Business Daily #1204 December 30, 2016 by Business Daily

Jobless rate stays at 1.9 pct as of end-November Manpower Page 5

Friday, December 30 2016 Year V Nr. 1204 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Anti-corruption

New Mainland pilot programme integrates corruption prevention and supervisory systems Page 11

Politics

Liaison Office requests MSAR to be more open on non-resident workers Page 2

www.macaubusinessdaily.com

Investment

Public administration

Vietnam’s FDI disbursement set to hit record high in 2016, reaching US$15.8 bln Page 12

Gov’t to reshuffle 13 more departments Page 2

Quality Hotel Performance Tourism

Some 728,000 visitors travelled to the MSAR on package tours in November. A decrease of 6.5 pct y-o-y. But that didn’t mean bad news for local hotels. Which still received 1.1 million guests that month. Growing 18 pct y-o-y. Page 3

Taxing times

Auld lang syne

Public finance The MSAR Gov’t received MOP72.8 mln from gaming taxes. For the first eleven months of the year. A decrease of 7.4 pct y-o-y. The amount still makes up three quarters of the cake. Page 5

Another year gone. Filled with challenges and opportunities. Business Daily picks the highlights and lowlights of the MSAR in 2016. Overall? Encouraging, say the pundits.

Mainland-Japan tensions simmer

Relations Increasing military budgets. Bridge-building trips to war sites. And shrines. All placing Japan-China relations on a knife edge. Less than a month before U.S. President-elect Donald Trump assumes office. The Mainland warns against sending the wrong signal to Taiwan or the international community. To avoid ‘disruptions’. Page 10

2016 in review Pages 6,7,8 & 9

HK Hang Seng Index December 29, 2016

21,790.91 +36.17 (+0.17%) Worst Performers

Tencent Holdings Ltd

+2.18%

CITIC Ltd

+0.73%

AIA Group Ltd

-1.25%

PetroChina Co Ltd

-1.03%

Link REIT

+1.63%

Swire Pacific Ltd

+0.69%

Bank of East Asia Ltd/The

-1.18%

China Merchants Port Hold-

-0.95%

China Resources Power

+1.50%

Cheung Kong Infrastructure

+0.66%

Belle International Holdings

-1.17%

CNOOC Ltd

-0.82%

+1.41%

Want Want China Holdings

+0.62%

BOC Hong Kong Holdings

-1.09%

China Unicom Hong Kong

-0.77%

Wharf Holdings Ltd/The

+0.59%

Kunlun Energy Co Ltd

-1.03%

China Life Insurance Co Ltd

-0.74%

Sino Land Co Ltd Industrial & Commercial

+0.88%

15° 20° 18° 21° 19° 22° 19° 23° 19° 23° Today

Source: Bloomberg

Best Performers

SAT

sUN

I SSN 2226-8294

Mon

Tue

Source: AccuWeather

Due to the New Year Holiday, the newspaper will not be published on Monday, January 2 and will return on Tuesday, January 3. We wish all our readers a Happy, Healthy & Prosperous New Year!

2 Business Daily Friday, December 30 2016

Macau In Brief Health

New Malo Clinic to open on Peninsula Malo Group plans to open a new clinic on the Macau Peninsula next year, according to Portuguesel anguage newspaper Jornal Tribuna de Macau yesterday. Paulo Malo, the Group’s founder, said he expects to open the new clinic by Summer 2017. The clinic will be the second venture of Malo in the Macau SAR, with the first opening at The Venetian Macao in 2009. The founder explained to the news outlet that the current facilities at The Venetian clinic have reached their capacity and that expanding to the Peninsula will enable them to be closer to the largest portion of Macau’s population, although the location of the new project has yet to be revealed. Malo Clinic was founded by Paulo Malo in Lisbon in 1995. The Group has branches in several countries in Europe, the Middle East, North America, Asia, and Oceania. S.Z.

Politics

Reshuffling 13 more departments The second stage of the policy restructuring government departments will concentrate on departments under the Secretariats of Economy and Finance as well as Transport and Public Works

he MSAR Government is currently formulating the second stage of restructuring government departments, with the focus on 13 of those under the Secretariat for Economy and Finance and Transport and Public Works. The Public Administration and Civil Service Bureau (SAFP) has revealed the information in a reply to legislator Chan Meng Kam’s written

enquiry, indicating the second stage of department restructuring will gradually commence from 2017 to 2019. But the Bureau did not name which departments would face reshuffles in the coming two years. In his enquiry, Mr. Chan questioned the effectiveness of the first stage of the policy, under which seven government departments were restructured or merged in 2015, with

other eight departments this year. The SAFP pointed out that the restructurings make functions of government departments more centralised and streamlined. It pointed out that the merger of the Law Reform and International Law Bureau and Legal Affairs Bureau has provided stronger mechanism of legislative arrangement plus a stronger foundation provided by the integration of the personnel of the two Bureaus. In addition, it opined the merger of Human Resources Office and Labour Affairs Bureau has centralised the process relating to the management of the imports of non-resident workers, boosting policy execution. C.U.

Telecom

4G users on the rise As at the end of November, there were 1.9 million mobile phone service users in the Special Administrative Region, some 81,128 more compared to the same month last year, according to the latest data released by the Bureau of Telecommunications Regulation (DSRT). While 3G postpaid subscribers and 3G prepaid users comprised 98.6 per cent of all mobile users in November last year, this percentage decreased to 59.8 per cent this year, as users of 4G Evolution (LTE) services increased from a share of 2.8 per cent share to 40 per cent of the total as at the end of last month. Meanwhile, the number of Internet service users increased by 8,328 year-onyear to 170,015 while fixed telephone line users in the MSAR continued to decrease, with 135,318 lines registered in the city as at the end of the month, some 11,469 fewer than the same period last year. N.M.

Infrastructure

Delta Bridge tunnel construction completed The construction of the Gongbei Tunnel – one of the main segments of the Hong Kong-Zhuhai-Macau Bridge – has been completed as scheduled following four years of construction, local broadcaster TDM Radio reported. The 2.7 km tunnel under the Gongbei Border Checkpoint will link Zhuhai to the city. The tunnel comprises two sections – sea and underground tunnels. The completion indicates the establishment of the longest coastal highway tunnel that also has the largest excavation area. The super bridge is expected to open in late 2017. C.U.

Infrastructure

Golden sidewalk Government to spend MOP24.4 million on sidewalk renovation in Taipa The MSAR Government has signed a MOP24.4 million (US$ 3.1 million) contract with local construction company Companhia de Decoração San Kei Ip, Lda for renovation works for the sidewalk of Estrada Governador Nobre de Carvalho in Taipa, according to a dispatch in the Official Gazette. According to the contract, the contractor will have to finish the works for the road near the Taipa Houses

Museum and the Istmo Roundabout within 360 days with the maximum completion deadline set by the department at 400 days. Business Daily queried DSSOPT about the necessity for the considerable payment and construction period for the sidewalk renovation and its possible impact on traffic in the area but there was no response from the Bureau when this newspaper went

to press. Last week, the Transport Bureau announced more than 1,000 roadworks would take place in 2017, along with measures seeking to reduce traffic issues and inconvenience created by such works, such as raising the licensing fees to operate excavation and construction works and increasing penalties on companies that fail to finish construction projects before deadlines. During his presentation of the 2017 Policy Address, the Secretary for Transport and Public Works, Raimundo do Rosário, warned that the city’s traffic could worsen even more next year due to the increased roadworks. N.M.

Politics

Yao Jian: Local labour policy should be more open Whether or not non-resident professional drivers should be imported into the city, the first priority has to be to protect local employees and support the development of local people, said Yao Jian, Deputy Director of the Central People’s Government’s Liaison Office in Macau SAR. According to local broadcaster TDM Radio, the Deputy Director said that the Macao Federation of Trade Unions (FOAM) plays an important role in local labour protection policy and that the city should allow more people to properly participate in competition, which can help develop the MSAR further. The Chinese official added the MSAR must make appropriate job openings for non-resident workers to join the local workforce. Yesterday, FOAM and the Macau Association of Banks signed a co-operation agreement to strengthen the training of local banking personnel to promote the development of Macau’s characteristic financial industry. Mr. Yao said that the signed agreement would provide channels for

local youth development, adding that a more open human resources

policy would also help promote a local specialised finance industry. A.L.

Business Daily Friday, December 30 2016 3

Macau Tourism

Package tourists dip in November But local hotels and guesthouses saw the number of guests jump 18 per cent in the same month Annie Lao annie.lao@macaubusinessdaily.com

he t o t a l n u m b e r o f visitors on package tours decreased by 6.5 per cent year-on-year to 728,000 in November. Compared to one month prior, however, the number represents an increase of 6 per cent. According to the latest data released yesterday by the Statistics and Census Service (DSEC) the

majority of visitors on package tours to the MSAR originated from the Mainland - 587,000 for the month – representing a decrease of 7.5 per cent year-on-year. Package tour visitors from the Republic of Korea, Hong Kong and Malaysia also decreased, down 5.5 per cent, 23.8 per cent and 24.6 per cent year-on-year, amounting to 26,900, 13,900 and 6,000, respectively. However, those from Taiwan, the second biggest source of the city’s package tour visitors, jumped 1 per

cent year-on-year to 38,000. For January to November this year, visitors on package tours to the city amounted to 6.8 million, a decrease of 25.1 per cent year-on-year.

Outbound residents down

Meanwhile, outbound residents using the services of travel agencies declined 11.1 per cent year-on-year to 101,000 last month. In addition, those travelling on package tours plunged 17.9 per cent year-on-year to 38,000. For those travelling outside the city on package tours, Mainland China was their hottest destination in the month, attracting some 26,000 residents,

falling 25.7 per cent year-on-year. Meanwhile, outbound residents travelling to the Republic of Korea and Taiwan on package tours increased a massive 62.3 per cent and 14.4 per cent year-on-year, amounting to 3,600 and 2,500, respectively. Cumulatively, total outbound residents using the services of travel agencies reached 1.1 million for the first eleven months, falling 15.9 per cent year-on-year.

3-star supply surges

As at the end of November this year, 107 hotels and guesthouses were operating in the city, an increase of three year-on-year. The total number of guestrooms grew to 36,000, up 14 per cent year-on-year. In particular, those of 3-star hotels surged 116.7 per cent year-on-year, according to DSEC. Nevertheless, the number of 5-star and 4-star hotel rooms together still accounted for 81.2 per cent of the total. In the month, some 1.1 million visitors checked in at local hotels and guesthouses, up 18 per cent yearon-year. Of the total, those from the Mainland increased by 19.6 per cent year-on-year to 697,200. In addition, hotel guests from South Korea soared 61.9 per cent year-onyear to 31,000 whilst those from Hong Kong increased 7 per cent year-onyear to 147,800. In the month, the average occupancy rate of local hotels and guesthouses stood at 86.4 per cent in November, an increase of 1.9 percentage points year-on-year, with 4-star hotels posting the highest occupancy at 92.8 per cent. From January to November this year, the total number of hotel and guesthouse guests amounted to 10.8 million, an increase of 14 per cent year-on-year.

