Singles' Day companies show dark face e-Commerce Pages 9 & 10
Friday, November 11 2016 Year V Nr. 1171 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro
Yuan records six-year low after U.S. election Page 16
Demography
Macau’s population shrinks due to fewer non-resident workers Page 5
Ho Chio Meng
Hearing date set for top official graft case Page 3
Union Gaming
Mass gaming figures point to positive trend Page 7
Copyright
Intellectual property applications drop in the MSAR Page 4
Failed union
Legislative Assembly The latest session of the Legislative Assembly rejected the proposed Trade Union bill, but passed new measures against money laundering. The approval is an important legal step in the fight against corruption. Page 2
Local tech in Lisbon Web Summit A timid presence of MSAR startups at the Web Summit celebrated in Lisbon points to a limited sector and lack of public support, according to the local attendees. If diversification means something for the city, it could be found in next year’s edition. Page 6
Monetary policy
It is the talk of the town: what will happen when Mr. Trump becomes the president? Business Daily found that his hard-line monetary policy to stabilize the yuan could benefit the economy of the MSAR from an increase in Mainland Chinese tourism. Page 4
Shallow pockets
Local workers will get a small salary rise next year according to a report by global consultancy firm ECA International. Not so bad in global rankings, but in the Asia Pacific rankings, the expected real wage increases for local workers was rated as the fifth lowest.
Mainland Investors Chinese investors are considering ways to adapt their strategies in order to profit from the political changes in the U.S. Despite a fierce message against China’s economic measures cast by the newly elected president, investors see chances to revert negative feelings. Page 8 HK HSI November 10, 2016 22,839.11 +423.92 (+1.89%) Best Performers BOC Hong Kong Holdings
+4.15%
CITIC Ltd
+3.60%
AAC Technologies Hold-
+3.57%
Hang Lung Properties Ltd
+3.57%
HSBC Holdings PLC
+3.45%
Want Want China Hold-
+3.00%
Tencent Holdings Ltd
+2.87%
Wharf Holdings Ltd/The
+2.82%
Sino Land Co Ltd
+2.78%
CNOOC Ltd
+2.73%
Worst Performers Li & Fung Ltd
-0.82%
Kunlun Energy Co Ltd
-0.17%
Link REIT
+0.00%
China Merchants Port
+0.10%
Hong Kong & China Gas
+0.26%
China Mobile Ltd
+0.35%
CLP Holdings Ltd
+0.38%
Hengan International
+0.41%
MTR Corp Ltd
+0.59%
China Resources Power
+0.61%
22° 24° 24° 26° 24° 27° 23° 27° 24° 27° Today
Thu
Fri
I SSN 2226-8294
Workers wages Page 3
I SSN 2226-8294
Sat
Sun
Source: Bloomberg
Silver Lining
Strategy shift
Source: AccuWeather
Forex
www.macaubusinessdaily.com
2 Business Daily Friday, November 11 2016
Macau Hengqin Government to evaluate 50 more projects for Hengqin Industrial Park
Tell me more, tell me more
As 12 of the projects established on the Hengqin Industrial Park have already broken ground and have begun construction, a further 50 projects originally submitted but not recommended in the first round, will now be submitted for evaluation by the Administrative Committee of the Hengqin New Area, according to a press release from the Macau Trade and Investment Promotion Institute. A total of 33 projects were initially recommended by the MSAR government to the Administrative Committee in April of 2014, and 16 of those were approved, with
land areas assigned to the respective projects. These projects involve investments of over MOP80 billion and are primarily linked to a variety of sectors including: tourism and leisure, cultural and creative industries, technology, research and scientific, and commercial and logistical development. The release notes that the government will continue to recommend new projects to the committee that are beneficial to the MSAR’s economic diversification and the growth of the park. The new projects recommended include the same sectors as before, as well as the health and well-being sector. K.W.
Legislative
Impossible Unions The Trade Union bill has again been rejected by the Legislative Assembly Cecilia U cecilia.u@macaubusinessdaily.com
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he Legislative Assembly (AL) again rejected the first reading of the Trade Union bill, with 15 legislators voting against it. Legislator Fong Chi Keong commented that the law is unnecessary and would cause great disturbances to the local business environment if passed. “The bill itself is a total bully,” said Mr Fong. “Currently the city has the Labour Relations Act and it already serves all the needs between workers and employers […] if we pass this bill today there will be no enterprises willing to invest in the city.”
One term in the bill states that employers could be fined between MOP5,000 and MOP250,000 (US$626 to US$31297) if they failed to follow the Trade Union law. The Trade Union bill was proposed by three legislators to fill the gap in legal protections for workers’ rights. It is based on treaties devised by the International Labour Organisation (ILO) focusing on the freedom for workers to create or join organisations or unions without obtaining any approval from their employers. Veteran legislator Au Kam San, meanwhile, indicated his total support for the bill and stated that it should be passed as soon as possible. “One would say there are many associations and organisations formed
in the city, but currently there is no one law which allows these associations to enjoy the rights of a Trade Union,” explained Mr Au. He also remarked that bills proposed by legislators have a high degree of flexibility in terms of discussion and amendments, but due to the nature of the AL - which is dominated by legislators with business backgrounds – the Trade Union bill will continue to have a hard time becoming a law.
Money laundering and notary laws
On the other hand, the AL unanimously approved the first reading of the law revision on the prevention of money laundering. Revisions include expanding the definition of upstream crimes such as corruption, the trade of contraband and the exploitation of prostitution. As explained by Secretary for
Economy and Finance, Lionel Leong Vai Tac, the revision also expands the law to cover suspects who have attempted to launder money but were not successful. The amendments will also strengthen the review measures by gaming operators of clients or contractors. According to the MSAR government, these alterations come about as a “response to the deficiencies identified” during the evaluation conducted by the Asia-Pacific Group on Money Laundering in 2007, and in an effort to adopt the 40 recommendations made by the Financial Action Task Force in 2012. The AL, meanwhile, also passed the final reading of the notary law, requiring law practitioners to have a minimum of five year’s experience working in the city before they can become a private notary. The city’s Secretary for Administration and Justice, Chan Hoi Fan, stated that once the law is approved, related procedures including notary training courses will be conducted next year.
Intellectual property
Intellectual property applications drop 8 pct m-o-m Macao Economic Services (DSE) recorded a total of 1,050 applications for intellectual property rights in the MSAR in the month of October, posting a decrease of 8.1 per cent month-on-month compared to 1,143 applications recorded in September, according to the Bureau’s official data. However, the total number of applications represents an increase of 14.8 per cent on a year-on-year comparison, up from 915 applications. In October this year, 997 applications were filed to register trademarks in the city, making up 95 per cent of the total 1,050 applications, and representing a decrease of 7.8 per cent month-on-month, down from 1,081 in September.
Meanwhile, some 29 others applied to extend their current invention patents in October, a drop of 10 applications month-on-month and four year-on-year. The economic department received 16 applications to register industrial designs or models, two for registering invention patents and utility patents, and four for the registration of name and logo of an establishment. For the first 10 months of the year, a total of 10,158 applications to register intellectual property rights were filed at the Bureau, of which 9,533 or 93.8 per cent were for trademark registrations, followed by those registering to extend their invention patents, totalling 376. C.U.
Business Daily Friday, November 11 2016 3
Macau Gaming
Sega Sammy installs four-meter installed its first Sicbo machine at high jackpot in Studio City Gaming machine supplier Sega Sammy Creation Inc installed a Sicbo Bonus Jackpot electronic gaming machine in Studio City last month, said a press release from the company on Wednesday. The machine is four metres high and three metres wide. In June 2015, the machine manufacturer
The Venetian Macao. Sega Sammy, established in 2013, is a Japan-based company. In addition to manufacturing and developing gaming machines, the firm is also an investor in the South Korean integrated resort project Paradise City, together with Korean gaming operator Paradise Co Ltd.
Remuneration
Report forecasts 1.7 pct wage hike for local workers next year But the city’s salary increase is in the lowest quarter of the list of 20 Asia Pacific jurisdictions Kam Leong kamleong@macaubusinessdaily.com
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orkers in the city may experience a salary increase of 1.7 per cent in real terms for next year, says the latest salary trends survey by global consultancy firm ECA International. According to the firm, the report is based on information collected from 260 multinational companies across 72 countries and regions. The estimation of the salary hike for Macau employees was based on the 1.5 per cent increase experienced by workers this year. In the report’s global rankings, the city’s expected real wage increase was ranked the 36th highest. However, in the Asia Pacific rankings of 20 jurisdictions, the expected real wage increases for local workers was rated as the fifth lowest. Nonetheless, the report noted that the estimated salary hike of 1.7 per cent for local workers is still higher than that expected for employees based in Hong Kong. The consulting firm predicts that people working in Hong Kong will see their salaries increase by an average of four per cent, however after factoring in inflation, they will
only receive a salary raise of 1.4 per cent, the third lowest wage increase in the Asia Pacific. “This is the first time in three years that we have seen Macau offer more generous real wage increases than Hong Kong,” said the firm’s regional director for Asia, Lee Quane. Nevertheless, the company executive noted that both of the forecast salary hikes for employees in Macau and Hong Kong were below the average wage increase of 2.6 per cent for the Asia Pacific region next year.
More generous salary hike in China
Meanwhile, according to the survey, companies in Mainland China are planning to offer salary increases of seven per cent to employees next year. Factoring for inflation, workers there are still expected to enjoy an increase of 4.7 per cent in real terms. The salary increases offered by Mainland Chinese firms are the fourth highest globally, and the third highest regionally, despite the fact that the country’s economic slowdown is expected to continue in 2017, the firm notes. “China is by far the biggest market for Hong Kong’s vital export sector and with the Chinese economy
Court The former prosecutor-general is
charged with nearly 2,000 offences
Ho Chio Meng graft case to be heard on December 5 The Court of Final Appeal will hear the corruption case of the city’s ex-prosecutor-general Ho Chio Meng on December 5, according to a press release from the top court yesterday. According to the announcement, the former official has been charged with 1,970 illegal activities covering 13 types of crimes, including 646
instances of fraud, 434 instances of abuse of power, and another 434 instances of illegally sharing economic benefits. The announcement by the top court added that it had completed the pre-trial proceedings of the case. At the beginning of October, the president of the top court, Justice Sam Hou Fai, said the court would examine the evidence of the case in a pre-trial as requested by Mr. Ho, adding that the suspect would be released immediately if there was not enough evidence; if not, the case would go on to an official trial. The ex-top prosecutor was arrested by the city’s anti-graft agents in April this year at the Outer Ferry Terminal as he was leaving the city for Hong Kong. H e is acc u se d of a wa rdi ng some 2,000 public contracts of the Public Prosecutor’s Office to several local businessmen by illicit means from 2004 to 2014. This is the second largest corruption case related to a high-ranking official in the city. The former Secretary for Transport and Public Works, Ao Man Long, was sentenced to jail for 28.5 years in 2009 after being convicted of corruption. K.L.
having slowed significantly, Hong Kong’s has suffered accordingly”, said the firm’s regional director. In the report’s global rankings, employees based in Argentina are expected to enjoy the biggest salary increases in real terms next year, followed by those based in Vietnam and India.
