The Venetian wins shopping mall tax case against gov’t Court Page 5
Friday, November 18 2016 Year V Nr. 1176 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong
www.macaubusinessdaily.com
Yacht
Retail
Construction
TPP
Trade
Macau-Zhongshan Free Yacht Travel Scheme launches Wednesday Page 3
More local retailers optimistic about sales performance Page 4
818 new homes under construction in Q3 Page 5
Vietnam retreats from U.S.-led trade agreement amid cloudy future Page 16
Singapore’s exports’ fall stoking recession Page 11
Residential Rebounds Real estate
Total home transactions in the MASR tripled to 1,162 in October y-o-y. Credited to surging sales and purchases in Coloane. Boosted 863 pct y-o-y by the sales of Sky Oasis. Average housing prices for the month, meanwhile, climbed 12.7 pct y-o-y to MOP89,430 per square metre. Page 3
Bahamas deal in question Economies intertwined Gaming Due diligence on Chow Tai Fook’s deal on Baha Mar resort. Urged by Bahamian politician Branville McCartney. Who leads the local Democratic National Alliance. Questioning the links between the company, its owners the Cheng family and Macau gaming tycoon Stanley Ho. Page 6
Narrower int’l business
Local banks’ Int’l business decreased in Q3. With total int’l assets down 1.4 pct q-o-q and liabilities down 2.3 pct in the period. Business primarily related to Asia and Europe, with the bulk of assets and liabilities in HK$ and US$.
China-U.S. Data doesn’t lie but can be misleading. Investment between the first and second economies of the world could be much higher than official figures show. Suggesting a more difficult scenario for the imposition of protectionist measures. Page 11
HK Hang Seng Index November 17, 2016
22,262.88 -17.65 (-0.08%) Worst Performers
Sands China Ltd
+5.21%
Link REIT
+2.44%
HSBC Holdings PLC
-1.71%
China Resources Power
-0.78%
Galaxy Entertainment Group
+4.33%
Hang Lung Properties Ltd
+1.55%
MTR Corp Ltd
-1.51%
Hengan International Group
-0.59%
Wharf Holdings Ltd/The
+3.10%
China Merchants Port Hold-
+1.03%
Tencent Holdings Ltd
-1.07%
PetroChina Co Ltd
-0.58%
AAC Technologies Holdings
+2.78%
Sun Hung Kai Properties Ltd
+1.00%
China Life Insurance Co Ltd
-0.90%
China Petroleum & Chemical
-0.57%
China Unicom Hong Kong
+2.46%
Hong Kong & China Gas Co
+0.98%
BOC Hong Kong Holdings
-0.89%
CNOOC Ltd
-0.51%
23° 26° 23° 25° 23° 26° 24° 26° 23° 27° Today
Source: Bloomberg
Best Performers
SAT
sUN
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Monetary Page 4
2 Business Daily Friday, November 18 2016
Macau E-government
FSS contribution certificate: Residents can apply online
Local residents can now apply for a contribution certificate from the Social Security Fund (FSS) via its online service platform ePass. According to the Fund, residents need only log onto the account of ePass to collect the certificate at a chosen time and location.
The e-service provided by the Fund also allows contributors to review their personal information, such as their contribution and payment records for the past five years, certificate of birth, personal account payments and the balance of the Fund account. Residents aged 18 years or older can apply for this e-service free of charge. C.U.
Policy Address
Clarity of Policy Address praised
T
he MSAR Government’s 2017 Policy Address has clear ambitions in the wake of the recent introduction of the Five-Year Plan, says Joey Lao Chi Ngai, Chairman of the Macau Economic Association and Director of the Centre for Macau Studies (Research). Speaking on TDM Radio programme ‘Macao Forum’ yesterday, Mr. Lao commented that the latest Policy Address acts as the succession of the Five-Year Plan and connects with the Chief Executive’s manifesto for the 2014 CE election. He highlighted that the government has eventually prioritised the livelihood of citizens in the latest Address, following the focus on economic development of the pervious years. Chan Kin Sun, Assistant Professor of the Faculty of Social Science in the University of Macau, indicated in the radio show that the Policy Addresses of recent years possessed continuity, with the general vision becoming clearer. Mr. Chan points out that relevant
policies on improving citizens’ livelihood are desirable, perceiving that the policies coping with the aging population in the Address are
thoroughly described. Meanwhile, Mr. Lao responded to a listener that it is a blessing for the city to be able to retain stable
Duty Free
Agreements
More competition on the border Local retailers could face increased competition as China approves applications for 16 new duty free arrival shops Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Some 16 new duty free arrival shop applications have been approved by China’s Ministry of Finance, according to the Travel Retail Business. The 16 licences are due to be awarded in the next six months and include 10 airport locations and six border crossing facilities. Five of the six border arrival shop licences will be for crossings on Guangdong’s southern border, including one on the Zhuhai-Macau border where Zhuhai Duty Free operates departure duty free shops.
employment, inflation and salary rates despite the deep economic adjustment phase of the past two years.
Four of the shops will go to the Shenzhen-Hong Kong border. The final border shop will be along the Russian border in Heihe, northern China. Retailers in Macau and Hong Kong could face increased competition as they will soon have to compete with the border shops for Mainland tourists’ patronage. The 16 arrival shop licences are being bid on by four state-backed enterprises: China Duty Free Group (CDFG), China National Service Corporation for Chinese Personnel Working Abroad (CNSC), Shenzhen Duty Free, and Zhuhai Duty Free, with CDFG, Shenzhen Duty Free and Zhuhai Duty
Free competing for the busy crossing points on the Zhuhai and Shenzhen borders. Under current regulations the licences will be valid for 10 years, with all licences requiring their tender and award to happen within six months of the application being approved. The Ministry of Finance allows the arrival shops to sell perfume, cosmetics, liquor, tobacco, confectionary and fashion items, accessories and watches, notes the publication. ‘The four companies are qualified to bid for all the duty free arrival shops. Probably Shenzhen Duty Free and Zhuhai Duty Free are not interested in operating nationally, but will bid for local arrival border shops,’ the publication quotes a source at one of the bidding companies as saying. The new airports arrival shops are expected to include Guangzhou Baiyun International Airport as well as airports in Chengdu, Chongqing, Dalian and Tianjin.
Taiwan’s double taxation avoidance bill with SARs progresses Taiwan has proposed a bill for inking a double taxation avoidance agreement with the MSAR and Hong Kong, which is supported by the members of Taiwan’s executive and legislative branches, according to news outlet Taiwan Today. The proposed bill, drafted by the cabinet-level Mainland Affairs Council, targets Taiwanese shipping and air transport companies operating in the two SARs as well as counterparts running business in the local market. The deputy spokesperson of Taiwan’s Executive Yuan Council, Chang Hsiu-chen, said that the bill would aid global competitiveness for Taiwanese firms which are interested in both SARs’ markets, according to the outlet. The spokesperson also indicated that Taiwan’s business environment will be enhanced and more shipping and airline companies from the two SARs will be encouraged to establish bases of operation on the island. She added that amendments will likely increase people-to-people exchanges. The bill has already been sent to the Ministry of Finance for drafting th e d etai l e d i m p l e m e n tati o n regulations, according to Chang. The bill was also sent for approval from the Cabinet yesterday prior to forwarding to the Legislative Yuan for review. The MSAR Government has previously signed an agreement with Taiwan to avoid double taxation in the aviation business of the two parties. C.U.
Business Daily Friday, November 18 2016    3
Macau Yacht
MSAR-Zhongshan Free Yacht Scheme sets sail on Wednesday
and the Chinese city was initially scheduled for implementation in the middle of last The Free Yacht Travel Scheme between the year. The opening date was later postponed city and Zhongshan in Guangdong Province to the end of September, to the end of last year, then the end of the first half of the will start next Wednesday, according to a year. According to the 2017 Policy Address, press release by the MSAR Government. the MSAR Government plans to expand the A launching ceremony of the scheme will scheme to the three Free Trade Zones in be held in the Mainland Chinese city on Guangdong Province, namely to Hengqin, the day. The Free Yacht Travel Scheme between the Special Administrative Region Nansha and Qianhai. K.L.
Property Housing prices rebound 12.7 pct y-o-y
Home transactions rocketed in October In particular, off-plan sales in Coloane soared in the month Cecilia U cecilia.u@macaubusinessdaily.com
I
n the month of October, total housing transactions in Coloane surged 11-fold month-onmonth to 231, a level which also represents a notable increase of 863 per cent compared to the same period in 2015, according to the latest data published by the Financial Services Bureau (DSF). The strong increase in the number of home transactions on the island was boosted by off-plan sales there in the period, which soared by 845.8 per cent year-on-year, or 981 per cent month-on-month, totaling 227 transactions. Last month, the city saw new luxury residence Sky Oasis commence off-plan sales, with the developer
claiming that its first batch of sales of 128 units were sold out in one weekend. In general, the MASAR recorded a total of 1,162 home transactions in the month, triple the 383 transactions of one year ago, or an increase of 24 per cent from one month ago. In addition to the notable increase in the number of transactions involving Coloane property, those on the Macau Peninsula and in Taipa both registered triple-digit year-onyear growth, up 144 per cent and 232 per cent, amounting to 725 and 206, respectively.
Home prices
Average housing prices for the month rose 12.7 per cent year-on-year to MOP89,430 (US$11,193) per square metre. The amount also represents a 9.3 per cent increase compared to September. Meanwhile, average housing prices in Macau rose 9.2 per cent year-on-year, or 5.1 per cent month-on-month, to MOP81,392
per square metre whilst those in Coloane surged 26.2 per cent yearon-year, or 17.3 per cent month-onmonth for MOP125,272 per square metre. Nevertheless, average housing prices in Taipa posted a decrease of 1.7 per cent year-on-year, or 3.3 per cent month-on-month, amounting to MOP87,025 per square metre.
Completed properties
In terms of unit types, transactions for completed flats in the city posted 155 per cent increase to 851 compared to one year ago. Ave rag e hou si ng prices for
completed flats in October reached MOP79,612 per square metre, which grew by 7.3 per cent year-on-year, or 1.7 per cent month-on-month. Total transactions of unfinished properties totaled 311, soaring 211 per cent month-on-month, or 535 per cent year-on-year. Av e rag e h o u si n g p r i c es o n uncompleted units rose 11.4 per cent year-on-year, or 8.2 per cent month-on-month, to MOP121,507 per square metre. In particular, those in Coloane reached MOP128,894 per square metre, an increase of 20.7 per cent month-on-month, or nearly 30 per cent year-on-year.
