Golden Week drives up average occupancy of local hotels Tourism Page 2
Tuesday, October 11 2016 Year V Nr. 1148 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
Transport
Deals
Politics
Economics award
Chinese debt
Gov’t tightens regulations on vehicle inspections Page 4
Melco signs deal with TurboJET for tickets Page 6
HK activists and legislative council member denied entry to MSAR Page 2
Contract theory fathers get Nobel Prize for Economics Page 16
Cabinet unveils guidelines for debt-for-equity swaps Page 16
19 ways to fix you Politics
Chinese Premier Li Keqiang arrived in the MSAR yesterday, announcing that the Central Government has prepared 19 measures to support the city’s economic development. The measures, which are yet to be announced, will ensure the MSAR’s long-term development and prosperity as well as helping local residents, says the official. The Premier will take part in the first day of the 5th Ministerial Conference of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries today. Page 3
Iao Kun Q2 loss at US$125.8 mln
Gaming Junket operator Iao Kun Group Holdings Company Ltd has revised its second quarter results, including a noncash provision for doubtful accounts amounting to US$21.5 mln. Added to other losses, the group is looking at US$129.3 mln in net losses for H1, in part due to markers receivable at an ‘elevated risk of collectability’. Page 7
Bid for transparency
Budget The city’s Executive Council has announced a bill to amend the MSAR’s current budget framework, aiming to implement it in the 2017 fiscal year. Changes mandate half-yearly budget execution reports submitted to the Legislative Assembly and quarterly reports of its budget execution of the Public Investment Plan. Page 2
U.S.: No progress on universal suffrage
The U.S. Congressional-Executive Commission on China (CECC) has urged Chinese and local governments to set a timeline for universal suffrage for elections for the Chief Executive and the Legislative Assembly. The comments come in an annual report published by the committee, stating ‘no progress’ has been made towards these goals. The MSAR government says the report is ‘groundless’ and ‘baseless’.
Service sector continues to expand
Elections Page 5
HK Hang Seng Index October 7, 2016
23,851.82 -100.68 (-0.42%) Worst Performers
Bank of East Asia Ltd/The
+2.00%
Sun Hung Kai Properties Ltd
+0.26%
Li & Fung Ltd
China Mengniu Dairy Co Ltd
-1.59%
MTR Corp Ltd
+0.95%
China Life Insurance Co Ltd
+0.23%
Sands China Ltd
-1.97%
China Resources Land Ltd
-1.46%
China Shenhua Energy Co
+0.63%
New World Development
+0.20%
CNOOC Ltd
-1.90%
Cheung Kong Infrastructure
-1.44%
Cheung Kong Property
+0.53%
AIA Group Ltd
Power Assets Holdings Ltd
-1.88%
China Overseas Land &
-1.18%
Hong Kong Exchanges &
+0.29%
Hengan International Group
Galaxy Entertainment Group
-1.73%
Want Want China Holdings
-1.18%
+0.19% +0.08%
-2.96%
24° 28° 24° 28° 24° 28° 25° 29° 25° 29° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
China’s reform China’s service sector continued to expand but at a slightly slower pace in September, a private survey showed Saturday. Despite the Caixin China General Services PMI being slower in September than in the previous month, the general situation of the sector remains solid. Page 8
2 Business Daily Tuesday, October 11 2016
Macau In Brief Social Welfare
Pensions, disability subsidy disbursed this month The SAR Government will spend MOP670 million (US$83.8 million) this month allocating pensions to the elderly and disability subsidies, the Social Welfare Bureau announced yesterday. Disability subsidies, amounting to some MOP110 million, will be distributed on October 12, benefiting 9,800 residents. Government pensions for the elderly will be disbursed on October 13, providing assistance to nearly 70,000 elderly - who will receive MOP8,000 per person, amounting to MOP560 million in total.
Law Some changes to hopefully be implemented next year
Executive Council proposes budget law amendments Kam Leong kamleong@macaubusinessdaily
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he Executive Council announced a bill to amend the city’s current budget framework law last Friday, aiming to get parts of the proposal implemented for the 2017 fiscal year. The new bill mandates principles and rules for the organisation, announcements, amendments and execution of the MSAR budget. In addition, new principles and rules for budget transparency, balancing the budget, sustainability, the accounting system plus efficiency, economy and effectiveness are all addressed in the bill. The city’s current budget framework law has been in place and remained unchanged for over 32 years.
The amendments to the law were initiated in July 2012. One of the major proposed changes to the law mandates that the MSAR government must submit a report on their half-yearly budget execution and other related accounting information to the Legislative Assembly before August 10 every year, in addition to a quarterly report on its budget execution of the Public Investment Plan (PIDDA). The Executive Council explained that this change aims to strengthen the legislature’s supervision and it’s follow-up on the government’s execution of its fiscal budget. Currently, government departments only need to submit an annual budget execution report to the Assembly by the end of every year. Another major proposed amendment is to regulate that no more than
three per cent of annual budgeted expenses can be reserved for emergency expenses, which is different from the current regulation that doesn’t place a cap on the amount of budget reserved for such expenses. On the other hand, the new bill proposes to ban the transfer of allocated budgets between government departments or between public projects. It also stipulates that any changes or increases to the total allocated expenditure for a fiscal year will have to first be approved by the city’s legislators. According to the Council, the government proposes to apply the new rules regarding the submission of interim reports and quarterly reports, and the prohibition of transferring budgets, for the 2017 fiscal year, providing the bill is green-lighted by the Legislative Assembly.
Tourism Smoking ban
450 smoking violations in casinos as at Q3 The Health Bureau filed 5,111 cases of illegal smoking for the first nine months of the year, with most cases occurring in Internet cafes, parks and amusement game centres. For gaming venues, in particular, the Bureau conducted 368 inspections and filed 450 cases of illegal smoking. Of these 450 cases, 420 smokers were men and 30 were women. A total of 352 cases related to tourists, while only 96 related to local residents and two to non-resident workers.
Social housing
Suggestions and comments welcome The Housing Bureau has installed suggestion boxes in the city’s social housing complexes to receive tenants’ comments and applications for installation works, the Bureau announced in a press release yesterday. To apply for installation works, tenants need to fill out an application form and put the form inside the box. The bureau hopes this process will take less time than if tenants approach the Bureau directly for applications. At present, there are more than 40 social housing complexes in Macau, with around 20,000 residents.
Visitor arrivals total over 1.15 mln over the seven days Hotel occupancy up in Golden Week
average room rates down by 1.2 per cent year-on-year to MOP1,700 for the holidays.
The overall increase in visitor arrivals during the National Holiday Golden Week between October 1 and 7 drove up the average occupancy rate of local hotels, according to the official data released by the Macao Government Tourism Office (MGTO). During the seven days, the overall average occupancy rate of local hotels jumped by 5.1 percentage points year-on-year to 92.3 per cent, with that of five-star hotels reaching the highest at 94.4 per cent, a growth of 5.5 percentage points year-on-year. In addition, local four-star hotels saw their occupancy up by 3.9 percentage points year-on-year to 88.3 per cent, while occupancy at threestar hotels also rose by 5.7 percentage points year-on-year to 93.1 per cent. Over the holiday period, the average room rates of five-star hotels increased 2.1 per cent year-on-year to MOP2,033 (US$254) per night, while that of four-star hotels rose to MOP1,234 per night, a growth of 2.8 per cent year-on-year. However, average room rates at three-star hotels recorded a decrease of 9.9 per cent year-on-year in the seven days, down to MOP1,211 per night. The drop in three-star hotel room rates dragged the city’s overall
Visitors up
According to MGTO, visitor arrivals for Golden Week grew by 6.9 per cent year-on-year to over 1.15 million.
Of the total, 84 per cent, or nearly 970,000, were from Mainland China, up by 6.9 per cent year-on-year. Meanwhile, the city also welcomed more tourists from Taiwan and Hong Kong, with numbers increasing by 15.7 per cent and 12.5 per cent yearon-year, respectively. The tourism office noted that overall visitors from outside Greater China also registered a growth compared to the same period last year, with the total number growing by 16.5 per cent year-on-year, to over 510,000. K.L.
Business Daily Tuesday, October 11 2016 3
Macau Politics
19 measures to support the city’s development Premier Li Keqiang revealed during the first day of his visit to the city that the Mainland Chinese government has created 19 support measures to aid the MSAR Cecilia U cecilia.u@macaubusinessdaily.com
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pon his arrival to the city yesterday, Premier of the State Council and member of the Standing Committee of the Political Bureau of the Communist Party of China Central Committee, Li Keqiang revealed that the Mainland Chinese government has created 19 measures to support the city’s economic development. The Premier has yet to announce the specifics of the measures. “The measures seek to support Macau’s economic and social development, as well as to stabilise Macau’s long term prosperity, and - as such - to benefit the Macau residents,” Premier Li said during a conference held yesterday. The Chinese leader commented during his visit to Macau Tower that he saw not only the current prosperity of the city, but also the potential for cultural diversification. He remarked that Macau will be able to achieve moderate economic diversification.
systems” and that of “Macau people governing Macau”. He also said that the city’s government has been able to respond to the many difficulties and challenges it has faced, through strictly abiding by the Basic Law, focusing on its people and making decisions scientifically. Moreover, Premier Li emphasised that the Central Government will support Macau’s economic diversification and development,
noting that the country will always be the strong backbone of the city.
Fitting in
While providing a summary of the activities conducted by the local government for the mainland authorities, the Chief Executive indicated that the establishment of the 13th five-year plan by the Central Government encourages the MSAR to seize the opportunity and the vitality of innovation and development. He said that the city’s five-year plan, to be introduced in September, will incorporate the plans that are being undertaken in Mainland China, and will support the strategy of “One Belt, One Road”. The city will also
continue to be a platform for cooperation between Mainland China and other Portuguese-speaking countries. Premier Li arrived in Macau yesterday for a three-day visit. The Chinese authority will deliver a keynote speech today at the opening ceremony of the 5th Ministerial Conference of the Forum for Economic and Trade Co-operation between China and Portuguesespeaking Countries (Macau). Premier Li will also meet with government officials and receive briefings on several topics, in addition to meeting people from the community and making several inspection tours around the city.
