Mainland invites foreign investors to join space program Space Page 10
Wednesday, December 28 2016 Year V Nr. 1202 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Economy
Vietnam predicted as among fastest growing economies in 2017 Page 12
Tourism
www.macaubusinessdaily.com Society
China issues new fiveyear tourism plan Page 4
Appointment
Blaze burns nearly 90 motorbikes
Beijing names new vice heads for SARs Affairs Office Page 4
Page 2
MSAR needs skilled personnel Sino-Luso
Finance and law consultancy service company Perfeição Lda, founded by the ex-president of the city’s Legislative Assembly, Susana Chou, is eyeing opportunities for Sino-Luso exchanges. Speaking to Business Daily, however, the team explain the difficulties in hiring local talent for their operations, due to local residents’ lack of adventurous spirit amid the prosperous local economic environment, as well as the government’s lack of flexible human resource and immigration policies. Pages 6 & 7
Industry leaders say it is unlikely that ‘zero-fee tours’ can be eliminated from the local tourism market, since this is how travel agencies and local tour guides earn more money for their pockets. But they suggest the industry could offer more varied products to diversify visitors’ options, such as cultural tours. Tourism Page 5
HK Hang Seng Index December 23, 2016
Coutinho: drug-dealing scandal won’t impact election AL election Admitting that his two sons were involved in a drug-dealing case and caught by the police, legislator José Pereira Coutinho spoke to the press yesterday. He says he doesn’t believe the scandal will decrease his votes in next year’s Legislative Assembly elections. Page 3
‘Using all means’
Cyber security Mainland authorities will use all means necessary to protect their information security, including the use of its military, say officials. Authorities are planning for a “secure and controllable” Internet, and will begin a review process for all domestic and foreign companies before their services or products are deemed safe to be sold or deployed in the Mainland market. Page 8 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%
13° 16° 13° 15° 16° 17° 18° 20° 18° 23° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Hard to regulate ‘zero-fee tours’
2 Business Daily Wednesday, December 28 2016
Macau Transportation
Taxi-hailing hotline to terminate service this week
according to the vice president of the Commercial Vehicles’ Owners Association, One of the three hotlines for hailing taxis, Leng Sai Vai. He estimates that around 80 28939939, will terminate its operations at per cent or some 1,000 taxi drivers in the the end of this week, after operating in the city using the service will be affected. The hotline receives around 600 to 700 phone city for 22 years, local broadcaster TDM calls for taxi-hailing daily, but Mr. Leng Radio News reported. The termination said only around 60 per cent of requests of the hotline service is the result of substantial annual losses and competition are successful – usually during non-peak hours. C.U. from car-hailing application services,
Accident
89 motorbikes turned into useless wrecks
S
ome 89 motorbikes and s ev e ra l b i c y c l es w e r e severely damaged by a fire early yesterday morning. The affected area was near the residential building San Pou Garden on Avenida Norte do Hipódromo on the Peninsula. According to local broadcaster TDM Radio News, the local Fire Service Bureau received the fire report at around 4:00am yesterday morning. Fire fighters spent around 10 minutes using three hoses and chemical foam to extinguish the blaze. The police force has already excluded intended arson as the cause of the fire, after examining the scene and checking nearby surveillance cameras, but the Judiciary Police are still calling on any witnesses to come forward to provide information. During the fire, four residents inhaled smoke, with two being sent to hospital. Other residents in the building had to be evacuated as well. Aside from the damaged vehicles, the fire also affected four stores nearby. A corridor of a nearby school was blackened and the school was forced to close for one day yesterday. Meanwhile, a liaison officer for community policing of the Public Security Police Force (PSP), Chan Tak Seng told the broadcaster that several
Photo provided by Shadow Media
similar incidents had happened previously in the city, pointing out that the significant shortage of parking lots in the Northern District has led to the many burnt vehicles like in this case.
Banking
The officer, who also heads the Macau Institution of People’s Alliance, further criticized the MSAR government’s slow progress in improving transport planning, urging relevant departments to improve
the public transport policy as soon as possible, with the Fire Services Bureau in charge of enforcing fire regulations and the police force strengthening security patrols in the city. C.U.
Education
Over 68 mln UnionPay cards issued Gov’t to regulate after-school care services overseas as at November-end More than 68 million UnionPay cards had been issued in over 40 countries and regions by the end of November this year, the latest data released by UnionPay International reveals. Of the total, some 15 million cards have been issued in Hong Kong, Macau, Japan, South Korea, Southeast Asia, as well as other markets along the “One Belt and One Road”. The latest data also shows that the number of transactions of overseas-issued UnionPay cards in Mainland China jumped by 50 per cent during the period. According to data released by China’s National Tourism Administration, 67.87 million inbound tourists to the Mainland were recorded in the first six months of this year, up 3.8 per cent year-on-year, which is also 8.84 million more than the number of outbound tourists.
With more inbound tourists visiting Mainland China, the chief executive officer of UnionPay International, Cai Jianbo said the company is endeavouring to provide convenient payment services to inbound tourists. ‘We not only provide payment convenience for Chinese people to go abroad, but also endeavour to optimize inbound tourists’ payment experiences to facilitate more overseas guests’ travel and payment in China, so as to support the personnel exchanges between China and the rest of the world,’ the CEO said in a press release. Currently, mainstream banks in the two SARs, South Korea and Singapore have offered exclusive cashback services for local UnionPay cardholders. C.U.
The Education and Youth Affairs Bureau (DSEJ) is planning to regulate after-school care services in the city, mandating that operators obtain a license, according to local Chinese language newspaper Macao Daily yesterday. The government is drafting a bill to amend the current laws on the operations of tutoring centers. The bill will bring after-school services into the framework, mandating that an operator needs to get a license if
it provides such services to seven students or more at the same time at one location. Failure to do so will result in a fine. In addition, the new bill will also introduce clearer definitions of tutoring centers, impose academic requirements for tutors, increase restrictions on tutoring centre venues and their operations, as well as increase the amount of fines. The bill is expected to be passed for legislation procedures next year. A.L.
Business Daily Wednesday, December 28 2016 3
Macau Scandal
Coutinho: still confident about next year’s election The legislator does not think the fact that his two sons were caught by local police for allegedly drug dealing, will affect his performance in next year’s legislator elections Annie Lao annie.lao@macaubusineessdaily.com
D
irectly-elected legislator José Pereira Coutinho said yesterday that he is not worried that the drug-dealing case involving his two sons will affect his performance in the Legislative Assembly election next year. “I’m absolutely not worried about my career performance for next year’s election due to my two son’s drug case recently. I believe that the local residents have clear thinking and analysis on this incident,” the legislator stressed. Legislator Coutinho held a press conference yesterday afternoon to respond to the recent drug trafficking bust case involving his two sons, aged 31 and 24. They were alleged to have been in possession of cannabis worth MOP500,000 (US$ 62,568) for a multinational drug trafficking syndicate. Asked by reporters whether this incident would have a negative impact on his political performance in the election next year, the legislator replied that he and his family were very upset about the incident, but he would continue to work on his mission as a legislator. “Whatever happened, I hope that the public can give them space to pass these difficult days,” Mr. Coutinho said.
As the case is currently in a judicial process, the legislator claimed that he was not allowed to reveal many details about the case. However, he added that more details would be shared with the pubic in due course. “I will continue to work as a legislator for the MSAR Legislative Assembly (AL) in the coming year. I will not change my attitude on this and continue supervising the administration of the MSAR government and I won’t give up,” the legislator stressed.
Transparency needed
The legislative member added that he would also continue fighting for more transparency in the administrative works of the MSAR government in order to give more access to the public to review its operations. “I have been working as a legislator for 12 years now. My dream is to improve the transparency of the administrative works at the AL, so that the public can have more access to information on the governmental administration,” he said. Mr. Coutinho argued that the government is still not providing enough transparency to the public. “My goal is to improve the life of the local residents,” he said. “The AL needs legislators like myself to fight for the right for more transparency in governmental
administration,” he claimed. “The local residents have the right to know more and the AL should have a mission to serve the local residents. Therefore, it is important to let the public know how the AL works,” the legislator added. Mr. Coutinho said he hopes that the AL can allow the public to visit everyday and open its doors for
the public to review everything on how the government operates in the future. “Freedom of speech should be protected and the government has no right to edit legislators’ speech in the AL. I will continue to fight for freedom of speech next year. My job is to serve in the best interests of the local residents,” the legislator said.
4 Business Daily Wednesday, December 28 2016
Macau Appointment
Opinion
SARs Affairs Office appoints new vice heads
José I. Duarte* Zhou Bo
Political choices Two dates seem to attract the highest number of demonstrators to the streets of Macau: the MSAR Handover Anniversary Day and Labour Day. As a result, they are (relatively) important occasions for gauging the city’s political sentiments and identifying some topics that seem more keenly felt by various social groups. In a way, this is the closest the city’s political system comes to a genuine public discussion. In line with the ‘tradition,’ several parallel demonstrations took place last week. Not surprisingly, requests for stringent limits on the hiring of non-resident workers took a prominent position. It is a worthwhile topic. Sadly, the messages seldom go beyond empty sloganeering or the ill-disguised lobbying for particular interest groups. However, the issues surrounding labour inflows and their integration in the workforce are at the heart of alternative development models that we would do well to discuss. In broad terms, we can conceive two quite distinct approaches to the city’s development. Both have advantages and disadvantages. Wellmeaning persons can reasonably discord about them, expressing divergent preferences and interests. The first one we can call the growth model. It may be summed up as: grow as fast as possible, and deal with the impacts, social and environmental, as they come. The other, we can call the social cohesion model. It may be described simply like this: target growth rates whose likely effects are within your ability to manage. It implies, inescapably, a slower growth path. In both cases, we would be talking about an increasingly prosperous economy. Each path, however, is likely to yield considerably different consequences regarding income size and distribution, as well as the strains of the adjustment process. Each would be borne and perceived quite differently by the various groups of society. That’s the right stuff for a proper political debate and the collective choice processes that are at the heart of any political system. In some ways, we can say the implicit model followed, until the current economic predicament hit, was the first one. Economic and political circumstances now seem to be imposing the second one. Had this debate taken place at an earlier stage, in a more open way, the transition difficulties so many complain about, could have been avoided or better managed. The visible degradation of the city’s social and physical infrastructure could also have been avoided. The past shortcomings notwithstanding, this is still a meaningful debate to be had. *economist and permanent contributor to this newspaper.
