Macau Business Daily September 7, 2016 by Business Daily

Plans for overall Smart City before end-2017 Science and Technology Page 2

Wednesday, September 7 2016 Year V Nr. 1125 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Co-operation

5th Ministerial Conference of Forum Macau slated for October Page 2

Gov’t departments

www.macaubusinessdaily.com Parking

DSEC expands offices, MOP8 mln on renovation Page 6

Islands’ advisory council calls for more efficient payment in car parks Page 3

Start Me Up Gov’t lending

Lending to young start-ups and SMEs reached MOP53.6 mln in August. Macao Economic Services disbursed most via its SME Credit Guarantee Scheme - awarding MOP34.7 mln to 16 approved applicants. So far, nearly MOP90 mln has been granted to those engaged in the wholesale and retail industries. Page 5

Hong Kong Monetary Authority implements regulatory ‘sandbox’ to advance in fintech Page 8

Investment

Taxis catching up

Economists predict weak trend in Mainland Page 16

Transportation Radio Taxi has won the bid for the ‘special taxi licence’. Permitting the company to run 100 special taxis in the city; with 50 operational early next year. The licence is valid for eight years and taxis can be hailed online or via phone. The transport bureau says the choice was based on fares, service plans, management and experience of bidders. Page 3

Build and they will . . .

The Parisian Macao may have a tough time attracting premium mass gamblers. Analysts cite smaller hotel rooms ranging from 33 sq. m. to 72 sq. m. The flip side is smaller rooms leave more to spend on retail and gaming. Driving traffic to the property, they say.

Duty calls

Telecom CTM vows to fulfil obligations of concession contract. The agreement is set to expire this year. The company will reduce the Internet service tariff, with a maximum decrease of 46 per cent, and an average 24 per cent. A fourfold increase in connection speed is on the cards. Page 4

G20 reach consensus

Hangzhou summit China winds down G20 summit. With open confrontation largely avoided and broad consensus reached. China and United States ratify Paris climate change agreement in a significant step for the world’s two biggest emitters of greenhouse gases. Page 10

Gaming Page 7

HK Hang Seng Index September 6, 2016

23,783.09 +133.54 (+0.56%) Worst Performers

China Merchants Port Hold-

+2.43%

China Shenhua Energy Co

+1.80%

Link REIT

Galaxy Entertainment Group

-0.55%

China Mengniu Dairy Co Ltd

+2.09%

Lenovo Group Ltd

+1.66%

China Mobile Ltd

-0.99%

Sands China Ltd

-0.45%

Li & Fung Ltd

+1.96%

China Resources Power

+1.57%

CK Hutchison Holdings Ltd

-0.87%

China Unicom Hong Kong

-0.33%

Hong Kong Exchanges and

+1.90%

AAC Technologies Holdings

+1.39%

CLP Holdings Ltd

-0.69%

Cheung Kong Infrastructure

-0.30%

Tencent Holdings Ltd

+1.90%

Industrial & Commercial

+1.20%

MTR Corp Ltd

-0.58%

Want Want China Holdings

-0.19%

-1.14%

26° 30° 27° 30° 27° 31° 26° 30° 27° 30° Today

Source: Bloomberg

Best Performers

Wed

Thu

I SSN 2226-8294

Fri

Sat

Source: AccuWeather

Financial innovation

2 Business Daily Wednesday, September 7 2016

Macau Economic co-operation 5th Ministerial Conference of Forum Macau to be held on October 11 & 12

Sino-Luso gathering scheduled for October Joanne Kuai joannekuai@macaubusinessdaily.com

he 5th Ministerial Conference of the Forum for Economic Co-operation and Trade between China and the Portuguese-speaking Countries will be held in Macau on October 11 and 12, according to a statement issued yesterday by the SAR Government. Delegations of representatives from seven Portuguese-speaking countries – namely, Angola, Brazil, Cabo Verde (Cape Verde), Guinea-Bissau, Mozambique, Portugal and Timor-Leste (East Timor) - will join the event. This edition of the Ministerial Conference will be themed ‘Towards Stronger Sina-Luso Economic and Trade Co-operation’ and embrace the initiative of the ‘One Belt, One Road’. The Silk Road Economic Belt and the 21st Century Maritime Silk Road - also known as ‘One Belt, One Road’ - is a development strategy and framework, proposed by Chinese

paramount leader Xi Jinping which focuses on connectivity and co-operation between countries, primarily between the People’s Republic of China and the rest of Eurasia, which comprises two main components: the land-based Silk Road Economic Belt and oceanic Maritime Silk Road. The strategy underlines China’s push to take a bigger role in global affairs, and its need for priority

capacity co-operation in areas such as steel manufacturing. Unveiled in 2013, it was promoted by Chinese Premier Li Keqiang during state visits to Asia and Europe.

Continuation

The Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Macau), known as Forum Macau, was

created in October 2003 through a Chinese Government initiative, in co-ordination with the seven Portuguese-speaking countries and collaboration of the Macau Government. Forum Macau is a multilateral co-operation mechanism aimed at the consolidation of economic and trade exchange between China and Portuguese-speaking countries, using the MSAR as a connecting platform. The first Ministerial Conference was held in Macau in 2003, with subsequent editions in 2006, 2010 and 2013. ‘Thirteen years have passed since the Forum has been established and its effect has become increasingly significant with growing influence and achieving strong results among the participating countries in inter-governmental co-operation, trade, investment, human resources, agriculture and fishing, and developmental assistance,’ reads the statement. ‘Macau’s role as a platform has been enhanced, with increasing international influence.’ The SAR Government has also announced that during the two-day event banquets, meetings and press conferences will be staged, and documents such as the Economic and Trade Co-operation Guidelines for 2017 to 2019 will be signed.

Society

‘Smart City’ concepts to transform Macau The chairman of the Macau Science and Technology Fund says it hopes for an overall plan before the end of 2017 and will “call for proposals” on turning the MSAR into a Smart City. Cecilia U cecilia.u@macaubusinessdaily.com

The Macau Science and Technology Fund (FDCT) will “call for proposals” on creating the framework for the development of a Smart City, according to comments yesterday by Ma Chi Ngai, Chairman of the FDCT, after the 14th session of the Science

and Technology Committee. Mr. Ma stated that the group had set up a task force to focus on the development of a Smart City for the MSAR which will co-ordinate with relevant government departments such as the Transport Bureau for Smart Transport development. The Chairman of the FDCT revealed that they welcome applications in

November for research from specialists in developing the Smart City concept. Two of the submitted plans will be chosen and a year will be given in which to produce a proposal. Mr. Ma said that hopefully an overall plan can be introduced by the end of next year. “Before [the introduction of the overall plan], we will work on certain specific areas such as Smart Transport and Smart Travel,” said the Chairman. The Vice Chairman of the city’s advisory Science and Technology Committee, Lam Kam Seng, proclaimed that three task forces are being set up, which will focus on current scientific

and research works for developing a Smart City. Experts from other Smart Cities such as Barcelona were invited to share their experiences and concepts earlier this year.

Intellectual property

Grand Prix Museum

IP applications more than quadruple in August

MGTO: PPP model not being considered

The month of August saw the third highest number of applications for intellectual property rights for 2016, the latest information from the Economic Services Bureau reveals, with 1,054 applications received, spearheaded by 988 brand applications, and followed by 30 extensions of invention patents. So far this year, some 7,965 applications have been received, of which over 93 per cent apply to brand applications. Extensions to invention patents, making up less than four per cent, have been the second most popular. Applications in August saw a 463 per cent year-on-year increase, given that in the same month last year a total of 187 patent applications were

received, the lowest monthly total of that year. Brand applications for intellectual property rights increased 850 per cent year-on-year from 104 in August last year, while extensions for invention patents saw a 25 per cent decrease year-on-year, from the 40 received in August last year. A seven per cent year-on-year reduction was evident in the overall number of patents applied for during the first eight months of the year. Utility patents continue to register the lowest number of applications for intellectual property rights, amounting to only three in August, with 10 so far this year, a 10 per cent increase from the same eight-month period last year. K.W.

MGTO to form partnerships to promote museum after renovation. Annie Lao annie.lao@macaubusinessdaily.com

The government has not yet considered adopting a public-private partnership (PPP) model for the remodelling of the Macau Grand Prix Museum, according to the Macao Government Tourism Office (MGTO). In response to an enquiry by Legislator Si Ka Long, MGTO deputy director Cheng Wai Tong said that the office is planning to form partnerships with institutions, associations or companies to promote the museum after renovation, but with regard to the PPP model, to reduce remodelling costs, this option has not

yet been taken into consideration. The renovation of the Tourism Activities Centre (CAT) currently housing the Grand Prix Museum is estimated to cost the government about MOP300 million (US$37.6 million). Upon completion, MGTO estimates the museum will occupy a total area some six times larger than it currently does. The MGTO deputy director said that the new museum will feature a car show, a movie theatre, a wax museum, a cultural and creative area, and a parent-child interaction zone. The new renovation could help attract visitors to stay longer in Macau, opined Cheng.

Business Daily Wednesday, September 7 2016 3

Macau Transport

50 special taxis available at earliest H1 next year

Radio Taxi wins special taxi licence

adioTaxiMacauTaxiService Ltd. has won the bid for the city’s ‘special taxi licence’, the Transport Bureau (DSAT) announced yesterday. The licence, valid for eight years, allows the company to run 100 special taxis in the city. The first batch of 50 special taxis could be operational as soon as the first half of 2017, the DSAT said in the statement, adding that the remaining half would be available in the following year. The special taxis can only be hailed by telephone, online order or mobile phone application. Radio Taxi is to charge MOP5 for ordering a ride, and there will be no no-show fees. The company can propose a fare adjustment two years after commencing operations. In addition, the company must provide at least five barrier-free taxis and 10 large-scale taxis in the future,

although the purchase expenses for the first ten barrier-free taxis will be met by the government. Three bids in all were filed with the Bureau at the beginning of the year for the special licence. The two other bidders for the licence were Lai Ou Taxi Service Company Ltd., controlled by local businessman David Chow Kam Fai, and Taxigo Company Ltd. - which recently launched new taxi-hailing application TaxiGo. The Taxigo bid had already been rejected by authorities at the beginning of the year as it failed to comply with the bidding rules. According to DSAT, evaluations of the bid were based on fares, service plans, management and experience of the bidders. The government department said the winning bidder had proposed in its bid to provide free Internet

service in addition to the installation of onboard diagnostics and the establishment of a back-up database for urgent situations.

