Business Daily #1274 April 13, 2017 by Business Daily

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

Followed by breakfast from 8:30am

Club Cubic operator delays Zhuhai club deal Business plan Page 4

Thursday, April 13 2017 Year VI Nr. 1274 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Online economy

Internet stars’ business moves billions in Mainland Page 16

Regional tension

President Xi asks U.S. to enter into dialogue with North Korea Page 9

Banking

Deposit Protection Fund’s annual surplus up 11 pct Page 2

www.macaubusinessdaily.com Banking

Retail

Fitch: Portugal’s banking sector on the right path to clearing up problems Page 5

Chow Tai Fook reverses same-store sales downtrend in Q1 Page 6

Handover in Hindsight Politics

Thirty years ago today. China and Portugal signed a joint declaration transferring the sovereignty of the city on December 20, 1999. Local veterans agree the city’s economic development owes much to the agreement. Despite the fact that the Portuguese Government could purportedly have reached a better deal for the territory. Page 3

Indiana Jones & Co.

Not exactly. But Hong Kong Urban Explorers are on a mission. To uncover and document hidden and abandoned heritage sites in Hong Kong and Macau. Having “checked in” to Hotel Estoril and the Grand Hotel, they say the city’s tangible heritage and gaming need not be incompatible. With thumbs up for ‘diversification’.

Second thoughts

Consumer rights An unwelcome u-turn. The Macau Mobile Phones Sellers Association has decided to halt its ‘7-day return’ service for customers. Citing restriction of after-sales of certain brands. The Consumer Council said it regrets the industry’s decision. And will monitor its impact upon consumers. Page 2

Mild inflation

Urban affairs Page 7

HK Hang Seng Index April 12, 2017

24,313.50 +225.04 (+0.93%) Worst Performers

Geely Automobile Holdings

+3.68%

AAC Technologies Holdings

+1.66%

Swire Pacific Ltd

-1.58%

China Mengniu Dairy Co Ltd

Tencent Holdings Ltd

+2.67%

Link REIT

+1.62%

China Unicom Hong Kong

-0.76%

BOC Hong Kong Holdings

-0.31%

China Merchants Port Hold-

+2.46%

Wharf Holdings Ltd/The

+1.59%

Cathay Pacific Airways Ltd

-0.55%

Kunlun Energy Co Ltd

-0.26%

20° 21° 22° 23° 23° 26° 22° 26° 22° 27°

-0.40%

Belle International Holdings

+2.18%

China Overseas Land &

+1.53%

China Shenhua Energy Co

-0.44%

China Petroleum & Chemical

-0.16%

Cheung Kong Property

+1.76%

Sands China Ltd

+1.36%

China Resources Power

-0.42%

CK Hutchison Holdings Ltd

-0.05%

Today

Source: Bloomberg

Best Performers

FRI

SAT

I SSN 2226-8294

SUN

MON

Source: AccuWeather

Prices Prices for goods at the factory gate in China jumped in March. The consumer price index rose 0.9 pct in the month vis-a-vis 0.8 pct increase in February. Figures were skewed by falling food prices. Page 8

2 Business Daily Thursday, April 13 2017

Macau Consumer rights

Mobile phone sellers bin ‘7-day return’ policy

he Macau Mobile Phones Sellers Association has decided to stop fulfilling its ‘7-day return’ policy to consumers, the Consumer Council disclosed in a press release yesterday. The Council expressed in the same release its regret of such a decision by the industry, adding it will pay attention to the related impact upon consumers. According to the local consumer rights regulator, the Association last December expressed its difficulty in adhering to some of the policies of the Code of Practice launched by the Council for the industry, citing that after-sales of certain mobile phone brands have been restricted in recent years. Having met with the Association’s representatives, the Council said the group addressed their needs to amend the Code and to stop abiding by the ‘7-day return’ policy. The Council added it had sent a draft amendment of the Code to the

Association but that the group had not changed its stance. Currently, the Code for the industry has been terminated, the Council

said, adding it would set up a new one as soon as possible. Last year, complaints related to telecommunication equipment took

up 11.84 per cent of the total that the Council received, making it the sector receiving the most complaints compared to other areas. C.U.

Banking

Deposit Protection Fund’s annual surplus up 11 pct The Deposit Protection Fund recorded a surplus of MOP68.9 million (US$8.6 million) for 2016, up 11.1 per cent year-on-year from MOP61.96 million in 2015, shows the Fund’s yearly report published yesterday in the Official Gazette. According to the report, local banks’ contribution to the Fund amounted to MOP65.5 million in the year, an increase of 5.65 per cent year-on-year whilst the deposit interest that the body generated was MOP3.4 million, surging 90.5 per cent year-on-year

from MOP1.79 million one year ago. As at the end of 2016, the Fund’s accumulative surplus had totalled MOP268.2 million since its establishment in October, 2012. The scheme, with a start-up allocation of MOP150 million from the government, seeks to protect residents’ deposits in local banks. The law mandates that Macau-registered banks must pay an annual contribution of 0.05 per cent of the amount of protected deposits held. In the event of a bank failure the

Fund would compensate depositors up to a maximum of MOP500,000.

In terms of expenses, the Fund spent some MOP80,000 for third-party services last year, surging 66.7 per cent year-on-year from MOP48,000, the annual report shows. K.L.

Insurance

Security

AMCM: Transport insurance claims on the rise

Macau, Guangdong police discuss anti-crime cooperation

Both the number and the amount of insurance claims for accidents involving taxis and buses are on the rise, noted the Monetary Authority of Macau (AMCM) in its reply to legislator Si Ka Lon’s written enquiry. The monetary authority said the insurance industry recorded MOP197 million (US$24.6 million) in total claims in 2015, up 16 per cent from MOP170 million since 2011. ‘In particular, a significant increase was evident in the number and the amount of claims for accidents involving business vehicles such as taxis and buses,’ it notes. The legislator queried in his interpellation whether the current regulations monitoring insurance activities are effective, as he perceives the law lacks details in the categorisation of

insurance policies, resulting in the absence of new insurance products in the local market. AMCM said it has been closely monitoring the operations of the industry in the wake of the adjustment to the mandatory minimum amount of transportation insurance introduced in 2011. In Hong Kong, the mandatory minimum insured amount for compulsory automobile liability insurance is HK$100 million. But the MSAR monetary regulator pointed out that Macau’s situation differs from its neighbouring city, adding it will conduct studies this year to review the insured amount and the premiums of mandatory insurance products, especially those for public transportation. C.U.

Leaders from police departments of Macau and its neighbour Guangdong Province met Tuesday to discuss the co-operation in fighting organized crimes and terrorism in 2017, according to the special administrative region’s security authorities. The city’s Secretary for Security told the press that the 20th police work meeting between Macau and Guangdong was led by the Secretary for Security Wong Sio Chak and Guangdong vice governor and police chief Li Chunsheng. The meeting recalled successful works that have been done jointly by two sides in 2016, including Operation Thunder Sixteen, a joint action

cracking down on organized crime. The coordination mechanism also helped in fighting and preventing cross-border telephone fraud and Internet fraud. The two sides also exchanged ideas about plans in 2017 to fighting illegal stay and immigration, terrorism, tele-communication fraud and drug related crimes. They also discussed details in cooperation of border control, fire-fighting and personnel training. Mr. Li said as people from Macau and Guangdong visit each other frequently, new challenges have arisen in the area of security, which demand more efforts from both sides. Xinhua

A delegation in Macau for the 20th Guangdong-Macao Police Working Meeting is briefed on the co-operation between Macau police and Guangdong authorities regarding anti-smuggling and incidents occurring within Macau’s waters

Business Daily Thursday, April 13 2017 3

Macau

Macau has returned to China for 17 years, welcoming its 18th anniversary in December this year. Politics

The “imperfect” agreement that made the MSAR Local personalities believe the lack of preparation from the Portuguese delegation led to a “disadvantageous” joint declaration between Portugal and Mainland China on the city’s handover in 1987, although the MSAR has still managed to enjoy an “unexpected” economic development in the ensuing 30 years Nelson Moura nelson.moura@macaubusinessdaily.com

S the signing ceremony of the joint agreement trans ferring the sovereignty of Macau between Por tugal and Mainland China marks its 30th anniversary today, veterans still believe the agreement is imperfect due to the lack of prepa ration by the then Portuguese Gov ernment and lack of participation by Macau residents. Signed on April 13, 1987 by the then Portuguese Prime Minister Cavaco Silva and his Mainland China counterpart Zhao Ziyang, the joint declaration defined Macau as a ‘Chinese territory under Portuguese administration’ and confirmed the official transfer of sovereignty on December 20, 1999. The declaration guaranteed the autonomy of the MSAR Government under the ‘One Country, Two Systems’ policy, assuring the independence of Macau’s defined social, legislative and local policies until 2049. Speaking to news agency Lusa, Portugal’s former Prime Minister and President, Cavaco Silva, considered that “complex and delicate” negotiations between the two governments had ended up in a “good agreement” that guaranteed the stability and development of Macau, seeing the agreement as a stepping stone for the improvement of Sino-Luso relations. A reporter for local broadcaster TDM at that time, local lawyer Mario Cardoso, followed all negotiation meetings for the agreement in Beijing since the start in June, 1986. He recalled to Business Daily that the Portuguese delegation “wasn’t very comfortable” in its position. “In my view, the Portuguese side was ill prepared,” he said. “The chief of the Delegation, Rui Medina, told reporters at that time he had other issues to take care of as an ambassador in New York so he wasn’t able to fully dedicate himself to the negotiations”.

Despite the negotiations being wrapped up “relatively fast” - in some 13 months - the lawyer considers that the then Portuguese Government’s “poor organisation and strategy” affected the negotiations. According to Mr. Cardoso, the largest disagreement between the two countries at that time was the official handover date – the Portuguese authorities wanted to delay the date, while former Chinese supremo Deng Xiaoping had officially declared that he wanted it to take place before 2000.

What is omitted

This view is echoed by former legislator Jorge Fão, who perceives the agreement was concluded swiftly because of the lack of preparation by the Portuguese Government, which led to “many concessions” being made to Mainland China.

“The agreement was discussed by Portugal’s ambassadors and consultants but local residents didn’t have a say…The only Macau residents present were the translators” Jorge Fão, former legislator

“Portugal’s Prime Minister Cavaco Silva worked a lot for it but I don’t believe he had ever consulted anyone from Macau. The agreement was discussed by Portugal’s ambassadors and consultants but local residents didn’t have a say… The only Macau residents present were the

translators,” he said. One of the major omissions in the agreement, in the ex-legislator’s view, was the absence of any reference to the payment of pensions for Macau locals working for the Portuguese Administration at that time, although the Chinese Government later included an annex in the agreement that public servants would be entitled to enjoy a pension when they retired after the handover – but not before. According to the former legislator, this issue wasn’t “even mentioned by Portuguese authorities” with the country having a record of not “paying any pensions for public employees in its former colonies”. “To protect the rights of public employees, I helped found the Macau Civil Servant’s Association (ATFPM) in 1987 (…) Even so, only in the 1990’s did the Portuguese Government agree to pay pensions for public employees retiring before the handover after we made a lot of noise and the Portuguese Government [managed to] join the European Union so that they could balance their budget,” he said. According to Fão, there are currently around 2,000 former Macau public employees still receiving pensions from the Portuguese Government, including the spouses of deceased former public employees. José Sales Marques, an official for

the Macau Government at that time and now President of the Institute of European Studies of Macau, agrees that the participation of locals in discussions was “very reduced,” although he added that the declaration was an “important step” for future negotiations between the two nations on sobering transfer. For the former government official, the discussions went “smoothly” despite some contentious issues such as whether the local Chinese residents with Portuguese passports should keep their nationality, although an addendum was added later to assure their Portuguese nationality would be maintained after the handover.

