Macau Business Daily October 17, 2016 by Business Daily

Portugal to be ‘Partner Country’ for the next MIF MICE Page 3

Monday, October 17 2016 Year V Nr. 1152 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Land use

Pansy Ho pushes for tourism facilities on reclaimed land Page 3

www.macaubusinessdaily.com

Tourism

Gaming

Local travel agencies reorganise tours to Thailand due to nationwide mourning Page 6

Penghu residents reject casino development proposal Page 7

(Almost) No vacancy Tourism

The average hotel occupancy rate in September hit 86.6 pct, a 5.6 pct increase year-on-year but a six pct drop month-on-month. Three-star hotels continued to register the highest occupancies, while 5-star hotels saw the highest year-on-year growth, at 6.5 pct. A further decrease in hotel room rates - 11.3 pct year-on-year - also corresponded to an overall increase in supply. Page 2

M&A

Airfare restrictions

A merger of Sinochem Group and China National Chemical Corp. could create a new oil-refining giant Page 9

Chinese authorities to allow more freedom to local airlines to set domestic fares Page 9

Build it, they’ll come

GTEF Diversifying the city’s key tourism source markets will be essential to the future development of the industry, says Secretary for Social Affairs and Culture, Alexis Tam. More direct flights and supporting initiatives such as the Global Tourism Economy Forum, held over the weekend, will create more opportunities, says the Secretary. Vice Chairman of the Forum, Pansy Ho, says the event hopes to attract opinion leaders to the MSAR to “change its image”, during the second phase of the city’s tourism development. Page 3

Building blocks

Forum Macao Representatives from the Forum for Economic and Trade Co-operation between China and Portuguese-speaking countries hope the new complex for Forum Macao will be ready by 2019 – the next date for the Ministerial Conference. New action guidelines for the next three years will focus on enhancing cooperation between countries and regional institutions of the member-countries, and developing the industrial capacity of Portuguese-speaking African countries and East-Timor. Page 2

Burning rubber

FIA GT Cup winner Maro Engel is coming back to compete in this year’s Macau Grand Prix in his new Mercedes AMG GT3, which he drove to a win at this year’s Nürburgring 24-hour race. Engel tells Business Daily how the Guia track is the most challenging in the world, and how hard he’ll have to work to defend his title. Engel also shares the challenges of growing up a racer and how important sponsorship is to making it big in the industry.

Welcome inflation

Interview | MGP Pages 6 & 7

HK Hang Seng Index October 14, 2016

23,233.31 +202.01 (+0.88%) Worst Performers

China Unicom Hong Kong

+2.81%

CK Hutchison Holdings Ltd

+1.57%

Tencent Holdings Ltd

-0.48%

Henderson Land Develop-

+0.11%

Sands China Ltd

+2.79%

Li & Fung Ltd

+1.57%

China Overseas Land &

-0.21%

Cathay Pacific Airways Ltd

+0.19%

CNOOC Ltd

+2.55%

China Life Insurance Co Ltd

+1.47%

Want Want China Holdings

-0.21%

New World Development

+0.21%

Bank of Communications

+1.76%

AAC Technologies Holdings

+1.37%

China Mobile Ltd

-0.11%

China Mengniu Dairy Co Ltd

+0.27%

China Construction Bank

+1.62%

Swire Pacific Ltd

+1.34%

China Resources Land Ltd

-0.10%

Wharf Holdings Ltd/The

+0.27%

26° 30° 25° 27° 26° 28° 26° 31° 26° 29° Today

Source: Bloomberg

Best Performers

Tue

Wed

I SSN 2226-8294

Thu

Fri

Source: AccuWeather

China’s prices One of the deflationary pressures that has gripped the global economy for the past five years is abating. China’s factory gate prices - falling since the start of 2012 - turned positive in September, squeaking out an increase of 0.1 per cent from a year earlier. Given China’s status as a factory to the world, that means prices of everything from T-shirts and televisions to tools and toys may follow. Page 8

2 Business Daily Monday, October 17 2016

Macau Forum Macao

Promises of cooperation Nelson Moura nelson.moura@macaubusinessdaily.com

epresentatives from the Forum for Economic and Trade Co-operation between China and P o rt u g u es e-s p ea ki n g Countries (Forum Macao) hope the complex inaugurated by China’s Premier Li Keqiang during the 5th Ministerial Conference can be finished before the next conference in 2019. During a press conference on the results of the 5th Ministerial Conference, Forum Macao SecretaryGeneral, Xu Yingzhen stated that she hoped the complex supporting trade and economic co-operation between China and Portuguese-speaking countries, to be built near Nam Van Lake, could be finished by 2019.

The complex will be located near the Legislative Assembly building in an area of approximately 14,200 square metres, and will serve as a venue for future editions of Forum Macao. It will also contain an exhibition centre for food products from Portuguese-speaking countries; a business service centre for enterprises from the Forum countries; a training centre; an information centre; an exhibition hall showcasing Sino-Luso relations and their cultures; and a room to stage exhibitions related to Macau’s urban development. “The building of the complex is a [type of] support from the central government. We want to centralise all these services so that businessmen, tourists and residents can travel there. So far there’s no calendar for the conclusion of the

installations, because it involves different procedures, concessions and feasibility studies. When it’s at a mature stage we will present more information,” Xu stated. When questioned on which government body would be responsible for the complex, the Forum Macao Secretary-General only stated: “different Macau government departments will be responsible for it,” without providing specifics.

New areas of cooperation

The Forum Macao representatives emphasised one of the new action guidelines of cooperation presented at the conference: the enhancement of cooperation between Portuguesespeaking countries and regional institutions of provinces in Mainland China over the next three years, with the development of a long-term

Secretary-General of Forum Macao (left)

exchange mechanism between the regions. Xu stated that this concept is part of three new cooperation areas appearing for the first time in a Forum Macao action plan, including the development of the industrial capacity of the Portuguese-speaking African countries and East-Timor, and the creation of new financial services to facilitate business between all parties.

Few details

When questioned on details about some of the announced projects included in Li Keqiang’s 19 measures for Macau, such as an RMB clearing centre, Ms. Xu only stated that Forum Macao expected that this initiative could attract more Mainland China banks to cooperate with Portuguesespeaking countries, and that no information on the centre’s location or system could be announced yet. A similar response was given in regards to the planned move of the headquarters of the US$1 billion (MOP8 billion) fund for investment in Portuguese-speaking countries to Macau. Previously the President of the Fund for Development Cooperation between China and Portuguese-speaking Countries, Chi Jianxin, stated the move was expected to be finalized by the end of 2016, but no information has been provided regarding its location and if its management would suffer alterations. The Forum Macao SecretaryGeneral considered this year’s Ministerial Conference an overall success, with 17 memorandum ag r e e m e n t s f o r c o o p e ra t i o n being signed between China and Lusophone countries; 100 agreements signed between business people from the infrastructure, finance, energy, technology, agriculture and commerce sectors; and the announcement of practical measures for the development of Macau as a bridge between the regions.

Hotel

Hotel occupancy increases 5 pct y-o-y in September However, with the end of the summer holidays, average hotel occupancy rates have dropped compared to August Cecilia U cecilia.u@macaubusinessdaily.com

he average hotel occupancy rate in the city in September hit 86.6 per cent, up 5.6 percentage points year-onyear, according to the latest data released by the Macao Government Tourism Office (MGTO). When compared to the 92.6 per cent occupancy rate seen in August however, the rate for September

dropped by six percentage points. Last month, 5-star hotels in the city recorded the highest growth in occupancy throughout the month, with an increase of 6.5 percentage points year-on-year to 86 per cent, compared to 79.5 per cent seen one year ago. However, local 3-star hotels registered the highest occupancy rate overall, at 89.6 per cent, posting a year-on-year increase of 5.2 percentage points.

For local 4-star hotels, meanwhile, the average occupancy rate increased by 3.8 percentage points to 86.6 during the month of September.

Further drop in prices Tourism

Crowded Golden Week The number of visitors to the MSAR during Golden Week grew 19 per cent from last year This year’s seven days of the National Day Golden Week saw a total of about 770,000 visitors entering the city, representing an increase of 19 per cent from last year, according to data on visitation collected by Public Security Police Force (PSP), excluding non-resident workers and students. The data released by the Macao Government Tourism Office (MGTO) reveals that visitors from Mainland China, Hong Kong and Taiwan represented 94 per cent of total

visitation, or 720,000 visitors, an increase of 19 per cent year-on-year, while visitors from other countries amounted to 47,000, a 20 per cent increase from last year’s Golden Week. The number of visitors from Hong Kong during the seven-day national holidays saw the largest increase with a 30 per cent year-on-year rise, while the number of Taiwanese visitors registered a nine per cent increase. N.M.

In the month of September, the increased supply of hotel rooms corresponded with a further yearon-year decrease in hotel room rates. The MGTO data shows that hotel room prices were MOP1,212.5 (US$151.72) per night on average in September, down 11.3 per cent compared to the same period in 2015 (MOP1,367.6). The average price for local 3-star hotels recorded its largest year-onyear decrease of 19.4 per cent, down to MOP754.5 per night in the month of September. The average price for staying in a 4-star hotel per night was MOP714.7, down 14.2 per cent compared to MOP832.8 in the same month last year, while 5-star hotels offered an average price of MOP1,543.4 per night, a decrease of 10.4 per cent yearon-year compared to MOP1,723.3

recorded in September 2015. There are 41, 3-star to 5-star hotels in the city, according to the MGTO data provided by the Macau Hotel Association. For the first nine months of this year, the city’s average hotel occupancy rate rose slightly, by 0.7 percentage points year-on-year, to 83.6 per cent. Both 4-star and 3-star hotels in the city each posted increases of 2.2 percentage points in the accumulative occupancy rate, while local 5-star hotels saw a slight increase of 0.1 percentage points year-on-year. Meanwhile, from January to September, the average hotel room rate was MOP1,293.8 per night, a decrease of 13.7 per cent year-onyear compared to the same period in 2015 (MOP1,500). For the same period, the room price offered by 3-star hotels dropped by 17.5 per cent year-on-year, down to MOP848.5 per night on average, while that of 4-star and 5-star hotels decreased by 16.3 per cent and 12.3 per cent year-on-year to MOP766 and MOP1,644.4 per night, respectively.

