Zone B construction attracts 14 bids Infrastructure Page 2
Thursday, September 8 2016 Year V Nr. 1126 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Junkets
www.macaubusinessdaily.com
Currencies
Iao Kun rolling chip turnover plummets 75 pct in August Page 6
GDP
China reserves at lowest since 2011 Page 9
Australian economy celebrates quarter century without recession Page 11
Launch Pad Macau Wine business
Portuguese wine’s profile in China is still low. But with better marketing, Macau can still serve as the platform for the Greater China market, says Portuguese wine exporter Lusovini. The company recently partnered with Adege Royale. Portugal is currently the second largest supplier of wine to Macau. Page 3
Wait and see
Not guilty plea
Former Air China employee linked to defendants in U.N. bribery case pleads not guilty. To U.S. charges she helped military personnel in China’s mission to the United Nations smuggle packages out of the United States.
Gaming Galaxy Chairman Lui Che-Woo says Macau’s gaming industry has hit bottom. But it’s still too early to call it a recovery. He believes the best strategy now is to target mainstream gamblers rather than VIPs. Page 7
Putting a spin on slots
Crime Page 5
HK Hang Seng Index September 7, 2016
23,741.81 -45.87 (-0.19%) Worst Performers
China Life Insurance Co Ltd
+4.08%
Cheung Kong Infrastructure
+1.12%
Li & Fung Ltd
+0.96%
China Shenhua Energy Co
-2.44%
China Mobile Ltd
-1.10%
CLP Holdings Ltd
+0.88%
Wharf Holdings Ltd/The
-1.77%
Lenovo Group Ltd
-1.09%
Ping An Insurance Group Co
+1.06%
Power Assets Holdings Ltd
+0.86%
Want Want China Holdings
-1.54%
Bank of East Asia Ltd/The
-1.07%
Link REIT
+0.97%
Cheung Kong Property
+0.80%
China Merchants Port Hold-
-1.50%
China Construction Bank
-0.99%
Belle International Holdings
+0.97%
AIA Group Ltd
+0.79%
HSBC Holdings PLC
-1.42%
China Unicom Hong Kong
-0.97%
27° 30° 27° 30° 26° 30° 26° 30° 27° 30° Today
Source: Bloomberg
Best Performers
Fri
Sat
I SSN 2226-8294
Sun
Mon
Source: AccuWeather
Las Vegas trend A new generation of slot machines and entertainment options in American casinos. Caesars, Wynn and Sands are adapting their traditional offer in order to match the preferences of younger gamblers. Smartphone games-alike slots and DJ booths are just part of the new flavours. Page 14
2 Business Daily Thursday, September 8 2016
Macau Society
Wong Sio Chak: Uber stands no chance The city’s security head vows the gov’t will continue to crack down on illegal taxi drivers. Annie Lao annie.lao@macaubusinessdaily.com
W
ith regard to a recent complaint by the public claiming police intercept drivers on the roads to find illegal taxi drivers in the city by checking their mobile devices, Secretary for Security Wong Sio Chak replied that it is necessary for the police to act in this way in order to catch illegal taxi drivers. “We have not reduced manpower to find illegal taxi drivers in the city. In fact, we have increased our
police staff to investigate further to tackle this, both by the Public Security Police Force (PSP) and Judiciary Police (PJ),” Mr. Wong said
New head for Correctional Services inaugurated
Cheng Fong Meng has been appointed Director of the Correctional Services Bureau. An inauguration ceremony held yesterday was presided over by the Secretary for Security. Cheng formerly served as principal for the Judiciary Police School from 2015. Cheng entered public service in 1993, starting as an internship investigator. He was appointed First Superintendence for the Judiciary Police last year. His new role involves technology, training,
on the sidelines of a public event yesterday. Mr. Wong emphasised that using Uber mobile application to call for
taxi-like service is illegal based on the law and stressed it is the duty of police to enforce the law and tackle illegal actions.
administrative management, community promotion to
innovation to optimising the work of the Bureau.
Property Clothing retailer facing up to MOP20 mln in compensation for severing contract.
Not so Forever 21 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Future Bright Managing Director, Chan Chak Mo, says that he can only provide information on the termination of the rental contract by clothing
retailer Forever 21 with a subsidiary of Future Bright upon a formal announcement by the company. The response from Chan came after Business Daily enquiries in the wake of Future Bright’s filing on Tuesday with the Hong Kong Stock Exchange
announcing the termination of the tenancy agreement of a property in Macau. The filing indicates the property comprises the whole of the ground floor to third floor, basement level 2, and portion of basement level 1 and 3 of the 6-storey commercial building at Centro Commercial E Turistico ‘S. Paulo’, Largo da Companha de Jesus N2 - known colloquially as the ‘Yellow House’. According to Future Bright’s previous filings, Forever 21 is the current tenant. Given the public nature of the company, says Chan, potential developments can only be provided via official announcement. In the filing, the group notes that the current tenant is to vacate and deliver the premises by September 30 and is liable to pay a compensation fee equivalent ‘to the aggregate of about eight months of the original monthly rentals under the existing tenancy agreement and the landlords reinstatement cost’.
Up to MOP20 mln
Based upon the original rental agreement price of MOP2.4 million per month, potential compensation fees could be close to MOP20 million, with the deadline for payment September
20. The original contract - set to expire in 2018 - was signed in December 2013. ‘Management will actively look for another tenant for the Property,’ notes the filing, adding: ‘the Property generated some HK14.1 million turnover for the first half of 2016’. The Yellow House, prior to its occupancy by Forever 21, was rented by the Macau Government Tourist Office (MGTO) for MOP14 million per year, as previously reported by Business Daily. However the Office abandoned the rental following a demanded massive hike in rent by Future Bright. During its MGTO occupancy the building was home to the Lusitanos restaurant, under Casa de Portugal, as well as an exhibition meant to showcase the diversification of the local economy, featuring products by local companies and designers. Forever 21 had not responded to Business Daily’s enquiries by the time this story went to print and it remains unclear whether the clothing retailer will move to a new location or abandon the local market, although the shop is still listed on the retailer’s website.
Construction
Zone B construction attracts 14 bids The land formation and pavement works project for reclaimed land new town Zone B revealed tenders yesterday. The Land, Public Works and Transport Bureau (DSSOPT) received a total of 14 bids, the Bureau announced. The lowest bid for the construction work is MOP4.9 million (US$5 million), while most bids range from around MOP40 million to MOP51 million. The new land Zone B is located on
Macau Peninsula, near the Macau Science Centre and Macau Tower, occupying some 49 hectares, of which eight hectares will be developed into a temporary parking area for buses and heavy vehicles, according to an announcement by DSSOPT. Construction - to take place between the Old Macau-Taipa Bridge and the Kun Iam Ecumenical Centre - is expected to start during the first quarter of 2017, with a maximum duration of 210 working days. A.L.
Business Daily Thursday, September 8 2016 3
Macau Beverages Wine imports from Portugal to the MSAR fall 14 pct y-o-y in H1
Keeping the wine flowing to China Portuguese wine trading company Lusovini maintains its bet on trade with China and opens office in the city despite falling wine imports to the territory. Nelson Moura nelson.moura@macaubusinessdaily.com
D
espite total wine imports from Portugal to Macau dropping 14 per cent yearon-year in the first half of 2016, according to data from the Statistics and Census Services (DSEC) Portuguese wine export company Lusovini maintains its bet on the city. The Portuguese trading company, which opened a representative office earlier this year via its local partner Adega Royale Limited’s Macau office, tells Business Daily the Chinese market continues to be extremely attractive. “Macau is definitely an entry gate for the Chinese market for many Portuguese products apart from wines, and by having a permanent office in the territory we can establish a direct connection with Chinese clients. Rents are high in Macau and associating with Adega Royale Limited is also a way to avoid that,” Lusovini’s Export Director for Asia, Pedro Santos, told Business Daily.
Nurturing the Portuguese brand
Created in 2009, Lusovini focuses on the exportation of Portuguese wines to international markets, having opened operations in Brazil, Angola and Mozambique, the company decided to focus on the Asian market
two years ago. That was when Lusovini reached a partnership with Adega Royale Limited, a wine importer based in Macau and Hong Kong.
“In China everybody knows Mateus Rosé, so for Portuguese wines, with their undeniable quality, it’s just a matter of better marketing,” Pedro Santos, Export Director for Asia of Lusovini “We wanted a full-time partner in the region, and the office in Macau can help us focus directly on the Asian market. So far it has been a good bet; it’s not an easy market due to the language barrier and the still low visibility Portuguese wines have in China when compared to French or Chilean wines,” Mr. Santos told Business Daily. However, the Lusovini Export Director believes through better marketing Portuguese wines will be
able to acquire a slot in the Chinese market. “The Chinese wine market is growing, as is Chinese buyers’ understanding of quality wines. In China everybody knows Mateus Rosé, so for Portuguese wines, with their undeniable quality, it’s just a matter of better marketing,” Santos stated.
Wine trade declining
The MSAR imported 3.2 million litres of wine products in the first half of 2016 valued at MOP578.8 million (US$72.4 million). The value represents a 14 per cent year-on-year decrease from the same period of last year according to DSEC data. Portugal holds the position of third largest supplier of wine to the MSAR
in the first six months of 2016, with MOP28.3 million-worth of imports to the territory, a 14 per cent fall yearon-year from the first half of last year. Portugal’s wine imports represented five per cent market share and it also takes second position in terms of volume with 993,000 litres, less than 11 per cent year-on-year from the same period last year. France maintains its position as the largest wine seller to Macau for the first six months of the year, occupying 81 per cent market share and exporting more than 1 million litres to the MSAR. Wine imports from France in the first six months of 2016 were valued at MOP468 million, 12 per cent down from the same period last year.
