Macau Business Daily October 12, 2016 by Business Daily

Gov’t says yes to BNU’s Hengqin expansion Bank Page 2

Wednesday, October 12 2016 Year V Nr. 1149 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Wealth

Sheldon Adelson, Steve Wynn rise on Forbes 400 Richest list Page 7

Monetary

www.macaubusinessdaily.com

M&A

China supports MSAR with renminbi clearing centre Page 3

U.S. watchdog strengthens scrutiny of deals led by Chinese firms Page 9

Debt relief

S&P rating agency: Chinese banks could need trilliondollar injection Page 8

Premier Li Comes Bearing Gifts Economy

Five new Sino-Luso establishments in the MSAR. Driving Beijing’s plan to enhance the city’s role as a platform between China and Portuguese-speaking countries. Chinese premier Li Keqiang also announced supporting measures, including financial aid, for the PRC’s African and Asian Lusophone partners at yesterday’s ministerial conference. Pages 4 & 5

Start-up competition

Entrepreneurship The StartUP Macau Forum attracted 19 teams from China, Portugal and Macau to pitch their ideas to a jury. First prize goes to Portuguese team Zaask. Portugal’s Secretary of State of Internationalization, Jorge Costa Oliveira, tells Business Daily the event could advance the SAR’s start-up culture. Page 6

Inking the link

The MSAR Gov’t and Portugal have inked two co-operation agreements. On tourism and food monitoring. Seeking to add more investment and job opportunities in the jurisdictions. In addition to strengthening the exchange of information on food safety.

Not so smart

Consumer rights S. Korean electronic gadget giant Samsung has problems. Halting the production of its problematic Galaxy Note 7 smartphone. Macau’s Consumer Council urges local residents to stop using the devices. Pledging to help local buyers seek remedies from the local distributor. Page 2

RMB outflow fears Tourism Page 3

HK Hang Seng Index October 11, 2016

23,549.52 -302.30 (-1.27%) Worst Performers

China Unicom Hong Kong

+5.63%

CNOOC Ltd

+0.39%

China Merchants Port Hold-

-4.35%

Cheung Kong Property

-2.99%

Galaxy Entertainment Group

+2.56%

Hong Kong & China Gas Co

+0.14%

China Overseas Land &

-4.19%

Hang Lung Properties Ltd

-2.94%

Belle International Holdings

+1.47%

HSBC Holdings PLC

+0.00%

China Resources Land Ltd

-3.86%

Cheung Kong Infrastructure

-2.92%

+1.15%

Tencent Holdings Ltd

-0.19%

Bank of East Asia Ltd/The

-3.77%

New World Development

-2.78%

China Mengniu Dairy Co Ltd

-0.27%

Sino Land Co Ltd

-3.18%

CK Hutchison Holdings Ltd

-2.65%

Sands China Ltd PetroChina Co Ltd

+0.54%

24° 26° 25° 28° 25° 29° 26° 30° 25° 31° Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Future of yuan The RMB could be suffering larger outflows than official figures show. So says Goldman Sachs. According to the bank, cross-border movement of the currency masked pressures. Moving the focus from the forex market. And highlighting the need for reform in domestic financial markets. Pages 10 & 15

2 Business Daily Wednesday, October 12 2016

Macau In Brief Transport

Public parking available at Iat Seng Building in Taipa Social housing building Edifício Iat Seng, located in Estrada Nordeste da Taipa, opens its public car park today, offering a total of 607 public parking lots, according to a dispatch signed by Chief Executive Fernando Chui Sai On in yesterday’s Official Gazette. The new car park charges MOP6 (US$0.75) per hour for automobiles and MOP2 for motorcycles during the daytime, while MOP3 is charged per hour for automobiles and MOP1 for motorcycles during the nighttime. With 292 parking spaces allocated for automobiles and 315 for motorcycles. A.L.

Technology Samsung announces halting of production of its latest smartphones

Consumer Council to help local Galaxy Note7 buyers

he Consumer Council announced yesterday the provision of assistance for local buyers of smartphone Galaxy Note7 to obtain a refund or exchange of other products from the local distributor of Korean electronic gadget company Samsung Electronics Co. Ltd. The Korean smartphone manufacturer announced in a statement yesterday that the company would halt the sales and production

of its latest smartphone model Galaxy Note 7 smartphones, following reports of explosions of the devices’ lithium batteries and the replacements. According to the city’s Consumer Council, local buyers are able to register with the Council and their demands will be conveyed in a uniform manner to the related agency as soon as possible. The Council added that it would provide the latest information to affected buyers as soon as the local

distributor announces any update. It also advises buyers to stop using the problematic devices. In fact, the producer of the smartphones is also urging buyers to halt their use of the model. ‘Consumers with either an original Galaxy Note7 or replacement Galaxy Note7 device should power down and stop using the device and take advantage of the remedies available,’ Samsung advised in yesterday’s statement. C.U.

Public contracts

Health Bureau inks technical support contract with CTM Local telecommunication operator Companhia de Telecomunicações de Macau, S.A.R.L. (CTM) has been awarded a MOP5.6 million (US$706,487) service contract by the Health Bureau for the provision of computer technical support to the latter, according to yesterday’s Official Gazette. A dispatch signed by Chief Executive Fernando Chui Sai On shows the government will pay the telecom operator in three tranches. A payment of MOP941,000 is to be made this year, whilst the Bureau will pay MOP2.8 million in 2017 and MOP1.9 million in 2018. A.L.

Banks

Gov’t greenlights BNU’s new Hengqin branch The MSAR Government has permitted Banco Nacional Ultramarino (BNU) to open a new branch on Hengqin Island in Zhuhai, according to

yesterday’s Official Gazette. The dispatch signed by Secretary for Economy and Finance Lionel Leong Vai Tac reads that BNU is

permitted to run the same business in Hengqin as it is allowed to in the Special Administrative Region. The intention of BNU to set foot on the Mainland island was first reported in April last year when the CEO of the bank, Pedro Cardoso, told news agency Lusa that BNU was planning to expand to Hengqin in 2016 in order to promote commercial ties between its clients in China and Portuguese-speaking countries. According to the bank’s recent financial statement, it generated M O P 2 78 . 6 m i l l i o n ( U S $ 3 4 . 9 million) in net profit for the first half of this year, which represents an increase of 17 per cent year-onyear. The bank was also serving 217,398 clients in Macau during the period, up 4.5 per cent yearon-year. A.L.

Security

Gov’t shelling out MOP2.82 mln on ammo The Public Security Forces Affairs Bureau has awarded MOP2.82 million (US$352,500) to Global Trade Oriente Comércio e Representações Limitada to provide ammunition, according to a dispatch released yesterday in the Official Gazette. The dispatch, signed by Chief Executive Fernando Chui Sai On, indicates the payment would be made in the budget for the next fiscal year. This is not the first time that the ammunition supplier has been granted public contracts by the government. In 2011, the then-Secretariat for Security also reached a deal with the company to provide S-10 filters. C.U.

Tourism

Visitor arrivals up 8.5 pct in Golden Week The total number of tourist arrivals during the whole of National Day Golden Week – from October 1 to October 10 – reached 1.61 million, indicating a year-on-year increase of 8.45 per cent, according to the latest data released yesterday by the Public Security Police Force (PSP). Total border crossings at the city’s seven immigration checkpoints reached 4.7 million for the ten days, of which the number of arrivals amounted to 2,355,720 while that of departures accounted for 2,359,090. Of the seven border checkpoints, the Border Gate recorded the highest number of arrivals and departures, at 1.15 million and 1.28 million, respectively. The second popular border was the Outer Harbour Terminal on the Peninsula, with

157,211 arrivals and 150,749 departures recorded. During the ten days of Golden Week, the third day registered the

highest number of border crossings, at 520,386. Of the total, 270,525 were arrivals and 249,861 were departures. C.U.

Business Daily Wednesday, October 12 2016 3

Macau

Tourism

MSAR, Portugal ink co-operation deals Governments agree to co-operate on tourism and food safety Cecilia U cecilia.u@macaubusinessdaily.com

wo c o - o p e r a t i o n agreements in the sectors of tourism and food monitoring were signed by representatives of the Macau and Portuguese governments at Government Headquarters yesterday. The Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, on behalf of the MSAR Government, signed the agreement on tourism co-operation with Manuel Caldeira Cabral, the Minister of Economy of Portugal. This tourism agreement between the two parties seeks to create more opportunities for investment and jobs, to elevate the partnership between the MSAR and Portugal, and to improve the economic development of both regions.

The agreement encourages cooperation between travel agencies and associations of the two regions. In addition, it supports the parties’ tourism advertising and promotion, in addition to providing tourismrelated training and assisting staff to acquire professional qualifications. The Portuguese official remarked yesterday that the tourism agreement will create a number of advantages, such as the building of bridges between Macau and Portugal, no matter in the field of tourism promotion or the development of travel companies of both regions. He believes that the agreement will encourage the exchange of experience of the two regions.

