Business Daily #1272 April 11, 2017

ANZAC Day observance in Macau Tue, 25 April 2017 │ 7:30am - 9:30am │ MGM Macau C DAY ANZA

Followed by breakfast from 8:30am

Beijing to open more sectors to foreign investment Reform drive Page 8

Tuesday, April 11 2017 Year VI Nr. 1272 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Education

Continuing Education plan to have weekly attendance registry system Page 5

Safeguard

Mastercard teams up with Judiciary Police on new card-fraud fighting device Page 2

www.macaubusinessdaily.com

Bidding

Watchdogs

Suspicions raised about Macau Insurance Company regarding potential bid rigging Page 5

Mainland regulators intensify financial sector Page 16

Consumer confidence up Economy

A ‘significant increase’ in local consumer confidence was reported in the first quarter, according to a MUST study. The Consumer Confidence Index saw improvements in most areas, with the exception of housing purchases, which has rated lowest among the six sub-indexes for the last 20 consecutive quarters. Increases in investment confidence are leading to stock purchases, with employment confidence also on the rise. Page 3

Recent raids and investigations into the operations of Imperial Pacific’s Saipan casino and resort have increased setbacks for the operator. The gaming operator continues to state it hasn’t received any “notice of investigation” from the FBI, and that probes are into a contractor involved in construction. It will “continue to implement measures” to “ensure compliance”, but the final opening dates for the new property are now up in the air.

Gaming Page 6

HK Hang Seng Index April 10, 2017

Learning to work

Labour While concerned about their lack of responsibility in carrying out jobs, employers welcome university students as part-timers, according to a study. Easing short-term or seasonal staff shortages, and offering mostly monetary incentives, companies found that students’ ‘working attitude’ ranked highest. Strengthening basic training and encouraging team building is recommended. Page 2

Futures rebooted

Markets Debt futures in China were back again in Hong Kong yesterday, however foreign investors didn’t overreact to the move and it is expected they will generate more interest in the market as the functioning becomes more mature. Page 8

24,262.18 -5.12 (-0.02%) Worst Performers

Belle International Holdings

+2.01%

China Resources Land Ltd

Geely Automobile Holdings

-4.89%

Hengan International Group

-1.09%

MTR Corp Ltd

+1.60%

Wharf Holdings Ltd/The

+1.06%

China Unicom Hong Kong

-3.65%

China Petroleum & Chemical

-1.07%

+1.41%

Hang Lung Properties Ltd

+0.98%

Lenovo Group Ltd

-2.78%

China Life Insurance Co Ltd

-1.06%

Galaxy Entertainment Group

+1.27%

AAC Technologies Holdings

+0.72%

Link REIT

-1.43%

Ping An Insurance Group Co

-0.82%

Henderson Land Develop-

+1.22%

China Construction Bank

+0.64%

Sands China Ltd

-1.33%

Cathay Pacific Airways Ltd

-0.71%

China Resources Power

+1.12%

28° 31° 28° 31° 28° 32° 28° 32° 28° 32° Today

Source: Bloomberg

Best Performers

WED

THU

I SSN 2226-8294

FRI

SAT

Source: AccuWeather

Looking into Saipan

2 Business Daily Tuesday, April 11 2017

Macau Labour

Work and learn A study shows that local firms welcome university students to work as part-timers Cecilia U cecilia.u@macaubuisnessdaily.com

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ocal firms welcome university students as part-timers while they are studying, yet are worried students might lack responsibility when carrying out their jobs, according to a study conducted by the Macao Professional Development Association.

In addition, the study found that firms are willing to hire university students as a way of resolving

seasonal or short-term shortages of staff.

Meanwhile, hiring university students for part-time work can help manage shortages of personnel, with students benefitting from receiving social experiences as well as work experiences, details the report.

Values matter most

According to the results, effort put in by firms towards university students’ part-time jobs is classified as medium high, with resources input in ‘remuneration’ the highest among

10 areas studied by the group, indicating that firms mostly focus their resources and incentives on wages for the students.

Other areas include ‘guarantee-ability’, ‘human resources’ and ‘company culture’ which also enjoy a high dedication of resources by local firms towards students.

Moreover, the result shows that the working performance of students was rated as medium high.

‘Working attitude’, which has great influence over the productivity of a worker, has the highest rating among the other five areas, and includes work engagement and adaptability.

The high rate of ‘working attitude’ reflects students’ good working conditions, details the report.

In overall terms, the more resources invested into university students, the

better the working performance of the students.

Suggestions to firms and government

For firms, the study suggests strengthening basic training for part-timers, given that the average rate of resources invested in the ‘growth of the firm’ is lower than that in the area of ‘remuneration’.

Respondents of the survey revealed that the majority of firms only briefly introduce the work content and requirements to the new workers, without further providing any basic training regarding the professions.

Performing training would also build familiarity between co-workers, notes the report, suggesting that firms also hold activities outside work to build stability and cohesion with part-timers, given that misunderstandings often appear between students and senior workers.

Holding activities for workers would also allow opportunities for students to learn how to communicate and network.

Meanwhile, the study also puts forward suggestions for the government, in particular regarding the setup of related laws to help guarantee students’ interests, such as determining a standard wage rate for part-time jobs.

The study also advises the government to combat any illicitly-run institutions providing job hunting services.

Students are often easily tricked by firms due to their lack of legal knowledge, notes the report, suggesting that the government launch a centre to specifically provide legal support for university students who have part-time jobs.

The centre should also take the initiative by visiting universities to answer students’ legal queries relating to living, learning and job hunting.

Security

PJ to adopt Mastercard’s new card-fraud fighting device The city’s Judiciary Police (PJ) is to adopt Mastercard’s new device MasterCard Forensic Reader - which aims to prevent payment card fraud, according to a press release by Mastercard yesterday.

The announcement notes that the local security force is among the first to adopt the new device in Asia.

According to the credit card company, the device will allow law enforcement agencies to process seized fraudulent cards and verify with the relevant card issuer within a matter of seconds whether the card is a suspected counterfeit.

It is expected that the new card reader, resembling the typical in-store point-of-sale terminal, will improve effectiveness, timeliness and accuracy when investigating payment card fraud using Mastercard-branded payment cards, the card issuer said.

“We welcome the partnership with Mastercard on tackling security challenges in payment card transactions, strengthening the police force with science and technology,” said SK Sou, a representative of the IT-Related Crime Division of the PJ in the press release.

“The Mastercard Forensic Reader is an innovative solution that can contribute to the efficiency and accuracy of payment card fraud investigations in Macau and provide further protection to our local citizens,” he added.

Meanwhile, Hiang Choong, head of Hong Kong, Macau and Taiwan, Mastercard, said: “Our partnership with the Macau Judiciary Police underscores our commitment to providing additional safeguards in every transaction, by facilitating and streamlining the investigation process of payment card fraud.”

Politics

Politics

Leader of cities

Access denied

MSAR to be proposed as new capital of Portuguese-speaking cities The Union of Portuguese-speaking Capital Cities (UCCLA) will vote on a proposal on whether to make the MSAR its new capital. The vote will take place at the organization’s general assembly meeting to be held April 19 in Luanda, Angola.

According to the organisation, the current President David Simango - mayor of the capital of Mozambique – will step down from his currently held position, with a Macau representative to be the likely replacement, due to Mainland

China’s policies to promote the city as a platform between itself and Portuguese-speaking countries.

Created in 1985, the UCCLA looks to promote inter-municipal exchange and cooperation between Lusophone cities, with the organisation having 23 Portuguese-speaking official city-members in Asia, Africa, South America and Europe.

On April 20, the MSAR delegation will also take part in a UCCLA forum on ‘Sustainable Cities’ to be held in Viana, Angola. N.M.

The wife of detained Taiwanese activist Lee Ming-che has been refused entry into Mainland China by the authorities and had her entry permit to China invalidated. The barring happened as Lee Ching-yu planned to travel to Beijing to request information on her husband’s detention, according to the China Post.

The activist’s spouse was set to travel to the Chinese capital to seek answers from China’s Taiwan Affairs Office and the Association for Relations Across the Taiwan Straits (ARATS) on the detention of her husband.

The former Taiwan Democratic Progressive Party member disappeared after crossing the Macau border in to Zhuhai on March 19. Chinese

authorities later confirmed the detention and accused the activist of being involved in ‘activities harmful to national security’.

Prior to the trip, the Taiwan Mainland Affairs Council (MAC) stated that Lee Ching-yu ‘might find difficulties’ getting permission from Mainland Chinese authorities to enter the country, news agency Focus Taiwan reported.

In a press conference on Sunday, Ms. Lee stated that a “broker” was currently serving as a link with the Chinese authorities in negotiating for her husband’s release. This “broker” had advised Lee to cancel the trip or else a ‘TV [station] in Guangdong Province will immediately broadcast a film of Lee Ming-che confessing to his crime’, reported Focus Taiwan. N.M.

Business Daily Tuesday, April 11 2017 3

Macau Economy

Confidence in housing purchases remains the lowest

Consumer confidence increases in Q1 The local Consumer Confidence Index registered a quarterly increase in the first quarter of 2017 as residents’ confidence in the local economy returned Kam Leong kamleong@macaubusinessdaily.com

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he city’s consumer confidence index returned to growth for the first quarter of the year as residents expressed more positive sentiments about a number of economic aspects of the MSAR, with the exception of housing purchases, according to the latest survey on consumer confidence by the Macau University of Science of Technology (MUST), released yesterday.

The Macau Consumer Confidence Index recorded 86.35 out of 200 points for the three months, representing an increase of 2.72 points, or 3.26 per cent, compared to 83.63 points registered for the last quarter of 2016.

‘Our survey results from the first quarter of 2017 showed a significant increase in local consumers’ overall confidence, as evidenced by the fact that only the “housing purchase” sub-index experienced a (significant) decrease from the previous quarter,’ the surveyor notes.

According to MUST, the index is calculated based on six indicators: ‘local economy’, ‘employment’, ‘consumer prices, ‘living standards’, ‘housing purchase’ and ‘stock investment.’

Index scores below 100 suggest a lack of confidence, while scores over 100 imply a positive outlook.

In fact, local consumer confidence

in housing purchases has been the lowest among the six sub-indexes for a total of 20 consecutive quarters since the second quarter of 2012. For the first three months of this year, the sub-index fell a further 1.52 points, or 2.8 per cent quarter-to-quarter, to 53.37. ‘[This] continuously showed the worries of Macau residents about the high housing prices,’ the researcher explained, adding that the decline is partly supported by the latest official statistics showing that the average housing prices per square metre of sellable area jumped by 7.3 per cent quarter-to-quarter in the last three months of 2016.

Confidence in the economy returns

Meanwhile, the report notes that local consumers have gained back their confidence in the local economy, as the related sub-index rose by 1.86 points, or 1.9 per cent, quarter-to-quarter to 101.41, its third consecutive quarterly growth.