Business Daily Monday, October 17 2016 3

Macau Tourism

Alexis Tam: more overseas visitors

Diversification equals internationalization The official said the government will focus on promoting the city abroad Kam Leong kamleong@macaubusinessdaily.com

ecretary for Social Affairs and Culture, Alexis Tam Chon Weng believes that the internationalisation of the makeup of tourists to Macau is key to the future development of the industry, and stresses that the MSAR government will aim to attract more visitors by connecting the city with direct flights to source markets. The official was speaking at a press conference of this year’s Global Tourism Economy Forum (GTEF), which took place over the weekend at Studio City in Cotai. The Forum was themed: “The Growing Consumer Class – Rethinking and Reshaping the Future Tourism Landscape”. “We need to diversify our tourist sources, not only [those from] Greater China, but other overseas visitors,” the Secretary said. “That’s

why we visited Japan in April and then we went to South Korea to promote Macau. We did very good promotion there. And we saw good performance”. The Secretary stressed that the MSAR has registered “double-digit growth” of visitor arrivals from international markets in the past few months, especially those from Japan, Korea, Taiwan and Southeast Asia. “We think our strategies of promoting our tourism [outside Macau] are correct,” he said, adding: “We have other plans to visit more origins with direct flights to Macau to make promotions next year”. Nevertheless, the official said there is no future target for the number of international visitor arrivals or their proportion of overall visitors, claiming the government would “try its best”, as such numbers could be affected by many external factors.

Commenting on the 19 MSARfavouring initiatives – of which the first is supporting Macau to hold GTEF every year - announced by Chinese premier Li Keqiang during his visit to the city last week, Secretary Tam said he aims to make the forum “better and bigger” in the future. “We hope to turn this brand into a platform for international and regional co-operation to attract

Business

Portuguese partner Portugal will be the partner country of this year’s Macao International Trade and Investment Fair Nelson Moura nelson.moura@macaubusinessdaily.com

This year’s edition of the Macao International Trade and Investment Fair (MIF), to be held between October 20 and 22, will have Portugal as its ‘Partner Country’, with a planned workshop to present the country as an ‘Atlantic Platform’ for investment in Europe, the MIF organisation announced. Organised by the Macao Trade and Investment Promotion Institute (IPIM), the 21st MIF will be held at The Venetian, occupying some 30,000 square metres, with the theme of “Co-operation – Key to business opportunities”, the same as last year. This year, two 800-square metre pavilions will be set up for the ‘Partner Country’ Portugal and the ‘Partner City’ Beijing, with the pavilions showcasing historic and cultural details of the regions, and introducing their current investment

e n vi r o n m e n ts a n d ec o n o m i c situations. Close to the two pavilions - as a way to foment cooperation - the organisers will install a ‘Portuguese-speaking Countries Products and Services Exhibition’, a ‘Chinese Medicine Health Industry Pavilion’ and the ‘Provinces, Cities and Autonomous Regions of Mainland China Exhibition Zone’ with representations from 20 provinces and cities from Mainland China. Last year, Portugal had its largest

representation ever at the MIF, with 120 companies, and this year the MIF will see participation by over 50 countries and regions represented in more than 1,600 ‘stands’, according to IPIM. The event will also offer a series of free business matching services through an online business matching service platform, and specialised business matching sessions. The MIF is also supported by Mainland China and Hong Kong trade and economic government agencies, and chambers of commerce and business associations, and is jointly coordinated by the Macao Convention & Exhibition Association, Macau Fair & Trade Association and Association of Advertising Agents of Macau.

Urban development

Pansy Ho pushes to develop tourism facilities on reclamation zones Pansy Ho Chiu King, co-chairperson and executive director of MGM China Holdings Ltd, revealed that she might apply for more tourism facilities on the city’s reclamation areas in the future, and hopes the government will grant the green light for these projects. The businesswoman, also the vice chairman and secretary-general of the Global Tourism Economy Forum held over the weekend, was asked whether she would develop more tourism products on the city’s newly reclaimed land, during a press briefing of the Forum on Saturday. “For the reclamation areas, I believe the government’s long-term policies would for sure reserve more spaces to allow more developments related to the city’s dominant industry and to house more tourism facilities,” Ms. Ho said. She added that she agreed with the direction of developing more tourist products in the new urban areas, and said: “I hope the government will support my suggestions in the

future”. “There are still many places in Macau that visitors may miss when they are here. Today, we haven’t succeeded in offering visitors other extra experiences, but we will have much room to develop this segment,” Ms. Ho indicated. The gaming boss declined to comment on her outlook for the gaming industry, but claimed the overall economy of the MSAR is stabilising.

“We have seen [stabilisation] in the market, not only in the gaming industry. [We’ve seen] visitor arrivals and tourists’ consuming sentiment stabilising, which I believe is a very good sign [...] The government has carried out many good policies and promotions, while we investors have launched many new facilities this year, which, I believe, are boosting the stable development of the local economy and tourism,” she said. K.L.

more national officials or industry decision-makers [...] to gather them in Macau to discuss how to promote our own tourism industries and create exchange and conversation opportunities,” the official said.

GTEF bridge to the world

Pansy Ho Chiu King, the Vice Chairman and Secretary-General of the tourism and economy forum, foresees the event will help Macau to reach the world via the participants of the event - one day. “[The meaning] of gathering different representatives from international tourism units or o rga n i zati o n s, d e l egat es a n d officials worldwide is that we’re actually looking for [opportunities for] partnership relationships,” Ms. Ho said during Saturday’s press briefing. She indicated that the city needs to first be determined to change its image, as the industry is in its second phase of development that calls for diversification. “One of the main functions of the Forum is to attract interested parties or opinion leaders here to Macau. If they can feel, experience or observe that Macau could change its image in just a short period of several years, and that we could develop our other uniqueness - such as culture, tourism, MICE - this could make them help us to promote Macau in their [home markets],” she said. Ms. Ho also hopes the Forum can inspire local residents’ recognition of MICE tourism. “We hope our residents can agree and accept that our direction is correct and will benefit them,” she stated. The two-day forum, its fifth edition, attracted over 120 ministerial officials, corporate leaders, experts and scholars as well as 1,000 delegates from around the world, featuring Beijing and France as partners. The opening ceremony of the Forum on Saturday was officiated by Edmund Ho Hau Wah, Vice Chairman of the National Committee of the Chinese People’s Political Consultative Conference; Wang Qinmin, Vice Chairman of the National Committee of the Chinese People’s Political Consultative Conference; Sonia Chan Hoi Fan, the city’s Secretary for Administration and Justice; and Taleb Rifai, Secretary-General of the World Tourism Organization (UNWTO). As the acting Chief Executive on Saturday, Secretary Chan said the MSAR government is “eager to push forward regional and international tourism cooperation based upon our sound cooperative relations with different destinations”. “2016 is the year for the Macau SAR Government to map out its first five-year development plan for the city and start putting it into practice,” the official said. “In order to transform Macau into a World Centre of Tourism and Leisure, we have to closely combine and fully unleash our cultural and geographical advantages, as well as the privileges we enjoy under the policy of ‘One Country, Two Systems’,” the Secretary indicated.

4 Business Daily Monday, October 17 2016

Macau

“As a racing driver, you always want the highest challenge. If you succeed, it will be very rewarding. And that is why Macau has the best track in the world.” Sports

The best track in the world Maro Engel will be back in the MSAR in November to compete in the FIA GT CUP in his new Mercedes AMG GT3 car, after having won the past two editions of the race in Macau. The German racer told Business Daily that his team has already begun preparations with his new GT car for the Macau Grand Prix. Engel points out the importance of obtaining sponsorships to pursue a racing career, as well as the potential career opportunities that come from winning the Macau race, not only for himself, but for anyone in racing. Annie Lao annie.lao@macaubusinessdaily.com

ow are preparations coming along for this year’s Macau Grand Prix? Macau has an extremely stressful track, probably the greatest track in the world to be honest. So the preparation is very important because after two years of winning, our competitors would like to hit back for sure and try to beat us this year. But we want to defend the title so the preparation is already on-going for us: with our engineers, the team to prepare the cars, getting the set-up right and studying the data. Obviously, we will arrive early in the week to inspect the track, as every year there will be a few changes. It is important to be on top of all of that because at the end there will be the best GT drivers in the world coming to Macau to compete. There will be the biggest manufacturers and we want to make sure we are winning. When did you start preparations? We probably started four weeks ago. It usually takes two months to get ready for one race. Obviously, the planning had already started well before that. Many things are still on-going in the team. We have to work on the new cars and get prepared for the event. As you have already won twice in Macau, is this track still challenging for you? Absolutely. Macau is the ultimate challenge for a racing driver. It is high speed and very narrow. It has tight corners, quick corners and blind corners. It has everything there. The track is bumpy. So the challenge is huge for a racing driver. You never stop learning and there is always

something you can still improve and make a bit better. As it is so narrow between the walls, the ultimate position is required.

professional drivers who love to come back to Macau to compete again with all the other champions at a very high level.

What do you think of the new tire supplier - Pirelli - for this year’s race? The tires are the contact to the ground and everything we do is trying to optimize and get the maximum grip from the tires that they can offer. This year we have this situation that we are going back to Macau with Pirelli tires, which we were with last year. That is good for us because we have some data to back ourselves on.

How different is the new MercedesBenz AMG GT3 compared to the Mercedes SLS AMG GT3 that you raced in last year? We have developed a new car for this year, the AMG GT3. And what we have now is a racing car that is another step further. And the new development has been crucial. Now we have a new car that is so precise and so direct, which gives the drivers better performance. In every area it has become a little bit better, in this new fantastic car. This is one of the reasons why we managed to be so dominant at the Nürburgring 24-hour race. Obviously, we hope this strength will be very good for us in Macau as well.

