Capital outflow through Hong Kong finds new ways RMB Page 16
Monday, November 14 2016 Year V Nr. 1172 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Corruption
AAM president says too many charges against ex-prosecutor general Page 2
www.macaubusinessdaily.com
Corruption
Ng Lap Seng aide claims statements in custody were made under false pretences, and he was fatigued Page 6
Gaming
American Gaming Association works to ‘proactively engage’ Trump administration Page 7
Residential mortgage loans up 50 pct in September Loans
Almost 99 pct of all residential mortgage loans approved in September went to local residents, with approved loans to non-residents dropping 60 pct y-o-y. In total the banking sector approved MOP5.4 billion in residential mortgage loans over the month. New approvals of commercial real estate loans hit MOP9 billion during the month, seeing a 21 pct rise m-o-m.Page 3
Effect
Mainland property market slowdown could effect MSAR gaming Page 7
Insurance
Chinese firms seek shelter amidst rougher U.S. regulator scrutiny on M&A Page 10
Hearty haven
The Michelin Guide and Robert Parker Wine Advocate aim to turn the MSAR into a foodie’s paradise. Bernard Delmas, Senior VP of the Michelin Group, and Lisa Perrotti-Brown, Editor-in-Chief of Robert Parker Wine Advocate, tell Business Daily how the city can capitalise on its gastronomic strengths to diversify its tourism, and note that this is just the beginning of the groups’ plans for the MSAR.
Curtains close
Society Marco Müller has resigned as director of the Macao International Film Festival Awards (IFFA). No other director will take his place and the departure could be due to diverging opinions with the organiser of the festival, the Macau Films and Television Productions and Culture Association (MFTPA), whose board Müller has also left. The resignation takes place less than a month before the opening of the festival. Page 3
Neptune group delays results announcement Gaming Junket operator Neptune Group has to further delay its full year results for fiscal 2015/2016, as it has been unable to collect all of its accounts receivable. Auditors question the group’s alternative arrangements for collecting its share of the profit stream from junket operations hitting nearly HK$1 bln. The company admits it may suffer an impairment loss on this, as well as outstanding short-term loans reaching over HK$90 mln. Page 7
Chinese loans curbed
Interview | F&B Pages 4 & 5
HK Hang Seng Index November 11, 2016
22,531.09 -308.02 (-1.35%) Worst Performers
BOC Hong Kong Holdings
2.36%
Hong Kong Exchanges &
0.68%
HSBC Holdings PLC
1.92%
China Shenhua Energy Co
0.12%
Galaxy Entertainment Group
1.38%
China Mengniu Dairy Co Ltd
1.13%
Bank of East Asia Ltd/The Hang Seng Bank Ltd
0.92%
Wharf Holdings Ltd/The
-6.60%
Swire Pacific Ltd
-3.38%
AAC Technologies Holdings
-4.97%
China Mobile Ltd
-3.27%
-0.13%
Tencent Holdings Ltd
-3.94%
China Resources Land Ltd
-3.20%
AIA Group Ltd
-0.41%
China Unicom Hong Kong
-3.91%
Link REIT
-3.19%
Cheung Kong Infrastructure
-0.53%
Hong Kong & China Gas Co
-3.56%
Hengan International Group
-3.07%
22° 26° 23° 27° 22° 26° 23° 26° 22° 25° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Financial sector Mainland bank lending almost halved monthon-month in October as Beijing moved to rein in credit risks, but with the National holidays also having an effect. Curbs implemented in the property sector seem to be impacting the data. Page 8
2 Business Daily Monday, November 14 2016
Macau Corruption
AAM president shocked by charges made against ex-prosecutor general
T
he president of the Macau Lawyers Association (AAM), Jorge Neto Valente, stated that he was shocked and surprised by the number of crimes that former prosecutor-general Ho Chio Meng has been charged with, in a statement to local broadcaster TDM Radio. The ex-prosecutor general 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 434 instances of illegally sharing economic benefits, Business Daily reported. “It’s an incorrect way of presenting the problem,” stated the lawyer, as quoted by the broadcaster, “I’m chilled at the way that the history is constructed, what you read in the newspapers
would leave any normal person scared and worried,” says the lawyer.
10,000 pages
“How is it possible to develop such a conspiracy theory and create a 10,000-page case accusing one person of over 1,000 crimes? It’s as if the man didn’t do anything but dedicate himself to committing crimes. This isn’t true,” stated Valente. Ho Chio Meng, who spent 15 years in his position, also served in the former Portuguese administration, and held the position of assistant commissioner against corruption, reminded Valente. The head of the AAM also noted the speed at which the process is occurring, calling it “newsworthy”, referring to the upcoming judgement on December 5, even though
the former prosecutor was only detained in February of this year. In addition, Valente criticized the time-limit for the ex-prosecutor general’s defence, amounting to only 20 days to respond to the 10,000-page document. “Is this the justice that we have?” demanded Valente.
Mr. President
Jorge Neto Valente also announced to the broadcaster his intent to re-run for the presidency of the AAM, with elections set for December, noting that the list of applicants is similar to previous elections. “No other list (of candidates) came up, unfortunately. We advised, attempted, invited, but we couldn’t arrange another list. Therefore, there are a few renovations,
some substitutions, but the list is of continuity”. One of the primary
priorities of the AAM, according to Valente, will be “improving” justice.
Business
Tigerair Taiwan to keep its brand Cecilia U cecilia.u@macaubusinessdaily.com
Despite the current financial difficulties of the low-cost carrier that o p e rat e d M aca u -Tai w a n routes, Tigerair Taiwan’s chairman claims that the carrier will keep its original brand for its operations in the future, according to a report by English-language newspaper The China Post. The carrier is a joint venture between Tigerair Singapore and Taiwan’s China Airlines (CAL). In the wake of a recent merger plan with Singapore Airlines, some doubt was raised about the power of Tigerair Taiwan, as Tigerair Singapore enjoys absolute veto power at board meetings, according to the
current contract. This could lead to a situation in which the business of Tigerair cannot be halted unless the Singaporean partner approves. Nevertheless, the Chairman of the carrier, Ho-jo Chang, revealed that
the contract with Tigerair Singapore will be examined by a task force. Chang also revealed that measures including the re-organisation of its flight network will be implemented to cut the carrier’s deficit for next year, saying that the company might add new routes to more popular destinations such as Okinawa and Macau and cease those going to less
popular destinations like Singapore and Kota Kinabalu. The chairman admitted the loss of more than NT$1 billion (MOP250 million/US$31.77 million) since the group’s establishment in 2013, noting that he believed that it would be best for Tigerair Taiwan to continue using its existing brand for at least another year. Chang added that the 10 per cent stake purchased by the Singaporean partners will be regained by the end of this year, stating that Tigerair Taiwan will have many options for its future operating model after regaining absolute control over its operations. Currently, CAL is conducting market studies and may plan to close Tigerair Taiwan or join the carrier with another CAL subsidiary - Mandarin Airlines. Chairman Chang commented that he will accept the final decision made by the parent company.
Employment
Public works
20 enterprises provide thousands of job vacancies
One-metre-deep hole appears near Barra transport project
Twenty enterprises took part in a recruitment fair organised by the Macau Federation of Trade Unions (FOAM), offering thousands of job vacancies covering fields such as information technology, engineering, and service and administration, according to local Chinese broadcaster TDM radio. The city’s special taxi operator – Radio Taxi Macau Taxi Service Ltd – also attended the fair, aiming to recruit some 150 to 200 employees for the company’s operations beginning next April, according to the general manager of the company. The taxi operator is recruiting drivers as well as administrative and operational staff. The operator revealed that the salaries of drivers will include a basic
salary as well as bonuses. The President of FOAM, Ho Sut Heng, commented during her time at the fair yesterday that the city’s overall employment situation has improved, noting that the economic adjustment in the city has produced a certain level of impact, according to the broadcaster. Ho said that it is becoming easier for gaming workers to switch to other jobs, adding that some are seeking a variety of occupations. The President of FOAM also revealed that many local workers are willing to participate in training courses, adding that local employers and enterprises should offer more opportunities to their employees, in particular to middle-aged residents and new immigrants. One worker involved in the gaming industry, told the broadcaster he would be willing to switch to another industry as well as take training courses. He said that the city’s gaming operators currently provide very limited courses enabling workers to be promoted to higher positions, but he believes that local enterprises are willing to offer opportunities to the younger work demographic. C.U.
A road collapse which happened on Friday near the Barra transport project construction site has led to a one-metre deep and three-metre wide hole in the ground, TDM radio reported. The hole has affected the operations of a nearby bus stop as well as a traffic roundabout. The President of the Macau Society of Civil and Structural Engineers, Andy Wu Chou
Kit, pointed out that the incident most likely happened due to soil erosion of the landfill. Wu explained that the construction site is located near a hill where groundwater is common, however the president confirmed the safety of the site after completing an inspection of the retaining wall, advising that responsible departments should now conduct an in-depth investigation into the matter. C.U.
Business Daily Monday, November 14 2016 3
Macau Loans
Housing loans galore Residential mortgage loans in September saw a 48.2 per cent y-o-y increase, while commercial real estate loan approvals fell 13.9 per cent Nelson Moura nelson.moura@macaubusinessdaily.com
N
ewlyapprovedresidential mortgage loans by local banks in Macau increased 48.2 per cent year-onyear in September, while new commercial real estate loans fell 13.9 per cent from last year, the latest statistics released by the Monetary Authority of Macau (AMCM) reveal. In September, the local banking sector approved a total of MOP5.4 billion (US$675.8 million) in residential mortgage loans, a 44.3 per cent increase from August. Of the total loan amount, 98.8 per cent of approved loans went to local residents, while approved loans for non-residents saw a 60.6 per cent year-on-year decrease. Although newly approved commercial real estate loans decreased yearly, on a monthly comparison they registered a 21.5 per cent rise, reaching MOP9 billion. Meanwhile, newly approved residential mortgages collateralised by uncompleted flats registered a considerable 75.4 per cent decrease compared to the same period one year ago, down to MOP252.9 million, a 14.8 per cent month-to-month fall from August.
In both categories - approved residential mortgages collateralised by uncompleted flats and newly approved commercial real estate loans - the total amount of loans
was extended to residents, while no loans were provided for non-residents.
Real estate loan values rising
As at the end of September, the outstanding value of residential mortgages hit MOP178.6 billion, a jump of five per cent year-on-year, and a 0.4 per cent month-on-month rise, with local residents accounting for 93.5 per cent of the total amount.
In addition, the outstanding value of commercial real estate loans increased 10.4 per cent year-on-year, amounting to MOP169.8 billion in September, with residents accounting for 89 per cent of the loans received. Meanwhile in September, the delinquency ratio for residential loans reached 0.15 per cent, unchanged from August but up 0.07 percentage points from the same period last year. The ratio for commercial property loans went up by 0.01 percentage points, to 0.11, from September of last year, while remaining unchanged month-to-month.