Good in hindsight

Nevertheless, in general, the interviewees all considered that the agreement ended up improving relations between the two countries, while its benefits to the city’s economic development is undeniable. For Mr. Marques and Mr. Cardoso, the agreement was not the “best possible” for the MSAR at that time, but they agree that the handover “ended up being a good deal,” coupled with the definition of the Basic law in 1993. “The city is known worldwide,” Mr. Fão concluded. “The city bloomed and is now one of the richest territories in the world, something no-one expected”.

4 Business Daily Thursday, April 13 2017

Macau Business

Opinion

Toys ‘R’ Us to unify Japan business with Asian arm

American toy-store chain Toys ‘R’ Us Inc. is to unify its business in Greater China and Southeast Asia with that in Japan, the company announced in a press release on Tuesday. According to the statement, the Japanese segment of the company, including 160 stores throughout the country, will become

Ashley Sutherland-Winch*

Airline Overbooking? Think Again In case you missed it, United Airlines overbooked a flight on Sunday night in the US, an event that ended leaving a man being bloodied and dragged from his seat, and an already troubled airline with yet another public relations nightmare on its hands. The common practice of overbooking flights has been a frustration among travellers for years but until now, it has not resulted in aggressive action. This event is the second recent public relations issue for the airline, a member of the Star Alliance with Air China and Eva Air. The first incident occurred three weeks ago when they refused to allow a complimentary fare passenger to board a plane due to an inappropriate wardrobe choice. United was quick to release statements on both occasions in order to quell bad press but both times their efforts were made in vain. The worldwide public is lashing out at United for its highhandedness. There are two sides to every story and details on the United passenger ejection are sure to emerge over the next several days but my question is whether this shocking, very public incident will create changes to airline booking policies? The practice of overbooking flights is an acceptable and largely functional airline practice that rarely results in situations like United’s but what I do hope changes is the public’s general abstention. In the case of United, the issue was that they chose to bump paying customers in order to allow crew members to travel and one passenger did not want to leave the flight. Airline passengers often suppress rage for fear of getting removed from flights, being banned from travel or in the case of United being forcibly removed. With the rise of security in air travel over the past sixteen years, travellers focus on getting to their destination ignoring the variables that make air travel unpleasant like increasing ticket costs, frequent delays, cancellation of flights, etc. Why are we, the consumer, allowing airlines to continually force submissive behaviour? Certainly, many airlines provide above-board travel and most passengers arrive at their destination unscathed. However, it is in times like these that customers have a small window to demand improvement within the industry. Perhaps the window is open and we should hope for all paying customers to be treated with higher regard, but in the meantime let’s all watch how well United’s marketing department revamp the company’s image after back to back public relations nightmares. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.

part of Toys ‘R’ Us, Asia Ltd.. which it owns 85 per cent of. The Asian branch is a joint venture between Toys ‘R’ Us, Inc. and Fung Retailing Limited. Currently, the Asian arm of the company operates two stores in Macau. Running some other 233 stores in Mainland China, it is also operating in Hong Kong, Brunei, Malaysia, Singapore, Taiwan, Thailand, and the Philippines. C.U.

Luk Hing operates Club Cubic in City of Dreams

Business

Club Cubic operator’s Zhuhai club deal delayed

uk Hing Entertainment Group Holdings Ltd., the operator of Club Cubic, has extended its deadline to enter into a formal agreement with potential partners to run a clubbing venue in Zhuhai, according to a company filing with the Hong Kong Stock Exchange on Tuesday. The group explained the delay is because ‘additional time is required for negotiation of the terms of the formal agreement’, adding that the

involved parties have agreed in writing to extend the relevant date. Last December, the company first announced its wholly-owned subsidiary Luk Hing Group Development (China) Limited had entered into a non-legally binding memorandum of understanding with Zhuhai Wei Chong Culture Broadcasting Company Limited to form a joint venture company on the Mainland with other potential investors to develop the clubbing business in the Mainland

Chinese city. Tuesday’s filing reveals that the long stop date for the parties to enter a formal agreement will be extended to May 11 of this year. According to the December announcement, the proposed joint venture under the MOU suggests Luk Hing China hold 15 per cent interest in the business and Zhuhai Wei Chong hold 30 per cent, with other potential investors holding the remaining 55 per cent. C.U.

Results

Haitong’s net profit drops in March Haitong Securities Co. Ltd. posted a 20.5 per cent year-on-year decrease in its net profit in March, the company revealed in a filing with the Hong Kong Stock Exchange yesterday. The firm generated a total of

RMB898.37 million (MOP1.04 billion/ US$130.33 million) in net profit last month, compared to RMB1.13 billion the same month a year ago. Meanwhile, its operating income dropped significantly by 40.2 per

cent year-on-year to RMB1.05 billion in March, vis-à-vis RMB1.75 billion one year ago. One of the company’s subsidiaries, Haitong Asset Management Company, on the other hand, recorded a doubling of its net profit in the same month, from RMB35.33 million to RMB72.65 million. The subsidiary also posted a doubling year-on-year of its operating income during the same month, at RMB105.17 million as compared to RMB51.46 million. Haitong Securities held net assets worth a total of RMB103.2 billion as at the end of last month. For the company’s 2016 fiscal year, it saw its net profit plunge by 49.2 per cent year-on-year to RMB8.04 billion. C.U.

Tourism

Less visitation from Macau for Hong Kong Fewer MSAR residents travelled to the neighbouring city of Hong Kong in 2016, of which total visitor arrivals fell 2.6 per cent year-on-year to 994,822, according to official data released by the Hong Kong Census and Statistics Department. August and December were the two months that Hong Kong had the highest visitations from Macau residents, with total arrivals amounting to 101,070 and 115,218, respectively. Data provided by the Hong Kong department also disclosed that the number of visitor arrivals to the city from Macau totalled 156,379 for the first two months of this year.

Last year, the MSAR saw fewer visitor arrivals from Hong Kong, amounting to 6.42 million, a

decrease of 1.8 per cent year-onyear, according to the Statistics and Census Bureau. C.U.

Business Daily Thursday, April 13 2017 5

Macau Banking

On the right path Portugal’s banking sector is on the right path to cleaning up its legacy of problems Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

ortugal’s attempts at resolving its legacy banking problems are ‘broadly positive’, according to a report by ratings agency Fitch. The agency points out that the new measures regarding the sale of Portuguese banking group Novo Banco, as well as the recently conducted recapitalisation of Caixa Geral de Depósitos (CGD), could help ‘improve investor sentiment toward the banking sector’. CGD is the parent company of local banking group and currency issuer Banco Nacional Ultramarino (BNU) and issued 500 million euros-worth (MOP4.25 billion/US$531 million) of additional Tier 1 capital notes last month, making way for the ‘2.5 billion euro capital increase by the state’ which ‘restored capital buffers’, notes the agency. Novo Banco is the parent company of local bank Novo Banco Ásia, S.A., which, among other international assets not part of its ‘core business,’ the company has been trying to sell since last year. The local subsidiary wrapped up fiscal 2016 with MOP1.03 million in profit, as previously reported. While Novo Banco had before been in negotiations to be sold to brokerage firm Well Link Group Holdings Limited, the deal fell through, with current plans for a 1 billion euro injection by United States private equity

firm Lone Star in exchange for a 75 per cent stake in the company. Portugal’s Resolution Fund will hold the remaining 25 per cent, having injected 4.9 billion euros in capital into the bank, of which 3.9 billion was covered by government loans ‘and the remainder by loans from Portuguese banks,’ points out the agency. ‘The Lone Star deal means that sale proceeds will not be enough for the Resolution Fund to repay these loans,’ it points out, justified by the government’s extension on maturities of the loans to the Fund until 2046.

Outcomes

The main thing currently worrying the ratings agency is that ‘the outcome of current initiatives to address high non-performing loans remains unclear, and further costs to the sovereign of the banking sector cannot be ruled out’. However, the current outlook is ‘broadly positive,’ it opines, noting that currently CGD is in ‘a better position to improve profitability’. With regard to Novo Banco, its ‘successful sale’ is subject to ‘execution risk’ – due to requiring approval by European Union authorities as well as ‘raising 500 million euros of common equity tier 1 from a voluntary liability management exercise’ – the details of which are still under discussion. Additional problems could arise if the Resolution Fund needs to provide additional capital to Novo Banco, if

Fitch notes that the new measures regarding the sale of Portuguese banking group Novo Banco could help improve investor sentiment toward the Portuguese banking sector.

the bank’s capital levels dip below regulatory minimums ‘due to the performance of designated assets held in the ‘side bank,’ it points out. Novo Banco Group was initially set up in 2014 to take over the commercial business of Banco Espírito Santo (BES). BES went bankrupt after recording unsustainable losses the same year. ‘The Resolution Fund’s contribution would be capped at 850 million euros annually,’ note analysts led by

Federico Salazar. ‘If the Fund did not have access to sufficient funds, the government might provide it with liquidity via a new loan or guarantee, which would potentially would have an impact on fiscal accounts,’ says the report. Fitch currently holds a ‘BB+’/Stable rating for Portugal, and forecasts a 2.9 per cent deficit of gross domestic product (GDP) for the year, including 1.1. per cent ‘from the CGD transaction,’ notes the agency.

6 Business Daily Thursday, April 13 2017

Macau Technology

Former Microsoft CTO sets up shop in Hengqin Photo app aims to break into China market after US$25 mln cash injection through joint venture Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

company started by the former Chief Technical Officer (CTO) of Microsoft is setting up shop in Hengqin, according to a press release by the group. Mylio, brainchild of David Vaskevitch, the founder who also serves as CEO of the company, recently underwent a joint venture with Hong Kong-listed China Everbright, Ltd. The Mainland-based company is involved in industrial investment and is a self-proclaimed ‘leading player in China’s environmental protection industry’. The agreement between the two companies allows for a US$25 million cash infusion from China Everbright that will ‘fuel the development of new products’, according to the release. China Everbright will ‘also serve as a distribution partner, opening the door for Mylio to use the large, engaged, mobile-centric Chinese market as a test bed for continued innovation’. Mylio is most recognised for its development of a photo-organising app that reduces the file size of each image through compression, saving space while not altering the aspect of the images, as well as resulting in quicker loading time. The app runs on the company’s platform, a self-defined ‘first Internet

file system over a personal mesh network platform in the world’. The system can work standalone, or integrate with editing applications including Aperture and Lightroom, use the Internet or a cloud, and generate its own local network, allowing access across devices, syncing automatically. Images are uploaded to a file structure, searchable by keyword, date, location or other methods, with all metadata stored in an XML file – making the info easily shareable with organising software, ideal for travelling photographers – as noted in publication Outdoor Photographer. “The infrastructure we’ve built for mesh network syncing includes multi-device replication, communication, and facial recognition. It also includes an artificial intelligence (AI) system that will be foundational to a multitude of new apps,” notes Vaskevitch. “We’re excited to explore these ideas with strategic, well positioned partners like China Everbright, who can provide Mylio with the market scale to rapidly acid-test new ideas,” he notes. “The size of the Chinese Mainland market, we believe, will add rocket fuel to our innovations,” states the founder and avid photographer.

