MSAR exports to Mainland China tariff-free next year Trade Page 4
Tuesday, December 27 2016 Year V Nr. 1201 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Infrastructure
Phase 1 of ‘temporary’ Public Prosecutor’s Building begins next year, no fixed end date or budget Page 2
Gaming
Saipan casino facing financial and AML dilemmas Pages 6 & 7
www.macaubusinessdaily.com
Finance
China’s outward investment likely to top US$161 bln this year Page 8
Diplomacy
China revives ties with Sao Tome Page 16
Growing pains
Demographics
The local population stood at 650,900 as at August. Nearly 80 pct comprise adults aged 15-64. With 10.5 pct more households since 2011. Non-resident workers soared nearly 70 pct since 2011. With less than half the total population born in Macau. Page 4
Mapping out the MSAR’s mission
Gov’t likes Facebook
Requests from the gov’t for information. This time from social media giant Facebook. Requests skyrocketed in the first half of the year. Facebook says it’s provided information for 81 pct of requests. Although ‘generally’ only sharing basic user subscriber information.
Corruption All about economic expansion. The MSAR Chief Executive and Mainland President Xi Jinping and other officials have met in Beijing. With ‘One Belt, One Road’ and the Portuguese-speaking countries programme high on the agenda. The Mainland urges the local Administration to improve the population’s quality of life. Page 3
Less ink for China Inc. Social media Page 2
HK Hang Seng Index December 23, 2016
21,574.76 -61.44 (-0.28%) Worst Performers
China Construction Bank
+3.12%
China Life Insurance Co Ltd
+0.00%
Li & Fung Ltd
-3.86%
Wharf Holdings Ltd/The
-1.28%
China Unicom Hong Kong
+0.79%
CITIC Ltd
+0.00%
Cheung Kong Property
-1.86%
CNOOC Ltd
-1.24%
Cheung Kong Infrastructure
+0.33%
China Overseas Land &
+0.00%
China Petroleum & Chemical
-1.79%
Hang Lung Properties Ltd
-1.23%
Hengan International Group
+0.09%
AAC Technologies Holdings
-0.07%
Bank of East Asia Ltd/The
-1.49%
Galaxy Entertainment Group
-1.19%
Industrial & Commercial
+0.00%
China Resources Land Ltd
-0.12%
Belle International Holdings
-1.38%
China Mengniu Dairy Co Ltd
-1.10%
12° 19° 14° 17° 13° 16° 16° 18° 18° 20° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Economy In December, bond issuance by Chinese resource companies and banks is less than the amount of notes they must repay in the same month. Their struggles to sell bonds represent a dilemma for policymakers. Trying to control leverage while keeping economic growth on track. Page 8
2 Business Daily Tuesday, December 27 2016
Macau Security Information requests are generally made for criminal investigations of robberies and kidnappings
Trolling Facebook Facebook has received 21 requests for data and information on crime investigations from MSAR authorities in the first half of 2016 Nelson Moura nelson.moura@macaubusinessdaily.com
M
acau authorities have made a total of 21 requests for data and information on 23 users or accounts from social media platforms run by Facebook for crime investigations during the first half of 2016. This represents a considerable increase in requests from the second half of 2015 when Facebook received just two requests for information from MSAR security authorities. The data was provided by the social media platform’s report on government information requests for its services: aside from its social media behemoth Facebook and its Messenger function include chat application WhatsApp, and video and photo sharing application Instagram. According to the report, Facebook has provided information for 81 per cent of the requests made by the MSAR authorities with the company stating that every request is checked for legal sufficiency, while ‘overly broad or vague’ requests are rejected. According to the company ‘the vast majority of these requests relate to
criminal cases, such as robberies or kidnappings’ with the government generally requesting basic subscriber information such as name and length of service, while sometimes requesting Internet Protocol address (IP address) logs or account content. The company also states that it generally only shares basic user subscriber information.
the time this newspaper went to print.
In term of requests for emergency situations or the preservation of account records in connection with official criminal investigations for 90 days pending receipt of a government request, the social media company notes that it hasn’t received any enquiries from Macau authorities between January and June of this year. Business Daily questioned the Public Security Police Force (PSP), the Legal Affairs Bureau (DSAJ) and the Office of the Secretary for Security with regard to the nature of the information requests made to Facebook but had not received a response by
Watchful neighbour
Hong Kong authorities have registered 190 requests for information on 279 users and pages in the first half of 2016, with the social media platform sharing some information for 45.8 per cent of the requests. This represents a 68 per cent increase in requests from the second half of 2015, when 113 requests were received. Although Facebook data doesn’t specify which departments made the requests, according to the Hong Kong Transparency Report conducted by the University of Hong Kong the majority of requests relating to information on technology companies in the HKSAR were made by the city’s police. No breakdown was provided as to what percentage of the total requests related to the sector. According to statements made by Craig Choy, a spokesperson for the Progressive Lawyers Group, to the Hong Kong Free Press, the increase in requests by government authorities is connected to the increase in the use of Facebook to organise social movements. The law expert also stated that generally authorities make ‘broad’ written or oral requests by letter, or by phone, asking for information for crime prevention and that companies with a ‘sensible in-house legal counsel would reject such requests and ask the authorities to provide more details and a court order for information’.
Public Project
Heritage
‘Temporary’ Public Prosecutor’s Office
Cliffhanger for Teatro Capitol
Construction works on building begin next year, with no fixed finish date Annie Lao annie.lao@macaubusinessdaily.com
The first phase of construction of the Public Prosecutor’s Office building is expected to begin in the first quarter of next year, according to Li Canfeng - director of the Land, Public Works and Transport Bureau (DSSOPT). The information comes in response to an enquiry by legislator Ella Lei Cheng I. According to Li, the construction project works are divided into two phases, the first of which includes the construction of the foundations and basement and is estimated to take about 600 working days. The second phase - consisting of the upper eight storeys of the building has yet to complete its concept stage, and has no fixed limit on execution, given that it has yet to go to public tender, pending the ‘conclusion of the first phase,’ according to the response. Nevertheless, the two-storey ba s e m e n t p l u s e i g h t-s t o r e y superstructure will, upon completion, only act as the ‘temporary installations of the Public Prosecutor’s Office,’ notes the response.
The new building, located next to the Chinese Liaison Office on the Macau Peninsula on Avenida Dr. Rodrigo Rodrigues, will occupy 2,200 square metres, according to the DSSOPT.
Zone B
Regarding enquiries about the east side of newly reclaimed land Zone B, destined for the government’s new administrative and judicial buildings, the DSSOPT director noted that the new plans for the construction of the buildings are ‘basically identical’ to its previously presented version, ‘regarding height and land use’. However, he director notes that in future the allocation of land for constructing government office buildings will be reviewed according to the actual needs of each government department. Prior to the implementation of construction, meetings will be conducted by various government departments to discuss the projects and conduct design works accordingly, Li added. Current DSSOPT plans note that the reclaimed strip of Zone B lies to the south of the Macau Peninsula, stretching from Macao Science Centre to the Macau Tower and Nam Van Lake area.
Renewal works at the historical Centro Comercial Teatro Capitol will only resume next year if current legal battles with store unit owners are resolved Renewal works on the Centro Comercial Teatro Capitol - also known as Kuok Wa Cinema - will be delayed until next year due to ongoing court battles with storeowners on the premises, according to local broadcaster TDM. The renewal works on the building, located at Rua de Pedro Nolasco da Silva, will only resume once current court cases between Empresa Desenvolvimento CC Teatro Capitol - the company responsible for the former cinema renewal project - and owners of some of the store units located on the building’s ground floor are resolved, notes the broadcaster. The building was set to be renovated by the end of this year as a mall and cinema complex, with an agreement with the store unit owners - some of which date back to the 1990’s - to turn
the abandoned cinema closed in 1997 into a centre for the local cultural and creative industry. “Some storeowners see what we are doing and may think we want to buy the building for reconstruction but as everyone knows the Teatro Capitol can’t be rebuilt, it can only be renewed. We hope to be able to provide it with new life,” businessman William Kwan Wai Lam from Empresa Desenvolvimento CC Teatro Capitol told TDM. According to Mr. Kwan, who is also the owner of a store in the building, only the Macau Cultural Affairs Bureau (IACM) can develop any commercial activity in areas deemed to be of heritage interest, and that any future project developed by the company on the property won’t compete with the current businesses in the building. “We don’t want to create a conflict with [the storeowners]. We hope to discuss the issue and resolve it,” Kwan told the broadcaster. N.M.
Visitor arrivals
Christmas visitor arrivals up 10.7 pct y-o-y The city attracted some 473,000 visitors during the two days of the Christmas holiday, an increase of 10.7 per cent year-on-year, according to data published by the Public Security Police Force (PSP) yesterday. Of the total, about 41 per cent, or some 192,000 visitors, were from Mainland China. The Border Gate recorded the
greatest number of visitor arrivals during the weekend when compared to other ports of entry to the city, with some 340,000 entries recorded, accounting for 72 per cent of the total. The Outer Harbour Ferry Terminal recorded about 53,000 visitors, of which 49 per cent, or some 26,000 visitors, were from Hong Kong. A.L.
Business Daily Tuesday, December 27 2016 3
Macau Crime
Coincidence time Nephew of former Prosecutor-general Ho Chio Meng removed from position at Public Prosecutor’s Office Nelson Moura with Lusa nelson.moura@macaubusinessdaily.com
T
he n e p h e w o f former Prosecutor-general Ho Chio Meng was removed from his position with the Public Prosecutor’s Office two days after his uncle mentioned that he had received requests from two government officials to appoint family members to cabinet positions. According to news agency Lusa, Ieong Chon Kit ceased his functions as a 1st level
Deputy Technical Specialist on December 14, having worked in the Public Prosecutor’s Office in 2008 during the time his uncle was Prosecutor-general. The decision comes after the former top official stated during a court hearing that he had received calls, while he was Prosecutor-general, from two Secretaries surnamed Chan, regarding requests for cabinet appointments for their relatives. Secretary Sonia Chan has since confirmed to the press that she did call Mr. Ho to
recommend a family member but denied any illegality or nepotism. The Official Gazette dispatch, announcing the employment termination of Ho’s nephew, was signed by the Chief-of-Staff of the Public Prosecutor’s Office, Tam Peng Tong, husband of Secretary Chan. However, according to the release, Mr. Ieong was informed of his termination prior to the start of his uncle’s trial, on December 9. Mr. Ieong was also mentioned during the ongoing corruption trial of the former top official, with Mr. Ho being accused of having taken his wife and nephew - then a minor - to a Public Prosecutors Conference in Denmark in 2005, for which travel expenses were paid by the Public Prosecutor’s Office.
