Forex total MOP155.8 billion in August Reserves Page 2
Friday, September 16 2016 Year V Nr. 1132 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming
Nine tables for Tak Chun in The Parisian Macao Page 6
Breach
Galaxy closes Iao Kun VIP rooms due to ‘breach’ of contract, will pursue legal action Page 6
Art In The City
www.macaubusinessdaily.com
Yuan goes abroad
Chinese currency to face hurdles on its way to conquering the world Page 8
Real estate
Li Ka-shing returns to the property playground of Hong Kong Page 9
Art
Unaffordable exhibition space, lack of buyers, and underdeveloped art appreciation in the MSAR. All challenging sustainability without gov’t support, say local artists. Maintaining integrity and avoiding selling ornamentation is important. As is convincing casinos that non-international work has its value, they say. Pages 4 & 5
Fitch puts cards on the table
Snakes and ladders
Average housing prices settled around MOP83,000 p. sq. m in August. Lower prices on the Peninsula and in Coloane were evident. While Taipa continued its upward tick in pricing, rising 22 pct y-o-y. Overall housing prices declined 15 pct on 745 transactions, while 68 pct increase y-o-y was seen during the month.
Gaming A 5 pct y-o-y increase in gross gaming revenues for 2016. So say Fitch analysts. But a return to the MSAR’s 2014 glory days could take nine years. Analysts believe mass market accessibility will be driven by new infrastructure projects. But predict little benefit to Cotai newcomers due to cannibalization. Page 7
Downstream medicine
Health A rare practice, says the Health Bureau. Referring local patients outside the MSAR for services supplementary to its own medical facilities. A recent South China Morning Post report claims local residents don’t trust even simple medical procedures to MSAR practitioners. Saying many would rather seek doctors in Hong Kong. Page 2
Thumbs up for nuclear plant
Real estate Page 3
HK Hang Seng Index September 15, 2016
20,495.29 +144.95 (+0.63%) Worst Performers
Galaxy Entertainment Group
+5.42%
Wharf Holdings Ltd/The
China Merchants Port Hold-
-2.46%
China Resources Land Ltd
-0.91%
Sands China Ltd
+5.27%
Hong Kong Exchanges and
+2.16%
China Overseas Land &
-1.92%
CNOOC Ltd
-0.75%
Li & Fung Ltd
+3.27%
Cheung Kong Property
+1.35%
Belle International Holdings
-1.86%
PetroChina Co Ltd
-0.60%
AAC Technologies Holdings
+2.98%
Link REIT
+1.27%
Hengan International Group
China Life Insurance Co Ltd
+2.74%
Ping An Insurance Group Co
+1.22%
China Mobile Ltd
+2.20%
-1.17% -1.05%
China Petroleum & Chemical
-0.56%
Sino Land Co Ltd
+0.44%
27° 32° 27° 32° 27° 32° 25° 31° 26° 30° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Chinese investment Britain gave the go ahead yesterday for a US$24 billion nuclear power plant. Ending weeks of uncertainty that strained ties with China and France. And put a question mark over Prime Minister Theresa May’s investment policy. The UK Gov’t has announced it will proceed with the Hinkley Point C project in southwest England following a comprehensive review. Page 16
2 Business Daily Friday, September 16 2016
Macau Health
Local medical expertise panned Health Bureau: “Sending patients outside the MSAR region for medical treatment is supplemental for the city’s medical services.” Annie Lao annie.lao@macaubusinessdaily.com
The Health Bureau reiterates that referring local patients outside the MSAR region for treatment is supplementary to the city’s medical services, according to a press release published by the Bureau on Wednesday. The press release comes in response to a recent news report by Hong Kong newspaper South China Morning Post (SCMP) published on Monday, stating that MSAR patients mistrust the city’s medical services and instead go to Hong Kong for medical treatment. In the report by SCMP, the newspaper indicated that Macau hospitals send out-patients to Hong
Kong for treatment due to the city’s lack of infrastructure and specialists in medical services. Locally, there are three major hospitals, both private and public: Kiang Wu Hospital, Centro Hospitalar Conde de São Januário, and University Hospital at the Macau University of Science and Technology. Kiang Wu Hospital employs more than 340 doctors, with two thirds of them trained in Mainland China, SCMP reveals. According to the publication’s Monday story, residents don’t trust the doctors trained in Mainland China and as such go to Hong Kong even for simple medical procedures and check-ups because of the professionalism of doctors in the
HKSAR. In 2014, reports SCMP, São Januário public hospital sent 2,000 patients to Hong Kong for medical treatment, costing HKD200 million (MOP206 million/ US$25.8 million) per year. The amount included expenses incurred in trips to Hong Kong. Figures published by the HK-based newspaper indicated that a patient from Macau needs to pay HKD4,680 per day in order to stay in a Hong Kong hospital. In 2015, the Macau Government spent HKD7 billion on public healthcare, a 40 per cent increase from the HKD5 billion of the previous year, SCMP cites.
Supplemental medical services
The Bureau emphasises in the press release that the local hospitals send out-patients to other regions only for rare medical cases. The Bureau affirms that the local medical professionals are capable of
treating the vast majority of medical cases in the city. Due to the small population of Macau, as well as small number of rare medical cases in the city, the Bureau says that there is a need to send out-patents for special medical treatment in order to supplement the inadequate medical services of the territory. According to the local health bureau, for year 2015 1.6 of every local 1,000 patients were referred to Hong Kong for medical treatment. This rate, indicates the Bureau, is ‘very low when related to the general services and these are merely a complement to the local medical services offered’. The Bureau indicates that it is developing ‘sophisticated medical services’ based on the ‘needs of sick persons in Macau’ and with regard to new services their practicality needs to be taken into consideration in terms of a small population in the region. Thus, sending out-patients with a special diagnosis for medical treatment is economically effective for the region, the Bureau says.
Banking
Forex
Fitch to withdraw rating on Tai Fung Bank mid-October
Foreign exchange reserves hit MOP155.8 billion in August
Rating agency Fitch announced yesterday that it would withdraw its rating on locally based Tai Fung Bank on or around October 14. It said the withdrawal was ‘for commercial reasons,’ without further elaborating. The agency currently rates Tai Fung Bank’s long-term Issuer Default Rating (IDR) at ‘BBB+,’ which refers to
the bank’s stable outlook. The rating was from the agency’s last action on June 21. Tai Fung Bank, which only operates in the Special Administrative Region, saw its profits-after-tax increase 37 per cent year-on-year to MOP1.06 billion (US$132.5 million) for last year, according to its 2015 fiscal report.
The MSAR’s foreign exchange reserves totalled MOP155.8 billion (US$19.5 billion) as at the end of August, according to the most recent data released by the Monetary Authority of Macao. This indicates a 0.4 per cent increase month-onmonth. At end-August, the city’s foreign exchange reserves represented 12 times the currency in circulation as well as 103.2 per cent of the Pataca M2 at the end of July this year. ‘M2’ refers to the part of money supply that includes physical coins, and currency and readily liquid assets such as on-demand bank deposits and money held in cheque accounts plus all time-related deposits, saving
deposits, and non-institutional money market funds. In addition the trade-weighted effective exchange rate index of the local currency dropped 0.84 percentage points month-on-month, and 0.17 percentage points year-onyear, reaching 105.54 at the end of August representing a drop against the MSAR’s trading partners in terms of currency.
Sports
FIA: World Cup status for F3 Macau GP Consequently, requirements and thresholds for selecting participants is higher this year. Annie Lao annie.lao@macaubusinessdaily.com
The International Automobile Federation (FIA) has granted FIA Guia Circuit Formula Three (F3) World Cup status to this year’s F3 Macau Grand Prix, according to a press release published by the Macau Grand Prix Organizing Committee (MGPOC). This new status replaces i t s p r ev i o u s t i t l e o f F I A F 3 Intercontinental Cup. However, regulations for this year’s event have been changed as the FIA have taken on the project following the departure of the Motor Race Consultants company, run by Barry Bland, which used to organise the race. The company worked on the F3
Macau Grand Prix since its beginning in 1983. FIA now co-ordinates all regulations, entries and registration for the FIA F3 World Cup this year. As a result, requirements and thresholds for selecting participants is higher than the previous year. ‘Mr. Barry Bland has made the decision to discontinue his involvement. The MGPOC respects Mr. Bland’s decision,’ MGPOC stated in the press release. The deadline for entries is open until September 30. The provisional race programmes and entries will be announced at a press conference to be held in early October. The 63rd Macau Grand Prix will be held over four days from November 17 to 20 this year.
Business Daily Friday, September 16 2016    3
Macau Property
Home prices fall slightly in August Total number of housing transactions increased 68.2 per cent year-on-year for the month. Kam Leong Kamleong@macaubusinessdaily.com
A
verage housing prices in the city settled at MOP82,800 (US$10,350) per square metre in August, a slight decline of 1.5 per cent year-on-year, due to lower prices in Macau and Coloane and despite increased prices in Taipa. According to the latest official data released yesterday by the Financial Services Bureau (DSF) home prices on the Macau Peninsula dropped 10.5 per cent year-on-year to MOP73,846 per square metre, whilst those in Coloane fell 11 per cent year-on-year to MOP90,824 in the month. Nevertheless, the average cost of buying an apartment in Taipa soared 21.8 per cent to MOP99,126 per square metre last month vis-avis MOP81,318 per square metre for the same month one year ago. On a month-on-month comparison, the city’s average housing prices posted a decline of 15.2 per cent. Home prices in Taipa registered the biggest drop of 15.8 per cent, while those on the Peninsula fell 3.06 per cent. Coloane saw its average housing price creep up by 0.75 per cent.
Transactions boosted
In the month, the Bureau recorded a total of 745 housing transactions, a surge of 68.2 per cent year-onyear and marginally up 0.8 per cent month-on-month. Of the total, 552 of the transacted
homes in the month were located on the Peninsula, which soared 61.4 per cent year-on-year compared to 342 transactions in the same period of 2015. Compared to the 448 transactions registered in July, the number also represents a growth of 23.2 per cent. In addition, the number of housing transactions in Taipa amounted to 177 in the same month, which is a 1.5-times increase compared to the 69 transactions of one year ago.
Nevertheless, the number fell by 36.3 per cent from 278 transactions one month ago. Coloane saw 16 more sales and purchases of residential units last month, which halved when compared to the 32 transactions during the same month of last year, although the number increased 23.1 per cent month-on-month.
Unit types
In terms of unit types, 516 of the housing transactions were made on completed units, which rose by 83 per cent year-year-on-year, or 19 per cent month-on-month.