Food-safety co-operation

Meanwhile, the Secretary for Administration and Justice, Sonia Chan Hoi Fan, inked a co-operation

Monetary

China pledges support for Macau with renminbi clearing center Farah Master

Chinese premier Li Keqiang has pledged to support Macau, with a series of policies including setting up a renminbi clearing centre for Portuguese-speaking countries, the Xinhua newsagency reported on Tuesday. Mr. Li said he expected Macau to push development as a global tourism and leisure centre and as a service platform for economic and trade cooperation between China and Portuguese-speaking countries. R e f e r r i n g t o M aca u as th e “treasured soil of the lotus flower of the motherland”, the Premier praised the MSAR as a good example of the ‘one country, two systems’ principle on which both Macau and the neighbouring financial hub of Hong Kong are modelled. Mr. Li said the central government r ec o g n i s e d M aca u ’ s w o r k i n successfully tackling challenges as Macau’s economy has experienced “adjustment” over the past two years and making new achievements. In contrast, calls for independence in Hong Kong, a former British colony, have increased over recent years, exacerbating tensions in the freewheeling business hub as residents

campaign to preserve their city’s freedom in the face of what they see as Beijing’s bid to curb them. Th e B e i j i n g o f f i c i a l ’ s v i si t to Macau came as gambling revenues grew for the second consecutive month in October after more than two years of declines. The special administrative region is the only place in China where residents can gamble legally in casinos. The central government has been pushing Macau to diversify away from casinos due to its economic dependence on the industry, which contributes more than 80 percent of government revenue. New policies also include supporting Macau in hosting an “annual global tourism economy forum, creating influential conventions and exhibitions, and establishing the headquarters of the cooperation and development fund between China and Portuguesespeaking countries”, the official Xinhua agency said without giving further details. Last December, China granted tiny Macau, which has an area of 30 sq km (12 sq miles), control over its surrounding sea for the first time to help boost its economic development, more than tripling its size. Reuters

agreement monitoring food safety with the Portuguese economy minister. The agreement signed by Secretary Chan seeks to strengthen the exchange of information about food safety between the two regions in order to further improve the confidence of consumers. “We wish the agreement would strengthen the co-operation,” Secretary Chan said. “In terms of food safety and food quality, as well as training personnel, we wish we could do better in order to meet

international standards and to ensure the public is at ease”. Minister Cabral perceives the good performance of food safety will lead to the growth of the tourism industry such as the development of restaurants due to the improvement in confidence of customers to consume food from the two regions. The MSAR and Portugal recently inked a co-operation framework agreement in May 2001. This is not the first time that the MSAR Government has signed co-operation deals with Portuguese-speaking countries. The Macau Government signed Tourism Co-operation Memorandums with the Republic of Cape Verde, Guinea-Bissau and the Republic of Mozambique in 2010, and with the Democratic Republic of Timor-Leste in 2013 and the Republic of Angola in 2015.

4 Business Daily Wednesday, October 12 2016

Macau Economy Beijing official kicks off the works for a Sino-Luso economic complex in Nam Van

Li Keqiang: Five new Sino-Luso establishments in MSAR

remier L i K e q i a n g a n n o u n c e d y est e r da y five establishments to enhance the city’s role as a platform between China and Portuguese-speaking countries, commenting the MSAR is an “indispensable” bridge for the countries presenting at the 5th SinoLuso ministerial forum given its bilingual culture, strategic position and commercial environment. These five new policies, as covered in the country’s 18 measures to support African and Asian Portuguese-speaking countries, elaborate upon the next stage of Macau’s role as platform, which includes developing the MSAR into a Sino-Luso financial services platform; the establishment of a Sino-Luso association of Enterprises Directors; the founding of a LusoSino bilingual talent training base; the set-up of a Sino-Luso centre for Cultural Exchange; as well as the establishment of a Sino-Luso Complex of Commerce and Trade Co-operation Platform. In fact, yesterday morning the premier presided at a plaqueunveiling ceremony for a complex supporting trade and economic co-operation between China and Portuguese-speaking countries. The complex - which will be built on plots C15 and C16 in Zone C near Nam Van Lake and will occupy an area of approximately 14,200 square metres - aims to serve as the meeting venue for Forum Macao. In addition, the complex will

house an exhibition centre for food products from Portuguese-speaking countries; a business service centre for enterprises from the Forum countries; a training centre; an information centre; an exhibition hall showcasing Luso-Sino relations and the cultures of those places; and

a room to stage exhibitions related to Macau’s urban development. Speaking at the unveiling ceremony, Chief Executive Fernando Chui Sai On said the realisation of the project will mark a new milestone in Macao’s efforts to become such a platform.

He believes the project will speed up the realisation of the strategic goal of transforming the Special Administrative Region into a commercial and trade co-operation service platform between China and the Portuguese-speaking countries.

Premier Li Keqiang (right) and Chief Executive Fernando Chui Sai On (left) officiate at the plaque unveiling ceremony of a new Sino-Luso complex in Nam Van.

Sino-Luso Forum China announces 18 measures to support Portuguese-speaking partners

House of friends Chinese premier Li Keqiang said yesterday the country seeks to enhance its economic and trade co-operation with Portuguese-speaking countries Nelson Moura nelson.moura@macaubusinessdaily.com

t the opening ceremony of the 5th Ministerial Conference yesterday, Chinese Premier Li Keqiang announced 18

Li Keqiang, China's premier

measures that China plans to have implemented between 2017 and 2019 in order to enhance financial cooperation with Portuguese-speaking countries in Africa and Asia. These include granting concession loans worth no less than RMB2 billion (MOP2.3 billion/US$297.8

million) in order to develop China’s co-operation with these countries in terms of industry connections and infrastructure development. The amount is higher compared to the RMB1.8 billion in the previous Ministerial Conference in 2013. The Chinese premier also announced the write-off of RMB500 billion of due debts of Asian and African Portuguese-speaking countries participating in the Forum. According to Mr. Li, some RMB238 million of due loans of the Lusophone world have been pardoned since 2013. In addition, China is to grant RMB2 billion to its Asian and African

Portuguese-speaking partners in order to support their key livelihood projects, such as medical treatment and research, agriculture, trade and investment facilitation. In terms of human resources cooperation, China promises to offer training opportunities for 2,000 trainees from the Lusophone world, in addition to offering government scholarships to 2,500 persons. “China has become one of the most important partners for Lusophone countries and their main destination of exports, with last year’s trade volume close to US$100 billion (MOP799.2 billion). Also, Lusophone countries have established almost

Business Daily Wednesday, October 12 2016 5

Macau 1000 companies in China, whilst the volume of business projects contracted to Chinese companies in Lusophone countries is close to US$90 billion,” Li Keqiang stated in his opening address. Maritime co-operation was also addressed in these 18 measures. The Chinese premier stated that the country would provide help to the countries to develop facilities such as marine meteorological observatories in order to respond to marine disasters and climate change challenges. Th e Chi n es e o ffici a l said it welcomed the Portuguesespeaking countries developing tighter co-operation in terms of infrastructure, tourism and investment. “The price of consumer commodities is adjusting,” he said. “In the G20 summit in Hangzhou we opposed protectionism and promoted more openness. Each country here has its specific advantages. The ‘One Belt, One Road’ policy matches many of the development plans of many Portuguese-speaking countries”. Li Keqiang also addressed China’s liberalisation of investment, the promotion of Customs cooperation as well as that of trade and intellectual property laws. He claimed that China was planning to implement zero tariffs for 96 products imported from Lusophone countries. He expected China’s imports to reach RMB8 trillion in the next five years, whilst the country’s foreign investment would total RMB620 billion. In addition, the official anticipates the number of outbound Chinese travellers to reach 600 million.

Close friends

I n h i s o p e n i n g a d d r ess, th e Chinese Minister of Commerce, Gao Hucheng, highlighted that the Sino-Luso conference could bring

the co-operation between China and Portuguese-speaking countries into a “new era”. He added that China perceives the Portuguese-speaking countries as its “close friends”. “There’s a Portuguese saying stating that true friends are forever, while Chinese ones say that a horse’s strength is discovered on a long road, and someone’s heart is known in long days,” the Chinese Minister said. “We see the countries here as close friends and will try and discuss how to implement more co-operation and to face future unfavourable winds”. The official also commented on

Key Points China offers African and Asian Portuguese-speaking countries concession loan worth no less than RMB2 billion write-off of RMB500 billion-worth of debt grant of RMB2 billion for livelihood projects 2,500 government scholarships 2,000 training opportunities

China’s current economy, describing it as “stable and reasonable,” while the government is still working to adapt to the deceleration of the economy. “During the second quarter of the year, the growth rate [of China’s GDP] was 6.7 per cent, lower than the previous double-digit rate…Our debt rate is relatively low compared to the world’s biggest economies. [Our debts] are mainly domestic ones made by construction projects for short-term economic development,” Mr. Gao said.

Marcos Pereira, the Minister of Industry, Trade and Services of Brazil

Brazil simplifying foreign investment procedures

Brazil’s Minister of Industry, Trade and Services, Marcos Pereira, claimed in his speech that the South American country is simplifying its procedures for overseas investors. According to the Brazilian official, the government there has established a project named Crescer, which seeks to attract foreign investment by simplifying the country’s process of public tender and bidding, in addition to making the country more accessible to overseas companies. Mr. Pereira perceives it is

imperative for the country to reach more international agreements. On the other hand, he noted the country’s economic recession is showing signs of improvement, with estimates predicting Brazil’s economy will rebound by 0.7 per cent by 2017. “Last week, the International Monetary Fund stated Brazil would recover its position as the 7th biggest economy in the world. This new cycle of recovery is based on massive investments in infrastructure and the fostering of external trade, as methods to make the country economy get back on track,” Correia stated.

Heads of government delegations attend the 5th Ministerial Conference of Forum Macao.

African ties

António Costa, the Prime Minister of Portugal

Portugal’s role

Meanwhile, the Prime Minister of Portugal, António Costa, underlined his country’s willingness to set up not just more bilateral co-operation with China, but trilateral agreements with other Lusophone countries in different sectors targeting agriculture, infrastructure and education. “China and Brazil are two of the world’s largest economies; Africa is the continent with the biggest investment potential in the world for the 21st Century; East Timor [has] the connection with Asia; and Portugal, as a member of the European Union, has an important role as platform between the Forum members and Europe,” the top official of Portugal remarked.

He perceives his country could play a big part in the maritime route of the New Silk Road economic policy. He took Portugal’s memorandum with Chinese investment group Haitong Securities Co. Ltd. as an example, which, by expanding the country’s first artificial harbour Port of Sines, develops the port into an outpost for Chinese companies to enter Europe. Mr. Costa also highlighted that his country puts great store by the Chinese policy of ‘One Centre and Three Platforms’, given the ties between Macau and Portugal go back 500 years. He believes the policy will make Macau the perfect place to connect all Portuguese-speaking markets for China.

At the forum African Portuguesespeaking countries highlighted how their improved co-operation with China has helped them develop regional advantages or products. Angola’s Minister of Finance, Abranhão Gourgel, reckons the country’s economic ties with China since 2002 have expanded the economic and social sectors of the country, boosting the country’s recovery from its previous civil war. “We recognise the need to publicise the initiative ‘One Centre and Three Platforms’ within the business community of Portuguese-speaking countries in order to increase the level of trade co-operation with China,” Gourgel stated. The Prime Minister of GuineaBissau, Baciro Djá, stated his country is willing to open more of its markets in order to consolidate its gains through co-operation. “We always give a lot of importance to the Forum and in better circumstances we could’ve done better. GuineaBissau is rich in biodiversity and has much potential in tourism and agriculture… By the next conference in 2019, we hope the number of Chinese companies in Guinea-Bissau will reach three digits,” the Guinea-Bissau leader stated.

