Business Daily #1196 December 16, 2016

Packer to sell 13.4 pct Melco Crown stake to Ho Gaming Page 7

Friday, December 16 2016 Year V Nr. 1196 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Water supply

Seac Pai Van water plant to be completed mid-2017 Page 2

Real estate

Surging mortgage costs & punitive taxes choke HK home sales Page 9

Finance

www.macaubusinessdaily.com Monetary

South Korea central bank keeps interest rates unchanged Page 12

November forex reserves down nearly 2 pct Page 3

Co-operation

Macau Corporate Governance Institute inks deal with Portuguese institute Page 4

MSAR to monitor Japan casino law Gaming

Japan’s parliament passed casino legislation yesterday. Macau’s Secretary for Economy and Finance Lionel Leong Vai Tac said the government would pay attention to future gaming developments in the East Asian country in order to maintain the MSAR’s competitiveness in the international gaming market. Page 6

Higher housing subsidy for civil servants

Sniper Capital’s retail development in Senado Square has finally received approval from the MSAR government, according to an announcement from the company’s Macau Property Opportunities Fund. The land for the development in the city was originally acquired in October 2007. The project is now expected to be completed by 2019-end.

Retail Page 5

HK Hang Seng Index December 15, 2016

Mainland markets strained as bond yield jumps Monetary Some losses are attributable to the Federal Reserve’s three interest-rate hikes for next year, while surging money-market rates were sparked by gov’t deleveraging efforts to curb demand. Concerns about a faster pace of U.S. rate hikes are exacerbating losses. The selloff will most likely deepen next month. Page 8 22,059.40 -397.22 (-1.77%)

Worst Performers

Kunlun Energy Co Ltd

-0.17%

Want Want China Holdings

-0.61%

Link REIT

-4.00%

Hang Lung Properties Ltd

-3.11%

Belle International Holdings

-0.23%

Lenovo Group Ltd

-0.63%

China Life Insurance Co Ltd

-3.94%

China Unicom Hong Kong

-3.05%

Cathay Pacific Airways Ltd

-0.39%

CLP Holdings Ltd

-0.68%

CNOOC Ltd

-3.47%

Galaxy Entertainment Group

-3.04%

Hang Seng Bank Ltd

-0.41%

AIA Group Ltd

-0.79%

Bank of Communications

-3.41%

Industrial & Commercial

-2.97%

China Mobile Ltd

-0.49%

AAC Technologies Holdings

-0.80%

Li & Fung Ltd

-3.23%

China Construction Bank

-2.97%

14° 18° 18° 19° 20° 22° 20° 23° 19° 23° Today

Source: Bloomberg

Best Performers

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Sniper’s city central development given green light

Legislation The bill to increase the housing subsidy for public servants was approved by legislators yesterday. It means government workers will receive housing subsidies of MOP3,320 next year. Meanwhile, legislator José Coutinho urged the government to also review other “out-dated” subsidies for public servants. Page 3

2 Business Daily Friday, December 16 2016

Macau Tourism

Taiwan to ease visa entry for SARs residents travelling via cruises

Macau and Hong Kong residents travelling to Taiwan by cruise package tours will be able to apply for two entry visas in a three-month period, effective from January 1 of 2017, according to the country’s National Immigration Agency (NIA).

The deputy-director of the agency, Jeff C.C. Yang, said the measure aims to boost the country’s cruise tourism industry and increase arrivals from the two Special

Administrative Regions, Taipei Times reported.

The official said the number of arrivals to Taiwan via cruise ships has totaled 140,000 so far this year, of which 20,000, or 14.3 per cent, were from Hong Kong or Macau.

Current regulations only allow residents of the two SARs to apply for one entry visa every three months.

Meanwhile, the Taiwanese Ministry of the Interior expects the new measure for the residents of the two SARs will help Taiwan to develop its peripheral tourism industry, according to the news outlet. N.M.

Water supply

Seac Pai Van water plant construction to begin mid-next year Macao Water says it is awaiting a land grant from the government

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he city’s sole water distributor, Macao Water Supply Co. Ltd. expects the construction of the Seac Pai Van water treatment plant will commence in the middle of next year.

The company initially expected construction of the project would kick off within this year.

Speaking to reporters on the sidelines of a company event yesterday, Director of the company, Nacky Kuan Sio Peng, said the company is currently waiting for the land grant for the project, adding that the authorities have already approved the technical proposal of the company.

The company executive added that it is urgent to complete the new water treatment plant in Seac Pai Van given

the rising water consumption in the Island, Cotai and Hengqin.

She projected that water consumption in these areas would only keep rising in the next few years, with the

Heritage

Gov’t seeks help from state on Guia building height dispute T h e M SA R g o v e r n m e n t h a s sought consultation with the State Administration of Cultural Heritage on a high-rise construction project on Calçada da Guia, that is deemed by some to be in violation of height limits in the buffer zones surrounding the Guia Lighthouse, according to a press release yesterday from the Land, Public Works and Transport Bureau (DSSOPT).

The DSSOPT statement came after the city’s pan-democratic group, New Macau Association met with the Director of the UNESCO World Heritage Center in Paris regarding the over-height construction on Calçada da Guia, on Tuesday Macau time.

Having halted the construction of the project for eight years due to the height disputes, the government recently gave the green light to

the project to resume, despite a government dispatch in 2008 imposing height limits on the nearby area of the Guia Lighthouse.

‘Th e g o v e r n m e n t has b e e n cautiously handling this construction project that had been halted for years. Regarding different opinions in the society on the height of the project, the MSAR government has requested the State Administration of Cultural Heritage for instruction and assistance, in order to determine later arrangements for the project,’ DSSOPT wrote in yesterday’s release.

According to a Wednesday press release from the pan-democratic group, the global world heritage organization said it would follow the case and asked the MSAR government for a reply.

Pan-democratic group New Macau Association met with the representatives of the UNESCO World Heritage Center in Paris

new reclamation area, the Pac On Ferry Terminal, the Hong Kong-Zhuhai- Macau Bridge, and large-scale residential and entertainment facilities all coming into place.

The completion of the project is slated for 2019.

Macao Water proposed the twophase project in 2014 with an estimated budget of between MOP1 billion and MOP1.5 billion (US$12.5 to US$18.8 million), as Business Daily

reported previously.

After completing the first phase of the project, it is expected that the city’s daily water supply will increase to 490,000 cubic metres, up from the current 390,000 cubic metres.

According to Macao Water, commercial water consumption currently accounts for around 45 per cent of the city’s total water use. Meanwhile, household water consumption accounts for 43 per cent. A.L.

Telecom

MSAR ranked 28th worldwide for telecom services The city’s telecommunications services were ranked in 28th place worldwide, dropping down by two positions, according to the 2016 Information and Communication Technologies Development Index (IDI) conducted by the International Telecommunication Union (ITU) of the United Nations.

The index is part of the annual ITU Measuring the Information Society Report, which covers around 175 countries and regions, analyzing access to information and communication technologies, level of use and effectiveness of the jurisdictions.

In terms of access to information technology, the MSAR is ranked

35th on the list for this year, which is five places lower than last year. In regards to quality and effectiveness of information technology in the year, the city maintained its 59th position, while it is ranked 21st in terms of technology use, up by one position year-on-year.

In the same report last year, the MSAR topped the list in terms of affordable mobile-cellular services, for its average prices per a monthly standard package of 30 outgoing calls plus 100 SMS messages. The report pointed out then that the communications basket in the MSAR represented only 0.09 per cent of the region’s gross national income (GNI). N.M.

Business Daily Friday, December 16 2016 3

Macau Legislation

Housing subsidy increase for public servants approved The new passed bill suggests housing subsidy for civil workers will be increased to MOP3,320 next year Cecilia U cecilia.u@macaubusinessdaily.com

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he Legislative Assembly yesterday passed the final reading of the bill to increase the housing subsidy for public servants, with a total of 29 votes cast in favour.

Directly-elected legislator José Coutinho believes the approval of the bill will aid civil servants who are struggling with high rental payments, in particular the frontline public workers.

But he added that the government should consider further

Driver issue tops legislators’ agendas

Prior to the readings of bills during yesterday’s plenary session at the legislature, legislators Kou Hoi, Cheang Chi Keong and Jose Chui Sai Peng urged the government to consider the import of non-resident drivers in their joint statement.

The trio claimed the suggestion is due to the current shortage of delivery drivers among local SMEs. They believe that many drivers who have received training are primarily engaged in driving buses but not delivering services for SMEs. However, in her statement prior to the readings, unionist legislator Ella Lei Cheng I urged the government to continue with its policy of not importing nonresident drivers, remarking that

amendments to adjust the ratio of the amount received by different hierarchies, with those engaged at lower levels enjoying a higher ratio of subsidies.

Despite his comment about the

the remuneration and indemnity for local drivers should be improved in order to attract new workers.

On the other hand, legislator Au Kam San also criticised the employment conditions of local drivers, saying that many qualified bus drivers receive no response from bus companies who are hiring, even though recruitment advertisements from these companies can still be seen.

The pan-democratic legislator also denounced the abuse of special driving licenses by medium-sized firms, with most non-resident drivers driving casino shuttle buses. He urged the government to update the special driving license system, pointing out that the current regulations have not been changed for four years.

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Monetary

MSAR forex reserves down by 1.9 pct in November The city’s foreign exchange reserves amounted to MOP151.4 billion (US$18.95 billion) at the end of November, a decrease of 1.9 per cent compared to the revised total of MOP154.4 billion in the previous month, according to a preliminary estimate by the Monetary Authority of Macau (AMCM).

According to the official data, as at the end of November, Macau’s foreign exchange reserves were equivalent to 11 times the local currency in circulation, or 94.8 per cent of Pataca M2 at the end of October.

‘M2’ indicates the part of the money

supply that composes physical coins and currency notes, as well as readily liquid assets including on-demand bank deposits and money deposited in cheque accounts with all time-related deposits, savings deposits, and non-institutional money market funds.

Furthermore, the trade-weighted effective exchange rate index for the pataca was 108.54 in November, up by 1.63 points month-on-month and 1.4 points year-on-year, reflecting that the exchange rate of the pataca has advanced against the currencies of the city’s major trading partners. A.L.

new law, the legislator expressed that the government should offer more and other provisions for civil servants in the city.

“We should not do things like squeezing the toothpaste. The amount of many subsidies are already outdated […] why not make adjustments of all subsidies at the same time,” the legislator queried.

He also urged the government to provide a schedule for further adjustments of other civil servants’ subsidies and support.

In response to the legislator’s comments, the Secretary for Administration and Justice, Sonia Chan Hoi Fan reaffirmed that the review of benefits for civil servants has two stages, saying that provisions of overtime pay and the review of

shift systems will be focused on in the first stage.

The Secretary added that the second stage of review will commence next year and the authorities will collect opinions from civil servants and other related associations.

