Macau Business Daily October 14, 2016 by Business Daily

Sky Oasis developers announce sales campaign Property Page 4

Friday, October 14 2016 Year V Nr. 1151 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro

www.macaubusinessdaily.com

Cybercrime

Real estate

China’s debt

Mourning country

East Asian Insurance Congress vets vulnerability of new technologies Page 6

Premier Li’s remarks on Macau property sector underscore analysts’ warnings about Mainland froth Page 9

Gov’t tests indicate equity swap plan will reduce state firms’ debt by 10-20 per cent Page 11

Thailand in shock after revered King passes away Page 16

RMB clearing centre Expertise needed

Academics from the city’s financial institutions agree. The implications of Macau becoming a centre for RMB clearing are intoxicating. Premier Li Keqiang’s announcement will have a deep and positive impact upon the sector. But the pressing necessity for skilled personnel casts a pall over the optimism, given the city’s conservative human resources policy. Page 3

The curious case of Huang Shan

Diverse attractions

MGM China launched its Oktoberfest yesterday. A must-go for the local community and a major attraction for tourists. CEO Grant Bowie took the opportunity to explain the firm’s strategy – and flew the flag for diversification.

Unpaid debt More than two years off the radar. Now alleged junket fraudster Huang Shan wants to make amends. Repaying scam victims from Vietnamese assets. He is accused of fleeing Macau with HK$10 billion in April 2014. Page 5

Smoke still clearing

Samsung fiasco CTM says buyers can exchange Note 7 models at any of their local shops. Users will need to bring the problem-plagued smartphone, accessories and receipt in order to get a new phone or refund. The procedure ends December 31 this year. Some 1,000 Samsung Galaxy Note 7 models have been sold in the territory. Page 2

Chinese exports reflect global weakness Mass-market Page 2

HK Hang Seng Index October 13, 2016

23,031.30 -375.75 (-1.61%) Worst Performers

China Resources Power

+1.81%

Sino Land Co Ltd

Cathay Pacific Airways Ltd

-4.65%

China Petroleum & Chemical

-2.75%

Link REIT

+1.56%

Power Assets Holdings Ltd

-0.14%

AIA Group Ltd

-3.01%

PetroChina Co Ltd

-2.74%

Sun Hung Kai Properties Ltd

+0.35%

Cheung Kong Property

-0.18%

China Merchants Port Hold-

-3.00%

Industrial & Commercial

-2.70%

Henderson Land Develop-

+0.33%

Wharf Holdings Ltd/The

-0.18%

Galaxy Entertainment Group

-2.89%

Kunlun Energy Co Ltd

-2.62%

New World Development

+0.21%

AAC Technologies Holdings

-0.19%

Want Want China Holdings

-2.81%

CNOOC Ltd

-2.49%

+0.00%

25° 29° 26° 30° 26° 32° 26° 32° 25° 29° Today

Source: Bloomberg

Best Performers

SAT

sUN

I SSN 2226-8294

Mon

Tue

Source: AccuWeather

Trade data Monthly figures reveal yuan-denominated exports fell 5.6 pct y-o-y in September. Imports increased 2.2 pct. Commerce with China’s main partners cooled showing global trade weakness is taking its toll. Page 10

2 Business Daily Friday, October 14 2016

Macau Banks

Fitch withdraws Tai Fung Bank rating

The rating agency announced yesterday that it is withdrawing all of its ratings for locally based Tai Fung Bank, according to its press release. The firm had affirmed the bank’s Long-Term Issuer Default Rating (IDR) at ‘BBB+’, which refers to the bank’s stable outlook, in addition to having affirmed its viability rating at ‘bb+’. Last month, the agency had announced it would withdraw the bank’s ratings in the middle of this month ‘for commercial reasons,’ without further elaborating. The rating firm noted in yesterday’s press release that there has been no significant change in the bank’s

intrinsic credit profile since its last review on 21 June 2016. ‘The Viability Rating continues to reflect the bank’s moderate capitalisation, previous rapid balance sheet growth and high exposure to the property sector, and is balanced by its steady profitability and benign asset quality,’ Fitch wrote. It added that the ratings also capture the local bank’s adequate funding and liquidly profile that benefit from retail funding in the Special Administrative Region. Tai Fung Bank, which only operates in the Special Administrative Region, saw its profits-after-tax increase 37 per cent year-on-year to MOP1.06 billion (US$132.5 million) for last year, according to its 2015 fiscal report.

Gaming

Bowie spreads the diversity word The CEO of MGM emphasised the importance of a varied offer, which will also apply to the new MGM in Cotai, slated to open in the second quarter of 2017 Cecilia U cecilia.u@macaubusinessdaily.com

as part of the diversification drive, noting that people who are attracted will also likely seek non-gaming

entertainment such as food and beverages, and retail. The CEO also acknowledged the importance of the VIP market, adding that the property in Macau will concentrate on the VIP market whilst MGM in Cotai will provide more diversified services. Asked about the allocation of tables, he expressed confidence in the

company’s hard work on diversification, which is also encouraged by the government. He hoped that the authorities would recognise the company’s efforts and allocate the number of tables applied for. Meanwhile, he said the construction of the property in Cotai is on track and will hopefully be able to stick to plan.

GM China Chief Executive Officer Grant Bowie (pictured) says diversification is important, and as such the new MGM in Cotai will focus on providing a whole range of activities to attract a wider customer base. In order to achieve diversified entertainment, Bowie identified the aid of current technology. “Technology is now becoming a really important part of entertainment, not just in Macau but in China [and] the world,” the CEO said on the sidelines of the Oktoberfest 2016 opening ceremony yesterday. “We think a whole range of activities will be interested and from that we are also able to refurbish our property and we are looking to add more new attractions for MGM Macau.” According to Mr. Bowie, the company will focus on the mass market

Technology

CTM announces Samsung Galaxy Note7 exchange procedure The recall and production suspension of Samsung Galaxy Note7 may cause potential long-term brand damage to the Korean smartphone manufacturer, according to Fitch Ratings Cecilia U cecilia.u@macaubusinessdaily.com

ocal telecommunications company Companhia de Telecomunicações de Macau S.A.R.L. (CTM) has announced the exchange procedure for the Samsung Galaxy Note 7 model from Samsung Electronics Co. Ltd (SEC) after SEC announced the halt of sales and production of the model, its latest handset, on Tuesday. CTM informed buyers that handset

exchanges can be conducted at any of the local CTM shops. To apply for handset exchange owners must bring along the problematic device, its original accessories, and the purchase receipt in order to conduct an exchange or refund. The procedure will end December 31 this year. CTM stated that around a thousand Samsung Galaxy Note 7 models were sold by the company in the MSAR and that ‘For safety reasons, CTM strongly recommends consumers handle the matter as soon as possible’. In addition, the telecom company

has increased its operating hours to facilitate the exchange of the smartphones.

Going getting tough

Meanwhile, rating agency Fitch Ratings says that Samsung is facing a greater threat to its profile due to the potential long-term brand fallout from the recall and production suspension of Galaxy Note7. The agency believes that the benefits of SEC’s diversified product portfolio have diminished the impact of the Note7 incident but ‘long-term uncertainty’ has already increased and consumers are now more likely to switch to Samsung’s largest competitor in the smartphone market: Apple. ‘The issues with the flagship model have highlighted weaknesses both in

R&D [Research and Development] capabilities and the company’s capacity to efficiently remedy serious hardware defects’, notes the ratings agency in its release. Last Wednesday, Samsung revised its earnings for the third quarter of 2016, posting a 30 per cent decrease in its operating profit - to KRW5.2 trillion (MOP367 million US$4.6 billion) compared to the same quarter last year. ‘Industry experience, such as the decline of Nokia and BlackBerry, shows how successful manufacturers can lose market share particularly quickly in the handset business’, comments the ratings agency. ‘This is due to the fast pace of technological change and the frequency with which many consumers change their handsets’. Despite the anticipated further expense related to the Note7 and the drop in smartphone sales, Fitch believes that Samsung’s balance sheet will remain healthy, due to the support of ‘strong liquidity and relatively low debt’. The ratings agency says Samsung recalled 2.5 million of the Note7 smartphone models in the month of September in the wake of a number of the units bursting into flames. This was followed by the issuing of a number of replacement phones which also suffered the same problem. The company asked consumers to switch off all Note7 devices on Tuesday and has stopped production and sales of the model, discontinuing it altogether.

Business Daily Friday, October 14 2016 3

Macau Finance

Academics ponder city’s elevation to RMB clearing centre Local experts consulted by Business Daily agree that Macau acting as a renminbi clearing centre will benefit the city’s financial sector. However, they highlight it will need to deal with pressing human resources issues Annie Lao annie.lao@macaubusinessdaily.com

he city’s academics agree that establishing a renminbi (RMB) clearing centre in the MSAR would bring many benefits to the city’s financial industry. However, legal and financial expertise will be further needed in order to nurture the diversification and sustainability of the local economy. Chinese Premier Li Keqiang announced 19 measures to diversify the MSAR’s economic development earlier this week although the specific details of the measures have yet to be unveiled. These 19 measures include the central government’s support for the MSAR setting up a renminbi clearing centre for Portuguese-speaking countries, an export credit insurance system, establishing the headquarters of the Sino-Luso Development Fund, as well as expanding Chinese e-commerce companies to Lusophone countries. Joey Lao Chi Ngai, director of the Macau Economic Association, told Business Daily that the monetary benefit to the city’s finance sector would be enormous. “Increasing

trading between Mainland China and the Portuguese-speaking countries would bring in many benefits to Macau as an RMB clearing centre, that can, in turn, [help] diversify the local economy,” Lao said.