Customs

MSAR a bridge for ASEAN-China trade After months of the establishment of a new Customs transit mechanism, a batch of products from Thailand was successfully transferred to the Mainland via the city Cecilia U cecilia.u@macaubusinessdaily.com

The city has played its part for the first time following an agreement signed with the Chinese General Administration of Customs as a transit platform between the Mainland and the countries of the Association of Southeast Asian Nations (ASEAN) and many others. On Wednesday, fruit from Thailand was transited to the Mainland via

the new transit mechanism of the Special Administrative Region, according to a press release by the Macao Customs Service. The 49 boxes of Thai mangosteens, having been proven as non-processed goods by the local Customs, were transited to China in one working day. In May, Macao Customs inked a co-operation memorandum with the Chinese Customs, enabling the MSAR to implement special Customs transition procedures for

companies transiting products to the Mainland from jurisdictions that have signed a free trade agreement with the nation. These include member nations of the Association of Southeast Asian Nations (ASEAN), South Korea, Australia, Pakistan, Iceland, Switzerland, Chile, Costa Rica, Peru, New Zealand, Bengal, India and Sri Lanka. Established on October 1, the new mechanism also allows local companies trading with countries under the agreements to enjoy the tariff treatment offered by the Mainland Chinese Customs, according to the head of the Operation Management Department of the Customs, Cheng Kin Chong.

The official told Business Daily that local firms need to approach the Customs for first-time application, but they can later apply for transition via the Internet once their information is digitised. According to Mr. Cheang, there are currently limitations on the categories of products to be transited but the scope will expand in the future. Meanwhile, Kevin Tan, ViceChairman of the Macao ASEAN International Chamber of Commerce, expressed his positive view to Business Daily about the new transit mechanism. “It’s a really good system and it will definitely help Macau be a springboard for merchandise exchange between ASEAN countries and strengthen the city’s position as a trading hub between Mainland China and Southeast Asian countries,” he said.

4 Business Daily Friday, December 30 2016

Macau Gaming

Opinion

Aloha, Philippines

Japanese gaming mogul Kazuo Okada wants to transform the Philippines into the “next Hawaii,” Channel NewsAsia reported. Mr. Okada has again confirmed his interest in opening resorts on the islands of Palawan and Boracay in a bid to reach out to the Chinese market. The gaming tycoon already

Pedro Cortés* 2016 year in review 2016 seems to have been a turning point on the international scene. We had Mr. Donald John Trump winning the Presidential elections in the United States, disrupting the establishment and sending a message to the so-called free world that democracies are debauching. People no longer believe in career politicians. Brexit and Duterte are also examples of what may come in the next decade. Besides that, the hypocrisy continues in many other parts of the world. Syria, the Mediterranean refugee death toll, Brazilian political crises, terrorist attacks. All emerging signs that the world we lived in will no longer be the same. Truth be told, I really believe that artificial intelligence (AI) may save us from the end of the world prophecies and give us peace once and for all. Let’s believe it. Regionally, we had the elections for the Legislative Council in Hong Kong which gave a lesson to those two kids of what it is to live in a para-democracy such as Hong Kong. As in ‘true’ democracies, the institutions should be respected. Sixtus Leung and Yau Waiching may now regret their behaviour. Locally, the CE election campaign started. We have four Secretaries running for the job trying to show our Mainland that they are better than each other and that they follow more of the PRC’s commands than the others. Unfortunately, it is not, in my view, sufficient. People are silently discontented and what seems to be an oasis may soon be overturned. My remarks go, once again, to the only Secretary who is not running for the job. Of course, not everything is flowers, but we have seen, after many years of inaction, the infrastructures being built and, above all, courage in taking decisions against the status quo and the hidden powers of our city. In the end, who win are the residents (permanent and non-permanent), the non-resident workers (who should have more attention from the public powers) and the tourists who put our city in the high ranks of the most visited places. Still locally, it seems that the opening of the borders allowing Macau registered plate cars to enter Hengqin marks a new era for our city. The construction of what my friend Matthew Ossolinski calls “the Great Macau”, already started, and, at least, if not for the vision of the Mainland, may expand the minds of some of our officials. I wish all Business Daily readers and friends an outstanding 2017 with only prodigious events to be remembered! *lawyer and frequent contributor to this newspaper.

showed interest in investing in the Islands earlier this year. He said the country has enormous tourism potential, revealing he had bought land in the Philippines nearly 10 years ago, ABS-CBN News reported. Kazuo Okada has US$2.4 billion (MOP19.2 billion) invested in Okada Manila – formerly Manila Bay Resorts – slated to open in early 2017. S.Z.

Gaming

Tourist arrivals spark local casino revival after downturn Analysts surveyed by Bloomberg see gambling revenue rising 7 per cent in 2017 led by mass market players

acau’s efforts to reinvent itself with a Hollywood-themed resort and a half-size Eiffel Tower replica has drawn a surge in tourists from beyond China, a sign growth in the world’s largest gaming hub next year will come from leisure players rather than high-stakes Chinese gamblers. Analysts surveyed by Bloomberg see gambling revenue rising 7 per cent in 2017 led by mass market players, after three consecutive years of declines. Visitor numbers from South Korea, Japan, and the U.S. jumped in November, helping offset declining arrivals of mainland Chinese who make up two-thirds of Macau’s 2.6 million visitors in the month, according to the city’s Statistics and Census Service. Macau’s gaming industry has seen a nascent recovery this summer, as Las Vegas Sands Corp. and Wynn Resorts Ltd. opened tourist-friendly resorts after China’s crackdown on corruption and illegal outflows scared off VIP players. Those efforts intensified in October, when Chinese authorities detained staff of Australia’s Crown Resorts Ltd. to deter its citizens from gambling overseas. The city is at the same time fending off regional challengers such as South Korea and the Philippines. “There are definitely more reasons to come to Macau now versus two years ago, and that is the key reason why overnight visitation is growing

faster than total visitation,” said Nomura Holdings Inc. analyst Richard Huang. As more casinos open in Macau in the coming years, “we expect that to continue drive growth in the mass gaming segment,” he said. The Macau government is due to announce gross gaming revenue for December as early as January 1. Analysts surveyed by Bloomberg expect full-year gambling receipts of about MOP222.8 billion (US$28 billion), a decrease of 3.5 per cent, following declines of 34 per cent in 2015 and 2.6 per cent in 2014, according to the median of 10 estimates. Visitors who stay at least a night in Macau, typically tourists, rose 10 per cent in November and accounted for 53 per cent of total arrivals, while same-day visitors fell 9.7 per cent, according to government data. Overnighters are also staying longer, at an average of 2.1 days. “Without a doubt over past several months, Macau has felt busier than it has in a couple years,” said Grant Govertsen, an analyst at Union Gaming Group LLC. But while Macau’s government is trying to become less reliant on gambling, there’s still a long way to go before it becomes like the Las Vegas Strip, where non-gaming revenue makes up 62 per cent, compared with about 6 per cent in the Chinese city, he said. “Does the fact that Macau has an Eiffel Tower now brings extra people to the market? Yes, but their main activity here will still be gaming,” said

Govertsen. Las Vegas Sands opened its US$2.9 billion casino project in September featuring the Parisian landmark, about a year after Melco Crown Entertainment Ltd. opened its Hollywood-themed Studio City that includes a Batman ride and a Ferris wheel shaped in a figure eight. MGM China Holdings Ltd. and SJM Holdings Ltd. are also planning to open additional casino resorts in Macau next year. Macau casino shares have jumped this year in anticipation of the tourist-led recovery, with MGM China surging 52 per cent and Galaxy Entertainment Group Ltd. advancing 36 per cent in Hong Kong. The Bloomberg Intelligence Macau gaming index gained 27 per cent this year, outperforming the 0.7 per cent drop in Hong Kong’s benchmark Hang Seng Index. Still, Galaxy’s billionaire chairman Lui Che-Woo said in an interview in September it was too early to say the worst is over for Macau, preferring to wait for more-sustained growth, backed by mainstream gamblers rather than VIPs. Meanwhile, Melco Crown Chairman Lawrence Ho is setting his sights beyond Macau, as the fight for market share in the former Portuguese enclave heats up. The billionaire is taking greater control of Melco Crown after former co-chairman James Packer’ Crown Resorts Ltd. slashed its stake in the Macau casino operator. “We are in a recovery. That recovery is not going to be the same as the recovery during the global financial crisis,” Ho said in an interview last month, referring to Macau. “This time around, it’s different. It’s going to be more of a natural recovery.” Bloomberg

Business Daily Friday, December 30 2016 5

Macau

Public finance Fiscal surplus of general departments dives 26.8 pct y-o-y

Gaming tax revenue dips 7.4 pct deducted from payments, registered a year-on-year drop of 3.3 per cent, for some MOP965.2 million.

