Hotel Royal, Ritz-Carlton receive bomb-threat “prank” Crisis Page 2
Monday, November 28 2016 Year V Nr. 1182 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Manpower
Fewer non-resident workers in October Page 5
Gaming
www.macaubusinessdaily.com
Stock markets
Kingston Financial gaming revenue down 2 pct Page 4
Shenzhen -Hong Kong link to start on December 5 Page 8
China’s recovery
Silk Road to push infrastructure, machinery and resources sectors Page 10
Betting on herbs
Regional co-operation
Macau Investment Development Ltd, owned by the MSAR government, has so far invested MOP1.7 billion in the Guangdong – Macau Traditional Chinese Medicine Technology Industrial Park, and more is expected, says Lu Hong, the chairman of the operating company of the park, although she expects it will only make a profit in two decades time. Page 3
Global functions to impact MSAR
Corporate governance necessary
Economy The global economy is still facing uncertainties, which are likely to have an impact on the city’s economy, says Secretary for Economy and Finance, Lionel Leong. He urges the city to capitalise on the resilience of the previous economic adjustment phase, in order to face the upcoming challenges. Page 3
Setting up the newly-established Corporate Governance Institute, founder and lawyer Manuela António says the current market demand is not really that large, but the Institute, having attracted a number of “energetic” members, hopes to make local businesses - of which many are family-owned - more transparent in their operations, as capital investment increases in the city.
Industry in line with stabilization
Interview Pages 6 & 7
HK Hang Seng Index November 25, 2016
22,723.45 +114.96 (+0.51%) Worst Performers
China Mengniu Dairy Co Ltd
+4.62%
Wharf Holdings Ltd/The
+1.73%
Sands China Ltd
-1.68%
Li & Fung Ltd
-0.60%
China Life Insurance Co Ltd
+3.89%
Industrial & Commercial
+1.30%
Galaxy Entertainment Group
-1.07%
CNOOC Ltd
-0.59%
Want Want China Holdings
+2.65%
Bank of China Ltd
+1.16%
AAC Technologies Holdings
-0.98%
Cheung Kong Property
-0.58%
Ping An Insurance Group Co
+2.13%
China Construction Bank
+1.05%
China Overseas Land &
-0.89%
CK Hutchison Holdings Ltd
-0.52%
Bank of East Asia Ltd/The
+1.86%
BOC Hong Kong Holdings
+0.87%
China Resources Power
-0.63%
Link REIT
-0.48%
16° 21° 16° 22° 15° 20° 16° 21° 16° 20° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Sectorial profits Profit of industrial companies in China accelerated last month as prices gained strength. The recovery comes amid steady economic growth that endured the imposition of government rules to cool property market speculation. Page 8
2 Business Daily Monday, November 28 2016
Macau In Brief Land
STDM loses land appeal Sociedade de Turismo e Diversões de Macau (STDM) lost its court battle to overturn the government’s dispatch, which took back a 968-square-metre parcel of land granted to the company in Estrada de D. João Paulino on Penha Hill. A ruling by the Court of Second Instance released last week reads that the company’s concession over the plot expired in 2013 and thus could not be extended based on the current land law, despite the fact that the Court agreed STDM was not liable for the plot being left idle, but instead the MSAR government, due to its mistakes regarding the plot’s buildable area that led to the company not being able to begin construction on the site. STDM had planned to build a 3-storey villa on the plot. Marine
Sailors need further studies The MSAR’s Marine and Water Bureau has provided a one-day supplementary course for yacht sailors following the launch of the Zhongshan-Macau Free Yacht Scheme last Wednesday. Some 29 sailors attended the course to further acquire knowledge about sea matters related to the two regions. Qualifications were given out to those who passed the assessment. The Bureau will consider organising more similar courses in the future, depending on the actual situation and needs. According to the regulations relating to the Free Yacht Scheme between the two regions, sailors from the MSAR need to participate in the course and pass the assessment in order to be approved for sailing.
Customs
Strengthening MSAR waters governance
D
irector-General of the Macao Customs Service, Alex Wong Iok Lek said Customs has divided the city’s 85-square kilometre territorial waters into six sea duty districts in which to station different types of on-duty vessels. The Customs head was speaking on TDM Radio programme ‘Macao Forum’ last Friday to discuss the issues related to the governance of local waters. According to Mr. Wong, a marine operation command centre has been
set up in Ilha Verde on the Peninsula, while three sea operational bases have also been established in Zone A of the reclamation area, the Pac On Ferry Terminal in Taipa and the dock of the Concordia Industrial Park in Coloane. He explained that these bases are to deal with emergencies on the waters, so that Customs vessels can arrive at any point of the MSAR waters within half of an hour of an emergency occurring. In September, Customs and the city’s Marine and Water Bureau
jointly launched a large-scale maritime emergency drill with Guangdong Province and Hong Kong. Mr. Wong remarked that the drill went well in terms of the control of the timing. In addition, the Customs director-general expects the number of vessels in service will increase to 52 by 2019. He added that patrol vessels will be equipped with night vision systems, satellite communication systems and thermal monitoring systems, which could help with rescue work and combatting smuggling. A.L.
Housing
280 housing management committees set up
Legislation
Sexual harassment to become a crime The MSAR’s Executive Council presented a bill last Friday to make sexual harassment a crime. Crimes of sexual harassment, including inappropriate physical sexual contact, will be subject to a maximum imprisonment of one year and 120 days. The revisions of the Penal Code include extending the law to cover victims who are 16 years of age or younger. The current law only covers children aged 14 or under. Those who are accused of sexual harassment of minors aged 18 or under will be sentenced to a maximum of three years imprisonment. Prison sentences could also reach a maximum of five years for crimes involving pornography with minors under 18, according to the Executive Council.
With the assistance of the Housing Bureau, some 280 management committees have been set up in the city. According to the latest data released by the Bureau, it assisted 1,296 cases related to housing management-related affairs in the first three quarters of the year, of which 1,247 cases have been resolved and 49 are still being followed up. Of the total number of cases that have been resolved, cases about providing information for holding a general meeting totaled 690. The Bureau added that it received 2,398 phone enquires on related matters for the first nine months of the year. Meanwhile, some 384 applications have been approved for the ‘Housing Management Support Scheme’ since its establishment in 2008 by the MSAR
government. The scheme has assisted with the set-up of management committees for some 239 buildings in
the city, with the amount of funding provided reaching MOP1.5 million (US$187,766). C.U.
Crisis
Hotel Royal, Ritz-Carlton confirm receiving bomb-threat “prank” Hotel Royal and the Ritz-Carlton have confirmed to Business Daily that they received a bomb-threat e-mail last week, believed by the local Judiciary Police (PJ) to be “prank”. The PJ said last Friday that it received a report from a hotel on the Peninsula on Thursday, saying it had received an e-mail warning of a bomb threat, but the hotel itself suspected the content was fake. ‘After the analysis of the Bureau, it
is believed that the e-mail is a prank. We will continue the investigation,’ the PJ wrote in a message to the local press, warning residents that distributing fake information is a violation of the city’s Penal Code. The bomb-threat e-mail, obtained by Business Daily from a source, shows the recipients included the Ritz-Carlton, Hotel Royal, Banyan Tree Macau, Wynn Macau, Crown Plaza Macau and Grand Coloane Resort.
Apart from the first two hotels confirming they had received the e-mail, the other hotels had not confirmed with us before this story went to press. The e-mail reads that there was ‘an urgent high priority alert for upcoming bombing threat in Macau & Hong’ by two Philippine female terrorists deployed by Islamic State. The e-mail urges the recipients to inform the police to take immediate action.
Business Daily Monday, November 28 2016 3
Macau Regional co-operation
MSAR investment in medicine park reaches RMB1.37 bln Chairman of the company operating the Guangdong – Macau Industrial Park expects the investment will only see a return in 15 years
G
overnment-owned Macau Investment Development Ltd had invested nearly RMB1.37 billion (MOP1.7 billion/US$212.5 million) in the Guangdong – Macau Traditional Chinese Medicine Technology Industrial Park Development Co Ltd as at the end of October, said the chairman of the joint venture, Lu Hong, last Friday at the Legislative Assembly, assuring that the industrial park will definitely earn money in the future. The chairman of the consortium was replying to legislator Song Pek Kei’s enquiry into the MSAR government’s expenses on the park, during a plenary session at the legislature for the Secretary for Economy and Finance Lionel Leong Vai Tac to answer questions from legislators on the 2017 Policy Address related to his area. Ms. Lu said during the session that the industrial park is only expected to make a profit within 15 to 20 years, which is similar to the situation in other industrial parks in the mainland.
According to the company chairman, the park has kicked off construction with a total value of
RMB2.21 billion, while the MSAR government-backed Macau Investment Development is expected to continue injecting more capital into the joint venture depending on the future development of the industrial park. She believes the park will start generating income following the
completion of the project’s public service platforms and other hardware in the following two years, given the fact that more companies will start being based inside the park and paying rent, management fees and other services charges, noting that the company will try its best to shorten the time it takes to turn a profit. On the other hand, the parties will hire a third-party company to audit the accounts of the joint venture and its two holding companies, in order to guarantee the proper use of public money, the chairman added. K.L.
Economy
Lionel Leong: global uncertainties may affect local economy The Secretary also stressed the MSAR government would protect the employment of local workers Annie Lao annie.lao@macaubusinessdaily.com
Secretary for Economy and Finance, Lionel Leong Vai Tac expects that the uncertainties in the global economy may affect the city’s economy next year, he said while attending a plenary session of the Legislative Assembly for his secretariat’s 2017 Policy Address. For next year, the Secretary forecasts that the city’s GDP will only post a very modest growth based on the assessment conducted by the Statistics and Census Services (DSEC) and the Monetary Authority of Macau (AMCM), while he hopes the city’s unemployment rate will remain below 2 per cent and the inflation rate will be lower than 3.2 per cent. He noted that his prediction is made while also considering that the uncertainty in the global economy may have an impact on the city’s economy.
“This includes the possibility of Italy leaving the European Union through a future referendum, which may lead the global economy [to fluctuate] in the future,” said the Secretary. “We need to grasp the resilience of the city’s economic adjustment from the past two years in order to face economic challenges with confidence,” he added.