In his address, Cape Verde’s Prime Minister, Ulisses Correia da Silva, highlighted the policy of the country is to focus on attracting overseas investment and developing the country’s strengths in terms of tourism and sea exploration. He hopes the country could serve as a bridge connecting China to the West African market. “There are almost 650 million consumers in Portuguesespeaking countries. We want to promote a more dynamic and operational business and economic co-operation,” Mr. Da Silva said. He added that the country would start teaching Mandarin in its schools from 2017, adding co-operating with China has brought many benefits to the country’s economy. Meanwhile, Mozambique’s Prime Minister, Carlos Agostinho do Rosário, said the country is trying to promote a better investment environment by carrying out legal reform, better Customs benefits and simplifying the country’s procedures for company registration. “The federation of China and Lusophone countries will be essential for [our] development. Meanwhile, the 2017 to 2019 guidelines [from the Forum] will be the paradigm for that development,” Mr. do Rosário said.

6 Business Daily Wednesday, October 12 2016

Macau

Entrepreneurship StartUP Macau Forum brings politicians, businessmen and experts together

Starting to learn how to start-up Start-ups from China, Portugal and Macau pitched their concepts and competed - facing a jury of international experts - bringing to light many of the steps to be made to further local entrepreneurship Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

he M SA R i s f i g h t i n g against a legacy of the exodus of its greatest talent, and will continue to do so for years to come, says Portuguese Secretary of State of Internationalization Jorge Costa Oliveira. The comments from the Portuguese official came on the sidelines of StartUP Macau Forum, held yesterday at the Macau ScienceCenter. “Macau went through - whether in relation to the ethnic Chinese families, whether in relation to the Macanese communities - an exodus of its best and I think that it is normal that that translates in a price to pay for some time,” said Mr. Oliveira, still praising the quality and efforts of the individuals involved in the StartUP Forum. The forum brought together teams from Portugal, Mainland China and Macau to pitch their ideas to a jury, with a first place prize of US$10,000 (MOP80,000) and second and third place prizes of US$5,000.

Legacy

“This start-up event is evidently a very important seed for the potential that there is in relation to helping to create not only a local ecosystem which helps the development of startups – and in this area Portugal has very much experience - but also because it helps to position Macau as a meeting point between the European and Chinese startups,” commented the Portuguese Secretary. Mr. Oliveira told Business Daily that this event works to advance the start-up culture that has suffered limited growth, not due

to the emergence of the gaming industry as the primary sector in the economy but due to a history of Macau as a type of through-station, in which arriving talent has visions focused elsewhere and local talent are either unable to receive training or don’t benefit from a developed enough industry to make it worth their while to stay. “The effort that’s been made, principally in the past 20 to 25 years to create – in terms of qualification, in terms of training – it’s creating effects, and it will certainly permit younger generations to have better training in all sectors and from there will come a new generation of entrepreneurs,” said Secretary Oliveira, noting, however, that this will most likely not be within our lifetime. This sentiment was also echoed by Portuguese Prime Minister Antonio Costa, who presided over the event, noting that: “It’s still necessary to give continuity to this movement because the more encounters the more it will stimulate creativity.” The Prime Minister views Macau as a trampoline for those based in Portugal or the Mainland, given its common culture, judicial and linguistic bases. “Starting from a place of comfort where we can feel relatively at home is obviously much more comfortable than parachuting into the Chinese market,” Prime Minister Costa concluded.

Pushing

H o w e v e r, f r o m a l o g i s t i c s standpoint, there is still work to be done as the overall sentiment of the pitches received from the 19 startups clearly placed each geographical segment in its own

niche – Portugal as most advanced and present in the market, China as most technically and engineeringfocused, and Macau as idea-centric with a long way to go. “Now, as in everything in life, there are only good business opportunities seized if there are good businessmen with the capacity for vision. Those from Macau, in that sense, also have to make their contribution,” said Secretary Oliveira. This is also, in part, due to the necessities of each geographical group, as expressed by members of the judging panel and Chairman and CEO of Capital Link International Holdings Ltd. Brett McGonegal. “I think the industry selection is different and I think that it’s very clearly defined as to what’s motivating those various countries, how they’re building,” said the CEO. Mr. McGonegal, however, contested Secretary Oliveira’s view that the gaming sector isn’t mostly to blame for the limited scope of development of the city’s startups. “I think for the Macau entrepreneurs a lot of the challenge that they have is living in a place that doesn’t have much industry in general, so they’re exposed to one industry; they live it, they breathe it, they know it. And your surroundings really influence your thought processes, your creativity, your focus, your vision,” he said.

And a quick fix is there.

“The government can make things happen really quickly,” said McGonegal. “By decreasing regulation, by rolling out systems, by publicly backing things, by giving support in the media. Obviously, the funds are there; it’s a really a political thing as to how to deploy them.” In this vein, the Secretary of

the Economy and Finance for the MSAR, Lionel Leong Vai Tac, signed a memorandum of understating for the promotion of entrepreneurship and economic and entrepreneurial co-operation between the Portuguese and local government during the start-up event, which saw three winners – one each from Portugal, Macau and China.

Winner

The forum brought together 19 teams, seven from China and six each from Portugal and Macau. Winner of the start-up competition was Portuguese team Zaask, which presented a ‘hyper-local’ service solution already in effect throughout major cities in Portugal and Spain including Lisbon, Porto, Barcelona and Madrid. Presented by founder Kiruba Shankar Eswaran, the project is an online, mobile and chat-based service that links professionals with clients. “We help people hire rated professionals for all types of services ranging from personal training to house-painting. At the same time we help professionals grow their business to qualify business leads,” explained Eswaran. He said that the US$10,000 prize money will be reinvested into the project itself, with the company choosing to not diversify its focus further. “We want to go deeper into what we do. So far, we’re working on some machine-learning stuff, to make the product more lightweight. At the same time we want to scale – so any of such forums is going to help us get visibility,” said the competition winner. In second and third place came local company Phantoms, pitching a luxury watch that the company itself didn’t need to manufacture, a n d M ai n l a n d-bas e d I n st u r e Honge Intelligence Design, which provides design solutions to start-up companies.

Business Daily Wednesday, October 12 2016 7

Macau Wealth

Sheldon Adelson and Steve Wynn rise on Forbes 400 Richest People in America List

American gaming bosses’ fortunes continue stellar trajectory

orbes magazine’s latest 400 Richest People in America List ranks the boss of local gaming operator Sands China, Sheldon Adelson, the 14th wealthiest individual in his country, estimating his net worth at US$31.8 billion (MOP254.1 billion). This represents a one-place rise from the 83-year old’s previous ranking, who opened his new gaming resort on Cotai, The Parisian Macao, just last month. Fellow gaming boss Steve Wynn, CEO of Wynn Resorts Ltd., jumped 33 places to reach 246th richest individual in America, with a net worth calculated at US$2.7 billion. The gaming magnate’s ex-wife Elaine Wynn has also been listed again on the Forbes 400 List since 2014, with a net worth of US$1.9 billion, coming in at 361st place. In

terms of women’s presence, Elaine Wynn reached 42nd place in the List and 12th in Forbes America’s SelfMade Women List. She is currently in a legal dispute

with her ex-husband for the rights to control her US$900 million stake in Wynn Resorts Ltd. According to Bloomberg, she has requested whistle-blower protection from

a US S u p r e m e C o u rt f o r h e r disclosures to the audit committee of the company, as these may been securities law violations by the casino operator. N.M.

payable in cash. This comes out to slightly lower than the valuation of the properties as of September of US$139.7 million. The company will continue to be able to use the name of the current golf course operator and manager ‘Oki Golf’ for up to six years upon completion of the agreement. In return, Oki will enter into a rental agreement with HNA to lease the properties at an annual rate of US$7.1 million as well as contingent amounts for NOI (Gross Revenues

less Expenses and Fixed Rent) based on ratios to be fixed between the two companies. HNA will also be granted the right to appoint a representative to the management committee of the golf properties. HNA recently further diversified its portfolio by purchasing a 23 per cent stake in Portuguese airline TAP. The golf properties are located in the cities of Newcastle, Auburn, Redmond, Port Orchard, Mukilteo, Lacey, Sammamish and Olympia in the state of Washington.

M&A

HNA goes for the green Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

HNA Group Co. Limited, operator of Chinese airline Hainan Airline, is moving into the golf business via the purchase of eight golf courses in Washington State in the United States, as announced yesterday on the Hong Kong Stock Exchange. A total of 180 golf holes with

clubhouses and amenities were purchased, adding 1,887 acres to the group’s core areas: recreational and tourism business and property investment. The company notes that it will additionally contribute to the group’s ‘Intelligent Information’ business. The consideration for the purchase of the eight properties amounts to US$137.5 million (HK$1.07 billion)

8 Business Daily Wednesday, October 12 2016

Greater China S&P

National banks may need ‘trillionaire’ injection Rating agency expects China’s government to continue to allow rapid credit growth over the next 12-18 months before attempting to rein it in

ising debt levels will worsen the credit profiles of China’s top 200 companies this year, requiring the country’s banks to raise US$1.7 trillion in capital to cover a likely surge in bad loans, S&P Global said in reports published yesterday. The study sees little scope for improvement in 2017 amid worsening leverage and substantial excess capacity in almost all sectors. Seventy per cent of the companies s u rv e y e d w e r e stat e o w n e d, comprising 90 per cent of the sample companies’ debt.

The rating agency estimated the problem credit ratio at Chinese banks was 5.6 per cent at the end of 2015. In a downside scenario of unabated credit growth, that ratio could worsen to 11-17 per cent.