‘In the first quarter of 2017, [the sub-index] extended the upward trend and went back again to above the 100-point “having confidence” level after two years’ being below that level, implying that Macau consumers were cautiously optimistic about local economy’s overall performance,’ details the report.

In fact, a significant improvement in consumer sentiment in stock

investment was also evident during the first quarter of the year. The related sub-index registered a growth of 7.33 points or 9.5 per cent quarter-to-quarter, which the surveyor notes is ‘reflecting a big increase in the willingness of local consumers to invest in the volatile stock market’.

Local residents’ confidence in employment also increased further to 106.74 points, up by 6.46 points or 6.4 per cent quarter-to-quarter, which suggests that they tended to be more optimistic about their employment in the local labour market in the first three months of the year.

On the other hand, the sub-index for consumer prices went up by 2.04 points or 2.8 per cent quarter-to-quarter, to 74.78 in the period, indicating that local consumers’

concerns about inflation in the near future have ‘significantly reduced’.

The more positive outlook for inflation also helped relax residents’ living pressure, with the sub-index of living standards improving by 0.16 points or 0.2 per cent quarter-to-quarter to 97.4.

MUST stressed again in its report that: ‘the higher the consumers’ education levels, the higher their confidence,’ adding that such a trend has been consistent in the past 34 quarters.

‘So focusing more on education and training as well as motivating and supporting citizens’ continuous learning and self-enhancement should be of fundamental importance for increasing Macau consumers’ confidence,’ the institute suggests.

4 Business Daily Tuesday, April 11 2017

Macau Opinion

Albano Martins* Who did everything and who did nothing (Part II) The Nam Van Lakes development project created a huge underground tunnel to drain away dirty water and rainwater, lift stations, new streets, four new lanes next to Praia Grande (in some cases, six lanes), two new parking silos, plus 12 new private silos for the twelve buildings of Zone A (of Praia Grande), two large lakes with aerators all over, several ecological islands in the middle of the lakes, a dam carefully made so that the old bridge did not fall over when pushed by the mud, several dykes along the lakes, connections to the inner harbor and NAPE, a modern plaza in front of the tower, with a lower passage, keeping all the old trees even with a car park below and the historical wall, surrounded by several green zones between roads.

Fifteen plots of land, which later became 17, were given to the government so that it could make use of them.

Everything reclaimed and built where there was previously only water and lots of sh*t!

In 2002, the government asked for four more plots so that the liberalization of the gaming industry could move forward.

In exchange, it promised to deliver, in zones C / D, the same gross area of land!

But as this meant that the plan of the zone necessarily had to be changed, the government decided to suspend the plan.

Meanwhile, one secretary falls and another enters.

And no new plans showed any signs of appearing!

To complicate matters, the question of the preservation of World Heritage arises!

Several proposals were then advanced by investors, but neither did they see the light of day, nor was any alternative advanced or suggested by the government!

Conclusion: 14 years pass in this endless wait, the concession expires and the government swallows up 13 plots of the concessionaire and does not deliver the four that it requested in 2002!

Those who invested in and created all the infrastructure where nothing existed - two huge lakes, Zone A (with twelve plots of land), Zone B (with twelve plots of land all delivered to the government), Zone C / D (at the center of this controversy), with 22 plots, of which nine were for the government and 13 for the concessionaire, and Zone E (with parking plots, all delivered to the government) – are now astonished by a decision, without any alternatives, from the government!

Conclusion: the government swallowed, without putting up a single pataca, 34 plots of land leaving the concessionaire with just 12!

But who is the bad guy in all this? * an economist and contributor to this newspaper

Politics

Up to vote Law proposal to expand fiscal information exchange with overseas jurisdictions to be voted on at the AL today, together with debate proposals for revising the current MSAR public tender and hiring regimes

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he Legislative Assembly (AL) will vote today on a draft law proposal to expand fiscal information exchange, in order to align with standards for members of the G20 and the European Union.

The proposed law suggests that fiscal information could be exchanged automatically, updating the current regimes under which exchanges can only be made by request.

Since international requirements mandate that the system should be enforced in 2018, the law proposal states information will start being collected starting from July 1 of this year.

Before voting on the fiscal law proposal, legislators will also discuss and

vote on a law proposal to remove the Security Forces Coordination Office (GCS) and pass its civil protection capacities to the Unitary Police Service (SPU).

Irregular hiring

The AL will also vote on two debate proposals put forward by direct-elect legislators Leong Veng Chai and Mak Soi Kun. Legislator Leong wants the AL to ‘freely’ discuss irregularities in the hiring system of the public sector and ‘through practical means generate a clearer law while demanding more accountability for the infractions committed’.

The member of the Macau Civil Servants Association (ATFPM)

believes that this could help curb ‘residents’ suspicion towards the government,’ and that ‘the partiality of the public services hiring’ will be reduced.

‘Since current legislation is not clear and there is a lack of responsibility for these irregularities, there are many public services that dodge the issue, with the recent case of the Cultural Affairs Bureau being only the tip of the iceberg,’ the Legislator added in his debate request.

In the recent Commission Against Corruption (CCAC) report on hiring processes by the bureau, it was stated that the Cultural Affairs Bureau ‘resorted to the service procurement procedures to systematically bypass the centralized recruitment and public tender regime’.

Revising the public tender system

Legislator Mak will ask the AL to debate if the government ‘should proceed as early as possible’ to a revision of the public tender system for goods and services, so as to avoid ‘further societal problems created by the obsolete current public acquisitions law’.

Improving the current MSAR public tender system is an issue that has been raised in reports from the CCAC and the Commission of Audit (CA), being centre stage in the current corruption case against former Prosecutor-general Ho Chio Meng.

The former top official is accused of more than 1,500 crimes, such as fraud, abuse of power, money laundering and criminal association, in a case that involves thousands of directly awarded contracts for providing construction, goods and services to the Public Prosecution Office.

In a recent release by an AL sub-committee, the government admitted the current public tender regime is ‘outdated on many levels’, stating plans for a revision this year. Lusa

Urban renovation

Monolith facelift The Land, Public Works, and Transport Bureau (DSSOPT) is allegedly going to repair the surrounding area of the symbolic monument named the ‘Gates of Understanding’, which has fallen in a ‘state of abandon, showing various signs of deterioration,’ reported Jornal Tribuna de Macau (JTM).

The 40-metre gate monument, located near the Sai Van Lake and Bridge, on the southern tip of the Macau peninsula, was designed by Charters de Almeida and erected in 1993. It stands as a symbol of Sino-Portuguese agreement during the transition period that led to the handover of Macau to the People’s Republic of China.

The DSSOPT has confirmed that it will ‘soon’ close down the site to public visitation in order to enable inspection, notes JTM. Once the inspection is completed, DSSOPT said it will ‘take various matters into consideration, including technical factors, in order to propose a renovation project that is adequate for the site.’

The bureau has not, however, defined a date to start the renovation works.

Business Daily enquiries to the DSSOPT regarding the budget and whether or not the repair works will go to public tender remained unanswered by the time this story went to print.

The DSSOPT’s statements also stem from an interpellation from local legislator Chan Hong, who had already raised the issue of the dilapidation of the monument earlier this year in a Legislative Assembly session.

Legislator Chan noted that the works should ideally be launched before the conclusion of the transportation centre in the Barra district, which includes the delayed Light Rail Train (LRT) project.

According to information from the

DSSOPT, ‘the Barra station would be built underground on a large scale so that it could become the integrated transport hub between Macau and the region. Meanwhile, Nam Van Lake and Sai Van Lake lines connecting Barra and Nam Van would be built as tunnels, with the Sai Van Lake station built underground and the Nam Van Lake station built on ground level.’

Business Daily Tuesday, April 11 2017 5

Macau Tourism

MGTO: amendment bill on travel agency operations progressing

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he government’s draft bill to amend the current regulations on the operations of travel agencies and the profession of tour guides is progressing, said the director of the Macau Government Tourism Office (MSAR), Maria Helena De Senna Fernandes.

In her reply to legislator Si Ka Lon’s enquiry, the MGTO director noted that her Office has been working on related procedures for the bill step-by-step, following the

latest draft’s completion in June 2016.

In February, the local tourism head said the bill proposed to ban local travel agencies from organising tours which charge lower than their total costs (zero-fee tours), according to her response to another legislator Kwan Tsui Hang’s enquiry.

The official added at that time that the bill had entered legislative procedures.

A zero-fee tour usually charges cheaper transportation and

accommodation fees, but forces tourists to shop at certain stores in order for the agent(s) to make up the

difference by earning commissions from the stores.

In his interpellation, Si Ka Lon slammed the slow progress on amending the current regulations related to travel agencies and tour guides, stating that it is affecting the development of the tourism industry itself.

The legislator urged the tourism body to release a timetable for when the draft bill will be submitted to the Legislative Assembly for discussion. K.L.

Bidding

Suspicion of bid rigging by Macau Insurance Company Suspicions were raised by an internal meeting recording, with other insurance companies named in the conversations by the company’s executives Cecilia U cecila.u@macaubusinessdaily.com

Macau Insurance Company (MIC), a subsidiary of Dah Sing Financial Group, is suspected of having rigged bidding processes with its competitors, according to reports by Hong Kong news outlet Apple Daily.

A recording of the company’s internal meeting last December, in which MIC’s chief executive officer appears to be requesting staff working on tenders to have ‘more under-the-table cooperation’ with other insurance companies has surfaced, sparking media attention.

Bid rigging, according to the definition by Hong Kong-based Competition Commission, occurs when two or more competitors agree not to compete with each other for tenders,

without the knowledge of the person calling for the bids or requesting a tender, to allow one of the companies to “win” the tender.

According to an anonymous informant, as reported by the news outlet, bid rigging among insurance companies in the city in recent years has appeared so as to reduce inconsistencies when submitting tenders.

Oftentimes, companies offering the lowest price are more likely to get the bid, although other considerations, such as business relations and company experience are also valuable criteria in the final decision.

In the case of MIC, the publication points out, the insurance company would agree to offer a 0.35 per cent premium rate on a project costing MOP10 billion (US$1.25 billion) while a competing company offered 0.3

per cent, theoretically increasing the possibility of the company offering the lower rate to win the bid. If the company obtained the bid and earned MOP3 million, it would then have to pay back a reinsurance fee to MIC, for which the rate commonly stands at between 20 to 40 per cent. If the rate was 30 per cent, consequently MIC would receive MOP900,000 as its reinsurance fee.

The recording obtained by Apple Daily documents the CEO also mentioning “negotiations with other companies for reinsurance”.

Fidelidade Macau, China Taiping Insurance (Macau) Co., Ltd. and Asia Insurance Macau were all mentioned in the recording, notes the publication.

Bid rigging among insurance companies would place pressure on project operators in their decisions when purchasing insurance for their projects and workers.