The Hong Kong and Macao Affairs Office Of the State Council has appointed Song Zhe and Huang Liuquan as the new deputy directors, according to an announcement yesterday. Zhou Bo, meanwhile, has been removed from his current
position as the vice head of the office, the Council said. Prior to the promotions, Mr. Song headed the Office of the Commissioner of the Chinese Ministry of Foreign Affairs in Hong Kong, whilst Mr. Huang was the director-general of the department of law in the SARs Affairs Office. C.U.
Tourism The new outline may set example for MSAR
China issues new tourism outline The Mainland’s new tourism plan aims to accommodate 6.7 billion travels yearly, and grow revenue from the industry to RMB7 trillion by 2020 Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
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he State Council of the Mainland issued its FiveYear Plan for the Development of the Tourism Industry on Monday, identifying four major areas of concentration, namely: growth in the tourism economy; increases in comprehensive benefits; higher degrees of public satisfaction with the industry; and growth in international influence. According to the report, announced by the State Council on its website yesterday, the plan aims to accommodate 6.7 billion travels yearly, and grow revenue from the industry to RMB7 trillion (MOP8.1 billion/US$2 billion) by 2020. This would come on the back of tourism investment amounting to RMB2 trillion, leveraging the sector to contribute an estimated 12 per cent of the country’s economy. In addition, for the sectors benefitting from increased tourism activities, the plan aims for an 85 per cent contribution to the catering, hospitality, civil aviation, and railway passenger transportation areas, among others. According to the plan, cited by Xinhua and published on the State Council’s website, the plan ‘demands local governments to formulate specific implementation plans or purpose-specific plans in light of their local conditions, and fulfil their responsibilities’. The plan, however, does not specify whether the Special Administrative Regions fall under the definition of ‘local governments’.
Growth
The MSAR’s economy is largely dependent on outbound Chinese tourists, especially after the depreciation of the Renminbi curbed long-haul tourism by Mainland tourists. According to the most recent data from the Statistics and Census Service (DSEC), of the 2.68 million tourists
that visited the MSAR in October, 68.1 per cent of them were from the Mainland, while in the first 10 months of the year, over 16.96 million Mainland tourists had visited the MSAR. In October, over 64 per cent of all guests of hotels and guesthouses in the MSAR were from the Mainland, amounting to 695,300 people, an 18.6 per cent increase year-on-year. Meanwhile visitors to the MSAR travelling on package tours amounted to 542,300 during the month. Of the total visitors to Macau in 2015, 93 per cent came from China, Hong Kong and Taiwan and total spending hit MOP40 billion. However, the Mainland doesn’t only seem focused on tourism to the MSAR, but also on using the MSAR as a funnel into China, something that will need some work given the 18.5 per cent year-on-year dip in the number of local residents traveling to the Mainland in October, which amounted to only 522,400 in the first 10 months of the year.
The plan, among other measures, outlines the building of ‘new-type tourism function areas’, including ‘regional tourism city clusters’ such as the Pearl River Delta and the Beijing-Tianjin-Hebei cluster. In line with the One Belt, One Road initiative, the plan aims to boost inbound tourism by ‘increasing tourism with Hong Kong, Macau and Taiwan’, aside from the ‘orderly development of outbound tourism’. Aside from the Pearl River Delta region acting as a tourist well, the plan aims to ‘foster 20 cross-regional specialty tourism functional zones, build 10 national boutique tourism belts, develop 25 national scenic routes and promote the construction of specialty tourist destinations in eight major categories’. And to do this, ‘all departments concerned shall divide labour according to their respective responsibilities, strengthen coordination and cooperation and seize every minute to advance related work,’ notes the report. With industry players in the MSAR eagerly awaiting the tourism master plan, to be announced next year, and awaiting specifics lacking in the FiveYear Plan, how Macau fits into the Mainland’s tourism plan still remains to be seen.
Corporate
GEG hosts 4th “Responsible Gaming Awareness Week” Galaxy Entertainment Group (GEG) has hosted its fourth Responsible Gaming Awareness Week, with 1,600 team members participating in the event. Volunteers from the Associação de Juventude Voluntária de Macau set up booths at StarWorld Hotel, Galaxy Macau, Broadway Macau and City Clubs for interactive games, with some 800 team members participating. Two social workers from Sheng Kung Hui Gambling Counseling and Family Wellness
Centre were invited to host a workshop on emotional health. The annual Responsible Gambling Promotion is jointly organized by the Social Welfare Bureau, the Gaming Inspection and Coordination Bureau of Macau SAR and the University of Macau. This year’s event focused on preventing gambling with borrowed funds, urging team members to have a clear mind when gambling and to strengthen their ability to control their gaming expenditures without encountering personal problems as a result.
Business Daily Wednesday, December 28 2016 5
Macau Tourism
‘Zero-fee tours’ should stay or go? Industry leaders say it is hard to eliminate shopping tours, but providing diversified options could be a solution Annie Lao annie.lao@macaubusinessdaily.com
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he city needs to provide more unique and highquality tours for tourists in order to eliminate “zerofee” package tours to the MSAR, believes the president of the Macau Tourist Guide Association, Angelina Wu Wai Fong. “The travel agencies could seek ways to co-operate with travel agencies from other regions to offer tours that can allow tourists to travel to multiple places in a package,” Ms. Wu told Business Daily in a phone interview yesterday. Asked whether the government should impose more regulations on travel agencies that offer “zero-fee tours” in the city, the association head, however, stated that it is hard for the government to enforce relevant regulations as these types of tours account for most of the tours coming to the MSAR. “It is impossible to eliminate all the shopping tours as it is where the travel agencies and local tour guides gain their income,” Ms. Wu indicated yesterday. A zero-fee tour usually charges c h e a p e r t ra n s p o r t a t i o n a n d accommodation fees, but forces
tourists to shop at certain stores in order for the agent to make up the difference by earning commission from the stores. Last week, directly-elected legislator Kwan Tsui Hang filed a written enquiry, urging the government to combat “zero-fee tours” in the city. The legislative member queried why authorities have not taken any action against such kinds of tours despite their damage to the MSAR’s tourism image. From the perspective of the president of the tourist guide group, travel agencies could offer more cultural and historical tours in order to diversify options for tourists. She also suggested that both Mainland and local travel agencies
should work together to provide a clear trip outline for “zero-fee tours” so that travellers know how much they will spend during these tours, such as the basic fees for hotels and transportation.
Hard to regulate
Mea nwhi l e, presi den t of th e Macau Hoteliers and Innkeepers Association, Chan Chit Kit, echoed that it is impossible to stop “zerofee” package tours even though the government has raised restrictions on these services. “Since ‘zero-fee tours’ have been operating in the industry for a long time, it is kind of a norm in the industry,” Mr. Chan told Business Daily yesterday. “Tour companies
and local retailers are working together to bring in benefits for each other through tourist spending. This is how they work in the tourism industry in order to continue to run their businesses.” However, Mr. Chan opined that it is important to inform visitors who join these kinds of tours what certain fees will be incurred by the end of the trip. Otherwise, it would be misleading, he said. “ Ev e n t h o u g h t h e M a c a o Government Tourism Office (MGTO) regularly inspects illegal tours and collects feedback from visitors, having regulations in place to ensure the balance of costs and benefits for both customers and travel agencies is not easy,” Mr. Chan pointed out.
6 Business Daily Wednesday, December 28 2016
Macau
Perfeição Lda Team
Interview
Looking for perfection Specialising in finance and law consultancy as well as translation services, Perfeição Lda is a local SME trying to be at least one of the pillars bridging Chinese business interests with Lusophone countries. Business Daily spoke with the team from the company founded by Susana Chou Vaz da Luz, former President of the Legislative Assembly of Macau from 1999 to 2009, about how Macau’s lack of human resources, sense of adventure and specific policies could ultimately make it a platform made of sand. Nelson Moura nelson.moura@macaubusinessdaily.com
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hat was the idea behind creating Perfeição Lda.? V e ra Zh o u , P r o j ect Manager: In 2009, Ms. Susana Chou Vaz da Luz decided to create a foundation with a programme to create more bilingual law professionals, since she felt there weren’t enough people with knowledge of Portuguese and law in the MSAR. After [stepping down from her position], she noticed that there were many students finishing their law and Portuguese degrees every year, and thus founded Perfeição Lda in 2013 as a way to use their knowledge for a consultancy firm. However, due to difficulties in getting people, the company only started activities in November of 2015. What a r e th e m ai n s e rvi c es provided by Perfeição? João Li, Project Manager: The company provides mainly c o n s u l ta n c y a n d t ra n s l a t i o n s e r vi c es f o r i n v est m e n t a n d finance advice. At the moment, we have around 60 employees, eight in Macau, with most of the employees being law, finance or international relations graduates from universities in Mainland China and Macau, while some are from Coimbra University in Portugal. The main sectors we engage in are consultancy and counseling with the fishing and infrastructure sectors. We also provide business studies and advise
Chinese businessmen in terms of investment opportunities, as well as helping arrange trips to targeted locations. We inform them of the current business conditions and help the project come to fruition. VZ: The Chinese government is incentivising companies to expand abroad, but these companies don’t have knowledge of Portuguesespeaking countries, or even English and French-speaking countries. Their way of thinking is also different, so there are cultural differences during negotiations, so we try to facilitate the communication. We all have finance and law knowledge so we can help in many different fields. We founded a branch in Beijing, one in Lisbon, Portugal, another one in Sao Paulo, Brazil and we’re preparing to open one around February of next year in the capital of Mozambique, Maputo. The Brazil and Portugal offices are still only registered, but we have no employees there. You learned Portuguese in Portugal instead of in Macau. Is it hard to hire bilingual professionals in Macau? VZ : Really hard. If Macau wants to be a platform between China and Portuguese-Speaking countries, it needs more human resources. We cater mainly to African Portuguesespeaking countries and East Timor in Asia, which are very poor countries with unstable political and security conditions, and Macau students are afraid of going to those places. They don’t mind going to Portugal, which offers good life conditions, but other countries, even Brazil they
don’t want to go to. This makes it very hard to [recruit] people, but Mainland Chinese students are more willing to go and currently there are many Mainland Chinese people learning Portuguese and working in Africa. We mostly use the Beijing branch to hire the people to go to those places. Tony Hoi, Project Manager: Macau students don’t want to go to Brazil, they all think it’s too dangerous, so it is even harder to get people to go to East Timor or Guinea-Bissau. It’s easy for local students to find a job with a good salary in the gaming industry, so they never think they have to venture outside of Macau for a job compared to Mainland Chinese. This makes Macau people less competitive. Then when we want to hire non-resident workers, there’re two ways, through a work visa, which is really hard, and another is by getting them a Macau Residence Card which is even harder. We have enough people to have the quota to hire non-residents, but even for us it’s hard. Sandy Chan Executive Director: Gaming money and government jobs are just too easy but you can’t just go to the 100 per cent safe jobs. If Macau wants to grow, we have to have good human resources. When you see countries like Singapore, their success is based on flexible human resources and immigration policies, which make them competitive. In order to be a real international city, Macau needs to be able to absorb the best of the best, while investing in your own people. Only competition can make things better, and if you’re
overprotective, you lose your competitiveness. What measures would you like to implement? VZ: Well, at the moment, the University of Macau and the Macau Trade and Investment Promotion Institute (IPIM) are providing Portuguese courses, but the government doesn’t allow Mainland Chinese students to have internships or work. Macau needs policies and specific measures to make it happen, something it doesn’t have at the moment.