Culture
Grand Prix
Marco Muller has resigned his post as director of IFFA
Jackie Chan promotes racing in China
Cecilia U cecilia.u@macaubusinessdaily.com
The director of the inaugural edition of the Macao International Film Festival Awards (IFFA), Marco Müller, has officially resigned, as of yesterday. The Macau Films and Television Productions and Culture Association (MFTPA), organizer of the IFFA, informed IFFA’s preparatory committee yesterday that Müller was also resigning from MFTPA. The organising committee of the festival and the MFTPA have met and agreed that no other director will be
invited to take the post which has been left vacant by Müller. The MFTPA confirmed that the secretariat will be taking over the position to assist with the operation of the film festival, emphasising that the resignation will not affect the previous preparations that have been made. According to local broadcaster TDM news, the Secretary for Social Affairs and Culture Alexis Tam Chon Weng revealed his respect for the decision made by Müller, despite the fact that the film director’s departure was unexpected. TDM news also reported that the resignation of the Italian director from the festival is due to a divergence of opinions with the local organiser – MFTPA. MFTPA signed a co-operation agreement with the Macao Government Tourism Office (MGTO). The resignation takes place less than a month before the opening of the festival, which will take place from December 8 to 13, with some 43 films from around the world being presented, including “Hidden Dragons”, which is dedicated to the latest trends in the Asian film market. Marco Müller was a consultant to the Beijing Film Festival and programmer of the Silk Road Festival in Mainland China. He was also the former director of festivals that took place in Venice and Rome. TDM news cited a U.S. magazine noting that Müller’s collaboration with the events will cease due to restrictions by the Chinese government. In May, the Italian director announced that ‘extremely accessible and at the same time extremely creative films’ will be shown. The Macau festival announced a total budget of MOP55 million (US$6.9 million), with the MGTO subsidising MOP20 million.
The action film star has teamed up with new racing star David Cheng to introduce Chinese racing teams to China, as well as to obtain recognition on the international stage Hollywood action film star from Hong Kong, Jackie Chan has teamed up with David Cheng – three-time winner in the Asian Le Mans Series - to create the first LMP2 team from Mainland China, sports news outlet Sportscar365 reported. LMP1 and LMP2 are the prototype classes in the FIA World Endurance Championship. Chan and Cheng initially got together and formed DC Racing in 2015, which won this year’s edition of the 24 Hours Le Mans. During an interview with the news outlet, Jackie Chan said that his hope is to create a Chinese car racing champion, after finding David Cheng – who was seeking support and sponsorship for his racing career - during a visit to Wuhan. Jackie Chan’s love affair with the sport began 35 years ago in the MSAR when he started a championship charity foundation and invited 15 actors to race with professional drivers by their side. The action film star said that he participated in matches organised in Macau every year, and in later times also in Zhuhai and Shanghai. Jackie Chan revealed that he was also involved in the previous Paris-Dakar Rally, as well as the Beijing-Hong Kong rally. During the 47th Macau Grand Prix in 2000, Chan co-operated with Mitsubishi to conduct a race for female celebrities. Due to his acting career, Chan became less actively involved in the sport and instead turned his attention to supporting drivers who demonstrate potential. When asked about the racing environment in Mainland China, Chan commented that racing is becoming
more popular, indicating that some 50 races had been conducted in the Mainland this year. “Racing is a world-class sport, so I hope more people can come to our country to participate in our races. As China has a great industry in car [production], racing is very important for our development and research,” Chan said to Sportscar365. The Macau Grand Prix 2016 – its 63rd edition – will kick off on November 17 and run until November 20. The major sporting event will be comprised of seven races: the Formula 3 Macau Grand Prix - FIA Formula 3 World Cup; the Macau GT Cup; the Macau Guia Race 2.0T; the 50th Macau Motorcycle Grand Prix; the Macau Road Sport Challenge; the Macau Touring Car; and the Chinese Racing Cup. C.U.
4 Business Daily Monday, November 14 2016
Macau
Bernard Delmas (R) of Michelin and Lisa Perrotti-Brown (L) of Robert Parker Interview | F&B Michelin Guide and Robert Parker Wine Advocate partner to bring gourmet foodie experience to MSAR
Foodie central
Having reached Macau for the first time nine years ago, the world-renowned Michelin Guide produced by the French tire company of the same name has awarded three more stars to restaurants in the city this year, joining the 16 already marked with the most coveted sign of food excellence, a Michelin Star. Now Michelin has partnered with one of the world’s biggest wine publications, Robert Parker Wine Advocate, to bring to Macau and Hong Kong world class chefs and wines for a series of unique gourmet dining and food tasting events. Business Daily sat down with Mr. Bernard Delmas, Senior Vice President of the Michelin Group, and Ms. Lisa Perrotti-Brown, Editor-in-Chief of Robert Parker Wine Advocate, to discuss how the city can make its unique gastronomic mixture one of the major strengths in diversifying its tourism offerings. Two days after the announcement of the Michelin Guide Hong Kong Macau 2017, the partnership hosted its prestigious Michelin Gala Dinner at the Studio City Grand Ballroom on November 11, bringing to Macau world renowned chefs such as Alvin Leung, Hideaki Matsuo, Björn Frantzén and Pierre Hermé. In addition, it highlighted some of the talent present in Macau: Chefs Tam Kwok Fung and Guillaume Galliot. Nelson Moura nelson.moura@macaubusinessdaily.com
W
hat was the idea behind this partnership? Bernard Delmas (BD) the Michelin Guide first came to Asia 10 years ago, to Japan, and we arrived to Hong Kong and Macau quite early, nine years ago. Since 2015, we’ve looked to develop more in Asia, and the original idea was started in Singapore. We were looking for partners and we found Robert Parker, originally a U.S. company, but that became a Singapore-based company. Robert Parker shares the same values we do, since we evaluate restaurants independently through our inspectors, which they also do with wine. The common value was so strong we thought they were the right partner and also had the experience with wine and food tasting events we didn’t. The success of the Michelin Guide gala dinner in Singapore in July was proof the concept of our partnership is working. What was the appeal of the Macau market? BD - Since the project was so successful in Singapore, and since the Guide was already so well established
in Hong Kong and Macau, we decided to expand the events here. It has been challenging to do so in such a short time. Lisa Perrotti-Brown (LPB) - It takes a lot of time to organise events of this scale, but we wanted to keep up the momentum. Did gaming operators or the government approach you to help organise the events? BD - No, just our own will. LPB - It always starts with us. Robert Parker has been doing events since 2012, because we wanted to create an experience for our readers, to do something more for them, get close to them and enjoy wine with them. Being able to do this with food as well, and having a like-minded partner, worked so well in Singapore we just wanted to keep the momentum [going]. One of the things we always say is: we’re always going to be in the driving seat whenever we decide what wines to work with, where we want to go, what we want to do - then invite people to create that experience for our readership. BD - It should be said this won’t be a short story. We started in Singapore and after coming to Hong Kong and Macau it won’t stop. It will accelerate and we want to bring regular
and different types of experiences and wines to the public, since many countries in Asia are very food oriented and interested in culinary experiences. LPB - We’re also both global companies, Robert Parker is one of the few wine publications that has a global presence, while the Michelin Guide has been global for a long time. How was the process to develop the events in Macau? BD - To organise events like this, where you invite chefs from all over the world and have to gather many people and customers in gala dinners, you need to have large venues and nice locations that are well-equipped, with nice kitchens, but also good staff so that the chef can make his best. Melco is our venue partner here, offering the framework to organise these events. LPB - Unfortunately with events, sometimes we’re a little bit limited in what we can pick, because we have to have a place with the ability to be able to host this kind of size and logistics. Bringing all these chefs and wines together, getting enough storage for the wines, bringing the glassware, it’s pretty challenging. BD - Just the servicing of very nice food and wine at the right temperature
and with the right preparation, you really need excellent professionals to do it. So the venue partner is very important. Are you looking for more local partners in Macau? BD - Melco is our prominent partner, but we plan to have more events, with half of them in Hong Kong and other half in Macau and we’ll need more venues for them. We started with Melco because the opportunity was there and we wanted someone who could help us enter the market. Is China a very attractive market for the food supply and dining sector? LPB - Absolutely. BD - When we say the public in Hong Kong and Macau, we’re also saying the Chinese market in general, maybe people from Taipei, Japan, Singapore and all over Asia. Macau is very central and that’s what we’re aiming for, we can reach many Asian customers from here. Have you planned any events in Mainland China? BD - Not yet. It’s a question that has been raised many times: which cities will be next. Singapore was a success and it motivated us to go to Hong Kong and Macau. We want to make some future successful events and will consider our future deployments. What benefits do these dining events bring to the economies of the cities where they are held? BD- I believe there are many benefits as to the outcome of the events. First, you have two prominent brands in the foodie industry organising food and wine tasting events in the city, which is a plus in terms of image, especially for tourism. I can tell you from what I’ve seen in many countries, the single biggest reason nowadays for travel is unique gastronomic experiences. I live in Japan and I can tell you foreigners going there nowadays are going to have 10 days of just eating. You can see the same in many countries in Asia. The fact that you get this image of restaurants and events of this level of Michelin Guide dining and Robert Parker wine tasting, I’m sure is a plus for tourism. LPB - We have a mix of local and foreign chefs, so there’s a little bit for everyone, even people that live here will be attracted to come to the events. It’s about creating these really special and unique, in some cases even, once in a lifetime opportunities.
Business Daily Monday, November 14 2016 5
Macau We absolutely also want the local community to come too, but we want the events to be so special people will actually take a flight to attend and make a weekend out of it. When we organised the gala dinner in Singapore, people took flights from very long distances just to be able to say they attended this event and they ate something created by Chef Joël Robuchon, something very unique at that event. Sometimes the wines are the show stoppers. We did an event in New York this year where we had a tour of vintage wines going back to 1961, and people came from Indonesia, China and Japan because it’s a once in a lifetime experience. There are currently 19 restaurants in Macau with Michelin stars, mostly based in integrated resorts. Are these venues the only ones with restaurants of Michelin star quality? LPB - Yes and no I suppose. I guess they’re the ones that have most of the restaurants of that calibre. It’s a bit of a hen and egg situation. BD - Depends on the country, sometimes independent restaurants prefer to be in hotels. LPB - It’s the same in Singapore, the best restaurants are either in hotels or casinos.
“If you want people to stay longer, you have to think as a foodie. If you’re coming for two or three days for fun, food will be a great part of the experience. If you don’t enjoy the food, you won’t come back to this place.” Bernard Delmas, Senior Vice President of the Michelin Group Macau is aiming to become a World Centre for Tourism and Leisure. What potential do you think the city has for these sectors and what can it change? LPB - The food scene is something Macau can really develop. BD - If you compare Hong Kong and Macau, Hong Kong has been a business and finance centre for very long, and it’s a larger city so it obviously has many restaurants and hotels. Macau has historically focused on gaming, but now we can see a slight evolution as to providing a wider entertainment experience, outside just playing cards. If you want people to stay longer you have to think as
Chefs at Michelin Gala Dinner
Food and wine pairings
a foodie. If you’re coming for two or three days for fun, food will be a great part of the experience. If you don’t enjoy the food, you won’t come back to this place. So, for Macau to become a more leisure-oriented destination, food will have to have more and more importance. If the city takes its unique local cuisine, combines it with international cuisine from Japan, France, Italy, and places it as paramount to the tourism experience, it will be a good strategy. What are the trends now in terms of the wine business in Asia? LPB - It’s still pretty traditional across Asia. In Mainland China and Hong Kong the market is mainly for red wine, with a big preference for Cabernet Sauvignon or Bordeaux. In recent years there has been some branching out and some experimentation, which is pretty exciting. Particularly in Macau, which is a bit of a hub now in this area of Southeast Asia. There’s just been an explosion here in interest in wine where becoming more experimental is the natural progression, with a switch from Bordeaux to Burgundy and appreciation for the finesse and lighter styles of Pinot Noir. Australian and New Zealand wines do very well here as well. Macau is also a hub for entry of Portuguese wines to Mainland China. How would you describe their quality at the moment? LPB - Portugal itself has gone through quite a transformation in recent years in terms of the quality of the table wines it produces, apart from their tradition of fortified Port Wines. Table wines are the fashion right now and Portugal has been proving it can produce world-class table wines, with real depth and complexity, and everything you look for in a great wine for a fraction of the cost you would pay for a Bordeaux. I believe their biggest challenge is in marketing, since in Mainland China, Hong Kong and Macau, you have a very label-conscious market. Real wine lovers will come to discover Portugal
wines, but the country can still do a lot to market them in entry point places like Macau. So what does a restaurant need to have to get a Michelin star? BD - It has to work hard. They have
to remember the criteria to be rated from the Guide - that is judged by our independent inspectors - and work hard in the kitchen to satisfy their customers. If the chefs do their part in the culinary scene of Hong Kong and Macau, the ratings will come.