Bidder Lai Ou had proposed in its bid to charge MOP15 for ordering a ride, in addition to a no-show charge of MOP5. K.L.

implement an electric payment system such as UnionPay’s QuickPass cards in all the public car parks in Taipa and Coloane. Currently, there are seven public car parks on the islands, using manpower to handle parking payments, with only one public car park - in Rua da Ponte Negra in Taipa - offering contactless electric payment via QuickPass. Mr. Lo questioned why other public car parks haven’t also installed electric payment systems. “Auto-payment machines at the public car parks only accept coins or ten dollar notes, but not all drivers

have sufficient spare change to pay. Sometimes, there is even no staff available at the payment counter, so they have to go to other places to pay the fees, which causes a lot of inconvenience to drivers,” Mr. Lo explained. Another complaint Mr. Lo raised was the slow payment process by staff at the public car park at the Lago Building during peak hours. Mr. Lo urged the government to install electric payment systems in all public car parks while improving auto-payment machines in order to increase the efficiency of car park management.

Parking

Invasion of the abandoned car Lack of parking spaces and inefficient payment systems in public car parks are the main issues for car park management in Taipa and Coloane. Annie Lao annie.lao@macaubusinessdaily.com

A lack of parking spaces in Coloane and an increasing number of abandoned cars occupying public parking slots coupled with inefficient payment systems in public car parks were the main topics under discussion by the Advisory Council of Community Services of the Islands in its meeting yesterday. Lei Hon Veng, a member of the Advisory Council of Community Services of the Islands commented that public car spaces are continually being occupied by aba n d o n e d v ehi c l es f o r l o n g periods of time - especially in the Ka Ho, Hac Sa, and Cheoc Van areas of the islands. “Those abandoned cars have been parked in public car spaces for such a long time without leaving, which

has caused other drivers to find it hard to get a parking lot; and it also creates a threat to public hygiene in those areas,” Mr. Lei said. The Council member suggested increasing the mobility of the abandoned cars by providing owners with discounts to resell their cars to other countries. He also said that the government should provide cheaper rental fees for those cars to park temporarily in more remote areas, and in the long term for the government to build a large public car park in Coloane to resolve this issue.

Inefficient payment system

Issues of inefficient auto-machines and a lack of electric payment facilities in the public car parks on the islands were raised by Council member Albert Lo Wa Kit. Mr. Lo urged the government to

4 Business Daily Wednesday, September 7 2016

Macau Opinion

José I. Duarte Überkill The arrival of Uber services has been the cause of many opinions and arguments all around the world, a source for all sorts of individual and collective actions, for or against. It happens with all disrupting technologies. Uber will be for many years the object of case studies about the impact of technology on the way we live and the role of public policy and regulation in fostering or hindering changes. Macau, in that general sense, was not an exception. But the relatively brief presence of the service in the territory has a few twists of its own. On several accounts, the Uber history in Macau will be singular. But let us stick here just to its arrival, how the whole story began. Almost as soon as it rolled onto these shores, the service was declared illegal. As reported by the local media, a joint message by the traffic department and the police declared it so. The joint declaration also threatened those involved with repression and punishment. Strangely enough, such a public document was only published in Chinese – no time for translation? Some saw there a whiff of urgency, if not panic, in some less benevolent interpretations. That was already strange enough, but more was to come. The next day, officials retreated a bit: maybe Uber was operating in a gray zone, or the situation was at least less than as straightforward as it might have looked at first – which is often the case with new technologies. Then steps in the Chief Executive office and the service is again, in no ambiguous terms, declared unlawful. Furthermore, we were informed that the police (and the firefighters, who knows why?) would be mobilised to repress and penalise the providers and, possibly, the users of the service. In the following days, one got the impression that several officials were instructed to re-assert the message – “the service is illegal,” we heard again and again. None other than the Secretary for Security (how does this matter fall under the security portfolio?) reinforced the message and raised the point that Uber services had been declared illegal in various countries – as if that was relevant to assess the legality under the laws of Macau. Other situations, possibly less unfavourable, were omitted. What seems still absent is a clear, unequivocal explanation about why and to what extent the service is illegal; and how that justifies the level of administrative and police resources assigned to its repression. José I. Duarte is an economist and permanent contributor to this newspaper.

Telecommunications CTM to reduce tariff of Internet service by an average of 24 pct

Contractual duty calling CTM vows to fulfil its concession contract, improve the service and lower fees. Joanne Kuai joannekuai@macaubusinessdaily.com

ocal telecommunications operator Companhia de Telecomunicações de Macau, S.A.R.L. (CTM) vows to fulfil the content of the concession contract signed with the government and has announced its plan to reduce the tariff for Internet services. Wi t h r e g a r d t o p o s s i b l e compensation that could amount to as much as MOP1 billion (US$125 million) to be paid to CTM by the SAR Government upon possible termination of the concession contract, Vandy Poon, Chief Executive Officer (CEO) of CTM, said “we have no intention of asking for it”. “Why do we want to focus [on] or spend unnecessary energy on something that I believe neither party has [the] intention or desire to execute,” Mr. Poon told reporters yesterday. “ If we look at the history, the current contract was a revision from the very first contract [the government] signed with CTM, which was a BOT contract [build-operatetransfer], made pre-1981, prior to the existence of CTM. The compensation clause [upon termination of the concession contract] was regular as part of the privation and liberalisation.

Through several extensions and changes of era, we have never even walked close to that clause.” A BOT contract refers to an agreement between a private company and a governmental body. The agreement commits the private company to build and operate a facility for a period of time, then transfer ownership to the government. CTM’s concession contract with the government is due to expire by the end of this year but is subject to automatic renewal until the end of 2021 if no major breach is deemed. However, the Secretary for Transport and Public Works, Raimundo do Rosário, commented in August that the government has not yet made a decision on whether to continue with CTM due to problems of bad telecom service, high prices, distribution of concession assets and sharing equipment, among other issues. The Secretary also said that upon possible termination of the contract, compensation to CTM would be no more than MOP1 billion.

Reduced Internet tariff

With effect from 1 Oct 2016, the Internet service tariff will be reduced, reaching a maximum decrease of 46 per cent, with an average of 24 per cent reduction. The telecom company adds that

under the new tariff scheme all residential and business Internet service will see an increase in connection speed, accelerating up to four times the original. The reduction in price comes after members of the Legislative Assembly Public Affairs Follow-up Committee requested the telecom operator lower its Internet service prices. CTM CEO Vandy Poon refused to disclose the details of the previous negotiation with the government but says that the announced prices were decided upon by consensus. CTM’s parent company Citic Telecom International Holdings Limited (Citic), announced in its interim report, released earlier this week, that as of the end of June CTM’s Internet market share in Macau was around 98.7 per cent, while its mobile market share was around 44.3 per cent When asked whether the company would consider making an effort to fight for a bigger cut of the mobile market, the CTM CEO was hesitant, noting that CTM is the biggest player in the Internet market with one other competitor recently entering the market, while the mobile sector is a “four-player market with a population of around 600,000 to share the gain”. Nevertheless, Poon pledged that the company would not stop creating better incentives or plans for mobile customers in order to better serve society.

Business Daily Wednesday, September 7 2016 5

Macau Subsidy

Spreading the wealth around SMEs, young start-ups lending reaches MOP53.6 mln in August, with SME lending accounting for MOP46.5 million. Kam Leong kamleong@macaubusinessdaily.com

he Macao Economic Services (DSE) approved lending of MOP53.7 million (US$6.7) million) to the city’s SMEs and young start-ups in August via four of its financial aid programmes, according to the Bureau’s latest official data. For the month, local SMEs received MOP46.5 million-worth of loans from the economic department via its three SME aid programmes. Of the total, MOP34.7 million was disbursed under the SME Credit Guarantee Scheme – providing each beneficiary with a credit guarantee equal to 70 per cent of the loan approved by the participating banks. The approved lending in the month was shared among 16 approved applications. For the first eight months of the year, this scheme has approved lending of nearly MOP90 million, of which 25.5 per cent, or MOP22.9 million, was disbursed to those engaged in the wholesale industry, while 19.3 per cent, or MOP17.3 million, was approved for retail businesses. Meanwhile, a similar scheme but designated for special projects also approved MOP2 million-worth of loans to two applicants last month. These two companies engaged in the F&B business and the processing industry, respectively.

This special scheme offers credit guarantees of up to 100 per cent of approved bank loans for SMEs to finance special projects. Another SME-supporting regime, the SME Aid Scheme, granted loans of MOP9.9 million for 30 applicants in the same month. The approved amount is down 43.8 per cent compared to MOP17.6 million in July. With this aid scheme, the government grants loans of up to MOP600,000 per applicant for

different financing purposes; companies have as many as eight years to repay the loan. Between January and August approved loans under the scheme accounted for MOP144 million. Of the total, 26.5 per cent, or MOP38.2 million, was granted to retail companies, whilst 15.6 per cent, or MOP22.5 million, was given to firms engaged in construction.

Young start-ups

On the other hand, the Bureau approved 33 applications for loans under the Young Entrepreneur Aid Scheme last month, granting MOP7.1 million. Accumulatively, the total amount

of loans approved via the scheme reached MOP43.4 million for the first eight months of the year, benefiting some 200 young start-ups. Analysed by sector, 45.4 per cent of the approved lending, MOP21 million, went to the retail industry. Young start-ups in the F&B and hotel business were given MOP7.5 million, accounting for 16.1 per cent, followed by real estate firms that received MOP4.6 million, some 10 per cent of total approved lending in the eight months. The Young Entrepreneurs Aid Scheme, implemented in August 2013, offers interest-free loans of up to MOP300,000 (US$37,500) for young people to start their own business. Entrepreneurs aged between 21 and 44 are eligible for a loan for eight years, with repayments starting after 18 months.

6 Business Daily Wednesday, September 7 2016

Macau

MGTO Beijing Imperial Palace has yet to undertake repairs

Clock ticking for Beijing Imperial Palace

eijing Imperial Palace, the doors of which were closed by the Macao Government Tourism Office (MGTO) on July 23, has yet to commence work on the property to fix its condition as it is “delivering requests to the Public Works office

to conduct work but they [Beijing Imperial Palace] didn’t complete this part of the process yet,” says MGTO Director Helena de Senna Fernandes. “At this moment, from what we know, they have yet to conduct any works on the property [Beijing Imperial Palace]. Just yesterday we

received letters from the hotel saying that they are having difficulties in terms of documents coming in, in regard to the construction works.” The hotel is facing complaints from travel agencies regarding allegedly unfulfilled contracts for 70,000 hotel rooms booked before the hotel’s

closure. While the issue “is not under our supervision” the MGTO Director said “if they [the travel agencies] have proof the Consumer Council also can help on the topic […] these are commercial conflicts between various parties.” With regard to a potential extension on the initially mandated six month deadline for improvements or closure, the MGTO head said only that “I can’t say that there won’t be other factors that might create another consideration. But at this moment our decision is not to prolong the deadline”. N.M & K.W.