Construction lacks youth
On the other hand, the Secretary said that there is still strong demand for highly skilled workers in the construction industry, claiming that the government will work closely with the industry and the Macau Gaming Enterprises Staff Association of Macau Federation of Trade Unions, to study as well as to provide special training programs in order to attract young people to work in the construction industry.
“The government will enhance the promotion for young people to join the construction industry through providing training and provision of attractive remuneration salaries to them, which can help reduce the ongoing pressure from the lack of manpower in the industry,” the Secretary said. He added that if the local labor workforce cannot supply enough workers to meet the industry’s needs, the city would import nonresident workers to fill the shortage of manpower accordingly. Meanwhile, Director of Labour Affairs Bureau (DSAL), Wong Chi Hong said that in accordance with the timetable for the legislation of a trade union law, the relevant research work will be initiated and discussed in the short term at the Standing Committee on Social Coordination Executive Committee.
Balance of local and non-resident workers
Legislator Kwan Tsui Hang queried the government’s current policies on protecting local employment over
imported workers. She remarked that for every five workers in the city there are two non-resident workers, and some employers even sell their non-resident worker quotas for profit. The Secretary responded that the MSAR does not allow any illicit use of non-resident worker quotas for the sake of making profits. “If an employer sells [the quotas of] his or her employees, we encourage the employees or other employers to report this wrongful behavior,” he said. Legislator Kwan also complained to the government about the lack of protection for local employment development. “The government has proposed to have at least 85 per cent of the high-level management positions of local casinos for locals. However, many non-resident workers in the middle and highlevel positions get their residencies through the technical personnel scheme, which makes locals difficult to be promoted,” said the legislator. In response, the Secretary pointed out a number of statistics during the discussion, saying that there is clear evidence to show that local workers have received promotions and salary increases. But the Secretary also emphasized that the government is still not satisficed with the current results and will continue to strive for better results for the development of local workers. “The government has to reach a balance based on the different opinions from the industry and the labor sector. At the same time, the government insists on the need to ensure the local employment as a priority in accordance with the city’s labor policy, with an aim to strike a right balance in the city’s economic development,” the Secretary said. He added that the government will adopt different mechanisms, including pre-intervention schemes to scientifically graph the situation of different industries to determine the number of non-resident workers in the city and their salaries.
4 Business Daily Monday, November 28 2016
Macau Opinion
Sheyla Zandonai*
Long haul The Lucky Dragon Hotel and Casino on the Las Vegas Strip is now in “soft opening” mode, prior to its grand opening on 3 December 2016. It will be the first addition to the Nevada gambling enclave since the Cosmopolitan opened in 2010. Though a small venue by the Strip’s monumental standards, Lucky Dragon has a unique appeal: it draws on Chinese aesthetics and tastes, from its décor and food offerings to the gambling floor design – in case you weren’t tipped off by the name of the place. Scenes familiar from Macau casinos are to be found here: signage is in both English and Chinese, and staff are trained to accommodate the languages and customs of the intended guests, namely, the Chinese. There are several Asian-inspired restaurants and a food court emulating Asian street stalls and markets. And because tea is the new wine, Lucky Dragon also has the only tea sommelier in town, curating an extensive list to be enjoyed at the indoor-outdoor “Tea Garden.” Also somewhat in contrast to the prevailing Las Vegas model, Lucky Dragon is not dominated by slot machines, which account for the largest share of gambling revenues on the Strip – US$7 million (MOP56 million) out of roughly US$11 million total gaming revenues in 2015. Instead, the 2500-square-metre casino is focused on table games, and there will be more tables for Baccarat and Pai Gow than for Blackjack. In fact, out of its current 37 table games, 25 are devoted to variations of Baccarat. Fan Tan and Sic Bo are also on the list. If you think it couldn’t get more Chineseoriented than that, both the main floor and the private gambling parlours – which include six “ultra-luxurious” VIP rooms and a high-limit gaming area called the Emerald Room – were carefully designed incorporating the principles of Feng Shui. There is also something interesting about the Lucky Dragon’s business model: it was developed using money from Chinese investors channelled through the Las Vegas Economic Impact Regional Centre. Investments above US$500,000 give foreign sponsors the right to an American Green Card via the EB-5 visa program. In many ways, Lucky Dragon is carving a niche market of its own: not only a casino playing the “exotic” Asian card on Western soil, it is an enterprise by and for East Asian people, mostly Chinese, from the west coast of North America. And perhaps from elsewhere too. One way or another, as players or investors, it seems that high rollers from across the PacificRim could be getting their ticket to America. *scholar and contributor to this newspaper.
Gaming
Kingston’s local gaming revenues down 2 pct in fiscal H1 The group also saw earnings derived from its hotel operations in the MSAR down 12 per cent year-on-year Nelson Moura nelson.moura@macaubusinessdaily.com
I
nvestment holding company Kingston Financial Group Ltd. registered a 2 per cent decrease in revenue derived from its gaming operations in Macau for the six months ended September 30, amounting to HK$231.8 million (US$29.8 million), down from HK$235.3 million one year ago, it informed the Hong Kong Stock Exchange last Friday. The group owns Casa Real Hotel and Grandview Hotel in the city, and operates gaming businesses in the two properties under the licence of Sociedade de Jogos de Macau, S.A. (SJM). As at the end of September, the Hong Kong-listed company was operating 63 mass-gaming tables, an increase of three year-on-year, while the number of the group’s VIP tables decreased by two year-on-year to 12, and that of slot machines and live baccarat tables also dropped by six and 19 year-on-year to 232 and 115, respectively.
The company said gaming revenue accounted for approximately 73 per cent of its total hotel and gaming business turnover. Meanwhile, the group’s gaming commissions - amounts paid in order to attract customers – fell by 14 per cent yearon-year to HK$48.6 million for the six months.
Hotel revenues drop
On the other hand, earnings from Kingston’s hotel operations in the MSAR also registered a drop of 12 per cent year-on-year between March and September, down to HK$86.6 million compared to HK$98.4 million last year, despite the fact that the occupancy rate of its two hotel properties both recorded increases. The average occupancy rate of Casa Real on the Macau Peninsula rose three percentage points year-on-year to 86 per cent for the fiscal first half, while that of the Grandview Hotel in Taipa increased four percentage points to 76 per cent. The company explained in the filing
that the decreases in its overall business performance in the MSAR were ‘in line with the decline in the industry’ affected by ‘the slowing economy in China and anti-graft drive’. However, the filing explained that the gaming business had continued to ‘provide a stable income’ for the group. The group also expects the city’s hotel and tourism market segment to ‘stabilise’ in 2017, given the steady demand from international and local markets. Yet, the group claimed it would maintain a ‘conservative outlook’ due to ‘the slowdown in tourist spending and China’s campaign against corruption and luxury spending’.
Decreased net profits
For the first six months of its fiscal year, the company saw its total revenues fall by 17 per cent year-onyear down to HK$1.3 billion, while net profit attributable to the owners plunged by 19 per cent year-on-year to HK$744.4 million. It explained the decrease in the interim net profit was due to ‘the decrease in income from securities brokerage, underwriting and placements business’, which slumped by 77 per cent year-on-year to HK$118.5 million for the six months.
Gaming
China cracks down on cross-border gambling ring Police in central China have arrested 94 members of a US$72 billion (MOP9 billion) cross-border gambling ring whose activities stretched into Southeast Asia, the official Xinhua news agency reported on Saturday, citing police. Police in Jincheng city in Shanxi province arrested members of the gang that illegally brought more than 400 gamblers across to Laos and Myanmar to gamble more than RMB500 billion (MOP578.2 billion/
US$72.28 billion) in wagers, Xinhua said. The police said they had discovered the ring in 2013 after a murder case relating to unpaid gambling debts. During the recent arrests, the police also rescued eight gamblers who had been detained by the ring in Myanmar. Chinese citizens, among the world’s most prolific gamblers, often travel overseas to bet, as gambling has been outlawed in China since 1949, though
a state lottery does operate. In the past year, the government has made a number of arrests accusing people of luring China citizens to gamble overseas. In October, it arrested 13 South Korean casino managers and several Chinese agents. It also detained 17 employees of Australia’s top casino operator Crown Resorts and then later officially arrested three of them on suspicion of gambling offences. Reuters
Results
Upbest’s local turnover increases slightly Hong Kong-listed stockbroking and property investment company Upbest Group Ltd. saw its turnover in the MSAR rise slightly by 1.8 per cent year-on-year to MOP13.4 million (US$1.68 million) for the six months ended September 30 this year, according to the company’s unaudited interim results on the Hong Kong Stock Exchange last Friday.
In overall terms, the company registered a significant increase of 69 per cent in its total turnover for the six months, amounting to MOP197 million, up from MOP116 million for the same period last year. The company notes in the filing that the MSAR’s property market and economy has ‘hit the bottom’, expecting that the local economy
will return to growth next year, given the implementation of government measures, as well as the launch of two new casinos this year. However, the company anticipates its property investment business in Mainland China, Macau and Hong Kong will continue to face ‘tough challenges’ in 2017, despite the probable increase in interest rates in the United States by the end of this year. C.U.
Business Daily Monday, November 28 2016 5
Macau
Labour force
Fewer non-resident workers in October In particular, the number of non-resident workers in the construction field dropped 19 per cent from one year ago Cecilia U cecilia.u@macaubusinessdaily.com
T
he t o t a l n u m b e r o f non-resident workers amounted to 178,215 as at the end of October, down by 1.1 per cent monthon-month, the latest official data released by the Labour Affairs Bureau (DSAL) shows. Compared to data from the same period last year, the number of non-resident workers in the city represents a decline of 2.2 per cent.
Industries related to hotels and food & beverage remain the largest employers of non-resident workers, with 49,446 working in these industries, unchanged from the previous month.
Construction workers further decrease
The latest data, meanwhile, indicates a decline in the number of nonresident construction workers on both a month-on-month and yearon-year basis - down 6.4 per cent month-on-month and 19 per cent year-on-year - to 36,810 in the
month of October. Although the construction sector experienced a decline in the number of workers, it remained the second largest employer for non-resident workers in the MSAR. According to the DSAL data, some 1,086 non-resident construction workers directly employed by the city’s gaming companies were recorded within the 13,578 workers involved in the recreational, cultural and gaming sector. Meanwhile, the third largest sector – domestic work services – enjoyed an increase of 159 more workers month-on-month and a 6.2 per cent increase year-on-year, with a total of 24,692 non-resident workers at the end of the month. Other primary sectors hiring non-resident workers included
wholesale and retail trade (19,561) and real estate, renting and business activities (18,497).