Implementation
Premier Li Keqiang also commented that the Central Government has a positive view of the performance of the Macau government, stating that the local government led by Chief Executive Fernando Chui San On has been implementing both the policy of “One country, two
Politics
MSAR politically sensitive during Premier Li’s visit Hong Kong left-wing political activist and member of the Legislative Council of Hong Kong, Leung Kwok-hung, along with eight others, has received a statement from the Macau authorities and was denied entry when trying to enter the MSAR to protest Leung Kwok-hung, a Hong Kong leftwing political activist and member of the Legislative Council of Hong Kong, together with eight other protestors, attempted to enter Macau to speak out during Premier Li Keqiang’s visit
to the city yesterday, according to news reported by Radio Television Hong Kong. The group was denied entry to the city and received a statement from the Macau authorities stating that
they had “violated the Macau Security Framework Law”. Over the past week, at least six Hong Kong residents have been denied entry to the MSAR, with the Macau Public Security Police Force stating in written documents to those denied entry that they “posed a risk to the stability of internal security”. Those denied entry to the city include green activist and councillor of the Tsuen Wan District, Roy Tam Hoi-pong, filmmaker Lo Chun-yip, and former activist Roddy Shaw Kwok-wah. Councillor Roy Tam Hoi-pong said
on his Facebook page that he was planning to travel to Macau with his family and he was expecting to be denied entry to the city, but he did not anticipate that his I.D. card would only be returned to him once he was back in Hong Kong.
Denial is normal
Member of the Legislative Assembly of the MSAR, Au Kam San expressed his disappointment regarding the many cases relating to denied entry into the city for Hong Kong residents, before and during the visit of Premier Li. “The Police Force is again using the excuse of this posing a threat to the stability of the city to prevent Hong Kong residents from entering the city, and this will severely affect the image and tourism of the city,” legislator Au Kam San commented. He also said that he had previously made an enquiry to the Legislative Assembly to help prevent the abuse of authority by the Police Force, but the situation could not be changed. Legislator Au also revealed that although the local Police Force denied the existence of a blacklist, he believes that there are lists of names that the Police Force puts into effect depending on the occasion. Meanwhile, legislator José Pereira Coutinho commented that there should be more transparency regarding the list of people who are not be allowed entry to the city. He also mentioned the case of beauty pageant contestant Miss Iran, Melika Razavi, which happened last month, who was detained for hours upon arrival at the city’s airport. “Like last time, Miss Iran was detained for three hours for no specific reason […] before they permitted her to stay for 60 days but later permitted only 10 days, this random practice will disappoint a lot of people,” legislator Coutinho said. C.U.
4 Business Daily Tuesday, October 11 2016
Macau Opinion
Transportation
Stricter vehicle inspections from 2017
Sheyla Zandonai* Quality quantity As Golden Week drew to its end, Macau saw an overall increase in the year-on-year number of visitor arrivals, despite a general decrease in visitor entries recorded over the first three days of the national holiday. During the seven days from October 1 to 7, Macau received nearly a million visitors, of which some 85 per cent were from Mainland China. As usual, the majority arrived in Macau via the Border Gate. The second most popular entry point to the city was the Lotus Bridge border crossing in Cotai. The data released on a daily basis by the Macau Government Tourism Office (MGTO) shows a performance similar to last year’s Golden Week. In general, this reflects the trend toward more stable economic growth in China, with a matching decrease in expenditure by Mainland tourists in Macau. Retailers in the Senado area complained that during the sluggish first days of the holiday, visitors were unwilling to reach deep into their pockets. Eateries and jewellery businesses have not been doing as well as usual, though novelties on the Cotai Strip – mainly due to the opening of new casino venues – have caused a rebound in gambling-related revenues in the last few weeks. The overall drop in tourist visits and expenditure when compared to previous years – especially 2014, when visitor arrivals during the Golden Week amounted to nearly double that of 2015 and 2016 – also reveals another trend. Mainland tourists are more willing to depart for longhaul destinations and spend their money on goods and services elsewhere. Earlier this year The Economist reported that one in ten international tourists today come from China. Not that everybody is happy about that. Mainland visitors have become particularly infamous – trying to open aircraft doors mid-air is just one example in a range of disturbing behaviours. But they have money to spend, and the huge, expanding, tourism sector – counting now for nearly one-tenth of global GDP – is unable to say much in response. For similar reasons, Macau continues to cater to Mainland tourists and the Asian market. As China has become wealthier, Macau has directly benefitted as it develops into a major tourist hub in the region. But tastes and demands are also evolving. As the Chinese become richer, they are also becoming more educated and global-minded. It may not hurt to shift focus from quantity to quality, for a change. *scholar and contributor to this newspaper.
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he government has officially proposed to tighten the city’s regulations on vehicle inspections, which currently require vehicles 10 years of age or older to undergo annual inspections. The new regulations would require inspections for vehicles eight years of age or older. Last week, the Executive Council announced the bill amending the city’s current road traffic regulations, which also proposes annual mandatory inspections for light 50cc motorbikes that are five years of age or older, as opposed to the current eight years.
The proposal suggests that the bill be implemented from July 1, 2017. In fact, the government had intended to make the city’s vehicle inspections stricter in 2014, when the Transport Bureau was still being overseen by its ex-director Wong Wan. The plan aims to limit the annual growth in the number of vehicles to within four per cent. The same bill also proposes to allow residents to get a driving license for heavy motorbikes of below 400cc by conducting the exam with automatic-transmission bikes. But the vice director of the Transport
Bureau, Luis Correia Gageiro stressed in a press briefing of the Executive Council last week, that those drivers who get a license with automatic-transmission bikes would not be allowed to ride manual-transmission motorbikes, according to Chinese-language newspaper Macao Daily News. He added that the government would not introduce specific laws to eliminate 50cc scooters in the local market. He believes that demand for theses types of light motorbikes will naturally shrink given the decrease in the number of granted licenses. K.L.
Acquisition
Kevin Ho reportedly to sign Portugal media deal tomorrow Local businessman Kevin Ho is to ink a deal to acquire Portuguese media conglomerate Global Media Group on Wednesday during the 5th Ministerial Conference of the Forum for Economic and Trade Cooperation between China and Portuguese-speaking Countries, local broadcaster TDM English News reported yesterday. The news outlet said the deal between the two parties amounts to 17.5 million euros (MOP156.7 million/
US$20.1 million). Global Media owns two major newspapers in Portugal: Diario de Notícias in Lisbon and Jornal de Notícias in Porto. The broadcaster recently reported that Mr. Ho, CEO of local real-estate investor KNJ Investment Ltd, went to Portugal to negotiate the specifics for purchasing a controlling stake of the Portuguese company. The local businessman, the nephew of former Chief Executive Edmund
Technology
Politics
MSAR participates in ICT&STI Th e Ch a i r m a n o f t h e M a c a u Science and Technology Fund (FDCT), Ma Chi Ngai, represented the MSAR at the Information and Communication Technology & Science Technology Innovation C o n f e r e n c e o f As i a n Pa c i f i c (ICT&STI), held between October 5 and 7 in Bangkok. The ICT&STI seeks to promote scientific and technological i n n o va t i o n a n d s u s t a i n a b l e development in the region, as well as to establish a shared platform for knowledge exchange and scientific and technical co-operation. The “Sustainable Development Agenda 2030” that was adopted by ICT&STI last year involves 17 S u st a i n ab l e D ev e l o p m e n t Goals such as the elimination of poverty and a focus on marine and terrestrial ecosystems, health education, and resources and industrial innovation. By attending the ICT&STI, the FDCT hopes to achieve sustainable development in the city, as well as to study the development of other areas and regions. C.U.
Will CE visit Africa? In the 16-year history of the Special Administrative Region, the MSAR’s two Chief Executives have combined, made four trips to Portugal and one trip each to Brazil and Mozambique. As such, several representatives of other Portuguese-speaking countries have lamented the absence of official visits to their homelands. Former Chief Executive Edmund Ho took the first steps, with a visit to Brazil and Mozambique and two visits to Portugal, however so far Chief Executive Fernando Chui Sai On has only ventured outside China twice – both times to Portugal. If Chui Sai On does decide to visit one of the countries comprising the Forum Macau before the end of
Ho Hau Wah, expected at that time that the acquisition would “expand the group’s reach to other sectors”.
his term, two favourite destinations come up: Angola and Cape Verde. Although Angola is one of China’s major partners in Africa, Cape Verde may be the more likely to receive a visit, especially given the US$290 million casino resort being built there by Macau-based casino and hotel operator, Macau Legend Development Limited. The new development is expected to boost tourist arrivals to nearly two million visitors annually from its current 600,000 level. Construction on the project is expected to be finished in three years, just in time to receive Macau’s incumbent Chief Executive. Read more in the October issue of Macau Business magazine, on shelves now. Original article by João Paulo Menezes.
Business Daily Tuesday, October 11 2016 5
Macau Politics
MSAR government says the report is ‘groundless’ and ‘baseless’
U.S: Still no progress for MSAR’s political reforms The same report also raises concerns about the city’s future mutual judicial cooperation with Mainland China and Hong Kong Kam Leong kamleong@macaubusinessdaily.com
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here has been ‘No progress in Macau toward an electoral system based on universal and equal suffrage,’ notes the 2016 annual report by U.S. Congressional-Executive Commission on China (CECC) released last week. This is, in fact, the third consecutive
CECC annual report stating that there has been no development observed in the MSAR government’s establishment of a universal-suffrage electoral system. ‘Macau’s Legislative Assembly passed revisions to an electoral law that did not alter the composition of the Legislative Assembly or the methods for Chief Executive elections provided for in the Basic Law,’ the American Commission wrote,
claiming that such establishments are in line with the provisions of the International Covenant on Civil and Political Rights (ICCPR), as recommended by the Human Rights Committee of the United Nations (UN). ‘[We] urge the Chinese and Macau governments to set a timeline for implementing elections for Chief Executive and the Legislative Assembly by universal suffrage, as required by Article 25 of the ICCPR and repeatedly urged by the UN Human Rights Committee,’ the Commission stated.
Caution on extradition deals
Meanwhile, the U.S. body also noted that the local public is cautious about the MSAR government’s on-going negotiations for extradition deals with the Mainland and Hong Kong. ‘Activists, lawyers, and the UN Committee against Torture cautioned against potential abuses under the proposed agreements,’ it claimed, urging the three governments to guarantee rights and protections for fugitives and offenders under future extradition deals. The Commission stressed that the two SAR governments should say no to Beijing in regards to handing over in individuals to the Mainland that may be subjected to torture. ‘[We] urge the Hong Kong and Macau governments to specifically prohibit extradition to China of individuals likely to be subjected to torture or mistreatment in custody, and individuals likely to be subjected to political or religious detention or imprisonment,’ reads the report. The 346-page annual report summarises the situation of human rights and the development of the Rule of
Law in Mainland China, in addition to wrapping up the developments in Hong Kong and Macau for the past year.