Government offices Nearly MOP9 mln for renovation of new office space

DSEC expanding offices A fistful of patacas Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

The Statistics and Census Service (DSEC) will be expanding its offices from its current location in Dynasty Plaza, according to information published in the Official Gazette and confirmed by a DSEC representative. Although the expansion won’t result in additional rental costs for the government, a two-year renovation of the new location will cost the government millions of patacas.

Currently, the statistics service headquarters is one of the government properties being rented in the Cathedral (Sé) district of Macau. Within this district alone, the government is renting over 160,000 square metres from private individuals. According to a recent report published by the Commission for Audit, between 2004 and 2014, the government was renting nearly 300,000 square metres, contributing to a total rental cost borne by the MSAR of over MOP4 billion (US$500 million). In

Results

San Miguel bucks industry trend in MSAR Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

San Miguel Brewery Hong Kong Limited posted a loss of HK600,000 (US$77,360) for its first fiscal quarter results, ended June 30, according to its filing with the Hong Kong Stock Exchange. The beer manufacturer saw a 4.7 per cent year-on-year drop in its consolidated revenues, amounting to HK$259.5 million for the period. ‘Our Hong Kong operations posted a strong recovery in the first half of 2016, as operating losses before net finance costs were reduced by 75 per cent, with total sales volumes growing by 5 per cent,’ noted the company in its filing. Improvements in loss were noted as due to ‘closer monitoring of discounts, reduction in the cost of delivery through process reengineering, and the consolidation of warehouse operations’. The group’s Macau operations also recorded better-than-expected

results. ‘The company was able to buck the industry trend in Macau,’ notes the filing. This was due largely to sales volume growth of 4 per cent ‘through increased participation in on-premise outlets’. Sales in the surrounding region saw declines, as noted in the Guangzhou subsidiary of the company, which saw a decline as ‘the beer industry in South China contracted,’ notes the filing. However, the launch of new brands in the past two years, namely San Miguel Cerveza Negra and Red Horse Beer, ‘have been well received by the market’ in Hong Kong, notes the filing. Both the Negra and Red Horse brands have seen 38 per cent and 93 per cent volume growth year-onyear for the HKSAR. ‘We remain optimistic about our performance in the next six months,’ notes the filing. ‘We are confident that the plans and programmes we have put in place will ensure we put the right products in the right markets’.

addition to rental, MOP1.03 billion in remodelling costs was incurred for the same period.

New digs

While the DSEC pays rent for its

current location, the expansion, according to the DSEC representative, is to a property that falls under the Land, Public Works and Transport Bureau (DSSOPT) and therefore will not require rental payments. However, the group will retain its Dynasty Plaza location, and associated rental costs, despite the remodelling works for its new location being finalized in 2017. The DSEC representative was unable to provide the figure for rental costs for the current DSEC headquarters. The new facilities will be located in the NAPE region on the Peninsula, on Avenida do Governador Jaime Silvério Marques, located near Dr. Carlos D’Assumpção Park and occupying part of the ground and second-storey floors of the Vista Magnifica Court building. Remodelling works for the new facilities will cost the government some MOP8.94 million, to be divided over the next two years, with MOP3.3 million to be paid this year and MOP5.64 million in 2017. The maximum execution time for the remodelling works on the new facilities for the DSEC is 160 working days, according to the dispatch. The work has been contracted to AD & C Engineering and Construction Company Ltd., one of the continual applicants for public tenders on government works, including a MOP325.88 million contract to work on a 7,564 square metre 10-storey health centre for the Seac Pai Van public housing complex via a consortium.

Business Daily Wednesday, September 7 2016 7

Macau Gaming

Parisian hard pressed to attract premium mass Analysts say the smaller hotel rooms of the new property could create obstacles. Kam Leong kamleong@macaubusinessdaily.com

he Parisian Macao may encounter difficulties in attracting premium mass gamblers after the property opens its doors on Tuesday due to its smaller hotel rooms, research house Morningstar Investment Management Asia Limited perceives. “We have some concerns that the smaller size of the hotel rooms of The Parisian would make it more difficult to attract premium mass players,” the group’s equity analyst Chelsey Tam wrote in a note yesterday. Four different types of room are expected to be offered at the new casino-resort property of Sands China Ltd. at 33 square metres, 47 square metres and 72 square metres, according to the note. But the analyst added that the

gaming operator built these smaller rooms on purpose - in order to attract more spending on the retail and gaming sectors. “The group decided to build smaller rooms as their findings from surveys indicate Chinese tourists are more willing to spend money on shopping and gaming compared with rooms,” she wrote. The analyst reckons such a strategy by the gaming operator would indeed help attract traffic to the new property. “A lower capital expenditure per room means that more dollars are spent on the rest of the property, such as better ambiance, which should attract traffic,” she said. “It also means lower room rates, and with the same reinvestment as a percentage of theoretical win, The Parisian can provide more complementary services to attract patrons compared to operators with

higher room costs,” the analyst added. The Parisian Macao, with 3,000 hotel rooms, was authorised 150 newto-market gaming tables by the MSAR Government over the weekend. Of the total, only 100 will be available at the opening on September 13, while

Gaming labour

Melco: We never lay off ‘colleagues’ “We’ve never laid off our colleagues in the past, maybe, 10 years in Macau,” says Melco Crown Entertainment Chief Operating Officer Ted Chan in response to an enquiry about complaints lodged by dealers dismissed by Melco Crown with the Labour Affairs Bureau. “Our company

has a very, very, good system in terms of praise and reward and I’m sure you might have heard that we have one of the best retention programmes for our colleagues,” commented Chan. “I think we’re one of the first that developed locals back in the time before Altira was opening,” he said.

the remaining 50 will be available within the coming two years. Sands China has not announced whether it would transfer its current tables from other properties to the new project. Nevertheless, the Morningstar analyst estimates that the Group has at least 584 underutilised tables at the moment, adding that the lower than expected table allocation (by 100 tables) to The Parisian would not result in a negative impact upon the gaming operator. “Because Sands China opened more casinos in earlier days when table restrictions were less of a concern, Sands China has amassed the largest number of self-operated tables among the six gaming licence holders,” the analyst wrote. “And therefore is likely to have the highest absolute number of excess tables”.

8 Business Daily Wednesday, September 7 2016

Greater China Markets innovation

Hong Kong to launch banking fintech ‘sandbox’ as rivals pull ahead Countries globally, including Singapore, Australia and Britain, have established more far-reaching regulatory incubators to allow fintech firms to experiment with new business models. Michelle Chen and Michelle Price

ong Kong yesterday said it has launched a regulatory regime known as a “sandbox” for financial technology innovation in the banking sector, amid fears the city is losing ground to China, Australia and Singapore in the fintech race. The initiative, effective as of yesterday, would help maintain Hong Kong’s competitiveness as a financial hub by supporting the development of fintech in the banking sector, Hong Kong Monetary Authority (HKMA) Chief Executive Norman Chan told a conference. “The sandbox allows banks to conduct tastings and trials of newly developed technology on a pilot basis. Within the sandbox, banks can try out their new fintech products without the need to achieve full compliance with the HKMA’s usual supervisory requirements,” Hong Kong’s top banking regulator said. Chan said the financial centre “must remain diligent all the time if we wish to continue to maintain our competitive edge,” although he did not believe Hong Kong was lagging rival fintech hubs. The sandbox will only apply to banks looking to use fintech, such as distributed ledger technology or robo-advisory,

as opposed to start-up fintech firms, the HKMA said. In a circular distributed yesterday, the HKMA told banks in the city they can launch fintech pilots for banking services involving a “limited number of participating customers” provided the bank properly tests the technology, and sufficient risk management, customer protections and monitoring are in place. Banks wishing to use the sandbox will

need to directly apply to the HKMA for permission. Countries globally, including in Singapore, Australia and Britain, have established more far-reaching regulatory incubators to allow fintech firms to experiment with new business models and products without falling foul of financial rules. Although the approaches have differed in each country, they generally afford fintech firms temporary waivers or exemptions from rules such as capital requirements or management experience. Despite a government push to promote Hong Kong as a fintech centre, critics say the semi-autonomous Chinese territory has been slow to

accommodate fintech firms, whose capital-light, online-focused business models struggle to satisfy traditional licensing requirements. In July, Reuters reported that Hong Kong had fallen behind Singapore, which has deployed a combination of state-funding and light-touch regulation to become Asia’s leading fintech hotspot. The sandbox concept allow regulators to become familiar with new business models, said James Lloyd, Asia-Pacific fintech leader at financial consultancy EY in Hong Kong. “As a top three financial hub, Hong Kong needs to plan for the new types of work that innovative technologies, processes and business models will bring.” Reuters

Bankruptcy dilemma

In muddying default message, Government risks bond market ructions China’s bond markets have worked for years on the assumption that the government would not allow a default. Nathaniel Taplin and Umesh Desai

When several large state-owned companies in China unexpectedly defaulted on their debts earlier this year, the government seemed determined to send a clear and unified message: it was time to get rid of zombie companies. But since then, China’s signals have become increasingly contradictory and as a result bond market pricing suggests investors see the smallest chance in seven years that many firms will be

allowed to go bankrupt. Slimming down the bloated state sector, including allowing so-called zombie companies to go under, is critical to making the economy more efficient and allowing the private sector to thrive. But the back and forth by Chinese authorities as they weigh the risks of just how hard to be on effectively insolvent companies confuses investors and threatens financial instability in debt markets. “It’s the tension between shortterm stabilisation and long-term

restructuring,” said Nicholas Zhu, a senior analyst covering local government debt at the ratings agency Moody’s. “The direction is clear, but it’s a question of whether the implementation will be soon enough for investors to have confidence.” China’s bond markets have worked for years on the assumption that the government would not allow a default. Issuers were effectively guaranteed by the state. Since 2014 though, Beijing has been cautiously trying to change that perception by allowing some issuers to default. It also plans to introduce more market tools for managing debt, including credit default swaps, debt securitisation and a mechanism for swapping debt for equity. But for every step forward towards a harder stance, there seems to be a step back as policymakers worry cascading state-owned company defaults could undermine investment already at a 16-yearlow or threaten financial stability. So far in 2016, there have been a record of at least 29 defaults, but so far few companies have been allowed to fail.