“In the junior year of being a racing driver, it’s all about managing to find sponsorships in order to compete because it is a very expensive sport.” The GT World Cup only started in 2008. Why has GT racing become so popular? It draws the attention of all the car manufacturers because they have nice GT cars and they put their factory drivers in the GT cars to showcase their skills. In addition, it is an opportunity for them to showcase their sports cars. The interesting part of Macau is that you have this fantastic circuit that all the drivers love to compete on. The GT car race is the perfect opportunity for all the

Do you think the new car will influence your performance in Macau? The new AMG GT3 car is more direct

in terms of steering, so it responds more dynamically and the air dynamic has been improved. So, for the traction control system, coming out of the corners is a very strong point of this new car. From a driver’s perspective, it is more agile and it can take more corner loads, so you can be a little faster. What are your expectations for this year’s race? After winning the last two races, we want to return to Macau and defend our title. There will be a lot of competition. We know we need to do a really good job to defend this title. It is always very exciting and the closer we get to the event, the higher the excitement is. It is just one of those very special places for us. The aim is clear, in one year’s time, we want to return there as a defending champion. It is a special feeling, an honour and a privilege to be the defending champion. How important is it for racing drivers to participate in the Macau races? If you ask any driver, I think the race in Macau is the most amazing circuit in the world. For drivers, it is the highest challenge. As a racing driver, you always want the highest challenge. If you succeed, it will be very rewarding. And that is why Macau has the best track in the world. What does winning in Macau mean to you? Winning in Macau is incredible and special. Every driver wants to win in Macau. This is something very

Business Daily Monday, October 17 2016 5

Macau succeed. You cannot be the champion of partying and be the champion of racing. That does not work anymore. You need to make some sacrifices and once you make it and then you look back at some of the sacrifices you’ve made, but it is all worth it because you can be proud of what you have achieved.

special and everyone recognizes it as an ultimate task for a racing driver. It is the most challenging track and so everybody wants to win it. Who will be your biggest competitor for this year’s title? This year is full of very strong drivers. It is going to be very tough, especially against Edoardo Mortara with Audi. I expect him and his teammates to be very strong again this year. We also have to have our eyes on Earl Bamber, with Porsche, who won the 24 hours of Le Mans in 2015, as I expect he will be very strong as well. But at the end of the day, we need to focus on ourselves and bring out the ultimate performance. How did you start in professional racing? I always loved cars as a small kid. I started karting when I was five years old. This is something that I started to do because I enjoyed it and I had fun. And I think that is very important for everybody; when you do something that you enjoy and you would like to do more of it, then you will become better. Obviously it requires a lot of dedication and hard work. You

need to spend time to improve your skills. Talent is important, but it is also important to exploit that talent to make the most of it, to persevere and believe in your dreams. It is not going to be easy. What difficulties have you faced in doing so? All the professional racing drivers will tell you that being a professional racing driver is never easy because there are a lot of people who would like to have this job. There are a lot of good racing drivers who are competing for this job. And you need to try to be better every time. The industry is a competition so working very hard at yourself and your own skills and improving is a big part of it. What have you sacrificed the most in your racing career? In the years when you were growing up, then becoming an adult, a lot of the time your friends were out either partying or having a good time. There were many times when you had to say ‘OK, I’m going to go for training and do things that are more important for my career’. You need to make these sacrifices in order to

Is getting sponsorships important in your career? In the junior year of being a racing driver, it’s all about managing to find sponsorships in order to compete because it is a very expensive sport. In the junior year, you need to find the budget to compete in order to get the attention of car manufacturers. In my case, when I was in Formula 3, Mercedes-Benz came up to me and offered me a junior contract in Formula 3 in 2007. For me, that was the first step to becoming a professional racing driver. In the following years they offered me the opportunity to become a work driver for DTM (Deutsche Tourenwagen Masters – the touring car race series). So that is the key for young drivers to perform well and to improve their skills and to catch the attention of the car manufacturers and the professional teams. What does it take to be a successful driver? Obviously, you need to have a lot of talent and you need to work at

Maro Engel is a German racing driver. He has previously won the Macau FIA GT Cup twice, over two consecutive years: 2014 and 2015, racing in a Mercedes SLS AMG GT3. Engel will return to Macau for this year’s 63rd Macau Grand Prix in a new Mercedes AMG GT3 car to compete for this year’s title. The event will feature races

yourself and be successful when you are in your junior category. But then obviously, there are things you need to work on such as your fitness. You need to be very fit so you need to be an athlete. Also, you need to have a good professional background for sponsorships and work on that side of the business because it is important. Does winning in Macau have a large impact on your racing future? Absolutely, the racing drivers are competing for the FIA GT World Cup. Mostly, they are already professionals and under contracts with factory teams, so they have already made a career for themselves as professionals. But managing to win, and being the first within that group is obviously a big move as well, and this will create opportunities for the racing drivers in order to cement their position as a professional racing driver. What are your plans for next year? For me, racing for Mercedes AMG is a dream and has always been my dream. This is something that I really enjoy and I am looking forward to another very good season in 2017 racing with AMG GT3. The full season plan will be announced later in the year, but there are some very exciting races to look forward to and some very cool projects with AMG that I’m looking forward to.

scheduled over four days - from November 17 to 20. Engel competed in the FIA Formula E race in Hong Kong last Sunday, earning ninth position in the race with the Venturi Formula E team. Earlier this year in May, Engel also won the Nürburgring 24-hour race, in a Mercedes AMG GT3.

6 Business Daily Monday, October 17 2016

Macau Opinion

Sheyla Zandonai* Broader view The 5th Ministerial Conference of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries has revealed a set of intended measures that offer a more solid perspective on Macau’s development: economic diversification is increasing and political integration seems irreversible, somewhat naturally falling onto Macau’s recent historical path of cooperation, alliance, and dialogue with China. All this is welcome. Though gambling has not been ruled out, it has taken a slightly different turn. The age of Integrated Resorts has been consolidated and new entertainment activities and job opportunities are being created. What is more, the MSAR government has managed to channel massive gambling developments to Cotai. That area remains a somewhat alien body with regards to the city proper, but it is undeniably part of it. Stanley Ho’s empire now seems to belong to a distant past, reminiscent of a typical Johnny To movie filled with clumsy gangsters and witty plots. No doubt gambling will remain, but camouflaged and downplayed by the current Chinese government. Only time will tell otherwise. For now, Macau seems to have embarked on a path of no return. A diversified economy is definitely healthier, not only because it creates more employment opportunities, opening alternative educational paths, and providing a higher chance of self-fulfilment for its residents, but also because it produces a change of scenery away from the unsavoury aspects of gambling economies, offering a different, more “normal” environment for Macau’s population and coming generations. China’s investment in cooperation with Portuguese-speaking countries should be highlighted here. This may have seemed surprising a few years ago, but it is already a clear trend. Commercial exchange is increasing and the majority of Macau’s higher education institutions are investing heavily in bilingual training. But more attention should be given to the preparation of translators and communicators prior to their entry to university. Cantonese remains the most widely spoken language in daily affairs and English has often filled the communication gaps between Chinese and foreigners. It is unlikely that students enrolling in a Portuguese language degree with no prior knowledge, training, or practice in the language will succeed in becoming accomplished professionals. To be sure, personal engagement and effort make a difference. However, if the government is committed to providing opportunities for creating skilled workers, real talents in their field of choice, it should take a broader view that also encompasses basic education.

*scholar and contributor to this newspaper.

Tourism

Few changes to outbound Thailand tours Local travel agents say no major impact on outbound tours to Thailand following the King’s death Annie Lao annie.lao@macaubusinessdaily.com

he city’s travel agents have arranged to change travel itineraries on outbound tours to Thailand, and some local residents postponed their trips to the country on Friday, due to a 30-day ban on entertainment activities imposed by the Thailand government after the death of King Bhumibol Adulyadej’s on Thursday. ‘The [Thai] government called on the country to avoid “joyful events” for 30 days and to dress in mourning for a year,’ news agency Bloomberg noted on Friday. However, the majority of outbound package tours to Thailand have not been greatly affected by the restrictions. Minor changes have been made to travel itineraries, and some travellers have chosen to delay their

booked tours to a later date instead, Business Daily was informed by several of the city’s travel agents. “The impact on outbound tours to Thailand is less from the King’s death. The ban only does not allow people to go to nightclubs and party for 30 days. And most of the packaged tours organized by the city’s travel agents don’t usually go to those affected places,” Andy Wu Keng Kuong, president of the Macau Travel Industry Council, told Business Daily. Mr. Wu also noted that the majority of package tours from Macau to Thailand go to shopping malls and spa resorts, with few having nightclubs on their itineraries.

Changes

Local travel agent Multinational Youth Travel Agency Ltd. told Business Daily that about 50 per cent of outbound tours to Thailand organized by the

company had been postponed on Friday, after its customers received a warning on Thursday night regarding the imposed ban. “We use social media to inform our customers regarding the effect on the tours. At least half of them have decided to postpone their tours to another day. However, another half decided not to change anything because they had already applied for their leave from work in advance,” a spokesperson from the travel agency said. The agency said that all changes made to the tours during the affected 30 days are free of charge, including flight ticket and tour changes. Some other local travel agents are also seeing little impact from the King’s death and are mostly changing their travel itineraries to other places in Thailand instead of going to its capital. “Some changes have been made to our Thailand tours such as not going to the nightclubs and partying. We have to choose other attractions to replace these,” Mike Hin, marketing manager of Hong Thai Travel Services (Macau) Ltd. said. In addition, Hin revealed that no postponements or cancellations of Thailand tours organized by his company had been requested by his customers so far. Another local travel agent, EGL Tours (Macau) Co Ltd, told Business Daily that the bans do not affect them directly. “Those banned places are not included in our itineraries, and do not affect our tours scheduled to Thailand,” Sabrina Iong Ut Iong, general manager of EGL Tours (Macau) Co Ltd, said.

Popular destination

In terms of Macau residents travelling to South East Asia and using the services of travel agencies, Thailand remained the most popular destination, accounting for 40 per cent of outbound travellers, or 7,516, of the total during the second quarter of this year, according to the latest data from the Statistics and Census Service (DSEC). Thailand was also the most travelled to destination in South East Asia by local residents last year, accounting for 38 per cent of the total, or 34,436.

Politics

PPRD confirms 7 plans for the year ahead Seven major plans for the year ahead were confirmed by the 2016 PanPearl River Delta (PPRD) Regional Co-operation Chief Executive Joint Conference, held in Nanchang, Jiangxi last Friday, local broadcaster TDM Chinese radio reported. The plans include promoting the development of regional economic co-operation and the construction of a unified market, and strengthening co-operation in major infrastructure construction. The plans will also promote ecological civilization construction and environmental protection co-operation. In addition, the plans seek to deepen co-operation in tourism, strengthen social programmes and social governance co-operation and expand co-operation nationally and internationally. The MSAR Chief Executive, Fernando Chui Sai On, said at the conference that the MSAR will fully support PPRD co-operation and innovative development, as well as promoting the “Belt and Road” initiative. The chief executive discussed the PPRD Co-operation and Development Fund, noting that the fund is

another innovative arrangement supported by the MSAR Government. Mr. Chui also said that Macau will first enhance close co-operation with the free trade zones in Guangdong and Fujian, in particular to introduce innovative ideas and arrangements, to promote industry matching and common progress and to contribute to the development of

the Guangdong-Hong Kong-Macau maritime areas. The PPRD forum is an important regional co-operation platform, composed of nine regions in Mainland China - Fujian, Jiangxi, Hunan, Guangdong, Guangxi, Hainan, Sichuan, Guizhou and Yunnan, as well as the Hong Kong and Macau SARs. C.U.

Business Daily Monday, October 17 2016 7

Gaming Politics

Australia checking report Crown employees detained in China

he Australian government is investigating a report that at least 18 employees f r o m th e M e l b o u r n ebased Crown Resorts Ltd. have been detained by Chinese authorities. “Consular officials are seeking to confirm these reports with the relevant Chinese authorities,”

a spokesperson at Australia’s Department of Foreign Affairs and Trade said in an e-mailed statement to Bloomberg News. The Australian Financial Review reported on Saturday that employees, including three Australian citizens and at least one senior executive from James Packer’s gaming company, were being questioned.