The new law lifts the housing subsidy for public servants from 30 salary points to 40, suggesting that expenses of civil servants on ordinarily family and fuel needs will be cut by half on average.

In addition, the government has also proposed to increase the salary point for civil workers from MOP81 to MOP83 (US$10.4) next year, meaning housing subsidies for public servants would be increased from the current MOP2,430 to MOP3,320 next year.

4 Business Daily Friday, December 16 2016

Macau Opinion

Co-operation

Hand in hand Pedro Cortés*

Long live the MSAR Macau has been through a true revolution since 1999. In the middle of the Asian crisis, the handover marked the end of the once Portuguese empire. After a period of patriotic aspirations, 2002 marked the end of the old Macau and the beginning of the Ou Mun dream. Casinos were built. Houses achieved Tokyo prices. Infrastructure started to be built to cope with the invasion of tourists. SARS calmed the pace of the development for a while. After that we had the 2008 financial crisis, but the gaming industry continued to boom. People got rich. Very rich. The middle class emerged with better salaries and a better life, whatever that is. Once entrepreneurs, the new politicians gained experience and tried to make our city better. The mainland helped like one of those parents who are always looking at their son’s behavior.

Do we now have a better city?

Yes, without any doubt, but unfortunately not the city that it should have been, especially due to the lack of vision and experience of some.

In my humble view as a layman, we may now be in the beginning of the second phase of development where things must be more structured. There must be a vision for what we want for the future and where we want to be in 20 years.

Politicians are always criticized for what they do. They shall also be analyzed for what they have not done.

In the meantime, in different areas, a critical mass has started to evolve from within Macau society. In this learning process, we shall care more about our population and less about our pockets or the pockets of friends and family.

I know it is difficult, as Macau is a tiny place, and friendship and family links are almost impossible to ignore. It is very common that people ask for favours from friends, for instance to hire a family member for a certain job.

The villager feeling is very deep in Macau, which may constitute an obstacle to becoming a cosmopolitan city. With gaming and tourism as the main industries, it is difficult to diversify the economy and the brains of our people. Diversifying and widening should also be a target for future generations.

Hopefully, we will have better days in our Special Administrative Region. At this commemorative moment, my wish is: Long live the MSAR! *lawyer and frequent contributor to this newspaper.

Newly-founded Macau Corporate Governance Institute signs professional training and information exchange agreement with its corresponding body in Portugal

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he Macau Corporate Governance Institute (MCGI) has signed an agreement with the Corporate Governance Institute of Portugal, in order to improve professional training of executives moving between the two regions, and increase corporate governance information exchange.

“With the agreement, we intend a permanent exchange of information on legislative developments,

proposals, studies, communications, recommendations or other types of information related to corporate governance,” said lawyer Afonso Menezes, representing the chairman of the institute, Manuela António.

“It is also an attempt by the institute to enhance co-operation with Portuguese-speaking countries in corporate governance matters,” the local lawyer added.

According to Mr. Menezes, the MCGI

already has meetings scheduled with its corresponding body in Portugal at the end of this month, in order to “tune” the inter-regional cooperation agreement.

The institute is also planning to sign co-operation agreements in 2017 with the Asian Corporate Governance Association (ACGA) and the Brazilian Institute of Corporate Governance (IBGC).

Founded in October, the MCGI currently includes local and international corporation members, such as Companhia de Telecomunicações de Macau (CTM), CESL Asia, Banco Nacional Ultramarino (BNU), Golden Crown Development Ltd and MGM China Holdings Ltd. The non-profit organisation said recently that it is planning to expand its current membership from 5 to 20 businesses in the next few months. N.M.

Technology

Amazon video streaming to be available in Macau American electronic commerce and cloud computing company Amazon will extend its video streaming service Prime Video to Macau, according to Yahoo News yesterday.

The extended video streaming service will also be available in more than 200 countries and territories across the world, including Hong Kong, but Mainland China is excluded from the list.

Up until now, the service has only been available in the United States, the United Kingdom, Germany, Austria and Japan.

Amazon purchases content rights from global operators and then produces its own content to increase the viewers’ choices for watching shows on television and on their mobile devices.

The service in the new markets will be offered at an introductory price

of US$2.99 (MOP24) per month for the first six months, according to the news outlet.

Amazon did disclose its total number of Prime Video subscribers, but

research company CIRP estimated the number reached 65 million in September, an increase of 38 per cent year-on-year, as cited by the news outlet. A.L.

Censorship

Cracking down on online videos

video content that violates Mainland China’s laws and regulations and report it to the country’s authorities.

In order to broadcast on Mainland Chinese video hosting services, online streaming shows from the MSAR will be required to reveal their identity and to have a government permit

Tightening noose

Nelson Moura* nelson.moura@macaubusinessdaily.com

Online video platforms in Mainland China will require a permit from the Chinese Ministry of Culture before being able to offer a channel to online streaming shows from the MSAR, Hong Kong, Taiwan and overseas countries.

The requirement is part of new regulations imposed by the country’s Ministry of Culture that will also make it compulsory for presenters of streamed online shows to register

with their real names starting from next year.

The video hosting service providers will be mandated to identify video presenters via interviews or video calls, and then apply for licenses to local authorities. The providers will also have to carry out ‘real-time supervision of the video’ performances and keep records of ‘all shows’.

A ‘black list’ of online performers will also be created, while video platforms will also be mandated to create an ‘emergency’ system to detect and preserve relevant data from

The announcement comes two days after the country’s State Administration of Press, Publication, R a d i o , Fi l m a n d T e l ev i s i o n (SAPPRFT) stated it would ‘crack down’ on activities that use live streaming platforms to broadcast content deemed ‘pornographic and unscrupulous’ or that infringe the law.

Since the beginning of the year, some 100 suspected violations having been caught by the state department.

According to information cited from the 2016 China Online Streaming Development Study Report, in the first six months of this year, the number of streaming service users reached 514 million China, accounting for 72.4 per cent of the country’s Internet population. with Xinhua

Business Daily Friday, December 16 2016 5

Macau Cinema

Macau could have role in next Batman movie

The MSAR could play a role in the next Batman movie, according to a source familiar with the matter.

The producer of the Batman films including The Dark Night and the most recently launched movie, Batman vs. Superman was in the city, allegedly scouting out

locations for the new film, which is meant to go into production soon.

In the wake of the mixed reactions to the most recent Batman film starring Ben Affleck, opinions are divided over the casting for the character, who will make his next appearance in the upcoming Justice League movie, set to debut in November next year.

Development

Patience pays off Sniper Capital’s Senado Square retail development finally gets the green light Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com

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retail development property whose land was originally acquired in October of 2007, has finally received approval for its architectural concept, and will proceed to the submission of the detailed plans to the Land, Public Works and Transport Bureau (DSSOPT), although being ‘subject to a number of minor comments’, according to an announcement by the Macau Property Opportunities Fund.

T h e f u n d i s a c l o s e d- e n d investment fund listed on the London

New loan secured

The group also announced that it has secured a new loan for the project from Hang Seng Bank Limited to the amount of HK$118 million, pushing

Stock Exchange and managed by property investment manager Sniper Capital Limited. The land in question is in the heart of Macau’s Senado Square, located behind the Macau Post Office.

The project was originally set out to be one of the fund’s first, having been acquired a year after the fund was set up, however, as revealed to Business Daily earlier this year by sources linked to the project, it is ‘sensitive’ given that it has ‘taken time to work out the design parameters’.

‘Extensive work with the Cultural Heritage Department’ was required ‘to ensure […] the best possible

the group’s total cash balance, post-full draw of the loan, to US$20 million, while increasing it’s loan-to-value ratio to 42.3 per cent, from its current 40 per cent.

Corporate

CEM organizes contractor training to promote occupational safety

The “Safety Training for Contractors” of CEM took place over the past two days at The Plaza Restaurant, attracting hundreds of employees from CEM’s contractors.

Simon Young, CEM Transmission and Distribution Department Cable & Distribution Equipment Maintenance Manager said in his welcoming speech, “CEM is concerned about occupational safety and health, and always strives to

enhance awareness of work safety in avoiding occupational injuries. We believe that the ultimate goal of ‘zero accidents’ is achievable, and crucially depends on the corresponding workplace practice and awareness of safety”. CEM introduced the safety training course for contractors for the first time in 2014. EnviroSafe Professional Consultant Danny Sham and CEM Safety Health, Environment and Quality Office Engineer Kou Sio Wai were the main speakers at the training course.

design’, notes the source. However, although expectations at the time were for a construction permit to be received and works to begin ‘by the end of this year’, now the project’s estimated completion date is set for the end of 2019 and the detailed plan is ‘expected to be made in the first quarter of 2017’, notes the filing and the group’s website.

‘This is the final stage of the planning process prior to the commencement of demolition and construction’ of the space, which is currently occupied by another building, reiterates the filing.

Money maker

The new development, named ‘Senado Square’, was designed by architectural consultant Arquitectonica and will be a ‘contemporary and sustainable design concept’, for a space that will provide 67,800 square feet of space divided into retail and food and beverage space.

The group notes that the property ‘is expected to attract a diversified mix

of high-profile international retailers as well as food and beverage brands’.

The profile of the building, based on images on the group’s website, appears similar to that of the sixstorey ‘Yellow House’ building, located next to the Ruins of St. Paul’s, formerly partially occupied by retailer Forever Bright. The retailer, which rented about 20,000 square feet from Future Bright Holdings, was paying HK$18 million in rent yearly before its rental contract was cancelled.

Macau Property Opportunities Fund estimates its total portfolio’s valuation, exclusively located in the MSAR, to be worth US$393.7 million (MOP45.5 million), as of June 30, comprising four key properties divided between ‘niche and luxury residential projects’ and the Senado Square project. So far the group has developed The Waterside and The Fountainside, and is currently in the sales phase of its Estrada da Penha private home residence, occupying 12,030 square feet.

Business Daily contacted Sniper Ca p i ta l r ega r di n g th e r ec e n t developments but had yet to receive a response by the time this went to print.

6 Business Daily Friday, December 16 2016

Macau Gaming Japan legalized casinos early yesterday morning

Lionel Leong: to pay close attention to Japan gaming development The Secretary said the government would make sure the city maintains its advantages in the global market Kam Leong* kamleong@macaubusinessdaily.com

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he Secretary for Economy and Finance, Lionel Leong Vai Tac said yesterday that the MSAR government would pay close attention to the future details of Japan’s gaming casino policies in order to maintain the city’s competitiveness in the international market.

Japan’s parliament passed a bill legalizing casinos early yesterday, paving the way for billions of dollars of potential investment after years of political wrangling.

“We will pay close attention to the later details [of the legislation],” said Secretary Leong yesterday morning.

“Such as the taxation system and the timetable [of the legislation] so that we can study and determine the future development of Macau, as well as our situation in the international market - how to keep our advantages in the international competition when gaming concessions expire in the future,” he claimed.

