Liu. “This helps them move beyond that with very significant investment and exposure to the U.S. market,” Stack said, referring to the trade case. “Aleris’ position doesn’t change - we support free and fair trade with a level playing field.” Henderson disputed that Zhongwang had been cooperating with the DOC, noting that it had not responded to the department’s questionnaires. “Zhongwang is a state-supported enterprise and has received large benefits and financing from the government of China. Zhongwang also has a long history of circumventing and evading duties in trade cases,” Henderson said. Last year, short-seller Dupre Analytics accused China Zhongwang of doctoring its books, in a report cited widely in the AEC’s complaint. The company denied those allegations. The deal is expected to close in the first quarter of 2017. Credit Suisse was financial adviser to Aleris, while Moelis & Co advised Aleris on certain aspects of the deal. Zhongwang USA received financial advice from Deutsche Bank and Barclays. Reuters
Business Daily Wednesday, August 31 2016 11
Asia Spending plans
South Korea’s 2017 budget focuses on job creation The budget assumes economy will grow by a real 3.0 per cent next year. Christine Kim
S
outh Korea will focus on creating more jobs and increase spending modestly next year, while seeking out new sources of economic growth, the finance ministry said yesterday as it unveiled its draft 2017 budget. Budgeted spending will increase 3.7 per cent to 400.7 trillion won (US$358.54 billion) next year, picking up from 2.9 per cent growth set for this year but slower than the 5.5 per cent rise set for 2015, the finance ministry said. Spending for health, welfare and labour will account for the biggest slice of the pie at 130.0 trillion won, up 5.3 per cent from this year. Some 17.5 trillion won of that will be used solely for job creation, although the government did not give a specific target number for new jobs. “We plan for government spending to carry out an aggressive role for the economy to hold its balance in a turbulent time,” said Finance Minister Yoo Il-ho in a news conference announcing the budget. “ N ex t y e a r’ s b u d g e t i s a s expansionary as it can be and focuses on job creation and recovering economic activity.” Government projects that have proved ineffective in creating jobs will be scrapped or downsized, while industries that young Koreans prefer working in, such as gaming
and technology, will receive more government investment next year. The budget assumed the economy will grow by a real 3.0 per cent next year, versus a projected 2.8 per cent expansion for this year and last year’s actual 2.6 per cent growth. The plans were not a surprise, said analysts. “It might look good for the government’s balance sheet but I don’t think it will end up as a huge plus for the economy,” said Park
Seok-gil, an economist at JP Morgan. Asia’s fourth-largest economy grew at an unexpectedly robust 3.2 per cent annual rate in the second quarter, driven by firmer domestic consumption and capital investment, but analysts said the lift would probably be temporary. Exports remain weak amid sluggish global demand, while an on-going overhaul of the country’s shipping and shipbuilding industries may see tens of thousands of jobs lost.
Fiscal prudence
In its medium-term fiscal management plans for 2016 to
South Korea’s Strategy and Finance Minister Yoo Il-Ho. Lusa.
2020, the ministry said government spending would grow by an average 3.5 per cent each year. South Korea is expected to have a fiscal deficit of 1.7 per cent of annual gross domestic product (GDP) next year, improving from 2.3 per cent expected this year. The government plans on reducing that to 1.0 per cent by 2020. Sovereign debt will stand at 40.4 per cent of GDP next year, compared with 40.1 per cent set for this year. On a medium-term basis, the government aims to keep this number as close to 40 per cent as possible to maintain a healthy balance sheet. “This year we took fiscal prudence a bit more into consideration than last year, as last year government money was spent aggressively on many economic hardships including a sizable extra budget,” said Song Eon-seok, a vice finance minister. Once parliament passes this year’s extra budget, South Korea’s fiscal deficit and sovereign debt-to-GDP will stand at 2.4 per cent and 39.3 per cent this year, respectively. The extra budget had been expected to be passed on Tuesday, but may be delayed as ruling and opposition lawmakers are at odds over spending details, a senior finance ministry official told Reuters. The government plans to submit next year’s budget bill to parliament for approval by September 2. South Korea’s fiscal year starts on January 1. Separately, finance ministry officials told Reuters the government plans to sell up to a net 37.7 trillion worth of treasury bonds in 2017, compared with 45.9 trillion won worth planned for 2016. The government also raised the limit for possible foreign currencydenominated foreign exchange stabilization bonds to US$1 billion next year, up from US$500 million for this year. Reuters
Currency intervention
Japanese Government signals readiness to stem yen gains The Bank of Japan’s decision to adopt negative interest rates has failed to arrest unwelcome yen gains. Leika Kihara
Japanese Chief Cabinet Secretary Yoshihide Suga said yesterday the government is watching market moves carefully and is ready to respond “appropriately”, when asked whether Tokyo could intervene in the currency market to stem excessive yen rises. Suga, the government’s top spokesman, also defended the Bank of Japan’s controversial negative interest rate policy, saying that such steps would benefit financial institutions if they help improve the economy. “The Ministry of Finance, the Financial Services Agency and the BOJ now hold regular meetings on markets,” Suga told Reuters in an interview. “Through the meetings, the government will closely watch market moves and respond appropriately,” he said when asked whether Japanese authorities could intervene in the currency market if
the yen spikes abruptly. Japan’s economy ground to a halt in April-June and analysts expect any rebound in the current quarter to be modest, as weak global growth and the yen’s 20 per cent rise against the dollar this year have hurt exports and capital spending.