“High leverage in corporates will likely constrain investments and aggregate demand.”

over the next 12-18 months before attempting to rein it in, implying that risks would heighten in one to two years’ time. Debt has emerged as one of China’s biggest challenges, with the country’s total debt load rising to 250 per cent of GDP. Excessive credit growth in China is signalling an increasing risk of a banking crisis in the next three years, the Bank of International Settlements (BIS) warned recently. “We expect further deterioration in the credit strength of state owned enterprises as they continue with their

debt-funded expansion,” S&P Global’s report said. A Reuters survey showed 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 languished and loan burdens increased. But privately owned companies in China were turning around as cost controls and reductions in capital expenditure had eased pressure on their cash flows, S&P Global’s report said, highlighting the contrast in performance versus state-owned enterprises (SOEs). As a result, SOE’s median leverage, at about 6 times as of the end of 2015, was about twice the level for private sector entities. “The divergence in credit risks between SOEs and private sector companies will therefore continue to increase,” it said. Reuters

S&P Global’s report In such a situation, banks would need as much as US$1.7 trillion in recapitalisation funds by 2020. Even under a base case scenario, they would require US$500 billion. S&P expects China’s government to continue to allow rapid credit growth

Investors

Foreign holdings of bonds rise most in over 2 years The pull of higher Chinese yields has apparently proved irresistible to many Foreign holdings of Chinese onshore bonds rose by the most in more than two years in September, as overseas investors shrugged off concerns about the Chinese economy in search of attractive yields. Foreign investors raised their holdings of Chinese debt by 50.7 billion yuan (US$7.60 billion) last month to 726.4 billion yuan, data from China’s main bond clearinghouse showed, the most since the Central Depository and Clearing Co began publishing the series

‘China widened access to its onshore interbank bond market to all mediumand long-term investors in February’ in 2014. The series had notched a previous record this year in June, as concerns over yuan depreciation eased and investors eyed falling global yields after Britain’s unexpected decision to leave the European Union. China widened access to its onshore interbank bond market to all mediumand long-term investors in February, but the volatility in China’s foreign

exchange markets, sparked by the central bank’s unexpected decision to devalue the yuan by nearly 2 per cent in mid-August 2015, has inhibited foreign interest until recently, analysts say. Nonetheless, the pull of higher Chinese yields - with 10-year Chinese treasuries yielding nearly 3 per cent against just 1.8 per cent for the 10-year U.S. treasury - has apparently proved irresistible to many. That trend could be unwound again, however, if more volatility returns to the yuan as developed economies start scaling back monetary stimulus and their long-term interest rate benchmarks rise. On Monday, the yuan sold off the most against the dollar since June. In recent months, signs of renewed strong capital outflows from China have also re-emerged, some analysts say. Foreign reserve assets fell US$18.8 billion to US$3,166.4 billion in September, the largest monthly decline since April, wrote Bill Adams, senior international economist with PNC Financial Services Group, in a note dated October 7. Foreign reserves dropped US$38.8 billion in the third quarter of 2016, more than five times the US$7.4 billion drop in the previous quarter, Adams added. “China’s faster decline in foreign reserves in September coincided with signs from the ECB and Bank of Japan that their quantitative easing programs could slow in 2017, which nudged long-term interest rates higher in advanced economies in the month,” Adams said. Reuters

M&A

U.S. watchdog expands scrutiny of Mainland’s Chinese companies have been treated with suspicion by CFIUS because of the ties many of them have to the country’s communist regime Greg Roumeliotis

Insurance mergers and acquisitions rarely raise red flags with U.S. national security watchdogs. China’s Fosun International Ltd took that history to heart last year when it paid US$1.84 billion for the remaining 80 per cent stake of U.S. property and casualty insurer Ironshore Inc that it did not already own. But in December 2015, one month after Fosun completed the acquisition, it was approached by officials at the Committee on Foreign Investment in the United States (CFIUS), a government panel that scrutinizes deals over national security concerns, according to people familiar with the matter who asked not to be identified because these details are not public. CFIUS was concerned about how Fosun would operate Ironshore’s Wright & Co, a provider of professional liability coverage to U.S. government employees such as law enforcement personnel and national security officials, including the Central Intelligence Agency, according to these sources. Fosun, Ironshore and CFIUS all declined to comment on the process. CFIUS operates a voluntary filing system for companies engaged in a deal. Such an instance of the panel approaching companies after they complete a deal is rare. But the recent U.S. scrutiny of Fosun - which did not seek CFIUS approval for the Ironshore deal - is just one example of a new impetus by CFIUS to target what it refers to as “non-notified transactions” - or deals that did not seek CFIUS approval in advance. In the last twelve months CFIUS has stepped up its pursuit of these non-filers over concerns that some deals were falling through the cracks, according to sources with direct knowledge of the

panel’s inner workings. This previously unreported push by CFIUS has the potential to delay some deals and raises the risk of them being thwarted altogether. While Wright accounted for a tiny fraction of Ironshore’s business, the inquiry has forced Fosun to delay its initial public offering of Ironshore, which has been registered with the U.S. Securities and Exchange Commission since June, until CFIUS clears the original acquisition. Fosun will now likely miss a window for IPOs due to the expected market volatility around the November 8 U.S. presidential election, according to the sources. Chinese companies have been treated with suspicion by CFIUS because of the ties many of them have to the country’s communist regime, reflecting the complicated diplomatic and commercial ties between China and the United States. This has not stopped Premier Li Keqiang’s “going out” policy, which encourages Chinese companies to buy foreign trophy assets. The push - aided by CFIUS’s history of rarely shooting down deals altogether - contributed to Chinese M&A activity in the United States reaching a record high of US$32 billion so far this year. To be sure, CFIUS has approached companies in the past as well, and does not limit its review to only Chinese deals. In 2010, CFIUS contacted Russian internet company CMail.ru and AOL Inc over the latter’s US$188 million divestment of messaging service ICQ to Cmail.ru, which had already been completed. The CFIUS review in that instance did not require the deal to be unravelled. On rare occasions, the panel has also vetoed deals, such as the US$3.3 billion sale of Koninklijke Philips NV’s lighting business to a consortium of Chinese

Business Daily Wednesday, October 12 2016 9

Greater China Real estate

In Brief

Unmarried home buyers must show proof they’re single Jinan was among more than two dozens Chinese cities that imposed policies to tame prices and reduce overheating during China’s national holiday week Unmarried investors in the eastern Chinese city of Jinan must show proof that they’re single if they want to buy a home, the official Xinhua news agency said on Monday, pointing to the lengths some cities are going to cool real estate markets.

‘Companies whose deals are reviewed by the watchdog without having made voluntary filings risk delays in completing them’

Bureau. That made it impossible for unmarried home buyers to prove their marital status, Xinhua reported. Frustrated home buyers are calling for quicker responses from the government on the issue but staff with the local real estate trading centre said they were “uncertain” when the problem would be resolved, Xinhua said. Jinan was among more than two dozens Chinese cities that imposed policies to tame prices and reduce overheating during China’s national holiday week. But real estate agents said that readily

available, cheap mortgages and strong demand were likely to keep China’s property market rising, even if restrictions dampen sales and prices over the short term. Fuelled by fears that restrictions would be put in place soon, home buyers in China’s financial hub Shanghai rushed to divorce their partners to be able to invest in multiple homes before a new policy was rumoured to take effect in September. Chinese police then detained seven property agents in Shanghai for spreading rumours. Migrants in Shanghai who don’t hold the Shanghai household registration are required to be married in order to qualify for home purchases, and they are only allowed to buy one house per family. Reuters

investors, which it blocked last January. But Ironshore and similar cases this year show that the U.S. watchdog is flexing its muscles in a more subtle, albeit disruptive, fashion.

Rising scrutiny

CFIUS, an agency made up of eight U.S. government departments and chaired by the Treasury Secretary, does not publicize the reasons for its decisions. The majority of transactions involve private companies with no SEC filings. Recent regulatory filings and stat e m e n ts b y p u b l i c l y l i st e d companies, however, offer glimpses of CFIUS catching some companies off guard. U.S. electronics distributor Ingram Micro Inc said in July it would seek CFIUS approval for its acquisition by Chinese shipping company Tianjin Tianhai Investment, despite saying in February it did not need to, following “consultation” with CFIUS. As a result, in August Ingram Micro pushed back the deadline for the deal with Tianjin to close by three months to November 13. CFIUS is interested in learning more about the company’s supply of technology to the U.S. government, according to the sources. Ingram Micro and Tianjin Tianhai declined to comment. CFIUS has added staff and resources in the last two years to identify nonnotified transactions, the sources said,

Bribery charge added against HK’s former top leader Hong Kong’s former top leader, Donald Tsang, has been hit with a new corruption charge over the refurbishment of an apartment by a businessman who had matters pending before city government. The High Court approved prosecutors’ request yesterday to charge Tsang with accepting advantage from an agent in violation of the city’s Prevention of Bribery Ordinance, adding to the two charges already faced by the former chief executive. The case revolves around whether Tsang failed to disclose the apartment between 2010 and 2012, when he left office after seven years at the helm. Property players

Beijing said to plan tighter control of funds

Housing authorities in Jinan, the capital of Shandong province, announced earlier this month multiple measures aimed at curbing fast-rising home prices. Among the measures was a rule that home buyers would need to get a marital status certificate among other documents to qualify as a buyer. But the Jinan government cancelled the single status certificate last September, according to a document posted on the website of the Jinan Civil Affairs

firms operations

Corruption case

though the number of additional people recruited or the extra funding it was given could not be learned. Among the CFIUS staffers playing a role in identifying non-filers, alongside CFIUS Staff Chairman Stephen Hanson and Treasury Deputy Assistant Secretary for Investment Security Aimen Mir, is Brian Reissaus, a former member of the Defence Security Service, an agency of the U.S. Department of Defence, according to the sources. Reissaus will often be the CFIUS staffer reaching out to companies, the sources said.

Caught off-guard

CFIUS’s crackdown on these nonnotified transactions shows how the agency’s focus has expanded beyond traditional sectors of national security concern, such as aerospace and semiconductors, to less obvious areas ranging from commercial IT and agriculture to biomedical science and electronics. C o m p a n i e s w h o s e d ea l s a r e reviewed by CFIUS without having made voluntary filings risk delays in completing them and uncertainty over their investment plans, lawyers say. In the case of Fosun, to ensure CFIUS approval Ironshore agreed to sell Wright last month to former American International Group Inc CEO Hank Greenberg’s Starr Companies, according to the sources. In light of this divestment and other conversations it had with CFIUS, the company has reset the CFIUS review

process by making another filing with the panel, and an outcome is expected in the coming weeks, one of the sources added. In the interim, Fosun has been exploring selling Ironshore outright as an alternative to an IPO, according to the sources.