The revised Japanese casino bill was passed in both houses, Kyodo News reported, after hours of delaying tactics by the opposition. Details of the so-called integrated resorts must be laid out in a separate implementation bill before any casinos can be built - meaning none are likely to open their doors in time for the 2020 Tokyo Olympics.

International gaming companies

have been mulling investments in Japan amid a boom in tourism, particularly from China. Wynn Resorts Ltd, MGM Resorts International and Las Vegas Sands Corp. are among the operators that have expressed interest.

The opening of two integrated resorts in major population centres could bring in US$10 billion in revenue, with potential for US$30 billion if they spread across the country, according to a report by CLSA this month.

“This is a landmark occasion and should be a shot in the arm as it relates to investor sentiment in all gaming names that could be players in Japan,” Grant Govertsen, an analyst at Union Gaming, said in a research note.

Tackling addiction

Some members of Prime Minister

Shinzo Abe’s junior coalition partner Komeito, which is backed by a Buddhist group, have been reluctant to accept legalization because of concerns over gambling addiction and money laundering. A duty to tackle addiction is included in the revised bill, as is a requirement to review legalisation within five years.

“We have to pay close attention to the implementation bill,” said Satoshi Sakamoto, who has been tapped by Konami Holdings Corp. to head a new company in Japan to invest in casinos after the legislation passes. “If we are going to have casinos in Japan, we will establish the best regulations in the world, along with the personnel and systems to enforce them. It’s important that we create facilities where guests have a safe

and pleasant experience.”

Resort in the Caribbean island nation, which is slated to open in phases starting from April 1 of 2017.

According to Mr. Davis, the Baha Mar Resort project is part of CTFE’s international “strategic growth plan”, which also includes the US$10 billion-plus Greenwich Village project in London and the US$2.3 billion Queen’s Wharf project in Australia.

- and local gaming tycoon Stanley Ho Hung Sun’s Sociedade de Turismo e Diversões de Macau (STDM) made the group an ‘unsuitable’ investor in the project.

The former company executive had cited a 2009 report by the US State of New Jersey gaming enforcement division saying that a proposed Macau casino joint venture between MGM Mirage and Mr. Ho’s daughter Pansy was related to criminal connections.

However, while the report raised concerns of the possibility that Macau VIP rooms could be vulnerable to criminal associations and considered Mr. Ho an ‘unsuitable’ investor, it didn’t link the Cheng family with the criminal gangs.

Public against casinos

Japan already allows gambling on horse, boat and bicycle racing, while the pinball-like game of pachinko has spawned its own addicts. A survey published by public broadcaster NHK this week found only 12 per cent of respondents were in favour of lifting the casino ban, with 44 per cent opposed and the remainder unsure.

The bill was previously abandoned after being submitted to parliament in 2013, and debate was delayed after a second submission last year.

It was rushed through this session after discussion was re-opened on November 30.

Komeito leader Natsuo Yamaguchi was quoted by Kyodo News as saying earlier this month that many people felt the discussion period had been too short. With a majority in both houses, Abe’s LDP no longer needs Komeito to help it pass legislation, although it does rely on its ally for electoral support.

Yokohama and Osaka have been touted as potential venues for the first casino resorts, while Tokyo Governor Yuriko Koike has not come out clearly in favour of a venue in the capital.

U.S. casino operators eyeing opportunities in Japan issued statements praising the vote. MGM said it is “well-prepared” to pursue a project there, with a full-time development team in Tokyo already. The company has also been sponsoring Kabuki events locally.

“To us, the opportunity is thoroughly Japanese and thoroughly delicious,” Wynn Resorts Chief Executive Officer Steve Wynn said in a statement. *with Bloomberg

Bahamas

‘Trash talk’ President of the Bahamian local branch of Chow Tai Fook Enterprises considers the allegations of a connection between the group and Chinese criminal gangs “baseless, unfounded and untrue” Nelson Moura nelson.moura@macaubusinessdaily.com

The accusations of links between Chow Tai Fook Enterprises (CTFE) and Chinese criminal gangs are “baseless, unfounded and untrue”, said the President of the group’s Bahamas subsidiary, Graeme Davis,

newspaper Tribune 242 reported.

According to Mr. Davis, the group owns US$60 billion (MOP480 billion) in total assets internationally and operates with the “highest integrity”.

Earlier this week, CTFE officially signed a purchase agreement that will allow the company to own and operate the US$3.5 billion Baha Mar

Business ties

Mr. Davis’ statements were in response to allegations made by the resort’s former director, Dionisio D’Aguilar, who has claimed that the ties between the family of late Hong Kong billionaire Cheng Yu Tung - founder of Chow Tai Fook

Business Daily Friday, December 16 2016 7

Gaming

Share sale

Packer reins in casino empire plans after China crackdown Crown will sell a 13.4 per cent stake of Melco Crown to Melco International Development Ltd, which will increase Melco International’s stake in Melco Crown after the sale to 51 per cent Angus Whitley and Daniela Wei

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asino billionaire James Packer scrapped plans for a gambling empire spanning the world’s largest gaming markets after a clampdown by authorities in China and unpredictable returns in Macau.

Retreating to Australia, Packer’s Crown Resorts Ltd. on Thursday abandoned a proposed spinoff of international assets and instead halved its stake in Macau casino operator Melco Crown Entertainment Ltd. Melbourne-based Crown is also considering selling an undeveloped plot in Las Vegas and will now focus on its casinos in Australia, led by a proposed AU$2 billion (US$1.5 billion) high-stakes, luxury resort in Sydney.

“This is all about risk management,” said Theo Maas, who helps oversee about AU$3 billion in assets including Crown shares at Sydney-based Arnhem Investment Management.

“You’re now looking at a much more predictable business with a much stronger balance sheet.’’

Even so, the new focus on Australia is not without danger. More than a third of Crown’s revenue at its Melbourne and Perth resorts comes from international visitors, predominantly Mainland Chinese, and they will be the mainstay of the planned Sydney resort. The roundup of 18 Crown staff in China in October for alleged gambling crimes has raised questions about the company’s ability to draw in Chinese high-rollers.

VIP Returns

Amid the detentions in China, turnover from Crown’s program for high-wagering, top-priority customers at its Australian resorts slumped 45 per cent from a year earlier in the most recent 23-week period, Crown said Thursday.

The clampdown, which captured Crown’s head of international high-roller operations Jason O’Connor, sparked concern of a renewed crackdown in China on overseas casino operators trying to woo citizens overseas to gamble.

The overseas spinoff was designed to isolate Crown’s Australian casino business from its Melco Crown investment, which was infected by a two-year gambling downturn in Macau. The merits of creating such a separate business were undermined

by a nascent gaming recovery in Macau.

Melco Crown ambitions

Rather than make its Melco Crown holding the centerpiece of a newly listed business, Crown will sell a 13.4 per cent stake to Melco International Development Ltd. to raise AU$1.6 billion. Packer will step down as deputy chairman, giving full control of Melco Crown to Lawrence Ho, Melco International’s chairman and chief executive officer.

The sales comes as Ho, the billionaire son of gaming tycoon Stanley Ho, has ambitious plans to enlarge the company’s international footprint, with casinos and hotels in the Asia region and beyond. Melco International’s stake in Melco Crown after the sale will rise to 51 per cent from 38 per cent, according to a company statement. The Macau casino operator will also cease to have the right to use “Crown” in the corporate name six months after the sale closes, it said.

The transaction is positive and shows “strong commitment” from Ho, wrote Vitaly Umansky, an analyst at Sanford C. Bernstein & Co., in a note Thursday.

“The read through should not be that Crown is bailing on Macau,” he wrote.

“Instead, the sell-down is related to Crown’s own internal restructuring and change in strategy.”

The sale needs regulatory approval from Macau authorities and the deal is expected to be completed in the first quarter of 2017. Earlier this year, Crown sold an US$800 million stake to Melco Crown, reducing its holdings in the company to 27 per cent.

Falling shares

Melco Crown listed in 2006 in New York as a joint venture between Ho and Packer and raised more than originally planned at US$19 per share.

The stock price peaked in 2014, rising to US$45.16 that March and has since tumbled to below its debut price.

Melco Crown shares closed 0.1 per cent lower in New York Wednesday to US$17.31.

Crown shares were halted for Thursday’s statement. The shares, which have fallen 9 per cent this year, haven’t posted a positive year since 2013. At the same time, shares in Sydney-based rival Star Entertainment Group Ltd. which runs the city’s only licensed casino, are on course for a third straight year of gains.

Crown’s shareholding in Melco

Crown will fall to 14 per cent after the transaction. About half the proceeds will be used to reduce Crown’s net debt, with the rest returned to shareholders, Crown said. It is also exploring selling its remaining stake.

Redeploy capital

Cutting debt is “clearly positive for the group,” said John Likos, Morningstar Inc.’s Sydney-based head of credit research for Australia.

Crown can now “redeploy capital to fund high-quality growth projects,” Chairman Robert Rankin said

in the statement. “Crown Resorts has a strong portfolio of future projects, anchored by Crown Sydney, and including our online and wagering platforms.”

Crown continues to prepare for a proposed initial public offering of 49 per cent of a property trust that would hold some of its Australian hotels.

The entity Crown planned to spin off was also set to house Crown’s development site in Las Vegas, a 20 per cent stake in Japanese restaurant Nobu and half of U.K. casino operator Aspers Group. Bloomberg

8 Business Daily Friday, December 16 2016

Greater China

Market

China’s markets come under strain as bond yield jumps by record Concern about a faster pace of U.S. rate hikes is exacerbating the losses

I

t’s turning out to be a really bad week for Chinese financial markets.

The benchmark stock index has tumbled 3.6 percent, poised for its worst week since April. The yuan depreciated to its lowest level against the dollar since June 2008, while government bonds plunged, with the 10-year yield surging by a record 22 basis points on Thursday.

While some of the losses can be attributed to the Federal Reserve’s prediction of three interest-rate hikes next year, China has its own sources of stress. Surging money-market rates sparked by government deleveraging efforts are curbing demand for everything from equities to debt at the same time as capital outflows accelerate. The selloff will probably deepen over the next month, CCB International Securities Ltd. says.

“There are a few problems occurring together,” said James

Yip, a Hong Kong-based money manager at Shenwan Hongyuan Asset Management (Asia) Ltd. “The People’s Bank of China is tightening marginally, the market’s leverage has been very severe, inflation data is pointing to a reflationary story, the U.S. is raising rates and the currency is depreciating. Everything put together has driven sentiment to this stage.”

The Shanghai Composite Index retreated 0.7 percent to a six-week low at the close, while a gauge of mainland equities traded in Hong Kong slumped 2.3 percent in Asia’s biggest loss. The yuan weakened 0.4 percent and the 10-year sovereign yield climbed to 3.45 percent.