Workers in Argentina are forecast to receive a real wage increase of 6.5 per cent. Meanwhile, those in Vietnam will be awarded a hike of 5.4 per cent – the highest in the Asia Pacific - while workers in India are expected to see their real salaries rise by 4.8 per cent, the second highest in the Asia Pacific.
Banking
JETCO teams up with CyberSource to capitalise on e-commerce in SARs ATM operator Joint Electronic Teller Services Ltd (JETCO) announced it has teamed up with international e-commerce payment management service supplier CyberSource, in order to capitalise on the growth of e-commerce in Hong Kong and Macau. ‘The agreement between the two companies aims to help financial institutions in Hong Kong and Macau to expand their online merchant acquiring businesses,’ a press release from the ATM operator explained. It added that the parties also aim to offer more payment options for merchants in the two SARs, in particular, digital mobile payment options such as Visa Checkout and in-app purchase. Th e c o m p a n y b e l i ev e s th e
partnership will help the firm to expand the scope of its online businesses in the two cities, in addition to providing enhanced security for online payments by using the services of CyberSource, which can ensure lower fraud risks and streamline the checkout process. “Our collaboration with an industry leader like CyberSource will not only offer our member banks access to advanced payment gateway services, but also provide strong local support while they expand their merchant acquiring business,” said the CEO of JETCO, Angus Choi. The company currently has 30 member banks from Hong Kong and Macau, operating over 3,000 ATMs in Hong Kong, Macau and Mainland China.
4 Business Daily Friday, November 11 2016
Macau Opinion
Pedro Cortés*
Let the show begin! Mr. Donald J. Trump is the next President of the United States of America, the socalled ‘Leader of the Free World’. Congratulations to him and to all who supported him. In this group, I do not include a great part of the American and Global Media and the majority of the American voters – Mrs. Clinton received more of the popular vote than Mr. Trump. It is a win for democracy, once referred to by Sir Winston Churchill as the “worst form of government, except for all the others.” Sir Churchill also said, as well pointed out by my friend Victor Castro on his Facebook account minutes after the astonishing win of Donald Trump, that “the best argument against democracy is a five-minute conversation with the average voter.” Well, I do not like populists or demagogic leaders, but in a world full of people who only live for ephemeral moments, we should expect more and more of these leaders around the planet. It started with Duterte, followed by Brexit and now Trump. People have had enough of the establishment and professional politicians who only interact with the real world during election campaigns. And now, will the election of Mr. Trump influence the American companies operating in Macau? Well, when I was a kid my father always quoted Otto Eduard Leopold, aka Otto von Bismarck: “People never lie so much as after a hunt, during a war or before an election”. My view is that the show must go on and, therefore, we all hope that all the stupidity that we heard during the US presidential campaign – from both sides - will not be for real. But, it is quite exciting to see how China will react to this, and how Macau will take this new scenario into consideration when 20202022 arrives. It is interesting what Xinhua News Agency stated after the election: “Donald Trump as President is what happens if people have democracies”. I agree. Democracies are ill because they are not real democracies. They are concepts used by the hidden powers to get even more power. And for China and Russia, Trump in power is very good news. The three biggest world powers are now more evenly balanced and we all expect that such a new world order will not create more conflicts and that we will have more peaceful days ahead. And we shall continue to believe in the goodness of human nature and in the challenging future ahead. *lawyer and frequent contributor to this newspaper.
Currency
Boast but no bite President-elect Donald Trump’s claims that he will call out China as a currency manipulator and force them to stabilize the yuan could bring benefits to the MSAR, however the likelihood that he actually could do this is minute Kelsey Wilhelm kelsey@macaubusinessdaily.com
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Trump hard-line stance on stabilising the yuan could benefit the MSAR if the Chinese authorities responded to his demands. Trump, who has announced a policy to “get tough” on China and has implied a willingness to take measures that approach protectionism, has indicated that he would call out China as a currency manipulator and force it to increase the value of the yuan, a move which could have the effect of bringing more tourists to the MSAR. However not all the effects of such a move would be positive for the city, explains economist Albano Martins to Business Daily. Devaluing a currency makes a country’s exports more attractive to outsiders and more competitive on the market, at the same time making imported goods more expensive, reducing demand and increasing inflation. Such a devaluation situation occurred in the United Kingdom in the 1970s, explains Martins, leading to a “fight” between importers and exporters, as exporters gained value and importers lost value. “For Macau it would also have the same effect, having a stronger currency (compared to the pataca) would translate into more (Chinese) visitors coming into the city. They’d have stronger purchasing power, it would incentivize them to stay longer
in the city and originate positive effects in that segment,” explains the economist. Visitors from Mainland China made up 65 per cent of the 2.4 million visitors to the MSAR in September, according to the most recent data from the Statistics and Census Bureau. The majority of these visitors are from the neighbouring province of Guangdong, making up nearly 30 per cent of the total visitors in the month. “But it would also have a negative effect,” comments the economist, “Macau depends on products imported from China.” The effect: locals would have to pay more for products that didn’t actually increase in value. “It’s very difficult for me to say what the main advantage would be – it would depend on the tourist flux that comes to Macau and the weight of this tourist flux compared to the value of our imported goods from Mainland China,” states Martins.
Feasibility
The likelihood of Trump being able to force China into doing anything about the value of the yuan is nearly impossible, notes the economist. “I have no qualms about saying that China manipulates its currency […] it’s China who defines administratively what the value of the currency is,” not external factors. However, given China’s economic power, it has all the leverage it needs to just say ‘no’ to Trump.
“China is the second-largest power in the world in economic terms. It would be incredibly difficult for the power that in three or four years will be overtaken by China (the U.S.) to have the power to impose any type of rules on China,” states Martins. The economist notes that if Trump were speaking about a small country with little economic power on a global scale, economic controls and sanctions could be implemented, but “it’s not possible to create this type of confrontation because it would be against a country that is at least as strong as the United States in economic terms.” American companies that set themselves up in China, taking advantage of China’s previous lack of purchasing power, are facing their own demons, as their former advantage is now their bane. “So everyone out there that’s protesting about the Chinese currency used, and continues to use, the mechanisms that the Chinese market uses,” notes Martins. Gaming operators from the U.S. however, are not as affected by this, as the capital entering is converted into a currency which has a “more or less fixed relationship” to that of their home country, i.e. the pataca. So the current situation of devaluation “means that the effects (of revaluing the yuan) would be seen in the gaming revenues. But it would only be felt at that level – nowhere else,” notes Martins. As for the investors in Macau’s gaming operations, given that their initial capital came from the U.S., if eventually sent back there, it would be protected by the pataca-dollar currency relationship – meaning investment in Macau is still attractive. However, this would not be the case if the pataca were to be linked to the yuan in the future.
Incident
TigerAir suffers three incidents in four days A Tigerair flight departing for Singapore suffered engine issues and was forced to return to the MSAR, as the issues affected cabin pressure, according to the Straits Times. The flight, departing on Tuesday evening,
was carrying 172 passengers, some of whom shared their experiences – which included a meal and a night at the Sheraton after landing – on social media. The incident, according to passenger
accounts, occurred about 15 minutes into the flight, with one passenger observing bright sparks out the window of the plane and seeing the left engine shake ‘violently’. The pilot dumped fuel and returned to Macau, notes the passenger, where engineers checked the engine while passengers remained on the plane. TigerAir announced that engineers were working on “rectifying the issue”, after arranging alternate transportation for the affected individuals. This is the third incident in a four day-period for the airline, notes the publication, with a ‘bird strike’ occurring on a flight from Hong Kong, and two switches in aircraft causing a five-hour delay for passengers at Changi Airport. No passengers were injured. K.W.
Business Daily Friday, November 11 2016 5
Macau Society
Total population down slightly to 647,700 as at Q3-end The decrease in population is due to a decline in non-resident worker numbers Kam Leong kamleong@macaubusinessdaily.com
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he city’s total population totalled 647,700 as at the end of the third quarter of 2016, a slight decrease of 0.7 per cent compared to 652,500 for the previous quarter, due to a drop in the total number of non-resident workers. As at the end of September, the number of non-resident workers amounted to 180,277, a drop of 1.2 per cent quarter-to-quarter. The decline was due to the fact that the work permits of 23,751 non-resident workers were annulled in the period, a notable increase of 19.9 per cent quarter-to-quarter. In terms of origin, 64.5 per cent of the city’s non-resident workers were from Mainland China, followed by those from the Philippines and Vietnam, which accounted for 14.4 per cent and 8.2 per cent of the total, respectively. Meanwhile, the authorities granted right of abode to 373 individuals in the three months, an increase of 10 per cent quarter-to-quarter compared to 339 in the pervious quarter. On the other hand, the number of annulments of right of abode decreased by 23.8 per cent to 208, down from 273 one quarter ago. During the period, the total number of Chinese immigrants in the MSAR recorded a quarter-to-quarter
increase of 23.8 per cent, growing from 1,271 to 1,573. Of the total overall population, males accounted for 315,000 while females accounted for 332,700.
Births & deaths
The city saw the total number of births increase by 15 per cent quarter-to-quarter, rising from 1,639 to 1,885, while the number of deaths went down by 15 per cent quarter-to-quarter from 565 to 480. According to the DSEC, male babies accounted for 1,003 of live births in the quarter, suggesting the gender ratio at birth stood at 113.7 male babies per 100 female babies. For the first nine months of the year, a total of 5,188 live births were recorded, down slightly by five year-on-year. On the other hand, the total number of deaths increased by 186 year-onyear to 1,703. The top three underlying causes of death in the quarter were neoplasms, which accounted for 192 of the total, followed by diseases of the circulatory system and diseases of the respiratory system, at 99 and 65 respectively. Meanwhile, the total number of marriage registrations went down by 7.8 per cent quarter-to-quarter to 929, compared to 1,008 in the previous period. From January to September, the number of marriage registrations totalled 2,912, up by 159 year-on-year.