According to Apple Daily, projects handled by MIC include the labour insurance for the Venetian Macao

and MGM, and project insurance for Mong Ha social housing construction, as well as projects from Polytex Corporation Ltd., and insurance for the annual Macau Grand Prix.

Response

Business Daily contacted Dah Sing Financial Group for a response to enquiries about the case but had not received any reply by the time this story went to press.

However, the group replied to Apply Daily’s enquiry, stating that it is currently carrying out internal investigations and follow-ups over the allegation.

The group also stressed that all businesses always act in strict compliance with regulatory and statutory requirements, adding that the group will handle the cases seriously if any irregularities are found.

Business Daily also made enquiries to MIC and the Macao Monetary Authority but responses from both parties had not been provided by the time this story went to press.

Subsidy

Improve yourself Starting from today, residents will be able to apply for the Continuing Education Development Plan 2017-2019, with the Education and Youth Affairs Bureau introducing an online attendance registration to help prevent fraud Nelson Moura nelson.moura@macaubusinessdaily.com

Elections

Watching eye Activist Jason Chao launches platform to monitor this year’s Legislative Assembly elections The former vice-president of local political group New Macau Association, Jason Chao, yesterday launched a platform to monitor the fairness of this year’s Legislative Assembly elections.

The platform named ‘Project Just Macau’ will look to ‘collect, organise, analyse and follow-up information’ from local civil society, while monitoring activities of candidates and Macau authorities such as the electoral commission.

According to the activist, the current channels at the disposal of the public

to report illegal electoral activities to the government ‘lack transparency’ in the handling of these complaints, making it ‘highly questionable’ that justice is applied.

The platform will look to create a public record of residents’ complaints on the elections, in order to monitor their handling by the authorities.

This year’s election will take place on September 17, with candidates having to present their application up to 70 days before the election date, with the electoral campaign period starting after September 2. N.M.

The Continuing Education Development Plan 2017-2019 was officially started today, with local residents aged 15 or above able to apply for a MOP6,000(US$750) subsidy for local or overseas educational programmes, the Education and Youth Affairs Bureau (DSEJ) announced yesterday. The program will run until December 31 of 2019.

The chief executive of the Division of Continuing Education under the DSEJ, Wong Chi Iong, said the department “wasn’t expecting a significant increase” in the total granted amount or the number of participating residents for the new phase of the plan.

The plan has already been held in two phases: between 2011-2013 and 2014-2016. From the first phase to the second phase, the number of residents receiving the subsidy increased by 15 per cent to 167,369, while the total disbursed value grew by 40 per cent to MOP744.4 million.

Local institutions will have until April 25 to submit their courses and programme offerings, with the DSEJ

revealing which courses and teachers are approved for the scheme on April 28 and May 26.

In order to improve oversight of the programme, the DSEJ announced yesterday that an electronic attendance registry system would be implemented, with institutions having to register each student’s attendance within seven days after the classes are held.

According to the Division of Continuing Education head, Vicky Leong Vai Kei, the online data will be cross-referenced by questioning students and reviewing paper registries, with judicial implications in case of infractions.

“If detected irregularities are caused by the institution’s mismanagement then we will provide recommendations on how to improve procedures. In case fraud or document falsification is detected, then there will be judicial consequences,” Ms. Leong said.

In case of infractions, institutions will be subject to a fine of between MOP5,000 and MOP50,000, with the DSEJ pointing out that 11 infractions were found in the last phase of the plan.

6 Business Daily Tuesday, April 11 2017

Macau Investigation

Human smuggling, money laundering probes surround Saipan casino Matthew Campbell and Daniela Wei

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hen FBI agents recently raided an office on the U.S. island of Saipan, they unlocked a cabinet full of Chinese passports belonging to construction labourers without work credentials. The agency, which made at least one arrest, said it was acting on reports of “ systematic human smuggling.”

The documents were pulled from a contracting company hired to build a lush gambling resort on this remote patch of U.S. territory -- an ambitious expansion of Best Sunshine Live, a little storefront casino where billions of dollars are wagered each month.

The contractor’s operation isn’t alone in drawing federal government scrutiny: The U.S. Justice Department is investigating the activities of the casino itself, operated by Imperial Pacific International Holdings Ltd., including possible violations of anti-money-laundering rules, people familiar with the situation said this month. Peter Carr, a Justice Department spokesman, declined to comment.

Since the March 30 search of the contractor, prompted by an undocumented worker’s death at the construction site, work has slowed on the new gold-leaf flecked gaming complex, several residents said.

It’s the latest setback for Imperial Pacific. The Hong Kong-listed casino operator, which won the exclusive right to operate casinos on Saipan, counts former directors of the Federal Bureau of Investigation and Central Intelligence Agency among its high-profile board members and advisers. Best Sunshine Live has generated per-table VIP revenues that are far higher than those at the largest resorts in Macau and Las Vegas. The high turnover has already drawn the attention of the U.S. Treasury, people familiar with the situation said last year.

Spotlight on contractor

Imperial Pacific has said it complies

with all relevant local and federal anti-money laundering and other regulations. When asked about an investigation by the Justice Department, it said it reserves the right to take appropriate legal action against false news reporting. The company also referred to previous statements it made about the FBI raid, in which it said that the U.S. search and arrests were targeted at contractors and subcontractors, that it hasn’t received any “notice of investigation” from the FBI and that none of its employees have been arrested. It said it will “continue to implement measures and consider additional measures to ensure compliance of federal and local laws.”

The FBI search threw a separate spotlight onto contractor MCC International Saipan Ltd. -- which, according to corporate filings, is part of one of China’s biggest state-run construction and minerals companies.

Scores of labourers on the island were unlawfully employed by construction executives to build the casino, according to criminal complaints filed after the search by the U.S. in a federal court on the Northern Mariana Islands. Two MCC International Saipan staff members are accused of harbouring aliens.

Bird’s nest

The Saipan contractor is a far-flung link in a chain of companies that report to Beijing. MCC International Saipan is part of Metallurgical Corporation of China Ltd., according to exchange filings. MCC, as it’s known, is the Hong Kong and Shanghai-listed arm of China Metallurgical Group Corp., one of China’s biggest staterun construction enterprises and a builder of Beijing’s iconic Bird’s Nest stadium. That group, in turn, is a unit of state-run metals trading giant China Minmetals Corp.

A China Minmetals spokesman referred questions related to the FBI investigation to China Metallurgical Group and its listed company, MCC. A China Metallurgical Group representative referred questions to MCC. China’s State-owned Assets

Supervision and Administration Commission, which oversees the companies, didn’t respond to a request for comment.

In an April 5 interview, MCC President Zhang Mengxing said company managers flew to Saipan after the FBI search and arrests to “deal with the issue” together with Imperial Pacific.

Imperial Pacific and MCC International both occupy the second floor of an office building near the resort’s construction site. Imperial Pacific rents about 4,800 square feet of space on the floor, according to a current lease agreement reviewed

by Bloomberg.

“This is an issue both Imperial Pacific and MCC need to handle together,” Zhang said. “MCC takes this issue very seriously because it has never happened to our overseas projects before.”

When asked to comment on Zhang’s remarks, Imperial Pacific referred back to its April 2 statement that the FBI investigation into the construction accident wasn’t related to the group or its employees.

Idle workers

It’s unclear when the casino and hotel complex in Garapan, a town on Saipan’s west coast, will be fully operational. Imperial Pacific had initially said its lavish facility, called Imperial Pacific Resort and eventually boasting 193 gaming tables, would open in time for Chinese New Year celebrations, which were in late January. In a March 31 statement, it said the resort had “opened for visiting.”

An operator who answered the Best Sunshine casino phone line in Saipan late last week said the new resort wasn’t open.

Nearby at the starter casino, a shopfront by a laundromat in a duty-free mall, turnover has been brisk. Best Sunshine Live’s VIP tables handled just under US$3 billion in bets in March, the company said on April 2, up from US$1.67 billion a month earlier.

Imperial Pacific, controlled by Chinese entrepreneur Cui Lijie, has assembled a team of high-powered

U.S. political figures to assist with its Saipan ambitions. Its chairman is Mark Brown, a former executive with Donald Trump’s Atlantic City casinos. Former CIA director James Woolsey and Eugene Sullivan, formerly a senior military judge, sit on its board. Former Louisiana Governor Haley Barbour, former FBI director Louis Freeh and former Pennsylvania Governor Ed Rendell serve as advisers, the company said in a March 28 presentation.

Rendell has since stepped down, Philly.com reported on April 7. The casino operation is too far away for Rendell to monitor effectively, the site quoted him as saying. Neither Rendell nor Imperial Pacific responded to requests for comment on the report.

Deadly fall

The FBI has said its recent search was prompted by the death of a 43-yearold worker, Chinese citizen Hu Yuanyou, on the casino construction site in late March.

Hu, whom local media said was killed in a fall from scaffolding, arrived in Saipan as a tourist earlier in the month, the FBI said in court documents. Saipan allows Chinese nationals to arrive without applying first for visas, unlike the U.S. mainland. Those short visa-free stays have made the territory a popular destination for tourists from the world’s second-largest economy.

Zhang, the MCC executive, said Hu didn’t work for MCC, but instead for another firm working with Imperial Pacific. He declined to identify that company.

Two MCC International Saipan employees -- a project manager named Zhao Yuqing, and Ruan Pei, a government liaison responsible for filing employee documents -- were charged with bringing in and harboring unauthorized workers. Also charged were Lu Hui, described as the president and director of Beilida Overseas (CNMI) Ltd., a subsidiary of a Nanjing-based engineering company, and Ma Hongwei, described as an employee of Marianas Enterprises Ltd. who worked in the Beilida office.

Behind Ma’s desk, the FBI said it found a spreadsheet with personnel details for Beilida workers. The list designated more than 150 individuals as “hei gong,” Chinese for undocumented worker, the FBI said. Agents spot-checked some of those names against those on a U.S. customs list of people who were visiting without permission to work, and found they matched.

Stopped at airport

Ruan declined to comment when reached on her mobile phone. The others identified in the complaints, and representatives for the companies, didn’t respond to requests for comment or couldn’t be reached.

On April 5, the U.S. filed criminal complaints against two further Chinese nationals, bringing the number charged to six. It said they led Beilida work crews on Saipan that employed undocumented workers. By one construction worker’s account, the U.S. said, more than half of Beilida’s 500 workers were undocumented.

U.S. officials stopped the pair at Saipan’s airport earlier on April 5 as they prepared to board a flight together to China, according to the complaints. Bloomberg

Business Daily Tuesday, April 11 2017 7

Macau

Galaxy has surged 60 per cent in the past 12 months, the third-best performance on Hong Kong’s Hang Seng Index Trend

China vice stocks are back on top as anti-graft impact fades Industries that suffered under President Xi Jinping’s anti-corruption campaign are thriving again

S

hares of MSAR casino operators have clawed their way back to the highest level since August 2015 as VIP takings recover. Makers of pricey spirits, which became a symbol for official excess, are trading near multi-year highs. Even Chinese imports of Swiss watches are looking buoyant, jumping 28 per cent in December alone, as demand rebuilds in the wake of the Communist Party’s crackdown on conspicuous spending.