“Macau needs to work on itself to improve its professional talent in order to catch up with the growing demand of the financial industry here” Carlos Siu Lam, Associate Professor of the Gaming Teaching and Research Centre from Macao Polytechnic Institute

According to Mr. Lao, the total amount of trade between Mainland China and the Lusophone countries was worth almost US$100 billion (MOP799 billion/ HK$776 billion)

over the past two years. “If all the trading money has to go through currency clearing in Macau, it will definitely bring in a lot of revenue to the local banking industry in terms of the differences in selling and buying currency exchange rates in Macau,” he added.

Lack of expertise

When asked whether Macau is capable of being an RMB clearing centre, Carlos Siu Lam, Associate Professor of the Gaming Teaching and Research Centre of Macao Polytechnic Institute (MPI) told Business Daily that legal expertise and professional finance skills are necessary to further improve the city’s financial services. Mr. Siu agreed that Macau can act as a renminbi (RMB) clearing centre which could help further develop the city’s finance industry by creating a positive impact upon Macau overall. “The Central Government is giving the opportunity to Macau to act as an RMB clearing centre for people who invest in Portuguese-speaking

countries. This can enhance the financial position of Macau. At the same time, Macau needs to work on itself to improve its professional talent in order to catch up with the growing demand in the financial industry here,” said Siu. In addition, Rose Lai Neng, Professor of the Department of Finance and Business Economics from the University of Macau also agreed that the city would need to provide more training and recruit experienced financial experts to meet the growing demand. “The need for more training is higher and should be done in a quick manner as well,” Professor Lai emphasised. Nevertheless, the professor agreed that Macau will benefit from being an RMB clearing centre and could provide more international opportunities for Macau. “It’s good for Macau overall. Since the renminbi is an international currency, the demand for it is stronger than before. Banking related businesses in the city can develop from that and by being more flexible towards the international financial market, not only focusing on the Mainland Chinese market,” she added.

4 Business Daily Friday, October 14 2016

Macau Opinion

Property

Sky Oasis residences on the market tomorrow Pedro Cortés*

First 360 units of new Sky Oasis luxury residence complex in Cotai on sale from October 15

Li and others

Nelson Moura nelson.moura@macaubusinessdaily.com

Prime Minister Li Keqiang, together with other Prime Ministers and high ranking officials, were recently in Macau for the 5th Ministerial Conference of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries. It was an outstanding event and I do hope once and for all that Macau officials really do understand that the role apportioned them by Mainland China in 2003 is not only for nice dinners, exchange of business cards, smiles and handshaking photo ops. Macau can have a very important role in national policy and only some retrograde minds still consider that this shall not be executed. The Portuguese language is spoken by some 260 million people around the world (including native and other speakers). It is the fifth language of the Internet. It is not something that should be despised via a few old colonialist sentiments sometimes felt around Macau. Some years ago I was in the Justice sector. After that, in some other areas. I guess that now this trend is unrelenting. To watch Mr. Edmund Ho, Mr. Ho Iat Seng and Mr. Raimundo do Rosário, the only Secretary present in the excellent reception hosted by the outstanding General Consul of Macau, Mr. Vitor Sereno, and upon hearing Portuguese Prime Minister António Costa, other Ministers and Secretaries of State means that Macau as it is envisioned by the Mainland can both exist and co-exist. The other Forum speeches were also very important, while actions are even more important. And when we talk about action, we have seen Mr. Li Keqiang announcing Macau as a clearing platform for the renminbi, making Macau the investment fund place for Portuguese-speaking countries; among other actions, we may well say that he was the star of the Forum. Are the governors of Macau prepared for it? We all hope so but the signals are far from auspicious, when it looks like two of the Secretaries are already on the campaign trail for the next Chief Executive election, while others are weighing the opportunities instead of concentrating on the needs of the population, as the remaining one is trying to do. Hopefully, we are still in time to see concrete meas ures from all of them that will enhance our way of life. Fortunately, the visit of our Prime Minister is always a good boost for the some times distracted community of Macau. *lawyer and frequent contributor to this newspaper.

he consortium responsible for the One Oasis luxury residences complex will commence open sales for the 360 residences of the first 41-storey tower of its new Sky Oasis project on October 15. The project is an extension of the One Oasis complex on the southern part of the Cotai Strip, developed by the joint venture Concordia between Hong Kong-based ITC Properties, Nan Fung Group, Success Universe Group, ARCH Capital and Macau-based Linkeast Investments. According to the project developers, Sky Oasis will comprise three towers with 500 units currently under construction and able to accommodate around 1,000 people, with a scheduled opening for the first quarter of 2018. The first sale will include the 360 studio units of the first tower, with sizes ranging from 600 square feet to 700 square feet, at HK$8,000 (US$1,031) to HK$9,000 per square foot. According to Edwin Cheung, chairman of the Concordia consortium, the small units will be sold in two batches of 120 units; if the sale arises considerable interest their sales could start before October 15. The Concordia chairman also added that the sale of the larger special units

in the first tower - 3,000 square feet for a total price of at least HK$30 million - could start one month after completion of the sale of the smaller units. However, while Mr. Cheung believed the smaller units would be sold within a month, he said the more expensive units could take more than two months to sell. “We needed some re-branding and we are putting a whole brand new design, branding [and] facade. For this space we did away with the medium sized flats, between 8,000 square feet to 15,000 square feet,” Cheung said.

he added. According to the Sky Oasis release, the majority of potential buyers are from Macau, with the remaining hailing from Mainland China, Hong Kong, South East Asia and Europe. Mr. Cheung believes that with the number of marriages in Macau increasing to 7,000 next year new families will be looking for new properties, with the smaller units at Sky Oasis targeting new younger couples or executives, while the most expensive four bedroom units target wealthy local families.

Going local

When questioned on the development of the Macau real estate market, the Concordia chairman said he believed housing prices would go up stably in the coming two years driven by the lack of sufficient private housing but without a “significant surge”. “I believe our major customers will be local residents (…) The size of the local property market is only 1/11 that of Hong Kong, with a population amounting to some 650,000,”

During the presentation it was announced that One Oasis would open its complex shopping mall in December in order to serve residents’ needs. The mall - named

The Veranda - will house mainly food and beverage establishments, such as a Park n Shop premium supermarket and local bakery brand Cacao Patisserie.

Intellectual property

Intellectual property rights applications down in Q3 Macao Economic Services (DSE) received a total of 3,116 applications for intellectual property rights in the city during the third quarter of the year, down 8.8 per cent compared to 3,417 applications one year ago, according to the Bureau’s official data. In the three months, 2,937 - or 94 per cent of the applications - were filed registered trademarks in the Special Administrative Region, down 9.1 per cent year-on-year, yet up 3.8 per cent quarter-to-quarter. Some 110 other applicants, meanwhile, applied to extend their current invention patents in the three

months, for 3.5 per cent of the total. The number of applications represents a growth of 14.6 per cent yearon-year, yet a decrease of 25.2 per

cent from one quarter ago. The economic department received some 48 applications registering industrial designs or models, 17 applications for invention patent registrations in the period, in addition to four for utility patents and registration of name and emblem of establishment. For the first nine months of the year, a total of 9,107 applications registered intellectual property rights, of which 8,536 were for trademark registration, accounting for 93.7 per cent of the total, followed by those attempting to extend their invention patent, amounting to 347. K.L.

Tourism

Macau to host 40th PATA Travel Mart 2017 The MSAR will once again play host to the Pacific Asia Travel Association’s annual conference, according to a press release published by Macao Government Tourism Office (MGTO) yesterday. The 40th PATA Travel Mart 2017 (PTM 2017) will take place over three days: from September 13 to 15 next year, and will feature networking opportunities for tourism organisations from all over the world. Next year’s event will be organised by MGTO. “PATA Travel Mart mobilises a relevant contingent of travel trade stakeholders from the Asia Pacific region and around the world and we are enthusiastic with the perspective of providing a firsthand update about the significant developments in our city since we last met in Macau for the PATA Travel Mart 2010 and in 2005 for the PATA Annual Conference,” MGTO Director Maria Helena de Senna Fernandes stated in the release.

“MGTO has been a valuable member of PATA since 1958 and has sponsored the PATA Gold Awards for the past 21 years,” PATA CEO Mario Hardy also stated in the press release, noting that “PATA and the MGTO enjoy a very special, unique and rewarding relationship that we treasure and hold in high regard.” This year’s event was held in Indonesia and attracted 1,358 delegates from 63 countries and regions.

PATA is a non-profit membership association founded in 1951. It seeks to foster the development of the Asia Pacific travel and tourism industry for its members, comprised of 95 government, state and city tourism bodies, 6 3 e d u c a t i o n a l i n s t i t u t i o n s, h u n d r e d s o f t rav e l i n d u s t r y companies and 29 international airlines, airports and cruise lines from around the world. A.L.

Business Daily Friday, October 14 2016 5

Macau Junkets

Junket fugitive Huang Shan run to earth in Vietnam, pledges to repay all debts

Lost and found The alleged fraudster is now in Vietnam, junket operator Huang Sheng Group have announced. The group tells Business Daily that Mr. Huang is voluntarily in Vietnam in order to repay all his debts. Kam Leong kamleong@macaubusinessdaily.com

LLEGED junket thief Huang Shan has been found in Vietnam, fol lowing a 30-month disappearance with a reported HK$10 billion (US$1.2 billion). A shareholder of local junket group Kimren Group, Mr. Huang said in a statement yesterday that he is willing to repay all his debts.On Wednesday, local junket operator Heng Sheng Group posted a photo of Mr. Huang with the group’s director Zhang Zheng. The photo caption explains that Mr. Zhang has successfully discovered ‘the genius of Macau gaming industry Huang Shan’. Mr. Huang, who had been active in the junket business in the city for a few years, is accused of luring his investors by the offer of higher returns. He is alleged to have fled with the money in April 2014. Yesterday, Heng Sheng Group posted another photo of Mr. Huang alone holding a Chinese-language statement indicating he is now in Ha Long Bay in Vietnam. According to a copy of the statement obtained by Business Daily, the alleged junket thief said he feels ‘deeply sorry for all individuals who have suffered losses from the Huang

Shan incident’. In addition, he urges all his direct creditors to contact Heng Sheng Group “for going to Vietnam in order to clarify all related accounts and to negotiate appropriate proposals for repayment”. “I promise I will spend all my revenues generated from [my projects in Vietnam] to repay all my debts,” the statement reads.