Retail
Giordano sales in SARs down 4 pct in Q3 Clothing retailer Giordano International Ltd saw its total sales in Hong Kong and Macau decrease by four per cent year-on-year for the third quarter of the year, amounting to HK$217 million (US$27.1 million), according to its filing with Hong Kong Stock Exchange yesterday. In the three months, the company’s same-store sales in the two Special Administrative Regions registered a year-on-year growth of three per cent, a lower rate compared to an increase of 12 per cent one year ago. Gross profit from the two cities amounted to HK$147 million, a slight decrease of one per cent year-onyear. As at the end of the quarter, the retailer was operating a total of 68 stores in Hong Kong and Macau. Meanwhile, the group’s total sales reached HK$1.2 billion for the quarter, a decrease of three per cent yearon-year, while overall comparable store sales also fell by three per cent year-on-year. The company explained in the filing that the drop in quarterly sales was due to the fact that an ‘early religious
holiday in some markets shifted peak sales month from July to June’. For the period, the company’s total gross profit fell by three per cent year-on-year to HK$698 million, compared to HK$719 million one year ago. The company’s sales in Mainland China and Taiwan recorded yearon-year decreases of 10 per cent and one per cent, amounting to HK$270 million and HK$135 million, respectively. K.L.
6 Business Daily Friday, November 11 2016
Macau Trade
U.S. Governor on trade mission to China, HK and Macau United States Governor for the state of Nebraska, Pete Ricketts, will be leading an 80-strong trade delegation to Macau, Hong Kong and China to promote the state’s beef exports. In a statement on the Governor’s official page, Ricketts notes that China is the state’s fourth largest trading partner and ‘represents many opportunities because of its growing middle class’, in particular, for ‘more high quality food products’, which the mission aims to promote, as well as other state commodities by ‘meeting with potential
investors, and working to establish new partnerships’. The Governor notes that beef exports from the state grew from less than four per cent of all beef exports from the United States in 2006, to more than 18 per cent in the first half of the year. The Governor attributes much of this to work conducted by the Nebraska Department of Agriculture, working with the Nebraska Beef Council, in growing beef exports internationally. The governor’s statement also mentions that trade missions such as that coming to Macau, have been undertaken by governors ‘for decades’. K.W.
Business Web Summit in Lisbon finished yesterday
All by ourselves at Web Summit A handful of entrepreneurs and startups made up Macau’s presence at the first entrepreneurship and tech Web Summit convention in Lisbon Nelson Moura nelson.moura@macaubusinessdaily.com
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ithout an official government delegation, a small group of entrepreneurs and startups from Macau made up the city’s presence at the Web Summit in Lisbon, one of the world’s biggest entrepreneurship events. Held between November 7 and 10, the Web Summit brought together CEOs, tech startups and different panelists and thinkers from around the globe. The event has been held annually in Dublin, Ireland since 2009, and has now been moved to Lisbon until 2018. This year’s edition attracted more than 50,000 attendees and 15,000 companies from 166 different countries. Although no official delegation was organized by the MSAR government, Macau was represented by a number of entrepreneurs who went on their own, including Jorge Valente, President of the Macau Youth Entrepreneur Association (AJEM) and Executive Director of IT company JV Tech. “We’re here looking for new products, new ideas we can bring back to Macau, and companies with which we can create synergies. We’re also looking for interesting startup teams to invest in,” Valente told Business Daily. Two Macau startups that were also present at the Web Summit, took part in the event thanks to awards they won at the StartUP Macau Forum held on October 10 and 11. Phantoms Lab is a company based in Macau that develops futuristic
luxury watches. The company managed to get second place in the StartUP Macau Forum, winning one ticket to attend the Web Summit. “[Web Summit] is a great opportunity for young startup entrepreneurs to learn and share experiences with others from around the world,” Keith Law, founder of the firm said to Business Daily. Another winner of the StartUP Macau Forum golden ticket was IMMO, a local startup originally created at the University of St. Joseph, which offers a mobile solution tool to improve the way people manage their free time and assist them with decision-making. Manuel Correia da Silva, founder of IMMO, told Business Daily that the Web Summit is a “great place to build partnerships” and to find investors for the project.
Missed opportunity
However, local entrepreneurs told Business Daily that with the current push by the Macau government to diversify the economy and develop the city as a platform between Portuguese-speaking countries and China, a larger representation at one of the world’s largest tech and entrepreneurship events would have been justifiable. “Macau has to learn how to participate in these events; there’s an opportunity and a natural connection to Portugal. In the next three years the Web Summit will take place in Lisbon and I hope we can decide the better time to be present. The Macau government should have a strategy for this. They should come to learn from it just like we did,” Mr Silva told Business Daily. A similar view is held by Mr Valente,
who, having come by his own means, considers that the lack of an official delegation from Macau was a missed opportunity for local startups to learn and exchange ideas with other entrepreneurs. “Some Macau residents took part as individuals, but I didn’t see any with an exhibition booth. It’s a shame because it would be the best place to demonstrate our companies and ideas,” Mr Valente told Business Daily.
“Macau has to learn how to participate in these events; there’s an opportunity and a natural connection to Portugal. The Macau government should have a strategy for this. They should come to learn from it just like we did.” Manuel Correia da Silva, founder of IMMO and fashion brand Lines Lab In a response to Business Daily’s questions, the Macao Trade and Investment Promotion Institute (IPIM) stated that ‘if local businesses in the future wish to participate in this event, they will be welcome and please contact the IPIM” adding that the department has helped local small and medium enterprises (SME’s) by supporting ‘local associations in
participating in fairs and exhibitions abroad and providing welcome support to associations through financial incentives measures.’
Get out there
Some members of the local entrepreneurial community consider that the small Macau representation at the event was more due to the poor development of the local startup ecosystem, and that private initiative by entrepreneurs is more important when it comes to taking part in events such as the Web Summit. For Duarte Alves, Vice President of Macau Young Entrepreneurs, initiative should come from both sides, and local associations and startups should request more support from the government to attend similar events. “It’s a shame since it would’ve been a fantastic opportunity for Macau companies to take part in the event, but maybe they are not prepared for it. If in the future there’s more developed local companies with confidence in their products, maybe it will be more viable,” Mr Alves told Business Daily. A similar view was shared by the President and CEO of CESL Asia, Antonio Trindade, who sees private initiative as the main component of similar events. “The Web Summit is not very well known in Asia and it doesn’t have a lot of government delegations, it’s mostly made up of private enterprises and entrepreneurs,” he told Business Daily. For Mr Trindade, the Macau startup ecosystem is just not as developed as in Portugal, with firms requiring more than just large government subsidies, but also financing and loans from experienced entrepreneurs and companies. “Startup ecosystem is a new concept that doesn’t exist in Macau. Large subsidies are good but it should be an incentive to entrepreneurship. There are local startups but they go to Beijing, Hong Kong, Portugal or England for their projects and to look for investors,” Mr Trindade told Business Daily.
Portugal the example
The founder & CEO of Web Summit Paddy Cosgrave (C-R) waves accompanied by other participants during the Nasdaq Bell opening ceremony at the third day of the Web Summit in Lisbon, Portugal, 09 November 2016. Lusa
Macau’s local entrepreneurial community should learn some lessons from the way Portugal used entrepreneurship to get out of the economic stagnation created by the 2008 economic crisis. “Macau has an opportunity to make a plan for developing, like was made in Portugal, the diversification of the economy through startups,” Mr Trindade told Business Daily. Jorge Valente also believes Macau could follow the example of Portugal, which cut company registration red tape and developed a healthy investment sector. “If you had told me the Web Summit would take place here in 2008, I would’ve laughed. I have seen a lot of changes in the last 15 years. Portugal had the people and the will, but it lacked investment and capital. I can now see a lot of Portuguese ventures and angel funds, and outside investment coming here,” Mr Valente told Business Daily.
Business Daily Friday, November 11 2016 7
Macau Results
Mass growth Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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ggregating results from the six main gaming operators in the city reveals that due to reclassification of tables, data from the Gaming Coordination and Inspection Bureau (DICJ) doesn’t ‘paint an accurate picture’, according to analysts at Union Gaming. Analysis of the aggregate results show some interesting numbers, including VIP revenue hitting its lowest level ever in terms of a proportion of total gross gaming revenue, coming in at just 44 per cent. In addition, the data shows that mass gaming grew 11 per cent year-on-year in the third quarter, a nine per cent growth quarter-to-quarter, and 600 basis points better than the data from the DICJ, which indicated five per cent year-on-year growth. Not including
new supply from Studio City, Wynn Palace and The Parisian Macao, the analysts found that same-store mass grew two per cent, which it notes is not ‘exactly setting the world on fire’, but is reassuring in that it helps alleviate concerns of cannibalization for the future. Same store EBITDA (earnings before interest, taxation, depreciation and amortization) also grew, which the group notes ‘highlights the operating leverage in these names, particularly after significant cost cuts for nearly all operators’.
casual VIP programs’. The leader in this segment would be Sands China, according to the analysts, which saw 16 per cent year-on-year growth in gross gaming revenue from premium mass in the third quarter, the first year-on-year growth since the third quarter of 2014. ‘With VIP growth on the verge of turning positive, we
would expect premium mass to do the same if it hasn’t already’. ‘In addition, we think a mass recovery and the inherent related operating leverage is not entirely reflected in consensus numbers, suggesting additional headroom as numbers come up over the coming months and quarters,’ note the analysts.
Looking forward
The analysts see a positive future for the premium mass market, which is ‘also seeing growth’ and ‘could be inflecting too’. This could be due to a renewed comfort in coming to the territory ‘two plus years on’ after the corruption crackdown, noting that ‘several smaller junkets […] are seeing the same dynamic with their
Gaming Total revenue soars 38.6 pct in the quarter
Paradise Q3 adjusted EBITDA totals HK$78 mln Ga m i n g e q u i p m e n t s u p p l i e r Paradise Entertainment Ltd saw its adjusted EBITDA reach HK$78 million (US$9.7 million) for the third quarter of the year - compared to a loss of HK$2 million for the same period last year - contributed to by its sales of live multi-game (LMG) terminals, it informed the Hong Kong Stock Exchange yesterday. For the quarter, the locally-based company registered a 38.6 per cent
year-on-year increase in total revenue, to HK$352 million. Of the total, revenue generated from sales and revenue sharing of LMG terminals tripled to HK$126 million, up from HK$39 million one year ago, while adjusted EBITDA from the segment quadrupled to HK$77 million, up from HK$19 million. In addition, the company’s revenue derived from the provision of casino services posted a growth of five per
cent, totalling HK$226 million, compared to HK$215 million one year ago. Adjusted EBITDA from the segment reached HK$8 million, up from a loss of HK$15 million for the same quarter last year. The company added in the filing that the group’s total adjusted EBITDA has reached HK$61 million year-to date, representing growth of 27.1 per cent year-on-year, while its year-todate revenue has jumped by 5.7 per cent year-on-year to HK$872 million.
For the first six months of the year, the company posted a net loss attributable to shareholders of HK$416.8 million, compared to a loss of HK$23.9 million for the same period last year, according to its interim report released in September. It explain ed th en , that th e expanded losses were due to a one-off loss on disposal of patents and patent applications worth HK$334.8 million, from the grant of exclusive rights to U.S. gaming systems company International Game Technology Plc. K.L.