During January and November, gaming tax accounted for some 78 per cent of the government’s total revenue Kam Leong kamleong@macaubusinessdaily.com

he MSAR Government has raked in MOP72.8 billion (US$9.1 billion) from gaming taxes for the period spanning January to November this year, down 7.4 per cent year-on-year, the latest updates of the central account by the Financial Services Bureau (DSF) revealed yesterday. Total government revenue – excluding that of autonomous

Central surplus plummets

bodies - posted a year-on-year decrease of 8.9 per cent for the months, amounting to MOP93.6 billion, of which 77.8 per cent was contributed by the gaming industry. Other direct taxes amounted to some MOP8.2 billion, down7.9 per cent year-on-year, while indirect taxes dropped 10.7 per cent yearon-year to MOP3.4 billion. In addition, total capital income of the departments, which include sales of capital assets, financial assets and reimbursements not

Labour

Unemployment rate stable at 1.9 pct The total number of workers in the construction field declined by 8.2 per cent from September to November C

Nelson Moura nelson.moura@macaubusinessdaily.com

acau’s unemployment rate hovered at 1.9 per cent from September to November, compared to the previous period spanning August to October, according to the latest data released by the Statistics and Census Services (DSEC) yesterday. During the three months, the city’s underemployment rate maintained the same level at 0.7 per cent, while the labour force participation rate amounted to 71.9 per cent, down 0.4 percentage points from the previous period. The total labour force in the city was 393,100 for the September to November period, some 3,900 individuals fewer, down one per cent compared to the previous period. Of the total, the employed population accounted for 385,500, a decrease of 4,000. Meanwhile, the total unemployed labour force reached 7,600, a growth of 100 people period-to-period. Of the unemployed residents, 14.7 per cent were fresh labour force entrants looking for their

first job in the territory, a decrease of 4.5 percentage points compared to the previous quarter. M

Construction workers decline

In terms of sector, 22.8 per cent of the employed population worked for the recreational, cultural, gaming and other services sectors, while 15 per cent were working for hotels, restaurants and similar activities. In addition, some 10.2 per cent were employed by the wholesale and retail trade sector, while 10.2 per cent were engaged in the construction field. In terms of number, the wholesale and retail trade sector was the only one to see an increase in workers, which jumped 2.6 per cent period-to-period to 46,800. Meanwhile, the construction industry experienced the largest decline in workers, down 8.2 per cent period-to-period, totalling 39,300 as at the end of November. Gaming and junket activities also registered a slight fall in the number of workers, down 1 per cent to 76,300, while the number of workers in restaurants and similar activities remained stable at 26,800 compared to the previous period. N.M. CY

CMY

The general fiscal surplus of government central departments totalled MOP29.7 billion as at the end of November, plunging 26.8 per cent compared to MOP40.5 billion for the same period last year. However, the amount is still nine times higher than the government’s budgeted surplus of MOP3.5 billion for central departments at the beginning of the year. Meanwhile, total expenditure of the departments grew 2.8 per cent to nearly MOP64 billion from MOP62.2 billion one year ago. Current expenditure accounted for

96.1 per cent of the total, amounting to MOP59.8 billion, an increase of 3.2 per cent year-on-year whilst capital expenditure only amounted to MOP4.2 billion, a decrease of 1.8 per cent year-on-year. In particular, the government’s expenditure on the Public I n v e s t m e n t P l a n ( P I D DA ) amounted to some MOP3.8 billion. Despite an increase of 9 per cent year-on-year, it only accounted for 34 per cent of the authorised budget of MOP11.1 billion for the expenses. During the eleven months, the government transferred some MOP15 billion to the Social Security Fund, down 4.5 per cent compared to MOP15.7 billion for the same period last year.

6 Business Daily Friday, December 30 2016

Macau

Looking back, Looking forward… 2016 was probably a good example of ‘light at the end of the tunnel’. Economy-wise, the city was clouded with negative news at the beginning of the year – primarily about our dominant gaming industry – with more VIP closures, more junket cage thefts and tighter rules. But as gaming revenue rebounded for the first time in over two years in August, with new supply coming in, data started looking good again: GDP posted its first quarterly growth in over two years; visitor expenditure rebounded and overnight visitation broke all records. But this left many of us to ponder – even though the government is pushing the share of non-gaming

elements, we are still, without doubt, heavily reliant upon one pillar industry, as the year has shown. On the other hand, the year dropped some hints about what’s going on in the corridors of power. Government departments could be running without totally understanding the laws or even ignoring the laws; a former high-ranking ex-official allegedly committed some 2,000 crimes during his tenure, only to be later exposed. And these may only be the tip of a large – albeit submerged - iceberg. Here’s a look at the highlights of the year, categorised by gaming, business, politics, economy, court/crimes and land issues.

Kam Leong kamleong@macaubusinessdaily.com

Gaming Gaming revenue rebounds

The city’s gross gaming revenue posted year-on-year growth of 1.1 per cent for August. This was also the first increase following a slump of 26 months. Up until November, gaming revenue has recorded four consecutive months of year-on-year growth. Gaming revenue has been falling since June 2014 amid China’s economic downturn and the central government’s relentless crackdown on corruption.

Tighter rules on junket operations

New openings

In 2016, the city celebrated two openings of new casinoresorts in Cotai Strip. The first, on August 22, was Wynn Palace of Wynn Macau Ltd. The US$4.2 billion (MOP525 million) edifice was granted a total of 150 newto-market gaming tables by the government. Speaking to

reporters prior to the opening of the property, the company’s boss, Steve Wynn, said about 50 to 60 would be allocated to the VIP segment. Within the space of a month, The Parisian Macao of Sands China Ltd. opened its doors on September 13. The property was also granted 150 new tables.

In January, a total of 35 junkets were denied licence renewals by the Gaming Inspection and Coordination Bureau. The denials were due to these promoters failing to submit documents explaining their accounting systems or information on large transactions, required by the regulator since the Dore case last year. In May, the gaming regulator announced a ban on phone betting in local casinos, which

the Secretary for Economy and Finance Lionel Leong Vai Tac believed would help better regulate the junket sector. In addition, in the same month, the regulator published new regulations on anti-money laundering rules for the casino industry. These new measures include daily records and hiring compliance officers, which analysts perceive compounds pressure on the high-roller VIP sector and increases operating costs for casinos.

VIP room embezzlements

Following the Dore cage theft in 2015, 2016 started with another cage theft case taking place at Casino L’Arc Macau on the Peninsula. In January, Judiciary Police announced that a senior staff member working in the junket operations of the casino had allegedly embezzled HK$99.7 million, a case that the police were pursuing as fraud. Not only that, in February the PJ confirmed to Business Daily that it had received a report about a HK$1million embezzlement case at a VIP room in L’Arc Macau reportedly controlled by former 14K triad ‘Broken Tooth’ Wan Kuok Koi. But in October, the first person related to cage theft cases in VIP rooms - Huang Shan - showed up in Vietnam following a 30-month disappearance with a reported HK$10 billion. A shareholder of local junket Kimren Group, he

VIP room closures

is alleged to have fled with the money in April 2014. The Huang Shan incident was also the first junket fraud case exposed to the public.

Amid the continuous pressures on the industry, more VIP rooms terminated their operations this year. At the end of January, Cali Group shut down two of its four VIP rooms in the city in order to shift some of its resources to the Philippines. The rooms were located in Grand Lisboa on the Peninsula and in City of Dreams on the Cotai Strip. In May, junket operator Gold Moon Group ceased operations in Wynn Macau. During August and September,

Nasdaq-listed operator Iao Kun announced its closure of a VIP room in Sands Cotai Central, as well as two other rooms in Galaxy Macau and StarWorld, properties operated by the Galaxy Entertainment Group. Despite the fact that the operator claimed the closures were based upon its strategic review due to ‘the ongoing challenging VIP gaming environment’ Galaxy said in a statement that the company had terminated the junket’s operations for ‘breach of its undertakings and agreements.’

Business Daily Friday, December 30 2016 7

Macau Economic data

Greek Mythology temporarily shuts doors

In January, Greek Mythology Casino started suspending its business for ‘internal renovation.’ The casino - located inside Beijing Imperial Palace Hotel (formerly New Century Hotel) in Taipa - is operated by Greek Mythology Entertainment Group under the gaming licence of Sociedade de Jogos de Macau S.A. (SJM). At that time, the CEO of SJM,

Ambrose So Shu Fai, claimed that the temporary closure was just for renovation, assuring that the casino would be reopened. But in July the hotel property housing the casino was ordered closed for six months by Macao Government Tourism Office (MGTO) so that it could fix its ‘serious administrative irregularities and fire safety measures’ or face the possibility of permanent closure.

GDP first q-o-q growth in two years As gaming revenue started to grow in August, for the third quarter of the year, rebounds in the export of services and

investment led to the first quarter growth in real gross domestic product (GDP) in over two years. With GDP expanding 4 per cent in real terms year-on-year in the quarter.

Crown exits Melco

In May, Australian-based Crown Resorts boss James Packer announced his resignation as co-chairman of Melco Crown Entertainment Ltd. The change was claimed to be part of the US$800-million corporate reshuffle of the company which reduced its stake in the local consortium. In the mid-December, the Australian firm announced the sale of its 13.4 per cent stake in Melco Crown. Just one day later, it said it would further reduce its stake in the joint venture to 11.2 per cent. Crown Resorts and joint venture partner Melco International

Development Ltd., chaired by Lawrence Ho Yau Lung, had each held 34.3 per cent stake in Melco Crown in May.

Gaming interim review

Record-breaking overnight visitation For August, the number of overnight visitors amounted to 1.47 million, the highest single-

month figure since January 2008, accounting for 51.2 per cent of total visits. The average stay of these visitors was 2.1 days.

In May, the government released its long-awaited gaming interim review report. The report claimed local gaming concessionaires had all ‘fulfilled the capital commitments in their contracts’ during the period under evaluation, with the Big Six investing more than MOP262.31 billion in the SAR between 2002 and 2014. Yet, the report gave no information regarding the renewal of the 20-year concessions of the gaming contracts.

Visitor spending rebounds

For the third quarter of the year, total visitor spending increased year-on-year for the first time

Canidrome to shut down or move

In July, the SAR Government ordered Macau (Yat Yuen) Canidrome Co. to relocate its greyhound racing track within the

next two years. The company was also ordered to decide whether greyhound racing activity would be continued. The company has until July 21, 2018 to decide whether to move or shut down.

following a decrease of seven consecutive quarters, up 17.4 per cent to MOP14.64 billion (US$1.83 billion.)

Business

The 13 pushes back opening to 2017

In September, The 13 Holdings Ltd. further pushed back the opening of its luxury hotel project The 13 in Coloane to ‘early 2017.’ The hotel operator said in its annual report released in July that it ‘expects the hotel will be opened in the fourth quarter of 2016.’ But this was not the first delay in the property’s opening date. In February, the company was expecting the project to open ‘in late Summer 2016.’ Up until now, it remains unknown whether the property will house gaming facilities.

Uber’s U-turn

Ever since starting its operations in the MSAR last year, Uber’s taxihailing service has been deemed illegal by the authorities. At the end of August the company said it was to cease operations in the SAR after September 9. Following the announcement, the company

organised an online petition that managed to obtain some 23,000 signatures. In addition, some 300 protesters took to the streets on September 5 to support the operations of ride-sharing mobile applications. Afterwards, Uber announced it was to stay.

8 Business Daily Friday, December 30 2016

Macau

Forever 21 quits Yellow House

property where the company ran its business in the city. Nevertheless, the international retailer said then it would look for alternative opportunities in the city.

MTEL sells shares

would inject MOP50 million to help support the firm’s network coverage work. In August, the telecom operator said the same company would buy 30 per cent of MTEL’s shares, evaluating the worth of the overall company at MOP800 million.

