China’s provinces adapt environment to make the grade GDP Page 8
Thursday, November 3 2016 Year V Nr. 1165 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Auto industry
Gaming
Volvo and Geely to strengthen production links Page 10
Studio City to start VIP operations on Saturday Page 7
Trade
www.macaubusinessdaily.com
Property
CEPA exports up 40 pct in October Page 4
Enterprises
Ricacorp: Gov’t restricting local purchasing power Page 3
Macao Water’s parent company to restructure Page 5
CCAC: DSAT loopholes conduit for corruption Public administration
An investigation report into the Transport Bureau (DSAT) by the Commission Against Corruption. Revealing the Bureau’s administrative failings in its financial management and contract award procedures. Public car park management has been particularly singled out for criticism. CCAC perceives these defects have opened the doors for parties to benefit illicitly. Page 5
Shun Tak fights for land
CE: Fiscal surplus for this year A fiscal surplus of nearly MOP30 bln. to wrap up this financial year. As forecast by Chief Executive Fernando Chui Sai On prior to his three-day trip to Beijing. Macau’s top official will discuss the planning of local territorial waters with the central gov’t.
Real estate The Hong Kong-listed conglomerate is trying to enhance its position. Regarding its land disputes over Nam Van with the Gov’t. By signing a new agreement with Sai Wu Investment Ltd. The company has long planned to build the Harbour Mile complex. Page 5
Experts hesitate
Public Finance Page 2
HK Hang Seng Index November 2, 2016
22,810.50 -336.57 (-1.45%) Worst Performers
China Mengniu Dairy Co Ltd
+0.55%
Power Assets Holdings Ltd
-0.67%
China Construction Bank
-2.42%
Industrial & Commercial
Hengan International Group
+0.00%
MTR Corp Ltd
-0.69%
AAC Technologies Holdings
-2.37%
China Unicom Hong Kong
-2.08%
Cheung Kong Property
-0.09%
Hang Seng Bank Ltd
-0.85%
PetroChina Co Ltd
-2.22%
Li & Fung Ltd
-2.05%
Want Want China Holdings
-0.42%
Belle International Holdings
-0.85%
Bank of East Asia Ltd/The
-2.20%
Bank of China Ltd
-1.99%
New World Development
-0.61%
Henderson Land Develop-
-0.86%
Sino Land Co Ltd
China Petroleum & Chemical
-1.90%
-2.16%
20° 24° 22° 25° 24° 27° 24° 28° 23° 28°
-2.11%
Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Growth goals A slew of positive results in recent months. But Chinese experts are doubtful regarding ambitious targets to be accomplished by 2020. Specialists fear a strenuous sprint of stimuli to achieve set goals. Page 9
2 Business Daily Thursday, November 3 2016
Macau In Brief Acquisitions
NV5 Global Inc. acquires JBA Consulting Engineers Engineering consultancy firm NV5 Global, Inc. has announced the acquisition of JBA Consulting Engineers, according to a company press release. Based in Las Vegas, JBA has offices in Hong Kong, Shanghai, Vietnam and in the MSAR The company has also provided consultancy to the Wynn Palace and MGM Cotai projects. According to NV5 press release, JBA posts annual revenues of approximately US$33 million (MOP263.5 million) and has 220 employees, with the ‘acquisition primarily financed with cash on hand’. “We have identified many great opportunities for our two organizations to move forward together and become a significant player in highly profitable markets we have sought to enter”, said Chairman and CEO of NV5, Dickerson Wright, in the release. N.M. Fine dining
Michelin awards 12 eateries in MSAR
Michelin has awarded a Bib Gourmand title to 63 restaurants in Hong Kong and 12 in Macau, six of which are awarded for the first time, according to an announcement made on its official website. The four new Hong Kong eateries are Brass Spoon (Vietnamese); Ciak – All Day Italian (Italian); Liu Yuan Pavilion (Shanghainese); and Sing Kee (Cantonese). The other two are in Macau Castiço (Portuguese) and Xin (HotPot). “The addresses selected this year by our inspectors reflect the local gastronomic scene and the cuisine that can be found in the streets of these two cities,” said Michael Ellis, international director of Michelin Guides. The Michelin Guide Hong Kong Macau 2017 is scheduled for release on November 9. A.L.
Politics Decision on LRT line for Macau Peninsula to be reached by year-end
Putting a positive spin on savings Chief Executive predicts the MSAR will finish the year with positive surplus Nelson Moura nelson.moura@macaubusinessdaily.com
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fficial financial information projects the city will complete the 2016 fiscal year with a surplus of some MOP29.3 billion (US$3/7 billion), Chief Executive Fernando Chui Sai On stated yesterday. Speaking to reporters before departing for Beijing to discuss the planning of the city’s territorial waters, the top official said the MSAR Government anticipates “a positive fiscal surplus” for this fiscal year given the current information for the first 10 months of the year. For this fiscal year, the government had projected a positive surplus of MOP18.2 billion in its 2016 budget plan whilst official data of Financial Services Bureau shows the city’s fiscal surplus amounted to MOP21.4 billion for the first nine months of the year.
No rash decisions
Meanwhile, the CE said the Secretary for Transport and Public Works Raimundo do Rosário believes a decision on the Peninsula route of the light
rail transport (LRT) would be made before the end of the year. In October, legislators Kou Hoi In, Cheang Chi Keong and Chui Sai Cheong proposed the government ditch its plans for the LRT on the Peninsula, indicating that related works would lead to an increase in traffic on the Peninsula. They suggested, instead, the government replace the LRT with a monorail system. The top official said yesterday that the decision on the Peninsula route would be made taking into account the opinions of the community in addition to the opinions of legislators. When questioned about the development of public housing in Avenida Wai Long in Taipa, the CE said the government prioritised developing public housing projects on the city’s recovered land plots. During an Urban Planning Committee meeting (CPU) earlier this week, committee members expressed discordant views on the construction of 10,000 public housing units on a land plot in Avenida Wai Long and Estrada da Ponta da Cabrita opposite Macau International Airport in Taipa. They expressed concerns about
height limits, environmental impact and the necessity of private housing. Nevertheless, the top official stressed that providing housing for more residents is always the government’s main priority. He added that the decision to develop public housing projects on the land plot was made “after many studies”. But the CE also said the government would continue studying its plans for the plot by considering height issues, environmental impact and the general demands of residents.
Maritime matters
During his three-day trip to Beijing, the CE will discuss with the central government the planning of the city’s territorial waters, in addition the MSAR’s role in the ‘One Belt, One Road’ strategic policy. “When Premier Li Keqiang visited Macau, there were talks regarding reinforcing support for the MSAR’s management of its waters, in addition to creating a medium and long term plan for its exploration between 2016 and 2036”, the CE stated. Last year, the Chinese central government approved the demarcation of 85 square kilometres of territorial waters for the MSAR, granting the government the power to handle security and monitor sailing activities in local waters.
Grand Prix
Monteiro and Files confirm Grand Prix participation
Health
Seven new MERS cases in Saudi Arabia The World Health Organization (WHO) has announced that seven new cases of the Middle East Respiratory Syndrome (MERS) have been recorded, according to a press release published by the city’s Health Bureau. The seven new patients affected by MERS are all from Saudi Arabia. The five males and two females are aged from 28 to 78 years old. One of the affected has passed away, while another is still in critical condition. As of October 31, WHO recorded 1,813 cases of MERS, of which at least 645 cases of death have been reported. A.L.
Tiago Monteiro, a WTCC (FIA World Touring Car Championship) frontrunner, and Josh Files, champion of the 2016 ADAC TCR Germany series, have both confirmed their participation in this year’s Macau Grand Prix, according to Touring CarTimes. The two racers will compete in the Guia Race in a pair of Honda Civic TCRs. Their participation has been officially affirmed by WestCoast
Racing and Target Competition, respectively. Monteiro, from Portugal, declared his return would overturn his missing out on victory in 2014. “I have some unfinished business, as the last time I was there leading the race until three corners from the end, when a mechanical problem forced me to retire”, he told Touring CarTimes. “For sure, I want some
kind of revenge”. Meanwhile, this year’s race will be the second Guia Race for Files in Macau, who was named as a potential entrant last week. ‘We are happy to announce that our 2016 German champion driver Josh Files will be racing with our Honda Civic TCR at the Macau Grand Prix’, said Files team, as quoted by the publication. C.U.
Environment
Gov’t attempts to reduce height of landfill The Environmental Protection Bureau (DSPA) is currently conducting research into using improved geotechnical solutions for the natural sedimentation of landfill materials in order to reduce its height, said the Director of the DSPA, Raymond Tam Vai Man, during TDM radio programme ‘Macao Forum’ yesterday. Mr. Tam revealed that a public wastage filter is a long-term plan,
caused by the growing height of the landfill in recent years. He added that this year’s amount of construction waste for landfill has decreased compared to previous years. The Director indicated that DSPA has been focusing on improving the recycling of construction as well as normal wastage due to the constant increase in the amount of solid wastage.
He hopes that the amount of waste disposal per person can decrease by 3 per cent or more in the future decade. In addition, the incinerator is capable of dealing with some 1,700 tons of waste per day; the current amount has reached 1,400 tons, said Mr. Tam. He added that the government is planning for an expansion project of the centre, which will provide extra room for the treatment of domestic waste. C.U.
Business Daily Thursday, November 3 2016 3
Macau
Politics
DSAT slammed for its financial management and contract awarding
CCAC: Transport Bureau errors trigger corruption case The city’s anti-graft watchdog slams the Bureau’s slack operations, claiming it may have connived in the recent corruption case of its former staff Kam Leong kamleong@macaubusinessdaily.com
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he c i t y ’ s a n t i - g r a f t watchdog – the Commission Against Corruption – has revealed the Transport Bureau (DSAT) has had ‘serious’ defects and loopholes in its internal operations, which include its outsourcing of public car park management services as well as its management of financial accounts. According to CCAC’s investigation report released yesterday on the outsourcing of public car park management services against DSAT, the Bureau had been ‘chopping’ its service contracts into parts to grant ‘short-term management service contracts’ rather than the legallyregulated ‘operation contracts’ in order to avoid the invitation of public tenders and the signing of notarial contracts. The investigation report by the anti-corruption body followed the corruption case related to the former head of DSAT’s Transport Management Department, Lou Ngai Wa, and his subordinate Pun Ngai, who were busted by CCAC last April for receiving MOP16 million (US$2 million) in bribes for helping three companies secure parking lot management contracts from the government. The two were both convicted of corruption and related crimes last month by the Court of First Instance.
‘The serious defects in the outsourcing procedures and the internal mechanism of DSAT . . . objectively, has connived [in] the case’, the Commission wrote, explaining that it is also the reason why it initiated an investigation against DSAT. According to CCAC, since 2003 the Transport Bureau has signed 341 such ‘short-term management service contracts’ for 39 of the city’s 46 public car parks. In addition, the tenures of these contracts were longer than the legal regulations of six months. ‘This not only violates the principle of legality, it also damages the law’s seriousness and authority,’ the Commission wrote in the report. ‘This has also led to legal systems or procedures performing practically no function and to have been used by illegal parties for gaining illicit benefits by controlling the grants of service contracts for public car park management’.