4 Business Daily Friday, November 18 2016
Macau
Monetary
Local banks’ int’l business narrows in Q3 Total international assets and liabilities of local banks both decreased in the third quarter Kam Leong kamleong@macaubusinessdaily.com
L
ocal banks saw their international business slightly narrow during the third quarter of the year, with the share of international assets in total banking assets falling to 84.3 per cent from 84.9 per cent as at the end of June whilst that of international liabilities fell 1.3 percentage points quarter-to-quarter to 79.1 per cent.
According to the latest official data released yesterday by the Monetary Authority of Macau (AMCM), total international assets held by local banks decreased by 1.4 per cent quarter-to-quarter to MOP1,151 billion as at the end of the third quarter. Compared to one year ago, the amount represents a drop of 4 per cent. Of the total international assets, external assets posted a decrease of 2.5 per cent quarter-to-quarter to MOP840.7 billion as at the end of September, which also represents a
decline of 6.5 per cent compared to the same quarter one year ago. In addition, external non-bank loans, a major component of international assets, amounted to MOP367.4 billion, down 1 per cent quarter-to-quarter or 5.4 per cent year-on-year. Nevertheless, the sector’s local assets in foreign currencies expanded by 1.7 per cent quarter-to-quarter or 3.5 per cent year-on-year, amounting to MOP310.5 billion for the period.
Liabilities
On the other hand, total international liabilities of local banks declined by 2.3 per cent quarter-to-quarter or 5.7 per cent year-on-year, totalling MOP1,081 billion as at the end of September. Of the total, external liabilities amounted to MOP563.4 billion, down 7.1 per cent quarter-to-quarter or 16.2 per cent year-on-year, whilst local liabilities in foreign currencies grew by 3.5 per cent quarter-to-quarter or 9.3 per cent year-on-year, reaching MOP517.4 billion. According to AMCM, foreign currency deposits held by local residents and the MSAR Government in local banks formed the major component
of the sector’s international liabilities, accounting for MOP463.6 billion. Meanwhile, non-local currencies remained the dominant denomination in local banks’ international banking transactions.
Regions
As at the end of the quarter, the shares of the local Pataca currency in total international assets and total international liabilities only accounted for 0.8 per cent and 1.7 per cent, respectively. Meanwhile, the Hong Kong Dollar, US Dollar and Renminbi accounted for 43.2 per cent, 41.6 per cent and 8 per cent of the total international assets, and 50.2 per cent, 38.2 per cent and 6.6 per cent of total international liabilities. In terms of region, the majority of external assets and liabilities were related to Asia and Europe, the Authority said. As of the quarter-end, claims on Hong Kong SAR and Mainland China accounted for 35.9 per cent and 23.2 per cent of total assets, while claims on Portugal and Germany occupied 2.7 per cent and 2.3 per cent, respectively. Of external liabilities, the Hong Kong SAR and Mainland China took up respectively 51.5 per cent and 21.4 per cent of the total, while Portugal and France occupied 0.8 per cent and 0.7 per cent, respectively. In addition, Portuguese-speaking countries represented 2.7 per cent and 1.1 per cent of total external assets and liabilities, respectively.
Survey
More retailers post September sales growth Yet more restaurant operators say receipts dropped in that month More retailers report a year-on-year sales growth in September, as well as being optimistic about business prospects for October, according to the latest business climate survey by the Statistics and Census Service (DSEC). According to the survey, 40 per cent of the 135 surveyed retailers claimed their sales had increased year-onyear in September, up 14 percentage points on August. Meanwhile, the proportion of retailers posting yearon-year sales drops fell 13 percentage points to 57 per cent from August. In terms of industry, all surveyed leather goods retailers and more than half of the retailers selling adults’ clothing said they experienced sales growth in the month. However, all interviewed motor vehicle retailers and 58 per cent of those selling watches, clocks & jewellery said sales had declined year-on-year in September. In general, however, retailers were more optimistic about their business performance in October, DSEC said.
The survey claimed that the proportion of retailers that anticipated a year-on-year increase in sales rose by 6 percentage points from the previous month to 23 per cent whilst those estimating a year-onyear drop in sales went down by 5 percentage points to 52 per cent from the preceding month. On the other hand, 63 per cent of the 167 interviewed restaurants & similar establishments reported a year-on-year decline in receipts, up 2 percentage points from the previous month. In particular, 62 per cent of those running local-style cafes, congee & noodle shops said sales had declined in the month, up 14 percentage points month-on-month. Regarding business prospects in October, restaurants & similar establishments expected to perform better, with 19 per cent of interviewed establishments forecasting a yearon-year increase in receipts, up 4 percentage points from the previous month. K.L.
Business Daily Friday, November 18 2016 5
Macau Court
The house always wins The Venetian wins in MOP4.3 mln tax case brought by Secretary for Economy and Finance The Venetian has won an appeal on MOP4.33 million (US$541,250) in taxes regarding 42 contracts for the right of use of shops in its shopping centre, according to a recent court case decision published by the Court of Final Appeal. ‘The problem is that we don’t have indication that the objective of the law was to include (contracts for right of use) under the concept of renting contracts of shops in shopping centres,’ notes the case verdict, which ruled in favour of The Venetian against an appeal made by the Secretary for Economy and Finance to tax The Venetian for the 42 contracts in question, under the Stamp Duty – at a 0.5 per cent tax rate on the value of the rental agreements. ‘The [court] held that there was
no evidence that the desire of the law was to include, in the concept
of renting, the contracts of the shops in the shopping centres,’ notes the court filing, indicating that, although in 1988 when the regulation was approved, the ‘reality of shopping centres was poorly known’. K.W.
Property
818 new housing units under construction in Q3 Nearly three quarters of the new housing supply are studio flats Kam Leong kamleong@macaubusinessdaily.com
In the third quarter of the year, the city’s private construction sector was building new projects occupying a total of 125,000 square metres, providing a total of 818 residential units and 576 parking spaces, according to the latest
official data from the Statistics and Census Service (DSEC) released yesterday. Compared to 2,575 flats built in the same quarter of last year, the number plunged by 70.3 per cent. Of these residential units under construction in the quarter, the majority, 72.8 per cent, are studio flats, some 596 - whilst another 190 are one-bedroom units, accounting for 23.2 per cent of the total. This is different from the situation in the same quarter of last year – when 47.6 per cent of total flats under construction were two-bedroom
units, whilst another 41.1 per cent were one-bedroom units. In terms of area, nearly all of the units being built in the quarter are located on the Macau Peninsula. Meanwhile, the gross floor area of buildings completed totalled 44,000 square metres, providing 126 residential units and 70 parking spaces for cars; 47 of these completed housing units are studio flats, 43 are one-bedroom units, while twobedroom units and three-bedroom units amounted to only 21 and 14, respectively. Some 97 of these completed flats are located in the Peninsula, while 28 are in Taipa.
Total real estate sales down in Q3
The DSEC data also reveals 3,166 building units and parking spaces were transacted as per Stamp Duty records in the third quarter of the year, a drop of 18.4 per cent quarterto-quarter. The total value of the transactions amounted to MOP17.2 billion (US$2.2 billion), down 10 per cent quarter-to-quarter. Of total property transactions, those of residential units amounted to 2,399, amounting to MOP14.5 billion, down 19.5 per cent and 4.8 per cent quarter-to-quarter, respectively. Nevertheless, off-plan sales of residential units surged 49.6 per cent quarter-to-quarter to 347 in the period, with total value soaring 112.3 per cent to MOP3.79 billion due to the commencement of pre-sales of new large-scale housing estates, DSEC said.
Navy
Carrier to casino to carrier China’s first aircraft carrier was at one point intended to become a floating casino in the MSAR China’s first aircraft carrier – Liaoning - is capable of carrying 36 aircraft as well as a number of military helicopters and is ready for combat according to an announcement by the central government on Tuesday. The carrier, despite being named after its ‘home’ province of Liaoning, has a 28-year history beginning with its construction – for the Soviet Navy – in current Ukraine. With the dissolution of the Soviet Union the carrier began a journey, despite being only 68 per cent complete, without electronics, engine or rudder, notes Forces
publication, in 1998 that intended to leave it in Macau. Following a six-year bidding period opened by the Ukraine Government, says the publication, the winning bid was announced: from Chong Lot Travel Agency, based in Hong Kong, for US$20 million (MOP160 million). The plan: to tow the ship from the Black Sea, through the Suez Canal and on to Macau, where the ship was to be moored and converted into a floating hotel and casino. Xu Zengping was the man at the helm of the deal, allegedly under the persuasion of the Chinese Navy,
Mr. Xu told the South China Morning Post, with the floating casino plan a cover to purchase the ship indirectly for the Chinese Navy. Forces notes that Xu ultimately spent at least US$120 million on the deal for the ship, including funds to set up a shell company in Macau as part of the floating casino plan, Xu told the Hong Kong publication. Some HK$6 million went to local authorities for casino documents in December 1997, two years before his winning bid was announced. Locally based military observer Antony Wong Dong told the South China Morning Post that Xu’s contributions to the Navy were never praised. “Xu is just one of the casualties of the carrier project’s rough ride over the past four decades, thanks to the PLA’s lack of transparency,” Dong stated. K.W.
Opinion
Pedro Cortés*
A true diversifier Last Sunday, I had the opportunity to attend the St. Martens party (in Portuguese ‘Magusto’) at the Hovione premises in Taipa. For those who do not know Hovione, it is a corporation with a manufacturing plant in Macau and premises in eight other locations, from Lisbon to New Jersey, and in Mainland China, India, Japan, Hong Kong, and Ireland. Driven by the vision of its CEO, Mr. Guy Villax, it has expanded hugely over the last two decades. It is also the reason why you read this column here in Macau. As a matter of fact, in early 2012 I was placed in Macau by the then ICEP (Portuguese external trade agency) now AICEP. Truth be told, it is one of the sole examples of diversification of the economy in Macau. In the land of gaming, it produces pharmaceutical products and focuses on the development and manufacture of challenging products that demand the highest standards of process chemistry and manufacturing expertise coupled with rigorous regulatory compliance. Well, it seems that we’re talking about another championship after this sentence. And we are. It could be an example for many other companies who consider that in Macau there are no conditions for this type of entrepreneurialism. Furthermore, in a world changing rapidly into something we cannot still perceive the shape of it was established in Portugal in 1959 by Ivan Villax and two other Hungarian refugees: Nicholas de Horthy and Andrew Onody. Thus its name. Yes, refugees, my dear friends, of the same nature as those who are being called by some politicians to be the source of all harm. The example of the founders of this multinational corporation could well be studied by some leaders of Europe, the United States and Asia in order to understand that we are all human beings with competences and capabilities of making a better world for our children. As Pope Francis said last week: those who want to make walls instead of bridges cannot be called Christians. Respect for humanity is at a decisive moment and we must all work for different races, cultures and backgrounds to find common bridges and platforms and bring the others within our circles. Unfortunately, it seems that not all think alike and prefer to divide humans as if they were irrational beings. *lawyer and frequent contributor to this newspaper.