Forced Correction

Policy makers have shifted their focus in the second half to reducing financial risks as economic growth stabilized, with PBOC Deputy Governor Yi Gang saying in early September the nation’s short-term goal is to lower leverage ratio growth. By steering money-market rates higher, the PBOC has forced a correction in the highly leveraged bond market, while

home prices are showing signs of cooling amid property curbs. Equities also fell this week because of a regulatory crackdown to insurers’ stock investments.

Concern about a faster pace of U.S. rate hikes is exacerbating the losses.

Fed officials moved their 2017 rate path projections to three increases from two after the monetary authority raised its benchmark rate by a quarter percentage point on Wednesday.

“Investors are adjusting their expectation on the pace of the U.S. rate hike and they are very cautious,” said Peter So, Hong Kong-based cohead of research at CCB International Securities. “There will be an inevitable selloff in bonds, stocks and the yuan in China in the upcoming month, as investors adjust their portfolio based on the new rate expectation and interbank liquidity remains tight at year-end.”

Staying elevated

Still, So said he remains positive on Chinese equities and views the slump as a buying opportunity.

Bond yields are likely to remain elevated for the foreseeable future,

according to Andy Ji, a Singaporebas e d c u r r e n c y st rat egi st at Commonwealth Bank of Australia.

Speculation price gains will accelerate is reducing demand for debt and adding to expectations the PBOC will tighten monetary conditions. The producer-price index jumped 3.3 percent in November from a year earlier, exceeding all 47 estimates in a Bloomberg survey, while consumer prices rose on higher food costs.

“Bond yields are running ahead in the market rout due to the Fed hike expectation, but the recent lift comes more from domestic inflation and the oil price outlook,” Ji said. “It’s hard to see yields come off significantly even in the mid term.”

The losses are a reminder of the turmoil that dogged China’s financial markets at the start of the year, which gave way to relative calm throughout much of 2016 even as the yuan tracked lower. Citic Securities Co., the nation’s largest brokerage, said last week it was more worried about the money market now than during the 2013 cash crunch, given accelerating fund outflows. Bloomberg News

Law

Foreign NGOs on back foot as new Chinese law looms Christian Shepherd

Foreign organisations including social and environmental advocacy groups fear they could inadvertently break broadly defined new rules that take effect in China next month, with some even shutting up shop to avoid such pitfalls.

Chinese President Xi Jinping’s administration has made sweeping changes to Chinese law in the name of boosting national security, including a controversial cybersecurity law passed last month and another targeting foreign non-governmental organisations (NGO), slated for Jan. 1.

China says the NGO law, which grants broad powers to police to question NGO workers, monitor their finances and regulate their work, is necessary to regulate an unruly sector and that only those operating illegally have anything to fear.

Western governments say the law, which was passed in April, treats groups as criminals and would severely limit their ability to operate in China.

Foreign NGO employees in China have told Reuters that many groups still do not know whether they will be able to register with the authorities in time as key information about the process has not been published.

“There are many NGOs that wish to comply but feel unable to comply due to a lack of information,” says

Lester Ross, a partner at WilmerHale Lawfirm in Beijing who advises such groups.

Faced with the prospect of inadvertently operating illegally, a number of groups are temporarily or permanently suspending their China operations, according to people in direct contact with the NGOs.

To protect?

Chinese Foreign Ministry spokesman Geng Shuang said on Thursday that the law was being introduced to “protect the legal rights of foreign NGOs working in China” and directed groups to consult the most recently

released government guidelines.

The Ministry of Public Security did not respond to requests for comment on Thursday.

The key concern is the failure to yet publish a list of ‘supervisory units’ government bodies that will act as a go-between with the Ministry of Public Security, which has ultimate responsibility for registration and management.

The list’s publication, which NGOs have been told will happen soon, is not the only hurdle, according to Ross.

“There are also constraints in the system over how many Supervisory

units will be available and whether they will be able to manage all those companies who wish to register,” he said.

Behind procedural concerns about the law hangs an unanswered question about the government’s intentions, according to Anthony Spires, a professor at the Chinese University of Hong Kong, who studies NGOs in China.

“Are they trying to chase people out or not?” he said. “This is clearly the aim for rights groups and activists that the government does not like, but there may well be some unintended casualties as well.”

In November the government twice made clarification statements, saying there would be no grace period for NGOs to meet the new law, later adding that groups must give details of how they are funded.

There remains a spectrum of concern among NGOs, from those who act in areas considered relatively benign by the authorities, such as education and health, to those who work in sensitive areas, including legal reform and rights issues.

The founder of an education NGO, who asked not to be named, said the government told them they need not worry about the process.

“If you are working in areas that the government doesn’t like, then that’s exactly why the government is putting this law in place. We are lucky, as we don’t mind being watched we have nothing to hide. But a lot of people don’t feel that way,” the founder said. Reuters

Business Daily Friday, December 16 2016 9

Greater China Real estate

In Brief

Hong Kong property shares turn toxic as mortgage costs spike Richard Frost

Hong Kong’s property developers are fast falling out of favour among investors as surging mortgage costs and punitive taxes threaten to choke home sales.

A gauge of real estate companies traded on the city’s stock market has tumbled 13 per cent this quarter, with developers accounting for half of the biggest losers on the benchmark Hang Seng Index, which has fallen 5.3 per cent. During the three-month period, a key interbank rate - known as Hibor - has doubled to an eightyear high, while the government also slapped a 15 per cent levy on residential purchases.

With a majority of new mortgages in Hong Kong tied to Hibor, the city’s homeowners face an unfamiliar prospect -- rising loan repayment costs. The Hong Kong Monetary Authority increased its base rate

for the second time in a decade on Thursday after the Federal Reserve lifted borrowing costs, while Fed officials moved their 2017 rate path projections to three hikes from two.

The International Monetary Fund warned this month that a faster pace of interest-rate increases in the U.S. could threaten Hong Kong’s economy due to stretched property valuations and high household debt with floating-rate mortgages.

The Hang Seng Properties Index plunged 2.6 per cent to close at its lowest level in almost six months, with Hang Lung Properties Ltd. and New World Development Co. among the biggest losers. Link Real Estate Investment Trust slumped for a fourth day as U.S. Treasuries and China’s sovereign debt tumbled. Higher bond yields make dividend returns of REITs less attractive.

Hong Kong effectively imports

U.S. monetary policy thanks to a currency peg to the greenback. That meant the city enjoyed ultra-low borrowing costs since the global financial crisis, helping to fuel a 155 per cent surge in home prices from the start of 2009.

Foreigner levy

An effective tax of 30 per cent on a non-resident’s home purchases also makes the city’s private real estate less attractive to mainland Chinese investors seeking dollar assets as the yuan weakens.

There is little sign of panic in the property market just yet. The Centaline gauge of secondary home prices rose 0.3 per cent in the week through Dec. 4 to its highest level in 14 months. The one-month Hibor, at 0.66 per cent, is still low relative to pre-2008 levels.

Still, where property stocks go, residential prices usually follow, as the chart below shows. A rally by the Hang Seng gauge of real estate shares earlier this year foreshadowed a recovery in the physical market. Bloomberg

Pollution

Beijing issues red alert for severely high air pollution Beijing city government has issued a red alert for severely high levels of air pollution in the city for three days from Dec. 17 to 21, according to a post on the Beijing environmental protection bureau’s official Weibo account on Thursday.

The incoming smog was due to an accumulation of air pollution in Beijing and surrounding areas, including Tianjin city and Hebei, Shandong and Hunan provinces, the post said, citing forecasts from the China Environmental Monitoring Center.

A colour-graded warning system of alerts was introduced in China’s capital city last year as part of the government vow to crackdown on environmental degradation following decades of unbridled economic growth.

Dismissal

Former Tianjin mayor expelled from top legislature

Expansion

Alibaba has no excuses for failing Southeast Asian test Tim Culpan

When Alibaba Group Holding Ltd. bought a controlling stake in Lazada Group SA eight months ago, it was yet another sign that Jack Ma wants to pursue foreign expansion.

In shelling out US$1 billion for most of the Southeast Asian e-commerce company, the Alibaba chairman and his team were buying their way into a market they’d pretty much ignored.

But their old nemesis, Amazon.com Inc., isn’t likely to be far behind, Bloomberg News’s Yoolim Lee reports.

Lazada is expanding its delivery network, looking for investments to bolster its supply chain and planning to start online grocery sales in more cities in anticipation of Amazon’s arrival next year.

“It’s a jungle out there,” Lazada chief Maximilian Bittner told Lee, in what may have been an accidental pun.

A jungle is exactly what Alibaba, and its shareholders, need to test Ma’s ability to survive in the world outside those cozy Chinese walls.

I’ve thrown plenty of shade at the notion that Ma’s empire will one day meet its stated target of getting half of sales from overseas. Sure, Alibaba and Alipay have made a play for the India market through investments in Snapdeal and Paytm, but they’re minority stakes and don’t at all amount to putting a ring on it.

Southeast Asia, through Lazada, might be different. Alibaba’s getting in relatively early, and has already said “I do” with that billion-karat bling.

But with Amazon breathing down its neck, Ma’s resolve needs to be tested. Asean offers Alibaba a fresh

market, a level playing field and 620 million potential customers to do just that. What it doesn’t offer is any room for excuses. Alibaba has moved first, bought early and staked its claim well before any signs of Amazon’s interest in the region.

Asean potential customers: 620m+ Alibaba made it big because it was protected on its home turf. Now, with Asean, we’ll learn whether the great wall of China served merely to keep foreign marauders out, or also trapped locals in. Bloomberg Gadfly

Huang Xingguo, former acting Party chief and mayor of Tianjin Municipality, has been dismissed from his post as deputy to the National People’s Congress (NPC), the local legislature said.

The resolution on Huang’s dismissal was passed by the Standing Committee of the Tianjin Municipal People’s Congress at a meeting held on Thursday. The decision will be submitted to the NPC Standing Committee for filing and announcement.

Huang was removed from his positions as acting Party chief and mayor of Tianjin in September, and is under investigation over allegations of “serious disciplinary violations.”

Automotive

China to extend tax cut for small-engine vehicles to 2017 - Finance Ministry

Jack Ma, founder of Alibaba

China’s Ministry of Finance said on Thursday it will extend a tax cut on small-engine vehicles to 2017, keeping the purchase tax below its normal 10 percent. The purchase tax rate for vehicles with 1.6-litre engines or below was reduced to 5 percent in October 2015 as a way to stimulate demand for cars and kept at the same rate throughout this year. The Ministry of Finance said in a statement posted on its official website that the rate will go up to 7.5 percent from the beginning of next year but will still be below the normal rate of 10 percent. The ministry said it plans to levy the normal 10 percent tax on small-engine cars starting on Jan 1, 2018. Earlier this week an official at the China Association of Automobile Manufacturers (CAAM) told reporters that China’s overall automobile sales could increase 13 percent this year from 2015.

10 Business Daily Friday, December 16 2016

Greater China

Workforce

China predicts 958 mln working-age population in 2030

T

he number of people in China of working age is expected to have shrunk slightly to 958 million by 2030, the Family Planning Association (FPA) announced Wednesday.