It was unclear why they had been detained or whether any charges had been laid, the report said. “Crown believes that a number of our employees in China are being questioned by local authorities and at this time we can provide no further details,” Crown Resorts said in an e-mailed statement to Bloomberg News. Bloomberg News

Public consultation

Taiwan’s Penghu rejects divisive casino bid It is the second time the western archipelago has voted against casino development Residents on Taiwan’s pristine Penghu islands overwhelmingly rejected a proposal to allow casino development on Saturday, an issue that has divided communities and politicians. Supporters were hoping for the green light as Taiwan’s economy stagnates, promising a casino would boost jobs and tourism. Opponents argued gambling resorts would ruin the natural landscapes of the remote outlying island chain, which has a population of 100,000 and is popular with visitors for its beaches and turtle sanctuaries. Apart from state-run lotteries, gambling is banned in most of Taiwan and there are currently no legal casinos - although there is a thriving underground gambling network. However, Taiwan’s outlying islands

have been given permission to develop casinos, with a number of caveats, including that local residents agree. The “no camp” won 81.1 per cent of the vote in Saturday’s referendum. “We are pleased that people came out at the last minute to vote on this critical issue,” said Penghu-born Sheng I-che, head of the pro-environment Tree Party, although he voiced disappointment at the 40 per cent turnout. “It is not how we want to see Penghu develop,” he told AFP. It is the second time the western archipelago has voted against casino development, having gone to the polls in 2009, when 56.4 per cent opposed. Supporters of the “yes” camp said without casinos Penghu would struggle to develop a more robust local

economy. “As we are unable to get foreign investments, Penghu may never become self-reliant,” said Chuang Kuang-hui of the Penghu Internationalisation Promotion Alliance, which initiated the vote. Taiwan’s Matsu Islands held a similar vote in 2012 and came out in support of a casino being built. However, none has ever been developed there because a parliamentary act laying out gaming licensing

and regulations, the final stamp for any casino to go ahead, has stalled in parliament. The ruling Democratic Progressive Party (DPP) has taken a staunch anti-gambling stance, and there have also been reservations among some politicians from the opposition Kuomintang (KMT). The DPP said Saturday it respected the results and the government would help Penghu upgrade its tourism industry and infrastructure. “The overall development should be oriented to ecological, sustainable and cultural demands,” the DPP said in a statement. AFP

8 Business Daily Monday, October 17 2016

Greater China Inflation

Producer prices rise after nearly five years The number of industries registering price increases also rose Yawen Chen and Sue-Lin Wong

hina’s producer prices unexpectedly rose in September for the first time in nearly five years thanks to higher commodity prices, welcome news for the government as it struggles to whittle down a growing mountain of corporate debt. Official inflation data on Friday also showed a pickup in consumer prices, helping to ease investors’ concerns about the health of the world’s secondlargest economy after disappointing trade numbers on Thursday rattled global markets. Corporate China sits on US$18 trillion in debt, equivalent to about 169 per cent of gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. Most of it is held by stateowned companies. “An uptick in inflation, if sustained, would be good news for China’s ability to service its overhang of corporate debt,” Bill Adams, senior international economist at PNC Financial Service Group, said in a note. “With low interest rates keeping debt service costs in check and producer prices rising, the outlook for Chinese industrial profits is improving.” The producer price index (PPI) rose

0.1 per cent in September from a year earlier, the National Bureau of Statistics said. While the gain was slight, it was the first time producer prices have expanded on an annual basis since January 2012, and came a bit earlier than the year-end timeframe that some analysts had expected. Producer prices had edged up on a month-on-month basis over the summer. Analysts polled by Reuters had predicted a decline of just 0.3 per cent on-year, after a drop of 0.8 per cent in August. China’s factory prices have been falling since March 2012, and more than four years of producer price deflation have squeezed industrial companies’ cash flow.

Profits at roughly a quarter of Chinese companies were too low in the first half of this year to cover their debt servicing obligations, as earnings languish and loan burdens increase. according to a recent Reuters analysis. However, a construction boom, fuelled by a government infrastructure spending spree and a housing rally, have helped boost prices for building materials from steel to copper in recent months, while coal prices have jumped as the government tries to shut excess mining capacity. Prices of ferrous metals, non-ferrous metals and coal mining together rose 4.1 per cent on-year, a key factor in the PPI turning positive, the statistics bureau said. The number of industries registering

price increases also rose to 25, eight more than the previous month, indicating that a recovery in Chinese companies’ pricing power was becoming more broad-based. “Debt pressure will certainly be reduced,” said Zhou Hao, analyst at Commerzbank AG in Singapore. But he cautioned that China’s mounting debt is also a structural problem, and that higher prices for commodities such as coal and steel may be “speculative” in nature.

Consumer prices also pick up

Consumer price inflation also quickened more than expected to 1.9 per cent in September year-on-year, mainly due to higher food prices. Food prices were up 3.2 per cent in September on-year, compared with 1.3 per cent in August. Analysts had expected the consumer price index (CPI) to rise 1.6 per cent from 1.3 per cent in August, a 10-month low. “A rebound in CPI growth is largely due to seasonal factors, and the overall growth trend is quite stable. It also dismissed previous concerns of deflation risks,” said Zhang Yongjun, analyst at the China International Centre For Economic & Technical Exchanges. The end of deflation is likely to dash any lingering expectations of further cuts in Chinese interest rates or banks’ reserve ratios, economists at ANZ said. The odds of such moves by the People’s Bank of China (PBOC) had already been seen as rapidly receding due to growing concerns in the government about rapidly rising debt levels and potential asset bubbles. “However, we do not expect the PBOC to tighten liquidity soon either,” ANZ said in a note. “The PBOC should be balancing the yuan exchange rate, deleveraging, and the concerns around a slowing economy.” Reuters

Business Daily Monday, October 17 2016 9

Greater China M&A

In Brief

ChemChina, Sinochem in talks on possible mega-merger Based on 2015 annual reports, revenues of the combined group would comfortably eclipse Germany’s BASF, the world’s largest maker of industrial chemicals by sales Chinese state-owned chemical companies Sinochem Group and ChemChina are in discussions about a possible merger to create a chemicals, fertiliser and oil giant with almost US$100 billion in annual revenue, three sources familiar with the matter said. The deal has been proposed by China’s central government as part of its efforts to slash the number of stateowned companies and create larger, more competitive global industry players, said the sources. The sources asked not to be identified because they were not authorised to speak publicly about the matter. Top management of the two firms held a meeting earlier last week to discuss a potential merger, said one source directly briefed on the matter. “The government has given the mandate to let Sinochem lead in this potential merger with ChemChina,” said the source. A second source familiar with the matter said both firms have started due diligence work looking into each other’s financial details and business segments. When asked about a potential merger, a ChemChina spokesperson said: “There is no such thing.” A Sinochem spokesman said he was not aware of the discussions. China’s State-owned Assets Supervision and Administration Commission (SASAC), which oversees state-owned enterprises, did not comment when asked about the talks. While still at an early stage, the talks come as China National Chemicals Corp, as ChemChina is officially known, finalises a US$43 billion takeover of Swiss pesticides and seed group Syngenta. That deal would be China’s largest-ever foreign investment. Syngenta declined to comment on the news. European Competition Commissioner Margrethe Vestager would not

comment on any potential issues arising from the deal, were China to create a domestic chemicals, fertilizer and oil giant. “It’s very early days,” she told reporters on Friday. The European Union is expected to rule on the deal by October 28.

Stronger, larger

It was not clear why the discussions were happening before the ChemChina-Syngenta deal had been finalised, or whether it would create further problems with anti-trust regulators around the world which have been looking at that deal. Beijing may have initiated the talks to create a stronger, larger player to make it easier to absorb a world-class company like Syngenta, said the source directly briefed on the matter. Backing from Sinochem might help ChemChina finance its Syngenta deal on more favourable terms, the source said. ChemChina faces a US$3 billion break fee if its Syngenta deal does not proceed. If approved, the ChemChina-Sinochem merger would be among the largest between two Chinese state-owned enterprises, following similar marriages that created shipping giant China Cosco Shipping Corp, train maker CNR-CSR

and more recently, the tie-up between Baosteel Group and Wuhan Steel. Combining the two companies, which make everything from refined oil products to latex gloves and insecticides, would propel it into the top echelons of the competitive global chemicals, fertiliser and oil industries.

Xi’s push

A merger would fit in with President Xi Jinping’s years-long push to shrink the number of centrally-controlled state-owned enterprises, which number more than 100. In Sinochem’s case, it is larger than ChemChina, but it needs a partner in the long term if it wants to expand in the global market and extend beyond roots that go back almost 70 years in oil and chemical trading, experts who know the companies said. Sinochem has seen growth in the key energy business stagnate with increasing domestic competition in trading from the likes of state oil trader Unipec and Chinaoil, while its overseas oil and gas assets have struggled amid prolonged low oil prices. ChemChina would add some 500,000 barrels per day of crude oil processing capacity to Sinochem’s oil refining business. Premium assets ChemChina acquired would also boost Sinochem’s chemical departments. The second source said a deal would benefit both companies: Sinochem’s upstream oil and gas assets could feed ChemChina’s nine refineries, Sinochem’s access to rubber trading would help ChemChina’s tyre business, while Sinochem’s dominance in fertiliser markets would be a good fit for ChemChina’s agri-chemical business. Reuters

The latest rule changes will come into effect on November 1

Key Points Airlines to decide prices on shorter routes Rule changes to take effect on Nov. 1 Shares of Air China, China Eastern gain on Friday Local airlines will be allowed to decide ticket prices on routes that are less than 800 kilometres (497 miles), as well as on longer routes which compete directly with high-speed rail or train lines, the CAAC said in a document on its website on Friday. Prices are currently mostly set by the regulator.

Chinese Vice Premier Liu Yandong has called for further efforts to boost innovation and entrepreneurship education in colleges during an inspection tour in central China’s Hubei Province. On Friday, the final of the second “Internet Plus” Innovation and Entrepreneurship Competition for College Students was held in Wuhan, the provincial capital of Hubei, in which 550,000 students from more than 2,100 colleges took part. While meeting with the participants and the judges, Liu said higher education should be reformed to enhance innovation and entrepreneurship spirits, abilities and practices among college students. Leverage fight

China woos foreigners in debt-cutting effort China will welcome the participation of foreign investment firms and funds in its debt reduction efforts, an official of the country’s powerful state planner said on Friday. China unveiled guidelines last week to cut rising levels of corporate debt that some analysts fear could destabilise the world’s second-largest economy. Converting debt into equity stakes will be among the measures to cut leverage. “We welcome international investment companies and investment funds to participate in the (debt) disposal process,” Sun Xuegong, deputy director general of the department of fiscal and financial affairs at the National Development and Reform Commission, said at a briefing in Beijing.