Michelin Guide rated restaurants in Macau Three Michelin Stars (Exceptional cuisine, worth a special journey) - Robuchon au Dôme - The Eight Two Michelin Stars (Excellent cuisine, worth a detour) - Golden Flower - Jade Dragon - The Tasting Room - Zi Yat Heen - Feng Wei Ju - Mizumi
One Michelin Star (High quality cooking, worth a stop) - King - 8 1/2 Otto e Mezzo - Shinji - Terrazza - The Golden Peacock - The Kitchen - Tim’s Kitchen - Wing Lei - Lai Heen - Pearl Dragon - Ying
6 Business Daily Monday, November 14 2016
Macau Court
Ng Lap Seng aide pleads ‘sleepy’ Aide to billionaire claims to have been misled before making statements to authorities
J
effrey Yin, former aide to local billionaire Ng Lap Seng, has claimed that statements he made following his arrest last year were under false pretences, and he has asked a judge to deny their use as evidence in the upcoming Manhattan federal court trial scheduled for January 23, according to media reports including from local broadcaster TDM. Yin claimed that he hadn’t slept in over 24 hours when he was arrested in September of 2015, having spent the evening with Ng Lap Seng at the
Foxwoods casino, according to Long Island publication Newsday. In addition, Yin claims that he was misled about his Miranda rights as well as being denied the chance to see a
The mansion in question, according to Reuters, could be that of Qin Fei, a Chinese national that matches the description of an individual that the Federal Bureau of Investigation (FBI) believes has links to Chinese Intelligence. The sale of the mansion is
believed to have been conducted by a former Air China employee, Ying Lin, who is also under investigation for conspiracy and obstruction of justice. Ying allegedly warned Qin that he was under investigation and helped him escape on an Air China flight late last year, Newsday reported. Ng, who was driven to a meeting at the Long Island mansion before his arrest, has been detained without bail in his apartment in Manhattan since last year. Prosecutors accuse the real estate mogul of bribing John Ashe, a former ambassador of Antigua and Barbuda to the United Nations General Assembly, with over US$500,000 to support a UN-backed conference centre in the MSAR, to be developed by Ng’s company, among other charges. Ashe was found dead in house just days before his trial. K.W.
According to the granite supply company owner, the “huge trust” he had placed in Mr. Ángel led him to accept his advice as to where to deposit the company’s financial surplus, appointing the financial advisor to deposit considerable amounts of cash in different banks in Portugal, later transferred to accounts in Macau and Madeira. However the company owner argues that upon attempting to withdraw money from the opened accounts, only 112,000 euros was left. The company owner stated that although the accounts in Portugal were opened under his name - with access authorisation given to his wife - the accounts weren’t opened directly by him, the news website reported. However a former vice-director from a bank in Valença, Portugal, stated in court that the bank had not
dealt with any person other than the company owner when conducting account funds transfers over the period between 2013 and 2015, adding that opening accounts requires the physical presence of the client. According to the accusation, the financial advisor was using the deposited money for his own benefit, while delivering falsified account statements to the granite supply businessman. The Spanish Public Prosecutor’s Office is now accusing Mr Ángel of falsifying business documents and misappropriation, with a possible sentence falling between seven and a half years in prison, or a fine of 10 euros per day for 12 months to act as compensation as well as compensating the company with an amount in excess of 3.8 million euros.
judge despite having asked an agent multiple times, notes the publication. Currently, Yin is accused of having helped Ng in a bribery scheme to construct a United Nations conference centre in the MSAR. Both of the men allegedly brought in money to the U.S. and visited a Long Island mansion during the trip that led to their arrest.
Rabbit hole
Crime
Offshore accusations A Spanish financial advisor is being accused of diverting 3.8 million euros from amounts deposited by a granite supply company in offshore accounts in Macau and Portugal Nelson Moura nelson.moura@macaubusinessdaily.com
A Spanish financial advisor has been accused by a granite supply company of diverting a total of 3.8 million euros (MOP33 million) deposited in offshore accounts in Macau, Spanish news website Economia Digital has reported. According to the news website,
during a fraud court case currently in progress in the city of Vigo, in the Spanish province of Galicia, the owner of a granite supply company accused a former financial adviser, Ángel N.T., of diverting a considerable amount of the company’s savings he was appointed to deposit in offshore accounts in Macau and the Portuguese Island of Madeira between 2000 and 2010.
Business Daily Monday, November 14 2016 7
Macau Effects
Location, location, location Cooling property market in Mainland could impact revenues, say analysts
A
potential for cooling in the housing market in Mainland China could signal a drop in revenues for the MSAR, note analysts at Union Gaming. Recent curbs on the housing market, indicated by a 40 per cent year-onyear slowdown seen in home sales volume data from the Chinese Real Estate Information Corp, quoted by the analysts, could curb speculation. ‘In our view, a stronger housing market is likely driving some of the recent uptick in VIP and premium mass business,’ note the analysts, quoting a 50 per cent year-on-year slowdown in smaller cities, which could dampen revenues in those segments. Further bringing down revenues in November, which is predicted to see a
six per cent to 11 per cent year-on-year increase in gross gaming revenue for the month, is the Macau Grand Prix, which the analysts have typically seen ‘decelerate’ revenues by five per cent on average, due to ‘road closures and time away from gaming’. The analysts continue to note that they ‘won’t see a v-shaped recovery’ such as in 2013, expecting instead
‘low- to –mid-single-digit growth’. Analysts also opine that MGM Cotai could open without ‘any’ junkets, however they could be brought in post-opening, calling the group’s third quarter results ‘ahead of expectations’. In addition, the group notes that the election results, due to China likely preferring ‘a Republican president’ could impact Las Vegas Sands, Wynn and MGM’s operations in the MSAR, however at this point ‘it’s too early to tell’. K.W.
Junket
Neptune group delays results pending junket operation info VIP junket operator Neptune Group Limited has announced a further delay in its 2015/2016 fiscal year results as auditors await information from the group regarding intangible assets from the group’s profit stream sharing in junket assets and recoverability of short-term loans, according to a filing with the Hong Kong Stock Exchange. The results, according to the company, are expected to be published on or before November 30 of this year. As of June 30 of this year, the group had HK$92.1 million in outstanding short-term loans and agreed on extended loan repayment schedules, using post-dated cheques for the repayment of the loans in December of this year and January and March of next year, for loans
Detained
Australia’s Crown says China releases 1 of 18 detained casino employees Australia’ top casino operator Crown Resorts said on Sunday that one of 18 staff arrested in China in October for suspected “gambling crimes” had been released from detention. Crown gave no more details. The detention of 18 Crown staff, three of whom are Australian nationals including its head of international VIP gambling, has sparked concern about the impact on Australian casinos which rely on wealthy Chinese gamblers. The Australian Financial Review reported that Jenny Jiang, who worked in administration for the gaming company in Shanghai, was released on bail on Thursday. Analysts have linked the detentions to Chinese laws banning casinos from advertising or promoting gambling in the Chinese mainland, such as offering credit to high-spending clients. VIP gambling delivered “less than 30 per cent” of revenue at Crown, with 80 per cent of that derived from VIP junkets from Asia, Star Chairman John O’Neill said in October. Australia’s No. 2 casino company Star Entertainment Group Ltd SGR. AX warned of uncertainty around future revenue from China following the Crown arrests. Reuters
granted to support their respective junket operators of three separate operations. The auditors are currently reviewing these agreements and ‘are yet to confirm their satisfaction of the remedial actions of the Loan Borrowers’. Also under review by the auditors are the intangible assets from the group’s profit stream sharing from junket operators in VIP rooms in the MSAR, which at June 30 amounted to HK$950.3 million, for which it notes it ‘may incur impairment losses’ during the 2015/2016 fiscal year.
Tough times
Th e g r o u p n o t e s t h a t t h e s e impairments came about due to the ‘difficult operating environment of the Junket Operators’, noting that
it is in the process of ‘reviewing the business plans of the Junket Operators, taking account of the outlook of the gaming industry in Macau and the competitiveness of the Junket Operators among their counterparties in the same business.’ The group additionally notes that in working to secure outstanding accounts receivables amounting to HK$470.9 million, as of June 30, it has ‘been using their best endeavours to collect the accounts receivable as much as possible, seeking security for the unpaid amounts, and obtaining repayment schedules from the relevant junket operators,’ information it has passed on to the auditors for review. The group comments that the ‘difficult market conditions during the last two years’ partly attributable to the slowdown in China’s economy and the anti-corruption measures by the Mainland government ‘have had the effect of curbing VIP patronage in Macau’s casinos’. K.W.
Lobbying
AGA hopes to “thrive” under Trump Administration Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
The American Gaming Association (AGA) is focusing on ‘proactively engaging with the new Administration and incoming members of Congress,’ in the wake of the presidential elections, according to a statement published by President and CEO of the AGA, Geoff Freeman outlining focus areas in the wake of the vote. “With the dawning of a new era in Congress, the gaming industry’s Congressional champion development efforts have never been more important,” states Freeman. The AGA is advancing a five-point plan to engage the new administration, including: advocating pro-business policies promoting growth and reinvestment; supporting economic policies providing consumers with confidence and discretionary income; encouraging a welcoming environment for foreign visitors – ‘many of who are interested in enjoying the casino gaming experience’; cultivating relationships with and ‘educating’ new members of Congress on gaming’s ‘positive’ economic and community impacts; and advancing a pro-gaming agenda.
Leveraging
‘The AGA will leverage our industry’s 40-state presence to coalesce a powerful network of Congressional leaders willing to promote favourable
public policies and block overzealous federal efforts that add unnecessary costs and inefficiencies to our business,” notes the CEO. Freeman notes that the “challenges before us remain great” however “we are optimistic a Trump Administration” will feature “more restrained federal agencies than what our industry […] experienced over the last eight years”. The CEO notes that the gaming industry is “well positioned to thrive in this new environment” and that AGA is “eager to work with the Trump Administration and new Congress” predicting “important victories for the gaming industry” in the years to come. AGA is the primary U.S. national trade group representing the American casino industry. The parent companies of local gaming operators Wynn Resorts and MGM Resorts have pledged to follow AGA’s Code of Conduct for Responsible Gaming, while AGA’s Geoff Freeman and Las Vegas Sands’ (parent company of Sands China) Sheldon Adleson often have opposing viewpoints on many issues.