Changing message

In April, the message seemed clear. A joint statement from the central bank, the banking, securities and insurance regulators on April 21 urged financial institutions to “resolutely withdraw and compress” financing for long-term money-losing firms in legacy industries, a reference primarily to struggling coal and steel firms. In the 10 days following the statement, short-term bond yields spiked by over 30 basis points as investors priced in a greater risk of defaults, adding to a selloff already underway after several prominent state-owned firms had missed debt payments in the weeks beforehand. Fearing a rout, the central bank injected cash to steady the market. But from late June, bonds started to rally again, partly as foreign cash

flowed in seeking China’s relatively higher yields but also as government signals changed, a shift that became more pronounced in August. The National Business Daily reported early that month that the China Banking Regulatory Commission had asked banks not to “casually” cut off lending to firms and instead extend maturities or relend when possible. The report was quickly followed by news that the provincial banking regulator in Shanxi province would permit seven large provincially owned coal firms to roll over their short-term debt.

Key Points Government seemed unified earlier this year in allowing defaults That message has become less clear as year progressed Default risk premiums are now smallest since 2009 Changing sentiment swings markets one way, then the other Heightens concerns about financial instability And in late August, online financial magazine Caixin reported that staterun Bohai Steel Group - struggling with close to $30 billion in debt - would have access to low-interest finance from a special Tianjin government bailout fund to aid in its restructuring. Recent statements from the main agencies responsible for economic planning and managing state assets have also taken a more lenient stance on managing debt. The change of tone between April and August helped fuel the bond rally, leaving the risk premium of one-year AA rated commercial debt over Chinese treasuries, a measure of the expected risk of default,

Business Daily Wednesday, September 7 2016 9

Greater China Servicing debt

In Brief

Libor surge reverberates to Mainland’s currency market The repayment of overseas debt has been one of the primary drivers of yuan weakness. Justina Lee

A surge in the U.S. borrowing benchmark to a seven-year high is making it more expensive for Chinese companies to service US$585 billion of dollar debt, encouraging firms to pay back their overseas loans and adding to pressure for the yuan to weaken. Libor has climbed as reforms to money-market funds reduced demand for short-term debt. With traders seeing above even odds for the Federal Reserve to increase borrowing costs this year, the rate is likely to remain elevated. The three-month rate will end the year at 0.85 percent and 2017 at 1.38 percent, compared with 0.84 percent on Friday, according to the median estimates in Bloomberg surveys of analysts. “Chinese corporates’ dollar debt is mostly based on Libor, so when Libor rises, foreign-exchange pressure will increase,” said Ming Ming, head of fixed-income research at Citic Securities Co., who used to work in the monetary policy division of the People’s Bank of China. The repayment of overseas debt has been one of the primary drivers of yuan weakness since China devalued the currency last August. Global bank claims on the nation fell to US$695 billion at end-March from a peak of US$1.1 trillion in 2014, according to the latest data from the Bank for International Settlements. An estimated US$60 billion left China in the first quarter of this year to pay down foreign credit,

bringing the total to US$1.6 trillion, Goldman Sachs Group Inc. said in a report in July. The yuan rate has a higher correlation with Libor than with China’s equivalent rate, according to Citic’s Ming. Some 84 percent of the nation’s outstanding foreign-currency debt is denominated in dollars, data compiled by Bloomberg show.

“As U.S. dollar Libor heads higher, Chinese corporates are motivated to repay these loans earlier, leading to more dollar strength against the yuan,” said Koon How Heng, senior foreign-exchange strategist at Credit Suisse Group AG’s private banking and wealth management unit in Singapore. “There may still be risk of further Libor strength.” The yuan has fallen 4.9 percent against the greenback in the past 12 months, and trades near the lowest level in six

years. Weaker-than-estimated U.S. jobs data failed to reduce expectations for an interest-rate hike this year, with traders seeing a 59 percent chance of a move higher at December’s meeting. Stay elevated Libor will stay elevated for months or even quarters, Jerome Schneider, Pacific Investment Management Co.’s head of short-term portfolio management, wrote in a note last month. Libor is the benchmark to value trillions of dollars in securities and loans. A manipulation scandal put the rate under a global spotlight, with about a dozen firms paying some US$9 billion in fines to resolve government investigations around the world into rigging of the key benchmark. The potential for Libor’s jump to spur capital outflows from China would have a knock-on effect in the bond market. Any increase in funds leaking out of the country would make it less likely that the PBOC will cut benchmark interest rates or banks’ reserve requirements, adding to liquidity risks, Citic Securities’s Ming wrote in a note. The 10-year government bond yield rose five basis points last week to 2.78 percent, climbing for a third week. The nation’s short-term goal is to slow rising leverage, People’s Bank of China Deputy Governor Yi Gang said in a television interview shown last week. China’s foreign-exchange reserves have stabilized around US$3.2 trillion, suggesting outflow pressures have eased for now. “The surge in Libor on one hand will prompt Chinese corporates to obtain more dollars to repay foreign debt, and on the other hand will drive funds toward the U.S.,” Qu Qing, an analyst at Huachuang Securities Co., wrote in a note. “Rising depreciation pressure will make funding conditions tighter, adding to the pressure of an adjustment in the bond market.” Bloomberg News

Overcapacity

at its narrowest since 2009. The spread had nearly doubled in April to 180 basis points when investors thought the government was signalling a readiness to let more companies fail. “First it’s ‘Get rid of the zombie companies, OK let’s go,’ and once you go on, you run into some difficulties, then some more practical considerations get into the discussion. And then when that practical discussion or consideration gets under way, there will be another round of pushback to continue to restructure,” Moody’s Zhu said.

Market risk

Underlining the concerns about market stability, the central bank intervened in money markets last week, worried that lenders were too dependent on short-term funds to finance bond positions. Following the intervention, money market rates spiked. Afterwards, Moody’s Investor Services warned small and mid-tier lenders’ reliance on interbank funding represented a systemic risk to the banking system. “The recent rally in bonds fuelled by leverage on the back of stable short-end funding raise concerns about potential asset bubble risks,” OCBC bank analysts said in a market note. Some analysts say similarly mixed policy signals also affect the municipal bond market. The full extent of the central government’s support for a province in the event of a real debt crisis is unclear, but the bonds of stronger and weaker regions still trade in a tight range, suggesting little difference in the perception of risk. Bonds of the highly indebted rust-belt province of Liaoning, whose economy is contracting, yield just 30 basis points above the relatively well-off Beijing provincial debt. And like corporate bonds, the market is vulnerable to changing signals. “So if there are one or two stories about some local issues, etc., then you may see a market correction,” said Frances Cheung, head of rates strategy Asia ex-Japan at Societe Generale in Hong Kong. Reuters

Shanxi gives coal firms US$142 million for cuts The province cut output by 68.8 million tonnes, or 14.9 per cent, in the first half of the year The northern Chinese province of Shanxi, the country’s biggest coal producing region, has awarded 947.78 million yuan (US$142 million) to six major coal enterprises this year for shutting down surplus capacity, one of the firms said late on Monday. In a notice to the Shanghai Stock Exchange, Datong Coal Industry Co. Ltd said it alone had received 312.16 million yuan from the provincial government after shutting down three mines with 3.75 million tonnes of annual production capacity. China vowed in February to close 500 million tonnes of coal production in the coming three to five years in a bid to tackle an annual capacity surplus amounting to more than 2 billion tonnes. The country plans to close 250 million tonnes of coal production in 2016 alone. The industry ministry said the country would provide 100 billion yuan this year to help handle layoffs in the coal and steel industries. According

to China’s Ministry of Finance, a total of 30.7 billion yuan had already been allocated by August this year. Shanxi produced 944.1 million tonnes of coal last year, amounting to 25.6 per cent of the national total. The province cut output by 68.8 million tonnes, or 14.9 per cent, in the first half of the year, according to the local government. Its efforts to curb output have been a key factor in the recovery in coal prices this year, with prices of thermal coal at the key northern port of Qinhuangdao rising by more than a third since the end of 2015. According to the official Xinhua news agency, central China’s Henan province also plans to award 2.18 billion yuan to encourage its coal and steel producers to slash capacity this year. The funds will be used to help pay for layoffs. The province aims to cut 62.54 million tonnes of coal capacity and 2.4 million tonnes of crude steel capacity this year. Reuters

Inflation

Taiwan’s CPI climbs 0.57 pct year-on-year Taiwan’s consumer price index (CPI), a main gauge of inflation, increased 0.57 per cent in August year on year, the island’s statistics agency announced yesterday. The agency mainly attributed the increase to rising food prices in August. The agency’s data shows fruit prices for August jumping 23.02 per cent from the same period last year, after unfavourable, changeable weather, including cold fronts, heavy rain and high temperatures. Meanwhile, the price of aquatic products in August also rose 5.33 per cent from the same month last year. Compared with the preceding month, the CPI in August was down 0.03 per cent. Fiscal policy

Authorities to step up proactive efforts China will step up proactive fiscal policy efforts now that commodity prices are relatively low, the State Council, or cabinet, said in a notice published on its website yesterday. The notice is a summary of a routine State Council meeting held by China’s Premier Li Keqiang on Monday. The State Council also said it would encourage China’s policy banks to step up credit support. It reaffirmed that China would actively reduce overcapacity and further liberalise infrastructure investment, meaning a further opening up to private investment. Green regulation

Beijing may penalise maritime oil spill companies The Chinese government is considering imposing penalties on offshore oil companies that damage marine environment, state media said on Monday, the latest effort by Beijing to clamp down on environmental pollution and tackle risks from oil leaks. The Legislative Affairs Office of the State Council on Monday published an early draft of the regulation, which includes damages for clean-up costs and the restoration of ecological balance in marine environments, according to Xinhua. Companies will also have to invest in environmental monitoring and evaluation and use professional consultants if necessary. Disaster relief

Emergency response to Gansu drought The central government yesterday initiated a level-IV emergency response plan to manage the drought in northwest China’s Gansu province. The National Commission for Disaster Reduction and the Ministry of Civil Affairs have dispatched teams to help with the relief work. Some areas in the province have seen little rainfall since spring, according to local authorities. More than 6.2 million people’s livelihoods have been affected, making government assistance necessary. Large swathes of crops have been ruined and direct economic losses are estimated to be 3.62 billion yuan (about US$541.9 million).