“It’s easy for local students to find a job with a good salary in the gaming industry, so they never think to venture outside of Macau for a job compared to Mainland Chinese. This makes Macau people less competitive” Tony Hoi, Project Manager at Perfeição Lda. SC: We do see a positive future for this sector but to grow you need incentives, investment and adventure. The government has a lot of general subsidy schemes for creative industries or Meetings, Incentives, Conferences, and
Business Daily Wednesday, December 28 2016 7
Gaming Exhibitions (MICE) but I don’t see any specific policies made for our consultancy sector. Do you really think Macau can be a Sino-Luso platform? JL: The platform is basically in terms of services, like Hong Kong we provide services in law and accounting. Of course, Portuguese and Brazilian businessmen don’t need to pass through Macau, but the language services we provide can always be helpful.
“When you see countries like Singapore, their success is based on flexible human resources and immigration policies which make them competitive. In order to be a real international city, Macau needs to be able to absorb the best of the best, while investing in your own people” Sandy Chan, Executive Director at Perfeição Lda.
In one of its first projects, the company helped with a fishing project between East Timor and the Chinese province of Zhejiang. How did that project come about? TH: The former Chief Executive of Macau and now Vice-president of the Chinese People’s Political Consultative Conference (CPPCC), Edmund Ho Hau Wah, went to Zhoushan, a city of the eastern Chinese province of Zhejiang, last year, saying the city is the ideal place to develop overseas fishing in Portuguese-speaking countries like East Timor. After that, the Zhoushan government went to Macau and contacted Forum Macao at the end of 2015 to look for people to help them invest in fishing in East Timor, and our company was recommended. Was it hard to deal with the East Timorese authorities? VZ : This was a government to government project, but the fishing itself will be made by companies and in the beginning we helped with basic information. Chinese company Zhoushan Ningtai Ocean Fisheries Co. will enter with two fishing boats in the first phase, and then in the case that it's successful, more companies related to fish preservation and processing will come. East Timor is a new country that doesn’t have much infrastructure at the moment. There is only one fishing harbour and it doesn’t offer the best conditions. Then why East Timor? VZ: After Edmund Ho’s trip to Zhoushan, it became like a political mission to do it. Chinese politicians are like this. Nevertheless, East Timor also has advantages since its sea resources are basically unexplored. It is also the closest Portuguesespeaking country to China and it borders Indonesia where the fishing sector is very strong. Before, there were 200 Chinese vessels already operating in Indonesia, but then the
policies changed and the country’s authorities banned foreign fishing boats. This forced Chinese fishing companies to look for alternatives, such as East Timor. Apart from fishing in East Timor, what other business opportunities do you see in other countries like Brazil, Portugal and Mozambique? TH: Brazil is a huge market, which we haven’t focused on a lot yet. We want to focus on trade, infrastructure and natural resources, while Portugal offers opportunities in tourism and chances for helping organise a Chinese commercial exhibition there. VZ: In May of this year, Mozambique President Filipe Nyusi signed a cooperation agreement with President Xi Jinping and the country has already had nearly 100 Chinese companies there looking for business opportunities. When we started, we thought of it as the first market to hit, but suddenly the East Timor deal fell in our lap so we delayed it. JL: Mozambique has many natural resources to explore with stable political conditions, even though it has some corruption issues. It also has a long seaside, which makes it one of the main entry points for products going to Africa. But there’s no translation or interpretation company there. TH: The country’s currency has also fallen lately which makes it a good time to invest. We’ve travelled there already to discuss infrastructure projects. Vice versa, do you help businessmen from Lusophone countries? JL: Mainly from Portugal and Brazil, who have interests in promoting food products. VZ : Recently, many exhibition centres for Lusophone countries have opened in Mainland China; almost every province has one. So we help bring the companies to those exhibitions, especially Portuguese companies that have many good products and branding. How do you see Chinese policies for imports? VZ: Well, for Portuguese products like pork meat, they’re complicated, but for other countries it’s easy, es p eci a l l y f o r c o u n t ri es l i k e Mozambique, which don’t pay taxes on their products. Do you think any of the policies announced at the 5th Ministerial Conference could be helpful? How can the MSAR government help more? VZ: The event planning aspect in Macau can be very helpful - organising conferences and seminars to connect Chinese and Lusophone businesses is great to let us know what services they need. The government has its role in organising policies, financial support and recommending Macau as platform like they did in the Zhoushan project, but they can’t boost every single business plan. It was also announced that the headquarters of the US$1 billion Cooperation and Development Fund will be transferred to Macau. Do you think this could be beneficial? VZ: Nobody really knows how to get finance from the fund, which is very problematic. JL: Yes, in three years only two projects have been funded. You took part in this year’s Macao International Trade & Investment Fair (MIF). Do you think it was helpful for your business? VZ : Honestly, it didn’t have that many good results for us, since MIF focuses more on SMEs while our target customers are generally those larger state-owned development and construction companies. It is better for us that the local government makes more promotion of local consultancy companies to outside companies.
Policy
Vietnam betting on locals The long-awaited relaxation of the gaming ban for Vietnamese citizens will be enacted at two upcoming casinos located at opposite ends of the country
T
he government of Vietnam will loosen the ban on gambling for its citizens, who will be allowed to bet at two casinos currently under construction in the north and south of Vietnam, reported VE Express International. These two casinos, respectively, are being developed by Sun Group in the Van Don Special Economic Zone of Quang Ninh Province near the Chinese border, and Vingroup on Phu Quoc Island of Kien Giang Province. The announcement came from Vietnam’s Prime Minister, Nguyen Xuan Phuc, last week. Currently,
only Vietnamese with dual citizenship are allowed to gamble in the country’s casinos. According to Vietnam’s Institute for Regional Sustainable Development, the country’s eight licensed casinos generated VND1.38 trillion (MOP484 million/ US$61.3 million) in gaming revenues in 2014. Another integrated resort project is currently being developed by Hong Kong-based Chow Tai Fook Enterprises, Macau junket group SunCity and Vietnam-based investment company VinaCapital. The project, located in Quang Nam Province, is slated to open in 2019. S.Z.
8 Business Daily Wednesday, December 28 2016
Greater china Cyber
Mainland vows to protect information security ‘using all means’ Any technologies intended for use by the government, Communist Party organs and major industries will undergo extra scrutiny
C
hina will use all means necessary to protect its information security, including the use of its military, striking a hard line in the country’s first strategic report on cybersecurity. Zhao Zeliang, director general of the bureau of cybersecurity for the Cyberspace Administration of China, called for a “secure and controllable” internet at a briefing in Beijing on Tuesday. He unveiled a plan to adopt a review process for all domestic and foreign companies for “key information products and services” before they are deemed safe to be sold or deployed in China’s market. Any technologies intended for use by the government, Communist Party organs and major industries will undergo extra scrutiny, he said. Cybersecurity has been a hallmark of President Xi Jinping’s tenure. Tuesday’s announcement follows the adoption of a sweeping cybersecurity law in November that will require web operators in China to cooperate with police investigations, and in some cases, provide source code and encryption keys. International cybersecurity and espionage has become a bigger concern since Edward Snowden’s revelations about U.S. spying; more recently, American intelligence agencies have blamed Russia for hacking and leaking stolen
material to interfere with the presidential election. “China will do its utmost to protect the information safety of the country and its citizens,” said Zhao, who was presenting China’s first National Cybersecurity Strategy Report.
Safeguards
China has become suspicious of foreign operators and more aggressive about safeguarding its IT systems. At the same time, the nation is home to a sizable domestic criminal-hacking community, which sucks about US$15 billion out of
the economy each year, Zheng Bu, an angel investor and former executive at FireEye, told a cybersecurity conference in Beijing a few months ago. Zhao also said the review process wasn’t designed specifically to limit foreign technology companies’ business in China. Yet when China’s new cybersecurity law was passed last month, James Zimmerman, chairman of the American Chamber of Commerce in China, said in a statement that Beijing’s direction worried foreign companies. “The Chinese government is right in wanting to ensure the security of digital systems and information here,” he said, but added that recent measures “create barriers to trade and innovation.” Tuesday’s report comes at a tumultuous time for U.S.-China
relations. President-elect Donald Trump has said he may not support the long-standing One-China policy that recognizes Taiwan and mainland China as part of the same country. China criticized his comments and said they jeopardize the “political bedrock” for the countries’ relationship. Zhao didn’t elaborate on what kind of military response China would take to protect its information security. China also called for more global cooperation to prevent cyberwar, according to the report. The government will issue further implementing measures on the cybersecurity law and the control of cyberspace, Zhao said. “China wants an open cyber environment while at same time a safe one too.” Bloomberg News
Industry
Nov industry profits grow well, but chance to sustain gains clouded Growth has stabilized this year, with 6.7 pct expansion in GDP in the first three quarters China’s industrial sector showed the strongest profit growth in three months in November, suggesting the world’s second-largest economy was improving, though policymakers noted gains were too dependent on rebounding prices for oil products, iron and steel.