Press freedom
The issue of press freedom in the city is also highlighted in the report, with the U.S. Commission quoting the Macau Journalists’ Association as saying that media organisations engaged in self-censorship as a result of pressure from Macau authorities when they were reporting on the government’s RMB100 million (MOP123 million/ US$15.4 million) donation to Guangzhou-based Jinan University. ‘AJM noted that this was the latest in a series of ‘‘organized, large-scale incidents of press censorship, political manipulation of public opinion, and interference in internal media operations’’ since Macau’s 2012 political reforms,’ the Commission wrote.
Strong opposition
Nevertheless, the MSAR government said it strongly opposes the report’s content related to the city. ‘Foreign countries have no right to interfere in China’s domestic affairs and should not interfere in any form in the internal affairs of Macau,’ the government stated in a press release last Friday. It described the report as a production by ‘a self-styled commission of the U.S. Congress,’ criticising the content as ‘groundless and baseless’. The SAR government also defended that it has made ‘remarkable achievements in various aspects’ that have been ‘widely recognised by international communities and agencies’ since the handover in 1999.
6 Business Daily Tuesday, October 11 2016
Gaming Loss
Iao Kun revises Q2 net loss to US$125.8 mln The increase in net loss is due to the company adding a non-cash provision for doubtful accounts amounting to US$21.5 mln Kam Leong kamleong@macaubusinessdaily.com
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ocal junket operator Iao Kun Group Holding Company Ltd has revised its second quarter results to include a non-cash US$21.5 million (MOP172 million) provision for doubtful accounts, expanding its net loss for the three months to US$125.8 million. ‘After a further assessment by management of the collectability of markers receivable as of June 30, 2016, the Company believes there are approximately $21.5 million in markers receivable at an elevated risk of collectability,’ the firm said in
an announcement last Friday. In late September, the junket operator announced it had reported a net loss of US$104.4 million for the second quarter of the year, an increase of 338.7 per cent compared to losses of US$23.8 million for the same period of 2015. The quarterly net loss also included a one-time impairment of intangible assets amounting to US$93.7 million, Iao Kun said at that time. Adding the provision for doubtful accounts, the Nasdaq-listed junket operator’s net loss for the first half of the year amounted to US$129.3 million, compared to the US$107.9 million reported at the end of September. The revised interim net loss
also represents an increase of 1,829 per cent compared to US$6.7 million for the first half of 2015. The junket operator mentioned in the September announcement that the expansion of net loss was due to ‘a reduction of players for VIP baccarat, consistent with the overall decline of VIP baccarat gaming revenue in Macau’. For the first six months of the year,
Agreement
Melco inks ferry ticket discount deal with Shun Tak Melco International Development Ltd, a company controlled by local gaming mogul Lawrence Ho Yau Lung, has reached a deal with Shun Tak Group allowing for a discount of five per cent when buying ferry tickets from the latter. According to a filing with the Hong Kong Stock Exchange last week, the deal between the companies will be valid for three years until December 31, 2018. In addition, the deal caps
the discounts that Melco can get from Shun Tak at HK$8 million (US$1 million) for this year, HK$41 million
for 2017 and HK$45 million for 2018. Shun Tak Group operates the TurboJET ferry services connecting Hong Kong, Macau and Mainland China via its subsidiary Shun Tak-China Travel Shipping Investments Ltd. ‘The Company considers that the entering into of the Ferry Ticket Sales Framework Agreement and any related implementation agreements is beneficial to the Group,’ Melco said in the filing. K.L.
the company saw its total rolling chip turnover down by 48 per cent yearon-year to US$2.1 billion, down from US$3.9 billion one year ago.
Review
In fact, as its business in Macau decreases, the company claims it is conducting ‘a strategic review of operations,’ having closed four of its VIP rooms in the city in less than one month. Currently, the operator is only left with one VIP room in the Special Administrative Region, located inside the City of Dreams property - run by gaming operator Melco Crown Entertainment Ltd - in Cotai. The company is eyeing overseas opportunities, running gaming businesses in two Australian casinos, namely: Crown Perth Casino in Perth and the Crown Melbourne Casino in Melbourne. The junket operator had also planned to acquire the Jeju Sun Hotel & Casino in South Korea from Philippine casino operator Bloomberry Resorts Corporation, but it announced at the end of last month that the deal had lapsed.
Business Daily Tuesday, October 11 2016 7
Gaming
M&A
Canada’s Amaya, Britain’s William Hill in talks to merge
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anadian online gambling company Amaya Inc and British bookmaker William Hill Plc said they were in talks to combine in a merger of equals, confirming a Reuters report about the discussions earlier on Friday. The all-share merger would be “consistent with the strategic objectives” of both companies, they said in a joint statement. Amaya has received strong buyout interest from other companies in the industry and some private equity firms, two sources familiar with the situation said. The statement did not mention GVC Holdings Plc, a sports betting and gaming company based in the Isle of Man which the sources had also cited as a suitor. The sources spoke
on condition of anonymity because they were not authorized to discuss the matter publicly. GVC did not respond to a request for comment. The sources also said that former Amaya Chief Executive David Baazov, subject of an insider trading investigation from Quebec’s securities regulator, had abandoned plans to bid for the company. Amaya said in February it had received a nonbinding proposal from Baazov to take the company private, but the formal bid never came.
Bids
The bids for the operator of online gambling website PokerStars were above Baazov’s planned offer price of C$21 (MOP126.5) per share, the sources said.
Amaya’s stock jumped on the Reuters report and trading was halted within minutes, at C$23.41, up 9.1 per cent on the day, in Toronto. The level was the highest in about 11 months. The company had a market capitalization of about C$3.1 billion (US$2.34 billion/ MOP18.68 billion) before the rally. Baazov had prepared a bid but waited to sort out issues with the securities regulator before submitting it, the sources said. He was mulling a bid as recently as the summer, they said. Baazov resigned as CEO in August and was replaced by Rafi Ashkenazi. William Hill, itself a subject of an approach from 888 Holdings and Rank Group, rejected a revised takeover bid from the two rivals in August. Amaya paid US$4.9 billion (MOP39.2 billion) to acquire the owner and operator of the PokerStars and
Full Tilt Poker brands in 2014, saying at the time that the deal created the largest publicly traded online gaming company.
Markets
The company’s biggest revenue contributions are from the Isle of Man and Malta, while it has also expanded into France, Italy, Spain and Britain, and expects to soon gain regulatory approval to operate in the Czech Republic and the Netherlands. It sees its biggest growth opportunity in the United States. After a lengthy approval process, Amaya won permission to operate PokerStars in New Jersey, one of the first U.S. states to legalize the business. The company last year limited the operations of its StarsDraft fantasy sports business in most U.S. states as a string of jurisdictions grapple with whether the fast-growing, multibillion-dollar industry constitutes illegal gambling. Contests such as StarsDraft, in which players draft fantasy teams for sports including football, basketball and baseball, have drawn increased scrutiny from regulators since last year. Reuters
Court
Wynn Resorts chief’s ex-wife seeks whistle-blower protection Elaine Wynn asked the Nevada Supreme Court to grant her whistleblower protection for disclosures she made to Wynn Resorts Ltd.’s audit committee and outside auditor about what she said were potential securities law violations by the casino operator. Wynn said in her petition Thursday that a Las Vegas trial judge’s refusal to give her whistle-blower protection exposes her to retaliation by Wynn Resorts and Steve Wynn. She’s battling her ex-husband, the founder and chief executive officer of the company, to undo restrictions on her ability to sell her more than US$900-million (MOP7.2 billion) stake in Wynn Resorts. The former couple’s fight is part of a three-way brawl that started when Wynn Resorts forcibly redeemed the 20 per cent stake of Steve Wynn’s former business partner Kazuo Okada. Elaine Wynn filed a separate claim in Wynn’s lawsuit against Okada to escape a shareholders agreement that was part of the couple’s divorce and that prevents her from selling her shares without her ex-husband’s permission. She claims she wasn’t re-elected last year
to the company’s board because she criticized his management style. Elaine Wynn said in her Supreme Court petition that she sent a letter in July to the audit committee and to Ernst & Young, the outside auditor, “raising questions about the conduct of Wynn Resorts and its management that she reasonably believed violated federal securities laws.” The petition didn’t specify what potential violations she believes occurred.
Protections ‘Twisted’
“Our company takes its obligations under all federal laws very seriously and is frustrated when those laws and valid protections are twisted and used to pursue a personal agenda,” said Michael Weaver, a spokesman for Wynn Resorts. The trial judge ruled that Elaine Wynn isn’t a whistle-blower entitled to the protections afforded under the Sarbanes-Oxley or Dodd-Frank laws, and she has never publicly provided any explanation as to how the company could retaliate against her, according to Weaver. Elaine Wynn said in her petition that th e c o m p a n y di s m i ss e d
her concerns and has sought “Draconian” sanctions against her for allegedly violating a court order prohibiting disclosure of confidential information obtained through pretrial exchange of information and sworn testimony. Wynn Resorts has also sought to question her under oath about how she got the information she shared with the company’s auditors, according to the filing. Wynn Resorts also seeks to
disqualify the lawyers Elaine Wynn retained after she wasn’t nominated to the board of directors. The lawyers allegedly used privileged information when she amended her claims against her ex-husband in March, adding among other things that he made a multimillion-dollar settlement with a former employee to avoid allegations of “serious misconduct.” The case is Elaine Wynn v. Eighth Judicial District Court, 71432, Nevada Supreme Court. Bloomberg
8 Business Daily Tuesday, October 11 2016
Greater China Caixin PMI
Services sector growth dips but still solid Employment rose for the first time in three months. The pace of job creation, although moderate, was the fastest since February
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hina’s services sector created jobs at the fastest pace in seven months in September as new business picked up, even though the overall rate of growth was little changed from August, a private survey showed. More signs of stability in China’s economy support the growing consensus that China’s central bank
will hold off on further monetary easing such as interest rate cuts through at least the end of the year. The Caixin/Markit services purchasing managers’ index (PMI) dipped fractionally to 52.0 in September on a seasonally adjusted basis from 52.1 in August, but remained well above the 50-mark that separates growth from contraction on a monthly basis.