6 Business Daily Friday, November 18 2016
Gaming Stocks
Imperial Pacific falls after denying reports casino probed K. Oanh Ha
I
mperial Pacific International Holdings Ltd., the operator of a casino in the U.S. territory of Saipan, tumbled to an 18-month low as it resumed trading in Hong Kong after the company denied reports that its Best Sunshine gaming operation is being investigated by a U.S. regulator in charge of antimoney laundering efforts. B l o o m b e rg N e w s r e p o r t e d November 14 that the U.S. Treasury’s Financial Crimes Enforcement Network has taken notice of activities at Best Sunshine. Imperial Pacific never received any investigation notice from the U.S. Treasury unit, it said in a stock exchange statement late Tuesday that was in response to “ certain media articles,” after requesting a trading halt earlier that day. Fincen, as the unit is known, is responsible for alerting prosecutors and other authorities of suspicious financial flows. Imperial Pacific has implemented stringent internal control measures and has fully applied an antimoney laundering system to ensure compliance with all applicable U.S. laws and regulations, according to the exchange filing. The stock fell 7 per cent by the close of trading Wednesday to the lowest level since April 29, 2015, giving the company a market value of HK$16.9 billion (US$2.2 billion). It slumped as much as 11 per cent earlier. Imperial Pacific reported daily
revenue of about US$170,000 for each of its 16 VIP tables in the first half of the year - almost eight times the average of Macau’s largest casinos. In September, Imperial Pacific posted a record US$3.9 billion in total bets at its casino -- meaning the 100 or so highrollers who it says come through its doors monthly each wagered an average of US$39 million.
Full capacity
Imperial Pacific says its casino, overall, is attracting visitors at full capacity. “As there are only 38 gaming tables in the casino and each table is able to serve 5 to 6 customers at
the same time, our service capacity has saturated,” Imperial Pacific said in its statement. “Each night, around 100 customers could not be arranged with a seat and had to queue or stand to participate.” Chief Executive Officer Mark Brown said in an interview this month that he believes that comparisons with Macau casinos reflect that Imperial Pacific’s peers are under-reporting figures, with off-books betting not showing up in official reports. Many gaming tables at Macau resorts are underused, which accounts for the high revenue from the limited tables in Saipan, according to Imperial Pacific.
The company’s board members include James Woolsey, who ran the Central Intelligence Agency in the early 1990s and was among national-security advisers to the White House campaign of President-elect Donald Trump, as well as Eugene Sullivan, formerly a senior U.S. military judge. A separate advisory committee for business strategies and government r e l a t i o n s, f o r m e d i n A p r i l , includes former Federal Bureau of Investigation director Louis Freeh and Ed Rendell, previously governor of Pennsylvania and cha i r m a n o f th e D e m o c rat i c National Committee. Bloomberg
purchaser of the Baha Mar, Stanley Ho,” comments the DNA leader. “Ho, as was published locally, has had regulatory and legal issues worldwide, including the United States, with respect to his criminal associations,” claims Mr. McCartney. “Beyond his substantial investment - and directorship - in the Ho casinos which he has held for 34 years,” states the politician, “Cheng (Henry Cheng Kar Shun) holds no fewer than six partnerships with Ho in Macau, including Heng Seng Bank, the target of a United States investigation of money laundering for North Korea, as well as Macau’s dog racing track, its horse racing track, its sports book, and ferry lines. The public record is crystal clear on all of these relationships.”
intent to buy a 70 per cent stake in Sun City Gaming Promotion Co. for HK$7.35 billion, according to Bloomberg. However, according to the group’s fiscal 2014/2015 Annual Report, the terms of the agreement expired at end-2014 ‘without any definitive agreement’ having been made. With regard to links to Stanley Ho, as noted in Sociedade de Jogos de Macau’s (SJM) 2015 annual report, Henry Cheng Kar Shun held a directorship position at SJM from March 2013 and a non-executive directorship position since May 2013, including a share position in the company. In previous statements to Bahamas publication Tribune 242, Chow Tai Fook notes that ‘the Cheng Family is an investor in STDM, which owns the gaming subsidiary, SJM. In addition the Cheng family’s role in the Macau casino is strictly as in investor, with no involvement in day-to-day management of the casino or oversight of the gaming industry in Macau. There will be no affiliation on this project with STDM or SJM’. According to Hang Seng Bank’s 2015 annual report Cheng is also an independent non-executive director and member of the board, having joined in May 2014, as well as holding directorships in 10 other major companies including Chow Tai Fook and New World Development Company. Regarding Hang Seng’s potential link to North Korea, a Wikileaks file alleging to be from 2009 notes that in response to questions by compliance and money laundering control officers: ‘Hang Seng maintains high anti-money laundering standards and that suspicious transactions, in particular those that appear to have links to North Korea, will continue to be properly screened,’ claiming to quote an Assistant Manager of the bank at the time.
Bahamas
Demanding due diligence A Bahamian politician questions the links between the owners of Chow Tai Fook Enterprises (CTFE), the Cheng family and Stanley Ho Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Links between the owners of Chow Tai Fook Enterprises (CTFE), the Cheng family and Stanley Ho are being questioned by a politician in the Bahamas, demanding that due diligence be conducted on CTFE regarding its purchase and operation of the US$3.5 billion (MOP28 billion) Baha Mar resort complex in the territory, according to a press release by the territory’s Democratic National Alliance (DNA) leader Branville McCartney.
Mr. McCartney demands that the Bahama Administration reveal whether it has probed CTFE’s dealings and business connections, claiming that the government is duty bound to publicise the jewellery giant’s track record. “The DNA notes that the responses from Chow Tai Fook and members of our Government have been to try to whitewash the facts and concerns of the public by simply suggesting that the principal owners of Chow Tai Fook, who are the Cheng family, are simply investors in enterprises of another one-time rumoured
Director Cheng
In 2014, the company controlled by Cheng’s family - International Entertainment Corp. - notified their
Business Daily Friday, November 18 2016 7
Macau
Engines roar again on the first day of the 63rd Macau Grand Prix as Portuguese pilot António Félix da Costa and Macau legend Michael Rutter top the Macau Formula 3 Grand Prix and Motorcycle Grand Prix first qualifiers
8 Business Daily Friday, November 18 2016
Macau
Suncity Group Macau Motorcycle Grand Prix - 50th Edition
‘The Blade’ strikes again
M
ichael ‘The Blade’ Rutter finished first in the first qualifying round of the 50th Edition of the Suncity Group Macau Motorcycle Grand Prix following a hard fought battle with BMW rider Martin Jessopp in the second half of the qualifier. The record holder of most Macau Motorcycle GP wins
was looking at his best at the beginning of the day, finishing first in the day’s practice run, as the fastest of the three Bathams/SMT Racing riders, and ahead of defending champion Peter Hickman. With the whole bike platoon separated by less than 15 seconds, however, the quality and toughness of this year’s race was there for all to see.
With 10 minutes to the end, Rutter - eight time victor of the Macau Motorcycle Grand Prix - saw Jessopp make a courageous attempt to close the gap, first getting into 0.60 seconds of The Blade and then 0.60 seconds ahead of Rutter. However, Jessop’s moment in the sun didn’t last long as Rutter responded in force and passed the chequered flag 0.99 seconds ahead. Ian Hutchinson, winner in 2011, managed a place on the
podium with a 2m29 time that landed him third position, while Honda Racing
rider John McGuiness forced a close 4th just 0.03 seconds behind.
Suncity Group Macau Motorcycle Grand Prix - 50th Edition Qualifying 1 - Provisional Pos 1 2
Nr Name 2
Michael Rutter
40 Martin Jessopp
Nat
entrant
GBR
Bathams/SMT Racing
GBR Riders Motorcycles BMW
Vehicle
time
laps
BMW
02:24.8
12
gap
BMW
02:25.8
14
0.99
3
4
Ian Hutchinson
GBR Tyco BMW
BMW
02:27.3
11
2.521
4
12
John McGuinness
GBR Honda Racing
Honda
02:27.3
15
2.551
5
13
Gary Johnson
GBR Penz13.com BMW by MGM Special Olympics Macau
6
8
Horst Saiger
LIE
BMW
02:27.5
14
2.712
Kawasaki
02:27.7
12
2.95
7
67 Glenn Irwin
8
22 Conor Cummins
GBR Be Wiser Ducati Race Team
Ducati
02:27.8
12
2.994
GBR Honda Racing
Honda
02:28.1
11
3.261 3.525
Saiger Racing
9
1
Peter Hickman
GBR Bathams/SMT Racing
BMW
02:28.3
12
10
3
Stuart Easton
GBR Bathams/SMT Racing
BMW
02:29.1
FIA F3 World Cup Qualification Race - 10 laps
A tale of two Felix’s and four red flags Portuguese driver António Félix da Costa has finished first in a qualification race plagued with
multiple accidents that led to a total of four red flags being raised. British Calum Ilott managed second fastest
with just 0.226 seconds difference followed by two-time winner Felix Rosenqvist, who seemed to struggle with the new Pirelli tyres, having managed a first position in yesterday morning’s practice run. “The result of the first qualifying normally doesn’t mean a lot, It’s a long weekend. Of course it’s better to be in first than last. If tomorrow is sunny, the times will improve and we’ll have to focus more. For now, we’re in a good position,” Costa told Business Daily. The Carlin Dallara-Volkswagen driver managed a pole position for a race he managed to win in 2012, reaching a best lap time of 2m11.5 in a session that saw Daniel Juncadella and Kenta Yamashita suffering accidents that affected their last times. Despite
losing a wheel at the beginning of qualifying, the Japanese F3 champion managed to be 4th fastest, while the Hitech GP driver ended up finishing the qualifying earlier after crashing at Fisherman’s Bend with two minutes remaining, prompting the final fourth red flag to be raised. Lando Norris from Carlin also had an accident at Sao Francisco Hill while Joel Ericsson from Motopark crashed on the Solitude Esses. However, while Norris managed to finish as 7th fastest, Eriksson finished 20th. “The rookies are really fast and Macau walls have no mercy. It’s part of the race and it’s something I myself have experienced. I know how hard it is to not to crash here when you’re pushing the limits,” Costa said after the race. Local driver Andy Chang Wing Chung running for T-Sport, reached a 2m13.3 time, putting him in 18th position, having finished bottom last year.