New digs

The new facilities in Hengqin will ‘be used to develop new AI and machine

Luxury

Photo-organising app developer Mylio underwent a joint venture with Hong Kong-listed China Everbright, Ltd. to set up shop in Hengqin

learning products specific to Hengqin, as well as extend the Mylio platform and app to the Chinese Mainland market’ notes the report. The group notes that it was ‘selected’ as the ‘first development partner’ - in what it opines will be the next software and AI hub: ‘a Sino-version of Silicon Valley,’ according to the release - due to it concentrating on ‘distributed computing – the opposite of centralised, cloud computing’. The company is ‘betting that the next chapter in computing will include simple, powerful productivity tools that work equally well on desktops and mobile devices, without the need for cloud storage’, meaning that the Mylio photo app will ‘run on the device – instead of the cloud’,

purportedly resulting in ‘increased convenience, speed and efficiency’. The company’s founder joined Microsoft in 1986, serving for 23 years, assuming the role of Chief Technical Officer from 2002 to 2010, and reporting directly to Bill Gates until his 2008 retirement. Vaskevitch founded Mylio in 2012. China Everbright registered profit amounting to HK$2.78 billion last year, with revenue amounting to HK$13.97 billion. No timeline was provided for the opening of the facility in Hengqin. Business Daily contacted both Mylio and China Everbright for comment but had not received any response to enquiries by the time this story went to print.

Sino-Luso

Chow Tai Fook reverses same Local representative to attend store sales downtrend in Q1 Lusophone forum in Angola Same store sales (SSS) of Chow Tai Fook in the two SARs ‘continued to show a sequential improvement’ during the first quarter of the year, reversing the 12 consecutive quarter decline in SSS seen since the final quarter of 2014, according to the company’s filing with the Hong Kong Stock Exchange yesterday. The company saw a 12 per cent growth year-on-year in its Mainland SSS and a 4 per cent year-on-year growth in its Hong Kong and Macau SSS, although SSS volume growth dropped by 2 per cent in the Mainland market and 1 per cent in the SARs segment. SSS of gem-set jewellery fell 17 per

cent year-on-year during the quarter in the SARs, ended March 31, while that of gold products increased 19 per cent year-on-year. ‘The percentage of RSV (retail sales value) settled by China UnionPay or RMB to the total RSV of Hong Kong and Macau market, a proxy for sales contribution from Mainland tourists, declined to 45 per cent in the quarter as compared to 49 per cent of the same period last year,’ notes the filing, pointing out that ‘such contribution was similar to that in the first half of FY2017’. The group operated a total of 2,381 points of sale as of end-March, with 102 located in Macau and Hong Kong. K.W.

Director of the Macao Business Support Centre (MBSC) António Lei Chi Wai will attend the Economic Forum on Sustainable Cities taking place in Luanda, Angola on April 20 to discuss development funds in Mainland China. The head of the department under the Macau Trade and Investment Promotion Institute (IPIM) will focus on presenting information about different funds from the Mainland such as the Africa Development Fund and how Angola can obtain access to them through the MSAR. The Forum is part of the activities of the 33rd General Assembly of the Union of Capital Cities of Portuguese Language (UCCLA) that is to kick off on April 19 in the Angolan capital. Francisco Viana, President of the Luanda Business Association and of the Portuguese-speaking Businessman Forum, said the Forum is a partnership with the UCCLA and the Luanda Administration Committee, and expects the event would attract 200 attendees to debate current issues of interest to both the public and private sector. Mr. Viana and the mayors of

Almada and Cascais municipalities in Portugal, the Mayor of Mozambique capital Maputo, and members of the regional government of the capital of São Tomé and Príncipe, will all attend the meeting. “We believe that Angola’s dynamism will have an impact in this business forum, in which we will be in a position to provide entrepreneurs with a dialogue with city leaders, while allowing municipalities an opportunity to share their success stories,” he added. According to Mr. Viana, the theme of the Forum has been selected in consideration of the current modern requirements for cities worldwide. “In Angola’s case, sustainability means not to only depending on oil energy but seeking alternative renewable energy sources, and finding ways to manage its solid waste and explore rainwater more efficiently,” the businessman said. Mr. Viana also added that class inclusion is an important issue as “a city is not only good to rich people but [should] also [be good] to poor people”. N.M. with Lusa

Retail

China Duty Free Group lands HK airport concession The operator of the Zhuhai Gongbei Border Duty Free Shop - China Duty Free Group (CDFG) - has jointly won the concession for the liquor and tobacco products for the Hong Kong International Airport (HKIA), starting from the end of this year, according to a company release. The concession went to a joint venture between the company, a stateowned enterprise and subsidiary of China International Travel Service

Corporation Limited, and Lagardère Travel Retail. CDFG currently operates 248 duty free stores across the Mainland, Hong Kong, Macau, Taiwan and Southeast Asia. The company’s president, Charles Chen, called the concession a “distinguished honour” noting it will be a “significant milestone for CDFG to grow globally”. Chairman and CEO of Lagardère Travel Retail, Dag Rasmussen, called

it “a recognition of our mutual category leadership and respective operational expertise”. The company operates in 31 countries, 220 airports and 700 train stations around the world. The joint venture takes over the concession from the DFS Group and involves eight stores with a total operating size of about 3,400 square metres. The company announced that it would include in its new customer

experiences ‘interactive zones that include the showcasing of the manufacturing process of products, VR (virtual reality) and tasting bars’ as well as a VIP lounge in-store. ‘By putting in place these comprehensive measures, the company is confident in bringing the most unique shopping experience to passengers at HKIA,’ notes the release. The airport connects to over 190 destinations, including 40 cities in the Mainland and achieved a 70.5 million passenger handling capacity last year. K.W.

Business Daily Thursday, April 13 2017 7

Macau Urban affairs

Exploring alternative urbanities A collective of urban explorers from Hong Kong, who have visited abandoned sites in Macau, claims that history and gambling do not have to be incompatible, suggesting that steamrolling heritage is a crime against society Sheyla Zandonai sheyla.zandonai@macaubusiness.com

ong Kong Urban Explorers (HK Urbex) is a collective of young professionals, journalists, and artists from Hong Kong whose mission ‘is to uncover and document hidden and abandoned heritage sites around Hong Kong and Asia’. Speaking exclusively to Business Daily, the co-founder of HK Urbex - who prefers to be identified by the nickname of ‘Ghost’ - explains that they aim to bring places “that have significant heritage value, but are neglected or forgotten, into the public sphere”. Their main tools are photography and filming, which the group generously floods social platforms with, mainly Facebook, slapping viewers in the face with amazingly compelling images. Spanning the Pearl River Delta, the group has reached out to Macau a few times. “As Macau is both near and bit of a mystery to us, we sometimes take the chance to do expeditions with the crew there,” explains Ghost, who say they have visited old hotels here, including Hotel Estoril near Tap Seac Square and the Grand Hotel at the west end of Avenida de Almeida Ribeiro, shipyards, an old cinema downtown, and some old villas and houses near the Lisboa Casino. “Macau is fascinating because of the rate of development and the sheer

contrast between rich and poor, and the lower classes – such a big and obvious gap,” the co-founder said.

Good old gambling town

HK Urbex is cautious about commenting upon the MSAR, which they claim they don’t know as well as Hong Kong. However, they cannot refrain from slamming the local government for its lack of social commitment following fast urban development linked to the liberalisation of gaming. “In theory, [liberalisation] should bring money back to society but I think it is the opposite and old buildings are getting neglected even more as business booms,” the co-founder perceives. Although Ghost claims “it is criminal to steamroll heritage and culture,” he concurs that gambling does not have to be negative “if done the right way”. For one, he thinks that “diversification” yielding novel offers for both tourists and residents seems to be “finally starting to pay off”. “Macau has so much more to offer, whether it is culture, heritage, food, art, and entertainment. Just more money from the profits need to be put back and shared with the community. [Hotel] Estoril, for instance, reflects a simpler time in Macau’s history, so that it might be nice to preserve it”.

Why the risk?

HK Urbex’s concept stems from

Hong Kong Urban Explorers have visited abandoned sites in Macau a few times and posted related photos of their explorations on their webpage on social media, without specifically identifying where those places are. (Photo Source: Facebook Page of HK Urbex)

Hong Kong Urban Explorers

Apart from cultural heritage sites, Hong Kong Urban Explorers also explore sites that are kept from prying public eyes yet are paid for with public money, such as water treatment facilities, public infrastructure, and sewers. Members of the collective remain

anonymous, using nicknames and covering their faces with masks when they are out ‘exploring’. In addition to seeking selfprotection – what they do, in fact, stands on the edge of legality – their objective is to focus on the identity of buildings, not on themselves.

Photo Source: Facebook Page of HK Urbex

what the group considers to be the declining tangible heritage of Hong Kong, saying “More and more historical buildings and sites are being knocked down at an alarming rate and replaced with bland, lifeless and kitschy monotonous buildings and malls”. Speaking about buildings that have been erased from the Hong Kong cityscape – Queen’s Pier, Wedding Card Street, Shaw Studios – Ghost claims that “once tangible heritage is lost, it can never be replaced”. Urbex’s visits to Macau also build along those lines; that is, neglected sites that remain either under popular watch or away from public attention such as Hotel Estoril and Grand Hotel, both still standing but contemplating an unclear future. Regarding the Grand Hotel - which Business Daily discovered in De cember has changed hands for MOP266 million and is likely targeted for renovation - Ghost commented that the inside of the property is in

a great state of decay. “When humans are gone, it is captivating to see how quickly a site and structure can deteriorate,” he said. Asked if he believed Hotel Estoril should be preserved, HK Urbex’s spokesperson said it was a matter of “collective memory . . . To [a person] who grew up with this building in the backyard, it may be a completely different story. This is why there is so much controversy surrounding it”. Although he claims the interior of the hotel property is “completely wrecked” and might not be worth “salvaging” he believes that the “gorgeous exterior mural” is appealing from both an aesthetic and historical perspective. “Maybe [Hotel Estoril] is not as culturally significant as other sites [in Macau]. But its history is interesting because it is one of Macau’s first mega casinos which paved the way for others to follow,” he concludes.