Former Prosecutor-general Ho Chio Meng
According to the accusation, the trip included private visits to the Netherlands, Germany and Scandinavia, with the former Prosecutor
stating to have had authorisation from then-Chief Executive Edmund Ho Hau Wah to take his spouse and cover the expenses of his nephew.
Government
CE delivers year-end remarks
The three directions highlighted for improvement are tourism, finance and cultural exchange.
Chui Sai On delivers final 2016 address following his annual official visit to Beijing. Tourism development, commercial partnerships, and sharper urban planning policies topped the agenda
The MO
Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The MSAR economy is set for expansion next year on the back of ‘balanced finances and budget surpluses during the economic adjustment period’ of 2015 and 2016, according to a press release published by the government regarding Chief Executive Chui Sai On’s annual official visit to Beijing. During the Chief Executive’s trip he met with President Xi Jinping and Premier Li Keqiang, presenting the work conducted by the Macau SAR Government during 2016 as well as the Policy Address for the 2017 Fiscal Year. According to the release, the officials acknowledged the government’s work and reaffirmed their intention to support the city’s economic
development and improve the population’s quality of life. In addition to an increased participation of Macau in the ‘One belt, one road’ national programme, the release notes that the authorities urge the local government to concentrate its efforts on the transformation of Macau into a World Centre for Tourism and Leisure, and a platform of services for commercial co-operation between China and the Portuguesespeaking countries. They also expect improved integration of Macau’s first 5-year plan with the 13th national 5-year plan. The Chief Executive said he plans to strengthen co-operation along the “Road” – which passes through 60 countries and territories – primarily with Guangdong and Fujian.
Drugs
Legislator’s sons fall foul of the law The two sons of directly elected leg islator Jose Pereira Coutinho have allegedly been involved in a drug bust and are currently under arrest, local news outlet MASTV reported. The two arrested - aged 31 and 27 - were allegedly in possession of MOP500,000-worth of cannabis. Coutinho responded to MASTV messages saying that he is very upset about the incident, commenting that he has been too busy and did not give enough attention to his sons. When asked whether the incident
would affect his performance for the election next year, the legislator replied ‘maybe not’. Regarding the case itself, MASTV has commented that the police force is repeatedly criticized for previously concealing information on cases involving suspects with ‘special’ identities. Information such as the occupations of the arrested brothers, as well as the time and the process of arrest, were not mentioned during the arrest announcement unlike general case releases. C.U.
Regarding the creation of a “fourth space” - a reference to the possibilities presented by the concession of 85 square kilometres of territorial waters to Macau this year - the CE said that any development plans, such as new reclaimed land, would have to be implemented in accordance with the Urban Planning Law. Regarding the territorial waters, Mr. Chui notes that the development of Macau’s maritime economy should
follow three focuses; namely, legislative work, maritime management, under the jurisdiction of Customs, and planning. Other themes in his pronouncement included the status of the light railway (LRT) in Taipa, the Guia building controversy, currently being evaluated by UNESCO, and the hiring of professional drivers from outside Macau. During his visit to Beijing, the CE also met Wang Guangya, the Director of the Office for Hong Kong and Macau Affairs to the State Council, and Zhang Dejiang, President of the National Popular Assembly.
4 Business Daily Tuesday, December 27 2016
Macau
Demographics
MSAR population surges to 650,900 In 2016, the city’s total population increased by 17.8 pct compared to five years ago Cecilia U cecilia.u@macaubusinessdaily.com
T
he city’s population reached 650,900 as of August this year, posting an increase of 17.8 per cent compared to the number recorded in 2011, according to the latest preliminary results of the by-Census, released by the Statistics and Census Bureau (DSEC). According to the results, the average annual growth rate of the population was 3.3 per cent over the past five years, higher than the average growth rate of 1.9 per cent seen during the 2006 to 2011 period. The DSEC data reveals that the local population, excluding non-resident workers and foreign students, similarly saw an increase of 10.5 per
cent to 536,400 during the 2011-2016 period. Households in the territory have posted an increase of 10.4 per cent since 2011, reaching 188,600 in August, with the average household size decreasing slightly from 3.08 persons in 2011 to 3.06 persons this year. The youth population, comprising those younger than 14 years of age, amounted to 77,900, comprising 12 per cent of the total population. The adult population, with residents aged 15 to 64, totalled 513,600, while its proportion of the total population decreased by 1.9 percentage points five years ago to 78.9 per cent. Residents aged 65 or above increase by 1.9 percentage points to 9.1 per cent, amounting to 59,400. Meanwhile, the city supported
Trade
Tariff-free exports Cecilia U Cecilia.u@macaubusinessdaily.com
The city’s exports to Mainland China will be tariff-free next year, with neighbouring Hong Kong also enjoying the same beneficial treatment. The Chinese Ministry of Finance announced in a press release that the central government is adjusting the country’s imports arrangement and that the new trade adjustment will commence on the first day of next year. The Mainland plans to reduce tariffs on exports from Australia, New Zealand, Pakistan, Peru, Costa Rica, Switzerland, Iceland and the Republic of Korea. The tax rate for the exports from the countries listed (Singapore and Chile, the Association of Southeast Asi a n Nati o n s ( AS EA N ) , a n d member countries of the Economic and Social Commission for Asia and the Pacific (Bengal, India, Laos, Sri Lanka, Thailand, the Philippines and Mongolia) will remain unchanged,
and the list of goods imported as well. According to the press release, the plan was triggered by the high demand for advanced equipment, key components and energy and raw materials. The Ministry of Finance also will reduce the tax on imported commodities such as tuna, as well as ingredients for medical production to enrich consumer choice and citizen healthcare. Meanwhile, the central government will scrap export tariffs on nitrogen and phosphate fertilizers. Steel billets will have export tariffs reduced in the year ahead. Mainland China will also continue to reduce its Most-FavouredNation Rate of Duty on information technology products during the first half of 2017 and increase reduction in the second half, involving some 280 products. For 2017, the number of items to be taxed will reach 8,547 on the Mainland.
314,000 males and 336,800 females, accounting for 48.2 per cent and 51.8 per cent of the population, respectively.
population, residents born in Macau accounted for 49.4 per cent, up 2.8 percentage points compared to five years earlier.
Mainland-born outnumber Macau-born
Coloane blooms
Of the total population, 265,100 were born in the city, while 284,100 were born in Mainland China, constituting 40.7 per cent and 43.6 per cent of the total population, respectively. DSEC data also shows that the number of non-resident workers living in the city had soared 68.8 per cent compared to five years ago, at 105,200. The substantial growth in the number of non-resident workers has led to an increase of 2.9 percentage points in the proportion of the population born in other countries or regions vis-a-vis the 12.3 per cent registered in 2011. Meanwhile, in terms of the local
With the completion of public housing units in Taipa and Coloane, the number of people living in the Coloane Island area and in the Pac On and Taipa Grande area has rocketed 531 per cent and 127 per cent, respectively, compared to the data of 2011. Meanwhile, Areia Preta and Iao Hon region remained the most populated district in the city, accounting for 11.8 per cent of the total population. This was followed by Baixa da Taipa (10.4 per cent) and NATAP – near Areia Preta (9.9 per cent). Regarding population density, the city has reached 21,400 persons per square kilometre, indicating an increase of 15.9 per cent vis-à-vis the 18,478 persons per square kilometre of 2011.
Business Daily Tuesday, December 27 2016 5
Macau Travel
Heavy snowfall strands 500 Hong Kong, Macau travellers in Sapporo About 80 local residents have requested assistance from the MSAR Tourism Crisis Management Office Annie Lao annie.lao@macaubusinessdaily.com
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bout 500 Hong Kong and Macau passengers were forced to stay overnight in the New Chitose Airport in Sapporo, Japan last night due to heavy snowfall leading to delayed and cancelled flights, according to local Chinese language newspaper Macao Daily. At least nine flights between Hong Kong and Sapporo, Japan have been cancelled so far, while the airport itself was closed yesterday due to the inclement weather. Yesterday, 103 flights were cancelled and about 2,600 passengers were forced to stay in the airport overnight, the publication notes. Macau’s Tourism Crisis Management Office (GGCT) told Business Daily that up until now the Office has received 21 requests for assistance involving more than 80 local residents in Sapporo. The Office is now in touch with their counterparts in Japan to seek ways to assist the stranded Macau passengers as much as possible. According to Macao Daily, more than ten tour groups travelling to Hokkaido were affected. Local residents travelling to Hokkaido
usually join tours organised by Hong Kong travel agencies given that those in the MSAR don’t normally include it as a destination. The Chinese Consulate General in Sapporo has sent food and water to the airport for stranded Macau and Hong Kong passengers. Cathay Pacific and Hong Kong Airlines have planned an increased number of flights to the affected airport to assist in returning Macau and Hong Kong passengers from Sapporo, pending improvement in weather conditions. Last Friday, the island of Hokkaido had its strongest snowfall on record for the past 50 years. Sapporo recorded 96 centimetres of snow on Friday night. Since then, the snowfall has caused
the cancellation of some 280 flights, with about 6,000 passengers stranded in the New Chitose Airport over the weekend.
No impact
Andy Wu Keng Kuong, president of Macau Travel Industry Council, told Business Daily yesterday that despite the heavy snowfall in Japan, it will not have a negative impact upon local residents’ desire to travel to the country in the future. “This heavy snowfall happening in Hokkaido last week was rare and this is something we cannot have control over. It does have a certain impact on the tours organized by the Hong Kong travel agencies going to Japan. However, the affected tours may have options to change to travel to nearby
Korea instead,” Wu explained. “In fact, the local residents will still want to travel to Japan either in the short or long term.” In general, Wu noted that there had been a 10 per cent year-on-year increase in Macau residents travelling overseas during this year’s Christmas holiday. When asked whether the current economic downturn could have a negative impact upon the desire of locals to travel overseas this year Wu opined that it has had no direct impact on their overseas travel plans. Nevertheless, local residents are tending to choose shorter trips - such as those to Japan or Korea – rather than long-haul flights to destinations such as Europe, Wu commented.