Key Points Defends BOJ’s negative rate policy Govt closely watching markets, including FX - Suga Says there’s no clear definition of ‘helicopter money’ BOJ, govt to coordinate policies to beat deflation The Bank of Japan’s (BOJ) decision in January to adopt negative interest rates has failed to arrest unwelcome yen gains and instead drew market criticism for hurting financial
institutions’ profits. Suga said the BOJ’s policies will give financial institutions “huge” benefits if they successfully boost the economy, adding that it was up to the central bank to decide on specific monetary policy steps. Asked whether Japan could resort to “helicopter money”, or direct central bank underwriting of government debt, Suga said there was no clear definition of what helicopter really meant. He added that it was important
for the government and the BOJ to work closely together to beat deflation, while respecting the central bank’s independence from political interference. “The BOJ decided to expand purchases of exchange-traded funds (last month). Shortly after that, the government announced its economic stimulus package,” Suga said. “I’m confident that we will see results if the government and the BOJ coordinate policies.” Reuters
12 Business Daily Wednesday, August 31 2016
Asia Official figures
Japanese household spending stubbornly weak Despite jobless rate hitting 21-year low Sumio Ito and Leika Kihara
J
apanese household spending fell less than expected in July and the jobless rate hit a two-decade low, offering some hope for policymakers battling to pull the world’s third-largest economy out of stagnation. But with the economy barely growing and inflation sliding further away from the Bank of Japan’s (BOJ) 2 per cent target, a majority of economists expect the bank to ease further next month, when it conducts a comprehensive review of the effects of its existing stimulus programme.
Separate data showed retail sales slid 0.2 per cent in July from a year earlier, less than a median market forecast for a 0.9 per cent drop. The jobless rate fell to 3.0 per cent in July from 3.1 per cent in June, hitting
the lowest rate in more than 21 years and hovering near levels considered to be full employment. “Consumption is showing signs of a pickup, though it’s too early to judge whether the trend has changed,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “While today’s data may
encouraging for the BOJ, that doesn’t necessarily mean it can stand pat as inflation remains weak,” he said. Japan’s economy ground to a halt in April-June and analysts expect any rebound in the current quarter to be modest as weak global growth and the yen’s 20 per cent rise against the dollar this year hurt exports and capital expenditure. Consumption has stagnated even as a shrinking working-age population and gradual improvements in the economy led to a tightening job market, as companies remain wary of boosting wages for permanent workers for fear of irreversibly increasing fixed costs. That reluctance has proved a hindrance for policymakers struggling to end two decades of deflation with aggressive monetary and fiscal stimulus measures, hoping these policies would spur expectations of future inflation and prompt households to spend more now rather than save. Despite three years of heavy money printing by the BOJ, soft household spending and a strong yen pushing down import costs have kept inflation distant from the bank’s 2 per cent target. Core consumer prices fell in July by the most in more than three years as more firms delayed price hikes due to weak consumption, keeping the BOJ under pressure to expand an already massive stimulus programme. Reuters
SGX CEO Loh Boon Chye said SGX would consult with the public before amending its rules, without providing a timeline. “(A) listing framework for DCS structures with the appropriate safeguards could help attract highquality companies to Singapore as an international financial centre, while providing investors with access to a greater variety of opportunities,” he said in an email to Reuters. SGX lost out on the IPO of Manchester United to New York in 2012 because it could not obtain approval for a dual class share structure. The Singapore government then amended its laws to allow such structures. “We don’t agree that allowing a DCS st r u ct u r e i s n ec essa r y t o m ai n tai n c o m p eti ti v e n ess - we believe that holding on to a strong regulatory regime with a reputation for high quality corporate governance
and enforcement should attract companies keen to display to investors their commitment to corporate governance,” Smith said.
Key Points July household spending falls 0.5 pct yr/yr vs f’cast -0.9 pct Retail sales falls 0.2 pct yr/yr vs f’cast -0.9 pct July jobless rate falls to 3.0 pct, hits 21-yr low Household spending fell 0.5 per cent in July from a year earlier, less than a median market forecast for a 0.9 per cent drop and much smaller than a 2.3 per cent decline in June, data from the Internal Affairs Ministry showed yesterday.