While most measures of activity improved, companies’ business expectations were much lower than the previous month, when they hit a six-month high. Services companies saw modest growth in new work in September with some firms attributing this to new clients and product developments. Caixin’s composite PMI covering both the manufacturing and services sectors also continued to show healthy expansion, with a reading of 51.4, also slightly lower than August. Still, economists are calling for more structural reforms and fiscal support to
encourage economic growth at a time when monetary policy on its own is increasingly viewed as less effective. “Overall, the economy continued to grow in September, but the rate of expansion fell two months in a row,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group. China’s official services survey showed robust growth continued in September at a slightly faster pace than in August.
“Fiscal policy needs to continue to support the economy, because there is insufficient growth momentum on its own” Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group Manufacturing surveys also suggested the economy was slowly stabilising, with Caixin/Markit’s showing activity expanded marginally as orders picked up, while an official factory reading stood at 50.4, identical to the previous month. The surveys by Markit, which is a registered trade mark of IHS Markit Limited, focus more on small and medium-sized firms. Reuters
Real estate bubble
Labour
Central bank governor cautions against hot property prices Zhou told the G20 meeting China will control credit growth as the global economy recovers China’s head of central bank stepped up rhetoric against rapid rises in home prices and continued credit growth, signalling further action on top of recent fresh curbs across a number of cities to cool their overheated real estate markets. Zhou Xiaochuan, governor of the People’s Bank of China (PBOC), said the Chinese government is “paying close attention” to rising property prices in some cities and will take appropriate measures to promote the real estate market’s “healthy development”. The remarks were made at a G20 meeting in Washington. A number of Chinese cities including Beijing, Guangzhou, Shenzhen, Suzhou, Chengdu and Wuhan announced new restrictions on property purchases and mortgage downpayment during China’s week-long National Day holiday in the
beginning of October. The moves came as part of an effort to ward off property speculation. Late on Saturday and on Sunday a new wave of cities followed suit. Shanghai’s government said in a statement that it would increase land supply for commercial housing construction and step up supervision over the purchase of pre-owned homes that had never been used. Nanchang, the capital of east China’s Jiangxi province, on Saturday put restrictions on the number of new homes that people can purchase in some districts, and increased the required down payment for first-time buyers to 30 per cent from 20 per cent, the official Xinhua news agency said. Authorities in Nanjing and Wuxi also adjusted downpayment requirements on Sunday.
Governor of the Bank of China Zhou Xiaochuan attends a plenary session of the International Monetary and Financial Committee (IMFC) at the IMF Headquarters in Washington.
Vice finance minister Zhu Guangyao echoed Zhou’s remarks, saying the government’s targeted measures to curb hot property prices were “timely and appropriate”, according to a Xinhua report late on Saturday. The two top officials’ latest comments signalled that Beijing will continue to target property speculators and curb credit risks in the real estate sector to prevent bubbles. While a property boom has helped to support China’s economic growth, fuelling demand for everything from construction materials to furniture, it is seen as adding credit risks to the banking system and China’s debt problem. The International Monetary Fund said in August that China needed to slow credit growth and stop funding weak firms, highlighting the worries among policymakers about the dangers of an unsustainable debt build-up triggering a banking crisis.
Banking system risks
The governor said risks in China’s banking system are controllable even as bad loans increase as lenders have adequate capital. Chinese banks extended RMB948.7 billion (US$142 billion) in net new yuan loans in August, more than double the figure of the previous month. Credit growth is fast, and that is a reflection of China’s efforts in boosting growth amid a weak global economy, Zhou said. But as the global economy gradually heads towards a recovery, China will have to control credit growth, he added. The non-performing loan rate in the banking sector increased to 1.75 per cent at end-June from 1.67 per cent at the end of last year, official data showed. Zhou said China’s economy continues to grow within a reasonable range, with some important economic indicators showing signs of improvement. The government is due to publish September’s lending data in the coming week and third-quarter gross domestic product later this month. Reuters
As domestic economy s
The real level of unemploym is masked by the fact that th does not include China’s 277 Sue-Lin Wong
Every summer in Bianqiang village in northwestern China, locals gather for three nights of Chinese opera. There are children’s rides, popcorn and spitroasted chickens. Grandparents watch over their grandchildren. This summer’s event was different though because more young parents were present. In previous years they had left their children in the care of grandparents while they found work in nearby cities and towns. But as China’s economy slows, jobs for migrant workers are drying up and they are heading back home. China’s official unemployment rate has been around 4 per cent for years, despite the rapid slowdown in the economy from double-digit growth to quarter-century lows last year of less than 7 per cent. But the real level of unemployment or underemployment is masked by the fact that the official data does not include China’s 277 million migrant workers, such as Zhang Sihu and his wife from Bianqiang in Yulin, a region rich in coal, oil and natural gas in northwestern Shaanxi province. At the height of China’s real estate boom in Yulin a few years ago, they made RMB10,000 a month, running a canteen for construction workers. That was double the average migrant wage, but the boom is now over. “It became too difficult to turn a profit last year, so I closed the canteen and went to find work as a cook,” said Zhang, who left Bianqiang village 14 years ago. “But it was difficult finding work, no one was hiring, and when I did find a
Business Daily Tuesday, October 11 2016 9
Greater China State planner
In Brief
Mainland must take action to reduce high corporate debt The government will allow firms to go bankrupt according to the law, the NDRC said China must take action to reduce corporate debt levels, with an aim to stabilizing them in the near- and medium-term, the country’s state planner said yesterday. Corporate China sits on US$18 trillion in debt, equivalent to about 169 per cent of GDP, and international institutions have recently warned Beijing to stop financing weak firms, especially inefficient state-owned enterprises, which tend to crowd out the private sector. More defaults also are needed, they say, to improve credit allocation and stop wasteful spending in the economy. High debt levels have added to operating difficulties for some
Chinese firms, increasing their debt risks and financial risks, the National Development and Reform Commission (NDRC) said in a document released during a news briefing in Beijing. China will allow firms to develop equity financing and conduct marketoriented debt-to-equity swap process in an orderly way, the document said. However, the swap is not a “free lunch” for troubled companies, NDRC’s vice chair Lian Weiliang said during the briefing. The government will not be responsible for losses accrued during the swap process, he added. “Zombie” firms are strictly forbidden from conducting debt-to-equity swaps,
which will be used mainly to help highquality companies that face temporary difficulties, Lian said. China will also step up checks at state-owned firms in order to reduce debt levels. However, banks cannot be forced to conduct the swaps, Lian said. His comments were echoed by Dai Bohua, assistant minister at the Ministry of Finance, who said the government will prevent shift of risks from nonfinancial firms to banks under the debtto-equity swaps.
‘China’s cabinet also issued guidance on its website yesterday for lowering corporate debt’ According to a recent Reuters analysis, profits at roughly a quarter of Chinese companies were too low in the first half of this year to cover their debt servicing obligations, as earnings languish and loan burdens increase. In an effort to reduce business costs, China will combine deleveraging with overcapacity reductions, the document said. It will also provide preferential tax treatment to help firms cut debt levels, Dai said. China’s cabinet also issued guidance on its website yesterday for lowering corporate debt, saying China will push forward with mergers and acquisitions of firms. Reuters
slows, migrant workers head home
ment or underemployment he official data 7 million migrant workers job, I was let go after a few months. Business wasn’t good so the boss is now running the restaurant himself.” Zhang and his wife have now returned to their home village and are back on the family farm with their children and parents, raising 200 head of cattle. “It’s a big problem because migrant workers can’t find jobs in the city, but if they stay in their hometowns, their income is very low,” a government official at Yulin’s bureau of commerce said. Business surveys, which economists say may be the best monthly measure of the broader labour market, have shown renewed job shedding in both manufacturing and services. “Migrant workers are a very elastic part of the labour pool that aren’t captured anywhere (in official statistics),” said Julia Wang, an economist with HSBC in Hong Kong. “If you look at what’s happened to the migrant worker pool over the past two years, the trend of people going to cities has slowed significantly.”
State jobs
Government data shows the number of migrant workers rose 0.4 per cent in 2015, the weakest increase since the global financial crisis in 2009. Migrants searching for jobs outside of their home province fell in 2015 for the first time in six years. It is not only migrant workers losing out. Employees of state-owned enterprises (SOE) and other larger firms are also being hit by stagnant or lower wages, underemployment and less job security. Reuters reported in March that China was aiming to layoff 5-6 million state
workers in the next two to three years. Wang Mei said she and her husband were working for PetroChina, China’s biggest oil-and-gas producer, in Inner Mongolia, but moved home to Suide county in Yulin, after their salaries were slashed. “The economy isn’t doing well, our child is here in Suide, this is where we grew up, so we decided to move back,” she said, adding she worked in maintenance and her husband worked in IT at PetroChina. “I think it was difficult for my husband to decide to quit his job. It’s more stable working at a state-owned enterprise but his salary dropped from over RMB4,000 per month to RMB2,000, so he finally decided to quit.” A spokesman for PetroChina said the company was trying to keep salaries of front-line workers stable, but declined to comment on this particular case or recent salary trends for back office staff. Wang has found temporary work at a local government service office in Suide, while her husband considers his next move. “Maybe he’ll start his own business - an e-commerce store, lots of people
are doing that. But I don’t want him to blindly become an entrepreneur, that wouldn’t be good.” The government is trying to support employment, including by propping up insolvent SOEs, increasing retraining programmes and encouraging people to become entrepreneurs. “You know how it is - you show up, have a chat, drink some tea, read the newspaper, sit around, don’t really do anything,” said an employee of a SOE in Yulin, who gave his surname as Liu. “Two-thirds of people don’t do any work at our SOE.” Start-up spaces have begun popping up around Yulin, which several government officials said was aimed at encouraging the creation of new businesses to counter the slowdown in economic growth. Bai Huifang, 25, manages an incubator decked out with bamboo plants, a pool table, and a stage draped in Communist Party paraphernalia. It housed 32 start-ups in 2015 but only one was successfully funded, Bai said. “A big reason why we’re able to survive is because of government funding. And the government is happy we exist because they are grappling with rising unemployment.” Reuters
Co-operation
Beijing to encourage more investment in Portugal China will encourage more of its companies to invest in Portugal in areas such as finance, insurance, health care and infrastructure, President Xi Jinping has told the visiting Portuguese Prime Minister Antonio Costa. Both countries need to deepen cooperation in investment and explore more markets, Xi said, according to a Chinese Foreign Ministry statement issued late on Saturday. “China is willing to encourage investment in Portugal and expand to areas including finance, insurance, health care and infrastructure,” the statement paraphrased Xi as saying, without giving details. Monopoly break-up
Authorities to open salt market in January China will open up its salt market beginning next year, the state planning agency said, in the government’s latest step to shake up an ancient government salt monopoly. Starting on January 1, 2017, China will open edible salt markets with producers determining retail and wholesale prices based on factors such as production costs, salt quality, supply and demand, the National Development and Reform Commission said in a statement on its website. The agency also said that under “special circumstances” regulators could take temporary or emergency measures to maintain edible salt price stability and “prevent abnormal fluctuations in price.” Overseas push
Juneyao Airlines to join Star Alliance Chinese privately-owned carrier Juneyao Airlines said it will join global airline alliance group Star Alliance in 2017, giving it a springboard for planned international expansion as more Chinese tourists travel overseas. Juneyao will join the world’s largest airline alliance as a “connecting partner” rather than as a full member, linking it up with airlines such as Singapore Airlines, Lufthansa and Air China, the firm said at an event in Shanghai yesterday. The airline, one of China’s largest private carriers, said it aimed to open new routes to North America, Europe and Australia by 2020. Debt cut
Noble Group agrees sale of U.S. unit Singapore-listed commodities trader Noble Group agreed to sell its North American energy distribution unit to U.S. firm Calpine Corp for US$1.05 billion, moving a step closer to completing a restructuring to raise US$2 billion to help cut debt. The sale of Noble Americas Energy Solutions includes repayment of working capital of about US$248 million, Noble said in a statement. The move comes as the Hong Kong-based trader aims to rebuild investor confidence after a brutal commodities downturn coincided with a questioning of its accounts in early 2015 by Iceberg Research, sparking a collapse in its share price and ratings credit agency downgrades.