GE turns to Mainland partners to lift sales

Authorities to give airlines more freedom to set domestic fares

China will give some airlines greater independence to set domestic fares, the Civil Aviation Administration of China (CAAC) said on Friday, as Beijing moves to boost airfare pricing reforms amid a broader easing of controls over aviation.

Vice premier stresses innovation in colleges

Infrastructure

Airfare restrictions

Brenda Goh

Education

The government has pledged to deepen its reform of the world’s fastest growing civil aviation industry and allow market forces to play a more decisive role in order to improve service quality and efficiency. It relaxed airfare restrictions for the first time in nearly a decade in 2013, and in January last year begun to allow airlines including Air China and China

Eastern Airlines to set ticket prices as high as they wanted to on 101 routes. The latest rule changes will come into effect on November 1, the CAAC said, adding that authorities would also continue efforts to establish a monitoring system for domestic flight fares. It also said that airlines will need to publicise their planned adjusted ticket prices a week before they come into effect, but no more than 10 routes will be allowed to be subject to price changes in each season. Reuters

General Electric Co (GE) expects increased partnership with Chinese infrastructure firms along China’s ‘New Silk Road’ which aims to link Asia with Europe and the Middle East to generate a significant jump in third-party country sales. Vice Chairman John Rice said on Thursday the U.S. industrial conglomerate is seeking greater cooperation with Chinese engineering, procurement and construction companies in the 65 countries identified in the Silk Road corridor. Rice said GE’s third-party country revenue involving Chinese partners, which now stands at about US$1 billion per year, could jump to more than US$5 billion a year, and may reach US$10 billion annually. Co-operation

Sino-LatAm business summit concludes The 10th China-Latin America and Caribbean Business Summit closed Saturday in Tangshan, a port city in north China’s Hebei Province, with a number of cooperation documents signed. The two-day summit was attended by more than 1,500 representatives from international organizations, government departments, trade promotion agencies, chambers of commerce as well as companies from China and Latin American countries. Altogether 64 deals for cooperation and MOUs were signed. The representatives also reached consensus on 19 projects for cooperation between Chinese and Latin American businesses.

10 Business Daily Monday, October 17 2016

Greater China Official visit

Xi visit triggers billion-deals with Bangladesh India has long considered Bangladesh as part of its area of influence Ruma Paul

h i nese P r esi d e n t X i Jinping, stepping up a competition with India for regional influence, said on Friday ties with Bangladesh would be enhanced to a strategic partnership as the two countries signed 27 agreements worth billions of dollars. Xi, making a first trip by a Chinese president to Bangladesh in 30 years, boosted involvement in Bangladeshi infrastructure at a time when Japan has also increased investment in the country located on the Bay of Bengal.

junior finance minister M.A. Mannan said the deals the two countries planned to sign would involve Chinese funding of about US$24 billion, Dhaka’s biggest foreign credit line yet. Among the agreements sealed on Friday was a 1,320 MW power plant that China will build, officials said. China’s TBEA signed a power grid deal worth US$1.6 billion with Dhaka Power, following a pact that Jiangsu Etern’s consortium signed on Thursday to strengthen Bangladesh’s power grid

network valued at US$1.1 billion. “We reached a consensus to work together in trade and investment and other key areas such as infrastructure, agriculture, energy and power, information technology and transportation,” Hasina said. Xi visited Dhaka en route to a BRICS summit of the world’s leading emerging economies in Goa, India. Zhao Gancheng, director of South Asia Studies at Shanghai Institute for International Studies, said there was room for both India and China to support development in Bangladesh. “I really don’t think there is a zero sum game going on... Bangladesh welcomes both Chinese and Indian

investment,” said Zhao. China is currently Bangladesh’s biggest trade partner with annual turnover of around US$10 billion which is heavily in favour of Beijing. “Xi’s visit will set a new milestone,” minister Mannan told Reuters. “Our infrastructure needs are big, so we need huge loans.” Bangladesh has backed Xi’s “One Belt, One Road” initiative to boost trade and transport links across Asia and into Europe, seeing it as an opportunity to lift growth. India has reservations about the plan, amid worries that it is an attempt to build a vast zone of Chinese influence. Reuters

“I really don’t think there is a zero sum game going on... Bangladesh welcomes both Chinese and Indian investment” Zhao Gancheng, director of South Asia Studies at Shanghai Institute for International Studies

“We agreed to elevate the relations between China and Bangladesh from a closer comprehensive partnership of cooperation to a strategic partnership of cooperation,” Xi said after talks with Prime Minister Sheikh Hasina. India has long considered Bangladesh as part of its area of influence and under Prime Minister Narendra Modi has boosted economic links with it as well as with other neighbours including Nepal and Sri Lanka. Last year Modi announced a US$2 billion credit line during a visit to Dhaka, but China is set to go well beyond that. Ahead of Xi’s visit, Bangladesh

Bangladesh’s President Md Abdul Hamid (R) shakes hand with the Chinese President Xi Jinping (L) after his arrival at the Hazrat Shahjalal International Airport in Dhaka. Lusa.

Environment

Hebei imposes ‘special emission’ limits on steel mills The province has been under pressure to crack down on “backward” production capacity and firms that break environmental rules

hina’s Hebei province, the country’s biggest steelmaking region, has i m p o s e d w hat i t calls “special emission restrictions” on local mills as part of its war on smog, according to a policy document.

Local steel enterprises will have until September 1, 2017, to ensure their facilities comply with tough new standards for sulphur dioxide and other major sources of air pollution, the local environmental protection bureau said in a notice. Hebei is responsible for nearly a

quarter of China’s total national steel output. It was the location of seven of China’s 10 smoggiest cities last year and is a major source of air pollution in China’s capital, Beijing. The province has pledged to shut 60 million tonnes of crude steelmaking capacity and 40 million tonnes of coal production capacity from 2014 to 2017. Last year, steel production in Hebei rose 1.3 per cent on the year to 188.3 million tonnes, though total capacity remains much higher. Coal output in the province fell 5.4 per cent to 82.2 million tonnes. According to a notice issued by the local environmental protection bureau on Friday, 41 million tonnes of steel capacity and 27 million tonnes of coal capacity have already been closed. The province, one of the main fronts in a “war on pollution” declared by Premier Li Keqiang in 2014, has been under pressure to crack down on “backward” production capacity and firms that break environmental rules. It was heavily criticised by the Ministry of Environmental Protection (MEP) earlier this year after an inspection tour revealed that local firms had illegally expanded production capacity and engaged

in “fraudulent practices” aimed at circumventing rules. Hebei has since launched a campaign against local steel and coal producers, and the provincial government said last week it had uncovered 1,173 illegal projects in the steel sector, involving 93 companies.

“Six of the 10 most polluted cities for that period were still in Hebei province” Ministry of Environmental Protection According to MEP data, average concentration levels of PM2.5, a major smog indicator, fell 17.1 per cent to 58 micrograms per cubic metre in the Beijing-Tianjin-Hebei region over the first three quarters of 2016. China’s National Meteorological Centre (NMC) issued a yellow smog alert for Beijing and parts of Hebei on Saturday, and urged residents to take protective measures. Reuters

Business Daily Monday, October 17 2016 11

Asia M&A

Essar agrees to sell oil arm to Rosneft-led group The purchase is the biggest foreign acquisition ever in India and Russia’s largest outbound deal Douglas Busvine and Denis Pinchuk

ndia’s debt-laden Essar Group confirmed on Saturday that it has agreed to sell a 98 per cent interest in its Essar Oil unit to a consortium led by Russia’s Rosneft, giving the energy giant a gateway into the world’s fastest growing fuel market. The deal will see Rosneft, along with its partners Trafigura and United Capital Partners (UCP), pay US$10.9 billion for Essar’s refining and retail assets. Separately, US$2 billion will be paid toward the acquisition of the Vadinar port in the western state of Gujarat, along with certain import and export facilities. Sources familiar with the matter had told Reuters on Friday that a deal was imminent. It will give Rosneft a 49 per cent stake in Essar Oil, with 49 per cent being split equally between Trafigura and UCP. The deal was carefully structured to avoid falling foul of western sanctions against Russia over its role in the Ukraine crisis. “Rosneft will not get a controlling

stake, partly because of these reasons (sanctions)”, Andrey Kostin, head of Russian lender VTB which advised Essar on the deal, told Reuters. The deal helps Russia to deepen economic ties with India that stretch back to the Soviet era. The purchase is the biggest foreign acquisition ever in India and Russia’s largest outbound deal, according to Thomson Reuters data. It was finalised after Indian Prime

Minister Narendra Modi and Russian President Vladimir Putin met at a summit in the western state of Goa on Saturday. The all-cash deal will give Rosneft and its partners control of Essar’s 20 million tonne refinery in Gujarat, and its retail fuel outlets in India, where growth for refined petroleum goods in the next five years is expected to be in the 5 per cent to 7 per cent range. “Rosneft is entering one of the most promising and fast-growing world markets,” said its Chief Executive Igor Sechin in a statement, adding that the deal gives it “unique

opportunities for synergies” with its existing assets. Separately, Rosneft said it would use Venezuelan crude to supply the Vadinar refinery. The closing of the transaction is conditional on receiving requisite regulatory approvals that are expected before the end of the first

“Rosneft is entering one of the most promising and fast-growing world markets” Igor Sechin, Rosneft Chief Executive quarter of 2017. The deal also reduces some of the pressure on Essar, which is controlled by the billionaire Ruia brothers. The group has a presence in oil and gas, steel, ports and power, and has been under pressure from its lenders to reduce its debt burden. In parallel with the deal, Russian lender VTB said on Saturday it would lend Essar about US$3.9 billion toward debt reconstruction. Chanda Kochhar, chief executive of ICICI Bank Ltd - one of Essar’s top lenders - welcomed the deal, noting that it has been working closely with Essar to deleverage its stressed balance sheet. Reuters

Energy policy

Japan election key to world’s biggest nuclear plant Reviving the seven-reactor giant, with capacity of 8 gigawatts, is key to saving Tokyo Electric Power Kentaro Hamada

A regional election north of Tokyo between candidates most Japanese have never heard of may decide the fate of the world’s biggest nuclear plant and mark a turning point for an industry all but shut down after the Fukushima disaster. The campaign for governor of Niigata Prefecture has boiled down to two men and one issue: whether to restart the seven-reactor Kashiwazaki-Kariwa Nuclear Power Station.