In September, Future Bright group announced Forever 21 had terminated its rental contract of the ‘Yellow House’ located next to the Ruins of St. Paul’s - the only

In February, the city’s new fixed-line telecommunications service provider MTEL Telecommunication Company Ltd. announced that a second major shareholder, Elegant Way International Holdings Ltd.,

Alan Ho found guilty

operating inside Hotel Lisboa before it was busted. Mr. Ho, the nephew of renowned casino mogul Stanley Ho, was freed on the day of the ruling since he had already spent one year and two months in jail awaiting trial.

Illegal fundraising schemes

according to police, who said there was no evidence to indicate that the firm was related to any casino. This followed another illegal fundraising scheme run by the Macao Group at the end of May. The police arrested three shareholders of the company at the beginning of June, including company President Lao Meng Tong. The case involved HK$110.4 million, with 61 victims having complained to the police as of July.

On March 17, former Executive Director of Hotel Lisboa, Alan Ho, was sentenced to one year and one month in jail after being found guilty of one crime of exploitation of prostitution. The prostitution ring case was

The year also uncovered a few illegal fundraising schemes. In July, Judiciary Police said it had busted an illegal fundraising scheme, allegedly operated by local investment company Glory Sky International Holdings Group. The scheme reportedly involved at least 82 victims and MOP71 million. The victims started investing in the company in 2014, when the company was offering five per cent return for every 60 days,

politics Local links with Panama Papers

In May, the Panama Papers revealed that 25 offshore companies, 342 officers (potentially including overlapping names), 16 intermediaries and 299 addresses were linked to the SAR. These included Chief Executiveappointed legislator and lawyer Vong Hin Fai, as well as renowned local auditor Leong Kam Chun,

who, according to the documents, were both shareholders in an offshore company called Perfect Talent Group Ltd. registered in the British Virgin Islands (BVI) and set up in January 2004 through Mossack Fonseca. Being named in the Panama Papers does not necessarily mean an individual has conducted illegal activities such as tax evasion.

Courts & crimes Ho Chio Meng arrested and charged

In February, anti-graft watchdog the Commission Against Corruption announced that the city’s former Prosecutor-general, Ho Chio Meng, had been arrested at the city’s Outer Habour Ferry Terminal. The ex-official had allegedly awarded some 2,000 public contracts of the Public Prosecutor’s Office to several local businessmen by illicit means between 2004 and 2014. Mr. Ho was the second highranking official accused of graft, following disgraced ex-Secretary Ao Man Long. In March, the Court of Final Appeal declined to entertain an application for a writ of habeas corpus - a legal action by which detainees can seek relief from unlawful imprisonment. In addition, in April, the top court again rejected Ho’s appeal against custody. In November, the court formally laid charges against the former prosecutor, which totalled 1,970 in all – covering 13 types of crime, including 646 instances of

fraud, 434 instances of abuse of power, and another 434 instances of illegally sharing economic benefits. On December 5, the court started the first hearing of the case, with three others following earlier this month. The trial will continue on January 6.

Premier in town

others, support for the MSAR to set up a Renminbi clearing centre for Portuguese-speaking countries as well as an export credit insurance system, establishing the headquarters of a Sino-Luso Development Fund in the MSAR, and developing the marine economy.

Free Yachting Scheme sets sail

available, of which 50 are near Seac Pai Van whilst the other 22 are at Macau Fisherman’s Wharf. Meanwhile, during November, following implementation, 109 visitors entered the city via the scheme.

Between October 10 and October 12, Chinese Premier Li Keqiang visited the MSAR, attending the 5th Sino-Luso ministerial forum. During his stay, he announced Bejing’s 19 measures favouring the development of the MSAR. The 19 measures are, among

On November 23, the ZhongshanMacau Free Yachting Scheme was officially launched. According to the Director of the Marine and Water Bureau, Susanna Wong Soi Man, the city has 77 berths

Business Daily Friday, December 30 2016 9

Macau Alex Vong appointed new Customs Director

Macau cars enter Hengqin

The policy allowing Macaulicensed cars to enter Hengqin came into effect on December 20. During the current first stage

Three ‘master’ plans released

In May, Macao Government Tourism Office (MGTO) presented the draft of the ‘Macao Tourism Industry Development Plan’ seeking to increase tourist visitation, expand the waterfront area, increase the number of budget hotels, push non-gaming revenue to MOP14 billion by 2025 and attract more diversified visitors – including those for MICE events. In September, the MSAR Government released the city’s first Five-Year Plan for 2016 to 2020. The plan covers 27 sections and has seven major targets such as maintaining stable economic growth, improving the structure

of the implementation, however, only those operating at least one company on the Mainland island could apply for an entry permit for their Macau-plate vehicles

of industry, improving its role as an international tourist city, improving the quality of life of its residents and the quality of education. It did not, however, list any actual policies. In mid-December, the MSAR Government introduced a new Urban Development Strategy Plan (2016-2030) to the city’s Urban Planning Committee covering the future orientation of Macau’s urban development, development goals, basic strategies, transportation strategies, marine strategies and functional zoning for the future direction of the city’s development. The plan has not yet been made public.

Jinan donation

Foundation’s grant of subsidies, as well as Chief Executive Fernando Chui Sai On’s integrity in avoiding conflicts of interest, since the top official, who serves as president of the trustees’ council of Macao Foundation, had been a vice chairman on the board of Jinan University since 2010.

Gov’t departments criticised

(DSAL), the Land, Public Works and Transport Bureau (DSSOPT), Transport Bureau (DSAT) and Environmental Protection Bureau (DSPA). In September, the Commission of Audit slammed the Civic and Municipal Affairs Bureau’s (IACM) poor management of local municipal leisure facilities. In November, a CCAC report again spotlighted DSAT’s serious defects and loopholes in its internal operations, which included its outsourcing of public car park management services as well as its management of financial accounts.

In May, Guangzhou-based Jinan University announced that it had received a donation from the SAR Government via the Macao Foundation worth RMB100 million for its infrastructure projects and other development. But the donation called into question the transparency of the

During the year, a few government departments were slammed by local autonomous bodies; namely, by the Commission of Audit and the Commission Against Corruption (CCAC). In January, an audit report complained about several departments’ ‘misunderstanding of the laws’ in respect of granting financial aid and outsourcing public works without open tender, negotiating for fair prices, and even not signing contracts. These departments included the Panda Foundation, Macau Foundation, Labour Affairs Bureau

In February, Alex Vong Iao Lek was named the new Directorgeneral of the Macao Customs Service from his previous position as President of the Civic and Municipal Affairs Bureau. The appointment followed the untimely death of his predecessor, Lai Man Wa, who was pronounced to have committed suicide in October 2015.

Land issues

‘No land debts’

MSAR Government and the Baía de Nossa Senhora da Esperança Development Company in 2001 was null and void, and that the government did not owe the company or any other entity any land grant deals or promises. In other words, there have been no so-called ‘land debts,’ CCAC indicated.

Land Law disputes mushroom

parcels based on the new land law outright ‘robbery.’ In addition, Shun Tak Holdings Ltd. was also attempting to strengthen its negotiating position regarding land plots in Zone D. In November, a company filing with the Hong Kong Stock Exchange announced it had entered into a new agreement with Sai Wu Investment Limited, with which it made an original sales and purchase agreement in 2004, to negotiate on behalf of Sai Wu and any other companies holding land in Zone D with the government.

La Scala land grants nullified

the invalidity of Moon Ocean’s acquisition of the five plots and its granted land concession for the eight parcels. In June, the Court of Final Appeal rejected the company’s appeal against the decision of the Court of Second Instance finding that such plots of land should be returned to the government’s possession due to nullified land grants. Following the ruling of the top court, in the same month, the government said it would consider building some 4,000 public housing units on the land plots.

In July, the Commission Against Corruption (CCAC) published the results of its investigation into Iec Long Firecracker Factory, located in Taipa Village, after nearly 11 months of investigation. The report determined that the agreement of land exchange between the

With the Pearl Horizon case unresolved, more companies voiced out that they were not to blame for the delayed development of their land plots. In July, Nam Van Development Company Ltd., which had been granted 13 land plots in 1992 in the reclamation areas of Zone C and D, argued in a ‘seminar’ that the group’s delays in the development of these plots were due to the government, calling the government’s imminent action of taking back the land

In March, the government dispatch in the Official Gazette referred to the recovery of five plots of land where the high-end residence project La Scala - developed by Hong Kong billionaire Joseph Lau’s Moon Ocean - was to be built for the reason that they were undeveloped before their temporary land concession expired on December 13, 2015. In fact, following the corruption case of ex-Secretary Ao Man Long, the government had respectively dispatched in 2012 and 2013

10 Business Daily Friday, December 30 2016

Greater China Relations

China-Japan tensions simmer weeks before Trump’s inauguration Beijing is “strongly unhappy with Japan’s negative moves concerning the Taiwan issue” Andy Sharp

ensions in North Asia are again heating up with less than a month to go before U.S. President-elect Donald Trump takes office. A day after joining Prime Minister Shinzo Abe on a bridge-building trip to Pearl Harbour, Japanese Defence Minister Tomomi Inada on Thursday visited a Tokyo shrine seen by China and South Korea in particular as a symbol of her nation’s wartime atrocities. Separately, Japan drew a rebuke from China on Wednesday after adding the name Taiwan to its de facto embassy in Taipei. Recent developments will “increase China’s suspicions toward Japan, toward the United States and toward Taiwan,” said Arthur Ding, director of the Institute of International Relations in Taipei. “China is quite worried these days because Taiwan has formed kind of a coalition with Japan, with Abe, with Donald Trump against China.” The symbolic moves ahead of Trump’s inauguration on Jan. 20 add to signals that tensions between some of Asia’s biggest economies -- and trading partners -- are set to rise in 2017. A history of war and territorial disputes in the region hinder increased economic ties and fuel a rise in defence spending. Last week Japan approved a fifth straight rise in its annual military budget in the face of a more assertive China. Japan’s military said Sunday it spotted a Chinese aircraft carrier sailing into the Western Pacific near Okinawa, and last week a Japanese government agency said Chinese universities and think tanks were forming ties with Okinawan independence groups.

self-governed island has escalated after Trump accepted a phone call earlier this month from Taiwanese President Tsai Ing-wen and indicated he could be willing to reconsider his country’s stance on the One-China policy. Chinese Foreign Ministry spokeswoman Hua Chunying said Wednesday that Beijing is “strongly unhappy with Japan’s negative moves concerning the Taiwan issue.” A statement on the ministry’s website urged Japan to “stick to the One-China principle, properly deal with Taiwan-related issues, and refrain from sending wrong signals to the Taiwan administration and the international community or causing new disruptions to China-Japan relations.” Many countries including Japan do not formally recognize Taiwan as

an independent nation, a condition of maintaining diplomatic ties with Beijing. Relations between Taipei and Beijing have soured since Tsai took office in May as she has declined to endorse the One-China framework, a long-standing acknowledgment that the two are part of the same China, even if they disagree on what that means. China considers Taiwan a breakaway province.