Much of the investor confidence can be attributed to the success of industry efforts to target the mass market, rather than relying on a cashedup elite. Casinos shifted to courting tourists and building family-friendly facilities in Macau. Kweichow Moutai Co. cut prices of its premium liquor to make it more affordable, an approach emulated by Swatch Group AG, which introduced more economical models. Bolstering their outlook is a perception that Xi’s campaign is losing its immediacy, according to Sun Hung Kai Financial Ltd.

“Casino stocks have almost fully priced in an industry recovery in 2017 so shares may end the year roughly unchanged” Daniel So, strategist with CMB International Securities Ltd. “Anti-corruption remains a concern to those stocks, but it’s no longer a top concern,” said Kenny Wen, a strategist at Sun Hung Kai Financial in Hong Kong. Demand from the mass market has given these industries a “new growth engine,” he said.

Reversal of fortunes

It’s easy to see why investors are optimistic. Macau’s casino revenue growth jumped 18 per cent in March, the fastest pace in eight months, as both high rollers and leisure gamblers flocked to the former Portuguese enclave. Kweichow Moutai said in February it expected first-quarter net income to climb about 16 per cent to RMB5.7 billion (US$826.4 million).

Such a turnaround is remarkable given the pressures that affected the industries near the start of Xi’s presidency. Macau gambling revenue fell every month for more than two years straight beginning in mid-2014, a stretch that included a record 49 per cent plunge in February 2015. This helped drag shares of companies such as Galaxy Entertainment Group Ltd. and Sands China Ltd. down more than 65 per cent from their peak.

The crackdown on graft equally reverberated through the alcohol industry. Five years ago, government-related sales accounted for about 70 per cent of the total at premium spirits distillers Kweichow Moutai, Wuliangye Yibin Co. and Luzhou Laojiao Co., according to Sanford C Bernstein & Co. That’s fallen to no more than 10 per cent, said Hong Kong-based Bernstein analyst Euan McLeish, citing meetings with the companies’ management.

“The structure of demand has fundamentally changed,” said McLeish.

“What has become increasingly apparent is that there is underlying demand from individuals. That’s really why the interest in those stocks picked up so much.”

There are concerns gains in vice stocks have been too far, too fast.

Galaxy has surged 60 per cent in the past 12 months, the third-best performance on Hong Kong’s Hang Seng Index. Its shares trade at 26 times projected earnings, 42 per cent above its five-year average. Kweichow Moutai and Wuliangye have gained more than 50 per cent in that time, five times the pace of China’s CSI 300 Index.

“Casino stocks have almost fully priced in an industry recovery in 2017 so shares may end the year roughly unchanged,” said Daniel So, Kong Kong-based strategist with CMB International Securities Ltd.

Clean-up drive

Arthur Kwong, Hong Kong-based Head of Asia Pacific Equities at BNP Paribas Investment Partners Asia Ltd., says enthusiasm toward casinos would quickly dim if the State Council rolls out tough measures to curb capital outflows.

And Xi’s drive to clean up official corruption hasn’t gone away, even if investors are less worried about the impact as the campaign enters its fifth year. About 415,000 officials were punished in 2016, a 23 per cent increase from the previous year, according to government statistics. At least 120 officials at the vice-ministerial rank or above have been among

those ensnared, including Zhou Yongkang, the country’s former security chief, and Ling Jihua, the former chief of staff to Xi’s predecessor.

Xiang Junbo, chairman of the country’s insurance regulator, became the latest senior official to come under the spotlight. Xiang, formerly head of Agricultural Bank of China Ltd., is under investigation on suspicion of severe disciplinary violations, according to a government statement posted on Sunday that didn’t give further details of the probe.

Still, analysts are bullish: Galaxy

has 20 buys and just 1 sell rating, while Kweichow Moutai has 26 buys and zero sells. Ebru Sener Kurumlu, an analyst at JPMorgan Chase & Co. forecasts the spirit maker will lift sales by about 11 per cent this year, while Foundation Asset Management (HK) Ltd. ’s Michael Liang sees the recovery continuing.

“With the improving economy, soaring home prices and growing luxury car sales, I see the big picture,” said Liang, Hong Kong-based chief investment officer of Foundation Asset. “It’s a consumption upgrade.”

Bloomberg News

8 Business Daily Tuesday, April 11 2017

Greater China Markets

Investors give cool welcome to bond futures debut in Hong Kong Just over 100 contracts for front-month China bond futures were traded yesterday in Hong Kong Saikat Chatterjee and Michelle Chen

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hinese government debt futures got off to a slow start in Hong Kong yesterday as offshore investors, trading the world’s third’s biggest bond market for the first time, grappled with some operational issues and contract limits.

Foreign investors are expected to slowly embrace the new access to mainland China’s US$9.5 trillion bond market, behind only the United States and Europe in size.

“It will take awhile for investors, especially non-Asian investors to gain familiarity with the market, trading behaviour, as well as operational aspects of bond settlement,” said Desmond Fu, Asian fixed income portfolio manager at Western Asset Management.

Just over 100 contracts for frontmonth China bond futures were traded yesterday in Hong Kong, according to Thomson Reuters data. That is a tiny amount when compared to the more than 120,000 trades in threeyear Korean treasury bond futures on the same day.

Hong Kong’s front-month futures contract on five-year China bonds was bid at 99.09 and offered at 99.24 as of 5:10 p.m. (0910 GMT), according to Thomson Reuters data.

The slow start was partly a result of trading constraints, such as a position limit of RMB10 billion (US$1.45 billion) on net futures contracts, said Frances Cheung, head of rates strategy, Asia ex-Japan at Societe Generale in Hong Kong.

The contract size for the bond

futures is RMB500,000 (US$72,457) each.

“We are still studying if we need to open an account in the exchange or do it via other institutions,” said a trader at a Chinese bank in Hong Kong.

Managing risk

Offshore bond futures are seen as a tool for investors to manage their interest rate risk, and to take an indirect position on China’s booming onshore bond market.

Volumes in China’s bond futures market has exploded in recent months. The market was

re-launched in September 2013, nearly two decades after a multi-billion-yuan trading scandal led to its closure in 1995.

Unlike its equity or FX market counterparts, bond investors typically use swap contracts to hedge their interest rate risk.

Chinese policymakers have recently allowed some large investors access to the onshore market for hedging purposes, which has reduced activity in offshore debt futures.

Foreign investor participation may also be limited by concerns over the protracted yuan weakness and the difficulty of repatriating funds across the border.

In December, China’s bond market suffered a punishing selloff amid concerns over a liquidity squeeze

and a mounting debt load that had its origins in speculative and unproductive investments.

Key Points HK starts China bond futures trade First day trading lukewarm Volumes seen to rise gradually

Last month, some of the world’s biggest index compilers, such as Citigroup and Bloomberg, took the first steps to include Chinese debt in their indexes, while Premier Li Keqiang has said China was considering linking the Hong Kong and the Mainland debt markets this year. Reuters

Investment

More sectors to open up for private participation Growth in private investment slowed to 3.2 per cent year on year in 2016 China will open up more industries, including oil drilling and defence technology, to private investors to cope with slowing private investment growth, Xinhua-run Economic Information Daily reported yesterday.

The government will also lure private investment into strategic emerging industries by setting up industrial investment funds, according to the report.

Nur Bekri, head of the National Energy Administration, told the newspaper that the reform plan of the oil and gas industry had gained government approval and would soon be released. The sector will open its competitive operations to private investment as per this year’s government work report.

“Access restriction is one of the major factors that constrain China’s private investment, especially in the energy and military industries,” said Li Wei, head of the Development Research Centre of the State Council.

Private investment is even encouraged in the defence science and technology industries, including China’s Chang’e-4 lunar probe mission, which aims to be mankind’s first soft landing on the far side of the moon in around 2018.

“Widening access for private capital to enter these industries, together with improved regulation, will both boost development efficiency and stimulate private investment growth,” Li said.

Growth in private investment slowed to 3.2 per cent year on year in 2016, 6.9 percentage points lower than in 2015, due to poor performance in manufacturing, service and mining sectors, as well as continued price decline of investment in fixed assets.

“Access restriction is one of the major factors that constrain China’s private investment, especially in the energy and military industries” Li Wei, head of the Development Research Centre of the State Council

But the downward trend was reversed after the government moved to spur growth, with private investment recording growth of 6.7 per cent in the first two months of the year.

China’s local governments are also working to attract private capital into

cash-strapped strategic emerging industries, which have found it difficult to get bank loans as many start-ups are yet to turn patents and intellectual property into profits.

As these industries have now become major growth engines in many regions, local governments are considering ways of luring private

investment such as public-private partnerships and industrial investment funds, according to the report.

Government-led industrial investment funds are expected to play a guiding role in leading private capitals into the strategic emerging industries, it said.

China aims to increase output of strategic emerging industries to account for 15 per cent of GDP by 2020. Xinhua

Business Daily Tuesday, April 11 2017 9

Greater China In Brief Currency

Central bank skips open market operations

Trade

Taiwan exports rise for a 6th month Shipments in January-March rose 15.1 per cent from a year earlier Faith Hung and Emily Chan

Taiwan’s exports posted strong gains in the first quarter on solid demand from China and the United States, and the momentum could continue into the second as suppliers stock components for Apple Inc’s coming iPhone 8 and other tech gadgets.

Taiwan is one of Asia’s major exporters, especially of components of Apple’s iPhone and iPad. The island’s export trend is a key gauge of global demand for technology gadgets worldwide.

While the latest trade data is solid, uncertainty about the trade policies of U.S. President Donald Trump remains for Taiwan’s export-reliant economy.

It’s unclear if Trump will impose a border tax on imports, or if the U.S.

Treasury might name the island as a currency manipulator in a report due on April 14.

Key Points Exports in Q1 rise 15.1 pct y/y Q1 exports to China, U.S. up 22 pct and 7.6 pct, respectively March imports +19.8 pct, far above forecast Demand for iPhone 8, Trump trade policy in focus For exports, the first quarter of this year was encouraging.

Shipments in January-March rose 15.1 per cent from a year earlier, the Finance Ministry said on Monday.

In March alone, exports climbed 13.2 per cent, matching the forecast in a Reuters poll and taking the streak for annual increases to six months.

“March exports benefited from continued stable recovery of the global economy, semiconductor demand staying solid and lower-based prices for oil and basic metals,” the ministry said in a statement.

Exports in the January-March quarter to the two biggest markets, China and the U.S., were up 22 per cent and 7.6 per cent, respectively. That compared to gains of 16.8 per cent and 10.6 per cent in March.