Key Points Profits in Jan-Nov rose 9.4 pct, vs 8.6 pct in Jan-Oct Gains too dependent on raw material price rebound - NBS Growth unsustainable amid crackdown on asset bubbles -analyst
Industrial profits have had a solid rebound this year after falling last year, boosted by a recovery in commodity prices as supply tightened due to a capacity reduction drive and an infrastructure boom. Profits in November rose 14.5 per cent to RMB774.6 billion (US$111 billion) from a year ago, the highest since August’s record 19.5 per cent spike, National Bureau of Statistics (NBS) said on Tuesday. Profits in October rose 9.8 per cent. Industrial profits rose 9.4 per cent in the first 11 months from a year earlier, up from 8.6 per cent in January-October. “Industrial profits rose relatively fast due to a lower base last year, and the growth was overly reliant on a price rebound in raw material
industries such as oil refining, and iron and steel,” He Ping, an NBS official, said in a note accompanying the data. Profits in manufacturing rose 13.7 per cent for January-November from a year earlier, while those for the ferrous metal processing industry as well as oil and nuclear fuel refining more than tripled.
Broader crackdown?
Producer prices rose at the fastest pace in more than five years in November as prices of coal, steel and other building materials soared, boosting industrial profits and giving firms more cash to pay off mountains of debt. But analysts say recent signals from China’s top leaders that more will be done in 2017 to crack down on asset bubbles is putting pressures on raw material prices, casting doubts
over the sustainability of such a price rebound. “The question is whether price rises in recent months resulted from a genuine improvement in demand, or financial speculation,” said Zhou Hao, senior economist at Commerzbank. “From what we are seeing, the leadership apparently thinks it’s the latter.” Zhou said the government “might introduce new policy measures to curb raw material price growth.” Chinese steel futures fell sharply on Monday to the lowest level in over a month, as traders took cues from market talk that Beijing may tolerate slower economic growth amid rising debt and an uncertain global environment.
Stable growth
T u es d a y ’ s d ata c o v e rs l a rg e enterprises with annual revenue of more than RMB20 million from their main operations. China’s growth has stabilized this year, with 6.7 per cent expansion in
gross domestic product in the first three quarters. But corporate debt continues to rise, increasing risks as China looks to push ahead structural reforms. Firms are seeing more payments being delayed, as accounts receivable at the end of November rose 9 per cent from a year earlier. That increase was biggest than the rise in revenue from main operations.
“The question is whether price rises in recent months resulted from a genuine improvement in demand, or financial speculation” Zhou Hao, senior economist at Commerzbank
“The difficulty in making repayments is still a relatively large hurdle that limits the production and operation of firms,” NBS’s He noted. Tuesday’s data also showed Chinese industrial firms’ liabilities at the end of November were 5.6 per cent higher than at the same point last year, despite rising at a slower pace than assets have. China’s industrial output should grow around 6 per cent in 2017, like this year, a state-run newspaper quoted industry minister Miao Wei as saying on Monday. Reuters
Business Daily Wednesday, December 28 2016 9
Greater China Currency
In Brief
Yuan Turnover Soars in Sign of December Outflow Pressures The Chinese currency is headed for its steepest annual slump in more than two decades
T
he onshore yuan’s surging trading volume is another piece of evidence that capital is fleeing China at a faster pace. The daily average value of transactions in Shanghai climbed to US$34 billion in December as of Monday, the highest since at least April 2014, according to data from China Foreign Exchange Trade System. That’s up 51 per cent from the first 11 months of the year. The increase suggests quickening outflows, given that data in recent months showed banks were net sellers of the yuan, according to Harrison Hu, Singaporebased chief greater China economist at Royal Bank of Scotland Group Plc. This month’s jump in trading volume signals sentiment has kept deteriorating since November, when the nation’s foreign-exchange reserves shrank by the most since January. The Chinese currency is headed for its steepest annual slump in more than two decades and when the year turns, authorities will be faced with a triple whammy of the renewal
of citizens’ US$50,000 conversion quota, prospects of further Federal Reserve interest-rate increases, and concern that U.S. President-elect Donald Trump may slap punitive tariffs on China’s exports to the world’s largest economy. “Capital outflow pressures will stay, and in near term, we should monitor the impact upon the reset of the annual quota,” said Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale SA. The pressures will likely ease toward the end of the first quarter as foreign flows into China’s bond market quicken, she said.
Tough finances
December’s flurry of yuan transactions in Shanghai comes in a tough month for owners of China’s financial assets. The Shanghai Composite Index of stocks is down 4 per cent and an index of Chinese government bonds is headed for its biggest monthly decline in almost six years. The yuan has weakened 0.9 per cent this month to 6.9495 per dollar.
Policy makers have set strongerthan-expected fixings and tightened capital controls to prevent the yuan from entering a vicious cycle of sharper depreciation and faster fund exodus. The People’s Bank of China has stepped up efforts to guide expectations on the exchange rate, Ma Jun, chief economist at the monetary authority’s research bureau, said in a statement Thursday.
“The situation won’t likely spin out of control as PBOC will keep capital curbs tight” Ma Jun, chief economist monetary authority’s research bureau Trading volume in the yuan will probably keep rising next year amid continued outflows and as companies, individuals and banks manage their foreign-exchange holdings more aggressively, said RBS’s Hu. “But the situation won’t likely spin out of control as PBOC will keep capital curbs tight,” he said. Bloomberg News
SOE
China’s cabinet names Harvard graduate as central bank vice governor China named Yin Yong, a Harvard-educated official, on Tuesday as a vice governor of the People’s Bank of China, replacing Guo Qingping. The State Council announced the promotion of Yin, who has been an assistant governor at the central bank since August 2015, on its website. Yin holds a Phd in engineering from Tsinghua University and a Masters degree in public administration from Harvard University. He had previously worked for the State Administration of Foreign Exchange - the foreign exchange regulator, responsible for managing the country’s foreign exchange reserves. His predecessor, Guo, became vice central governor in February 2015, and had been responsible for anti-money laundering operations. Though no reason was given for his departure, Guo turned 60 this year - the normal retirement age for officials of his rank. Imports
Lift of 13-year import ban on Japanese carp China has resumed imports of Japanese koi, removing a ban imposed amid viral disease outbreaks at Japanese fishing farms in 2003, authorities in Shanghai said Tuesday. The first shipment of 20 Japanese koi arrived in Shanghai Friday and is undergoing quarantine inspection at the airport, the Shanghai Entry-Exit Inspection and Quarantine Bureau said in a press release. China suspended imports of the Japanese aquarium carp in 2003, when a major outbreak of carp herpes, a virally transmitted disease, ruined many carp farms in Japan. China’s aquarium carp market reported a turnover of approximately RMB10 billion (US$1.44 billion) in 2015. Resumption of imports from Japan is expected to help local fish farmers improve breeding. Recall
BMW to recall 193,611 vehicles in China
E-commerce
Lawmakers call for early introduction of e-commerce law Chinese lawmakers on Sunday called for early introduction of a draft e-commerce law so as to regulate and facilitate booming e-commerce in the country. The draft law was submitted for review by legislators at the week-long bimonthly session of the National People’s Congress (NPC) Standing Committee, which concluded on Sunday. It is the first reading of the draft by the top legislature. During the discussion, legislator Yan Yixin said all parties involved in e-commerce should be subject to regulation of the new law. Yan suggested the law expand its coverage from the current e-commerce business operators and consumers to e-payment and express delivery service providers. Protection of personal information is a highlight of the draft law. It stipulates that operators must ensure personal information security for consumers. Those that fail will face fines of up to RMB500,000 and could have their business certificates revoked. Legislator Han Xiaowu said more
detailed regulations should be set down to specify procedures for citizens to safeguard their legal rights, file a law suit and claim for compensation once their information security was infringed upon.
China is the world’s largest e-commerce market. E-commerce trade amounted to over RMB20 trillion yuan (US$2.87 trillion) in 2015, with online retail sales totalling RMB3.88 trillion. Xinhua
BMW will recall 193,611 vehicles in China’s mainland due to defective airbags, the country’s quality watchdog has said. The recall, set to begin on Aug. 1, 2017, affects 168,861 imported cars made between Dec. 9, 2005 and Dec. 23, 2011, as well as 24,750 sedans manufactured between July 12, 2005 and Dec. 31, 2011, according to the website of the General Administration of Quality Supervision, Inspection and Quarantine. When the driver and front passenger airbags of the affected vehicles inflate, the gas generators inside may become damaged and cause flying debris, posing safety risks to passengers, said the statement. BMW has promised to replace the defective parts free of charge.
10 Business Daily Wednesday, December 28 2016
Greater China
Reform
Mainland to press ahead with supply-side reform Industries plagued by overcapacity and lagging technology have been urged to move up the value chain to stay competitive
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upply-sidestructuralreform has been a catchphrase in China this year, and is set to remain a central theme of the nation’s economic work in 2017 as it is expected to inject vitality into the world’s second largest economy. The reform has witnessed steady progress since China’s policymakers proposed it at the end of 2015 to resolve structural imbalances in the economy. Thanks to supply-side reform, the Chinese economy is ending 2016 on firm footing with the country looking like it will hit its annual growth targets.
In the first three quarters, the economy expanded 6.7 per cent, well within the government’s target range of between 6.5 and 7 per cent. Throughout the year, authorities have pressed ahead with five tasks: cutting industrial capacity, reducing the housing inventory, cutting leverage, lowering corporate costs and improving weak economic links. A l a rg e n u m b e r o f z o m bi e enterprises have been shut down this year. Industries plagued by overcapacity and lagging technology have been urged to move up the value chain to stay competitive.
China has met this year’s target of reducing 45 million tonnes of steel and 250 million tonnes of coal production capacity, ahead of schedule. The country has seen a continued decrease in the housing inventory. By the end of November, the inventory had fallen for nine consecutive months. With business tax replaced by value-added tax, companies are expected to cut costs by over RMB1 trillion (around US$145 billion) this year. Due to targeted poverty alleviation measures, the country’s poor population is forecast to fall by more than 10 million in 2016.
Roadblocks
Unsurprisingly, China has also met with multiple challenges in carrying out reform.