8 Business Daily Friday, November 11 2016
Greater China U.S. Election
Domestic investors seek to turn panic into profit Some Chinese investors are already designing strategies to bet on sectors that will benefit the most from Trump policies Samuel Shen and John Ruwitch
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hinese investors, well known for their impulsive trading habits, appeared composed in the wake of Republican Donald Trump’s shock presidential victory, as they drew lessons from the sell-off after Brexit. Instead of joining the global stampede for the exits, many mainland investors pounced on battered stocks in Hong Kong during Wednesday’s selloff. Now, they are strategizing how to profit from the president-elect’s China policies - such as shorting Chinese exporters or buying agriculture stocks. “Brexit has taught us how to deal with black swans,” said Robert Di, Shanghai-based founding partner of investment firm RPower Capital, referring to the surprising British vote to leave the European Union that triggered panic selling worldwide, only to be followed by sharp rebounds. “A lot people were caught unprepared by Brexit, but this time, many had been waiting for that sort
of golden buying opportunity, which is why it’s so short-lived.” Di said he increased holdings in Hong Kong-listed tire & rubber maker Xingda International Holdings on Wednesday at the depth of the Trump-triggered market tumble, and is also considering shorting Chinese exporters, which are vulnerable to Trump’s protectionist policies. The bet has proved profitable so far as Hong Kong stocks recovered most of their losses yesterday. Sentiment was much calmer on the mainland, where stocks dropped just 2 per cent on Wednesday, and quickly recovered lost ground yesterday, climbing to a fresh 10-month high. Di’s view was echoed by Zhu Lijie, analyst at Qilu Securities Asset Management Co, who sees investment
opportunities in the “Trump panic.” “At that very moment of Brexit, the world shuddered, but it was not long before all asset prices recovered lost ground.” Betting on a repeat of such a rebound, mainland investors spent roughly 5 billion yuan (US$736.5 million) buying Hong Kong stocks on Wednesday via the Shanghai-Hong Kong Stock Connect channel. In contrast, net inflows had been negligible during the previous month, which traders attributed to concerns over the U.S presidency and a looming Federal Reserve rate hike. Ma Hong, general manager of Shanghai TopFund Investment Management Co, said it was worthwhile hunting for bargains in Hong Kong as shares there are more cheaply
priced than their mainland peers. Furthermore, they will benefit from a strong dollar, to which the Hong Kong currency is pegged. There are restrictions on purchases of property and foreign currencies in China, so buying Hong Kong stocks through the Connect “is a good way to hedge against yuan depreciation risks”, Ma said. Some Chinese investors are already designing strategies to bet on sectors that will benefit the most from Trump policies. Ke Haidong, fund manager at First Seafront Fund Management Co, said China’s agricultural stocks may be worth investing in. He foresees the possibility of retaliatory Chinese tariffs on U.S. imports if Trump implements his protectionist policies, thus pushing up prices of agricultural products in China. Investors are also betting the infrastructure sector could benefit from Trump’s foreign policies, which would make it easier for Beijing to push its “One Belt One Road initiative,” wrote Julian Evans-Pritchard, China Economist at Capital Economics. “Declining U.S. influence would give China more freedom to shape the regional landscape,” he said. “The One Belt One Road initiative gives China a means to leverage closer political links to promote closer economic integration.” Thomas Poullaouec, managing director of State Street Global Advisors Asia, agreed. “Overall, I will have the argument that this could be positive for China in its global outreach,” he said. “Because it’s unlikely that many countries will make friends with Trump, putting aside Putin ... so it may be positive for China in its global efforts.” Reuters
Business Daily Friday, November 11 2016 9
Greater China Singles’ Day
In Brief
Packaging makers see profits squeezed as e-commerce boom draws new competitors China used 9.9 billion cardboard cartons and 17 billion metres of adhesive tape last year in packaging Jackie Cai
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hinese packaging makers are bracing themselves for Singles’ Day today, stocking up on cardboard and taking on staff ahead of an online shopping bonanza that shifts more goods than Black Friday and Cyber Monday in the United States combined. Sun Jingyun, owner of Kunshan Jiaze Packaging in eastern Jiangsu, has added a third extra staff since early October to meet a threefold jump in demand ahead of a day of discounts led by internet retailer Alibaba Group Holding Ltd.
“It seems everyone is now making express delivery boxes, and price competition is pretty fierce” Sun Jingyun, owner of Kunshan Jiaze Yet the packaging business gets slightly less lucrative with every Nov. 11. More packagers have emerged in answer to China’s e-commerce boom which began around 2010, squeezing profit margins as the cost of cardboard and tape rises while output prices fall. “It seems everyone is now making
express delivery boxes, and price competition is pretty fierce,” said Sun, who entered the market for delivery boxes early last year. “Lots of people are jumping into the business which is pushing down profits.” The trend is reflected throughout the e-commerce industry as players such as sellers and couriers settle for tiny profit margins in a massive online market that is redrawing the retail landscape to the detriment of physical stores.
Sharp growth
But the attraction is clear: In packaging, China used 9.9 billion cardboard cartons and 17 billion metres of adhesive tape last year, each almost 50 per cent more than a year earlier, showed a report last month from China’s State Post Bureau. On Singles’ Day alone this year, the Post Bureau expects demand for 1 billion boxes, up 35 per cent from last year. To meet that demand, firms both big and small - such as Nine Dragon Paper Holdings Ltd and Sun’s Jiaze - are expanding into the sector. The exact number is unknown, but the steep growth in e-commerce has attracted enough entrants to squeeze margins, Sun said. The story is similar one step up the chain, with the number of large firms making the base for adhesive tape jumping over 60 per cent in the past three years, showed data from petrochemicals website Chem99.
Connected customers
Package makers sell their boxes and tape to couriers such as U.S.-listed
ZTO Express (Cayman) Inc, which box up sellers’ goods and deliver them to shoppers. “In 2007 China’s express delivery market had around 1 billion parcels,” Post Bureau deputy head Liu Jun said this week. “This year it will break though 30 billion and be the number one market in the world.” The growth is being driven by increasingly internet-savvy consumers who want to pay online for items as varied as clothes, cosmetics, meals and cinema tickets through platforms such as Alibaba’s Tmall and that of rival JD.com Inc. On Singles’ Day last year, these shoppers ran US$14 billion worth of transactions through Tmall - a number most company watchers expect to be surpassed on Friday. One such shopper is 28-year-old accountant Zhang Yuting from Shanghai. In the run up to Singles’ Day, Zhang has been filling her online shopping cart on a daily basis with goods such as nappies, tea, motor oil and a Japanese electronic toilet seat. “I’ve got loads of e-commerce apps on my phone,” said Zhang, listing apps from Alibaba, JD.com, Suning Commerce Group Co Ltd , Amazon.com Inc and fresh produce retailer Beijing MissFresh Ecommerce Co Ltd. “I probably place one order a day. If its available online, I won’t buy it from a high street store,” said Zhang. “For this year’s Singles’ Day, I’m going to spend at least 10,000 yuan (US$1,473),” she said Reuters
Bilateral co-operation
Premier Li visit highlights healthy ties with Russia Premier said that China and Russia should capitalize on their complementary advantages High-quality Sunflower oil, wheat flour and organic jam from Russia are no longer the rare, exotic food stuffs they once were. They are now common pantry items in the homes of many Chinese thanks to the significant improvement of economic and trade ties between China and Russia. China is now Russia’s biggest trading partner and an important source of foreign investment, while Russia is one of China’s main import sources of energy, electromechanical products and high technology.
‘In the first quarter of 2016, Russian cross-border e-commerce totalled about US$1.1 billion’ In the first half of this year, bilateral trade between China and Russia rose 1.8 per cent year on year to US$31.72 billion, official data showed. During Premier Li Keqiang’s official visit to Russia, from Sunday to Tuesday, Li said that China and Russia should capitalize on their complementary advantages, and help promote each other’s development, revitalization, and economic transformation. Regarding trade and investment, Li said the two sides should continue to promote healthy and sustainable development of bilateral economic and trade ties and two-way investment.
Luz Yanin, head of the Institute of the Far East of Russia’s Academy of Sciences, said that besides traditional cooperation areas like oil and natural gas, new areas, such as e-commerce, are emerging that will continue to boost bilateral cooperation. In the first quarter of 2016, Russian cross-border e-commerce totalled about US$1.1 billion with nearly half through Chinese e-commerce platforms. On average, 300,000 parcels were sent daily from China to Russia. Infrastructure investment is also a highlight of bilateral cooperation, which will further stimulate trade and economic exchanges between China and Russia, said Jia. C h e n Y u , r e s e a rc h e r w i t h China Institute of Contemporary International Relations, said that
one of the opportunities for both nations to deepen their joint work is the development of Russia’s Far East, a vast region with abundant resources. China is willing to work with Russia to synergize the Belt and Road initiative and the Eurasian Economic Union (EEU). Li Hui, Chinese ambassador to Russia, told Xinhua that the integration would unlock the potential of economic complementarity between China and Russia, and contribute to the economic recovery of the EEU member states as well as benefiting countries along the ancient Silk Road and across Eurasia. Premier Li’s visit to Russia showed that the China-Russia relationship is at its best in history, said Chen. Bilateral ties will continue to maintain high level as long as the two sides adopt a pragmatic, cooperative approach with mutual benefits, he said. Xinhua
Russian Prime Minister Dmitry Medvedev (R) and Chinese Premier Li Keqiang (L) take part in a ceremony of summing up the results of the joint project ‘Ten Masterpieces of Chinese Literature in Russia and Ten Masterpieces of Russian Literature in China’ this week. Lusa
Car industry
Auto sales grow faster than expected China’s auto industry body again adjusted upward its growth forecast for fullyear 2016 vehicle sales yesterday as October sales grew in double digits, with consumers moving to buy cars before a tax incentive expires at the yearend. Auto sales growth in China will likely exceed 8 per cent this year, said Ye Shengji, deputy secretary-general of the China Association of Automobile Manufacturers. This compares with the association’s 7 per cent forecast delivered last month and a 6 per cent target at the beginning of the year. Economic status
Beijing disappointed with EU’s proposed reforms China is disappointed that the European Union hasn’t completely recognised its market economy status, commerce ministry spokesman Shen Danyang said yesterday in a sign that Beijing will continue to press the EU to relax its anti-dumping rules. The EU and many of China’s other trading partners have been debating whether to grant China “market economy status” (MES) from mid-December, which Beijing says is its right 15 years after it joined the World Trade Organization. The United States has said China has not done enough to qualify. Markets
Futures brokers barred from financing services Chinese futures companies have been forbidden from providing “financing services” the China Securities Journal (CSJ) reported on yesterday - effectively preventing futures brokers from funding clients’ investment positions. The CSJ cited a notice, sent by the China Securities Regulatory Commission (CSRC) on Wednesday, which said: “Futures firms must not engage in financing services or get involved with any type of financing service.” The CSRC ordered futures brokers to strengthen risk management systems and closely supervise the risk profiles of clients. Mobile payment
A report shows security concerns linger More Chinese consumers preferred to make payments via smart devices as mobile apps have made purchases much easier, but security concerns remain, a PwC report said. Nearly one-third of respondents in China opted for mobile payment when shopping last year, doubling from 16 per cent in 2014, according to the accounting firm’s global retail survey. The figure appeared much higher than the world’s average of 12 per cent. The popularity came as a result of explosive growth of mobile payment options and an expanding mobile network, the report said.