Income becomes spending
The anti-graft body also slammed the Transport Bureau, levelling the charge that it had not effectively supervised the income it was supposed to receive from the service concessionaires if it had awarded the services in ‘operation contracts’. Nevertheless, as the Bureau had abandoned the use of ‘operation c o n t r a c t s’ f o r ‘ s h o r t - t e r m
management service contracts’, DSAT, instead, needed to pay the service fee to the management companies. The total amount of service fees paid by the Bureau to these management companies based on such ‘shortterm’ contracts exceeded some MOP209 million (US$26.1 million) since 2003. In addition, CCAC complained that the Bureau had not conducted appropriate measures to chase for the income owed by some management companies, but paid them service fees on time and even mulled granting new contracts to the same companies again. ‘These actions have seriously violated the financial disciplines of public departments and brought huge risks to the safety of public finances’, CCAC stated. ‘The Bureau’s lack of supervision of the management companies was primarily due to its lack of internal supervision mechanism’.
Job not well done
In addition, the Commission pointed out that DSAT had been making management companies do its procurement work by asking management companies to provide price quotations from other companies during procurement procedures. It added that the Bureau had also waived the procedures of getting quotations and awarded projects to management companies not initially qualified for the related equipment or projects. The anti-graft watchdog noted that DSAT might need to consider whether some leaders in the Bureau have been asleep at the wheel. It
perceives the leaders’ dereliction of duty was the reason that the two former DSAT officials could make use of the operation loopholes to gain illegal benefits. ‘Department heads only have the right to suggest, while verification, evaluation and approval belong to the duties of superior leaders’, CCAC wrote.
Not just DSAT
Nevertheless, the Commission pointed out in its report that DSAT is not the only government body skipping legal systems or procedures with unreasonable excuses. ‘The problem of chopping service contracts or equipment purchase contracts into parts, especially those with integrity and continuity, happen in other public departments as well. It is quite [normal] for them to do so in order to avoid related legal regulations such as public tenders or signing notarial contracts’, the report reads. ‘Despite the majority of the departments only trying to simplify related procedures and to save time, increasing administrative efficiency does not mean they should violate the principle of legality, and to decrease the publicity and transparency of procurement procedures’, CCAC slammed. It warned that such behaviour of public departments would increase the risks of corruption and abuse of power. The watchdog also urged the government to simplify its procurement procedures by making certain amendments to the current laws, meanwhile, to strengthen the departments’ related supervision of their verification mechanism.
Property
Ricacorp: Gov’t restricting local purchasing power The property agency says the government’s policies on the real estate market are out of step Cecilia U cecilia.u@macaubusinessdaily.com
The policies for mortgage loans introduced by the Monetary Authority of Macau in 2010 are no longer suitable for today’s real estate market, says Jane Liu, Managing Director of Ricacorp (Macau) Properties Limited. During yesterday’s press briefing, Ms. Liu said that the government should adjust its property policies in order to boost the purchasing power of buyers attempting to purchase their first property. “Many residents wish to purchase a unit at current prices”, said Ms. Liu. “However, since the current mortgage
loan regulations only allow loans amounting to 60 or even 50 per cent of real estate prices, one is required to have at least some MOP7 to 8 million cash to pay for the property”. Ms. Liu added that most residents are in fact capable of paying their mortgage, saying that many parents make the initial deposit for their children. She also commented that loosening mortgage loan restrictions will not have significant impact upon current real estate prices, given that the city’s gaming revenue will not be as much as previous years as real estate sales are at all times highly related to the city’s economy.
The MD of the real estate agent reported that local buyers occupy 99 per cent of sales in the local property market, including the sales of new and second-hand residential properties, indicating that many speculators have retreated from the real estate market. Given the BSD (Buyers Stamp Duty) discouraging non-residential buyers as well as the SSD (Special Stamp Duty) dampening the resale of property within two years, Ms. Liu remarked that the two duties have effectively discouraged speculation in the real estate market.
Sales performance in Q3
Meanwhile, Jennifer Un, the Senior Regional Director of the firm, said Oscar Crescent in Taipa, the new property which was introduced in
early July, had 233 units sold at an average of MOP8,700 (US$1,089) per square foot. Due to the openings of the two new casinos in the city and the UK’s Brexit leading Mainland China and Hong Kong becoming a haven for funding from the Mainland, sales have grown significantly in the two neighbouring regions, stimulating sales in Macau, Ms. Un claimed. On the other hand, Ms. Liu believes the marriages recorded for last year and the first half of this year - 4,000 and 2,400, respectively - would create 5,000 new property demands. In addition, based on the current sales performance of the newly established property Macao Court, that saw around half of the units sold, the real estate agency anticipates a similar performance would be registered for the rest of the year, anticipating 2,900 housing transactions for this quarter and 9,200 for the entire year of 2016.
4 Business Daily Thursday, November 3 2016
Macau
Injection
Water it, and let it grow Restructuring and injection of capital into parent company of local water treatment and supply group Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
S
ino-French Holdings (SFH), the parent company of local water treatment and supply company Macao Water Supply Co. Ltd. is set to undergo a restructuring, complete with capital injection by its joint
venture companies, an enlargement and an interest percentage change, SFH’s parent company NWS Holdings Ltd. has revealed to the Hong Kong Stock Exchange. Currently, SFH is a 50:50 joint venture between NWS and Francebased SUEZ Groupe, whose weight will change to a 58:42 split upon completion of the agreement, with NWS
Trade
CEPA exports notably up in October The city’s exports under the CEPA agreement recorded a month-on-month increase of 40 per cent in October, the best month of the year so far Annie Lao annie.lao@macaubusinessdaily.com
Exports of zero-tariff goods under the Close Economic Arrangement (CEPA) programme between the MSAR and Mainland China went up by 40.1 per cent month-on-month to MOP11.6 million (US$1.5 million), according to the latest data from the Macao Economic Services (DSE). Total exports under the MacauChina CEPA programme in October were the highest recorded for this year. The second highest month was April, reaching MOP11.17 million, while the lowest recorded month was August at MOP4.7 million. For the first ten months of the year, the total amount of the city’s CEPA exports totalled MOP77.43
million. Since the start of the CEPA scheme implemented in January 2004, the accumulated exports of CEPA goods has amounted to MOP744.74 million. At the end of October, a total of 600 Macau services and agencies had received certificates under the Macau Service Supplier arrangement. Local service providers under the arrangement are allowed to operate their businesses in Mainland China with zero-tariff treatment. Half of the certificate holders 298 - provide transport services, including freight forwarding agencies, logistics, storage and warehousing. Meanwhile, those from the medical and dental services sector accounted for 147 enterprises or 24.5 per cent of the total.
retaining 42 per cent. NWS is also set to contribute HK$840 million (US$104.6 million) to the expanded SFH Group during the restructuring, divided into a cash payment of HK$476 million and NWS interests amounting to HK$364 million.
Expansion
The goals of the expansion and injection into the SFH group are primarily to position the group ‘to capitalise on the expected future growth of the environmental business in Greater China’, according to the filing, as the company seeks to ‘expand its environmental business into the waste sector from its current focus on water and wastewater treatment businesses’. Additionally, NWS hopes to capitalise from its partnership with SUEZ through the exchange of ‘expertise in financing, management and environmental technologies,’ as well as knowledge of the ‘operating geography of Greater China’, including Macau, Hong Kong, Taiwan and the Mainland. For the group’s fiscal 2016, ended June 30, the group saw a 322 per cent increase in revenue year-onyear from its Macau operations, from HK$183.5 million to HK$774.3 million, noting that the sales volume of its local plant – Macau Water Plant
– ‘remained stable’. The group raised the water tariff by 4.3 per cent in October of last year.
Operations
Locally, Macao Water operates four treatment plants, including the Ilha Verde and Coloane plants, and has eight water reservoirs, including Seac Pai Van, Ka Ho and Hac Sa as well as seven treated water pumping stations and four raw water pumping stations. The Macau Water Plant, which began operations in 1985, has a capacity of 390,000 cubic metres of water per day, and is contracted by the local government until 2030. From June 2015 to June 2016, the plant treated and sold 232,870 cubic metres of water, an increase of 823 cubic metres from the same period a year before. Water tariffs underwent a further price rise on November 1.
Diversified
One half of the joint venture for SFH, NWS also holds diversified interests in the Macau market, operating the Free Duty Shop in the Macau Ferry Terminal as well as holding a 60 per cent interest in the Sky Shilla Duty Free Shop in Macau International Airport. The group also operates in the civil engineering and construction business via a 99.8 per cent interest in Vibro (Macau Limited) – which was appointed contractor for the foundation works of Nova City Phase 4, and a 100 per cent interest in Hop Hing Engineering (Macau) Company.
Accommodation
Mainland Airbnb to be independent The changes in Mainland’s Airbnb structure not applicable to MSAR American short-term online rental company Airbnb, Inc. has announced that its unit in Mainland China would be independent from the rest of Airbnb worldwide, with all current listing information in Airbnb China to be transferred to a new entity named Airbnb Internet (Beijing) Co. Ltd. The online rental company informed its users about the changes on Monday night via e-mails. The new changes in company structure will take effect from December 7, it said. The company explained that the changes are due to related regulations imposed upon foreign businesses in Mainland China. However, it indicated these changes would not affect the listed information in Hong Kong, Macau and Taiwan. ‘Like hotels and other businesses operating in China, Airbnb China has to comply with local laws and
regulations, including privacy and information disclosure laws, and may be required by Chinese government agencies to disclose information held by it, such as host, guest, and listing information relating to stays in China’, Airbnb wrote in its email explaining to its users. According to Airbnb, Mainland Chinese travellers have used the website 3.5 million times for worldwide listings. Airbnb also revealed its plans to create partnerships in Shenzhen, Chongqing, Guangzhou and Shanghai in order to expand its business and boost tourism in those cities. ‘As more and more people begin using Airbnb in China, we’ve been working to update our platform to ensure we can provide better, more localised services to our community’, the company stated. A.L.
Business Daily Thursday, November 3 2016 5
Macau Real estate Shun Tak jockeying for position in land dispute
‘D’ for difficult The developer gives up on a deal for a 1.6 million square foot property and arms itself to negotiate for another Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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hun Tak Holdings Ltd. is attempting to strengthen its negotiating position regarding land plots on Nam Van Zone D by entering into a new agreement with Sai Wu Investment Limited, with which it made an original sales and purchase agreement in 2004, to negotiate on behalf of Sai Wu and any other companies holding land in Zone D with the government, according to a filing with the Hong Kong Stock Exchange. Given the expiration of land concessions for two plots in Zone D (with a combined developable floor area of 121,920 square feet), and their potential seizure by the government, Shun Tak is asking for power-of-attorney to ‘act in the name and on behalf of Sai Wu and the target companies in, among others, exercising any and all of their rights or legal entitlements in relation to any real estate properties held’ by the companies and sign agreements, make submissions, filings and applications to ‘obtain any necessary consent, authorisation or permit for the transfer or assignment of all or part of the [land rights] as well as any land rights that may be granted to Sai Wu’ in the result of a land swap.
Shun Tak had originally planned to build its Harbour Mile project on the Nam Van Zone D property, comprising hotel and residential towers, serviced apartments, a shopping mall and entertainment facilities.