Hell or high water

Some companies resist filing for a CFIUS review voluntarily because they fear that addressing this issue during their tough merger negotiations will add an extra layer of complexity to the talks, and some times risk complicating them to the point that a deal is not reached. This is because, once the possibility of a CFIUS review is foreseen in a merger contract, companies have to haggle over who assumes the financial risk under various scenarios. Sellers try to push for “hell-orhigh-water” provisions in contracts requiring the buyers to do whatever it takes in terms of divestitures and other measures to obtain CFIUS approval. Buyers resist this and seek to negotiate in advance what CFIUS remedies would be acceptable to them. A case in point is Zhongwang USA LLC, which is backed by Chinese aluminium magnate Liu Zhongtian, and its US$2.33 billion deal last month to acquire U.S. aluminium company Aleris Corp . Zhongwang USA agreed to “undertake best efforts to obtain CFIUS clearance as soon as practicable,” while also limiting any CFIUS-related divestitures it would be willing to accept to 5 per cent of Aleris’ 2015 U.S. net sales, a regulatory filing shows. The heightened scrutiny is also jacking up CFIUS-related breakup fees that buyers have to agree to in order to get a deal done, with sellers often asking these to be deposited in escrow accounts for more security. In the case of Zhongwang, it placed its US$100 million breakup fee in an escrow account when it signed its deal with Aleris. Taken together, CFIUS lawyers and other consultants are advising their clients to proactively file with the agency to get out in front of the scrutiny. Reuters

China’s financial regulators plan to further tighten control on funds flowing into the property market in violation of existing rules, according to people familiar with the matter. Authorities including the central bank, the China Banking Regulatory Commission and the China Securities Regulatory Commission aim to tighten control on speculative funds in real estate and on funds involved in land transactions against current rules, said the people, who asked not to be identified because the information isn’t public. The people didn’t provide further details. M&A

Sanan says it held talks with Osram Lighting maker Sanan Optoelectronics Co. Ltd. said it has held talks with Germany’s Osram Licht AG about a possible acquisition, raising the possibility of a deal that would add to what’s already a record year for Chinese purchases overseas. Sanan had an “initial communication” with Osram on a potential acquisition or cooperation and met Osram once, according to a statement Monday from the Chinese company to the Shanghai Stock Exchange. Sanan didn’t provide details about the status of the talks, saying that none occurred on details including price and no binding documents have been signed. Hong Kong

Resources Pharma seeks up to US$2 bln-IPO China Resources Pharmaceutical Group is seeking to raise between HK$13 billion and HK$15.6 billion (US$1.68 billion-US$2.01 billion) from a Hong Kong initial public offering (IPO), IFR reported on Tuesday, citing sources close to the plan. China Resources Pharmaceutical will sell 1.54 billion shares in a range of HK$8.45-HK$10.15 each, IFR, a Thomson Reuters publication, reported. A unit of statebacked entity China Resources Holdings, CR Pharma manufactures and distributes drugs in China under well-known brands, including “999”. The offer will be launched on Thursday with pricing scheduled for October 20.

10 Business Daily Wednesday, October 12 2016

Greater China

Currency on the run

Goldman warns outflows may be worse than they look A Bloomberg gauge estimates that more than US$550 billion left the country this year through August

hina’s currency outflows may be bigger than they look, with Goldman Sachs Group Inc warning that a rising amount of capital is exiting the country in yuan rather than in dollars. While the nation’s foreignexchange reserves have stabilized and lenders’ net foreign-exchange purchases for clients have fallen close to a one-year low, official data show that US$27.7 billion in yuan payments left China in August. That’s compared with a monthly average of US$4.4 billion in the five years through 2014. Such large cross-border moves can’t be explained by market-driven factors and need to be taken into account when measuring currency outflows, according to MK Tang, Hong Kong-based senior China economist at Goldman Sachs. Any sign of increased capital outflows could disturb a recent calm in China’s foreign-exchange market, adding to pressure from a potential Federal Reserve interestrate increase and denting the yuan’s image as the world’s newest global reserve currency. The yuan fell to a six-year low on Monday, adding to

outflow pressures. “There is some window guidance from the central bank that limits companies’ dollar conversion onshore, so they need to move the money overseas in yuan,” said Harrison Hu, chief Greater China economist at Royal Bank of Scotland Plc in Singapore. “But they don’t have a strong willingness to hold the yuan due to depreciation expectations, so they sell it to offshore banks. This pressures the offshore yuan’s exchange rate.” Figures on the size of Hong Kong’s pool of the Chinese currency suggest cross-border transfers aren’t staying there for long. Yuan deposits in the city dwindled to a three-year low of 653 billion yuan in August, indicating that some of the inflows are being used to buy foreign currency, said Li Liuyang, a market analyst at Bank of Tokyo-Mitsubishi UFJ in Shanghai. Goldman Sachs started including yuan funds in its analysis of outflows in July, after noting that cross-border movement of the currency masked actual pressures. The bank estimates that 56 per cent and 87 per cent of outflows took place through the offshore yuan market in July and

August, respectively. “There have been US$265 billion in net yuan outflows since last October through August, primarily due to trade settlement in yuan,” said Goldman’s Tang, citing data from the People’s Bank of China and the State Administration of Foreign Exchange. “This flow has helped lessen the overall outflow pressure faced by China because it means that importers did not have to buy as much foreign exchange to pay for imports.”

‘There have been US$265 billion in net yuan outflows since last October through August, primarily due to trade settlement in yuan’ The yuan has weakened 3.3 per cent against the dollar this year, the most in a ranking of Asian currencies, while a Bloomberg survey’s median estimate predicts a further decline of 0.5 per cent the rest of this year. While necessary to help an economy growing at the slowest

pace since the 1990s, the Chinese currency’s weakness has exacerbated outflow pressures, which have in turn prompted the authorities to clamp down on channels of taking money out of the country.

Stricter controls

Curbs were tightened after a yuan devaluation last year spurred an exodus of funds, while the overnight cost to borrow the offshore currency in Hong Kong surged above 20 per cent twice this year amid speculation the PBOC mopped up liquidity to boost the exchange rate. The central bank last month denied it intervened. China’s foreign-exchange reserves, the world’s largest, have hovered around the US$3.2 trillion level since February, after shrinking US$323 billion in four months as the PBOC sold dollars to limit declines in the yuan. The hoard declined to US$3.17 trillion in September. “We have seen a structural change in China’s capital outflows, with net outbound payments predominantly in yuan this year,” said Raymond Yeung, chief economist at Australia & New Zealand Banking Group in Hong Kong. “This relieves the pressure of yuan depreciation in the onshore market. Currency conversion is not taking place onshore. That is why we are not surprised that the foreign reserves have been preserved.” Bloomberg News

Sales surge

Ford luxury brand Lincoln considers Mainland production In the first three quarters of the year, Lincoln sales in China leapt 191 per cent to about 21,000 units Ford Motor Co’s luxury unit Lincoln is studying whether to produce cars locally in China, the brand’s China chief said on Monday, as its sales surge in the world’s largest auto market. Lincoln nearly tripled its China sales in the third quarter to 8,546 vehicles, the company said on Monday. Despite rapid growth, Lincoln sales distantly trail those of more established German competitors as well as American rival GM’s Cadillac, all of which produce cars locally to avoid hefty taxes on imported vehicles. Lincoln is accelerating its entry into China with plans to have 65 Lincoln stores by the end of 2016, instead of previous plans of 60, with 80 planned for year-end 2017, Lincoln China President Amy Marentic told Reuters. Marentic said the company will also open five to 10 smaller sales branches

to tap into fast-growing auto sales in lower-tier Chinese cities. The company is additionally

studying the possibility of local production, she said. “You’re always looking for ways to optimise your business,” Marentic said, declining to elaborate. In the first three quarters of the year, Lincoln sales in China leapt 191

per cent to about 21,000, Ford said. Even with the surging sales, Ford’s Lincoln lagged Detroit rival General Motors Co and its luxury Cadillac brand, which got a much earlier start. In September in China, GM sold about 12,500 Cadillacs, up 63 per cent.

‘Lincoln plans to have 65 Lincoln stores by the end of 2016’ In 2016 through September, GM has sold about 77,000 Cadillac vehicles in China, up 35 per cent, more than three times Lincoln’s sales. Ford said it hopes its China sales will be boosted by a new version of its flagship sedan, the Lincoln Continental, to go on sale at Chinese dealerships in the fourth quarter. Reuters

Business Daily Wednesday, October 12 2016 11

Asia Probe co-operation

Singapore orders Falcon Bank unit to shut down In July, Singapore authorities said that as part of its 1MDB-related probe it found problems at DBS, UBS and Standard Chartered.

ingapore directed Swiss wealth manager Falcon Private Bank Ltd to cease operations in the city-state and fined top local lender DBS Bank and UBS AG over lapses in its biggest crackdown on entities dealing with Malaysian sovereign fund 1MDB. The moves come after the Monetary Authority of Singapore (MAS) announced the shutdown of Swiss private bank BSI’s local unit in May. It subsequently charged people in connection with the probe and froze assets linked to 1MDB. BSI was the first bank to be ordered shut in Singapore since 1984. “Falcon Bank has demonstrated a persistent and severe lack of understanding of MAS’ AML (anti money laundering) requirements and expectations,” MAS said in a statement yesterday. “Taking into account the totality of Falcon Bank’s conduct, MAS’ assessment is that the merchant bank will be unable to comply with these requirements and expectations going forward,” MAS said. The investigations have cast an unwelcome spotlight on one of the world’s leading wealth management centres. The Singapore central bank said Falcon Private Bank, a branch of Falcon Private Bank in Switzerland, has the full support of its head office

which is financially sound. It said MAS is working closely with financial watchdog FINMA to oversee an orderly closure of the merchant bank licence in Singapore. Malaysia’s 1MDB, once a pet project of Prime Minister Najib Razak

who chaired its advisory board, is the subject of money-laundering investigations in at least six countries, including Switzerland, Singapore and the United States. Najib has denied any wrongdoing and said Malaysia will cooperate with the international investigations. The MAS said it had completed its investigations of DBS and UBS and found several breaches of AML requirements and control lapses. It imposed a S$1 million (US$728,067)

penalty on DBS and S$1.3 million on UBS. “MAS has admonished the two banks and instructed their management to investigate the lapses, promptly address the control deficiencies, and take appropriate disciplinary measures against the staff involved,” it said. A spokeswoman from UBS said in a statement: “We are further strengthening our controls and appropriate action will be taken on individuals responsible for the lapses.” The MAS said it is finalising its assessment of the Singapore branch of Standard Chartered Bank and said it will make an announcement in due course. Reuters

The Monetary Authority said it had completed its investigations of DBS and UBS

Monetary policy

RBNZ still expects to cut interest rates to fresh record low Investors now see an 81 per cent chance of a rate cut next month, up from 70 per cent on Monday.