10 Business Daily Friday, November 11 2016
Greater China Taobao villages
E-commerce no longer a golden goose for villagers Widespread fraud on e-commerce platforms has pushed up operational cost and reduced credibility
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ttracted by the slogan “with just one room and a computer, you can have your own online store,” a young woman surnamed Xu went to Qingyanliu Village in east China’s Zhejiang province to seek her fortune. The “No.1 Taobao village in China,” has become the model for over 1,300 villages across the country. Xu, in her twenties, arrived with high hopes, but she soon got frustrated. “I never thought running an online store would be such torture,” she sighed.
Big player game
In Qingyanliu, small retailers used to collaborate in placing orders to reduce costs, but the system collapsed when more successful stores
became big online merchants, with the clout to sign contracts directly with suppliers. Small shops were left behind and many were unable to survive without the discounts of bulk buying. Likewise, with fewer orders, delivery companies are not interested in giving discounts. It all came as a surprise to naive young entrepreneurs like Xu. The legend of Qingyanliu village began in 2008, when the world was struggling through the financial crisis. Qingyanliu is a suburb of Yiwu City, China’s largest small commodity wholesale market. With 200 plus newly-built flats available for lease, students from Yiwu Industrial and Commercial College, one of the first colleges to offer e-commerce classes, smelled an opportunity. Qingyanliu
was soon an e-commerce base, dubbed “the first Taobao village,” just over a year later. Once home then to 1,700 residents, the village now has a population of over ten thousand, with 2,800 online shops bringing in over one billion yuan (US$150 million) every year. Alibaba claims that China now has over 1,300 “Taobao villages,” with more than 840,000 jobs created.
Rising cost
The average annual rent of a threeroom house, a standard “office” in Qingyanliu, has risen from 5,000 yuan in 2008 to 16,000 yuan today. Widespread fraud on e-commerce platforms has pushed up operational cost and reduced credibility. “An online store relies on its reputation, but many turn to fraud to attract buyers. If not stopped, the whole online market will become a mess,” said a 30 year-old Taobao store owner who has been in the business
for five years. Fake goods, unreliable delivery and lack of certification has forced many consider leaving the villages. “I have been running a Taobao shop for three years, and kept facing new challenges in the process,” said Wang Mingqiang, who owns an online shop in Longxi village in Zhejiang. “Sometimes we’re unable to maintain stable supplies for surging sales. Sometimes we receive complaints from consumers for selling slow-moving produces without
‘Alibaba claims that China now has over 1,300 “Taobao villages,” with more than 840,000 jobs created’ quality certification. We also face fierce competition as the products everyone sells are quite similar,” he said.
Upgrade needed
The first round of e-commerce craze in villages was led by fresh graduates with business sense, but the rural villagers who followed had seldom even set foot in a city
Lack of staff is another big issue. The first round of e-commerce craze in villages was led by fresh graduates with business sense, but the rural villagers who followed had seldom even set foot in a city. Price wars is not good for Taobao villages. “Low prices can’t be the only business strategy. We must offer quality products,” said Ren Mei, who runs an online store and said her profit margin is shrinking year by year. “Rural areas should upgrade their entrepreneurship environment, with infrastructure, logistics, and better financial support,” said Sun Lijun, vice-president of Alibaba. Xinhua
Home builders
Evergrande increases stake in Vanke While Evergrande’s intentions towards Vanke remain unclear, some analysts have said it might seek seats on Vanke’s board at the latter’s next annual shareholder meeting in March Clare Jim and Meg Shen
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roperty developer China Evergrande Group bolstered its hand in a tussle for control of China’s largest home builder on Wednesday, spending more than US$600 million to raise its stake in China Vanke Co Ltd to 8.29 per cent. The move by industry no. 2 Evergrande to buy a further 1.45 per cent of Vanke sent the latter’s shares sharply higher. While Evergrande said the deal was “an investment”, without further comment, analysts said it gave the highly acquisitive firm more bargaining power in a saga that has convulsed Vanke this year. In August Evergrande spent US$2.2 billion buying nearly 7 per cent of Vanke - without ever disclosing exactly why - and taking a central role in a battle that sees Vanke seeking to ward off a potential takeover from financial firm Baoneng Group, its biggest shareholder. Vanke declined to comment, while Evergrande didn’t comment beyond a stock exchange filing announcing its purchase.
“Evergrande is a touchstone for Vanke’s management and major shareholders,” said RHB Research analyst Toni Ho. “Holding a larger stake would allow it (Evergrande) to sell at a better price later, or gain more business opportunities with these (other shareholder) parties.”
Key Points Evergrande buy 1.45 pct of Vanke for more than US$600 mln Lifts Vanke stake to 8.29 pct, says move “an investment” A boost to Evergrande bargaining power in corporate tussle Evergrande motives still unclear; Vanke shares jump 5 pct While Evergrande’s intentions towards Vanke remain unclear, some analysts have said it might seek seats on Vanke’s board at the latter’s next annual shareholder meeting in March. The meeting is likely to be key in
determining the future of Vanke, worth more than US$40 billion by market value. Fearing a hostile takeover bid by Baoneng, Vanke’s management announced in June a US$6.9 billion deal with white knight Shenzhen Metro Group Co Ltd. Both Baoneng and Vanke’s second-largest shareholder, China Resources Co Ltd, have said they would oppose the deal.
Evergrande itself has captured investor attention after amassing US$57 billion in debt, almost six times its market value, on corporate mergers and land acquisitions. While listed in Hong Kong, Evergrande said last month it’s planning a backdoor listing in mainland China by injecting almost all of its property assets into a Shenzhen company, a move to make it easier to raise funds. Mainland-listed firms also command higher valuations than those in Hong Kong, helped by a large pool of retail investors. Reuters
Business Daily Friday, November 11 2016 11
Asia Machinery industry
Weak Japan orders signals fragile capex may dent GDP The government also cut its assessment, saying a slowdown in the pick up of machinery orders can be seen Minami Funakoshi
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apan’s core machinery orders fell more than expected in September and the outlook pointed to more weakness, suggesting the economy may underperform as businesses show reluctance to invest amid sluggish demand at home and abroad. Core machinery orders, a highly volatile data series regarded as an indicator of capital spending six to nine months ahead, fell 3.3 per cent in September from the previous month, Cabinet Office data showed yesterday. That was bigger than a 0.8 per cent decline expected by a Reuters poll of economists, following a 2.2 per cent drop in August. However, orders rose 7.3 per cent in July-September. The outlook was even more gloomier with companies surveyed by the Cabinet Office forecasting that core orders will fall 5.9 per cent in October-December from the previous quarter. That suggested capital expenditure may have a net negative impact on near-term gross domestic product growth in the world’s third biggest economy. “Those who look at this round’s machinery orders results negatively might lower their outlook (for GDP growth) in the second half of the year,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.
However, the machinery orders in the past quarters more or less even out and probably would not dampen GDP growth in the third quarter, Tokuda added. Japan’s economy likely expanded for a third straight quarter in JulySeptember, though growth is set to remain fragile. The Cabinet Office will announce the GDP data on Nov. 14 at 8:50 a.m. (2350 GMT, Nov. 13). The Japanese economy has failed to make much headway this year as
weak demand at home and abroad has hobbled its recovery, forcing the Bank of Japan (BOJ) to once again push back the timing for hitting its 2 per cent inflation target. Prime Minister Shinzo Abe’s government has been counting on capital expenditure to drive private sector-led growth, seen as crucial for putting the economy on a sustainable footing, but businesses have been slow to invest because of sluggish demand, yen’s gains and external headwinds. The government also cut its assessment, saying a slowdown in the pick up of machinery orders can be seen. Still, some, like Takeshi Minami, chief economist at Norinchukin Research Institute, don’t see a
significant disruption to the recent upward trend in orders. “The negative 5.9 per cent outlook (for Oct-Dec) isn’t as big a decline as the number makes it seem,” said Minami, adding that a slowdown in machinery orders would be temporary. Capital expenditure has recently shown some signs of picking up, though analysts have cautioned that stubbornly sluggish global demand could make business managers wary about approving heavy investments. Indeed, despite reaping record profits thanks to a weak yen under Abe’s aggressive stimulus policy, Japanese companies have been hesitant to boost investment in recent years. BOJ policymakers disagreed on how much importance they should put on the central bank’s commitment to maintain the pace of its government bond purchases, a summary of debate at their Oct. 31-Nov. 1 meeting showed, underscoring the difficulty of making a smooth shift to a new policy framework. Reuters
Reshuffle
India’s Tata Sons removes Mistry as TCS chair Mistry’s ouster has triggered a public spat between him and Tata Sons, which has also pushed some of Mistry’s closest aides out of the group Aditi Shah, Darshana and Sankararaman
India’s No. 1 software services firm, Tata Consultancy Services (TCS), a majority-owned unit of Tata Sons, said yesterday it received a letter from Tata Sons nominating Ishaat Hussain as interim chair of TCS in place of Cyrus Mistry. Last month, Mistry was ousted as chairman of Tata Sons in a surprise move, and was replaced by Ratan Tata as interim chair. A similar move to unseat Mistry from TCS, the crown jewel in the Tata conglomerate portfolio, was anticipated given the bitter war of words that has erupted between the two sides following Mistry’s ouster. With Tata Sons controlling an over 70 per cent stake in TCS, lawyers had noted that removing Mistry as chair of the software and services company, would be a much easier task than removing his as chair of
many other ventures that Tata Sons do not own a majority stake within. “Mistry has ceased to be the
Cyrus Mistry. Bloomberg
Chairman of the Board of directors of the company, and Hussain is the new Chairman of the company,” TCS said in a securities filing, adding Hussain will remain TCS chairman until a permanent new replacement is named. Meanwhile, Tata Sons has called for an extraordinary general meeting of
shareholders to consider a resolution for removal of Mistry as TCS director. Hussain, a director of several Tata companies, including Tata Steel and air conditioning and engineering arm Voltas Ltd, currently serves as chairman of Voltas and satellite television provider Tata Sky.