(Mitsubishi Evo10) and last year’s third placed Lo Kai Fung (Mitsubishi Evo7). Opposition to a fifth Macau win is certainly coming from Japanese ace Mitsuhiro Kinoshita (Nissan GTR R34). As lap times have a special meaning for the supporting race competitors,
apart from the final result the favourites will try to break the lap time record of the race currently claimed by Japanese driver Manabu Orido.In 2010, the Japanese went around Guia Circuit in 2:32.974 in a Nissan GT-R, with nobody else able to come close.
Suncity Group Macau Road Sport Challenge
Macau targets fifth win The Macau Road Sport Challenge, which this year features cars by four different manufacturers in the 36-entry field, is back for its ninth edition. This is the noisiest, most colourful race of the weekend. A very open rulebook, where not much attention is paid to FIA safety standards, gives full rein to the imagination of the competitors and teams, to say the least. This is one of the local spectators’ favourites as it is for the Pan Delta tuning car industry to show on the track what they have for sale in the shop. Curiously, it was the first ever race sponsored by the Suncity Group on its way to the main sponsorship role. Unfortunately, Mazda Japan and Subaru China efforts won’t be seen in this year’s race, making the life of the privateer racers easier. Macau is looking for the fifth straight win in this race. The last non-Macau driver
to win was Philip Yau Wing-choi, from Hong Kong, who won in 2011 and tragically succumbed to injuries suffered in a crash at Mandarin Bend in qualifying for the 2012 Macau Touring Car Cup. From its introduction in 2008, this race has been very popular among the Macau teams and drivers. In the last four years Macau racers have dominated the Road Sport Challenge, leaving the archrivals from Hong Kong far from the glory. Macau Road Sport racing specialist Sun Tit Fan has retired but the last two edition winners - Leong Ian Veng (Mitsubishi Evo9) and Wong Wan Long (Mitsubishi Evo10) - are still around and aiming for a win this year. Macau has a 15-car armada on the grid, where one can spot the names of former Formula Three racer Lei Kit Meng (Nissan GT-R), former WTCC guest driver Ng King Veng
Business Daily Friday, November 18 2016 9
Macau
CTM Macau Touring Car Cup
Macau armada defies the odds
A
few years ago these races would reunite the very best of the Asian touring car elite. Times have changed and the way paved by the regulators was in the opposition direction. This year’s race marks the third year of the 1.6T Production Touring Car regulations, including cars such as the Mini Cooper S, Ford Fiesta ST Fiesta, Peugeot RC-Z and Chevrolet Cruze. Unfortunately, these regulations are only valid for Hong Kong and Macau Touring car championships, leaving the rest of Asia racing something different and ineligible to join. The escalation of the costs and the lack of performance of the cars drove away many competitors, mainly from Hong Kong. However it will be a Hong Kong team that everybody wants to beat; the Suncity Group Racing. The team carries momentum following a dominant 2015 and beginning of 2016, when its Peugeot RCZs took the team to the 1.6T Drivers’ title twice and a spectacular one-two finish in last year’s CTM Cup. Last year’s winner Paul Poon Tak Chun
is the man to beat. The always-fast ‘Gentleman Driver’ from Hong Kong will team up with longtime buddy Samson Fung Man Wai, his friend’s son Alex Fung Kar Chue, and 2014 Chinese Racing Cup winner Samuel Hsieh. The Hong Kong quartet hired the
FIA Word Champion Rob Huff to help on car development and rely on the professional support of Teamwork Motorsport. Anyone but them winning the race will be considered a surprise winner. Some 22 of the 29 entries are Macau drivers, with next season’s Macau
Foundation subsidies at stake as well as bragging rights. A DNF in the race means no sponsorship for season 2017. Meanwhile, not everyone on the grid can afford the MOP1million cost of building a competitive car for this one of a kind technical regulation. The Son Veng Racing Team Chevrolet Cruze dominated the AAMC Challenge series in the Summer at Zhuhai, with 2015 and 2016 Champion Filipe Clemente Souza certainly one to watch. The TCR Asia Series regular will run a new engine and hopes to give the Hong Kongers a run for their money. Souza will team up with former ACP Cup winner Jerónimo Badaraco, Chan Weng Tong and Cheong Chi Hou. Lacking the budget to transform their equipment into frontrunner machines, the Macau drivers will play the role of dark horses. Veteran drivers like Celio Alves Dias, Eurico de Jesus, Rui Valente, Patrick Chan, Álvaro Mourato and Lui Man Kit can use their circuit knowledge to make the difference on a 12-lap race on a cold Sunday morning where a lot usually happens.
their teammates but Macau is widely regarded as being a complete lottery and impossible to predict - thus the pair aren’t out of the fight just yet. While the battle for the Drivers’ title is still ongoing, that for the Teams’ crown and Model of the Year have already been decided. Hong Kong’s Craft-Bamboo Lukoil has succeeded Target Competition as the new Champion Team, and despite the fact it has won fewer races than the Honda Civic – 7 versus 8 so far – the SEAT Léon has claimed the Model of the Year title by a comfortable margin. Like any other season finale, the race will always attract guest drivers and this year is no exception, with
two newcomers who are more than capable of springing surprises. Portuguese Former Formula One driver and nowadays WTCC star Tiago Monteiro will be in the third WestCoast Racing Honda Civic, while British driver Josh Files competes in the same Target Competition Honda in which he won this year’s TCR Germany title. Representing Macau are three drivers: last year’s Chinese Racing Cup winner Michael Ho Hon Keong in a Honda, TCR Asia Series podium finisher Kevin Tse Wing Kin in a Volkswagen, and Lou Hon Kei in a SEAT. None of them will be aiming for podium positions but they will certainly hope to finish in the top 10.
Suncity Group Macau Guia Race 2.0T
Race Preview TCR’s premature farewell When the FIA World Touring Car Championship (WTCC) departed Macau at the end of 2014 and the Macau GT Cup was promoted to FIA World Cup status, the Guia Race lost a bit of its oomph in the programme to the point that the team garages were relocated underground instead of in the main paddock. Yet, the arrival of the TCR International and Asia Series has kept alight the flame of the most prestigious touring car race in Asia. The race celebrates its 45th running this year, while the line-up for the Suncity Group Macau Guia Race 2.0T represents a diverse 36-car strong international entry, which includes former winners and some of the category’s top talent from 20 different countries and territories. For the first time the race will open the door to six China Touring Car Championship (CTCC) cars which comply with FIA TCN-2 specifications, and competitors. The privately
run Audi, Mercedes Benz and Citroen entries from Mainland China will join the event but even if the cars are theoretically faster than their TCR specification counterparts the attention over the weekend will be on the TCR series stars. Twelve months ago the TCR International Series headed for its first ever final race weekend with three drivers still in the running to take the inaugural title. The result was two unpredictable and spectacular races and a phenomenal touring car race spectacle. This time, Macau will see a fourway fight for the trophy between two pairs of teammates, with two car brands - SEAT and Volkswagen - represented in that fight. James Nash has a lead of 17 points over last year’s champion, Stefano Comini. In third place, a further 16 points adrift, is Nash’s Craft-Bamboo Lukoil SEAT teammate Pepe Oriola, while fourth is Comini’s Leopard Racing Volkswagen colleague Jean-Karl Vernay, who is 39 points off the lead. Both Oriola and Vernay acknowledge that the title is all but beyond them and so both have pledged to help
GUIA RACE FAST FACTS Drivers Teams Nationalities Manufacturers Engine Weight Horsepower Top Speed Start Race Winner Prize Money
36 23 20 8 (SEAT, Volkswagen, Honda, Alfa Romeo, Ford, Audi, Mercedes Benz, Citroen) 2000cc Turbo 1,250kg-1,300kg 330hp 240km/h Standing Two races, each of 10 laps with a 15-min break inbetween HK$16,000
10 Business Daily Friday, November 18 2016
Greater China
BMW
The Super-Bike In the recent past BMW rhymed easily with touring car wins. From the end of the 70’s the Macau Guia Race was a resounding success for BMW, with the Bavarian brand collecting win after win. But those times are long gone. BMW departed the touring car racing scene to focus on German DTM, GT racing worldwide, and more recently the Formula E electric series. BMW’s playground in Macau is now the motorcycle race. The German giant is the only manufacturer today that can boast of having won both the Guia Race and the Motorcycle Grand Prix. Since its introduction at the Isle of Man in 2010, the BMW S1000RR has become the one to beat in Road Racing worldwide. Although the fourstroke naturally aspirated S1000RR was first raced in Macau in 2010, it was not until 2012 that Simon Andrews finished third on his S1000 RR, claiming an historic first ever podium finish for BMW at the Macau Grand Prix. Last year, it claimed its first win when Peter Hickman took everyone by surprise on his factory-prepared version entered by Ice Valley by Motorsave Trade Racing. In fact, BMW S1000 RR riders occupied all three podium spots - from a field of 30 starters, four of the top five finishers were on BMWs, as were six of the top ten. “The great success of last year, where we had the complete BMW podium, was very important first to show the capability of this bike in such difficult conditions, and it shows the real value of the bike, a bike that makes life easier for the riders”, Berthold Hauser, Technical Director of BMW Motorrad Motorsport, told Business Daily. “Definitely this result was very important for our marketing”, he enthused. The supreme irony of this success derives from the fact that there is no factory engagement from BMW Motorrad in racing. The German manufacturer puts its effort into support via its technicians and engineers from the BMW Motorrad Motorsport department to the privateer teams and riders who compete in Macau and elsewhere in the world. This is part of BMW Motorrad’s long-term strategy for customer sports, which so far has been working just fine. But why did it take five years to reach the dizzying heights of its Italian and Japanese rivals? “Our rivals have been racing in Macau for ages; they have a lot of experience and know-how. Just last year we got access to the best riders on the RR bike and together with
the new model, the 2015 spec, this combination of high performance worked well. We have to consider that for us it was not so long to reach this level of performance”, explains Hauser. The 2010 BMW bike produced 193hp and 110 Nm of torque straight from the factory, some 11 bhp more than its closest rival at the time, the iconic Yamaha R1. The S1000RR engine got an important update in 2015 and now it is believed to deliver 199hp to the rear wheel – 6 hp more than before. The torque has also increased by 4 Nm, with the power curve improved from midrpm upwards. This is slightly more than its Japanese rivals, the Yamaha R1 and Kawasaki ZX-10R, which both produce a claimed 197.3 bhp. The Macau Grand Prix is very special as it takes place on a street circuit lined with Armco barriers, where riders need a very high degree of ability and similar levels of precision and control as the TT, as there are no run-off areas. With varying levels of grip and changes of surface and very long straight lines, riders need a very complete bike and comfort to perform well. To find the right balance is never easy as conditions vary a lot from the circuit racing where BMW Motorrad
is also heavily involved. A change in torque delivery was made by the factory in the last spec of the RR, as many riders considered the engine to be very peaky and harsh to ride at the top of the rpm range. It is assumed that this was achieved through electronic remapping and works perfectly to accommodate the necessities of the riders to ride close to the limit. “Road Racing is one of the toughest racing competitions beside all other competitions. Nevertheless, it is a competition that you need to have the right combination of a performance bike with this kind of perfect balance to achieve success”, adds Hause. BMW is also competing in the FIM Superbike World Championship (World SBK), FIM Endurance World Championship (EWC) and British Superbike Championship (BSB) with S1000RR but the Road Racing motorbike is slightly different in many aspects. “The road racing bike is closer to the standard version, with some modification of the suspension, modified brakes, but not on the high end like in the Superbike championships, for example. The road racer is closer to the stock edition of the bike”, clarifies Hause. The biggest opposition to the German motorbikes in Road Racing
comes from the ever-popular Honda Racing CBR 1000RR, well known as the Fireblade in some countries, like the one veteran 2001 winner John McGuiness will ride again this weekend. The Japanese bike was introduced in 2008 and as of 2016 remains the same apart from a few electronic control system changes. The teams running it complain that its design is too old now, and that it is well down on power compared to rivals as Honda have not introduced any major upgrades to the bike. Honda teams need to put their engines under so much more strain than BMW or Kawasaki teams just to remain in the fight and these efforts have been costing them serious results due to mechanical failures. A bit like on the racetrack, this year continues to be the strongest ever for BMW Motorrad, with sales for October totalling 10,974, up 19.1% compared with the same month last year. Worldwide, 9.576 units of the RR have been sold so far in 2016 at a market cost of HK$268.800. “If you want to succeed in Road Racing, you clearly need to join BMW and run an RR. Look at the results we’ve had at the Isle of Man and North West 200. In all of these international events, it seems that BMW is in the majority and winning”, Hause says and he may be right. If not, why are race favourites Michael Rutter, Peter Hickman, Ian Hutchinson and Stuart Easton all riding the all-conquering Beemer . . . ?