10 Business Daily Tuesday, October 11 2016
Greater China Global trade
Beijing says EU duties on steel are unfair The EU commission has committed to speed up its trade defence actions under pressure from EU producers
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hina’s Commerce Ministry has expressed concern and regret after the European Union set provisional import duties on two types of Chinese steel coming into the bloc, calling its investigation methods “unfair”.
“China hopes the EU will strictly respect relevant World Trade Organization rules and fully guarantee Chinese companies’ right to protest”
with cheap Chinese imports and high energy costs. G20 governments recognised last month that steel overcapacity was a serious problem. China, the source of 50 per cent of the world’s steel and the largest steel consumer, has said the problem is a global one. The substitute country investigation method used by the EU, a practice typically reserved for countries deemed non-market economies, are “unfair and unreasonable” and “seriously damage the interests of
Chinese enterprises,” the Commerce Ministry said in a statement posted to its website late on Saturday. “Reckless trade protectionism and mistaken methods that limit fair market competition are not the proper ways to develop the European Union steel industry,” it said. Chinese steel products represent less than 5 per cent of the European market and do not present a serious threat to European industry, the ministry said. The root cause of Europe’s steel problems was not trade but weak economic growth, it said. The EU’s duties are set at between 13.2 and 22.6 per cent for hot-rolled flat iron and steel products and at between 65.1 and 73.7 per cent for heavy-plate steel.
As provisional duties they are in place for up to six months until the European Commission completes its investigation. If upheld, they would typically be set for five years. The EU has also been debating whether to grant China “market economy status”, given the Chinese government’s hand in guiding industry and markets. China says the status is its right come December, which marks 15 years since it joined the WTO. Failure to do so could spark a trade war. The commission has said that China is not a market economy and that it would not recognise it as such, but would adopt a new method to set duties that would abide by WTO rules. Reuters
China’s Commerce Ministry statement The duties announced on Friday are the latest in a line of trade defences set up against Chinese steel imports over the past two years to counter what EU steel producers say is a flood of steel sold at a loss due to Chinese overcapacity. Some 5,000 jobs have been axed in the British steel industry in the past year as it struggles to compete
Entertainment industry
Alibaba Pictures, Amblin to co-produce films Under the terms of the partnership, Alibaba Pictures will also acquire a minority stake in Amblin Partners, which is chaired by Spielberg, the award-winning U.S. movie director and producer Steven Spielberg’s Amblin Partners and Alibaba Pictures Group Ltd, the film unit of Chinese billionaire Jack Ma’s Alibaba Group Holding Ltd, said on Sunday they will co-produce and finance films for global and Chinese audiences. They will also collaborate on the marketing, distribution and merchandising of Amblin Partner films in China, the companies said in a joint statement. Amblin Partners creates film,
television and digital content under the Amblin Entertainment, DreamWorks Pictures and Participant Media brands. Big Chinese companies including Dalian Wanda Group Co are looking to bring more Western films and moviemaking prowess into China even as they seek to expand their footprint in Hollywood. China’s masses have the ability to keep Hollywood movies afloat, industry watchers say. They expect
China to soon surpass the United States as the world’s biggest movie market. This year’s ‘Warcraft’, which was a box office flop in the United States, raked in hundreds of millions of dollars in China, making it one of the country’s highest-grossing films of the year. “Some of the stories I’m hoping Jack and I can tell in this new partnership between Amblin Partners and Alibaba Pictures will be able to bring Chinesethemed stories to the American audience, and we can do coproductions between our company and your company,” Spielberg said at a briefing in Beijing. Hong Kong-listed Alibaba Pictures has yet to release any films, although
the company formerly known as ChinaVision Media Group Ltd has several projects in production. Alibaba Pictures began investing in Hollywood films in 2015 with its stake in ‘Mission: Impossible Rogue Nation’. It was an investor in this year’s blockbusters ‘Star Trek Beyond’ and ‘Teenage Mutant Ninja Turtles: Out of the Shadows’. Chinese e-commerce giant Alibaba Group paid about US$800 million for a controlling stake in ChinaVision Media in 2014.
“And we can bring more of China to America, and bring some more of America to China” Steven Spielberg, movie director and producer
Chinese billionaire Jack Ma
Dalian Wanda, the conglomerate controlled by China’s richest man Wang Jianlin, is partnering with Sony Pictures under which Wanda will market Sony Pictures’ films and co-finance some upcoming movie releases of Sony Corp’s film unit in China. In January, Wanda paid US$3.5 billion for a controlling stake in U.S. film studio Legendary Entertainment. The group has also since said it would start co-investing in global blockbusters next year. “I heard a lot of people say the movie industries are dead. I think that’s a lack of imagination,” Ma said at the briefing. “All the cinemas in the future are going to be changed because of technology. So people will definitely have all kinds of experiences watching movies.” Reuters
Business Daily Tuesday, October 11 2016 11
Asia Opening trade
Philippines looks to China for farms ‘windfall’ China will lift a Philippine fruit ban and explore broader farm and fisheries imports and investments in its fledgling farm sector, the Philippine agriculture minister said, signalling serious intent by Manila to beef up business with Beijing Karen Lema
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hina would resume shipments from 27 blacklisted fruit exporters as a “gift” when President Rodrigo Duterte visits with a business delegation from October 1921, Agriculture Secretary Emmanuel Pinol told Reuters on Sunday. “I would look at that as a goodwill move,” he said. “The atmosphere would be positive.” Pinol’s comments suggest Duterte is following through on his promises to build a commercial alliance with China, made repeatedly in speeches in which he has angrily alluded to cutting ties with the United States and reaching out to its geopolitical rivals. The trade talk with China is hugely symbolic and marks a stark turnaround in ties since a July arbitration ruling in The Hague went in Manila’s favour and angered Beijing by invalidating its claim to almost the entire South China Sea. Duterte is forging ahead, even as mistrust lingers over China’s fouryear blockade of Filipino fishermen at the Scarborough Shoal. Pinol said ending the ban on
bananas and pineapples would boost demand in other parts of a farm sector that has seen its output contract for two successive quarters. “Since we are not involved in the diplomatic issues, we are just looking at this as a windfall for Philippine agriculture because China, we have to admit, is our biggest market for our agriculture products,” he said by phone.
“The interest of China in importing fisheries products will spur development,” he said, adding the demand would see Filipino farmers ramp up their output.
Shrinking output
Agriculture accounts for about onetenth of the Philippine economy. Farm output dropped 4.4 per cent in the first quarter from a year earlier, followed by a 2.1 per cent contraction in the second quarter, according to government data. Together with the impact of the El Niño weather pattern, the ban, he said, had seen earnings from banana shipments down by half in 2015 from about US$1.1 billion in 2014. Pinol said Beijing’s ambassador to
the Philippines had informed him China would look to import mango and dragon fruit, plus fisheries produce like crab, shrimp, grouper and milkfish. China imported just 6.3 per cent of the Philippines’ US$1.3 billion in seafood shipments in 2014, compared to 25 per cent to the United States, according to most recent official data.
“The interest of China in importing fisheries products will spur development” Emmanuel Pinol, Philippine Agriculture Secretary Finance secretary, Carlos Dominguez, on Saturday told Reuters Duterte was seeking billions of dollars of Chinese infrastructure investments, including rail lines and power grids. Duterte’s defence minister on Friday said moves were afoot also to acquire Chinese arms. Pinol was hopeful that an invitation by the Bank of China to attend events in China could create opportunities to secure much-needed financing, and he said he expected China to very soon increase imports of different produce because its export firms were already active in the Philippines. “That should happen fast because there are Chinese groups here waiting for the ban to be lifted,” he said. “These are exporting companies and they buy their produce from farmers.” Reuters
Investors
Thailand seen luring foreigners as notes rules eased Investors will now be able to buy Thai equity-linked notes in U.S. dollars Viren Vaghela
Brokerages are preparing to sell structured notes in Thailand after the relaxation of issuance rules as the nation’s securities regulator tries to expand a market that targets wealthy individuals in Asia. KGI Securities (Thailand) PCL is readying back-office systems to sell new U.S. dollar products and is putting together documentation to get approval from Bank of Thailand to offer foreign currency notes. The rule changes that took effect in June include allowing equitylinked products tied to individual foreign companies and notes issued in overseas currencies such as U.S. dollars, according to the Thai Securities and Exchange Commission. The relaxation of regulations is a part of efforts by authorities in Thailand, Southeast Asia’s secondlargest economy, to make Bangkok the financial centre of a Greater Mekong Sub-region that includes Vietnam and Cambodia. Policy makers also want to attract more funds from the growing ranks of rich individuals in Asia-Pacific - private
wealth in the region surged 10 per cent to US$17.4 trillion last year, surpassing North America for the first time, according to a June report by Capgemini SA. “This is a big change that’s positive for the long term,” said Jenvit Chinkulkitniwat, a managing director in the equity derivatives business at KGI Securities, a Bangkok-based brokerage. “We hope it will bring in foreign investors to buy more
structured notes. We expect to launch new products at the start of next year.” The new regulations also abolish the previous minimum investment amount for structured products of 10 million Thai baht (US$287,000) for institutions.