Once upon a time
Sai Wu and Shun Tak initially negotiated the purchase and sale of the land in Zone D with a developable area of 2.7 million square feet, for HK1.5 billion (US$187.6 million) in November 2004. However, as noted in a 2006 filing by Shun Tak on the Hong Kong Stock Exchange, even after issuing a new master plan for Nam Van development on June 30 and submitting to the DSSOPT for renewal – in line with the ‘Macau Government’s new twenty-year urban development plan’, already including ‘reclaimed land to the urban coast line’ and ‘delineating various uses for such land’ – in a June 2015 Interim Report this was stated to be back at the planning stage, as ‘The Macau SAR Government is continuing to review the Master Plan of Nam Van area, and it is anticipated further time is needed to finalise the Master Plan’. According to the new deal negotiated with Sai Wu, two potential outcomes are possible. If Shun Tak via its wholly-owned subsidiary Shun Tak Nam Van Investments Limited (STNV) ‘successfully obtains one or more Replacement Sites to its satisfaction’ from negotiations with the government, it will pay out a consideration amounting to the initially-agreed-in-SPA amount of HK$1.5 billion divided by the developable gross floor area as envisaged
under the SPA (2.7 million square feet) multiplied by the new developable gross floor area under the accord reached with the government. This consideration amounts to roughly MOP555.6 per square foot, according to Business Daily calculations. The other option, if the dealings with the government are unsuccessful, is that STNV will return all power-of-attorney rights granted during the negotiation period and Sai Wu will return Shun Tak’s MOP500 million deposit. According to a 2004 annual report by Shun Tak, Sai Wu is 60 per cent owned by Dr. Stanley Ho, and, according to the Wednesday filing, if the replacement sites are achieved ‘(as per the instructions of Sai Wu)’ STNV is to ‘pay to Dr. Ho’ the consideration of up to HK$1.5 billion divided between cash and shares, including the ‘Consideration Shares’ to be issued (amounting to 148.9 million shares) of Shun Tak. Under the agreement these shares would be paid out to Alpha Davis Investments Limited – a company owned 47 per cent by Dr. Ho and 53 per cent jointly held by Pansy Ho, Daisy Ho and Maisy Ho. The consideration shares amount to approximately 4.89 per cent of the existing issued shares.
Not all
In addition to the power-of-attorney and land negotiation operations Shun Tak is planning, the
group mentioned further developments relating to Nam Van in its Wednesday Stock Exchange filing. An agreement with Many Gain Investments Limited, entered into on May 26, 2008 via subsidiary Shun Tak South Lake Investment Limited (STSL), details the purchase of a vacant site adjoining the Site D area stretching to Avenida Dr. Sun Yat Sen which was ‘expected to provide a maximum developable gross floor area’ of about 1.62 million square feet for ‘residential, retail, office and hotel purposes’. Instead of opting to further negotiate for the land, or pursue a swap, the group arrived at a mutual agreement to terminate the agreement (which was conditional) with Many Gain, ending the contract worth HK$3.15 billion. In the termination announcement, Shun Tak references yearly announcements between 2009 and 2014 (‘among others’) prolonging the finalality of the acquisition, as it was ‘pending finalisation by the Macau Government of the master plan for the development of the Nam Van District, of which Nam Van Site comprises a portion’. Shun Tak notes that ‘as at the date of this announcement’ terminating the agreement, ‘the master plan for the Nam Van District has not been finalised’.
6 Business Daily Thursday, November 3 2016
Macau Opinion
Ashley Sutherland-Winch* No-Shave November September is for kids. October is for women. But November is reserved for men. ‘Movember’ or ‘No-Shave November’ are movements that raise awareness for male cancers and male mental health. During the month of November, men around the globe toss their razors away to grow beards and moustaches in order to start conversations about men’s health. Movember is wildly popular in the United States, Europe, Canada and Australia and is growing in popularity in Asia. Movember began in Australia in 2003 to raise awareness about prostate and testicular cancers and the movement asks men to participate by changing their appearance in order to foster a conversation that can go from facial hair to men’s health. Movember has also grown into a conversation to increase awareness and support for male mental health to decrease the rate of male suicides. No-Shave November, a movement started by the American Cancer Society in 2009, encourages to all sorts of hair growth. Participants can grow moustaches and beards, but it also encourages women to stop shaving their legs as well. While the movements create a fair amount of laughs across the globe, the causes are very serious. Men are typically more conservative when it comes to talking about their health, getting regular examinations by physicians and seeking help for depression and mental illness. By taking topics that are traditionally taboo, the hope is that awareness surrounding men’s health can become as popular and mainstream as wearing pink to support Breast Cancer Awareness. Prostate cancer is the second biggest cancer to affect men worldwide and numbers are set to double in the next 15 years. “The greatest risk for prostate cancer is age, which is why we try to get men above 50 to have the conversation with their doctors about the disease and whether a Prostate Specific Antigen test is right for them”, states the Movember Foundation. On Tuesday, Bondi Beach in Australia was covered with shoes - 191 pairs were laid out on the beach to represent the number of men in the country who commit suicide each month. Suicide prevention has become a major focus of the Movember Foundation since 2006, along with male cancers. Increased male suicide rates are affecting not only Australia but Asia as well. In support of No-Shave November in Macau, let’s hope to see more beards and moustaches around town - and by standing together as a community let’s hope to decrease male cancers and suicide rates in our city and around the globe.
*Marketing and Public Relations Consultant and frequent contributor to this newspaper.
RMB clearing centre
Warming up the paddles Legislative reform or alternative arrangements with the BOC are the only way to progress as RMB clearing centre Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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oadblocks i n t h e way of the MSAR taking advantage of its status as an RMB clearing hub come in multiple formats, points out the International Financial Law Review, noting that the effective operation of the mechanism could require an overhaul of the regulatory procedures currently in place. Strict labour laws are one of the primary hindrances, notes the review, pointing out that despite support from the central government being a key step forward, and necessary for the MSAR to become the desired hub, ‘the city’s authorities are not realising that this alone is insufficient for the eventual development’ of the platform. ‘There is a pressing need for Macau to attract foreign talent and expertise by first relaxing the city’s strict labour policy,’ states the review. The effect of this strictness is a lack of desire by foreign companies to wade through the red tape and establish businesses in the city – a key element in its hub-status as well as instrumental in the city’s pursuit of diversification.
Outdated legislation
“If the authorities intend to create a specific clearing house, modelled on Hong Kong’s, but the Macau Government does not relax the Labour Law, then we will most likely not be able to achieve this purpose,” says lawyer Afonso Cardoso de Menezes in statements to the review. Mr. Menezes, who works with Manuela Antonio Lawyers and
Notaries, comments that the city’s reliance upon legislation created in 1993, the Financial System Act, doesn’t meet the current needs and evolving instruments provided by the current financial system. A translation of the Act – Decree Law 32/83/M – reflects this same need to keep up with evolving times in its introduction, stating: ‘The impressive rate of change and innovation worldwide has made it imperative that the traditional scope of banking activity, the regulation of operations and the role of the supervisory authorities be reappraised’. In addition, the law introduction states its need to support efficient economic policy, stating it aims to ‘support the territory’s economic activities thus promoting more effective regional co-operation and integration’ and an ‘intention […] to provide Macau with the basis for developing an international financial centre’. Pedro Cores, senior partner of Rato, Ling, Lei & Cortes, also calls for a revision of the city’s financial laws, noting that the problem is more widespread than a single bill, with some laws dating back to 1988, more than a decade before the handover. “The city’s legal landscape should function as a stimulant for more concrete actions to take place,” says Mr. Cortes, “which would require changes being made to existing rules and regulations governing finance”.
Already here
The review notes that no specific vehicle or clearing house established in the MSAR - as an agreement between the government and the
Bank of China (BOC) -was set up in 2004, approving a Macau branch of the BOC as China’s second offshore clearing bank, following Hong Kong’s approval the year before. In March of this year, the closest step towards the evolution of an RMB clearing hub was announced, after a 15-month preparation by the Monetary Authority of Macau (AMCM) in the form of the Macau Renminbi Real Time Gross Settlements (RMB RTGS) providing services for local and cross-border RMB fund transfers between banks and their customers in real time – as noted by Lei Wun Kong and Calvin Tinlop Choi. The advantages to improving the functioning of the system are clear, as pointed out by the deputy directorgeneral of the liaison office of the Central People’s Government in Macau, pointing out that the aggregate amount of settlements denominated in Chinese currency cleared through the MSAR in 2015 reached RMB1.57 trillion (MOP1.87 trillion/US$233.8 billion), amounting to a 22.9 per cent rise year-on-year. By implementing this system, transaction costs for the clearing of fund transfers are slashed, instrumental in attracting businesses from China - in particular those that trade with Portuguese-speaking countries, a key element of the central government’s announced intentions. This was evidenced by the 5th Ministerial Conference for the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries. Two potential avenues lie ahead for Macau in its pursuit, according to the review; the creation of a specific clearing house by the government – modelled on Hong Kong Interbank Clearing Limited, or a modification of the current agreement with the Bank of China. Meanwhile, without action or reform no clear progress is in sight.
Business Daily Thursday, November 3 2016 7
Gaming Gaming
Studio City starts in-house VIP operations on Saturday
Melco Crown Entertainment Ltd. has confirmed to Business Daily that VIP operations in Studio City would commence this weekend. ‘We shall start our in-house VIP business on November 5, while the confirmed junket operators Suncity and Tak Chun will open their doors on November 8’, Melco Crown told Business Daily. The same statement informed that the total number of
VIP tables at Studio City would be 33. Company CEO Ted Chan said recently that twothirds of the VIP tables would be allocated to junket operators Tak Chun Group and Suncity Group. Last year, the Gaming Inspection and Co-ordination Bureau allocated 250 tables to Studio City. The CEO and Executive Director of Melco Crown, Lawrence Ho Yau Lung, said he hoped the gaming regulator could authorise 30 VIP gaming tables for Studio City in order to improve the results of the casino resort. N.M.
Gaming Former Bahamas resort director perceives Chow Tai Fook an ‘unsuitable’ investor due to Stanley Ho connection
No connection Chow Tai Fook states the future operation of Baha Mar Resort, if the acquisition deal is accepted, would not involve STDM at all. Nelson Moura nelson.moura@macaubusinessdaily.com
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how Tai Fook Enterprises (CTFE) has categorically denied that the city’s gaming guru Stanley Ho Hung Sun is involved in the group’s intended purchase of an integrated resort in the Bahamas, Baha Mar Resort, Bahamas local news outlet Tribune 242 has reported. The statements were made by the Hong Kong-based company following the resort’s former director, Dionisio D’Aguilar, claiming the ties between the family of late Hong Kong billionaire Cheng Yu Tung - founder of Chow Tai Fook - with Sociedade de Turismo e Diversões de Macau (STDM) of Mr. Ho made the group ‘unsuitable’ investors in the Bahamas project. Mr. Cheng’s son, Henry Cheng Kar
Shun, is currently the chairman of Chow Tai Fook. Since 2013, he has been a non-executive director of SJM Holdings Ltd., owned by STDM. Mr. D’Aguilar argues that Chow Tai Fook had been denied a casino license in New Jersey and Nevada due to the company’s connections with STDM and Chinese criminal gangs. In its statements to the Bahamas news outlet, Chow Tai Fook, however, denied ever applying for a gaming licence in America, stressing Mr. Ho’s companies wouldn’t be involved in the resort management. “The Cheng Family is an investor in STDM, which owns the gaming subsidiary, SJM. In addition, the Cheng family’s role in the Macau casino is strictly as an investor, with no involvement in day-to-day management of the casino or oversight of the gaming industry in Macau. There will be no affiliation on this
project with STDM or SJM,” the Hong Kong-based company said as quoted by the news outlet. D’Aguilar’s allegations were based upon a report by the US State of New Jersey gaming enforcement division in 2009 with regard to a proposed Macau casino joint venture between MGM Mirage and Mr. Ho’s daughter Pansy. The report raised concerns that Macau’s VIP gaming rooms could be vulnerable to exploitation by Chinese criminal gangs, but made no connection with Mr. Cheng’s family and their companies.