The prices of such types of unit remained flat at MOP77,198 per square metre compared to one year ago. Yet, prices declined by 11.7 per cent when compared to the MOP87,422 per square metre of July. On the other hand, the number of off-plan sales amounted to 77 last month, which fell slightly by 1.28 per cent year-on-year, whilst jumping 58 per cent year-on-year. These uncompleted housing units were sold at MOP118,698 per square metre on average, up 6.2 per cent year-on-year, or 0.42 per cent month-on- month.
4 Business Daily Friday, September 16 2016
Macau
Blanc Art
Art From the beginning of 2015 to August 2016, Macao Foundation has disbursed MOP14.8 million for art gallery exhibitions
The fine business of art Insiders from the art business in the territory believe it is still challenging for art galleries to be sustainable without government support, while it remains hard to find affordable exhibition spaces for galleries in the city. Nelson Moura nelson.moura@macaubusinessdaily.com
P
rivate galleries still struggle to be sustainable and less dependent upon government support in Macau, while facing difficulties finding gallery spaces, buyers and affordable rents, local members of the art scene told Business Daily. Meanwhile, mentalities and wallets continue to be closed in the territory to less commercial art forms, while gaming operators hesitate to invest in local art.
Money and location
With money and location being two of the main issues for local art galleries many curators turn to government funding to help them operate and find space. According to data provided to Business Daily, during the 2015 (as of August 15 2016) Macao Foundation had disbursed a total of MOP14.8 million in subsidies and support for art exhibitions in Macau, with 51 venues having been provided free of charge for exhibitions. The Cultural Affairs Bureau (IC) also provides venue support for art exhibitions organised by private and public organisations, with government data stating the department had a proposed budget for 2016 of MOP538 million. In response to Business Daily enquiries, the IC responded that in 2016 it had disbursed some MOP7.3 million, as of September 8, in financial support for exhibition projects of local associations and individuals
Public art
One of the art centres benefiting from government support is the Centre for Creative Industries in the Macau Special Administrative Region, known more commonly as Creative Macau, a project created in 2002 by the Institute of European Studies of Macau. According to Creative Macau the entity receives an annual budget of around MOP1.2 million from the Institute of European Studies of Macau, which is financed by the Macao Foundation. Initially only focused on art promotion, Creative Macau later changed to a commission-based gallery, with its co-ordinator Lúcia Lemos telling Business Daily the project is “completely different from any private gallery because we don’t have the same criteria they have, since we don’t need to study the consumers and know what products sell more.” Creative Macau provides paid workshops and promotes local artists, enabling artists to decide the pricing of their pieces, while asking for a 15 per cent commission. Lemos tells Business Daily that private galleries have to work hard to find collectors and financing in order to be a sustainable business and holds little belief that art galleries are economically sustainable in the city. The Creative Macau co-ordinator believes the high number of casinos and hotels should provide plenty of opportunities for local artists to expose works; however, gaming operators tend to favour international artists. “[Casinos and hotels] always play
it safe and buy everything cheaply by the tonne, and if the casinos organise art exhibitions it’s always for famous international artists they can afford. Casinos can contribute by giving opportunities to local artists, and MGM before has had local artists’ exhibitions, but just that is not enough. We need more involvement and social responsibility,” Lemos told Business Daily.
Art for money
Pedro Ip, President of the Macao Chamber of Arts Commerce (MCAC) and founder and director of Blanc Art Co. Ltd. (Blanc Art) - has worked hard to be sustainable since the gallery opened in 2013, trying to balance his budget while promoting innovative local artists.
“[Casinos and hotels] always play it safe and buy everything cheaply by the tonne, and if the casinos organise art exhibitions it’s always from internationally famous artists they can afford.” Lúcia Lemos, Creative Macau Co-ordinator
“I see the potential of the Macau market; however, it is still not there yet. The art market is still developing, so the scale is not big. It’s not easy to find collectors in Macau, or people
that appreciate art enough to buy a work,” Pedro Ip told Business Daily. Blanc Art generates revenue by finding artists to present their pieces in its gallery spaces, and by joining art fairs and exhibitions to find collectors interested in purchasing the art pieces. Each artist gets a different contract, with the commission values depending on how much recognition the artist has, and the artist’s proficiency, said Ip. The gallery collaborates not just with Macanese artists but also with those from Hong Kong, Mainland China, and France. “First, I need to know the artists, their work, experience, and history, and then contact them directly and propose if they would like to be part of our business. Sometimes, we buy the art directly from the artists, other times we collaborate with them. Sometimes, the collector asks us for a specific artist and we connect them. I think there are quite a few good artists in Macau but most of them are not full-time artists. It’s not an easy job. Right now all of the artists in our gallery are full-time, and do it as a career,” he told Business Daily. The Blanc Art curator believes the government is already doing a lot for local art galleries but that support sometimes shouldn’t just be limited to subsidies, since although Macau is plentiful in museums and exhibition areas, it is hard for private galleries to find exhibition spaces. According to the IC, proposals for exhibition spaces have to include details such as the exhibition name, theme, contents, form of exhibition and images of the works to be provided to its Division of Visual Art of the Department of Exhibitions and Museums. Approval time averages approximately one month. The curator describes the process of applying for an exhibition space to the IC as too long for a private enterprise, with a long waiting list and with non-profit art galleries favoured in the selection process.
Business Daily Friday, September 16 2016 5
Macau
Jose Drummond
“It’s hard for us to find a space for exhibitions since most of the places owned by the government give priority to non-governmental organisations (NGO’s). When the government sees we’re private they say we should find a commercial space for an exhibition but there are not a lot of commercial places [in which] we can show the work to the public,” he said.
Key Points MOP112 million granted by the Cultural Industries Fund (FIC) as of the beginning of 2016 MOP244.9 million of proposed FIC budget for 2016 MOP14.8 million in subsidies and support were disbursed by Macao Foundation for art exhibitions in Macau in 2015 until August 2016
shopping mall.” Lam said. The Iao Hin Gallery has applied for and received a MOP1 million subsidy from the Cultural Industries Fund (FIC) that was spent on refurbishment. Still, Lam considers that this kind of funding has a lot of strings attached and can’t “just be used on anything we want”. The FIC was established in 2013 to support the development of local cultural and creative industries and as of the beginning of 2016 it had granted MOP112 million benefiting some 70 cultural or creative projects, with an annual proposed budget of MOP244.9 million. The owner of Iao Hin Gallery doesn’t see Macau as “a big centre of art in the world” that attracts many clients from abroad to purchase art but states that his gallery manages to have a lot of local clients. Even so, he comments that his gallery doesn’t do projects with casinos since “they have their own clients and their own art.” “The art business is just like any other business; it depends upon good management and upon good application of business fundamentals,” Simon Lam told Business Daily.
investment that can be returned, which is understandable since they’re tourist spaces. Also, some artists just don’t think a casino is the right place to exhibit their art,” he added. “I can’t understand how Shenzhen has a contemporary art museum, while Macau doesn’t. The city could’ve explored the Chinese modern art explosion right at the beginning of the century but it didn’t. Hong Kong took it and art values and exhibitions have always increased,” said Drummond. The artist considers art as a good bet for the government to invest in order to diversify the cultural offerings of the city, with a multitude of special artists in the territory but with a general lack of interest in culture apart from traditional Chinese art. In his view, however, subsidising and handing out money isn’t the only way to develop the sector. “There are two or three private galleries, the rest are from cultural associations. There’re a lot of subsidies but we need more private galleries that don’t depend so much upon government funding,” the artist told Business Daily.
Space for art
Drummond sees initiatives like the Macau Art Garden as a good attempt to make space for galleries and artists suffering from high rents who find it hard to find suitable places. With support from the Secretariat for Social Affairs and Culture and with the collaboration of AFA, the Macau Art Garden on Avenida Dr. Rodrigo Rodrigues in the Nape district has been designed as a five-storey space fully dedicated to local artistic creation and exhibition. “The Macau Art Garden is an
José Drummond is a Portuguese contemporary artist, curator and former Vice-President of AFA (Art for All Society) - a non-profitable art organisation seeking to promote the development of Macau contemporary art - who believes that the local art scene is still too closed in upon itself, lacking the international dynamic some of its neighbours have achieved. “From the casino perspective they want to expose internationally renowned artists with a good
MOP7.3 million disbursed in financial support for exhibition projects of local associations and individuals by the Cultural Affairs Bureau (IC) as of September 8 MOP538 million of proposed IC Culture Fund budget for 2016 Nevertheless, Pedro Ip told Business Daily that sometimes the only solution for obtaining exhibition space is to negotiate with commercial spaces like cafes and restaurants.
Iao Hin Gallery
Simon Lam of Iao Hin Gallery Macau agrees that like so many other businesses in the SAR the most challenging element sometimes is not getting a space but being able to afford it. Founded in 2007, and located on Rua da Tercena, the Iao Hin Gallery has a private showroom of over 1000 square metres but Lam considers the location is still not what they would prefer in terms of “foot traffic”. “We have to rely a lot on online marketing and face-to-face connections. Galleries are very specific in the kind of clients we need to come to our gallery, so it’s not cost effective to have a great location in the middle of Avenida de Almeida Ribeiro or a
Pedro Ip
Burning Art
“The Macau Art Garden is an attempt to give space to artists, but although a small studio is helpful for an artist starting his career an experienced artist with 10 or 20 years’ career has a big problem with the storage of his works. Sometimes, artists here even have to destroy some old works because they can’t afford storage prices [in Macau].” José Drummond, former Vice-President of AFA (Art for All Society) attempt to give space to the artists, but although a small studio is helpful for an artist starting his career an experienced artist with 10 or 20 years’ career has a big problem with the storage of his works. Sometimes, artists here even have to destroy some old works because they can’t afford storage prices,” Drummond told Business Daily. The Portuguese artist states that there are bank loans artists and galleries could use for rent or purchasing spaces but that sometimes repayment is expected within five years, which “is already hard for a restaurant to repay, so even more so for an art gallery”. The former AFA VP believes that the art market is in “crescendo” but that local society itself needs to be more educated on art, since local art buyers tend to buy more commercial Chinese traditional art for decoration, especially paintings. “Macau needs a contemporary art museum and society also needs to be educated by the government. Galleries are making a huge effort but a lot of times they are forced to present works that are more commercial, normally more traditional-style art, easy to understand for ornamentation,” said Drummond. He also said that private galleries in the territory are making a big effort to be sustainable by being forced to present more commercial art works of more traditional Chinese forms for decorative purposes. “Art can’t be this; this way it becomes a perverse system,” Drummond concluded.