In Vietnam “voluntarily”

Speaking to Business Daily, an executive of Heng Sheng Group, who declined to be named, stressed that Huang had “voluntarily” gone to Vietnam with the group “in order to solve his debt problems”. Asked whether Huang would return to Macau, the executive said: “It would be up to his own decision”. He added that the reason Mr. Huang released the statement was to show his sincerity in resolving his debt issues, claiming all parties with direct credit relationship with the junket could meet with him face-to-face without any given conditions. The Huang Shan incident was the first junket fraud case exposed to the public. In September last year, local junket operator Dore Entertainment Co. Ltd. said one of its former cage managers had allegedly stolen over

HK$100 million, and used her power to illegally pool deposit capital by offering high interest rates without the company’s knowledge. Local police estimated that the case involved at least HK$500 million. Months after the Dore case, the city’s Judiciary Police confirmed another casino fraud case, with a senior staff member working in the junket operations of Casino L’Arc Macau allegedly embezzling at least HK$99.7 million.

In fact, one month after the Dore incident, the casino regulator – the Gaming Inspection and Co-ordination Bureau - introduced a set of stricter accounting guidelines for all local junket operators. The guidelines mandate that all junket operators have to compile a monthly accounting report for the Bureau, and that they also have to disclose to the details of the key personnel in charge of the financial operations of the junket firms.

6 Business Daily Friday, October 14 2016

Macau Cyber crime Cyber insurance market expected to grow to US$10-20 bln by 2020

Cyber crime a creeping threat to everyone Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

very 18 seconds a victim of cyber crime is created. So demonstrates the data shared by Jason Charles Kelly, Head of Liabilities and Financial Lines for the Greater China/Australasia region for AIG Asia Pacific. This revelation came as part of a presentation by Kelly at the 28th East Asian Insurance Congress, held at The Venetian, covering the typical types of fraud and cyber crime evident in the modern world. “When we think about fraud sometimes we think that this is something that doesn’t happen in the business world,” said Kelly, noting that in relation to the insurance business the most common types of claims presented by businesses related to employee fraud, senior management fraud, fraud involving suppliers and the theft of inventory by employees.

Internal threat

One of the most dangerous of these types of fraud, as it’s one of the hardest to spot, relates to Senior Management Fraud. Kelly himself exemplifies this by pointing out the profile of the typical fraudster in a company (see Table) is quite close to his own profile, noting that: “I tick six out of the nine boxes,” (see left column of Table). Because of the level of trust involved in such higher management positions such crimes can often go

The primary reason for venturing into fraud, however, is due to greed or a lavish lifestyle, which accounts for up to 80 per cent of the motive, according to Kelly’s data. Other reasons include debt/drugs/alcohol, a fraudster funding a personal or a related business, and the recession creating an increased fraud environment – due to an employee’s perspective such as threat of redundancy or company restructuring. These can also be seized upon by employees due to destabilised company positions which can increase exposure - such as the company going through recent acquisitions or going through mergers, lack of clarity about company ethics, insufficient controls, multi-activities and businesses that the group is engaged in as well as decentralised organisations with little integration. Kelly points out that 59 per cent of ex-employees, according to his data, report stealing company information.

External threat

undiscovered for “a very long time,” notes Kelly, “for two or three or four years, sometimes longer and often the way people are caught is quite surprising,” referencing data that reveals that 32 per cent of frauds are discovered via whistle-blowing, 51 per cent through internal audits or reviews, and only 10 per cent by external audits. Only 25 per cent of the assets stolen are generally recovered. This desire to steal is normally unintentionally arrived at, notes Kelly. “When times are tough people are more inclined to steal and take money from their corporation. And quite frequently when they take the money

their goal is often to pay it back,” he states, pointing out that in terms of confidence in employees “women are far less inclined to steal from you”.

No going back

However, once the egg is cracked, the motivation, and the thrill, of stealing from the company “feels a little bit like gambling,” says Kelly, “which sounds funny being here in The Venetian Macao.” Kelly explains that “some of the motivation for fraud is related to gambling and quite a few of the motivations historically tend to surround gambling addiction”.

However, this type of fraud focuses more on internal threats, whereas some of the most predominant ones seen in the region since data protection laws began to come into affect within Asia in 2012 have been external attacks. “The most frequent claim overwhelmingly that we’re seeing in this region is extortion,” says Kelly, referring to hacks which freeze the computer systems of companies or steal the companies’ data, promising to either unlock the system or return the information when paid - with the hacker “asking for payment in Bitcoins (the cryptocurrency)”. These types of hacks have helped fuel a cyber insurance market currently projected to be US$2.5 billion globally and growing at a rate of 25 per cent a year. It is expected to reach between

Business Daily Friday, October 14 2016 7

Macau Profile of a fraudster*

In Brief

67% are Male

33% are extroverted and 35% are friendly

70% are 36 to 55 years old

39% are highly respected and 36% have a sense of superiority

61% are employed by victim organization

72% of frauds wer perpetrated over 1 to 5 years (39% over 3 to 5 years)

41% are employed for more than 6 years

70% of fraudsters colluded with others (either insiders or outsiders)

29% of the frauds were committed by executive directors, the largest single job title

43% of fraudsters colluded with outsiders

32% have a senior or middle management position

85% were first time frausters

23% are agent or intermediary

46% of fraudsters have good computer knowledge

80% are within accounting, operations, sales, marketing or purchasing

93% of frauds were committed in multiple transactions

A majority are married with children

54% of frauds were facilitated by weak internal controls *information provided by Mr. Jason Charles Kelly, Head of Liabilities and Financial Lines for Greater China/Australasia, AIG Asia Pacific

US$10 to US$20 billion by 2020. This is based on an estimated annual cost of cybercrime of over US$100 billion, with more than 230 million identities exposed through cybercrime and over 500 million yearly. Some 40 per cent of the motivation behind cyber attacks is, in fact, crime. The U.S. Navy experiences over 110,000 cyber attacks every hour, Kelly’s data shows.

Protect yourself

However, despite this large number of attacks on these government and military bodies, private businesses can be more attractive targets, as demonstrated by AIG data, Kellys’ employer, which saw that of the new claims seen in 2015 by industry governments comprised just 2 per cent. Hardest hit was the healthcare sector, making up 26 per cent of claims, followed by retail at 13 per cent and education at 8 per cent. Technology and software firms as well as financial firms made up 6 per cent and 5 per cent of claims during

2015, respectively. To contextualise, a hack of retail giant Target over Christmas 2013 cost the company US$18 million, of which US$8 million was covered by insurance, notes the Financial Times. However, in relation to its customers, 70 million of them had their personal information stolen during the hack, with 40 million of them having their payment card data compromised, notes the publication. This leads Kelly to point out everyone’s vulnerability, saying if “you’re a governmental organisation or a manufacturer, if you’re in education or if you’re a high tech firm you’re absolutely exposed”. However you don’t have to spend as much as JP Morgan and Chase did at the time of its 2014 hack (which stole information of 100 million of its clients, according to the Economist): US$250 million yearly on cyber defence. “How fast do you have to run to outrun a grizzly bear? […] Only faster than the person next to you,” says Kelly, explaining the question he

asks his clients, noting that any security and any barrier that makes your business less vulnerable to a hacker will make it less attractive to the hacker. One of the points that Kelly brings up is the destination of the funds hacked, extorted, or arrived at through fraud schemes. “An overwhelming majority of this money ends up in Chinese banks,” says Kelly. With regard to companies protecting themselves against these types of attack and handling eventual consequences, it’s a responsibility that goes all the way to the top. “When it comes to cyber, this used to be an issue that you could delegate down but that’s no longer the case. This really is a board level issue and the failure to get this right can be really, really, painful.” Jason Charles Kelly has been working with AIG since 1999, and working in Asia since 2009; he has over 16 years experience in the industry.

Retail

Stelux expects net loss to increase Watch and optical retailer Stelux Holdings International Ltd. expects its interim net loss to widen amid the economic downturn, according to its filing with Hong Kong Stock Exchange on Wednesday. ‘The Group is expected to record an increase in loss attributable to equity holders of the Company for the six months ended 30 September 2016 as compared with that for the same period in 2015,’ the retailer wrote. It explained that the expansion in net loss is due to the drop in turnover and gross profit caused by ‘persistent weak retail sentiment and cautious consumer spending as a result of overall economic downturn’. The company is operating its retail business under the brands City Chain and Optical 88 primarily in Greater China, including Macau and Hong Kong. For the same period of last year, the retailer fell into the red, posting a net loss of HK$33.1 million (US$4.1 million) compared to a profit of HK$105.2 million one year before. K.L.

8 Business Daily Friday, October 14 2016

Gaming Tournament

Asian Poker Tour returns to MSAR next week

The Asian Poker Tour returns to the Special Administrative Region next week. The tour will take place in Casino Lisboa run by local gaming operator SJM Holdings Ltd. from October 19 to 25, the organisation has announced. The weeklong tour compromises a total of thirteen

events, kicking off with its Poker King Cup. “It will be great to get back to Macau. It has been three years since we were last there. We wanted it, the players wanted it, the partners as well. Everybody is excited,” said the director of APT Executive Tournament, Lloyd Fontillas, in a press release. He added that the return to the city “is the key element of the pie”.

residents on Matsu voted in favour of introducing gaming projects in 2012. Due to the stance taken by Ms. Tsai and her party, gaming experts from

Union Gaming stated recentluy that Taiwan could still be five years away from the construction of any integrated resort.