‘Only two of Japan’s 42 reactors are running more than five years after Fukushima’ Reviving the seven-reactor giant, with capacity of 8 gigawatts, is key to saving Tokyo Electric Power, which was brought low by the 2011 Fukushima explosions and meltdowns, and then the repeated admissions of cover-ups and safety lapses after the world’s worst nuclear disaster since Chernobyl in 1986. Tepco, as the company supplying about a third of Japan’s electricity is known, is in turn vital to Prime Minister Shinzo Abe’s energy policy,

which relies on rebooting more of the reactors that once met about 30 per cent of the nation’s needs. But Ryuichi Yoneyama, 49, an anti-nuclear doctor-lawyer who has never held office and is backed by mostly left-wing parties, has made a tight race for governor of Niigata against an initially favored veteran politician from Prime Minister Shinzo Abe’s pro-nuclear party, Japanese media say. In a sign that Abe’s Liberal Democratic Party also sees a tough contest, party heavyweights were dispatched to campaign for Tamio Mori, 67. The former mayor and construction ministry bureaucrat is seen more likely to allow Kashiwazaki-Kariwa to restart. Distrust of Tepco, put under government control in 2012, is so high in Niigata that this election has become a litmus test for nuclear safety and put Abe’s energy policy and Tepco’s handling of Fukushima back under the spotlight. The government wants to restart units that pass safety checks, also promoting renewables and burning more coal and natural gas.

radiation leaks and fires in a disaster that prefigured the Fukushima calamity and Tepco’s bungled response. A Tepco spokeswoman said the company could not comment on the election and was committed to boosting safety at the plant. On the campaign trail in Niigata, help for Tepco is in short supply. Yoneyama has promised to continue the outgoing governor’s policy of refusing to allow a restart unless Tepco provides a fuller explanation of the Fukushima disaster. He has run for local office unsuccessfully four times but says this time he feels different, as the public supports his anti-nuclear, anti-Tepco message. Yoneyama, who has worked as a radiological researcher, says Tepco doesn’t have the means to prevent Niigata children from getting thyroid cancer in a nuclear accident, as he says has happened in Fukushima.

And he says the company doesn’t have a solid evacuation plan. “As I go from town to town and village to village, I hear the same thing: ‘We want you to protect this town. We want you to protect our hometown, our lives and our children’s future,’” he told a crowd in Nagaoka last week. The LDP’s Mori has toned down his support for restarting the plant as the race tightens, media say, and now insists that safety is the top priority for Kashiwazaki-Kariwa, while promoting the use of natural gas and solar power in Niigata. LDP heavyweight Shigeru Ishiba, a former cabinet minister and party secretary-general, told Reuters the party sent him to Niigata to campaign for Mori because “we can’t take anything for granted.” “Mr. Mori is not a person who just acquiesces to what the national government says,” Ishiba said. “He has courage and will stand up to the government if he thinks our policies are wrong.” Reuters

Radiation leaks

Only two of Japan’s 42 reactors are running more than five years after Fukushima, but the Niigata plant’s troubles go back further. Several reactors at Kashiwazaki-Kariwa have been out of action since an earthquake in 2007 caused

Fukushima nuclear power station before the earthquake devastation five years ago

12 Business Daily Monday, October 17 2016

Asia In Brief Thailand monarchy

Crown prince asks Thais not to worry about succession Crown Prince Maha Vajiralongkorn has said that Thai people should not worry about the succession to the throne as it is specified by the constitution, the Palace Law and tradition. The 63-year-old crown prince met with regent Prem Tinsulanonda and Prime Minister Prayut Chan-o-cha late Saturday, the Thai government said on its website. Talking about the timing to ascend the throne, he said every Thai, including himself, has grieved over the passing of King Bhumibol Adulyadej and the right time to move on might be sometime after the funeral rites.

Monetary stance

Peace process

Myanmar State Counselor urges inclusiveness Myanmar State Counselor Aung San Suu Kyi on Saturday urged for inclusiveness of all appropriate individuals in the country’s peace process. Suu Kyi made the call in Nay Pyi Taw at a function marking the anniversary of last year’ October 15 signing of the Nationwide Ceasefire Accord (NCA) between the former Myanmar government and eight ethnic armed groups out of 15. This leaves seven other armed groups yet to join the signing. Aung San Suu Kyi also urged all participants in the peace process to settle their disputes between each other. Trade

Oil, gas downfall drags Brunei’s exports Brunei’s exports in August fell by 31.10 per cent to 460.3 million Brunei dollars (US$331.1 million) compared to the previous month, due to a sharp decline in oil and gas exports, according to latest official statistics released Saturday. Oil and gas exports in August hit 386.4 million Brunei dollars, 18.23 per cent less than in July. Oil and gas account for more than 80 per cent of Brunei’s exports, the Department of Economic Planning and Development (JPKE) said. JPKE said other top exports in August include mineral fuel, machinery and transport equipment and chemicals.

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Singapore central bank stands pat despite GDP slump The downturn in commodities has hurt the offshore and marine industry Masayuki Kitano and Jongwoo Cheon

ingapore’s central bank on Friday held policy steady despite a surprisingly sharp economic contraction in the third quarter, but analysts say the weak inflation and growth outlook will likely force policymakers to ease further. The affluent city state’s open economy has felt the brunt of a global slowdown and a downturn in commodity prices, while a cooling in Singapore’s major trading partner China has put the shackles on the domestic manufacturing sector. Singapore’s economy contracted by 4.1 per cent in the third quarter on a seasonally adjusted annualised basis, from the previous three months, the biggest slump since 2012, data from the statistics office showed. Forecasts had centred on 0.3 per cent growth. Despite the weak GDP figures, the Monetary Authority of Singapore (MAS) said in a statement it would keep the width of the policy band and the level at which it is centred unchanged, maintaining the rate of appreciation of the Singapore dollar policy band at zero per cent. “The current policy band provides some flexibility ... to accommodate the near-term weakness in inflation and growth,” the MAS said in its semiannual policy statement. Importantly, the MAS also said the neutral policy stance will be needed for an “extended period to ensure

medium-term price stability.” “Despite leaving policy unchanged, MAS clearly is in favour of a weaker S$NEER,” said Khoon Goh, head of Asia research at ANZ, adding the thrust of the forward guidance and broad policy statement were “dovish.” The guidance backs the central bank’s expectations that economic activity is unlikely to pick up “significantly” in 2017.

Key Points MAS keeps policy band width and centre level unchanged C.bank to maintain band’s rate of appreciation at zero per cent MAS to keep neutral policy stance for extended period Q3 GDP -4.1 pct q/q annualised vs +0.3 pct forecast Pressure grows on MAS to ease policy next year

Indeed, a number of analysts expect the MAS would be forced to ease in coming months. “The bigger story is that GDP was very, very weak,” said Michael Wan, economist at Credit Suisse in Singapore. “MAS risks being behind the curve. They should ease.” Pa r t i c u l a r l y w o r r y i n g f o r economists, the manufacturing

sector shrank 17.4 per cent, due to a decline in transport engineering and the volatile biomedical sector. Even the once-vibrant services sector contracted for the third consecutive quarter. The MAS manages monetary policy by changes to the exchange rate, rather than interest rates, letting the Singapore dollar rise or fall against the currencies of its main trading partners based on its nominal effective exchange rate (NEER) because trade flows dwarf the city state’s economy.

Signs of slack

Economic growth in the city-state has remained anaemic in the past two years with few catalysts to spark momentum any time soon. Entire floors at central shopping malls are vacant as weak domestic demand has hurt retailers while a slowing global economy has meant tourists have less money to spend. The downturn in commodities has hurt the offshore and marine industry, with debt woes engulfing companies such as Swiber Holdings Ltd, Swissco Holdings LTD and Rickmers Maritime. Even the financial industry, which has put the tiny 51-year-old island city on the global map, is under pressure as its once-booming private banking sector struggles under tougher compliance rules. The MAS expected 2016 economic growth to come in at the lower end of the 1-2 per cent forecast, and medium-term core inflation averaging slightly below 2 per cent. “We still see the risk of the next move by MAS to be an easing,” ANZ’s Goh said. Reuters

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Business Daily Monday, October 17 2016 13

Asia Environment

Philippines minister wants to ban new mines Natural Resources Secretary Regina Lopez said her agency would review around 800 environmental compliance certificates Enrico Dela Cruz and Manolo Serapio Jr

he Philippines’ mining minister wants to prolong a ban on new mines and will review all environmental permits previously granted to the minerals industry, ramping up a campaign to clamp down on damage from the sector in the Southeast Asian nation. Miners criticised the proposals made on Friday by Environment and Natural Resources Secretary Regina Lopez, saying she seemed determined to put the “industry to sleep”.

dashing industry hopes that some restrictions may be lifted following the audit that finished in August. “I don’t want to fight the mining companies, I can work with them as long as they don’t silt the river, destroy the rice fields.” Lopez also said her agency would review around 800 environmental compliance certificates (ECC) including those granted to mines. That would come on top of the industry audit that led to the current mine suspensions. But a mining industry group said Lopez “cannot unilaterally choose not

to issue new permits” because she is required to process new applications under Philippine laws. “We are still a government of laws, not of just one woman,” said lawyer Ronald Recidoro from the Chamber of Mines of the Philippines. “It seems that the signal she’s sending to everybody (is) she’s out to slowly put this industry to sleep,” he said. Philippine President Rodrigo Duterte warned miners in August to strictly follow tighter environmental rules or shut down, saying the country could survive without a mining industry.

Nickel at US$15,000?

Manila’s mining crackdown sent nickel prices to a one-year high of US$11,030 a tonne in August, though

they have since retreated, trading at US$10,465 on Friday. But Goldman Sachs has said the potential for “larger and/or more permanent than expected Philippine mine suspensions” could drive nickel prices to US$15,000 by year-end. Lopez also confirmed the suspension of the ECC of a nickel mine run by private-owned AustralAsia Link Mining Corp in the southern province of Davao Oriental. An official at Asiaticus Management Corp, which runs Austral-Asia, declined to make immediate comment. Lopez had told Reuters on last Monday that the environmental permit would be cancelled because the mine sits between a UNESCO World Heritage Site and a protected marine protected area. “We’re now going to have an intense evaluation of all other ECCs. No more mining in any protected areas,” she said. Reuters

Key Points Also says to review around 800 environmental permits Steps are part of environmental crackdown on mining Mining group says minister is out to put “industry to sleep” Philippines is the world’s top nickel ore supplier The Philippines is the world’s top nickel ore supplier and an environmental audit that has halted a quarter of its 41 mines, and the risk that 20 more maybe shuttered has spurred a rally in global nickel prices. “I want to put a moratorium on any new mining,” Lopez told a media briefing. Lopez, a committed Environmentalist who has described openpit mining as “madness”, said she wanted to continue a ban put in place by a previous government in 2012,

Co-operation

Modi, Putin sign defence deals ahead of BRICS India, the world’s top defence importer, is undergoing a US$100-billion upgrade of its Soviet-era military Indian Prime Minister Narendra Modi and Russian President Vladimir Putin signed multi-billion dollar energy and defence pacts on Saturday following talks aimed at reinvigorating ties between the traditional allies. Modi hailed Putin as an “old friend” after their meeting in the Indian state of Goa, where leaders of the other BRICS emerging nations were also gathering for a summit.