4 Business Daily Thursday, September 8 2016
Macau Opinion
Insurance Sale of Macau Life Insurance Company not yet complete
MIC rating reaffirmed Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Ashley Sutherland-Winch Socially Responsible Transport Can it be true that taxi drivers are socially responsible? TaxiGo, the new Macaubased taxi-hailing application, launched in town just this month, says it has the desire to improve the image of the Macau taxi service industry. For years, the Facebook page ‘Macau Taxi Drivers Shame’ has offered insights into the many aspects of taxi operations in Macau: the good, the bad, and the ugly. This public group of over 5,600 members has offered ample education and support to the Macau community, warning the group’s members of taxis to avoid and sharing news reports regarding transportation in our city. When news broke of the new TaxiGo app, it was interesting to follow the Macau community’s engagement. I first learned about TaxiGo when I hailed a taxi at Studio City two weeks ago. My first language is English but when I enter a taxi in Macau, I request my destination in Cantonese. Often when engaging in this activity, I receive negative attitudes due to my address because I live in Coloane. On this night, in particular, I experienced a wonderful surprise! My driver not only complimented my Cantonese but also spoke English. After the usual pleasantries, I turned the subject to my surprise at his kind nature as it is often not the case to experience such customer service in Macau taxi drivers. After taking a moment to acknowledge that many taxi drivers are concerned with the profession and its reputation, my driver presented a new app and business model for me to explore - TaxiGo. He shared that he was eager to join the app because he wanted to offer a better transportation experience to people in Macau - locals, expats and tourists – saying: “TaxiGo will change things in Macau - we only hire good drivers that care about Macau”. I have to admit I was eager to test the service but my driver explained that it would launch in another couple of weeks; first in Chinese, and then the English app would follow soon after. In his interview on Monday, Kyle Ho stated that “TaxiGo wants to make its brand stand for good taxi drivers.” After such a tumultuous summer of Macau transportation with Uber and Didi Chuxing, TaxiGo could be the answer to our prayers. Time will tell, but for now the idea of a company with social responsibility and no perceived agenda is an interesting addition to Macau’s transportation options. Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.
L
ocal insurance company Macau Insurance Company Limited (MIC) has received a Financial Strength Rating of A- by U.S.-based rating agency A.M. Best, according to a press release. The rating agency, which claims to be ‘the world’s oldest and most authoritative insurance rating and information source,’ according to its website, has granted MIC a Financial Strength Rating of A- and an Issuer Credit Rating of a-, with both outlooks on ratings considered stable. ‘MIC continues to maintain a strong balance sheet strength due to its conservative level of net premium leverage, sound liquidity, a prudent investment strategy and comprehensive reinsurance programme,’ notes the release. In June, the company’s subsidiary Macau Life Insurance Company Limited (MLIC) had been downgraded to B++ in its financial strength rating, from an A- rating, while its issuer credit rating was downgraded to bbb from a-. The downgrade came after Dah Sing, parent company of MIC, announced the sale of 100 per cent of MLIC shares.
Hong Kong Dah Sing Life Assurance Company Limited to a subsidiary of Fujian Thai Hot Investment Company Limited; however, MIC informed Business Daily that the transaction has yet to be completed and the company’s website still lists both MIC and MLIC as subsidiaries of Dah Sing. The purchase of the MLIC shares by Thai Hot was for a base consideration of HK$217 million (US$28 million).
Loss ratio
‘Offsetting rating factors include MIC’s historically lower underwriting profit margin compared with its peer competitors in Macau’s non-life insurance market,’ comments the rating agency.
For the first six months of this year MIC saw a loss ratio of 66.1 per cent, with gross premiums amounting to MOP118.6 million (US$14.8 million) and gross claims of MOP78.5 million, according to data from the Monetary Authority of Macao (AMCM). The rating comments that positive rating actions could occur if MIC ‘demonstrates consistent improvement in its business profile and underwriting performance, coupled with a strong level of risk-adjusted capitalization,’ while negative ratings would be due to underperformance in relation to MIC’s projected business plan or a decline in risk-adjusted capitalization,’ notes the release.
Disposal
Dah Sing entered into a sales agreement in June to dispose of Macau Life Insurance Company Limited and
Coach crash
Damaged building to be repaired within 90 days Families affected by coach crash to remain housed by the Social Welfare Bureau. Nelson Moura nelson.moura@macaubusinessdaily.com
The Social Welfare Bureau of the MSAR Government will continue
to provide temporary housing for four families whose apartments were damaged by a tourist coach, according to the Land, Public Works and Transport Bureau (DSSOPT).
The statements were made during a special clarifying session for residents and business owners of the building damaged by a tourist coach crash on August 8 on Rua da Entena. The session took place in a Kiang Wu Hospital meeting room and attended by more than 20 owners or representatives of building units and stores affected by the crash. In addition to carrying out immediate restoration to stabilise the structure, the DSSOPT has provided advisory work on the building reconstruction, as well as support work for one of the main pillars of the building, conforming with previously defined standards of safety. From open tender to finishing the construction work, it is estimated that up to 90 days will be required, with costs paid in advance by DSSOPT. Of the 44 people injured in the accident, mainly Mainland China tourists, four are still under medical care, the release announced.
Festivals
Budget for Macau Food Festival reduced Funding for the 16th Macau Food Festival has been reduced by 8 per cent year-on-year or MOP800,000 ( US $ 1 0 0 , 14 8 ) b y t h e M a c a o Foundation, according to Chinese language newspaper Macao Daily, which means this year’s edition has received MOP9.2 million. About 120 to 130 exhibitors will participate in the Festival, of whom about 30 per cent are new participants this year, mainly from Malaysia, the event’s co-ordinating commission head Chan Chak Mo said. Each participant will receive MOP10,000 to cover operation costs, with application open until September 30. The event will take place from November 11 to 27 at Sai Van Lake
Square, organised by the United Association of Food and Beverage Merchants of Macao. ‘Cherish Food’
is the theme for this year’s Food Festival. Free shuttle buses will run from the Border Gate to Sai Van Lake Square for the convenience of visitors to the event. A.L.
Business Daily Thursday, September 8 2016 5
Macau
Court Local billionaire Ng Lap Seng potentially linked to Chinese intelligence official
Ng Lap Seng: The plot thickens Former Air China employee who allegedly helped a suspected Chinese intelligence official escape the U.S. to China pleads not guilty in U.S. court.
F
ollowing last week’s indictment of former Air China employee Ying Lin in New York, Lin has pleaded not guilty to charges of conspiracy and obstruction of justice, as reported by U.S. publication Newsday. Lin allegedly helped a Chinese national, whose description meets that of an individual whom the FBI suspects to be involved in Chinese intelligence, Reuters reported. The suspect, Qin Fei, was revealed to have links to Lin following a filing in court of the FBI’s 2015 interview of local billionaire Ng Lap Seng. Ng Lap Seng was charged last year
with bribing John Ashe, a former ambassador of Antigua and Barbuda to the United Nations General Assembly. Ashe was found dead in his house just days before his trial. Lin, a former station manager for Air China, is accused of using her position at the airline to help transport unchecked baggage to China from Chinese military representatives at the United Nations as well as Chinese agents, reports U.S. media. In exchange, Lin received perks on diplomatic duty-free items.
The plot thickens
Regarding the suspected Chinese
MGTO
Tenders invited for film festival projection services The Macao Government Tourism Office (MGTO) has opened a public tender for the Provision of projection equipment for the 1st International Film Festival & Awards‧Macao (IFFAM), according to a dispatch issued yesterday on the government’s Official Gazette. Interested companies are required to submit their application by September 29, with a mandatory payment of a temporary deposit of MOP46,000 (US$5,884). According to the release one of the requirements is that the charge of the sevice cannot exceed a maximum amount of MOP2.3 million. Other requirements to be taken into account by MGTO include safety assurance and efficiency of service
delivery, together with the experience and technical competence of the applicant. The event is organised by MGTO in co-operation with the Macau Films & Television Productions and Culture Association (MFTPA) and will take place from December 8 to 13. The IFFAM has a total budget of MOP55 million with MOP20 million to be provided by MGTO, according to statements by Festival director Marco Mueller when introducing the event earlier this year. Business Daily questioned MGTO and MFTPA regarding predicted expenses for the event, but no response had been received when this newspaper went to print. N.M.
intelligence agent, Lin was charged with warning a Chinese “confederate” that he was the target of a United States federal probe and arranging for him to escape to Beijing on an Air China flight late last year, Newsday reports. Lin allegedly renovated and managed, as well as listing, a US$10 million mansion located in Long Island. Lin’s link to the mansion emerged in an interview with Ng Lap Seng, in which he named Qin Fei as a consultant in his Sun Kian Ip Group and mentioned his mansion, notes Reuters. Ng, in a transcript of the FBI’s interrogation of him, filed by his lawyers, describes Fei as “a partner”, saying that he helped him buy the
mansion but knew nothing of intelligence activities, Newsday reports. District records in Long Island show that the property was bought by ‘Fei Qin’ for just over US$10 million and that ‘Ying Lin’ was named as an agent for the property, notes the publication. Just before his arrest Ng was allegedly driven by an airline employee to visit a Long Island house owned by a ‘business associate’ who was ‘an extraordinarily wealth-connected Chinese businessman,’ said the publication. Ng has been detained without bail in his apartment in Manhattan since last year: prosecutors accuse him of bribing John Ashe with over US$500,000 to support a UN-backed conference centre in the MSAR, to be developed by Ng’s company, among other charges. K.W.
6 Business Daily Thursday, September 8 2016
Macau
Gaming Some 73 new applications for smoking rooms pending
Smoking gun
T
he city had a total of 86 smoking lounges inside casinos as of early-July, the director of Health Bureau Lei Chin Ion revealed in a reply to legislator Ella Lei Cheng I’s written enquiry, adding the government is evaluating more applications. Of the total 86 smoking lounges in local gaming premises, 83 were
located on mass gaming floors while the other three were in areas limited to certain gamblers, the health director said. He added that there were 73 applications for new smoking lounges under evaluations by authorities, indicating applications filed by 21 casinos. Currently, smoking is prohibited
to the mass gaming floors of local casinos, and is only permitted in smoking lounges and VIP rooms. A full-smoking ban, which proposes to cancel the establishment of smoking lounges and to prohibit smoking in the indoor area of gaming venues, is still under discussion by the city’s legislature. The legislator from the Federation of Trade Unions urged in her enquiry that the government enhance its enforcement against smoking violations in local casinos in order to protect the
health of gaming workers. The health official said the authorities had prosecuted 277 cases of smoking violation in casinos for the first half of the year. He added that the Bureau had also received 561 complaints regarding violations via its tobacco-control hotlines in the same period, over 90 per cent of which had been transferred to the Gaming Inspection and Co-ordination Bureau for follow-up. K.L.