Unexpected home price spikes in the first nine months pushed up residential leverage and swelled asset bubbles. Downsizing of the steel and coal sectors led to shrinking supply and shored up short-term prices, which impeded further reform. “Zombie companies” caused risks with unemployed workers and unresolved debts. Despite the difficulties, policymakers have decided to stick with the reform in 2017 in a bid to address entrenched problems and find long-term growth momentum. China will deepen supply-side structural reform next year, expanding reforms to more areas: overhauling the agricultural supply-side, reviving the real economy and stabilizing the property sector, according to the Central Economic Work Conference held earlier this month. Xinhua
Space
Mainland invites investors, including foreigners, into space effort China is seeking to commercialize its satellite communications and broadcasting systems China is looking to draw private investors, including those from outside the country, into its aerospace program to supplement funding from the government for commercial satellite launches. Investment is welcome for commercial rocket development, satellite research, manufacturing and for applying aerospace technologies to public welfare, Wu Yanhua, vice minister of China National Space Administration, said at a press briefing in Beijing on Tuesday. Wu said China intends to be among the world’s top three aerospace powers by 2030. “After six decades of development, government investment alone is not enough to let China’s aerospace program to advance technological progress and benefit the economy and society,” Wu said. There are now
space program has said it plans to send the Chang’e 4 probe to the moon in 2018, in what would be the first soft-landing on the far side of the
moon. The plan for sending a probe to Mars in 2020 would also be a first for China, according to the aerospace white paper. Bloomberg
fewer restrictions for non-state investors, including foreign capital, to invest in China’s aerospace research, manufacturing and services, Wu said. China is seeking to commercialize its satellite communications and broadcasting systems, according to an aerospace white paper the State Council Information Office released Tuesday. China’s satellite navigation system, Beidou-2, is expected to enter service in 2018, serving the “Belt and Road” region under Chinese President Xi Jinping’s plan for better infrastructure connectivity across Eurasia. The white paper didn’t include any targets or time frames for private investment. The government is still reviewing the feasibility of sending a manned mission to the moon, Wu said. China’s
Scandal
China’s Sealand signs deal to resolve “forged” bond dispute The brokerage said it had reached a “consensus” with counterparties to share potential losses stemming from “forged” bond agreements Sealand Securities, which triggered a rout in China’s bond market over the past two weeks, has signed separate arrangements with seven counterparties in a bid to resolve a scandal involving “forged” bond agreements, it said on Tuesday. “The company is operating
normally with a sound financial situation, and liquidity risks are under control,” Sealand said in a filing to the Shenzhen Stock Exchange. The brokerage said last week that it had reached a “consensus” with counterparties to share potential losses stemming from “forged” bond
agreements with a total value of no more than RMB16.5 billion (US$2.37 billion). Liquidity in the market was squeezed after the media reported on the “forged” Sealand bond agreements earlier last week, sparking volatility and undermining investor confidence. “Bond agreements”, known as entrusted bond agreement business, were widely used by securities firms to obtain leverage for bond transactions in order to meet guaranteed returns
to investors. Sealand defaulted on a bond transaction with Bank of Langfang, in China’s northern Hebei province, following the recent tumble in bond prices, according to local media. Sealand said it had no agreement with Bank of Langfang on a bond transaction agreement and its company seal had been forged by two former employees. But the brokerage later used the wording “forged bond agreement” in a filing to the stock exchange and said it would take responsibility for the documents to resolve the issue. Reuters
Business Daily Wednesday, December 28 2016 11
Asia Economy
Modi own goal swamps India’s big-bang year, clouds 2017 outlook Much of the pain is self-inflicted as Modi’s decision last month to drain 86 pct of currency in circulation stalled spending and caused a political stalemate on a landmark sales-tax reform Anirban Nag
I
ndia started 2016 as the w o r l d’ s f a st e st-g r o w i n g major economy, but at its end the nation faces a significant slowdown and the delay of what’s been hailed as Prime Minister Narendra Modi’s greatest reform - the creation of an integrated marketplace. Much of the pain is self-inflicted as Modi’s decision last month to drain 86 per cent of currency in circulation stalled spending and caused a political stalemate on a landmark sales-tax reform. It’s an apt end to a busy year that’s included a change of guard at the central bank, the overhaul of a century-old bankruptcy law and the biggest battle to rock corporate India in decades. And it’s sown the seeds for a tumultuous 2017.
“Investments were weak and that will not recover”
Gross domestic product will grow 6.5 per cent this quarter, slowing from 7.3 per cent in the July-to-September period, according to the median estimate in a Bloomberg survey. Priyanka Kishore, lead Asia economist at Oxford Economics in Singapore, has lowered her forecasts for 2016. Growth longer term, however, will be robust, said Kishore, who expects an average expansion of 7 per cent a year in 2016 through 2019, slightly faster than the pace in 2013 to 2015.
A Common Marketplace
Demonetization has sucked momentum from the movement to roll out India’s goods and services tax from April 1. Hailed as one of biggest reforms in generations, the GST will replace a myriad of consumption and sales levies imposed by various states and is expected to boost competitiveness and investment. Supplementary legislation on the
GST stalled in parliament this month and unless the government garners consensus and passes supporting legislation in next few weeks, it will be difficult to meet the launch date. As it stands, another chaotic roll out lurks in India’s not-too-distant future.
Central bank in focus
India formally adopted an inflationtargeting framework in August, committing its central bank to tackling the politically-sensitive issue. For the first time, it also put interest rate decisions in the hands of a policy committee with external members. With inflation easing to a two-year low, the panel has room to ease rates in the first few months of 2017. The economy isn’t the only thing the Reserve Bank of India must manage next year. The authority has come under criticism for its handling of Modi’s cash ban with policy U-turns adding to the chaos on the streets.
House of Tatas
On the corporate front, a public battle for control of India’s largest conglomerate has played out after family patriarch Ratan Tata replaced Cyrus Mistry as chairman of the Tata
Group in October. Both men have traded accusations over missteps at the salt-to-software empire, bringing its governance structure into question. As the year closed out, Mistry stepped down from the boards of Tata group units other than holding company Tata Sons Ltd. but vowed to continue his fight on a legal platform. Mistry has filed a case with the National Company Law Tribunal, with the next hearing set for Jan. 31.
Bank clean-up
India introduced a new bankruptcy code this year that’s likely to allow the quick closure of businesses gone bad and prevent the build-up of nonperforming loans. Nevertheless, the Organisation for Economic Cooperation and Development says implementation will require an improvement in the nation’s severely back-logged judicial system. Meanwhile, non-performing loans keep climbing even as banks approach a March 2017 deadline to clean up their balance sheets by increasing provisioning. The ratio of stressed assets in India’s banking system surged to a 16-year high of 12 per cent as of June 30, RBI data show.
Capital spending
Investments in big projects and company loans have been subdued this year and economists see little chance of a recovery in coming months given the current economic uncertainty. “Investments were weak and that will not recover,” said Gita Gopinath, an economics professor at Harvard University. Bloomberg
Gita Gopinath, economics professor at Harvard University “Reforms will have long-term structural benefits but carry shortterm execution and adjustment risks,” said Abhishek Dangra, a credit analyst at S&P Global Ratings. A move away from cash and the introduction of a uniform goods and sales tax across the country next year will be beneficial in the medium-term as it will drive higher tax collections, he said.
No money, just problems
India’s cash ban is the center of attention. Early data back economists’ fears that consumption will be hit, particularly in rural areas, with the dominant services sector absorbing the bulk of the pain. Industrial production and investment are likely to be pressured with subsequent job losses adding to the disruption, according to economists.
Assets
Toshiba drops on reports of nuclear unit’s US$4.3bln loss Yuji Nakamura
Toshiba Corp. posted its biggest decline since May 2015 after reports that it may book a loss of as much as 500 billion yen (US$4.3 billion) on its U.S. nuclear operations. The shares fell as much as 16 per cent to 371 yen in early trading in Tokyo on Tuesday. The company said in a statement that it’s not the source of the news reports and it is assessing the current value of its assets. The reported loss is related to a dispute over the value of the acquisition of a Chicago Bridge & Iron subsidiary by Toshiba’s Westinghouse Electric unit, the Nikkei reported on its website. The writedown would come to about 100 billion yen, the newspaper said, while broadcaster NHK said the charge may total as much as 500 billion yen.
“Assuming the article to be accurate, we would expect Toshiba’s weak financial standing to be damaged further,” said Takeshi Tanaka, an analyst at Mizuho Securities Co. Such a loss would eclipse the
168 billion yen in net income that analysts are projecting, on average, for Toshiba’s current fiscal year through March. The Tokyo-based company booked a loss of 460 billion yen last year.
Toshiba shares had climbed 77 per cent this year through Monday after the company recovered from an accounting scandal that claimed the jobs of three presidents, led to record losses and prompted the company to cut staff and sell off businesses. The conglomerate, which makes everything from refrigerators, chips and computers to nuclear power equipment, is also being sued by shareholders accusing it of misleading them about its finances. Toshiba was fined a record 7.4 billion yen in December last year after Japanese regulators found the manufacturer misled investors by filing false financial statements. The watchdog has also been gathering evidence to determine whether to seek criminal prosecutions of former bosses over the scandal. Bloomberg
12 Business Daily Wednesday, December 28 2016
Asia Economy
Investors bet on Vietnam as valuations top Southeast Asia Economists predict Vietnam will be among the world’s fastest-growing economies in 2016 as it benefits from a manufacturing industry that has grown in importance over the years Nguyen Kieu Giang
V
ietnam stocks are pricier than their Southeast Asian peers for the first time in two years - and they are about to become more expensive. “There is room to grow,” said Dominic Scriven, Ho Chi Minh Citybased Chairman at Dragon Capital. “We are looking for 19 per cent net growth for earnings next year,” as the economy expands and inflation remains stable, he said. The benchmark VN Index is trading 15.9 times earnings, compared with the MSCI South East Asia Index which is at 14.7. A 15 per cent gain in the VN Index has led to its outperformance versus the MSCI Frontier Markets Index and the South East Asia benchmark gauge. The gauge rose 0.4 per cent as of 11:38 a.m. local time mid-day break Tuesday. The market’s “valuation is expected to continue rising in 2017,” because of upcoming listings of attractive companies, said Le Nguyet Anh, head of research at ACB Securities JSC. “Meanwhile, for the currently listed stocks, decent earnings growth will be the major price growth momentum.” The strong premium this year is “due to its good macroeconomic performance and political stability, while the rest of the region went through political transformations and tougher economic times,” said Attila Vajda, managing director at Project Asia Research and Consulting Pte in Ho
Chi Minh City. Philippines President Rodrigo Duterte, elected earlier this year, has unnerved investors with his frequent outbursts against the U.S. and violent war on drugs. Thailand has experienced deadly street clashes and tainted corruption trials since an army coup in 2014. Economists predict Vietnam will be among the world’s fastest-growing economies in 2016 as it benefits from a manufacturing industry that has grown in importance over the years. Increased foreign-direct investment helped push the VN Index to an eightyear high of 688.89 on Oct. 19. The government aims for GDP growth of 6.7 per cent next year, which will be the fastest pace since 2007. Profit at companies on the benchmark gauge are projected to grow 23 per cent in the next 12 months, according to data compiled by Bloomberg.