6 Business Daily Friday, September 16 2016
Macau Business
Ho sniffs out opportunities in Portugal Local company KNJ Investment Limited CEO Kevin Ho is in Portugal negotiating the purchase of Portuguese media company Global Media Group. Nelson Moura nelson.moura@macaubusinessdaily.com
T
he Chief Executive Officer of KNJ Investment Limited (KNJ), Kevin Ho, is currently in Portugal to negotiate the specifics of the purchase of Portuguese company Global Media
Group (Global media), as reported by local broadcaster TDM radio. In order to meet with “relevant people” for the deal, Ho linked up with the Association of Macao Young Entrepreneurs entourage, joining the 17 local businessmen on their trip to the European country, seeking business and investment opportunities.
The nephew of former MSAR Chief Executive Edmund Ho Wah, and director of Tai Fung Bank Limited, stated recently that his company was interested in investing in Portuguese business opportunities. Ho later specified the group’s intention to focus on Global Media - one of Portugal’s biggest media groups - as its main acquisition. Ho has noted that following a restructuring of the Global Media group, it had “won potential” and considered that if the deal was finalised one of KNJ’s objectives was to “expand the
Breach
Galaxy to pursue legal action against Iao Kun Group Galaxy Entertainment Group (GEG) will take legal action against the Iao Kun Group for ‘breach of its undertakings and agreements’, according to a press release issued last night. The gaming and hospitality group notes in
the release that it would like to ‘put the record straight’ with regard to the recent closure of two VIP rooms operated by the Iao Kun Group on GEG properties, announced by Iao Kun on September 13.
‘GEG has terminated the promoter agreements with Iao Kun and closed Iao Kun VIP Rooms in Galaxy Macau and StarWorld as a result of Iao Kun’s breach of the agreements made with us,’ states Buddy Lam, Assistant Senior Vice President of Public Relations of the group, in the release. No further information has been supplied regarding the details of the breach.
group’s reach to other sectors”. Global Media has interests in Portugal’s press, radio and online sectors, and in 2015 underwent a restructuring that reshaped its news outlets and strengthened the company’s capital due to the entry of new shareholders. In April, Portuguese newspaper Correio da Manhã stated that the President of Global Media’s board of directors, Daniel Proença de Carvalho, was in Macau to negotiate the sale of the group and had attracted the attention of KNJ. The paper advanced that the entry of new investors should be made through a capital increase, with Kevin Ho’s company facilitating 15 million euros (MOP134.7 million/US$16.8 million) for investment in exchange for a majority, 30 per cent stake, in the Portuguese media group.
Regulation
Odds against side-betting Side-betting “generates a direct erosion of the tax revenue”. So says Portuguese Public Prosecutor Hugo Luz dos Santos who recently published ‘The Gaming Legal Framework in Macau, SAR: An Overview’ and who spoke to Macau Business about the loss in revenue from the scheme and further necessary steps for regulation of the city’s gaming industry. Side-betting (also known as a multiplier) involves “agreements between a third party and a patron” in which the amount bet is only a fraction of the actual amount, which remains concealed: the nominal value is not the real value. The effect of this is an untaxed parallel betting scheme that is still conducted through official casinos, following the rules of the games. This scheme, although a “relatively old phenomenon” in the MSAR as well as common “amongst all casino
cities” is frequent in the territory, notes dos Santos, suggesting that, aside from the current measures being taken by the authorities to handle the “opaqueness and limited regulatory [oversight]” legal measures should be sought. Among this would be a registration system of “all credit lenders and all credit borrowers in the casinos of Macau,” at least as one of the measures to drive towards “the indirect methods of assessing the tax base,” notes dos Santos. The author also points out a number of other regulatory measures, “in the Macau Government’s best interests” and aimed at maintaining the long-term sustainability of the MSAR’s gaming industry. Read more in this month’s edition of Macau Business, on shelves now! Original article by João Paulo Meneses
Gaming
Tak Chun operates 9 VIP tables at The Parisian Macao Local junket promoter Tak Chun Group is operating nine VIP gaming tables in The Parisian Macao, it announced this week. According to the junket operator its new VIP room, occupying some 8,257 square feet, was opened inside the city’s latest casino-resort on Tuesday, following the launch of the company’s other room containing 15 VIP tables in Wynn Palace last month. Prior to the opening of the new room in The Parisian Macao, Tak Chun had halted the operation of
its VIP room in MGM Macau. Tak Chun is not the only junket operator relocating resources to the new gaming project of Sands China Ltd. Another junket operator, Guangdong Group, said in an advertisement that its VIP room in Sands Cotai Central had been closed from August 31 and replaced by a new room in The Parisian Macao. In addition to Tak Chun and Guangdong, Suncity Group is operating a VIP business in Cotai’s latest integrated resort. K.L.
Business Daily Friday, September 16 2016 7
Macau Gaming Gaming revenues expected to see 5pct y-o-y fall in 2016
Better days to come Analysts predict gaming revenues to stabilise, sense soft recovery on the horizon. Nelson Moura nelson.moura@macaubusinessdaily.com
F
itch Ratings analysts are predicting a 5 per cent yearon-year decrease in gross gaming revenues for 2016, whilst projecting a soft single-digit recovery in the following years. The figures come in the wake of a 34 per cent year-on-year decline registered at the end of 2015 for the year. The estimates reveal a more optimistic prediction than the one presented in June by the Secretary for Economy and Finance Lionel Leong Vai Tac – who predicted that the MSAR would close out the year with gross gaming revenues of MOP200 billion (US$25 billion), thus forecasting a 13.35 per cent year-on-year decrease. In the first eight months of 2016 cumulative gaming revenues registered a 9.1 per cent decrease year-on-year, with August seeing the first year-onyear increase for the month - albeit only 1.1 per cent – in the wake of 26 consecutive months of fall.
Low expectations
The International ratings agency expects the recent opening of Wynn Palace and The Parisian Macao to boost market performance in the end of the year, and contribute to a more positive annual gaming performance in the territory. Nevertheless, analysts remain
conservative about the degree of the expected recovery. “While the last 14-month period, and August especially, gives us confidence that the market has found a solid footing we do not expect a V-shaped recovery and believe the market remains susceptible to the macroeconomic and regulatory conditions of Mainland China,” stated Fitch Senior Director Alex Bumazhny.
Analyst firm Wells Fargo reflects the cautious predictions, expecting recovery “to be flatter than prior rebounds”, and China’s economy to remain “weak”, noting that prior to the booms of 2010 and 2013 “a significant increase and acceleration in year-on-year and dollar credit growth” was seen – “which we’re not seeing here”, note the analysts.
Mass market saviour
With luxury goods sales expected to remain depressed in Mainland China due to the economic slowdown
and crackdown on corruption, and the competition of more VIP and junket-friendly markets such as the Philippines, Fitch expects the mass market to be the main force behind Macau’s recovery. “Increasing average length of stay by visitors in Macau is encouraging and we expect this trend to continue as the resorts on Cotai expand their entertainment and amenity offerings and transportation infrastructure develops further”, Bumazhny stated.
Nine years to regain peak
Fitch expects Macau to see “mid-single digit growth” in 2017, taking into account mass market growth and a VIP market decrease, stating that if growth maintains at that level the territory could return to the same gaming revenue peak registered in 2014 in nine years. The analyst group believes the conclusion of pending infrastructure projects such as the new Taipa ferry terminal and the rail link to Zhuhai Airport will make Macau more accessible to the mass market, while the multi-billion dollar expansions by gaming operators seeing only “little near-term incremental benefit” due to the “cannibalisation” created by the increased entertainment and gaming offer. In addition, the MSAR’s VIP clientele could be further lured away as “developing markets for VIP-gambling activity within the broader APAC, including the Mariana Islands, Vladivostok and the Philippines, all of which can afford to pay higher junket commissions given their lower tax structures”, could steal clientele.
8 Business Daily Friday, September 16 2016
Greater China In Brief Money laundering
Taiwan punishes bank linked to Panama Papers Taiwan regulators have ordered the removal of executives of a local bank linked to the Panama Papers scandal and barred it from opening overseas branches, saying not enough was done to prevent money laundering. Mega International Commercial Bank had already been hit with a US$180 million fine last month by US regulators after they uncovered “suspicious transactions” between its New York and Panama branches. Mega Bank had dealings with a Panamanian law firm at the centre of the scandal, the US Department of Financial Services said. Premier Li
Government will push standardization China will promote standardization to push industrial upgrades and foster new competitive edges, Chinese Premier Li Keqiang said on Wednesday. Standardization represents a country’s core industrial competitiveness and overall prowess and China will highlight standardization as part of its reform agenda, Li said while addressing the on-going 39th International Organization for Standardization (ISO) General Assembly. China will speed up the development of standards for emerging sectors, technology and business models to promote innovation and entrepreneurship while forcing out out-of-date production capacity, Li said.
Yuan’s internationalization
Redback awaits pride of place with dollar Rome’s aureus Lessons from history show that it could be a long march before the dollar’s primacy is threatened. Enda Curran
G
reat powers have great currencies. From Roman times to the U.S. today, empires and superpowers have minted currencies that dominated trade and projected their influence. Now, China wants its turn. The yuan on October 1 will enter the International Monetary Fund’s reserve currency basket alongside the dollar, euro, yen and pound, paving the way for increased global use. But decades of isolation from the world economy under Mao Zedong and rigid capital controls in place since China’s opening began in the late 1970’s mean China begins its push for a globalized currency from square one. The yuan is estimated at less than Canada’s dollar in central bank reserves, and under 2 per cent of global payments are settled in the unit. “Countries can’t simply snap their fingers and create a reserve currency,” said Jennifer Harris, a senior fellow at the Council on Foreign Relations in New York who previously advised on economics and markets in the U.S. government. “Where countries have ignored history’s advice and attempted to develop a reserve currency, their motivation is often more geopolitical than economic,” she said, pointing to the euro area’s strains. In China’s case, the geopolitical goal is clear: increased global influence. Soaring demand for dollars in the depths of the 2008 financial crisis saw officials
the world over seeking a U.S. currency lifeline from the Federal Reserve. As for economics, a yuan that’s universally usable would lock in Chinese financial reforms, lifting the purchasing power of the nation’s consumers.
“It would be sensible for China to slow down its dismantling of barriers to cross-border financial flows, even if it means slowing down the trend toward internationalization of the currency” Jeffrey Frankel, a professor at Harvard University’s Kennedy School of Government.
For the world economy, reduced reliance on the dollar would mean less exposure to cycles in U.S. economic policy, and diminished risk of sudden surges in demand for liquidity in a single, dominant reserve currency. China’s trading partners could benefit from the strengthened buying power of the country’s households, and a new influx of investment.