Troubled waters
It was revealed this week that Chow Tai Fook was in the process of acquiring the US$3.5 billion (MOP28 billion) casino resort project under
construction on the island of New Providence in the Bahamas. The project was formerly being developed by Chinese state-owned companies in co-operation with Baha Mar Resort Ltd., namely the Export-Import Bank of China and China State Construction Engineering Corp. After bankruptcy requested by Baha Mar Resort Ltd. was rejected by a U.S. court in 2015, project construction has been put on hold since April 2016 but resumed in September, local Bahamas media reported. In October, the Chinese stateowned bank created Perfect Luck Assets Limited (Perfect Luck), a special purpose vehicle, which it used to acquire the resort, while Chow Tai Fook later submitted a bid to purchase Perfect Luck.
8 Business Daily Thursday, November 3 2016
Greater China GDP
Local data indicates nation’s economic resilience Central and western regions with good industrial bases and more room for fixed asset investment were among the best performers
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hina’s local economies are showing resilience as the country attempts a transformation to more quality growth. Of the 28 provinces, municipalities and autonomous regions that have released GDP growth figures for the first three quarters of the year, 18 reported faster or equal growth to that in the first half. “The growth gap between regions has narrowed,” said Zhang Liqun of the State Council’s development research centre. “The economic pressure in regions like the Northeast and Shanxi has eased and their economies are recovering.”
Shining up the rust belt
Jilin, a province in China’s northeast industrial heartland, announced on Saturday that its GDP grew 6.9 per cent year on year in the JanuarySeptember period, exceeding the national average for the first time since the first quarter of 2014. While restructuring and reinvigorating traditional industries, the province has invested in new
industries to help the recovery. A hi-tech industrial park to pool photoelectric and intelligent manufacturing firms is under construction in capital Changchun, targeting RMB20 billion (US$3 billion)
“When an economy is big but still needs to grow fast, it requires innovation and an extended value chain” Tu Xingyong, deputy director of Chongqing municipal commission of economy and information technology in output by 2020. Of the other two provinces in the old industrial rust belt, Heilongjiang seems likely to report 6.7 per cent
growth. Liaoning is expected to show some improvement after shrinking in the first two quarters. Liu Yuanchun, president of the national academy of development and strategy at Renmin University of China, believes the figures show pro-growth policies taking effect. The steel and coal sectors are back in the black and prices of both commodities have risen alongside efforts to reduce overcapacity. This has helped economies like coal-rich Shanxi, he said. Shanxi, struggling to overcome its reliance on coal, saw its GDP grow 4 per cent in the January-September period, better than 3.4 per cent in the first six months.
Good performers
Central and western regions with good industrial bases and more room for fixed asset investment are among the best performers, with Chongqing continuing to race ahead with a staggering 10.7 per cent growth, with Guizhou not far behind on 10.5 per cent. In 2014, Chongqing announced it was developing 10 new industries, including electronics, intelligent equipment, new-energy vehicles and bio-medicine. The output of these sectors is expected to double, having grown by 150 per cent last year.
“When an economy is big but still needs to grow fast, it requires innovation and an extended value chain,” said Tu Xingyong, deputy director of Chongqing municipal commission of economy and information technology. In Guizhou, fixed asset investment expanded 21.7 per cent in the first three quarters, 13.5 per centage points higher than the average and contributing 70 per cent of growth in the impoverished mountainous province. Central Henan Province achieved 8.1 per cent growth in the nine months. “Our service sector will soon surpass the industrial sector so the quality of growth is improving, but the economic transformation is at a key juncture and there is still considerable downward economic pressure,” said Gu Jianquan, director of Henan’s development research centre. Two more developed provinces, Guangdong and Jiangsu, also did fairly well, expanding 7.3 per cent and 8.1 per cent, respectively. “China is shifting gears towards m i d-t o -h i g h g r o w th, ” Zha n g Liqun said. “This not only calls f o r stabi l i zati o n o f g r o w th, but for supply-side structural reform to improve the quality of growth.” Xinhua
In 2014, Chongqing (pictured) announced it was developing 10 new industries, including electronics, intelligent equipment, new-energy vehicles and bio-medicine
Brokerage
GF Securities eyes global expansion China’s weak stock market in the first half of this year hit domestic securities firms Michelle Chen
GF Securities, one of China’s top brokerages, aims to expand its international business to meet strong demand from Chinese residents and companies for overseas assets, a senior executive told Reuters. Li Fenghua, general manager of the strategic development department, said the firm would consider opening more overseas branches, such as in New York, Paris, Singapore, Japan and South Korea, and hiring experienced professionals and teams abroad. “Our aim is to use our Hong Kong subsidiary as a platform to strengthen international business and significantly increase its share in our total revenue to make domestic and international business under a more balanced structure,” Li said in a reply to questions received by email late Tuesday. “Global asset allocation demand from Chinese residents and demand from Chinese companies to go abroad is very strong, which will bring huge opportunities to brokerages’ wealth management, corporate financing and M&A business.”
Launched in 1991, GF Securities is one of the first full service investment banks and integrated securities firm in China. By the end of 2015, it had total assets worth of 419 billion yuan (US$61.95 billion). It has already established offices in Hong Kong, London and Vancouver.
Key Points GF Securities to set up more branches abroad Aims to increase international business contribution Sees big opportunities from overseas asset allocation need Li said he is cautiously optimistic for Chinese brokerages next year due to strong growth momentum in the direct financing market, mergers and acquisitions, asset securitisation and investment banking business. So long as the economy stabilises and the government acts to curb risks, Li believed the secondary stock market could avoid major volatility.
He said the decline of commission rates for the industry had slowed down and would maintain at the current level next year. China’s weak stock market in the first half of this year hit domestic securities firms, as they suffered big declines in equity fund trading volumes, margin business and investment returns. Their total profits for the first half were down 59 per cent at RMB62.5 billion (US$9.24 billion) compared with a year previously, according to
the Securities Association of China. The drop looks worse than it was as brokerages’ profits were very strong in the first half of 2015. And despite the weaker first half this year, 117 of the 126 firms included in the data were profitable, and most of them still recorded their second best performance ever. Citi analysts said in a report that they expect brokerages’ ROE (return on equity) to bottom in 2016 as the impact from the stock market crash gradually gets digested. Reuters
Business Daily Thursday, November 3 2016 9
Greater China In Brief FTA
Mainland goods to enjoy tariff exemptions in Vietnam The ASEAN-China Free Trade Agreement (ACFTA) will offer zero-per cent tariff for goods from China and ASEAN into Vietnam, according to Vietnamese government’s decree yesterday. According to the decree on special preferential tariffs for ASEAN and Chinese products during 2016-2018 period, hundreds of goods from China and ASEAN will enjoy zero-per cent import tax to Vietnam. The goods include vegetables, fruits, processed or preserved fish and other kinds of seafood, as well as cacao and cacao products, cereal, flour and meat. M&A
Authorities hope Germany’s probes “an exception”
Economic targets
Debt risks stoke internal debate over lowering growth goal
China leaders due to meet to map up 2017 growth, reform agendas
dominated by the state. “We should put more emphasis on structural reforms. We cannot put the most difficult problems in the final year. It will be too late,” said an influential economist who advises the government and who declined to be identified. Beijing has relied on a property rally and state stimulus to drive growth this year, even as it has stepped carefully to avoid repeating the huge stimulus package implemented in the global financial crisis, which saddled the economy with a pile of debt. China’s debt has soared to 250 per cent of gross domestic product from 150 per cent a decade ago, and the Bank for International Settlements (BIS) warned in September that a banking crisis was looming in the next three years. “We are going too far down the old road if we still keep the 6.5-7 per cent growth target next year,” said a policy insider, who declined to be identified. The International Monetary Fund (IMF) has recommended the government makes a more fundamental change. In a report published in August, it said China should shift away from annual growth targets because they have “fostered an undesirable focus on short-term, low-quality stimulus measures”. That means China is paying a price for its fixation on growth targets, one Chinese policy adviser said. “It’s absurd and distorting,” he said. “It’s a legacy from the centrally planned economy.”
Leaders seen walking on tightrope between growth, reforms
Uncertain outlook
The discussion will feed into the annual Central Economic Work Conference expected in December China’s growing debt and property risks have touched off an internal debate over whether China should tolerate growth as low as 6 per cent in 2017 to allow more room for painful reforms aimed at reducing industrial overcapacity and indebtedness. The government has said economic growth of at least 6.5 per cent is needed each year through to 2020 to meet a previously stated goal of doubling GDP and per capita income by 2020 from 2010 levels. It aims for 6.5-7 per cent growth this year. M a n y a dv i s e r s ex p e c t t h e government to stick to this year’s target in 2017, or at best change the wording to “around 6.5 per cent” to allow for a slightly lower expansion rate next year. But some advisers say maintaining growth above 6.5 per cent is unrealistic because it will force the government to keep up costly economic stimulus measures that have stoked concerns about a sharp rise in credit and the property market. Instead, the target should be reduced to a range of 6.0 per cent to 6.5 per cent next year, they said. Real growth is slowing down anyhow and setting a lower target would give China room to push on with reforms needed to meet 2020 targets, these advisers said. “This year’s growth target is definitely high. It’s necessary to slightly lower next year’s target given that downward pressures still persist,” said a government economist, who declined to be identified due to the sensitivity of the matter. Th e s o u rc es, g o v e r n m e n t economists and advisers, provide recommendations for top leaders to consider. The debate will feed into the annual Central Economic Work Conference expected in December, a gathering of leaders and policymakers that maps out the country’s economic and reform agenda for the following year. China’s economic growth targets are important because they determine policy settings. If leaders feel the
growth target is at risk, as they have this year, they will adjust policy to ensure economic activity picks up. The State Council Information Office did not immediately respond to faxed requests for comment.
Tightrope
Chinese leaders are walking a policy tightrope, trying to bolster growth, create more jobs and prevent debt defaults while also pushing painful structural reforms to foster more sustainable growth. They have pledged “decisive results” by 2020 on a wide range of reforms to let market forces play a bigger role in driving the economy. The government has been cutting red-tape and trying to reduce production capacity in surplus industries including steel and coal.