6 Business Daily Tuesday, December 27 2016
Gaming New law
New Japanese law legalizing casino gambling takes effect amid controversy, concerns Japanese law had previously banned casinos, but gambling in other forms is permitted such as at pachinko parlours and on horseracing and motorboat races
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new law making casino gambling legal came into effect on Monday, after the ruling coalition led by Prime Minister Shinzo Abe successfully pushed the controversial bill and related legislation through both chambers of parliament amid staunch political and public opposition. The new law will now make it possible for the government to forge ahead with its plans to enhance revenue from tourism by building integrated resort (IR) facilities, combining shopping malls, large conference halls and other entertainment facilities, in the same establishments as the casinos. Japanese law had previously banned casinos, but gambling in other forms is permitted such as at pachinko parlours (by way of a payout loophole) and on horseracing and motorboat races. National lotteries, and “toto” betting (football pools) are also permitted under special legal provisions. The ruling Liberal Democratic Party (LDP) coalition, however, was forced to shoot down, by using its vast majority in parliament, attempts by the opposition camp to stall the controversial casino bill passing the lower house. Those going against the bill included the main opposition Democratic Party, Japanese Communist Party, Liberal Party and Social Democratic Party, agreeing to submit a no-confidence motion against the Cabinet of Abe in the lower house on Dec. 14. Separately, the Democratic Party submitted a censure motion against the prime minister in the upper house. Democratic Party leader Renho said the casino bill threatens the “dignity of the legislature” and thus her party wanted to find a way to see it scrapped. However it was passed in the 11th hour in the upper caucus of Japan’s bicameral system of parliament on Dec. 14. Other related bills had been “steamrolled” through both chambers against the will of the public. The bill initially cleared the lower house on Dec. 6 amid calls from the
opposition collectively that it had been forced thorough by the ruling bloc. The move was reminiscent of the steamrolled passage through both caucuses and into law by Abe and his administration of the controversial security legislation. The bill has, albeit unconstitutionally, expanded both the geographical and operational scope of Japan’s Self-Defence Forces. The law to legalize casino gambling coming into force will now see the Abe-led government put together additional legalization for the implementation of the casinos, with the current law containing clauses prompting the government to, within one year, create legal provisions to deal with problems connected to the casinos.
Problem gambling
Concerns casino gambling will lead to a rise in gambling addiction are now rife in the country. Noriko Tanaka, president of the Society Concerned About the Gambling Addiction, a Tokyo-based non-profit group, currently informed both society and the government of the potential dangers. “Politicians claim they are concerned about a rise in gambling addicts. But the current bill is insufficient in resolving those problems and needs to be revised,” Tanaka, whose group has conducted nationwide seminars and advised political parties on the matter, said recently. “The Diet needs to have a discussion about a robust campaign to prevent gambling addiction,” Tanaka said, with reference to the nation’s more than 5 million gambling addicts, and rising incidents of gambling-related crime. “Despite being referred to as ‘a gambling superpower’, Japan is said to be lagging behind other countries by 10 to 30 years in taking action about gambling addiction...,” a statement on Tanaka’s website reads. Abe’s ruling bloc believes, however, that the opening of new casinos will be capable of generating revenue well beyond the uptick expected
from tourism related to the Tokyo Olympics and Paralympics in 2020, although it would be highly unlikely that any casinos will be operational before the Olympics. The integrated resorts could generate revenue of up to US$30 billion, according to estimates, rivalling gambling meccas like Las Vegas and Macau, and could be a vital source of revenue for Japan’s flagging economy. But further related bills still need to be ratified in the Diet against decades of political and social opposition that saw the bills finally shut down by the opposition in 2013. Opposition parties and the public have, for the longest time, been vehement about the casinos’ potential negative effects on society, with gambling addiction often cited as a possible harmful by-product, along with organized crime. The major cities of Tokyo,
Yokohama and Osaka, have all been slated as possible locations for the casino resorts, but the public remain perturbed as reflected in an editorial on the matter carried in a major daily recently stating that: “Gamblers’ losses are what makes the casinos money. It’s truly unhealthy to build a growth strategy on exploiting others people’s misfortune and bad luck.” The ruling coalition itself has found little public support for the casinos, with a survey taken by Japan’s public broadcaster NHK revealing that a mere 12 per cent of respondents were in favour of scrapping the former ban on casinos, while 44 per cent were opposed. The rest, according to NHK, were undecided, with the figures underscoring the opposition camp’s claims of the “steamrolling” of the casino bill by the ruling bloc to allow the new law to be enacted Monday. Xinhua
suspended after President Duterte ordered the arrest of Lam, founder of junket group Jimei International Entertainment Group Limited, on charges of economic sabotage and
bribery, after more than 1,300 illegal workers were discovered in a raid on his Fontana Leisure Park and Casino Hotel in Pampanga at the Clark Freeport Zone on the island of Luzon.
Gaming
False alarm The Philippines gaming commission chairperson has clarified President Rodrigo Duterte’s statements that online gaming operations would be closed down, stating only unlicensed operations will be targeted Nelson Moura nelson.moura@macaubusinessdaily.com
Only unlicensed online gaming operations in the Philippines will be closed down, according to the Philippine Amusement and Gaming Corp. (Pagcor) Chairperson, Andrea Domingo, according to Philippines newspaper The Philippine Star. She also added that an executive order will be made to clarify the issue and prevent misunderstandings. The statements come one day after comments made on December 22 by the country’s President Rodrigo Duterte that online gaming operations in the Philippines would be closed. According to the newspaper, last
week while approving the country’s budget for 2017 President Duterte stated that all online gaming firms should be closed since the country’s government wasn’t collecting taxes from bets placed abroad. The country’s Justice Secretary, Vitaliano Aguirre, has also issued a statement saying that only online gaming operators breaking the law and not paying due taxes will be closed - using the case of Macau businessman Jack Lam as an example - while saying operators that complied with Pagcor regulations “have nothing to fear”, the publication notes. Mr. Lam’s land-based and online casino operations in the country were
Business Daily Tuesday, December 27 2016 7
Gaming AML
Saipan casino suit alleges anti-money-laundering policy breaches It’s the third court action related to the casino within two weeks Daniela Wei
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former e m p l o y e e o f I m p e r i a l Pa c i f i c International Holdings Ltd.’s casino on the U.S. territory of Saipan sued the company for wrongful termination on Thursday, alleging that he witnessed violations of its anti-money-laundering procedures and was fired for trying to rectify them. I m p e r i a l Pac i f i c “ f a i l e d t o implement or enforce an adequate” anti-money laundering program, and management ignored complaints and reports of violations, the suit, filed by Danny Ewing, former vice president of table games at the company’s casino, Best Sunshine Live, alleged in the court document filed in Saipan’s U.S. District Court. It’s the third court action related to the casino within two weeks. U.S. Secretary of Labour Thomas Perez filed a motion in the same court seeking a warrant to enable the Occupational Safety and Health Administration to inspect a construction site for Imperial Pacific’s planned new casino in Saipan, according to a document filed Dec. 15. The motion follows a failure by OSHA inspectors to obtain access to the site to investigate a worker’s death and alleged safety violations, according to the court document. Separately, a Saipan company, RNV Construction, sued Imperial Pacific on Dec. 12 in the same U.S. District Court for US$1.7 million in unpaid construction bills for building Best
Sunshine Live, which Imperial Pacific has said is a temporary facility while the new casino is being built. Imperial Pacific declined to comment about the two lawsuits. Regarding the warrant application, the company said it welcomes inspection and would coordinate with its contractor to allow it. Shares of the company are down 38 per cent this year.
FinCEN attention
Mark Brown, Imperial Pacific’s chief executive officer and a former senior executive in U.S. President-elect Donald Trump’s Atlantic City casino operations, said in an interview last month that the Saipan operation complies with all relevant moneylaundering and other regulations, and that bets are closely monitored by local and U.S. regulators. The large volumes of bets at the Saipan casino have drawn the attention of the U.S. Treasury’s Financial Crimes Enforcement Network, or FinCEN, which is responsible for alerting prosecutors
and other authorities of suspicious financial flows, a person familiar with the matter said last month. Imperial Pacific has said it’s not aware of any investigations of the casino. In the latest suit, Ewing alleged that “Imperial Pacific was engaging in practices that were in violation of the law and contrary to the public policy of both the United States” and Saipan. In one case, the casino allowed a customer to deposit US$400,000 with the casino’s cashier without the identification required by its antimoney-laundering procedures, the suit alleged.
OSHA inspectors
The suit alleged that Ewing also informed the management that it was a violation of FinCEN regulations to provide players with explanations of how to structure transactions to avoid reporting requirements, but he was told to cease his complaints and would be terminated if he escalated them to upper management. He was fired Aug. 1, with no advance notice and no reason given, according to
the complaint. The lawsuit seeks unspecified damages. The separate action by the U.S. labour secretary, against Imperial Pacific’s contractor, MCC International Saipan Ltd., followed an incident on Dec. 6 when OSHA inspectors visited the building site for the new casino and were denied entry, the document said. The OSHA inspector sought to investigate a worker’s death and an emergency room doctor’s tip that a number of workers were seriously injured every day at the construction project, the court document alleged. About 80 serious injuries from the site have been logged this year at a Saipan hospital, the Commonwealth Health Centre, including amputations and fractures, according to the filing. Imperial Pacific declined to comment on any allegations of injuries or safety issues at the construction site. MCC didn’t respond to e-mailed and phone requests for comment on the court action. Construction workers at the site also went on strike last week over alleged unpaid wages by MCC, according to the local Saipan Tribune. MCC also didn’t reply to requests for comment on the labour action. Brown had said in the interview in November that he planned for the new resort, ultimately envisaged to cost US$7 billion and include 20, sixstar hotels and 11 casinos, to attract more Chinese gamblers and become a tourist draw within Asia. Bloomberg
Bond
Saipan casino bond on hold risks future of US$7 bln resort Imperial Pacific could lose a key source of financing for its casino project, ultimately envisioned to encompass 20 six-star hotels and 11 casinos Carrie Hong and Daniela Wei
A bond offering that gaming operator Imperial Pacific International Holdings Ltd. planned to use to fund construction of a new casino on the remote Pacific island of Saipan has been put on hold, according to people with knowledge of the matter, raising questions about the project’s future. The firm had planned to raise US$200 million to US$400 million, according to the people, who asked not to be identified as the discussions are private. Investors wanted a higher yield than the 10 per cent to 11 per cent that the Hong Kong-listed company was willing to offer, the people said. Imperial Pacific, with a market value of US$1.9 billion, planned to use the funds for the first phase of its new casino in the U.S. territory that was slated to open next year. It’s currently operating there from a temporary facility. With the bond off the table for now, Imperial Pacific loses a key source of financing for its casino project, ultimately envisioned to cost US$7 billion and encompass 20, six-star hotels and 11 casinos. Its current facility, Best Sunshine Live casino,
posted daily per-table VIP revenue of about US$170,000 in the first half of 2016, almost eight times the average of Macau’s largest casinos, according to company filings. Imperial Pacific declined to comment on the status of its bond offering or its operations generally. Some potential bond investors
travelled to Saipan to tour the construction site in late September and met with the island’s tourism board and the casino commission that oversees Imperial Pacific, according to the people. Subsequently, investors and the company couldn’t agree on terms, the people said.