Giant awakes
While such shifts appear distant given the yuan’s starting point at the back of the pack, China has proved a quick study in recent economic history. The nation’s gross domestic product has swelled to about US$11 trillion from about US$150 billion at the start of the reform process, turning it from economic outcast to a driver of global growth. Entry into the World Trade Organization in 2001 accelerated global trade and Beijing’s stimulus after the 2008 crisis helped put a floor under the world economy. Ding Shuang, the head of Greater China economic research at Standard Chartered Plc in Hong Kong, forecasts the yuan’s share of global reserves will swell to match the pound and yen within five years. It’ll join the IMF’s special drawing rights (SDR) unit of account with the third-biggest allocation. The U.S. became the world’s biggest economy in 1872; it wasn’t until the middle of the next century that the greenback’s dominance was complete. The dollar has held the top spot since, seeing off threats from the yen and euro along the way. Communist Party leaders must also stomach a long list of potentially painful economic, legal and political reforms needed for the yuan to meet its potential. Domestic financial markets remain shallow and illiquid, and strict curbs remain on moving money into and out of the country. The nation’s nascent debt markets must keep developing in a way that will ensure there’s enough securities that reserve managers want to purchase. Policy missteps last year might have hampered that cause. Widespread
Urbanization
Authorities to promote prefab buildings China will promote prefabricated buildings in urbanization to conserve energy, improve safety and reduce excess capacity, the State Council announced yesterday. Prefab buildings made of steel, concrete and other factory-made components will be used more in new buildings in metropolitan areas such as the Beijing-TianjinHebei region, the Yangtze River Delta, the Pearl River Delta and cities with more than three million permanent residents, according to a statement. Enterprises are encouraged to enrich prefab building products, develop new technology and equipment and use more prefab products in construction. Investment
Top economic planner introduces new PPP projects China’s top economic planner introduced a new list of public-private partnership (PPP) projects involving 2.14 trillion yuan (US$320.7 billion) of total investment on Wednesday as part of its efforts to promote investment amid an economic downturn. The 1,233 projects cover energy, transportation, water conservancy, agriculture, forestry and public works, the National Development and Reform Commission (NDRC) said. They were selected from a total of 2,053 projects submitted by local governments, according to the NDRC. PPPs are collaborative projects between governments and private companies.
Real estate
Li Ka-Shing returns to Hong Kong housing with land deal
particularly on luxury residential segment,” said Ben Kwong, executive director of KGI Asia Ltd. “I don’t think it is a strong signal they are bullish on the property market as a whole.”
Last year, in a media briefing, Li said in Cantonese that the cost of “flour,” or land, now exceeds the price of the “bread,” or apartments.
Property rebound
Prudence Ho and Lisa Pham
Billionaire Li Ka-Shing (pictured) is getting back into Hong Kong’s housing market, with his property unit buying its first plot of residential land from the government in four years. Li’s Cheung Kong Property Holdings Ltd. will pay HK$1.95 billion (US$251 million) for the New Territories site, the Hong Kong Lands Department said in a statement Wednesday. Designated for private residential purposes, the site has a maximum gross floor area of 22,676 square meters. The purchase is a welcome boost for Hong Kong’s housing market, where large developers have been reluctant
to make high bids on land after home prices fell and sales slowed earlier this year, making way for smaller local companies and mainland Chinese firms. Sun Hung Kai Properties Ltd., Hong Kong’s largest developer, last month outbid 10 other companies with a HK$2.4 billion offer for a site in the same Sha Tin area, its first residential land acquisition since June 2015. Li, Hong Kong’s richest man, was until recently one of the biggest players in Hong Kong’s property market, buying 37 per cent of the land sold by the government in 2011, and a further 6 per cent the following year. Since then, he’s been largely absent. “It shows they are optimistic
“It shows they are optimistic particularly on luxury residential segment” Ben Kwong, executive director of KGI Asia Ltd.
There have been signs of a property rebound in Hong Kong, where prices have fallen from their all-time high in September. After slumping as much 13 per cent between September and March, home prices have risen in recent months and transaction volumes rose in August to the highest in 14 months. Prices are still more than 6 per cent below last year’s peak, according to Centaline Property Agency Ltd. Cheung Kong Property said as recently as last month that it wasn’t easy to buy land at “reasonable costs,” amid increasing competition from new entrants, especially in Hong Kong.
Tough times
Eighty-eight year old Li, who has spent billions of dollars in investments in European telecom assets since 2010, in an interview earlier this year, said Hong Kong is going through its toughest times in two decades amid a widening wealth gap. On the property side, he has often alluded to rising land costs in Hong Kong and China. Last year, in a media briefing, Li said in Cantonese that the cost of “flour,” or land, now exceeds the price of the “bread,” or apartments. Li’s fellow octogenarian billionaire Lui Che-Woo earlier this month said he’s having trouble reading the city’s property market these days. “Recently land prices have surged so much,” said Lui, who has spent more than 50 years as a property developer. “I really don’t know what’s happening right now.” Other bidders on the New Territories plot included Wheelock Properties Ltd., Vanke Property (Overseas) Ltd. and Sun Hung Kai Properties, the Lands Department said. Bloomberg News
Business Daily Friday, September 16 2016 9
Greater China Overcapacity
intervention including curbs on large shareholders selling their holdings shook confidence in the wake of an epic $5 trillion stock market rout, while a shock yuan devaluation further rattled investors. “China might have rising economic clout but, without these broader reforms, it will never gain the trust of foreign investors,” said Eswar Prasad, a professor at Cornell University in Ithaca, New York and author of “Gaining Currency. The Rise of the Renminbi.”
Reality bites
An example of the hurdles the yuan confronts can be seen in its role in President Xi Jinping’s ambition to extend China’s influence in the region. Officials who planned the Chinesebacked Asian Infrastructure Investment Bank initially envisaged the new lender as a vehicle that could promote yuan usage, people familiar with the matter said at the time. But since its launch, the US$100 billion AIIB’s initial projects - which include a motorway in Pakistan and a slum clearance project in Indonesia - have featured loans made in dollars. So it’s baby steps for now. The World Bank in August sold in China a rare type of bond denominated in the IMF’s SDR. That gels with China’s wider push to promote the unit as a dollar alternative and to open up the nation’s capital markets. “It looks like a small event, but it’s an opening-up event,” Yi Gang, a deputy governor at China’s central bank, said in an interview on state television. “The progress that has been made is much faster than I originally expected.” China isn’t the first would-be usurper of the dollar’s primacy. Japan’s yen was tipped for global status through the 1980s, until the market meltdown and lost decades of economic stagnation
sank such prospects. A similar narrative arose when the euro was launched, with some analysts forecasting the single currency would overtake the dollar. Now, some question whether the euro will endure the anti-unification sentiments rising on the continent.
Beijing to support debt-to-equity transfers for steel, coal firms
Safety first
Officials have insisted that the new debt-to-equity programme would not be used to prop up so-called “zombie enterprises”.
It’s also the case that a slow and steady approach to freeing up the yuan will suit China. For all the concerns over China’s debt mountain, one force of stability is that the obligations are overwhelmingly domestically funded. Rushing to open capital borders would see Beijing lose control over the flow of money into and out of the country. “It would be sensible for China to slow down its dismantling of barriers to cross-border financial flows, even if it means slowing down the trend toward internationalization of the currency,” said Jeffrey Frankel, a professor at Harvard University’s Kennedy School of Government. Such risks run both ways. If the yuan, also known as the renminbi, were to become a major reserve currency it could leave the world’s financial system even more vulnerable to an economic shock that’s made in China. That would add to trade linkages that already make regional neighbours vulnerable to Chinese cyclical swings and supplychain changes. Over a longer time horizon, China’s quest to promote its currency could be a tonic for a global economy in need of a jump start, said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “It’s an enticing prospect and could offer a fix for the world’s growth malaise,” he said, referring to the potential benefits of Chinese p u rc h a s i n g- p o w e r g a i n s a n d investment flows. “Alas, it isn’t bound to happen overnight.” Bloomberg News
China will support asset management companies converting debt into equity stakes for steel and coal firms, and provide credit support to competitive companies with overcapacity issues, the country’s top banking regulator said. Debt has emerged as one of China’s biggest challenges, with the total load rising to 250 per cent of gross domestic product (GDP) last year. The International Monetary Fund warned in June that China’s high corporate debt ratio of 145 per cent of GDP could erode economic growth if not addressed. In a bid to rejuvenate its economy, China is aiming to eliminate failing, debt-ridden firms, but it has also pledged to help “restructure” companies that are suffering severe operational challenges but remain basically competitive. Officials have insisted that the new debt-to-equity programme would not be used to prop up so-called “zombie enterprises”, those that would not survive without life support from local banks and governments. Speaking at a meeting of Chinese banks, Shang Fulin, head of the China Banking Regulatory Commission, said
such zombie firms which have long been loss making and are uncompetitive will be taken out of the market or restructured in an orderly way. Competitive firms which have a market and are in sectors hit by overcapacity will continue to get credit support, he added. Asset management companies will be supported, in accordance with legal and market principles, to convert debt to equity for steel and coal companies, Shang said. His comments were carried on the regulator’s website late on Wednesday. There were no details on what kind of support that would involve. Shang also said banks have an important responsibility to society to prevent financial risk and need to step up their risk management abilities. Chinese banks are struggling with rising non-performing loans, exceeding two trillion yuan (US$301 billion) and accounting for 2.15 per cent of total bank lending as of the end of May, according to July comments by a official. Banks need to put risk management in a more prominent position and “prevent credit risk contagion from expanding”, Shang said. Banks should drawn up lists of “zombie” firms and those affected by overcapacity, and strengthen stress tests and risk analysis on property loans, he added. Reuters
10 Business Daily Friday, September 16 2016
Greater China Development
G20 Hangzhou blueprint vows to unleash global potential During the meeting nine priority areas of structural reform were identified.
A
t a factory belonging to Hangzhou Wahaha Group, the beverage company’s self-developed robots are busy loading pallets with
products. Founded in 1987 in Hangzhou City, Zhejiang Province, the firm has invested heavily in technology. It has been involved in industrial robotic research and development since 2011. The company had 30 robots on its factory floors by the end of 2015, and another 100 will be installed this year.