Stock markets
Investors criticise SGX as it moves towards dual-class share system The exchange lost out on the IPO of Manchester United to New York in 2012 because it could not obtain approval for a dual class share structure. Anshuman Daga
Singapore Exchange (SGX) is set to allow listings of companies with different classes of shares as it looks to attract initial public offerings, sparking criticism from investors. In a report issued late on Monday, SGX’s Listings Advisory Committee (LAC) gave the bourse the green light to allow companies to list with dualclass share (DCS) structures. S u ch st r u c t u r es hav e b e e n criticised by corporate governance activists as they typically give one set of shareholders greater voting rights than others, but exchanges that allow them are often attractive to issuers seeking to retain control after listing. The LAC said the one-shareone-vote structure would remain the default for new listings and the DCS structure would be subject to corporate governance safeguards, but some investors warned of potential abuse by corporate insiders. “We are very concerned that SGX has fired the starter pistol on a race to the bottom - if SGX goes ahead with DCS structures, then other exchanges in the region will want them too, in the name of ‘competitiveness’,” David Smith, head of corporate governance at Aberdeen Asset Management Asia, told Reuters by email. SGX set up the LAC, an independent body comprising bankers, lawyers and company chief executives, in 2015 to help devise new listing
policies amid fears Singapore is losing its appeal as a capital raising centre. Dual-share structures are common at companies such as Groupon Inc and LinkedIn, with U.S. corporate leaders arguing that the extra voting power given to top executives helps protect against pressure for shortterm returns. SGX has suffered a dearth of listings in recent years, with 2015 marking a 17-year low of around US$430 million worth of deals, according to Thomson Reuters data.
SGX set to allow dual class share structures Follows loss of Manchester United IPO Aberdeen warns of “race to the bottom” SGX’s planned move to allow dual class share structures stands in contrast to Hong Kong, where the securities regulator last year rejected similar draft proposals by Hong Kong Exchanges and Clearing Ltd saying it was not in investors’ best interests. Reuters
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Key Points
Business Daily Wednesday, August 31 2016 13
Asia In Brief Industry
Thai factory output unexpectedly slips Thailand’s industrial output declined for the first time in five months in July, contrary to expectations and showing the sector continues to struggle in the face of sluggish exports and domestic demand. The Industry Ministry said yesterday its manufacturing production index in July fell 5.1 per cent from a year earlier. In June, output increased a revised 1.37 per cent from a year earlier, instead of the 0.8 per cent gain reported earlier. Industrial goods accounted for 80 per cent of total exports in July, which contracted 4.4 per cent from a year earlier, customs data showed. Official study
Vietnam to conduct general economic census
Finance Minister Yoo Il Ho and Bank of Korea Governor Lee Ju Yeol (pictured) have both cited the anti-corruption law as a risk to the economic growth rate Anti-graft law
Korean business culture set for shake-up South Korea has seen a dozen high-profile corruption cases this year alone. Jiyeun Lee
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xtravagant dinners with whiskey and wine, golfing weekends, pricey beef and seafood gift sets. South Korean companies are trying to figure out how to do without these common forms of business hospitality before the nation’s toughest-ever anti-graft law takes effect next month. Conglomerates LG Group and SK Holdings are among those preparing information sessions for employees to ensure they comply with the new law. The Korea Chamber of Commerce is holding seminars, and retailers and restaurants are expanding their offerings of lowcost meal sets and gifts. The law will weaken practices referred to in South Korea as “jeopdae,” which focus on entertaining business colleagues, government officials and journalists. Passage of the legislation came after public anger boiled over when ties between regulators and the shipping industry were exposed in the wake of the 2014 Sewol ferry disaster. South Korea has seen a dozen high-profile corruption cases this year alone, including the arrest of a senior national prosecutor on charges of accepting bribes from the founder of the country’s largest on-line game maker. Personal relations between those in business and the public sector have often led to lax supervision or illicit favours. Lotte Group Vice Chairman Lee In Won was found dead last week, just hours before he was due to be questioned by prosecutors in connection with an investigation into alleged corruption at the conglomerate, one of the country’s largest. A four-page letter was found in a car nearby, police said. Lotte has said it’s cooperating with prosecutors and declined to comment on the allegations. The nation ranked 37th out of
168 countries in Transparency International’s corruption perceptions index last year, behind regional peers Japan, Taiwan and Singapore. About 60 per cent of South Koreans surveyed by the country’s Anti-Corruption & Civil Rights Commission in 2015 said they thought Korean society was corrupt.