Mainland the main origin
In the month of October, Mainland China continued to be the largest source of non-resident labour for the city, amounting to 114,223 or 64.1 per cent of the total foreign workforce. However, compared to 116,191 in the previous month, the number represents a decrease of 1,968 workers. The Philippines, on the other hand, contributed 14.7 per cent of the total non-resident workforce at the end of the month, amounting to 26,177. The number represents an increase of 207 month-on-month, or growth of 8 per cent year-on-year. Most of the Philippine workers here are engaged in domestic work services, accounting for 12,468 of the total. Similar to the previous month, Vietnamese workers remained the third largest group of non-resident workers in the city, totaling 14,803 as at the end of October. Most Vietnamese workers were also employed as domestic workers in the city.
6 Business Daily Monday, November 28 2016
Macau Interview | Corporate governance
Fighting against the tide As the newly-formed Macau Corporate Governance Institute marks its first official event today, and with the law firm bearing her name celebrating 30 years in business in the MSAR, Manuela António sits down with Business Daily to discuss why the city’s businesses need corporate governance, the evolution of the judicial system, the real steps necessary to achieve diversification and the results of recent government investigations and corruption cases. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
W
hatwasthereasonbehind creating the Corporate Governance Institute and what difficulties have arisen in doing so? It’s not very easy to create an organization such as this one, the Macau Corporate Governance Institute (MCGI), because the market that’s interested is not large, and also the companies that we hope to attract and that are interested in it are companies with presences in various countries in the region or with the necessity to travel frequently.
“One of the objectives of the institute is to show that Macau is more than just a centre of leisure and tourism” Despite this, and interestingly, the idea was very well received. All the entities that we contacted to be founders
accepted the invitation immediately. They made themselves available, contributed and helped us to come up with the articles – the initial membership process was very energetic. It won’t be easy, but our objectives also aren’t overly ambitious. We would like to do something every three months, four months. And at the end of the year be able to have some conclusions and takeaways, gather together the members and discuss to come up with a summary. You mentioned that when you contacted the current members there was a lot of interest in participating. Why do you think there was such a high interest level? Because the entities that we contacted are groups that already adopt a large part of the principles of Corporate Governance. Therefore they have an interest in continually developing them and expanding them. We’re starting with a lunch at MGM, which will present and explain who we are (as MCGI), what we are, and what our objectives are, with a special guest who is very well versed in this area, Dr. Pedro Rebelo Sousa. He’s the president of the board of the Corporate Governance Institute of Portugal. He was involved in its founding, and will help explain the current status of Corporate Governance in Portugal. One of our members is MGM,
who’s from the United States, CTM has relations with the English and has other international links, BNU is linked to the Caixa Geral de Depósitos and is linked to the European Union, CESL Asia has relationships with Portugal, Ocean is part of a Hong Kong/Singapore group - they’re companies that have links to companies that are on stock exchanges or links that require them to make reports. They have to provide records to their shareholders, to their bondholders, and that are already following these rules. Creating the institute also has as its intent to demonstrate that Macau is a developed territory and has the same concerns as developed countries. One of the objectives is to show that Macau is more than just a centre of leisure and tourism. What’s the current level of corporate governance in Macau? O v e ra l l , a l a rg e p a r t o f th e companies in Macau, even today, are family companies. Therefore, the transparency results from the family link, the confidence. Nowadays, compared to 20 years ago, there are many more companies in Macau that aren’t family companies – or if they are, there’s a large number of family members that are shareholders, but whose management is conferred to third parties, which is what happens
with the concessionaires themselves. It is true that some of them have family roots, but the management is already a separate department. From the point that the funding becomes more extensive, it’s necessary (to have corporate governance), in order to reassure those who enter into participation with the company, it’s necessary to have transparency and have rules of reciprocal control or of reporting; the management informing the stockholders of what they’re doing. Something that in traditional companies in Macau wasn’t necessary. There weren’t even board meetings.
“If you want more investment, if you want diversification, then you have to say in what areas” There’s a certain confusion between the business and the partners that results precisely from this origin as a family business and of family financing of the businesses. They have problems understanding exactly how the business has to create reports, meeting minutes, etc. We have to explain this, as here we don’t have a system in place. You aim to improve transparency in businesses. Do you think this will have a direct effect on the government? We would like that to be the case, because this is important for the government, but clearly the government also has to create a
Business Daily Monday, November 28 2016 7
Macau strategy towards businesses, which I don’t know what it is. We don’t know if the government wants to have more businesses, more companies in Macau, and what kind of businesses they want. There aren’t any indications. For example everyone knows that there’s a lack of human resources. There isn’t an orientation saying ‘the government prioritizes these sectors and in these sectors the (new) human resources are justified’. There just isn’t.
“I think public housing is another manifestation of the lack of capacity of the government to understand where it wants to go and what it has to do to get there” There’s a rhetoric of ‘investment aid, diversification of Macau’ – this is a rhetoric that later translates into nothing of substance, in any type of orientation. Because if you want more investment, if you want diversification, then you have to say in what areas. For example, recently the Secretary of Economy and Finance came and said that he wanted Macau to create certain financial products. And then the example he gave was so ridiculous: leasing. Leasing exists everywhere in the world. An RMB clearing centre, nobody knows what it is. They say ‘we want to transform Macau into a financial centre - that’s why the fund is coming here’. And then we asked: ‘Give us an example of something specific’. They said
‘leasing’. I didn’t want to believe it. It was ridiculous, to say the least. Because leasing has existed since 1970, here since 1980-something, it exists all over the world. Unless he had said something specific like: leasing of gaming machines, or of something specific. But no, he didn’t. What about the financial programs currently in place? There isn’t continual support. They say that they want something but then they’re not consistent. People fight against lack of space, the lack of labour - those are the primary: the rents in the zones and the lack of workers. People who know about art aren’t able to (succeed) because there’s no strategy. If we want business people in these areas, they have to provide more detailed and more accurate instructions in these areas. They provide access to loans but don’t provide the conditions for them to be paid back. Judging by the conditions we have now, will diversification be able to happen? No. Until there is a clear indication from the government into which areas of diversification they will support and finance. Until there are instructions, a type of office that accompanies the horizontal growth of the company, from the entry into the project until the end, someone responsible for expediency of these processes, it’s not possible. There aren’t the minimum conditions for any type of diversification unless it’s done by the large companies. They have the funds, the financial muscle, to be able to lose money over the course of two or three years. Then they have 10 or 15 [more years] for the road to straighten out. Which is the case of the casinos. They also suffer though.
“They provide access to loans but don’t provide the conditions for them to be paid back” What about public housing? I think it’s an excuse and it’s a mirage. First, there’s no statistics to know how many people want (public housing), how many need it, and what they want. And the proof of that is in the hundreds and hundreds of available units which aren’t being occupied and no one is interested in. It could be preferable to give assistance for rents, the government providing assistance if the individuals need it, for their rents. I think it’s a panoply to trick and it was the key that the government
found, because there’s a certain lobby group that uses it all the time. The government is transforming this into the Philosopher’s Stone. As if public housing will resolve the alchemy of the territory’s problems. No. I think public housing is another manifestation of the lack of capacity of the government to understand where it wants to go and what it has to do to get there. It seems like we have the capacity for further development, but it’s just not happening. Is that the case? There’s everything. There are capable people, some capable people, there’s an enormous desire to work, there’s money, there are willing investors, but the government has run out of ideas. Regarding land swaps, do you think that now they have started digging more, there will be more cases that come to light, and what possible consequences could that bring about? There’s very bad faith coming from the government’s side. I don’t want to believe it. I’m not afraid to say, that I think that the negative effects for Macau are so huge that I still hold out hope that they will turn back from their current path. All the signs point in the other direction, but I still don’t believe it. It’s clear that here there’s yet again an immense responsibility on the government’s part, because the government knew of, and was aware about, the situations which existed and the difference between the situations. Between those who didn’t use the land because they couldn’t, and those that didn’t because they didn’t want to. And therefore they can’t be treated in the same way someone who didn’t want to and someone who wasn’t allowed to. That’s the same thing as penalizing a construction company or a supplier for not delivering when they said that they didn’t want to receive it yet. It’s not possible. How about the Pearl Horizon case? [The developer] Polytec received one license, the continuation of a license to continue the foundations already after the new law. And then the government a year later says, ‘give it here, that’s mine’. So it gives them the license to continue the foundations, after the law, and then they say ‘give it here’. This is inconceivable. After 30 years in the justice system, what has changed? It was a challenge. It was a challenge but unfortunately, even though society was less developed than it is today and it had more difficulties, the judicial system was better than it is today. Justice was better carried out. It was quicker and it was incomparably superior and unbiased, completely unbiased. And today it’s not. Justice today is on a downward path.
And it’s more difficult today. The relationship which used to exist between the officers of the judicial area, between the courts, the judges, the magistrates, the lawyers and the employees, in which everyone was rowing in the same direction, each carrying out their functions, but with a reciprocal dialogue and respect, today that has disappeared.
“There is fear in the air. Everyone is scared of everybody else” There is fear in the air. Everyone is scared of everybody else. It’s much more difficult to be a lawyer today than it was 30 years ago, incomparably so, from that perspective. The corruption cases of Ho Chio Meng and Ao Man Long – what long-term effects will these cases have on the population? I’m not sure if it is on the population themselves, but in the government departments now, everyone is scared of making decisions. The people who could carry out their work faster don’t because they’re scared that they’ll be accused of favouring one or another. I’ve even heard that instead of the bosses disagreeing with the clerk’s reports, they tell the clerks to change their reports. Nowadays they all want to agree with each other, so they just tell the clerk to change the report. And the clerk, because he’s scared of losing his job, changes it. So no one is responsible except for the clerk. The lowest in the hierarchy is the one who takes the blame. It’s really bad in the administration, and there’s another thing that is worrisome: a lot of public departments with few employees – they actually work a lot but in the end there’s no results. There are public services that have lost a lot of employees and they’re not being replaced, and there are people whose jobs are more demanding than 15 years ago. So if we continue at this pace, the government has announced they want 40 million tourists per year by 2025, will that be possible? I think it’s possible, thanks to the initiatives by the private sector. What the government does is pull backwards, whereas the private initiatives continue to push forward. The problem is knowing whether these people who come here want to come back, if there are conditions for them to return. That they’ll come once, I’m sure, but if we can sustainably maintain this, that is the question.