8 Business Daily Thursday, April 13 2017

Greater china In Brief M&A

Private hospital purchases largest EU eye clinic group China’s Aier Eye Hospital announced the purchase of Spain’s Clinica Baviera, S.A., the largest eye clinic group in Europe. Aier will spend 152 million euros (US$161 million) to buy 59.353 percent of shares in Baviera through its subsidiary in Europe, with shares valued at 10.35 euros each. Chen Bang, chairman of the board of Aier Eye Group, described the purchase as “an important milestone” in the firm’s development. Aier Eye Hospital is China’s largest private ophthalmic medical chain institution and went public on the Shenzhen stock market in 2009. By 2016, Aier has developed more than 160 specialized eye hospitals in China. Demography

New office in push for more babies set up in Taiwan An office to encourage parents to have more children was set up in Taiwan yesterday by the health and welfare authority. The family planning office will work with families to lift the island’s fertility rate to a reasonable level. Taiwan’s fertility rate has remained around 1.1 since 2005, far below the replacement rate of 2.1 to maintain a stable population. It even plunged to 0.89 in 2010, the world’s lowest that year. This year, the number of residents aged 65 or above surpassed the number of those aged 14 or below for the first time since records began on the island. Real estate

Beijing orders property websites to stop misleading info Beijing has ordered 15 online real estate portals to remove misleading information, false advertising and even advice on feng shui yesterday, as part of its campaign to cool a red-hot housing market. The websites should not promise rising returns on Beijing real estate investment, the official Xinhua news agency reported, as the Chinese capital battles with soaring home prices and property speculators. While flats in Beijing on average are still cheaper than homes in Tokyo or London, authorities fear surging prices are increasing household debt, heightening banks’ credit risks and fanning grassroots resentment as home affordability fades. Aviation

Southern Airlines launches first flight to Mexico China Southern Airlines Co Ltd has flown its inaugural Guangzhou to Mexico City flight, via Vancouver, the first route operated by a domestic Chinese carrier to the Latin American nation, the Mexican government said on Tuesday. China’s interest in Mexico, including tourism and investment, has been on the rise in recent years. In 2016, 74,300 Chinese tourists visited Mexico, up 33.5 percent from a year earlier. Mexican authorities expect over 100,000 Chinese tourists to visit this year. China and Mexico recently pledged to deepen ties at a meeting between their top diplomats following the U.S. presidential election victory of Donald Trump.

Prices

March producer inflation cools for first time in 7 months China’s consumer inflation rate has been far milder, edging up to 0.9 per cent in March Yawen Chen and Nicholas Heath

hina’s producer price inflation cooled for the first time in seven months in March as iron ore and coal prices tumbled, pressured by fears that Chinese steel production is outweighing demand and threatening a glut of the metal later this year. A renaissance in China’s steel industry has been a major driver of the world’s second-largest economy in recent quarters, helping generate the strongest profit growth in years and adding to a reflationary pulse across the global manufacturing sector. But after cranking out as much metal as possible in recent months, Chinese steel mills are now starting to cut prices, threatening to snuff out a bull market that had pushed prices of some steel construction products to their highest since 2014. China’s steel sector has been under particular scrutiny by its major trading partners, with the Trump administration saying Beijing’s support for such industries has led to over-production and a flood of exports that have distorted global markets. Still, while China’s producer price inflation has likely passed its peak, it is likely to remain high for a bit longer, keeping profits at a reasonable level, ANZ said in a note. That should give China’s central bank confidence to continue with gradual monetary policy tightening as it tries to coax companies to reduce high levels of debt, ANZ economists said, predicting further hikes in shortterm interest rates this year. China’s producer price index (PPI) rose 7.6 per cent in March from a year earlier, still elevated but in line with expectations and easing from 7.8 per cent in February, a 9-year high, the National Bureau of Statistics said yesterday. Economists polled by Reuters had forecast a softer reading as a torrid rally in China’s commodity markets showed signs of correcting, and on expectations that measures to cool the country’s overheated housing market would eventually slow demand for

steel and other building materials. On a month-on-month basis, the PPI rose just 0.3 per cent, the smallest increase since September 2016 and half the pace seen in February. China’s factory gate prices had only turned positive on year-on-year basis last September, after falling for nearly five years, leaving many industrial firms saddled with idle capacity and less cash flow to service their debts.

Consumer inflation remains benign

China’s consumer inflation rate has been far milder, edging up to 0.9 per cent in March, from 0.8 per cent in February. Food prices, the biggest component of the consumer price index (CPI), fell by 4.4 per cent. Non-food inflation inched up to 2.3 per cent, with costs for health care, housing, transportation and communication all rising, suggesting stronger demand from an increasingly wealthy and rapidly ageing population.

Key Points Producer price inflation eases, may have peaked Rally in materials prices like iron ore is losing steam Prices falling on higher supply, worries about demand outlook Consumer inflation remains mild Central bank seen continuing gradual policy tightening Analysts polled by Reuters had predicted March consumer inflation would edge up to 1.0 per cent, but remain well within the central bank’s comfort zone. Still-modest consumer inflation and moderating producer prices will give policymakers room to continue with their campaign to reduce risks in the financial system after years of debt-fueled stimulus. The People’s Bank of China (PBOC)

last month completed its most rigorous quarterly inspection of the nation’s banks to date to get a better idea of the problems it is facing. The China Banking Regulatory Commision (CBRC) has told banks to conduct “self inspections” so it can understand the amount of leverage in the banking system and prevent lenders from hiding the true extent of sour loans, three sources told Reuters on Monday. The PBOC has raised interest rates on money market and special shortand medium-term loans several times already this year to encourage companies to reduce debt. ANZ expects another two 10-basis point hikes in the 7-day reserve repo rate and other medium-term rate hikes for the rest of the year, though analysts expect the PBOC to tread cautiously to avoid crimping economic growth.

Commodity prices losing steam

Similar to previous months, much of the annual surge in producer inflation in March was largely driven by higher prices of raw materials for steelmaking products such as iron ore and coking coal, which are benefiting from a construction boom. But China’s months-long commodities rally is showing signs of crumbling. Steel futures fell 5 per cent on Friday, their steepest single-day drop in two months. Top listed steelmaker Baoshan Iron & Steel (Baosteel) said on Monday it has cut prices for May delivery, ending a long streak of price hikes. Baosteel usually sets the tone for the industry. Adding to easing producer inflation is a deceleration in global oil price growth, according to estimates by ING’s chief Asia economist Tim Condon. China cut gasoline and diesel retail prices late last month by the most so far this year. The inflation readings will be followed by March trade data on Thursday, bank lending in coming days, and industrial output, retail sales and investment on April 17. China’s first-quarter gross domestic product (GDP) will also be released on the 17th, and is expected to show resilient growth at the start of 2017. Reuters

Business Daily Thursday, April 13 2017 9

Greater China Markets

How Mainland tracking the Fed could spark a global equity slump Economists expect the PBOC to raise the cost of short-term funding at least twice this year as it keeps a tight rein on money markets Eric Lam

Investors are overlooking the threat of China triggering another pullback in global equities, according to Jeffrey Kleintop. If officials in Asia’s largest economy continue to pace policy tightening in the U.S., the uptick in borrowing costs has the potential to choke consumer and private-sector spending more than it has in the past, Charles Schwab & Co.’s chief global investment strategist said in an interview in Hong Kong. That could hit sentiment toward Chinese stocks, creating a similar situation to the start of 2016 when a selloff in Shanghai reverberated through world trading. In the worstcase scenario, global share markets could sink 10 to 20 per cent amid a “very sharp pullback” in China, Kleintop said. “I think it could be pretty severe,” he said. “It is an unappreciated risk in the marketplace.” While China’s central bank says it’s focused on domestic factors when it comes to monetary policy, Federal Reserve tightening risks destabilizing the yuan as it narrows the yield advantage enjoyed by Chinese assets. The People’s Bank of China boosted borrowing costs hours after the Fed in March, a move that has kept the currency supported. Beijing will also be mindful of raising the U.S.’ ire when it comes to the yuan, Kleintop said, with a decision expected as soon as this week on whether China will be labeled a currency manipulator. Blackstone Group chairman and

CEO Stephen Schwarzman, one of U.S. President Donald Trump’s top economic advisers, told Bloomberg TV Tuesday the administration is unlikely to label China as such when it issues the report mid-April.

‘That was China’

Fed Chair Janet Yellen and her colleagues have pencilled in two more rate hikes for 2017, on top of one executed in March. Meanwhile, economists expect the PBOC to raise the cost of short-term funding at least twice this year as it keeps a tight rein on money markets. While equities in China and beyond have shown signs of losing steam

following last quarter’s surge, policy tightening doesn’t seem to be rattling markets, yet. The Shanghai Composite Index climbed to its highest level since January 2016 on Tuesday, though some Chinese equity investors are already turning more cautious, saying rising rates are likely to crimp corporate earnings. “A year ago we had this big drop in the market,” with the S&P 500 Index tumbling 11 per cent in early 2016, Kleintop said. “That was China. That’s a globally correlated risk we could see rear up later this year.” Kleintop is overweight on technology, health-care and financial stocks, and underweight on sectors sensitive to borrowing costs, including telecommunications, utilities and developers. He favors large-cap shares as smaller companies trade at pricey valuations. Charles Schwab had about US$2.9 trillion in client assets as of

February. Chinese policy makers would do well to not ignore the risks that could emerge from monetary tightening, Kleintop said.

“It is an unappreciated risk in the marketplace” Jeffrey Kleintop, Charles Schwab & Co.’s chief global investment strategist

“They watch it and they watch it and then they freak out because they waited too long, and the markets do the same thing,” he said. “They could see it coming early enough to change course.” Bloomberg News

Korean crisis

Xi urges North Korea talks in call with Trump as tensions mount South Korea’s government sought to quell any anxiety about potential military action Keith Zhai and Kanga Kong

in Florida last week.

Chinese President Xi Jinping spoke with Donald Trump yesterday, urging dialogue to resolve concerns over North Korea’s nuclear program after the U.S. leader dispatched warships to the region. All nations involved “should settle their disputes peacefully through dialogue and consultation to be jointly committed to peace and stability on the Korean peninsula,” state broadcaster China Central Television quoted Xi as saying yesterday. He reiterated his commitment to removing nuclear weapons from the peninsula during the call, which China’s foreign ministry later said had been initiated by Trump. Reports of the phone call came after Trump tweeted that North Korea is “looking for trouble” and the U.S. is ready to resolve the matter without China, the major backer of Kim Jong Un’s regime. Fears of conflict have risen after the U.S. diverted an aircraft carrier strike force to waters in the region as North Korea shows signs of preparing a nuclear test or ballistic missile launch. Trump told Fox News in an interview that the U.S. is “sending an armada, very powerful” to North Korea. In a series of tweets on Tuesday, he said he told Xi that any efforts by China to rein in North Korea would help improve the conditions of a trade deal with the U.S. The two met faceto-face at Trump’s Mar-a-Lago club

‘Tipping point’

South Korea’s government sought to quell any anxiety about potential military action. There’s no need to worry about security on the peninsula, Unification Ministry spokesman Lee Duk-haeng said yesterday,

adding that the government is closely cooperating with other nations, including the U.S., to manage escalating tensions with North Korea. South Korea is on alert for any provocations by North Korea to mark symbolic dates in the country’s history, such as the anniversary of the birth of its founder Kim Il Sung on Saturday. A nuclear test now would be a “slap in the face” of the U.S. government and may prompt China to restrict oil sales to North Korea,

according to an editorial by the Global Times, a nationalist newspaper affiliated with China’s Communist Party. “The Korean Peninsula has never been so close to a military clash since the North conducted its first nuclear test in 2006,” the Global Times wrote. “Pyongyang’s nuclear weapons program is intended for securing the regime, however, it is reaching a tipping point.”