“To stimulate innovation, governments should create a favourable environment through structural reform”
to health products and equipment manufacturing. Companies like Wahaha are ready for the favourable policies promised by the government, after leaders at the Group of 20 summit, which was held in Hangzhou on September 4-5, agreed to improve mid-to-long term growth potential through innovative growth. According to the G20 Blueprint on Innovative Growth, adopted at the event, it was agreed that governments should strive to create favourable environments for creativity and development, and entrepreneurship, and science and technology should be supported as they would lead to innovative growth and job creation. Cao Yuanzheng, chief economist with the Bank of China, said that in the past eight years, slow economic recovery after the 2008 financial
crisis has highlighted the necessity to shift from fiscal and monetary measures to innovation. The economic growth cycle is closely related to scientific breakthroughs. “Scientific revolution, which creates new industries and new products, can change the way we produce and live, hence, it has the potential to fuel long-term economic growth,” he said. Huang Wei, researcher on global governance with the Chinese Academy of Social Sciences, agreed that the world economy needs structural reform to overcome development obstacles and unleash growth impetus. “ T o s t i m u l a t e i n n o va t i o n , governments should create a favourable environment through structural reform,” Cao said. Structural reform was also discussed during the G20 summit. According to the G20 Blueprint o n I n n o vati v e G r o w th, n i n e priority areas of structural reform were identified: the promoting of
trade and investment openness; advancing labour market reform, educational attainment and skills; encouraging innovation; improving infrastructure; promoting fiscal reform; promoting competition and an enabling environment; improving and strengthening the financial system; enhancing environmental sustainability; promoting inclusive growth. Meanwhile, 48 guiding principles for these priority areas were endorsed by G20 members. Additionally, a common set of core indicators, comprising policy and outcome elements, was also endorsed to help monitor and assess the progress and effectiveness of G20 members’ structural reform measures as well as their ability to address structural challenges. “On the basis of the nine priority areas, different countries can choose their priorities according to their own national conditions,” said Huang Wei. “The indicators evaluate countries’ economic performances in different aspects, which will push countries to come up with effective reform measures,” she said, adding that the system will likely deliver results later this year. Xinhua
Cao Yuanzheng, chief economist with the Bank of China
“From receiving orders, to quality control and payment, so many procedures have been digitalized, cutting labour and improving efficiency,” chairman Zong Qinghou said. Technology will support the sustainable development of enterprises, said Zong. The company is currently expanding its business scope from beverages
President of China Xi Jingping during G20 Summit
Business forum
Mainland companies optimistic about Sino-Argentine co-operation China is Argentina’s second-largest trading partner and the main importer of the country’s agricultural products. Chinese companies participating in the on-going Argentina Business and Investment Forum expressed their optimism about future bilateral relations and commercial prospects. The forum, attended by around 1,900 national and foreign business leaders on September 12-15, is a pillar of Argentina’s strategy to regain status in the international business community. The forum “not only has an institutional character, it also focuses on entrepreneurship and practical issues,” said Yang Shidi, a representative from the China State Construction Engineering Corporation (CSCEC). “This seems to be a very positive signal from the new government to foreign investors,” he told Xinhua. The Argentine government and companies alike should “continue making efforts to make these initiatives come true,” including the simplification and reduction of bureaucracy as a “very useful step for Argentina to receive foreign investment,” he added. CSCEC, one of China’s most important construction firms, has been in Argentina for two years undertaking a number of projects, including a major irrigation project in the province of Entre Rios. Zhou Zhecheng, a representative from China’s heavy machinery
manufacturer Sany Group, told Xinhua that “Argentina is a large country with good opportunities for companies from China and other countries.” “We are trying to assist with local projects, especially in housing. We want to establish a plant for
Mauricio Macri, President of Argentina
pre-fabricated panels. We are negotiating with the province of Buenos Aires to help with housing construction,” he said. China is Argentina’s second-largest trading partner and the main importer of the country’s agricultural products. On Tuesday, Argentine President Mauricio Macri extended a broad invitation to those wanting to invest in the third-largest economy of Latin America.
“Your presence in this forum shows your help for the new phase our country is beginning. A phase of sanity, of respect for the rules, where we seek to improve day by day with clear objectives and perseverance to achieve them,” said Macri. In a recent interview with Xinhua, Macri said China is of “enormous importance” and “complementary” to his country and his administration will work to promote reciprocity and increase Argentina’s export of greater value-added goods to China. “We hope the talks will lead to mechanisms so that, based on this relationship, Argentina can balance the scales with more labour intensive products and at the same time find ways to generate greater tourism flows between Argentina and China,” he said. “China needs to work on its food security and Argentina is a very good partner for that. Argentina needs more energy and China is a very good partner for that,” he noted. “Argentina needs to significantly improve its infrastructure and China has been very successful in building new infrastructure. This complementarity should work very well,” said the president. Although the International Monetary Fund has predicted Argentina’s economy will contract by 1.5 per cent in 2016, Macri’s government is determined to seek investment to drive public works, modernize infrastructure and reverse social anger at the rising cost of public services and stagnating salaries. Xinhua
Business Daily Friday, September 16 2016 11
Asia Job data
Australian employment unexpectedly contracts The underemployment rate - people who want to work more - rose to a new all-time high of 8.7 per cent in August. Swati Pandey
A
ustralia’s jobless rate hit a three-year low in August, yet employment still dipped in the month and the swelling numbers looking to work longer hours pointed to plenty of spare capacity in the labour market. Yesterday’s data from the Australian Bureau of Statistics showed 3,900 net new jobs were lost in August, a sharp contrast to forecasts of a 15,000 gain. Even so, the jobless rate fell to 5.6 per cent as fewer people looked for work.
“You wouldn’t expect on these numbers, wages growth pushing back up anytime soon,” said Ben Jarman, Sydney-based economist at JP Morgan. “We still think there’s enough spare capacity in the market to keep inflation low and put pressure on the RBA to lower rates over time.” Debt markets imply a 30 per cent chance of another cut in rates by Christmas.
The RBA lowered its cash rate a quarter point to an all time low of 1.5 per cent in August, in part because spare capacity in the labour market was depressing wages and inflation. “The drop in the jobless rate suggests there’s enough activity in the economy to keep the labour market ticking over. On that alone, the RBA would not be cutting rates again,” said Michael Blythe, chief economist at Commonwealth Bank. “However, underemployment is still high and there’s little sign the drop in unemployment is generating stronger wages growth and thus inflation.”
While the unemployment rate in Australia has been nudging lower, the underemployment rate - people who want to work more - rose to a new all-time high of 8.7 per cent in August. Combined, the measures give an underutilisation rate of 14.3 per cent, above the levels seen during the global financial crisis. Such high spare capacity in the labour market limits the ability of workers to push for pay rises. Indeed, figures out last month showed wage growth stayed stuck at a record low of 2.1 per cent last quarter. Reuters
Key Points Jobless rate dips to 5.6 pct in Aug, from 5.7 pct Employment missed forecasts with fall of 3,900 Record levels of underemployment show lots of slack While full-time positions rose 11,500 in August, that was not enough to make up for a plunge in July. All of which could keep wages growth at record lows and feed through to muted demand and confidence, a worrying trend that might force the Reserve Bank of Australia’s (RBA) hand once again.
Private poll
Japanese business sentiment mixed in fragile recovery Exporters complain about sluggish external demand and a profit squeeze caused by the yen’s gains. Tetsushi Kajimoto and Izumi Nakagawa
Japanese manufacturers’ confidence bounced from a three-year low, while sentiment in the services sector hit its lowest since 2013 when the central bank began bold monetary stimulus, a Reuters poll showed, underscoring a fragile economic recovery. The monthly Reuters Tankan, which tracks the Bank of Japan’s (BOJ) quarterly tankan survey, also found that confidence at manufacturers and service-sector firms is expected to improve in December, easing pessimism about the economy’s outlook. The mixed results of the poll of 532 large- and mid-sized firms - carried out between August 30 and September 12 and in which 269 responded - follows recent data showing weak exports and output, and upbeat capital spending, as the BOJ prepares to hold a monetary policy meeting next week. The sentiment index for manufacturers rose to 5 from 1 in August, rising for the first time in three months, as confidence at exporters of cars and electronics rebounded from the prior
month’s lows. Compared with three months ago, the index was up two points, indicating a slight improvement in the headline big manufacturers’ index in the BOJ tankan due October 3.
Key Points Sept manufacturers’ sentiment index +5 vs +1 in August Service-sector index +14 in Sept vs +18 in August Business morale seen rising ahead Reuters Tankan strongly correlates with BOJ tankan In the survey, exporters complained about sluggish external demand and a profit squeeze caused by the yen’s gains. Many companies also voiced concerns about weak domestic demand. “The economy remains uneven. Automobiles are performing well but electronics are declining while construction has been poor,” a manager at a steelmaker said in the
survey, which companies answer anonymously. A machinery maker said the yen was higher than its assumed rate of 110 yen to the dollar and was concerned about consumer spending in the United States ahead of the presidential election in November, and in Britain following the Brexit vote. “In Japan, prices of goods have not stopped falling due to a delay in escaping from the deflationary mindset,” a manager at the machinery maker wrote in the survey. The service-sector index fell to 14 from 18 in August, as bad weather
pushed retailers’ sentiment to an 18-month low of minus 9 from 13 in August, a worrying sign of weakness in private consumption that constitutes about 60 per cent of the economy. It was seen bouncing to 22 in December. Compared with three months ago, the service-sector index was down three points, suggesting a slight deterioration in the big non-manufacturers’ sentiment in the BOJ tankan. With growth remaining weak and inflation slipping far away from the BOJ’s 2 per cent target, many analysts expect the central bank to ease again at its September 20-21 meeting, when it will review the effects of its monetary stimulus. Reuters
12 Business Daily Friday, September 16 2016
Asia Investigation
Singapore banks report Indonesians embracing tax amnesty to police Indonesians are among the biggest investors in Singapore’s property market. Saeed Azhar and Anshuman Daga
P
rivate banks in Singapore are sharing with local police the names of clients embracing an Indonesian tax amnesty, people aware of the matter said, a move that could undermine the amnesty and damage the banks’ business with their biggest client pool. Singapore’s Commercial Affairs Department (CAD), a police unit that deals with financial crime, told banks last year they must file a report whenever a client takes part in a tax amnesty scheme, the sources told Reuters. After initial resistance from the banks, worried they might lose clients, that message was reinforced this year by the Monetary Authority of Singapore (MAS), the country’s central bank, when Indonesia launched a tax amnesty aimed at wooing back some of the cash its wealthy citizens have stashed in Singapore, the sources said. “The moment the client tells you he’s participating in the amnesty, you have a suspicion that the assets with you are not compliant, and so you have to report to the authorities,” said a senior executive at a Singaporebased wealth manager. Singapore made tax evasion a criminal offence in 2013, and is
toughening up the implementation of the law after a money-laundering investigation into state-backed fund 1MDB in neighbouring Malaysia exposed how some of its banks failed to impose robust controls on suspicious money flows. Indonesians account for an estimated US$200 billion of private banking assets managed in Singapore, or 40 percent of the total. Both the Singapore police and MAS declined to comment. A second person with direct knowledge of the matter said banks had started sending to the police socalled suspicious transaction reports (STR) related to Indonesian clients who have participated in the amnesty regime. The clients should not be informed about the STR filing, the person said. The police website says it has used such filings to detect financial crime.