Regulatory risk
The reason, they said, was that the pricing of the security didn’t sufficiently compensate them for the possible risk that Saipan’s gaming laws could someday change and
make it more difficult for Imperial to operate there, according to the people. The deal was dropped by two of the lead underwriters in October, the people said. The casino commission didn’t respond to an e-mail and phone messages seeking comment on the investors’ trip and their concern about possible regulatory changes. Last month, Moody’s Investors Service assigned Imperial Pacific a B2 credit rating, five levels below investment grade, and put it under review for a possible downgrade because of the delay in selling bonds to help finance the project. The company’s receivables, which mainly comprise credit loaned to customers for gambling, tripled in the first half on unpaid bills of VIP gamblers, and it had enough cash to cover 18 per cent of its short-term debt as of June 30, according to a company interim report. Moody’s said its review will focus on the company’s “ability to secure sufficient long-term funding” as well as the “management of money-laundering risk to ensure that its gaming business in Saipan is sustainable.” “Potential investors would start to question what other alternatives might be available for the company,” said Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. in Singapore. Bloomberg
8 Business Daily Tuesday, December 27 2016
Greater China Bond
China Inc. struggle to sell bonds poses quandary for economy Bond issuance in December by Chinese companies and banks is less than the amount of notes they must repay this month
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hina’s roaring bond engine is stalling heading into the new year, posing a quandary for policy makers as they try to curb leverage while keeping economic growth on track. Bond issuance in December by Chinese companies and banks is RMB142 billion (US$20.4 billion) less than the amount of notes they must repay this month, data combined by Bloomberg show. That’s set for the biggest monthly gap on record. As borrowing costs soar, firms have canceled or postponed at least RMB117.5 billion of bonds, up from RMB29.7 billion in November. That’s dragged total issuance down to RMB266 billion, less than a third of November. “Such a small amount of bond sales will be a blow to corporate financing,” said Wu Sijie, a senior trader at China Merchants Bank Co. “There needs to be a balance between the policy of deleveraging and companies’ demand for fundraising. It’s hard. The regulators need to draw a fine line.” The dilemma for policy makers is this: How to rein in runaway debt of zombie firms, while not disrupting the financial lifeblood for productive companies. Authorities have championed the bond market in recent years as a more transparent, well-regulated alternative to shadow banking and it had been thriving. Even after the slump in issuance, total note sales this year are already at a record RMB8.9 trillion from RMB8.3 trillion in 2015.
Financing-cost jump
The economy is ending the year on a bright note with industrial output expanding and retail sales accelerating. Authorities have used that improvement as an opportunity to trim leverage, increasing short-term money-market rates and tightening rules on using debt as collateral to buy even more securities. That pushed companies’ borrowing costs up to the highest in 19 months, with the
Investment
investments, policy makers have also moved to assuage market panic. The People’s Bank of China on Tuesday asked some lenders to provide funds to the market via the so-called X-Repo system, which allows members to submit bids for repurchase contracts anonymously, according to people familiar with the matter. “China’s corporate bond issuance is set to moderate in 2017,” said Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc in Singapore. “But we believe the policymakers will target a soft-landing in credit growth in the coming year, not a hard landing. So a slump in credit growth will likely prompt policy accommodations.” Bloomberg
Monetary
China 2016 outward investment tops US$161 bln China’s non-financial outbound direct investment is likely to hit RMB1.12 trillion (US$161.19 billion) in 2016 and foreign direct investment into China will total RMB785 billion, Commerce Minister Gao Hucheng said on Monday. The government will “promote the healthy and orderly development o f o u tb o u n d i n v est m e n t a n d cooperation” in 2017, Gao said in remarks at a conference that were published on the ministry’s website. China’s ODI in November jumped 76.5 per cent from a year earlier and it rose 55.3 per cent in the first 11 months of 2016, the ministry’s data
yield premium of seven-year AAA corporate bonds over government notes widening to 121 basis points on December 21. Adding to concern about transparency in the bond market, China Guangfa Bank Co. said Monday that documents and seals for a letter claiming to guarantee note payments by the lender were forged, in the second such incident in the nation this month. “If liquidity remains so tight, financing costs for the whole real economy will be very high, which is unsustainable,” said Wang Shen, a Shenzhen-based fund manager at Bosera Asset Management Co. While taking steps to rein in risky
showed, as local firms continued to invest abroad amid a slowing economy and weakening yuan. Beijing has announced a string of measures recently to tighten controls on money moving out of the country, including closer scrutiny of outbound investments, as the yuan skids and the country’s foreign exchange reserves fall to the lowest levels in nearly six years. China will further enhance the competitiveness of its foreign trade and consolidate recent good momentum, Gao added. For all of 2015, the ministry reported non-financial ODI of RMB735.1 billion, and FDI of RMB781.4 billion. Reuters
More focus on risk prevention as China signals monetary policy shift: newspaper As China adds “neutral” to its monetary policy description for next year, there will be more emphasis on de-leveraging, curbing asset bubbles and preventing risks, “Economic Information Daily” reported Monday. The report predicted that China’s M2, a broad measure of money supply that covers cash in circulation and all deposits, would increase by 12 per cent next year. During the Central Economic Work Conference this month, China decided to keep monetary policy “prudent and neutral” and ensure stable liquidity in 2017. There will be more emphasis on preventing and controlling financial risks, especially asset bubbles. The word “neutral” reflects an adjustment in monetary policy, said Li Yang, head of the National Institute for Finance and Development, a government think tank. While stability is still important, asset bubbles and other risks are seen
as growing and the government must protect against them, Li said. Risk control and prevention means better control of money supply, said Sheng Songcheng, a central bank advisor. He agreed that M2 is unlikely to increase by more than 12 per cent next year. M2 had risen 11.4 per cent year on year to RMB153 trillion at the end of November, according to the central bank Turning monetary policy to “neutral” does not mean a drastic tightening of control. Liu Ligang, chief China economist of Citic Group, expects the central bank to inject liquidity in a more targeted manner, just as it supported real economy and infrastructure investment under the Belt and Road Initiative by providing liquidity to policy banks. While maintaining neutrality, if there is a notable capital outflow, the central bank may yet cut reserve requirement ratios, said Liu. Xinhua
Business Daily Tuesday, December 27 2016 9
Greater China Electric Car
Power surge: Chinese electric car battery maker charges for global market Jake Spring
A dusty village on the outskirts of Ningde, a third-tier city in China’s southeast, seems an unlikely place for the headquarters of a potential global leader in future automotive technology. Yet China’s top-down industrial policy diktats - move up the value chain, clean up polluted urban skies, and shift to plug-in cars - have Contemporary Amperex Technology Ltd (CATL) poised to go from hometown hero to national champion, and beyond. China’s answer to Japan’s Panasonic Corp and South Korea’s LG Chem Ltd has tripled its production capacity for lithium-ion car batteries in the past year to keep up with a surge in China’s sales of electric cars. After a second major funding round completed in October, the company’s value quadrupled to RMB80 billion (US$11.5 billion), CEO Huang Shilin said last week.
Key Points CATL valued at US$11.5 bln as of end-Oct Riding subsidy-driven boom in electric vehicle sales Expanding abroad, customers include BMW CATL, which hopes to list on Beijing’s over-the-counter exchange as part of plans to raise at least another RMB30 billion by 2020, could be a dominant force globally. It has already overtaken LG Chem in lithium-ion car battery output, and is chasing down Panasonic and Warren Buffett-backed BYD Co Ltd. CATL plans to grow its battery capacity sixfold by 2020 to 50 gigawatt hours, which could put it ahead of Tesla Motor Inc’s gigafactory in Nevada. “We continue to walk where the country guides us,” Huang said. “We hope by 2020 we can achieve performance and price that lead the world.” The company, founded just five years ago, is already pushing beyond China’s borders, with offices in Sweden, Germany and France
and plans to build a factory in Europe. Company representatives say that because of non-disclosure agreements they can only list BMW as a customer for now. Despite the ambitious expansion, the emerging segment’s dependence on government policy and rapidly evolving technology is not without risk. A123, a U.S. automotive battery maker, went from IPO to bust in just three years as battery costs remained stubbornly high and orders dried up. “People think we’re a big successful company, but we think we’re in jeopardy every day,” marketing director Neill Yang said. “The market environment and technology changes so fast that if we don’t follow the trend we could die in three months.”
TDK separated from CATL to focus on batteries for mobile consumer electronics, but still collects royalties on some intellectual property used by CATL, a spokesman for the Japanese company said. “The reason is strategic and confidential. ATL still keeps a close relationship with CATL,” said a person familiar with the situation, who was not authorized to speak to the media. ATL and CATL still share a Ningde campus, although the front gate and main office bear only the ATL name. Zeng, a Ningde local with a doctorate in chemistry, appears to be the remaining link between the two companies he founded. He declined an interview request.
Building a champion
While government support for electric cars has driven demand for components such as batteries, Beijing is also rolling out other policies that could benefit leading producers like CATL, by forcing smaller firms to consolidate or go out of business. The Ministry of Industry and Information Technology (MITI) said last month it is considering a rule that would increase minimum production requirements for battery makers by around 40 times to 8 gigawatt hours. Only BYD and CATL are roughly in line with that minimum, though
To become a Chinese champion, a battery maker must first shed any foreign investment to be eligible for subsidies and other policy support, people in the industry say. Before he set up CATL, Robin Zeng had started Amperex Technology Ltd (ATL), a company now majorityowned by Japan’s TDK. ATL initially had a 15 percent stake in CATL, but liquidated that holding last year, Yang said, when electric vehicle sales first started to take off. He declined to elaborate on the circumstances of that divestment.
Policy support
Chinese media reports suggest Hefei Guoxuan High-Tech Power Energy Co Ltd and Tianjin Lishen Battery Joint-Stock Co Ltd may be close to or above that level by next year. Yang said subsidy support for batteries is fairly modest compared to those for producing electric vehicles, which totalled US$4.5 billion last year alone. CATL has been nominated as one of three battery makers - with Guoxuan and Lishen - for incentives under China’s 13th Five-Year Plan, promising around US$15 million if it can meet targets, Yang said. He noted, though, that a single production line costs US$40 million. Among national 2020 targets: to halve battery costs to below RMB1 per kilowatt hour, and improve energy density by two-thirds. To get there, CATL is ramping up spending on research and development, where it employs more than 1,000 people with advanced science degrees. “The strength of their R&D investment is quite large,” said Fu Yuwu, chief of the Society of Automotive Engineers of China, adding he hopes the company can become a global leader. “They have such large scale and the support of China’s huge market, all the more reason they should do a good job of internationalizing,” he said.