Wang Pei’an, vice president of the FPA, said the country had 1.003 billion people of working age in 2015, which will gradually decline to 958 million

in 2030 and 827 million in 2050.

“Though China still has a healthy labour force at this moment, the decreasing number of women of childbearing age means we should not wait any longer to fully implement the two-child policy,” Wang said.

There were 826 million people of working age in Western developed countries in 2015, thus, while boasting a huge population, China’s overall

labour productivity is just one eighth that of the developed countries, said Wang.

T h e F PA w i l l i m p r o v e i t s family planning services, such as reproductive health consultation, Wang said.

Wang added that the FPA will also pay special attention to protecting the rights and interests of the nation’s migrant population, and will provide

health services to “left-behind” women and children in rural areas.

Since Jan. 1, all married couples have been allowed to have two children.

This follows an earlier easing of the policy in 2013 allowing couples to have a second child if either parent was an only child.

The latest change ended the “one child” policy that had been in place since the late 1970s. Xinhua

Infrastructure

Chongqing’s China-Europe trains on fast track Every day, trains full of laptops, electronics and auto parts depart the remote village of Tuanjiecun for Europe.

For five years, trains have delivered laptops for Hewlett-Packard, car window regulators for Brose and semi-conductors for AT&S, from Chongqing Municipality, southwest China, to Europe.

Since the trains started in March 2011, there has been a business boom in the mountain city.

According to Chongqing Logistics City, Chongqing imported more than 2,000 cars on the international rail network in the past two years.

Six years ago the city was struggling to attract businesses, which mostly centred on China’s coastal areas where convenient shipping and air transport converge.

“Before 2011 we had to wait for business to come because we did not have much of a transport advantage, even though labour was cheap,” said Guo Jian, director at Chongqing Municipal Commission of Economy and Information Technology. “But with the launch of the trains, we got more deals because train transport costs are only about one-fifth of air, and one-third faster than sea.”

As prices along the eastern seaboard rose, industries began to move inland. In 2010 Hewlett-Packard established a computer production line in Chongqing, seeking government help to launch a rail network to transport products overseas, said

Yang Liqiong, director of the Logistics Coordination Office under the municipal government.

“That was when the China-Europe rail network was launched,” she said.

Laying the track

Following the footsteps of Hewlett-Packard, other brands such as Acer, Toshiba and Apple’s major supplier Foxconn set up bases in Chongqing to take advantage of the rail line. “The China-Europe rail network saves at least 30 days compared with shipping by sea,” said Chen Wei, vice president of Chongqing’s automaker Lifan Group, Russia’s top Chinese

auto brand in sales for five years. “It saves us about 5 million U.S. dollars each year.” The railway has been great for business in Chongqing, with laptop, mobile phone and automobile sales soaring.

According to the local government, 41 of 42 major categories of laptop components can now be made in Chongqing, and tens of millions of laptops are transported abroad through the railway and Yangtze River every year. Chongqing’s automobile sales exceeded 3 million last year, making it the second biggest auto-making base in the world after Detroit in the United States.

“The auto industry in Chongqing has really benefited from the China-Europe railway,” said Yang Liqiong, the Logistics Coordination Office director. “Each year, carmakers need to import a large number of auto parts from around the world, and the network provides a highly efficient and safe way.” In June a coffee trade centre opened in the city. Within two weeks, the centre inked deals with more than 200 domestic and foreign companies, including Louis Dreyfus of France. “Chongqing is not a coffee production base and has very limited coffee consumption, but it is close to China’s biggest coffee production base in Yunnan,” said Sun Zheng, a manager at the centre. “With the China-Europe railway, we can not only export Yunnan coffee to Europe, but also become a transport hub for coffee from Southeast Asia to Europe.”

The municipal government plans to make Chongqing China’s biggest, and the world’s third biggest, coffee trade centre, with trade expected to exceed 100 billion yuan (14 billion U.S. dollars). “The rail network not only provides a major channel for goods but is also a magnet for global capital, resources, skills and talent,” said Luo Shuquan, Chongqing Logistics City chairman. Despite fast development, problems stand in the way, including different standards of goods transported between China and other countries.

“We are trying to negotiate with other countries in dealing with such issues,” said Yang Liqiong. “We will try to connect major industries in the world via the network.” Xinhua

Business Daily Friday, December 16 2016 11

Asia Selloff

Worst EM stocks find support on view Duterte risk overdone Ian Sayson and Lilian Karunungan

P

hilippines stocks are getting some forgiveness Ev e n th o u gh th e Philippine Stock Exchange Index is on course for its worst quarter since 2008 as lofty valuations and the anti-U.S. outbursts of President Rodrigo Duterte amplify a broader emerging-market selloff, Deutsche Asset Management and Nomura Holdings Inc. are betting on a revival.

“The Philippines will be a very good opportunity next year,” said Sean Taylor, the Hong Kong-based chief investment officer for Asia Pacific at Deutsche Asset, who upgraded emerging markets to neutral early in 2016 for the first time in three years.

“The underlying economy is in very good health and that’s now coming into companies.”

The benchmark equities gauge is down 10 per cent since the end of September, the biggest drop in local-currency terms after Ghana among around 100 indexes tracked

by Bloomberg, as foreign funds pulled US$526 million from the market.

Even a forecast-beating third-quarter economic growth reading of 7.1 per cent, the fastest in Southeast Asia, wasn’t enough to stem the rout.

The Philippine gauge closed down 1.1 per cent on Thursday and the peso weakened 0.4 per cent against the dollar after the Federal Reserve raised interest rates and flagged a faster pace of increases next year.

D e u t s c h e As s e t i s s l i g h t l y overweight the Philippines, although it’s less easy to trade than many of its peers because of a lack of liquidity,

said Taylor.

Nomura restored its overweight call in late October on the assumption the market was focusing too much on political risks as Duterte pivoted toward China and ignoring the strong economic fundamentals, said Mixo Das, the lender’s Singapore-based equity strategist. Infrastructure spending will support the economy next year and it’s possible the stock index could test its 2016 high, he said. That would imply a 18 per cent increase from Thursday’s close.

“Most of the Philippines underperformance has come in before Trump” won the American election, said Das. “If anything, I would expect that the Philippine-U.S. relationship could actually be better under a Trump presidency.”

Peso, Valuations

The peso has held up relatively well compared with its peers. The Philippine currency has weakened 2.9 per cent against the dollar this quarter, less than declines of 3 per cent for the Thai baht and 7.4 per cent for Malaysia’s ringgit.

Not everyone sees a turnaround though. Geopolitical uncertainty, both domestic and abroad, will probably limit foreign participation and further de-rating can’t be ruled out, Morgan Stanley Singaporebased analysts Sean Gardiner and Aarti Shah said in a Dec. 6 research note as they double downgraded the nation’s equities to underweight from overweight.

Philippine stocks appear “highly vulnerable” to a more rapid pace of interest-rate increases by the Fed and are likely to continue to

lag behind the rest of Asia, Credit Suisse Group AG said in a note released Thursday in which it maintained an underweight call.

The country’s equities have the most negative correlation with the U.S. 10-year bond yield in the region due to relatively high levels of foreign ownership, the lender said.

The decline in Philippine stocks, which have long been some of the most expensive developing-nation equities, has pushed the index’s 12-month price-to-earnings ratio to 16.3 from as high as 19.6 in July.

The valuation premium over the MSCI Emerging Markets Index has fallen to 1.3 from 2 in 2013.

The high valuations are the main reason the Philippine gauge dropped

faster than its peers amid prospects for more rapid U.S. interest-rate increases, said Herald van der Linde, the head of equity strategy for Asia Pacific at HSBC Holdings Plc in Hong Kong. Valuations look more reasonable now and the country’s stock index will rise to 9,100 by the end of 2017, 33 per cent higher than now, he said. HSBC remains overweight Philippine stocks and likes real estate companies and some banks, van der Linde said.

“It’s a market where the balance of payments looks very healthy and most of the growth is not driven by trade but by domestic dynamics,” he said. “Our outlook remains quite positive. Structurally, the story remains still pretty good.” Bloomberg

Economy

IMF says Malaysia to grow 4.5 pct in 2017 The IMF says Malaysia has performed well “despite significant headwinds” stemming from structurally weak growth in developed and emerging markets Joseph Sipalan

Malaysia’s economy is seen growing at 4.5 per cent in 2017 on strong private consumption but will continue to suffer from weak commodity prices and slowing private investment, the International Monetary Fund (IMF) said on Thursday.

The Southeast Asian economy has been buffeted by poor demand for its exports of commodities and liquefied natural gas over the past year. In January, the government cut spending and revised its 2016 growth forecast down to 4-4.5 per cent from 4-5 per cent in January.

“While the Malaysian economy has adjusted well to lower global oil prices, sustained low commodity prices add to the challenges of fiscal consolidation,” said IMF’s Daisaku Kihara, who lead a two-week consultation mission to Malaysia in early December.

While Malaysia is a marginal oil exporter, it is the world’s third largest exporter of LNG, contract prices for which are linked to crude prices.

“Heightened global financial stress could potentially spill over to domestic markets,” Kihara said in a statement.

The IMF says Malaysia has performed well “despite significant headwinds” stemming from structurally weak growth in developed and emerging markets, and expects 2016 growth to come in at 4.2 per cent aided by a diversified economy and a flexible exchange rate.

Medium term growth is seen at 4.5 to 5 per cent.

Stemming the flow

Malaysia’s ringgit, however, has been Asia’s worst performing currency in recent weeks, at one point losing nearly 7 per cent against the dollar following Donald Trump’s

U.S. presidential election win on Nov. 8.

To stem the decline, Malaysia’s central bank stepped in and warned of “prompt supervisory intervention” against any individuals or banks engaged in ringgit trade in the offshore non-deliverable forwards (NDF) market.

IMF’s Kihara says the current monetary policy “is appropriate in the baseline scenario of moderate growth, low inflation, and external

uncertainties”, but stressed the need for careful calibration to support growth while maintaining financial stability.

Kihara says Malaysia has made “significant progress” towards its goal of achieving high-income status, which need continued efforts towards structural reforms to boost longer-term economic growth.

But Malaysia will need to keep an eye on its “relatively high” household debt, and stay on track on its fiscal consolidation drive and goal of slashing its budget deficit to 3 per cent in 2017, Kihara added. Reuters

12 Business Daily Friday, December 16 2016

Asia Interest rates

Bank of Korea holds key rate to weigh Fed, domestic politics Jiyeun Lee and Kanga Kong

S

outh Korea’s central bank held the nation’s benchmark interest rate unchanged as it monitors risks from parliament’s vote to impeach President Park Geun-hye and the impact of the rate hike by the U.S. Federal Reserve.