Junkets
Iao Kun rolling chip turnover plummets 75 pct in August Local junket operator Iao Kun saw its VIP rolling chip turnover plunge by three quarters in August compared to the same month in 2015, according
to its announcement on Tuesday. Last month, the company’s rolling chip turnover generated by the Macau market amounted to some
US$110 million (MOP880 million), nosediving some US$330 million vis-a-vis US$440 million one year ago. Meanwhile, the win rate for the
month was 0.63 per cent. For the first eight months of the year, the company’s rolling chip turnover halved to US$2.41 billion, compared to US$4.8 billion during the same period of 2015. Facing continuous drops in VIP turnover, the company is scaling down its business in the Special Administrative Region. Last week, the company announced it had closed one VIP room in Sands Cotai Central on August 31 as it is ‘undertaking a comprehensive strategic review of its VIP gaming room operations in Macau due to the ongoing challenging VIP gaming environment’. The company added then it would close one or two VIP rooms in the territory in the future. Currently, the company is operating four VIP rooms in the city, located in StarWorld Hotel, Galaxy Macau, City of Dreams and L’Arc Macau. In addition, it operates trial gaming operations in two casinos in Australia; namely, Crown Perth Casino and Crown Melbourne Casino. K.L.
the amount is not paid by September 12 ‘the Bank [China Citic] may take further legal action,’ notes the filing.
for the Xinghua City People’s Court of Justice. Novowell’s parent company, Novo Group, has commented that ‘the Bank facilities are no longer secured by any corporate guarantee by the Company [Novo Group],’ and given that Novowell ‘does not have a material contribution to the operations of the Group’ it opines that ‘any potential default in payment by Novowell ETP will not have a direct material impact on the cash flow or […] operations of the company,’ notes yesterday’s filing.
Payment China Citic demands MOP114.3 million
Steely demand from China Citic Bank Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
China Citic Bank International Limited has demanded a payment of US$14.3 million (MOP114.3 million/ HK$110.9 million) in outstanding principal and accrued interest from Novo Group Limited, as announced yesterday in a filing with the Hong Kong Stock Exchange. China Citic Bank conducts business internationally and operates
a local branch in the Bank of China building while Novo Group is a global steel trading, distribution, processing and manufacturing company headquartered in Hong Kong. According to the filing, Novo Group - via its indirect, 95 per cent owned subsidiary Novowell ETP Limited - was borrowing from China Citic for which the bank demands ‘immediate repayment’ in order to ‘safeguard its interests’. If
Further claims
Novowell ETP is also facing claims from contractors totalling RMB12.39 million (MOP14.85 million/US$1.86 million) for outstanding payable sums, as noted in its annual report, and the People’s Court of Xinghua City, Jiangsu Province in Mainland China has frozen US$188,536 in inventory; the company has set aside US$928,980 in guarantee deposits
Business Daily Thursday, September 8 2016 7
Macau Gaming Top casino operator warns against calling a recovery
Lui Che-Woo: Too early to call it a recovery The Galaxy Chariman believes the best strategy for achieving that is to target mainstream gamblers rather than VIPs.
I
t’s still too early to say Macau’s US$29 billion casino industry is rebounding, even after August’s bump in revenue halted a twoyear decline, said the billionaire chairman of Galaxy Entertainment Group Ltd., the biggest operator here in terms of market share. L u i Ch e-W o o w a n ts t o s e e more-sustained growth before deciding the worst is over, and he believes the best strategy for achieving that is to target mainstream gamblers rather than VIPs, he said in an interview. That would dovetail with government efforts to turn the world’s biggest gambling hub into more of a destination for middle-class tourists. “While Macau’s gambling industry has hit the bottom, it’s still too early to call it a recovery,” Lui, 87, said. “Give me two more years to see. It takes time to gradually attract more mass-market customers.” Galaxy overtook Sheldon Adelson’s Sands China Ltd. as the market leader with 23 per cent share in the first half of 2016, helped by new family-friendly resorts such as
Galaxy Macau’s second phase and Broadway Macau. Lui’s net worth has increased by 10 per cent so far this year to US$7.7 billion, according to the Bloomberg Billionaires Index. Lui is opting to remain cautious even as Sands’s Adelson and MGM Resorts International Chief Executive Officer James Murren both said that a Macau gambling recovery is underway. Galaxy’s shares have risen 11 per cent so far this year through Tuesday, behind the 13 per cent gain in the Bloomberg Intelligence Macau gaming index. The company’s stock was unchanged at HK$27.15 at the open in Hong Kong Wednesday, after dipping 0.2 per cent the previous day.
drop in revenue from high-end gamblers during the second quarter of the year. “There have been strong signs that the market has stabilized, especially the mass market,” said Richard Huang, an analyst with Nomura International in Hong Kong. “Yet
Mass market
Stable growth?
Macau last month reversed a 26-month decline in gaming revenue with a 1.1 percent increase to 18.8 billion patacas ($2.4 billion), according to the Gaming Inspection and Coordination Bureau. The correction came despite China’s economic slowdown and a crackdown on corruption, contributing to a 16 percent
the real question is how strong the growth will be.” Those doubts stem partly from the increasing competition. Wynn Macau Ltd.’s US$4.2 billion Wynn Palace opened last month, and Sands China’s Parisian will debut next week. MGM China Holdings Ltd. also plans a new resort in Cotai within coming months.
Lui Che-Woo, Chairman of Galaxy Entertainment Group
Galaxy wants to boost revenue from recreational gamblers by as much as 20 per cent during the next two years, Lui said. The company last month reported profit that beat analysts’ estimates after opening the city’s first new resorts in three years. It plans to build a theme park and an arena to help lure more families. “In the past, everyone hoped to have more high-end clients,” Lui said. “Now the number of VIP gamblers has dropped. We’ve provided more new facilities to catch the attention of the mass market.” Lui demurred when asked about the casino operators’ prospects for having their licenses renewed when they start expiring in 2020. “It is the government that judges whether we are doing a good job, and it will decide how to deal with the licenses during the renewal,” he said. Bloomberg
8 Business Daily Thursday, September 8 2016
Greater China New rules impact
Four fresh worries about domestic shadow banking system Tracy Alloway
T
he tangled web of Chinese banks and the investment products they sell is growing more muddled as analysts attempt to gauge the impact of new rules unveiled by the country’s authorities. The proposed new rules would require some banks to provision for losses against wealth management products (WMPs), which funnel money from retail investors into securities ranging from stocks to corporate bonds and real estate, in an effort to insulate the lenders from future losses. The 26.3 trillion yuan (US$3.9 trillion) worth of WMPs outstanding have emerged as key cog in China’s so-called shadow banking system as investors often expect to be reimbursed for on any losses on the WMPs banks manage — an expectation that could weigh on the lenders if the products begin to sour. But with analysts scrambling to digest the impact of the draft rules on banks, fresh concerns are emerging including: the degree to which banks have been using WMPs to repackage and invest in other such products, their use as a way for to gain exposure to riskier corporate securities, banks’ tendency to borrow money to boost returns on WMPs, and the potential for the new WMP rules to impact other assets.
be a way to get around the cap,” said CreditSights Inc.’s Matthew Phan. “In effect it is another channel by which to route off-balance sheet lending. This led to some concerns about WMPs sold to other WMPs, or ‘WMP-squared,’ an allusion to the ‘CDO-squared’ structures that led to huge losses in the U.S. financial system.” The proportion of WMPs bought by other banks jumped from 0.49 trillion at the end of 2014 to 4 trillion at the end of the first half of 2016, though the exact proportion of any such ‘WMPsquareds’ is unknown.
2. Boom go the corporate bonds
While the 2013 rule was similarly aimed at shoring up China’s financial system, it may not do much in the face of a debt boom that has seen the country’s companies sell trillions of yuan worth of corporate bonds as these securities count as ‘standard’ assets. “Regulators introduced the restriction on ‘non-standard assets’ in March 2013 and have not changed it. However, trends in corporate bond issuance, especially in the second half of 2015, may
have circumvented its effectiveness in terms of restricting flow of investor funds to low-quality companies,” said Phan. Analysis by Bloomberg Intelligence’s Tom Orlik and Fielding Chen found that funds raised through WMPs ultimately find their way into bonds (40 per cent), cash or bank deposits (18 per cent), loans (17 per cent), the money market (16 per cent) and equities and other investments (10 per cent). But with such investments offering increasingly meager returns — at the end of the first half of 2016, the yield on five-year corporate debt rated AA+ was just 3.8 per cent — banks may be tempted to buy bonds sold by riskier but higher-yielding companies or borrow money to boost their returns.
3. Lots of leverage
Such borrowed money, or leverage, may be needed as banks seek to offset declining profitability. “With a typical WMP offering returns around that level [3.8 per cent], and the bank requiring a spread on top of that to cover costs and show a profit, that’s not enough,” Orlik and Chen wrote
1. WMP-squareds, anyone?
Banks may be using WMPs to repackage and invest in other WMPs in an attempt to avoid rules introduced in 2013 that similarly sought to shore up the financial system by limiting the amount of money lenders can invest in ‘non-standard’ securities to 35 per cent of total assets. Such a move would have parallels with some of the more complex collateralized debt obligations (CDOs) that exacerbated subprime losses at U.S. banks in the run-up to the 2008 financial crisis. “For a bank that is bumping into the 35 per cent limit, investing in other WMPs — which then invest in the non-standard asset — could
in a note. “In order to keep returns elevated, the shadow banks managing WMP investments appear to be turning to the interbank market as a source of leverage.” The application of leverage may be borne out by statistics in the Chinese interbank market, where lending rose to 59.8 trillion yuan in August this year, up from 13.7 trillion yuan in November 2013, when the data began, the analysts said. Orlik and Chen note that the biggest players in this market are small banks and ‘other’ financial institutions — or the firms originating and managing the WMP funds. Bank lending to ‘other’ financial institutions has increased 44 per cent from a year ago, which may be one reason why the Chinese authorities are pressing for new rules to buffer lenders from losses.