Imports in March surged 19.8 per cent from a year earlier, well above the poll forecast for 12.3 per cent.

Taiwan manufacturing sector’s momentum picked up at the end of the first quarter, with output, new orders and employment all rising at faster rates in March than in the previous month, according to survey firm Markit. Reuters

Funding

Northwest farmers rake in profits from loan program In 2006, authorities started a loan program in poverty-hit villages across the country to fund poor villagers to develop new business Zhang Zhiqin, a farmer in northwest China’s Gansu Province, will spend more time this year taking care of his family fortune: three cows and five lambs, which he bought with the help of local banks.

For many years, the people of Chisha Village in Dingxi City have made their living through farming, but profits have always been thin.

Steep mountainous terrain, frequent droughts and a hostile natural environment limited local farmers from doing other business.

Zhang had been keen to raise livestock, but he lacked the money to buy cows and sheep.

“My neighbours were also poor. I did not know where to borrow money,” said Zhang.

In 2006, Chinese authorities started a loan program in poverty-hit villages across the country to fund poor villagers to develop new business.

Every village was given RMB100,000 to RMB150,000 (US$14,500 to US$21,700) and farmers could borrow up to RMB10,000.

However, the program ultimately could not meet the demands of needy people due to its low lending quota and short lending period.

In 2015, Dingxi City upgraded the loan program and launched a credit loan plan to increase the lending quota, under which villagers can borrow RMB50,000 from banks after saving

RMB10,000 as a credit guaranty.

“We also prolonged the repayment period to meet the long-term financing needs of farmers,” said Xu Binke, deputy head of Tongwei County in Dingxi.

Zhang is one of the beneficiaries.

He borrowed RMB50,000 last year and bought several cows and lambs as well as agricultural production tools to expand his cultivation area.

“I will sell six to seven grown sheep and one cow some months from now.

The income is much higher than that from selling crops,” said Zhang.

More than 1,800 villages in Dingxi have established special

associations to help villagers attain these loans. Each poor village in Dingxi receives RMB300,000 to RMB500,000. By 2016, about RMB530 million in loans had been lent to 867 such associations, benefitting 12,000 farmers.

“The project increases loan opportunities for farmers in need, alleviating their fund shortage problem,” said Zhang Quanyou, deputy secretary general of the Dingxi City Committee of the Communist Party of China.

The project has also allocated a sum of money to buy critical illness insurance for poor villagers to help cover large medical costs. As of March 2017, 166,000 people had been included in the insurance program.

“We are no longer worried about the medical costs and can pay more attention to our farm work,” said Zhang. Xinhua

China’s central bank skipped the open market operations of reverse repos yesterday.

This was the eleventh consecutive business day that the People’s Bank of China (PBOC) has halted the process, where it purchases securities from banks with an agreement to sell them back in the future. The PBOC said that though liquidity in the banking system had declined it was still at a relatively high level. The government sped up fiscal spending at the end of last month. Fiscal expenditure allows fiscal deposits to flow into commercial banks from the central bank, improving market liquidity.

M&A

HNA offers to buy Singapore’s CWT for US$1bln China’s HNA Holding Group Co. said it would make an offer to acquire Singaporelisted logistics firm CWT Ltd for US$1 billion. The Chinese conglomerate said in a filing to the Hong Kong Stock Exchange late on Sunday that its subsidiary HNA Belt and Road Investments (Singapore) Pte. Ltd would offer to purchase 600 million CWT shares at S$2.33 apiece, which values the deal at S$1.399 (US$0.9962) billion.

Reuters reported in May 2016 citing sources that HNA Group was in talks to acquire CWT for US$1 billion.

Europe logistics

COSCO shipping lines opens new service China’s COSCO Shipping Lines on Sunday marked the opening of a new regional service of container shipping that connects the ports in Northern Europe and those in the Mediterranean Sea. Addressing the opening ceremony in Istanbul, Tian Dong, vice president of COSCO Shipping (Europe), described the new direct service as a “milestone” for the shipping lines, as it is provided by a Chinese company for the first time in the region. With the latest move, the shipping lines is rolling out the business of intra-Europe trade across the whole European region.

Protected species

Over 500 crocodile products seized in south China Border police in southern China’s Guangxi Zhuang Autonomous Region said yesterday they had seized 537 products made from Siamese crocodiles, a protected species. The products, including 370 pieces of crocodile skin, 90 tails and 77 specimens, were detected on a logistics vehicle attempting to cross the ChinaVietnam border in early March. The police thoroughly examined the vehicle after noticing that its goods were unusually placed. The driver also failed to provide official document for transporting the products.

The skins were around 43 centimetres wide and at least 1.2 meters long apiece.

The longest specimen was nearly two meters long.

10 Business Daily Tuesday, April 11 2017

Greater China HKMA

Hong Kong concerned about risks from developer mortgages Buyers have flocked to buy new homes as developers have enticed buyers with tax rebates and loan offers Alfred Liu

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ong Kong’s de facto central bank expressed concern about the riskiness of mortgages with high loan-to-value ratios issued by developers, as some analysts are warning that property prices in the city are unsustainable.

“The accumulation of these high LTV mortgages may change the risk profiles of these property developers to which banks may have exposures,” Raymond Chan, executive director for banking supervision at the Hong Kong Monetary Authority,

said in an emailed response to queries from Bloomberg. The HKMA said it may ask banks to take additional steps to manage their exposure to the sector.

Hong Kong’s property market, the world’s least affordable, has been on a tear in recent months despite attempts by the city’s leaders to cool prices in November by imposing additional taxes. That’s prompted warnings from analysts including Cusson Leung at JPMorgan Chase & Co., who said that any external shocks could trigger tighter liquidity in the city’s banking system and increase home buyers’ borrowing costs.

“If the bubble bursts, buyers will not only lose their own money, they will also lose all of their parents’ money,” Leung said in an interview.

Buyers have been using all of their assets as well as leveraging parents’ existing homes as collateral to help make residential property deposits, he said.

Surging demand

Buyers have flocked to buy new homes as developers have enticed buyers with tax rebates and loan offers, often made through finance subsidiaries. Hong Kong developers such as Sun Hung Kai Properties Ltd. and Cheung Kong Property Holdings Ltd. are among those offering mortgages to homebuyers.

While bank loans are subject to limits imposed by the monetary authority, builder-arranged mortgages aren’t

covered by the same restrictions.

Last year, Sun Hung Kai announced a mortgage offer worth as much as 120 per cent of a home’s value at one of its projects. Regulations restrict traditional bank mortgages on properties costing less than HK$10 million (US$1.28 million) to 60 per cent of their value.

“The HKMA will continue to monitor the situation closely and consider whether there is a need for banks to strengthen their risk management in respect of their lending to property developers,” the HKMA said.

The HKMA has been urging banks for more than a year to ensure finance companies that they do business with comply with regulatory mortgage limits. On March 2, 2015, it issued a letter to banks advising them not to provide loans to finance companies which offer high loan-to-value mortgages to property buyers.

The monetary authority said it does not have information on the overall size of loans by finance companies in Hong Kong, although it has been gathering information from banks on their exposure to the sector. The total amount of property-related loans provided by finance companies with relationships with the banks represents less than 1 per cent of the outstanding residential mortgages of the banking sector in Hong Kong, according to the HKMA. “While the information provided by banks reflects that the total amount of mortgages provided by property developers remains small as compared to the total amount of outstanding RMLs provided by banks, the growth rate of these mortgages is increasing,” the HKMA said. Bloomberg News

Survey

Taiwan youth dissatisfied with work Almost 80 per cent of respondents said that “no savings/not being able to afford a house” was their top concern About 95 per cent of young people from Taiwan aged between 21 and 30 are “dissatisfied with their life at work,” with over 20 per cent “very dissatisfied,” according to a survey

by Taiwan’s 1111 Job Bank released yesterday.

Over 77 per cent of the 648 respondents said they were mostly dissatisfied with their income, followed by “long working hours” as well as “limited opportunities for young people.”

Daniel Lee, vice president of 1111 Job Bank, said although the per capita monthly income in Taiwan had reached a record high of NTD48,790, or about US$1,595 in 2016, personal income in real terms had dropped to NTD46,422 a month, lower than 16 years ago.

“Low income has become an indisputable fact, and young people at the start of their career are the most vulnerable,” Lee said.

The average monthly income of respondents was just NTD26,614, with monthly personal income for parttime students NTD22,857, while fulltime workers were paid just NTD6,700 higher, at NTD29,638 a month.

“Job-beginners face various issues like low starting salaries and long working hours, leading to an unhappy life at work” Daniel Lee, vice president of 1111 Job Bank

“College students now have a variety of choices in part-time jobs, including well-paid ones such as tutoring, modelling and design, yet job-beginners face various issues like low starting salaries and long working hours, leading to an unhappy life at work,” Lee said.

Almost 80 per cent of respondents said that “no savings/not being able to afford a house” was their top concern,

followed by “high commodity prices” and “lack of connections.”

Data from Taiwan’s land and resource bureau showed that the price to income ratio in Taiwan had hit 8.97, meaning it would almost be nine years’ wages to buy the cheapest house. In Taipei, the ratio almost doubled to 15.07.

The survey polled 648 young people between March 23 and April 6. Xinhua

Business Daily Tuesday, April 11 2017 11

Asia Quarterly report

Central bank paints rosy picture of regional Japan Some analysts say Trump may attack the central bank’s ultra-loose monetary policy Leika Kihara

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he Bank of Japan (BOJ) has offered its most optimistic view on regional Japanese economies in nearly a decade, even as some firms warned that uncertainty over U.S. President Donald Trump’s trade policies could affect their capital expenditure plans.

BOJ Governor Haruhiko Kuroda reiterated the central bank’s resolve to maintain its massive monetary stimulus, with inflation still distant from his ambitious 2 per cent target.

“Japan’s economy continues to recover moderately as a trend. As for the outlook, it is expected to turn to a moderate expansion,” Kuroda said at a quarterly meeting of the central bank’s regional branch managers yesterday.

In a report issued after the meeting, the BOJ maintained its rosy economic assessment for eight of Japan’s nine regions, compared with three months ago, and revised up the assessment for one area.

Two regions, including the Tokai area home to auto giant Toyota Motor Corp, said their economies were “expanding moderately” - the first time in nine years the BOJ used such upbeat language for more than one region.

Many Japanese manufacturers were benefiting from strong overseas demand for electronic parts and semiconductor-making equipment, the report said, a sign Japan’s economic

recovery continues to rely heavily on exports.

Two regions offered a rosier view on private consumption than three months ago, as a tightening job market prompted some companies to raise wages, the report said.

Some firms complained that uncertainty over the new U.S. administration’s trade policies could affect business plans, though few said they already planned to curb domestic spending, said a BOJ official who briefed reporters on the survey.