Business Daily Friday, November 18 2016 11
Asia FDI
Investment ties with U.S. deeper than thought U.S. investment in China surged 80 per cent in the first ten months while Chinese money headed to America jumped an eye-popping 174 per cent
F
oreign direct investment flowing both ways between the U.S. and China may be two to four times greater than shown by data from both governments. That’s according to a Rhodium Group analysis of deals from 1990 to 2015 released in a joint report with the National Committee on U.S.-China Relations. Nearly 6,700 U.S. investments in China over that quarter century have a combined value of US$228 billion, Rhodium found, far beyond the US$75 billion U.S. Department of Commerce estimate or the US$70 billion from China’s Ministry of Commerce. China’s 1,200 transactions over those years come to a combined value of US$64 billion, eclipsing Mofcom’s US$41 billion tally and the US$15 billion to US$21 billion range from the Commerce Department. For the first time, Chinese companies invested more in the U.S. last year than American companies in China, underscoring the evolution of the world’s two largest economies. Economic integration “is much greater than official statistics suggest,” said Thilo Hanemann, an economist at Rhodium who manages the consulting firm’s work on global trade and investment and co-wrote
the report. “That means that the costs on both sides from protectionist frictions are much higher than commonly assumed.” Chinese overseas investment surged 53 per cent in the first 10 months from a year earlier to RMB961.9 billion (US$140 billion), the Ministry of Commerce said yesterday. Foreign direct investment into China rose a mere 4.2 per cent in the same period to RMB666.3 billion. U.S. investment in China surged 80 per cent in the first ten months while Chinese money headed to America jumped an eye-popping 174 per cent. American companies employ more than 1.6 million workers in China, while that country’s investment
presence provides more than 100,000 jobs in the U.S, and the benefits are spread across more than 90 per cent of U.S. states and Chinese provinces, according to Rhodium. M o r e tha n 1 , 3 0 0 A m e r i ca n companies have major operations in China, with 430 of those investing over US$50 million and 56 more th a n US $ 1 b i l l i o n , R h o d i u m concluded. U.S. firms are eager to engage Chinese consumers and compete in growth sectors such as services, health care, and research and development, it said. While some Americans want reciprocity requirements on Chinese FDI, and some Chinese complain about the lack of American openness, “policy makers are well advised to consider how much further along the relationship is than official data suggests,” the report said. “Upgrading U.S.-China FDI policy is not just a noble long-term goal but a present necessity.” Bloomberg News
M&A
Panel urges ban on state firms buying U.S. companies If enacted, the panel’s recommendation would essentially create a blanket ban on U.S. purchases by Chinese state-owned enterprises U.S. lawmakers should take action to ban China’s state-owned firms from acquiring U.S. companies, a congressional panel charged with monitoring security and trade links between Washington and Beijing said on Wednesday. In its annual report to Congress, the U.S.-China Economic and Security Review Commission said the Chinese Communist Party has used statebacked enterprises as the primary economic tool to advance and achieve its national security objectives. The report recommended Congress prohibit U.S. acquisitions by such entities by changing the mandate of CFIUS, the U.S. government body that conducts security reviews of proposed acquisitions by foreign firms. “The Commission recommends Congress amend the statute authorizing the Committee on Foreign Investment in the United States (CFIUS) to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies,” the report said. CFIUS, led by the U.S. Treasury and
with representatives from eight other agencies, including the departments of Defence, State and Homeland Security, now has veto power over acquisitions from foreign private and state-controlled firms if it finds that a deal would threaten U.S. national security or critical infrastructure. The panel’s report is purely advisory, but could carry extra weight this year because they come as President-elect Donald Trump’s transition team is formulating its trade and foreign policy agenda and vetting candidates for key economic and security positions. Congress also could be more receptive, after U.S. voter sentiment against job losses to China and Mexico helped Republicans retain control of both the House and the Senate in last week’s election. Trump strongly criticized China throughout the U.S. election campaign, grabbing headlines with his pledges to slap 45 per cent tariffs on imported Chinese goods and to label the country a currency manipulator on his first day in office.
“Chinese state owned enterprises are arms of the Chinese state,” Dennis Shea, chairman of the U.S.-China Economic and Security Review Commission, told a news conference. The recommendation to change laws governing CFIUS was one of 20 proposals the panel made to Congress. On the military side, it called for a government investigation into how far outsourcing to China has weakened the U.S. defence industry. The 16-year-old panel also said Congress should pass legislation that would require its pre-approval of any move by the U.S. Commerce Department to declare China a “market economy” and limit anti-dumping tariffs against the country. The United States and U.S. businesses attracted a record US$64.5 billion worth of deals involving buyers from mainland China this year, more than any other country targeted by Chinese buyers, according to Thomson Reuters data. The push into the United States is part of a global overseas buying spree by Chinese companies that this year has seen a record US$200 billion worth of deals, nearly double last year’s tally. CFIUS has shown a higher degree of activism against Chinese buyers this year, catching some by surprise. Prominent deals that fell victim to CFIUS include Tsinghua Holdings’ US$3.8 billion investment in Western Digital. Overall, data do not demonstrate CFIUS has been a significant obstacle for Chinese investment in the United States. In 2014, the latest year for which data is available, China topped the list of foreign countries in CFIUS review with 24 deals reviewed out of more than 100 scrutinized by CFIUS. Although the number of Chinese transactions reviewed rose in absolute terms, it fell as a share of overall Chinese acquisitions, the report noted, and the vast majority of deals reviewed by CFIUS were cleared. Reuters
In Brief Logistics
Rail freight volume growth speeds up China’s October rail freight volume rose 11.2 per cent from a year earlier, the biggest increase in three years, as a construction boom and government infrastructure spending spurred demand for raw materials from steel to cement. Rail freight volume increased to 307.2 million tonnes last month, the National Bureau of Statistics said on Thursday. In the first 10 months, the amount of cargo carried by rail declined 3.3 per cent from a year earlier to 2.71 billion tonnes, the smallest drop since November 2014. Rail freight volume grew in August for the first time after falling for 31 consecutive months since December 2013. Guangzhou
Dual-currency transit card with Singapore issued A dual-currency transit card that can be used in Singapore and south China’s Guangdong Province has been issued, the first of its kind in China. The two-in-one contactless smart card, which will be available starting today, contains electronic purses of both places’ transit cards - Singapore’s EZ-link and Guangdong’s Lingnan Pass. Card holders can top up at over 100,000 terminals in Guangdong and Singapore with local currency. The card can also be used at convenience stores and restaurants that accept EZ-link and Lingnan Pass. This card can be used on both countries’ public transportation networks. Transparency
Milan official wants clarity on AC Milan’s owners An anti-Mafia official at Milan’s city council called on Wednesday for the Chinese buyers of soccer club AC Milan to reveal their identities, saying town hall would notify anti-money laundering authorities if there was not full disclosure. In August, former prime minister Silvio Berlusconi agreed to sell the Serie A club to China’s SinoEurope Sports Investment Management Changxing, which is backed by Haixia Capital and entrepreneur Yonghong Li. But the full make-up of the consortium was not disclosed and, according to a source, has yet to be finalised. Tourist drive
Wanda to build project near Xi’an Dalian Wanda Group Co. announced its second US$15 billion development project in a week as Chairman Wang Jianlin steps up his efforts to surpass Walt Disney Co. as the world’s largest tourism company by the end of the decade. The Beijingbased conglomerate signed an agreement with China’s Shaanxi provincial government to pour RMB103 billion (US$15 billion) in investments to build theme parks and commercial centres there, including a Wanda City complex in the capital Xi’an, the company said. Last week, Wanda announced a similar project in China’s central Hunan province.
12 Business Daily Friday, November 18 2016
Asia APEC meeting
Asia-Pacific leaders talk trade in a Trump world Obama, Putin and China’s President Xi Jingpin are each scheduled to address the summit on Saturday op world leaders meet from yesterday to try to save their cherished free trade accords from feared extinction under US President-elect Donald Trump. Here are three big factors looming over the 21-nation Asia-Pacific Economic Cooperation (APEC) summit from yesterday to Sunday in Lima, Peru.
on the US market, the Institute of International Finance said. “If such measures materialize, trade tensions would certainly increase, with trade war a possible worst case scenario,” it said in a report. Outgoing US President Barack Obama sought to “rebalance” trade towards deals with Asia and the Pacific. But Trump has rejected Obama’s signature trade initiative in the Asia-Pacific region, the Trans-Pacific Partnership (TPP), as a “terrible deal.”