The bank expects inflation to rebound in the December quarter to the bottom of its 1-3 per cent target range Matthew Brockett

New Zealand’s central bank said it still expects to cut interest rates to a fresh record low to revive inflation. “Interest rates are at multi-decade lows, and our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range,” Reserve Bank Assistant Governor John McDermott said in a speech

‘Robust pace’

published on the bank’s website yesterday. September quarter inflation data, due for release October 18, “is expected to be low,” he said. The comments reinforce bets that the RBNZ will lower its official cash rate by a quarter point to 1.75 per cent at its next policy decision on November 10. The bank is battling persistently weak inflation even as New Zealand’s economy grows at one of the fastest rates in the developed world and its housing market booms.

McDermott, whose speech was titled “Understanding Low Inflation in New Zealand,” said much of the weakness in price pressure can be attributed to global developments that have driven up the Kiwi dollar and suppressed the cost of imports. “Strong net immigration and increased labour market participation have also boosted the supply potential of the economy, meaning that New Zealand has been able to grow at a robust pace without generating significant inflation,” he said.

New Zealand’s central bank headquarters

The bank expects inflation to rebound in the December quarter to the bottom of its 1-3 per cent target range. Currently running at 0.4 per cent, inflation has been below the 2 per cent midpoint the RBNZ targets for five years. RBNZ Governor Graeme Wheeler has expressed concern that ongoing weak headline inflation may result in further declines in price expectations and create a deflationary spiral. “Low inflation becomes a concern if it leads to the possibility of deflation,” McDermott said. “Although we do not see any significant risk of deflation in New Zealand, deflation carries important costs.” Some economists argue the RBNZ is too fixated on weak inflation and risks fuelling a housing bubble with even lower borrowing costs. House prices rose 14.3 per cent in the year to September, and the average price in largest city Auckland has almost doubled since 2007 to more than NZ$1 million (UA$707,000). The economy is also barrelling along, expanding 3.6 per cent in the second quarter from a year earlier. That compares with growth of 3.3 per cent in Australia, 2.2 per cent in the U.K and 1.3 per cent in the U.S. Bloomberg News

12 Business Daily Wednesday, October 12 2016

Asia In Brief Public spending

Japan’s parliament passes extra budget Japan’s parliament approved yesterday a US$32 billion extra budget for this fiscal year that will help fund Prime Minister Shinzo Abe’s economic stimulus package. The 3.287 trillion yen (US$31.94 billion) budget, the second supplementary budget for the year that ends in March 2017, will be mostly funded by 2.75 trillion yen in construction bonds to finance infrastructure spending. The extra budget brings annual spending to more than 100 trillion yen for the first time in three years, underscoring the difficulty of balancing the need to boost the economy and curb the industrial world’s heaviest public debt burden. Finance ministry

S.Korea says economic recovery unstable South Korea’s overall economy recovery is unstable as exports and production remain sluggish, mainly because of recent strikes, notably at Hyundai Motor Co the finance ministry said yesterday. Domestic consumption had been growing modestly, the ministry said in its monthly assessment of the economy, but further strikes could hold back Asia’s fourth-largest economy as it struggles to expand. The ministry added the economy faced uncertainties such as the pending rate hike in the U.S. and a new anti-graft law at home that bans public servants, teachers and journalists from receiving gifts and meals exceeding set values. Commerce

Indonesian retail sales speed up Indonesia’s annual retail sales in August grew at a much faster pace of 14.4 per cent led by food and nonfood items such as spare parts and accessories, a Bank Indonesia survey showed yesterday. July annual retail sales growth was revised to 6.3 per cent from the 6.7 per cent reported previously. The survey of 700 retailers in 10 major cities predicted that September retail sales growth would reach 15.7 per cent from a year earlier, also led by food and non-food sales. However, the survey predicted retail sales will be slowing in November due to seasonal factors. It also showed that price pressures would be higher in November.

Reorganization

India eyes merger of two big state-run banks Apart from market leader State Bank of India, now acquiring several affiliates, the two largest public sector banks based in India’s financial capital are Bank of Baroda and Bank of India Douglas Busvine

ndia may merge two large state banks in the coming fiscal year once a clean-up of bad assets has run its course, the official overseeing a turnaround of the sector told Reuters, days before a new process to resolve stressed assets goes live. Consolidation of India’s public-sector banks would represent a final step in rebuilding a financial system capable of underwriting credit growth and job-creating investment in Asia’s third-largest economy.

Key Points Two large, Mumbai-based banks could merge - trouble-shooter Merged entity could then absorb weaker player Stressed asset resolution process to go live next week New RBI governor backs clean-up, proposes tweaks - Rai Stressed loans exceeded $138 billion at end June First, though, the state banks must cleanse their balance sheets. They accounted for 88 per cent of a pile of stressed loans that exceeded US$138 billion in June, the legacy of a lending binge under the last government that has hobbled Prime Minister Narendra Modi’s growth agenda. Vinod Rai, the veteran bureaucrat hired this year to head a new Banks Board Bureau, said a next step could

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be the merger of “two large Mumbai-based banks” that he declined to identify. “Once that consolidation has taken place, in the second phase, we will put a weaker, smaller bank into this merged entity,” he said in an interview. Rai declined to go into detail, saying deliberations were preliminary and depended on the success of efforts to restructure the balance sheets of India’s nearly two dozen public sector banks. Apart from market leader State Bank of India, now acquiring several affiliates, the two largest public sector banks based in India’s financial capital are Bank of Baroda and Bank of India.

Seeking resolution

Rai, a 68-year-old former auditor general, was hauled out of retirement to strengthen management at state banks that had often succumbed to political pressure to back projects that were not economically viable. His mandate quickly grew, however, and a proposal to create an advisory committee that could review proposals to take write-downs, or “haircuts”, on irrecoverable loans was enshrined in a Reserve Bank of India circular in June. The Scheme for Sustainable Structuring of Stressed Assets, or S4A for short, survived a leadership transition at the central bank and is backed by its new governor, Urjit Patel, who announced after his first policy meeting last week that he would tweak its terms to make it more practical for banks.

“I have had detailed discussions with the new governor, who is totally on board,” Rai said. The two-man panel comprises ex-Chief Vigilance Commissioner Pradeep Kumar and Janki Ballabh, previously SBI chairman, and will review its first three loan restructuring cases next week. “If bankers find that it is easy to use this channel to get a resolution, they will queue up,” said Rai. “It takes the onus of the decision off their backs.”

Bad bank debate

Starting from the 2017/18 fiscal year, minority shareholders in state banks will be encouraged to subscribe to rights issues - offerings of new shares - alongside the state. Rai said these investments would be attractive because many state banks are valued at a discount to their book value. But this process should only move ahead once non-performing assets, or NPAs, are dealt with. “Recapitalising the banks when they are carrying huge amounts of NPAs on their books makes no sense. It just gets lost into that big black hole.” Non-performing loans grew to 11.3 per cent of total loans at public sector banks as of June. India is fiscally constrained and, although Finance Minister Arun Jaitley has signalled he could inject more capital beyond the 700 billion rupees (US$10.5 billion) budgeted over four years to March 2019, that is nowhere near enough. Rai played down reports the government was again considering a so-called bad bank as a repository for bad loans - an idea opposed by former RBI chief Raghuram Rajan. India already has 15 so-called asset reconstruction companies, and setting up another one and loading it up with non-performing loans “would be a futile exercise”, he said. Reuters

Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Wednesday, October 12 2016 13

Asia Currency observed

Bank of Japan seen holding off more stimulus for now The central bank dropped its explicit target of increasing base money in what some analysts said was a tacit admission its aggressive asset-buying was becoming unsustainable Kaori Kaneko

The Bank of Japan (BOJ) is expected to wait until next year before easing policy further unless any sharp spikes in the yen undermine the economy significantly in the meantime, a Reuters poll found. Last month the central bank switched the focus of its stimulus programme to targeting market interest rates after years of massive asset buying failed to push up inflation. About 70 per cent of the analysts who answered an extra question said the BOJ would add more stimulus at its January meeting or later, while a handful of analysts predicted the central bank would ease further at its October 30-November 1 meeting when it releases its long-term growth and inflation outlook. But several analysts said the central bank would keep to its current pace of stimulus, saying they had no specific forecast of when it would next take action. “Our main scenario is that the BOJ will stand pat if the yen stays at the current level,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. The yen was trading at around 103.90 yen per dollar yesterday, after hitting a one-month low beyond 104 yen last week. Tokuda said the BOJ faces less pressure to implement more stimulus

after shifting its focus to interest rates and dropping the two-year timeframe to hit its 2 per cent inflation target. Instead, it now wants to meet the target as early as possible. The BOJ dropped its explicit target of increasing base money by an annual 80 trillion yen (US$777.45 billion), in what some analysts said was a tacit admission its aggressive asset-buying

Central Bank headquarters pictured

was becoming unsustainable. The Reuters poll predicted the BOJ would cut the -0.1 per cent interest rate it levies on a small portion of commercial bank reserves to -0.2 per cent in the third quarter next year, and would keep the 10-year Japanese government bond yield target at around zero per cent throughout next year. The poll was taken between Sept. 30-Oct. 10. Some respondents predicted the BOJ would implement more easing at its next meeting. “There is a possibility that the BOJ will lower its price projection for next

fiscal year and the bank is expected to ease further by cutting the short-term interest rates,” said Takeshi Minami, chief economist at Norinchukin Research Institute. But he added that comments by BOJ governor Haruhiko Kuroda at the weekend suggested there was not a significant chance of further easing by the central bank now. Kuroda said the central bank will deepen negative interest rates or expand asset purchases if external shocks hit the economy but he also said he saw no immediate need to top up stimulus. Asked what the intentions behind the BOJ’s new policy framework were, about half the 31 analysts who answered said it was to secure the sustainability of monetary easing as the BOJ was seen reaching its JGB-buying limit soon, or to help banks which could be damaged by negative interest rates. Over 30 per cent of the analysts said the BOJ’s new policy framework intended “to strengthen monetary easing”. Around 20 per cent said it was “to prepare for a future exit strategy”. Asked what measures the BOJ would likely take when it decides to ease again, 21 analysts opted for only cutting negative interest rates, while 12 said it would further lower negative interest rates and the 10-year JGB yield target. This question allowed multiple answers. Five respondents said the BOJ would increase its purchases of exchange-traded funds and real estate investment trusts, or commercial paper and corporate bonds. Reuters