4. A bad cycle
Ironically, banks may need to buy riskier securities or use more leverage as they fight slumping profits and a shrinking pool of WMP fees induced by the draft rules. Even if they resist that temptation, reduced demand for their WMPs may end up clipping appetite for other assets such as bonds and stocks, causing a downward spiral in asset prices. “The proposed new regulations on the bank-managed WMP market, which may come out within months if not weeks, may further dampen bank-managed WMP sales going forward, in our view,” Bank of America Merrill Lynch strategists led by David Cui wrote last week. “As the biggest funding source for the shadow banking sector, we believe that any significant slow-down in its sales may have important implications on asset prices across the board, especially bonds’ and stocks’, and possibly properties.’” “Given the potential shocks to financial system should bank-managed WMP sales slow down sharply, we consider it a key risk that needs to be monitored closely,” they concluded. Bloomberg News
Big four
Tens of thousands of jobs go as nation’s banks cut costs Besides a reduced number of workers, the first-half data also pointed to pressure on pay. China’s four biggest banks reported that staff numbers fell by the most in at least six years in the first half, highlighting the possibility that employment has peaked at the firms that are the world’s biggest providers of banking jobs.
‘Chinese lenders take four of the top five slots for employment by listed banks around the world’ A decline of 1.5 per cent from the end of last year left 1.62 million workers at Agricultural Bank of China Ltd., Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd., earnings filings showed. Agricultural Bank, the No. 1 bank employer, saw its number of employees slip below half a million. While a fall in the first half is not unusual, the 25,000-job decline is the biggest since at least 2010 and analysts at firms including BOC International
Holdings Ltd. and DBS Vickers Hong Kong Ltd. say changes to how banking is done will limit prospects for increases. “Chinese banks went through years of expansion, adding physical outlets that helped to push their staff numbers to a peak,” said Polar Zhang, a Beijing-based bank analyst at BOC International. He expects the workforce to “dwindle” on technological advances and cost cutting. Chinese lenders take four of the top five slots for employment by listed banks around the world, ahead of the likes of Wells Fargo & Co., HSBC Holdings Plc, JPMorgan Chase & Co. and Citigroup Inc., data compiled by Bloomberg show. Russia’s Sberbank PJSC is in the top five.
Economic slowdown
Lenders from Citigroup to Deutsche Bank AG have cut staff and costs in revamps since the global financial crisis. While Chinese banks have avoided the multi-billion dollar fines for compliance breaches that have weighed on their international counterparts, they’re under pressure from an economic slowdown and a rising quantity of bad loans. Margins are falling as the
government deregulates the industry and online and mobile players like Zhejiang Ant Small & Micro Financial Services Group - also known as Ant Financial - and Tencent Holdings Ltd. eat into their businesses. Chinese lenders have generally reduced numbers by not replacing staff who leave, according to Shujin Chen, a Hong Kong-based analyst at DBS Vickers Hong Kong. Workers are departing in search of better pay, she said, adding that banks would need less staff as artificial intelligence and online and mobile transactions played a bigger role and lenders developed robots that
would interact with customers. Besides a reduced number of workers, the first-half data also pointed to pressure on pay. The big four banks’ combined staff compensation costs including salaries, bonuses, allowances and post-employment benefits - fell 2.6 per cent from a year earlier. At the mid-sized China Minsheng Banking Corp., the decline was 22 per cent. Flat revenue and rising pressure on asset quality means “banks have been pushing even harder in cost optimization,” Wei Hou, a Hong Kong-based analyst at Sanford C. Bernstein & Co., wrote in a note. Bloomberg News
Business Daily Thursday, September 8 2016 9
Greater China Tourism industry
In Brief
Taiwan hit by drop in Mainland visitors The biggest slump was in visitors arriving with tour groups - a 38.9 per cent decrease. The number of Chinese visitors to Taiwan has fallen 22 per cent since the island’s Beijing-sceptic government took office in May, with tourism operators saying yesterday that the industry is in a slump. Hotels are only half-full and thousands of tour buses are sitting idle, with observers saying the decline is due to China limiting tour groups to Taiwan amid rapidly cooling crossstrait ties. There had been a boom in Mainland tourists to Taiwan in recent years under former President Ma Ying-jeou’s Beijing-friendly government, with Chinese visitors accounting for about 40 per cent of the total 10 million tourists last year, according to government figures. However, in the months since
President Tsai Ing-wen took office up to August 23, mainland visitor numbers have fallen 22.3 per cent compared to the same period last year, according to the Mainland Affairs Council. The biggest slump was in visitors arriving with tour groups - a 38.9 per cent decrease. “We’re trying very hard to survive and we hope the government can help,” said Ringo Lee, spokesman for the Travel Agent Association. Tsai’s government has said they are seeking to attract more tourists from Southeast Asia to make up the shortfall, but Lee says that’s not working yet. “In such a huge industry that encompasses restaurants, hotels, shops, bus companies, tour guides, it’s difficult to adjust to a totally new market,” he explained.
Tourism operators have planned a protest for September 12 expected to attract thousands of demonstrators. Chang Tien-tsai, who leads a tour bus association, says more than 3,000 vehicles that were bought to carry mainland tour groups are now just “sitting in the sun.” Chang said bus companies rushed to buy new buses during an influx of mainland visitors in 2008, but many are now having difficulties repaying loans. And, many hotels near tourist attractions are only able to fill half of their rooms, according to Jessica Yu, secretary-general of a hotel association. A n t i -C h i n a rh e t o r i c i s a l s o contributing to the decline in tourists, said Lee, giving the example of social media comments like “Taiwan’s air is better without mainland tourists.” The island’s tourism sector was also badly hit when a deadly bus crash in July killed an entire tour group from China’s north-eastern city of Dalian. The incident prompted Chinese officials to question the safety of mainland visitors to the island. AFP
Default
Dongbei Special Steel misses payment Dongbei Special Steel Group Co Ltd, the steelmaker whose default in March helped spark a sharp correction in Chinese onshore corporate debt, said it is unable to make a timely payment on another bond. The firm, owned by the Liaoning provincial government, has already defaulted on multiple bonds in 2016. The firm posted the statement warning of the missed payment on the 300 million yuan (US$45.02 million) private placement note on the website of one of China’s main bond clearing houses yesterday. Aircraft industry
Domestic jet may make maiden flight by end-2016 China’s long-delayed C919 jet may make its maiden flight by the end of this year, state-owned plane maker Commercial Aircraft Corp of China Ltd (COMAC) said yesterday. “We are working hard to achieve our maiden voyage by around the end of 2016,” Lu Zheng, COMAC’s deputy head of marketing, said at a press conference in Beijing. The C919 narrow-body jet is currently undergoing rigorous testing and is the first large-scale Chinese civilian plane developed in accordance with international test-flight standards, Lu said. Reform
Eight state firms sign restructuring contracts
Currency
Forex reserves fall to lowest since 2011 But declines have slowed sharply in recent months as authorities tighten capital controls and crack down on forex trading. China’s foreign exchange reserves fell to the lowest since 2011 in August as the central bank intervened to support the yuan currency as it weakened to near-six year lows. While the US$15.89 billion drop was in line with market expectations and was described by analysts as modest, it was the biggest decline since May and could signal fresh capital outflows from the economy even as it starts to show signs of steadying. China’s reserves fell to US$3.185 trillion in August - the lowest since December 2011 - from US$3.20 trillion at the end of July, central bank data showed yesterday. China’s reserves, the largest in the world, fell by a record US$513 billion last year after Beijing devalued the yuan currency, sparking a flood of capital outflows that threatened to destabilise the world’s second-largest economy and alarmed global financial markets. But declines have slowed sharply in recent months as authorities tightened capital controls and cracked down on forex trading which is suspected to be speculation. Traders believe the central bank has stepped in via state-run banks since mid-July to slow the pace of depreciation in the yuan, which has weakened 2.6 per cent against the U.S. dollar so far this year. Analysts expect pressure on the yuan
and reserves to continue as expectations of another U.S. Federal Reserve interest rate hike this year support the dollar. “Lower FX reserves data is not surprising in light of the active intervention seen ahead of the G20 meeting (in China) in early September,” said Chester Liaw, an economist at Forecast Pte Ltd in Singapore. “With a Fed rate hike likely before the end of the year, the authorities will have their hands full with containing any wild spikes in USDCNY triggered by capital outflows, and can expect FX reserves to remain on a downward path through to the end of the year.” Nie Wen, an economist at Hwabao
Trust in Shanghai, said a monthly drop of US$10 billion-US$20 billion in reserves “should be normal.” “The pressure is relatively small compared with last year and large-scale capital outflows should be over... partly because capital controls are stricter than last year.” The impact of forex supply and demand remains under control, the State Administration of Foreign Exchange (SAFE) said recently in a statement, adding that it expected cross-border capital flows to remain stable in the medium- to long-term. Net foreign exchange sales by the People’s Bank of China jumped to their highest in five months in July, as the central bank sought to support the yuan after it briefly broke through the key psychological level of 6.7 to the dollar. Yesterday it was trading around 6.66. China’s gold reserves fell to US$77.18 billion at the end of August, down from US$78.89 billion at end-July, data on the People’s Bank of China website showed. Reuters
Eight Chinese centrally-owned state-owned enterprises signed restructuring contracts on Tuesday, the state-run China Securities Journal reported yesterday. These companies are Aviation Industry Corp of China, China National Machinery Industry Corp, China Poly Group Corp, China First Heavy Industries, China North Industries Group Corp, China South Industries Group Corp, China Reform Holdings Corp Inc, and China Nuclear Engineering Construction Corp. Aviation Industry Corp of China will transfer its real estate business to China Poly Group Corp, the paper said, while other companies will cooperate on high pressure and temperature machinery production among other areas. Automotive industry
VW to explore venture with JAC Motor Volkswagen AG is exploring a potential joint venture with Chinese automaker Anhui Jianghuai Automobile (JAC Motor), Chinese media reported yesterday. JAC said in a statement on the Shanghai stock exchange late Tuesday that it was halting trading in its shares because it planned to sign a cooperative memorandum of understanding but gave no further details. State-owned newspaper China Daily reported, citing sources, that VW and JAC likely aim to build a new joint venture together. Independent financial news outlet Caixin also reported that VW was the unnamed potential partner mentioned in JAC’s filing.
10 Business Daily Thursday, September 8 2016
Greater China
M&A
Anbang says time to digest shopping spree There are signs that some major Chinese acquirers are taking a pause.
