Business Daily #1275 April 14, 2017

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

Followed by breakfast from 8:30am

Mainland posts lower growth in foreign investment in March Investment Page 10

Friday, April 14 2017 Year VI Nr. 1275 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Currency

China avoids U.S. manipulator tag but not off the hook on trade Page 16

Infrastructure

New Pac On Ferry Terminal operational by end-June Page 2

www.macaubusinessdaily.com

Ratings

MSAR ranked 19th liveable city for expats in Asia Pacific Page 4

Retail

Prada earnings dive to lowest since IPO Page 6

Monetary

MSAR forex reserves grow in March Page 4

Housing Market on the March Real Estate

The city’s housing market reversed its downtrend in Q2 last year.

Posting a q-on-q increase of 6.8 pct in home prices.

Although the residential price index of 2016 is still lower than that of 2015, according to the Statistics and Census Service (DSEC). Page 5

Chinese remain no.1 tourism spender

Tourism Total international spending of Mainland Chinese tourists is estimated to have reached US$261 bln in 2016. Making them the biggest source market on the planet.

For the fifth consecutive year. Not only benefiting nearby destinations within Asia but also those in the West. Page 7

New Shenzhen on the make MSAR now cheaper for tourists

In Q1, the amount of money visitors needed to spend in Macau should have been lower. Hotel prices were cheaper. As were flight tickets. The city’s Tourist Price Index dipped 5.34 pct y-o-y in the period.

Economic zone China’s Xiogan New Area is now filled with the scent of fast money. Attracting a stampede of dealmakers. President Xi Jingping wants to turn the region – near Beijing and Tianjin – into a new technology and innovation hub. Page 11

Consigliere

HK Hang Seng Index April 13, 2017

24,261.66 -51.84 (-0.21%) Worst Performers

Belle International Holdings

2.13%

China Resources Power

0.97%

Kunlun Energy Co Ltd

-1.59%

Bank of East Asia Ltd/The

-0.94%

New World Development

1.84%

Cheung Kong Property

0.91%

Hang Seng Bank Ltd

-1.33%

Geely Automobile Holdings

-0.93%

Swire Pacific Ltd

1.40%

AAC Technologies Holdings

0.69%

HSBC Holdings PLC

-1.32%

Lenovo Group Ltd

-0.78%

Sun Hung Kai Properties Ltd

1.36%

China Mengniu Dairy Co Ltd

0.67%

Link REIT

-1.24%

CK Hutchison Holdings Ltd

-0.73%

China Unicom Hong Kong

1.33%

Hengan International Group

0.51%

China Merchants Port Hold-

-1.09%

China Life Insurance Co Ltd

-0.65%

22° 24° 23° 26° 22° 26° 22° 27° 23° 27° Today

Source: Bloomberg

Best Performers

Sat

Sun

I SSN 2226-8294

Mon

TUE

Source: AccuWeather

Discover the most exclusive European resorts for a top-notch holiday. Pages 8 & 9

Tourism Page 3

2 Business Daily Friday, April 14 2017

Macau Maritime affairs

Pac On Ferry Terminal operational this quarter Twelve years after the start of construction, the opening of the new ferry terminal in Taipa is now a matter of weeks away Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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he new Pac On Ferry Terminal in Taipa will be operational within this quarter, the Marine and Water Bureau (DSAMA) told Business Daily in an e-mail this week, although it said the exact launch date has yet to be determined.

The Bureau, which is responsible for running the Terminal, had previously announced that the new ferry terminal would become ‘partially operational by no later than May [2017]’.

‘Currently, we are working closely with relevant departments and units in conducting various preparatory works, of which the passenger ship evacuation drill was completed and the fire drill will be arranged soon,’ said a spokesperson for the Bureau.

Saying that the preparatory arrangements for the opening are under way ‘intensively,’ the Bureau added that ‘lots of co-ordination works are required, including move-in arrangement, assistance on equipment and facilities installation.’

However, it did not respond to

Business Daily’s enquiry about the number of people currently employed to guarantee the Terminal will be opened in a timely manner.