Automobiles
China fines GM venture US$29 mln for monopolistic pricing Jake Spring and Norihiko Shirouzu
China will fine U.S. automaker General Motors Co’s joint venture RMB201 million (US$29 million) for monopolistic pricing, state television reported on Friday, ending speculation after an official warned of penalties against a U.S. carmaker. Shanghai’s pricing regulator said it would fine GM’s venture with China’s largest automaker SAIC Motor Corp Ltd for setting minimum prices on certain Cadillac, Chevy and Buick models, according to China Central Television. “GM fully respects local laws and regulations wherever we operate,” the U.S. automaker said in an emailed statement. “We will provide full support to our joint venture in China to ensure that all responsive and appropriate actions are taken with respect to this matter.” SAIC did not immediately respond to a request for comment. The fine follows comments by U.S. President-elect Donald Trump questioning the “One China” policy and his naming of Peter Navarro, a hardliner on trade with China, as a trade adviser, although there is no
evidence that the penalty is a form of retaliation. A n o ffi ci a l at th e Nati o n a l Development Reform Commission on December 14 told state-owned China Daily that the commission would fine a U.S. automaker for monopolistic
behaviour, sending GM and Ford Motor Co shares skidding. Auto industry sources have told Reuters the investigation was already underway before Trump’s recent comments, although it has raised fears that China could be
seizing on the case to send a shot across the bow of the incoming U.S. administration. The penalty is the latest against automakers after the commission began investigations in 2011, with Audi AG, Daimler AG’s MercedesBenz, Toyota Motor Corp, and one of Nissan Motor Co Ltd’s joint ventures previously being targeted. Reuters
10 Business Daily Tuesday, December 27 2016
Greater China In Brief Insurance
China insurers’ premium incomes up 28.9 pct in Jan-Nov Premium incomes of Chinese insurers grew 28.9 per cent in the first 11 months of 2016, compared with the same period the previous year, according to the insurance regulator. Premium incomes reached RMB2.9 trillion (US$418 billion), the China Insurance Regulatory Commission said in a statement posted on its website. Premium incomes of life insurers grew 33.1 per cent to RMB1.66 trillion while premium incomes of property insurers rose 8.7 percent to RMB777 billion. Despite the increase in insurance premium incomes, profits of insurance firms have been on the decline, dragged down by falling investment returns in a low interest rate environment and a stock market downturn. As of end-November, the industry had combined assets of RMB15 trillion, up 21 per cent from the beginning of the year. Economy
China’s rust belt shows signs of economic recovery China’s northeastern rust belt showed signs of economic recovery with more projects under construction, the country’s top economic planner said Monday. A total of 46,240 projects were under construction in northeast China in the first 11 months this year, 1,083 more compared with last year and marking the first year-on-year rise this year, according to data released by the National Development and Reform Commission. Meanwhile, northeast China saw 1,590 more new projects in the period compared with 2015, also increasing for the first time this year. The provinces of Liaoning, Jilin and Heilongjiang in the northeast were among the first areas in China to be industrialized. However, this industrial base has been faced with a more acute slowdown than the rest of the country, trailing well behind in terms of GDP growth. China issued guidelines in mid-November to accelerate reforms in administration, stateowned enterprises and the private economy to give full play to the region’s vitality. Property
Beijing to take more steps to cool home market Beijing, one of China’s hottest residential real estate markets, will step up property controls to keep home prices stable next year, the official Xinhua news agency reported on Sunday. Stoked by speculators, home prices in the capital are already too high, and rising social tensions pose enormous challenges to Beijing’s stability, Xinhua reported, citing the Beijing Municipal Committee. Average new home prices in Beijing rose 26.4 per cent in November from a year earlier, slowing for the second month following cooling measures taken by the government. More than a dozen Chinese cities including Tianjin, Shanghai, Guangzhou and Shenzhen have taken measures to curb property speculation, partly fuelled by easy credit. China will impose strict limits on credit flowing into speculative buying in the property market in 2017, top officials said at an annual economic conference earlier this month.
Environment
China to levy new taxes in bid to strengthen pollution fight The new taxes will come into force on January 1, 2018
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hina’s largely rubber-stamp parliament passed a law on Sunday that will levy specific environmental protection taxes on industry for the first time from 2018, as part of a renewed focus on fighting the country’s pollution woes. Anger has risen in the world’s second-largest economy at the government’s repeated failure to tackle land, water and air pollution, with large parts of northern China enveloped in dangerous smog in recent days. “Tax revenue is an important economic means to promote environmental protection,” the Finance Ministry said in a statement. The tax rate will be RMB1.2 (US$0.17) per unit of atmospheric pollution, RMB1.4 per unit of water pollution, RMB5 per tonne of coal waste and RMB1,000 per tonne of “hazardous waste”. Industrial noise polluters will also be levied RMB350 per month if they
exceed limits by 1-3 decibels, RMB700 for 4-6 decibels and RMB11,200 per month for 16 decibels and more. The law goes into effect on January 1, 2018. China has not previously imposed any specific environmental taxes, and the new levy will replace an earlier system of miscellaneous charges that are regarded as far too low to deter polluters. Officials have repeatedly stressed that the new policy is not designed to increase the tax burden on enterprises. “The core purpose (of the policy) isn’t to increase taxes, but is to improve the system, and encourage enterprises to reduce emissions - the more they emit the more they will pay, and the less they emit the less they will pay,” environment minister Chen Jining said earlier this year. The details of the new law have been fiercely contested by the Ministry of Environmental Protection,
the Ministry of Finance, the State Taxation Administration and local governments, and has been subject to repeated delays. Conflicts of interest have emerged as other departments worry about lost revenues once the previous system of emission discharge fees is abolished. Some government researchers have also argued that carbon dioxide and other greenhouse gases should be included in the plans. Jia Kang of the Ministry of Finance’s Institute of Fiscal Science complained this year that the environmental tax proposals were far too conservative, with the tax rate per tonne of sulphur dioxide still much cheaper than paying for the equipment required to stop it entering the atmosphere. He suggested that, in order to avoid increasing the tax burden on firms, other business taxes should be cut and replaced by the environmental tax, which would give authorities a more powerful tool to force a firm to improve its environmental performance. Reuters
Oil
Chinese firms face competition in developing Iranian oilfields Iran plans to invite tenders from international oil companies for the second phase of its Yadavaran and North Azadegan oilfields Iran plans to ask international oil companies to bid for the second phase of development of its Yadavaran and North Azadegan oilfields, a senior official said on Saturday. That means Chinese firms China National Petroleum Corp (CNPC) and Sinopec, which have played a leading role in developing the fields
until now, will have to compete with other firms if they want to maintain that position. “CNPC would like to extend its North Azadegan contract, but we have announced that ...they should take part in the bidding for a new contract,” Gholamreza Manouchehri, deputy head of the National Iranian Oil Company (NIOC), was quoted as saying by state news agency IRNA. “The Chinese have finally accepted this proposal,” Manouchehri said. He gave no details on the timing of the tender. President Hassan Rouhani officially launched the first phases of the Yadavaran and North Azadegan fields as well as the the North Yaran field in November, as the country ramps up its production after the lifting of sanctions. Yadavaran will have a production of up to 115,000 bpd in its first phase and North Azadegan’s output is 75,000 bpd, the Iranian oil ministry’s news agency SHANA said. The Chinese firms helped Iran develop the fields after Japanese and European companies pulled out of
the country due to sanctions over Iran’s nuclear programme. Iran said in December 2007 that Sinopec would invest around US$2 billion to develop the huge Yadavaran oil field. CNPC signed a deal with Iran in January 2009 to develop the North Azadegan oilfield, a project also worth US$2 billion in its first phase. In April 2014, however, Iranian news agency SHANA reported that Iran had terminated CNPC’s contract to develop the Azadegan field after the Chinese energy giant ignored repeated appeals to work on it. While the Chinese companies took part in the first phase of development of the fields, there had been “some criticism of their performance,” IRNA said on Saturday, without elaborating. “There have also been talks with Sinopec regarding the Yadavaran field for which an international tender is set to be held,” Manouchehri said, according to the IRNA report. Yadavaran has reserves of 31 billion barrels of light and heavy crude oil while North Azadegan has 5.7 billion barrels of crude reserves. Separately, the head of a regional state oil firm in central Iran said 20 tenders would be held to develop new gas and oil fields and boost production at existing ones, the semi-official Mehr news agency reported. Salbali Karimi, chief executive of the Iranian Central Oil Fields Company, said the projects would require US$2 billion in investment to boost crude output by 100,000 barrels per day. Reuters
Business Daily Tuesday, December 27 2016 11
Asia Economy
Kuroda defends Bank of Japan’s yield curve control The governor of the country’s central bank also offered an upbeat view on the global economy Leika Kihara
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ank of Japan Governor Haruhiko Kuroda defended his yield curve control policy on Monday, saying it had kept Japan’s long-term interest rates from joining the uptrend in global yields and was helping the economy overcome stagnation. Kuroda also shrugged off criticism made by some academics that his 2 per cent inflation target was too ambitious for a country long mired in deflation, arguing that the BOJ can leave itself enough policy ammunition to fend off future shocks to the economy only by accelerating price growth to its target.
Key Points Kuroda dismisses chance of lowering price target Adds global economy putting crisis behind it BOJ board disagreed on bond buying focus-minutes A few said removing pledge would send wrong signal Debate at Nov. 1 meeting showed rift on new framework
In a speech to the Keidanren business lobby, Kuroda offered an upbeat view on the global economy, saying it was emerging from the
doldrums as factory and trade activity picked up. “The global economy seems to be finally entering a new phase, by putting the negative legacy of the global financial crisis behind it, although considerable uncertainties lie ahead,” he said. The BOJ’s new policy framework aimed at capping long-term interest rates will help maximise the benefits of such global tailwinds for Japan’s economy, Kuroda said. “By implementing this policy framework in an appropriate manner, the BOJ can take advantage of the recovery momentum of the global economy to produce an even greater driving force for Japan’s economy,” he said. Kuroda’s remarks underscore the growing sense of optimism BOJ policymakers share on the outlook for Japan’s economy and reinforce market expectations that the bank will hold off on expanding monetary stimulus in coming months.