A
nbang Insurance Group Co., known for its aborted attempt to buy Starwood Hotels & Resorts Worldwide Inc. in March, is turning its attention from chasing deals to digesting US$13.5 billion of overseas acquisitions announced since 2014. The company will focus on integrating purchases such as South Korea’s Tongyang Life Insurance Co., Vice Chairman Yao Dafeng said on Tuesday in Beijing, in the first interview by the company’s senior management with international media. While Yao said Anbang will still continue to seek acquisitions, mostly insurers and banks, his comments suggest a deal spree that included buying New York’s iconic Waldorf Astoria Hotel (pictured) and mounting a US$14 billion bid for Starwood might abate. “We want to build up the existing synergies a bit first, and consider new deals when appropriate opportunities emerge,” Yao said, adding that the insurer’s premium growth remains strong enough to finance new deals. “You can’t just keep buying everyday. You need to also digest and absorb.” Anbang, founded in 2004, has been at the forefront of a record wave of overseas acquisitions by Chinese companies as the world’s second-largest economy cools. The
insurer, which has amassed assets across the U.S., Europe and Asia, is now preparing an initial public offering in Hong Kong of its life insurance operations. There are signs that some major Chinese acquirers are taking a pause. Fosun Group, whose purchases included Club Med, has slowed its deal pace in the past year as billionaire founder Guo Guangchang switched focus to cutting debt. Led by Chairman Wu Xiaohui, Anbang has faced calls for more disclosure by Standard & Poor’s Ratings Services and drawn scrutiny for its unconventional deal making methods. Wu this year abruptly pulled out of the deal to buy the Starwood hotel chain, which would have been the biggest purchase of a U.S. asset by a Chinese company. The main reason for that decision was to strictly abide by the company’s “price discipline,” the company said in a statement Tuesday.
Proposed IPO
The proposed IPO is part of efforts by Anbang to better integrate itself into the global community as an “open and transparent” player, said Yao, who is also chairman of the life insurance unit. The company has asked banks to pitch for roles on the deal, people with knowledge of the matter said last month. Morgan Stanley, Hong Kong’s No.
1 IPO arranger in the past decade, decided to not pitch for a role in the offering, according to people with direct knowledge of the matter, Bloomberg News reported last week. Bankers’ deliberations on whether to work with Anbang have centred on whether the company would provide enough details on its ultimate ownership structure, the people said. The New York Times reported last week that Anbang is controlled by a group of companies owned by about 100 people with ties to the insurer’s chairman, many of them hailing from Wu’s home county of Pingyang on the eastern Chinese coast.
China ‘stereotypes’
The report was “not factual,” Yao said. “Anbang is a private company that strictly abides by Chinese laws and regulations. Some people in America always have stereotypes about China and Chinese companies.” Anbang, which has announced US$13.5 billion in overseas deals in the past two years, folded four of the companies it acquired into the life unit last year. They include Tongyang Life, Dutch insurer Vivat, Belgium lender Nagelmackers and insurer Fidea NV, according to the unit’s 2015 annual report. Net income at the consolidated division more than doubled from the previous year to 19.6 billion yuan (US$2.9 billion), while assets surged more than sevenfold to 921.6 billion yuan, according to the report. “Those consolidated numbers are just the technical aspect, and a very small part” of benefits such
acquisitions have brought Anbang, Yao said. “From the strategic and market competition point of view, our global deployment is taking shape.” Some of the acquired companies are already benefiting as Anbang has started integrating them. Seoul-based Tongyang Life, which Anbang bought last September, posted its best results since its establishment in 1989 in the first half of this year, with premiums income jumping 91 per cent mainly thanks to a new pension insurance product designed with Anbang’s help, Yao said.
“You can’t just keep buying everyday. You need to also digest and absorb.” Yao Dafeng, Anbang’s Vice Chairman Amstelveen-based Vivat, bought in July last year, reported a tenfold profit jump for the same period, after management strategies “exported” from Anbang helped reduce costs and improve efficiency, he added. Anbang still has “very strong reserve strength” for further overseas and domestic investments, with foreign purchases, including both completed and pending deals, accounting for only about 2.8 per cent of total assets, compared with the regulatory ceiling of 15 per cent, the company said in a statement. “We’re not simply slowing down,” Yao said, adding Anbang is working to complete all pending acquisitions including that of Fidelity & Guaranty Life in the U.S., announced in November. “We’ll be looking for new ones as we digest.” Bloomberg News
Business Daily Thursday, September 8 2016 11
Asia GDP
Australia’s economy toasts 25 years without recession Prices for its major commodity exports bounced following a couple of years of steady decline. Wayne Cole
A
ustralia’s resource-rich economy expanded at its fastest annual pace in four years last quarter, clinching a remarkable run of 25 years without recession as surging exports more than made up for a patchy performance at home. The local dollar held firm at US$0.7662 after news gross domestic product (GDP) rose 3.3 per cent in the year to June, up from around 2.9 per cent the previous quarter. The value of all goods and services
years now. For the year as a whole, international trade was the biggest prop to growth as the hundreds of billions spent on mining projects yielded a bounty of resource exports. Trade accounted for no less than 2.2 percentage points of growth in the year to June. That strength in exports belied a much more mixed picture at home, where domestic final demand grew
by just 1.2 per cent in the year and household consumption grew by 1.6 per cent. The report also suggested the economy was not yet running hot enough to revive inflation, with the main GDP price indicator up only 0.3 per cent for the year. “If we didn’t have a low inflation problem in Australia then these figures would argue against a rate cut,” said Shane Oliver, chief economist at AMP Capital Investors. “Inflation has been too low for too long and that could argue for the next rate cut in November,” he added. “But
Key Points Q2 GDP rises 0.5 pct q/q vs forecasts of +0.6 pct Annual growth picks up to 3.3 pct, fastest since 2012 Soft inflation, domestic demand leave door open to rate cut rose 0.5 per cent compared to the first quarter, when output climbed by an unusually strong 1.0 per cent. Growth in the quarter was bolstered by a pre-election spurt in government spending combined with modest gains in household spending and home building. That helped offset another steep decline in mining investment, which has been dragging on the economy for more than three
Household consumption grew by 1.6 per cent
I have to say it’s a close call.” The need for even “stronger growth” was cited by the Reserve Bank of Australia (RBA) when it cut interest rates to record lows of 1.5 per cent in August, and why it might yet ease again. Financial markets now imply around a 44 per cent chance of a further rate cut by Christmas.
Leader of the pack
Overall, the Australian Bureau of Statistics estimated annual GDP was worth A$1.65 trillion (US$1.26 trillion) in current dollars, or around A$68,929 for each of the country’s 24 million residents. Annual growth was handily ahead of 1.2 per cent in the United States, 1.6 per cent in the European Union, 2.2 per cent in the UK and even outpaced Germany’s 3.1 per cent. There was also a welcome pick up in the country’s terms of trade as prices for its major commodity exports bounced following a couple of years of steady decline. That in turn helped lift national income, while nominal, or current price, GDP climbed 1.3 per cent in the quarter for its best performance since late 2013. “It appears that the income drag from falling commodity prices is over,” said Michael Blythe, chief economist at CBA. “Some simple calculations show that just a levelling out in commodity prices would see income growth pick up from 2 per cent a year, to 4-5 per cent over the next couple of years.” Such a turnaround will be warmly welcomed by the Coalition government of Malcolm Turnbull since it is nominal GDP that drives the tax take and an increase in revenues is desperately needed to rein in runaway budget deficits. Reuters
Bank of Japan
Three-way split among board over policy outlook Governor Haruhiko Kuroda is among those who support negative interest rates. The Bank of Japan’s (BOJ) nine board members are split over how to stimulate the economy, or whether to stimulate it at all, as they prepare for a review of the central bank’s ultra-loose monetary policy, the Sankei newspaper reported yesterday. The central bank will conduct a “comprehensive assessment” of its
‘Governor Kikuo Iwata said the central bank has no plans to reduce the amount of assets it buys’ effect of stimulus programme when it holds next meeting September 2021. And, according to the newspaper, there is a three-way split in the board over which policy strategy to follow. One group believes the central bank should focus on its negative interest rate policy to stimulate growth, another advocates more purchases of
Japanese government bonds to inflate the economy, while a third group opposes further stimulus. BOJ Governor Haruhiko Kuroda is among those who support negative interest rates, according to the report. Earlier this week, Kuroda for the first time publicly acknowledged that negative rates could dampen public sentiment by hurting banks’ profits and the rate of returns on pension investments. But he said monetary policy has yet
to reach its limit, stressing that the BOJ had room to deepen negative rates. Concerns are rising that there must be limits to the BOJ’s bond purchases, as the central bank already holds a third of the JGB market. The central bank now buys enough JGBs to keep the amount of bonds outstanding rising at a rate of around 80 trillion yen (US$788.26 billion) annually. But some private economists and market participants believe the target could be a more flexible range of 7090 trillion yen. Earlier this month, however, Governor Kikuo Iwata said the BOJ has no
plans to reduce the amount of assets it buys or change the composition of assets it purchases in a way that would tighten monetary policy. Board members Takehiro Sato and Takahide Kiuchi, both of whom are economists, oppose against more easing, arguing that it would cause unwanted side effects, like reducing banks’ profit margins, the report said. The BOJ’s board members will also probably discuss whether the comprehensive assessment should reflect consensus or individual views, the Sankei said, citing a source. Sources have told Reuters the BOJ will consider making some modifications to its policy framework and debate some of the unintended consequences of its ultra-loose policy. Reuters
Bank of Japan headquarters in Tokyo
12 Business Daily Thursday, September 8 2016
Asia Finance Minister
India to focus reforms on tax, banks, infrastructure Minister Jaitley said the government is consolidating some of the public sector banks to strengthen them, but does not plan to reduce the state’s share below a threshold of 52 per cent. Douglas Busvine
I
ndia will press ahead with tax reforms, repairing the banking system and getting stalled infrastructure projects moving to drive growth, Finance Minister Arun Jaitley said yesterday, but it is not yet ready to sell off its state banks.