Key Points State spending, credit binge fuel worries over debt, property Debate on whether China should cut 2017 growth target heating up
But preoccupied by concerns over immediate economic growth, progress has been relatively slow on some key structural reforms. Th es e i n c l u d e o v e rha u l i n g bloated state-owned enterprises (SOEs) to reduce their dominance of the economy, reforming land and residency rights to give migrants more confidence to move away from family farms to live in cities and opening up state-dominated service sectors to private investors. A slump in private investment and capital heading offshore suggest many Chinese entrepreneurs are investing abroad, despite Beijing’s repeated pledge to open up sectors
The 2017 economic outlook is far from certain given weak global demand and property cooling measures that could weigh on the sector. The IMF expects China’s growth to fall to 6.2 per cent in 2017, which would be the weakest since 1990, from its forecast for this year of 6.6 per cent. The third-quarter growth has fanned optimism among some Chinese officials and economists that the economy has hit a bottom after slowing for six successive years. Thus, a researcher with the National Development and Reform Commission, the country’s top economic planner, said he expected the government to maintain the 6.5-7 per cent goal in 2017. Reuters
China hopes Germany’s recent security investigations into proposed acquisitions by Chinese companies are “an exception”, a spokesman for the Ministry of Commerce said yesterday. Shen Danyang also said China hopes Germany can be calm and create a fair environment for investors. The German government has withdrawn its approval for a Chinese takeover of chip equipment maker Aixtron, citing security concerns. It has also reportedly turned down a Chinese request for approval of a takeover of Osram’s light bulb unit Ledvance pending a review of the deal. Cross-strait relations
President Xi meets KMT leader
Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee, on Tuesday underscored the importance of adherence to the 1992 Consensus and called for maintaining the peaceful development of cross-Strait relations. Xi made the remarks while meeting with a delegation led by Hung Hsiu-chu, leader of the Kuomintang (KMT) party in Taiwan. “To ensure national integrity and protect the fundamental interests of the Chinese nation is the common will of all Chinese people,” Xi said. Xi made a six-point proposal on cross-Strait relations. Closer ties
Infrastructure, defence deals signed with Malaysia China and Malaysia on Tuesday signed agreements on railways, energy, defence, and joint development of Malaysia’s naval ships, during Malaysian Prime Minister Najib Razak’s visit to Beijing. The deals were signed after talks between Premier Li Keqiang and Najib. They covered areas ranging from infrastructure, agriculture, education, tax, quality inspection to customs and defence. Describing China and Malaysia as good neighbours, partners and friends, Li said China is willing to work with the Southeast Asian country to boost neighbourly cooperation, stability, development and prosperity.
10 Business Daily Thursday, November 3 2016
Greater China
Joint production
Volvo, Geely to deepen ties, share small car plant The Taizhou plant will be Volvo’s third assembly site in China, along with Daqing and one in Chengdu in western China Norihiko Shirouzu
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wedish carmaker Volvo announced yesterday a series of moves deepening cooperation with its Chinese parent Zhejiang Geely Holding Group Co - a tie-up that’s shaping up to show that China can make a success of buying consumer brands. The two firms will soon start producing cars at a joint assembly plant in Taizhou, in the eastern Zhejiang province, Volvo said in a statement. “We’re going to be making China a global manufacturing and export (hub) for the company ... we will be for the first time shifting production of particular cars from Sweden to China in their entirety,” said a Volvo insider familiar with the matter. “ W e’ r e p l ac i n g Ch i n a manufacturing and export at the centre of our industrial strategy, and deepening our industrial synergies with Geely,” added the person, who did not want to be identified because the move has not yet been made public. The Taizhou plant, operated by Volvo and expected to be up and running in the current quarter, will produce compact cars based on an “advanced” vehicle architecture the two companies have jointly developed in Sweden. Both Volvo and Geely are expected to produce
small cars at the plant based on that Compact Modular Architecture (CMA) platform - for both domestic and export markets. Volvo began exporting its Chinamade cars last year, shipping its S60 Inscription to the United States. The automaker is also expected to unveil two stretched variants of its recently launched large S90 premium sedan, including the S90 Excellence, which has removed the front passenger seat to allow for what it calls the Lounge Console “designed to meet chauffeur-driven executive customers’ need to relax or work while on the move”. Volvo will build both S90 variants at its assembly plant in Daqing in north-eastern China, for sale in China and abroad. The Taizhou plant will be Volvo’s third assembly site in China, along with Daqing and one in Chengdu in western China. The carmaker also has two plants in Europe, and is building a new plant in South Carolina in the United States.
Rising sales
Geely raised auto industry eyebrows when it bought Volvo from Ford for US$1.8 billion six years ago. Few saw any obvious synergies in marrying a premium Western marque with a Chinese entry brand. But the two appear to be making it work. Cooperating on buying parts,
developing technologies and boosting capacity, sales of both brands have risen. Volvo increased its third-quarter sales in both China and the United States by more than a fifth, and JulySeptember operating profit jumped 62 per cent to 2.07 billion Swedish crowns (US$232.5 million). Geely sold more than half a million cars last year, up 22 per cent, and sales in the first nine months of this year were already at nearly 460,000 cars.
Key Points Volvo to make stretched S90 sedans in China Volvo to produce small cars at new Taizhou plant Taizhou plant to also make small cars for Geely’s Lynk “Moving production from Sweden to China, and sharing manufacturing processes and components has been a positive for both Geely and Volvo from a cost savings perspective,” said James Chao, Asia-Pacific chief for consulting and research firm IHS Markit Automotive. “It makes sense especially as they upgrade the Geely product line-up with the new Lynk brand, as well as through tangible product improvements, which should help protect the Volvo brand from association with a lower cost brand.” Geely said this month it will use the jointly developed compact car CMA platform for a new brand called Lynk & Co, which will begin production
next year for the Chinese market and start exporting to Europe and the United States in 2018.
‘B’ grade
Chao at IHS said that despite the signs of progress in the partnership, the process of integrating Volvo has been slower than he expected. “So far, I’d grade it a ‘B’,” he said. Geely insiders acknowledge that Volvo wants to keep some distance between the two brands, fearing that too close a manufacturing tieup could risk diluting its premium image. And, the insiders note, there is still some disconnect as to just how premium Volvo’s premium cars should be for the Chinese market, with Geely Chairman Li Shufu said to want a more upscale model to compete with BMW, Audi, Mercedes-Benz. “It’s a cultural issue,” said one of the insiders. “Volvo is rooted in Swedish egalitarian society. To Swedish people, Volvo is just a car; better quality, safe, but not a luxury car. It’s very different from Chinese culture.” A Volvo spokesman said there is no disagreement on the need for a large premium sedan for Volvo, adding the stretched S90 is the kind of upscale car Li has wanted from Volvo. “The S90 large sedan is an area we need to move into in order to be credible in the premium sector,” the spokesman said. “There’s no such thing as a premium car maker without a successful premium sedan. The long wheel-base is a way of providing a variant better suited for a market such as China.” Reuters
Business Daily Thursday, November 3 2016 11
Asia South Korea
Park names new Prime Minister, finance minister amid scandal But opposition parties denounced the reshuffle as a bid by the President to divert attention from the political crisis, which has dragged her approval rating to an all-time low Christine Kim
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outh Korea’s presidential office yesterday named a new prime minister and finance minister, the highest-level shake-up since President Park Geun-hye’s administration was rocked by a scandal involving a friend accused of meddling in state affairs. The Blue House named Financial Services Commission Chairman Yim Jong-yong as finance minister and deputy prime minister. Yim, who replaces incumbent minister Yoo Il-ho, has been well-regarded by policy-makers and market participants in his current role. Kim Byong-joon, a senior presidential secretary during former president Roh Moo-hyun’s administration, is expected to replace Hwang Kyo-ahn as prime minister. The prime minister’s role in South Korea is largely administrative and requires parliamentary approval. Kim initially scheduled a news conference but later called it off, saying he would speak further today. “This situation is moving pretty quickly and I will voice my thoughts tomorrow after having listened to those around me,” Kim told reporters, declining to comment further. Appointing Kim, who has a
reputation as a liberal, appears to be a bid by the conservative Park to placate the opposition and soothe public anger over the scandal involving Park’s friend, Choi Soon-sil, who is in custody and under investigation by prosecutors. But the shake-up, which included a new minister of public safety and security, did little to please the opposition. “This replacement of the prime minister and finance minister can’t be happening without discussing it with the opposition,” Park Jie-won, leader of the opposition People’s Party, told a party meeting. “We won’t stand by such a move to turn around the current situation with the personnel change,” said Park, adding that his party would boycott nomination hearings. Neither incumbent Yoo or Hwang have been implicated in the scandal, although Yoo had been under pressure from opposition lawmakers over his close relationship with Park. “The Blue House named Kim as the right person to lead the cabinet for the country’s future and to overcome current hardships,” presidential spokesman Jung Youn-kuk said.
Resignation calls
A growing number of opposition politicians, as well as many members
of the public have called on Park to step down, although the opposition has not called for impeachment proceedings. Despite numerous scandals over the years, no South Korean president has ever resigned or been successfully impeached. If Park, 64, were to step down before the end of her five-year term, an election would be held in 60 days, with the winner serving five years, making for a high-stakes race for which neither of the main parties has prepared. Park apologised on television last week for giving Choi access to draft speeches during the first months of her presidency, but that did little to
deflect demands that Park reveal the full nature of her ties with Choi and whether she enjoyed favours because of her friendship with the president. Choi, 60, arrived at the prosecutors’ office yesterday morning in handcuffs for a third day of questioning. Prosecutors asked a court for a warrant to arrest Choi after charging her with abuse of power and attempted fraud, a court official said. Prosecutors have said they are looking into allegations Choi forced conglomerates to donate funds to non-profit foundations using her friendship with the president and whether she benefited financially through the foundations. Choi told South Korea’s Segye Ilbo newspaper last week that she received drafts of Park’s speeches after Park’s election victory but denied she had access to other official material, influenced state affairs or benefited financially. Reuters
Kim Byong-joon (pictured) is expected to replace Hwang Kyo-ahn as prime minister
Currency
Philippine minister say peso slide ‘not all bad’ The finance secretary also said the government expects to raise government spending over the next six years to boost economic growth Manolo Serapio Jr and Neil Jerome Morales
The recent slide in the Philippine peso to seven-year lows is “not necessarily a bad thing” because it boosts exports and remittances from Filipinos working overseas, Finance Secretary Carlos Dominguez said yesterday. The peso touched 48.615 to the dollar in early October, its weakest since September 2009, and was trading near that level yesterday. Dominguez said the peso’s weakness was in line with losses in other currencies ahead of a potential hike in U.S. interest rates next month. “People are buying dollars in order to be able to position themselves if and when the Fed increases interest rates in the U.S.,” Dominguez told a media briefing shown on television. But he said the peso’s slide is “not all bad” as it increases the amount of pesos received when foreign currencies sent home by Filipino workers overseas are converted. Remittances are a pillar of the
Philippine economy as they spur domestic spending, including on property purchases. Also, Dominguez said, exported agricultural products “will certainly benefit. So a slide in the peso is not necessarily a bad thing.”