8 Business Daily Monday, November 28 2016
Greater China Commodities prices
Industrial profits get boost from raw material sectors Profits at state firms rose 0.4 percent in the first 10 months of 2016 from a year earlier
P
rofit growth in China’s industrial sector picked up in October, aided by stronger sales and higher prices, suggesting further strengthening of the world’s second-largest economy, though growth was skewed towards high-polluting heavy industry. There has been widespread speculation in China’s commodities futures market this year, with coal prices hitting records in recent weeks, and economists say growth driven by loose money policies won’t last. Indeed, a subdued property market is expected to drag on growth in the first two quarters next year, as policymakers introduce curbs to cool home prices, which could hit profits of companies producing construction materials. Profits in October rose 9.8 percent to RMB616.1 billion (US$89.1 billion), the National Bureau of Statistics (NBS) said in a statement yesterday. Profits in September rose 7.7 percent. Industrial profits rose 8.6 percent in the first 10 months from the same period a year earlier, similar to an 8.4
percent growth rate in the first nine months of the year. Profits in the coal mining sector rose 112.9 percent for January-October from the same period a year earlier while manufacturing profits rose 13.2 percent. “Although October industrial profit growth picked up, the structure of growth was not ideal,” NBS official He Ping said in a statement
accompanying the data. “Profits in traditional raw material production increased relatively quickly...while high technology and equipment manufacturing profit growth slowed,” He said. Profit growth was overly reliant on rising prices, and industrial firms need organic improvement to see better results, He added. Profits for iron and steel production and processing companies rose 310.2 percent in January-October. China’s producer prices jumped more than expected in October as
prices of coal and other raw materials surged in the midst of a supply crunch and a pick-up in the economy. The producer price index is also expected to stay positive in coming months. Chinese industrial firms’ liabilities at the end of October were 5.1 percent higher than at the same point last year and rose slower than assets. The data covers large enterprises with annual revenues of more than 20 million yuan from their main operations.
Key Points Profits in Jan-Oct rose 8.6 pct, versus 8.4 pct in Jan-Sept Structure of growth not ideal - NBS official Profit growth skewed to traditional raw material industry High technology and equipment manufacturing profit growth slowed Profits at state firms rose 0.4 percent in the first 10 months of 2016 from a year earlier, marking the first increase in year-to-date earnings for state-owned companies this year, the finance ministry said on Friday. China’s industrial profits have rebounded strongly this year after falling last year, boosted by a recovery in commodities prices as supply tightened due to a capacity reduction drive and an infrastructure boom. Reuters
Stock markets
Shenzhen-Hong Kong link to launch on December 5 Shenzhen stock market is viewed by analysts and fund managers as a major long-term investment opportunity Michelle Price
A long-awaited stock trading link between the Hong Kong and Shenzhen exchanges will go live on Dec. 5, regulators said on Friday, further opening up China’s capital markets to global investors and giving them access to some of its fastest-growing companies. The launch will extend an existing trading link between Hong Kong and Shanghai, allowing foreign investors to trade Shenzhen stocks, one of the world’s busiest and most tech-focused exchanges, from Hong Kong. Domestic Chinese investors, meanwhile, will be able to trade an expanded range of Hong Kong stocks via the Shenzhen and Shanghai exchanges. “ Th e n e c e s sa r y t ra d i n g and clearing rules and other relevant rules, the daily quota mechanism and other regulatory and operational arrangements have been finalised,” the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission said in a statement.
“The stock exchanges and the clearing houses have completed a series of market rehearsals with participants in both markets and reported that systems are ready. Trading will commence on 5 December 2016.” The regulators said they had also a memorandum of understanding on regulatory and enforcement cooperation for the cross-border trading link. The Shenzhen Connect scheme had been expected to go live more than a year ago, but was put on hold after last year’s market crash, which saw stock prices fall by around 40 per cent and a raft of interventionist measures unleashed to prop up markets. China announced the launch of the scheme in August. “The programme opens up a new chapter of free access to a highly liquid market and investors can benefit from the vast investment opportunities in the environmental, IT, consumer discretionary and healthcare sectors, all of which are at the heart of the transformation of the Chinese economy and have been delivering strong earnings
growth,” said Karine Hirn, partner at East Capital. With more than 1,800 listed companies that have a combined market capitalization of US$3.3 trillion, the Shenzhen stock market is viewed by analysts and fund managers as a major longterm investment opportunity although sky high valuations and wild swings in Chinese stocks are likely to make some investors wary initially. “I don’t think it is going to be meaningful in the short term in terms of price moves, but I do think that in terms of capital market reforms it is very positive,” Belinda Boa, Head of Active Investments for
Key Points To extend existing Hong Kong-Shanghai link China’s A-shares market now open to global investors Follows delay of more than a year Asia Pacific at BlackRock, told Reuters in an interview on last Monday. “The opportunity in terms of what you can invest in is now much bigger than with Shanghai.” The extension of the link to Shenzhen will also see an aggregate quota cap on investment in both directions across the border scrapped, and a new raft of smaller Hong Kong stocks available to domestic Chinese investors. The rule changes are expected to lead to dramatic inflows into Hong Kong, as domestic investors seek ways to diversify their assets out of a weakening yuan. “We believe this new link could be a re-rating catalyst for small-cap stocks in Hong Kong,” portfolio managers at Matthews Asia wrote in a note on Friday.
The market is still awaiting clarification by the Chinese regulators on the capital gains tax treatment of foreign purchases of Shenzhen stocks, although Hong Kong
Exchanges & Clearing CEO Charles Li said in August he expected them to be exempt from tax, in line with the current rules for Hong Kong Shanghai Connect. Reuters
Business Daily Monday, November 28 2016 9
Greater China In Brief M&A
Mainland buyers say committed to closing AC Milan deal
Growth forecast
Taiwan raises 2016 GDP outlook Manufacturing activity gauges and exports for October showed sharp improvements Jeanny Kao and J.R. Wu
Taiwan raised its 2016 economic growth forecast for the second time in four months on Friday, as global demand for smartphones and other hi-tech gadgets helped the island’s manufacturers. The government largely maintained its export outlook for next year despite growing fears across Asia of increasing trade protectionism under incoming U.S. President Donald Trump. “After the new U.S. president takes office in 2017, political views made before the election being implemented into policy and its possible impact remains to be seen, so we maintain a moderate pace of growth for next year,” said the Directorate General of Budget, Accounting and Statistics. In its first economic review since the surprise win by Trump, the agency only slightly cut its forecast for economic growth next year and its expectations for export growth. Though economic growth is
expected to pick up next year, it is dependent on a 4.95 per cent expansion in exports for 2017, the agency said. Previously, it forecast that exports would expand 5.08 per cent next year. Taiwan’s manufacturing activity gauges and exports for October showed sharp improvements, only to be followed by disappointing export orders - a leading indicator for shipments - which barely grew last month, casting doubt the recent momentum can be sustained beyond the peak year-end shopping season. “Investor sentiment remains calm and financial conditions are still accommodative to support the shortterm economic growth outlook,” DBS said in a research report this month. But it said Taiwan’s exports could be adversely affected if the Chinese economy slows further and if Trump tangles with Beijing over tariff and currency disputes. Taiwan companies operate factories in China that produce goods for final export markets. The economy should grow 1.35 per cent this year, faster than the
1.22 per cent predicted in August, the government said. It said growth would also accelerate to 1.87 per cent for 2017, from 1.88 per cent forecast in August. It marks the second time the statistics agency raised its GDP forecast for 2016 after cutting it three times before August. The export-driven economy has been getting a seasonal boost from demand for new mobile gadgets launched during the second half of the year, including Apple Inc’s latest iPhone 7.
Key Points Taiwan raises 2016 GDP estimate for 2nd time in 4 months 2017 to improve, but govt cautious over Trump’s policies Exports seen +4.95 pct next year vs 2016 forecast -2.85 pct Revised Q3 GDP +2.03 y/y, slower than preliminary +2.06 pct Third quarter annual growth was revised to 2.03 per cent from a preliminary 2.06 per cent four weeks ago, the government said, but the pace is still the fastest in a year and a half. Reuters
The Chinese consortium seeking to buy Italian soccer club AC Milan is committed to signing the deal soon, it said on Saturday after the club’s owner Silvio Berlusconi hinted at a further delay to the long-awaited acquisition. The group of investors, backed by Haixia Capital and entrepreneur Yonghong Li, signed a deal in August with former Italian Prime Minister Berlusconi to gain full control of the Serie A club through investment vehicle SinoEurope Sports Investment Management Changxing (SES). Last week, SES said the deal would likely be sealed on Dec. 13. The deal values the club at 740 million euros (US$784 million). Markets
Commodity trading centre in Shanghai launched China on Saturday formally launched a state-backed commodity trading centre in Shanghai, as the world’s top energy consumer looks to race ahead of other countries such as Tokyo and Singapore to become Asia’s main gas pricing hub. The centre expects to trade more than 15 billion cubic metres of natural gas by the end of this year, or about 8 per cent of China’s total consumption, Xu Shaoshi, director of the National Development and Reform Commission, said at a launch ceremony on Saturday. Xinhua News Agency and the NDRC founded the centre with a registered capital of RMB1 billion (US$144.56 million). Currency
PBOC warns against outflows via Shanghai FTZ China’s central bank has urged commercial banks in Shanghai to guard against money outflows via the Shanghai Free Trade Zone (FTZ) disguised as foreign investment, two sources with knowledge of the instructions said on Friday. The Shanghai headquarters of the People’s Bank of China asked for particular vigilance against money originating in other provinces or cities in China that flowed into the FTZ en route abroad, the banking industry sources said. The guidance from the PBOC’s was the latest in a string of measures to stem surging capital outflows as the yuan currency plumbs 8-1/2 year lows against the surging U.S. dollar. Results
Xiaomi says smartphone sales won’t hit the company Sharp drops in smartphone sales for China’s Xiaomi Inc will not have a major impact on the company as profit growth will be driven by sales from smart home devices as well as revenue from its software eco-system, a senior executive said. Xiaomi was valued at US$46 billion in its last fund-raising in 2014. But last year it missed its global smartphone targets by 12 per cent, while its third-quarter China smartphone sales have tumbled 45 per cent, according to research firm IDC - raising doubts that the valuation is still warranted.