“I don’t think that public or political opinion has converged to the point where we can think of privatisation in the banking sector”
implemented, would have a “transformational” impact by creating a common market in India for the first time, while also acting as a transfer mechanism that would aid poorer federal states. The goal of the federal and state governments would be for the tax to be revenue-neutral and, and as the tax becomes established, for its rate to come down over time, Jaitley said. A revenue-neutral tax changes a country’s tax structure but is not intended to increase the overall amount
of tax levied. Jaitley did not say what rate he preferred but the government’s economic adviser has pegged a revenue-neutral rate at about 18 per cent. Jaitley said it was vital to revive the banking sector, but ruled out selling controlling stakes in public-sector banks that control 70 per cent of assets in the financial system and hold the lion’s share of India’s US$120 billion in bad loans. “I don’t think that public or political opinion has converged to the point where we can think of privatisation in the banking sector,” Jaitley told The Economist India Summit in New Delhi. The government is consolidating some of the public sector banks to strengthen them, but does not
plan to reduce the state’s share below a threshold of 52 per cent, Jaitley said. India currently owns stakes of between 60 per cent and 86 per cent in nearly two dozen state-run banks. Getting stalled infrastructure projects moving would help to drive growth and provide development benefits for the 1.3 billion people living in India, the economy of which continues to perform below potential, he said. The latest gross domestic figures showed that growth in Asia’s third-largest economy slowed to 7.1 per cent in the three months to June, from 7.9 per cent previously. “We are still far below our best,” Jaitley said in a podium interview, adding that as India looks to key state elections next year and a general election in 2019, economic reforms should bring growth benefits to voters, but the government must also “blend” them with social programmes. Reuters
Arun Jaitley, India’s Finance Minister Asked what his top economic policy priorities were, Jaitley told a conference he was determined to stick to a “very stiff” schedule that foresees passing critical enabling legislation for a new goods and services tax (GST) this autumn. Jaitley said the new GST, once
Official survey
Economists trim Singapore growth forecast Core inflation, the focus of the central bank’s monetary policy, was expected to come in at 1.0 per cent in 2016.
In August, the government revised its 2016 economic growth forecast to 1-2 per cent from 1-3 per cent
economists slightly lowered their forecasts on the all-items consumer price index (CPI), but raised their forecasts for core inflation. The headline consumer inflation rate was seen at -0.5 per cent yearon-year in 2016, down from -0.4 per cent in the June survey.
Key Points
Economists trimmed their forecasts for Singapore’s growth in the third quarter and for next year while keeping their expectations for 2016 growth unchanged, a central bank survey showed yesterday. The median forecast of 22 economists surveyed by the Monetary Authority of Singapore (MAS) was for gross domestic product (GDP) to grow 1.8 per cent in 2017, down from 2.1 per cent in the previous survey published in June. The median forecast for GDP growth in 2016 was unchanged at 1.8 per cent. That would mark a slowdown from 2.0 per cent in 2015 as stubbornly sluggish global demand weighs on the trade-reliant economy. Third-quarter GDP growth was expected to slow to 1.7 per cent on a year-on-year basis, according to the median forecast in the MAS survey, down slightly from 1.8 per cent previously. That would mark a slowdown from 2.1 per cent year-on-year growth in the second quarter, when the economy grew 0.3 per cent from the previous three months on an annualised and seasonally adjusted basis.
Economists trim 2017 GDP growth forecast - MAS survey GDP growth in 2017 seen at 1.8 pct vs 2.1 pct previously Median forecast for 2016 GDP growth unchanged at 1.8 pct Q3 GDP growth seen slowing to 1.7 pct y/y Core CPI 2016 median forecast +1.0 pct vs +0.8 pct previously
Core inflation, the focus of the central bank’s monetary policy, was expected to come in at 1.0 per cent in 2016, up from 0.8 per cent in the previous central bank survey. The central bank’s current forecast is for core inflation to average around 1.0 per cent in 2016 while CPI-all items inflation is forecast to come in at -1.0 to 0.0 per cent. Economists expect the Singapore dollar to trade at S$1.38 against the U.S. dollar at end-2016. It was trading at around S$1.3475 yesterday. Reuters Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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previously, on concerns over Brexit and weakening global demand. According to the latest MAS survey,
Business Daily Thursday, September 8 2016 13
Asia Protectionists’ fears
In Brief
New Australian farm registry allays Chinese ownership concerns British investors were the largest foreign group accounting for more than half of all offshore ownership. Colin Packham
A new Australian farm registry reveals nearly 15 per cent of rural land is foreign owned, with British investors dominating and Chinese a distant fifth, allaying popular fears that Chinese rural investment may threaten food security. Ownership of farmland, especially by Chinese investors, is a sensitive issue in Australia, one of the world’s biggest agricultural exporters, as foreign buyers snap up properties to cash in on a boom in Asian food demand. Australia blocked the proposed sale of the country’s biggest agricultural land holding, S. Kidman Co, to Chinese bidders in April, saying it was not in the national interest. “There is a perception that the industry is swamped by Chinese or Asian investment, and this report proves that this isn’t the case,” said Tony Mahar, chief executive officer of the largest rural industry body, the National Federation of Farmers. “There is a feeling that all foreign investment is bad but we need to start telling the story about what the benefits have been,” said Mahar. China has warned Australia against “protectionist” policies after it also blocked a A$10 billion (US$7.57 billion) sale of the country’s biggest energy grid in August to Chinese bidders, after they failed to overcome security concerns. China’s President Xi Jinping raised
the issue with Australian Prime Minister Malcolm Turnbull on the sidelines of a G20 summit on Sunday, calling on Australia to provide a fair and transparent environment for foreign investors. According to the Australian Tax Office (ATO) farm registry 13.6 per cent of rural land was owned by offshore investors, ahead of the previous estimate of 10 per cent, but shy of fears that the figure could have exceeded more than 20 per cent. British investors were the largest foreign group accounting for more than half of all offshore ownership, followed by the United States. Chinese
Public spending
Vietnam’s state budget deficit to expand investors came in fifth, owning less than 3 per cent of rural land. If a Chinese-led bid for S. Kidman and its agricultural land ultimately proceeds China will be elevated to second largest foreign landowner. But the new farm registry will not completely quell the debate over foreign landownership. Australian Deputy Prime Minister Barnaby Joyce, a leading proponent of tighter control of foreign acquisitions, said the registry proved the decision to block the Kidman sale was correct. “There is more than two times the size of Victoria (state) is now fully foreign owned or partially foreign owned. I’m not saying there is anything wrong with that, but this is a substantial amount of land,” said Joyce. Reuters
Financial support
S.Korean court asks Hanjin Shipping creditor for funds
Jurlique farm in Adelaide Southern-Australia
Monetary policy
Bank of Korea seen on hold before Fed meets Even if the central bank doesn’t act at this meeting, there could be dissenters calling for a cut. Cynthia Kim and Christine Kim
South Korea’s central bank is forecast to keep its benchmark interest rate unchanged at its meeting on Friday as board members would prefer to wait for the Federal Reserve’s next policy decision in two weeks, a Reuters poll found. Twenty-five of 26 economists surveyed by Reuters expect Bank of Korea (BOK) Governor Lee Juyeol and his board to hold the rate at a record low of 1.25 per cent. The bank last cut, unexpectedly, in June. Korea Investment & Securities was the only respondent to forecast a cut in September. “There is a growing need to check how financial markets act especially as expectations of a U.S. rate hike within this year have been bolstered since the Jackson Hole meeting,” said Kong Dong-rak, a fixed-income analyst at Korea Asset Investment
Key Points 25 of 26 analysts see rate on hold on Friday Majority of respondents see rate cut soon
Vietnam is likely under pressure of increasing state budget deficit in the remaining months of 2016, according to a report by the National Financial Supervisory Commission (NFSC) yesterday. The expansion is due to anticipated rapid rise in investments for fundamental construction, the NFSC said. As of mid-August this year, Vietnam suffered from state budget deficit of nearly 111.5 trillion Vietnamese dong (US$4.98 billion), accounting for 43.8 percent of the whole year’s estimate. Although budget deficit dropped by 1.135 trillion Vietnamese dong (some US$51 million) against the same period last year, NFSC said that budget deficit would expand in the remaining months.
Securities. Th e F e d e ra l O p e n M a r k ets Committee is scheduled to meet September 20-21. While the BOK is forecast to stand pat this Friday, a majority of survey respondents saw an interest rate cut in the near term to combat the effects of sluggish exports and fallout from the collapse of Hanjin Shipping Co. Ltd, which is disrupting the supply chain for key export items including televisions and cars. The disruptions stemming from Hanjin’s filing for court receivership is a fresh blow to Asia’s fourth largest economy where growth is already constrained by record household debt and sluggish exports. An 11 trillion won (US$10.06 billion) supplementary budget that the government sees as important to contain the fallout from the on-going corporate restructuring was passed
by parliament last week. South Korea’s exports rebounded from 19 straight months of falls but rose just 2.6 per cent in August onyear, largely due to the two extra working days compared to a year ago. Inflation remains tepid. While growth rebounded in the second quarter to 0.8 per cent from three months earlier, a finance ministry official last week said it is likely to be slower in the third quarter than the second. Even if the BOK doesn’t act at this meeting, there could be dissenters calling for a cut, which would raise the likelihood of policy easing in coming months. The board unexpectedly cut rates in June this year after minutes of the May meeting showed that one board member favoured a near-term cut. Lee Sur-bee, an analyst at Samsung Securities, recently withdrew her call for a cut as “the BOK seems to be perceiving the household debt issue more seriously,” she said. She now sees the base rate staying on hold through the end of the year. Reuters
A South Korean court presiding over the rehabilitation process of Hanjin Shipping Co Ltd has asked the firm’s lead creditor for fresh funds, warning the troubled container shipper needs financial support this week to normalise operations. The court did not say how much it had requested from lead creditor Korea Development Bank and government ministries. Hanjin Shipping’s parent firm said on Tuesday it plans to raise 100 billion won (US$90 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.
Regulatory review
Idemitsu delays Showa Shell stake purchase Japanese refiner Idemitsu Kosan Co Ltd has postponed its planned acquisition of Showa Shell Sekiyu KK shares to October or November this year from this month as regulatory approval is taking longer than expected. Idemitsu said, however, that the two firms still plan to launch their combined company on April 1 next year. Idemitsu’s planned takeover of Showa Shell has already suffered a setback after the Idemitsu founding family voiced its opposition to deal, complicating the takeover process. In July last year, Idemitsu Kosan agreed to buy a 33.3 per cent stake in Showa Shell for about 170 billion yen (US$1.7 billion).