That means if there is any evidence of wrongdoing from these filings, authorities can further probe clients or banks. The fear of such scrutiny could deter Indonesians from considering the amnesty, which runs to March 2017 and has so far had a tepid uptake. The Indonesian tax office said 393 trillion rupiah (US$30 billion) of assets had been declared as of September 13, of which at least 30 trillion rupiah are in Singapore. Bank Indonesia governor Agus Martowardojo said late on Wednesday the bank’s modelling suggests the amnesty will secure just 11 percent of its targeted revenue this year.
Extra scrutiny
Indonesians are among the biggest investors in Singapore’s property market and use banks there to invest in currencies or regional stocks, encouraged by the strong legal framework and security of the Asian financial centre. Many moved money to Singapore
after attacks against ethnic Chinese businesses in Indonesia in 1998, when economic problems triggered riots and the fall of the Suharto government. The increased tax scrutiny in Singapore comes just ahead of the publication of a report on the island nation by the Financial Action Task Force (FATF), a global body that conducts regular evaluations of countries’ anti-money laundering standards.
‘Singapore made tax evasion a criminal offence in 2013’ One of the FATF guidelines states that a financial institution needs to report suspicious transactions when it suspects or has reasonable grounds to suspect that a client’s funds are proceeds of a criminal activity such as tax evasion. Ong-Ang Ai Boon, director of the Association of Banks in Singapore, said the lobby group had told banks that amnesty programmes were a useful tool for individuals to regularise their tax affairs with their local tax authorities. The association did not comment on the new filing requirements. “If there’s a red flag and we ignore it, that’s our problem,” a Singapore banker said. Reuters
Property
Malaysia to review proposal to let developers lend to buyers If the financing model takes off, it could boost the national property market. A. Ananthalakshmi
Malaysia is reviewing a move to allow property developers to lend to buyers, after concerns that it may cause a subprime mortgage crisis in a country that already has one of Asia’s highest household debt burdens.
“More unregulated lenders and subprime borrowers will compound the risk of a debt crisis”
bankers, economists and industrialists who feared it would worsen Malaysia’s financial woes and add to its alarmingly high household debt. “More unregulated lenders and subprime borrowers will compound the risk of a debt crisis,” Nazir Razak, chairman of CIMB Group, said in an Instagram post on Saturday, adding that it was a “dangerous idea.” The practice of subprime lending - providing loans to those with poor credit history at a higher than normal interest rate - eventually led to the 2008 global financial crisis.
Nazir Razak, chairman of CIMB Group Malaysia’s cabinet on Wednesday asked housing minister Noh Omar to review and improve the home financing policy proposed on September 8, that would give property developers money-lending licenses. Noh described the move as a “winwin situation for both developers and house buyers.” Home buyers would have an option to borrow from builders, who the minister said can charge interest rates of up to 18 per cent. The proposal was criticized by
hit an all-time high of 61.7 per cent in January. In July, the rejection rate was 57.3 per cent. “The scheme is likely to encourage unregulated lending to households with weak financial profiles, and could undermine the strength of the financial system if not implemented prudently,” Fitch credit rating agency said in a statement on Thursday, adding it could increase risks associated with rising household debt.
A boost for builders
If the financing model takes off, it could boost the Malaysian property market, as financing issues are largely responsible for the rising number of unsold units. Developers sold 39 per cent of new units launched in the first half of this year, down from 52 per cent in the second half of 2015, according Real Estate and Housing Developers Association (REHDA) data released on Wednesday. “The problem is (buyers) don’t have the capacity to find the margin of financing, “ REHDA’s president Fateh Iskandar Mohamed Mansor said. He said Malaysian banks typically offer to fund 75-80 per cent of the purchase and developers could use the new money-lending license to offer to finance the rest. Mah Sing Group Bhd, a leading property developer, is reviewing the feasibility of money-lending services though it has not had any requests from customers, Group Managing Director Leong Hoy Kum said in an emailed statement. 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
Business Daily is a product of De Ficção – Multimedia Projects
In Malaysia, the housing-loan rejection rate by banks is near a record high, meaning hundreds of thousands of would-be buyers could potentially turn to developers for financing. Household debt in Malaysia as a percentage of gross domestic product was at around 89 per cent - one of the highest in Asia. The controversial home financing policy proposal comes at a time when Southeast Asia’s third biggest economy is hurting from weak oil prices. Malaysia’s economic growth slowed for a fifth straight quarter in the June quarter. Central bank data shows banks’ rejection rate for loan applications for residential property purchases
Business Daily Friday, September 16 2016 13
Asia Infrastructure
Philippines approves tender for upgrade of clogged Manila airport To date, there are 12 airport, prison, road and rail projects worth more than 400 billion pesos in various stages of tender.
A
Philippine inter-agency panel chaired by President Rodrigo Duterte said yesterday it has approved for auction a 74.56 billion peso (US$1.57 billion) contract to overhaul Manila’s over-stretched international airport. The Southeast Asian nation is upgrading ageing roads, ports and airports to further stimulate one of the world’s quickest-growing economies, and to meet a long-overdue need for an infrastructure revamp to maintain competitiveness. The Ninoy Aquino International Airport (NAIA, pictured) development
is the first public-private partnership (PPP) project approved by the National Economic and Development Authority Board since Duterte assumed office on June 30. The winning bidder will improve and upgrade operational efficiencies both landside and airside at all four terminals -excluding air traffic services - to meet international aviation standards, the PPP Centre said in a statement. Economists have long said the Philippines is an attractive destination for investors, but its infrastructure once among the most advanced in the region - has become a logistical
headache as the economy and population expand rapidly. Airlines and passengers suffer chronic delays because of congestion at the airport, which served 36 million passengers last year, compared with its designed capacity of 31.5 million, data from the PPP Centre showed.
‘Economists have long said the Philippines is an attractive destination for investors, but its infrastructure has become a logistical headache’ C o n g l o m e ra t e s J G S u m m i t Holdings Inc and Filinvest Development Corp, as well as Megawide Construction Corp are interested in bidding for the project, officials at those companies said. To date, there are 12 airport, prison, road and rail projects worth more than 400 billion pesos under various stages of auction. The government plans to spend 860.7 billion pesos on infrastructure projects in 2017 under the proposed budget, 13 per cent more than this year. Reuters
In Brief PMI
Growth in New Zealand manufacturing eases Growth in New Zealand’s manufacturing sector slowed down last month, according to the latest performance of manufacturing index (PMI) released yesterday. The BNZ-Business New Zealand PMI for August was 55.1 on a scale where above 50 indicates expansion and below 50 contraction. The level was down 0.4 points from July, but still represented healthy growth and the sector had remained solidly in expansion in almost all months since October 2012, Business New Zealand executive director for manufacturing Catherine Beard said in a statement. Monetary authority
Singapore says trade woes spell more global uncertainty Growth in international trade is lagging global income for the first time in decades, spelling more uncertainty for the world economy, Singapore’s central bank chief Ravi Menon said yesterday. “I don’t know if it is a short term blip in the data ... or this is indicative of something more structural. And it is particularly of concern to Asia,” Menon, who is managing director of the Monetary Authority of Singapore, said at a seminar organised by the Milken Institute in Singapore. Auto industry
M&A
Japan’s Mitsubishi Corp targets majority stake in Lawson Lawson President Sadanobu Takemasu, who began his career at Mitsubishi Corp, said Lawson was looking for opportunities to expand overseas. Ritsuko Shimizu
Japanese trading house Mitsubishi Corp yesterday said it is considering raising its stake in convenience store operator Lawson Inc to make it a subsidiary, in a deal worth about 140 billion yen (US$1.37 billion). Lawson is trying to claw back market share in the Japanese market, after a merger between FamilyMart Co and Uny Group Holdings earlier this month knocked the Tokyo-based chain down from second- to thirdbiggest by number of stores. Mitsubishi was planning to raise its stake in Lawson to just over 50 per cent, a source with knowledge of the talks told Reuters. In separate statements, both companies said Mitsubishi was considering a takeover, but no decision had been made.
With a 33.4 per cent stake as of earlier this year, Mitsubishi Corp, Japan’s largest conglomerate whose businesses range from steel processing to salmon farming, already is Lawson’s biggest share holder. Increasing its stake to 50 per cent would cost Mitsubishi about 140 billion yen based on Lawson’s current market value of around 792 billion yen as of Wednesday’s close, plus a premium. Lawson stood to gain from Mitsubishi Corp’s vast food processing and distribution businesses, the source said, as domestic convenience stores battle with larger supermarket chains to draw in a wider range of consumers, including elderly people. “The biggest benefit of an increased presence by Mitsubishi Corp would be that they could help us strengthen our product appeal,” said the source,
declining to be named due to the sensitivity of the subject. To better compete in the consolidating convenient store sector, Lawson has been setting up joint ventures with smaller regional convenient store chains to expand its presence around the country.
Key Points Deal would be worth about US$1.4 bln Convenience store consolidation means stiffer competition Mitsubishi would raise stake to just over 50 pct - source
Japan auto lobby slashes sales forecast Japan’s auto industry lobby yesterday slashed its forecast for new vehicle sales by 8 per cent to 4.845 million for the current business year citing a delay in the sales tax hike originally scheduled for next April. The new figure would represent a 1.9 per cent fall from the last fiscal year that ended in March 2016, the Japan Automobile Manufacturers Association said. It had previously forecast a 6.5 per cent rise to 5.258 million vehicles. The government decided in June to postpone the sales tax hike, to 10 per cent from 8 per cent, by 2-1/2 years to October 2019. Commerce
In an interview with Reuters in June, Lawson President Sadanobu Takemasu, who began his career at Mitsubishi Corp, said Lawson was looking for opportunities to expand overseas. The company operates stores in China, Indonesia and other countries but has been struggling to replicate its domestic success overseas. Reuters
Vietnam, Cuba seek to expand trade links Cuba and Vietnam held a business forum in Havana on Wednesday aimed at expanding economic and trade collaboration between the two nations. Vietnamese Economy and Planning Minister Nguyen Chi Dung led a delegation to attend the forum, accompanied by entrepreneurs from the sectors of tourism, transportation, industry, logistics services, telecommunications and trade, among others. At the forum, Nguyen praised Cuba’s new foreign investment law as it favours the settlement of Vietnamese entrepreneurs in the Caribbean island. Cuban Foreign Trade and Investment Minister Rodrigo Malmierca expressed his hope that the two countries would expand their cooperation.