In a unanimous decision, the Bank of Korea kept the seven-day repurchase rate at a record low 1.25 per cent for a sixth month, as forecast by all 19 economists surveyed by Bloomberg. Thursday’s meeting was the first policy review after the move against Park over an influencepeddling scandal, and the BOK indicated that risks to the country’s growth path have increased.

Implementation of government policies and business decisions could slow until there is clarity on the fate of Park and the timing for a presidential election, with the constitutional court to make a final decision on impeachment within 180 days. The central bank faces a tricky balancing act in the months ahead as it mulls whether to follow the rate-hike path of its U.S. counterpart, or focus more on economic concerns at home that weigh in favour of keeping rates low, or even lower.

“While some in the market think that a series of Fed rate hikes may lead to capital outflows from South Korea by narrowing the yield gap, or even by bringing a reversal, I have repeatedly said that capital flows are only one consideration when setting the benchmark rate,” Governor

Lee Ju-yeol said at a briefing. “We consider the overall economic situation and inflation.”

Lowered projections

Private economists have lowered growth projections for next year to reflect political uncertainty, with state-run think tank Korea Development Institute estimating expansion of just 2.4 per cent. Of

29 analysts surveyed by Bloomberg during Dec. 2-Dec. 7, 18 forecast at least one more cut within 2017, nine saw no change, and two projected a 25 basis-point increase.

“The ongoing political crisis has damaged sentiment at a time when the economy is already facing headwinds from Samsung’s decision to scrap production of its premium Note 7 smartphone, the implementation of

a tough new anti-graft law that will hit spending in restaurants, and on-going corporate restructuring,” Krystal Tan from Capital Economics in Singapore said in a note after the decision.

In response to a question on whether a rate cut is necessary, Governor Lee said the bank considers both the economy and financial risks when setting borrowing costs, but needs to pay more attention to financial stability when domestic and external uncertainties are high and markets are volatile. He also said monetary policy would remain accommodative.

Recent data show a mixed portrait of the economy. Exports expanded in November from the previous year, prompting some economists to predict an end to the prolonged slump. Political scandal pushed consumer confidence -- which often foreshadows actual spending -- to more than a seven-year low. Factory output in October was worse than expected.

Turning point

Lee said Korea may have passed the worst point for exports in the first quarter of this year, though he also noted that trade protectionism following the election of Donald Trump is a risk to the economy.

The BOK, which sees the economy expanding 2.8 per cent in 2017 and consumer prices rising 1.9 per cent, will release updated projections in January. Lee said there were downside risks to these projections, which were made in October.

Inflation in Korea is expected to rise from next year and the longterm trend is upward, said Lee. The consumer price index rose 1.3 per cent in November from a year earlier, compared with the central bank’s 2 per cent inflation target. Bloomberg

Governor Lee Ju-yeol

Diplomacy

Abe, Putin to huddle at hot spring over Japan-Russia islands row Kiyoshi Takenaka and Katya Golubkova

Russian President Vladimir Putin arrived in Japan on Thursday for a summit with Prime Minister Shinzo Abe at a hot spring resort where they will seek progress on a territorial row that has blocked a peace treaty formally ending World War Two. The two sides are likely to clinch agreements on economic cooperation in areas from medical technology to energy. But both have sought to dampen expectations of a breakthrough in the feud over the windswept islands in the western Pacific seized by Soviet forces at the end of the war, forcing some 17,000 Japanese residents to flee.

Putin, who arrived nearly three

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hours behind schedule, and Abe will meet on Thursday at a mountainside inn at the hot spring resort of Nagato in Abe’s home constituency in southwest Japan, and again in Tokyo on Friday.

Abe has pledged to resolve the territorial dispute, in hopes of leaving a diplomatic legacy that eluded his foreign minister father, and of building better ties with Russia to counter a rising China.

But a deal to end the dispute over the islands, known in Japan as the Northern Territories and in Russia as the Southern Kuriles, carries risks for Putin, who does not want to tarnish his image at home of a staunch defender of Russian sovereignty.

The isles have strategic value for

Russia, ensuring naval access to the western Pacific.

“The hurdles that remain to be cleared are still quite high,” Yasutoshi Nishimura, an advisor to Abe, told Reuters. “On the other hand, they are two strong leaders, so I hope that some broad path forward and direction will emerge.”

Regional ties

Abe’s bid to improve ties with Russia had worried Washington, but President-elect Donald Trump is expected to seek a thaw with Moscow.

That could reduce pressure on Abe but also reduce Putin’s appetite for compromise since he would have less to gain from driving a wedge between

Washington and Tokyo.

The talks also come as Russia faces Western criticism over the destruction of eastern Aleppo in Syria, where Russia is backing Syrian President Bashar al-Assad’s forces.

Russia hopes to clinch deals with Japanese companies as part of an Asian pivot in response to a decision

by Western governments, including Japan, to impose sanctions in 2014 over Russia’s role in the Ukraine conflict.

Putin told the Yomiuri newspaper this week that the goal of a peace treaty would be harder to achieve if Russia remained subject to Japanese sanctions.

But Japan’s trade minister, Hiroshige Seko, has ruled out any economic cooperation with Russia that would undermine Group of Seven unity on the sanctions.

Ja p a n has l o n g i n si st e d i ts sovereignty over all four of the disputed islands off Japan’s northern island of Hokkaido be confirmed before a peace treaty is signed.

But there have been signs it has been rethinking its stance, perhaps by reviving a formula called “twoplus-alpha”, based partly on a 1956 joint declaration in which the Soviet Union agreed it would hand over the two smaller islands after a peace treaty was signed.

Over the decades, the two sides have at times floated the idea of joint economic activity on the islands, but how to do that without undercutting either side’s claim to sovereignty has never been resolved. Reuters

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Business Daily Friday, December 16 2016 13

Asia Employment

In Brief

Australia records biggest job gain this year, led by full-timers Michael Heath

Australia’s economy recorded its biggest monthly jobs gain this year, led by full-time employment, while a higher participation rate also signaled a healthier labor market.

Key Points Employment jumped 39,100 from October, more than double economists’ forecast for a 17,500 gain October jobs gain was upwardly revised to 15,200 from 9,800 Jobless rate rose to 5.7 pct from 5.6 pct; economists forecast 5.6 per cent Full-time jobs surged by 39,300; part-time employment fell by 200 Participation rate rose to 64.6 pct from 64.4 pct; economists predicted 64.5 pct

Big Picture

The data showed a turnaround in hiring as full-time jobs came to the fore and the participation rate reversed declines of recent months, bringing optimism to an economy that

contracted last quarter and where consumer confidence has weakened.

It also validates the central bank’s forecast hiring would improve in coming months after mixed messages from the labor market, and suggests policy makers will extend an interest-rate pause; the currency was little changed as Federal Reserve tightening overshadowed local news.

The Reserve Bank of Australia has kept the cash rate at a record-low 1.5 per cent for the past four months as it gauges which way the economy will break. Gross domestic product fell in the three months through September, just the fourth drop since a 1991 recession, while commodity prices led by coal are retracing highs from the mining boom era.

Economist Takeaways

The data “would provide the RBA with some comfort following last week’s shockingly weak GDP print and the soft tone” in business conditions, said Jo Masters, a senior economist at Australia & New Zealand Banking Group Ltd. “While momentum in the labor market has slowed, we expect the unemployment rate to slowly trend lower. We continue to see the RBA on hold, with an easing bias.”

“The underlying trends remain subdued across the board and consistent

with our view that the labour market details are weaker than the headline unemployment rate would suggest,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney.

“Also consistent with this is the divergence between the traditional unemployment rate measure and the underemployment rate.” The “strength” in the labour market “is entirely due to seasonal adjustment not capturing recent employment trends, and the markets should ignore it,” said Annette Beacher, head of Asia-Pacific research at TD Securities Ltd. in Singapore. “Full-time hours worked are shrinking, and so it is difficult to construct a case for a pickup in wage inflation and overall inflation in Australia in the near term.”

Other Details

Queensland, the heart of the nation’s resurgent coal industry, led job gains with 38,600 hires, bringing to an end three months of losses Western Australia, which has struggled with the unwinding of mining investment, recorded a jump in its unemployment rate to 6.9 per cent from 6.5 per cent. The rustbelt state of South Australia recorded the highest unemployment at 7 per cent.

Hours worked in all jobs fell by 10.4 million. Full-time employment has decreased by 45,800 in the first 11 months of this year, while part-time hiring jumped 126,500.

Sales

Key Points Expects 2016 sales of 10.09 mln vehicles Sales to increase in main markets due to new SUV Toyota was world’s top-selling automaker in 2015 The Japanese automaker estimates sales across its Toyota, Lexus, Daihatsu minicar and Hino Motors Ltd truck brands to increase to around 10.2 million vehicles in 2017. It expects to end 2016 with sales of 10.09 million vehicles, slightly lower than an initial forecast of 10.11 million.

Toyota expects sales to increase in its main markets next year due in part to new additions to its model

Japan to compile $1.7 bln 3rd extra budget for defence, infrastructure - gov’t sources Japan is set to compile a third supplementary budget worth about $1.7 billion for this fiscal year to March, featuring disaster reconstruction and military spending to cope with North Korea’s missile launches, government sources involved in the budget process said on Thursday.

The roughly 200 billion yen budget will comprise some 600 billion yen in spending for areas such as defence and infrastructure spending - but 420 billion yen of that will be covered by tapping reserves left over previous budgets, the sources told Reuters. A small amount of the budget also covers tax grants and transfers to local governments.

The government will issue construction bonds worth about 100 billion yen and tap non-tax revenue worth around 100 billion yen to fund the extra budget, the sources said on condition of anonymity because the plan has not been finalised.

Singapore

Sales of Singapore’s new private homes down 31.4 pct in November Sales of Singapore’s new private homes dropped 31.4 percent in November month-on-month, according to the data released

by Urban Redevelopment Authority (URA) on Thursday.

Compared with the same period last year, URA said sales of private homes increased 13.3 percent in November. Excluding executive condominiums (ECs), property developers sold 860 units in November, less than the 1,253 units sold in October.

Including ECs, 1,110 new private homes were sold in November, down from October’s 1,542 units.

According to URA’s data, a total of 1,363 units, excluding ECs, were launched for sale in November, which was lower than October’s 1,467 units. Private homes are those developed by private developers. About 80 percent of the resident households in Singapore live in public housing units built and sold by the government. The private homes are typically more expensive than public housing units.

India

Toyota plans for 2017 vehicle sales of 10.2 mln, sees growth in main markets Toyota Motor Corp on Thursday said it anticipates a 1 per cent rise in global vehicle sales next year, as growth in North America, China, Europe and Asia prompts a recovery from a 1 per cent slide in sales this year.

Japan

line-up, including the C-HR compact sport utility vehicle launched in Japan this week.

This would offset sluggish demand in the Middle East, where low oil prices have battered the region’s economies, the automaker said.

It aims to boost production at the group by 1 per cent to 10.366 million

vehicles in 2017.