‘Mistry, whose family controls an 18.41 per cent stake in Tata Sons, continues to be the chair of some of the key listed group companies’ Mistry’s ouster has triggered a public spat between him and Tata Sons, which has also pushed some of Mistry’s closest aides out of the group. Mistry, whose family controls an 18.41 per cent stake in Tata Sons, continues to be the chair of some of the key listed group companies such as Indian Hotels, Tata Motors and Tata Steel. Reuters
12 Business Daily Friday, November 11 2016
Asia Monetary policy
New Zealand’s central bank cuts rates At just 0.2 per cent, inflation is well below the central bank target band of 1 to 3 per cent Charlotte Greenfield and Jane Wardell
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ew Zealand’s central bank said international factors, including U.S. political uncertainty, were the major risks to the country’s economy after it lowered interest rates to a record low of 1.75 per cent yesterday. The Reserve Bank of New Zealand (RBNZ) indicated that future rate cuts were unlikely after its third cut this year as it forecast inflation heading back into its target range, but did not rule them out entirely. “There’s uncertainty about Brexit. There’s lots of issues around debt accumulation in China, particularly around corporate debt,” RBNZ Governor Graeme Wheeler told reporters. “And we’ve seen a result
overnight that has clearly surprised the markets.” Wheeler said the bank’s policymakers met again yesterday morning to review the planned 25 basis point cut following the election of Donald Trump as the next US President, and affirmed the cut was the right decision. Wheeler said the RBNZ was lobbying the government to add further macroprudential measures to its arsenal in the form of debt-to-income ratio limits (DTI) as it struggles to get to grips with stubbornly low inflation without stoking an already hot housing market. Wheeler suggested the bank had no immediate plans to use DTI ratios as house price inflation - although “excessive” - was beginning to slow. The RBNZ ramped up its use of
another macroprudential tool earlier this year, tightening lending rules, known as ‘loan-to-value’ ratios (LVRs), requiring buyers to put down a 40 per cent deposit on investment properties. “What you’ve seen is that when they’ve introduced macro-prudential measures, they see it as a way of addressing the pressures in the housing market and as long as inflation remains low it still warrants rate cuts,” Christina Leung, economist at the New Zealand Institute for Economic Research, told Reuters. Wheeler said a further meeting with the finance minister on the issue was planned “in a couple of weeks”. New Zealand’s economy grew an annual 3.6 per cent in the second quarter - better than most of its rich-country peers - an the jobless rate also dropped to near eightyear lows of 4.9 per cent in the third quarter as employment blew past all expectations.
Yet the surge in jobs is being met by a record influx of migrants, keeping pay claims suppressed. Wages grew only 1.6 per cent in the year to September. The RBNZ reiterated that the kiwi, one of the best performing major currencies in the world and up nearly 7 per cent this year, was higher than sustainable. Asked if the bank’s system of “traffic lights” to determine whether conditions warranted intervention in the currency market were currently showing green, Wheeler said: “I’d rather not cover that at this stage.”
Key Points RBNZ cuts benchmark rate by 25 basis points to 1.75 Has open mind on potential of currency market intervention Reviewed decision after U.S. election shock Keen to add DTI instruments to policy toolbox ASB chief economist Nick Tuffley said short term commodity-sensitive currencies such as the NZ dollar were vulnerable after Trump’s election due to “shaky market risk sentiment and a more hostile approach to trade.” However, he added there was potential for some added drag on the currency “to the extent that Chinese growth is impacted by U.S. trade sanctions.” ASB is forecasting the kiwi to fall to around US$0.7000 by mid-2017. Thirty of 33 economists polled by Reuters had expected the RBNZ to cut rates by 25 basis points this week. Reuters
Reserve Bank of New Zealand headquarters
Trade deal
Australia concerned over TPP passage Foreign Minister Julie Bishop said if the TPP fails then Australia would turn its attention to the Regional Comprehensive Economic Partnership Australian top government officials yesterday expressed concern over the passage by the U.S. Congress of the Trans-Pacific Partnership (TPP), a 12-nation regional free trade agreement after Donald Trump won the presidential election in the United States Wednesday.
good for Australian jobs, and good for helping to restore Australia’s budget,” he said. Australian Prime Minister Malcolm Turnbull said at a press conference in the parliament that he had already had a telephone conversation with Trump, when both men discussed briefly on trade issues
including the TPP. “...on trade, yes we did discuss, briefly, the TPP and I explained why Australia supported its ratification to him,” Turnbull said. When asked about Trump’s reaction to Australia’s stance, Turnbull said he did not want to quote Trump. “We agreed that we could refer to the fact that we had the discussion but I think his views on that treaty are pretty well-known.” He stressed that as prime minister, his job is to advocate the interests of Australia.
“We believe the ratification of the TPP is in our national interest. It is in Australia’s national interests. We believe it makes, and the argument we have put to the United States is that it is in America’s strategic interest to be seen to be the cornerstone of an important trade agreement in our region ...” said Turnbull. Earlier yesterday, Foreign Minister Julie Bishop said if the TPP fails then Australia would turn its attention to the Regional Comprehensive Economic Partnership (RCEP), a 16-nation deal. that comprises the Association of Southeast Asian Nations (ASEAN) countries, China, Australia, India, Japan, South Korea and New Zealand. Xinhua
“I’d say that the TPP’s U.S. passage is less likely than likely” Steve Ciobo, minister for Trade, Tourism and Investment “Importantly though, across trade, Donald Trump has made it clear that he’s a believer in trade that benefits America, that benefits American jobs and American economic growth and helps with their deficit repair. Now those are goals that aren’t dissimilar to obviously our trade aspirations here in Australia. We want trade deals that are good for Australia,
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Business Daily Friday, November 11 2016 13
Asia Banknotes move
In Brief
India banks reopen to long queues after rupee withdrawal The government has said that only tax dodgers will lose out from the move Long queues formed outside banks in India yesterday as they reopened for the first time since the government’s shock decision to withdraw the two largest denomination notes from circulation. Some banks in the capital New Delhi had received the new 2,000 rupee (US$30) bill and a number of ATMs were working again, two days after Prime Minister Narendra Modi announced the 500 and 1,000 rupee notes would no longer be legal tender in a blitz against tax evasion and corruption. Modi’s Tuesday evening bombshell prompted a late night rush on cash machines as customers withdrew smaller notes from ATMs before they
closed at midnight in preparation for the turnaround, but millions were left stranded without cash. “I have only come here to check if I can change my old notes for a new currency even if I don’t have an account with the bank,” R.P Singh, a newspaper vendor, told AFP outside a bank in New Delhi. The government said customers would be able to exchange their old bills for new notes or deposit them in their accounts from yesterday. They would face major scrutiny by tax authorities if they could not account for a sudden swell in their balance. However, it was unclear how many banks across the country
- particularly in rural areas - had received the new 2,000 note. Newly designed 500 and 1,000 rupee bills will be rolled out at a later date. Local media reports showed much longer queues in smaller cities, with some people complaining that banks and post offices, where old notes can also be exchanged, hadn’t opened on time. “We don’t know what they are doing, why they haven’t yet opened the bank? We have already been waiting for over two hours just to exchange our currency notes,” a customer outside a bank in Modinagar in the northern state of Uttar Pradesh told ABP news channel.
‘The government said customers would be able to exchange their old bills for new notes or deposit them in their accounts from yesterday’ The shock announcement has also affected tourists. “I had to return from the camel fair in Pushkar, Rajasthan, because I didn’t have enough smaller currency notes and it is difficult to use credit cards there,” Argentine traveller Contantz told AFP. The government has said that only tax dodgers will lose out from the move, the latest in a series of anti-corruption measures introduced by Modi. Analysts largely welcomed the decision, saying that while consumer spending will likely dip in the short term as the new notes slowly make their way into circulation, in the long run the move will boost GDP. AFP
Currencies
Former official says Japan should not hesitate to act if yen spikes rapidly He said Japan-U.S. economic ties won’t change much under Trump, shrugging off some concerns about trade friction. Tetsushi Kajimoto and Yoshifumi Takemoto
Japan should not hesitate to intervene in currency markets if the yen spikes rapidly, even if U.S. President-elect Donald Trump opposes such a move, the country’s former top currency diplomat Hiroshi Watanabe said yesterday. Watanabe made the remark a day after the Republican nominee’s surprise win in the presidential election roiled global markets. The yen surged more than 3 per cent on Wednesday as Trump swept to victory over heavily favoured rival Hillary Clinton, prompting verbal warnings from Japanese policymakers who are concerned that a strong currency would derail the fragile export-reliant economy. Markets were calmer yesterday,
with the dollar reversing earlier selling against the safe-haven yen to touch a high of 105.87 yen, its highest since July 27. “If the yen spikes by 3 yen or more, Japan should not hesitate to intervene” regardless of U.S. concerns about such action, Watanabe told Reuters in an interview, adding that he told this recently to Finance Minister Taro Aso and current top financial diplomat Masatsugu Asakawa. “If Japan hesitated to intervene out of deference (to Trump), it would not be able to act for the coming four years,” said Watanabe, who is now president of the Institute for International Monetary Affairs, a private think tank. Japan has not intervened in currency markets since Nov. 2011. Watanabe served as vice finance minister for international affairs for
three years to 2007, and has a close network with policymakers in and outside of Japan. Japan does not export as much to the United States as it used to, and Japanese carmakers are boosting direct investment and creating jobs there, he noted.