Currency risk
Investors will now be able to buy Thai equity-linked notes in U.S. dollars, helping remove concern that they will be hurt by currency moves such as the weakening of the baht, according to Chinkulkitniwat. The
Thai currency has declined about 4 per cent against the dollar this year. “Structured note volume is still small compared to plain vanilla bonds” but banks now intend to offer more of these products, said Pariya Techamuanvivit, the director of corporate affairs at the Thai securities regulator. Relaxation of the rules will allow notes issuers to better match their asset and liability management needs while giving investors more alternatives, he said. Last year, 26.2 billion baht of Thai structured notes were sold, compared with 9.04 trillion baht of domestic bonds, data from the Thai SEC and Thai Bond Market Association show.
New markets
In Asia, structured products are typically sold to rich investors wishing to enhance returns. Singapore and Hong Kong have long been the region’s two main private banking hubs with countries including Indonesia recently offering more products to tap the region’s growing wealth. “Structured notes are increasing in popularity in other markets in the region,” said Nopadon Nimmanpipak, the managing director in equity and derivatives trading at Phatra Securities PCL in Bangkok. Bloomberg News
12 Business Daily Tuesday, October 11 2016
Asia In Brief Going public
Fullerton Healthcare IPO prices at low end An initial public offering for Singapore’s Fullerton Healthcare has priced at the bottom of its marketing range, raising S$213 million (US$155 million), IFR reported, citing two sources close to the deal. The IPO was priced at S$1.52 a share compared with the indicative range of S$1.52$1.93, the sources said, declining to be identified as the pricing was not public. Fullerton could not be immediately reached for comment. The IPO comprised a base offer of 140.3 million shares - roughly two thirds of which were new and a third of which were shares sold by existing shareholders. M&A
CIMIC to bid US$400 mln for Australia’s UGL Spanish-controlled engineering contractor CIMIC Group Ltd said yesterday it will offer A$525 million (US$400 million) for Australian rival UGL Ltd, seizing on the target company’s share price collapse amid a mining downturn. Sydney-listed CIMIC, mostly owned by Spanishowned German company Hochtief AG, said it will offer A$3.15 per share for UGL, a 47 per cent premium to its last close, but still less than half its A$7-plus levels in 2012 before the impact of a commodity downturn. “CIMIC believes UGL’s competencies are complementary to CIMIC’s existing operations or enhance CIMIC’s capabilities in new activities,” CIMIC, formerly known as Leighton Holdings, said in a statement. IPO
Doosan Bobcat to trim plans South Korea’s Doosan Bobcat Inc yesterday cancelled plans for an up to 2.45 trillion won (US$2.2 billion) initial public offering after the valuation fell short of its targets, and is expected to relaunch a smaller IPO within days. The construction equipment maker would submit a new IPO plan with a view to listing as soon as next month, a spokesman for parent company and largest shareholder Doosan Infracore Co Ltd said. The troubled offering could prompt rethinks about the valuations of other big-ticket South Korean IPOs in the works, such as Samsung BioLogics Co Ltd’s up to US$2 billion planned offering. Treasury
S.Korea could change t-bond issuance South Korea could see some changes to its treasury bond issuance plans in future months, albeit marginal ones, thanks to robust tax revenue this year, the vice finance minister said yesterday. “Our tax revenue has been quite good,” second vice finance minister Song Eong-seok said in a news conference with reporters. “Because of this, I think it may be possible for treasury bond issuances or short-term borrowings to decrease.” Song said, however, any changes would be quite small, as the government has to consider bond market conditions and the effects any shifts in plans may have on investors.
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Monetary policy
IMF’s Lipton likes Bank of Japan policy revamp Lipton said the IMF now believes that the BOJ’s yield curve control is “not just possible but a good idea.” Leika Kihara
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nternational Monetary Fund First Deputy Managing Director David Lipton (pictured) welcomed the Bank of Japan’s (BOJ) new policy framework as a boost to its credibility, but called for more vigorous fiscal and structural policies to reflate a fragile economic recovery. Lipton also shrugged off the view that monetary policy was nearing its limit as a means to revive economies across the globe, stressing that central banks must be open to new ideas to help spur growth. “Central banks have to always be ready to do whatever they can based on the realities they face,” Lipton told Reuters on Saturday. “The BOJ has been an example of imaginative approaches.” The BOJ last month switched its policy target to interest rates from the pace of money printing, after years of massive asset purchases failed to jolt the economy out of stagnation. Fears that central banks have nearly exhausted the limits of what monetary policy can do have been among topics of debate at this week’s G20 finance leaders’ gathering and IMF meetings. The increasingly radical monetary experiments by the BOJ are being closely watched by other global central banks which are also struggling to revive growth. Under a new “yield curve control” framework, the BOJ pledged to keep the 10-year bond yield around zero per cent. It also maintained a 0.1 per cent interest it charges on some excess reserves financial institutions park with the central bank. Some academics voiced doubts about whether the BOJ could control such a long end of the curve and whether it was feasible for a central bank to forcefully cap rates at a set level. Lipton said the IMF now believes
that the BOJ’s yield curve control is “not just possible but a good idea.” “I think it’s good that the BOJ intensifies its efforts to try to reflate the economy,” he said. “The steps they’ve taken will give them more flexibility of action and enhance their credibility,” he added. “It’s a step in the right direction.” But Lipton said Japan must fire “with vigour” the two other arrows of premier Shinzo Abe’s “Abenomics” stimulus policies - flexible fiscal policy and structural reforms - to achieve sustainable and balanced economic growth. “We can’t expect the best outcome relying just on monetary policy,” he said. “Combining the three-arrow approach with a stronger focus on boosting incomes would be one way to take some of the heat off the central bank.” With countries increasingly forced to deploy full-strength fiscal and
monetary policies to battle low growth, Lipton warned that central banks and governments must ensure they are cooperating - not depending on each other - to help the economy. “ W e’ r e f o r c e n t r a l b a n k independence but we’re also for cooperation,” he said, referring to the need for central banks to be independent from government interference in setting monetary policy.
Key Points Central banks must be open to new ideas - Lipton BOJ’s new policy framework enhances flexibility Central banks, governments must cooperate, not rely on each other “There should be a process under which there can be dialogue between central bank and governments that leads to better combination of policies.” Reuters
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Business Daily Tuesday, October 11 2016 13
Asia Flexibility
Australia’s manufacturers revamp business New investment in manufacturing climbed 13 per cent even as mining dived 16 per cent Swati Pandey
For auto parts maker Brian Hughes, the shock of Australia’s car industry closing down could have meant the end of his business. Instead, he reconfigured his facility to make machinery for the booming food and building sectors while bolstering exports. He’s not alone. As Toyota Industries Corp, General Motors Co, Ford Motor Co and others shutter car manufacturing in Australia, one in every two auto suppliers in Victoria - the country’s auto hub - are reinventing themselves. This agility is what the Reserve Bank of Australia (RBA) says is helping the economy’s long-awaited transition away from mining. The RBA is counting on a stronger pick-up in private investment after cutting its cash rate twice this year to a record low of 1.50 per cent. On Friday, the last Australian-made six-cylinder Ford Falcon rolled off an assembly line, marking the end of the famed car maker’s 91-year history of car-making in the country. “The closure to us meant we had to go out and find a new approach. We ramped up capacity to supply to the confectionery industry and we also invested in the building industry,” said Hughes, managing director of Composite Materials Engineering Pty Ltd (CME), near Melbourne, the capital of Victoria. CME, which makes body panels for cars, is among 64 of the 137 suppliers
in Victoria that have either already diversified or are in the process of reshaping their business models, according to analysis by the Victorian government. Official data shows business investment in the country fell 5.4 per cent to A$28.71 billion (US$21.6 billion) in the June quarter. Yet spending on equipment, plant and machinery rose 2.8 per cent, with the non-mining sector driving the growth. “The data is really aligning with what I’ve been hearing from our customers recently,” said Angela Mentis, chief customer officer, National Australia Bank, the country’s No.1 business lender. “I know some caution remains
but optimism in innovation is really gaining momentum and it’s really translating into increased activity.” CME is now exporting about 30 per cent of its produce, compared with 12 per cent three years ago, Hughes said, supported by the Australian dollar’s fall from its mining-boom peaks of above parity with the U.S. dollar.
Adapt and grow
A global slump in commodity prices has depressed growth in resourcerich Australia’s economy to belowpar levels over the past four years. Without the drag from weak business investment in the year to March, Australia’s A$1.6 trillion economy would have expanded at a breakneck pace of 5 per cent. Still, at 3.3 per cent the economic growth rate in the year to June was more than enough to cap a quarter of a century without a recession.
New RBA governor Philip Lowe said recently Australia was adjusting “reasonably well” to the unwinding of the biggest mining investment boom in more than a century. “This is a significant achievement,” he said. NAB’s Mentis pointed to higher investments by farmers who are adopting digital technology to improve productivity. Investment by Australian dairy and broad acre farms picked up in mid2012, with annual capital expenditure on technology and to develop land and other resources exceeding A$2 billion. To be sure, car makers are not completely abandoning Australia. Ford will retain its Asia-Pacific product development centre in Victoria as it invests A$300 million annually. Holden will also keep its design studio in the state. The end of car making in Victoria is estimated to hit 6,500 jobs. Even so, the broad manufacturing sector added 14,600 workers over the twelve months to August in Victoria alone with investments in transport and areas like defence and new energy, official data shows. “Outside of mining there are pockets of the economy doing very well. That is turning up in confidence and condition,” Mentis said. Not far from CME, Bass River Dairies, a dairy farm of 200-odd cows in Australia’s south east coast, is investing in new machinery to boost bottling and cheese-making capacity. “The drop in milk prices has been devastating,” said Kaye Courtney, cheese artisan at Bass, which launched a 7-day cafe at its 230-acre farm last year. “But, we are trying to add value and build the other side of the business.” Reuters
Trade
Indian cotton exports to Pakistan slump amid tensions Traders on both sides of the border said the environment was not conducive to doing business Rajendra Jadhav and Syed Raza Hassan
Rising hostilities between India and Pakistan have brought their US$822 million-a-year trade in cotton to a juddering halt, as traders who are worried about uncertainty over supplies and driven by patriotism hold off signing new deals. The nuclear-armed rivals have seen tensions ratchet up in the past few months over the disputed territory of Kashmir, and cotton traders in both countries said they were watching developments along the de facto border with alarm. Pakistan, the world’s third-largest cotton consumer, usually starts importing from September, but three Indian exporters said the number of inquiries had slowed to a trickle in the last two weeks. In the clearest sign yet of souring relations affecting commerce, Pakistan-based importers also said they were not buying. “At the moment there is no cotton trade. It’s at standstill. There is uncertainty that, God forbid, if war breaks out, what will happen?” said Ihsanul Haq, chairman of the Pakistan Cotton Dealers Association. Pakistan Cotton Commissioner Khalid Abdullah said a “low quantum of trade activity is still taking place.” He said the Pakistan government had not directed traders to stop buying Indian cotton and expected trade to normalize when tensions eased. Indian government officials said they had not yet noticed trading had stopped. But some Indian officials said last week that Prime Minister Narendra
Modi’s government was considering whether it should choke trade with Pakistan to put pressure on its neighbour, even though the trade balance is in India’s favour.