14 Business Daily Wednesday, October 12 2016

International In Brief Oil prices impact

Saudi capital spending to drop Saudi Arabia’s austerity measures will slash capital spending this year by 71 per cent, as the world’s biggest exporter of crude seeks to repair public finances damaged by low oil prices. Capital expenditure is projected to reach 75.8 billion riyals (US$20.6 billion) this year compared with 263.7 billion in 2015, according to the government’s bond prospectus obtained by Bloomberg. In 2014, capital spending amounted to 370 billion riyals. The kingdom, with the largest budget shortfall among the world’s 20 biggest economies, has delayed payments to contractors and is weighing plans to cancel more than US$20 billion of projects. WHO

Taxing sugary drinks to fight diabetes The World Health Organization said yesterday governments should raise taxes on sugary drinks to fight what it says are global obesity and diabetes epidemics. If retail prices of sugar-sweetened drinks are increased by 20 per cent through taxation, there is a proportional drop in consumption, it said in a report titled “Fiscal Policies for Diet and Prevention of Noncommunicable Diseases”. Obesity more than doubled worldwide between 1980 and 2014, with 11 per cent of men and 15 per cent of women classified as obese - more than 500 million people, the WHO said.

Eurogroup head

Global banking reform must not cap capital buffers Officials at banking trade body AFME estimated the Basel III rules were likely to increase the capital buffer held by lenders by at least 6 per cent on average Francesco Guarascio

ew global banking rules should not include set limits to increases in capital adequacy requirements and should focus on improving banks’ internal risk assessment models, the head of the euro zone finance ministers’ grouping said yesterday. The Basel Committee, banking supervisors from nearly 30 countries, is due to complete its reform, known as Basel III, by the end of 2016. The new rules are meant to make the sector more financially sound by reducing reliance on internal risk models. “The outcome of the process should be that we have good quality standards for internal models and in the

individual cases of some banks it may lead to higher capital requirements,” Eurogroup President Jeroen Dijsselbloem told reporters before an EU finance ministers’ meeting that will address the issue. European banks and regulators have warned against an excessive increase in capital requirements that could affect mostly European banks because they use internal models more than their U.S. rivals, which rely more on standardised methodology. Asked whether there should be a set limit to any hikes in capital requirements, Dijsselbloem said: “My approach is different”. Reacting to France’s push for a 5-per cent limit, he said: “I haven’t heard it. It does not make sense.” A proposal for a 5-per cent limit

Fed’s Evans sees benefits to overshooting inflation target

Oil market

Goldman sees lower chance of rebalancing Goldman Sachs said a planned oil output cut by producer cartel OPEC and other exporters like Russia has become a “greater possibility”, but warned that any reduction likely won’t be deep enough to re-balance markets in 2017. “Higher production from Libya, Nigeria and Iraq are reducing the odds of such a deal rebalancing the oil market in 2017,” Goldman analysts said in a note to clients dated October 10. Any failure to reach such a deal, however, would push prices sharply lower to US$43 per barrel as the global oil market will still have surplus crude in the fourth quarter.

‘The French and German banking federations said the capital requirement increase might reach 50 per cent for some banks’ “It must be done in an intelligent way,” Kazimir said on his arrival to the EU meeting in Luxembourg yesterday. Officials at banking trade body AFME estimated the new rules were likely to increase the capital buffer held by lenders by at least 6 per cent on average. The French and German banking federations said the capital requirement increase might reach 50 per cent for some banks. Two weeks ago, the EU commissioner in charge of financial services, Valdis Dombrovskis, set the EU red line for the Basel reform and openly criticised the text prepared by the Basel committee so far. After that speech, France, backed by Germany, requested the EU Council to add a discussion on the Basel reform to the EU finance ministers’ meeting. Reuters

Monetary policy

The U.S. Federal Reserve should engineer monetary policy to spur inflation to rise above its two-per cent target because the costs of doing so are less than in past decades, Chicago Federal Reserve Bank President Charles Evans said yesterday. “I see benefits to trying to engineer policy to allow for the strong possibility of inflation overshooting its target,” Evans said at an event in Sydney, Australia. Evans said any rise in inflation above the current target would be minimal in the current environment so “if it became necessary, policy wouldn’t have to do much work to lower inflation expectations back down to 2 per cent.”

was included in a EU finance ministers’ draft statement but was removed from the final conclusions of a meeting in July, as member states could not agree on the issue. When asked about the possibility of a set limit, the Slovak finance minister Peter Kazimir, whose country holds the rotating presidency of the EU, reminded reporters of the conclusions of the July’s meeting, where ministers simply urged the Basel group to avoid a “significant increase” in overall capital requirements but set no limit.

Eurogroup President Jeroen Dijsselbloem

Public spending cap

Brazil lawmakers support Temer’s austerity drive The opposition and powerful civil servant unions have called to strike down the measure that would impose wage freezes and other penalties Brazil’s lower house of Congress approved a landmark proposal to cap public spending in a first-round vote on Monday, a major victory for President Michel Temer’s efforts to regain market confidence and pull the economy out of its worst recession ever. After nine hours, lawmakers approved the measure 366-111, well above the 308 votes or threefifths majority needed for passage. The constitutional amendment that limits spending growth to inflation still needs another super-majority vote in the lower house and two in the Senate for final approval. The overwhelming support for the proposal will likely add momentum to Temer’s austerity agenda that aims to close a budget deficit on track to surpass 10 per cent of the gross domestic product this year. The vote was Temer’s biggest victory in Congress since he took the presidency in May amid a political crisis that toppled his predecessor and former running mate Dilma Rousseff. “This is a clear sign of Congress’ commitment to rebalance the fiscal account and rescue fiscal

responsibility,” Temer’s spokesman, Alexandre Parola, told reporters shortly after the tense vote in which opposing lawmakers exchanged insults and threats.

“There will be a lot of noise from the opposition and interest groups, but the proposal will get through” Congressman Danilo Forte, of the Brazilian Socialist Party An experienced former lawmaker, Temer has blamed Rousseff for the years of overspending that eroded the fiscal accounts and cost Brazil its coveted investment-grade rating last year. Temer has promised to shore up the public accounts to breathe new

life into the US$2 trillion economy now in its second year of a recession that has cost 12 million Brazilian jobs. Brazil’s stocks, bonds and currency have rallied this year on expectations that Temer will be able to rebalance the country’s dire finances. Still, most analysts agree that Temer needs to raise taxes and push ahead with other unpopular economic reforms to stave a full blown fiscal crisis. His administration has vowed to submit in October an amendment to reduce the expensive benefits in one of the world’s most generous pension systems.

Controversial cap

Although the spending cap would mark a sea change for a country used to spending lavishly on public servants and industrial incentives, it has also raised fears of cuts to spending on health, education and corruption investigations. The office of Brazil’s top prosecutor on Friday urged Congress to shelve the measure that it says could jeopardize funding to fight corruption. Despite the controversy, members of the government’s broad coalition of nearly two dozen parties are confident the proposal will be approved by both houses by the end of the year. Reuters

Business Daily Wednesday, October 12 2016 15

Opinion Wang’s Hollywood dream just took an unhappy plot twist Nisha Gopalan a Bloomberg Gadfly columnist

hat would being cut out of Hollywood mean for Wang Jianlin? Quite a bit, if a group of lawmakers seeking to limit acquisitions of U.S. cultural icons have their way. Despite what many might think, the Chinese billionaire has a smart overseas strategy, even if some of Dalian Wanda’s biggest purchases have been unprofitable. Wang has been snapping up movie studios and cinema chains around the world - even adding recliner chairs to some to raise ticket prices - to effectively create an entertainment oligopoly. Getting out of China matters. Asia’s biggest economy is weathering its worst box-office slump in at least five years, and it deepened in the third quarter as films like the latest instalment of Matt Damon’s Jason Bourne series failed to attract viewers. That’s been taking its toll on Beijing-based Wanda Cinema Line, whose stock is down 44 per cent this year. Since acquiring U.S. cinema group AMC in 2012, Wanda’s offshore purchases have come thick and fast, including Hoyts in Australia and Odeon in the U.K. The real game changer will be pulling off Carmike, which is pending antitrust approval. With it, Wang would become North America’s biggest theatre owner, and a significant price setter. Wang has made no secret of his desire to own studios as well. Paramount didn’t come up trumps but there’s loss-making Legendary and more recently an alliance with Sony. Wanda is also in talks to buy Dick Clark Productions, the closely held producer of the Golden Globe billion US$ Awards, plus there’s Wang Jianlin Sydney-based net worth Ticketek for good measure. Until now, CFIUS, the watchdog that scotches deals on national security grounds, has largely reserved its scrutiny for military or technology purchases. Clamping down on so-called soft power acquisitions takes things to a whole new level. It would present a challenge not just for Wanda and its own ambitions to stitch up the world’s entertainment scene, but for Hollywood as well. Legendary for one has benefited from Wang’s deep pockets and Hoyts is already showing the benefits of new ownership, reporting firsthalf earnings of US$20 million, up from about US$7.5 million in the three months to Dec. 31. Without major cash infusions, Hollywood studios are going to find it very hard to keep churning out the multimillion-dollar blockbusters that draw moviegoers globally. Having a Chinese partner also helps with exposure to a market that should overtake the U.S. in coming years. Outside of shopping malls and real estate, Wanda hasn’t been in the happiest of places. In August, it shelved a US$5.6 billion reorganization of its entertainment assets and it’s had to temporarily close a theme park on the mainland. UBS, meanwhile, walked away from a US$4.4 billion deal to take Dalian Wanda Commercial Properties private after it became uncomfortable with the structure of the transaction, the Financial Times reported over the weekend. Wanda also isn’t in the same basket as Alibaba, which may be pushing into films but for the most part spends its pennies in Asia. Perhaps one solution to appease U.S. regulators would be for Wanda to ratchet its headline-making acquisitions back and consider minority investments instead. That would probably still allow for strategic placement of Chinese references in movies. Whatever the outcome, two things are certain: Movies aren’t exactly a cheap business to be in, and cash-rich Wang needs the overseas diversification. Count on more plot twists to come. Bloomberg Gadfly