“If Japan hesitated to intervene out of deference (to Trump), it would not be able to act for the coming four years” Hiroshi Watanabe, president of the Institute for International Monetary Affairs
For now, Watanabe said the yen is likely to weaken slowly as the U.S. Federal Reserve is expected to go ahead with an interest rate hike in December or January, supporting the dollar. Turning to the Bank of Japan, Watanabe said as long as the economy grows steadily, he saw no need for the central bank to ease already massive monetary stimulus further barring big shocks to financial markets. “I don’t think further easing would help much to spur flagging consumer prices,” Watanabe said, adding that the BOJ should not be fixated on hitting its elusive 2 per cent inflation target. Reuters
Trade
Philippine exports up The Philippines’ exports recovered in September, posting 5.1 per cent increase yearon-year to US$5.211 billion after 17 months of decline, the Philippine Statistics Authority (PSA) said yesterday. Export sales in September last year amounted to US$4.960 billion. PSA said the increase was attributed to eight major commodities out of the top 10 export commodities for the month. These include other mineral products, electronic equipment and parts, metal components, chemicals, articles of apparel and clothing accessories, ignition wiring set and other wiring sets used in vehicles, aircrafts and ships, electronic products, and other manufactures. GDP
Vietnam’s growth expected to reach 6.7 pct in 2017 Vietnam’s economic growth is forecast to reach 6.7 per cent in 2017 thanks to institutional reform, improved business environment, and new momentum of the private sector, said the National Financial Supervisory Commission (NFSC) yesterday. The forecast was made at a seminar on overview of Vietnam’s financial market in 2016 held by the NFSC in capital Hanoi yesterday. According to the NFSC, amid prediction that world energy and agricultural product prices will be recovered in 2017, the private sector is expected to become the main driving force for Vietnam’s economic growth next year. Vice finmin
S.Korea to factor Trump-effect risks South Korea’s vice finance minister said yesterday the government will prepare its 2017 economic policies well in advance to ensure any financial market uncertainty stemming from Donald Trump’s election to U.S. president doesn’t undermine South Korea’s growth. “Going into the fourth quarter, there are grave concerns about how the uncertainties at home and abroad (would affect growth),” Choi Sang-mok told reporters, referring to a spike in financial market volatility seen since Wednesday. “We will prepare next year’s economic policy plans well in advance, while trying our best to achieve the 2.8 per cent (growth target) and plans to add 300,000 jobs (this year).” Anti-drug
Myanmar to introduce new policy Myanmar is formulating a new anti-drug policy to allow opportunity to remedy and mete out punishment, official media reported yesterday. The new policy is being drawn from the development and health perspectives, Police Col Zaw Lin Tun was quoted as saying. Deterrent action against the drug traffickers will be taken, while meting out punishment on the drug abusers, Zaw Lin Tun told the 8th Asian Informal Drug Policy Dialogue Initiative meeting held in collaboration with Myanmar’s Central Committee for Drug Abuse. The new narcotics control policy will be made public in April 2017 after government approval, he added.
14 Business Daily Friday, November 11 2016
International In Brief FAO
World food prices edge up in October World food prices edged up in October to continue an upward trend since January, the United Nations food agency said yesterday, adding that prospects for global cereal output had improved. Barring a slight dip in July, the Food and Agriculture Organization’s (FAO) food price index has steadily increased from a seven-year low hit in the first month of this year. The index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 172.6 points in October, 0.7 per cent above the month before and 9.1 per cent above October last year. Portugal
BCP to repay part of state aid Portuguese bank BCP intends to pay part of the €750 million it owes the state because of the bond loan it took out in 2012 by the end of the year, the CEO Nuno Amado said on Wednesday. “We are working to be able to pay part this year. There are relevant alterations such as Italy and Brexit”, he said, after being confronted by reporters about the intention he had announced at the beginning of the year to pay all the contingent capital instruments (‘CoCo bonds’, dent that can be converted into shares in certain circumstances) in 2016.
Energy forecast
IEA sees global market awash with oil in 2017 if no OPEC cut The Organization of the Petroleum Exporting Countries meets at the end of November to discuss a proposed cut in production Amanda Cooper
T
he oil market risks running another surplus in 2017 without an output cut from OPEC, as producers around the globe ramp up supply and demand growth falters, the International Energy Agency said yesterday. In its monthly oil market report, the group said global supply rose by 800,000 barrels per day in October to 97.8 million bpd, led by record OPEC output and rising production from non-OPEC members such as Russia, Brazil, Canada and Kazakhstan. The Paris-based IEA kept its demand growth forecast for 2016 at 1.2 million bpd and expects consumption to increase at the same pace next year, having gradually slowed from a five-year peak of 1.8 million bpd in 2015. The Organization of the Petroleum Exporting Countries meets at the end of November to discuss a proposed cut in production to a range of 32.5 to 33 million bpd, but discord among members over exemptions and
production levels has raised doubt over OPEC’s ability to deliver a meaningful reduction. “Whatever the outcome, the Vienna meeting will have a major impact on the eventual - and oft-postponed rebalancing of the oil market,” the IEA said. “If no agreement is reached and some individual members continue to expand their production then the market will remain in surplus throughout the year, with little prospect of oil prices rising significantly higher. Indeed, if the supply surplus persists in 2017 there must be some risk of prices falling back.” The group said it expects nonOPEC production to grow at a rate of 500,000 bpd next year, compared with a 900,000-bpd decline this year, meaning 2017 could see inventories building again if there is no cut from OPEC. “This means that 2017 could be another year of relentless global supply growth similar to that seen in 2016,” the IEA said. Furthermore, slower global
economic growth and more modest demand in previous consumption hot spots such as India and China mean overall demand for oil will likely not pick up next year, the IEA said.
“Whatever the outcome, the Vienna meeting will have a major impact on the eventual - and oft-postponed - rebalancing of the oil market” International Energy Agency report “There is currently little evidence to suggest that economic activity is sufficiently robust to deliver higher oil demand growth, and any stimulus that might have been provided at the end of 2015 and in the early part of 2016 when crude oil prices fell below US$30 a barrel is now in the past,” the agency said. Reuters
Cape Verde
Budget group says financial situation unsustainable The budget support group (GAO in the original Portuguese) has advised Cape Verde to resolve its “unsustainable financial situation quickly” regarding the state-owned airline and housing, adding that delays in its restructuring represented “a huge risk” for the economy. The GAO, which has members including the African Development Bank, World Bank, Luxembourg, Portugal and the European Union, gave its opinion to reporters at the end of the second annual mission to assess Cape Verde, which ended on Wednesday. Fraud trial
Trump lawyers head to court Lawyers for president-elect Donald Trump yesterday head to court for a hearing pitting the future leader of the United States against a group of students who say they were defrauded by one of his businesses. The 2010 lawsuit, one of three over the defunct Trump University venture, was filed on behalf of students who say they were lured by false promises to pay up to US$35,000 to learn Trump’s real estate investing “secrets” from his “hand-picked” instructors. Trump owned 92 per cent of Trump University and had control over all major decisions, the students’ court papers say.
Basel
EU lawmakers call for changes to planned banking reform The reform is meant to clarify the application of existing global banking rules, known as Basel III European Union lawmakers approved a legal text yesterday urging global banking regulators not to significantly raise capital requirements for lenders, the EU’s latest move to influence a review of rules seen as too favourable to U.S. banks. The text was approved by the European Parliament’s economic committee just a few weeks before a meeting of the Basel committee of banking regulators on Nov. 28-29, which is expected to finalise new rules on how banks assess risk and set aside capital cushions to absorb losses. EU leaders have called for changes to the proposed Basel reform, which will affect top banks globally, fearing it would increase costs for European lenders, while favouring their U.S. rivals, and may result in a fall in lending in Europe. One of the reform’s objectives is to reduce the use of internal models used by some banks to determine risk
and capital buffers after regulators found huge variations in calculations. Internal models are used mostly by European banks while American lenders rely on standardised models. The Basel reform would increase the use of standardised models.
‘EU leaders fear the reform would increase costs for European lenders while favouring their U.S. rivals’ This could force some European banks to set aside more money against risk and would raise costs for a sector already struggling in Europe because of low interest rates and a sluggish economy.
Euro zone banks like Deutsche Bank, which is already facing question marks over capital, are likely to be hit hardest unless changes are made to the proposed rules. The text adopted by the EU Parliament’s economic committee calls for changes to the planned reform to avoid “unduly penalizing the EU banking model.” EU lawmakers have the power to amend the new global banking rules when they are turned into EU laws. The document would need a supporting vote by the entire European Parliament, scheduled for Nov. 21-24, to become a formal resolution. In a sign of a possible compromise, the chairman of the European banks watchdog said on Wednesday that the Basel committee is set to make significant changes to the proposed reform. The reform is meant to clarify the application of existing global banking rules, known as Basel III, but European bankers see the changes as so wide that they have labelled the process as Basel IV, as if it were a whole new set of rules. Reuters
Business Daily Friday, November 11 2016 15
Opinion
Despite differences, communication has been constant among China and Obama’s administration
Chinese consumers slip through foreign firms’ fingers
Nisha Gopalan Bloomberg Gadfly
W
hatever happened to the great Chinese consumer? It’s a question executives at Marks & Spencer Group Plc are asking themselves as the British retailer moves to shutter its 10 stores in China. The answer is that they’re still around, but are shifting more toward domestic brands, and online. A recent study of fast moving consumergoods sales by Bain & Co. found that even as China’s economic slowdown weighs on consumption, foreign firms are faring worse than home-grown ones. International-brand sales in 26 categories from shampoo to beer shrank 1.4 per cent last year. Sales of local brands, typically quicker to adapt to shifting tastes, rose 7.8 per cent. McDonald’s Corp., scouting for a buyer for its China operations, and newly independent Yum China Holdings Inc. are hoping they can ride out these changing loyalties with partners that secure them a better presence in ra p i d l y g r o w i n g smaller cities. per cent Some measure of of China’s retail is already online localization, they h o p e, w i l l h e l p s t av e o f f t h e i r declining share of the country’s fastfood market. Sussing the Chinese palate isn’t always enough, however. McDonald’s already sells taro pies, while Yum’s KFC outlets retail Peking duck wraps. Any further diversification risks diluting those companies’ core offerings too much. And going local isn’t a sure thing, as Hershey Co. found after it purchased Shanghai Golden Monkey Food JSC Ltd. Marks & Spencer’s other mistake - outside of none-too-trendy clothes and some bad store locations - was a lack of basic understanding of the Chinese consumer. Many of their fashions didn’t even fit local body shapes, for example. The London-headquartered group joins a growing list of Western retailers, including supermarket chain Tesco Plc and Best Buy Co., that have tried to cater to China’s mass market, and failed. Marks & Spencer’s international ambitions will now be limited to franchises and profitable stores in Ireland, the Czech Republic and Hong Kong. The retailer’s departure also marks a bigger lesson for mid-tier foreign players seeking a piece of the China consumer pie. An internet presence is crucial - 20 per cent of China’s retail is already online and without a local partner, companies will have a tough time getting inside the heads of the nation’s aspirational middle class. Unless your proposition is unique, like Starbucks Corp. or the cosmetics of South Korea’s Amorepacific Corp., it’s an uphill battle. For some of the world’s biggest brands, the quest to win over China’s consumer is getting a lot harder. Bloomberg Gadfly
20
Which way for US-China relations under Trump?