The improvement in global sales would follow a 1 per cent year-onyear slide this year, largely due to sluggishness in some Southeast Asian markets.

Toyota was the world’s top-selling automaker in 2015, keeping the title for the fourth straight year.

In the year to October, Toyota sold 8.35 million vehicles, slightly lower than 8.48 million at Volkswagen AG during the same period, latest data showed. Reuters

Rupee slides with Indian bonds as Fed hike raises outflow risk The rupee headed for its biggest loss in a month on concern outflows from Indian assets will accelerate after the Federal Reserve raised interest rates and forecast a steeper path for borrowing costs in 2017. The Indian currency dropped 0.6 percent, the most since Nov. 15, to 67.8150 per dollar as of 9:06 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg.

The yield on sovereign bonds due September 2026 jumped five basis points to 6.45 percent, halting a two-day gain for the securities. Foreign holdings of Indian government and corporate bonds have dropped by 377 billion rupees ($5.6 billion) this quarter, National Securities Depository Ltd. data compiled

by Bloomberg show. Overseas investors have withdrawn a net $3.3 billion from local shares in the period. The U.S. central bank said inflation expectations have increased “considerably” and suggested the labour market is tightening.

14 Business Daily Friday, December 16 2016

International In Brief Relations

Chinese ambassador to U.S.: Sovereignty not a ‘bargaining chip’ In a veiled warning to U.S. President-elect Donald Trump, China’s ambassador to the United States said on Wednesday that Beijing would never bargain with Washington over issues involving its national sovereignty or territorial integrity. Ambassador Cui Tiankai, speaking to executives of top U.S. companies, said China and the United States needed to work to strengthen their relationship. “The political foundation of China-U.S. relations should not be undermined. It should be preserved,” Cui said. “And basic norms of international relations should be observed, not ignored, certainly not be seen as something you can trade off,” he said.

“And indeed, national sovereignty and territorial integrity are not bargaining chips.

Absolutely not. I hope everybody would understand that.”

Automotive

VW posts first Europe market-share gain since diesel crisis Volkswagen AG gained market share in Europe for the first time since its diesel-cheating scandal erupted in September 2015, a sign that the German manufacturer is regaining consumer trust. The region’s biggest automaker accounted for 24.8 percent of car sales in November compared with 24.6 percent a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said in a statement on Thursday.

Industrywide European registrations rose 5.6 percent last month to 1.19 million vehicles, putting the sector on track for its third annual gain.

Volkswagen outperformed with a 6.3 percent increase across the group’s brands, bringing its expansion in the first 11 months to 2.9 percent.

Financing

African bank to finance eight projects in five countries The West African development bank (BOAD) will finance 156 billion CFA Francs (250.5 million U.S. dollars) in development projects to five member states. The funding will go toward eight development projects in Benin, Cote d’Ivoire, Niger, Senegal and Burkina Faso. The board has also examined and approved the financial outlook 2016-2020 of the bank, an implementation project of a new model of loan pricing and BOAD’s program-budget for 2017-2019.

“The new operations lift to 522.3 billion CFA Francs, about US$838.807 million, the total of BOAD commitments for the year 2016,” the release said.

Meanwhile, the cumulative commitments since the bank began operational activities in 1976 now stand at 4,340.1 billion CFA Francs, about US$6.97 billion, for 1,036 operations.

Furthermore, the Bank’s board has approved, inter alia, the establishment of an 80-million-euro (US$83.8-million) credit line by the German Bank KfW to support small- and medium-sized enterprises within the West African Economic and Monetary Union.

Brexit

U.K. Foreign OfficerRaises Brexit uncertainty, lawmakers say May has pledged to trigger the Brexit process by the end of March but little is known about the kind of relationship with the EU she wants Thomas Penny

B

ritain’s Foreign Office is adding to uncertainty over the country’s future ou tsi de the Eu ropea n Union and should provide more information to reassure businesses and investors, a panel of lawmakers said Thursday.

Crispin Blunt, chairman of the House of Commons Foreign Affairs Committee, accused Europe Minister Alan Duncan of being unconvincing and unclear in his refusal to testify to an inquiry into the implications of no deal being reached within the two-year window allowed for EU exit negotiations.

“It is hard to believe that the government is not considering the legal and technical issues and consequences of leaving the EU with no withdrawal agreement in place”

government to plan for a vote to leave the EU in June’s referendum was “gross negligence” that added to uncertainty, the committee said in a report published earlier this year. If the administration of his successor, Theresa May, is failing to plan for there being no deal in 2019 it is “at least as negligent,” Blunt wrote.

May has pledged to trigger the Brexit process by the end of March but little is known about the kind of relationship with the EU she wants.

The lack of clarity risks causing financial-services companies to relocate jobs and operations in preparation for a “worst-case” outcome to the talks, the House of Lords EU Committee said in a separate report also published on Thursday.

Duncan wrote to the committee on Dec. 5, saying he would not be able to give evidence because the negotiations with the EU haven’t started yet.

‘High Importance’

“I can assure the committee that the topic of this inquiry is of

high importance to the Foreign and Commonwealth Office and colleagues across government,” he said in his letter to the committee.

“Since negotiations are not yet under way, the government is not currently in a position to provide written evidence to the committee.”

The panel met to consider its response to Duncan’s refusal and published the exchange of letters as it sought to persuade the Foreign Office to provide the information it needs for its inquiry.

“There is every possibility of ‘no deal’ once the two-year negotiating period ends. Business, in particular, needs to know what that might look like,” Blunt said in an e-mailed statement. “Sir Alan Duncan’s argument as to why no response is currently forthcoming from the FCO is unconvincing and runs counter to the duty of a responsible government to provide clarity where possible. We are asking him to reconsider.”

The Foreign Office said in a statement that it’s “not going to give a running commentary on every twist and turn of these upcoming negotiations: It’s not in our national interest and won’t help us get the best deal for Britain. But when there are further things to say, we will keep people informed.” Bloomberg

Crispin Blunt, chairman of the UK House of Commons Foreign Affairs Committee “It is hard to believe that the government is not considering the legal and technical issues and consequences of leaving the EU with no withdrawal agreement in place,” Blunt wrote to Duncan.

“The government owes its analysis not just to Parliament, but to the wider public: there is a strong public interest in reducing uncertainty as far as possible, not least for businesses making investment decisions in the U.K.” The failure of David Cameron’s

Resignation

Shell finance chief to leave company in March Henry, who has worked at Shell for 34 years including more than seven as chief financial officer, did not disclose why he was leaving Shell or what he would do next Karolin Schaps

Royal Dutch Shell Chief Financial Officer Simon Henry will leave in March and be replaced by Jessica Uhl, a finance executive in Shell’s gas business, the oil company said on Thursday.

Henry, a 55-year-old Shell veteran, was one of the main executives who oversaw the US$54 billion acquisition of BG Group that turned Shell into the world’s largest liquefied natural gas (LNG) trader.

Henry, who has worked at Shell for 34 years including more than seven as chief financial officer, did not disclose why he was leaving Shell or what he would do next.

“The board is grateful to Simon for

strengthening capital management and the balance sheet such as to allow the acquisition of BG and executing that deal,” Shell Chairman Charles Holliday said in a statement.

His departure had not been widely expected. Shell’s London shares were trading 0.4 per cent higher shortly after the market opening on Thursday.

Succeeded

Henry’s successor, Jessical Uhl, will take over on March 9. She joined Shell in 2004 and has worked at Enron in the United States and Panama and Citibank. Shell said she was picked after a review of internal and external candidates.

“Jessica combines an external perspective with broad Shell experience

and is a highly regarded executive,” Shell Chief Executive Ben van Beurden said.

Uhl will be Shell’s second female CFO. Judy Boynton served as finance director from 2001 to 2004 before leaving following Shell’s admission it had overstated oil reserves.

Key Points Jessica Uhl to replace Henry on March 9 Uhl joined Shell in 2004 after working at Enron, Citibank Appointment not expected to change priorities - Barclays Shell said Henry would remain available to the company until June 30, 2017.

“Ben van Beurden’s statement does indicate, as we would expect, no change to the priorities of RDS,” analysts at Barclays said. Reuters

Business Daily Friday, December 16 2016 15

Opinion Business Wires

China Daily The growth of power use in China continued to accelerate in the first 11 months boosted by increased consumption from the service sector, official data showed Thursday. Power consumption grew 5 percent year on year in the January-November period, compared with a 4.8-percent increase in the first ten months this year, according to the National Energy Administration.

Electricity consumed by the service sector surged 11.7 percent in the first 11 months this year, in line with a 5.2-percent growth and 2.6-percent increase in the agricultural and industrial sectors, respectively in the period, said the administration. In November alone, power use in China spiked 7 percent compared with a year earlier, it added.

Jakarta Globe Indonesia’s flagship tax amnesty program passed one of its initial targets as shown by the real-time data from the tax office late on Wednesday (14/12), providing a much-needed boost for the program’s sluggish progress after the success in its first period. The taxpayers have so far declared Rp 4,009 trillion ($301 billion) of previously unreported assets, which include Rp 144 trillion worth of repatriated assets, Rp 988 trillion in offshore assets and Rp 2,877 trillion worth of assets in the country. Even if the total of declared assets had passed the government’s initial target of Rp 4,000 trillion, it was only a 6 percent increase from Rp 3,785.8 trillion on Sep. 30, or the end of the first period. Only about 481,000 people or nearly 2.5 percent of the 20 million taxpayers have joined the tax amnesty program so far.

Asahi Shimbun Japan and the European Union are holding last-ditch talks this week to try reach a broad free trade agreement by the end of the year, Japanese government officials said. The two-way trade talks have taken on greater significance after U.S. President-elect Donald Trump said Washington would withdraw from the Trans-Pacific Partnership, a 12-nation deal Prime Minister Shinzo Abe has said is key to his reforms and once a pillar of Washington’s pivot to the AsiaPacific. “Prime Minister Abe has said he aims to reach an agreement this year,” said a trade official who declined to be identified because he was not authorized to speak to media. Japan is seeking cuts in EU tariffs on Japanese autos, auto parts and electric devices. Tokyo also wants the EU to cut red tape it says Japanese companies face doing business with the EU.

Phil Star Term deposits continued to fetch higher yield amid uncertainties brought about by the impending interest rate hike by the US Federal Reserve. Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said there was more appetite for the shorter seven-day term deposits while the 28-day tenor was undersubscribed.

Tetangco said investors have adopted a wait-and-see attitude ahead of the meeting of the Federal Open Market Committee (FOMC) scheduled today in the US. “We see this as being due to seasonality and some market cautiousness ahead of the FOMC meeting this week,” he said.

The Age of Hyper-Uncertainty

T

he year 2017 will mark the 40th anniversary of the publication of John Kenneth Galbraith’s The Age of Uncertainty.

Forty years is a long time, but it is worth looking back and reminding ourselves of how much Galbraith and his readers had to be uncertain about.