“The Korean Peninsula has never been so close to a military clash since the North conducted its first nuclear test in 2006” Global Times

A view of the Arc of Triumph in Pyongyang, North Korea, 12 April 2017. North Koreans prepare to celebrate the ‘Day of the Sun Festival’, 105th birthday anniversary of former North Korean supreme leader Kim Il-sung in Pyongyang on 15 April. Lusa

“Pyongyang should avoid making mistakes at this time,” it said. Japan’s foreign ministry issued a travel alert this week to citizens residing in or traveling to South Korea, urging them to continue paying attention to developments on the peninsula. The alert doesn’t call for limiting travel to the country, chief government spokesman Yoshihide Suga said in Tokyo yesterday. North Korea is hosting foreign journalists in Pyongyang before this weekend’s commemoration of Kim Il Sung’s birth. Bloomberg News

10 Business Daily Thursday, April 13 2017

Greater China

People’s Bank of China Governor Zhou Xiaochuan Monetary outlook

PBOC’s US$600 billion test as mid-term loans approach maturity The use of MLFs has grown even as the PBOC tightened lending in open-market operations, driving up costs and extending tenors

eople’s Bank of China Governor Zhou Xiaochuan’s shift toward new tools to steer the economy has swollen a targeted lending program to such a level that outstanding funds are now worth more than the annual output of the Malaysian and Danish economies combined. The Medium-term Lending Facility has increased to RMB4.1 trillion (US$594 billion), with US$3.2 trillion coming due from April to December this year, according to data compiled by Bloomberg. About RMB2 trillion matured in the same period last year. While the monetary authority has shown a willingness to roll over the funds, with new loans extending maturities in each of the first three months of 2017, the ballooning amount illustrates the challenge Zhou faces as he tries to reduce leverage in the financial system while keeping the monetary base big enough to avoid a credit crunch. The PBOC kicked off its latest tightening cycle in August after monetary loosening helped fuel an unprecedented, 11-quarter bond rally. The authority has been shifting its focus to controlling borrowing costs for short- and mid-term funds, rather than benchmark interest rates that have a broader, less controlled effect. Introduced in 2014, MLFs come in tenors of three, six and 12 months. “The PBOC may extend MLFs to longer tenors to ease the pressure” on money market rates, said Liu Dongliang, a senior analyst at China

Merchants Bank Co. in Shenzhen. “The central bank can also keep rolling over these operations” because the focus on deleveraging reduces the likelihood of a cut to the amount of money banks must lock away as reserves. The use of MLFs has grown even as the PBOC tightened lending in open-market operations, driving up costs and extending tenors. The tools give policy makers room to raise money market rates and cut financial leverage without putting excessive pressure on the yuan and risk exacerbating capital outflows. In the older era of generous inflows and trade surpluses, China used the required reserve ratio to maintain currency stability. Now, as uncertainty over trade increases and foreign reserves decrease, the MLF and other lending tools have eclipsed required reserves as a key channel to inject funds. “The central bank didn’t cut reserve ratios when capital flowed out, leaving behind debt that’s paid back by all kinds of short- and mid-term liquidity tools,” said George Wu, who worked as a PBOC monetary policy official for 12 years. “The large amount maturing in the second half increases the possibility of market volatility.” Market swings would increase if banks and other financial institutions weren’t sure whether the PBOC would roll over the loans, or if major lenders reduce their lending to smaller ones.

The large amount of MLF also makes open-market operations more difficult, potentially making the financial system more vulnerable, said Wu, now chief economist at Huarong Securities Co. in Beijing. The PBOC is aware that relying on newer liquidity tools may create communication challenges for the central bank’s signals to markets, he said. One way to help ease money-market volatility would be for the PBOC to widen the field of primary dealers that trade directly with the central bank from the current 48, which would dilute the influence of major state-owned banks, according to Wang Yifeng, an analyst at China Minsheng Banking Corp.’s research institute in Beijing.

“The large amount maturing in the second half increases the possibility of market volatility” George Wu, chief economist at Huarong Securities

That is similar to a call from Xu Zhong, chief of the PBOC’s research bureau, who said more dealers can help curb speculation and ease the hurt smaller financial institutions endure when there’s a liquidity shortage, according to an article posted on the PBOC’s website in March.

While economists forecast China’s growth will hold up at 6.8 per cent in the first three months of the year, full-year expansion will slow to 6.2 per cent in 2018. In addition, potential trade conflicts with the U.S. and domestic property-purchase curbs may be a drag on growth in the second half of 2017. If growth slows, asset prices stabilize and pressure on the yuan eases in coming months, cutting reserve ratios will be a natural move, Huarong’s Wu said. The PBOC can also provide momentary support using its Temporary Liquidity Facility, he said. Cutting bank reserve requirements could help reduce money market swings in the short term but wouldn’t steer financial institutions away from relying on short-term funding structures to financing longer-term assets, according to Andrew Polk, director of China research at Medley Global Advisors LLC in Beijing. “The interbank market needs a bit of volatility” to make that reliance less attractive, he said. Banks pledge central government bonds and other high-rated debt as collateral to obtain medium-term funding. One potential complication of using those newer instruments is that lenders don’t have enough of those securities, according to Ming Ming, a former PBOC monetary policy official and head of fixed-income research at Citic Securities Co. in Beijing. “Collateral pressures will rise,” he wrote in a recent report. “The central bank will be restricted if it wants to increase open-market operations and MLF. Expanding the list of qualified collateral is fundamental, and local government debt may be an option.” Bloomberg News

Business Daily Thursday, April 13 2017 11

Asia Industry

Japan’s core machinery orders rebound By sector, core orders from manufacturers rose 6.0 per cent in February, following a 10.8 per cent drop the previous month Tetsushi Kajimoto

apan’s core machinery orders rebounded modestly in February from the previous month’s decline, a tentative sign of the pick-up in capital expenditure Japan needs to secure sustainable economic growth. Cabinet Office data published yesterday showed the core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose

1.5 per cent, versus a 2.7 per cent rise expected by economists. That followed a 3.2 per cent decline in January. The data comes as Japan’s economy, the world’s third largest, has shown signs of life in recent months, with factory output and exports enjoying a recovery in global demand, despite stubbornly weak consumer spending. “The rebound in machinery orders in February wasn’t strong enough to reverse the decline in January. But

with capacity usage picking up, we expect business investment to expand at a robust pace this year,” Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a note to clients. Still, Japanese firms may hold back from accelerating capital expenditure on concerns that Britain’s plan to leave the European Union and U.S. President Donald Trump’s protectionist tendencies could affect Japan’s export-reliant economy. “Companies remain wary about uncertainty over political developments in Europe and Trump’s policies, therefore capital spending may lack momentum through the current quarter,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“As the global economy recovers, however, capital spending growth should pick up pace towards the latter half of this fiscal year as the latest BOJ tankan suggests.” By sector, core orders from manufacturers rose 6.0 per cent in February, following a 10.8 per cent drop the previous month. Orders from the services sector rose 1.8 per cent, posting a third straight month of gains.

Key Points Feb core orders +1.5 pct m/m vs forecast +2.7 pct Core orders +5.6 pct yr/yr vs forecast +0.8 pct Capex in gradual pick-up, Trump protectionism poses risk Policymakers hope capex to drive sustainable growth Orders from abroad, which were not counted as core orders, dropped 1.1 per cent in February, reversing the previous month’s 3.2 per cent gain. A closely watched central bank “tankan” survey showed this month that big firms plan to increase capital spending by 0.6 per cent in the fiscal year ending in March 2018, offering hope that business investment will gather some momentum in coming months. The Cabinet Office on Wednesday maintained its assessment of machinery orders, saying the pick-up was stalling. Compared with a year earlier, core orders, which exclude ships and orders from electric power utilities, grew 5.6 per cent in February, after a 8.2 per cent slide in the previous month. Reuters

Trade

U.S. raises duties on South Korean oil tubing, cites steel subsidies The decision was the first to be made under a provision of the Trade Preferences Extension Act David Lawder

The U.S. Commerce Department said on Tuesday that it increased anti-dumping duties on oil and gas drilling pipes from South Korea, applying new legal tools that allow for more comprehensive calculations of foreign cost distortions. Following an administrative review, the department lifted duties on oil country tubular goods to a range of 2.76 per cent to 24.9 per cent from a previous range of about 4 per cent to 6.5 per cent. The decision was the first to be made under a provision of the Trade Preferences Extension Act of 2015 that allows the Commerce Department to consider a “particular market situation” such as foreign subsidies for raw materials. In the case of the South Korean oil country tubular goods, that included not only cost calculations for the production of the pipes, but price distortions for the hot-rolled steel used in the pipes that are caused by subsidized electricity. “We will not stand for the distortions in foreign markets being used against U.S. businesses,” Commerce

Secretary Wilbur Ross said in a statement. “The Trump administration will continue to employ all of the tools provided under the law to take swift action against harm full trade practices from foreign nations.”

Imports of the oil country tubular goods, used for drilling, extraction and transport of oil and natural gas, were estimated at US$1.1 billion from South Korea from July 2014 to August 2015, accounting for 25 per cent of all imports in that category, the Commerce Department said. A slump in drilling activity and a glut of steel pipe imports idled several American steel mills in 2015,

including U.S. Steel’s Granite City, Illinois, plant, where some 2,000 workers were laid off. U.S. Steel and other American producers that first brought the case argued that since the Commerce Department had already issued anti-subsidy duties against Korean hotrolled steel, the dumping margins for the drilling pipes should be adjusted upward to account for this. Reuters

12 Business Daily Thursday, April 13 2017

Asia

A general view of Pyongyang with the Ryugyong Hotel in the background. Lusa Economic model

North Korea reforming economy while denying change Analysts estimate that the private sector, broadly defined, could be responsible for anything from a quarter to half of the North’s gross domestic product Sebastien Berger

n the side streets of Pyongyang, small traders sell vegetables from impromptu stalls. At markets, dealers offer imported household goods -- even Coca-Cola -- and in state-owned department stores hard currency is openly exchanged at black-market rates. Officially, North Korea denies it is reforming and declares it remains guided by the Juche, or self-reliance, philosophy of founder Kim Il-Sung whose 105th birth anniversary is being marked this weekend. But under his grandson Kim JongUn -- the third generation of the dynasty -- economic change is quietly happening in the impoverished, nuclear-armed country, analysts say. The North was once better off than the South, but decades of mismanagement saw it descend into stagnation and food shortages, while its neighbour propelled itself into the OECD group of leading economies. Pyongyang remains almost entirely devoid of commercial advertising, its wide avenues instead lined with propaganda posters of heroic soldiers and striving workers, or slogans such as “Let us follow the decisions of the 7th Congress of the Workers’ Party of Korea”. “We are a socialist country so we stick to our socialist principle economically,” said Ri Sun-Chol, chief of the economic research institute of the North’s Academy of Social Sciences. “We do not push for national reforms adopting a market economy.” But a series of rulings under Kim

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Jong-Un is taking the North in exactly that direction, say diplomats and researchers. Many agricultural collectives have been effectively dismantled and farmland management distributed between individual households referred to as “family-based work units”, sending food production climbing. Beyond what they must produce for the state, under what Pyongyang calls the Socialist Corporate Responsible Management System, factory managers have been given freedoms to find suppliers and customers of their own. Kwon Yong-Chol, chief engineer of the Song Do Won General Foodstuffs Factory in Wonsan, explained that as well as manufacturing goods according to government instructions, “there is also a commercial network of vendors we use to sign our own contracts.”