“I would like to stress that we intend to expand our bilateral cooperation not only in energy but also across a wide range of areas”

officials signed up to 20 agreements between the two nations. Modi said the pacts on jointly producing light military helicopters, building frigates and other areas of cooperation “lay the foundations for deeper defence and economic ties for years ahead”. They also signed an initial agreement on India’s purchase of Russia’s state of the art defence system, capable of shooting down multiple incoming missiles, although there were no details on a timeframe

for delivery. India, the world’s top defence importer, is undergoing a US$100billion upgrade of its Soviet-era military, as it looks to protect its borders from arch-rival Pakistan and an increasingly assertive China. But India has increasingly turned to the United States, and more recently France, rather than Russia, for its hardware, as Modi cultivates closer ties with Washington. Putin has been seeking to seal deals with India to help revive Russia’s recession-hit economy, following sliding oil prices and Western sanctions over the Ukraine crisis. “I would like to stress that we intend to expand our bilateral cooperation not only in energy but also across a

Vladimir Putin, Russian President “Your leadership has provided stability and substance to our strategic partnership,” Modi said alongside Putin at a beachside resort, after

Indian Prime Minister Narendra Modi (R) and Russian President Vladimir Putin (L) shake hands during a welcoming ceremony of the 8th BRICS summit at Taj Exotica hotel in Benaulim in the state of Goa, India, yesterday. Lusa.

wide range of areas,” Putin said. The leaders also signed an agreement to supply more units to a nuclear plant in Kudankulam in southern India to meet the fast-growing economy’s thirst for electricity and to reduce its reliance on dirty coal. They discussed the threats posed by regional and “global terrorism” although it was not clear if this included India’s hiked tensions with arch-rival Pakistan. Putin was seen as unlikely to weigh into the dispute between the rival neighbours, as Moscow also eyes closer defence ties with Islamabad. Russia and Pakistan carried out their first joint military exercise last month.

Helicopters

The deal for Russia’s most modern air defence system has been in the pipeline for a few years, along with the helicopters, and the building of four frigates in India. India will purchase about 200 of the choppers to replace its ageing fleet under a joint venture over several years, with some manufactured in India, as it reduces its reliance on military imports. “In the next few months, a place will be allocated (for manufacture) and there will be investments,” Russian Trade and Industry Minister Denis Manturov told AFP. India and Russia have traditionally held strong ties dating back to the 1950s after the death of Stalin. But trade has slipped beneath US$10 billion since 2014, as Modi cultivates closer diplomatic and economic ties with Washington, while Russia eyes Pakistan and also China. AFP

14 Business Daily Monday, October 17 2016

International In Brief Blockade

Obama eases restrictions on Cuba Americans traveling to Cuba will be allowed to bring home more of the communist-ruled island’s coveted cigars and rum under new measures announced by the U.S. government on Friday to further ease trade, travel and financial restrictions that have been in place for decades. The steps are part of President Barack Obama’s effort to make his historic opening to Cuba “irreversible” by the time he leaves office in January. The latest in a series of new rules will allow Cubans to buy certain U.S. consumer goods online, open the door to Cuban pharmaceutical companies to do business in the United States and let Cubans and Americans engage in joint medical research. Skipping parliament

Venezuela’s Maduro signs 2017 budget President Nicolas Maduro on Friday signed off on Venezuela’s 2017 budget, drawing fire from the opposition-led National Assembly which accused the unpopular leftist leader of despotism for bypassing the legislature. The Supreme Court on Wednesday allowed Maduro to put forth the budget without lawmakers’ approval, overriding a constitutional obligation. The opposition, which is trying to unseat Maduro as Venezuela wrestles with a deep economic crisis that has families skipping meals, says the government is trying to undermine it to keep its grip on power. Fuel price cut

Brazil president says no tax increase Brazilian President Michel Temer said on Saturday the government has no plans to increase fuel taxes, a day after state-run oil company Petrobras announced a drop in fuel prices. Friday’s price cut by Petroleo Brasileiro SA marked a significant shift following years in which politically driven pricing cost the company billions of dollars. Temer’s comments may dispel market speculation that the government would seek to increase the CIDE fuel tax as a way to make up for lost revenue.

Currency

U.S. sees no manipulation among partners Treasury said China has spent more than US$570 billion worth of foreign exchange assets to keep the yuan from depreciating further David Lawder

he U.S. Treasury said on Friday that none of the United States’ major trading partners is manipulating its currency to gain advantage for its exports, in contrast to Republican presidential candidate Donald Trump’s threats to declare China a currency manipulator if he is elected. In its 16th and final currency report under President Barack Obama, the Treasury said it added Switzerland to a foreign exchange “monitoring list” of countries with high external surpluses or currency market interventions. It also kept China, Japan, Germany, South Korea and Taiwan on the list, first launched in April. But it said none of the six countries met the standard for enhanced scrutiny under a new trade enforcement law passed in 2015. Treasury said that for the 12 months through June, it has “concluded that no major trading partner of the United States met the standard of manipulating the rate of exchange between its currency and the United States dollar for purposes of preventing effective balance of payments adjustments or

‘China could actually drop off the Treasury monitoring list next April if the current account surplus remains below the threshold’ Switzerland got on the list because of its trade growth with the United States in the past year, a large current account surplus and consistent purchases by the Swiss National Bank of foreign assets since it abandoned last year what was effectively a euro peg. Treasury said Taiwan’s current account surplus was well above its threshold and it had purchased about US$1 billion a month during the 12 months through June to limit the Taiwan dollar’s appreciation. Reuters

IMF conditions

Egypt’s Sisi defends ‘tough but unavoidable’ reforms Egypt’s parliament in August passed a law on value added tax, one of the reforms promised in exchange for the IMF loan Egypt’s President Abdel Fattah al-Sisi has defended what he described as “tough but unavoidable” reforms ahead of a US$12-billion International Monetary Fund loan to revive his country’s ailing economy. “The reforms are tough but they’re unavoidable to save the economic situation,” Sisi said in an interview published on Saturday by state newspapers. In exchange for the IMF loan, Egypt is expected to adopt drastic reforms to increase public revenues and reduce state subsidies, which make up 7.9 per cent of government spending.

Bailout omens

Portuguese court drops market manipulation case A Portuguese court has dropped a case accusing a Canadian academic of market manipulation for predicting in a blog six years ago that Portugal would need an international bailout. Peter Boone, a lecturer at the London School of Economics, co-authored blogs saying that, after Greece was bailed out by the European Union and the International Monetary Fund, Portugal was likely to be next. The Lisbon criminal court issued a decision saying it had dropped the case, without elaborating. Public prosecutors can still appeal in a higher court.

gaining unfair competitive advantage in international trade.” Trump said in June that if elected, he would immediately “instruct my Treasury secretary to label China a currency manipulator, which should have been done years ago.” But based on the criteria for its currency monitoring list, Treasury said China’s performance actually improved since the April report. It now meets only one of the three criteria, its US$356 billion bilateral goods trade surplus with the United States. China’s current account surplus fell below the threshold of three per cent of gross domestic product, and it has not been engaged in “persistent one-sided intervention” despite two yuan devaluations. In fact, Treasury said China has spent more than US$570 billion worth of foreign exchange assets to keep the yuan from depreciating further in the year to August. China could actually drop off the Treasury monitoring list next April if the current account surplus remains below the threshold and it is not found to be purchasing foreign exchange to halt a rise in the yuan. Treasury said Germany, Japan and

South Korea remained on the monitoring list because of material current account surpluses and significant bilateral trade surpluses with the United States. It said South Korea had intervened in foreign exchange markets both ways, to prevent the won from depreciating and later to limit its rise against the dollar.

Egypt’s President Abdel Fattah al-Sisi

Sisi described a “programme for real reforms that aims to provide subsidies to those who deserve them and no one else”, promising “protection for those with low incomes”. The former army chief, who became president in 2014 less than a year after toppling Islamist president Mohamed Morsi, also defended the army’s participation in large scale projects touted as part of the country’s recovery plan. “The army is playing an important role in development but this role will diminish in the coming years when it will have finished its plan

for the reconstruction of state infrastructures,” he said. For decades, the military - which produced all but one president since 1952 - has played a key economic role, producing everything from washing machines to pasta, alongside building roads and operating gas stations. The president also justified military spending including on two Mistral helicopter carriers from France on the need to defend a recently discovered gas field in Egypt’s territorial waters. “We have gas fields more than 200 kilometres off our shores such as the Zohr field and others. We need to be able to secure and protect them,” he said. Italian energy giant Eni in August announced the discovery of Zohr, the “largest ever” offshore natural gas field in the Mediterranean with a potential 850 billion cubic metres of gas in about 100 square kilometres.

‘A VAT replaces a sales tax of 10 per cent, although the government says about 50 services and products will be exempt, including bread’ “The cost of a Mistral is equivalent to one month’s revenues from the Zohr gas field,” Sisi said. Egypt’s parliament in August passed a law on value added tax, one of the reforms promised in exchange for the IMF loan, to be set at 13 per cent for 2016-17 and 14 per cent for the following fiscal year. The VAT replaces a sales tax of 10 per cent, although the government says about 50 services and products will be exempt, including bread. AFP

Business Daily Monday, October 17 2016 15

Opinion Business Wires

The Star A global survey from the World Bank found that only 36 per cent of Malaysians are considered financially literate. Although this is higher than Indonesia (32 per cent), Thailand (27 per cent), Philippines (25 per cent), Vietnam (24 per cent) and Cambodia (18 per cent), it lags behind Taiwan (37 per cent), Hong Kong (43 per cent) and Singapore (59 per cent). Financial illiteracy is not without consequences: over the past five years, more than 20,000 Malaysians have filed for bankruptcy. In September, Bank Negara’s Financial Inclusion and Capability Study reported that only 18 per cent of Malaysians could survive more than 3 months if they lost their main source of income.

The Times of India Wholesale inflation eased to 3.57 per cent in September as food articles, led by vegetables, witnessed softening of prices. The wholesale price-based inflation, reflecting the annual rate of price rise, in August stood at 3.74 per cent. In September 2015, WPI inflation was (-)4.59 per cent. Wholesale Price Index (WPI) inflation in vegetables witnessed deflationary pressures and was recorded at (-)10.91 per cent in September. Inflation in this category had scaled a high of 28.45 per cent in July. This was aided by inflation data for onion, which was at (-)70.52 per cent.