Economic concerns
While there has been little debate about the importance of improving transparency, some say the new spending restrictions will dent consumption and hurt the food, agriculture and leisure industries. Finance Minister Yoo Il Ho and Bank of Korea Governor Lee Ju Yeol have both cited the anti-corruption law as a risk to the economic growth rate. In China, President Xi Jinping’s anti-corruption campaign has seen fallout affecting everything from luxury good prices in Hong Kong to gambling revenue in Macau. Under South Korea’s new Improper Solicitation and Graft Act, government employees, teachers and journalists will be subject to fines if they are treated to meals worth more than 30,000 won (US$27) - including drinks - or receive gifts worth more than 50,000 won. So will the companies that provide them.
Hardest hit
The Korea Economic Research Institute estimates the law could cost affected industries about 11.6 trillion won annually. The food industry would see the biggest hit - about 8.5 trillion won each year, the institute estimated. The agriculture ministry is among several government agencies urging the anti-graft commission to lift the price limit to at least 50,000 won for meals and to 100,000 won for gifts. The commission will release a final decision on limits before the law takes effect September 28. Some businesses on the receiving end of jeopdae spending aren’t
waiting for the commission’s final decision. Korean seafood restaurant chain Haewoori will introduce a new dinner set costing 29,000 won, said Kim Eun Hee, the company’s marketing manager.
BYO Alcohol
“Previously, the cheapest dinner set was 36,000 won,” Kim said. “Since the law sets the limit at 30,000 won per meal including drinks, we plan to allow customers to bring their own alcohol with no corkage charge.” Lotte and Shinsegae department stores have increased the number of gifts priced at 50,000 won or below, partly in response to the new spending restrictions as well as growing demand for lower-priced gifts. The new anti-graft law will promote fairer competition, a longterm positive for the economy, said Shin Kwang Yeong, a professor of sociology for Chung-Ang University in Seoul.
“Some business traditions in Korea have been a hurdle for the economy to become more globalized and open. Now there is an opportunity to change this” Shin Kwang Yeong, a professor of sociology for Chung-Ang University in Seoul “Some business traditions in Korea have been a hurdle for the economy to become more globalized and open. Now there is an opportunity to change this,” Shin said. Kim Mun Cho, a professor emeritus at Korea University in Seoul, warned that the new rules could also have unintended consequences. “The limits are expected to draw support from the public, but we could see other private, secretive ways of forming business relations emerge,” Kim said. Reuters
Vietnamese Prime Minister Nguyen Xuan Phuc has recently signed a decision to conduct a general economic census across the country in 2017. The census will include information about economic establishments, labours’ income, production and business activities, technological application of local enterprises and their access to loans, reported Vietnam’s state-run news agency VNA yesterday. The census will be carried out in two phases. The census’s preliminary data will be released in December 2017, while the official results will be announced in the third quarter of 2018, reported VNA. M&A
JX, TonenGeneral set to finalise merger deal today Japan’s top oil refiner by sales, JX Holdings, and third-ranked TonenGeneral Sekiyu are set to finalise details today for a new merged company to be formed in April 2017. Both companies said the planned merger will be discussed at their board meetings yesterday and that they will make an announcement promptly once the agreement has been finalised. The two firms agreed last December to merge in April 2017 to create a dominant player in a refining market that is in long-term decline. JX Holdings Chairman Yasushi Kimura will be chairman of the new company, the Nikkei added. The two firms said those details have not been set yet. Monetary policy
RBNZ says interest rates unlikely to fall to zero New Zealand’s central bank doesn’t expect that zero interest rates will be required to combat low inflation, Assistant Governor John McDermott said. “We’ll do what is appropriate and we’ll take the time that’s required” to get inflation back to target, McDermott told Radio New Zealand yesterday. Asked if he was ruling out a zero cash rate, he said “I never rule anything out, but I don’t think we’re going to get there.” The Reserve Bank of New Zealand (RBNZ) this month cut the official cash rate to a record 2 per cent.
14 Business Daily Wednesday, August 31 2016
International In Brief Tax fine
EU orders Apple to pay up to 13 bln euros EU antitrust regulators ordered Apple yesterday to pay up to 13 billion euros (US$14.5 billion) in taxes to the Irish government after ruling that a special scheme to route profits through Ireland was illegal state aid. The massive sum, some 40 times bigger than the previous known demand by the European Commission to a company in such a case, could be reduced, the EU executive said in a statement, if other countries sought more tax themselves from the U.S. tech giant. Article 50
After-Brexit mood
EU monthly economic sentiment falls more than expected The Commission’s business climate indicator fell to low of almost three years of 0.02 from 0.38 in July. Robert-Jan Bartunek
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conomic sentiment in the 19 countries sharing the euro fell in August to its lowest level since March, a further indication that morale is weakening after Britain voted to leave the European Union. The European Commission’s euro zone Economic Sentiment Indicator (ESI) fell to 103.5 in August from 104.5 in July, its lowest level since March and well below the 104.1
forecast in a Reuters poll of 38 economists. Estimates ranged from 103.0 to 104.9. Confidence fell in four of the euro zone’s five largest economies, with the exception of France where the index rose slightly in August. “While the impact of Brexit on euro zone survey data had been muted so far, businesses have now caught up to a combination of Italian banking problems, the Brexit vote and geopolitical worries,” ING economists said in a note.