10 Business Daily Monday, November 28 2016
Greater China
Shanghai construction fair
Silk Road feeds hope of 2017 recovery Infrastructure spending is entering a growth phase globally Brenda Goh
A
fter five years of falling r ev e n u e, f o r e c o u r t s overcrowded with unsold m ach i n e r y a n d i d l e factories, China’s push to build a modern day Silk Road is fuelling a recovery for the country’s heavy equipment industry, according to executives from many companies gathered in Shanghai last week. Construction equipment makers - a proxy for China’s infrastructure, resources and construction sectors suffered a plunge in sales after 2011, as commodity prices collapsed. Industry sales in China peaked that year at US$35 billion, according to consultancy Off-Highway Research; and this year, they are estimated at US$9 billion - the worst sales level in more than a decade. But speaking at a crowded biennial industry show this week, executives from machinery makers said that in the third quarter of this year there were finally signs of life. They now expect growth next year for the first time since 2011, as a glut of used equipment ages, the industry works through accumulated inventory and companies benefit from ambitious government projects. Overall demand for excavators in China jumped by 50 per cent in September, while sales of earthmoving and road-making machinery, a major beneficiary of the Silk Road
effort, turned positive after five years of losses, according to Off-Highway. “We’ve seen fairly significant signs of bottoming and turning around,” said David Beatenbough, a vice-president of Guangxi LiuGong Machinery Co Ltd, one of China’s largest construction machinery manufacturers, where he overseas research and development. “We’re seeing quite a bit in rail, some in roads... and a little bit in traditional real estate,” he said. China has estimated the Silk Road initiative, known as ‘One Belt, One Road’, could add US$2.5 trillion to China’s trade in the next decade, making it critical to the postfinancial crisis turnaround - and the benefits will go well beyond machine makers. Chinese President Xi Jinping’s initiative, includes a drive for an integrated economic area through Central Asia, West Asia, the Middle East and Europe, based on new infrastructure - such as roads and railways, and increased trade links. Official data has shown broader signs of stabilisation in the China’s economy, driven by billions of dollars in government spending and a property boom in major cities, even as private investment and exports remain stubbornly weak. Beijing, which is seeking to cushion the impact of the country’s slowest growth in 25 years, has accelerated approvals, sent officials to probe stalled projects and encouraged private investors to play a bigger role in infrastructure building. Earlier this month, the country’s top economic planner said it had approved 2.97 trillion yuan (US$429.3
billion) worth of projects in the first ten months of the year, 2.9 per cent higher than the amount approved over the same period last year.
Revving up
Infrastructure spending is entering a growth phase globally, led by the ambitious plans to rebuild the United States under President-elect Donald Trump and including Britain, which on Thursday freed up an extra 23 billion pounds (US$28.6 billion) to invest in rail, telecoms and housing infrastructure - all good news for machinery makers.
Key Points Heavy equipment makers see signs of recovery Expect growth next year for the first time since 2011 Modern day “Silk Road” initiative helping to drive sales Companies remain cautious about sustainability of any pickup It is still early days in the recovery. For example, U.S. heavy equipment maker Caterpillar did not have booths at the Shanghai show this year - a contrast with 2012, when it filled a hall with a 12,000-square-metre display. But after one of the grimmest years in decades, other signs are rosier. Beyond Shanghai, John Deere, Japan’s Komatsu and others have given cautiously positive outlooks in recent weeks. And Caterpillar itself last week reported a third consecutive month of
sales growth in Asia, driven by China, and said it sees growth ahead in 2017 - if Chinese government support for projects continues. Most see growth in other parts of Asia too, as Chinese construction firms go into southeast Asia or Pakistan. A weak yuan - it has fallen 6 per cent against the dollar so far this year - will also make Chinese companies more competitive internationally. “Business confidence is coming back... and (firms) are starting to see some good results,” Karin Sun, Beijing-based senior consultant at Off-Highway Research, said in reference to China. Chen Dewei, vice-general manager of excavator and wheel loader maker Fujian Jingong Machinery in southern China, said his company has been able to trim inventories to what he called a “reasonable” level. He said it planned to spend a few hundred million yuan in January to open a factory in Jiangsu province, which is a province north of Shanghai, that will increase its manufacturing capacity by 30 per cent. The facility, initially planned in 2011, had been mothballed amid the industry slump. “From our company’s perspective this industry is slowly warming up... Our new products have also performed well in the last few years providing us with the conditions we need to open a northern base,” he said. Still, many are wary about predicting the strength of the recovery. Even a recovery, said one executive at Shandong Lingong Construction Machinery, will not be the same as before: “Chinese companies are smarter now, we won’t manufacture in large quantities like last time.” Liugong’s Beatenbough was among those taking a cautious view. “Some of us have been in the industry long enough in other parts of the world that we’ve seen recoveries start before, and then fade away to nothing.” Reuters
Business Daily Monday, November 28 2016 11
Asia Inflation
Japan consumer prices continue slide Policymakers are starting to see fiscal stimulus as the most likely next step to spark growth Leika Kihara
J
apan’s core consumer prices marked their eighth straight month of annual declines in October, illustrating the sheer scale of the central bank’s struggle to beat deflation and stagnant growth with diminishing policy options. The data will keep policymakers under pressure to do more to stimulate the economy, with fiscal spending likely the more preferred option as three years of aggressive easing by the Bank of Japan (BOJ) failed to accelerate inflation to its 2 per cent target. With downward pressure from energy price declines easing and the yen’s recent falls seen pushing up import costs, however, some analysts expect consumer prices to rebound early next year. The nationwide core consumer price index, which includes oil products but excludes volatile fresh food costs, fell 0.4 per cent in October from a year earlier after a 0.5 per cent drop in September, matching a median market forecast, government data showed on Friday. While falling gasoline and electricity prices continued to drag down inflation, nearly 60 per cent of items making up the index saw prices rise, the data showed. “We still think that underlying inflation will fall a touch further in coming months in response to the sharp falls in import prices in previous months,” said Marcel Thieliant,
senior Japan economist at Capital Economics. “However, the output gap (the difference between the economy’s potential GDP and actual GDP) has narrowed and we expect it to rise further in coming months, so price pressures should strengthen again before long. What’s more, the yen has weakened sharply against the dollar recently. We think that underlying inflation will reach a bottom in the first quarter of next year.”
Key Points
the recovery with analysts polled by Reuters predicting roughly flat growth in factory output and a decline in retail sales in October. The BOJ has acknowledged that it will take time for inflation to accelerate to its target, modifying its policy framework in September to one better suited to a protracted battle against deflation. It kept policy steady at a subsequent meeting in October despite pushing back the timeframe for hitting its price target. “There are signs inflation is picking up, so the BOJ is seen maintaining its current policy for the time being,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
Japanese policymakers are starting to see fiscal stimulus as the most likely next step to spark growth, given uncertainty over U.S. President-elect Donald Trump’s trade and currency policies. But a budget outline showed Prime Minister Shinzo Abe plans only a modest boost to government spending next year, showing that he is taking a different policy direction than one expected from Trump, who has pledged fiscal stimulus. The yen’s recent declines offer some relief for Japan’s export-reliant economy, as big automakers and manufacturers have seen profits hit by the currency’s rise earlier this year. Reuters
Nationwide Oct core CPI falls 0.4 pct yr/yr, matches f’cast BOJ’s price index shows Oct prices up 0.3 pct yr/yr Some analysts see prices rebound early next year Japan eyes only modest spending rise-budget outline A separate index compiled by the BOJ, which strips out the effect of energy and fresh food costs, showed inflation hit 0.3 per cent in October, slightly up from a three-year low of 0.2 per cent marked in September. Japan’s economy expanded for a third straight quarter in the July-September quarter as exports recovered, but weak domestic activity cast doubt on hopes for a sustainable recovery. Data due out this week will likely show an uninspiring picture of
Commodities
Australia’s gold miners dig deeper as local currency falls A Federal Reserve interest rate hike in mid-December, while negative for U.S. dollar bullion, would likely lead to further weakening Gold miners in Australia, motivated by a weak currency, are overcoming inclement weather to dig deeper for more bullion, quarterly production figures released on yesterday show. Third quarter output in Australia, which mines more gold than any other country besides China, climbed 3 per cent, or 2 tonnes (64,301 troy ounces) to 75 tonnes from the same period a year ago, despite heavy rainfall that flooded some pits and slowed operations, Melbourne-based Surbiton Associates said in its latest output tally. “It was a good performance given the wet weather that took its toll on some of the gold producers,” said Sandra Close, a director of Surbiton Associates. “Overall, local producers have continued to take advantage of the higher Australian dollar gold prices that have prevailed for much of 2016.” Gold prices spiked to A$1,760 per ounce in the run up to the U.S. presidential election, reflecting safe-haven bets by investors over the outcome. This followed Britain’s vote to leave
the European Union in June, when Australian dollar-denominated gold prices rose to a record of more than A$1,830 per ounce. “So far, throughout much of 2016, gold has traded in Australian dollar terms mostly between A$1,600 and
A$1,800 per ounce and averaged near A$1,700 per ounce,” Close said. This is a sharp contrast to U.S. dollar gold, which plummeted to 9-1/2-month lows on Friday, and a third consecutive weekly decline, as investors sold on factors including expectations of a U.S. interest rate rise. A Federal Reserve interest rate hike in mid-December, while negative for U.S. dollar bullion, would likely lead to further weakening in the
Australian currency, buffeting local mines, according to Close.