Opinion
Sheyla Zandonai* Urgent agency Cristina Morais left her position as Coordinator of the Forum Macao Supporting Office last week. Ms. Morais has been re-appointed to the same position she held between 2009 and 2015, that is, head of the Department of External Economic Relations of the Macau Economic Services (DSE). There may already be a favourite candidate in the running but as yet no official announcement has been made regarding who is to replace her. The lack of directorship notwithstanding, there is another dimension of the Forum that matters here: its relevance, purpose, and actions. The Forum for Economic and Trade Co-operation between China and Portuguesespeaking Countries (Forum Macao) is a multilateral cooperation mechanism established to foster opportunities for dialogue between countries in Africa, Latin America and Asia, thereby creating practical ways of bridging the linguistic and political distances that unite and separate those worlds. In this ambitious project, Macau performs the role of connector. In common parlance, this means that it acts as a “platform” for encounter and exchange, aimed at building connectivity through trade and intergovernmental collaboration. If we are to stick to the etymological sense of the term, a platform is a plan of action. A quick look into the Forum’s activities, which can be more comprehensively found on its website rather than in the press, leaves no doubt that several forms of cooperation are actually materializing: trade agreements for the most part, but also language training programmes and knowledge transferral, to name but a few. Defying the critics of Forum Macao, we have to acknowledge that planned actions are indeed building up, enhancing cooperation and opportunities for development on a scale that is new, at least to African countries – though the question of whether those are actions are only benefitting business and investment groups or larger populations, should be considered more carefully. The Forum has been given further momentum by the visit of high-ranking officials during its 5th Ministerial Meeting held last month. Or so it looks. In Macau, both Chinese Premier Li Keqiang and Portuguese Prime Minister António Costa have endowed the “platform.” Their involvement is a political statement of will which can only be read as a call for action alongside new, expanded guidelines and, above all, with regard to Macau, a hint for the urgency of agency that needs to be attained. *scholar and contributor to this newspaper.
8 Business Daily Monday, November 14 2016
Greater China In Brief Shenzhen market
Action taken against Evergrande-related accounts The Shenzhen Stock Exchange said on Friday that it has taken measures against accounts related to conglomerate China Evergrande Group regarding abnormal trading activities in stocks including property giant Vanke. Chinese regulators are intensifying a crackdown on financial market speculation, seeking to prevent asset price bubbles. Stock accounts related to Evergrande, whose business spans real estate to insurance, have been involved in possible short-term speculation in several stocks, as well as abnormal trading in Vanke’s China-listed shares that had an obvious impact on the stock’s trading volume and price, the exchange said in an official microblog on Friday. Tourism
Cross-Strait air passengers decline Taiwanese transportation authorities said Friday crossStrait air passenger traffic had declined significantly in the past few months, as Chinese Mainland tourists shunned travel to the island. From August to September, air passengers between the Chinese Mainland and Taiwan fell to 1.72 million from 1.95 million in the same period a year ago, authorities data showed. In the first nine months, there were 8.66 million air travellers, compared with 8.72 million the same period a year ago. The number of Mainland tourists has dropped since Taiwan’s leader Tsai Ing-wen took office in May. Steel imports
Beijing says concerned about EU protectionism China is greatly concerned about the European Union’s protectionist measures against Chinese steel products, the commerce ministry said on Saturday. “The Chinese side has expressed great concerns and worries about the EU’s trade protectionist tendency over steel,” the ministry said in a statement on its website. The ministry was responding to the EU’s latest decision to take temporary anti-dumping measures against imports of Chinese seamless steel pipes, based on preliminary investigations, it said. A worldwide steel glut has stoked trade disputes between China and other producers such as the United States and the European Union. Auto industry
Great Wall Motors to launch new “high-end” brand China’s Great Wall Motor, maker of the country’s top-selling sport utility vehicle, plans to launch a new “high end” brand this week, the latest attempt by a Chinese automaker to shake its association with cheap cars. The WEY brand will be launched on Nov. 16 ahead of the Guangzhou motor show, China’s second most prominent auto exhibition of the year, the company said in an exchange filing on last week. Great Wall was an early mover in China’s craze for SUVs with its H6 model topping sales charts going back to 2014.
Lending
New yuan loans down sharply as property curbs start to bite The central bank said last week that it will maintain ample liquidity in the economy while taking steps to prevent asset bubbles Kevin Yao
C
hinese banks extended RMB651.3 billion (US$95.56 billion) in net new yuan loans in October, below expectations and falling sharply from September, as policymakers pledged to prevent asset bubbles in the increasingly debtfuelled economy. The People’s Bank of China has been keeping policy accommodative to spur growth - as evident by record bank lending so far this year - but it faces an uphill battle to divert money from the red-hot property market into the weak real economy. “Credit growth slowed down as mortgage lending weakened, after the introduction of a series of real estate controlling polices,” analysts at Haitong Securities said in a note. “Corporate financing needs remain weak. There are risks that credit may continue to shrink in the future.” Analysts polled by Reuters had expected new lending to have fallen back to RMB700 billion from September’s three-month high of RMB1.22 trillion. New bank loans totalled RMB10.8 trillion in the first 10 months of the year - an all-time high, according to Reuters calculations based on central bank data. Lending has been driven heavily by robust mortgage growth as the housing market booms, with banks increasing their exposure to the sector to offset a surge in non-performing loans in more sluggish parts of the economy.
New household loans, mostly mortgages, fell to RMB433.1 billion in October from RMB637 billion in September, central bank data showed, suggesting demand for mortgages is cooling after a spate of steps by local governments to restrict home purchases to cool soaring prices. The ratio of new household loans to total new loans rose to 66.5 per cent from 52 per cent in September, the data showed. Highlighting underlying weakness in the broader economy, new medium- to long-term corporate loans fell sharply to RMB72.8 billion yuan from RMB446.6 billion in September. The central bank said last week that it will maintain ample liquidity in the economy while taking steps to prevent asset bubbles, adding that the balance between stabilising growth and preventing bubbles has become more challenging.
No basis for tightening
China’s total social financing (TSF), a broad measure of credit and liquidity in the economy, fell sharply to RMB896.3 billion in October from RMB1.72 trillion in September. TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offers, loans from trust companies and bond sales. But broad M2 money supply (M2) grew 11.6 per cent from a year earlier, the strongest in four months and slightly above forecasts of 11.4 per cent.
“Liquidity in the interbank market has tightened some, but looking at M2 growth it is not that low, so I think overall policy is neutral. We can’t say there’s been tightening,” said Ma Xiaoping, HSBC economist in Beijing. “There is still not a basis for tightening, as the real economy is still weak. It is too early for tightening.” China’s overall debt has jumped to more than 250 per cent of GDP from 150 per cent at the end of 2006, the kind of surge that in other countries has resulted in a financial bust or sharp economic slowdown, analysts say.
Key Points New loans RMB651.3 bln (f’cast RMB700 bln, Sept RMB1.22 trln) Jan-Oct new bank loans hit record high, mortgage lending strong Policymakers worry too much credit may fuel asset bubbles M2 money supply +11.6 pct y/y, vs f’cast +11.4 pct Oct TSF at RMB896.3 bln, vs RMB1.72 trln in Sept M1 money supply, which includes cash and short-term deposits, rose 23.9 per cent in October on-year versus September’s 24.7 per cent rise. A widening gap between M1 and M2 growth has fuelled concerns about a “liquidity trap” in the economy where companies remain wary of investing regardless of how much stimulus policymakers pump into the system. The gap narrowed to 12.3 per centage points in October from 13.2 per centage points in September. Reuters
Business Daily Monday, November 14 2016 9
Greater China E-commerce
Alibaba posts record Singles’ Day sales Couriers and packaging firms say low prices and steep competition mean profit margins are slim despite large sales volumes Catherine Cadell
Alibaba Group Holding Ltd Singles’ Day festival posted a record RMB120.7 billion (US$17.73 billion) worth of sales on Friday, though the gala shopping day saw growth slow as Chinese shoppers searched for deeper discounts and lower price tags. Amid fanfare and celebrity razzmatazz, sales on Alibaba’s platforms had raced to a billion dollars in less than five minutes and broke past last year’s total with almost nine hours of the day-long shopping gala to spare. The final total marked a 32 per cent rise from 2015, but growth was significantly lower than the 60 per cent increase last year, a reflection of more caution among shoppers who opted to spend less money on each purchase than in previous years. The 24-hour event, held annually on Nov. 11, offers a benchmark for Alibaba’s performance and an insight into China’s swing to online shopping, especially via smartphones. Alibaba Chairman Jack Ma played down the importance of the final figure in a speech shortly before midnight, echoing other executives who spoke during the day. “(Singles’ Day) is not about a number only,” said Ma, adding that the gross merchandise value (GMV) metric was “misleading” because it undervalued the company’s wider ecosystem. GMV refers to the value of goods sold by vendors through Alibaba’s platforms. Alibaba makes money through advertising and charging vendors a proportion of their sales. “When volumes started to grow a little less fast I actually became more relaxed,” said Ma, citing the challenge of handling such a large number of orders. “We don’t want to collapse the entire logistics system.” The discount shopping day, also
known as “Double 11”, still shifts more goods than the Black Friday and Cyber Monday sales days in the United States combined. The slowdown in sales growth comes amid a more saturated domestic online retail market, a weaker economy and sluggish personal income growth hitting consumers’ wallets. A strong U.S. dollar also hit the headline sales figure in dollar terms.
Mobile shopping surge
After a beefed-up marketing push over the last month - with fashion shows and virtual reality games sales officially opened at midnight, releasing a wave of pre-orders that shoppers had placed ahead of the event. Sports stars David Beckham and Kobe Bryant attended the countdown, though headline act Katy Perry
pulled out last minute citing a family issue. At mid-afternoon on Friday a live sales tracker at an Alibaba event in the southern Chinese city of Shenzhen ticked passed the 2015 yuan total, ensuring the day set a record. The rise of Singles’ Day reflects how China’s consumers, armed with smartphones, are racing online to shop - to the detriment of bricks and mortar stores. Around 82 per cent of total sales were via mobile devices, up strongly from last year. The day itself is a double-edged sword for many: Couriers and packaging firms say low prices and steep competition mean profit margins are slim despite large sales volumes. Retailers are also starting to feel the pinch: The cost per order shrank to RMB184 (US$27) from approximately RMB194 in 2015, according to the unaudited metrics released by Alibaba. Cut-throat competition for customers has also caused concern over false advertising and massaged statistics. This week China’s business regulator
advised mainland online shopping platforms to guard against suspect sales tactics. In May this year, Alibaba said the U.S. Securities and Exchange Commission (SEC) was looking into how it reports its Singles’ Day figures. Alibaba said at the time it was cooperating with the authorities, and that the SEC advised it the investigation should not be seen as an indication the company had violated federal securities laws. Alibaba declined to comment on the SEC probe on Friday. The company has also faced criticism for its failure to address selling of counterfeit goods on its online marketplace. During his speech Jack Ma called on authorities to confiscate licences from manufacturers making counterfeit products. “Someone has to remove their licences, someone has to close them down,” said Ma, adding that Alibaba itself was “not law enforcement”. Alibaba is not the only retailer to mark Nov. 11 with a massive sales drive. China’s no. 2 e-commerce player, JD.com Inc, and many others also offer discount deals on the day. Reuters
A giant screen displays sales figures during the Alibaba 11.11 Global Shopping Festival in Shenzhen
Growth trend
Hong Kong’s economic momentum cools Some economists said the once vibrant city would continue to face pressure from global economic uncertainty Twinnie Siu and Anne Marie Roantree
Hong Kong’s economic growth slowed in the third quarter from the second as weak exports, sluggish retail sales and falling tourist arrivals took its toll on the former British colony. Though the government kept its full-year estimate for 2016 in the middle of its previous forecast range of between 1 and 2 per cent, underlying momentum slowed from the June quarter. Looking ahead, the government expects growth to remain on a modest track in the near term due to a number of concerns, including the likely trend of rising interest rates in the United States and elevated geopolitical risks elsewhere. “There is a need to stay alert to these risks for their possible repercussions on the global financial and economic situation,” it said in a statement. The economy grew a seasonallyadjusted 0.6 per cent in the third quarter, compared with a downwardly revised 1.5 per cent in the June quarter. Economists surveyed by Reuters had predicted growth of 0.3 per cent.