Germany’s EU commissioner doubts Brexit will happen
Secretary general election
Guterres wins third round of UN voting
Fiscal proposal
Geneva proposes corporate tax rate cut Geneva proposed cutting its corporate tax rate as the Swiss canton that’s home to almost 1,000 multinationals bids to increase its allure in the face of European Union pressure to scrap preferential fiscal deals for foreign companies. Geneva plans to cut its tax rate to 13.49 per cent from 24.2 per cent, the cantonal government said in statement yesterday. For an interim period of five years, the rate would be a slightly higher 13.79 per cent, it said. The Swiss canton wants to boost its appeal amid headwinds from the strong franc, concern over immigration quotas and the demise of banking secrecy.
Key Points ESI falls to 103.5 in August from 104.5 in July Economists had expected August reading of 104.1 The data adds to the worries of the European Central Bank, which is set to meet on Thursday next week. “The general weakness of ESI across the euro zone suggests that more fundamental forces are weighing on growth, such as the fading boost from previous declines in oil prices and the euro exchange rate,” economists at Capital Economics wrote. The ECB has cut rates deep into negative territory, given banks free loans and is buying 80 billion euros worth of assets per month, but inflation has hovered near zero and is likely to undershoot its 2 per cent target for at least two more years. Morale among industry managers fell to -4.4, as the assessment of current order books fell at its sharpest level since February 2009. Confidence among managers in the services sector also dropped to 10.0, caused by a fall in demand expectations. “Managers’ assessments of past production, the level of overall and export order books deteriorated markedly,” the Commission said in a statement accompanying the numbers. Reuters
Germany’s EU Commissioner Guenther Oettinger raised doubts yesterday about whether Britain would leave the bloc, saying he wouldn’t bet on “Brexit”. Oettinger told Germany’s daily Bild that he assumed June’s referendum outcome in favour of Britain exiting the EU was “binding”. “But it is possible that public opinion will tip if the economic situation in the wake of the Brexit vote worsens,” said Oettinger, who is Digital Economy Commissioner. Oettinger predicted that the longer the British government waited to trigger Article 50 of the EU’s Lisbon Treaty “the more insecure the situation will become - economically and politically”.
The former Portuguese prime minister, António Guterres, won the third round of secret voting on Monday by the members of the UN Security Council to elect the next secretary general. Guterres got 11 “encourage” votes, three “discourage”- the most so far – and one “without opinion”. In the first two rounds of voting on 21 July and 5 August, António Guterres also got the most support from the council. He got 12 “encourage” votes in the first round and 11 in the second. There are currently 10 candidates in the running, half of whom are women.
Britain voted to leave the European Union in a June 23 referendum, though the terms of the exit are still to be negotiated, adding to the economic uncertainty. In Italy, where the banking system is struggling with 360 billion euros in bad loans, confidence fell to an 18-month low.
TTIP
France joins Germany and urges halt to trade talks with U.S. The White House has said this week it aims to reach a deal by the end of the year Current transatlantic trade talks should be halted and a new set started, France’s trade minister said yesterday, adding his voice to calls from within Germany for an end to the negotiations. Matthias Fekl said he would request a halt to negotiations with the United States over the Transatlantic Trade and Investment Partnership (TTIP) on behalf of France at next month’s meeting of European Union trade ministers in Bratislava. “There should be an absolute clear end so that we can restart them on good basis,” he said on RMC Radio, adding he would suggest that course to fellow ministers. German Economy Minister Sigmar Gabriel said on Sunday that TTIP negotiations had effectively failed after Europe refused to accept some U.S. demands. Gab ri e l i s th e chai r m a n o f Germany’s Social Democrats (SPD), who share power with Chancellor Angela Merkel’s conservatives. Many Social Democrats have serious reservations about TTIP but Merkel backs the talks. Her spokesman insisted on Monday that talks should continue, while Germany’s Foreign Minister FrankWalter Steinmeier - also a member of
the SPD - said on Tuesday that both sides were still far away from agreeing on standards and procedures. Fekl’s and Gabriel’s comments highlighted discrepancies between the views in the EU’s two biggest economies and the official line from both the European Commission, the bloc’s executive, and the U.S. Trade Representative Michael Froman.