“Overall, local producers have continued to take advantage of the higher Australian dollar gold prices that have prevailed for much of 2016” Sandra Close, a director of Surbiton Associates
The likelihood of rising U.S. interest rates and some of the proposed policies of President-elect Trump have boosted the value of the U.S. dollar and have seen Wall Street rise to record highs. Both of these factors are negative for gold. “But the local gold industry has the benefit of the exchange rate effect,” she said. Reuters
12 Business Daily Monday, November 28 2016
Asia In Brief Support measures
Singapore readies up loans for oil & gas-linked firms Singapore plans to offer financial assistance to its liquidity-hit marine and offshore engineering companies that could help them raise as much as S$1.6 billion (US$1.1 billion) in loans. The two-year downturn in oil prices has forced several firms, including oilfield services firm Swiber, oil and gas service provider Swissco Holdings Ltd and container ship owner Rickmers Maritime, to seek restructuring of their debt. Billions of dollars have been wiped off the market value of the sector’s listed companies and thousands of jobs have been axed in the worst-hit area of Singapore’s slowing economy. Power fight
Tata Steel removes Cyrus Mistry as chairman India’s Tata Steel said it removed Cyrus Mistry as chairman at a special board meeting on Friday, the third Tata group company to depose him since his ouster as head of the conglomerate’s holding company. Mistry was ousted as chairman of holding company Tata Sons in a boardroom coup in October after the company criticised his performance. The Tata Steel board, in a statement, also said on Friday that it would hold an extraordinary general meeting (EGM) on Dec. 21 to remove Mistry and independent director Nusli Wadia as directors on the board. Government
Japan report frets over global economy Japan’s government signalled concern about financial markets as Donald Trump’s election to U.S. President and Britain’s negotiations to exit the European Union could cause uncertainty. The government stuck to its overall assessment in its monthly economic report for November, issued on Friday, which described the economy as being in moderate recovery while still showing weakness. “The economy is on a moderate recovery, while weakness is seen recently,” the Cabinet Office said in the report, using the same description that it has since March. Prices
Malaysia inflation rate below forecast Malaysia’s consumer price index increased 1.4 per cent in October from a year earlier, slightly slower than the previous month’s pace, government data showed on Friday. Economists polled by Reuters had forecast inflation to remain unchanged at 1.5 per cent for the third month in a row. Data from the Statistics Department showed increase in prices for food, alcoholic and non-alcoholic beverages, tobacco and housing, which were offset by lower transport and communication costs. Annual inflation reached a seven-year peak of 4.2 per cent in February, but has since moderated as the effects of a goods and services tax imposed in April 2015 fade.
Business Daily is a product of De Ficção – Multimedia Projects
Rupee revolution
India central bank takes surprise action to soak up liquidity The move is likely to drain over US$47.29 billion from the banks
T
he Reserve Bank of India on Saturday unexpectedly ordered banks to deposit their extra cash with it, in a bid to absorb excess liquidity generated by a government ban on larger banknotes. Many Indians deposited their old notes with their banks after the ban on 500 and 1,000 rupee notes (US$7.30US$14.60) on Nov. 8, which is aimed at tax evaders and counterfeiting.
Key Points India cenbank says banks must deposit extra cash with RBI Bank deposits had surged from India’s demonetisation drive Banks had put extra deposits into bonds, sparking rally
markets, adding that the RBI could have opted for more modest measures such as sucking out some of the liquidity through sales of market stabilisation bonds or telling banks to park funds under reverse repos. The action could also temper market expectations that the central bank would cut interest rates by 25 basis points at its next policy review scheduled for Dec. 7, after already easing them by the same amount at its last review in October. “The move is more of a ham-handed one than the finesse expected from the RBI,” said Shaktie Shukla, founder of boutique investment advisory firm Kaithora Capital. “The liquidity sweep will definitely halt the down move in (bond) yields,” he added. “It will also temper the
euphoria pre- RBI policy.” The move is likely to drain over 3.24 trillion rupees (US$47.29 billion) from the banks, according to Reuters estimates. Traders said bond market yields could rise 8-10 bps today, given that the RBI move would deprive the key source of funding seen in the past two weeks, while banking shares would likely take a hit. Bond investors had also bet India’s demonetisation action would dent economic growth as consumers held back on purchases, raising the prospect of a rate cut by the RBI. At the same time the bond rally had increased hopes it would lower borrowing costs in the economy and allow banks to reduce some of their lending rates. On Friday the central bank also relaxed its liquidity auction rules by expanding its basket of securities that it accepts as collateral. Reuters
Traders expect move to temper gains in govt bonds Banks had put some of this cash into government bonds, sparking a rally that saw the benchmark 10-year bond yield fall more than 50 basis points to its lowest in more than 7-1/2 years. The central bank said banks would need to transfer 100 per cent of their cash under the RBI’s cash reserve ratio from deposits generated between Sept. 16 and Nov. 11, saying it was a temporary measure that would be reviewed on or before Dec. 9. Traders called it a drastic move intended to dent the rally in bond
Monetary policy
Sri Lanka may keep rates steady The currency is under pressure due to dollar demand from importers Sri Lanka’s central bank is expected to keep its key interest rates steady on Tuesday, a Reuters poll showed, amid slowing inflation and credit growth after past tightening measures. The central bank has already tightened its monetary policy stance three times since December, to fend off pressure on a fragile rupee currency and curb stubbornly high credit growth that has pushed up inflation. Nine out of 13 economists surveyed in the poll expect the central bank to keep both its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) unchanged at 7.00 per cent and 8.50 per cent, respectively.
One economist expected a 50-basispoint hike in both policy rates while three expected a 25-bps hike. All 13 economists expect the statutory reserve ratio (SRR) to stay at 7.50 per cent. “With inflation still fairly low, we think there’s a good chance that rates will be left on hold again this month,” said Oliver Jones, assistant economist at Capital Economics Ltd. “But inflation is set to pick up now that value-added tax (VAT) has been raised back to 15 per cent, and the election of Donald Trump in the U.S. arguably increases the chances of fiscal loosening in the U.S., which might prompt the Fed to raise interest rates aggressively next year, putting the rupee under pressure.” He said it will not be too long before the central bank resumes its tightening cycle. But analysts said tight fiscal policies could mean the central bank has
room to hold off from raising interest rates next year. Meanwhile, the rupee has come under pressure because of lower interest rates, higher imports, and foreign outflows from government securities last year. The currency is under pressure due to dollar demand from importers who fear the economic policies of U.S. President-elect Donald Trump could lead to a rise in the greenback
Key Points Policy rates last raised in July in a surprise move Credit growth still higher despite tightening measures Policy announcement due on Tuesday, Nov. 29 at 0200 GMT
and interest rates. Dealers said foreign investors might pull out of emerging markets, including Sri Lanka, if the U.S. Federal Reserve raises interest rates next month. The International Monetary Fund (IMF) said on Saturday that Sri Lanka’s macroeconomic and financial conditions have begun to stabilise and the island nation’s performance under its US$1.5 billion loan programme is satisfactory. The central bank has raised both the SDFR and the SLFR by 50 bps each in February and July. That followed an increase of 150 bps in commercial banks’ SRR in December. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Monday, November 28 2016 13
Asia
The lender noted that the Australian legal action came after the Monetary Authority of Singapore investigated 20 banks in relation to the same matter in 2013 Forex
Australian banks admit to Malaysia currency ‘cartel’ The Australian corporate regulator has also been investigating whether the country’s banks and currency traders were colluding in foreign exchange markets Byron Kaye
Two Australian banks have offered to pay fines for “cartel conduct” when trading foreign exchange contracts for the Malaysian ringgit, in the latest controversy engulfing banks and their manipulation of foreign exchange rates. Australia’s No.1 investment bank Macquarie Group Ltd and top corporate lender Australia and New Zealand Banking Group Ltd on Friday said they offered to pay fines totalling A$15 million (US$11 million). The two banks, however, will still face prosecution in Australia over the matter and, potentially, from overseas authorities. The admission may provide further ammunition for a recent Malaysian government crackdown on foreign banks trading in the ringgit in offshore market, seen by bankers as an attempt to curb a devaluation of the currency. The two Australian banks said in separate statements they offered to pay the fines after the antitrust agency started court proceedings over the companies’ actions in Singapore when trading foreign exchange contracts for the Malaysian ringgit in 2011. “These proceedings are a reminder that Australian cartel laws apply to financial markets, and capture cartel conduct by firms that carry on business in Australia, regardless of where that conduct occurred,” Australian Competition and Consumer Commission (ACCC) Chairman Rod Sims said in a statement. Separately, three major Australian retail banks, including ANZ but not Macquarie, are defending charges laid by the country’s securities regulator over allegations they manipulated the benchmark bank bill swap reference rate (BBSW). The Australian corporate regulator has also been investigating whether the country’s banks and currency traders were colluding in foreign exchange markets, part of a global crackdown in the sector. The ACCC did not say on Friday whether the banks succeeded in
influencing the ringgit rates - which affect who profits from a trade, and by how much - but said that rules required them to make their pricing submissions independently. ANZ admitted to 10 instances of cartel conduct by three unidentified employees, all of whom had left the company, and agreed to pay a A$9 million fine. “While there is no evidence that FX benchmarks in Singapore were successfully influenced, we accept responsibility and apologise for the actions of our former employees,” ANZ Chief Risk Officer Nigel Williams said.
Key Points ANZ, Macquarie pay US$11 mln in fines for trading conduct in 2011 Banks still face prosecution in Australia over conduct ANZ, two other Australian banks face BBSW rate-rigging charges MAS censured 20 banks over same manipulation issues in 2013 The lender noted that the A u st ra l i a n l ega l acti o n ca m e after the Monetary Authority of Singapore (MAS) investigated 20 banks in relation to the same matter in 2013 and found 133 traders had tried to rig key borrowing and currency rates. “ M AS’ r eg u l at o r y acti o n s announced in June 2013 had covered foreign exchange spot benchmarks - including MYR - commonly used to settle Non-Deliverable Forward FX contracts during the period from 2007 to 2011,” the MAS said. Macquarie, which agreed to pay A$6 million, said it terminated the unnamed junior employee involved in the actions in 2012, and that “no Macquarie senior management or any other Macquarie employees were involved in or aware of the conduct”. Both banks said they had offered to pay the fines, but the ACCC said it was up to the court to decide what penalties were appropriate.