10 Business Daily Wednesday, September 7 2016

Greater China

It was the last time that Obama attended a G20 summit. Hangzhou summit

G20 promises to coordinate on economy, but little in way of concrete steps The group called for the formation of a global forum to take steps to address steel excess capacity and encourage adjustments. Kevin Yao and Michael Martina

eaders from the world’s top economies broadly agreed at a summit in China on Monday to coordinate macroeconomic policies, but few concrete proposals emerged to meet growing challenges to globalisation and free trade. At the two-day gathering in the scenic Chinese city of Hangzhou, t h e w o r l d’ s m o s t p o w e r f u l leaders also agreed to oppose p r o t ec t i o n i s m , w i th Ch i n es e President Xi Jinping urging major economies to drive growth through innovation, not just fiscal and monetary measures. “We aim to revive growth engines of international trade and investment,” Xi said in a closing statement. “We will support multilateral trade mechanisms and oppose protectionism to reverse declines in global trade.” Discussions at the meeting were distracted by North Korea test-firing three medium-range ballistic missiles in a defiant reminder of the risks to global security. North Korea has tested missiles at sensitive times in the past to draw attention to its military might. But Monday’s launch risked embarrassing its main ally Beijing, which has gone to extraordinary lengths to ensure a smooth summit meeting. Beijing said it hoped relevant parties would avoid taking any actions that would escalate tensions. The United States called the launch reckless, while Japanese Prime

Minister Shinzo Abe told U.S. President Barack Obama that it was unforgivable. On other fronts, the United States tried but failed to finalise a deal with Russia for a ceasefire in Syria on the side-lines of the summit. Obama and Russian President Vladimir Putin had a longer-thanexpected discussion about whether, and how, they could agree on a deal, a senior U.S. administration official said. But in talks earlier on Monday, U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov were unable to come to terms on a ceasefire for the second time in

Key Points Summit agrees to oppose protectionism, expand trade Participants call for inclusive growth U.S. says leaders recognise steel overcapacity is a global issue Summit distracted by North Korea missile test two weeks, although they will meet again this week. The G20 called for the formation of a global forum to take steps to address steel excess capacity and encourage adjustments, the White House said in a statement, one of the controversial issues discussed at the summit. China produces half the world’s

annual output of 1.6 billion tonnes of steel and has struggled to decrease its estimated 300 million tonne overcapacity, and rising prices have given companies there an incentive to boost production for export.

Isolationist trend

With the summit taking place after Britain’s vote in June to exit the European Union and before the U.S. presidential election in November, G20 leaders had been expected to mount a defence of free trade and globalisation and warn against isolationism. Republican presidential candidate Donald Trump, who supports protectionist trade policies, has pulled into an effective tie with Democratic rival Hillary Clinton, erasing a substantial deficit. In Germany, Chancellor Angela Merkel’s party was relegated to third place behind an anti-immigrant party in a regional election on Sunday. “I’m very unsatisfied with the outcome of the election,” Merkel told reporters in Hangzhou. “Obviously it has something to do with the refugee question. But I nevertheless believe the decisions made were right and we have to continue to work on them.” One of the few areas where there was progress was in protecting the environment. China and the United States ratified the Paris agreement on cutting climate-warming emissions on the eve of the G20 summit, setting the stage for other countries to follow suit. In a communiqué issued several hours after the close of the summit, the G20 leaders warned that global growth was weaker than anticipated, with downside risks continuing, and repeated the

acknowledgement that monetary policy alone could not create balanced growth. It said new challenges including terrorism and immigration complicated the global economic outlook, and that the G20 agreed use all policy tools available to drive strong and sustainable growth. British Prime Minister Theresa May, attending her first G20 summit, said governments needed to “do more to ensure that working people really benefit from the opportunities created by free trade.” “This discussion goes to the heart of how we build an economy that works for everyone.” International Monetary Fund Managing Director Christine Lagarde, speaking after the summit, also said more inclusive growth was a priority in the global economy. “We need increased growth, but it must be better balanced, more sustainable, and inclusive so as to benefit all people,” she said. It was the last time that Obama attended a G20 summit. His visit to Hangzhou got off to a chaotic start. There was no rolling staircase provided for Air Force One when it landed and Obama had to disembark from an exit in the plane’s belly. Then, a Chinese security official blocked National Security Adviser Susan Rice on the tarmac and yelled at another U.S. official trying to help journalists get closer to Obama. China levelled responsibility at the United States and journalists for the fracas. Obama told reporters he “wouldn’t over-crank the significance” of the airport events. When he left China on Monday, he boarded Air Force One via a fullsized staircase provided by Hangzhou International Airport. Reuters

Business Daily Wednesday, September 7 2016 11

Asia Monetary policy

Australia’s central bank holds rates as economy lopes along Analysts were nudging up their growth forecasts after data showed the conservative government of Malcolm Turnbull went on a mini spending spree last quarter. Wayne Cole

ustralia’s central bank held interest rates steady yesterday, a month after cutting to a record low of 1.5 per cent, and left open the question of further easing as the country gets ready to toast 25 years without a recession. The decision by the Reserve Bank of Australia (RBA) came as no surprise given easings in August and May are yet to percolate through the economy.

a decade in the top job. Stevens will be replaced by his current deputy, Philip Lowe, who in turn is being replaced by another career RBA banker, Guy Debelle. Both are well respected in financial markets. All 33 economists polled by Reuters expected a steady outcome and financial markets had priced in a vanishingly small chance of a cut. Most respondents looked for rates

to stay on hold to the end of the year, though many favoured one final easing to 1.25 per cent in the first quarter of 2017. The recent cuts were driven largely by a surprisingly sharp slowdown in inflation and the need to prevent the local dollar from climbing too far in reaction to hyper-aggressive policy easing elsewhere in the world.

Growth forecasts edge higher

Analysts were nudging up their growth forecasts after data showed the conservative government of Malcolm Turnbull went on a mini spending-spree last quarter, in the run-up to a federal election in July.

Key Points RBA keeps rates at 1.5 pct after cuts in August and May Offers little guidance on whether it might ease again Forecasts for Q2 GDP nudged up to 0.5/0.6 pct q/q Annual growth seen at 3.5 pct, fastest in four years “The Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” said RBA Governor Glenn Stevens, who retires this month after

Commodities

Malaysia’s palm oil inventories lowest since 2011 Overseas sales are expected to be further lifted by strong shipments to India ahead of the Diwali festival in October. Emily Chow

Malaysian palm oil inventories likely dropped in August to a more than five-year low as a strong surge in exports outpaced a smaller growth in output. Falling stockpiles at the world’s No.2 palm oil producer after Indonesia could buoy benchmark prices of the tropical oil, which are currently near a three-week high of 2,662 ringgit (US$652.93) per tonne amid near-term supply worries and firm demand. End-stocks in Malaysia are seen dropping to 1.60 million tonnes in August, down 9.6 per cent from July, based on a Reuters survey of nine planters, traders and analysts. That would be the lowest since stocks hit 1.48 million tonnes in February 2011. Production is expected to rise 9.7 per cent to 1.74 million tonnes, the survey showed, the strongest since October 2015 but the weakest August level since 2013. While output typically hits a

seasonal high in August, peak production in 2016 could be delayed as dryness linked to last year’s El Niño, the strongest in 20 years, has lowered yields across Southeast Asia, the survey participants said. “September’s output could be unchanged from August, but October looks like the month where we get the highest crops,” said a trader from a commodities trading house.

Key Points August end-stocks seen at 1.60 million tonnes Output forecast at 1.74 million tonnes, up 9.7 per cent m/m Exports seen at 1.68 million tonnes on higher Chinese demand Malaysian Palm Oil Board data due Sept. 13, after 0430 GMT “This year seems quite difficult in looking at crops and estimating when it is going to bear more fruit.”

The survey pegged palm oil exports at 1.68 million tonnes for August, up 21 per cent from 1.38 million tonnes in July. “Strong demand from China has boosted exports significantly... due to stocking activity ahead of the Moon Cake festival,” said Alan Lim, a plantations analyst at MIDF Research in Kuala Lumpur. Lim was referring to the MidAutumn festival that will be celebrated on September 15 this year, which boosts demand for palm oil in China. “Additionally, palm oil inventories at major ports there were belowaverage levels in early August,” he said, adding that China is now stocking up after waiting for prices to come down. Overseas sales are expected to be further lifted by strong shipments to India ahead of the Diwali festival in October, the Hindu celebration which also causes a spike in palm oil demand. India and China are the world’s largest buyers of palm oil. The median figures from the Reuters survey imply Malaysian consumption of 253,144 tonnes in August. Official data will be released on September 13, according to an email by the Malaysian Palm Oil Board. Reuters

Forecasts were now clustered around 0.5 per cent to 0.6 per cent for gross domestic product (GDP) growth in the second quarter. That would be a step down from the first quarter’s unusually strong 1.1 per cent increase, largely due to a pullback in net export earnings. Yet annual growth was still seen accelerating to around 3.5 per cent, the fastest pace in four years and well ahead of most of Australia’s peers in the rich world. “The Australia economic expansion is about to celebrate its 25th birthday and is zeroing in on the Netherlands’ gold medal for the longest expansion in the modern era,” said Craig James, chief economist at fund manager CommSec. “Household and government spending, public investment and inventories drove growth in the quarter, restrained by private investment and net exports.” Reuters

12 Business Daily Wednesday, September 7 2016

Asia Fuelling growth

Japanese budget requests top 100 trillion yen for third year There are doubts Tokyo can hit its budget goals given the frustratingly slow pace of economic growth. Takaya Yamaguchi and Tetsushi Kajimoto

nnual budget requests from Japan’s government offices have topped 100 trillion yen (US$963.76 billion) for a third straight fiscal year, highlighting the task faced balancing growth priorities with the need to rein in a heavy debt burden. The requests totalled 101.4707

trillion yen for fiscal 2017, compared with a record 102.4099 trillion yen requested for the current fiscal year’s initial budget, the Ministry of Finance said. Prime Minister Shinzo Abe’s progrowth fiscal policy, backed by rock-bottom borrowing costs under the Bank of Japan’s negative interest rate policy have encouraged the high spending requests.