No consensus on direction
Having failed to meet its price target despite more than three years of heavy money printing, the BOJ shifted its target from the pace of money printing to interest rates in September. It now guides short-term interest rates at minus 0.1 per cent and the 10-year government bond yield around zero per cent. The BOJ’s resolve to cap yields have been under test as Japanese longterm rates have risen in tandem with
global bond yields on the perceived inflation-stoking policies of incoming U.S. President Donald Trump. That in turn has led to some market expectations the BOJ may raise its yield target as early as next year. But any such step is likely to face resistance from advocates of aggressive easing in the ninemember board. The BOJ maintains loose guidance that i t wi l l c onti nue buyin g government bonds so that the balance of its holdings increases at an annual pace of 80 trillion yen (US$682 billion), likely intended to appease board members who argued that heavy money printing helps heighten inflation expectations. At a rate review on November 1, BOJ policymakers disagreed on how much emphasis the central bank
should place on the size of its bond purchases under the new framework targeting interest rates, minutes of the meeting showed on Monday. One board member said the guidance on the bond buying amount could gradually be phased down “over the course of time” as the BOJ would likely achieve its yield targets with fewer purchases. That is in line with comments made publicly by Kuroda when he said the BOJ may slow its bond buying if it can meet its yield targets while buying fewer bonds. But some board members insisted the BOJ continue to offer the guidance because deleting it could send “a wrong signal to markets” by making it appear as if it was considering tapering its asset purchases, the minutes showed. Reuters
12 Business Daily Tuesday, December 27 2016
Asia In Brief Anti-graft
Indian pitches for digital economy to root out corruption Indian Prime Minister Narendra Modi on Sunday pitched for a digital economy to curb corruption and announced two new schemes to boost e-payments in the country. Explaining the two new schemes in his monthly radio address to the nation, Modi said under the first scheme businessmen going in for cashless transactions will be given a rebate in income tax. Under the second scheme, which will last for the next 100 days, 15,000 people will get 1,000 Indian rupees (US$15) each for every day for using mobile banking and making e-payments. The announcement of the schemes came after Modi on November 8, in a sudden televised address to the nation, announced scrapping of currency notes of higher denominations to curb corruption.
Politics
S. Korea’s detained ‘Rasputin’ snubs lawmakers from jail cell Choi Soon-Sil, a long-time friend of the president, has repeatedly snubbed a parliamentary committee probing a corruption scandal
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he woman at the heart of the impeachment crisis surrounding South Korean President Park Geun-Hye refused to leave her jail cell Monday for questioning by lawmakers who had convened a special hearing at her detention centre. Choi Soon-Sil, a long-time friend of the president, has repeatedly snubbed a parliamentary committee probing a corruption scandal that triggered Park’s impeachment earlier this month. Currently on trial for extortion and abuse of power, Choi had ignored several summons to attend the committee’s hearings in the National
Assembly -- prompting the lawmakers to come to her. A special, televised hearing was convened in the detention centre where Choi is being held on the outskirts of Seoul, but lawmakers were left with little to do but vent their frustrations after she refused to leave her cell. Two former top presidential aides being held in a separate facility also refused to appear for questioning. “It’s regrettable that the witnesses disregarded the authority of the people and the parliament by ignoring their obligation to attend,” said committee chairman Kim Sung-Tae. There are no legal grounds for
Aviation
Int’l flights to Sri Lanka delayed due to temporary closure of Indian airspace Several flights scheduled to depart and arrive at Sri Lanka’s Bandaranaike International Airport (BIA) have been delayed due to the temporary closure of certain parts of Indian airspace, an airport official said here on Monday. Sri Lanka’s state-owned Sri Lankan Airlines confirmed that five of its flights had been delayed including those departing to Singapore, Jakarta and Kuala Lumpur. The Indian Air Traffic control had informed the Sri Lankan officials that its airspace would be closed from 8:30 a.m. to 12:30 p.m. due to the “launch of an experimental flight in India.” Several other international airlines arriving and departing at the BIA had also been delayed. An official from Sri Lankan Airlines told Xinhua that all of its flights which had been delayed would depart after 12:30 in the afternoon. Infrastructure
Laos plans to build more hydropower plants Lao southern Attapeu province will conduct a feasibility study on the construction of small-sized hydropower plants. The study will be carried out on the Youn River in Sanxay district which shares a border with Dakcheung district in Sekong province, state-run Vientiane Times reported on Sunday. According to the Lao Ministry of Planning and Investment, the country’s energy sector will undergo considerable growth, with several hydropower plants set to come online and begin electricity generation. The energy sector is viewed as the major factor in driving the economic growth rate to 7 per cent, the ministry was quoted as saying. Many power plants are now fully operational, including the Hongsa Mine Mouth Power Project which has an installed capacity of 1,787MW. At least eight other major power plants will come online soon, including the Xekaman 1 with 322MW, Nam Ou 5 with 240MW, and the Nam Lik and Nam Phay hydropower plants.
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forcing witnesses to attend a parliamentary hearing, although they can be held in contempt and face a maximum five-year prison term for not doing so. “Choi Soon-Sil is at the core of the parliamentary probe,” said Jung YouSub, a lawmaker from Park’s ruling Saenuri Party. “Her reasons for not attending are not justified. The people want to hear the truth,” Jung said. Choi had been questioned on Sunday by special prosecutors investigating the extent of the president’s alleged collusion with Choi in shaking down a number of major conglomerates to provide “donations” to two foundations she controlled. Choi denied new allegations that she had stashed around 10 trillion won (US$8.3 billion) abroad. The National Assembly voted to impeach Park earlier this month, stripping away her substantial executive powers. She remains president in name, pending a decision by the Constitutional Court on whether to ratify parliament’s impeachment motion. Earlier Monday, prosecutors seized documents during an early morning raid on the central Seoul residence of Kim Ki-Choon, who served as Park’s chief of staff between 2013-15. Kim has a long association with Park’s family, having also served her father - the late military strongman Park Chung-Hee who led the country for 18 years after seizing power in a 1979 military coup. Those close ties have led to allegations that he must have been aware of the inappropriate influence that Choi - dubbed a “female Rasputin” by the local media - wielded over the president. Park allegedly leaked confidential documents to her friend, and allowed her to meddle in state affairs -- including the appointments of senior officials. AFP
Games
Super Mario run no longer highest grossing app in any country A week earlier, it was the most profitable app in 49 nations Yuji Nakamura
The initial excitement surrounding Nintendo Co.’s debut mobile game, Super Mario Run, appears to wearing off. The title, released on December 15 for Apple Inc. devices, was no longer the highest-grossing iOS app in any country as of December 24, according to the latest data available from researcher App Annie. A week earlier, it was the most profitable app in 49 nations. In terms of free downloads, it was still on top in 88 countries, down from a peak of 138 on December 17. The drop in rankings may reflect problems with the app’s price: Super Mario Run can be downloaded for free, but users have to pay US$10 if they want to progress beyond the first three levels of the game. That’s a departure from the industry’s standard, where most mobile games
can be played for free but encourage users to buy in-game items to speed up progress. Fans appear to prefer the latter and have lashed out at the lack of free content in Super Mario Run. Another point of criticism has been the US$10 price tag, which many gamers have said is too high. At that level, only 1 to 2 per cent of people who download the game will buy the
full version, according to Apptopia Inc. If the price was lowered to US$2, it could likely convert 3 to 4 per cent. The researcher estimates the lower price would translate into revenue of about US$50 million for this month, versus about US$30 million at the current price. Nintendo shares rose as much as 4.8 per cent on Monday, perhaps because investors have digested most of the negative news. The company’s shares slid 20 per cent from December 12 through last week as the game’s messy debut raised doubts about the company’s ability to execute its mobile strategy. Bloomberg
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Tuesday, December 27 2016 13
Asia Trade
Vietnam’s farm export revenue to set record high in 2016 The country’s agro-forestry-fishery export revenue is expected to reach US$32.1 billion for this year
V
ietnam’s agro-forestryfishery export revenue is expected to set a record high of US$32.1 billion in 2016, some US$1.7 billion higher than that of 2015, despite harsh natural disasters, according to the Ministry of Agriculture and Rural Development on Monday. The country’s farm industry is forecast to see a trade surplus of US$7.5 billion this year. According to the ministry’s chief
Nguyen Xuan Cuong, Vietnam has been facing continuous natural disasters so far in 2016. At the beginning of the year, historic cold spell that had never happened in the past 60 years stroke 14 northern localities, causing great damage on local agriculture. After that, a historic drought and saline intrusion happened in Central Highlands and southern Mekong Delta regions while recently, since the beginning of October, historic
heavy rains flooded eight central localities with rainfall ranging from 2,300 to 2,700 mm, said Cuong. Due to natural disasters and an environmental incident that caused mass fish death in the central region, in the first six months this year, growth of the farm sector went down 0.18 per cent year-on-year. However, the sector managed to grow 1.2 per cent year-on-year in the whole year. Tran Dinh Luan, deputy head of the ministry’s Fishery Directorate, said on local Tien Phong (Pioneer) online newspaper that in JanuaryJune period, the country’s shrimp
output failed to hit 200,000 tons. However, the output rocketed to 650,000 tons in the second half this year. Vietnam’s shrimp exports are estimated to hit US$3.2 billion while the export revenue of catfish also flourished with over US$1.7 billion. The fishery sector is likely to rake in some US$7 billion. Meanwhile, the livestock industry saw a “boom” in 2016, with total pig heads rising to 29.1 million and total poultries to 364.5 million, said the ministry. Hoang Thanh Van, head of the ministry Livestock Production Department, said in the past year, Vietnam exported some 600,000 tons of pigs to China worth over US$1 billion. With more efforts, the livestock sector can export up to 2 million tons of pigs to the market, Van said. At the same time, the year 2016 marked the first time that fruit and vegetable exports surpassed rice in terms of export revenue. In 2016, Vietnam’s fruit and vegetable export revenue is expected to hit US$2.4 billion, up 31.2 per cent year-on-year. Other key items that saw growth in export revenue this year included coffee (up 25.5 per cent year-onyear), cashew nuts (up 18.3 per cent), pepper (up 12.7 per cent) and seafood (up 6.3 per cent) among others. The country has had as many as 10 items that have export revenue of over US$1 billion. Xinhua
Trade
Thai November exports up 10.2 pct y-o-y The performance is far above forecast Thailand’s customs-cleared exports surged in November thanks to higher demand from major markets, an encouraging sign for the trade-dependent country whose economy has been struggling to regain traction.
Key Points Nov exports +10.2 pct y-o-y vs +1.55 pct in Reuters poll Imports +3.0 pct y-o-y vs -1.05 pct in poll Trade surplus US$1.54 bln vs poll’s US$0.5 bln surplus Jan-Nov exports -0.05 pct y-o-y, imports -5.10 pct y-o-y Exports will be positive in 2016 - ministry Exports jumped 10.2 per cent from a year earlier, commerce ministry data showed on Monday, compared with the median forecast for a 1.55 per cent rise in a Reuters poll and October’s 4.2 per cent drop. The percentage gain was the highest for a month since February. Higher global oil prices helped lift
demand for Thai oil-related goods in November and overall shipments should increase this year, a ministry official told a briefing. Imports in November increased 3 per cent from a year earlier. Economists had expected a fall of 1.05
per cent after a rise of 6.5 per cent in October. The November figures produced a trade surplus of US$1.54 billion, triple the expectation for a US$500 million one. October produced a US$250 million surplus. Many materials that Thailand imports are assembled into completed goods and shipped out again.