14 Business Daily Friday, September 16 2016
International In Brief Car sales
Low-cost brands lifted by southern Europe demand European car sales rose 9.5 per cent last month, regional industry association ACEA said yesterday, with recovering southern markets benefiting Fiat and low-cost brands. Registrations rose to 855,466 cars in August, a seasonally slow holiday month, from 781,575 a year earlier, the Brussels-based Association of European Carmakers said in a statement. Fiat Chrysler posted the biggest gain among major carmakers with a 20 per cent sales increase, helped by a similarly rise in Italy and nearly 15 per cent growth in Spain. Spanish-based budget brand SEAT recorded an 18 per cent increase in European registrations, contributing to parent group Volkswagen’s 6.3 per cent advance. Presidency veto
Venezuela slams Mercosur members Venezuela Wednesday criticized a decision by members of the Southern Common Market (Mercosur) to veto its turn to take over the presidency of the South American trade bloc. “This decision by the triple alliance of Argentina, Paraguay and ... Brazil violates the legality of the organization,” Venezuelan Foreign Affairs Minister Delcy Rodriguez posted on Twitter. Rodriguez also said the government would soon respond to the veto in further details. Mercosur is a sub-regional bloc established in 1991 to promote free trade and the movement of goods, people, and currencies. Its full members are Argentina, Brazil, Paraguay, Uruguay and Venezuela.
Monetary policy
Swiss central bank keeps rates on hold The SNB still has leeway to cut rates further, with economists saying they could go as low as minus 1.25 per cent. Catherine Bosley
T
he Swiss National Bank (headquarters pictured) maintained its ultra-loose negative interest-rate policy and pledged to intervene in currency markets if needed, saying the Brexit vote has clouded its view of the global economy. Switzerland’s central bank, which for years has been combating an overvalued currency, left its deposit rate at a record low of minus 0.75 per cent, as forecast by all economists in a Bloomberg survey. It vowed to keep “active” in the foreign exchange market as necessary. No press conference is scheduled. “The vote for the U.K. to leave the European Union has caused considerable uncertainty and makes an assessment of the global economic outlook more difficult,” the SNB said in a statement yesterday. “As regards the global economy, the risks remain to the downside, owing to numerous structural problems.” The SNB, led by Thomas Jordan, is one of several central banks taking a wait-and-see approach after Britain’s vote to leave the European Union, though it did sell francs in the immediate aftermath of the referendum. Market volatility picked up again
over the past week as the Federal Reserve weighs the case for a U.S. interest-rate increase at a time when the efficacy of stimulus in Europe and Japan is unproven.
“The vote for the U.K. to leave the European Union has caused considerable uncertainty and makes an assessment of the global economic outlook more difficult” Swiss National Bank statement
“They’ve still got their focus on the ECB, which hasn’t gone for big changes lately either,” said Markus Schmieder, an economist at Wellershoff & Partners in Zurich. “As there still does not seem to be any
will within the SNB to let the Swiss franc appreciate, they will continue to wage interventions. They’ll hope that there are not more crises like Brexit.” The SNB’s policy of negative rates and a pledge to buy foreign currencies has been in force since early 2015, when it stunned investors by giving up its minimum exchange rate in response to the prospect of the ECB beginning to buy sovereign bonds. The SNB’s switch caused the franc to shoot up to 85.17 centimes per euro, it’s strongest level on record. The currency has depreciated since then, and it has traded weaker than 1.08 per euro since June. That’s welcome news for the country’s exporters. The SNB still has leeway to cut rates further, with economists saying they could go as low as minus 1.25 per cent before cash hoarding sets in. While anecdotal evidence suggests more companies are purchasing insurance for storing cash, Swiss policy makers have said there is no indication of a banknote accumulation. Swiss economic growth is forecast to accelerate this year, thanks in part to better demand in the euro area, the country’s biggest trading partner. Momentum proved unexpectedly robust in the second quarter. Still, the strong franc is pushing down import costs. Last year, prices plunged at the fastest rate since 1950. Moreover, the fallout from the U.K.’s decision to leave the 28-country European Union might still weigh on the region’s prospects. Bloomberg News
Lack of candidates
World Bank chief Kim heads for second term Current World Bank Group President Jim Yong Kim is the only candidate that has been nominated as the bank’s next leader, the World Bank announced Wednesday, paving the way for him to serve a second term. As announced on August 23, the period for submitting nominations for the top position of the World Bank Group closed Wednesday evening, the World Bank said. In accordance with the procedures, the executive directors of the World Bank will meet with Kim in Washington, “with the expectation of completing the selection process by the 2016 Annual Meetings” in October, the bank said. Bailout
IMF board approves loan to Ukraine The International Monetary Fund said its board on Wednesday approved a long-awaited loan disbursement to Ukraine of about US$1 billion after a review of the country’s bailout program. The IMF has agreed to pump US$17.5 billion into Ukraine’s economy in a four-year bailout, releasing the funds in instalments subject to the government making progress on economic and anti-corruption reforms. To date, Ukraine has received about US$7.62 billion in the program launched in March 2015. The latest disbursement was less than the roughly US$1.7 billion anticipated, after some reforms required by the fund had stalled.
Private index
Ranking shows Europe has more sustainable cities than America Zurich and Singapore are doing the best job on sustainable living, according to the index. Andre Tartar
For all the conveniences that cities have to offer - from shorter commutes to neighbourhood farmers markets - many are failing to meet the challenges of sustainable development. North America’s largest cities fare poorly, with not a single one in the Top 20 of the second annual Sustainable Cities Index published by Arcadis, an Amsterdam-based global engineering and consulting company. The index was produced in partnership with the London-based Centre for Economic and Business Research and covers 100 cities zig-zagging the globe, from Tokyo (45th overall), which houses a tenth of Japan’s population at about 14 million, to 400,000-strong Canberra (18th). The full list was ranked according to
32 indicators split into three overarching categories: business conditions and economic health; the environment; and quality of life. Only three cities ranked among the Top 20 for all three dimensions: Stockholm (3rd), Vienna (4th), and Amsterdam (11th). Zurich received high marks for its campaign to lower energy usage to a third of the national average and build a worldclass public transit system, but was dinged for its high cost of living. The bottom third of the list is dominated by fast-growing mega-cities in developing nations, including six in China and five in India, including Kolkata - a city heaving under 14 million people with many living in slums - at the very bottom rung. “The rate of urbanization in the developing world is quite extreme,”
said John Batten, Arcadis global cities director, “You look at China: buildings first, people second in terms of priorities of urbanization. Now you find cities in Asia that are sort of retroactively addressing air quality and water contamination.”
“You look at China: buildings first, people second in terms of priorities of urbanization.” John Batten, Arcadis global cities director
Meanwhile North American cities, designed primarily for car use, are hampered by high greenhouse gas emission levels, Batten said. Other disadvantages included elevated obesity rates, as well as affordability and work-life balance concerns, especially in cities like San Francisco (39th overall). Bloomberg News
Business Daily Friday, September 16 2016 15
Opinion Business Wires
Bangkok Post The state will delay a plan to dispose of its rice stocks, at least for while, to curb any adverse impact on rice prices as the new supply from the annual main crop prepares to enter the market. According to Duangporn Rodphaya, director-general of the Foreign Trade Department, Prime Minister Prayut Chan-o-cha told relevant authorities yesterday to closely monitor rice prices before calling a new round of rice auctions. The premier said accelerated sales of rice in large amounts could hit domestic prices while the global market is likely to be inactive because of higher production.
A better economic plan for Japan
Philly Voice Millennials are not the same as Boomers – or even Gen-Xers – when it comes to how they like to spend their money at casinos. For starters, they’re not really gamblers. That’s according to a study done by Stockton University, outside of Atlantic City. Just 21 per cent of Millennials – under the age of 35 – cited gambling as an important draw. By contrast, 42 per cent of those above the age of 35 cited gambling as important, according to a study by Jane Bokunewicz, assistant professor of Hospitality and Tourism Management Studies. Millennials reported spending only 8.5 per cent of their total budget on gambling.
The Straits Times Almost nine in 10 small and medium-sized enterprises (SMEs) in Singapore say their immediate priorities of handling daily operations are more important than mapping out a long-term business strategy. At the same time, in a new survey, they report having had to shelve measures such as taking the business offshore, replacing ageing infrastructure and developing equity partnerships because of a lack of time or budget. The SMEs also said they have been unable to effectively come up with solutions to build big-data capability for business analysis and development, and to formalise succession planning.
The Star Property sales performance experienced a significant decrease to 39 per cent in the first half of 2016 compared with 52 per cent in the previous corresponding period, according to the Real Estate and Housing Developers’ Association Malaysia (Rehda). In its property industry survey for the first half of 2016, Rehda said two to three storey terrace sales dominated the market share by more than half out of the total sales reported. The survey revealed that half of the residential units launched were priced below RM500,000, with launches of properties below RM200,000 on the hike.
New Zealand Herald A group of Aucklanders are accused of providing false information or withholding details to get more than NZ$40 million of property loans and a banker who allegedly approved some of the lending has also been charged by the Serious Fraud Office. Four people - three men and a woman - have been charged with obtaining by deception and were granted name suppression when they appeared in the Auckland District Court on Tuesday. The defendants, in total, allegedly obtained more than NZ$40m of property loans by deception, the Serious Fraud Office said today.