The Korea Herald The volume of South Korean foods and cosmetics rejected by China’s customs authority soared in August, a trade association in Seoul said yesterday, triggering speculation that Beijing may be building nontariff barriers against Korean exports. A total of 61 shipments of Korean food and cosmetics were rejected by Chinese customs in August, accounting for 25.8 per cent of China’s entire 236 customs rejections for the month, skyrocketing from five in July, the Beijing branch of the Korea International Trade Association said citing Chinese quarantine data. South Korea was followed by Taiwan’s 23 rejections, and Malaysia and France each with 19, KITA said.

Philstar Economists believe the country’s widening trade deficit is not a cause for alarm as higher importation of capital machinery will fuel sustained economic growth. Nicholas Antonio Mapa, associate economist at Bank of the Philippine Islands, said the surge in capital machinery is one indicator the Philippines is gearing up for faster growth. He added it is also possible that the country is finally entering a more balance consumption-investment led growth strategy. The country’s gross domestic product accelerated to seven per cent in the second quarter of the year from 6.8 per cent in the first quarter on a strong boost from election-related spending.

With Trump burning out, Treasuries face waning foreign demand

ith Donald “You Could Make a Deal” Trump now trailing badly in the polls, the biggest threat to U.S. Treasuries may be faltering support from foreign central bank buyers. And in a strange twist, the biggest support to Treasuries has been changes in domestic money market fund regulations taking effect on Friday. While the Treasury market never seemed to think Trump, whose spending and tax-cut plans would require large new borrowings, had much of a chance, his political self-immolation must be reassuring to people who lend the U.S. money. Having the man who said “I would borrow, knowing that if the economy crashed, you could make a deal” rated as holding a 14.5 per cent chance of winning the presidency, according to the influential FiveThirtyEight analysis, is good news for U.S. debt. Trump exceptionalism aside, asset-allocation strategists at Societe Generale led by Alain Bokobza argue, moreover, that there is no clear link between recent U.S. elections and bond and equity fund flows in the U.S. F o r e i g n c e n t ra l ba n ks, h o w ev e r, a r e s h o w i n g themselves less keen to hold U.S. sovereign assets, and that can make a big difference to Treasury performance, especially as the Federal Reserve prepares to tighten monetary policy as soon as December. “Global monetary easing has been a major driver of net inflows into U.S. bond funds since 2006,” the strategists write. “As U.S. Treasuries are no longer supported by net buying from foreign central banks, despite an attractive yield pick-up compared to other developed market government bonds, we confirm our underweight.” Foreign central bank holdings of U.S. Treasuries reached a peak of US$3.03 trillion in July 2015, but have fallen by more than US$200 billion since. The most recent Fed custody data showed a fall of US$7 billion in Treasuries held by the Fed for foreign official and international accounts in the week ending October 12, or US$162 billion in the past year. Fed custody holding are about three quarters of foreign central bank overall investments in Treasuries, giving the data value as a directional steer. Much of that is due to China, whose Treasury holdings as of July were at their lowest since January 2013, in part due to sales to fund defence of the yuan amid continued outflows. China has recently allowed the yuan to weaken markedly, but it is fair to expect continued pressure on it, both in anticipation of future weakening and downbeat Chinese economic fundamentals.

“

James Saft a Reuters columnist

Traditional buyers turned sellers

An unexpectedly steep 10 per cent fall in China’s exports in September compared to the year before will only add to pressure. This implies an on-going period of Chinese sales of Treasuries, which may tend to send yields higher. Other traditional big holders and buyers of Treasuries like Saudi Arabia and Japan have also been lightening up, the former to plug budget shortfalls due to the low price of oil and the latter as Japanese banks sought dollar liquidity to dodge deeply negative interest rates at home. New money market fund rules taking effect October 14 have provided a useful counterweight to foreign c e n t ra l ba n k s e l l i n g o f Treasuries. So-called Prime Funds, which tend to hold short-term corporate debt, now must let their price fluctuate to reflect the value of their holdings, whereas before they were allowed to peg shares to US$1. That’s prompted a flood of money out of Prime Funds and into funds which invest solely in government securities. Whereas Prime Fund and government fund assets were about the same in March, according to Investment Company Institute data, government funds, with over US$2 trillion, are now more than four times larger. All told, government money market funds have increased by about US$850 billion since the beginning of the year. The question is the extent to which money market fund buying has masked foreign central bank selling. Given that most sophisticated institutional investors will have front-run the changes in regulation, there may not be much structural shift in holdings yet to come. Unless investors generally decide they want to hold more cash, the extraordinary bid from money market funds for government debt may be at an end. So unless Japanese rates rise, the price of oil goes up enough to help Saudi Arabia or China’s economy turns around, government bonds will face a headwind in coming months. Not the kind of headwind they might face in the event the U.S. was led by someone who thinks “full faith and credit” is a marketing slogan rather than a pledge, but significant nonetheless. Inflation may stay low, the Fed may well stay on hold or only hike once, but Treasuries will have other things to worry about. Reuters

So unless Japanese rates rise, the price of oil goes up enough to help Saudi Arabia or China’s economy turns around, government bonds will face a headwind in coming months

”

16 Business Daily Monday, October 17 2016

Closing Space station

China ready to launch manned spacecraft billions in the past decade to compete in a space race with the U.S. and Russia, as well as Asian Shenzhou China is preparing to launch a manned spacecraft today, marking a crucial step toward the country’s ambition to build and operate its first space station by 2020. The spacecraft is scheduled to blast off on a Long March-2F carrier rocket at 7.30 a.m. Beijing time from Jiuquan Satellite Launch Center in western Gansu province, Wu Ping, deputy director of China Manned Space Agency, told reporters yesterday. It will be Beijing’s third space-lab mission this year. The world’s second-largest economy has spent

rivals India and Japan, with plans to send an astronaut to the moon by about 2025 and to land an unmanned vehicle on Mars. Astronauts Jing Haipeng and Chen Dong will dock with orbiting space lab Tiangong-2 within two days. They will stay 30 days in the space lab, which was launched last month. In 2003, China became the third nation to send a man into space and successfully completed its first docking mission with an orbiting space lab in 2011. Bloomberg News

Summit

BRICS development bank to lend US$2.5 bln next year It has already approved loans totalling US$900 million to green projects in each member state Douglas Busvine

he development bank set up by the BRICS group of emerging economies will ramp up lending to US$2.5 billion next year after making its first loans to back green projects, its president KV Kamath told Reuters. The BRICS - Brazil, Russia, India, China and South Africa - agreed to create the New Development Bank (NDB) in July 2014 with initial authorised capital of US$100 billion. The lender was officially launched a year later. “The second year is scaling up, concentrating on people, getting all the skillsets in,” said Kamath, a veteran Indian banker appointed as the first head of the Shanghai-based NDB. He was speaking on the fringes of a weekend BRICS summit hosted in the Indian resort of Goa by Prime Minister Narendra Modi. The gathering seeks to add substance to the group that grew out of an acronym devised by Goldman Sachs economist Jim O’Neill back in 2003 that projected a longterm boom and global power shift in their favour. With Russia, Brazil and South Africa on the economic skids and China slowing, the initial euphoria has faded, yet Kamath said the BRICS had much to gain by deepening their cooperation. “The fact is that these countries,

collectively, have for the last few years contributed to more than 50 per cent of incremental economic wealth that has been generated globally,” said Kamath. “I don’t see that changing.” The NDB, headquartered in Shanghai, will expand its staff to

300 over the next three years but run a tight operation that seeks to take quick decisions and transfer experience across all five BRICS member states. It has already approved loans totalling US$900 million to green projects in each member state. It has also started a renminbi-denominated borrowing programme, issuing a 3 billion yuan (US$450 million) bond. Kamath, 68, said there was plenty of room for new lenders like the NDB and the Chinese-led Asian

Infrastructure Investment Bank (AIIB), in addition to established institutions like the World Bank. “Infrastructure alone has needs globally of US$1-1.5 trillion a year - all the multilateral banks put together can do maybe 15 per cent of this,” said Kamath, who ran India’s ICICI Bank Ltd from 1996 until 2009. “The phrase I would like to use is cooperate and work together, rather than compete. I don’t see competition as a key challenge in this context.” Reuters

Brazil’s President Michel Temer, Russian President Vladimir Putin, Indian Prime Minister Narendra Modi, Chinese President Xi Jinping and South Africa’s President Jacob Zuma pose for a group photo during the 8th BRICS summit 2016 in Goa yesterday. Lusa

M&A

Poverty

Commerce tour

Germany considers protecting President Xi stresses Britain’s May heads to India firms from foreign takeovers implementation of relief measures with eye on post-Brexit trade The German Economy Ministry wants to protect high tech companies in Germany from unwanted takeovers, especially from state-owned and partly state-owned companies in non-European countries, a German newspaper reported yesterday. Welt am Sonntag (WamS) said Deputy Economy Minister Matthias Machnig had in the past week sent to members of the German government a paper containing six key points for reviewing investment at the European Union level. The paper foresees wide-reaching rights for the EU and national governments to prohibit company acquisitions by investors in non-EU countries, the newspaper said. The issue of foreign takeovers has come to the fore in Germany with Chinese home appliance maker Midea buying German robot maker Kuka and Chinese chipmaker Sanan Optoelectronics saying on Monday it had been in contact with German lighting group Osram about a potential acquisition or cooperation deal. Asked about the newspaper report, a spokesman for the Economy Ministry said he would not comment on internal government working papers. Reuters

Chinese President Xi Jinping has urged local authorities to leave no stone unturned in the solid implementation of precision-poverty relief measures to lift the nation’s poor out of poverty. He made the remarks in a congratulatory statement sent to a commendation meeting held on Sunday in Beijing, which honoured organizations and individuals for their outstanding poverty alleviation contributions. Xi called for the combined efforts of officials in poverty-stricken areas and all sectors of society to battle poverty and support the reform and innovation of poverty relief measures. It is important that role models of poverty-relief work are identified and celebrated, as this will mobilize the whole of society to participate and take further action to combat poverty, the president said. In his written instruction to the meeting, Premier Li Keqiang noted that local officials should follow the examples set by the honoured role models and roll out precision poverty relief measures. Li urged local authorities to ensure that the nation’s poor are helped to shake off poverty with greater determination. Xinhua

British Prime Minister Theresa May will lead a delegation of small and medium-size businesses to India in November as part of efforts to bolster trade with countries outside the European Union as Britain prepares to leave the bloc. The November 6-8 trip, May’s first bilateral visit to a country outside Europe since she took office in July, will be in pursuit of her ambition of forging a new global role for Britain after it leaves the European Union, May’s Downing Street office said in a statement. The European Commission is responsible for trade negotiations for the EU and some countries have said they will not negotiate a new deal for Britain until it has actually left the bloc. “As we embark on the trade mission to India we will send the message that the UK will be the most passionate, most consistent, and most convincing advocate for free trade,” May was quoted as saying. She said past trade missions had focused on big business, but she wanted to adopt a new approach and would take small and medium companies from every region of the United Kingdom. Reuters