Gaming

Island fever Taiwan’s President reiterates her opposition to gaming plans for Penghu Island Nelson Moura nelson.moura@macaubusinessdaily.com

aiwan President Tsai Ingwen (pictured) has restated her party’s opposition to the possible opening of casinos on Penghu Island, Taiwanese news agency Focus Taiwan has reported. Penghu’s residents are set to vote on a referendum on October 15 on whether to allow the development of the gaming industry on its territory; it held its first referendum on gaming in September 2009, which saw 56.4 per cent of the votes cast against casino operations on the island. Ms. Tsai, who also chairs Taiwan’s Democratic Progressive Party, reiterated on Wednesday at a DPP Central Standing Committee meeting the party’s stance against the opening of

casinos, suggesting the outlying island should focus on developing its tourism rather than counting on the gaming business, given the abundance of natural resources in the country, according to party spokesperson Wang Min-sheng. Supporters of opening up the island to gaming concessions believe the change would bring more job opportunities and prosperity to Penghu, while those opposing the plan - in particular, religious and environmental groups perceive the opening would result in more crimes and would only benefit non-residents, according to Taiwanese news outlet Taiwan News. In 2009, the Taiwanese Government lifted a ban on gaming licences on two other offshore islands, namely Kinmen and Matsu, in addition to Penghu. Gaming is currently still prohibited by Taiwan’s criminal law, even though

Business Daily Friday, October 14 2016 9

Greater China

Property

Cooling domestic market is new economic growth threat The latest official data show property prices rose by the most in six years in August

ctions by China’s policy makers to rein in property prices in the bubble-prone nation may prove so effective that the economy’s growth rate could be affected next year. At least 21 cities have introduced purchase restrictions and toughened mortgage lending since late September, reversing two years of easing to support home buyers. Goldman Sachs Group Inc. says more tightening is likely to follow if prices keep soaring, while Citigroup Inc. estimates shrinking demand may lead sales volume to contract in the fourth quarter. “This is a round of substantial and high-profile property tightening, whose national impacts should not be underestimated,” Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc. in Singapore, wrote in a report. “A full-fledged property downturn will bring significant downward pressures on the real economy” and increase the potential for a hard-landing, he said.

“Every 10 per cent drop in national property sales and construction activities will lead to 2.5-3 per cent drop in GDP” Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc. in Singapore The risk of a sharp property downturn threatens to derail an economy that’s gaining momentum after reports that have shown improvement in manufacturing, new lending, industrial output, fixed-asset investment and retail sales. Hu expects 6.6 percent growth next year, in line with projections in a Bloomberg survey of economists, but adds that risks are increasing. “Every 10 percent drop in national property sales and construction activities will lead to 2.5-3 percent drop in GDP, of which 0.5-0.6 percent would come from first-tier and leading second-tier cities,” he replied in e-mail. Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong, has a similar view. He expects economic growth to drop by 0.5 percent in the first half of 2017 due to property tightening, at which time he says policy makers are likely to step in to ease monetary and fiscal policy to support

growth. With the economy stabilizing for now, policy makers do have some buffer to step up the reforms including easing housing inventories and reining in corporate debt.

Healthy, sustainable

A day later, Premier Li Keqiang told an audience at a conference in Macau that the government will take effective measures to ensure a “healthy and sustainable” development of the property market. He also said he’s confident that no systemic financial risk will occur. Not everyone is so confident. The International Monetary Fund has been among those to warn of the potential threat China’s growing debt pile may pose to the banking system and global growth. Wei Yao, the China economist at Societe Generale SA in Paris, projected overall economic growth to lose momentum in the first half of 2017, as home sales will likely shrink as much as 20 percent nationwide in the next six months and further damp real estate investments.

‘Renewed drag’

“The sharp rise in property prices over the past year, fuelled by a surge in mortgage lending, is clearly not sustainable and we expect a correction before long,” Julian Evans-Pritchard, economist at Capital Economics in Singapore, wrote in a note. “This may not be the threat to financial stability that many fear. But it will result in a renewed drag on economic growth.” The Tsinghua UnionPay Advisors Real Estate Index showed property purchases accelerated 47 percent yearon-year in September, versus an 11 percent gain in August. The indexes are track transactions handled by China UnionPay Co., the nation’s dominant payment network. The latest official data show property prices rose by the most in six years in August. While gains have been most apparent in large cities such as Shenzhen, where home prices are up about 60 percent in the past year, smaller cities such as Xiamen have also seen red-hot growth, with prices jumping more than 38 percent.

Beijing, Shenzhen

That’s resulted in cities nationwide clamping down with curbs to cool buyer demand. Beijing on September 30 increased down-payments for first-time home buyers to a minimum 35 percent, the highest level among the biggest cities. Shenzhen’s measures include a minimum 70 percent down-payment for second properties and restrictions on non-residents. Meanwhile, financial regulators plan

to further tighten control on funds flowing into the property market in violation of current rules, people familiar with the matter said this week. And the Ministry of Housing and Urban-Rural Development has ordered local regulators to intensify probes into rumor-mongering and “malicious” advertisements which play up rising housing prices, saying it was disrupting the market, according to a statement on the ministry’s website. The curbs are having their intended effect in some cities. Transactions in Beijing plunged 86 percent and prices dropped 24 percent in the seven days ended October 9, according to Soufun Holdings Ltd., the owner of China’s

biggest property website. In Shanghai, the number of home sales declined 35 percent in the same period, with average prices down 8 percent. Alan Jin, a Hong-Kong based property analyst at Mizuho Securities Asia Ltd. projected that September will mark the “peak” for both home-buying volumes and price appreciation, followed by a year-long decline in volume starting March or April and a decline in the nation’s average home prices beginning in the middle of next year. “The fierce tightening made by local municipalities are likely under the direction of the central government,” Jin said. “The easing is officially over.” Bloomberg News

10 Business Daily Friday, October 14 2016

Greater China Export/Import

Monthly figures point to trade losing steam Weaker demand for Chinese goods was seen in nearly all of its major markets in the U.S., Europe and much of Asia. Yawen Chen and Kevin Yao

hina’s September exports fell 10 per cent from a year earlier, far worse than expected, while imports unexpectedly shrank after picking up in August, suggesting signs of steadying in the world’s second-largest economy may be short-lived. The disappointing trade figures pointed to weaker demand both at home and aboard, and deepened concerns over the latest depreciation in China’s yuan currency, which hit a fresh six-year low against a firming U.S. dollar yesterday. “This comes on the heels of weak South Korean trade data, and it definitely make us worry about to what extent global demand is improving,” said Luis Kujis, head of Asia economics at Oxford Economics in Hong Kong. China’s exports had been expected to fall 3 per cent, slightly worse than in August as global demand for Asian goods remains stubbornly weak despite heading into what is usually the peak year-end shopping season. Imports shrank 1.9 per cent, dashing hopes for a second rise in a row. Imports had unexpectedly grown 1.5 per cent in August, the first expansion

in nearly two years, on stronger demand for coal and commodities such as iron ore which are feeding a construction boom. That left China with a trade surplus of US$41.99 billion for the month, the lowest in six months, the General Administration of Customs said yesterday. Analysts had expected it to expand slightly to US$53 billion. The weaker trade readings could raise concerns about the other September data and third-quarter GDP over the coming week. Economists had expected that data to show the economy was stabilising and perhaps even slowly picking up.

The import reversal raises questions over the strength of the recent recovery in domestic demand, Julian Evans-Pritchard at Capital Economics said in a note. “This could be an early sign that the recent recovery in economic activity is losing momentum, although we would caution against reading too much into a single data point given the volatility of the trade figures,” he said. “The continued underwhelming performance of Chinese exports adds weight to our view that the People’s Bank will maintain its recent policy of gradual trade-weighted renminbi (yuan) depreciation in coming quarters,” he added. Last month, the World Trade Organization cut its forecast for global trade growth this year by more than a third to 1.7 per cent, reflecting a

slowdown in China and falling levels of imports into the United States.

Doubts about recovery

To be sure, China’s imports of crude oil rose 18 per cent on-year to a daily record, while iron ore purchases surged to the second highest on record, suggesting its demand for global commodities is hardly falling off a cliff. Steel mills, in particular, appear to be running hot to meet demand from a housing boom and government infrastructure projects, which are driving higher profits. But copper, coal and soybean imports all fell from August. “China imported too much copper in the beginning of this year,” said Chris Wu, an analyst at CRU Beijing, a metals consulting firm. “The lagging effect from the property market is still helping with some of the end use sectors for example wire and cables and white goods, but we are afraid the boom is close to the end.” A Customs spokesperson said yesterday rising imports of oil and other commodities showed demand is improving, adding that the government’s trade policies is having positive effects. After a rough start to the year, China’s economy has shown signs of steadying thanks largely to the building boom, but some analysts warn the housing frenzy may be peaking as more cities impose restrictions on home buying to keep prices from overheating. Data have also highlighted growing imbalances in China’s economy, with growth increasingly reliant on government spending as private investment falls to record lows. Larger state firms are expanding, likely thanks to Beijing’s largesse, but smaller manufacturers continue to struggle. Reuters