India’s biggest cotton buyer
Trade between India and Pakistan, which have fought three wars since their independence from British rule in 1947, is small. In the 2015/16 fiscal year ending on March 31, official trade between the two was US$2.6 billion. Cotton is the largest component of that total. It is not clear whether other goods and commodities traded between the two, such as jewellery and dry fruits, have been hit by the escalation in hostilities as well, but the disruption to cotton shipments is potentially significant. In the crop year ended September 30, Pakistan was India’s biggest
cotton buyer after its own crop was hit by drought and whitefly pest. It imported 2.5 million bales from India, and supported Indian cotton prices at a time when China was cutting imports, traders said. Lower purchases by Pakistan this year could hurt exports from the world’s biggest producer of the fibre and put pressure on Indian prices, but could also help rival cotton suppliers like Brazil, the United States and some African countries. Chirag Patel, chief executive officer of Indian exporter Jaydeep Cotton Fibers, said the country could export 5 million bales in the 2016/17 crop year, but exports could plunge to 3 million bales without Pakistani imports. An exporter based in Mumbai estimated that Pakistan will need to import at least 3 million bales in 2016/17, and India will have a surplus of around 8 million bales. “As soon as the (political) situation improves, cotton trade will definitely resume between the two countries,” said Haq of the Pakistan Cotton Dealers Association. “Many cotton exporters are not
interested in selling cotton to Pakistan. They are trying to find other markets,” said Pradeep Jain, a ginner based in Jalgaon in the western state of Maharashtra. Shahzad Ali Khan, chairman of Pakistan Cotton Ginners Association, referred to a move by the Indian Motion Picture Producers’ Association (IMPPA), a small filmmakers’ body, last month, banning their members from hiring Pakistani actors.
Key Points Pakistan a key market for Indian cotton exporters Tension between rivals puts traders off doing deals Some officials say business should resume in time “India is banning Pakistani artists, so how can it expect us to buy cotton from India?” Khan said. “In various forums Pakistani traders are saying they will not buy cotton from India this year. Even if they need to pay extra, they will pay and buy it from other suppliers.” Reuters
14 Business Daily Tuesday, October 11 2016
International In Brief OECD
Growth momentum stable in major economies Economic momentum is holding stable in major industrialised economies while growth has settled at a lower rate in Britain after its vote in June to quit the European Union, the OECD’s monthly leading indicators showed yesterday. The Parisbased Organisation for Economic Cooperation and Development said its leading indicator for its 34 member countries was unchanged in August at 99.7, where it has stood since March. That compares with a long-term average represented by 100. The indicator for Britain ticked up to 99.5 from 99.3 in July in a reading the OECD said was consistent with “growth stabilising around a lower rate”.
Crude price
Saudi minister says oil at US$60 not ‘unthinkable’ The country pumped a record 11.11 million barrels a day last month Nayla Razzouk and Grant Smith
T
he oil-price could recover to US$60 a barrel by the end of 2016, said Saudi Arabia’s Energy Minister, just weeks after agreeing to cut supply for the first time in eight years. The world’s largest crude exporter will work with other producers to determine output caps and is “optimistic” about reaching a deal by the end of November, although OPEC shouldn’t take action that would
Research
Clean energy investment at weakest since 2013 Global clean energy investment fell to its lowest quarterly level since 2013 between July and September due to a lull in offshore wind financing in Europe and a slowdown in project financing in China and Japan, research showed yesterday. Investment in renewable energy and smart energy technologies totalled US$42.2 billion in the third quarter, down 31 per cent from the previous quarter and down 43 per cent from the third quarter of 2015, a report by Bloomberg New Energy Finance said. Asset finance of utility-scale renewable energy projects fell 49 per cent year-on-year to US$28.8 billion in the third quarter.
shock the oil market, Khalid Al-Falih said yesterday. Many non-OPEC producers have expressed a willingness to cooperate and the minister said he will meet his Russian counterpart in the next couple of days. “It is not unthinkable that we could see US$60 by year-end,” Al-Falih said at the World Energy Congress in Istanbul. The oil market has “shifted” since 2014, when Saudi Arabia led the Organization of Petroleum Exporting Countries to abandon its production ceiling in pursuit of market share, and it’s now time to do something different, Al-Falih said. The minister’s first public comments since the Algiers accord of September 28 underscore the dramatic shift in Saudi strategy away from unfettered production, which will be formalized at the group’s next meeting on November 30 in Vienna.
Saudi shift
Khalid Al-Falih, Saudi Arabia’s Energy Minister
While the kingdom’s two-year-old market strategy forced some U.S. oil companies to cut back production, an enduring oil glut has prevented a lasting price recovery. OPEC decided last month to limit production to a range of 32.5 million to 33 million barrels a day to accelerate the “on-going drawdown of the stock overhang and bring the rebalancing” in crude markets forward. OPEC’s framework agreement to limit output must accommodate
Libya and Nigeria, Al-Falih said. Both nations plan to restore output lost to war and militant attacks. Al-Falih made no mention of Iran, which has also said it wants to continue raising production after international sanctions were eased this year. Ministers from some of the largest oil-producing nations are gathering at the World Energy Congress in Turkey. With benchmark Brent crude trading below US$52 a barrel - less than half its price in mid-2014 - oilrich countries from Saudi Arabia to Russia have come under budgetary pressure, while major companies are set to cut investment for a third year.
Russian co-operation
While Russia has signalled its intention to coordinate efforts with other producing nations to stabilize oil markets, the country doesn’t expect to sign an oil output deal this week in Istanbul, Alexander Novak, the Russian energy minister, said in an interview in Moscow last week. Meetings in Istanbul will be for “consultations,” he said. Al-Falih’s oil price prediction was echoed by Bob Dudley, the chief executive officer of BP Plc, who told Bloomberg Television in Istanbul that a range of US$55 to US$60 a barrel was possible by year-end following the OPEC agreement. Saudi Arabia is prepared to deal with any oil price and there’s “absolutely no reason to panic” over the country’s balance sheet, Al-Falih said. The nation’s budget deficit reached 16 per cent of gross domestic product last year. Bloomberg News
Business Daily Tuesday, October 11 2016 15
Opinion Business Wires
The Korea Herald Foreign investors continued their net buying of South Korean stocks for the fourth straight month in September, raising their share ownership to a near record high, data showed yesterday. Offshore investors bought a net 1.63 trillion won (US$1.46 billion) worth of listed South Korean shares last month, marking the fourth consecutive month of net purchases, according to the data by the Financial Supervisory Service. Their cumulative net purchases reached 11.1 trillion won in the first nine months of the year, raising their ownership of listed stocks to 30.5 per cent of the total market value as of end-September, unchanged from the previous month.
The cost of overhyping globalization Philstar The country’s automotive and motorcycle industries have maintained their pace as among the fastest growing in Southeast Asia as of end August this year. The latest report from the Asean Automotive Federation showed vehicle sales in the country finished with the third fastest growth in the region at 28.3 per cent from January to August 2016. Vehicles sold in the country during the eight-month period stood at 229,919 units, the report showed. The Philippines was behind Singapore and Vietnam which registered sales growth of 61.9 per cent and 34.5 per cent, respectively.
Taipei Times The central government is mulling the establishment of a Taiwanese version of the U.S.’ Defence Advanced Research Projects Agency (DARPA) in a bid to accelerate the research, development and application of military technology, Deputy Minister of National Defense Lee Hsi-ming said. Lee made the comments at the 14th annual US-Taiwan Defence Industry Conference in Williamsburg, Virginia. Chinese Nationalist Party (KMT) Legislator Johnny Chiang yesterday said that integrating the industries should be the responsibility of the Ministry of Economic Affairs, while advancing defence research should be conducted by the National Chungshan Institute of Science and Technology.
The Times of India Expressing “extreme disappointment” with delay in completion of IMF quota reforms, India on Sunday stressed that the Fund should strictly abide by the new deadlines set for the 15th General Review of Quota. Finance Minister Arun Jaitley (pictured left shaking hands with IMF head Christine Lagarde, with India’s prime minister in the middle) also said that since the forces of globalisation and multilateralism can go a long way in expanding global growth opportunities, “we must focus on the coordinated policy actions and growth strategies”.