War criminals

Visits to the Yasukuni Shrine also regularly disturb relations. The place of worship honours millions of Japanese war dead, including 14 wartime leaders convicted as Class-A war criminals. South Korea immediately slammed Inada’s first visit to the Yasukuni Shrine since her appointment in August, with its defence ministry saying the move “embellishes” Japan’s aggression in the past and its colonization of Korea.

Inada played down criticism that her action would antagonize Japan’s neighbours. “I offered prayers with the wish to firmly build peace for Japan and the world from a future-oriented perspective,” Inada told reporters. “I expressed my gratitude, respect and mourned for those who gave their lives for their country. I think people in any country can understand that.” Abe himself has kept away from the shrine since a December 2013 visit led to a deterioration in relations with China and South Korea and prompted a rebuke from the U.S. Looking ahead, 2017 may hold more challenges than opportunities for the geopolitical environment in Northeast Asia, according to Liu Jiangyong, professor of international relations at Tsinghua University in Beijing who specializes in Japan studies. “Amid uncertainty from the incoming U.S. presidency, Japan, and also Taiwan, would tend to capitalize on a potentially more confrontational US-China ties in order to maximize their own interests,” Liu said. “The regional situation largely boils down to how Trump makes his choices.” Bloomberg

Taiwan policy

On Wednesday, China criticized Japan’s decision to add the word Taiwan to the name of its de facto embassy in Taipei. Friction over the

Japanese Defence Minister Tomomi Inada

Anonymous investor

China’s cash-strapped LeEco in talks to gain US$1.4 bln from investor David Stanway and Jess Macy Yu

China’s cash-strapped LeEco said it is in talks to secure RMB10 billion (US$1.4 billion) from an unidentified strategic investor, but the announcement was seen as insufficient to dispel concern over the high-tech conglomerate’s financial health. Led by tycoon Jia Yueting, LeEco expanded aggressively into electric and driverless cars and smartphones after making its name in video streaming, but last month warned staff it was facing ‘a big company disease’ after growing too fast and in too many directions left it short of funds. LeEco is still finalising details of the investment, according to a filing by its Shenzhen-listed unit Leshi Internet Information and Technology. Leshi said it would extend a trading halt on its stock but the halt would not exceed 10 days. China Business News cited a source familiar with the situation as saying that the strategic investor was an insurance company. Representatives for LeEco declined to comment. “They aren’t saying clearly where their money is coming from or how it will be allocated,” said Alex Ng, an analyst at China Merchants Securities.

Ng added that the company needed to explain its expansion plans further as so far there had been no discussion of any major change in direction.

Commitments

Following its admission of a cash crunch, LeEco said soon after that it had secured commitments for US$600 million to support its automotive unit and other high-tech businesses.

The firm’s sports broadcasting unit, LeSports, also said it would cut 10 per cent of its staff and restructure its business. The unit still owes as much as US$30 million in payments to the Beijing-based Super Sports Media Group, which holds exclusive rights to broadcast English Premier League games in China but has reached a compromise with rights holders to broadcast games over the New Year.

LeEco also broke ground on a new electric car plant in eastern China’s Zhejiang province on Wednesday, the official China Daily reported. The newspaper said the first phase of the new factory would cost RMB11 billion (US$1.6 billion) to build and would produce 400,000 vehicles a year.

Key Points Strategic investor not identified LeEco has warned of cash shortage due to aggressive expansion Trading halt on listed unit Leshi has been extended Shares in Leshi have fallen 40 per cent since early June this year when it came off a six-month trading halt after gaining government approval for financing arrangements. It has been on its current trading halt since Dec. 6. Leshi has a market value of some US$10 billion but investors have little insight into the health of the entire LeEco group which includes privately held Leshi Holdings, which is also controlled by Jia. Reuters

Business Daily Friday, December 30 2016 11

Asia In Brief Infrastructure

Mainland to have 30,000-km high-speed rail network by 2020

Trade

China would outlast U.S. in trade war, Pine River letter says Trump’s electoral victory capped a year of rising populism that Wang likened to the aftermath of World War I Bei Hu

hina would outlast the U.S. in a trade war, which is a “distinct possibility” next year after President-elect Donald Trump takes office, a commentator wrote in the US$1 billion Pine River China Fund’s investor letter. China’s government would be better placed than the U.S. to marshal state resources to cushion the impact on exporters, wrote James Wang, a City University of Hong Kong professor who pens a monthly commentary for the fund. Privately-owned Chinese exporters would be worse hit than state-controlled peers because they have less political clout in Beijing, he said. “By design, decision-makers in a democracy face difficulties coordinating a relief effort and must eventually face a political backlash from impacted domestic producers,” Wang

wrote. “On this basis, the Chinese may have more runway to play the long game in a trade war.” During his campaign, Trump pledged to brand China a currency manipulator and impose a 45 per cent tariff on Chinese imports. His protocol-breaking phone call with Taiwan President Tsai Ing-wen and his attacks on China on Twitter have sparked further friction between the world’s two biggest economies before he takes office next month. Trump’s electoral victory capped a year of rising populism that Wang likened to the aftermath of World War I, which ushered in an age of discontent and protectionism.

Diffuse power

“The balance of power worldwide is much more diffuse compared to the early 20th century, and players like China and India have emerged to create new political centres of gravity,” Wang wrote. “However, as economic

and political paralyses spread across the developed world, the most likely outcome is a trade war.” Pine River China Fund is being spun off into a separate Hong Kong-based company next year, led by its current manager Dan Li and minority-owned by Pine River. Punitive tariffs on China’s shipments to the U.S. would knock 3 per cent off China’s gross domestic product next year, triggering a hard landing for the nation and hurting the global economy, Goldman Sachs Group Inc. China equity strategist Kinger Lau said in November. Chinese exporters of “Wal-Mart type” goods, including clothing, furniture, footwear and textiles would be hurt, while the impact of tariffs on telecommunications equipment is less obvious, as the lion’s share of profit from an iPhone accrues to Apple Inc., instead of its Chinese suppliers, Wang wrote. In retaliation, China could potentially withhold aircraft orders from Boeing Co. as well as curb automobile and agricultural imports from the U.S., he said. In the U.S., such a trade war could stimulate inflation and dent domestic consumption, he added. Bloomberg

Anti-corruption

New supervisory system to strengthen anti-graft work A pilot program reforming China’s supervisory system will provide a significantly more powerful system to strengthen the crackdown on graft. Endorsed by China’s top legislature, the pilot program will set up new supervisory commissions in Beijing, and Shanxi and Zhejiang provinces by integrating their respective governments’ supervision departments and corruption prevention bureaus, as well as the divisions for handling bribery, dereliction of duty and prevention of duty-related crimes under their People’s Procuratorates. Forming a more centralized, authoritative and efficient supervisory system is a major political reform for the country, the National People’s Congress (NPC) Standing Committee said in its decision made Sunday. Such supervision commissions are “anti-corruption agencies by their nature”, said Wang Qishan, secretary of the Communist Party of China (CPC) Central Commission for Discipline Inspection (CCDI), in November. China has been stepping up its anti-corruption efforts since the 18th CPC National Congress in 2012. While cracking down on corrupt officials at both senior and grassroots levels, it sets great store by establishing stricter and complete systems to put powers in a cage of regulations.

After the norms of the Party political life under new circumstances and a regulation on intra-Party supervision were released November, the supervisory system reform is another step to restrict power and fight corruption.

Integration for efficiency

The integration of various anti-graft powers is a highlight of the reform, said Mo Jihong, deputy director of the Chinese Academy of Social Sciences (CASS) Institute of Law. “Currently it is relatively difficult for scattered supervisory powers in different departments to perform supervision duties,” said Xu Yaotong, a professor with the Chinese Academy of Governance. The reform has united these scattered powers, helping to build a more authoritative and efficient system, Xu added. The supervisory commissions are authorized to supervise, investigate and impose punishment on all public employees in the three pilot regions, and take up to 12 different measures, including interrogation, detention, and freezing of assets in doing their jobs.

Responsible to legislature

Unlike the government’s supervisory agencies in the past, the new supervisory commissions will have their heads elected by the people’s congresses. Supervisory commissions will be responsible to legislative bodies on their own level, as well as to supervisory commissions at a superior level. In this way, the commission becomes a supervisory organ in parallel with the government, which is different from the traditional administrative supervision body inside the government, said Ma Huaide, a law professor and vice president of China University of Political Science and Law. This is in accordance with democratic supervision, and will help build a more rigorous legal supervision system, he added.

Covering all

In his November remarks, Wang Qishan said the new supervisory commissions will work along with existing CPC discipline inspection commissions to supervise “all employees with public powers.” The supervision commissions cover areas that are not covered by CPC discipline inspection commissions, which will help build an environment where officials dare not, will not and can not go corrupt, said Ma. Xinhua Insight

China aims to have a highspeed rail network that spans more than 30,000 kilometres (18,650 miles) by 2020 as the nation turns to spending on rail infrastructure to revive growth in smaller cities. China will also add 3,000 kilometres to its urban rail transit system, the State Council Information Office said in a briefing in Beijing Thursday. The high-speed rail network - about 6.5 times the length of a road trip between New York and Los Angeles - will cover 80 per cent of the big cities across China, the SCIO said. Earlier this year, China turned to a private company for first time to operate an inter-city rail service on the mainland, part of President Xi Jinping’s US$420 billion spending drive to modernize the nation’s transport network amid slowing growth in the world’s second-largest economy. China’s investment in railways in the five years through 2020 will be no less than RMB2.8 trillion (US$403 billion), the National Railway Administration had said previously. Employment

Over 13 million new jobs created in 2016: official China created more than 13 million new jobs in cities this year as part of the efforts to stabilize a slowing economy, a Chinese official said. Minister of Human Resources and Social Security Yin Weimin disclosed the figure at an annual ministry conference. The number exceeds the official target of 10 million set early this year. Despite the economic slowdown, the government has managed to keep a low urban registered unemployment rate, partly by employment services and support for college graduates and laid-off workers from saturated heavy industries. In 2017, the ministry will also cautiously push forward pension funds investment, and improve the distribution of workers’ salary, Yin added. Land

Land of plenty faces acute land shortage Arable land reserves in China’s developed regions are nearly depleted and intensive land use is unsustainable, the Ministry of Land and Resources (MLR) said. A survey by the MLR, beginning in 2014, showed total land reserves have retreated by nearly 2 million hectares since the last survey from 2000 - 2003. Eleven developed provinces in the country’s east have only 15.4 per cent of the land bank, while the bulk of reserves reside in less-developed central and west regions. Inventories in Beijing, Tianjin, Jiangsu and Fujian lost over 90 per cent as 28 provinces posted declines. The survey also showed China has shed 74 per cent of contiguous land reserves, and only 41.1 per cent of the 5-million-hectare land reserve is usable in the near term.