Thai exports, worth about twothirds of the country’s GDP, have contracted the past three years, frustrating the military government’s efforts to revive the economy since it seized power in May 2014 to end prolonged political unrest. The Bank of Thailand last week predicted exports would fall 0.6 per cent this year and be flat in 2017. It maintained its GDP growth forecast at 3.2 per cent for both this year and 2017. The economy expanded 2.8 per cent last year. Reuters
14 Business Daily Tuesday, December 27 2016
International Fuel
Russia sees oil products output down 2.5 pct in 2017
estimated 270 million tonnes of higher quality fuels in 2017. “This is mainly related to the rise in refinery Russia’s output of oil products is expected to fall by yield,” he said, adding that he did not expect fuel about 2.5 per cent in 2017 due to further work on a shortages next year despite extensive plans for massive refinery modernisation programme aimed refinery maintenance. He said gasoline production was estimated at 39.8 million tonnes in 2017, with at boosting fuel quality, a deputy energy minister diesel output seen at more than 70 million tonnes. said. Deputy Energy Minister Kirill Molodtsov told Production of fuel oil could decline by more than a briefing in comments cleared for publication two million tonnes due to an increase in export on Monday that the country would produce 277 duty from January 1 2017. Reuters million tonnes of oil products in 2016, falling to an
Business
CEO’s winning gamble may keep scrooge from Deutsche Bank bonuses Greg Farrell and David McLaughlin
D
e u tsche B a n k A G employees may owe their cash bonuses for 2016, however modest, to a lastminute bargain by Chief Executive Officer John Cryan. The beleaguered German bank, long embroiled in negotiations with the U.S. Justice Department, was inching closer in recent weeks to a resolution over its sale of defective residential mortgage-backed securities that fueled the financial crisis. Barclays Plc was deep in parallel talks with the government before hitting an impasse by mid-week. Deutsche Bank had no desire for a drawn-out court fight. Around the same time prosecutors filed a lawsuit against Barclays on Thursday, Deutsche Bank’s lawyers said a holiday deal seemed possible. Cryan pounced, according to someone close to the talks. The bank agreed to pay just US$3.1 billion in cash to resolve the case and US$4.1 billion in remediation to homeowners. It’s a victory for a firm that had faced an opening gambit from prosecutors of US$14 billion, and for the CEO, who’s been hamstrung by myriad regulatory problems in the U.S. and abroad. The cash penalty is well within the range the bank had anticipated, easing concerns about capital pressure. Resolution of the case before December 31 may enable Deutsche Bank to set aside money for bonuses, a relief for a firm that has struggled to keep its best employees. In recent months, executives had contemplated
replacing cash bonuses with stock. Representatives of Deutsche Bank and the Justice Department declined to comment. Cryan, 56, still has other legal hurdles, including compliance lapses detailed in an internal report over socalled mirror trades that individuals used to move money out of Russia. In that matter, the bank also said Thursday there was no indication that it had violated sanctions, suggesting the possible punishment would also be manageable. When word leaked in September that prosecutors had initially sought US$14 billion from Deutsche Bank over mortgage securities, the stock plunged on investor fears its capital would be depleted. Against that backdrop, lawyers from Barclays and Credit Suisse Group AG conducted their own brittle exchanges over allegations of mortgage fraud with a team of civil prosecutors in Brooklyn and Colorado and the Justice Department in Washington, according to people with knowledge of the matter. Representatives of both lenders declined to comment on their cases.
Executives Stunned
The prosecutors asked for less in initial discussions with Barclays than they had of Deutsche Bank, said people close to the talks. Still, the first figure - which the bank didn’t disclose - stunned executives who believed it was far beyond what was merited, the people said. Barclays, like Deutsche Bank and Credit Suisse, had responded to subpoenas begrudgingly, forcing the
Justice Department to piece together cases from documents, according to a person familiar with the situation. Bill Baer - who headed Justice’s antitrust unit before being elevated to its No. 3 official this year - spoke with senior executives and lawyers for the banks, including Cryan and Credit Suisse CEO Tidjane Thiam, according to a person familiar with the talks. Prosecutors made clear they were ready to sue the banks, this person said. Slowly, the firms moved closer to a deal. Except for Barclays. By October, the bank’s management had decided to hold the line at US$2 billion, Bloomberg News reported. Unlike the other two banks, Barclays wasn’t anywhere close to an acceptable number, one of the people said. On Thursday morning, Baer told Barclays CEO Jes Staley and the bank’s general counsel, Bob Hoyt, that the Justice Department was suing.
Adding Lawyers
By that time, Barclays had added another law firm to its roster, Williams & Connolly, which specializes not in settlements but in aggressive courtroom litigation. The banks didn’t coordinate their arguments, but their lawyers kept returning to a similar point, according to several people close to the talks: How could prosecutors justify the size of the penalties they were asking? Deutsche Bank issued about US$75 billion in RMBS in the 2005 to 2008 period, compared with about US$110 billion from Goldman Sachs Group Inc., according to data from Fitch
Ratings. Goldman settled its case for US$5 billion, US$1.8 billion of which was remediation, while Deutsche Bank was being asked for US$14 billion. Time and again, the Frankfurtbased bank’s legal team, led by Richard Owens of Latham & Watkins, asked how the government came up with such the proposed penalty, according to a person familiar with the matter. Prosecutors balked at quantifying the proposal, saying that Deutsche Bank had been one of the worst players in the RMBS market.
No Common Ground
Barclays’ lawyers had similar conversations with prosecutors. The London-based bank’s total RMBS issuance in 2005 to 2008 was US$29 billion, according to Fitch, less than half of Deutsche Bank’s and Goldman’s. And yet the bank was being asked to pay far more than the US$2 billion it had established as an upper limit. Thursday’s complaint shows how difficult it was for the banks and the government to establish common ground: In the suit, prosecutors accused Barclays of selling US$31 billion in securitizations that resulted in catastrophic losses. The bank’s team, led by Karen Seymour and Jeffrey Scott of Sullivan and Cromwell, tried to get prosecutors to justify the proposed penalty. As with Deutsche Bank talks, the prosecutors didn’t elaborate, and called Barclays a bad actor, according to a person who provided information about the confidential conversations on the condition that he not be identified.
Government’s Loss
Chief Executive Officer John Cryan
The Barclays team reminded prosecutors of the embarrassing loss the government had sustained in May when an appeals court overturned a fraud verdict against Bank of America Corp. in an RMBS case. Prosecutors dismissed the comparison. F u r t h e r m o r e, t h e b a n k ’ s lawyers pointed out that, of the 36 securitizations identified by prosecutors as problematic, Barclays was an investor in 31 of them. If the firm were trying to defraud investors, they asked, why would it invest in the products? The government’s lawyers didn’t flinch at the arguments. Instead, they decided to file suit. In the case of Deutsche Bank, one person close to the talks said that the U.S. offered a sweetener: a smaller cash portion of the settlement. Another person said the matter was instead a last-minute offer by the bank. Both sides claimed victory. The government and Deutsche Bank cut a deal, well within the amount that the bank could pay, and hours later the U.S. had a settlement with Credit Suisse as well. The Swiss lender will pay a US$2.48 billion civil penalty and US$2.8 billion in relief for homeowners and communities hit by the collapse in home prices, it said in a statement Friday. Barclays and the government are headed to court. Bloomberg
Business Daily Tuesday, December 27 2016 15
Opinion Business Wires
Philstar The Bureau of the Treasury said the government would settle less debts next year, benefiting from years of good debt management. Liabilities totaling 314 billion pesos are due next year, down 35.39 per cent from this year’s 486 billion pesos, National Treasurer Roberto Tan said in a text message last Friday. Broken down, domestic debts went down more than quarter to 233 billion pesos, while their foreign counterparts slumped around 53 per cent to 81 billion pesos. “Past liability management exercises have been quite effective since short maturing obligations have been replaced with longer term ones,” Tan told The STAR.
The Crisis of Market Fundamentalism
T
Korea Herald Domino’s Pizza led the local industry in sales last year, while local franchise Pizza Maru came out on top in profit, a report showed Monday. According to the report from the Fair Trade Commission, Domino’s Pizza posted average sales of 748.76 million won (US$624,400) per shop in 2015, followed by Pizza Alvolo with 521.45 million won and Pizza Hut with 481.74 million won. The report is based on an analysis of the top 10 pizza brands here. A local brand, Pizza School, had the largest number of franchised shops with 822 stores scattered throughout the country as of end-2015, while Pizza Alvolo increased the number of its franchises by the largest margin of 26.3 per cent from the previous year, the report said.
Bangkok Post The board of CAT Telecom has finally approved the consolidation of its internet data centre and submarine cable network businesses after nearly six months of uncertainty. A new subsidiary company, National Gateway Data Centre Co, will be formed by mid-2017, said CAT president Col Sanpachai Huvanandana. The board approved the consolidation plan last week. CAT management executives will have to make a proposal and submit it to the State Enterprises Policy Commission, known as superboard, for final approval. “The development will drive greater efficiency in our core network infrastructure for telecom and internet connectivity, in order to attract international technology companies and private organisations to invest in cloud computing and computer servers in the country through CAT’s integrated digital infrastructure,” he said.
he biggest political surprise of 2016 was that everyone was so surprised. I certainly had no excuse to be caught unawares: soon after the 2008 crisis, I wrote a book suggesting that a collapse of confidence in political institutions would follow the economic collapse, with a lag of five years or so. We’ve seen this sequence before. The first breakdown of globalization, described by Karl Marx and Friedrich Engels in their 1848 The Communist Manifesto, was followed by reform laws creating unprecedented rights for the working class. The breakdown of British imperialism after World War I was followed by the New Deal and the welfare state. And the breakdown of Keynesian economics after 1968 was followed by the Thatcher-Reagan revolution. In my book Capitalism 4.0, I argued that comparable political upheavals would follow the fourth systemic breakdown of global capitalism heralded by the 2008 crisis. When a particular model of capitalism is working successfully, material progress relieves political pressures. But when the economy fails – and the failure is not just a transient phase but a symptom of deep contradictions – capitalism’s disruptive social side effects can turn politically toxic. That is what happened after 2008. Once the failure of free trade, deregulation, and monetarism came to be seen as leading to a “new normal” of permanent austerity and diminished expectations, rather than just to a temporary banking crisis, the inequalities, job losses, and cultural dislocations of the pre-crisis period could no longer be legitimized – just as the extortionate taxes of the 1950s and 1960s lost their legitimacy in the stagflation of the 1970s. If we are witnessing this kind of transformation, then piecemeal reformers who try to address specific grievances about immigration, trade, or income inequality will lose out to radical politicians who challenge the entire system. And, in some ways, the radicals will be right. The disappearance of “good” manufacturing jobs cannot be blamed on immigration, trade, or technology. But whereas these vectors of economic competition increase total national income, they do not necessarily distribute income gains in a socially acceptable way. To do that requires deliberate political intervention on at least two fronts. First, macroeconomic management must ensure that demand always grows as strongly as the supply potential created by technology and globalization. This is the fundamental Keynesian insight that was temporarily rejected in the heyday of monetarism during the early 1980s, successfully reinstated in the 1990s (at least in the US and Britain), but then forgotten again in the deficit panic after 2009. A return to Keynesian demand management could be the main economic benefit of Donald Trump’s incoming US administration, as expansionary fiscal policies replace much less efficient efforts at monetary stimulus. The US may now be ready to abandon the monetarist dogmas of central-bank independence and inflation targeting, and to restore full employment as the top priority of demand management. For Europe, however, this revolution in macroeconomic thinking is still years away. At the same time, a second, more momentous, intellectual revolution will be needed regarding government intervention in social outcomes and economic structures. Market fundamentalism conceals a profound contradiction. Free trade, technological progress, and other forces that promote economic “efficiency” are presented as beneficial to society, even if they harm individual workers or businesses, because growing national incomes allow winners to compensate losers, ensuring that nobody is left worse off.