State planner

Equity swap plan to cut state firms debt by 10-20 per cent Economists have expressed concern that the debt-to-equity swap programme could saddle banks with low-grade assets Th e l at est r o u n d o f Chi n es e debt-to-equity swaps could cut total company liabilities by around 1020 percentage points, but the final amount will be decided by the market and not by government, a planning agency spokesman said yesterday. China said in new guidelines published on Monday that the transfer of equity stakes would be a key part of the country’s efforts to reduce a corporate debt burden that has now reached US$18 trillion, equivalent to about 169 per cent of the country’s gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. Chinese banks have already entered into deals to take on the debts of struggling state-owned firms in exchange for equity stakes. “While this policy was being formulated, we used a model to conduct simulations, and the simulation showed debt-to-equity swaps could reduce overall debt-to-asset ratios by 10 to 20 percentage points, cutting

enterprise financial costs significantly,” said Zhao Chenxin, National Development and Reform Commission (NDRC) spokesman. But Zhao said the government was not setting any specific targets for the programme. “It should be obvious that the debt-to-equity programme will reduce the leverage of enterprises, but the specific amount will be determined by negotiations between the creditors and the debtors,” he told reporters at a briefing in Beijing. Economists have expressed concern that the debt-to-equity swap programme could saddle banks with low-grade assets and might be used to prop up poorly performing but politically influential state-owned firms. Fitch Ratings said in August the eligibility criteria for debt-to-equity swaps were unclear, and local governments could use it to shore up economically unviable “zombie” firms in a bid to protect employment. However, officials have been at

pains to stress the merits of the scheme. NDRC vice chairman Lian Weiliang said on Monday the swaps would not be a “free lunch” for troubled companies, and zombie firms would be forbidden from participating. According to the latest Ministry of Finance data, China’s state enterprises had accumulated liabilities of 84.7 trillion yuan (US$12.70 trillion) by the end of August, up 17.6 per cent on the year and representing a

debt-to-asset ratio of 66.2 per cent. Yao Yang, director of the China Centre for Economic Research, said in an editorial published in the China Daily yesterday that private equity funds should also be permitted to take on non-performing loans in the state sector in exchange for stakes. “Such an approach would not just address the NPL problem by giving the private sector a stake in the SOEs, but also help spur performance-enhancing reforms,” Yao said. Reuters

Business Daily Friday, October 14 2016 11

Greater China In Brief State media

Yuan’s SDR inclusion will make it more attractive

Results

TSMC net profit climbs after iPhone 7 boost The company said last week that revenue for September alone surged 39 per cent J.R. Wu

Ta i w a n S e m i c o n d u c t o r Manufacturing Co’s (TSMC) thirdquarter net profit jumped 28 per cent, hitting a new quarterly record, as analysts said earnings were boosted by sales of chips and processors for Apple Inc’s new iPhone 7. The world’s largest contract chipmaker said in a statement yesterday that July-September net profit climbed to T$96.8 billion (US$3.08 billion). That beat both the T$95.2 billion mean forecast in a Thomson Reuters/Eikon survey of analysts’ forecasts and the previous quarterly record of T$80 billion. TSMC’s third-quarter revenue rose 23 per cent to T$260.4 billion, another quarterly record and also ahead of guidance the firm offered in July. Last week TSMC said revenue for the

first nine months of the year rose 7.1 per cent to T$685.71 billion. The strong third-quarter performance means that with three months of the year to go, some analysts expect the firm will be able to beat its guidance for 5-10 per cent growth in revenue for the whole of 2016. In its statement, TSMC said thirdquarter revenue growth “mainly reflected stronger-than-expected smartphone demand”, without citing customers for its chips. Anticipation has intensified about how the iPhone 7s, launched in early September, have been selling in the wake of the scrapping of a rival smartphone by Samsung Electronics Co in what could be one of the costliest product safety failures in tech history. TSMC said last week that revenue

for September alone surged 39 per cent. According to Taiwan-based Fubon Research, TSMC is the sole source for the A10 processor used in the iPhone 7 and also the main foundry source for chips in the smartphone.

Key Points Q3 net profit T$96.8 bln vs T$95.2 bln analysts estimate Q3 revenue up 23 pct to T$260.4 bln, new quarterly record Analysts expect iPhone 7 launch boosted TSMC chip sales Based on an estimated shipment of 82 million units of iPhone 7s in the second half of this year, Fubon expects the iPhone 7 business to likely account for at least 10 per cent to 15 per cent of TSMC’s revenue in the second half of 2016. Reuters

The inclusion of the Chinese yuan in the International Monetary Fund’s elite basket of reserve currencies will attract overseas investment and help stabilise the local currency in the long run, an influential state-run newspaper said yesterday. The commentary in the Economic Information Daily comes after the yuan fell nearly one per cent over the past three days. Traders and economists had speculated that authorities wanted to keep the yuan stable ahead of its Oct. 1 inclusion in the IMF’s Special Drawing Rights basket, but have allowed it to fall since the end a week-long national holiday. Official tour

President Xi arrives in Cambodia for state visit Chinese President Xi Jinping arrived to Cambodia yesterday for a state visit aimed at further solidifying the traditional friendship between the two countries and deepen their comprehensive strategic cooperative partnership. This is Xi’s first trip to the Southeast Asian nation as president. In 2009, he paid an official visit to the kingdom as vice president. Xi is scheduled to meet Cambodian King Norodom Sihamoni, visit Queen Mother Norodom Monineath Sihanouk and hold talks with Prime Minister Hun Sen. The two countries will reach a series of cooperation deals during Xi’s visit to align their development strategies and boost cooperation. Energy sector

Power use growth accelerates

Hurun list

Wanda’s Wang defends top spot in China rich list A report said there were now 594 dollar billionaires in China Jackie Cai and Adam Jourdan

Chinese property magnate Wang Jianlin has defended his crown as the country’s richest man, according to the annual Hurun rich list, fending off Alibaba Group Holding Ltd founder Jack Ma and new players on the block like Baoneng’s Yao Zhenhua. Wang, the chairman of Dalian Wanda Group, took the top spot with a personal fortune of US$32.1 billion, the report said, despite Ma, the founder of e-commerce giant Alibaba, seeing his wealth surge 41 per cent from 2015.

Chinese tycoon Wang Jianlin

The annual rich list of China’s movers and shakers gives a temperature check on where money is flowing in China, and underlines the growing financial muscle of the country’s super-rich - a trend that has been fuelling a boom in global deals. Yao Zhenhua, the chairman of Baoneng Group and the biggest riser since 2015, saw his wealth shoot up 820 per cent to US$17.2 billion, elevating him to fourth in the overall list. Yao has been at the centre of a hostile takeover battle for China’s largest real estate developer China Vanke Co Ltd. Hurun founder Rupert Hoogewerf said Yao represented a new wave of wealthy Chinese, those whose money came from playing the financial markets as opposed to more traditional routes like trade or manufacturing.

“There’s a new type of wealth creation coming out,” he told Reuters, adding China was having to adapt as the wider economy was “very materially slowing down”. “Today it is about using the capital markets for financial investment,” he said. Baoneng, a financial conglomerate that had been a relative unknown, rose to prominence over the last year by becoming the largest shareholder in Vanke, though drew criticism from Vanke’s own chairman over where it was getting its funds.

‘Smartphone maker Xiaomi saw founder Lei Jun fall out of the top 10 as competition in China’s smartphone market rose’ The report said there were now 594 dollar billionaires in China, putting China ahead of the United States’ 535. However, none of China’s super-rich make it into the global top 20. Other risers included online gaming tycoon Ding Lei of Netease, appliance maker Midea Group’s He Xiangjian and property magnate Xu Jiayin of Evergrande. However, smartphone maker Xiaomi saw founder Lei Jun fall out of the top 10 as competition in China’s smartphone market rose. Reuters

China’s power use growth, a key barometer of economic activity, continued to accelerate in September due to more consumption by the service sector, an increasingly significant driver of the Chinese economy, official data showed yesterday. A total of 496.5 billion kilowatt hours of electricity was consumed last month, up 6.9 per cent year on year, according the National Development and Reform Commission (NDRC). The growth was in sharp contrast with a 0.1 per cent drop in the same period of 2015 and extended year-on-year increases seen since July. HK-LA link

Google, Facebook team on undersea cable Google and Facebook on Wednesday announced plans to work with a China Soft Power Holdings subsidiary to connect Los Angeles and Hong Kong with a high-capacity internet cable. The Pacific Light Cable Network will stretch 12,800 kilometres, crossing beneath the Pacific Ocean in a first-of-its-kind direct connection between the two locations, according to companies involved with the project. PLCN is expected to handle some 120 terabytes of data per second, enough capacity to enable 80 million high-definition video conference calls simultaneously between Los Angeles and Hong Kong, said Google network infrastructure director Brian Quigley.

12 Business Daily Friday, October 14 2016

Asia In Brief

FTA

Australia, Singapore to sign updated free trade deal An update to the 2003 Singapore-Australia Free Trade Agreement (FTA) will be the “most comprehensive” free trade deal Australia ever signed, Trade Minister Steve Ciobo said yesterday. Singapore’s Prime Minister Lee Hsien Loong, who is in Canberra on a three-day visit to strengthen the ties with Australia, is set to sign the updated FTA yesterday. The update will include new agreements in fields such as military training, trade, business services, and scientific research, while the showpiece of the agreement is a US$1.7-billion deal which will result in more than 14,000 Singaporean troops taking up residence at training base in north Queensland. Taxes

Cambodia collects US$2.5 billion in 9 months Cambodia collected US$2.5 billion from all sources of taxes in the first nine months of 2016, up 17.9 percent from 2.12 billion dollars over the same period last year, the latest figures showed yesterday. The Southeast Asian nation has two institutions responsible for collecting taxes. One is the General Department of Taxation, which collects interior taxes such as income tax, Value Added Tax, turnover tax, and property tax, and the other is the General Department of Customs and Excise, which collects taxes on goods entering and leaving the country. Forex

Australia’s central bank makes A$2.9 bln net profit Australia’s central bank made a net profit of A$2.9 billion in the year to June ($2.2 billion) and is set to pay A$3.2 billion into government coffers in 2016/17, a useful contribution in the struggle to rein in budget deficits. In its annual report, the Reserve Bank of Australia (RBA) said it made underlying earnings of A$1.2 billion in 2015/16 and A$3.4 billion in valuation gains from its reserves of foreign currency. Of that A$4.6 billion in earnings, A$1.4 billion was transferred to the RBA’s reserve fund which is used to offset any future losses. Oil industry

BPCL plans to spend US$6.8 bln on refinery expansion India’s Bharat Petroleum Corp Ltd plans to spend US$6.75 billion through 2022 to raise refining capacity by 62 percent to meet rising fuel demand in the world’s fastest growing major economy, a company official said. India is replacing China as the driver of global oil demand growth as its economy expands and a rising middle class buys motor vehicles. The IEA expects India to account for a quarter of global energy use by 2040. BPCL aims to lift its crude processing capacity to 1.18 million barrels per day (bpd) by 2022 from the current 730,000 bpd.