“We need to rapidly build new roads, railways, ports to decongest our cities and reduce the logistics cost for the most basic goods of our people,” he said. In the second quarter, the Philippine economy had annual growth of 7 per cent, one of the world’s fastest rates. Third-quarter growth data will be released on Nov. 17. The government plans to boost infrastructure spending next year to the equivalent of 6 per cent of gross
domestic product, from this year’s target of 5 per cent. Dominguez said the government will review in May 2017 the list of areas that foreign players cannot invest in currently. President Rodrigo Duterte “wants to open all areas of economy to foreign investment with the exception of land which is a very cultural and touchy issue,” the finance secretary said. Th e r est ri cti o n s o n f o r ei g n ownership have kept foreign direct investment in the Philippines small compared with its regional peers. Reuters
Key Points Says people buying dollars ahead of potential Fed hike Govt to boost spending over next six years Eyes review of foreign ownership rules in May
12 Business Daily Thursday, November 3 2016
Asia Job market
New Zealand employment surges While 35,000 new jobs were created in the third quarter, the labour force expanded by an equally sharp 33,000 as new migrants flooded the South Pacific nation Charlotte Greenfield
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ew Zealand’s jobless rate dropped to near eightyear lows last quarter as employment blew past all expectations, yet stubbornly low wage growth meant the broadly strong numbers were still no bar to another cut in interest rates. In a report paved with milestones, annual jobs growth reached a stunning 6.1 percent, easily the fastest pace on record, while the participation rate hit a peak not seen in at least 25 years at 70.1 percent. The unemployment rate fell 0.1 percentage points to 4.9 percent in the third quarter as employment jumped 1.4 percent, almost triple market forecasts, the report from Statistics New Zealand showed on Wednesday. “It just shows jobs are being created left, right and centre in the New Zealand economy and that’s indicative
of an economy that’s growing very rapidly,” said Stephen Toplis, head economist at BNZ. The economy grew 3.7 percent in the year to June, handily outpacing much of the rich world. Yet while 35,000 new jobs were created in the third quarter, the labour force expanded by an equally sharp 33,000 as new migrants flooded the South Pacific nation. With supply rising to meet demand, wage growth has remained remarkably restrained. Wages were up a scrooge-like 0.4 percent from the previous quarter, and just 1.6 percent from a year ago. That in turn is keeping inflation far lower than preferred by the Reserve Bank of New Zealand, which economists expect will still cut interest rates at a policy meeting next week. Inflation is currently running at only 0.2 percent, well below the RBNZ’s target band of 1 to 3 percent. “While the labour market clearly
continued to strengthen heading into the second half of the year, this is not yet having an impact on nominal wages,” said Anne Boniface, Westpac senior economist, in a research note. The sheer strength of employment, however, could mean the central bank is almost done easing and will
be able to hold steady next year. “There are no indications in the labour market results that reinforce the need for further OCR cuts beyond next week,” said Nick Tuffley, chief economist at ASB, in a research note, referring to the official cash rate of 2 percent. Reuters
Green energy
Indonesia, Vietnam look to blaze trail for solar in Southeast Asia Thailand has so far been the frontrunner in developing solar power in the region Florence Tan and Wilda Asmarini
Indonesia and Vietnam are looking to join Thailand in blazing a trail for solar power in Southeast Asia, introducing targets to fire up green energy generation as a landmark global agreement to curb pollution is set to take effect. Countries around the world are coming under increasing pressure to crack down on carbon emissions from sectors such as coal-fired power stations, with the historic Paris climate accord coming into force this Friday after it was signed last year. Indonesia and Vietnam aim to each have annual solar power capacity of at least 5 gigawatts (GW) from 2020, up from close to nothing now, officials from both governments told Reuters. That level of output would have placed the countries among the top
15 solar producers in the world in 2015 data from the International Renewable Energy Agency (IRENA), and would account for close to 9 per cent of expected power generation in Indonesia and Vietnam at the turn of the next decade. The regional push towards solar will add momentum to global growth in the technology and could benefit companies such as Canada’s CMX Renewable Energy Inc, as well as South Korea’s Shinsung Solar Energy and Hanwha Q Cells Korea Corp. “It will come very quickly as it takes a short time for construction,” Hoang Quoc Vuong, Vietnam’s Vice Minister of Industry and Trade, said on the side-lines of an industry conference last week. However, with initial costs traditionally seen as a big deterrent to solar projects, both Indonesia and Vietnam will be offering opportunities
for subsidies via so-called feed-in tariffs (FIT), allowing producers to lock in sales of renewable energy at fixed prices for a few years. “If we promote solar, there has to be subsidy,” said the Vietnam official. “Feed-in tariffs have been issued so that the (5 GW) target can be achieved,” said Maritje Hutapea, director of various kinds of energy at the Renewable Energy Directorate General under Indonesia’s Energy Ministry. France’s Engie is in talks with state power company PLN for two solar projects of 200 MW.
Feeling the heat
Thailand has so far been the frontrunner in developing solar power in Southeast Asia, with a government official saying its installed capacity reached about 2 GW in August, beating its target of 1.7 GW for this year. “We have already exceeded our target for this year, especially in solar and waste power, given attractive
FIT rates,” Viraphol Jirapraditkul, director of the Energy Regulatory Commission told Reuters. “We have discussed about the possibility of raising the target for renewables and the energy ministry’s planning office will need to propose the numbers.” Elsewhere in the region, Malaysia plans to add 1 GW of solar power capacity by 2020, or 250 MW per year, said Energy, Green Technology and Water Minister Maximus Ongkili, up from 267 MW currently. And the Philippines has met a previous target of 500 MW for solar, but no fresh target has been set as the country’s new government is still reviewing its energy mix.
Key Points Both nations aiming to boost solar energy output Thailand could also consider raising its targets Paris climate accord takes effect on Friday Nations around world under pressure to slash carbon emissions But some analysts cautioned that Indonesia and Vietnam’s solar targets were ambitious and could be difficult to achieve. “It’s a good move in the right direction but the targets are optimistic,” said Paul van der Aa, an advisor at PT. PricewaterhouseCoopers Consulting Indonesia. “It remains to be seen if they can be achieved in the short term.” And despite the growth of solar power in the region, coal is likely to remain a major source of energy as fast-growing demand means that Southeast Asia needs to double its power generation capacity in the next decade, government and industry officials said. Reuters
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Business Daily Thursday, November 3 2016 13
Asia Co-operation
In Brief
Japan nudges wary firms to invest in Russia Russia’s Ministry for Development of the Russian Far East said last week that attracting Japanese business was a priority Takashi Umekawa and Linda Sieg
Japan’s government is lobbying its firms to invest in Russian projects to help secure a breakthrough in a festering territorial row with Moscow when President Vladimir Putin visits Japan in December, sources told Reuters. The dispute over four islands north of Japan’s Hokkaido, called the Northern Territories in Japan and the Southern Kuriles in Russia, has kept Tokyo and Moscow from signing a peace treaty formally ending their conflict in World War Two. Japan’s Prime Minister Shinzo Abe is betting his close ties with Putin and the lure of investment from Japanese companies could set the stage for progress in the dispute when the pair meet in Abe’s home constituency on Dec. 15. “Basically, economic cooperation is led by the private sector, and the government is now recruiting companies,” said one Japanese government source. But Japanese corporate concerns about an unpredictable investment environment in Russia and tough calculations of risk and return could deter private-sector deals. “If it is not profitable, even under pressure, they wouldn’t say yes,” said a former official at Japan’s trade and industry ministry. “They like to please the prime minister, but they have to please their investors even more.”
Building a gas pipeline linking Russia and Japan is a long-standing idea
Abe has handed trade minister Hiroshige Seko a new portfolio for economic cooperation with Russia. Seko, who has said he wants to produce results by the end of November, leaves on Wednesday for Moscow. Japan in May proposed eight s ect o rs - m a n y o v e rs e e n b y S e k o ’ s m i n i st r y - i n c l u d i n g medical technology and energy, for cooperation.
Key Points Moscow, Tokyo dispute four islands north of Hokkaido President Putin visiting PM Abe on Dec. 15 Abe hopes investment in Russia could help dispute Japan firms wary of investment environment in Russia Russia in turn has presented a list of dozens of projects from port development and energy to farming and fisheries - and even a “cosmodrome” space port in the Russian Far East, Japanese government sources said. The two sides are trying to agree on “priority projects” within each of the eight sectors, perhaps while Seko is in Moscow, another Japanese government source said.
Russia’s Ministry for Development of the Russian Far East said last week that attracting Japanese business was a priority, and deputy minister Alexander Osipov said “we plan to reach concrete results” by the December meeting. The ministry said Japan was mulling investing over US$16 billion in joint ventures in the Russian Far East and Siberia. “The PM’s office is saying the more they can announce on Dec. 15, the better, but we can’t announce what hasn’t been decided,” the first Japanese government source said.
Two sides of a coin
One project that could see progress by then is an extension of Sakhalin-2, Russia’s only operating liquefied natural gas (LNG) project, a third Japanese government source said. Partners Gazprom, Royal Dutch Shell and Japan’s Mitsui & Co and Mitsubishi Corp have already agreed a marketing strategy for the planned third train. A Mitsui spokeswoman said business was proceeding as usual, while a Mitsubishi spokesman said talks on an investment decision were continuing. Another possibility is for Japan Oil, Gas and Metals National Corp (JOGMEC) to invest in Russian oil producer Rosneft, subject to legal changes to let the state-run agency do so. Mitsui and the Japan Bank for International Cooperation (JBIC) - which could play a role in other projects - have exchanged notes on taking up to 4.88 per cent of Russian state-run power company RusHydro. JBIC has agreed to help finance Russia’s Yamal project, where Novatek and partners are building the country’s second gas liquefaction plant, and is ready to support Novatek’s second LNG project, Artic LNG-2, Novatek’s CEO, Leonid Mikhelson, said in September. Mitsui is also in talks to invest in Moscow drugmaker R-Pharm, a Japanese government source said. Mitsui declined to comment. Building a gas pipeline linking Russia and Japan is a long-standing idea, but that could prove a hard sell to Japanese gas and electric utilities that have invested heavily in LNG import terminals. Japanese firms have long complained about the business environment in Russia. Among their concerns are an opaque and changeable legal system, burdensome bureaucracy and corruption, according to surveys by Japanese business lobby Keidanren. In 2006, Shell, facing accusations of ecological violations, ceded control of the Sakhalin-2 project to statemonopoly Gazprom after months of political pressure. Mitsui and Mitsubishi also had to reduce their minority stakes. “Yes, companies have concerns about unpredictability. If some sort of treaty is agreed and they have a package deal which improves the business environment, they may be more comfortable,” the former trade and industry official said. Japanese companies, including lenders, are also wary of running foul of Western sanctions imposed on Russia after it annexed Crimea from Ukraine in 2014. “You can make a list of cooperation (projects), but to realise it, the global environment needs to be more favourable,” the former official said, referring to the sanctions. Progress on the economic side also hinges on making headway on the islands row. “The territorial issue and economic cooperation are two sides of a coin,” the first government official said. “It’s meaningless if only economic cooperation moves ahead.” Reuters
GDP poll
Indonesia growth seen slowing Indonesia’s economic growth is expected to have cooled in the third quarter due to slow private investment and a cut in government spending, indicating that Southeast Asia’s largest economy is struggling to mount a strong rebound. The median forecast of 12 analysts in a Reuters poll was for gross domestic product growth of 5.04 per cent in July-September year-onyear, below the 5.18 per cent reported for the previous quarter. Indonesia’s central bank has slashed its benchmark policy rate six times this year, by a total of 150 basis points, in an effort to lift growth. Sri Lanka
C.bank chief expects stable rupee after port sale The Sri Lankan central bank governor said on Tuesday he expected the rupee to stabilise when the US$1 billion sale of a stake in the southern port of Hambantota to a Chinese investor was completed in four to five months. Central Bank Governor Indrajit Coomaraswamy said that proceeds of the sale would be converted into rupees, which would help ease downward pressure on the currency since mid-September due to seasonal importer demand for U.S. dollars. The sale of an 80-per cent stake in the port to a Chinese company was announced last week by Finance Minister Ravi Karunanayake. Corruption fight
Myanmar accepting complaints on bribery The Ministry of the State Counselor’s Office of Myanmar announced yesterday the acceptance of people’s complaint on cases of bribery and corruption for the country’s rapid economic development. Every individual has the right to make complaint addressed to the deputy minister of the ministry as required or by registered letter or email, the announcement said. However, the announcement urged not to complain of cases sued in courts, cases under trial and against those who have already been convicted by courts of justice. Mine sale
Aussie Minister meets with S. Korean businessman Australia’s Industry Minister has travelled to South Korea in an attempt to negotiate the sale of one of Australia’s biggest mining companies to South Korea’s largest steel manufacturer. Greg Hunt, Australia’s Minister for Industry, Innovation and Science, said yesterday from Pohang he would meet with executives from South Korean firm, Posco, as he tries to find a buyer for Arrium, an Australian mining and materials company. Posco is the only company to have publicly indicated an interest in acquiring Arrium which went into administration in April with debts of up to US$3 billion.