Traders from Macquarie, ANZ and other banks communicated in private online chartrooms about their daily submissions to the Association of Banks in Singapore in relation to the benchmark rate for the Malaysian currency, the ACCC said. The traders “attempted to make
arrangements” about making “high or low submissions” to the Singapore authority, which would then set the daily exchange rate for contracts in the currency within the country. Malaysia’s central bank did not immediately respond to requests for comment. Reuters
14 Business Daily Monday, November 28 2016
International In Brief OPEC deal
Russia positive on global oil deal Russia is continuing consultations with OPEC aimed at stabilising oil markets and is positive about a global deal, Energy Minister Alexander Novak said on Saturday. In a statement, his ministry quoted Novak as saying OPEC had to reach consensus within the group before other producers could join such an agreement. Earlier, Russian news agencies cited a diplomatic source as saying that no Russian delegation would attend a meeting in Vienna today with OPEC experts, after Saudi Arabia pulled out of the event. The ministry’s statement did not say if Russia would go or not. Overcapacity
Merkel says G20 must tackle global steel glut The G20 group of leading economies must find a solution to excess capacity in the global steel industry, German Chancellor Angela Merkel said on Saturday, adding that overproduction in some countries was causing job losses elsewhere. Merkel said Germany, which takes over the G20 presidency next month, would push for a collective solution for the worldwide glut that has dampened steel prices for years and raised tensions between China and other major producers. European and U.S. leaders have pressed China to accelerate capacity cuts.
Communist myth
Fidel Castro dies at 90, ashes to rest in Santiago de Cuba A mass rally will be held in the capital on November 29
C
uban revolutionary leader Fidel Castro died late Friday at the age of 90, said his brother Raul Castro, the current leader of Cuba. “With deep sorrow I report to the Cuban people that our beloved leader Fidel Castro passed away at 10:29 p.m. (0329 GMT Saturday) on Friday,” said Raul Castro in a statement broadcast on Radio Reloj. His body will be cremated according to his will. The Cuban government later announced that Fidel Castro’s ashes will be buried at the Santa Ifigenia cemetery in the eastern city of Santiago de Cuba, the resting place of independence hero Jose Marti and other leading figures of the island. In an official statement published by the Communist Party newspaper Granma, the organizing committee of Fidel Castro’s funeral said his ashes will be interred there on Dec. 4 after Cubans from all over the island pay their tributes to the leading figure of the Revolution. In Havana, Cubans will be able to pay homage to Fidel Castro at the Jose Marti memorial today and tomorrow. A mass rally will be held in the capital at 7 p.m. (0000 GMT Wednesday) on November 29. On the following day, Fidel Castro’s ashes will begin their journey along
the route that commemorates his victory in 1959, added the release. The journey will conclude Santiago de Cuba on Dec. 3, where there will also be a mass rally. The burial ceremony is scheduled to be held next day at 7 a.m. (1200 GMT).
‘Fidel Castro had led Cuba for nearly half a century before stepping down in 2006 for health reasons’ Also, the Cuban State Council declared nine days of national mourning starting at 6 a.m. (1100 GMT) on Saturday and ending at noon time on Dec. 4. During the mourning period, all cultural shows will be suspended, with the flag flying at half-mast in public buildings and military establishments. Fidel Castro had led Cuba for nearly half a century before stepping down in 2006 for health reasons. He was succeeded by his brother Raul Castro. Fidel Castro spent the last years of his
life largely out of the public eye, writing editorials on world affairs for Cuba’s official Granma daily, and receiving dignitaries at his home in Havana. The last such a meeting was with Vietnamese President Tran Dai Quang on Nov. 15. Shocked by his death, Cubans go out to mourn the revolutionary leader with great sorrow on the streets in Havana. Fidel Castro was born on Aug. 13, 1926 in Biran, a village in Holguin Province, as the son of Spanish immigrant Angel Castro and Cuban farmer Lina Ruz. He became well-known worldwide after he led the 1959 Cuban Revolution that overthrew Cuban dictator Fulgencio Batista. Almost immediately, the United States moved to topple Fidel Castro, fearing the socialist revolution would inspire the rest of Latin America. Washington pressed Cuba on many fronts, including economically and financially, by imposing a trade embargo in February 1962 that continues to this day. Washington’s covert war on Castro is well documented, from Operation Mongoose designed to disrupt life in Cuba in any way possible, to numerous assassination attempts, which even the CIA admits were often “laughably inept.” Fidel Castro once quipped, “if surviving assassination attempts were an Olympic event, I would win the gold medal.” Xinhua
South Africa
Ruling party lashes out at ratings firms comments South Africa’s ruling African National Congress (ANC) lashed out at debt rating agencies on Saturday, calling their references to political risk in recent reviews of the country as mischievous and unscientific. On Friday, Fitch kept the credit score of Africa’s most industrialised economy one notch above junk status but changed its outlook to negative from stable, warning that political risks could hurt growth. Moody’s kept its Baa2 rating for South African debt unchanged on Friday but said political uncertainty was hurting business confidence and without fundamental structural reforms to support higher medium-term growth a downgrade was likely. Ecommerce
U.S. Black Friday online sales total US$3.34 billion A digital marketing research group has recorded online sales at a record high of US$3.34 billion during the Black Friday shopping spree in the United States. Adobe Digital Insights (ADI) Saturday said the total represented a 21.6 per cent increase from the same day of last year and US$290 million above the predicted US$3.05 billion sales for the traditional shopping day after Thanksgiving holiday. Sales through mobile devices totalled US$1.2 billion, or 36 per cent of all online sales for the day and an increase of 33 per cent over the same day of last year.
A huge banner with late Cuban leader Fidel Castro covers the facade of a building in Havana on Saturday. Current Cuban president, Raul Castro, announced on 25 November 2016 his brother’s death on the Cuban state TV. Lusa
Taxes
EU to propose simpler VAT rules to boost e-commerce The Commission also wants to act against fraud from consignments sent from outside the EU The European Commission will propose this week simplified rules on value-added sales tax (VAT) on goods and services traded from one country to another within the European Union to boost e-commerce. As part of its digital single market strategy, the Commission has made a series of proposals to make parcel delivery more affordable, protect consumers when they buy online and limit “geo-blocking”, the practice of barring consumers in one country from buying from a provider in a different country. An EU official said on Friday that VAT was the “last piece in the puzzle” on e-commerce. The administrative and financial burden of VAT was one of the biggest barriers to cross-border trade, particularly for start-ups and smaller companies.
Currently, online traders have to register for VAT in all the EU countries to which they sell goods, a significant barrier given it can cost about 8,000 euros (US$8,482) to comply per country. For e-services such as mobile phone apps or video content delivered online, sellers have been able since the start of 2015 simply to provide quarterly returns to tax authorities in their own country detailing their cross-border sales and the VAT due. Under the Commission’s plans, this would also extend to goods delivered from one country to another. The move could reduce the administrative burden for companies by 95 per cent, for a saving to EU business of 2.3 billion euros. Separately, the Commission also wants to act against VAT fraud from
consignments sent from outside the EU. Currently, they are VAT-exempt if worth below 22 euros. This allows fraud by declarations of artificially low amounts. The Commission said this exemption would go. Finally, the Commission will propose that digital publications receive the same tax treatment as traditional books and newspapers. Printed material currently can be subject to reduced rates or zero rates of VAT, but electronic equivalents cannot.
‘Currently, online traders have to register for VAT in all the EU countries to which they sell goods’ The new system will allow, but not oblige, the EU’s 28 member states to align VAT rates on e-publications to those of printed equivalents. Reuters
Business Daily Monday, November 28 2016 15
Opinion Business Wires
The Korea Herald A South Korean business lobby said yesterday an increase in the corporate tax would slow economic growth, amid the opposition parties’ push to increase burdens on companies. The Korea Chamber of Commerce and Industry said the parliament should be more cautious when increasing corporate taxes, as the move would decrease the government’s revenue as it would hurt business sentiment amid the prolonged economic slump. The Chamber of Commerce added that South Korean companies would also lose competitiveness against global rivals, as other countries are focusing on lowering such taxes.
Banks closed during first days after due to lack of banknotes to face demand. Lusa
Demonetization dos and don’ts Philstar Banking giant Metropolitan Bank & Trust Co. (Metrobank) has raised Philippines’ economic growth forecast this year to 7 per cent from an earlier 6.3 per cent amid the expected strong cash remittances in the last quarter of the year. Pauline May Ann Revillas, research analyst at Metrobank, said the Philippine economy once again surprised markets, posting a stronger-than-expected gross domestic product (GDP) expansion of 7.1 per cent in the third quarter from seven per cent in the second quarter. This brought the average GDP growth to 7 per cent in the first 9 months of the year.
The Times of India India Inc called for a sharp reduction in corporate tax rates, complete elimination or a cut in the Minimum Alternate Tax and higher public investment in infrastructure and social sector on Saturday. They also suggested that the minimum exemption limit in case of personal income tax be raised to 5 lakh. Industry leaders also called for a reduction in interest rates for manufacturing and other sectors saying that after demonetisation banks are flush with funds. The industry leaders submitted their demands to finance minister Arun Jaitley who met them at a pre-budget meeting.
The Straits Times The service industry (in Singapore) suffered a lacklustre third quarter, with takings sliding 0.4 per cent over the same quarter last year. Statistics Department data on receipts showed patchy performance across the sector, with some segments faring better than others. The latest numbers followed from almost flat growth in the second quarter, when service firms saw takings inch up just 0.5 per cent. The health and social service cluster logged the largest expansion in the July to September quarter, growing 9 per cent year on year.