31.9

China’s SDR distraction

t the start of October, China’s currency, the renminbi, was added to the basket of currencies that make up the International Monetary Fund’s Special Drawing Rights, or SDR. Previously, the SDR had been defined as a weighted average of the dollar, euro, British pound, and Japanese yen. Now that the renminbi has been added, it can claim to be one of just five truly global currencies. Should we care? The Chinese certainly do. In Beijing, where I was late last month, joining the rarefied SDR club was all people wanted to talk about. (Okay, truth be told, they also wanted to talk about Donald Trump.) Seeing the renminbi added to the SDR basket was a matter of national pride. It symbolized China’s emergence as a global power. And it vindicated the government’s efforts to encourage use of the renminbi in cross-border transactions, freeing China and the rest of the world from overdependence on the dollar. But the fact of the matter is that adding the renminbi to the SDR basket has little practical significance. The SDR is not a currency; it is just the unit in which the IMF reports its financial accounts. Only a small handful of international bonds are denominated in SDRs, because banks and firms do not find this option particularly attractive. The main issuer of SDR bonds is the IMF’s sister organization, the World Bank (the Fund itself is not authorized to issue bonds). The only practical implication of adding the renminbi to the SDR basket is that it now becomes a currency that countries can draw, along with the SDR’s other four constituent currencies, when they borrow from the IMF. Only time will tell how many wish to do so. The Chinese argue that the renminbi’s addition to the SDR basket should be seen in a broader context. It is one of a series of steps to encourage use of the renminbi in international transactions. This agenda includes negotiating currency swap agreements, now more than two dozen, between the People’s Bank of China (PBOC) and foreign central banks. It also includes designating a Chinese financial institution to provide clearing and settlement services for transactions in renminbi in each leading financial centre (in September, for example, the Bank of China was chosen as the official clearing bank for New York). And foreign entities are being authorized to issue renminbidenominated bonds in China itself. Toward the end of August, Poland became the first European government to do so. But the reality, again, is that these steps are more about symbolism than substance. The PBOC’s

“

Barry Eichengreen a professor at the University of California, Berkeley, and the University of Cambridge.

renminbi swaps are almost entirely unused. Designated clearing banks have not exactly been flooded with business. Offshore renminbi bank deposits are falling. The proportion of China’s merchandise trade settled in renminbi has been declining since mid-2015. And there is no sign that where the Polish government has so boldly ventured, other governments will soon follow. The fault, to paraphrase Shakespeare, lies not in the stars but in China’s own financial markets. Since mid-2015, the country’s stock market has been on a rollercoaster. Every international organization worth its salt, from the IMF to the Bank for International Settlements, has been warning of problems in China’s corporate bond market. And if defaults on loans to corporations are widespread, as these organizations predict, the implications for the banks could be dire. The problem is mistaken tactics by the Chinese government. The government and the PBOC believe that relaxing capital controls and allowing financial capital to flow more freely in and out of the country will force financial market participants to up their game. Companies will have to upgrade their accounting standards, and banks their riskmanagement practices, to cope with the faster pace of financial transactions. The result will be more liquid and stable financial markets, in turn making the renminbi more attractive as a unit of account, means of payment, and store of value for residents and foreigners alike. Unfortunately, assuming a result doesn’t make it so. If Chinese banks and firms are slow to adjust, liberalizing international capital flows will lead only to more volatility, fewer offshore deposits, and less reliance on the renminbi for settling merchandise transactions – exactly as has been the case recently. Chinese policymakers must now put the horse before the cart. The most important step they can take to foster renminbi internationalization is to strengthen domestic financial markets, modernize regulation, and streamline contract enforcement. If China wants to transform the renminbi into a first-class global currency, it should pay less attention to renminbi trading in New York and the currency’s weight in the SDR basket, and more to the development of deep, liquid, and stable financial markets at home. Project Syndicate

The fault, to paraphrase Shakespeare, lies not in the stars but in China’s own financial markets

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16 Business Daily Wednesday, October 12 2016

Closing Product tailoring

Mainlanders’ habits under New Zealand microscope

New Zealand government scientists are to start studying what food the Chinese eat and why. A new research program would look at the factors - including attitudes, behaviours and lifestyles - that motivated Chinese consumers to buy food that improved their health, the government’s Food and Plant Research institute said yesterday. The research would allow New Zealand companies to create new products that appealed to the market, research leader Roger Harker said.

It would support the development of products with scientifically-validated health and wellness benefits tailored for the Chinese market in the key health areas of metabolic health, gastrointestinal health, immune health and infant nutrition. The research would look at four aspects of consumer behaviour: what health and wellness meant for Chinese consumers; the role of social media and other factors in influencing buying behaviour; how to convert intentions into actions when developing new consumption habits; and the profile of the future Asian consumer of New Zealand’s health and wellness products. Xinhua

Oil industry

IEA: Oil market to rebalance faster if OPEC implements deal Russia is ready to join the effort to limit production, President Vladimir Putin said Angelina Rascouet

ilsupplyanddemandcould come back into balance earlier than expected next year if OPEC’s agreement to curb output is implemented, the International Energy Agency (IEA) said. “Our supply-demand outlook suggests that the market - if left to

its own devices - may remain in oversupply through the first half of next year,” the IEA said yesterday. “If OPEC sticks to its new target, the market’s rebalancing could come faster,” according to the agency, which last month said the surplus would persist into late 2017. By agreeing to curb output for the first time in eight years, the Organization of Petroleum Exporting Countries

has “effectively abandoned” the free market policy adopted in 2014, the Paris-based adviser on energy policy said in its monthly report. The group has buckled under the pressure of “massive oil inventory overhang” and the Algiers deal last month marks a return to more traditional market management, it said. OPEC members agreed last month to limit their overall production to a range of 32.5 to 33 million barrels a day. While details remain unresolved over how to share the burden of the cuts and whether other producers

OPEC headquarters in Vienna pictured

will cooperate, oil prices in London have rallied about 15 per cent to a one-year high since the deal was announced.

Critical details

“Now the real work starts,” the IEA said, adding that “critical details” such as country quotas and implementation need to be worked out by OPEC’s November 30 meeting in Vienna. OPEC pumped a record 33.64 million barrels of crude a day in September, the agency said. Returning volumes from Libya, Nigeria and Iran - which are set to be exempt from the Algiers deal - suggest that “bigger cuts” would have to be made by others, notably Saudi Arabia, to meet the agreed target. Libya and Nigeria have seen their production severely curtailed by war and sabotage, while sanctions on Iran that restricted its oil industry were lifted in January, allowing Tehran to steadily increase its production since the start of the year. All three nations increased their production in September, the IEA said. Demand growth continues to slow, dropping from a five-year high in the third quarter of last year to a fouryear low in the third quarter of this year, the IEA said. There has been a “marked deceleration in China” where “demand growth has all but vanished” as industrial oil usage slowed down. The agency now sees demand growing by 1.2 million barrels a day this year from a forecast of 1.3 million in last month’s report. Growth for next year was unchanged at 1.2 million barrels a day. Bloomberg News

Auto industry

Shadow finance

Migration

Sales accelerate for global automakers

Guangdong province busts underground banks

China to settle 100 mln migrants in cities by 2020

Honda and Nissan reported yesterday their strongest monthly vehicles sales growth for China this year in September, thanks to a tax cut on small engine vehicles and comparatively weak growth for the same month last year. Competitor Ford posted its strongest growth since January, while Toyota sales increased the fastest since March. The Chinese auto market, the world’s largest, has rebounded strongly since October last year when the central government cut sales tax on vehicles with engines of 1.6 litres or smaller in response to slower sales in the weakening economy. That tax cut will continue to drive strong growth as consumers rush to buy cars before its planned expiry at the end of the year, according to analysts and industry officials. “This will be a pretty big stimulus for Q4,” said Yale Zhang, managing director of consultancy Automotive Foresight. TheChinaAssociationofAutomobileManufacturerswill report sales growth for the market overall today, with Zhang predicting top-line growth of 25-30 per cent. Honda posted the quickest growth among automakers reporting yesterday, with a 46.5 per cent year-on-year increase for the month. Reuters

Police in Guangdong have busted underground banks that handled RMB230 billion (US$34.49 billion) in illegal money transfers this year, state news agency Xinhua reported yesterday. Police arrested 350 people suspected to be involved in 140 cases of underground banking and money laundering, Xinhua said, citing the Guangdong provincial public security department. Illegal banking has been rampant in some parts of the province such as the capital Shenzhen, where an underground bank that handled RMB30 billion in transactions was busted in August. The story also cited a bust by Shenzhen police this month, where 10 suspects illegally moved RMB48 billion (US$7.20 billion) out of the mainland from 2014-2015 by establishing fake trading companies in Shenzhen and neighbouring Hong Kong. China has vowed to fight illegal cross-border outflows in an attempt to slow capital flight as its yuan currency weakens to six-year lows. The Ministry of Public Security (MPS) said in August that a special task force launched by the MPS, the central bank and the foreign exchange regulator have busted underground banks that handled RMB200 billion (US$30.2 billion) in illegal money transfers this year. Reuters

China will help 100 million migrants settle in cities to expand urbanization, the country’s cabinet announced yesterday. The government plans to annually help over 13 million migrants seek urban hukou (household registration) that will qualify them for social benefits such as health care, over the next five years. The plans are part of an attempt to lift the percentage of people living in cities and having the relevant hukou to 45 percent by 2020, according to a statement released by the State Council. The percentage of people living in cities and having local hukou, stood at 39.9 percent at the end of 2015. The percentage of the entire population living in cities was 56.1 percent, as many migrants live in cities without the relevant local hukou. China plans to relax household registration requirements, in most cities, for students from rural areas and migrant workers who have lived in a city for a long time, while megalopolises, such as Beijing, will implement specific policies to control rapid population growth. Additional fiscal, financial and land use policies will be rolled out to ensure migrant residents with local hukou enjoy equal social benefits such as health care and education, the statement added. Xinhua