14 Business Daily Thursday, November 3 2016
International In Brief Nigeria
Senate rejects plan to borrow US$30 billion from abroad Nigeria’s Senate dealt President Muhammadu Buhari an unexpected blow by rejecting his plan to borrow US$30 billion abroad for infrastructure projects and budget support until 2018. The decision makes it more difficult for Buhari to build new roads and invest in out of date power grids with a view to boosting agriculture and other non-oil industries, and reducing the economy’s dependence on dwindling crude revenues. Senators threw out the plan, introduced last week, without a debate. Just minutes after the vote, the finance ministry sent a statement again justifying the borrowing plan. Growth support
Canada to spend billions on infrastructure Canada will boost spending on infrastructure projects by an extra C$81 billion (US$60.49 billion) over the next 12 years in a bid to revitalize a limping economy, Finance Minister Bill Morneau said. The Liberal government, trying to deal with a prolonged oil slump that has slashed revenues, is committed to pouring a total of C$187 billion into infrastructure between now and 2027-28. In March, it had promised to spend C$120 billion over the next decade. Ottawa will also set up an infrastructure bank and give it access to C$35 billion.
Key data
U.S. manufacturing sector expanding The data came as Federal Reserve officials gathered for a two-day meeting to deliberate on monetary policy
U
.S. factory activity increased for a second straight month in October amid a pickup in production and hiring, supporting views that the embattled manufacturing sector would regain some momentum in the fourth quarter. The Institute for Supply Management (ISM) on Tuesday said its index of national factory activity rose 0.4 percentage point to a reading of 51.9 per cent last month. A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 per cent of the U.S. economy. Manufacturing has suffered a prolonged slump in the aftermath of the dollar’s surge between June 2014 and December 2015, which has constrained exports. Activity has also been hurt by the collapse in oil drilling after oil prices plunged. The ISM production sub-index gained 1.8 percentage points to 54.6. But a gauge of new orders slipped to a reading of 52.1 from 55.1 in September, suggesting any future gains in manufacturing activity
would be modest. A measure of factory employment jumped 3.2 percentage points to a reading of 52.9. Another report from data firm Markit also suggested an improvement in factory conditions in October. U.S. financial markets were little moved by the data amid jitters over the outcome of the acrimonious election.
Mild gains
Weak manufacturing has contributed to business spending on equipment declining for four straight quarters. While there are signs that a turnaround may be imminent, any improvement in the factory sector will likely be mild. Heavy machinery maker Caterpillar last week reported a 49 per cent drop in third-quarter profit from a year ago and lowered its full-year revenue outlook for the second time this year. Caterpillar said demand for new heavy machinery had been undercut by an “abundance” of used construction equipment, a “substantial” number of idle locomotives and a “significant” number of idle mining trucks.
New legislation
Cuba wants to speed up foreign investment Communist-run Cuba said it was working on speeding up the slow pace of negotiations with foreign investors to help it come closer to meeting its target of US$2 billion in investment annually to update the economy. The island has approved just US$1.3 billion worth of projects since a law to bolster foreign investment was approved more than two years ago, Foreign Commerce Minister Rodrigo Malmierca said at the country’s annual trade fair. “We are below our expectations and above all, below what we need,” Malmierca said in a presentation of this year’s readymade business opportunities, officially called the portfolio.
Key Points Factory activity expands in October, but orders slow Manufacturing employment, production pick up Construction spending falls 0.4 per cent in September Manufacturers in the primary metals sector said they expected a “considerable” slowdown in October and November, noting that production was down 20 per cent. Machinery manufacturers reported that business was up “significantly” because of a hurricane and other storms. In a third report on Tuesday, the Commerce Department said construction spending slipped 0.4 per cent in September as outlays on non-residential structures recorded their biggest drop since December 2015. There were also declines in spending on public construction projects, which fell to its lowest level since March 2014. Outlays on state and local government construction projects dropped for a third straight month. Reuters
Repatriating wealth
Brazil mulls second asset amnesty program A total of 25,011 individual taxpayers and 103 companies declared the equivalent of 169.9 billion reais in undeclared assets abroad
GDP
Silvio Cascione and Maria Carolina Marcello
The British gross domestic product (GDP) is forecast to grow 2 per cent this year, and a slower 1.4 per cent next year, according to a forecast published yesterday by the National Institute for Economic and Social Research (NIESR). NIESR revised its 2016 growth expectation upwards since its last forecast in August, supported by stronger third quarter official growth figures than it had anticipated. NIESR forecast the Bank of England interest rate, which was cut 25 basis points to 0.25 per cent in August in response to uncertainty around Brexit affecting the economy, to remain at 0.25 per cent until the third quarter of 2019.
The head of Brazil’s Senate called on Tuesday for a second amnesty program for undeclared assets abroad after a window ending on Oct. 31 drew less than his expectations. Senate President Renan Calheiros told journalists he would present a bill next week to open the window in 2017 to secure more public funds as ordinary tax revenue plummets in a severe recession. “I proposed to President Michel Temer that we reopen the amnesty program next year ... so that we can have at least as much revenue in 2017,” Calheiros said. He said the program could have attracted 100 billion reais (US$30.91 billion) if it were not for legal uncertainty created by the lower house of Congress last month. Soon after Calheiros’ comment, Temer told reporters he favoured opening a new program. “If it’s possible to do it soon, let it be this year,”
British economy forecast to grow 2 per cent in 2016
Though the dollar’s rally appears to have largely faded, the greenback has so far this year gained 0.7 per cent against the currencies of the United States’ main trading partners. “It still seems somewhat premature to get comfortable with the outlook for the sector, given a strong dollar and weak global growth,” said Kevin Cummins, senior economist at RBS in Stamford, Connecticut. Last month, 10 manufacturing industries, including non-metallic mineral products, furniture, and computer and electronic products reported growth. The eight industries reporting contraction in October included wood products, apparel, primary metals and electrical equipment, and appliances and components.
he said before entering a dinner for Portugal’s prime minister, Antonio Costa, in Brasilia. The government will collect 50.9 billion reais (US$15.83 billion) in taxes and fines under the program this year, the federal tax agency said on Tuesday.
‘The government will collect US$15.83 billion in taxes and fines under the program this year’ The extraordinary revenues surpassed 50 billion reais, as Finance Minister Henrique Meirelles had forecast, but fell short of more ambitious targets floated by lawmakers. Senator Romero Juca, president of the ruling Brazilian Democratic
Movement Party, estimated that a second amnesty window could raise 30 billion reais more for public coffers, adding that the Senate could approve another program this year. “We need to improve the bill, maybe raise the tax rate a little so we don’t reward those who waited,” he told reporters. The central bank said separately on Monday that Brazilian investors repatriated US$10 billion under the amnesty program that expired last month. Investors were required to pay taxes and a fine to apply for the amnesty, but could opt to maintain their funds abroad. Tax agency chief Jorge Rachid said the program was a success. A total of 25,011 individual taxpayers and 103 companies declared the equivalent of 169.9 billion reais in undeclared assets abroad. The government has been counting on that money to meet its 2016 budget target and prevent a record budget gap from growing even faster as a long-running recession hurts tax revenues. Brazil accumulated a primary deficit of 188.3 billion reais in the twelve months through September, well above the official 2016 target of 163.9 billion reais. Reuters
Business Daily Thursday, November 3 2016 15
Opinion Business Wires
Bangkok Post Boosted by rising exports for a second straight month in September, the Thai National Shippers’ Council (TNSC) has raised its forecast to between zero growth and a 0.8 per cent contraction this year from its earlier-projected 2 per cent contraction. It also predicted exports will grow 0-1 per cent next year. Nopporn Thepsithar, president of the TNSC, said the export prospects for the remaining three months are promising given yearend festival purchases. Mr Nopporn said if the remaining three months of the year fetch an average of US$17.4 billion a month, exports will see a contraction of 0.8 per cent.
Straits Times The information and communications technology (ICT) sector (in Singapore) is still facing an acute skills shortage despite a recent slew of initiatives to boost talent in the industry. A study by the Singapore Management University, in partnership with JP Morgan, has found that demand for ICT workers is expected to keep rising and the labour market is struggling to keep up. The report outlined skills challenges facing Singapore, Malaysia, Indonesia, the Philippines and Thailand. It found that Singapore’s ICT sector which employs about 150,000 workers - faces an especially pressing skills shortage.
Jakarta Post The (Indonesian) Manpower Ministry gave the public reassurance yesterday that all provinces in the country would increase minimum wages to the levels set by the government for next year. “As regulated, the UMP [provincial minimum wage] increase will not exceed 8.25 per cent. Some provinces have reported their new minimum wage level for 2017 to us and we’re still waiting for word from others,” the ministry’s director for wage payments, Andriani, told The Jakarta Post. The ministry previously said that the minimum wage increase for 2017 must be pegged at 8.25 per cent.
Philstar Government debt payments nearly doubled in August from a year ago, removing maturing liabilities from its records through higher principal payments, latest data from the Bureau of the Treasury showed. Debt payments amounted to P46.76 billion, up 89.8 per cent from P24.64 billion in the same period last year. Broken down, principal settlements more than doubled to P23.32 billion, allowing old debts to be scratched off the government’s balance sheet for good. Interest payments, meanwhile, went up a slower 42.4 per cent to P23.44 billion, figures showed.