‘Filthy wind’

Officials have been told not to interfere with private businesses, even while many remain technically illegal. Enterprises are often still set up under state entities to ensure political protection, but analysts estimate that the private sector, broadly defined, could be responsible for anything from a quarter to half of the North’s gross domestic product. All such figures are riven with uncertainty, as Pyongyang does not publish meaningful economic statistics. Last year, major South Korean think tanks were unable even to agree whether its economy grew or shrank in 2015.

“My rule of thumb is to never trust a datum about the North Korean economy that comes with a decimal point attached,” said Marcus Noland, director of studies at the Peterson Institute for International Economics in Washington. The changes are similar to the first stages of China’s “reform and opening” under Deng Xiaoping in the early 1980s, which laid the ground for the decades-long boom that turned the Asian giant into the world’s second-largest economy. Beijing, Pyongyang’s sole ally and main provider of trade and aid, has long urged its wayward neighbour -- which is subject to multiple UN sanctions over its nuclear and ballistic missile programmes -- to follow its example. But in a speech to the party congress last year, Kim Jong-Un dismissed such concepts as “the filthy wind of bourgeois liberty”, and professor Ri was adamant there was no connection. “The reform was fit for China’s situation and was something desired by the Chinese people and if that helped with China’s economic development, we are very happy,” he said. “Our country will follow the socialist path.”

‘Unparallelled geniuses’

Andrei Lankov, director of specialist service NK News and professor at Kookmin University in Seoul, retorted: “Of course they are copying China, because China was so damn successful. “They never admit that they are learning from anybody,” he said, but Kim Jong-Un “understands very well” that market economy systems have produced stunning growth in multiple East Asian countries over the past half-century. “The current North Korean leader is absolutely free of ideological sympathy towards the state socialist

model,” he told AFP. Pyongyang’s reluctance to talk openly about economic changes gives it room to manoeuvre while preserving its political foundations, according to analysts. “As long as much of this activity remains technically illegal, and in many cases subject to the death penalty, the state can always reverse course if it sees fit,” said Noland. Formal reforms could “put the state on a slippery slope where its fundamental difference with capitalist South Korea is eroded, and the regime’s whole raison d’etre is called into question”, he added.

“Of course they are copying China, because China was so damn successful” Andrei Lankov, director of specialist service NK News and professor at Kookmin University in Seoul Avoiding undermining the authorities’ claim to legitimacy was crucial, agreed Lankov. “The idea is that they are run by a family of unparallelled geniuses and of course the current leader and his father and his grandfather and his family are always right.” Alluding to Deng’s supposed assessment of Communist China’s founding father Mao Zedong as “70 per cent right, 30 per cent wrong”, he said: “Kim Jong-Un cannot say that his father, his grandfather was even one per cent wrong. “He has no choice but to maintain the illusion of ideological continuity, even when he is making a U-turn. Which is very smart.” AFP

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Business Daily Thursday, April 13 2017 13

Asia Monetary head

In Brief

Staying the course, Duterte looks for the next best Philippine c.bank chief All the candidates are considered more than qualified to run the central bank Karen Lema

Whoever is picked as the next Philippine central bank governor, it will be President Rodrigo Duterte’s second choice. Duterte is expected to announce as early as this month a new chief of Bangko Sentral ng Pilipinas (BSP), after failing to get the much praised current governor, Amando Tetangco, to stay on for an unprecedented third term. The president is seen favouring someone who will continue Tetangco’s monetary policies and reforms that have kept the over US$300 billion economy humming for years. And the four names widely floated as potential successors - two deputy central bank governors and two veteran bankers - were expected to do just that. The changing of the guard comes amid rising inflation, higher global interest rates and protectionism that could affect a key economic lifeline - the millions of Filipinos working abroad who send billions of dollars home. “We are in an important juncture. While overheating risks seem

manageable for now...the BSP needs to ensure that stability will be maintained in the longer run,” said Gundy Cahyadi, an economist at DBS, who believes the central bank will hike interest rates in May for the first time in 2-1/2 years. Duterte, who delegates economic management to his technocrats, has said he will “largely” listen to Finance Minister Carlos Dominguez and other political leaders when choosing Tetangco’s replacement. The firebrand leader, who has targeted 8 per cent economic growth in the medium term, will also replace three other outgoing members of the monetary board, giving him a free hand in choosing a majority for the seven-member policy-making committee. “This is probably the most important appointment President Duterte will make,” Dominguez, who is leading the selection process, told Reuters late last month.

More than qualified

The main names being floated as possible successors were BSP deputy governors Diwa Guinigundo and Nestor Espenilla, former trade

Current governor of Bangko Sentral ng Pilipinas Amando Tetangco

secretary Peter Favila, and East West Banking Corp Chief Executive Antonio Moncupa. All the candidates are considered more than qualified to run the central bank, and wouldn’t radically alter Tetangco’s policies when he steps down in July, several top bank executives told Reuters. “The policies put forward by Governor Tetangco and his team are lasting legacies,” said an official at one of the Philippines’ top lenders. “They are good policies that any incoming governor would benefit from. For us, one of the things we’re hoping for is continuity,” said the official, who requested not to be named because of the sensitivity of the issue. Without resorting to extreme policy measures, Tetangco has significantly brought down inflation, shored up foreign exchange reserves, and steered the economy through the 2008 global financial crisis, with the Philippines among the few Asian nations to have avoided recession. It was under his watch when Manila’s long history of junk-debt status ended. Fitch, S&P and Moody’s awarded the country with investment-grade status in 2013, owing to a strong external profile, low inflation and a shrinking budget deficit. Under Philippine law, Tetangco can only serve two six-year terms. He told Reuters in January, he preferred “someone with central banking background” to succeed him. “The current strength of the economy owes much to the prudent policy path struck by Governor Tetangco and his team,” said Frederic Neumann, co-head of Asian Economics Research at HSBC. “In the coming years, the Philippines faces some tough macroeconomic challenges, including maintaining exchange rate stability amid a falling current account surplus and preserving price stability amid surging demand.” Reuters

Currency

Bank of Japan governor says weak yen may help inflation goal The central bank now projects core consumer inflation to hit 1.5 per cent in the current fiscal year that ends in March 2018 Stanley White and Leika Kihara

Bank of Japan (BOJ) Governor Haruhiko Kuroda said yesterday further yen declines may help the central bank achieve its 2 per cent inflation target more quickly, even as geopolitical tensions lifted the Japanese currency to a five-month high against the dollar. Kuroda reiterated that the BOJ was not targeting exchange rates in guiding monetary policy and instead was pumping money into the economy to spur inflation. But he conceded the benefits a weak yen would have in accelerating inflation, such as by pushing up the cost of imports and thereby overall price growth. “The BOJ guides monetary policy to achieve its price target at an early date and doesn’t directly target exchange rates,” Kuroda told parliament. As the economy continues to recover and the base effect from last year’s oil price fall dissipates, inflation will accelerate and heighten public’s inflation expectations, he said. “Having said that, it’s true that if the yen weakens, it may quicken achievement of our price target,”

Kuroda said. The dollar languished at a fivemonth low versus the yen yesterday, as simmering geopolitical tensions checked risk appetite and put the safe-haven Japanese currency in favour. The dollar was at 109.745 yen after touching 109.535 earlier in the session, its lowest since Nov. 17. Japan has been mired in deflation for nearly two decades as households sit on a pile of cash on uncertainty over the outlook. The BOJ has deployed massive

monetary stimulus since 2013 in the hope the public’s perception of deflation will shift, with little success. Core consumer prices rose 0.2 per cent in February from a year earlier and analysts expect inflation to accelerate closer to 1 per cent later this year due to a rebound in oil costs and rising import prices from last yen falls. But major Japanese retailers have announced sweeping price cuts for food goods and daily necessities, underscoring the difficulty facing the central bank as it tries to spur inflation and coax consumers to boost spending. The central bank will review its economic and price projections at its policy meeting on April 26-27. The BOJ now projects core consumer inflation to hit 1.5 per cent in the current fiscal year that ends in March 2018, and accelerate to 1.7 per cent in fiscal 2018. That far exceeds private-sector projections of around 1 per cent for both years. Reuters

Consumption

Singapore retail sales fall Singapore’s retail sales in February fell from a year earlier for the first time since August, due to a sharp drop in the sales of food, beverages and apparel and a decline in sales at department stores and supermarkets, data showed yesterday. Total retail sales fell 2.5 per cent from a year earlier, after increasing by a revised 2.3 per cent in the previous month, according to data from the Singapore Department of Statistics. Retail sales fell 17.4 per cent in the food and beverages sector in February from the year earlier, while department stores sales dropped 15.0 per cent. Survey

Australian consumers fret on economic outlook A measure of Australian consumer sentiment inched lower in April as worries about the economic outlook overshadowed growing optimism about the state of family finances, a survey showed yesterday. The survey of 1,200 people by Melbourne Institute and Westpac Bank found consumer sentiment dipped 0.7 per cent in April, from March when it had risen by 0.1 per cent. That left the index at 99.0, up 4.1 per cent on this time last year but just below the level where the number of optimists matches pessimists. The sub-indices in the survey showed some easing in money concerns. Energy

India’s top court stops Adani Power prices India’s top court ruled on Tuesday that Adani Power Ltd cannot charge its customers more to cover a surge in the cost of imported coal, overturning a decision by a power regulator in December. The ruling sent Adani Power’s shares down as much as 20 per cent on Tuesday, its biggest intra-day loss since it went public in 2009. The court did, however, allow the utility to claim relief for the higher costs, which resulted from a shortage in domestic supplies at state-run Coal India Ltd. MoU

Singapore, Shanghai vow to promote financial collaborations The Monetary Authority of Singapore (MAS) and Shanghai Municipal Financial Services Office (SFSO) held the 3rd Singapore-Shanghai Financial Forum (SSFF) yesterday to promote financial linkages and collaborations between Singapore and China’s Shanghai. Nine Memorandums of Understanding (MoUs) were signed between Singapore and Shanghai’s financial institutions and corporates, according to the joint media release statement by MAS and SFSO. An agreement was signed between Shanghai Pudong Development Bank and Singapore Exchange to deepen capital market cooperation and encourage more Chinese corporates to tap Singapore’s capital markets.