The finance ministry will scrutinise and trim the spending requests before it drafts an annual budget in December. This fiscal year’s initial budget hit a record 96.7 trillion yen. “We’ll compile the budget by focusing on areas with overriding priority,” Taku Otsuka, vice finance minister, told reporters. “We’ll keep a tight rein on spending reform.” Japan has to revive stalling economic growth while controlling a debt burden, that at twice the size of its economy is the heaviest among the world’s industrialised nations. Of the total budget requests, debt-servicing costs accounted for

24.6174 trillion yen, while other expenditure reached 76.8533 trillion yen. Reflecting the bulging cost of social security for a fast-ageing society, the budget request by the welfare ministry hit 31.1217 trillion yen, by far the highest submitted by a government office. Abe’s planned 28-trillion yen stimulus package, part of which will be written into the next fiscal year’s budget, also drove spending requests higher.

Key Points Budget requests at 101.5 trln yen, lower than prior year MOF to trim requested amount when drafting budget in Dec Govt struggles to balance econ growth with fiscal reform Spending requests for priority areas for growth hit 3.8135 trillion yen. Due to a fragile economic recovery, the government has stuck to its plan to balance the primary budget, excluding new bond sales and debt servicing, by fiscal 2020, despite a delay in the sales tax hike to 10 per cent by 2 1/2 years to October 2019. But there are doubts Tokyo can hit its budget goals given the frustratingly slow pace of economic growth and lagging reform in social security and other spending. On top of the annual budget, requests for lending programmes reached 16.5209 trillion yen, up about 3 trillion yen from this fiscal year’s initial plan, as the long-term financing costs for high-speed maglev trains and other infrastructure projects have been lowered by the Bank of Japan’s negative interest rates strategy. Reuters

Prime Minister Abe at Japan’s Diet

Central bank

Singapore’s labour shortage is key challenge for economy Monetary authority head did not give details on any potential policy moves. Marius Zaharia and Anshuman Daga

Singapore’s labour shortage is probably the biggest challenge for growth, and the restructuring of the economy towards coping with such pressures will take a considerable amount of time, the central bank’s managing director said yesterday.

Key Points Biggest challenge is continuing to grow amid labour shortages

ahead of productivity. At roughly 43 per cent of gross domestic product, wage costs in Singapore are now at levels which historically had preceded recessions in 1985, 1997 and 2001. “Probably the biggest challenge facing us is continuing to grow in the face of labour shortages,” Menon said. Firms were adapting to that with mixed results, he said. Some were investing in technology and in making their business processes more efficient, while others were struggling to cope with high labour costs and low profit margins.

Those businesses “either have to merge or redeploy their resources,” Menon said. “This is a restructuring process that is still on-going. The outcome is not certain. It will take a considerable period of time for these adjustments to take place.” Menon reiterated that the banking system was solid. Its total exposure to the oil and gas sector - including loans, debt and contingent liabilities - is less than 10 per cent. The most recent stress tests, which assumed recession in Singapore, the United States, the European Union and Japan and below 3 per cent growth in China as well as 50 per cent falls in commodity and property

prices, showed banks could withstand such conditions and still meet their capital requirements, he said. While some analysts warn of rising recession risks in Singapore, Menon said it was not clear to him if that was the case. He did not give details on any potential policy moves. The Monetary Authority of Singapore manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate. In April, it unexpectedly eased policy by setting the rate of appreciation of the Singapore dollar’s policy band at zero per cent. Reuters

Firms are adapting to shortfall with mixed results - Menon Restructuring will take a considerable amount of time Banking system is solid, oil and gas exposure below 10 pct Speaking at the Foreign Correspondents Association in Singapore, Ravi Menon said the economic growth forecast of 1-2 per cent remained in place, having only recently been cut from 1-3 per cent on concerns over Brexit and weakening global demand. But the trade-reliant economy faced domestic challenges as well, most importantly a labour shortage exacerbated by restrictions on foreign workers introduced in 2011 amid disquiet over immigration. This means wage growth has raced Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com Founder & Publisher

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Business Daily Wednesday, September 7 2016 13

Asia Diplomatic trip

In Brief

Philippines’ Duterte regrets tirade after Obama cancels meeting Duterte on Monday rejected U.S. criticism of the methods he’s using in his anti-drug campaign. Norman P. Aquino and Angela Greiling Keane

Philippine President Rodrigo Duterte sought to mend fences after his expletive-laden tirade against Barack Obama prompted the U.S. president to cancel a one-on-one meeting in Laos. In a statement issued by his office yesterday, Duterte said he regretted that his comments warning the U.S. against interfering in a war on drugs “came across as a personal attack.” The nations agreed to move the meeting to a later date, he added. “Our primary intention is to chart an independent foreign policy while

promoting closer ties with all nations, especially the U.S.,” the statement said, adding that the nations shared a “longstanding partnership.” “We look forward to ironing out differences arising out of national priorities and perceptions, and working in mutually responsible ways for both countries.” National Security Council spokesman Ned Price said Obama wouldn’t go through with a scheduled bilateral meeting with Duterte yesterday at the Association of Southeast Asian Nations summit in Laos. Instead, he will meet with South Korean President Park Geun Hye, Price said in a statement.

President Rodrigo Duterte (C) arriving at Wattay International Airport to attend the ASEAN summit in Vientiane, Laos.

While Price’s statement didn’t give a reason for the scheduling change, Duterte on Monday rejected U.S. criticism of the methods he’s using in his anti-drug campaign, saying it was an internal Philippine matter. He indicated that a meeting with Obama could prove a testy affair, saying if the U.S. president questioned him “I will curse you in that forum.” “Who is he? I am the president of a sovereign state and we have long ceased to be a colony,” Duterte said. “I only am answerable to the Filipino people who elected me as president.” Asked at a briefing in Hangzhou, China, at the end of the Group of 20 summit about Duterte’s comments, Obama said “clearly he’s a colourful guy” and added that he was talking to his staff to see if “this is a time we can have some constructive, productive conversations.”

Defiant Duterte

Duterte has been defiant toward international criticism of his anti-drug campaign, which has left about 2,400 dead in the two months since he took office. He’s lashed out at statements from the United Nations and the U.S., responding to comments from U.S. Ambassador Philip Goldberg by calling him a homosexual. That prompted Washington to summon officials from the Philippine Embassy to complain. Duterte has defended his campaign as a matter of national security, calling illegal drugs a pandemic that must be wiped out by the Philippines at any cost. “Nobody has a right to lecture me,” Duterte said. “God, do not do it. We will end up disrespecting each other if you do that to me.” The war on drugs will continue and many will be killed “until the last pusher is out of business,” he said. Bloomberg News

Troubled freight

Hanjin Shipping’s parent to raise funds to unload stranded cargo Company’s collapse last week has caused chaos in global trade networks and a surge in freight rates. Joyce Lee and Nataly Pak

Hanjin Shipping Co’s parent firm plans to raise 100 billion won (US$90.46 million) to fund the unloading of billions of dollars worth of cargo aboard vessels stranded around the world in the wake of its court receivership filing last week. Hanjin Group, the parent of Hanjin Shipping, will raise 60 billion won while Hanjin Group chairman Cho Yang-ho will contribute 40 billion won from private funds, the group said in a statement yesterday. South Korea’s 11th-largest conglomerate said the funds are being raised to “normalize the unloading of Hanjin Shipping’s containers” to “minimize the damage to exporters and importers”. The funding is separate from the roughly 100 billion won in loans that three South Korean government officials said government-backed creditors are ready to provide if Hanjin’s parent provides collateral. Even if both funding packages come to fruition, the sums will still be far short of what Hanjin Shipping, the world’s seventh-largest container carrier, needs to stay afloat. Hanjin Shipping had about 600 billion won in unpaid obligations such as charter fees and terminal use fees as of end-August, before a South Korean court approved its court receivership, South Korea’s maritime ministry said. Its debt stood at 5.6 trillion won at the end of 2015, and a bankruptcy would be the container shipping industry’s largest. The funding plan unveiled yesterday aims to “alleviate a logistics crisis rather than normalising the shipper overall,” Kang Sung-jin, an analyst at

KB Investment & Securities, said in a report, adding that it will be difficult for the shipper to survive. Hanjin Shipping’s collapse last week has caused chaos in global trade networks and a surge in freight rates, as ports and vendors refused to provide services to Hanjin vessels for fear they won’t be paid. “We were barred entry outside the port, so we are floating east of Tokyo port,” Park Kong-soon, captain of the Hanjin Atlanta, which has a crew of 20, told Reuters by satellite phone. He said the ship has about 10 days worth of meals and 20 days worth of other foodstuffs. “We are waiting indefinitely. There is no word besides what we see on the news, that the government is making efforts for Hanjin Shipping. We are waiting for a call,” Park said.

Barred from ports

Hanjin Shipping said that as of late Monday, 73 of its ships were seized

or denied access to ports, comprised of 66 container ships and 7 bulk carriers. This includes three ships seized by creditors through court orders, up from one, a Hanjin spokeswoman said. The three ships include the Hanjin Rome in Singapore as well as two other container ships in unidentified locations in China, seized through Chinese court orders, the spokeswoman said. Hanjin has 141 ships, of which 128 are operating. The Hanjin spokeswoman could not explain the discrepancy between its numbers, and the 79 Hanjin ships South Korea’s maritime ministry said were denied port access yesterday. Hanjin vessels were carrying cargo worth 16 trillion won belonging to some 8,300 cargo owners, the Korea International Trade Association said on Monday. Last month, Hanjin Group submitted a plan to creditors pledging to raise up to 500 billion won for the troubled shipper, which its lead creditor, state-run Korea Development Bank, deemed inadequate. Reuters

Laos meeting

ASEAN summits kick off The Association of Southeast Asian Nations (ASEAN) opened its 28th and 29th summits yesterday in the Lao capital, with the theme of “Turning Vision into Reality for a Dynamic ASEAN Community.” The opening ceremony started at noon at the National Convention Center in Vientiane, while the two summits will be held yesterday and Wednesday respectively. On Tuesday, the leaders will also witness Launch of the Master Plan on ASEAN Connectivity 2025 and the Initiative for ASEAN Integration Work Plan III, and interface with the ASEAN Business Advisory Council. Aircraft sale

Vietnamese airlines order 40 Airbus jets Vietnamese airlines plan to order 40 Airbus jets in deals worth an estimated US$6.5 billion, the European plane maker said yesterday, as they expand their fleets for a small but fast-growing market. Strong economic growth and a burgeoning middle class has increased demand for travel both domestically and abroad, spurring carriers to increase routes. In deals announced at the start of a two-day visit to the Southeast Asian nation by French President Francois Hollande, Vietnam Airlines, the country’s flagship carrier, reached a preliminary agreement for 10 A350 planes worth US$3.1 billion. Tax evasion

Singapore, Australia agree to share financial data Singapore and Australia have agreed to automatically exchange financial data of tax residents of the two countries by September 2018 in an effort to prevent tax evasion. Offshore wealth centres Singapore, Switzerland and Hong Kong are among 101 jurisdictions committed to start exchanging information to combat tax evasion by 2018. “Both jurisdictions are satisfied with the confidentiality rules and data safeguards that are in place in the other jurisdiction to ensure the confidentiality of information exchanged and prevent its unauthorised use,” Australian Taxation Office and Inland Revenue Authority of Singapore said in a joint statement. Real estate

NZ house prices rise in August New Zealand house prices continued to rise in August and the average value for a house in the largest city of Auckland topped the million dollar mark for the first time, the government property valuer said yesterday. Quotable Value’s residential property price index rose 14.6 per cent in the year to August and house prices are now 47.8 per cent above a previous market peak of late 2007. House prices in the Auckland region rose 15.9 per cent on the year and are now 85.5 per cent higher than the previous peak.