Liquidity issues
The market still faces the “hurdle of liquidity,” said Andy Ho, VinaCapital’s Chief Investment Officer. He recommends the government lift the foreign ownership limit in the banking sector as one way to boost the market liquidity. Last year, Vietnam allowed some industries to raise the foreign ownership limit to 100 per cent from 49 per cent, however, the cap for the banking sector still remains at 30 per cent. Vietnam, which would have been the biggest beneficiary of the TransPacific Partnership, may stand to lose the most as President-elect
Trump prepares to quit the pact. “Since Vietnam’s economy is export driven and the U.S. is a significant export market, it is likely that we need to see how the incoming Trump administration will finally deal with trade barriers,” said Vajda. The average daily turnover on the Ho Chi Minh City Stock Exchange - the main bourse - is just US$109 million this year, compared with US$768 million in Singapore, according to data compiled by Bloomberg.
Government plans
It’s a “great time” to invest in Vietnam now as the government has accelerated the divestment process in major companies, VinaCapital’s Ho said. The Vietnam government’s planned stake sales of major companies like Saigon Beer Alcohol Beverage Corp. and Hanoi Beer Alcohol Beverage Corp. next year is seen as “encouraging” for investors, according to Ho. “There are really good companies that the government is now allowing foreign companies, like institutional investors like ourselves, to put money
into them,” he said. State Capital Investment Corp., the government’s investment arm, raised about US$500 million selling 5.4 per cent of its stake in Vietnam Dairy Products JSC during the longawaited Dec. 12 sale. B esi d es di v est m e n ts, th e government has also pushed companies to list shares on the exchange, which has made the stock market “more interesting,” according to Vajda. The market will welcome the future listings of some major companies, including Vietnam Airlines Corp. and Vietnam National Textile and Garment Group. Vietnam Airlines said in November that it would start trading in Unlisted Public Company Market, or UpCom, before Dec. 31 and Vinatex, as the textile group is commonly known, plans to list 500 million shares on UpCom on the first week of January. “Some new listings will attract enough excitement that the index can grow moderately, if there are no external trade shocks due to protectionist policies from the U.S.,” said Vajda. Bloomberg
Exchange rate
Malaysia’s central bank takes action against firm over ringgit trade The action could include monetary penalties, issuance of a written order to comply, a public reprimand and a written order to mitigate or remedy such breaches Bank Negara Malaysia said it was taking action against an unnamed financial institution for failing to promptly notify the central bank of its dealers’ misconduct involving the fixing of the dollar-ringgit exchange rate. The action comes amid efforts by the central bank to curb offshore trade of the ringgit and stem the fall of the
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currency, which is one of Asia’s worst performing currencies in 2016. In a statement on Tuesday, the central bank said the financial institution facing action failed notify it of a “significant audit finding.” “The finding indicates that there were communications with traders from other foreign financial institutions which included inappropriate
references to the fixing rate submission process,” Bank Negara said. The central bank said it viewed such reporting breaches seriously, “especially on financial institutions’ involvement with offshore ringgit NDF (non-deliverable forward) market or any activities that relates towards market manipulation.”
Penalties
The action could include monetary penalties, issuance of a written order to comply, a public reprimand and a written order to mitigate or remedy such breaches, it said in a statement, without naming the financial institution. Last month, two Australian banks - Macquarie Group Ltd and Australia and New Zealand Banking Group Ltd - offered to pay fines for “cartel conduct” when trading ringgit foreign exchange contracts out of Singapore in 2011. The two banks said they offered to pay the fines after the antitrust agency started court proceedings. Last month, the Malaysian central bank began trying to force currency traders overseas to stop driving the ringgit lower. Bank Negara demanded that banks sign a commitment to cease trading the ringgit on the offshore
non-deliverable forward market. Trading became thin after the central bank’s action, though earlier this month Bank Negara announced measures to boost liquidity and encourage more onshore trade.
“The finding indicates that there were communications with traders from other foreign financial institutions which included inappropriate references to the fixing rate submission process” Bank Negara The ringgit is down 4 per cent so far this year. Like some other emerging market currencies, it took a hit after Donald Trump won the U.S. presidential race. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Wednesday, December 28 2016 13
Asia Stocks
In Brief
Foreigners raise short bets on India ahead of derivatives expiry Overseas investors have sold over $713 million of local stocks this month Santanu Chakraborty
Global investors are raising short positions in Indian equity futures ahead of derivatives expiry on Thursday, signalling the selloff which dragged stocks to a five-week low may continue. The Nifty 50 Index has fallen nine out of the past 11 days on concerns the government’s move to invalidate high-value bank notes may stymie economic growth. Foreigners’ short index positions on Indian indexes
and local stocks were twice as many as the 100-day average as of Dec. 26, according to data compiled by Bloomberg. Foreigners’ net long futures positions fell to 26,997 contracts Monday from 76,696 contracts on Dec. 13, the latest data show. “Bears are emboldened on weak foreign flows and local sentiments amid the global quiet period,” Sanjiv Bhasin, executive vice president at India Infoline Ltd. said in a phone interview in Mumbai. “The trend signals that markets can go down
further on expiry.” Overseas investors have sold over $713 million of local stocks this month, after a $2.6 billion net outflow in November, as uncertainty over economic growth and corporate profits continued after India’s decision on Nov. 8 to ban high-denomination banknotes. Foreign institutions have a significant influence in derivatives trading in India, holding a long or a short position in 36 percent of the total number of contracts, according to stock exchange data. Tuesday’s trading volume on the NSE Nifty 50 Index was 45 percent lower than the 30-day mean.
Debt
S.Korea household debt burden threatens vulnerable households as yields rise South Korea’s central bank on Tuesday warned that the debt-servicing capacity of some of the country’s most vulnerable households could fall on the back of a delay in economic recovery and rising interest rates. In a bi-annual report on financial stability, the Bank of Korea said although households’ overall debt repayment capacity appears solid, those in low-income basket and in low-credit groups face default risks given that debt accumulation has far outpaced disposable income growth. “Those people (categorised as vulnerable households) would feel a bigger debt repayment burden than other households when the interest rates increase, as many of them have variable-rate loans, and often more than one,” Byun Seung-sik, head of Financial Stability Department at the BOK said. Household debt stood at 1,295.8 trillion won (US$1.08 trillion) at the end of the third quarter this year, up 11.2 per cent from a year earlier. LNG
Vietnam to import more gas
Trade
Blockade brings down industrial capacity utilization of Nepal to 48 pct Noodles and electric cable manufacturing industries saw the highest capacity utilization while industries producing rice, iron and steel and soft drinks ran at their lowest capacity Nepal’s key manufacturing industries ran at an average of 48.2 per cent of their capacity in the fiscal year 201516 as the Himalayan nation suffered prolonged border blockade in the year, Nepal’s central bank said. Nepal Rastra Bank (NRB), the central bank of the country, said the capacity utilization of major industries suffered downturn in the last fiscal year that ended in mid-July against the average capacity utilization of 52.7 per cent in the previous fiscal year 2014-15. According to the latest study report released last week, Pashmina, noodles and electric cable manufacturing industries saw the highest capacity utilization while industries producing rice, iron and steel and soft drinks ran at their lowest capacity during the review period. A total of 23 products based industries were studied to see their capacity utilization.
Concerns
The central bank said that the capacity utilization of the industries suffered in the last fiscal year as they faced shortage of essential fuel and raw materials which resulted from four and half months’ blockade imposed by India amid concerns about political unrest in Nepal’s southern plain over the country’s new constitution. Most of Nepal’s major industries have been established in southern plain because of proximity with India so that they could easily import raw materials as well as export finished goods.
“Some industries were also affected by deadly earthquake of April 2015,” states the report. “In the aftermath of earthquake, demand for goods other than essential ones also decreased creating less demands overall in the aftermath of the earthquake affecting the capacity utilization of the industries.” Nepalese industrialists say that
most of the industries were virtually closed during the blockade which resulted in low capacity utilization. “The number of working days in Nepal is far less than other countries because of more holidays and occasional strikes by different political groups,” said Pashupati Murarka, president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the apex private sector body of Nepal. “Our working days are just 280285 days in a year against 330 days in many other countries.” He however said that things have improved this fiscal year because of improvement in power supply and reduced incidents of strikes as well as lifting of blockade. Xinhua
The sharp decrease in liquid natural gas (LNG) output and increasing prices of new gas resources are forcing Vietnam to look to increase in LNG imports, Vietnam News Agency reported Friday. The country is expected to import five million tons of LNG by 2025. The figure is expected to increase to 11 million tons by 2030 and 13.9 million tons by 2035. By the end of this year, the Vietnam National Oil and Gas Group (PetroVietnam) will have supplied more than 100 billion cubic meters of gas. Gas for electricity production accounted for 90 per cent of the country’s total gas output, generating around 30 per cent of total power output. Gas for fertilizer production contributed 70 per cent of the total fertilizer demand. It is forecast that Vietnam’s total gas supply will be more than 268 billion cubic meters, while its total demand will be over 344 billion cubic meters in the 2017-2035 period, he said, adding that the supply would not be enough for the development of new power plants under the master electricity plan VII. Recall
Samsung retrieves over 90 pct of Galaxy Note 7 sold in S.Korea Samsung Electronics said on Tuesday that it has retrieved over 90 per cent of fire-prone Galaxy Note 7 smartphones sold in South Korea, leading the company to consider software upgrades to further limit the battery-charging capability. Over 850,000 Note 7 devices have been retrieved among about 950,000 phones sold here, raising the recovery rate to 90 per cent. Samsung said in a statement that it is considering the upgrade of the software patch the firm released in October to limit the maximum charging capability of Note 7 to 60 per cent. In the United States and Europe, where the retrieval rate surpassed 90 per cent, Samsung already took an action to restrict the battery capability for the protection of consumers.