14 Business Daily Thursday, September 8 2016
International In Brief Official data
German industry output drops German industrial production posted its steepest fall in 23 months in July, data showed yesterday, in a further sign that Europe’s largest economy is set for a slowdown. Yesterday’s data, published one day after a surprisingly weak rise in industrial orders, added to concerns that the German economy is losing steam as lower demand from emerging markets such as China and concerns about the consequences of Brexit are weighing on exports. “Companies in the industry sector continue to adopt a wait and see approach because of sluggishness in the global export markets,” the Economy Ministry said. Brazil’s corruption
New government buffeted by pension fund scandal The government of Brazil’s new President Michel Temer scrambled on Tuesday to distance itself from a multibillion-dollar corruption scandal that broke less than a week after he took office, involving fraud in the country’s largest pension funds. With the country already reeling from a sprawling bribery and kickback scandal at state oil company Petrobras, the new corruption case could hamper the conservative Temer’s efforts to restore credibility and turn the page on the leftist government of impeached President Dilma Rousseff. Police on Monday arrested five people linked to fraudulent investments made by four huge pension funds of state-run companies.
Gaming
Caesars woos the Candy Crush generation with new slot machines The new machines pay out based on a customer’s skill as well as luck, a change that required tweaks to casino regulations. Christopher Palmeri
C
aesars Entertainment Corp., trying to convince young people that slot machines can be cool, is rolling out a new generation of devices in its casinos that look like the mobile games people play on their phones. The largest owner of casinos in the U.S. is trying to buck a trend that’s seen slot-machine betting fall to US$291 billion in 2014 from a peak of US$355 billion in 2007, according to the Association of Gaming Equipment Manufacturers. While the slowgrowing economy is often cited for the drop, casino operators also say millennials don’t play the slots like their parents and grandparents. The new machines pay out based on a customer’s skill as well as luck, a change that required tweaks to casino regulations. The games, developed by Gamblit Gaming, challenge players to find words hidden on a board or match flavours of smoothies in a virtual juice bar. In Grab Poker, four people stand around a flat, waisthigh screen and press buttons to see who’ll snag the card that pops up in the middle. The player with the best poker hand at the end wins. The games are designed to lure younger patrons, who prefer to gamble interactively and tend to spend more on booze and food. Caesars plans to put six new devices, enough for 25
players, in its Harrah’s resort near San Diego this year and as many as 36, with room for 125 players, in its Las Vegas properties in 2017. “Typically slot machines are a very solitary experience,” said Eric Meyerhofer, chief executive officer of by Glendale, California-based Gamblit. “Our games are designed to be played in groups with friends.”
Small wins
Yet unlike typical slots, which are based solely on chance, casinos are challenged to make sure that the new skill-based machines aren’t so easily conquered, leading pinball wizards to break the bank. Gamblit’s games are designed to create a series of small wins rather than one big jackpot, and over time the pay-outs should average that of traditional slot machines, Meyerhofer said. A.G. Burnett, chairman of the Nevada Gaming Control Board, said he expects some manufacturers to make their games progressively harder as the players score higher, a big change from the static play of a game like blackjack. Casino regulators in Nevada and New Jersey have been reworking their regulations over the past two years to allow for skill-based games. Major slot machines manufacturers such as Scientific Games Corp. and International Game Technology Plc have been developing their own versions of interactive devices. IGT
has a machine based on the Atari video game Centipede in use at MGM Resorts International’s Bellagio casino in Las Vegas.
Party atmosphere
Other casinos are looking for ways to attract millennials. Wynn Resorts Ltd. redesigned the Player’s Club at its Encore resort in Las Vegas last year to add a DJ booth, lounge seating with flat-screen video slot machines and a white-lacquer billiards table from Steve Wynn’s Manhattan penthouse to create a more party-like atmosphere. Las Vegas Sands Corp. in July installed “stadium-style” seats at its casino in Bethlehem, Pennsylvania. There, players bet based on cards dealt by live dealers at the centre of a circular floor, an arrangement some people find less intimating than joining a table of strangers. “It gives them a bit of time to learn these games without feeling they’re making a mistake and doing something wrong,” said Mark Juliano, president of the Sands Bethlehem. For Las Vegas-based Caesars, which has been struggling under the debt load taken on during a 2008 leveraged buyout, the app-like games represent a way to compete against simple, addictive games like Candy Crush that have proliferated on mobile phones. The rollout is part of a larger strategy by Chief Executive Officer Mark Frissora to introduce more technology to the business. “Our world has shifted,” said Melissa Price, Caesars’ senior vice president of gaming. “There are a lot of entertainment opportunities that don’t always exist at the casino.” Bloomberg News
U.S. regulators
Funds allowed lending to one another BlackRock Inc portfolio managers will be allowed to borrow from their peers if they are pressed for money to cash out clients, U.S. Securities and Exchange Commission officials said in a notice on Tuesday. Mutual funds and money-market funds offered by the world’s largest asset manager could borrow up to a third of their assets in total - or up to 10 percent of assets without posting collateral - through BlackRock’s “InterFund Program.” BlackRock last year asked the regulatory agency to let the funds borrow cash from one another, for instance to meet a hypothetical spike in requests by clients to redeem shares. M&A
Congo state miner submits offer for copper project The Democratic Republic of Congo’s state mining company Gecamines said yesterday it has submitted an offer to buy Freeport McMoRan Inc’s majority stake in the Tenke copper project. Freeport agreed in May to sell its 56 percent stake in Tenke, one of the world’s largest copper mines, to China Molybdenum Co Ltd (CMOC) for US$2.65 billion. Toronto-based Lundin Mining, which holds a 24 percent stake, has until September 15 to exercise its right of first offer before any deal goes through.
U.S. monetary stance
Fed’s Williams wants rate hike The Fed lifted rates for the first time in nearly a decade last December. Ann Saphir
Raising U.S. interest rates makes sense now that the economy is at full employment and “within sight” of the central bank’s 2-per cent inflation goal, a top Federal Reserve official said on Tuesday. “An increase is on the table” at the Fed’s next meeting, on Sept 20-21, San Francisco Fed President John Williams told reporters after a speech in Reno, Nevada in which he said he prefers a rate hike “sooner than later.” Still, he said, he will not necessarily advocate for a rate hike at the coming meeting. “When it will happen and if it will happen will depend on what we are seeing,” he said, adding that he has not yet weighed the impact of the latest data showing a slowing services sector.
Federal Reserve officials have sought in recent weeks to revive expectations of an interest rate hike this year, after repeated delays in response to slowdowns in China and Europe. Traders are split on whether the Fed will raise rates even once this year. Once rate hikes restart, Williams predicted, the path of increase will be the “shallowest in American history.” Williams says he sees slower rate hikes now than he did a year ago largely because he believes low productivity growth and an aging population has slowed the potential rate of economic growth in the U.S. to just 1.5 per cent to 1.75 per cent a year. That in turn means that interest rates will only eventually rise to 3 per cent, if that, he said.
“That doesn’t give us a lot of room to cut interest rates if there’s a recession,” he told the group. “One way to get a little bit more buffer is to have an inflation target of 3 per cent or even a little bit higher.”
Key Points Williams says will attend next Fed meet with open mind Fed’s 2-per cent inflation goal not written in stone: Williams Yellen has said raising inflation target not actively considered The Fed has targeted 2 per cent inflation explicitly since 2012, and Williams noted that some policymakers and economists are dead set against a higher goal. “Two per cent was not given to us on a stone tablet,” Williams said. The Fed could also shift away from inflation targeting altogether and instead target a nominal level of national economic output, Williams said. Reuters
Business Daily Thursday, September 8 2016 15
Opinion Business Wires
Straits Times Singapore’s tropical weather may leave a lot to be desired but there is no place in the world like it if you need to operate a business. Consultancy PwC placed Singapore second overall in a ranking of 30 global cities - up one notch from the last ranking in 2014. The ranking, outlined in its Cities of Opportunity report released yesterday, is based on economic and social indicators such as technological readiness, ease of doing business, and demographics and liveability. London was in first place, while Toronto was third, Paris fourth and Amsterdam fifth.
Franck BLAIS via Foter.com / CC BY-SA
Taipei Times The Securities and Futures Investors Protection Centre has seized Japanese company Bai Chi Gan Tou Digital Entertainment Co’s assets in Taiwan, as part of its efforts to protect investors’ interests, the Financial Supervisory Commission (FSC) said on Tuesday. “We have the Japanese company’s assets in hand. We will not let investors lose their life savings over this incident,” FSC Chairman Ding Kung-wha said. Ding’s comments came after shares of game developer XPEC plunged by the daily limit for the fifth consecutive trading session, after Bai Chi on Tuesday last week abandoned its planned acquisition of a stake in XPEC.
The Korea Herald The order backlog held by South Korean shipyards fell to the lowest level in over 12 years in August amid a protracted slump in the global shipbuilding sector, industry data showed yesterday. According to the data compiled by global research firm Clarkson Research Services, the shipbuilding order backlog held by Hyundai Heavy Industries Co. and its other local rivals stood at 23.31 million compensated gross tons (CGTs) as of endAugust, the lowest since October 2003, when the comparable figure was 22.56 million CGTs. In August alone, the local shipyards clinched orders worth 210,000 CGTs to build eight vessels.
China Daily Executives of Dubai property firms and real estate analysts said Tuesday the decision taken by the United Arab Emirates (UAE) government to grant visas on arrival to Chinese visitors to the Gulf state is expected to boost investments into the property market in the sheikhdom. “The new visa rules for China are very good news for the property market here,” said Josef Kleindienst, founder and CEO of Dubai-based developer Kleindienst Group, two days after the UAE Vice President, Prime Minister and Ruler of Dubai Sheikh Mohammed Bin Rashid AlMaktoum announced the decision.