“We postponed a plan to boost capacity at our plant in Mexico due to

uncertainty over the new U.S. administration’s policies. But we don’t plan to change our investment in Japan,” a maker of metal products in eastern Japan said in the report.

“Given uncertainty over the global outlook, we postponed part of our capital expenditure plan for fiscal 2016,” said a steelmaker in Osaka, western Japan.

Japan’s economy is showing some signs of life as a rebound in overseas demand lifts exports and factory output, though slow wage growth continues to weigh on private consumption.

Trump has threatened to change trade rules to make them more favourable for American jobs, undermining some Japanese exporters’

confidence in their manufacturing plans and likely sales in the United States.

Some analysts say Trump may attack the BOJ’s ultra-loose monetary policy, characterising it as an attempt to keep the yen weak and give Japan’s exports an unfair advantage.

The BOJ has argued its massive stimulus is aimed solely at beating deflation and does not directly target exchange rates.

Under a new policy framework launched in September last year, the BOJ now guides short-term interest rates at minus 0.1 per cent and the 10-year Japanese government bond yield around zero per cent through aggressive asset purchases. Reuters

Bank of Japan Governor Haruhiko Kuroda. Lusa

NPLs

Indonesia bad loan problem to worsen Fitch Ratings said last month it’s maintaining a negative outlook on Indonesia’s banks Rieka Rahadiana and Yudith Ho

The non-performing loan (NPL) problem at Indonesia’s banks is likely to get worse, keeping economic growth below 6 per cent over the coming two years as lenders hold back from boosting credit, according to the head of the country’s deposit insurance agency.

“We haven’t seen the bottom for NPLs because commodity prices are still volatile and we see uncertainties that can affect our domestic economy,” Destry Damayanti, commissioner at the agency known as LPS, said in an interview at her office in Jakarta last week. “Banks are still in consolidation to resolve bad debts.”

The bad loan issue is proving to be a weak spot in Southeast Asia’s largest economy, a factor behind the decision by President Joko Widodo to revise his projection for 2018 growth to 5.6 per cent, toward the lower end of a previous range of 5.4 per cent to

6.1 per cent. The gross NPL ratio has hovered above 3 per cent since the middle of last year, matching levels seen in 2011 and capping bank loan growth at 7.9 per cent in 2016, the slowest pace since 1999.

“Banks are still in consolidation to resolve bad debts” Destry Damayanti, commissioner at LPS agency

Fitch Ratings said last month it’s maintaining a negative outlook on Indonesia’s banks, as it expects asset quality and profitability to remain under pressure during the next few quarters. Fitch predicted that the larger banks’ non-performing loan ratios

will remain at an average 3 per cent.

LPS, tasked with protecting client deposits in the event of a bank insolvency, has a war-chest of about 75 trillion-rupiah (US$5.6 billion), invested solely in government bonds.

The fund has been built up with premiums collected from Indonesian

lenders, in exchange for its guarantee on bank deposits up to a maximum interest rate of 6.25 per cent.

Before heading LPS, Damayanti was chief economist at PT Bank Mandiri, Indonesia’s largest bank by assets, where she co-founded the independent research think tank Mandiri Institute. She also led a panel that selected leaders of the Corruption Eradication Agency. Bloomberg News

12 Business Daily Tuesday, April 11 2017

Asia In Brief Public transport

Singapore set to launch driverless buses by 2020 Singapore will carry out trial a for driverless public buses following the signing of a partnership agreement between the Land Transport Authority (LTA) and ST Kinetics, LTA announced yesterday. In the longer term, it is envisaged that the trial could realize the operation of autonomous public buses in Singapore by 2020 to enhance intra-town travel. Under the agreement, two 40-seater electric buses will be deployed and tested in various locations. LTA said the buses will use a satellite-based Global Positioning System and a suite of sensors to scan and determine their location and immediate surroundings.

Auto industry

Vietnam consumes 64,700 autos in Q1 Over 64,700 autos were sold in Vietnam in the first quarter (Q1) of 2017, up 8 per cent year-on-year, according to the Vietnam Automobile Manufacturers’ Association (VAMA) yesterday. Among the figure, some 41,600 units were tourist vehicles (up 23 per cent year-on-year), 19,722 as commercial vehicles (down 10 per cent), and the rest of 3,407 for special purposes (down 13 per cent). In term of the production source, as many as 18,415 cars were imported in Q1, up 41 per cent year-on-year while 46,314 units were domestically assembled, down 1 per cent year-on-year.

Treasurer comments

Australia budget to tackle housing affordability Australian Treasurer Scott Morrison signalled next month’s budget will include measures to address housing affordability, amid mounting concern soaring home prices are locking young people out of the property market. The government is considering steps to boost the supply of homes and ways to lure institutional money into social and affordable housing, Morrison said in a speech to the Australian Housing and Urban Research Institute in Melbourne yesterday. “Dealing with housing affordability must involve a scalpel, not a chainsaw,” Morrison said.

R&D

Japan to conduct second test to produce gas Japan’s trade ministry said yesterday it has begun preparations for a second production test to extract methane gas from methane hydrate deposits offshore Japan’s central coast. The test is the first since Japan achieved the world’s first extraction of gas in 2013 from offshore deposits of methane hydrate, a frozen gas known as “flammable ice”. Japan, which imports nearly all of its energy sources, has been aiming to launch private sector commercial production of methane hydrates by between 2023 to 2027, but the goal will still be a challenge, officials at the Ministry of Economy, Trade and Industry (METI) said.

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Public accounts

Japan current account surplus beats forecast Income from overseas investment helped boost the current account balance Minami Funakoshi

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apan’s current account surplus stood at 2.81 trillion yen (US$25.26 billion) in February, finance ministry data showed yesterday, the biggest surplus since March 2016.

The result, the 32nd straight month of current account surpluses, compares with economists’ median forecast for a surplus of 2.62 trillion yen in a Reuters poll. This February’s current account surplus was the largest on record for February.

accused big exporters such China, Germany and Japan of deliberately weakening their currencies to gain a competitive advantage.

U.S. Vice President Mike Pence and Japanese Deputy Prime Minister Taro Aso will hold their first round of economic talks in Tokyo next week to discuss issues ranging from macroeconomic policy, infrastructure investment and trade.

Nonetheless, in what appears to be a shift in emphasis, the Trump administration is touting a new term,

“currency misalignment,” because it is seen as more significant than “manipulation” as a cause of trade deficits.

Income from overseas investment also helped boost the current account balance. The primary income account in February was 1.98 trillion yen, up from 1.27 trillion yen the previous month.

“It’s difficult to explain this month’s current account surplus with just the (effects from) Lunar New Year,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“The income account is rising, too.

There is upward pressure on current account balance.” Reuters

Key Points Feb c/a surplus +2.81 trln yen vs forecast +2.62 trln yen Trade, currencies in focus as Japan-U.S. economic talks loom The surplus reflected the trade balance rising as exports picked up pace after a Lunar New Year slowdown.

The trade balance stood at 1.08 trillion yen in February, rebounding from a deficit of 853.4 billion yen the previous month.

Trade surpluses and currency valuations are in focus as U.S. President Donald Trump pursues an “America First” campaign in which he has

Petrochemical

Asia naphtha demand fades Asia is structurally short of naphtha, with a supply deficit averaging 4 million tonnes a month in 2016 Seng Li Peng

Asian petrochemical makers are ramping up purchases of liquefied petroleum gas (LPG) to use as an alternative feedstock to naphtha, looking to snap up cheap cargoes as heating demand for LPG fades in the wake of winter.

LPG, often referred to as butane or propane, is commonly used in heaters or stoves in some countries, but can also be an ingredient in plastics used to churn out everything from drinks bottles to carrier bags.

Faltering demand for naphtha could drag on prices that have been in premiums to benchmark Japanese quotes for most of the year compared

to discounts in the same period in 2016, while offering support to LPG markets.

Four traders said that Taiwan’s Formosa Petrochemical Corp, Asia’s top naphtha importer, last week bought its first spot LPG cargo of the year, with South Korea’s LG Chem and Lotte Chemical also taking cargoes.

Formosa declined to comment, while the South Korean companies did not immediately provide comment.

“The Koreans and Formosa moved immediately when the value was in switch mode, (showing) impressive quickness,” said one of the traders, who closely follows naphtha and LPG markets. He asked not to be

identified as he was not authorised to speak with media.

Petrochemical companies in Asia are typically set up to shift around 5 per cent to 15 per cent of their feedstock to LPG when prices drop below 93 per cent the cost of naphtha.

Late last week, Asian spot propane price for cargoes to be delivered in the second half of May were less than 86 per cent of naphtha’s US$493.50 a tonne.

The traders estimate that some 300,000 tonnes of LPG is expected to replace naphtha in May, or around 7 per cent of North Asia’s naphtha demand. They said that could climb to 400,000 to 450,000 tonnes in subsequent months.

Key Points Cheaper LPG curbing demand for naphtha LPG can be used as alternative petrochemical feedstock At least 300,000 T of LPG seen replacing naphtha in May -traders “LPG prices will likely be weak relative to naphtha in the coming months, incentivizing petrochemical demand,” said He Yanyu who leads Asia natural gas liquids market research at IHS Markit.

However, increased LPG purchases would likely mitigate the impact on naphtha markets from possible naphtha shipment delays from Qatar following a splitter outage.

And Asia is structurally short of naphtha, with a supply deficit averaging 4 million tonnes a month in 2016, data from IHS consulting firm showed. Reuters

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Business Daily Tuesday, April 11 2017 13

Asia Fraud

Indian police arrest mastermind behind U.S. tax scam Mumbai police in October detained more than 770 people suspected of defrauding Americans by impersonating agents from the U.S. Internal Revenue Service Indian police have arrested the alleged mastermind of a multi-million dollar racket in which callers posing as U.S. officials tricked Americans into paying bogus tax bills, officials said.

Sagar Thakkar, 24, was making more than 10 million rupees (US$155,000) a day at the height of the scam, which operated for nearly a year before it was exposed last October, police said.

Thakkar is accused of calling victims in the United States and berating them for not paying phoney tax bills, threatening them with jail if they did not cough up immediately.

He fled to Dubai after the scam was exposed but was arrested early Saturday when he flew back to India where he planned to revive his operation, police said.

“He has confessed to his crimes,” Parambir Singh, commissioner of police in the Mumbai suburb of Thane,

told AFP, adding the accused would face court on Thursday.

Mumbai police in October detained more than 770 people suspected of defrauding Americans by impersonating agents from the U.S. Internal Revenue Service and demanding payments.

The U.S. Justice Department subsequently charged 61 people for involvement in India-based schemes that defrauded nearly 15,000 American citizens.

“We are extremely vigilant when the names of U.S. government agencies are used to perpetuate fraud for the purpose of victimising so many innocent American citizens,” U.S. Attorney Kenneth Magidson had said in a statement.

The con artists would use altered caller ID numbers to make it appear they were phoning from the U.S., and often quoted IRS badge numbers to

trick their victims.