14 Business Daily Wednesday, December 28 2016
International In Brief Deficit
Brazil sees record high primary deficit in November in 20 years Brazil’s federal government registered in November a primary deficit of 38.3 billion reals (US$11.7 billion), the highest registered in the month of November in 20 years, the country’s Treasury Secretariat said on Monday. The accumulated primary deficit in the first 11 months of the year was 94.15 billion reals (US$28.8 billion), also the highest for the period in 20 years. The negative figures were attributed to the low tax collection caused by the severe economic crisis the country is going through. The Treasury Department revised its estimates for the 2016 primary deficit to 167.7 billion reals (US$51.3 billion), which means it expected Brazil to register a primary deficit of 73.55 billion reals (US$22.5 billion) in December alone. In 2017, the government expects Brazil to have a fiscal deficit of 139 billion reals (US$42.5) as well. Oil
Iran to offer oil projects to int’l corporations soon: official Iran is planning to offer at least 10 new contracts for the development of oil and gas projects to international energy companies in the near future, Press TV reported on Monday, quoting an Iranian energy official as saying. Iran’s oil projects are attractive to global investors given the low risks as well as the low costs, said GholamReza Manouchehri, the deputy for development and engineering affairs of the National Iranian Oil Company (NIOC). Since January when anti-Iran sanctions were removed, some 12 contracts have been awarded to international companies, Manouchehri said, adding that 10 other projects are ready to be awarded in near future. Among major contracts Iran signed with the leading energy companies were the development of Phase 11 of the country’s South Pars gas field awarded to a consortium led by France’s Total in November. Banking
Monte Paschi says ECB sees the need for US$9.2 bln of capital The European Central Bank sees Italian lender Banca Monte dei Paschi di Siena SpA needing about 8.8 billion euros (US$9.2 billion) of capital to bolster its balance sheet. The calculation is based on the results of a 2016 stress test, the bank said in a statement late Monday, citing two letters from the ECB that it received via Italy’s Finance Ministry. While the ECB saw worsening liquidity at Monte Paschi in December, it still considers the Italian bank to be solvent because it meets Tier 2 capital requirements. Paschi is seeking further information on the central bank’s calculations, according to the statement.
Real estate
Spain’s property market goes through the roof But there are concerns that the market could slow if interest rates rise Andrés González and Robert Hetz
A
ccording to a Spanish proverb, it is a bad idea to start building a house from the roof. But that is just what a Spanish firm is doing - and business is booming. Faced with a lack of available land in big cities such as Madrid and Barcelona, construction firm La Casa por el Tejado is building new apartments on rooftops - a sign that Spanish property is bouncing back eight years after a brutal crash. Home prices are nearing pre-crisis levels in downtown areas of major cities, rents and mortgages are surging, the prices of hotels and resorts are sky-rocketing and a round of mergers and acquisitions have broken out among major property investors. Though the market overall is still a long way from its giddy peaks, before the global financial crisis, few would have predicted today’s recovery when a decade-long boom ended in 2008, destroying two million jobs and holing the economy.
Key Points Home prices at pre-crisis levels in some areas Construction supporting economic growth Fears it could slow if interest rates rise Hotels and resorts give yields of up to 11 per cent Boom fuels mergers at property firms
“In Spain, we have identified more than 4,000 buildings which have available roof tops to build on,” said La Casa’s founder, Joan Artes, whose firm hoists prefabricated apartments by crane onto building roofs. “At a time when we lack space to build, we’re talking of more than two million square metres.” The revival has helped Spain to become one of Europe’s few
economic success stories, with estimated growth of 3 per cent next year. Construction accounts for 10 per cent of gross domestic product. But there are concerns that the market could slow if interest rates rise. Enrique Losantos, who heads the Spanish operations of real estate firm Jones Lang LaSalle, says the main risk would come from a change in monetary policy. European Central Bank interest rates are still at rock bottom but it is due to start cutting its asset purchase program next year. The U.S. Federal Reserve has already raised interest rates and signalled a faster pace of increases in 2017. “Some deals are made at very low yields and could suffer if there is some sort of shock on interest rates,” said Losantos. Yields in the residential market stand at 5.9 per cent or closer to 3 or 4 per cent in downtown Barcelona and Madrid or for premium homes, according to property website Idealista. It is 7.4 per cent and 8.4 per cent respectively for office and shopping space. Those yields compare to just 1.4 per cent of Spain’s 10-year debt.
Tourism bonanza
A new el dorado with yields of up to 11 per cent is now taking the centre stage: hotels and tourist resorts. Leading the pack is Hispania, partly owned by billionaires George Soros and John Paulson, which has bought 16 hotels in Spain, mostly in the Canary Islands and in the Balearic Islands. In a recent presentation to investors, the firm said its 1.1 billion euros investment in 10,532 hotel rooms was landing an average annual return of 10.1 per cent, compared to 6.5 per cent and 4.4 per cent for its office and residential assets. Hispania has recently bought 4 more hotels in Ibiza and Lanzarote for a total investment of 113 million euros, from which it expects returns of between 8 and 10.2 per cent. Miguel Vazquez, managing partner at real estate consulting firm Irea, which recently advised German
investment fund Aquila on the acquisition of a small boutique hotel in Madrid’s Letras neighbourhood, says around 1.8 billion euros is expected to be invested in hotels in 2016, or 20 per cent of the total investment in real estate, compared to just 7 per cent in 2014. However, he said a “mini-bubble” was forming around luxury hotels in Madrid where the lack of properties on offer and the high demand from institutional investors for those assets was driving prices up very rapidly. The five-star Villamagna hotel and its 150 rooms was sold for a record 180 million euros earlier this year, or 1.2 million euros per room. The competing Ritz hotels, just a few hundred metres away on Paseo Castellana sold last year for 132 millions euros, or less than 1 million euros per room. “At this price, you can’t have a high yield,” Vazquez said, adding that yields have now fallen to around 5 per cent in Madrid for those luxury assets.
M&A boom
Mergers and acquisitions are also heating up, with at least two dozen players, both property firms and investors, expected to disappear in a wave of consolidation driven by rising real estate prices rather than a desire to cut costs. Premium real estate firm Colonial, one of the few big names that made it though the crisis, is rumoured to be considering a takeover of boutique investor Axiare. Asset manager Pimco has raised its stake in mid-sized property investor Lar, while sources say that Neinor, a Madrid-based property developer partly owned by U.S. private equity fund Lonestar, is considering an initial public share offer. “It is fundamental to gain size. So there will be mergers and acquisitions and at the end of the day, just a dozen big groups will remain,” said Colonial Chairman Juan Jose Brugera. He declined to comment on Axiare. Neinor Chairman Juan Velayos also declined to comment on specific plans for his company, including a potential listing, but said the rebound had just started, with new promotions expected to reach 200,000 a year, from 50,000 currently. Reuters
Business Daily Wednesday, December 28 2016 15
Opinion Business Wires
Phnom Penh Post A new block trading platform has been developed to spur interest in Cambodia’s languid stock market by allowing individuals and institutional investors to trade large volumes of shares outside daily market operations, a bourse spokesman said yesterday. Lamun Soleil, director of market operations at the Cambodia Securities Exchange (CSX), said the exchange had already developed an in-house platform and would soon submit it to the Securities and Exchange Commission of Cambodia (SECC), the market regulator, for approval. “Our block trading platform has been already developed and ready for use,” he said. “It will, however, be launched only after there is approval from SECC on the relevant regulations [and] we plan to submit it to the SECC within a few weeks.”
The Japan News TEPCO Energy Partner Inc. said Monday that it has concluded a gas wholesaling agreement with Nippon Gas Co., ahead of the full liberalization of Japan’s gas retail market in April 2017. Under the agreement, TEPCO Energy, a unit of Tokyo Electric Power Co. Holdings Inc., will supply city gas mainly for households to Nippon Gas. They are aiming to win 500,000 contracts in the first year of liberalization. The two companies plan to set up a system that will allow them to handle a total of about one million contracts in fiscal 2019. Nippon Gas and TEPCO EP are scheduled to enter the gas retail market in April and July 2017, respectively. They will also hold discussions on establishing a joint company.
The Straits Times The (Singapore) Ministry of Finance and the Accounting and Corporate Regulatory Authority have proposed law amendments to lessen the regulatory burden on businesses. Changes to the Companies Act and Limited Liability Partnerships Act were proposed on Tuesday (Dec 27) to simplify the requirements to hold annual general meetings and file annual returns. “Listed companies and non-listed companies should hold their AGMs no later than the last day of the fourth month or sixth month after financial year end, respectively,” an official statement by the MOF and Acra said. Furthermore, all private companies will be exempted from holding AGMs, subject to specific safeguards. The legal requirement for companies and limited liability partnerships to use common seals will also be removed. These proposed amendments have been tabled for a public consultation, beginning on Tuesday and ending on Jan 13, 2017. They follow an earlier round of Companies Act public consultation in October.
A Growth Agenda for China
A
t a time when the United States is poised to turn inward, China’s economic performance is more important globally than ever. Whether China can achieve sustainable growth patterns in the coming years will depend upon a number of key factors. One of the leading external factors shaping China’s prospects will be its relationship with the U.S. under President Donald Trump. Ideally, the two governments would work together to negotiate mutually beneficial trade and investment agreements, with sensitivity to the challenges faced by both sides. But the opposite outcome – the escalation of mutually damaging trade and investment disputes – is also a distinct possibility. Political uncertainty is also on the rise in Europe. While its impact on China would not be as direct as Trump’s actions, it is a source of significant medium-term risks for the entire global economy. Within Asia, a key factor shaping China’s economic prospects is progress on Chinese-led regional trade and investment agreements. In particular, investments in regional development via the “one belt, one road” initiative and the Asian Infrastructure Investment Bank may produce expanded trade and growth in Asia (and beyond), though the effects will not be immediate. The fourth major external factor relates to exchange rates. As it stands, the renminbi is facing significant depreciation pressure, caused largely by a surge in capital outflows. Meanwhile, the U.S. dollar is strengthening in anticipation of Trump’s fiscal expansion. China’s performance will depend partly on how these dynamics play out. B u t, b e y o n d th e ext e r n a l uncertainties and headwinds, China faces a slew of internal challenges, which may well present even greater risks to its economy. Those challenges – including weaknesses in the real economy and the private sector, overcapacity, excessive leverage, and high housing prices – are rooted largely in the financial sector’s mounting problems and the failure of China’s leaders to address them. Consider efforts to promote investment in the real sector. The People’s Bank of China has been providing spurts of liquidity to the market, in the hope of relieving financial constraints on productive private businesses and industries. But the monetarypolicy transmission mechanism is broken, and liquidity is not making it to the real economy. Instead, China’s banks continue to allocate credit largely to stateowned enterprises (SOEs) and local-government financing vehicles (LGFVs). Credit to the state sector ends up flowing not into productivity-enhancing investments, but into the housing market (fueling price bubbles) and industries with excess capacity (fueling even more overcapacity and enabling companies to avoid much-needed restructuring). While LGFVs use the low-cost loans to build infrastructure, the social returns of those investments are often low; and, after decades of rapid infrastructure construction, the marginal returns are declining. Meanwhile, local governments’ leverage continues to rise. SOEs may also use the unregulated shadow banking system to re-lend at higher interest rates the cheap money they receive to private businesses, which cannot borrow reliably from the formal banking system. Whereas the interest rate of a one-year loan in the formal banking system is around 5 per cent, the average one-year interest rate in the Wenzhou shadow banking market (to cite one example) was around 16 per cent in November.