“It’s going to require the resolution of some pretty thorny negotiations, but the president and his team are committed to doing that” Josh Earnest, White House spokesman Three years of talks have failed to resolve multiple differences, including over food and environmental safety, but the USTR’s spokesman told
German magazine Der Spiegel the negotiations “are in fact making steady progress”. The White House has said this week it aims to reach a deal by the end of the year. “It’s going to require the resolution of some pretty thorny negotiations, but the president and his team are committed to doing that,” White House spokesman Josh Earnest told reporters in Washington. The Commission also remains upbeat. “Although trade talks take time, the ball is rolling right now and the Commission is making steady progress in the on-going TTIP negotiations,” the executive’s spokesman, Margaritis Schinas, told a news conference in Brussels on Monday. Supporters say the TTIP could deliver more than US$100 billion worth of economic gains on both sides of the Atlantic, but critics say the pact would hand too much power to big multinationals at the expense of consumers and workers. Paris threatened to stall further negotiations as long ago as April, but there are national elections due in both France and Germany in 2017, and before the summer, experts were saying that this year - ahead of the U.S. presidential election - may be the best opportunity to strike a deal. That prospect looks less likely now, and Britain’s June vote to leave the EU has further clouded the picture, even though the Commission has a mandate to finalise TTIP talks on behalf of all EU 28 members. Reuters
Business Daily Wednesday, August 31 2016 15
Opinion Business Wires
The Korea Herald South Korea’s major department stores and discount chains saw their sales rise sharply in July from a year earlier on improved consumer sentiment and an increase in holidays, government data showed yesterday. The combined sales of three department stores - Hyundai, Lotte and Shinsegae - advanced 7 per cent on-year last month, while those of major discount retailers - E-Mart, Lotte Mart and Homeplus - gained 2.1 per cent during the same period last year, according to the data compiled by the Ministry of Trade, Industry and Energy.
MIKI Yoshihito. (#mikiyoshihito) via Foter.com / CC BY
Inquier.net The (Philippines’) Department of Finance (DOF) plans to package not only as a revenue-generating but also as a health measure the plan to slap a tax on socalled “fatty food.” “The idea is to have all the existing bills that want to tax high sugar and unhealthy products like junk food and soft drinks included in the package,” DOF spokesperson Paola Alvarez told the Inquirer. The Duterte administration’s tax policy reform program included proposals to impose a fatty food tax, a carbon tax, a casino and lottery tax, mining taxes as well as a luxury tax on cars, jewellery and yachts.
Jakarta Globe Crude palm oil prices could jump later this year on firm demand and tight supplies, although output is set to gradually rise as the impact of an El Nino weather event fades, a senior official from Golden Agri-Resources said. Dryness linked to last year’s El Niño, the strongest in 20 years, has lowered yields in top growers Indonesia and Malaysia, and is forecast to cut output at Golden Agri, the world’s second-largest palm oil planter, by 15 per cent to 20 per cent this year.
Japan vs. the currency speculators
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ith Japan’s economy struggling to escape its deflationary torpor, the economic-revitalization plan that Prime Minister Shinzo Abe launched in 2012 has come under growing scrutiny. But Japan’s current travails, which have brought a concomitant decline in Japan’s stock market, stem from the yen’s appreciation – 24 per cent over the last year – against major currencies. “Abenomics” – which included substantial monetary and fiscal expansion – has nothing to do with it. Since Abenomics was introduced, Japan’s labour market has improved considerably: 1.5 million new jobs have been created, and the unemployment rate has fallen to just over 3 per cent. Moreover, corporate profits have soared, and tax revenues have increased by more than ¥20 trillion (US$188 billion). To build on these gains, Japan has promised a large fiscal expansion next month, which some describe as a piecemeal, temporary version of so-called “helicopter drops” (permanent monetization of government debt). But there is concern that it will not be enough, if the yen continues to appreciate. To be sure, expansionary policies, particularly monetary policies – a pillar of Abenomics – could contribute to currency depreciation. But the US Federal Reserve’s dovish approach to exiting its own quantitative-easing program, together with expansionary policies in other major economies, has weakened their impact on the exchange rate. More recently, the United Kingdom’s vote to “Brexit” the European Union, together with the introduction of negative rates by multiple central banks, including the Bank of Japan (BOJ), shook markets. Taking advantage of this nervousness, hedge-fund managers and other speculators have increasingly been betting on the yen’s appreciation; indeed, the Chicago Mercantile Exchange shows substantial interest in the yen futures market. In a flexible exchange-rate system, each country conducts monetary policy independently, based on domestic objectives, and accepts the resulting exchange rate. But when exchange-rate movements become sharp or erratic, monetary authorities have the authority – even the obligation – to intervene to smooth them out. The Japanese authorities seem to recognize this, in theory. On August 18, officials from the Ministry of Finance (MOF), the Financial Services Agency, and the BOJ gathered to discuss what can be done to stem the yen’s appreciation. After the meeting, Masatsugu Asakawa, the deputy minister of finance for international affairs, declared that the MOF would act swiftly against exchange-rate movements deemed to be speculative. The announcement was supposed to cause
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Koichi Hamada Special Economic Adviser to Japanese Prime Minister Shinzo Abe, is Professor Emeritus of Economics at Yale University and at the University of Tokyo.