Started in 2005, the construction of

Occupational safety

Pac On Ferry Terminal was expected to take roughly a year to be completed, with an initial budget fixed at MOP583 million (US$72.70 million), as reported by this newspaper.

As at September 2016, construction works had already cost MOP3.8 billion from the public coffers, the government said at that time.

According to the Bureau, some o f th e r e l eva n t d e p a rt m e n ts

co-operating with DSAMA for the opening of the Terminal include the Civic and Municipal Affairs Bureau, the Transport Bureau, the Public Security Police Force, the Fire Service Bureau and the Macao Government Tourism Office.

All these departments and units will also participate in the daily operations of the Terminal in the future, DSAMA said.

Chinese Medicine

MUST partner delays investment payment HK legislators demand harsher penalties for delta bridge accidents Zhongzhi Pharmaceutical Holdings Limited Hong Kong legislators believe contractors of the Hong Kong-Zhuhai-Macau Bridge should receive stricter penalties for any occupational fatalities on the construction site, The Standard newspaper reported.

During a Hong Kong Legislative Council panel meeting, legislator Luk Chung-hung cited data that the average penalty imposed on contractors in over 100 industrial accidents that the court has handled was HK$99,000 (US$12,735) whilst that for occupational fatalities was HK$92,000.

“Contractors work on projects worth more than HK$100 million a year. The penalty is like nothing,” Legislator Luk said as quoted by the newspaper.

A recent document released by the Hong Kong Labour Department

claims a total of five deaths and 235 injuries occurred on Bridge construction sites between 2011 and the third quarter of 2016.

Legislators attending the panel criticised the government’s supervision of safety measures such as allowing safety belts to be attached to working platforms instead of the Bridge itself, which may lead workers to be dragged into the sea should platforms fall.

Meanwhile, the Hong Kong Commissioner for Labour, Carlson Chan Ka-shun, lamented that death still occurred despite 1,384 onsite checks of the Bridge and 329 prosecutions, although conceding that the injury rate of the project at 22.9 per 1,000 workers was still lower than other developments in the city. N.M.

has not yet financially invested in a joint venture with Macau University of Science and Technology Foundation Nelson Moura nelson.moura@macaubusinessdaily.com

Traditional Chinese medicine group Zhongzhi Pharmaceutical Holdings Limited will inject MOP480,000 (US$59,945) into a joint venture with Macau University of Science and Technology (MUST) Foundation

by June 30 this year, revealed the company’s 2016 annual report.

A subsidiary of the group, Zhongzhi Pharmaceutical and Grant Talent Development Limited established a joint venture with MUST IPO Group Limited - a trust company of MUST Foundation- and six individuals of the university group last October.

The consortium, named Scienwi Pharmaceutical Technology Company Limited, has a registered capital of MOP1 million, with Zhongzhi Pharmaceutical owning 48 per cent equity share as classified by its proposed investment of MOP480,000.

The company explained in the report that the payment had not yet been made due to ‘expected additional time needed’ for opening a bank account.

Herb earnings

Zhongzhi Pharmaceutical registered RMB53.9 million(MOP62.6 million/ US$7.8 million) in profits in 2016, a 33.1 per cent year-on-year decrease due to an increase in advertising expenses, the annual report reads.

The company’s selling and distribution expenses primarily originated from its chain pharmacies, which increased 36.7 per cent yearly to RMB277.4 million in 2016.

Nevertheless, the group’s revenues still managed to record a 6.2 per cent year-on-year increase to RMB730.5 million.

According to a statement by group chairman Lai Zhi Tian the Chinese Government has placed great emphasis upon regulating TCM, with the ‘Law on Chinese Medicines’ set to be enforced on July 1 this year.

The new legislation will allow TCM practitioners to obtain a licence to practise in hospitals and clinics in the same model as Western medicine professionals, while requiring regional governments to set up TCM clinics in public hospitals and clinics, the chairman notes.

Mr. Lai believes the new policies will stimulate the demand for herbal health supplements leading to a “sharp expansion” of the market.