From a year earlier, the economy expanded 1.9 per cent in the third quarter compared with 1.7 per cent in the previous quarter and economists’ expectations of 1.6 per cent. A marked slowdown in exports and weaker growth in private consumption and government spending combined to push down GDP in the third quarter. Hong Kong’s services sector has
also been in a prolonged slump with retail sales falling for the 19th straight month in September as a strong local currency crimped business activity and tourism. Slower economic growth could pile further pressure on Hong Kong leader Leung Chun-ying ahead of an election next year and amid rising tensions with the central government in China over concerns of increased meddling by Beijing in the city’s affairs. Hong Kong’s benchmark index closed down 1.4 per cent before the data on Friday, capping a turbulent week in financial markets in the
wake of Donald Trump’s surprise p r e si d e n t i a l w i n a t th e U . S . elections. The former British colony’s economy is now more vulnerable as it struggles with weaker retail sales and a slump in cash-rich mainland Chinese streaming across the border on shopping sprees. Prospects for Hong Kong could be further compounded by new U.S. trade policies and China’s economic performance at a time when exports are weak and economists are waiting to see the impact of property cooling measures imposed this month.
Key Points Q3 GDP s/adj +0.6 pct q/q; 1.9 pct y/y 2016 GDP f’cast revised to 1.5 pct vs 1-2 pct Retail sales down for 19 straight months Outlook overshadowed by rising tensions with Beijing The government said it would raise stamp duties on home purchases to 15 per cent, across the board, effective Nov. 5. Some economists said the once vibrant city would continue to face pressure from global economic uncertainty as well as increasing tensions with Beijing that could threaten stability and impede policymaking. Reuters
10 Business Daily Monday, November 14 2016
Greater China
M&A
Mainlanders seek insurance to protect against failed U.S. deals Outbound M&A volume from China has more than doubled so far this year to nearly US$196 billion Olivia Oran
I
nsurers have begun offering protection for cross-border deals that might fall apart due to regulatory scrutiny, targeting Chinese companies that are aggressively pursuing acquisitions in the United States. Britain’s Aon Plc in the last year became the first to offer a new type of coverage for deals that might face opposition from the U.S. Committee on Foreign Investment (CFIUS), insurance executives and bankers said. Other large brokers, including Jardine Lloyd Thompson Group Plc, are also providing insurance from CFIUS risk. CFIUS is a wing of the Treasury Department that examines deals to determine the effect on national security. Its power to scuttle transactions or demand divestitures hovers over certain deals, especially as other U.S. authorities have raised concerns about Chinese acquirers. CFIUS protection comes in response to sellers’ insistence that Chinese buyers promise to pay a “reverse breakup fee” if a deal is blocked, bankers and lawyers said. CFIUS has already derailed a number of high-profile deals, and President-elect Donald Trump’s tough talk on China has made the future of that country’s investment in the United States even less certain. Yet increased regulatory scrutiny has not deterred a large number of Chinese buyers from pursuing
investments in the United States as growth at home has slowed. Outbound M&A volume from China has more than doubled so far this year to nearly US$196 bln, a record, according to Thomson Reuters data. The United States accounts for nearly 30 per cent of these deals, making it the most targeted country. Insurance is one way Chinese buyers can defend against heightened regulatory risk, said David Shine, chairman of law firm Paul Hastings’ mergers and acquisitions practice. “We are in new and developing territory with CFIUS,” Shine said.
Awaiting clarity
In January, CFIUS blocked Philips’ US$3.3 billion proposed sale of lighting unit Lumileds to a consortium of Asian buyers. The next month, China’s Unisplendour Corp Ltd scrapped a US$3.8 billion investment in Western Digital Corp after CFIUS said it would investigate the transaction, and Fairchild Semiconductor International Inc said it was declining a takeover offer from Chinese buyers because of regulatory risks. These risks could increase, since Trump has criticized Chinese trade policy and raised questions about the future of ties between the two countries. That could mean premiums for CFIUS insurance will rise substantially, or the product could be put on hold until Trump’s policy agenda becomes clearer, some insurance executives said.
But Elliot Konopko, a senior managing director in Aon’s strategic advisors and transaction solutions group, said he expected demand for the product to remain high and even increase. Policyholders typically pay a premium of 10 per cent to 15 per cent of the reverse breakup fee, insurance executives said. That compares with a 2 per cent to 4 per cent premium for other types of M&A insurance. CFIUS coverage premiums depend on the perceived riskiness of the transaction. For example, deals in energy, aerospace and technology sectors may draw more regulatory scrutiny. “Premiums can be higher if there is something that raises an eyebrow and it’s no slam dunk,” said David De Berry, chief executive officer of insurance underwriter Concord Specialty Risk. “But it may be lower if the insurance is just seen as a security blanket.”
Big premiums
CFIUS insurance has been used in about a dozen deals, industry executives said. A Chinese consortium used this insurance in April when it acquired U.S . pri nt e r m a k e r Lexmark International Inc for US$3.6 billion, according to sources close to the deal. Th e g r o u p , i n c l u di n g A p ex Technology Co and PAG Asia Capital, had agreed to pay Lexmark US$95 million if the merger was terminated, according to regulatory filings. That means the buyers may have paid a premium of US$9.5 million to US$14.3 million. China Resources Microelectronics Ltd and Hua Capital Management Co Ltd, which offered to buy Fairchild
Semiconductor last December, had also lined up deal insurance for the transaction, according to people familiar with the matter. B u t Fai rchi l d c o u l d n o t g et comfortable w ith th e buyers and said in a filing with the U.S. Securities and Exchange Commission that there was an “unacceptable level of risk” that CFIUS would reject a merger. Fairchild ultimately went with an alternative bid from U.S.-based chip company ON Semiconductor Corp.
“By virtue of its nature, the relationship between the U.S. and China is complex and increasingly so” Mario Mancuso, a former U.S. Committee on Foreign Investment official Representatives of PAG Asia Capital, China Resources Microelectronics and Hua Capital did not respond to requests for comment. “By virtue of its nature, the relationship between the U.S. and China is complex and increasingly so,” said Mario Mancuso, a former CFIUS official who is now a partner in law firm Kirkland & Ellis LLP’s international trade and national security practice. “(It) carries risk but also carries latitude for creativity in deal terms.” Reuters
Business Daily Monday, November 14 2016 11
Asia Political crisis
S.Korea’s Park faces calls to resign at huge protest rally Members of main opposition parties joined Saturday’s demonstration Ju-min Park
S
outh Korean President Park Geun-hye faced mounting pressure to step down on Saturday as hundreds of thousands of demonstrators marched in the capital to protest allegations that she let a friend meddle in state affairs. Saturday’s rally in downtown Seoul was the largest so far in a crisis engulfing Park, 64, and organizers said some 850,000 people packed streets running through the city centre including a 12-lane thoroughfare. Police estimated the crowd at 260,000. Students, families including young couples pushing strollers and protesters in wheelchairs were among the crowd during the largely peaceful march, which contrasted with the violence of some previous rallies dominated by militant unions and civic groups that clashed with police. One man travelled seven hours from the southern town of Gimhae to join the rally demanding Park step down a year before her mandate is due to end. “Park Geun-hye! Today! Step down! Immediately! Step down! Now!” protesters chanted a few hundred metres (yards) from the presidential Blue House. “I’m here so that this country will be a better place for my daughters,”
said Park Min-hee, 34, a housewife who was at the rally with her two young daughters and her husband’s parents. “Park Geun-hye did wrong. She must step down right now.” It was the third weekend protest rally since Park’s first public apology on Oct. 25 when she admitted she had sought the advice of her friend, Choi Soon-sil. Park’s acknowledgement only served to fuel public anger and suspicion over the secret confidant, who apparently held no official government position.
‘Organizers said some 850,000 people packed Seoul streets running through the city centre’ Another apology by Park and an offer to work with the parliamentary opposition to form a new cabinet and relinquish some power also failed to quell the crisis, prompting opponents to say she did not grasp its severity. Park has dismissed some of her most senior and closest advisers, and former aides have been arrested on charges of abuse of power. Choi, the
A fish eye lens view of South Koreans in a candlelight procession marching toward the presidential house during a protest against South Korean President Park Geun-Hye on a main street in Seoul, South Korea, 12 November 2016. Lusa
friend who is believed to have been acquainted with the president since the 1970s, has been charged with abuse of power and fraud. Members of main opposition parties joined Saturday’s rally, suggesting there is growing support in parliament for action to remove her from power, although there was no formal move yet to launch impeachment proceedings. No South Korean president has ever failed to finish their five-year term. Hundreds of people tried to march into the last stretch of road leading to the Blue House after midnight with much of the rally over but they were blocked by police in riot gear who had set up a barricade using police
buses parked tightly together. Park’s approval rating has dropped to 5 per cent for a second week, according to a poll conducted by Gallup Korea and released on Friday, the lowest number for a South Korean president since such polling began under democratically elected leaders in 1988. Gallup Korea, based in Seoul, is not affiliated with U.S.-based Gallup, Inc, the American firm said. Park is the daughter of Park Chunghee who took power in a 1961 military coup and ruled until he was assassinated by his disgruntled spy chief in 1979, five years after his wife was shot dead in the head by a killer who meant to shoot him. Reuters
GDP
Malaysia surprises with faster growth The current account surplus widened to 6 bln ringgit in the third quarter Joseph Sipalan
Malaysia’s economy grew 4.3 per cent in the third quarter, accelerating after five straight quarters of decline, but the surprise turnaround was overshadowed by a slump in the ringgit currency to a more than 12-year low in offshore markets. The economy was underpinned by continued expansion in private sector spending and additional support from net exports in the third quarter, the central bank said on Friday. Growth was stronger than the median forecast of 4.1 per cent given by a Reuters poll, and better than the 4.0 per cent growth posted in the second quarter, but well below the 4.7 per cent recorded in the same quarter last year. “Although growth in Malaysia is currently relatively subdued, it is projected to pick up as policy measures gain traction and global prospects improve,” central bank governor Muhammad Ibrahim told reporters. Net exports grew 5.9 per cent in the third quarter, up sharply from a 7 per cent drop in the second quarter.
Private sector consumption rose 6.4 per cent, up from 6.3 per cent in the previous quarter. The current account surplus widened to 6 billion ringgit in the third quarter, from 1.9 billion ringgit over April-June. Inflation moderated to 1.3 per cent.
“The better-than-expected economic performance reduces the need for monetary easing...,” said Weiwen Ng, economist at ANZ Research. But the central bank warned that the ringgit will continue to see volatility and face risks from fallout from the U.S. presidential election result and Brexit. The currency struck its weakest in more than 12 years in offshore markets on Friday as investors dumped
government bonds, while the spot rate barely moved as the central bank kept a tight grip on the onshore market. “Ringgit will continue to be market determined. Central bank’s role is to manage extreme volatility with no targeted level or pre-determined path,” the governor said.