12 Business Daily Friday, December 30 2016

Asia Settlement

Takata gains on report up to US$1 Billion U.S. settlement near

takeover, as Takata faces a cascade of compensation and penalties costs at the same time it’s working to find a buyer and complete its restructuring. Takata and its financial adviser Lazard Ltd. have asked prospective buyers to complete the due diligence in February, people

familiar with the matter said earlier this month. The acquirer will potentially be on the hook for recall costs and liability payments while having to ensure a stable supply of replacement parts to automakers. Regulators have ordered recalls scheduled through at least 2019 that could eventually exceed 100 million air bags used by more than a dozen automakers, including Honda Motor Co., Volkswagen AG and General Motors Co. The air-bag maker is leaning toward bids from Autoliv Inc. and Key Safety Systems Inc., people familiar with the matter have said. The two gained an edge because both have technical expertise in air-bag systems and safety equipment and automakers view them as able to lower costs and improve quality of Takata parts. Bloomberg

year-on-year. This year, manufacturing and processing industry is likely to attract the most FDI with US$9.81 billion, accounting for 64.6 per cent of the national total newlyregistered FDI. Real estate business ranks the second with US$1.52 billion, accounting for 10.1 per cent while wholesale and retail sale of autos and motorbikes attracts US$367 million, making up 2.4 per cent, said

the ministry. Among 51 localities nationwide with FDI, northern Hai Phong City is projected to have the biggest figure with US$2.46 billion, followed by capital Hanoi, southern Binh Duong, Dong Nai provinces and Ho Chi Minh City. Among 68 countries and regions investing in Vietnam, South Korea is the biggest investor with US$5.51 billion, followed by Singapore, China and Japan. Xinhua

A settlement may facilitate a takeover, as the company faces a cascade of compensation and penalties costs Ma Jie and Min Jeong Lee

akata Corp. shares rose by the daily limit after the Wall Street Journal reported the company is nearing a settlement with the U.S. Department of Justice to resolve allegations of criminal wrongdoing related to its faulty air bags. Such an agreement may include pleading guilty to criminal misconduct and penalties of as much as US$1 billion, the newspaper reported, citing people familiar with the matter. A settlement could be reached by next month, according to the report.

Takata was not the source of the report on the settlement and nothing has been decided, the company said Thursday in a statement. The Department of Justice declined to comment. “A settlement fee of a maximum US$1 billion is not an impossible amount for Takata to handle,” said Nobuyuki Fujimoto, a senior market analyst at SBI Securities Co. in Tokyo. “Especially if the company doesn’t have to pay it all at once but over a few years, investors are thinking Takata could actually make it through this somehow.” A settlement may facilitate a

Investment

Vietnam’s FDI disbursement hits record high in 2016 Vietnam is forecast to lure some US$24.37 billion from foreign investors Vietnam’s foreign direct investment (FDI) disbursement is expected to hit a record high of some 15.8 billion U.S. dollars in 2016, up 9 per cent year-on-year, said the Ministry of Planning and Investment (MPI) on Thursday. So far this year, the country has granted new licenses to 2,556 FDI projects worth US$15.18 billion, up 27 per cent in volume and down 2.5 per cent in value year-on-year. Besides, some US$5.76 billion U.S. dollars is registered to be added to other 1,225 FDI projects, down 19.7 per cent in value and up 50.5 per cent in volume year-on-year, said the MPI. Meanwhile, as many as 2,547 foreign-invested companies and organizations have bought shares of local companies worth US$3.42 billion.

As such, in total, Vietnam is forecast to lure some US$24.37 billion from foreign investors, up 7.1 per cent

Resignation

Head of Japan’s largest ad agency resigns over ‘death by overwork’ Dentsu said it had not yet decided on a replacement for Ishii The president of Dentsu Inc , Japan’s largest advertising agency, will step down over the “death by overwork” of a young employee, a suicide which has prompted official probes and fresh hand-wringing over Japan’s overtime culture. Matsuri Takahashi, a promising graduate of Japan’s top university, leapt to her death in December 2015, leaving behind a trail of grievances over relentless days. She clocked 105 hours of overtime in October 2015, before becoming depressed. H e r d eath, d e e m e d b y th e government to be “karoshi” or death by overwork, has prompted raids on Dentsu offices, but has also been followed by Japan’s first white paper on the issue. That study found that in a country

Business Daily is a product of De Ficção – Multimedia Projects

that imposes few limits on employers regarding overtime hours and pay, more than a fifth of companies had staff that worked more than 80 hours of overtime in a month - the government threshold. “It is extremely regrettable that we could not prevent overwork by a new recruit,” Dentsu President Tadashi Ishii told a news conference. “In order to take full responsibility, I would like to resign as president at a board meeting in January.”

Repercussions

Ishii said Dentsu and a company employee had been referred to prosecutors by the Japanese labour ministry’s Tokyo labour bureau on suspicion of violating labour standards law.

Dentsu said it had not yet decided on a replacement for Ishii. Ishii’s resignation comes as Prime Minister Shinzo Abe is pushing a wide-reaching campaign to reform Japan’s employment laws, which could include tighter overtime regulation. Hard work and sacrifice have long been synonymous with Japan, and strong social expectations make it difficult for employees and unions to aggressively push for reforms. Workers often feel a debt of gratitude for being hired and are reluctant to quit even if conditions are bad. Others, especially new hires, feel they have to work longer hours than their colleagues to get promoted. “The problem is not with Dentsu alone,” the Asahi Shimbun, the country’s second-largest newspaper by circulation, said in an editorial on Thursday. Noting that the newspaper itself

had received an overwork warning from the government this month, the Asahi described the matter as “a difficult issue but a theme that relates to raising employees’ morale and productivity and improving companies’ profitability.” Takahashi’s mother, Yukimi, said in a statement released to media by her lawyers on Sunday, that she wanted to “change the consciousness of every working person in Japan.” The statement was released on the oneyear anniversary of her daughter’s death. In recent years, the government has revised labour laws to encourage shorter working hours, but critics say these steps have relied too much on self-regulation. Japan officially recognises two types of karoshi: death from cardiovascular illness linked to overwork, and suicide following work-related mental stress. 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; Sheyla Zandonai 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 Friday, December 30 2016 13

Asia Commerce

In Brief

SEAsia startup KFit targets online-to-offline growth after Groupon deals The group currently generates sales of more than US$22.31 million per year Liz Lee

Southeast Asian startup KFit Holdings Pte Ltd expects to double its online-to-offline commerce business in 2017 following the recent acquisitions

of Groupon’s Malaysian and Indonesian operations, its founder said. Backed by U.S. venture capital firm Sequoia Capital and Malaysian telecommunications group Axiata Group, among others, KFit started as a fitness

app last year but has increasingly embraced online-to-offline (O2O) commerce as its growth strategy. It has ramped up lifestyle offerings such as food & beverage, spa and massage deals through its acquisitions of the Groupon operations in the latter half of 2016 for undisclosed sums. The rising popularity of O2O services, which are also booming in other parts of Asia, such as China, reflects the desires of a growing middle class in Southeast Asia, “whose aspirations are to dine out and relax with friends”, KFit’s founder Joel Neoh said in an interview. KFit has raised US$15.25 million in venture funds, of which about half has been utilised for expansion, Neoh said, adding that the group currently generates sales of more than 100 million ringgit (US$22.31 million) per year. Malaysia and Indonesia, which together contribute more than 90 per cent of KFit’s business, are where growth strategies will be predominantly focused on, said Neoh, who was formerly the head of Groupon Asia-Pacific. The former Groupon businesses are being integrated into a separate mobile app, Fave, which was launched in July. KFit also aims to incorporate digital payment features on the Fave platform, enabling customers to buy deals, make bookings and transact their payment on the mobile app. When asked about any plans for a listing, Neoh only said KFit was focused on building the Fave platform. Kuala Lumpur-based KFit also operates in Hong Kong, Singapore and Manila. Fave is available in Kuala Lumpur, Jakarta and Singapore. Reuters

Growth

S. Korean gov’t slashes 2017 economic growth outlook to 2.6 pct Real gross domestic product (GDP) expanded 3.3 per cent in 2014, but the growth rate declined to 2.6 per cent in 2015 The South Korean government on Thursday slashed its 2017 economic growth outlook by 0.4 percentage points, bolstering concerns about the protracted low-growth trend, a government report showed on Thursday. Next year’s growth forecast was cut to 2.6 per cent from 3.0 per cent unveiled six months earlier, according to the Ministry of Strategy and Finance. Real gross domestic product (GDP) expanded 3.3 per cent in 2014, but the

growth rate declined to 2.6 per cent in 2015. The ministry set this year’s growth forecast at 2.6 per cent. The downward revision for next year stemmed mainly from the expected slowdown in private consumption amid the expected interest rate hikes in the United States. Confidence among consumers already worsened on political unrest caused by the impeachment of President Park Geun-hye. Consumers refrained from spending money on economic worries.