Central banks and the revenge of politics
T
he reputation of central banks has always had its ups and downs. For years, central banks’ prestige has been almost unprecedentedly high. But a correction now seems inevitable, with central-bank independence becoming a key casualty. Central banks’ reputation reached a peak before and at the turn of the century, thanks to the socalled Great Moderation. Low and stable inflation, sustained growth, and high employment led many to view central banks as a kind of master of the universe, able – and expected – to manage the economy for the benefit of all. The depiction of US Federal Reserve Chair Alan Greenspan as “Maestro” exemplified this perception. The 2008 global financial crisis initially bolstered central banks’ reputation further. With resolute action, monetary authorities made a major contribution to preventing a repeat of the Great Depression. They were, yet again, lauded as saviours of the world economy. But central banks’ successes fuelled excessively high expectations, which encouraged most policymakers to leave their monetary counterparts largely responsible for macroeconomic management. Such “expectational” and, in turn, “operational” overburdening has exposed monetary policy’s true limitations. In other words, central banks’ good reputation now seems to be backfiring. And “personality overburdening” – when trust in the success of monetary policy is concentrated on the person at the helm of the institution – means that individual leaders’ reputations are likely to suffer as well. Yet central banks cannot simply abandon their new operational burdens, particularly with regard to financial stability, which, as the 2008 crisis starkly demonstrated, cannot be maintained by price stability alone. On the contrary, a period of low and stable interest rates may even foster financial fragility, leading to a “Minsky moment,” when asset values suddenly collapse, bringing down the whole system. The limits of inflation targeting are now clear, and the strategy should be discarded. Central banks now have to reconcile the need to maintain price stability with the responsibility – regardless of whether it is legally mandated – to reduce financial vulnerability. This will not be easy, not least because of another new operational burden that has been placed on many central banks: macro-prudential and micro-prudential supervision. Micro-prudential supervision, in particular, implies the risk of political pressure, interference with central banks’ independence, and policy conflicts, all of which could influence the behaviour of financial intermediaries, by encouraging them to assume greater risk. They know that their supervisor has powerful tools at its disposal – for example, it can lower borrowing costs, thereby protecting banks (at least for a while) – and a strong interest in protecting its reputation. But, given the overburdening of central banks, reputational defence may be beyond their capacity. While this is a global phenomenon, the European
“
Otmar Issing former Chief Economist and Member of the Board of the European Central Bank, is President of the Centre for Financial Studies at Goethe University, Frankfurt
Central Bank is exceptionally weighed down. As the central bank of the 19 member states of the European Monetary Union (EMU), the ECB also faces “extra-institutional overburdening.” This became apparent in May 2010, when the ECB assumed the responsibility of purchasing the government bonds of countries that otherwise would have experienced substantial increases in long-term interest rates. That intervention was a lose-lose proposition for the ECB. It was essentially driven by politics: the ECB was picking up the slack for policymakers who were unwilling to fulfil their obligations. But if the ECB had refused to intervene, financial markets could have faced substantial turmoil, for which, rightly or wrongly, it would have been blamed. From that moment on, however, the ECB took on the political role of guaranteeing not only the survival of the euro, but also the continued inclusion of every EMU member country. In 2012, ECB President Mario Draghi (pictured) cemented this responsibility, pledging to do “whatever it takes” to preserve the euro. “And believe me,” he asserted, “it will be enough.” This stance led many to accuse the ECB of exceeding its mandate and violating European treaties. But the European Court of Justice and the German Constitutional Court have, all in all, rejected that view. Nonetheless, further litigation regarding the ECB’s unconventional monetary-policy measures is underway. Against this background, it is perhaps unsurprising that central-bank independence – de jure or de facto – is once again up for debate. The purpose of central-bank independence has always been to enable monetary policy to focus on maintaining price stability, without being subject to political pressure. While this approach has always been controversial, given that it implies handing substantial control over the economy to unelected technocrats, past inflationary episodes have fostered broad acceptance of central-bank independence. When central-bank mandates exceed price stability, however, their independence may seem increasingly out of place in a democratic society. This is particularly true for the ECB: the stronger the perceived link between the extension of the ECB’s mandate and politics becomes, the more criticism its independent status will confront. The failure of elected politicians to act appropriately – particularly in some eurozone countries – has turned central banks into the “only game in town.” And this is turning out to be less a boon to their prestige than a threat to their independence. The ECB, especially, is set to face growing pushback against its independent status, regardless of whether it manages to “save” the EMU. After all, it would have to be quite powerful to succeed – too powerful for any democracy to abide. Project Syndicate
The failure of elected politicians to act appropriately – particularly in some eurozone countries – has turned central banks into the ‘only game in town.
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16 Business Daily Thursday, November 3 2016
Closing Cybersecurity
Guangdong uncovers dozens of online fraud gangs
estimated to have swindled people out of over two billion yuan (about US$300 million). Guangdong Police announced that they The five-month investigation included had disbanded 60 online-fraud syndicates the discovery of two major fraud gangs, in the last five months. according to police. In what has been described as an “intense crackdown” on online fraud in over 21 cities From January to September, Guangdong and counties in Guangdong, police say they police handled 680 cases related to illegal have apprehended more than 480 suspects. fund-raising and pyramid schemes online, up 24 per cent year on year. More than The fraudsters invented new schemes 1,370 people have been apprehended in the to capitalize on the wide-use of virtual period, up 71.3 per cent year on year, it said. money, often requesting money in the guise of “charity work.” The schemes were Xinhua
Zhuhai Airshow
Boeing, Airbus trade barbs as China competition heats up Chinese authorities have urged domestic companies to acquire technology and skills in a range of high-value sectors including aerospace in the “Made in China 2025” plan Benjamin Carlson
A
erospace giants Boeing and Airbus took pot-shots at one another at the Zhuhai air show, as the US and European rivals seek to capture more of China’s booming aircraft market. China is one of the Western manufacturers’ key battlegrounds, with its travellers taking to the skies in ever-growing numbers. The country’s airlines will need nearly 6,000 new planes worth US$945 billion over the next two decades, Airbus said in its 2016-2035 Global Market Forecast. Boeing’s expectations are even more optimistic, for 6,800 aircraft costing US$1 trillion. To win favour locally both have built partnerships with Chinese firms. Airbus has a completion and delivery centre in Tianjin, where workers install furnishings and apply paint to aircraft for the domestic market. It also buys parts such as exit doors, brake blades and wing sections from Chinese suppliers. Boeing is planning to open a facility with the state-owned Commercial Aircraft Corp. of China (COMAC) to paint and install cabins for 737-model planes, the Chinese firm said. Eric Chen, president of Airbus China, dismissed the Seattle firm’s plan as “close to one generation” behind
his own firm, saying it was following Airbus’s strategy “with a lot of reluctance”. “I got two impressions,” he said at a briefing at the China Airshow in Zhuhai, the industry’s biggest event in the country. “First one, the decision we made 10 years ago was right. The second impression is that we are well in advance of our competitor.” Darren Hulst, managing director for Northeast Asia marketing at Boeing, earlier told reporters that the Airbus A350 fell short of the 787 wide-body plane in range, capacity, carbon emissions, window size and aerodynamics. He added the company had 14 China deliveries of 787-9s in 2016 and had secured orders and commitments for 46 more.
Future rivals
While the two megafirms see a sunny future in China, home-grown competitors backed by Beijing aim to
SCO meeting
beat them at home - and ultimately abroad. Chinese authorities have urged companies to acquire technology and skills in a range of high-value sectors including aerospace in the “Made in China 2025” plan. At the same time as it is working with both Boeing and Airbus, COMAC is developing single-aisle jets to compete with them. Its C919 narrow-body is going up against the Boeing 737 and Airbus A320 in the 160-seat segment, which the Chinese company predicts will have more than 17,000 deliveries over the next 20 years. In Zhuhai COMAC announced that state-owned China Eastern Airlines had committed to buy 20 C919s. In the summer COMAC’s regional jet, the 90-seat ARJ21, flew its first commercial flight after years of delays. Boeing, Airbus and Canadian regional builder Bombardier all played down the threat of Chinese competition. But the business climate has darkened for US and European firms in the country, with the American Chamber of Commerce in China reporting this year that more than three-quarters
Sovereign credibility
of survey respondents felt “less welcome” there. Pessimism among European companies hit an all-time high in the summer, according to a European Chamber of Commerce in China report on the “increasingly hostile” business climate. Chinese-built planes are sure to secure market share in the country, Eric Lin, Hong Kong-based director of Asia transport research with UBS Securities, told AFP. In the short term, he added, foreign firms have little to fear from Chinese rivals in the developed countries that are their home market. “But after 10 years, it’s hard to say,” he noted. China has a history of adapting foreign technology with remarkable swiftness, turning from a buyer of Russian military aircraft to a producer of advanced stealth jets in 20 years. Its high speed rail and clean energy industries went from collaborators to competitors faster than global rivals anticipated. Like all foreign firms with valuable intellectual property operating in China, the aerospace giants understand the risks of training their future rivals, said Christopher Balding, professor of economics at Peking University’s HSBC Business School. But they are stuck between a rock and a hard place, he added, because shareholders want them to fight for Chinese market share. “Even if they don’t come to China, there’s a good chance that if they are doing anything innovative it’s going to get stolen anyway, so the only thing they are doing is harming their revenue.” AFP
Presidential vote
Premier Li arrives S&P affirms India’s rating, in Kyrgyzstan on official tour rules out upgrade
Poll shows half Americans “alarmed” about election
Chinese Premier Li Keqiang arrived in Bishkek yesterday for an official visit to Kyrgyzstan and the 15th prime ministers’ meeting of the Shanghai Cooperation Organization (SCO). Li is expected to hold talks with his Kyrgyz counterpart, Sooronbay Jeenbekov, and meet Kyrgyz President Almazbek Atambayev to exchange views on bilateral ties and cooperation in economic, security, cultural and other areas. The two countries will issue a joint communiqué and sign a string of deals in such areas as economy and trade, production capacity, transportation, agriculture and intellectual property protection. At the SCO meeting, the Chinese premier will propose concrete initiatives to further deepen SCO cooperation in areas like finance, trade, science and innovation, added Li, the assistant minister. The SCO members are expected to announce 38 measures designed to boost cooperation in areas such as transport, science and technology, infrastructure and environmental protection. The SCO is a regional political, economic and security organization that groups China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan as full members. India and Pakistan in June started the process of their accession into the group. Xinhua
Over half of the respondents in a recent U.S. poll said they are “alarmed” with the on-going presidential election, with Americans deciding on Nov. 8 who to send to the White House. The poll by Suffolk University on Oct. 26 showed that 46 per cent of respondents hold a favourable attitude of Democratic nominee Hillary Clinton with 47 per cent unfavourable. For Clinton’s Republican rival Donald Trump, 61 per cent have an unfavourable attitude compared with 31 per cent favourable. Forty-nine per cent of respondents said they would vote for or lean toward Clinton, with thirty-nine per cent for Trump and another 10 per cent undecided on their vote. Fourty-three per cent of respondents, feel “scared” about the idea of Trump eventually winning the election, according to the poll. It also found that 58 per cent of the respondents think the divisions inside the U.S. are deeper than the past, and 54 per cent are worried that the country is headed in the wrong direction. Poll results from Fox, CNN and MSNBC provided people’s divided viewpoints on the two presidential candidates. In stark contrast to the Suffolk University poll, 83 per cent of Fox respondents said they would vote for Trump, while 77 per cent of CNN respondents and 94 per cent from MSNBC chose Clinton. Xinhua
Standard & Poor’s affirmed India’s sovereign ratings, welcoming the country’s policy stability and improved monetary credibility, but ruled out any upgrade for this year or in 2017 because of weak public finances and low per capita income. The stance comes despite a push for a ratings upgrade by government officials, who have argued the country has kept its fiscal deficit in check and passed a slew of major economic reforms including a revamp of the goods and services tax (GST). But S&P yesterday stuck to its rating of “BBBminus” with a “stable” outlook, saying it would need to see more efforts to lower the country’s net general government debt level to below 60 per cent of gross domestic product. “The stable outlook balances India’s sound external position and inclusive policymaking tradition against the vulnerabilities stemming from its low per capita income and weak public finances,” S&P said in a statement. S&P said its stance was based on its expectations that fiscal revenues would not rise enough to meaningfully reduce the country’s deficit over the medium term, while noting the government’s borrowing remained “high”. Reuters