Key Points Q3 GDP +4.3 pct y/y vs +4.0 pct in Q2 Growth rate snaps declining trend over past five quarters Q3 c/a surplus widens to 6 bln ringgit C.bank warns of ringgit volatility
Asked about monetary policy outlook after the election of Donald Trump as the next U.S. president, Muhammad said: “At our next monetary policy meeting, we will definitely look at the numbers and compute new developments and we will decide then if we need to change our monetary policy stance.” Emerging Asian currencies and bonds lost ground as investors feared higher U.S. interest rates once Trump assumes the presidency would spark capital outflows from the region. Malaysia’s central bank cut rates in July for the first time since 2009. Reuters
12 Business Daily Monday, November 14 2016
Asia TPP
Obama administration suspends Pacific trade deal vote effort On Wednesday, Senate Majority Leader Mitch McConnell said he would not take up TPP in the weeks before Trump’s inauguration David Lawder
U
.S. President Barack Obama’s administration has suspended its efforts to win congressional approval for his Asian free-trade deal before President-elect Donald Trump takes office, saying on Friday that TPP’s fate was up to Trump and Republican lawmakers. Administration officials also said Obama would try to explain the situation to leaders of the 11 other countries in the Trans-Pacific Partnership pact next week when he attends a regional summit in Peru.
that sends him to the White House in January and retains Republican majorities in Congress has stymied those plans. “We have worked closely with Congress to resolve outstanding issues and are ready to move forward, but this is a legislative process and it’s up to congressional leaders as to whether and when this moves forward,” USTR spokesman Matt McAlvanah said in a statement. On Wednesday, Senate Majority Leader Mitch McConnell said he would not take up TPP in the weeks before Trump’s inauguration and said its fate was now up to Trump. House Speaker Paul Ryan had earlier said
he would not proceed with a lameduck vote. Trump made his opposition to the TPP a centrepiece of his campaign, calling it a “disaster” and “a rape of our country” that would send more jobs overseas. His anti-freetrade message and pledges to stem the tide of imported goods from China and Mexico won him massive support among blue-collar workers in the industrial heartland states of Ohio, Michigan, Wisconsin and Pennsylvania, helping to swing the election his way. Trump has said he will scrap TPP, renegotiate the 22-year-old North American Free Trade Agreement and adopt a much tougher trade stance with China. The TPP agreement, negotiated for more than five years and signed in October 2015, was aimed at reducing trade barriers erected by some of the
fastest growing economies in Asia and boosting ties with U.S. allies in the region in the face of China’s rising influence. White House Deputy National Security Advisor Wally Adeyemo told reporters on Friday that Obama will tell TPP member countries at the Asia Pacific Economic Cooperation summit that the United States will remain engaged in Asia, and that it recognizes the benefits of trade and such deals still make sense. “In terms of the TPP agreement itself, Leader McConnell has spoken to that and it’s something that he’s going to work with the President-elect to figure out where they go in terms of trade agreements in the future,” Adeyemo said. “But we continue to think that these types of deals make sense, simply because countries like China are not going to stop working on regional agreements.” Reuters
‘Trump has said he will scrap TPP, renegotiate the 22-year-old North American Free Trade Agreement and adopt a much tougher trade stance with China’ Obama’s cabinet secretaries and the U.S. Trade Representative’s office had been lobbying lawmakers for months to pass the 12-country Trans-Pacific Partnership deal in the post-election, lame-duck session of Congress. However, Trump’s stunning election victory
U.S. President Barack Obama (R) listens to President-elect Donald Trump (L) deliver remarks to members of the news media during their meeting in the Oval Office of the White House in Washington, DC, USA, 10 November 2016. Lusa
Private poll
Japan business mood improves in encouraging sign for economy Analysts expect growth to remain modest for the rest of this year Tetsushi Kajimoto and Izumi Nakagawa
Japanese manufacturers’ confidence rose for a third straight month to a 15-month high in November, while the mood in the service sector rebounded from a 3-1/2-year low in the prior month, a Reuters poll showed, in a sign of a gradual economic recovery. The Reuters Tankan, which strongly correlates with the Bank of Japan’s quarterly tankan survey, found manufacturers’ mood is expected to worsen over the next three months, while service-sector sentiment is seen rising further. The monthly poll of 531 large and mid-sized firms, of which 257 responded between Oct. 26-Nov. 8, comes as Republican Donald Trump’s shock victory in the U.S. presidential election adds to uncertainty over the global economic outlook.
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The Reuters Tankan’s sentiment index for manufacturers rose to 14 from 10 in October, driven by exporters of cars, electronics, precision machinery and metal products. But it was expected to worsen to 3 in February. “The yen’s gains have eased after rising close to 100 yen to the dollar but global uncertainty is high due to the U.S. presidential election and Britain’s exit from the EU,” a manager
at a machinery maker said in the survey, which companies answer anonymously. “Underlying demand is soft as consumer mood cools.” The service-sector index rose for the first time in three months to 15 from 9 in October, which was the lowest reading since February 2013 - just two months before the BOJ embarked on an aggressive but so far ineffective stimulus campaign to spur economic activity and get inflation up to 2 per cent. The service-sector index was seen rising further to 18 in February, reflecting recovery in retailers’ sentiment, which last month hit the lowest reading since February
2015 due to bad weather and a run of typhoons. Sentiment indexes subtract the percentage of companies saying conditions are poor from those saying conditions are good. A positive number means optimists outnumber pessimists. The BOJ’s last tankan showed last month big Japanese manufacturers’ mood held steady in the third quarter while service-sector sentiment fell to its lowest in nearly two years.
Key Points Nov manufacturers’ sentiment index +14 vs +10 Oct Service-sector index +15 in Nov vs +9 in Oct Manufacturers’ mood seen down in Feb, service sector up Reuters Tankan strongly correlates with BOJ tankan The central bank last week held off on expanding stimulus despite pushing back the timing for hitting its elusive price target, signalling that it will keep policy unchanged unless a severe shock threatens to derail a fragile economic recovery. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Monday, November 14 2016 13
Asia Monetary policy
In Brief
Bank of Korea keeps rates on hold Central bank governor Lee kept the door open to possible further easing Christine Kim and Cynthia Kim
South Korea’s central bank stayed its hand for a fifth straight month on Friday, as widely anticipated, amid an upswell of global uncertainty and a political scandal involving President Park Geun-hye that may mean trouble ahead for the economy. A shock win by Donald Trump in the U.S. presidential election earlier this week poses long-term risks the Bank of Korea (BOK) will need to monitor carefully. Its governor, Lee Ju-yeol, stressed the bank needs more time to assess what policies were likely once Trump took office, although he saw the U.S. Federal Reserve as likely to stay on course to hike rates in December. “If Trump’s campaign promises are turned into policy they will hurt trade,” Lee said, although he noted that not all Trump’s promises were “bad”. Lee brushed aside talk of potential capital flight, saying rising bond yields and bond outflows in October had partly been due to book-closing towards the end of the year. All but one of 27 analysts polled by Reuters had forecast the central bank would keep its reference 7-day repurchase agreement rate on hold, with one dissenter seeing a cut. Lee kept the door open to possible further easing, saying the bank still has room to move, although current monetary policy is accommodative.
There was also little need to raise interest rates just because the won was weakening, he said. “Given growing uncertainties, the bank may start to talk about rate reductions only early next year,” Park Hyuk-soo, a fixed-income analyst at Daishin Economic Research Institute said after the governor’s news conference ended. Park said the bank’s assessment of the economy seemed to be worsening, noting that the BOK said in a statement on Friday that domestic demand seems to have deteriorated. South Korea’s economy, Asia’s fourth-largest, is on course for a recovery, but there are headwinds. On-going restructuring of the country’s shipping and shipbuilding industries, for example, is expected
to result in severe job losses. Trump’s policies have fed fears of a surge in global trade protectionism, which would likely hit major Korean exporters such as Samsung Electronics Co Ltd and Hyundai Motor Co particularly hard. This would lend a further blow to already-battered exports, struggling to recover after falling for most of the past two years as global demand waned. Like Park, a slim majority of analysts polled by Reuters see another rate cut in early 2017, but some acknowledge further easing alone may not solve the sluggish growth problem. “We reiterate our view that the BOK still has space to deliver a 25 basis point rate cut in Q1 2017,” ANZ economists said in a note. “(But) unless more structural reforms are enacted, we acknowledge that the marginal effect of a rate cut will continue to decline.” Reuters
The Indian Supreme Court on Friday rejected a petition by major firms seeking the withdrawal of a tax on the movement of goods through the states, a decision that would force them to pay an estimated US$4.5 billion in back taxes and interest. Some 2,000 companies including the Jindal group, Vedanta, Steel Authority of India and Tata Steel had contended that entry tax on goods as they moved from one state to another was against free trade. But the top court said India’s federal constitution gave the states the right to impose such a tax.
Vietnam says economy will still thrive if TTP collapses Vietnam will stay competitive and its economy will still thrive if the TransPacific Partnership (TPP) deal collapses, its trade minister said, as doubts hang over the future of a pact that was core to the Obama administration’s “pivot” to Asia. Vietnam’s manufacturing and exports-led economy is widely regarded as the biggest potential beneficiary of the TPP. “It’s still very early to predict the future of TPP, but regardless, we are always ready for integration, not just because of TPP, but because it is a requirement and also a motivation of development,” Trade Minister Tran Tuan Anh was quoted saying.
Japan to supply India with nuclear power equipment The agreement with Japan follows a similar one with the United States in 2008 Japan and India signed a civilian nuclear accord on Friday, opening the door for Tokyo to supply New Delhi with fuel, equipment and technology for nuclear power production, as India looks to atomic energy to sustain its rapid economic growth. It was the first time Japan, the only country to have suffered a nuclear attack, had concluded such a pact with a country that is not a signatory to the Nuclear Non-proliferation Treaty (NPT). “Today’s signing ... marks a historic step in our engagement to build a clean energy partnership,” Indian Prime Minister Narendra Modi told a joint news conference with his Japanese counterpart Shinzo Abe. The accord stipulates that the nuclear fuel and equipment provided can only be used for peaceful
Firms have to pay up state tax
Trade minister
Commercial accord
Kiyoshi Takenaka and Elaine Lies
India court ruling
purposes, and a separate document signed in parallel has a clause allowing Japan to terminate the pact if India conducts a nuclear test. “As a sole nation to have been nuclear-bombed, we bear the responsibility for leading the international community towards the realisation of a world without nuclear weapons,” Abe told the same news conference. “The agreement is a legal framework to ensure that India will act responsibly for the peaceful uses of nuclear energy. It will also lead us to having India participate practically in the international non-proliferation regime.” India says the NPT is discriminatory and that it has concerns about its two nuclear-armed neighbours, China and Pakistan. India is already in advanced negotiations to have U.S.-based
Indian Prime Minister Narendra Modi (L) is greeted by Japan’s Prime Minister Shinzo Abe (R) before their meeting at Abe’s official residence in Tokyo, Japan, 11 November 2016. Lusa
1MDB probe
Westinghouse Electric, owned by Japan’s Toshiba Corp, build six nuclear reactors in southern India, part of New Delhi’s plan to ramp up nuclear capacity more than 10 times by 2032. Japanese nuclear plant makers such as Toshiba and Mitsubishi Heavy Industries Ltd are desperate to expand their business overseas as the 2011 Fukushima nuclear disaster chilled domestic demand for new nuclear plants. The agreement with Japan follows a similar one with the United States in 2008, which gave India access to nuclear technology after decades of isolation.