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Monetary meeting

Bank of Korea cuts 2017 growth outlook on uncertainties The central bank kept the rate on hold this month

outh Korea’s central bank yesterday lowered its 2017 economic growth outlook by 0.1 percentage point on worries about uncertainties at home and abroad as well as Samsung Electronics’ decision to discontinue Galaxy Note 7 smartphone. Bank of Korea (BOK) Governor Lee Ju-yeol told a press conference after the regular rate-setting meeting that the bank’s growth outlook for next year was downgraded to 2.8 per cent from 2.9 per cent forecast three months earlier. The BOK’s 2017 growth forecast continued to fall from 3.2 per cent estimated in January to 3.0 per cent in April and 2.9 per cent in July. South Korea’s economy expanded 3.3 per cent in 2014, before tumbling to a 2.6 per cent increase in 2015. Outlook for this year’s growth was unchanged at 2.7 per cent. The bank expected consumer prices to rise 1.0 per cent this year and 1.9 per cent next year each. The bank’s 2017 growth outlook of 2.8 per cent is still high compared with figures estimated by public and private economic think tanks. The state-run Korea Development Institute (KDI) set its growth forecast for next year at 2.7 per cent, with Hyundai Research Institute and LG Economic Research Institute putting their outlooks at 2.5 per cent and 2.2

per cent respectively. Governor Lee said the downward revision was made to reflect longterm structural problems and shortterm risk factors facing the South Korean economy. Lee cited growing uncertainties from Brexit, or British referendum to leave the European Union (EU), and the expected interest rate hike in the United States as major external risk factors. The expected U.S. rate hike would put pressure on the BOK, which cut the benchmark interest rate in June to an all-time low of 1.25 per cent. The bank kept the rate on hold this month, maintaining a rate freeze for four straight months. The on-going restructuring in shipbuilding and shipping lines was cited as key risk factors in the domestic front that would weaken sentiment among economic subjects. The government-led restructuring among shipbuilders and shipping lines is going on after major three

shipbuilders, including Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering, pledged to reduce workers by 30 per cent and overcapacity by 20 per cent by the end of 2018. Hanjin Shipping, South Korea’s largest container shipping line, filed a court receivership last month, which is expected to raise unemployment rate in the sector. Governor Lee said the downward growth outlook also reflected the discontinuance of Samsung’s Galaxy Note 7 smartphone. He noted the effect from the Note 7 discontinuance was not reflected sufficiently, indicating an additional downgrade in the bank’s growth forecast for the Note 7 scandal. The discontinuance scandal from the crown jewel of Samsung Group, South Korea’s No.1 family-run conglomerate, is expected to weigh down on the country’s economic recovery at least by the end of this year. Xinhua

Bank of Korea headquarters in Seoul

Booming economy

New Zealand’s data defy global trend Still, most economists expect the central bank to cut rates to an all-time low in November meeting Rebecca Howard

A raft of positive data confirmed New Zealand is benefiting as one of the developed world’s fastest-growing economies, yet the central bank is still expected to cut rates next month as inflation remains far below its target. Data yesterday showed a rise in manufacturing activity, consumer confidence at a more than 15-month high, an on-going pickup in job creation plus a government budget surplus over NZ$1 billion (US$715.8 million) higher than forecast for the year ended June 30. “Despite international turbulence and global uncertainty, New Zealand is in the unusual position of enjoying solid growth, rising employment and real wages at the same time as low inflation,” Finance Minister Bill English said when presenting the government’s books. The surplus for the past fiscal year was NZ$1.83 billion (US$1.31 billion), far outstripping the government’s May forecast of NZ$668 million. The second consecutive annual surplus was boosted by a NZ$3.8 billion rise in core tax revenue on solid growth. In April-June, New Zealand grew 3.6 per cent from a year earlier, and yesterday’s data indicated there’s no sign of slowing. Still, most economists expect the central bank to cut rates to an alltime low of 1.75 per cent on Nov. 10

in a bid to jump-start inflation. “Despite the growth backdrop arguing for no cuts, this soft inflation environment leaves the official cash rate biased to the downside, with the 3Q CPI figures unlikely to stand in the way of a November cut,” said ANZ senior economist Philip Borkin. New Zealand’s central bank is mandated to keep annual inflation in a 1-3 per cent band, with a focus on the midpoint.

Very low inflation

Economists tip third quarter annual inflation, to be reported next week, of 0.1 per cent or lower. Annual inflation was 0.4 per cent in the second quarter. A 0.9 per cent fall from a month earlier for September food prices, announced yesterday, strengthened

the view a November cut is a done deal. Even rising house prices are becoming slightly less of an issue, data yesterday showed, further paving the way for rate cuts. The central bank has long voiced concern about New Zealand’s hot housing market, where prices have increased 15 per cent over the past year and Auckland’s house price-to-income ratio is among the world’s highest. However, housing market activity cooled a bit in September as central bank lending curbs appear to have reduced heat. Seasonally adjusted house prices last month rose 3 per cent versus August nationwide but eased 2 per cent in Auckland. ASB chief economist Nick Tuffley, who anticipates a 25 basis point rate cut in November, said he expects the lending curbs to continue to suppress market activity the rest of this year. Reuters

Bill English, New Zealand’s Finance Minister

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 Friday, October 14 2016 13

Asia Weak data

Japan’s central bank likely to cut inflation forecasts A bank of Japan survey showed households’ inflation expectations weakened for the fifth straight quarter Leika Kihara and Stanley White

The Bank of Japan (BOJ) is likely to slightly cut next fiscal year’s inflation forecast in a quarterly review, sources familiar with its thinking say, but the central bank isn’t expected to ease in the near term after having revamped its policy framework only last month. Many central bank policymakers see little need to expand stimulus any time soon, including at the next two-day rate review concluding on November 1, unless an abrupt yen spike threatens to derail a fragile recovery, the sources said. Analysts say the BOJ would be in no rush to ease because its new policy framework, which targets interest rates rather than base money, is one better suited for a long-term battle to reach its ambitious 2 per cent price goal. BOJ board member Yutaka Harada told reporters on Wednesday that consumer inflation wasn’t accelerating as quickly as he expected, suggesting the central bank will revise down its price forecasts when it issues a quarterly report on the growth and inflation outlook on Nov. 1. “Job markets continue to improve as a trend so for now, additional easing may not be necessary,” said Harada, who has been among the most vocal advocates of aggressive money printing in the nine-member board. BOJ Governor Haruhiko Kuroda

has also said that he saw no immediate need to act, although the bank stood ready to ease if external shocks threaten achievement of the inflation target. Under the current forecasts made in July, the BOJ expects core consumer inflation to hit 0.1 per cent in the current fiscal year ending in March 2017 and jump to 1.7 per cent the following year. The forecast for fiscal 2017 far exceeds private-sector projections of 0.6 per cent. The central bank is likely to slightly

cut its price forecasts for both years, the sources said, as a stronger yen pushes down import costs and sluggish consumer spending discourages firms from raising prices of their goods. Depending on the degree of the revision, the BOJ may push back the timing for hitting its target, they said. In July, the central bank forecast inflation to hit 2 per cent by March 2018 but warned there was uncertainty over the projection. “The BOJ has to lower its forecasts, because they are out of line with what most economists outside the BOJ are forecasting,” said Norio Miyagawa, senior economist at Mizuho Securities. “The BOJ is willing to take more

time to meet its inflation target, so I don’t expect additional easing.”

Growth forecast intact

The central bank is likely to make no major revisions to its economic growth forecasts, the sources said. The BOJ last month switched its policy target to interest rates from expanding the monetary base after its massive asset purchases failed to generate sustained inflation. Slumping oil costs and a strong yen weighing on import costs have kept inflation distant from the BOJ’s 2 per cent goal. Core consumer prices fell 0.5 per cent in August from a year earlier to mark the sixth straight month of declines. The BOJ’s own price index that strips away the impact of fresh food and oil costs, which the central bank flags as a more accurate indicator of price trends, rose just 0.4 per cent in August from a year earlier, slowing from 0.5 per cent in July. Adding to the gloom, a BOJ survey showed households’ inflation expectations weakened for the fifth straight quarter to a nearly four-year low in July-September. But a rebound in oil prices has moderated the downward pressure on consumer inflation, which means any downgrade in the BOJ’s price forecasts will be fairly small, the sources said. “The BOJ won’t ease just because of a modest downgrade in its inflation forecasts as it probably wants to save its dwindling policy tools for when the yen spikes,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. The Sankei newspaper reported yesterday that the BOJ will likely reduce its estimate to the lower 1 per cent zone from 1.7 per cent now for the fiscal year starting in April. Reuters

14 Business Daily Friday, October 14 2016

International In Brief Half-century blockade

Cuban civil society urges end of U.S. embargo Organizations of Cuban civil society called on the United States to end its over half-century economic, trade and financial blockade against the island nation. Representatives from religious communities, trade unions, students, scientific and academic organizations gathered at Havana’s Higher Institute of International Relations and presented a statement, denouncing the “criminal” U.S. policy. The statement said Cuba’s economic damage caused by the sanctions are valuated at about US$125 billion, according to “conservative estimates” from the island’s authorities. U.S. President Barack Obama was urged to use his executive power to end that “unfair” punishment.