Trump effect
Asia-Pacific security
Moisés Ávila
T
Trump has cast uncertainty on the post-war world order with his vows to curb international free trade to protect US jobs. This particularly concerns the Asia-Pacific region, which accounts for nearly 60 per cent of the global economy and 40 per cent of the world’s population. The world will look to the summit for “a strong statement” to counter Trump’s anti-trade arguments, said Eduardo Pedrosa, secretary general of the Pacific Economic Cooperation Council. Economists expect Trump to make protectionist moves that they say may strengthen his country’s economy in the near term but could threaten the global economy. He may impose punitive tariffs on powerful trade partners such as China and revise key free trade deals with countries such as Mexico that rely
As well as taking aim at free trade,
Trump has vowed action on immigration and questioned the US role as the “policeman of the world.” Allies such as Japan and South Korea are worried Trump will cut back the US military, economic and diplomatic presence in the region. They fear that could leave them exposed to a dominant China and belligerent North Korea. Trump has caused concern in the region by suggesting Japan and South Korea get nuclear weapons to defend themselves. He has embraced Russian President Vladimir Putin, widely mistrusted by Obama and his allies. Trump has also claimed climate change is a Chinese “hoax” to undermine US manufacturing.
Two men talk in one of the outsiders environments of the press centre of the Asia-Pacific Economic Cooperation Forum (APEC) in Lima, Peru, 16 November 2016. Lusa
Obama, Putin and China’s President Xi Jingpin are each scheduled to address the summit on Saturday. Japan’s Shinzo Abe is among the other leaders at the summit. The Latin American leaders in the room, including Mexican President Enrique Pena Nieto, will also be looking nervously to the new US administration. On the campaign trail, Trump insulted Mexican immigrants as “criminals” and “rapists.” He vowed to build a border wall with Mexico to keep out illegal migrants and threatened mass deportations.
China
China will meanwhile be pushing its own proposed trade deals to gain an edge over the United States in the battle for regional influence. “The economic landscape in the Asia Pacific is changing rapidly, with China increasingly taking a regional leadership role,” wrote Rajiv Biswas, Asia-Pacific chief economist at research group IHS Global Insight. “The key strategic challenge for the Trump administration is whether the US will strengthen its engagement with the Asia-Pacific or retreat towards a more isolationist stance,” he said in a note. China was pointedly excluded from the 12-member TPP. But due to Trump’s refusal to endorse the deal, Biswas said, “the TPP agreement has shifted from being a lame duck to a dead duck.” Instead China proposes an APECwide Free Trade Area of the Asia-Pacific (FTAAP) and a 16-member Regional Comprehensive Economic Partnership (RCEP), which includes India but not the United States. Trump’s victory “could significantly reshape US economic relations with Asia,” said Biswas. AFP
Labour market
Australian jobless holds at three-year low A broad survey of labour trends showed the underemployed numbered no less than one million Wayne Cole
Australia’s jobless rate held at a threeyear trough of 5.6 per cent in October but employment rebounded only modestly from a sharp fall the previous month, a mixed report that did little to alter the outlook for steady interest rates. Yesterday’s data from the Australian Bureau of Statistics showed employment rose a net 9,800 in October, below forecasts of a 20,000 gain. September’s report was also revised downward to show a drop of 29,000.
part-time work that has bedevilled the labour market all year. “There is still a tilt towards parttime employment from full-time employment. That suggests a softer underbelly in the jobs market,” said David De Garis, a Melbourne-based senior economist at National Australia Bank. “It’s certainly a lot less vibrant than it was. That means the Reserve Bank will remain alert to what’s happening.” Market reaction was still minimal as the Reserve Bank of Australia (RBA) has recently signalled interest rates
were firmly on hold after cuts in August and May. Interbank futures imply just a 20 per cent probability of an easing next year, while the local dollar was little changed at US$0.7480.
More hours please
The ABS recently released a much broader survey of labour trends that showed the underemployed numbered no less than one million, of whom 945,400 worked part-time. That was out of a total labour force of 12.6 million. The long-running shift to part-time work was no respecter of qualifications either. Of the underemployed part-time workers, 551,700 had a non-school qualification and 37 per cent of those held a bachelor degree or higher.
On average the underemployed wanted to work an extra 13.5 hours per week, suggesting the economy could absorb over 13 million more hours a week of work before getting anywhere near the inflationary zone of full employment. Instead, the falling share of fulltime jobs was putting downward pressure on wages, and thus inflation. Figures out this week showed wage growth slowed to a record low of 1.9 per cent in the year to September, sapping consumer spending power. “An uncomfortably high level of labour underutilisation and elevated job security fears mean workers are reluctant to push for wage increases,” said Kristina Clifton, an economist at CBA. “We don’t see enough strength in the labour market to push wages and inflation higher,” she added. “As such we think there may be more policy easing ahead in 2017.” Reuters
Key Points Employment +9,800 in Oct vs forecasts of +20,000 Jobless rate steady at 5.6 pct, full-time employment bounces Sept employment revised downward to -29,000 Mixed report leaves market pricing in modest chance of rate cut Full-time jobs did bounce by 41,500 in October, but that followed a huge drop of 74,300 the previous month and extended a trend toward
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Business Daily Friday, November 18 2016 13
Asia Trade
Singapore’s exports slump The growing risks of recession have even raised the prospects of an off-cycle easing Jongwoo Cheon
S
ingapore’s exports in October contracted sharply as sales to major markets fell, raising the risk of a recession in the trade-dependent economy amid heightened uncertainty around global trade in the wake of Donald Trump’s U.S. election victory. The affluent city-state’s economy has been on the ropes in the last two years as exports fell away amid slow world growth, and Trump’s upset had added another layer of doubt on trade given his protectionist policy stance. Non-oil domestic exports (NODX) skidded 12.0 per cent last month from a year earlier, the trade agency International Enterprise Singapore said in a statement yesterday, far worse than the median forecast of a 3.5 per cent decline in a Reuters poll. “What this number highlights to us is that the cyclical slowdown is also much bigger than what we have been predicting,” said Vaninder Singh, an economist for RBS in Singapore. Singh said the exports data raised the risk of a recession and added to
the chance of further monetary policy easing. The central bank in October held policy steady despite a surprisingly sharp economic contraction in the third quarter. But the growing risks of a recession has even raised the prospects of an off-cycle easing, ahead of the Monetary Authority of Singapore’s next policy review scheduled in April, some analysts said. “If the weak NODX continues, if you see in the IP numbers it also mirrors what you see in the NODX data, I would say that an easing will probably come sooner rather than in the scheduled April meeting.” said Michael Wan an economist for Credit Suisse, referring to industrial production.
Looming Trump risk
Exports to the European Union contracted 28.6 per cent from a year earlier as sales of pharmaceuticals, non-electric engines & motors, as well as personal computers tumbled. Shipments to China and the United States extended their slide though the pace of declines eased.
U.S. President-elect Trump, who campaigned on a protectionist policy stance, is seen as a further risk to Singapore, analysts said. “The Q4 growth could be negative if we see materialisation of Trump’s protectionism. That would significantly disrupt Asian supply chain,” said Weiwen Ng, an economist for ANZ in Singapore. Fiscal stimulus measures could come earlier than monetary policy steps, NG said. The government is expected to announce the next year budget in the first quarter.
Key Points Oct non-oil domestic exports -12.0 pct y/y vs -3.5 pct f’cast Oct NODX -3.7 pct m/m sadj vs -1.0 pct forecast NODX to Europe plunge; NODX to China, US stay negative Pharmaceutical exports nearly halve Singapore’s domestic borrowing costs have already been rising pressured by the recent global bonds rout, so further easing by MAS could add to upside pressure. Since the MAS manages monetary policy by adjusting the exchange rate rather than interest rates, a weaker Singapore dollar could spur capital outflows and dry up local liquidity. The three-month Singapore interbank offered rate , a benchmark used to set interest rates on mortgages, rose to 0.91 per cent, the highest since July. “Any easing in exchange rates could tighten financial condition, which is not what they want,” Ng said. Reuters
GDP
Strong Philippine growth marks fiery Duterte’s start While the growth of salary remittances by the country’s huge overseas work force slowed, this was balanced out by a 2.9 per cent growth on-year in agriculture The Philippines became developing Asia’s fastest-growing major economy in President Rodrigo Duterte’s (pictured) first three months in office, officials said yesterday, even as his fiery rhetoric hit the peso and stock prices. The economy expanded 7.1 per cent on-year in July-September, beating the consensus forecast of 6.8 per cent, Economic Planning Undersecretary Rosemarie Edillon said.
7.8 per cent Philippines’ exports growth
That was faster than China’s 6.7 per cent and beat other major emerging economies for the same period, Edillon said in a statement. India is due to report at the end of the month. The news surprised experts after Duterte sparked concerns among foreign investors over his controversial war on drug crime and a decision to pick fights with the United States and the United Nations on the issue. “All things considered, our economy’s strong growth in the third quarter is a very good sign of things to come,” Edillon added. The country needed 6.9 per cent growth in final three months of the year to hit the top end of its 6-7 per cent target, she said.
Edillon said strong investment growth, particularly in construction and infrastructure, along with upbeat consumer spending drove the expansion, encouraged by low inflation and low interest rates. Exports jumped 7.8 per cent. While the growth of salary remittances by the country’s huge overseas work force slowed, this was balanced out by a 2.9 per cent growth on-year in agriculture, reversing five straight quarters of decline caused by typhoons and drought. “It was a surprise for the financial markets,” First Grade Holdings securities analyst Astro del Castillo told AFP, referring to the growth figure. “It affirms our view that fundamentals remain intact despite the political noise.”