14 Business Daily Wednesday, September 7 2016

International In Brief M&A

Bayer sweetens Monsanto bid German pharmaceutical and crop chemicals manufacturer Bayer AG says talks with Monsanto Co have advanced and it is now willing to offer more than US$65 billion, a 2 per cent increase on its previous offer for the world’s largest seeds company. “Both sides are gradually nearing consensus,” one person familiar with the matter said. Monsanto has also agreed to open its books for Bayer to conduct due diligence checks on the company’s business, two sources said. Bayer now says it is prepared to offer US$127.50 per share in a negotiated deal, up from its previous offer of US$125 per share. Private poll

Arab banks’ ties to foreign banks under pressure More than a third of Arab banks have seen their business links with foreign banks shrink over the past four years because of pressures such as economic sanctions and concern about money laundering, according to a study published on Monday. “The inability of banks in some Arab countries to enter into correspondent relationships with foreign banks could have a deleterious impact on trade and remittances and ultimately on real economic activity,” the Arab Monetary Fund said in the study. “Consequently, this is an increasingly important challenge facing Arab countries.” Political replacement

Angolan president sacks finance minister Angolan President Jose Eduardo dos Santos on Monday sacked his finance minister Armando Manuel, the presidency announced, as the country battles an economic crisis caused by sinking oil prices. No reason was given for the dismissal of the 44-year-old Londoneducated minister who has held the post for three years. He has been replaced by Augusto Archer de Sousa Mangueira, 53, who was chairman of the country’s Capital Markets Commission prior to the new appointment. The new minister takes over of struggling economy which has slumped mainly due to the steep drop in crude oil prices. Coup aftermaths

Turkish bank regulator takes control of holding Turkey’s bank regulator has taken control of Boydak Holding, which features in the Fortune 500 list of top Turkish firms, after the state said it would manage or sell off firms linked to a religious movement it blames for a failed coup, the Dogan News Agency said yesterday. A court in the central Turkish town of Kayseri, where Boydak is based, ordered the Savings Deposit Insurance Fund (TMSF) to take control of the company due to allegations it financially backed Fethullah Gulen, a U.S.based cleric whose followers the government said staged the July 15 attempted putsch, Dogan said.

Weak demand

German industry orders suggest slowing economy ahead For 2016 as a whole, the government expects an overall growth of 1.7 per cent. Michael Nienaber

erman industrial orders eked out a smaller-than-expected rise in July and showed a decline in domestic demand, underlining growing concerns that Europe’s economic powerhouse is slowing down. Contracts for goods “Made in Germany” were up by 0.2 per cent in July, the Economy Ministry said yesterday. That was weaker than a Reuters consensus forecast for a rise of 0.5 per cent. Domestic demand fell by 3.0 per cent while foreign orders rose by 2.5 per cent, with demand from euro zone countries jumping by 5.9 per cent. “Domestic demand for goods is disappointing again,” DIHK economist Sophia Krietenbrink said, adding that the data pointed to weaker consumption in the coming months. The surprisingly low order intake from home added depth to a picture of lacklustre investment among German companies while European peers seem more willing to open their pockets. This was also reflected in a forecast by the Munich-based Ifo institute for Germany’s current account surplus to hit a new record of US$310 billion in 2016, overtaking that of China again to become the world’s largest. Ifo economist Christian Grimme said exports exceeded imports by US$159 billion in the first half of the year, mainly due to strong demand from other European countries. The institute said the German surplus would be equivalent to around 8.9 per cent of gross domestic product, meaning it would once again breach the European Commission’s recommended upper threshold of 6 per cent. This is likely to fuel the debate about Germany’s economic role. Brussels and Washington have urged Berlin repeatedly to lift domestic demand to help reduce global economic imbalances. Speaking in parliament to present the federal budget, Finance Minister Wolfgang Schaeuble (pictured) rejected such criticism, saying Berlin was massively increasing state spending while also implementing

other measures to lift domestic demand. “We are playing our part in strengthening global demand. No other country in Europe is spending more on investment than Germany,” Schaeuble said. “Just because some countries in Europe are taking on more debt, it doesn’t mean they are investing more.” He did say, however, that tax cuts may be in the offing after next year’s federal election. The German government introduced a national minimum wage in 2015 and decided to raise pension entitlements in 2016 by the strongest rate in more than two decades. In addition, Berlin increased state spending on roads, digital infrastructure and migrants.

Brexit and Trump

The industrial orders data was the first for a full month since Britain’s vote to leave the EU. “Economic and political uncertainty are dampening order activity around the globe,” VP Bank economist Thomas Gitzel said, adding that Britain’s 23 June vote was only one negative factor among several others. “With U.S. presidential candidate Donald Trump, the next uncertainty is around the corner,” Gitzel said, pointing to Trump’s sharp rhetoric

against free trade. The United States is Germany’s most important export market. The Economy Ministry said that the development of incoming orders was lacklustre so far this year, suggesting industrial activity would be rather weak in autumn. The ministry provided no single data on how orders from the UK developed in July. But a regional breakdown showed that demand from countries outside the euro zone rose by only 0.6 per cent after an increase of 3.8 per cent in June. HSBC Trinkhaus economist Jana Meier said uncertainty about the future relationship between Britain and the remaining 27 EU members was likely to weaken investment in the medium term. Economists are divided on how much Brexit will weaken German exports and consequently lower growth rates in the coming quarters. Britain is Germany’s third-most important export market. The DIW economic institute expects economic growth to ease to 0.3 per cent in the third quarter from 0.4 per cent in the three months to June, partly because of Brexit. For 2016 as a whole, the government expects rising private consumption and higher state spending to drive an overall growth of 1.7 per cent, on a par with last year. For 2017, Berlin expects growth to slow to 1.5 per cent as weaker exports are expected to hit manufacturers. Reuters

GDP

Swiss economy grows more than forecast Local companies are finding ways to cut costs and improve productivity. Catherine Bosley

Swiss economic momentum accelerated more than expected last quarter, helped by government consumption and foreign trade. Gross domestic product rose 0.6 per cent in the three months through June, after gaining a revised 0.3 per cent in the prior quarter, the State Secretariat for Economic Affairs (SECO) in Bern said yesterday. That is stronger than the increase of 0.4 per cent forecast by economists in a Bloomberg survey. A year after suffering an exchange-rate shock, the exportoriented Swiss economy appears to be finding its footing again. Demand in countries such as Germany is recovering and local companies are finding ways to cut costs and improve productivity.

Unemployment is low by European standards and the strong franc, which the central bank says is overvalued, is buttressing domestic consumption by lowering the cost of imports. “Positive contributions to GDP came from foreign trade as well as government consumption, while household consumption expenditure stagnated, and investment in construction and equipment fell slightly,” the SECO said. Concerning exports of goods, the chemicals and pharmaceuticals category “provided the strongest contribution to growth.” Companies in the machine, electrical and metals sectors were particularly hit by a surge in the Swiss currency that followed the central bank’s decision to scrap its minimum exchange rate in early 2015. The sector shed 9,200 jobs in

the wake of that policy switch, but employment is now stabilizing and exports “started to turn around in the second quarter” due to better European and U.S. demand, industry body Swissmem said last week.

Brexit vote

So far, there have been few signs that the U.K’s June 23 vote to leave the European Union has weighed on momentum in Switzerland. The closely watched Purchasing Managers’ Index has clocked in above the 50-point mark that separates growth from contraction each month this year. The Swiss National Bank, whose quarterly policy announcement is scheduled for September 15, is using a deposit rate of minus 0.75 per cent coupled with a pledge to intervene in foreign-exchange markets to prevent the franc from appreciating. It admitted to buying up foreign currency to stabilize the franc in the wake of the Brexit vote. Bloomberg News

Business Daily Wednesday, September 7 2016 15

Opinion Business Wires

Taipei Times The Executive Yuan yesterday outlined an implementation plan for the government’s “new southbound policy,” which is aimed at boosting ties with 16 ASEAN and South Asian nations, as well as Australia and New Zealand. The plan is based on four principles — economic cooperation, special talent exchange programs, resource sharing and regional integration — and will pave the way for a regional economic community, Minister Without Portfolio John Deng said. Businesses that are among the nation’s flagship industries, such as oil refining, power generation, environmental protection, electronic toll collection and the Internet of Things, will be the first to be marketed to partner nations, Deng said.

Chinese President Xi Jinping delivers his speech during the closing press conference of the G20 Summit at the Hangzhou International Expo Centre in Hangzhou, China, 05 September 2016. Lusa

The G20 embraces green finance

The Phnom Penh Post The Ministry of Tourism is preparing a draft law for eco-tourism with the hope that it will keep Cambodia’s tourism industry competitive while protecting the Kingdom’s natural resources and promoting conservation efforts. According to a half-year report released by the ministry on Monday, the draft law is still in the early development stage of technical discussions. The ministry is collaborating with France’s University of Toulouse to develop the legislation, with additional support provided by Acting For Life, an NGO that specialises in sustainable tourism initiatives.

The Korea Herald South Korea’s government yesterday rolled out a set of measures to promote the so-called maker movement, as it is heralded as a new industrial trend that will eventually lead to more start-ups. The term refers to a social trend in which anyone with creativity and innovation can now be a maker of products and ideas thanks to the widespread availability of technology and access to information, the Ministry of Science, ICT and Future Planning said. The announcement was made after a Cabinet meeting presided over by Prime Minister Hwang Kyo-ahn.