I
t’s been a quarter-century since Japan’s asset bubble burst – and a quarter-century of malaise as one “lost decade” has followed another. Some of the criticism of its economic policies is unwarranted. Growth is not an objective in itself; we should be concerned with standards of living. Japan is ahead of the curve in curbing population growth, and productivity has been increasing. Growth in output per working-age person, especially since 2008, has been higher than in the United States, and much higher than in Europe. Still, the Japanese believe they can do better. I agree. Japan has problems on both the supply and the demand side, and in both the real economy and finance. To address them, it needs an economic program that is more likely to work than the measures policymakers have recently adopted, which have failed to achieve their inflation target, restore confidence, or boost growth to the level desired. For starters, a large carbon tax, if accompanied with “green finance,” would stimulate enormous investment to retrofit the economy. Almost surely, this stimulus would exceed the contractionary effect of money being taken out of the system and the negative wealth effect of the decreased value of “carbon assets.” The adverse wealth effect from the decrease in the value of carbon assets would be small; and, with the capital stock badly out of sync with the new price system, the investment unleashed would be large, unless there were bottlenecks in closing the gap. In that case, the money generated by the tax could be used to reduce government debt; otherwise, it could be used to finance investments in technology and education – including supplyside measures to improve the productivity of Japan’s service sector. These expenditures could simultaneously stimulate the economy in ways that would finally pull it out of deflation. Many outsiders worry about Japan’s debt, which is easy to service at the low interest rates prevailing today, but would not be if rates increased to more normal levels. While I don’t see that happening anytime soon, Japan could undertake two policies to inoculate itself against such concerns. First, it could exchange some of its debt for perpetuities, bonds that are never repaid, but pay a (small) interest rate each year. This would shift the risk entirely off the government’s books. Some might worry that this would be inflationary; but in Japan’s upside-down economy, inflation is exactly what’s needed. I believe worries about a sudden increase in interest rates are greatly overblown; but, out of an abundance of caution, the government could exchange say 5 per cent of its debt every year, unless and until excessive inflationary pressures appeared. Alternatively, the government could exchange the debt for non-interest bearing money – the longfeared monetization of government debt. Even if monetary finance was more likely to boost inflation than the exchange of debt for interest-bearing
“
Joseph E. Stiglitz a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute
perpetuities, this is hardly an argument against it: it is only an argument for going more slowly. The second way Japan could protect itself from an interest-rate spike starts from the recognition that a large share of the money the government owes it owes to itself. Many on Wall Street don’t seem to understand that what matters is the net debt – what the government owes to the rest of society. If the government repaid the money it owes to itself – netting it out, in effect – no one would know the difference. But those on Wall Street who look only at the headline debt-to-GDP ratio would suddenly feel better about Japan. If after all of this, there is still evidence of a lack of demand, the government could reduce its consumer taxes, increase investment tax credits, expand programs to help low- and middle-income households, or invest more in technology and education, financing all of this by issuing money. Again, old economics would worry about inflation; but Japan wants those “fears” to come true. Japan does have more than a demand-side problem. Data on output per hour worked suggest a supply-side problem, most clearly manifested in the service sector, where the impressive ingenuity seen in so many manufacturing industries typically is nowhere in evidence. A natural niche for Japan would be technology developments in the service sector – such as the development of diagnostic instruments in the health-care industry. Prime Minister Shinzo Abe, however, has taken a very different approach, supporting the Trans-Pacific Partnership trade deal with the US and ten other Pacific Rim countries. Abe believes that the TPP would force needed reforms in domestic agriculture (though, interestingly, no one in the US thinks it would help the US move away from its highly distortionary agricultural policies). In fact, such reforms would have a miniscule effect on GDP, simply because agriculture is a very small part of output. Nonetheless, such reforms remain desirable and provide another arena in which young Japanese could show their ingenuity (though the TPP is not the best way to bring that about). On the other hand, Abe is right to pursue policies to integrate women more fully and equally into the labour force. If successful, such measures should provide a boost to both productivity and growth. Even after a quarter-century of stagnation, Japan remains the world’s third-largest single economy. Policies that can help raise standards of living there will stimulate demand and growth elsewhere in the global economy. Equally important, just as it has shared its innovative goods and technologies with the world, Japan could end up exporting successful policies, with the same or similar measures increasing standards of living in other advanced countries as well. Project Syndicate
Policies that can help raise standards of living there will stimulate demand and growth elsewhere in the global economy.
”
16 Business Daily Friday, September 16 2016
Closing Politics
Japan’s largest opposition party elects first female leader
Japan’s main opposition Democratic Party (DP) elected its first female leader yesterday as 48-year-old former TV newscaster Renho Murata (pictured) won the leadership election by a large margin. Renho, acting president of DP, won 503 points out of a total of 849 election points, based on votes cast by the party’s Diet lawmakers and party-endorsed candidates for national elections yesterday as well as postal votes sent earlier by local lawmakers, lay members and
registered party supporters. Her two opponents, former foreign minister Seiji Maehara and lower house lawmaker Yuichiro Tamaki, won 230 and 116 points respectively. Renho, former model and TV newscaster, has been a Upper House lawmaker representing Tokyo since 2004 and served for some time as minister for administrative reform during the rule of the Democratic Party of Japan (DPJ) between 2009 and 2012. The Democratic Party was established in March through the merger of the Japan Innovation Party and the Democratic Party of Japan. Xinhua
Infrastructure project
Britain approves Hinkley Point nuclear deal China’s one-third stake in the deal was sealed last year on a state visit to Britain by Chinese President Xi Jinping. Katherine Haddon
B
ritain’s government finally gave the green light to the controversial Chinese-backed Hinkley Point nuclear power plant yesterday - but with new conditions to address security concerns. China has a one-third stake in the Hinkley Point project, and analysts have warned that Britain would have risked its relations with the world’s second-largest economy if it cancelled. The announcement came two months after Prime Minister Theresa May ordered a review of the £18 billion (US$24 billion) deal brokered under her predecessor, David Cameron.
The board of French state-owned power company EDF had already approved its participation in the project in southwest England in July when May’s government said it wanted to review it. “Having thoroughly reviewed the proposals for Hinkley Point C, we will introduce a series of measures to enhance security and will ensure Hinkley cannot change hands without the government’s agreement,” Britain’s Business Secretary Greg Clark said in a statement. “Consequently, we have decided to proceed with the first new nuclear power station for a generation”. A separate government statement said there had been a “revised agreement with EDF” and that new laws would be introduced to govern future
foreign investment in critical British infrastructure. “Existing legal powers, and the new legal framework, will mean that the government is able to intervene in the sale of EDF’s stake once Hinkley is operational,” the statement added. May called French President Francois Hollande on Wednesday evening to tell him that the British government had approved the project, the French presidency said.
Key strategic deal
Critics of the project have argued that the price for power generated by Hinkley is too high and that the technology is out of date. May’s joint chief of staff, Nick Timothy, made his scepticism over the security aspects of China’s involvement in the project clear last year. It was “baffling” that Britain had welcomed investment by stateowned Chinese companies given fears they could build weaknesses into IT systems, “which will allow
Hinkley Point plant. Bloomberg
them to shut down Britain’s energy production at will,” Timothy wrote in a blog. Campaigners against the project were due to hand in a 300,000-signature petition to May’s Downing Street office later on Thursday with environmental watchdog Greenpeace. “Consumers can tell that the project may be unconstructable, requires vast subsidies and would generate electricity too expensive to use,” Stop Hinkley spokeswoman Sue Aubrey said in a statement. Criticism has focused on the growing difference between an electricity price guarantee for EDF, subsidised by the British taxpayer, and current falling energy prices. China’s one-third stake in the deal was sealed last year on a state visit to Britain by Chinese President Xi Jinping. Under the deal, Beijing’s state-run China General Nuclear Corporation (CGN) is set to finance £6.0 billion of the costs, with EDF providing the remainder. The Hinkley facility will not be operational until 2025 - two years later than originally planned when the deal was first unveiled. The pair also reached agreement on a partnership to develop nuclear power stations at Sizewell, on the eastern English coast in Suffolk, and at Bradwell in Essex, southeastern England. The Financial Times reported that Downing Street had been particularly concerned about the deal to build plants at Sizewell and Bradwell. The latter would be led by CGN using its own technology. The newspaper quoted an unnamed senior industry figure as saying that the green light for Hinkley would likely be conditional on new “scrutiny or oversight” of Bradwell. AFP
Virtual reality
Bank’s ownership
Suu Kyi visit
Sony aims to extend VR content to films
Vietnam says may allow bigger Obama lifts Myanmar foreign stakes in banks sanctions
Sony Corp aims to extend content for its dedicated virtual-reality (VR) headset into non-gaming areas such as TV and film, and has no plans to join the burgeoning market for smartphone-based headsets, its gaming division chief said. Andrew House, Sony Interactive Entertainment Inc’s chief executive, said in an interview yesterday he was already in talks with media production companies to explore possibilities for the PlayStation VR headset, due for release on October 13. House’s gaming division has been one of Sony’s main sources of profit in recent years as sales of TV sets and other once-core electronics goods decline in the face of price competition. As smartphone gaming now encroaches on the console market, Sony has opted to seek growth through innovations such as VR. However, analysts have said non-gaming content is necessary to broaden the appeal and profitability - of VR. Sony’s VR headset works in conjunction with its PlayStation 4 games console and will retail at a price lower than Facebook Inc’s Oculus Rift and HTC Corp’s Vive headsets that require more expensive personal computers to run. Reuters
Vietnam could raise its cap on foreign ownership in domestic banks to above 30 per cent and keep the exchange rate stable to help boost foreign investment, state television quoted the prime minister telling investors yesterday. “The prime minister may allow foreign investors to own more than 30 per cent of the registered capital in banks,” Vietnam Television cited Nguyen Xuan Phuc as telling representatives of 16 investment funds in Hong Kong. Phuc’s remarks about creating more space for foreigners in the banking sector come after Moody’s Investors Service started a review towards upgrading credit ratings of seven Vietnamese banks. Moody’s said this month improvements in their credit profiles, asset quality, profitability and stability in funding and liquidity were expected. Vietnam will not devalue its currency, the dong, to stabilise the economy and stimulate investors to pour funds in the country, Phuc was quoted as saying. Vietnam’s crowded banking sector has been shaken up in recent years, with stricter lending and debt classification, forced takeovers, and numerous bankers jailed for fraud. Reuters
President Barack Obama said he would lift economic sanctions on Myanmar after meeting at the White House on Wednesday with the country’s de facto leader, Aung San Suu Kyi, a former political dissident whose government took power in March. “The United States is now prepared to lift sanctions that we have imposed on Burma for quite some time. It’s the right thing to do,” Obama said after the meeting, calling the country’s on-going transition to democracy a “good news story.” U.S. companies have been watching closely for any sign they’ll get more access to the fastgrowing Southeast Asian nation, known as Burma before its former military rulers changed the name to Myanmar in 1989. Business groups in the U.S. have complained that sanctions hinder them from competing with major rivals in an economy that the Asian Development Bank projects will expand 8.4 per cent this year and 8.3 per cent in 2017, making Myanmar Asia’s best performer. “We are very interested in successful businesses” entering Burma, Suu Kyi said after the White House meeting. “We think our country is ready to take off.” Bloomberg News