Watchdog

EU misspent 5.5 bln euros in 2015 A report said the figures were not a measure of fraud, inefficiency or waste, but an estimate of the money that should not have been paid out because it did not fully comply with EU rules

he EU misspent 5.5 billion euros (US$6 billion) in 2015, the bloc’s financial watchdog said yesterday, warning that Brussels needed to regain the trust of European citizens shaken by Brexit and other crises. Badly spent funds went on paying overcharged personnel costs for developing cloud computing services, it said. Another example included aid earmarked for small- and medium-sized enterprises in the Czech Republic, Italy and Poland also benefiting people deemed ineligible, it added.

In issuing the report for 2015, Klaus-Heiner Lehne, the president of the European Court of Auditors, said Europeans have lost trust in EU institutions amid economic troubles, the migration crisis and the British vote to leave the EU. “In the months and years to come, a major challenge for the EU will be to regain that trust,” Lehne said in a presentation of the report, stressing that a good start would be to ensure funds are better spent. “People cannot even begin to trust us if they do not believe we are looking after their money properly,”

Lehne said. The report said the so-called error rate for spending fell slightly to 3.8 per cent of the EU’s 145.2-billion-euro budget in 2015, but was still far above the acceptable level of 2.2 per cent. That was better than the 6.3 billion euros that were estimated misspent in 2014.

“In the months and years to come, a major challenge for the EU will be to regain that trust” Klaus-Heiner Lehne, the president of the European Court of Auditor

German minister

Way cleared for EU-Canada trade deal

The report said the figures were not a measure of fraud, inefficiency or waste, but an estimate of the money that should not have been paid out because it did not fully comply with EU rules. Spending managed jointly by Brussels and member states had the same level of error as that managed directly by the European Commission, the EU’s powerful executive branch, the report said. The total EU budget amounts to around one per cent of EU gross national income and around two per cent of total public spending in member states, it said. EU spending amounts to around 285 euros for every citizen in the bloc of around 500 million people. AFP

A ruling by Germany’s Constitutional Court allowing the government to back an EU-Canada trade deal is pleasing and paves the way for Europe to shape the rules of globalisation, Economy Minister Sigmar Gabriel said on Wednesday. “I am very pleased with the outcome of the proceedings,” Gabriel said in Berlin, adding he believed that the conditions set out by the court could be resolved easily. “I am very pleased that we have made a first big step, because if Europe were not able to deal with Canada, this would send a difficult signal in the world,” he added. Oil industry

Angola remains Africa’s top producer Angola was in September Africa’s largest oil producer for a seventh consecutive month, with estimated daily output of 1,766,000 barrels of crude, down on the figure for August but still higher than the 1,524,000 barrels produced each day by Nigeria, despite its output continuing to increase. The information, from secondary sources, appears in a report from the Organisation of Oil Exporting Countries (OPEC) that was released on Wednesday. The September average for Angola’s daily production was down 14,100 on August. Nigeria saw its output hit a low in May of 1,444,000 barrels a day, according to OPEC. Real estate

UK house prices rise again British house prices rose for a second month in September and enquiries from buyers picked up for the first time since February, suggesting the housing market has weathered the initial shock of the Brexit vote, a survey showed. But prices in London fell again due to uncertainty about what the decision to leave the European Union means for the capital and its huge financial services industry, and the impact of a tax hike in April for landlords buying property. The Royal Institution of Chartered Surveyors said its monthly house price index increased to +17 in September from +13 in August, moving further away from July’s three-year low of +5.

Minutes

September’s Fed rate decision a ‘close call’ Some participants in the meeting believed job markets were in fact beginning to tighten Last month’s Federal Reserve decision not to increase interest rates was a “close call” for several policymakers, supporting views that a hike could come in December, according to minutes released Wednesday. Some other members of the Federal Open Market Committee also believed it would be “appropriate” to raise rates “relatively soon,” according to the minutes of the September 20-21 FOMC meeting in Washington. Throughout 2016, the US central bank has held its current target range of 0.25-0.5 per cent steady to avoid interrupting a fragile economic recovery. But the meeting minutes supported the view that it is poised for an increase at its final meeting of the year in December in order to prevent inflation from taking off. “Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the committee expected,” the minutes said. “Among the participants who supported awaiting further evidence of continued progress toward the committee’s objectives, several stated that the decision at this meeting was a close call.” The FOMC, which sets interest rates, has been openly divided since the summer on the timing of its next increase. Those seeking to raise rates have cited strong job growth and warned that delaying could require the Fed to raise them suddenly in the future, creating an unnecessary

shock to the economy. However, they have been outnumbered by policymakers who pointed to slack in labour markets and argued that signs of inflationary pressure are missing. Core inflation in the US has remained below the Fed’s target 2 per cent for more than four years.

“The hawks are still the minority, despite repeatedly warning that holding off hiking now raises the risks of bigger increases and unpredictable downside growth risks later” Ian Shepherdson, chief economist at Pantheon Macroeconomics The Labour Department reported last week that the US economy created 156,000 jobs in September while the unemployment rate actually rose a tenth of a point to 5.0 per cent as more job seekers returned to the hunt for work. But some participants in the meeting, which occurred prior to the jobs

report, believed job markets were in fact beginning to tighten. “Some participants pointed to the slowing in payroll gains and modest pickup in wages this year and judged that the labour market had little or no remaining slack,” according to the minutes. Divisions among the committee persisted, however, with others saying lacklustre wage growth, high-levels of part-time work and rising labour force participation showed that slack indeed persisted. Economists took the jobs report, which was solid but below analyst expectations, to indicate that a December rate hike was possible but not guaranteed. But Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the FOMC minutes also showed that the committee’s disagreements were balanced on a knife’s edge. “The hawks are still the minority, despite repeatedly warning that holding off hiking now raises the risks of bigger increases and unpredictable downside growth risks later,” he wrote in a message to clients. “But it won’t take much, we think, to tip the committee into a majority in favour of tightening.” Fed futures markets on Wednesday afternoon put the likelihood of a December rate hike at close to 70 per cent. The Fed is due to meet next on November 1-2, days before the US elections. Joe Manimbo, a senior market analyst at Western Union, said the minutes confirmed that a December rate hike was still likely. “The minutes hinted at a readiness but not quite a willingness yet to raise borrowing rates,” he said in a client note. AFP

Business Daily Friday, October 14 2016 15

Opinion Cathay has no escape from China’s suffocating embrace David Fickling a Bloomberg Gadfly columnist

ong Kong’s political activists aren’t the only ones who fear the long arm of the Chinese state these days. Airlines are getting in on the act too. Shares in Cathay Pacific fell as much as 5.6 per cent to their lowest level in seven years yesterday after the company junked its forecast for second-half profit and said it was carrying out a “critical review” of its business. Blame competition from over the border. Mainland China’s big three state-owned airlines have been adding planes and routes at a rapid clip in recent years. Along with HNA-controlled Hainan Airlines, they’ve been chasing a domestic market that Airbus forecasts will grow almost fourfold between 2015 and 2035 and an international one that has already turned China into the world’s biggest exporter of tourists. If that sort of market growth sounds like good news for Cathay, think again. Boom times can be as fatal to airlines as busts, because when the competition raises capacity too quickly it drives down everyone’s prices. As Gadfly warned in August, airlines in China and Hong Kong are suffering from a brutal bout of ticket price deflation. Passenger yield - which measures how much a carrier earns for flying a single passenger one kilometre - has slumped across the board. In their most recent reporting periods, the 7 cents and 6.8 cents revenue per passenger kilometre that Cathay and Hainan Airlines were getting was barely per cent more than the 6.7 Cathay shares Thursday cents received by Juneyao, an upmarket budget airline that by rights should be making considerably less. In theory, that deflation should be offset somewhat by the rapidly falling price of jet fuel, but Cathay’s been hit on that front as well. Its state-owned rivals have enjoyed the full benefit of plummeting oil prices because they don’t hedge, while Cathay’s hedging policy has been an expensive failure. The options for airlines caught in this vise aren’t attractive. Keeping ticket prices low offers no respite from the climate of marginal or negative profits. Putting them back up or cutting capacity just encourages passengers to fly with the competition instead, adding to Hong Kong’s existential sense of marginalization relative to an ebullient mainland. Cathay still has some cards up its sleeve. Shuffling its aircraft orders would stop the bleed from capital spending while a restructure of the fuel hedge book, or possible higher oil prices, could turn some of those losses back into profits. The carrier could raise cash by selling off stakes in its catering, ground-handling or frequent-flier programs, though its substantial cargo business isn’t likely to attract investors in a weak market for air freight. It might also have some supporters in the form of controlling shareholder Swire and Hong Kong’s government, which showed its willingness to go into bat for the local hero in rejecting Qantas’s attempt to set up a low-cost carrier in the territory last year. Either way, Cathay can’t remain aloof from the market share war playing out in China. Transit passengers make up about half its traffic, according to HSBC analyst Jack Xu, so Cathay is embroiled in this battle whether it wants it or not. Fasten your seat belts. Bloomberg Gadfly

5.6

Global investment flows neutering national monetary policy

onetary policy in developed markets like Japan and Europe is failing, and faltering in the U.S., in substantial part because globalization has altered how investment is made and where. The upshot is that fiscal stimulus is the next magic bullet of choice in the slow-motion older economies, but one which may misfire or miss the mark. One of the huge puzzles of the long, shallow recovery is why capital investment in the large economies no longer responds with vigour to cuts in interest rates or other newer tactics like asset purchases. In years past if a central bank like the Federal Reserve cut interest rates, domestic businesses would respond by bringing forward and increasing capital expenditure, investing in new capacity to take advantage of newly cheap borrowing terms. Now, rates are in negative territory or barely above zero in huge swaths of the global economy, yet investment remains low and relatively unresponsive to traditional or extraordinary monetary policy. Yet, central bankers in developed markets are implying, both in word and deed, that they will stick with and even increase their bets on extraordinary policy. “ W e c o u l d b e st u c k i n a new longer-run equilibrium cha ract e ri z e d b y s l u ggi sh growth and recurrent reliance on unconventional monetary policy,” Fed Vice Chair Stanley Fischer said last week. From the Bank of Japan now seeking to control long-term rates while pinning short-term ones to a massive Fed balance sheet which even it implies is a fixture rather than an emergency measure, signs are plentiful that, having seen little benefit from monetary policy, central banks, like the man with the hammer, will continue to treat screws like nails. The reason this isn’t working is that while central banks can make borrowing in their markets more attractive, they can only do little about the attractions of investing there. “Developed economies could be in a liquidity trap not only because interest rates are close to zero, but because of the changed nature of where capital expenditures are taking place now in a globalizing world,” Stephen Jen and Fatih Yilmaz of hedge fund Eurizon SLJ Capital write in a note to clients. It isn’t simply that near the zero lower bound for interest rates, further moves bring diminishing or negative returns. It is also that for those agents who want to invest, the way the global economy is organized now makes it both easier and very likely more productive to put the money to work not in sclerotic aging economies but in emerging markets.