The U.S. Federal Reserve raised its benchmark interest rate by a quarter per centage point in December, indicating three rate increases in 2017. It would put pressure on the Bank of Korea (BOK) to lift its record-low policy rate. The BOK lowered its benchmark rate from 3.25 per cent in July 2014 to an all-time low of 1.25 per cent in June this year, encouraging households to purchase new homes with borrowed money. The record-breaking household debts will weigh down further on private consumption given that debt-servicing burden among South Korean households would increase in accordance with the expected higher borrowing costs from higher U.S. interest rates. The ministry’s growth outlook for consumer spending was set at 2.0 per cent in 2017, lower than the estimated 2.4 per cent expansion in 2016 Xinhua

Currency

India’s RBI approved cash ban just hours before Modi’s speech The board of India’s central bank approved the move to ban high-denomination notes less than three hours before Prime Minister Narendra Modi announced the decision in a televised address to the nation. Information on how many members favored or opposed the move isn’t “on record,” the Reserve Bank of India said in response to queries from Bloomberg News under the Right to Information Act. Power Minister Piyush Goyal had told lawmakers on Nov. 16 that it was the authority’s 10-member board that came up with the idea The RBI has been criticized for a lack of preparedness and numerous policy U-turns that contributed to the ensuing chaos. Questions have also been raised about the central bank’s independence and communication policy under the leadership of Governor Urjit Patel. Power

Myanmar takes measures to ensure sufficient power supply by summer Myanmar authorities are taking measures to ensure sufficient power supply to Yangon region in the coming summer season with full voltage and un-interrupted power supply, the official Global New Light of Myanmar reported Thursday. A 300-megawatt power station is being built in Serikkyi Khanaungto township in the region and a power station vessel capable of generating 300 megawatts will be docked at Thilawa Terminal to supply electricity to the region, Daw Nilar Kyaw, Yangon Region Minister of Electric Power, Industry and Road Transportation was quoted as saying. Being a commercial hub of the country, electricity consumption in the region is increasing year by year. According to the minister, Myanmar is also drafting a master plan to establish special economic zones, a seaport and a new international airport in the southern district of Yangon region and the master plan is being worked out with international organizations and experts to be submitted to the parliament in next March. Yangon region has a population of over 6 million. Economy

One BOJ policymaker calls for higher yield target at December meeting The Bank of Japan should be flexible about raising its bond yield target and allow long-term interest rates to increase if such moves reflected improvements in the economy, one of its board members was quoted as saying at this month’s rate review. “I am opposed to setting the 10-year bond yield target around zero per cent, and believe the yield curve should be allowed to steepen a bit more,” the board member said, according to a summary of opinions at the Dec. 19-20 meeting released on Thursday. The views are likely those of former market economist Takehiro Sato, who dissented to the BOJ’s decision to maintain the 10-year bond yield target around zero per cent. While his views are a minority, it highlights a rift within the nine-member board on the feasibility of the new policy framework that requires the BOJ to ramp up bond buying if market pressures push up yields above its target. At the December meeting, several board members argued that the BOJ should keep its yield targets at current levels for the time being to avoid withdrawing stimulus prematurely, according to the summary of views.

14 Business Daily Friday, December 30 2016

International In Brief Bribes

Brazilian construction company profits 4 times more than amount paid in bribes Swiss authorities revealed that Brazilian construction company Odebrecht, deeply involved in a major international corruption scheme, profited four times more than it paid in bribes, Brazilian news site G1 said on Wednesday. According to the Swiss authorities, for every US$1 million paid in bribes to politicians and authorities in several countries, the company managed to profit US$4 million. The information was given by Odebrecht executives who gave state’s evidence in exchange for lenience in a Swiss investigation. The entire scheme was seen as not only highly profitable but also an operation carried out highly professional, according to the authorities. In order to avoid investigations and not to raise suspicion, the company paid bribes using a variety of accounts in banks from some 10 countries. Safety

Kidnappings in Colombia drop 92 pct over 16 years Kidnappings in Colombia have dropped 92 per cent from alarming numbers over the past 16 years, according to the anti-kidnapping unit of the National Police. Some 188 kidnapping cases were reported in Colombia this year, “of which 88 per cent were the result of common crime, 11 per cent of the ELN (guerrilla group) and the rest of organized crime,” Fernando Murillo, head of the unit, said in an interview with RCN Radio news published on Tuesday. Kidnapping rings continue to operate throughout the country, he admitted, but “to combat these crimes, we have succeeded in disbanding at least 30 gangs dedicated to kidnapping and making more than 524 arrests,” said the official. Israel

Trump, Obama reconcile over phone after tension over Israel, transition U.S. President Barack Obama called his successor Donald Trump Wednesday in what was described as a positive conversation, as tension over Israel and transition started to build. “Today’s call, like the others since the election, was positive and focused on continuing a smooth and effective transition,” a statement from the White House said. “The President and President-elect committed to staying in touch over the next several weeks and agreed their respective teams would continue to work together to effectuate a smooth transition of power on Jan. 20,” it said. Trump told reporters outside his Florida home that he and Obama had a “very nice” and “general” conversation. The phone call came after an abstention vote on an Israelrelated resolution from the United States prompted Trump to question the decision on Twitter.

Oil

Shale drillers promise no 2017 binges as oil hangover eases Shale oil companies are ready to play chicken with supply and demand again Alex Nussbaum

oiled by a year that began with crude at a 12-year low and ended with a surprise OPEC agreement boosting prices, U.S. producers including Continental Resources Inc. and Pioneer Natural Resources Co. are promising not to overreact - or overspend. The temptation will be strong: a recovery in prices has already spurred drilling activity in the U.S. to the highest since January. If oil passes US$70 a barrel, the U.S. could start pumping out an extra million barrels a day, offsetting much of the planned cut from the Organization of Petroleum Exporting Countries, according to a Citigroup Inc. analysis. With President-elect Donald Trump promising to ease industry regulations and analysts predicting better earnings for 2017, shale drillers are gearing up for growth.

“There’s a real concern by industry that we could be in for another one of these price adjustments, if we get carried away with development” Harold Hamm, chief executive officer of Continental “There’s a real concern by industry that we could be in for another one of these price adjustments, if we get carried away with development,” Harold Hamm, chief executive officer of Oklahoma-based Continental, said in an interview in New York. “They’re going to be disciplined going

forward.” The U.S. now produces 8.8 million barrels a day, about half from shale. West Texas Intermediate oil, a U.S. benchmark, has averaged almost US$52 a barrel since OPEC’s announced cut last month. A climb to US$60 could generate a 500,000 barrel surge in U.S. production and US$70 would double that, Citigroup wrote in a report this month. While dozens of shale companies and oilfield servicers went bankrupt in the aftermath of the price collapse, investors have rewarded survivors who emerged leaner and more efficient. Hamm’s Continental, holder of the largest net acreage in North Dakota’s Bakken Shale region, has more than doubled in value this year. Hamm himself, who owns the majority of the company’s shares, had the third-largest personal gain among billionaires in 2016. A Bloomberg Intelligence index of 57 independent oil and gas drillers in North America has gained 72 per cent this year, with all but 10 of the stocks posting an increase for the year. On average, members of the index are expected to lose US$1.48 a share in 2016, according to analysts’ estimates. That will improve to a 35-cent average loss next year. The five largest companies are expected to swing to a full-year profit in 2017 on a per-share basis. Also buttressing cash flow, U.S. producers have been buying hedging contracts that lock in higher prices for 2017, giving them further financial flexibility to grow, Macquarie Research analysts Vikas Dwivedi and Walt Chancellor noted in a Dec. 12 report to clients.

‘Shale’s reflexes’

The issue for the global industry now isn’t whether U.S. drillers will expand their operations, but rather “how quickly does shale come on to tap those higher prices, and then how quickly they push them back down,” said Peter Pulikkan, a Bloomberg Intelligence analyst in New York.

“2017 is the year where you are going to see shale’s reflexes tested.” Producers are waiting to see whether OPEC delivers on its promised cuts before increasing their own development budgets, according to Pulikkan. It may be the second quarter before enough market data is in to reach a conclusion, he said. Pioneer Natural Resources can go from starting a well to producing oil for sale in three to four months, Chief Operating Officer Tim Dove told Bloomberg Television in a Dec. 13 interview. The Irving, Texas-based company was already planning to boost production by 15 per cent and add rigs next year in West Texas’ Permian shale basin. It’s taking a waitand-see approach on any further expansion, he said. “We’re going to stay on our trajectory regardless of what OPEC does,” Dove said.

‘Modest increase’

Expansion may be steady but slow, said John England, vice-chairman for U.S. energy at Deloitte LLP. He expects just a “modest increase” from shale drillers in 2017. “We see 2017 as the slow road back,” England said in a telephone interview. “Nobody wants to get overextended, nobody wants to get into the debt levels you’ve seen in the past.” In the meantime, another wild card for oil markets will hit Washington. Trump is considering a tariff on imports, CNN reported on Dec. 21, citing unidentified sources, and House Republicans have proposed a “border adjustment” that would tax imported goods but not exports, including oil and gas. Either move could spur U.S. production. Adam Anderson, chief executive officer of oilfield equipment company Innovex Downhole Solutions Inc., remains sceptical he’ll ever see business boom the way it did when almost 2,000 oil and gas rigs were drilling in 2014. After years of turmoil, “clearly we’re past the worst of it,” Anderson said in an interview. “But it is not back, nor do I think it ever will get back, to the heights.” Bloomberg

Business Daily Friday, December 30 2016 15

Opinion Business Wires

The Straits Times Prices of completed private condominiums continued to fall in November, suggesting that recovery is still some way off for resale homes. Overall resale prices slipped 0.7 per cent last month from October - a stark decline following the revised 0.2 per cent dip from September to October. Last month’s price fall was led by units in the central region, according to flash estimates from the NUS Singapore Residential Price Index (SRPI) yesterday. “It seems that price recovery for resale properties is still a long way ahead... price decline or stagnation is set to continue,” said R’ST Research director Ong Kah Seng. Mr Wong Xian Yang, head of research and consultancy at OrangeTee, added: “With rents still on a downtrend and the outlook on interest rates remaining unclear, buyers will continue to negotiate hard for lower prices.”

Keynes Reborn

I Japan News Toyota Motor Corp. is almost certain to fall from the top spot in global automobile sales for the first time in five years in 2016, losing to Germany’s Volkswagen AG. Global sales at the Japanese automaker, including those at its Daihatsu Motor Co. and Hino Motors Ltd. subsidiaries, in January-November inched up 0.1 per cent from a year earlier to 9,219,000 units, about 160,000 units fewer than Volkswagen’s sales in the same period, according to data released by Toyota on Tuesday. Global sales at the parent company alone rose 0.3 per cent to 8,353,000 units, on the back of brisk domestic sales, including of the new model of its Prius hybrid vehicle series.