Those conned would sent money through pre-paid debit cards, such as Walmart supermarket vouchers or Apple iTunes gift cards.

The scam prompted Apple to issue a global warning against giving card numbers to strangers.

The IRS has for years warned about similar scams.

In January the U.S. Treasury

Inspector General for Tax Administration said it was aware of at least 5,000 victims who had been defrauded of more than US$26.5 million via such schemes since late 2013.

India became the call centre capital of the world in the early 2000s as foreign firms, drawn by its educated and cheaper English-speaking workforce, farmed out jobs answering customer phone inquiries. AFP

Activism

Hedge fund wants BHP to drop dual listing Elliott said its plan could increase shareholder value by up to 48.6 per cent for holders of BHP’s Sydney shares and 51 per cent for London shareholders Hedge fund manager Elliott Advisors said yesterday it has sent a plan to BHP Billiton directors to unlock shareholder value by scrapping the miner’s London Stock Exchange listing, demerging its U.S. oil arm and revising its capital return policy.

“The goal is to provide details of the BHP shareholder value unlock plan to all of BHP’s shareholders so that BHP can engage openly with all parties on the plan,” Elliott said in a statement.

BHP did not immediately provide comment on the matter when contacted by Reuters.

Elliott said it holds a “long economic interest” of about 4.1 per cent of the issued shares in London-listed BHP Billiton PLC. That stake is worth US$3.81 billion, Reuters calculations showed based on Friday’s closing price.

Elliott also said it holds rights with its affiliates to acquire up to 0.4 per cent of the issued shares in Sydney-listed BHP Billiton Ltd, worth

about US$372 million.

Its letter, dated April 10 and released

by Elliott online, did not mention any BHP directors by name.

Started in 1977, Elliott manages assets worth more than US$32.7 billion, according to the company.

Its investors include pension plans, sovereign wealth funds and hospitals, among others, it said.

Elliott, an activist investor, also has a 3.25 per cent stake in Akzo Nobel NV. It is encouraging the Dutch paints and chemicals group to enter talks with spurned U.S. suitor PPG Industries Inc.

Key Points Shareholder seeks major BHP changes Elliott Advisors calls for LSE listing to go Wants U.S. oil arm to list on NYSE Elliott said its plan could increase shareholder value by up to 48.6 per cent for holders of BHP’s Sydney shares and 51 per cent for London shareholders.

It also proposed spinning off BHP’s U.S. oil and petroleum arm into a separate listing on the New York Stock Exchange.

It estimated the value of BHP’s U.S. petroleum business at around US$22

billion.

BHP’s Australian shares closed 4.64 per cent higher at A$25.73, with most of the gains coming near the end of trade.

BHP Billiton was created in 2001

through the merger of the Australian Broken Hill Proprietary Co and the Anglo–Dutch Billiton PLC. The Australia-registered arm is one of the largest companies in Australia measured by market value. The Britain-registered arm has a primary listing on the London Stock Exchange and is part of the benchmark FTSE 100 Index. Reuters

14 Business Daily Tuesday, April 11 2017

International In Brief Whistleblowing case

Regulators investigate Barclays CEO British regulators are investigating Barclays Chief Executive Jes Staley and the bank itself over the handling of a whistleblowing incident, the bank said yesterday. The investigation by the Financial Conduct Authority and the Prudential Regulation Authority relates to an attempt by Staley last year to identify the author of a letter that was treated by Barclays Bank Plc as a whistleblowing incident, Barclays said in a statement. Barclays said it has formally reprimanded Staley and has promised to cut his variable compensation, but will support his reappointment at the bank’s annual general meeting on May 10, the statement said.

Iran

Rouhani defends economic record ahead of election Iran’s President Hassan Rouhani defended his economic record in a press conference yesterday but stopped short of formally announcing his candidacy for next month’s presidential election. Rouhani pushed back against criticism from conservatives over his economic performance, saying there had been measurable improvements in agriculture, healthcare, energy and internet coverage, especially in villages and poor suburbs. He also focused on his key achievement, a nuclear deal with world powers that ended some sanctions in return for limits to Iran’s atomic programme.

Rouhani is expected to run for a second term on May 19, but said this press conference was “not about elections”.

Visa survey

UK consumer spending grows at slowest rate in 3 years Visa’s monthly figures are based on spending on its credit and debit cards

B

ritish consumer spending increased at the slowest annual pace in more than three years in the first three months of 2017, in a further sign that one of the economy’s main engines is losing steam as Brexit preparations begin, a survey showed yesterday.

Payment card company Visa said real-terms spending increased 0.9 per cent year-on-year in the three months to March, the weakest calendar-quarter performance since late 2013 and down from 2.7 per cent in the last quarter of 2016.

In March alone, spending dropped 0.7 per cent compared with the previous month, after being flat in February.

The survey adds to a growing mass of indicators showing that rising inflation - caused in part by the pound’s

post-Brexit vote tumble - is crimping consumer spending, just as Prime Minister Theresa May begins Britain’s EU divorce talks.

‘In March alone, spending dropped 0.7 per cent compared with the previous month’ “Our data suggests that consumer spending is beginning to slow from the strong levels seen in late 2016, as rising prices increasingly squeeze household purchasing power,” said

Kevin Jenkins, UK and Ireland managing director at Visa.

Bank of England Governor Mark Carney, speaking at Thomson Reuters’ London office on Friday, said he would keep a close eye on whether consumer demand weakens in line with the central bank’s expectations.

Last week pension provider Scottish Friendly and the Social Market Foundation think tank said 46 per cent of households plan to cut back on spending. More than half of these households blamed the rising cost of living.

Visa’s monthly figures are based on spending on its credit and debit cards, which it says account for about a third of consumer spending in Britain.

The figures are adjusted to strip out payments such as taxes that do not count as consumer spending, and to take account of the growing proportion of purchases made by card rather than with cash. Reuters

USB poll

Swiss executives want new EU treaty Nearly two out of three top executives want Switzerland to put ties with the European Union on a new footing by adopting a comprehensive treaty replacing the existing patchwork of bilateral sectoral accords, a survey by UBS has found. The poll of 2,500 entrepreneurs and senior managers underscored the importance that Swiss business leaders assign to relations with their biggest export market even as Britain’s vote to leave the bloc undermines some EU cohesion.

It also shows a split between business and right-wing political parties that oppose ceding too much power to the EU. Bourse

South Africa to review trades around Gordhan’s recall South Africa’s bourse will investigate an increase in the trading of certain securities in the hours before former finance minister Pravin Gordhan was recalled from an international investor roadshow, BusinessDay newspaper reported yesterday. On March 27, news broke that President Jacob Zuma had ordered Gordhan to return immediately from a trip to Britain and the United States. Gordhan was later dismissed in a cabinet reshuffle. The newspaper reported that the Johannesburg Securities Exchange was examining trading in securities that were affected by news of the recall.

Central banker

U.S. Fed could end reinvestment policy this year Economists polled by Reuters and by the Fed itself had generally expected the process to start some time next year The U.S. Federal Reserve could begin winding down its massive balance sheet sometime later this year in a shift that would make it less necessary to raise the official funds rate, a central banker said yesterday.

Talking to reporters in Australia, St. Louis Federal Reserve President James Bullard said opinions differed within the Fed on ending its balance sheet reinvestment policy and it would take some time to agree on, but he felt it could start later in the year.

Bullard emphasised that the central bank would not be actively selling assets from its US$4.5 trillion balance sheet, but rather not replacing them as they mature.

This could be well accommodated by markets, he said, and would put limited upward pressure on Treasury

yields.

Markets were wrong-footed somewhat last week when minutes of the Fed’s last policy meeting showed policy makers were considering shrinking its assets later this year.

New York Fed President William Dudley said on Friday that the Fed could begin shedding bonds from its portfolio as soon as this year. The comments temporarily pushed the dollar lower and raised yields on longer-dated bonds.

Economists polled by Reuters and by the Fed itself had generally expected the process to start some time next year.

Bullard, considered a policy dove by investors, said he favoured only one more interest rate hike this year and argued that ending bond

reinvestment could act as a replacement for rate rises.

Financial markets are pricing in around two more rate hikes this year, while some at the Fed favour three or more.

Bullard noted the March payrolls report out last Friday was relatively weak and fitted in with his view that inflation would not stray far from 2 per cent in coming months.

‘Financial markets are pricing in around two more rate hikes this year’ Asked about the impact of the U.S. missile strike on Syria ordered by President Donald Trump last week, Bullard said he did not see it as a major geopolitical event that would affect monetary policy at the Fed. Reuters

Business Daily Tuesday, April 11 2017 15

Opinion Business Wires

New Zealand Herald Labour says expanding the Reserve Bank’s (headquarters pictured) focus to achieving full employment as well as controlling inflation would bring New Zealand into line with Australia and the United States. Finance spokesman Grant Robertson confirmed its new policy in a speech in Wellington yesterday which includes not just expanding its focus but increasing transparency in its decisionmaking. Instead of the Reserve Bank Governor being the sole arbiter of the official cash rate, a committee would make the decision and have its minutes published within three weeks of a decision, noting any dissenting views.

Neither executives nor their pay are working The Times of India No deadline has been set for introduction of Sharia or interest-free banking in India, the Reserve Bank of India (RBI) has said. Islamic or Sharia banking is a finance system based on the principles of not charging interest, which is prohibited under Islam. The RBI had earlier proposed opening of “Islamic window” in conventional banks for gradual introduction of Shariacompliant banking. Responding to an RTI application, the RBI said it has not taken any step to introduce Islamic window in banks for gradual introduction of Shariacompliant interest-free banking in India.

The Korea Herald South Korea’s tourism industry was valued at 73 trillion won (US$64 billion) in 2015, accounting for 2.51 per cent of the country’s gross domestic demand that year, official data showed yesterday.

According to the data compiled by the Ministry of Culture, Sports and Tourism, South Koreans spent some 25.4 trillion won in visiting attractions at home in 2015 and 17.3 trillion won on overseas trips. The government has been prodding people to take more trips over the past few years in a bid to help boost sagging domestic spending.

Philstar Dutch financial giant ING Bank said the Philippines’ benign inflation environment would allow the Bangko Sentral ng Pilipinas (BSP) to keep its dovish monetary policy stance. Joey Cuyegkeng, senior economist at ING Bank Manila, said the manageable inflation trajectory over the policy horizon would allow the BSP to delay any tightening. Cuyegkeng said ING Bank still expects the BSP to raise interest rates by 50 basis points in the second half. According to him, the BSP is likely to raise key policy rates by 25 basis points in the third quarter and by another 25 basis points in the fourth quarter of the year.

T

here are only two problems with the way incentive-based executive pay works: neither the incentives nor the people who are supposed to be motivated by them work properly.