The Times of India The Special Investigation Team on black money has identified information sharing between agencies as a key gap and asked the Reserve Bank of India to develop an online platform through which data can be shared with the entities such as the Enforcement Directorate, directorate of revenue intelligence and the income tax department. This is the latest steps from the Supreme Court-appointed panel after it recommended a series of steps, including a cap on cash transactions as well as a ceiling on the amount of cash that an entity can hold.

he G20’s finance ministers and central-bank governors have begun to undertake a stunning shift in mind-set. They have become increasingly convinced that “green finance” – financing environmentally sustainable growth – should be at the centre of economic-development strategies. Such an idea, until recently confined to a fringe of academics and policymakers, is potentially one of the most important new “truths” of the twenty-first century. The conventional economic-development model viewed environmental protection as a “luxury good” that societies could afford only after they became rich. Such thinking explains why the dramatic growth in global income, 80-fold in real terms during the last century, has been accompanied by a decline, according to the United Nations Environment Programme, in natural capital in 127 of 140 countries. But natural capital is not just an abstract concept; it supports lives, livelihoods, and societal wellbeing. The environmental destruction that our activities are wreaking – greenhouse-gas emissions add energy to the Earth system at a rate equivalent to the detonation of four nuclear bombs every second – has concrete consequences, which are already being borne by millions of people. Since 2008, an average of 26.4 million people have been displaced from their homes by natural disasters each year – equivalent to almost one person every second. One-third of the world’s arable land is now jeopardized by land degradation, which causes economic losses of US$6.3-10.6 trillion per year. And 21 of the world’s 37 largest aquifers have passed their sustainability tipping point. The downsides of the conventional approach to economic development, which favours income and employment over environmental protection, are particularly apparent in China. By some measures – in particular, per capita income and GDP growth – China’s development process has been an extraordinary success. But it has also brought lethal levels of air pollution and extensive contamination and depletion of land and water. The good news is that Chinese leaders now seem to recognize that they must safeguard the environment before China achieves high-income status. Indeed, they have moved to the forefront of the green-finance movement. To be sure, the challenge facing China is monumental. Success will require an estimated US$600 billion in investment each year, in areas including environmental remediation and protection, renewable energies and energy efficiency, and sustainable transportation systems. Given that less than 15 per cent of that finance will

“

Ma Jun Chief Economist of the Research Bureau of the People’s Bank of China, is Chair of the Green Finance Committee of the China Society for Finance and Banking. Simon Zadek Co-Director of the UNEP Inquiry into Design Options for a Sustainable Financial System, is DSM Senior Fellow and Visiting Professor at the Singapore Management University.

come from public sources, China will also have to retool its financial system to support private investment. But China is already taking concrete steps in the right direction. On August 30, President Xi Jinping presided over a decision by the Central Leading Group for Comprehensively Deepening Reforms to transform China’s financial system to facilitate green investment. The so-called “guidelines for establishing a green finance s y st e m ” a d o p t e d a t t h e meeting represent the world’s first attempt at an integrated policy package to promote an ambitious shift toward a green economy. According to the guidelines, China will have to develop a wide range of new financial instruments, including green credit, green development funds, green bonds, green equity index products, green insurance, and carbon finance. It must also introduce a host of specific policies, regulations, and incentives, including innovative use of the central bank’s relending operations, interest subsidies, and guarantees. And it must establish a national-level Green Development Fund, much like the United Kingdom’s Green Investment Bank. How this process unfolds in China will hold important lessons for others seeking to build more sustainable economies. But some governments are not hesitating to make their own way. From the City of London’s Green Finance Initiative to Indonesia’s Sustainable Finance Roadmap, innovative policy packages are emerging at an accelerating pace. Moreover, many of the world’s stock exchanges have committed to requiring listed companies to report on their sustainable development risks. And a coalition of banking regulators has emerged to explore how to advance green credit. Details vary by country, but the goal is a common one: to align capital markets with the financing needs of an inclusive, sustainable economy. The G20’s agenda, which aims to promote strong, sustainable, and balanced economic growth, should now be updated to reflect this shared goal, with green finance becoming a key component of the G20’s business. This week’s summit in China is the ideal place to start. Project Syndicate

To be sure, the challenge facing China is monumental

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16 Business Daily Wednesday, September 7 2016

Closing Forex

Yuan nears six-year low as bears seen testing PBOC tolerance

may be starting to loosen some control, according to Iris Pang, senior economist of Greater China at Natixis SA in Hong Kong. China’s currency fell toward a six-year low as yuan bears were seen testing the central “Bears were testing the psychologically important level of 6.7, which appeared to bank’s tolerance for a weaker currency. The exchange rate dropped as much as 0.16 have been the PBOC’s bottom line lately, but the central bank may have tried to support percent in morning trade, taking it close to 6.7 against the greenback amid speculation the exchange rate later,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst that the People’s Bank of China (PBOC, at Bank of East Asia Ltd. “China will likely headquarters pictured) will ease back on support now that a Group of 20 gathering in continue to defend 6.7 as the yuan will enter Hangzhou has ended. The decline yesterday the International Monetary Fund’s basket of reserves in less than a month.” Bloomberg News suggests that the monetary authority

Decelerating trend

Economists forecast slower investment, better production Last month, the National Development and Reform Commission encouraged the use of public-private partnerships in several areas.

hina’s fixed-asset investment (FAI) likely slowed further in August, while industrial production could have improved marginally, economists said ahead of the official release of the data next week. Lian Ping, chief economist at the Bank of Communications, predicted the August FAI growth at 8 per cent, down from 8.1 per cent for the first seven months and 9 per cent for the first six months. Manufacturing investment and private investment continued to decelerate in August, contributing to the slowdown in overall FAI growth, according to Lian. Gao Hua Securities made the same prediction, but UBS seemed more pessimistic, forecasting 7.9-per cent FAI growth on a year-to-date basis. “Manufacturing investment likely stayed weak due to persistent excess capacity issues and the government’s recent official reiteration of its supply-side reform goals,” said UBS China economist Wang Tao. China’s FAI is on a long-term decline and will possibly fall to 6 per cent for the whole of 2016, said Jiang Chao, strategy analyst at Haitong Securities. Private investment, which accounts for more than 60 per cent of the total FAI, may get a boost from the government in the remaining months of the year. Last month, the National Development and Reform Commission

encouraged the use of public-private partnerships (PPP) in infrastructure construction, including energy, transportation, water conservation, environmental protection, agriculture, forestry and utilities. The notice followed the government’s repeated efforts to promote PPP to solicit private investment, which has slowed consecutively for months. “PPP can alleviate funding shortages for local governments and boost private investment,” said Ren

Zeping, chief economist at Founder Securities. Anaemic investment appeared to have little impact on industrial production as factory activities regained steam on rapidly rebounding profitability, partly thanks to recovering product prices on the back of reduced overcapacity. The official purchasing mangers index (PMI) picked up from 49.9 in July to 50.4 in August, entering expansion territory, while the private Caixin PMI slid from 50.6 to 50, just above the contraction line. “Both sets of new orders and production sub-indices stayed above 50, suggesting that Chinese manufacturing activity remained in stabilization mode,” said Wang.

She predicted 6.2-per cent growth in August industrial production, slightly better than the 6 per cent in July, when industrial profits expanded 11 per cent, sharply up from 5.1 per cent in June. The official PMI covers over 3,000 enterprises and is weighted more toward large companies, while Caixin PMI surveys about 420 firms, with an emphasis on smaller businesses. The PMI divergence suggests that big enterprises may have performed better than their small and medium counterparts due to better access to credit and more benefits from policy support, according to the UBS economist. The economists also said sales of daily consumer goods last month were flat or better compared with July. “We expect the upcoming August data release to show China’s economic activity has found a slightly firmer footing,” said Wang. Xinhua

M&A

State Council

Increasing budget

ChemChina extends public tender offers for Syngenta

China may consider South Korea to develop overhaul of consumer taxes home-grown anti-missile system

ChemChina yesterday extended by almost two months the deadline for Syngenta investors to tender their shares as the Chinese company seeks to complete a US$43 billion takeover of the Swiss pesticides and seeds group. Investors in Basel-based Syngenta now have until November 8 to tender their shares unless this is further extended, ChemChina said in a statement. The previous deadline, which had already been prolonged, was September 13. “All of the other terms and conditions of the tender offers remain unchanged and ChemChina continues to expect to conclude the transaction by the end of the year,” ChemChina said. The companies are awaiting some regulatory approvals for the deal and need to keep the tender offer open during this period, a Syngenta spokeswoman said. At current exchange rates, the offer is worth nearly 461 francs a share including the special dividend. Clearance for the takeover last month from a U.S. national security panel removed significant uncertainty over the deal. Several U.S. lawmakers and groups representing farmers had expressed fears over a Chinese stateowned company being in a position to influence the U.S. food supply. Reuters

China’s Finance Ministry has submitted a consumer tax overhaul proposal to the State Council, according to two people familiar with the matter who asked not to be identified because the discussions are private. The proposal is subject to change after other ministries and the State Council, China’s cabinet, give their input, one of the people said. Finance Ministry officials broadly support tax cuts on less expensive cosmetics and toiletries, and the discussions include raising alcohol and tobacco taxes, one person said. The measure would be another step toward a broader tax code overhaul following reforms of the value-added tax in May that will ease corporate payments. Changes are needed to keep up with shifting consumption trends as products once seen as luxury goods are now every day items for China’s rapidly expanding middle class. Such an overhaul may have wide-ranging implications, from spurring budget-conscious smokers to kick the habit or making it less desirable to take a trip to South Korea to load up on beauty products. Giving a greater share of consumer tax revenue to provincial governments instead of the central government is also being debated. Bloomberg News

South Korea plans to increase next year’s budget to develop its home-grown missile defence system amid rising nuclear and missile threats from the Democratic People’s Republic of Korea (DPRK), Yonhap news agency reported yesterday. Among the 2017 defence budget, 1.58 trillion won (US$1.43 billion) would be set apart for development costs of the indigenous anti-missile program. The 2017 costs allocated to develop so-called Kill Chain and Korea Air & Missile Defence (KAMD) systems were up 3.8 per cent from 2016 to prepare for growing DPRK nuclear and missile threats, Yonhap said. The total defence budget for 2017 reached 40.33 trillion won, up 4 per cent from this year. The defence budget, which topped 40 trillion won for the first time, was submitted to the National Assembly for deliberations. The submission followed the DPRK’s testlaunch on Monday of three Rodong ballistic missiles that travelled about 1,000 km into eastern waters. Pyongyang test-fired a ballistic missile from a submarine off its east coastal town of Sinpo, on August 24. Xinhua