“
Anatole Kaletsky Chief Economist and Co-Chairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy
This principle of so-called Pareto optimality underlies all moral claims for free-market economics. Liberalizing policies are justified in theory only by the assumption that political decisions will redistribute some of the gains from winners to losers in socially acceptable ways. But what happens if politicians do the opposite in practice? By deregulating finance and trade, intensifying competition, and weakening unions, governments created the theoretical conditions that demanded redistribution from winners to losers. But advocates of market fundamentalism did not just forget redistribution; they forbade it. The pretext was that taxes, welfare payments, and other government interventions impair incentives and distort competition, reducing economic growth for society as a whole. But, as Margaret Thatcher famously said, “[…] there’s no such thing as society. There are individual men and women and there are families.” By focusing on the social benefits of competition while ignoring the costs to specific people, the market fundamentalists disregarded the principle of individualism at the heart of their own ideology. After this year’s political upheavals, the fatal contradiction between social benefits and individual losses can no longer be ignored. If trade, competition, and technological progress are to power the next phase of capitalism, they will have to be paired with government interventions to redistribute the gains from growth in ways that Thatcher and Reagan declared taboo. Breaking these taboos need not mean returning to the high tax rates, inflation, and dependency culture of the 1970s. Just as fiscal and monetary policy can be calibrated to minimize both unemployment and inflation, redistribution can be designed not merely to recycle taxes into welfare, but to help more directly when workers and communities suffer from globalization and technological change. Instead of providing cash handouts that push people from work into longterm unemployment or retirement, governments can redistribute the benefits of growth by supporting employment and incomes with regional and industrial subsidies and minimum-wage laws. Among the most effective interventions of this type, demonstrated in Germany and Scandinavia, is to spend money on high-quality vocational education and re-training for workers and students outside universities, creating nonacademic routes to a middle-class standard of living. These may all sound like obvious nostrums, but governments have mostly done the opposite. They have made tax systems less progressive and slashed spending on education, industrial policies and regional subsidies, pouring money instead into health care, pensions, and cash handouts that encourage early retirement and disability. The redistribution has been away from low-paid young workers, whose jobs and wages are genuinely threatened by trade and immigration, and toward the managerial and financial elites, who have gained the most from globalization, and elderly retirees, whose guaranteed pensions protect them from economic disruptions. Yet this year’s political upheavals have been driven by elderly voters, while young voters mostly supported the status quo. This paradox shows the post-crisis confusion and disillusionment is not yet over. But the search for new economic models that I called “Capitalism 4.1” has clearly started – for better or worse.
When a particular model of capitalism is working successfully, material progress relieves political pressures. But, as we saw in 2016, when the economy fails – and the failure is not just a transient phase but a symptom of deep contradictions – capitalism’s disruptive social side effects can turn politically toxic.
”
16 Business Daily Tuesday, December 27 2016
Closing Banking
China’s Sany sets up commercial bank
Sany Group, the parent company of heavy machinery manufacturer Sany Heavy Industry Co. Ltd, on Monday led a group of ten private companies in setting up a commercial bank. The Sanxiang Bank, based in Hunan Province, will operate with a registered capital of RMB3 billion (US$435 million). It is China’s eighth private commercial bank since the regulatory allowed private capital into the banking sector in 2013. The Sanxiang Bank will focus on Chinese manufacturers, especially those investing heavily in technology.
Bank president Liang Zaizhong said that while operating with much less capital than state banks, it is China’s first bank associated with a major manufacturer. Sany Heavy Industry Co. Ltd. sells a wide range of construction machinery such as excavators and cranes and has extensive global presence. It operates 25 manufacturing bases and 100 offices worldwide. Key overseas research and production hubs are based in Brazil, Germany, India and the United States. The company has ventures in clean energy, with a focus on wind power. Xinhua
Politics
China revives ties with African nation in blow to Taiwan China and Sao Tome signed a communique yesterday at a ceremony in Beijing
C
hina re-established diplomatic ties with Sao Tome and Principe, cementing the small West African island nation’s shift in allegiance from Taiwan. The two countries signed a communique Monday at a ceremony in Beijing attended by Foreign Minister Wang Yi. The switch highlights Taiwanese President Tsai Ing-wen’s growing risk of isolation amid tensions with China. It cuts to 21 the number of nations that recognize the government
in Taipei, rather than Beijing. China has shown a willingness to use its economic and military might to pressure Tsai’s Democratic Progressive Party, which swept the more Beijing-friendly Kuomintang from power in January. The Communist Party considers the self-governed island a province and has criticized Tsai’s refusal to accept that both sides belong to “One China,” its precondition for ties. China accounts for around 40 per cent of Taiwan’s exports. Wang told reporters in Beijing
interests will invest in Sao Tome and Africa,” Urbino Botelho, Director da Politica Externa of Sao Tome and Principe, said at the Beijing briefing. “We hope more Chinese tourists will come visit.”
‘Most Correct’
that China welcomed Sao Tome and Principe’s decision, saying it was made under the One China principle. “This relationship could bring solid results to both nations,” Wang said. “The two sides will start cooperation in all areas based on the principle of mutual trust. China is willing to provide support to the economical and social development of Sao Tome and Principe within its capacity.” Sao Tome and Principe, with a population of about 197,500, consists of two archipelagos that lie within 200 miles (320 kilometers) off the northwestern coast of Gabon. It established ties with China in 1975 only to switch to Taiwan in 1997. “We hope more and more Chinese
Sao Tome and Principe had sought more than US$100 million from the government in Taipei, Taiwan’s Central News Agency reported last week, citing an unidentified foreign ministry official. Sao Tome and Principe Prime Minister Patrice Trovoada said on Thursday that breaking relations with Taiwan “was the most correct decision” because “we have a commitment to the people to improve their living conditions,” according to Taiwan’s United Daily News. Trovoada also denied that he had approached Taiwan for money. In March, Beijing formally reestablished relations with Gambia another former Taiwanese partner in West Africa - and has stepped up communications with others, such as Panama and the Vatican. China had refrained from actively wooing away any of Taiwan’s diplomatic partners during the eight-year tenure of Tsai’s predecessor, Ma Ying-jeou, who advocated increased ties with the world’s second-largest economy. Tsai visited Panama and Paraguay two months after taking office and plans a similar Central American tour next month, including Guatemala and Honduras. That could provide an opportunity for a transit stop in the U.S., where the incoming president, Donald Trump, has expressed a willingness to reconsider long-standing U.S. policy toward China. Trump’s recent protocol-breaking phone call with Tsai and his attacks on China on Twitter, have sparked friction between the world’s two biggest economies before he takes office. After the call, China flew a bomber around Taiwan in what it called a normal flight operation. Bloomberg
Automobiles
Aviation
Tourism
BMW to recall nearly 200,000 cars in China
Nepal’s national flag carrier Surge in tourists puts some strain set to reenter China on Thailand’s infrastructure
German luxury carmaker BMW will recall nearly 200,000 vehicles in China because of flawed airbags, according to the country’s quality regulator and the company. Some 168,861 imported cars produced between December 2005 and December 2011, and 24,750 vehicles produced locally between July 2005 and December 2011 will be recalled, according to a statement posted Friday on the official website of China’s General Administration of Quality Supervision, Inspection and Quarantine (ASDIQ). Gas generators in the defective airbags of the recalled cars could break unexpectedly, creating debris that poses a threat to riders’ safety, ASDIQ said. The company will replace the flawed gas generators in the airbags for free, it said. Earlier this month, BMW China said they would recall some 22,543 imported BMW and Rolls-Royce vehicles also with flawed airbags. The airbags in some imported BMW and RollsRoyce cars produced between 2011 and 2012 might not deploy properly due to a programming error, the company said AFP
Nepal Airlines Corporation (NAC), the state-owned entity, is seeking a landing permit from Chinese authority at Guangzhou international airport as it plans to reenter the Chinese mainland nearly after a decade. The NAC, which has long been operating flights to the Hong Kong Special Administrative Region of China, discontinued its air service on Kathmandu- Shanghai route in 2008 due to shortage of planes. With addition of two more planes over the last two years, the airlines planned to reenter the Chinese mainland given the growing tourist arrivals from the northern neighbour in recent years. China is the second largest source market for Nepal’s tourism after India. “We are expecting the landing permit from Chinese authority in the next few weeks as we have got information that the process is in the final phase. Probably, we will be able to operate flight to Guangzhou from Kathmandu in the next two to three months,” NAC Managing Director Sugat Ratna Kansakar said. According to Kansakar, they found Guangzhou destination lucrative given that most of Nepalese traders import Chinese goods from there and they have been requesting for air service from NAC. Xinhua
Thailand’s success in attracting huge numbers of tourists has put some infrastructure for handling the influx under pressure, an economist with the World Bank said on Monday. “Bottlenecks are building up in destinations like Chiang Mai, Bangkok and Phuket, while infrastructure still hasn’t expanded,” Kiatipong Ariyapruchya said. The economist also said that new destinations inside Thailand “must be introduced and monitored closely to support sustainable tourism”. The industry has remained resilient despite a 2014 coup and a wave of deadly bombings in August this year that killed four Thai tourists and injured dozens, including foreigners. Last year, Thailand attracted a record 29.9 million visitors. The tourism ministry expects 32.4 million visitors this year while the tourism council says there could be 34.4 million in 2017. But tourism growth is putting airports and other aspects of infrastructure under strain. Infrastructure is a problem not just for tourism - a rare bright spot for the economy - but for growth in general. Reuters