“

James Saft a Reuters columnist

Why invest in Japan? or Europe?

This means that low rates have a lower impact on capital expenditure than once they would have, a point supported by the historically high ratios of corporate cash to investment or profits to investment. Japan’s experience with Abenomics backs this up. While the theory was that Japan would cheapen the yen and corporations would take the profits and increase production and employment, the reality was different. Why invest in Japan, which is aging, instead of lower-cost locations closer to future demand? In addition a long-running deindustrialization in developed economies mean there is simply a smaller base of manufacturers to take up the offer of cheap loans. And the services which have grown up to fill the gap are less capital-intensive and more reliant on intangibles like intellectual property. The U.S. and euro zone have had a similar, though less extreme, experience to Japan’s. “Since monetary stimulus has reached its limitations, there will logically be a shift toward fiscal stimulus, and that is indeed what we expect to see in the coming quarters, especially in Japan, the UK and the US,” Jen and Yilmaz write. The risk with this line of thinking is that fiscal stimulus may face some of the same problems as monetary in stimulating growth in a globalized and aging world. A dollar of highway spending in the U.S. of 1970 offered benefit to a much broader industrial base than the same dollar spent today. And in aging economies not only is a dollar borrowed and invested in fiscal stimulus facing the same demographic constraints as one borrowed and spent by industry, it piles a larger debt up which will need to be serviced by a narrower working cohort later. This is not to say that infrastructure investing isn’t needed, but that all forms of investment in developed economies may garner less bang for a given buck than in the past. One irony, of course, is that just as central banks struggle under constraints due to globalization, political forces may conspire to roll back its power. From Brexit to Trump and Clinton’s varyingly tough talk on trade deals, we might see a less globalized world. That would restore some power to monetary policy but only by wrecking economic growth in the process. Reuters

While central banks can make borrowing in their markets more attractive, they can only do little about the attractions of investing there

”

16 Business Daily Friday, October 14 2016

Closing Tourism

Shanghai begins three-day promotional tour in Australia

Administration unveiled their “Our Shanghai” promotional video and new Promoting 2017 being the year of China- policies to encourage two-way tourism. Australians will be eligible for a 144-hour Australia tourism began in earnest yesterday after Shanghai’s tourism body visa free entry for transit passengers and new tax refund policies. arrived in Sydney. “The tourism campaign in Australia Australia has consistently been on Shanghai’s top 10 destinations for visitors is dedicated to levelling up tourism in recent years, and now 1 million Chinese cooperation between Shanghai and tourists visit the land each year. However, Australia, and to promoting Shanghai (pictured) to potential tourists in Australian visitors to China still lag. Australia,” the delegation said in a Kicking off in Sydney’s World Square, statement to Xinhua yesterday. Xinhua the Shanghai Municipal Tourism

Head of state deceased

Death of beloved Thai king shakes the country Thailand is unlikely to face major economic disruption after the death of revered King Bhumibol Adulyadej

he passing of the 88-yearold king, which followed a series of major health problems in recent years, was announced by the palace yesterday. Hundreds of people were gathered outside Bangkok’s Siriraj Hospital, many weeping. Crown Prince Maha Vajiralongkorn - who is expected to succeed his father - visited him earlier in the day. Neither the government nor palace has released any plan for mourning and there was no immediate announcement of a succession. Three government spokesmen declined to take telephone calls yesterday for comment on this story. The military government has pushed through a new constitution that it hopes will ensure its oversight over stable government for years to come and it looks firmly in control for a royal transition. The government might postpone to 2018 a general election scheduled for next year, and Thai stocks and the baht currency are likely to be volatile immediately after the king’s death, the Eurasia Group of risk analysts said in a report issued before the announcement of the king’s death. But given a smooth transition, major disruption is not expected, according to five diplomats in Bangkok who spoke to Reuters. “We expect the royal succession to designated heir Crown Prince Maha Vajiralongkorn will be stable and

that market volatility around the king’s death will not be long-lasting,” Eurasia Group said. Overall, the impact on the investment environment will be “relatively minor” and limited to what is likely to be an initial mourning period of 100 days, it added. Strict lese-majeste laws mean public discussions of any succession plans are punishable by lengthy jail terms. The Stock Exchange of Thailand’s benchmark index fell as much as 6.9 per cent on Wednesday to its lowest since March 1, but recovered to close

down 2.5 per cent. It closed 0.47 per cent up yesterday before the announcement of the king’s death.

Capital outflows

Nordea Markets’ chief analyst Amy Yuan Zhuang, based in Singapore, said the economy was not as sentimentdriven as the baht, which could be vulnerable to capital outflows. “We have only seen two or three days of net outflows from the local equity and bond markets and the sizes are not very big,” Zhuang said before the announcement of the king’s death. But she added that outflows could increase. Thai business leaders say privately they are confident the military government will ensure a smooth

transition. King Bhumibol was widely loved and most Thais have known no other monarch. Although his health had been poor for years, many will be shocked and deeply saddened by his death and will wear black and make offerings at Buddhist temples. A royal cremation is likely to take months to prepare, according to palace tradition and two royal funerals over recent decades. Mourning rituals in temples are likely to be observed for many months, perhaps even years, if recent royal funeral rites are repeated. Companies are likely to postpone some kinds of events, such as product launches, for the initial mourning period, the Eurasia Group said. An officer at a Western embassy in Bangkok said airports were not likely to close for any length of time, given Thailand’s heavy dependence on tourism. Perhaps bars would close for a few days, but beyond that, things should return to normal fairly quickly, the diplomat said. Reuters

A Thai well-wisher weeps as she is comforted by others during a prayer for Thai King Bhumibol Adulyadej’s recovery at the Siriraj Hospital in Bangkok, Thailand, 13 October 2016. Lusa

Asian growth

Currency

Science projects

Uniqlo operator Fast Retailing Deutsche Bank sees yuan forecasts record profit falling 17 per cent

China’s state observatory partners Alibaba on big data

Fast Retailing Co Ltd, the Japanese owner of the Uniqlo casual wear brand, expects to post a record operating profit in the year to August 2017, as growth in its Asian business offsets sluggish retail demand at home. Retailers in Japan are lowering prices and consolidating operations in a bid to shore up sales amid weak household spending and a stronger yen, but this has so far had only limited impact, with domestic monthly retail sales falling for the past sixth months, underlining on-going fragility in the wider economy. Fast Retailing said yesterday it planned to increase the number of overseas Uniqlo stores to 1,104 store by the end of August, focusing on Greater China and other Asian countries, from 958 in the year just ended, while keeping the number of its Japan stores unchanged. “At Uniqlo International we expect operating profit will expand sharply in fiscal 2017,” the company said in a statement. Asia’s biggest clothing retailer by sales said it expected operating profit to jump 37.5 per cent to a record high 175.0 billion yen (US$1.70 billion) for the year ending in August 2017. Reuters

The National Astronomical Observation (NAO) yesterday announced a partnership with Alibaba Group on astronomy research using big data. The partnership, involving Alibaba’s cloud computing unit Aliyun will result in the establishment of a big data research centre, featuring an open online database of astronomical information that enables users to explore the cosmos via a virtual space observatory. The centre will also be able to support scientific research with cloud computing. Yan Jun, head of NAO, said astronomy was one of the first disciplines to utilize data science. Big data opens up new opportunities for astronomical research but also features some challenges, in terms of data collection, transportation, storage, processing, analysis, and sharing, he said. Th e v o l u m e o f d ata c o l l ec t e d th r o u g h astronomical observation is expected to balloon to 250 trillion bytes a year. The NAO’s partnership with Aliyun, whose strength lies in AI and bigscale computing, is expected to help upgrade China’s capability in basic research regarding astronomy. Xinhua

The yuan will weaken 17 per cent over the next two years as government efforts to cool the housing market, easier monetary policy and higher U.S. borrowing costs spur capital outflows, according to Deutsche Bank AG. China’s currency will end 2017 and 2018 at 7.4 and 8.1, respectively, compared with yesterday’s rate of around 6.72 per cent, economists Zhiwei Zhang and Li Zeng wrote in a report dated yesterday. The nation’s economic growth will probably slow to 6.2 per cent next quarter, while outflows will intensify in the next few months, they wrote. The yuan has fallen 0.8 per cent this week as rising expectations of a U.S. rate hike by year-end boost the dollar and slumping exports dent the outlook for China’s economy. At least 21 mainland cities have introduced purchase restrictions and toughened mortgage lending since late September to restrain surging home prices. The monetary authority has refrained from lowering benchmark rates since October 2015. “We believe a tightening Fed, a deflation of property bubble in China, and potential policy easing by the PBOC in 2017 will lead to persistent capital outflows,” Zhang and Zeng wrote. Bloomberg News