14 Business Daily Thursday, April 13 2017

International In Brief Reforms

Argentina expects US$14 bln in investment Domestic and foreign companies likely will invest US$14 billion in Argentina this year as firms open their pockets to make good on previously announced investments, the head of the government’s investment promotion agency said on Tuesday. President Mauricio Macri’s government struggled to pull in the investment it promised in his first year in office but the head of his Investment and Trade Promotion Agency, Juan Procaccini, said in an interview that 2017 was looking better. “The first year we had so many things to do in terms of ... becoming again a normal economy,” Procaccini said. Oil output

OPEC figures show cuts exceed pledge OPEC states cut oil output in March by more than they pledged under supply curbs, according to figures the exporter group uses to monitor its supply, extending a record of higher-than-expected adherence to its first production cut in eight years. The Organization of the Petroleum Exporting Countries (OPEC) agreed to cut output by about 1.2 million barrels per day (bpd) for six months from Jan. 1 to prop up prices and reduce a glut. Russia and 10 other non-OPEC states agreed to cut half as much. Production from the 11 OPEC members with output targets under the deal has averaged 29.757 million bpd in March.

WTO

World trade seen growing 2.4 per cent in 2017 The WTO has repeatedly revised preliminary estimates over the past five years as predictions of economic recovery prove overly optimistic Stephanie Nebehay

orld trade is on track to expand by 2.4 per cent this year, though there is “deep uncertainty” about economic and policy developments, particularly in the United States, the World Trade Organization (WTO) said yesterday. The range for growth this year has been adjusted to between 1.8 and 3.6 per cent, from 1.8 to 3.1 per cent last September, it said, pointing to a risk that trade activity could be “stifled” due to lack of clarity about government policies. “We should see trade as part of the solution to economic difficulties, not part of the problem,” WTO director-general Roberto Azevedo said. “Overall cautious optimism but trade growth remains fragile and there are considerable risks on the downside. Much of uncertainty is political,” he told a news conference. The world must “keep resisting the erection of new barriers to trade”, he said.

The WTO has repeatedly revised preliminary estimates over the past five years as predictions of economic recovery prove overly optimistic. Global trade grew by “an usually low” 1.3 per cent in 2016, the slowest pace since the financial crisis, failing to match even its revised forecast of 1.7 per cent of last September. “The poor performance over the year was largely due to a significant slowdown in emerging markets where imports basically stagnated last year, barely growing in volume terms,” Azevedo said. In 2018, global trade is forecast to grow by between 2.1 per cent and 4 per cent in WTO’s latest analysis. “A spike in inflation leading to higher interest rates, tighter fiscal policies and the imposition of measures to curtail trade could all undermine higher trade growth over the next two years,” it warned. U.S. President Donald Trump has made reducing U.S. trade deficits a key focus of his economic agenda to try to grow American manufacturing jobs. He has taken particular aim at renegotiating trade relationships with China and Mexico.

He is considering an executive order to launch a trade investigation that could lead to supplemental duties in certain product categories, a Trump administration official told Reuters on Monday. “If policymakers attempt to address job losses at home with severe restrictions on imports, trade cannot help boost growth and may even constitute a drag on the recovery,” Azevedo said in a statement. Asked by reporters about U.S. policies under Trump, he said that he waited confirmation of the new U.S. Trade Representative (USTR). “We are waiting to see the new trade team really in place, waiting for the new USTR to be confirmed so that we can have a more meaningful dialogue at this point in time we don’t have that. We are still waiting to see how the trade policy itself is going to shape up in the United States.” Azevedo declined to comment on the upcoming French election, but said: “Uncertainty has a freezing effect on investments and therefore on economic growth and output “Getting over the election cycles is important particularly in the major economies so we have a clear view of what is coming, what the policies are. Predictability is extremely important for investments and economic growth.” Reuters

Rating

Fitch follows S&P in downgrading South Africa banks Ratings agency Fitch downgraded five South African banks on Tuesday in a widely expected move, days after it cut the country’s credit rating to sub-investment grade. The moves follow S&P Global Ratings, which also cut South African foreign debt to “junk” status and then downgraded major banks in the wake of a cabinet reshuffle that saw President Jacob Zuma sack widely respected former Finance Minister Pravin Gordhan. Fitch said in a statement Absa Bank Limited, FirstRand Bank Limited, Investec Bank Limited, Nedbank Limited and Standard Bank had been downgraded to ‘BB+’ from ‘BBB-’. GDP

World Bank cuts Kenya’s growth forecast The World Bank cut Kenya’s economic growth forecast for this year by half a percentage point yesterday to 5.5 per cent, citing drought, sluggish private sector credit growth and rising prices of oil. The country is estimated to have expanded by 5.9 per cent last year, the highest annual expansion in half a decade. But the outlook has been hit by months of dry weather, that left 2.7 million people in need of food aid, and a drop in annual private sector credit growth to 4 per cent in February from 17 per cent at the end of 2015.

Brazilian Roberto Azevedo, Director General of the World Trade Organization, arrives for a press conference about the WTO’s World Trade Report 2016 and prospects for 2017-2018, at the headquarters of the World Trade Organization in Geneva. Lusa

Crime

SWIFT to introduce tool to spot fraudulent inter-bank messages The service could cost small users as little as 10,000 euros a year Tom Bergin

Interbank messaging service SWIFT, which is used to transfer trillions of dollars between banks every day, will launch a new tool to spot fraudulent messages, seeking to restore trust in the system after millions of dollars were stolen in cyber raids. Belgium-based SWIFT said yesterday that it will offer clients a service that will be able to learn a user bank’s messaging patterns so that it can spot if a payment is being made to an unusual counterparty or for an unusual amount.

Last year US$81 million was stolen from Bangladesh’s central bank after thieves hacked into its SWIFT system and sent instructions to the Federal Reserve Bank of New York to pay money from Bangladesh Bank’s account to parties in Asia. SWIFT was criticised last year by some users and industry players for failing to beef up security on its system even as the risk of cyber attacks increased and the network expanded to include smaller institutions with more lax security procedures. Though SWIFT launched a range of new security measures and services

in September, the latest product -due to be introduced early next year -- will “red-flag”, or put on hold, payment instructions that exceed limits set by clients or are deemed anomalous by the system’s learning software. “The new payment controls service is a direct response to our community’s request for additional services to complement and strengthen existing fraud controls,” SWIFT Chairman Yawar Shah said. Luc Meurant, SWIFT’s head of financial crime compliance services, told Reuters that the service would be targeted initially at institutions and central banks with small messaging volumes because they might not be able to afford to develop such detection tools themselves. He said the service could cost small users as little as 10,000 euros a year, though prices have yet to be finalised. Reuters

Business Daily Thursday, April 13 2017 15

Opinion Business Wires

Viet Nam News The General Statistics Office of Việt Nam (GSO) is developing a new set of indices to evaluate the development and efficiency of businesses in provinces and cities and expects to launch it by the end of this year. GSO Deputy Director General, Phạm Quang Vinh, said at a news conference yesterday that the indices will be based on indicators such as the number of firms operating, employees, investments, revenues, profits and contributions to the State budget. The indices will be different from the current provincial competitive index.

Calling the protectionists’ bluff Jakarta Globe Indonesia’s economic growth this year will probably exceed the government’s official target and reach 5.2 per cent, Finance Minister Sri Mulyani Indrawati said on Tuesday. Sri said she expects Indonesia’s exports and imports to no longer decline this year. “The government will use the state budget to push the momentum for consumption and investment,” Sri said during a 2018 budget preparation meeting with government agencies. The government’s official growth target this year is 5.1 per cent. Next year’s target is set at 5.6 per cent, pending parliament approval.

The Times of India Banks have been cutting rates in the recent times as they want to use liquidity available with them, Finance Minister Arun Jaitley (pictured) on Tuesday said in the Rajya Sabha as some parties, including ruling NDA, said demonetisation did not have positive impact on credit growth. Shiv Sena member Sanjay Raut said it was claimed that demonetisation would have positive effects on credit growth but that did not seem to be happening while there were also concerns related to banks cutting down staff.

The Phnom Penh Post The vast majority of local companies lack corporate governance standards and provide insufficient business information, requiring investors and regulators to do heavy due diligence work that stops businesses from tapping into additional funding sources, officials said yesterday. Speaking at the opening of a two-day education seminar on corporate governance and transparency, Sou Socheat, director of Securities and Exchange Commission of Cambodia (SECC), said that strengthening corporate governance in the private sector was crucial for the Kingdom’s economic growth. He added that if more companies adopt international corporate governance principles, it could spur more listings on the sluggish Cambodia Securities Exchange (CSX).

ost reports about globalization in recent years have focused on its problems, such as declining levels of trade and the abandonment of “mega-regional” trade agreements. Indeed, U.S. President Donald Trump has now terminated the Trans-Pacific Partnership (TPP) – a trade deal among a dozen Pacific-rim countries, including the United States and Japan; and negotiations on the Transatlantic Trade and Investment Partnership (TTIP) between the U.S. and the European Union have come to a halt. But headlines can be misleading. Although new trade deals can spark controversy, it is highly unlikely that protectionism will prevail. This is true even in the U.S., where Trump was elected on the promise of getting tough with major trading partners such as Mexico and China. So far, the Trump administration has taken no action suggesting that a new era of protectionism is at hand. And in Europe, the benefits of economic openness have been widely acknowledged, and negotiations on a free-trade agreement with Japan are currently underway. Most developed countries remain fairly open today, and this pattern will likely continue. A new surge of support for protectionist policies would require a coalition of powerful interest groups to organize a campaign aimed at changing the status quo. With average tariff rates at negligible levels (below 3 per cent for both the U.S. and the EU), who would support a push for higher barriers? In the past, coalitions of workers and capitalists from the same industry would lobby for protection. Their interests were aligned, because higher tariffs allowed workers to demand higher wages, while capitalists could still make higher profits in the absence of foreign competition. The infamous 1930 Smoot-Hawley Tariff, which many believe helped precipitate the Great Depression, was the result of such lobbying. Today, however, the interests of workers and capitalists are no longer aligned. Most manufacturing is now dominated by multinational firms that operate production facilities in many countries. This is particularly evident in China, where U.S. and European companies have made huge investments. Any policy that hurts the Chinese economy will hurt them, too. Foreign-owned enterprises account for about half of China’s exports; and U.S. firms are the biggest investors in the country. So, if Trump followed through on his campaign promise to impose a 45 per cent import tariff on Chinese goods (most likely in violation of World Trade Organization rules), he would strike a major blow to U.S. multinationals’ profits. This may explain why most of the administration’s protectionist rhetoric comes from Trump and some of his academic advisers, and not from the experienced CEOs who occupy key cabinet positions. Another major difference today is that many firms are a part of global value chains, whereby goods are assembled in countries like Mexico or China from imported components, the most sophisticated of which often come from the U.S.. If these countries imposed tit-for-tat measures on U.S. imports, the U.S. companies that export those components would suffer, as would companies that collect royalties on intellectual property used abroad. Those who want to “get tough” on China or Mexico