A
s the world’s financial elite converges on Washington, DC, for the annual meetings of the International Monetary Fund and the World Bank, they cannot escape yet another clarion call to reverse the retreat of globalization. Faltering trade, it is assumed, must be an adverse trend that needs to be addressed. But the assumption is simplistic, at best. The problem lies in a lack of understanding of what drove trade growth over the last few decades. To be sure, there have been efforts to grasp the current slowdown. The IMF’s latest World Economic Outlook devotes an entire chapter to it. But no significant new barriers to trade have been identified. Instead, the IMF declares, some threequarters of the slowdown in trade growth is a result of “overall weakness in economic activity,” especially investment. The Fund also asserts that “the waning pace of trade liberalization and the recent uptick in protectionism” have played a role, though it is not quantifiable. Even without establishing a clear understanding of what is driving current trends, however, the IMF report calls for action to revive the “virtuous cycle of trade and growth.” Clearly, faith in trade is very strong. But faith is part of the problem. Blind faith in globalization led many to overhype it, creating impossible expectations for trade liberalization. When those expectations were not met, many people felt duped and rejected free trade. This is not to say that there is no empirical case for trade liberalization. Dismantling trade barriers enables countries to start specializing in sectors in which they are more productive, which leads to higher growth and living standards for everyone. And, indeed, from the 1950s to the 1980s, the process of breaking down the high trade barriers that had been erected during World War II brought major gains. But these gains petered out eventually. Economic theory implies that the gains from reducing trade barriers decline faster as those barriers become lower. So it should not have been surprising that, by the early 1990s, when tariffs and other trade barriers had already reached very low levels, the traditional benefits of trade liberalization had largely been exhausted. Eliminating what small barriers remained would not have had much impact. What did have an impact was a two-decade-long commodity-price boom. High prices enabled major commodity exporters to import more and to pursue growth-enhancing policies at home – a boon to global growth. Moreover, because commodities account for a large share of world trade, rising prices boosted its total value. Rather than acknowledge the role of commodity prices in bolstering both trade and growth in the early 2000s, most economists and politicians attributed those positive trends to tradeliberalization policies. In doing so, they reinforced the notion that “hyper-globalization” was the key to huge gains for everyone.
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Daniel Gros Director of the Centre for European Policy Studies.
But the growth fuelled by higher commodity prices, unlike that produced by the dismantling of trade barriers, caused a decline in living standards in the commodity-importing advanced countries, because it reduced the purchasing power of workers. No politician dared to make this distinction. So when advanced-country workers were squeezed economically, they concluded that globalization was the problem. The role of commodities in the recent struggles of advanced-country workers is reflected in the differences between the experiences of those in the United States and Europe. Because the U.S. produces much of its own oil and gas, the increase in commodity prices had less of an impact on the economy as a whole than in Europe. But, for individual workers, the impact of rising commodity prices was larger in the U.S. – not least because, in Europe, high sales taxes meant that even a doubling of crude oil prices produced only a modest increase in prices at the pump. Only oil producers, and a small number of workers in the sector, benefited from higher oil prices in the U.S. Still, high-priced commodities – and, in particular, crude oil – created the illusion of wealth for the U.S., which, unlike European countries, did not feel the need to increase its manufacturing exports to balance its external accounts. So the U.S. allowed its manufacturing sector to stagnate, as its external balance deteriorated. As a result, American workers got squeezed from two sides. All of this happened at about the same time as the North American Free Trade Agreement was coming on stream. Though most studies show that net job losses due to NAFTA were limited, this timing created the strong impression that free-trade agreements – and globalization in general – was a raw deal for American workers. When the global financial crisis erupted in 2008, destroying the value of houses that had kept those workers feeling wealthy, the true weight of the situation fell on U.S. workers. This created an opening for demagogues like Republican presidential candidate Donald Trump to win support on promises of prosperity through protectionism. Having misunderstood the causes of the extraordinary growth in trade in recent decades, political elites over-sold globalization. When one considers the gulf between their promises – explicit and otherwise – and the actual experience of many workers, the current backlash against trade openness should be no surprise. But there is good news: if the decline in the volume of trade is due to lower commodity prices, it will largely benefit advanced-country workers. Perhaps this will be enough to ease the demand for unnecessary new trade barriers. Project Syndicate
Faith is part of the problem. Blind faith in globalization led many to overhype it, creating impossible expectations for trade liberalization.
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16 Business Daily Tuesday, October 11 2016
Closing Smartphones
Samsung halts Note 7 production after new fire scare
Fires in phones that were meant to replace devices that had been recalled because of their propensity to explode would be a Samsung Electronics Co Ltd suspended disaster for the world’s largest smartphone production of its flagship Galaxy Note 7 maker, suggesting it has failed to fix a problem smartphones, a source said yesterday, after that has already hurt its brand and threatens reports of fires in replacement devices added to derail a recovery in its mobile business. to the tech giant’s worst ever recall crisis. Top U.S. and Australian carriers also suspended “If the Note 7 is allowed to continue it could lead to the single greatest act of brand sales or exchanges of Note 7s, while major self-destruction in the history of modern airlines reiterated bans on passengers using technology,” said Eric Schiffer, brand the phones, after smoke from a replacement strategy expert and chairman of Reputation device forced the evacuation of a passenger Management Consultants. Reuters plane in the United States last week.
Top award
Contract theory earns pair Nobel Economics Prize Two U.S.-based academics won the Nobel Economics Prize yesterday for ground-breaking research on contract theory that has helped design insurance policies, executive pay and even prison management Pia Ohlin
O
liver Hart, a BritishAmerican economist, and Bengt Holmstrom of Finland “have developed contract theory, a comprehensive framework for analysing many diverse issues in contractual design, like performancebased pay for top executives, deductibles and co-pays in insurance, and the privatisation of public-sector activities,” the Nobel jury said. Their pioneering work has laid “an intellectual foundation” for designing policies and institutions in many areas, it added. Working separately, the two created tools to help determine whether teachers, healthcare workers, and prison guards should receive fixed salaries or performance-based pay, and whether providers of public services, such as schools, hospitals, or prisons, should be publicly or privately owned. “ Th e n e w th e o r eti ca l t o o l s created by Hart and Holmstrom are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design.” Hart, born in 1948, is an economics professor at Harvard University in the United States, while Holmstrom, 67, is a professor of economics and
management at Massachusetts Institute of Technology. The pair will share the eight million kronor (US$924,000) prize. “My first action was to hug my wife, wake up my younger son ... and I actually spoke to my fellow laureate,” Hart told the Nobel Foundation website. Holmstrom meanwhile told reporters via video link at the Nobel press conference in Stockholm that he was “very surprised, and very happy” to win the prestigious award. Holmstrom is known for his research into how contracts and incentives affect corporate behaviour including governance, as well as liquidity problems in financial crises.
A board member at Finnish telecoms company Nokia from 1999 to 2012, Holmstrom was asked by reporters whether executives’ bonuses were too big today. “My theories don’t take a stand on that ... My personal view is that (top executives’ labour contracts) are too complicated today,” he said, adding: “What improved in later years is ... that they don’t get everything in a very short period, they get things over time.” In the late 1970s, Holmstrom showed how the optimal contract carefully weighs risks against incentives. In later work, he generalised those results to more realistic settings, such as when employees are not only rewarded with pay, but also with potential promotion, or when individual members of a team can coast on the efforts of others.
Privately or publicly owned?
In the mid-1980s, Hart made fundamental contributions to a new branch of contract theory that deals
with so-called incomplete contracts. “Because it is impossible for a contract to specify every eventuality, this branch of the theory spells out optimal allocations of control rights: which party to the contract should be entitled to make decisions in which circumstances?” the jury said. Hart’s research has provided new theoretical tools for studying questions such as which kinds of companies should merge, the proper mix of debt and equity financing, and when institutions such as schools or prisons ought to be privately or publicly owned. Last year, the Nobel economics prize award went to U.S.-British researcher Angus Deaton for his ground-breaking work on poverty. The economics prize is unique among the Nobel awards in that it was created by the Swedish central bank in 1968 -- the others were all set up through the 1895 will of Swedish inventor and philanthropist Alfred Nobel. The economics award is the fifth of the six Nobel prizes to be announced this year. Last week, the awards for medicine, physics, and chemistry were announced, as well as the peace prize, which went to Colombia’s President Juan Manuel Santos for his efforts to end a half-century war with the FARC rebels. The final prize, for literature, will be announced Thursday. For that award, the Swedish Academy could tap a superstar novelist such as Philip Roth of the United States or Haruki Murakami of Japan, or a lesser-known writer such as Norwegian playwright Jon Fosse or Syrian poet Adonis. AFP
Trade
Non-performing loans
Global impact
Holidays make Bangladesh exports fall
Beijing details plan for debt-for-equity swaps
Singapore minister sees possibility of contraction
Bangladesh’s exports fell 5.6 per cent in September from the same period a year earlier to US$2.24 billion, the Export Promotion Bureau said yesterday, 18 per cent below target. For July-September, the first quarter of the country’s 2016-17 financial year, exports rose 4 per cent to US$8 billion from a year earlier, the Export Promotion Bureau said. Shipments of readymade garments, comprising knitwear and woven items, totalled US$6.66 billion in July-September, up 3.5 per cent on-year. Garment exporters attributed the September drop to holidays for the Muslim Eid festival. “The fall is mostly due to the long Eid vacation,” said Siddiqur Rahman, president of the Bangladesh Garment Manufacturers and Exporters Association, discounting any impact on shipments from a July attack on foreigners and other recent violence. The US$28 billion a year garment export industry had been recovering strongly from a tragedy three years ago, when a factory building collapsed, killing more than 1,100 people and prompting safety checks that led to factory closures and the loss of exports and jobs. Reuters
China’s State Council yesterday released a guideline on the long-discussed debt-for-equity swaps, pledging the scheme will be conducted in an “orderly” fashion as the country steps up efforts to tackle high corporate debt. Companies with “temporary difficulties” but “long-term potential” will be able to exchange their debt for stocks, according to the guideline. Poorly performing “zombie enterprises” and those with bad credit records will be forbidden from participating, according to the State Council. The plan prevents banks from directly swapping non-performing loans, with conversions to be handled by asset management institutions and state investment firms. But at a press conference on the issue yesterday, Wang Zhaoxing, vice chairman of the China Banking Regulatory Commission, said Chinese banks could apply to establish new qualified institutions to conduct swaps. High corporate leverage in China has become a major threat to financial stability in recent years, especially as China’s growth has faced persistent pressure. Xinhua
The possibility of Singapore’s economy experiencing “some quarters of negative growth” cannot be ruled out, although the government does not expect an outright recession, a government minister was quoted by local media as saying yesterday. The comments came just days before a semi-annual monetary policy decision by Singapore’s central bank and the release of the government’s advance estimate of third quarter gross domestic product, both of which are due on Friday. “Our base line projection is not an outright recession, but we cannot rule out the possibility that the economy will experience some quarters of negative growth on a quarter on quarter basis,” Trade and Industry (Trade) Minister Lim Hng Kiang was quoted by local broadcaster Channel NewAsia as saying in Parliament. Given the on-going developments in the global economy, the government will continue to monitor the situation closely and stands ready to respond in the event of a downturn, Lim said. He added that the government is still expecting the economy to grow between 1 to 2 per cent for the full year, “albeit on the lower end of the projection curve”. Reuters