Key Points Nuclear accord intended only for peaceful purposes Japan can terminate pact if nuclear weapon test is conducted Indian high-speed railway to start commercial run in 2023 That step was seen as the first big move to build India into a regional counterweight to China. On India’s infrastructure development, Abe said that construction of a high-speed railway connecting Mumbai and Ahmedabad, which will be based on Japan’s “Shinkansen” bullet train technology, was scheduled to start in 2018, with commercial operation slated for 2023. “In Japan, the era of high economic growth began when Shinkansen started its service in 1964. I hope the advent of high-speed railway will trigger fresh economic growth in India as well,” Abe said. Modi earlier on Friday praised the “growing convergence” of views between his nation and Japan, saying strong ties would enable them to play a stabilising role in Asia and the world. Reuters
Malaysia again rebuffs Swiss help request Malaysia has again rebuffed Switzerland’s request for legal assistance in probing suspected corruption linked to scandal-hit state fund 1MDB, the Swiss attorney general’s office said on Friday. But it said Kuala Lumpur’s decision would not hinder the Swiss probe as it works with other countries on the case. “We respect Malaysia’s independent decision on this matter. However, the Malaysian authorities remain free to use the information provided in Switzerland’s requests for assistance in their own investigations,” Attorney General Michael Lauber said, confirming a report by the Financial Times. Key data
Indonesia motorbike sales fall Motorcycle sales in Indonesia fell 5.3 per cent in October from a year earlier, data from an industry association showed on Friday. Motorbike sales stood at 571,201 units in October, down from 602,882 units sold in the same month last year, but higher than the 555,820 units sold in September. On a monthly basis, sales were up 2.8 per cent. Motorcycles are hugely popular in Southeast Asia’s biggest economy and their sales are a key indicator of consumption. Sales in October were led by Honda Motor Co Ltd, Yamaha Motor Co Ltd and Kawasaki, the data showed.
14 Business Daily Monday, November 14 2016
International In Brief Financial injection
IMF board approves Egypt’s loan agreement Egypt won International Monetary Fund approval on Friday for a three-year, US$12 billion bailout program aimed at reviving a struggling economy, bringing down public debt and controlling inflation while seeking to protect the poor. The IMF said its executive board’s approval immediately disbursed an initial loan tranche of US$2.75 billion to Egypt’s central bank. The remainder will be phased in over the next three years subject to five reviews on required reforms. The injection of new funds increased the Central Bank of Egypt’s foreign reserves to US$23.3 billion, state television said in Cairo. Industrial stimulus
WTO rules against Brazil The World Trade Organization has ruled that some Brazilian industrial stimulus programs hurt foreign competitors, a government official said on Friday, a major blow to a country struggling to shore up its industry amid a crippling recession. The preliminary ruling, which has not been made public yet, backs the challenge by Japan and the European Union against industrial policies they say have hurt their producers, said the official who was briefed on the matter and asked for anonymity to speak freely. Brazil is also facing a probe into its sugar exports to China.
Paris Agreement
Trump looking at fast ways to quit global climate deal A source blamed U.S. President Barack Obama for joining up via executive order, without getting approval from the Senate Valerie Volcovici and Alister Doyle
D
onald Trump is seeking quick ways of withdrawing from a global agreement to limit climate change, a source on his transition team said, defying widening international backing for the plan to cut greenhouse gas emissions. Since the U.S. President-elect was chosen, governments ranging from China to small island states have reaffirmed support for the 2015 Paris Agreement at 200-nation climate talks running until Nov. 18 in Marrakesh, Morocco. Trump, who has called global warming a hoax and has promised to quit the Paris Agreement, was considering ways to bypass a theoretical four-year procedure for leaving the accord, according to the source, who works on Trump’s transition team for international energy and climate policy.
“It was reckless for the Paris agreement to enter into force before the election” on Tuesday, the source told Reuters, speaking on condition of anonymity. The Paris Agreement won enough backing for entry into force on Nov. 4. Alternatives were to send a letter withdrawing from a 1992 Convention that is the parent treaty of the Paris Agreement, voiding U.S. involvement in both in a year’s time, or to issue a presidential order simply deleting the U.S. signature from the Paris accord, he said. Many nations have expressed hopes the United States will stay. Host Morocco said the agreement that seeks to phase out greenhouse gases in the second half of the century was strong enough to survive a pull-out. “If one party decides to withdraw that it doesn’t call the agreement into question,” Foreign Minister Salaheddine Mezouar told a news conference.
The agreement was reached by almost 200 nations in December and, as of Saturday, has been formally ratified by 109 representing 76 per cent of greenhouse gas emissions, including the United States with 18 per cent. The accord seeks to limit rising temperatures that have been linked to increasing economic damage from desertification, extinctions of animals and plants, heat waves, floods and rising sea levels. U.N. climate chief Patricia Espinosa declined to comment on the Trump source’s remarks to Reuters. “The Paris Agreement carries an enormous amount of weight and credibility,” she told a news conference. She said the United Nations hoped for a strong and constructive relationship with Trump. The Trump source blamed U.S. President Barack Obama for joining up by an executive order, without getting approval from the Senate. “There wouldn’t be this diplomatic fallout on the broader international agenda if Obama hadn’t rushed the adoption,” he said. Reuters
Security
Two major Russian banks say hit by cyber attacks Two of Russia’s largest banks, Sberbank and Alfa Bank, say they have been hit by cyber attacks in recent days. Cybersecurity firm Kaspersky Lab said the distributed denial of service (DDoS) attacks represented the first major wave of such attacks on Russian banks this year and that at least five of the country’s largest banks had been targeted. Russia has been on high alert for cyber threats after U.S. Vice President Joe Biden said last month that Washington would retaliate against alleged Russian hackers “at the time of our choosing”. Oil production
OPEC points to even bigger 2017 surplus OPEC reported an increase in its oil production in October to a record high led by members hoping to be exempt from the producer group’s attempt to curb supply, weighing on prices and pointing to a larger global surplus next year. The Organization of the Petroleum Exporting Countries pumped 33.64 million barrels per day (bpd) last month, according to figures OPEC collects from secondary sources, up 240,000 bpd from September, OPEC said in a monthly report. The OPEC figures point to a bigger surplus than those of the International Energy Agency and underline OPEC’s challenge in restraining supplies.
Hoesung Lee, chairman of the Intergovernmental Panel on Climate Change (L) Executive Secretary of the United Nations Framework Convention on Climate Change, Patricia Espinosa (2-L), Moroccan Foreign Minister and COP22 President Salaheddine Mezouar (3-L), attend the opening of the COP22 in Marrakech. Lusa
Economic roadmap
Venezuela’s government, opposition reach agreement In the lead-up to last weekend’s meetings, the opposition threatened to pull out of talks entirely if tangible action didn’t result Andrew Rosati and Fabiola Zerpa
Representatives of Venezuelan President Nicolas Maduro and opposition parties, following a second round of talks brokered by the Vatican, agreed on a tentative road map to address a political and economic impasse that’s driven the oil-rich nation to its knees. The Vatican delegate, Claudio Maria Celli, discussed developments at a press conference that followed four hours of talks in Caracas on Saturday. A third meeting, facilitated by the Union of South American Nations (UNASUR) as well as the Vatican, has been set for Dec. 6 to further discuss points of agreement. Representatives of the government a n d o p p o si t i o n r ea d a j o i n t statement at the press briefing on their commitment to “a peaceful and constructive co-existence” and to resolve differences within a “constitutional and electoral framework.” Certain demands made by the opposition, including a recall referendum against Maduro’s rule,
an early presidential election and the release of prisoners, weren’t addressed in Celli’s comments. “Peace is succeeding,” Maduro said on Twitter after the meeting. Progress cited by the opposition i n c l u d e r es p ect f o r Nati o n a l Assembly’s autonomy, election of three lawmakers in dispute, election of new Electoral Board members, freedom for prisoners and government authorization for medication to be delivered into Venezuela, representative Carlos Ocariz said. The latest developments followed what Ernesto Samper, general secretary of UNASUR and one of the meeting facilitators, called results on Friday, when the latest round of talks kicked off, “very positive.” Samper, a former president of Colombia, said the government and opposition representatives reviewed the main points of the agenda: prisoners, humanitarian aid and the electoral timetable. He added that members of civilian organizations will be invited to the talks and that two governors will be
included as well: Henri Falcon from the opposition and Tareck el Aissami from the government’s party. In the lead-up to last weekend’s meetings, the opposition threatened to pull out of talks entirely if tangible action didn’t result. In comments broadcast late Friday evening, Celli said one of the facilitators called it a “miracle” that both sides could debate so respectfully. Ahead of the talks, the opposition called off a planned demonstration aimed at the presidential palace following the government’s release from jail of a handful of opposition activists. After almost a year of simmering political deadlock and sporadic unrest, the government’s decision in October to suspend the opposition’s recall drive on accusations of fraud sent tensions in the South American nation toward a boiling point. Facing the world’s highest inflation rate and a third straight year of recession, Maduro and his adversaries agreed to a formal sit-down brokered by various ex-presidents from the region and Spain, UNASUR and the Vatican. The opposition blames Venezuela’s woes on nearly 18 years of socialist rule and has promised to unseat Maduro before his term ends in 2019. Shown by polls to be highly unpopular, Maduro blames foul play by his opponents for Venezuela’s woes and has likened the hopedfor referendum drive to a “coup,” insisting there is no chance of a recall vote this year. Bloomberg News
Business Daily Monday, November 14 2016 15
Opinion Business Wires
The Korea Herald The average tenure of South Korea’s finance ministers has turned out to be a mere 13 months over the past 13 years, government data showed yesterday, raising questions about the consistency of the government’s economic policies. The data analysed by Yonhap News showed that the average term in office of economy-related ministers was slightly longer than one year amid rising concerns over a lack of longterm economic policies. There were 121 officials who served as the heads of six economy-related government ministries and agencies since the 1993-1998 Kim Yong-sam administration, excluding the incumbent ministers, according to the data.
Philstar A unit of Moody’s Corp. said the country’s economic growth may have eased in the third quarter amid the soft global demand. Moody’s Analytics said the economy likely grew 6.9 per cent in the third quarter, slightly slower than seven per cent growth in the second quarter. The research arm of Moody’s said exports further slowed in the third quarter amid the slowdown in nickel shipments due to the crackdown being undertaken by the Department of Environment and Natural Resources. The country’s GDP has posted positive growth over the past 70 quarters due to robust domestic demand.
The Times of India Confusion over the facility for exchanging old high-denomination notes, subject to a limit of Rs 4,000, at banks and post offices by providing valid identity cards has led to some people misusing the system to legalise their unaccounted wealth. At present, the exchange facility is a one-time window and the limit will be reviewed after November 24. Several bank officials told ET that the exchange of demonetised Rs 500 and Rs 1,000 notes over the counter for Rs 4,000 is being misused and banks are taking steps to address the issue.
Viet Nam News The idea of taxing those owning multiple houses, in a bid to prevent speculation, is causing a stir over whether such a tax is feasible, and the impact it might have on the housing market. The market has recently been heated, following the disclosure that the finance ministry was studying a draft on collecting a housing tax from those owning more than one house. The idea was also raised five years ago, but rejected. In Vietnam there were taxes on land use but no tax on property assets.
Can global capitalism be saved?