“

Daniel Gros a Director of the Centre for European Policy Studies

claim that their goal is to persuade U.S. companies to make their products entirely in the U.S.. But assembly is usually a low-skill, low-wage activity at the bottom of the value chain. So, slapping a tariff on goods made in China would only push assembly operations to other low-wage countries, not back to the U.S.. The same can be said with respect to Mexico. Withdrawing the U.S. from the North American Free Trade Agreement would do little to create high-paying jobs in the U.S.. It is worth noting that U.S. labour unions that opposed NAFTA 20 years ago have not rallied behind Trump’s threats against Mexico. To be sure, the presidency grants Trump considerable power to shape trade policy, so one cannot ignore the possibility that he will pursue protectionist measures to appease his supporters. But, ultimately, there is no broad-based support in the U.S. for a return to closed borders. Europe, meanwhile, has been moving in the opposite direction. European multinationals also have large stakes in the Chinese economy, and EU manufacturing exports to China and other emerging markets are now almost double those of the U.S.. Many Europeans see trade as an opportunity, rather than as a threat to jobs; and even Europe’s staunchest antiglobalizers show little appetite for more protectionism. Still, if there is little support for reversing free trade nowadays, why is there such vocal opposition to major trade deals? In the U.S., manufacturing workers’ wages have long been stagnant, and job opportunities in the sector have fallen rapidly. As these trends coincided with high trade deficits, the two issues became politically intertwined, even though most studies show that automation has been a much more important factor in the decline of manufacturing as a share of overall employment. Manufacturing in Europe is doing better than in the U.S.. But there are still protests against the TTIP – and, to a lesser extent, against the EU’s recent trade deal with Canada – because some object to “new” deals that supposedly subordinate local standards and regulations to those of trading partners. Large trade deals often introduce new health and safety requirements that become much more politically charged than cuts to already-low tariffs. Northern European countries, in particular, cherish their local standards and spurn the thought of eating chlorine-disinfected chicken or genetically modified fruits and vegetables, even if there is no scientific evidence that these production methods pose a health threat. But the unpopularity of mega-regional trade deals in advanced economies does not imply broadbased support for a return to protectionism. The “bicycle theory” of trade liberalization – that it will collapse unless it keeps moving forward – is wrong. European policymakers should ignore the protectionist noises coming from Trump’s administration, and concentrate on defending the current global trading system and the liberal international order. Project Syndicate

The interests of workers and capitalists are no longer aligned

”

16 Business Daily Thursday, April 13 2017

Closing Gas & Diesel

Mainland raises retail fuel prices for third time this year

influenced by factors including increasing demand from U.S. firms, the shutdown of one of Libya’s major oilfields over the weekend and China will lift the retail prices of both gas and growing tension in the North African country, diesel for the third time this year from today, according to the NDRC price monitoring centre. amid a rally in global oil prices, the country’s China adjusts domestic retail oil prices when top economic planner announced yesterday. international crude prices change by more than Gasoline prices will rise by RMB200 (about RMB50 per tonne in a 10 working-day period. US$29) per tonne and the diesel price will This is the third time this year that China be lifted by RMB190 per tonne, the largest has lifted retail fuel prices, leading to an price hike this year, according to the National Development and Reform Commission (NDRC). accumulated gas and diesel price increase of RMB320 and RMB310 per tonne respectively. This fuel price hike is inline with oil price upswings on the international market, Xinhua

Live streaming

China’s would-be Internet stars boost billion-dollar market The rapid growth of live streaming in China has attracted a rush of investment Shu Zhang and Matthew Miller

ing Qi, a part-time presenter on the live streaming platform Huajiao, underwent cosmetic surgery in March to improve her chances of becoming an internet celebrity. After five hours of rhinoplasty and facial fat injections that left her with gauze covering her nose, eyes, forehead and cheeks, the 27-year-old said she felt “even worse than dead”. But the suffering was worth it. Jing is among tens of thousands hoping to find online stardom as an anchor on the live video streaming phenomenon sweeping China’s media. The fastest-emerging internet sector barely existed in China three years ago but last year produced revenues of more than RMB30 billion (US$4.3 billion) and according to an estimate by investment bank China Renaissance Securities, is set to more than triple that by 2020. That puts it on track to overtake cinema box office receipts in a few year’s time. “I want more people to watch me, to spend Huajiao coins on me,” Jing explained, referring to the virtual gifts her online followers buy that she can later redeem in part for cash. “In the end, I’ll be able to marry a tall, handsome and rich man,” Jing said. The rapid growth of live streaming in China has attracted a rush of investment, led by China’s tech heavyweights, Tencent Holdings, Alibaba Group Holding and Baidu Inc . They hope live streaming can boost existing

services in e-commerce, social networking and gaming. Tencent, the country’s biggest online gaming and social networking company, is backing a slew of streaming and interactive entertainment firms, including gaming platform Douyu. Alibaba’s Taobao marketplace launched a live-streaming platform early last year, allowing sellers to promote products directly to online viewers in real time. The lure is some 344 million Chinese netizens – more than the population of every country on the planet bar China and India - who were watching live streaming sites in December. And that is only about 47 per cent of all Chinese Internet users. There are about 150 live streaming platforms, most producing entertainment shows. The importance of live streaming in lower-tier cities is greater than elsewhere in China. Access to the internet via a mobile phone is the major, if not the only, gateway to shopping and entertainment, said Karen Chan, equities analyst at Jefferies Hong Kong. Live streaming has also bolstered the growth of ancillary businesses, including agencies looking to find the next live streaming star, consumer loans, and even cosmetic surgery. Deng Jian, chairman of Three Minute TV, an agency that provides 1,000 trained anchors to more than three dozen platforms, said his business operates a “militarised” production machine to feed the live streaming industry. At an office building in a suburb

of Beijing, dozens of Deng’s female anchors work each day around the clock in three shifts. Each anchor sits in a small booth, decorated to appear like a girl’s bedroom, facing a computer. They sing and flirt with fans, encouraging them to buy virtual gifts, like a rose, sport car or villa. The cash for the gifts is split by the platforms, agencies and the anchor. Three Minute TV also arranges cosmetic surgery at partner hospitals for its anchors, arranges small bank loans for the surgery, photographs and markets the anchors and helps them find acting opportunities Deng said. After the spurt of growth in live streaming and the rush of platforms

it spawned, the arrival of tech giants is pointing to consolidation in the sector, analysts said. “Live streaming has always been a ‘cash-burning’ industry,” a Douyu executive, who declined to be identified, told Reuters. “After an industry growth spurt, very few live-streaming platforms can survive until B round,” the executive said, referring to the next stage of a company’s financing. Authorities have also clamped down on streaming sites that provide illegal content, adding to the consolidation risk, said iResearch analyst Tina Zhang. In July, China’s culture ministry announced that it had shut down 4,313 online show rooms, firing or punishing more than 18,000 anchors. Twelve platforms, including heavyweights Panda TV, 6.CN and Douyu, were punished and ordered to make changes after offering illicit content that “promotes obscenity, violence, abets crime and damages social morality”. Still, the prospect of change in the sector hasn’t faded the hopes of thousands of young Chinese who want to become internet stars. Jin Xing, the founder of cosmetic surgery app Soyoung, said he estimates 95 per cent of anchors have undergone cosmetic surgery to improve their looks. The app connects cosmetic surgery centres with prospective clients. “Live streaming cannot be faked and cosmetic surgery increases the chance of getting a virtual gift,” said Jin, who reckons about a fifth of Soyoung customers come from the live streaming universe. Jing, the Huajiao anchor, said her goal was to become famous enough as a streaming anchor to open her own online e-commerce store. “Using 72 hours of pain in exchange for three to five years of good looks is totally worthwhile,” Jing said following her cosmetic surgery. Reuters

Property

Private survey

Chengdu bars buyers from reselling homes for 3 years

Mainland growth steadies on construction boom

Cathay promotes Operating Chief Rupert Hogg to CEO

The capital of China’s Sichuan province yesterday joined more than 10 other cities in seeking to cool a sizzling property market by imposing a years-long minimum time before a buyer can resell a home. Chengdu’s housing authority said in a notice on its website that effective today, newly-bought homes cannot be sold again for at least three years. This year, a growing number of Chinese cities have been imposing a minimum ownership period of at least two years. These and other measures suggest intensified government efforts to cool the red-hot property market. Chengdu authorities have also urged banks in the south-western Chinese city to strengthen checks on home-buyers’ proof of income to contain credit risks by strictly fulfilling a requirement that the ratio of monthly mortgage repayments to income must not exceed 50 per cent. Wednesday’s announcements mark the second time in a month that Chengdu has unveiled property market curbs. In late March, it tightened requirements on income tax and social security records that non-residents making purchases have to produce. Reuters

China’s economy likely grew by a solid 6.8 per cent in the first quarter, the same pace as the previous quarter, due to sustained government infrastructure spending and a gravity-defying housing market, according to a Reuters poll of 60 economists. But the world’s second-largest economy is widely expected to lose steam later in the year as the impact of earlier stimulus measures starts to fade and as local authorities step up a battle to rein in red-hot housing prices. A tighter monetary policy stance by the central bank and intensifying efforts by regulators to contain debt risks and asset bubbles could also weigh on growth in the world’s second-largest economy if not handled well, economists said. “Growth is still driven by infrastructure investment and the property sector, but property investment is likely to slow in the second half due to curbs on home buying and mortgages,” said Tang Jianwei, economist at Bank of Communications in Shanghai. “The economy is stabilising and warming up, but there are still downside risks in the medium term.” A surprisingly upbeat reading would likely boost stocks and global commodity prices, but a weak outcome could fuel the risk of more capital outflows. Reuters

Cathay Pacific Airways Ltd. named Rupert Hogg as its chief executive officer, replacing Ivan Chu, as Asia’s biggest international airline struggles to revive earnings after reporting its first annual loss in eight years. Hogg, 55, chief operating officer since March 2014 and a 30-year veteran at parent Swire Group, will take over May 1, Hong Kong-based Cathay said in a statement to the stock exchange Wednesday. Chu will become chairman of John Swire & Sons (China) Ltd., according to the statement. The change at the top, which usually occurs every three years at the carrier, comes in the midst of the biggest business revamp Cathay has embarked on in two decades to help reverse the decline in performance. The premium carrier has been under pressure from low-cost rivals in the region and Chinese airlines that are offering direct routes, even as demand for business travel dips. While sharing sketchy details of its review in January, Cathay said changes “will start at the top” and it would eliminate some positions as part of the revamp, with key changes taking effect by mid-year. The airline has set a target to save 30 per cent in employee costs at its Hong Kong head office, it said last month. Bloomberg News