Norway’s US$915 billion sovereign wealth fund, the world’s biggest, took a stand on Friday against executive long-term incentive plans which attempt, with little success, to align the aims of company owners with those hired to manage.

“For us, long-term incentive plans should be removed from pay packages. The packages we want in the future are very different from what they are now. They are too complicated,” the fund’s Yngve Slyngstad said following release of annual results. “We want simplicity.”

Long-term compensation now accounts for about 60 per cent of executive pay in the U.S. and Britain. Slyngstad, whose fund owns more than 1 per cent of global market capitalization, is right to have doubts. As they now stand LTIPs are often an overly complex matrix which bestow windfall gains on executives for events largely outside their control while failing to properly bind them to their employers’ bests interests.

Slyngstad’s call for simplicity is correct, but tinkering with the existing system won’t help much.

The typical web of goals in an LTIP is a bad joke for those who know Goodhart’s law, the economist’s axiom which states that “When a measure becomes a target, it ceases to be a good measure.”

In specific, the system fails because our whole executive pay edifice is built on two ideas; the efficient market hypothesis (EMH) and the existence of Economic Man, a mythic figure who always does what will make him the most cash.

The former idea misunderstands how markets work and the latter what makes people tick.

Other than that, the system, which has pushed executive pay in the U.S. to a bloated 276 times that of the typical worker while delivering historically poor shareholder returns and economic growth, is just grand.

“

James Saft a Reuters columnist

shareholder value maximization, that companies exist solely to enrich their owners and that the market is the guiding north star in navigating how best that can be done. The result: pay executives in shares and they will do what’s needed to make the shares more valuable.

There are huge problems with that but just to name one: the average investor is saving for the distant future and the average executive, seeing as how they only hold the job for a few years, doesn’t have one. Companies began to live quarter by quarter, investment and innovation in publicly held companies fell and a huge transfer of wealth to executives ensued.

That the market is largely driven by another set of agents, fund managers, who tend to feed bubbles in highly priced stocks in order to feather their own nests and protect their own jobs just makes matters worse, or, if you will, less efficient.

In specific, the system fails because our whole executive pay edifice is built on two ideas; the efficient market hypothesis and the existence of Economic Man, a mythic figure who always does what will make him the most cash

EMH and shareholder value maximization

That the majority of executive compensation comes in the form of shares in the company has its roots in the adoption by management gurus of the 1970s of the efficient market hypothesis, the idea the current market price of a stock is the best single predictor of the future cashflows it represents, and thus of the success of the company.

If you lived through the past two decades and believe that, I have some dotcom stocks and a collateralized debt obligation to sell you.

EMH found itself betrothed to the allied idea of

Economic man is just a big ape

This brings us to Economic Man, the guy who always maximizes his own rational self-interest.

For economists, naturally, this became synonymous with maximizing his financial utility, a useful idea if you want to pretend that your social science is something akin to physics but an idea which, put into practice in the boardroom, quickly turns to farce.

But since Economic Man exists, the management theory went, the more we pay him not only the better he will behave but the better an example of his type we will recruit. This attempt to deal with the inherent conflicts between principals, who own the company, and the agents they hire to manage it has been largely a bust.

“What agency theory fails to account for is the real psychology of incentives,” Alexander Pepper, a management professor at the London School of Economics and former long-time employee of accountants and consultants PwC wrote last year.

“Research conducted over the past 35 years has found little evidence of a significant link between executive pay and performance. Many executives I encountered during my years with PwC raised similar concerns; they found incentive packages too complex, too long drawn-out, and they didn’t properly appreciate the value of the rewards on offer.”

The executive pay system needs more than a reworking of long-term incentives, it needs a complete reboot. Reuters

”

16 Business Daily Tuesday, April 11 2017

Closing ADB

Vietnamese economy forecast to grow by 6.5 per cent

The Vietnamese economy is forecast to grow by 6.5 per cent in 2017 and 6.7 per cent in 2018, said the Asian Development Bank (ADB) yesterday. The forecast was made in the ADB Outlook (ADO) 2017 report.

In late 2016, the Vietnamese government targeted that the country’s economic growth will hit 6.7 per cent in 2017.

Also, the bank predicted that Vietnam’s consumer price index will increase by 5 per cent in 2017 and 5 per cent in 2018.

The report said that continued record levels of foreign direct investment will boost domestic manufacturing and help lift Vietnam’s export earnings even though global and regional trade flows will remain depressed.

Vietnam’s rapidly expanding middle-class, which is expected to double in size by 2030 to 33 million, will also help to push up consumer spending and boost retail activity.

Meanwhile, agricultural output is expected to pick up modestly in 2017 given the outlook for higher global food prices and a return to more normal weather. Xinhua

Regulators

China’s financial industry under greater scrutiny amid latent risks Regulators from the banking, securities and insurance sectors are strengthening efforts to clean up the market

C

hina’s rapidly expanding financial industry is being placed under greater regulatory scrutiny as authorities step up efforts to curb widespread malfeasance in the sector.

In remarks published Sunday, Chinese Premier Li Keqiang pointed out that the country’s financial sector was vulnerable to risks such as bad assets, bond defaults, shadow banking and Internet financing, with frequent illegal and corrupt activities.

To put the market in order, the premier urged for efforts to crack down on bank violations on giving credit, insider trading in securities market and fraud of insurance companies, as well as to relentlessly punish internal supervisors and company managers who collude with major players in the market and steal and sell confidential information.

On the same day, China’s top anti-graft authority announced that Xiang Junbo, chairman of the China Insurance Regulatory Commission, was being investigated for suspected serious violation of the code of conduct of the Communist Party of China.

Li’s message was the latest from high-level officials who have repeatedly highlighted the importance of containing financial risks as the country faces a build-up of debt and booming new financial products challenge regulations.

Since China’s tone-setting economic conference last December pledged preventing financial risks as

a priority, regulators from the banking, securities and insurance sectors have made solid efforts to clean up the market.

In the first quarter of 2017, China’s banking regulator meted out 485 administrative penalties with fines totalling RMB190 million (about US$27.54 million).

A total of 197 people were held accountable for banking irregularities in the period, of which 19 were disqualified for executive positions and 11 barred from banking business, according to the China Banking Regulatory Commission (CBRC).

Yang Jiacai, assistant to the CBRC

chairman, disclosed that the commission would create more guidelines to better regulate the market.

In the capital market, China’s securities regulator has maintained zero tolerance on illegal market activities such as insider trading and stock manipulation, after the market rout in 2015 shattered investor confidence.

Last month, the China Securities Regulatory Commission (CSRC) slapped a RMB3.47 billion fine on a company chairman for stock market manipulation, a record high.

The fine received by Xian Yan, chairman of P2P Financial Information Service Co., approached the total of fines handed out by the CSRC for all of last year, showing the regulator’s determination to rein in risky behaviour.

Grabbing headlines, the “barbaric”

behaviour of some Chinese insurers that use leveraged money to buy shares in listed companies triggered sharp volatility in the market at the end of last year.

China’s insurance regulator barred Yao Zhenhua, chairman of Foresea Life Insurance, from the insurance sector for 10 years for irregular market operations.

The slew of high-profile punishments in the financial system underscore government determination to balance stable growth and financial risk control, according to analysts.

To make risk control more effective, China needs to reform its financial regulation system to put cross-market and cross-sector financial services under more coordinated scrutiny, according to senior officials.

Wang Zhaoxing, vice chairman of CBRC, said at a forum earlier this year that the commission would strengthen coordination and information sharing with the insurance and securities regulators as well as the central bank to plug loopholes in regulation.

Despite latent risks, China is confident of preventing systemic financial troubles.

At a press conference after the conclusion of the annual legislative session last month, Premier Li struck a confident tone on the country’s financial stability, ruling out the possibility of systemic risks as “the country has plenty of policy options at its disposal.”

“China’s budget deficit to GDP ratio stands below 3 per cent, the capital adequacy ratio of commercial banks is 13 per cent and their provision coverage ratio is at 176 per cent, all above the international standards for financial security,” Li said. Xinhua

Commerce

Watchdog

Mood survey

Australian PM, in India, pushes bilateral, regional trade agenda

Mainland banking regulator issues risk control guidelines

Japan’s service sector sentiment falls

China’s banking regulator said yesterday it has issued guidelines on risk control for lenders, as authorities ramp up efforts to contain risks from a rapid buildup in debt.

The move is the latest in a slew of measures taken

by China’s regulators to reduce leverage and risk in the country’s banks.

Earlier steps have included reining in wealth management products and probes into assets which are kept off banks’ balance sheets.

China’s banks extended a record RMB12.65 trillion (US$1.84 trillion) of loans in 2016, despite worries about the dangers of prolonged debt-fuelled stimulus.

The China Banking Regulatory Commission (CBRC) published the guidelines on its official website, after a Friday news conference which covered the authority’s plans to prevent systematic financial risks.

The guidelines advise lenders to adopt measures such as focusing on loans which have been overdue for 90 days or more, in order to strengthen risk control and maintain asset quality. But they did not go into detail on what specific action should be taken.

Liquidity risk management should be improved by reducing dependence on interbank deposits and enhanced emergency management, the guidelines said. Reuters

Sentiment in Japan’s service sector dropped in March, marking the third consecutive month of decline, a Cabinet Office survey showed yesterday.

The monthly Economy Watchers survey’s diffusion index, in which a score of more than 50 means people view current economic conditions in a positive light, fell 1.2 points to 47.4.

The Cabinet Office said that of those surveyed, some in the restaurant sector had experienced labour shortages, while those across other service sectors also felt economic conditions had not improved from a month earlier, citing rising purchase prices.

Looking ahead, the Cabinet Office said conditions in the service sector would remain pressured, with the sentiment index for economic conditions in the coming months falling 2.5 points from February to 48.1.

The Economy Watchers Survey asks business-cycle sensitive workers their thoughts on existing and future economic conditions to provide the government with a detailed picture of economic trends in Japan.

Segments of the economy surveyed include sectors such as retail, restaurant service and taxi driving. Xinhua

India and Australia agreed yesterday to revive stalled talks on a bilateral trade deal but, on a visit to New Delhi, Australian Prime Minister Malcolm Turnbull conceded that chances of an early breakthrough were slim.

Instead, Turnbull said he was prioritising an Asia-Pacific forum that includes China, amid concerns over access to India’s market of 1.3 billion people for farm exports from Australia and opportunities for skilled Indian workers there.

After meeting Indian counterpart Narendra Modi, the Australian leader said that the two had agreed to make a fresh push on a proposed bilateral Comprehensive Economic Cooperation Agreement (CECA).

“We had a very good discussion about the CECA, and I think it’s fair to say that progress has not been as fast as either of us would like it to be,” Turnbull told a joint news conference.

“We will ask our negotiators to schedule an early meeting to get the process moving.”

Turnbull is in the company of other foreign leaders, including Britain’s Theresa May, who have found Modi a tough interlocutor on trade. Reuters