The case against cash
T
he world is awash in paper currency, with major country central banks pumping out hundreds of billions of dollars’ worth each year, mainly in very large denomination notes such as the US$100 bill. The US$100 bill accounts for almost 80 per cent of the US’s stunning US$4,200 per capita cash supply. The ¥10,000 note (about US$100) accounts for roughly 90 per cent of all Japan’s currency, where per capita cash holdings are almost US$7,000. And, as I have been arguing for two decades, all this cash is facilitating growth mainly in the underground economy, not the legal one. I am not advocating a cashless society, which will be neither feasible nor desirable anytime soon. But a less-cash society would be a fairer and safer place. With the growth of debit cards, electronic transfers, and mobile payments, the use of cash has long been declining in the legal economy, especially for medium and large-size transactions. Central bank surveys show that only a small percentage of large-denomination notes are being held and used by ordinary people or businesses. Cash facilitates crime because it is anonymous, and big bills are especially problematic because they are so easy to carry and conceal. A million dollars in US$100 notes fits into a briefcase, a million dollars in €500 notes (each worth about US$565) fits into a purse. Sure, there are plenty of ways to bribe officials, engage in financial crime, and evade taxes without paper currency. But most involve very high transaction costs (for example, uncut diamonds), or risk of detection (say, bank transfers or credit card payments). Yes, new-age crypto-currencies such as Bitcoin, if not completely invulnerable to detection, are almost so. But their value sharply fluctuates, and governments have many tools with which they can restrict their use – for example, by preventing them from being tendered at banks or retail stores. Cash is unique in its liquidity and near-universal acceptance. The costs of tax evasion alone are staggering, perhaps US$700 billion per year in the United States (including federal, state, and local taxes), and even more in high-tax Europe. Crime and corruption, though difficult to quantify, almost surely generate even greater costs. Think not just of illegal drugs and racketeering, but also of human trafficking, terrorism, and extortion. Moreover, cash payments by employers to undocumented workers are a principal driver of illegal immigration. Scaling back the use of cash is a far more humane way to limit immigration than building barbed-wire fences. If governments were not so drunk from the profits they make by printing paper currency, they might wake up to the costs. There has been a little movement of late. The European Central
“
Kenneth Rogoff Professor of Economics at Harvard University.
Bank recently announced that it will phase out its €500 mega-note. Still, this long overdue change was implemented against enormous resistance from cash-loving Germany and Austria. Yet even in northern Europe, reported per capita holdings of currency are still quite modest relative to the massive outstanding supply in the eurozone as a whole (over €3,000 per capita). Southern European governments, desperate to raise tax revenue, have been taking matters into their own hands, even though they do not control note issuance. For example, Greece and Italy have been trying to discourage cash use by capping retail cash purchases (at €1,500 and €1,000, respectively). Obviously, cash remains important for small everyday transactions, and for protecting privacy. Northern European central bankers who favour the status quo like to quote Russian novelist Fyodor Dostoevsky: “Money is coined liberty.” Of course, Dostoevsky was referring to life in a mid-nineteenth century czarist prison, not a modern liberal state. Still, the northern Europeans have a point. The question is whether the current system has the balance right. I would argue that it clearly does not. A plan for reining in paper currency should be guided by three principles. First, it is important to allow ordinary citizens to continue using cash for convenience and to make reasonable-size anonymous purchases, while undermining the business models of those engaged in large, repeated anonymous transactions on a wholesale level. Second, any plan should move very gradually (think a decade or two), to allow adaptations and mid-course corrections as unexpected problems arise. And, third, reforms must be sensitive to the needs of low-income households, especially those that are unbanked. In my new book, The Curse of Cash, I offer a plan that involves very gradually phasing out large notes, while leaving small notes (US$10 and below) in circulation indefinitely. The plan provides for financial inclusion by offering low-income households free debit accounts, which could also be used to make government transfer payments. This last step is one that some countries, such as Denmark and Sweden, have already taken. Scaling back paper currency would hardly end crime and tax evasion; but it would force the underground economy to employ riskier and less liquid payment devices. Cash may seem like a small, unimportant thing in today’s high-tech financial world, but the benefits of phasing out most paper currency are a lot larger than you might think. Project Syndicate
A less-cash society would be a fairer and safer place.
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16 Business Daily Thursday, September 8 2016
Closing Preventive measures
China offers ‘free screening’ for travellers affected countries who show Zika symptoms should report to quarantine officials when entering from Zika-hit countries China will offer Zika health screenings for travellers from Singapore and other affected countries, the quarantine bureau said yesterday, without explaining whether the tests would be compulsory. China has previously announced that it would step up checks on people and goods from the Singapore, where more than 240 locally transmitted cases of the Zika virus have been confirmed, including in more than 20 Chinese nationals. Individuals traveling from Singapore and other
China, the General Administration of Quality Supervision, Inspection and Quarantine said in a statement posted on its website. The administration said all international travel healthcare centers would provide “free Zika screening and tests” to all individuals traveling from countries where local Zika transmission had been confirmed. It did not say the checks would be mandatory, but required all inspection and quarantine agencies to “strengthen joint prevention and control”. Reuters
Central bank
Malaysia holds key rate for steady growth track ahead Earlier yesterday, Malaysia reported worse-than-expected July exports. Joseph Sipalan
M
alaysia’s central bank, expressing optimism the country will stay on a steady growth path through 2017, kept its key interest rate at 3.00 per cent yesterday, as expected. Bank Negara Malaysia (BNM) said there is sufficient activity to support the economy, even as annual growth slipped to 4 per cent in the second quarter, the slowest in nearly seven years.
be a series of rate reductions. Some economists believe BNM may cut the key rate to boost the economy at its next meeting on November 23. “November is still up in the air,” said UOB economist Julia Goh, adding that the decision “will depend on the data and what happens by then.”
Steady slowdown
Growth in the trade-dependent Southeast Asian economy has slowed
in the last five quarters, mainly due to weakness in global crude and commodities prices, and a slowdown in its top trade partner China. While noting that downside risks to global growth “remain high”, BNM said domestic demand “remained the key driver of growth” and that in the second quarter, Malaysia’s private consumption and private investment grew at a faster pace. Earlier yesterday, Malaysia reported worse-than-expected July exports, which had their biggest slump in 15 months. They were dragged down by a sharp dip in shipments to
China and a fall in key commodity exports. In January, Malaysia trimmed its 2016 growth projection to 4.0-4.5 per cent from 4.0-5.0 per cent on expectations of a sustained slump in global crude prices. Inflation remains low, sliding for a fifth consecutive month in July, when the annual rate was 1.1 per cent. Prime Minister Najib Razak faces political pressure over a financial scandal tied to state-owned 1Malaysia Development Berhad (1MDB) and some tough economic challenges. The government likely will need to tighten spending to get close to this year’s targeted budget deficit of 3.1 per cent of gross domestic product. At the end of the June, the deficit stood at 5.5 per cent, according to treasury department data. Reuters
Key Points Benchmark rate held at 3.00 pct C.bank says domestic demand remains growth driver Can meet this year’s 4.0-4.5 pct growth target - c.bank “Overall, the economy is projected to expand within expectations in 2016, and to remain on a steady growth path in 2017,” the central bank said in a statement. Eleven of 12 economists in a Reuters poll had forecast no change to the overnight policy rate (OPR). On July 13, BNM surprised economists with the first rate cut in seven years, by 25 basis points. The day after that cut, BNM Governor Muhammad Ibrahim told the national news agency it was a “pre-emptive move” to ensure solid growth this year and there wouldn’t
Shadow cabinet
South China Sea
Trade
Australian senator quits over China payments row
ASEAN, China agree on code for unplanned encounters
Taiwan exports top forecasts
An Australian opposition senator quit the shadow cabinet yesterday after saying he had failed to declare that a Chinese company had made payments on his behalf for travel and legal bills. Relationships between politicians and Chinese government interests have become a hot button issue in Australia amid concern that China is intent on gaining extensive commercial assets in the resource-rich country. Senator Sam Dastyari, 33, widely viewed as a rising star of the centre-left Labor opposition party, has been fending off a public backlash over the past week after media reported he asked a Chinese company to pay his expenses on a trip. “I freely admitted that I made a mistake,” Dastyari said as he announced he was quitting his post as manager of opposition business in the Senate. He will remain in the Senate. Dastyari’s political opponents say he broke political donation rules. He has maintained he did nothing improper apart from forgetting to declare a payment. Dastyari on Tuesday apologised for his “error of judgment” in a news conference. But the government of Prime Minister Malcolm Turnbull dismissed the apology as inadequate. Reuters
Leaders from the Association of Southeast Asian Nations (ASEAN) members and China issued a joint statement yesterday on the application of the Code for Unplanned Encounters at Sea (CUES) in the South China Sea. The statement was issued after the two sides held the 19th ASEAN-China Summit in the Lao capital and commemorated the 25th anniversary of dialogue relations between ASEAN and China. The document reaffirmed commitment to the 2002 Declaration on the Conduct of Parties in the South China Sea (DOC) and the Joint Statement of the Foreign Ministers of ASEAN Member States and China on the Full and Effective Implementation of the DOC, including the importance of the freedom of navigation and over flight. It said the two sides recognized that maintaining peace and stability in the South China Sea region serves the fundamental interests of ASEAN member states and China as well as the international community. The joint statement recognized that Brunei, Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam and China are members of the Western Pacific Naval Symposium and have adopted CUES. Xinhua
Taiwan’s exports grew more than expected in August as global retailers began stocking up smartphones and other hi-tech gadgets ahead of the year-end shopping season, but the rise was slight, keeping the chance of another interest rate cut alive. Yesterday’s trade data followed disappointingly weak inflation readings and comes three weeks before the central bank’s next policy meeting, building a case to keep policy conditions easy to support the ailing trade-reliant economy. Exports rose 1.0 per cent from a year earlier, expanding for the second month running after July’s 1.2 per cent rise snapped a 17-month losing streak. Economists polled by Reuters had expected a more tepid 0.4 per cent rise. Traditionally, Taiwan’s exports are bigger in the second half of the year due to new product launches before Christmas. This year, Apple Inc’s imminent launch of the iPhone 7 is expected to boost shipments, though some analysts fear demand for the latest model will not be as strong as in the past. August exports to China and the United States, Taiwan’s top two destinations, rose 3.5 per cent and 5.7 per cent from a year earlier, respectively, the Ministry of Finance said. Reuters