In 1977, as Galbraith was writing, the world was still reeling from the effects of the first OPEC oilprice shock and wondering whether another one was in the pipeline (as it were). The United States was confronting slowing growth and accelerating inflation, or stagflation, a novel problem that raised questions about policymakers’ competence and the adequacy of their economic models. Meanwhile, efforts to rebuild the Bretton Woods international monetary system had collapsed, casting a shadow over prospects for international trade and global economic growth.

For all these reasons, the golden age of stability and predictability that was the third quarter of the twentieth century seemed to have abruptly drawn to a close, to be succeeded by a period of greatly heightened uncertainty.

That’s how things looked in 1977, anyway. Viewed from the perspective of 2017, however, the uncertainty of 1977 seems almost enviable. In 1977, there was no President Donald Trump. Jimmy Carter may not go down in history as one of the best US presidents, but he did not threaten actions that placed the entire global system at risk. He did not turn his back on America’s international commitments such as NATO and the World Trade Organization.

Nor did Carter go to war with the Federal Reserve or pack its board with sympathetic appointees willing to sacrifice sound money to his reelection prospects. On the contrary, he appointed Paul Volcker, a towering pillar of monetary stability, as chairman of the Board of Governors. And although Carter did not succeed in balancing the federal budget, he didn’t blow it up, either.

Whether Trump slaps a tariff on Chinese goods, repudiates the North American Free Trade Agreement, packs the Federal Reserve Board, or undermines fiscal sustainability remains to be seen. Conceivable outcomes range from mildly reassuring to utterly catastrophic. Who knows what will happen? By today’s standards, Carter was the embodiment of predictability.

In 1977, moreover, the prospects for European integration were rosy. Denmark, Ireland, and, most notably, the United Kingdom had recently joined a rapidly growing European Community.

The EC was attracting members, not losing them.

It was a club that countries sought to join precisely in order to achieve faster economic growth.

Moreover, to buttress its common market, the EC

“

Barry Eichengreen professor at the University of California, Berkeley, and the University of Cambridge

had just established a regional monetary system, the suggestively named “snake in the tunnel.”

While this was far from a perfect monetary system, it had one very positive attribute: countries could leave in hard economic times, and rejoin if and when the outlook brightened.

In 2017, in contrast, negotiations over Brexit will continue to cast a dark cloud of uncertainty over the European Union. How those negotiations will proceed and how long they will take are anyone’s guess. Moreover, the main questions raised by Britain’s decision to leave – whether other countries will follow and, indeed, whether the EU itself has a future – remain far from resolved.

M e a n w h i l e E u r o p e’ s monetary house remains half built. The eurozone is neither appealing enough to attract additional members nor flexible enough to grant troubled in cumben ts a temporary holiday, in the manner of the currency snake. The euro will likely survive the year, inertia being what it is. Beyond that, it is difficult to say.

In 1977, uncertainties emanating from emerging markets were not on commentators’ radar screens.

Developing countries in Latin America and East Asia were growing, although they depended increasingly on a drip feed of foreign loans from money-centre banks. China, still largely cut off from the world, did not figure in this discussion.

And even if something went wrong in the Third World, developing countries were simply too small to drag down the global economy.

The situation today couldn’t be more different.

What happens in China, Brazil, or Turkey doesn’t stay in China, Brazil, or Turkey. On the contrary, developments in these countries have first-order implications for the world economy, given how emerging markets have accounted for the majority of global growth in recent years. China has an unmanageable corporate-debt problem and a government whose commitment to restructuring the economy is uncertain. Turkey has a massive current-account deficit, an erratic president, and an unstable geopolitical neighbourhood. And if political scandals were export goods, Brazil would have a clear comparative advantage.

Although The Age of Uncertainty was about much more than the year 1977, it captured the tenor of the times. But if Galbraith were writing the same book in 2017, he probably would call the 1970s The Age of Assurance.

Viewed from the perspective of 2017, however, the uncertainty of 1977 seems almost enviable

”

16 Business Daily Friday, December 16 2016

Closing PPP

China funds projects worth 12.7 trln yuan in public-private partnerships

governments. Many PPPs involve public services such as energy, transport, water conservation, agriculture and education. In September 2015, the Ministry of Finance started a fund with China has funded projects worth RMB12.7 trillion (about US$1.83 trillion) through public-private partnerships (PPPs) as of October RMB180 billion to support PPPs. The ministry has announced 745 PPPs in the past three years, with a total investment value of this year, a finance official said. A total of 10,685 projects were RMB1.95 trillion, covering almost every public service sector, Shi introduced by the end of October, Vice Finance Minister Shi Yaobin said in a speech published on the finance ministry website said. Shi said a basic framework for PPPs has been established, but authorities should strengthen legal protection and improve Thursday. PPPs are collaborative projects between government and private companies. Chinese authorities have explored funding supporting policies for PPPs. He also urged local governments to encourage more private investment in PPPs, and remove market infrastructure and public works through PPP models since late barriers in the public service sector. The central government will 2013, amid growing concerns over rising local government debt send supervision teams to 10 provincial regions to inspect and incurred through local financing vehicles. PPPs aim to leverage help solve problems in the implementation of PPPs, Shi said. Xinhua private sector investment to meet the funding shortfalls of local

Security

China Deploying Weapons on Artificial Reefs, Think Tank Says President-elect Donald Trump has cited what he said was China’s effort to build a “massive fortress” in the South China Sea as one reason for taking a more confrontational approach to relations David Tweed

C

hina a p p e a r s t o b e deploying weapons systems on all seven of the reefs it has reclaimed in the South China Sea, according to photographs released by a Washington-based think tank.

The Asia Maritime Transparency Initiative said it began tracking in June and July the construction of

identical hexagon-shaped structures to house the weapons on Fiery Cross, Mischief and Subi reefs, where China has already completed military grade airstrips and installed radar.

“It now seems that these structures are an evolution of point-defense fortifications already constructed at China’s smaller facilities on Gaven, Hughes, Johnson, and Cuarteron reefs,” AMTI, a unit of the Center for Strategic and International Studies,

said on its website.

The installations call into question a pledge made by China’s president, Xi Jinping, not to militarize the disputed reefs in the South China Sea, a US$5 trillion-a-year shipping route that the U.S. has patrolled largely unchallenged since World War II. China’s claims to more than 80 percent of the waters were dismissed by an international tribunal in July. Beijing said it would ignore the ruling.

U.S. President-elect Donald Trump has cited what he said was China’s effort to build a “massive fortress” in the South China Sea as one reason for taking a more confrontational approach to relations. He listed the

project in a Fox News interview while defending his decision to accept a call from the Taiwanese president, calling into question the U.S. policy of recognizing Beijing as the capital of both the mainland and Taiwan.

‘Make a Deal’

“I don’t know why we have to be bound by a One-China policy unless we make a deal with China having to do with other things, including trade,” Trump said in the interview broadcast Sunday.

China’s defence ministry said in a statement Thursday that its “installation of defensive facilities in the South China Sea is appropriate and legal.” The foreign ministry said last year that China was obliged to build some defensive facilities on the reefs as part of its responsibility to provide public services to the region.

AMTI said that anti-aircraft guns appear to have been installed on China’s four smaller reefs. Although they cannot be definitively identified, they were likely to be “close-in weapons systems” whose function was to detect and destroy incoming missiles and enemy aircraft, the group said.

“These gun and probable CIWS emplacements show that Beijing is serious about defence of its artificial islands in case of an armed contingency in the South China Sea,” AMTI wrote. “Among other things, they would be the last line of defence against cruise missiles launched by the United States or others against these soon-to-be-operational air bases.”

Manufacturing

Cyber

Risks

Euro-Area maintains momentum as weaker currency helps factories

Thai PM defends cyber controls as censorship concerns rise

SNB Joins Draghi in Warning of Dread for 2017 Political Calendar

The euro-area economy maintained its growth momentum in December and there were signs of a pickup in inflationary pressures.

A composite Purchasing Managers’ Index held at 53.9 in December, the highest this year and above the 50 mark that divides expansion from contraction. A measure of input prices rose to the highest in 5 1/2 years, which Markit blamed on the euro’s depreciation and rising global commodity prices.

Growth in the headline index was led by manufacturing, with that gauge jumping to the strongest since 2011. Markit said the improvement was partly linked to the weaker currency.

The latest signs that the economy is growing at a steady -- if not spectacular -- pace come a week after the European Central Bank’s decision to prolong its asset purchases through 2017, while lowering the monthly amount starting in April.

With euro-area inflation still low, President Mario Draghi said the central bank will have a presence in markets “for a long time.” He also warned of potential uncertainty ahead linked to national votes in 2017.

“There is clearly the potential for political uncertainty to derail growth as elections loom in the Netherlands, France and Germany, and Brexit discussions begin,” said Markit Chief Economist Chris Williamson. Bloomberg

Thai Prime Minister Prayuth Chan-ocha on Thursday defended a decision to amend a cyber-crime law to increase the military government’s ability to remove online content as authorities seeks to tighten control on dissent.

A royal transition this month saw new King Maha Vajiralongkorn ascend the throne following the death of his father, King Bhumibol Adulyadej, on Oct. 13.

Thailand has some of the world’s toughest laws against royal insult, which has curtailed public discussion about the monarchy’s role following the death of King Bhumibol, who was seen as a unifying figure.

Since King Bhumibol’s death, authorities have cracked down on what they consider to be insults to the royal family and have shut down hundreds of websites.

The government is also sensitive about what it sees as criticism of the military’s role in politics, and opposition to its seizure of power in a 2014 coup.

Prayuth’s comments came a day before parliament will decide whether to pass amendments to a 2007 Computer Crime Act which critics say could result in more extensive online monitoring.

Amendments to the law, seen by Reuters on Friday, would allow state officials to obtain user and traffic data from service providers without court approval. Reuters

Just hours after Janet Yellen’s declaration of the U.S. economy’s strength, Swiss officials took a more ominous tone for the rest of the world with a list of things that might be about to go wrong.

Echoing Mario Draghi’s warning last week of risks stemming from 2017’s electoral calendar, Swiss National Bank policy makers led by Thomas Jordan described a “multitude of political uncertainties” awaiting them as they try to keep a lid on the franc, often a haven in times of turmoil. They barely mentioned the Federal Reserve chairman’s move to increase interest rates for only the second time since 2008.

For the Swiss, who border two countries facing contentious elections in the next year, risks seem to emanate from every corner. Aside from national votes in France and Germany, another poll in the Netherlands, the prospect of “arduous” Brexit talks, and the lack of clarity on U.S. economic policy under Donald Trump all provide reasons to fret.

“Central bankers always need to worry,” said Karsten Junius, chief economist at Bank J Safra Sarasin. “All of them have these political risks on their agenda for different reasons. For Draghi, the concerns include the euro-area recovery and periphery spreads, while for Jordan it’s about the currency effects.” Bloomberg