O
n November 8, at 8:15 in the evening, Indian Prime Minister Narendra Modi’s government announced that, at the stroke of midnight, all 500- and 1,000-rupee notes in circulation would no longer be considered legal tender, and would need to be exchanged for new 500- and 2,000-rupee notes. Modi’s “demonetization” intervention affected 85 per cent of the money in circulation in India. It was an unprecedented move, whether in India or almost anywhere else, and it is by far Modi’s boldest policy intervention to date. The Modi government is targeting the “black money” associated with tax evasion, corruption, and counterfeiting, and thus the drug traffickers, smugglers, and terrorists who engage in those activities. India’s tax-paying salaried classes and even the poor initially welcomed the policy enthusiastically, viewing it as sweet revenge against tax evaders who had stowed away their illgotten gains; they revelled in anecdotes of corrupt officials burning bags of cash or throwing money into India’s rivers. But with each passing day, that initial cheer diminishes. Public frustration is now mounting, because the government has failed to meet the demand for new printed notes. Commerce in India – where the cash-toGDP ratio is 10 per cent – relies heavily on cash transactions, and informal-economy and smallbusiness operations have now ground to a halt, owing to long lines and tight cash-withdrawal limits at banks and shortages at ATMs. The near-term impact will be the equivalent of an “anti-stimulus” policy intervention, and the consequent drag on demand will be significant. Moreover, as real-estate prices decline, so, too, will household wealth. Although lower house prices will make new homes more affordable, the stock of occupied homes will far exceed new purchases in the near term, so the negative-wealth effect will overwhelm the gains. Given these large upfront costs, it is reasonable to ask how effective demonetization is in fighting tax evasion and corruption, and if there is a less costly approach to demonetization. Back in 1976, in an article entitled “How to Make the Mob Miserable,” the American economist James S. Henry addressed the question of effectiveness, prescribing demonetization as a measure to undermine mafia operations. But policymakers did not take his proposal seriously. Henry’s proposal was, in his own words, “dismissed as either administratively impractical or as a oneshot action that would have no long-run impact on criminal behavior.” In a new book, The Curse of Cash, Kenneth Rogoff champions the elimination of high-denomination notes in order to fight tax evasion and criminal
“
Gita Gopinath Professor of Economics at Harvard University
activity. Rogoff furnishes extensive evidence that making it costly to hoard cash would deter illegal activities. While tax evaders also store their wealth in non-monetary forms, such as land, art, and jewellery, cash remains a leading vehicle for illgotten gains, owing to its inherent liquidity. In other words, questions posed by Modi’s critics about the role of cash in feeding stockpiles of black money are misplaced. That said, Rogoff proposes a different strategy to address the menace of black money – one that would be minimally disruptive and arguably more effective, at least in the long run. That strategy would depart from the Modi government’s intervention in two fundamental ways. First, it would be gradualist, implemented over several years. Second, it would permanently eliminate high-denomination notes. While this gradualist strategy would not punish existing hoarders, who would find creative ways to recycle their cash in the interim, it is more likely to improve tax compliance and reduce corruption over time, as large-denomination notes are permanently taken out of circulation. India’s current policy of replacing 1,000-rupee notes with 2,000-rupee notes undermines the long-term effectiveness of its policy. Moreover, the gradualist approach is administratively practical, minimizes the collateral damage to the real economy and ensures that there is enough time to extend financial services and financial literacy to larger parts of India. Over the last two years, the Modi government has made an impressive push for financial inclusion with its Jan Dhan program, which has facilitated the creation of 220 million new bank accounts. But many people who create accounts do not necessarily use them. A 2015 World Bank study of bank-account usage and dormancy rates across different regions found that only 15 per cent of Indian adults reported using an account to make or receive payments. In this environment, a cash scarcity is economically crippling. Modi’s policy intervention is bold, and the economic principles motivating it are beyond reproach. But a gradualist approach that includes the permanent withdrawal of large notes would have served the cause better, even if it did not generate the same “shock and awe” as the current policy. This will become more apparent as the large costs to the economy emerge over the next several months. Project Syndicate
While tax evaders also store their wealth in non-monetary forms, such as land, art, and jewellery, cash remains a leading vehicle for ill-gotten gains, owing to its inherent liquidity
”
16 Business Daily Monday, November 28 2016
Closing Credit data
Surging homeowner loans in China raise alarms over debt While domestic household debt ratio is still lower than advanced countries, it has already exceeded that of emerging markets Brazil and India Benjamin Carlson
C
hinese household debt has risen at an “alarming” pace as property values have soared, analysts say, raising the risk that a real estate downturn could send shockwaves through the world’s second largest economy. Loose credit and changing habits have rapidly transformed the country’s famously loan-averse consumers into enthusiastic borrowers. Skyrocketing real estate prices in major Chinese cities in recent years have seen families’ wealth surge. But at the same time they have fuelled a historic boom in mortgage lending, as buyers race to get on the property ladder, or invest to profit from the phenomenon.
“The notion that Chinese people do not like to borrow is clearly outdated”
global macro event”, ANZ analysts said in a recent note. While China’s household debt ratio is still lower than advanced countries such as the US (nearly 80 per cent of GDP) and Japan (more than 60 per cent), it has already exceeded that of emerging markets Brazil and India, and if it keeps growing at its current pace will hit 70 per cent of GDP in a few years. The ruling Communist party has set a target of 6.5 to 7 per cent economic growth for 2017, and the country is on track to hit it thanks to a property frenzy in major cities and a flood of easy credit. But keeping loans flowing at such a pace creates such “substantial risks” that it could be a “self-defeating strategy”, Chen said.
Transferring risks
China’s total debt - including housing, financial and government sector debt - hit RMB168.48 trillion (US$25 trillion) at the end of last year, equivalent to 249 per cent of national GDP,
according to estimates by the Chinese Academy of Social Sciences, a top government think tank. China is seeking to restructure its economy to make the spending power of its nearly 1.4 billion people a key driver for growth, instead of massive government investment and cheap exports. But the transition is proving painful as growth rates sit at 25-year lows and key indicators continue to come in below par, weighing on the global outlook. Authorities “desperate” to keep GDP growth steady have turned to consumers as a source of finance because “many of the sources of capital through the banks and corporations are essentially used up”, Andrew Collier of Orient Capital Research told AFP. Individuals have turned to pawn shops, peer-to-peer networks and other informal lenders to borrow cash against assets such as cars, art or housing, he said, to spend it on consumption. Banks are also driving the phenomenon, Andrew Polk of Medley Global Advisors told AFP. “Banks have been pushing people to buy houses because they need to make loans,” he said, as corporate
borrowing has dried up. Combined with a rise in peer-topeer lending, with over 550 billion yuan borrowed in the third quarter of 2016, the risks of speculative investment have risen, S&P Global Ratings said. Some analysts argue that China is well positioned to manage these risks, and has plenty of room to take on more leverage as families still save twice as much as they borrow, with some RMB58 trillion in household deposits, according to Oxford Economics. “From an overall perspective, household debt remains in a safe range,” Li Feng, assistant director of the Survey and Research Center for China Household Finance in Chengdu, told AFP, adding that risks over the next three to five years were modest. But Collier said that credit-fuelled spending was a “risky game”, because when capital flows slow, property prices are likely to collapse, particularly in China’s smaller cities. That could lead to defaults among property developers, small banks, and even some townships. “That will be the beginning of a crisis,” he said. “How big this becomes is unclear but it’s going to be a difficult time for China.” AFP
Chen Long, Gavekal Dragonomics Now the debt owed by households in the world’s second largest economy has surged from 28 per cent of GDP to more than 40 per cent in the past five years. “The notion that Chinese people do not like to borrow is clearly outdated,” said Chen Long of Gavekal Dragonomics. The share of household loans to overall lending hit 67.5 per cent in the third quarter of 2016, more than twice the share of the year before. But this surge has raised fears that a sharp drop in property prices would cause many new loans to go bad, causing a domino effect on interest rates, exchange rates and commodity prices that “could turn out to be a
Film industry
Presidential scandal
Pharma
First Chinese dialect movie South Korea reverberates festival opens in Guangdong with ‘lock her up’
Mainland lowers use of antibacterial drugs
A festival of films in China’s less well-known languages and dialects opened on Saturday in a small village in south Guangdong Province. The festival in Zurong Village aims to awaken Chinese audiences’ awareness of the need to protect regional languages, many of which are in danger of dying out. The event features 278 movies covering in various languages, of which many are of ethnic minority groups. Historian Qian Wenzhong, co-founder of the festival, said that the films carry the roots of Chinese culture, and bring the diversity of Chinese dialects into the limelight. Nine of the entries received awards at the opening ceremony. The movies, in Guangdong, Fujian, Shaanxi, Shandong and Yunnan vernacular are mostly based on local stories. Sponsors of the festival have set up a fund of RMB5 million (US$720,000) for awards. Another RMB500,000 will support production of more dialect movies. Qin Xiaoyu, chairman of the judging panel, said China’s first sound film, Red Peony Singer, had four local drama episodes, sung in dialect, typical of early Chinese film. Xinhua
Antibacterial utilization has decreased in the last five years in China, according to a health report. The use of antibacterial drugs for inpatients decreased to 39.1 per cent in 2015 from 67.3 per cent in 2010, and that for outpatients dropped to 9.4 per cent from 19.4 per cent, said a report by the National Health and Family Planning Commission (NHFPC) Antibacterials also formed a smaller percentage of total pharmaceutical revenue from 2010 to 2015, and expenditure on antibacterials per capita declined, the report said. The report was made based on research in over 180 general hospitals and 11 special hospitals. By 2015, China had 12 training centres for microbial drug-resistant bacteria, with about 200 professionals having received training. Abuse of antibiotics will give rise to new strains of hardy bacteria that can live and even thrive despite use of drugs. “Super bacteria” will complicate treatment, bring higher death rates, and increase health expenditure, said Zhang Zongjiu, an official with the NHFPC. In August, the NHFPC issued a national action plan to tighten supervision over antibiotic production, sale and use. Xinhua
Hundreds of thousands of South Korean protesters marched to President Park Geun-hye’s office, beating drums and chanting slogans, even as lawmakers considered impeaching her over an influence-peddling scandal. About 260,000 people turned up for the mass rally on Saturday, police said, making it one of the biggest demonstrations in South Korea’s history. The organizers asserted that as many as 1.5 million took part in Seoul and another 400,000 elsewhere in the country. The city square echoed the sound of “step down, arrest her” as the protesters, at one point, put out the candles they were carrying only to light it up again en masse. “She promised a better life and now I know she meant it for herself,” said Seo Sung-kyung, a 42-year-old restaurant worker, as she walked with fellow agitators . “We’ve been fooled by her. We will not make the same mistake again.” The first female president of a North Asian nation, 64-year-old Park has apologized twice to the nation for allowing her friend Choi Soon-sil to interfere in government affairs. Prosecutors have said Park colluded in a scheme to pressure the nation’s top businesses to donate tens of millions of dollars to foundations controlled by Choi. Bloomberg News