The country’s stock market, which is at a seven-month low, rose one per cent yesterday but the peso remains stuck near eight-year lows, with analysts blaming political developments as well as expectations the United States will raise interest rates. The greenback was up 0.2 per cent at 49.40 pesos in late morning trade, with analysts warning it could surge to 50 pesos by the end of the year. In concerns echoed by other foreign business groups, international credit rating agency Standard & Poor’s warned in September that Duterte’s crime war threatened the Philippine economy and endangered its democratic institutions. He won elections in a landslide in May after vowing an unprecedented crackdown on illegal drugs in which 100,000 people would die. More than 4,000 people have been killed since he took office on June 30. About 1,800 were shot dead by police and about 2,600 others were murdered by unidentified attackers, according to official statistics. AFP
In Brief Real estate
Vietnam needs more cheap housing Vietnam’s real estate market has recovered but more policies to develop small and cheap apartments should be provided to address increasing demand, according to the Vietnam Real Estate Association (VNREA) yesterday. The proposal on the local real estate market was sent to Vietnam’s on-going second session of the 14th National Assembly after the association’s congress in October. According to VNREA, the market still has risks such as an unbalanced goods structure. Demand from the majority of people was mid-andlow-end houses while most projects on the market are high-end, reported Vietnam’s state-run news agency VNA. Special fixed-rate
BOJ says it received no bids for bonds The Bank of Japan (BOJ) said it received no bids in its offer to buy Japanese government bonds yesterday under its first special fixed-rate operations. The BOJ had offered to buy unlimited amount of JGBs with 1 to 3 years of maturity at a yield of 0.020 per cent above the previous close. It also offered to purchase an unlimited amount of JGBs with 3 to 5 years to maturity at 0.019 per cent above the previous close. The special operations were the first under the central bank’s monetary easing framework unveiled in September, under which it said it will control the yield curve and keep the benchmark 10-year yield around zero per cent. NZ quake zone
First business recovery aid unveiled The New Zealand government yesterday unveiled a wage subsidy package as a first step to help small businesses in the quake-stricken South Island town of Kaikoura. The town, a major attraction on the South Island tourism itinerary with its whale-watching activities, has been cut off since Monday’s 7.8-magnitude quake wiped out road and rail links. Its seafood industry is also at risk after the quake raised the seabed by several meters in places. The recovery package would assist companies most seriously disrupted by the earthquake and aftershocks to retain staff while the district recovered, said Economic Development Minister. Phone commerce
S.Korea’s mobile phone exports tumble South Korea’s mobile phone exports posted a steep decline last month as Samsung Electronics discontinued its latest flagship smartphone. Exports in the information and communications technology (ICT) sector declined 6.8 per cent from a year earlier to US$14.94 billion in October, marking the 13th straight month of fall, according to the Ministry of Trade, Industry and Energy. Mobile phone exports especially showed a sharp slide, plunging 33.1 per cent to 2.22 billion dollars on Samsung’s decision to end production and sales of the Galaxy Note 7 devices, some of which were reported to have caught fire.
14 Business Daily Friday, November 18 2016
International In Brief Report
Top banks’ commodities revenue down Commodities-related revenue at the 12 biggest investment banks fell 22 per cent in the first nine months due to weak industrial metals trading and lacklustre investor interest, a report by financial industry analytics firm Coalition said. Revenue from commodity trading, selling derivatives to investors and other activities in the sector slid to US$3.1 billion between January to September from from US$4 billion in the same period in 2015, the report published yesterday found. In 2015, the banks’ commodities revenue dropped 18 per cent, mainly due to slow business in metals and investor products. IMF
Angola’s projected deficit ‘leaves economy vulnerable’ The International Monetary Fund said on Wednesday that the public sector budget deficit forecast for Angola for 2017, of 5.8 per cent of gross domestic product, leaves the economy vulnerable to future declines in the price of crude oil, which traditionally accounts for the vast bulk of the country’s exports. The statement was made by Ricardo Velloso, the Brazilian economist who heads the IMF mission. According to Velloso, the government should aim for a deficit of no more than 2.25 per cent of GDP next year, after the 4 per cent expected for this year.
Oil price
Russia’s engagement with OPEC to yield US$6 billion budget gain About 40 per cent of the Russian government’s revenue comes from oil and gas Stephen Bierman
R
ussia’s decision earlier this year to engage in talks with OPEC about limiting oil output has added more than 400 billion roubles (US$6 billion) to the nation’s budget, according to two officials familiar with government calculations. The possibility that Russia could cooperate with the Organization of Petroleum Exporting Countries to shrink the global oil surplus helped lift international crude prices from as low as US$27 in January to an average of US$44 for the year as a whole. This increase, combined with rising Russian production, has boosted government revenue by 400 billion to 700 billion roubles, said the officials, who asked not to be identified because the calculations haven’t been made public. The estimates show the incentive for Russia, the world’s largest energy exporter, to pursue talks with other major producers even after initial negotiations aimed at freezing production failed in April.
That initiative deterred commodities investors from testing how low prices can go through speculative short selling, according to Energy Minister Alexander Novak. A second cooperation effort is now underway, this time backed by an OPEC pledge to cut output that is due to be finalized in Vienna on Nov. 30. About 40 per cent of the Russian government’s revenue comes from oil and gas. The flow of petrodollars reduced to a trickle after crude hit a 12-year-low in the first month of the year. Amid a second year of recession, the country’s budget deficit grew to its widest in six years, leading the state to dip into rainy-day funds and raise cash by selling assets. Higher prices translate directly to budget gains, particularly as tax rates expand when crude rises and contract when it falls. In some cases, 90 cents of each dollar of incremental gains in oil prices goes to the budget, rather than the producers themselves. Russia received 2.7 trillion roubles from the crude-export duty and oil-extraction tax, its main energy levies that provided 26 per cent
of the total budget revenue from January to October this year, data from the country’s Treasury shows. Because of higher oil prices, monthly receipts have exceeded 300 billion roubles since June compared with 185 billion roubles in February, Bloomberg calculations based on the data show.
‘Russian production reached a post-Soviet monthly record of 11.2 million barrels a day last month’ Russian production reached a post-Soviet monthly record of 11.2 million barrels a day last month compared with 10.9 million barrels a day in January. Energy Minister Novak has said Russia is willing to limit supply if OPEC finalizes its cuts this month, but would prefer to freeze at current levels rather than reduce output. Bloomberg News
Labour market
French third quarter unemployment ticks up France’s unemployment rate rose 0.1 percentage points to 9.7 per cent in the third quarter after a significant mid-year drop, the statistics office (Insee) announced yesterday. Year-on-year, the rate was down 0.4 points, Insee said, adding that there were 2.8 million unemployed in mainland France in the July-September period. For all of France including its overseas population, third quarter unemployment stood at 10.0 per cent. The latest official unemployment figures are the last before President Francois Hollande is due to announce whether he will stand for re-election next year. Bilateral relations
Canadian PM vows to boost ties with Cuba Visiting Canadian Prime Minister Justin Trudeau on Wednesday highlighted his country’s “close and historic ties” with Cuba and promised to promote bilateral ties as well as Cuba’s ties with the rest of the world, state daily Granma said. Before giving a speech and answering questions at the University of Havana, “Trudeau recalled how his country and Mexico were the only ones in the hemisphere to maintain diplomatic ties with Cuba following the 1959 Revolution,” said the daily. Trudeau also recalled that his father, Pierre Trudeau, visited Cuba in 1976 during his term as prime minister.
Financial and industrial
Wall Street says groups rallying most are going nowhere Investors have piled into financial and industrial groups since the election on speculation Trump will loosen Wall Street regulations Stock-pickers are excited about their opportunities under a Donald Trump presidency. But just a week after the U.S. election, their top choices may be stalling out. Wall Street analysts say financial and industrial groups, the two parts of the stock market that have rallied the most since the vote, are running out of steam. The average financial stock is at or above analysts’ 12-month target price, and the average industrial company is just 2.4 per cent below it, implying the least amount of upside since 2009. What’s more, the two groups are facing a bad profit slump. They’re expected to post contractions in annual earnings of more than 3 per cent for 2016, worse than every other sector in the market other than materials and energy. While their income is expected to rebound next year, revenues are estimated to lag the rest of the market. Investors have piled into the two groups since the election on speculation Trump will loosen Wall Street regulations and follow through on
pledges to spend more on infrastructure. Yet the fundamental backdrop for the two is far from rosy. For financial companies, annual profits will be 3.6 per cent lower in 2016 than a year ago. For industrial shares, the figure is 5.6 per cent, according to data compiled by Bloomberg three days after Trump’s win. They’ll rebound by 9.3 per cent and 5 per cent in 2017, respectively, compared with 12 per cent in the S&P 500, according to analyst estimates. Of course, those projections may change as the Trump administration moves forward with its plans. Regardless, the growth won’t be driven by booming sales - revenues are expected to rise 3.4 per cent for financial companies, and industrial sales are seen gaining only 2.2 per cent in 2017, compared with a 6.3 per cent jump for the overall benchmark gauge, the data show. Financial shares are up 9.3 per cent after a seven-session rally that ended Wednesday. And since the election investors have added US$4.8 billion to the Financial Select Sector SPDR
Fund, the biggest exchange-traded fund tracking the group. The rush into industrial companies looks very much the same. The group is up 4.8 per cent since the vote, and the Industrial Select Sector SPDR Fund saw an influx of US$1.9 billion, including US$800 million added on Nov. 11, the biggest single day of inflows in the product’s history.
“The industrial and financial stocks are a little bit ahead of themselves” Carin Pai, director of equity management at Fiduciary Trust Company International in New York The rally in the groups may be short-lived if Wall Street strategists are correct. Financial companies are now trading roughly in line with analysts 12-month target prices, data compiled by Bloomberg show. For industrials, they’re just 2.9 per cent below that level, the smallest amount since 2009, according to Bloomberg data. Bloomberg News
Business Daily Friday, November 18 2016 15
Opinion Business Wires
Bangkok Post US hotel chain Marriott International remains committed to expand its business in Thailand after completing its merger with Starwood Hotels & Resorts Worldwide, citing the country’s strong tourism industry. “Thailand is very important for the resort market and it is our third-biggest market in Asia-Pacific after China and India,” said Craig Smith, president and managing director for AsiaPacific of Marriott International. The Thai tourism industry has enjoyed a strong recovery the past few years despite the country’s economic downturn and political uncertainty.
Ding-dong the VIX is dead (but risk is rising)
The Straits Times With a lucrative high-speed rail project on the line, Japanese Prime Minister Shinzo Abe made a strong sales pitch for his country’s shinkansen bullet train technology at a meeting with his Malaysian counterpart Najib Razak. The pitch was similar to the one Mr Abe made when he met Prime Minister Lee Hsien Loong in Tokyo in September. The two South-east Asian neighbours are working towards signing an agreement for the 350km rail, with a top speed of more than 300kmh, at the annual leaders’ retreat next month. Najib said that an international tender will be called by the fourth quarter of next year.
The Asahi Shimbun Barcelona have agreed a new four-year deal for their shirt sponsorship with Japanese Internet retailer Rakuten worth 55 million euros (US$58.90 million) a year, excluding potential add-ons, La Liga champions said on Wednesday. Barcelona will earn an additional 1.5 million euros for each time they win La Liga and an additional 5 million euros each time they win the Champions League. Rakuten specializes in e-commerce, communications, digital content, and financial technology services, and will become Barcelona’s main global sponsor for the next four seasons, with the option of a one-year extension.