T
he politics of economic anxiety has now driven the electorates of the United Kingdom and the United States into the hands of populists. If only, so the received wisdom goes, economies could get back to a more “normal” rate of GDP and productivity growth, life would improve for more people, anti-establishment sentiment would wane, and politics would return to “normal” as well. Then, capitalism, globalization, and democracy could continue their forward march. But such thinking reflects an extrapolation from one largely aberrant period in history. That period is over, and the forces that sustained it are unlikely to align again anytime soon. Technological innovation and demographics are now a headwind, not a tailwind, for growth, and financial engineering can’t save the day. The aberrant period in history is the hundred or so years after the U.S. Civil War, during which breakthroughs in energy, electrification, telecommunications, and transportation fundamentally reshaped societies. Human lives became markedly more productive, and life expectancies rose dramatically. The global population grew over 50 per cent between 1800 and 1900, and then more than doubled over the following 50 years, with economies growing much faster than in previous centuries. By the end of the 1970s, growth began to slow in many of the developed Western economies, and US President Ronald Reagan and Federal Reserve Chair Alan Greenspan ushered in a debt cycle that supercharged activity. The US, until then a net creditor to the world, became a net borrower, with China and other emerging markets benefiting from America’s rising trade deficit. Financial leverage drove global growth onward for almost another 30 years. The 2008 global crisis brought an abrupt end to the era of financial engineering. But policymakers don’t like to see growth slow, and central bankers exhausted their toolkits in an attempt to stimulate economic activity despite insufficient demand. With less and less yield to be found in traditional fixed-income assets, investors piled into risk assets of all forms, driving up their price; the rich got richer, and the middle class was left further behind. As growth in the real economy continued to stagnate, angry populism surged, resulting in Brexit and President-elect Trump. For all that central bankers have done to revive economic growth, the forces of demographics and innovation have worked against them. Advanced economies’ aging populations are drawing more and more on social safety nets. China is also aging. Most of today’s (and tomorrow’s) demographic growth is in Africa, where it doesn’t drive global productivity to the extent that it does elsewhere. Furthermore, the current wave of technological innovation is not lifting all boats. Even as the likes of Uber and Amazon, and, more fundamentally, robotics, add convenience, they do so by displacing working-class jobs and/or driving down wages. This is typical of the process of “creative destruction” that Joseph Schumpeter famously described as being the handmaiden of growth in capitalist economies. The first wave of a breakthrough innovation chiefly benefits a few entrepreneurs. Then comes a wave of displacement, as the
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Alexander Friedman Chief Executive Officer of GAM
technology is adapted to existing industries. Three decades ago, it was Wal-Mart using computers and logistics to wipe out small “mom and pop” stores; today, it is Amazon taking on Wal-Mart. The third wave is the widespread diffusion of the innovation in ways that lift overall productivity and living standards. This takes much longer. Or, as the Nobel laureate economist Robert Solow observed in 1987, “You can see the computer age everywhere but in the productivity statistics.” Northwestern University’s Robert Gordon has argued that the economic impact of today’s innovations doesn’t hold a candle to that of plumbing or electricity. Perhaps, or it may be that we are at an early stage of the Schumpeterian cycle of innovation (enriching a few) and destruction (creating anxiety in vulnerable sectors). Eventually, average productivity and real incomes are likely to benefit as breakthrough technologies enable new kinds of growth. The problem is that it may take a decade or longer before robotics and the like feed a broader rising tide that lifts all boats. And whether Schumpeter or Gordon is right is irrelevant for politicians facing angry voters whose standard of living has declined. Today, their fed-up constituents reject globalization; tomorrow, they may become Luddites. The question now is whether a shift in focus from unconventional monetary policies to Keynesian demand management can save the day. It is widely assumed that monetary policy is a spent force in the U.S. and Europe, and that fiscal stimulus and expansion – for example, via tax cuts and infrastructure spending – must take over. But this requires stable political systems that can sustain longterm fiscal strategies. Recent developments, particularly in Europe, suggest that such strategies will be difficult to implement. In the U.S., Trump’s victory, coupled with Republican majorities in both houses of Congress, paves the way for tax cuts and increased defence spending. The pump looks set to be primed. But fiscal expansion is likely to meet resistance from monetary policy, as the Fed resumes its “normalization” of interest rates. Still, the hope is that faster U.S. growth and rising wages will quell voters’ populist rebellion. The onus, ironically, will remain on the Fed to “do the right thing” – namely, to normalize interest rates with extreme caution, while allowing the share of labour income in GDP to rise, even if that requires some overshooting of inflation. To paraphrase Dylan Thomas, we believers in markets should not go gently into the populist night. We should fight against the dying of the light of global capitalism with every tool we can muster. Today’s slowing growth and political backlash is not some “new normal.” Rather, it harks back to an “old normal,” last experienced in the 1930s. Whatever the right way forward for the global economy, we know that it cannot mean a return to the isolationism and protectionism of that era. Project Syndicate
The question now is whether a shift in focus from unconventional monetary policies to Keynesian demand management can save the day
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16 Business Daily Monday, November 14 2016
Closing Capital escape
Investors dodge China’s whack-a-mole outflow curbs With finance channels closing, fake trade invoicing has grown Saikat Chatterjee
W
hile Beijing has been busily damming up official channels for money to leave China, more than ever is leaking out through shady means as investors flee the country’s slowing economy and weakening currency. China’s official foreign exchange reserves fell more than half a trillion dollars last year and are still falling, with a loss of nearly US$46 billion in October alone, and the International Institute of Finance think-tank estimates outflows doubled in the September quarter to more than US$200 billion. To stem the flows, Beijing has frozen or restricted its main schemes allowing wealthy individuals (QDLP) and financial institutions (QDII) to invest overseas, and lawyers have noted a sharp slowdown in the approval process for large overseas direct investment (ODI) deals. “Fresh new QDII quotas have been broadly halted, ODI investments involving large amounts of foreign exchange remittance are taken on a case-by-case basis, and the QDLP scheme is undergoing a slowdown,” said Yin Ge, counsel and head of financial services practice at Clifford Chance in Shanghai. Industry executives say there is no likelihood of any thaw in the coming months, so investors are seeking other means to get their cash out, such as faking trade transactions through Hong Kong. “The growth in the sheer volume of such transactions going through such channels means that even though more suspicious transactions are being caught by financial institutions, they represent a tiny fraction of the overall volumes of fake trade invoicing,” said Alicia Garcia Herrero, chief economist at Natixis in Hong Kong.
Kong said the QDLP programme, halted since March this year, is likely to stay that way until mid 2017, according to briefings with government officials. For cross-border transactions above US$50 million, government officials are demanding personal visits from investors to the offices of the State Administration of Foreign Exchange, the country’s forex regulator, or asking them to pay by instalments. And they are bearing fruit. Outbound Chinese mergers and acquisitions in the September quarter have fallen by more than half to US$38.4 billion from the March quarter, according to Thomson Reuters data, and from US$42.5 billion in the June quarter. Investment-linked insurance products, some offering returns of 6-7 per cent, became an attractive alternative, with Mainlanders accounting for more than half of
AIA’s annualised new premiums in Hong Kong, and similar figures for rival Prudential. But Beijing is also clamping down on that avenue, with China’s biggest bank card provider UnionPay tightening regulations last month over how Mainland customers can use its debit and credit cards to buy insurance products in Hong Kong. But one insurance industry executive said people were still finding a way to skirt the restrictions. “People will do what they need to do,” he said. “Water flows through different places.”
Trade channels
Jolyon Ellwood Russell, partner at lawyers Simmons & Simmons, said international anti-moneylaundering monitor Financial Action Task Force (FATF) had identified four main channels to bring money out of China: cash smuggling in vans,
finance channels, trade and shadow banking. “The recent yuan weakness has meant that they are being used heavily,” he said. With finance channels closing, fake trade invoicing has grown as demonstrated by a growing gap between figures for Chinese imports from Hong Kong and Hong Kong’s exports to China, which ought to be equal and opposite.
Key Points China trying to arrest continuing fall in forex reserves Beijing curbing channels for Chinese to invest overseas Trade figures suggest a rise in fake invoices with HK HK asset prices outperform, helped by flows from China In essence, Chinese importers overpay for goods from Hong Kong, the buyer declaring a larger figure to Chinese authorities than the seller declares in Hong Kong, with the difference parked in an offshore bank account. A three-month moving average to end-September shows the unexplained gap represents a staggering 70 per cent of the total trade between the two, reaching its highest level this year of US$1.4 billion, according to Thomson Reuters data. Johnny Fang, senior analyst at Shanghai-based Z-Ben Advisors, says officials have stepped up their monitoring of cross-border trade transactions in recent months. The Joint Financial Intelligence Unit, an outfit comprising police and customs officials in Hong Kong, received 59,732 suspicious Transaction Reports (STRs) in the first three quarters of 2016, doubling from the same period of 2015. This influx of Chinese cash is also causing headaches for Hong Kong authorities to handle, distorting asset prices in the city. “(It) explains the outperformance in Hong Kong stocks and property relative to global peers, and that is likely to continue,” said Herrero at Natixis. Reuters
Skirting restrictions
Official efforts to curb outflows have been extensive. Two executives at separate fund management companies in Hong
Bonds
Fitch report
Peace process
ICBC marks listing on Nasdaq Dubai
Changing consumer habits Colombia reaches new ‘final’ push Mainland retail transition agreement with FARC
The Industrial and Commercial Bank of China (ICBC) celebrated yesterday the listing of a US$400 million bond on the Middle East’s only international exchange by regulation. Wang Hangbo, the executive vice president of China Foreign Exchange Trade System (CFETS), rang the market-opening bell to mark the festivity at the Dubai Financial Market (DFM) (Nasdaq Dubai-listed securities are also traded on the local Dubai market DFM). The listing marks the second bond listed on the Nasdaq Dubai by ICBC. “This bond bring is the second after ICBC listed a 500 million fixed income security on the market in May 2015,” said Zhou in an interview with Xinhua. He added “ICBC will remain on the forefront of China’s burgeoning financial relationship with Dubai and the UAE, as the gateway to the wider Middle East and North Africa region.” Bond listings by Chinese banks on the currently total 1.98 billion, said a Nasdaq Dubai spokesperson. Asked if ICBC would consider other financial markets in the region as platforms to list bonds, Zhou told Xinhua “it could be possible in the future, but at the moment we have no plans to do so.” Xinhua
Changing consumer preferences have created challenges as well as opportunities for China’s retail sector, a recent report points out. Department stores and high-street shops are losing customers, who seem to be moving more toward shopping malls and online-market places, according a report by international rating agency Fitch. Fitch expects the rapid change in the retail environment will increase competition, thereby, traditional retailers will suffer. Retail sales for the top 50 domestic retailers declined by 1.9 per cent year on year in the first nine months of 2016, according to China National Business Information Centre. There are select categories that still have the potential to grow, such as sporting goods as Chinese are more savvy about their health and the government rolls out supportive policies, according to the Fitch report. It says that differentiation is important even within new shopping formats. As Fung Business Intelligence points out, shopping malls offer the customer “experiential shopping,” which connects the customer to food and beverage offerings, lifestyle and entertainment options; and links the online-to-offline (O2O) shopping experience. Xinhua
Colombia’s government has reached a new agreement with guerrillas to end the nation’s civil conflict, six weeks after voters narrowly rejected a previous deal. “We have reached a new deal for the end of the armed conflict that includes changes, precisions and additions from the most diverse sectors of society,” the government and the Revolutionary Armed Forces of Colombia, or FARC, said in a joint communiqué. The new accord between the government of President Juan Manuel Santos and the FARC aims to address some of the concerns of opponents of the original deal. The government has held weeks of talks with leaders of the “no” campaign, including former President Álvaro Uribe, who had attacked the agreement, saying it was too lenient on a group that kidnapped and murdered Colombians. Uribe met with Santos yesterday and afterward told reporters that he asked that the new agreement “not be definitive”, and said he and other opposition leaders want to review the text. Uribe has called for tougher penalties for FARC leaders guilty of serious crimes and their exclusion from Congress. Voters’ rejection of the original deal by 50.2 per cent to 49.8 per cent left the FARC in limbo, unable to begin the demobilization process and hand over their weapons. Bloomberg News