“
Michael Spence Nobel laureate in economics, Professor of Economics at New York University’s Stern School of Business
Qian Wan PhD student in Political Economy at Renmin University in Beijing
This state of affairs is jeopardizing the entire economy. Banks are bailing out bankrupt companies, while private firms – especially small and medium-size enterprises – continue to get squeezed. Given that the private sector is generally significantly more productive than SOEs or LGFVs, generating much higher returns on investment, the absence of hard budget constraints on troubled SOEs clearly must be addressed. Of course, China’s leaders have known this for a while, and have created a reform agenda that seeks to reform the SOEs, while unleashing the private sector’s potential. But it is still a work in progress. Convincing banks to lend to private enterprises, rather than to SOEs and LGFVs, will require substantial structural shifts in China’s economy. For financial institutions, SOEs and LGFVs represent much lower risk than private businesses, regardless of how leveraged or uncompetitive they are. After all, because SOEs and LGFVs are implicitly guaranteed by central or local governments, they are highly unlikely to default. Banks know (or believe) that if an SOE or LGFV faces bankruptcy, the government will step in with favorable policies and subsidies, tax cuts, and low-cost financing instruments. In some cases, banks have no choice but to lend to failing SOEs; their provincial government may demand that they provide large low-cost loans to a struggling and unproductive firm, particularly if it contributes significantly to local fiscal revenue and employment. Given that private firms enjoy no such official protections and thus play on a field that is nowhere near level, they must be substantially more productive and competitive than the SOEs. And even then, if the SOEs with which they are competing struggle too much, they are vulnerable to policy shifts that increase their disadvantage further. Simply put, the Chinese financial sector’s bias in favour of SOEs is contributing to some of the biggest risks faced by China’s economy. Investors’ recognition of these risks may be one driver of capital outflows, meaning that distortionary incentives in the financial system are also contributing to the downward pressure on the exchange rate. China has made great strides in recent years in implementing reforms that boost domestic private consumption. And, despite the barriers it faces, the country’s private sector has become highly dynamic and innovative. Earlier reforms are now bearing fruit, and this has helped to sustain economic growth. But achieving faster, more resilient growth will require China to eliminate the biases, protections, and implicit guarantees favouring SOEs in the marketplace and in the financial system. Only then can monetary policy achieve its goal: supporting productive investment, innovation, the scaling of private-sector businesses, and real economic growth.
Achieving faster, more resilient growth will require China to eliminate the biases, protections, and implicit guarantees favouring SOEs in the marketplace and in the financial system.
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16 Business Daily Wednesday, December 28 2016
Closing Automotive
China mulls flexible car loan policy to encourage auto sales
China is considering a flexible loan policy for car purchases to encourage automobile consumption, a major driving force for economic growth. The loan-to-value ratio of automobile purchases will be flexible and set according to macroeconomic and automobile industrial conditions, according to a draft decision released by the central bank and the top banking regulator on Tuesday. Previously, consumers could only borrow up to 80 per cent of the total car price from banks. The move is being considered to promote automobile
consumption as another key driving force of the Chinese economy, the property market, is expected to slow down next year due to tightening policies. Earlier this month, the Ministry of Finance decided to adjust and continue a preferential car purchase taxation policy set to expire by the end of this year with the aim of boosting automobile consumption. Auto sales and output in China, the world’s biggest auto market, continued to expand during the first 11 months, hitting an all-time high. From January to November, about 25 million cars were sold in China, up 14.1 per cent year on year, according to the China Association of Automobile Manufacturers. Xinhua
Energy
Tepco, investors discussing first bond sale since Fukushima
T
okyo Electric Power (Tepco) is gauging demand for its first bond offering since the 2011 Fukushima nuclear calamity, with some market participants expecting a sale as early as February, people familiar with the plans said. Once-sceptical investors are now more comfortable with the utility’s outlook after government moves to reassess decommissioning and compensation costs, bankers and investors who asked not to be identified told Thomson Reuters DealWatch.
Key Points
A Tepco spokesman said the company plans to issue bonds by the end of March but declined to comment on specific target dates or sizes.
A change in timing?
The timing could be pushed back as the Japanese government wants Tepco to delay the bond sale until after April, when legal changes that let it give more financial support to the utility are enacted, said a person familiar with the government’s thinking. But the company may have to hurry as gains in financial markets since Donald Trump’s election as U.S. president may falter, said one investor.
“If investors switch to risk-off mode because of a waning of the Trump rally in the New Year or the market enters an adjustment phase, selling bonds may be more difficult, so an issue by the end of this year would have been ideal,” Hiroaki Hayashi, director of the investment department at Fukokushinrai Life Insurance Co. said. Seen as unrealistic only weeks ago, Tepco has a better chance of raising debt after a government panel recently updated its estimates on what compensation the company owes and how costs for decommissioning the wrecked Fukushima plant will be shared.
Bond sale would be first since Fukushima calamity of 2011 Govt’s moves increase investor comfort with Tepco risk
Tepco was once Asia’s biggest electricity utility and one of Japan’s largest corporate borrowers. But the March 2011 nuclear crisis at Fukushima, sparked by an earthquake and tsunami, brought the company to its knees. Before the calamity, Tepco was a frequent bond issuer with a credit rating as high as the government, and considered a corporate benchmark. It has 3.45 trillion yen of bonds outstanding with 625 billion yen due in 2017 and 570 billion yen due in 2018, according to its website. In the year starting April 2010, which ended with the meltdowns at its Fukushima Daiichi station, Tepco sold 235 billion yen of bonds, slightly less than a year earlier.
Junk rating
The Fukushima losses caused its credit rating to be cut to junk by most agencies and led to a bailout by the government, which took a controlling 50.1 per cent stake. With the government considering splitting Tepco’s nuclear business and forming alliances with other atomic operators, the issue of restarting the utility’s Kashiwazaki Kariwa nuclear plant, the world’s biggest, has faded. While oil and gas prices have risen in recent weeks, they are still well below highs in the aftermath of the nuclear disaster that led to a shutdown of most of Japan’s reactors, so Tepco’s costs remain manageable. Tepco is aiming to sell the debt through a unit in charge of its power transmission business, Tepco Power Grid Inc, to separate risks from operations dealing with the disaster.
Bond maturities may be three-, five-, 10 years, people say Tepco is likely to have to pay investors a 1 percentage point premium above Japanese government bonds, considered a rich yield pick-up, as potential buyers see an implicit government guarantee for the basically nationalized company, the people said. That’s about three times more yield pick-up than on other electric utility bonds, they said. While the sale’s size has not been decided, potential maturities are three-, five- and 10-years, the people said. The company was in discussions last year with investors to sell as much as 330 billion yen (US$2.8 billion) of bonds.
Cease-fire
Income/Consumption
Energy
Turkey pledges to work for Syria cease-fire in mediator role
Japan’s jobless rate rises to 3.1 pct, Panasonic to invest over US$256 mln household spending drops in Tesla’s U.S. plant for solar cells
Turkey said it will facilitate contacts between Syria’s government and opposition groups in preparation for peace talks organized together with Russia and Iran that aim to reach a nationwide cease-fire as the first step to ending an almost six-year civil war. “We must find a way to stop this bloodiest war of the modern era,” President Recep Tayyip Erdogan’s spokesman Ibrahim Kalin said at a news conference in Ankara on Monday. “Our aim here is to make sure the cease-fire is reached and systematically enforced in all of Syria. Our ultimate aim is to reach a political transition process.” Russia, Turkey and Iran agreed in Moscow last week to seek a truce in Syria and hold peace talks in the Kazakh capital, Astana, in a joint approach that side-lines the U.S. They offered to act as guarantors of a peace deal to end the conflict that has killed more than 300,000 people and sent millions fleeing to neighbouring countries and to Europe. The priority for the three countries is fighting terrorism, not deposing Syrian leader Bashar al-Assad, Russian Foreign Minister Sergei Lavrov said Friday. Bloomberg
Japan’s jobless rate rose to 3.1 per cent in November, up 0.1 per cent from a month earlier, although job availability improved in the period, government data showed Tuesday. According to the Ministry of Internal Affairs and Communications, the jobless rate came in marginally higher than median market forecasts for a reading of 3.0 per cent. The ministry said that the unemployment rate for males stood at 3.2 per cent in the recording period, which was unchanged from last month, while that for females came in at 2.9 per cent, which is a 0.2 per cent increase from a month earlier. On a seasonally-adjusted basis the total number of unemployed people in Japan stood at 2.05 million, a rise of 4.1 per cent or equivalent to 80,000 people, the ministry’s data showed. The number of workers, meanwhile, dropped to 64.44 million, the government said, which is a decline of 0.2 per cent, equal to 110,000 people. Those leaving their jobs of their own volition in the recording period stood at 860,000 on a seasonally-adjusted basis, an increase of 30,000 people and equal to a rise of 3.6 per cent, the government’s data also showed. Meanwhile, separate data from the Ministry of Health, Labour and Welfare showed Tuesday that the jobs-to-applicants ratio rose to 1.41 in November from 1.40 in the previous month, reaching the highest level since July 1991. Xinhua
Panasonic Corp will invest more than 30 billion yen (US$256 million) in a New York production facility of Elon Musk’s Tesla Motors to make photovoltaic (PV) cells and modules, deepening a partnership of the two companies. Japan’s Panasonic, which has been retreating from low-margin consumer electronics to focus more on automotive components and other businesses targeting corporate clients, will make the investment in Tesla’s factory in Buffalo, New York. The U.S. electric carmaker is making a long-term purchase commitment from Panasonic as part of the deal, besides providing factory buildings and infrastructure. In a joint statement on Tuesday, the two companies said they plan to start production of PV modules in the summer of 2017 and increase to one gigawatt of module production by 2019. The plan is part of the solar partnership that the two companies first announced in October, but which did not disclose investment details. Tesla is working exclusively with longtime partner Panasonic to supply batteries for its upcoming Model 3, the company’s first mass-market car. Panasonic is also the exclusive supplier of batteries to Tesla’s Model S and Model X. Reuters