speculators to shake in their boots. Yet markets moved only slightly, within a range of a couple of yen to a dollar. After all, the MOF has made such threats before – for example, just after the introduction of the BOJ’s negative interest-rate policy, and again after the Brexit decision – but never followed through. Like Aesop’s boy who cried wolf, the MOF has lost credibility, at least when it comes to the threat of intervention in currency markets. So speculators remain convinced that they are making a oneway bet – win big or break even – and continue to push the yen higher. At this point, the MOF’s words will not be enough to deter speculation. But the MOF remains hesitant to back its tough talk with action, not least because of American disapproval of supposed “currency manipulation.” High-level officials at the US Treasury and Federal Reserve actively try to dissuade advocacy of direct intervention, including by me. An American scholar reacted angrily when I merely mentioned the word, as if it were an obscenity. American officials, for their part, emphasize that if Japan can be accused of manipulating currency markets, the US Congress will not approve the Trans-Pacific Partnership (TPP). It is possible that the MOF will choose to keep the US on its side, and continue to offer only empty threats to speculators. Or it may simply vacillate until it is too late to take real action. Either approach may well produce the same disastrous result: allowing the yen to appreciate to damaging levels and causing Abenomics to fail. What the MOF should do is intervene courageously in currency markets to stem the yen’s appreciation. Speculators will learn a tough lesson, and Japan’s economy could get back on track. Though Japan may become a scapegoat for the failure of the TPP, it seems unlikely that the deal would be ratified in any case, given the current political climate in the United States. An alternative would be for the BOJ to purchase foreign securities. Many hedge-fund managers, along with some economists, claim that the key to saving Japan’s economy from deflation is a more direct helicopter drop, with newly printed cash delivered directly to consumers. Yet these same people are impeding effective macroeconomic policy, by betting on the yen’s appreciation. Only when the speculators are brought to heel should such a bold – and highly risky – monetary policy even be up for discussion. Project Syndicate
It is possible that the MOF (Ministry of Finance) will choose to keep the US on its side, and continue to offer only empty threats to speculators.
The Times of India Positioned as a major investment destination to the world, India is targeting to increase its bilateral trade with the US to US$500 billion from current levels of over US$100 billion, in the near term. According to a recent joint report by PwC and Indo American Chamber of Commerce, bilateral relations between India and the US have been cemented further in the last two years with increased issuance of visas, visits by dignitaries, initiatives to combat terrorism, as well as trade. “Both countries now aspire to increase bilateral trade to the tune of US$500 billion from the current US$100 billion plus annually,” the report said.
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16 Business Daily Wednesday, August 31 2016
Closing Personal data protection
Gaming sector attracts most data protection investigations
investigation – some 27 in total - followed by the wholesale trade and retail sector, with 10 cases. The numbers for the 2015 A total of 155 new investigations were year reflect a drop in overall cases and sit launched by the Office for Personal Data closer to 2013 levels which saw 141 cases Protection (GPDP) during 2015, a 20.1 per investigated, as compared to 2014 in which cent drop year-on-year according to the Office’s annual report, published yesterday. 194 cases were undertaken. Of the 303 total cases, 225 were concluded, The Office notes the increasing role of social with 8 per cent of them resolved by GDPD- media networks with regard to violations, potential problems arising from the applied sanctions and 28 per cent through circulation of vehicles between Macau and court cases. The gaming sector continued to register the Hengqin, and a mention of the problems in a junket-created debtors database. K.W. highest presence in terms of cases under
Margins shrink
Mainland lenders ICBC, BoC report near flat profits Last week the other three biggest banks in China also reported sharp dips in their margins
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wo of China’s Big-Five banks, ICBC and BoC, reported yesterday near flat profits as margins shrank, mirroring results of other major domestic lenders that are feeling the pain of China’s slowing economic growth that is hitting borrowers. The Chinese lenders, among the biggest in the world by market value, are dealing with rising volumes of sour debt as defaults rise, even as interest income continues to erode
after successive interest rate cuts and slower loan growth. Industrial and Commercial Bank of China (ICBC), the country’s largest bank by assets, reported a 0.8 per cent growth in its first-half net profit, while Bank of China Ltd (BoC) posted a 2.5 pct increase in net profit in the first half, which was helped by the disposal of Nanyang Commercial Bank. The lacklustre results of the Chinese banks, compared to the heady days double-digit profits just two years ago, could raise the prospect that the
government will have to inject more than US$100 billion as capital to shore them up, some analysts have said. ICBC said yesterday its net profit for the January-June period was 150.2 billion yuan (US$22.49 billion), up from 149.0 billion in the year-ago period. And BoC said its half-yearly net profit was 93.0 billion yuan, compared to 90.7 billion yuan in the year-ago period. The bank booked a 29 billion yuan gain for its disposal of Nanyang Commercial Bank.