Jakarta Globe Foreign property developers, led by state-owned China Communication Constructions Group (CCCG), made the biggest investment in Jakarta’s residential property in nearly a decade this year as they bet on relaxed mortgage rules boosting demand. CCCG’s US$1 billion eight-tower complex is targeting young middle-income Indonesian couples and is one of the largest ever in the capital. Japan’s Mitsubishi Corporation, Tokyu Land, Hong Kong Land, as well as Malaysian Sime Darby, have also signed deals in Jakarta and surrounding areas, according to data compiled by construction consultant BCI Asia. The projects are estimated to be worth at least US$2.8 billion, or the highest by foreign developers since at least 2007, and come despite a sluggish Indonesian property market.

n the fourth century, Japan’s emperor looked out from a small mountain near his palace and noticed that something was missing: smoke rising from people’s kitchens. While there were some faint trails here and there, it was clear that people were facing such harsh economic conditions that they could barely purchase any food to cook. Appalled at the circumstances of the Japanese people, who were largely peasants, the emperor decided to suspend taxation. Three years later, the palace gates were in disrepair and the stars shone through leaks in the roof. But a glimpse from the same mountain revealed steady plumes of smoke rising from the peasants’ huts. The tax moratorium had worked. The people were so grateful to the emperor – who became known as Nintoku (Emperor with Virtue and Benevolence) – that they volunteered to repair his palace. Almost two millennia later, the Japanese people are, again, under economic pressure. A steep hike in the consumption tax in 2014, together with another hike expected in the near future, has undermined household spending. As in the Nintoku story, it is the wealth of the people – not that of the government – that dictates consumption. Of course, the wealth of the government does play a role in economic performance. But excessive concern about government’s solvency can cause the private sector to be reluctant to spend. That is what has happened in Japan. Excessive government debt can be highly damaging. In inflationary p e ri o ds, hi gh o u tsta n di n g government liabilities impair fiscal policy, because higher taxes are needed to finance the same level of real government spending. Making matters worse, governments can be tempted to inflate their debts away – a power that has been abused since the age of monarchs, resulting in a uniform inflation tax on asset holders. But large public debts are not always bad for an economy, just as efforts to rein them in are not always beneficial. The focus on a balanced budget in the United States, for example, has led some elements of the Republican Party to block normal functions of state and even federal authorities, supposedly in the name of fiscal discipline. Likewise, the eurozone’s recovery from the 2008 financial crisis has been held back by strict fiscal rules that limit member countries’ fiscal deficits to 3 per cent of GDP. To understand the relationship between public debt and economic performance, we should look to the fiscal theory of the price level (FTPL), a macroeconomic doctrine that has lately been receiving considerable attention. In August, at the annual conference of central bankers in Jackson Hole, Wyoming, Princeton’s Christopher Sims provided a lucid explanation of the theory. As Sims explained, contrary to popular belief,

“

Koichi Hamada Special Economic Adviser to Japanese Prime Minister Shinzo Abe

aggregate demand and the price level (inflation) are not dictated only – or even primarily – by monetary policy. Instead, they are determined by the country’s net wealth and the liabilities of the central bank and the government. When government deficits are lower, investing in government debt becomes more attractive. As the private sector purchases more of that debt, demand for goods and services falls, creating deflationary pressure. If the central bank attempts to spur inflation by expanding its own balance sheet through monetary expansion and by lowering interest rates, it will cause the budget deficit to fall further, reinforcing the cycle. In such a context, Sims argued, monetary policy alone would not be adequate to raise inflation; fiscal policy that increases the budget deficit would also be necessary. The FTPL provides a clear di ag n o si s o f th e Ja p a n es e economy’s problems – and points to solutions. When Abenomics was introduced in 2012, a massive injection of liquidity by the Bank of Japan was supposed to offset deflation. But, as both traditional Keynesians and FTPL followers would note, quantitative easing – which amounts to an exchange of money for its close substitutes (zero-interest bonds) – becomes less effective in stimulating demand over time. Add to that Japan’s fiscal tightening – and, especially, its consumption-tax hike – and it is no surprise that demand has remained repressed. More recently, Japan’s negativeinterest-rate policy worked rather well to push down market interest rates. But the policy also impaired the private sector’s balance sheet, because it functioned as a tax on financial institutions. As a result, it has failed to provide the intended boost. During periods of recession or stagnation, additional interest payments by banks would burden the economy, whereas public debt may enable the economy to reach full employment. (Neo-Ricardians would argue that public debt in the hands of people is worthless, because consumers internalize their children’s future tax payments by holding debt certificates. But, as David Ricardo himself recognized, people are rarely that smart.) John Maynard Keynes’ The General Theory of Employment, Interest, and Money, which argued for active fiscal policies, was published in 1936. Forty years later, a counterrevolution took hold, reflecting sharp criticism of fiscal activism. After another 40 years, Keynes’ key idea is back, in the form of the FTPL. This may be old wine in a new bottle, but old wine often rewards those who are willing to taste it. Project Syndicate

As Sims explained, contrary to popular belief, aggregate demand and the price level (inflation) are not dictated only – or even primarily – by monetary policy.

”

16 Business Daily Friday, December 30 2016

Closing Deal

British business leaders press for free-trade deal with EU

Leave Means Leave officials will be embarking on a tour of many of the Chambers of Commerce in Europe in the New Year to reinforce the message “that a zero tariff deal is mutually The campaign group has written to the Chambers of beneficial”. In the letter, they warned that as many EU member Commerce of all 27 EU member states Respected British business leaders on Wednesday urged their counterparts in EU states export such significant amount of goods to Britain, any trade barriers implemented by the European Commission “will member nations to press their governments for a free-trade have a detrimental effect on jobs and prosperity in a number deal with Britain. The London-based campaign group, Leave of EU states”. Leave means Leaves is backed by more than 30 Means Leave, which was founded by these business leaders, influential political and business leaders, including a number of seemed to bypass officials in Brussels and instead make their plea to the CEOs of chambers of commerce across Europe. The former government ministers. It was set up to ensure Britain makes a swift, clean exit from the EU following the Brexit vote campaign group has written to the Chambers of Commerce, in the June 23 British referendum. It wants Britain to leave the of all 27 EU member states, to make a case for a “sensible European single market and the customs union. Xinhua agreement regarding the terms of Britain’s exit from the EU”.

Opec

Oil IPOs seen ready to bloom across U.S. as crude heads higher It may be time for a baby boom in U.S. oil

ising crude prices and a deregulatory push in Washington may spur as many as 40 companies to hold initial public offerings over the next two years, potentially tripling 2016’s activity, according to Maynard Holt, chief executive officer at Houston-based investment bank Tudor Pickering Holt & Co. After a year in which explorers in the Permian shale basin straddling Texas and New Mexico dominated the business, interest in new oil-industry

offerings is likely to spread wider. It could include pipeline operators and regions like the Bakken in North Dakota and Wyoming’s Powder River basin, Holt said in a telephone interview Wednesday. Mergers and acquisitions should pick up as well. “The number of companies expressing interest in going into this window is really high, and the number of investors saying we’d like to see something different is really high,” the CEO said. After two years of crashing crude prices, the number of North American IPOs for oil and natural gas companies fell to 13 this year, worth a collective US$2.23 billion, according to data

compiled by Bloomberg. That was down from 44 announced offerings, worth US$14.15 billion, in 2014, when oil topped US$100 a barrel.

OPEC

The environment has become more welcoming after the Organization of Petroleum Exporting Countries agreed last month to cut output, paving the way for higher prices. President-elect Donald Trump’s promise to ease regulations on the sector is helping as well, Holt said. Investors are especially hungry for new opportunities among “midsize” companies - those valued between US$2 billion and US$4 billion - with

relatively little debt and exposure beyond the Permian, he said. Oilfield service companies are still struggling financially, but that could lead to more deals as well, according to Holt.

“It feels like we’ve entered a good window where OPEC is now being cooperative, the regulatory talk feels positive and the financing markets feel open” Maynard Holt, chief executive officer at investment bank Tudor Pickering Holt & Co.

“It feels like we’ve entered a good window where OPEC is now being cooperative, the regulatory talk feels positive and the financing markets feel open,” he said. “You could see a lot of capital raising in that window.” Tudor Pickering ranked 13th among advisers this year on oil IPOs, assisting on four offerings, according to Bloomberg data. The bank, which focuses on energy deals, was bought in November by New York-based Perella Weinberg Partners LP. Bloomberg

M&A

Politics

Telecom

Gategroup buys 50 pct stake Trump says U.S. should ‘Move Vietnamese users provided with in Servair from Air France-KLM on’ rather than sanction Russia free 4G SIM ahead of official launch Swiss airline catering company Gategroup Holding said on Thursday it was buying Air France KLM’s catering business Servair for 237.5 million euros (US$248.31 million), including debt, to create the world’s leading inflight catering group. After the deal, Gategroup will be serving more than 300 airline customers and expects annual revenue to exceed 4.4 billion Swiss francs (US$4.29 billion), the group said in a statement. The enterprise value of 237.5 million euros is based on a 50 per cent stake in Servair, Gategroup said. Air France-KLM said in May it was entering exclusive negotiations with Gategroup’s parent Chinese aviation and shipping conglomerate HNA Group to sell a stake in Servair and transfer operational control to HNA. Gategroup said it would finance the acquisition initially through a bridge facility which would be replaced by a capital market transaction likely to be in the first half of 2017. Gategroup said Lazard was acting as its financial adviser on the deal. HNA Group bought Gategroup in a US$1.5 billion deal earlier this year. Reuters

President-elect Donald Trump said Wednesday that the U.S. should move on rather than retaliate against Russia for interfering in the 2016 election, with the Obama administration expected to soon take action against Moscow. U.S. intelligence agencies have concluded that the Russian government orchestrated cyber attacks against the Democratic National Committee and other American political groups and then leaked information to interfere in the Nov. 8 elections. Russia has denied the accusations. Trump has said he wants to improve relations with Russia and has praised its president, Vladimir Putin. “I think we ought to get on with our lives,” Trump told reporters outside Mar-a-Lago, his Palm Beach, Florida estate, with boxing promoter Don King standing by his side. “I think that computers have complicated lives very greatly. The whole age of computer has made it where nobody knows exactly what is going on.” President Barack Obama said Dec. 16 that the U.S. will retaliate against Russia at an unspecified time, in a “thoughtful, methodical way.” The response may be covert, public or both, he said. Earlier Wednesday, Senator Lindsey Graham, a Republican from South Carolina, said during a trip to the Latvian capital that Russia and Putin should expect new sanctions for meddling in the election, Reuters and AP reported. Bloomberg

Vietnam’s military-run telecommunication group Viettel will provide free 4G SIM cards to its users ahead of the launch of its 4G network in the first quarter of 2017. From Jan. 1 to March 1, 2017, customers are offered with free swapping of their current SIMs for 4G SIMs. Its infrastructure is in place for the launch of 4G services, which will be compatible with all types of mobile phones in the market, Viettel said on Thursday. In capital Hanoi, southern Ho Chi Minh City and other key cities, customers will be able to enjoy the 4G service as soon as Viettel completes installing its base transceiver stations. The Ministry of Information and Communications has licensed some local telecoms giants to provide 4G telecommunications services including Viettel, VinaPhone and MobiFone, while considering to license the fourth company, GTel, in the coming time. By early September, Vietnam had signed up over 128.3 million mobile subscribers, including nearly 63.6 million subscribers of Viettel, over 34.6 million subscribers of MobiFone, more than 20.5 million subscribers of VinaPhone, nearly 5.9 million subscribers of GTel, and over 3.7 million subscribers of Vietnamobile, according to statistics from the ministry. Xinhua