D
onald Trump’s shocking victory in the US presidential election has upended all of the certainties that have shaped not only American politics, but also how the world thinks about the United States. Trump must now confront the nitty-gritty of managing America’s international relationships, and arguably none is more important for the world than that between the US and China. But it is also the relationship that was put in the most doubt by the tenor of Trump’s campaign. The president-elect could complicate bilateral relations, particularly given that his first year in office will coincide with the Chinese Communist Party’s 19th National Congress next fall. In an ideal world, both Trump and Chinese President Xi Jinping should want to keep US-China relations stable. But this will prove difficult, given not only Trump’s Sinophobic rhetoric, but also on-going disagreements about Chinese territorial claims in the South China Sea and North Korea’s nuclear ambitions. Moreover, US-China relations could fall victim to US domestic disputes about global trade, the value of the dollar, and protectionism. Many Chinese observers accept that Trump will have to grapple with unprecedented divisions at home. He will be challenged not only by the now shell-shocked Democrats, but also by Republicans who opposed his candidacy, whether openly or covertly. Under these circumstances, he will have to emphasize putting America’s own house in order. If, however, he confuses such an effort with his campaign’s “America first” thrust, even more tension is likely. Beyond domestic politics, the international order has experienced several shocks in recent years, profoundly changing the global context for US-China relations. Protracted conflicts in Ukraine and Syria hint at a new Cold War between the US and Russia, and the turmoil in those countries, as well as elsewhere, is increasingly disrupting national economies and security regimes. As the world’s two leading powers, the US and China must figure out how to work together in such unstable conditions. Today, their unsteady relationship features cooperation alongside intensifying competition. Not unsurprisingly, the latter has gained more of the world’s attention than the former. President Barack Obama has been reinforcing the US military presence in and around China’s neighbours, beefing up security alliances in Asia, and very publicly intervening in the territorial disputes in the South China Sea. The Chinese leadership views these moves, as well as the proposed 12-country Trans-Pacific Partnership trade deal, as an effort to “contain” China. At the same time that the US is rebalancing its geopolitical strategy toward Asia, China is asserting its global presence with new security and international-development initiatives, including the “one belt, one road” project, which will link the Chinese economy with much of Eurasia. Likewise, the China-led Asian Infrastructure Investment Bank – which the US views as a Chinese tool for challenging the existing international order – continues to attract such faraway prospective members as Canada, which applied to join in August. Zero-sum competition between the US and China will make a conflict between the two countries more likely. One potential flashpoint will be North Korea’s nuclear-weapons program. The US is already taking measures to prevent North Korea from attacking it, or South Korea, through
“
Minghao Zhao a research fellow at the Charhar Institute in Beijing and a member of the China National Committee of the Council for Security Cooperation in the Asia Pacific (CSCAP).
enhanced ballistic missile defence systems. The new Trump administration could supplement those efforts with military action to increase the pressure on China. But any effort to bring nuclear-weapons technology to Japan or the Korean Peninsula, something that Trump declared acceptable during the campaign, would create a crisis in Northeast Asia the likes of which the world has not seen since the Korean War. The US could also clash with China over Taiwan. Relations between Taiwan and mainland China have been fairly peaceful since the 1995-1996 Taiwan Strait Crisis, when then-US President Bill Clinton sent an American aircraft-carrier battle group into the strait. But Taiwan remains a highly sensitive – and emotive – issue for China. If relations with the island sour, so, too, could the US-China relationship. The world benefits when US-China relations stay on track, so both countries should be more transparent about their national interests. With clearly defined positions, each country could pursue a policy of strategic restraint, avoiding the swaggering displays of force that have sometimes tempted them in the past. If a conflict between the US and China were to erupt, China’s modernization could be derailed, and the Chinese people would miss out on the “Chinese Dream” that Xi has declared as their goal. For the US, a diplomatic breakdown would indicate that China had been “lost,” as it previously was thought to have been lost when Mao Zedong defeated Chiang Kaishek’s US-supported Nationalist regime in 1949. More broadly, US-China hostility would be felt worldwide, and would disrupt international efforts to confront global challenges such as climate change. To avoid that scenario in the short term, the US and China should consider forming a joint team that includes experienced, highranking officials and prominent experts from both sides. This group could chart a course for US-China relations in 2017, identify potential conflicts, and recommend solutions before tensions can reach a boiling point. With a new diplomatic framework for bilateral relations, the US and China could ward off strategic confrontations. In the long term, the US and China need deeper dialogue and a shared vision for the international order, so that individual countries will not be tempted to form rival blocs among themselves. The US and China should also work together toward “globalization 2.0,” by reforming international rules and institutions to accommodate both established and emerging countries. While there is much potential for conflict between the US and China in the coming years, there is also space for improved cooperation. Indeed, amid the vast uncertainty created by Trump’s victory, a new relationship now makes more strategic sense than ever, given changing global circumstances, regional geopolitics, and domestic challenges in both the US and China. Trump must now choose between cooperation and confrontation as the framework for US policy toward China. His choice should be obvious: a collaborative effort to reform the international order would benefit both sides. Project Syndicate
The world benefits when US-China relations stay on track, so both countries should be more transparent about their national interests
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16 Business Daily Friday, November 11 2016
Closing Shenzhen forum
China announces huge investment in museums
The government will spend RMB3 billion (US$444 million) a year to fund free admission, said Liu Yuzhu, head of the State Administration of Cultural Heritage, at the UNESCO high level forum on museums, which began yesterday in Shenzhen, south China’s Guangdong Province. The number of registered museums in China has reached 4,692, with 4,013 free to visitors since 2008, according to Liu.
Around 200 new museums are opening each year and there is now one museum for every 290,000 Chinese people. The government aims to bring the ratio to one for every 250,000 Chinese by 2020, and attract 800 million visitors each year. While promoting equality and expanding coverage, the government will build museums in poor and remote areas and regions inhabited by ethnic minorities, as well as setting up mobile and digital museums in communities, schools and remote areas, Liu said. Xinhua
Currency
Yuan falls to six-year low amid U.S. politics concern Speculation new president would unleash a wave of spending, triggering a surge in inflation, is prompting traders to boost bets on higher U.S. borrowing costs
T
he yuan slipped to a sixyear low as concern about China’s trade relationship with a more protectionist U.S. provided a new reason to sell the currency that’s heading for a third annual loss. The exchange rate fell 0.21 per cent to 6.7923 per dollar at 5:13 p.m. in Shanghai, heading for its lowest closing level since September 2010, and extending its drop this year to 4.4 per cent. China’s central bank barely weakened its yuan fixing even after a 1.4 per cent surge by the Bloomberg
Dollar Spot Index on Wednesday, helping the Asian currency rally against a basket of peers. Trump has called China a “grand master” at currency manipulation and has threatened tariffs of up to 45 per cent on the country’s imports, a step that Commonwealth Bank of Australia estimated would cut China’s shipments to the U.S. by 25 per cent in the first year. Speculation Trump would unleash a wave of spending, triggering a surge in inflation, is prompting traders to boost bets on higher U.S. borrowing costs.
“The yuan may be pressured by Trump’s win,” said Nathan Chow, an economist at DBS Group Holdings Ltd. in Hong Kong. “There’s speculation that he could add punitive measures that hurt China’s exports, and also he may favor higher U.S. interest rates.” The yuan jumped the most against a basket of peers since July after the People’s Bank of China cut its daily reference rate by just 0.08 per cent. The fixing was stronger than expected, suggesting China wants to curb declines in the yuan, said Ken Cheung, a Hong Kong-based Asia currency strategist at Mizuho Bank Ltd. Trump will probably follow through with his pledge to declare China a currency manipulator on his first day in office, according to Lewis Alexander, a former Federal Reserve and U.S.
Treasury official. Trump, who staged a stunning upset in the Nov. 8 U.S. vote, said since the beginning of his campaign that China keeps the yuan artificially weak against the dollar to make its exports more competitive, at the expense of manufacturing jobs in the U.S. “Trump has made his stance quite clear about China and it is definitely not a friendly outcome in terms of bilateral trade relations,” said Christy Tan, head of markets strategy in Hong Kong at National Australia Bank Ltd.
“Trump has made his stance quite clear about China and it is definitely not a friendly outcome in terms of bilateral trade relations” Christy Tan, head of markets strategy in Hong Kong at National Australia Bank Ltd China Central Television on Wednesday cited Chinese President Xi Jinping as saying that he hopes to work with Trump to expand bilateral cooperation. He also said he hoped the two stick to the principles of avoiding any conflicts or confrontations. The gap between the onshore yuan and the freely traded yuan in Hong Kong widened to more than 0.5 per cent overnight, the biggest since the start of the year. The offshore rate gained 0.21 per cent on Thursday after tumbling as much as 0.6 per cent on Wednesday following Trump’s victory. Bloomberg News
Migration consequences
Trump adviser
Law enforcement
Mainland home to 9 million U.S. should have joined Chinese Vice Minister elected ‘left-behind’ children China-led infrastructure bank as President of Interpol More than nine million children have been “left behind” in China’s countryside by parents who have moved to its towns and cities to find work, Beijing said yesterday. The plight of such children, who are usually looked after by grandparents but sometimes have no guardians at all, is one of the most emotive consequences of China’s decades-long economic boom. Hundreds of millions of migrants have moved from rural areas to take jobs in urban centres, where their children would have limited access to schooling and healthcare under China’s household registration system, forcing them to be left with relatives. A government census showed there were a total of 9.02 million “left behind” children in the country, the civil affairs ministry said in a statement on its website. Nearly 90 per cent - 8.05 million - lived with their grandparents, 3 per cent were cared for by other relatives, and four per cent were entirely alone - almost 400,000 children. The new 9.02 million official figure was in marked contrast to a previous statistic of 61 million children given by an All-China Women’s Federation survey in 2013. AFP
A top adviser of U.S. President-elect Donald Trump lashed out at the Obama administration for failing to embrace the China-led Asian Infrastructure Investment Bank (AIIB), suggesting a possible policy shift when Trump takes office in January. Hong Kong’s South China Morning Post said that Trump’s national security adviser, James Woolsey, called the Obama’s administration’s opposition to the formation of the AIIB “a strategic mistake” in a letter to the newspaper. Woolsey wrote that he hoped the Trump response to the “One Road, One Belt” initiative would be “much warmer”. China launched the infrastructure bank three years ago to promote economic co-operation among a corridor of countries stretching from Southeast Asia to Europe. The AIIB was officially launched with 57 countries, including several U.S. allies, such as Britain, Australia and South Korea. China unveiled its ‘One Road’ blueprint and the establishment of the AIIB after China was excluded from the Trans-Pacific Partnership, a Pacific Rim trade deal led by the United States but which excluded China. Reuters
China’s Vice Minister for Public Security Meng Hongwei was elected yesterday as President of the International Criminal Police Organization (Interpol). He is the first Chinese official to take the post. Meng Hongwei took over the position from his predecessor Mireille Ballestrazzi from France after being elected at the closing ceremony of Interpol’s 85th General Assembly. The President of the Interpol heads its Executive Committee and is elected by the General Assembly for a period of four years. As the new president of the organization, Meng’s duty includes chairing meetings of the Executive Committee which ensures the implementation of decisions made at the General Assembly. During his speech, Meng promised to work together with all member states of Interpol to build the international group into a stronger platform for global police cooperation. According to Meng, he will promote more effective global police cooperation, better support the capacity-building efforts of police in all member countries, improve the coordination among regional and global police forces with a view to building a safer world and a more efficient Interpol that is beneficial for all member states. Xinhua