The Phnom Penh Post Chinese and Cambodian officials have signed a memorandum of understanding to increase exchanges of investment and training for tourism, the Ministry of Tourism said in a press release. The deal seeks to increase cooperation between the private and public sectors in the tourism industry of each country. The agreement, part of China’s One Belt, One Road Initiative, also promotes exchanges in human resource training, training for management and good governance and the creation of more direct flights between the countries.
T
he VIX, the so-called fear gauge, is dead but the real risk-appetite index is falling. The dollar is the new and true North Star of global markets, according to a study released on Tuesday by the Bank for International Settlements, with a rising dollar coinciding with falling risk tolerance. This just in time for the Trump era, widely expected to bring with it rising inflation and interest rates driving a rising dollar. With the advent of quantitative easing and other extraordinary monetary policy in the aftermath of 2008, the old relationship between the VIX index of implied volatility in equity markets and banks’ willingness to use leverage broke down. As investors use borrowed money to add risk, having a measure of how much they were laying on was crucial. Indeed, despite the VIX remaining at historically low levels, borrowing by capital market banks has fallen, in part also perhaps because of new and tighter regulation. Over the same period, analysts have been puzzled by the fact that people wanting to borrow dollars in foreign exchange markets have paid above-market interest rates, something which should be “impossible” if only there are people with money willing to step in and arbitrage this riskfree gap. So whereas a decade ago you could look at the VIX and see risk appetite in a single price, now the relationship is better expressed by the value of the dollar, which tracks banks’ willingness to use their capital to arbitrage gaps in forex market interest rates. “Just as the VIX index was a good summary measure of the price of balance sheet before the crisis, so the dollar has become a good measure of the price of balance sheet after the crisis,” BIS Head of Research Hyun Song Shin, one of the authors of the study, said in a speech on Tuesday. “The mantle of the barometer of risk appetite and leverage has slipped from the VIX, and has passed to the dollar.” And the important point is that cross-border lending falls as the dollar gets stronger. Shin theorizes that this is because so many global institutions have high dollar liabilities, often because they’ve sought higher-yielding paper denominated in dollars. The more the dollar rises, the more painful this “naked currency mismatch” becomes. To compensate, they cut back on the use of leverage.
“
James Saft a Reuters columnist
One of the huge changes in the global economy over the past two decades is the growth of complex and far-flung value chains, set-ups in which goods are manufactured in varying stages all over the world. While this does a good job of taking advantage of lower wages in places like Asia, it is highly dependent on dollar financing being available to fund the exchange of first a raw material from where it is produced to where it will go into an auto part, for example, and then on to where the parts are assembled. As the dollar has strengthened since 2014, global trade growth has slowed, actually turning negative in Asia outside China. We don’t know for sure, but a higher cost of dollar financing as the dollar rises may be acting as sand in the wheels of global trade. This brings us round to President-elect Trump and the strong dollar. The tradeweighted dollar index has risen rapidly since the election, hitting its highest level on Wednesday since April of 2003, a time, ironically, when U.S. and allied forces were “mopping up” after the second Iraq War. The simple explanation for why the dollar is going up in anticipation of the Trump administration is that he’ll engineer a stimulus which will drive demand, and with it inflation. This will prompt, or allow if you prefer, the Federal Reserve to tighten interest rates more quickly than they otherwise would. Fed fund futures are assigning a 90 per cent chance to a 25-basis-point hike by the Fed at its policy meeting concluding Dec. 14. Higher yields at the short end will drive up yields at the longer end, something we’ve already seen to a remarkable degree, and in lower-quality bonds too. This will attract more investors to the dollar and dollar-denominated securities, driving up its value. A stronger dollar could thus not just reflect stronger activity in the U.S., but also slow trade and activity elsewhere as banks become less willing to use or provide leverage. If the Federal Reserve is able to normalize, the old relationship between volatility and risk appetite may come back. A stronger dollar may be in someone’s interest, but it is hard to work out who, exactly, that would be. Reuters
The simple explanation for why the dollar is going up in anticipation of the Trump administration is that he’ll engineer a stimulus which will drive demand, and with it inflation
Trade slowdown explained?
All of this may help to explain yet another puzzle; the sub-par growth in global trade.
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16 Business Daily Friday, November 18 2016
Closing Political crisis
South Korean president sees approval rating fall further
South Korean President Park Geun-hye embroiled in a scandal involving her long-time confidante saw her approval rating fall further to the lowest since her inauguration in February 2013, a local pollster survey showed yesterday. According to a weekly survey of 1,525 adults conducted by Realmeter from Monday to Wednesday, support for Park was 9.9 per cent, down 1.6 percentage points compared with the previous week. It was the first time that Realmeter’s poll recorded Park’s approval rates below 10 per cent in about
four years in her office. Another pollster Gallup Korea’s survey showed the president’s support rate at 5 per cent, the lowest for two weeks in a row. Falling support for Park came as the president Blue House refused the rising demand for voluntary resignation, shown in last Saturday’s protest rally that drew about 1 million South Koreans in capital Seoul alone. According to the Realmeter poll, 73.9 per cent of respondents said Park should step down or be impeached to take responsibility for the political scandal. It was higher than 60.4 per cent the previous week. Xinhua
Trade deal
Vietnam Prime Minister backs off from U.S-led TPP The TPP was a major factor in the rapid strengthening of ties between former war enemies Vietnam and the United States Ho Binh Minh
V
ietnam will shelve ratification of a U.S.-led Pacific trade accord due to political changes ahead in the United States, but wants to maintain good relations with Washington as much as it does all other countries, its prime minister said yesterday. Vietnam’s legislature was almost certain to ratify the 12-nation Trans-Pacific Partnership (TPP) agreed last year but had deferred it until after the U.S. presidential election won by Republican Donald Trump, whose protectionist agenda on the campaign trail has unnerved Asian economies. The TPP, the signature economic policy of President Barack Obama’s Asia-Pacific rebalance, looks increasingly uncertain with a Republican Congress and an incoming president who had called the agreement a “disaster”. The TPP would be a big boon for Vietnam’s exports and manufacturing economy, which is receiving record foreign investment due to its numerous trade accords, cheap labour and relative stability. “The United States has announced it suspends the submission of TPP to the parliament so there are not sufficient conditions for Vietnam to submit its proposal for ratification,” Prime Minister Nguyen Xuan Phuc
told the National Assembly. Post-U.S. election responses by the Asian countries on the TPP varied, from suggestions by Malaysia that it would focus efforts on wrapping up a multi-nation trade pact led by China, and Japan trying to stick with the TPP and push ratification. According to TPP’s statutes, it can only be adopted if the United States is part of it, given its economy represents about two thirds of the combined GDP of the original 12 members. The TPP was a major factor in the rapid strengthening of ties between former war enemies Vietnam and the United States. The relationship has gained momentum over the past two years, coinciding with fissures between Hanoi and neighbour Beijing over troubles in the disputed South China Sea But that has complicated the balancing act that Vietnam’s Communist Party has for years carefully managed as it seeks to expand its economy and build alliances while not becoming too dependent on one country for security, trade or investment. Phuc said that with or without the TPP, Vietnam was committed to further opening up its economy to the world. Earlier yesterday he raised his forecast of Vietnam’s annual export growth this year to 8 per cent. “We already have signed 12 free trade agreements, so joining the TPP is good, but without joining TPP we will still continue to further the
Monetary policy
economic integration under programmes we have joined,” he said. His comments echoed those last week by the country’s trade minister, who said the textiles, seafood and footwear sectors would still stay competitive on global markets without the TPP. Phuc said relations with the U.S. administration would remain strong, but he emphasised how Vietnam was committed to sticking by its
Government support
longstanding foreign policy. “The party, the state are implementing a policy aimed at diversification and multilateral ties, considering all countries as friends,” he said. “We are ready to cooperate with the United States for co-development on the principle of respecting independence, territorial sovereignty, causing no harms to each other. In that spirit, I believe the Vietnam-U.S. ties will be better in the coming time.” Reuters
Currency supply
Indonesia keeps benchmark China maintains double-digit India eases cash rules rate unchanged growth in foreign service trade for weddings Indonesia’s central bank kept its benchmark interest rate unchanged after six cuts this year, seeking to calm financial markets. Governor Agus Martowardojo and his board held the seven-day reverse repurchase rate at 4.75 per cent yesterday, in line with the forecasts of all but three of 21 economists surveyed by Bloomberg. Bank Indonesia had reason to pause after taking aggressive action this year to boost growth amid a benign inflation environment. Heightened market volatility and expectations of more U.S. interest rate increases caused the rupiah to plunge as much as 3.7 per cent against the dollar last week, prompting the central bank to intervene to stabilize the currency. “While BI is chasing for faster growth, one cannot be too complacent of the risks involved and how the rupiah traded post-U.S. elections is a timely reminder of this,” Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore, said before the rate decision. The government is forecasting growth of about 5 per cent for this year, well below the 7 per cent targeted by President Joko Widodo when he came to office two years ago. Bloomberg News
China’s foreign service trade continued to post double-digit growth in the first nine months of the year amid government supportive measures, official data showed yesterday. Service trade rose 21.4 per cent year on year to RMB3.8 trillion (US$560.3 billion) in the January-September period, Ministry of Commerce spokesperson Sun Jiwen said at a press conference. In the first nine months, services accounted for 18 per cent of China’s total foreign trade, compared with 15.4 per cent for 2015. China’s service trade has seen double-digit growth since the beginning of the year as the government boosts the industry to upgrade the economic structure and increase employment. The service sector now accounts for more than half of the national economy. In the first nine months, service imports jumped 29.1 per cent year on year, driven by growth in overseas travel services, while exports climbed 8.7 per cent, Sun said. The country saw a service trade deficit of RMB1.2 trillion in the period, up RMB295 billion from a year earlier. The country has set a target to increase its service trade to more than US$1 trillion by 2020. Xinhua
India announced new measures yesterday to allow farmers and marrying couples to withdraw more money from banks, as frustration mounted over a cash crisis triggered by the withdrawal of all high-value notes. The shock move last week, which saw 85 per cent of the cash in circulation suddenly withdrawn, has led to huge queues forming outside banks as people rush to exchange old notes for new, and has thrown plans into disarray as the wedding season gets under way in the country of 1.2 billion people. The government has placed a weekly limit of 24,000 rupees (US$350) on withdrawals as banks struggle to cope with a shortage of cash and many ATMs run dry. But Shaktikanta Das, secretary in the Department of Economic Affairs, said families planning a wedding would now be able to withdraw up to 250,000 rupees in one go. “Various representations were made to the government,” Das told journalists in New Delhi. “(We) decided that for marriage ceremonies, up to 250,000 rupees will be permitted to be withdrawn from the bank account and it has to be drawn... from the father, mother or the person getting married.” AFP