Narrowing margins
Both lenders reported shrinking net interest margins.
Margins at ICBC narrowed to 2.21 per cent at the end of June from 2.28 per cent at the end of the first-quarter, while BoC’s margins fell from 1.97 to 1.9 over the same period. “Successive interest rate cuts and re-pricing of deposits and loans narrowed interest spread,” ICBC said in a statement. In October last year, China’s central bank cut interest rates for the sixth time in less than a year, in a bid to jump start growth in its stuttering economy.
Key Points ICBC reports flat H1 profit growth; BoC a 2.5 pct rise Net interest margins shrink at both lenders NPL ratio falls at ICBC, rises at BoC Last week, Agricultural Bank of China Ltd (AgBank), Bank of Communications Co Ltd (BoCom) and China Construction Bank Corp (CCB) also reported sharp dips in their margins. ICBC’s non-performing loan ratio decreased to 1.55 per cent at end-June from 1.66 per cent at end-March, the only bank to see a fall. Hit by struggling borrowers, the other four lenders have seen flat or growing NPL ratios. BoC’s non-performing loan ratio increased to 1.47 per cent at endJune from 1.43 per cent at endMarch. Reuters
Borrowing
Think tank
Health alert
Vietnam to halt governmentbacked loans in 2017
China’s free trade zone faces currency risks
Australia, Taiwan, South Korea issue travel warnings for Singapore
Vietnam will halt the granting of government guarantees for loans to new projects from 2017 to ensure a safe level of public debt. Government-backed loans will be gradually tightened from 2016, Vietnam’s state-run news agency VNA yesterday quoted a directive of Vietnamese Prime Minister Nguyen Xuan Phuc as saying. From 2017, government guarantees for loans will be temporarily halted. In special cases, the prime minister will consider granting guarantees for each specific loan. Financing from the state budget-backed debt payment funds would be limited if firms could seek other funding sources. In addition, firms must be proactive in arranging funds to ensure repayment and negotiate with lenders to restructure loans, according to the directive. Government-backed loans for state-owned enterprises were estimated at around US$26 billion as of the end of 2015, more than 84 per cent of which came from foreign creditors, according to Vietnam’s Ministry of Finance. Government-backed loans accounted for 17.8 per cent of the total outstanding public debts and were equivalent to 11.1 per cent of the country’s gross domestic product. Xinhua
China’s leading free trade zone faces currency risks and the authorities should be cautious in opening up the capital account, the Chinese Academy of Social Sciences (CASS), a top government think tank, said yesterday. “Foreign exchange risk is the biggest risk facing Shanghai’s free trade zone,” the think tank said in its “blue book” on the country’s f r e e t ra d e z o n es, w h i ch w as p u b l i sh e d yesterday. Financial innovations in the free trade zone should be carried out in an orderly way on condition that risks are under control, the think tank said. China set up the Shanghai free trade zone in September 2013 as a venue to pilot economic reforms, in particular in the financial sector. The government said in December it would allow limited convertibility of the yuan in free trade zones in Guangdong, Fujian and Tianjin, in a move to further liberalise its capital account after its currency was admitted to the IMF’s reserve basket. But CASS said China must be cautious in opening up its capital account because “large-scale shortterm capital outflows could hit China’s financial system and the real economy”. Reuters
Australia, Taiwan and South Korea advised pregnant women and those attempting to get pregnant to avoid travel to Singapore after an outbreak of the Zika virus infected more than 50 people in the city-state. The outbreak and the warnings come as a potential blow to tourism in one of the world’s busiest travel hubs, which is already struggling to recover from a slump amid tepid global growth. Singapore reported its first case of locally-transmitted Zika at the weekend, and the number of reported infections of the mosquito-borne virus has since jumped to 56. At least three dozen of those have since made a full recovery. The Zika virus was detected in Brazil last year and has since spread across the Americas. It poses a risk to pregnant women because it can cause severe birth defects. It has been linked in Brazil to more than 1,800 cases of microcephaly, a rare birth defect where babies are born with abnormally small heads and brains. The 56 confirmed cases in Singapore include only one woman. Taiwan, Australia and South Korea advised pregnant women and those planning pregnancy to postpone trips to Singapore. Those returning from the country should avoid pregnancy for two months. Reuters