Business Daily Friday, April 14 2017 3

Macau

Lower hotel room rates helped drive down the city’s tourist prices in Q1

Tourism

Tourist prices drop further in Q1 In general, visitors to the MSAR were able to enjoy cheaper flight tickets and lower hotel room rates during the period Kam Leong kamleong@macaubusinessdaily.com

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ower hotel prices, reduced airfares and lower prices for handbags pushed the city’s tourist price index down by 5.34 per cent year-on-year to 129.00 in the first quarter of the year, he latest official data of the Statistics and Census Service (DSEC) reveals.

The quarter’s decline, down further from that of 4.48 per cent in the last three months of 2016, marks

the seventh consecutive quarterly decrease in average tourist prices in the territory.

In the first three months of the year, the average tourist price index of accommodation recorded a decrease of 14.4 per cent whilst that of transport and communications, and clothing & footwear fell 21.2 per cent and 9.5 per cent year-on-year, respectively.

However, the price index of restaurant services recorded an increase of 4.86 per cent year-on-year due to higher charges for restaurant services

in the period. In addition, dearer prices of leisure goods such as fireworks and firecrackers during Chinese New Year boosted the price indices of entertainment and cultural activities by 4.59 per cent from the same quarter of last year.

The tourist price index reflects the price change of goods and services purchased by visitors. According to DSEC, sections of goods and services for the index are selected according to the consumption pattern of visitors.

On a quarter-to-quarter comparison, the city’s average price for visitors were 4.42 per cent cheaper than in the last quarter of 2016. The decline is due to the seasonal sale of handbags and women’s winter clothing, and lower hotel room rates,

which led the price index of clothing & footwear and accommodation to drop by 13.89 per cent and 10.15 per cent quarter-to-quarter, respectively.

But the average prices for visitors for entertainment & cultural activities registered a quarterly growth of 2.11 per cent, while that for restaurant services went up by 2.08 per cent from the last quarter of 2016.

For the four quarter ended March 31 this year, the local average tourist price index represents a decrease of 5.11 per cent from the pervious period, which is again primarily attributable to the decreased costs for accommodation and transport & communication despite increases in the price index of restaurant services and miscellaneous goods from the earlier period.

4 Business Daily Friday, April 14 2017

Macau Opinion

Pedro Cortés*

No protection Since it has come into force, the Data Protection Law has been used for many purposes beyond its spirit and goal. We saw a few years ago a referendum disrupted due to such legislation. We also saw last week a columnist of this newspaper, who is also the President of the Society for Protection of Animals of Macau, being “accused” of violation of such law.

Well, the interpretation seems to be used at the discretion of the authorities whenever there is a case or a potential case.

Sharing in the Facebook page a video recorded by a third party appears to be an administrative infringement (which is different from a crime) that may have been practiced. But it is not, in my view, a violation of the personal data rules. The recording of such video may be seen, of course, as falling within the provisions of the law.

Sharing what is already made public is not, definitely, a violation.

Let’s wait and see what the courts will decide on this matter and hope that the Rule of Law system continues to exist in our beloved city.

We are now in an era where everyone with a smartphone can be a journalist and can produce news. Let’s imagine that we are broadcasting live on Facebook and a crime occurs. Are we violating the Data Protection Law? Shall we get consent from the criminal before we publish? Well, in theory, yes, we shall go and ask the criminal for consent or otherwise we may be liable for violation of the Data Protection Law. In Portugal, two days ago, a husband committed a crime of domestic violence against his wife. He almost drowned the poor woman in a river. As a matter of fact, the wife is not dead now because a neighbour passed by the crime scene and started yelling and recording what was happening. Should this neighbour be liable to violation of the Data Protection Law, which is quite similar in Portugal to what we have in Macau?

A person that prevented a crime from happening and published the video without the consent of the criminal shall not fall, in my view, within the provisions of the referred law.

Well, at least in Portugal, where the suspect crim­ inal is now in preventive custody due to the acts he committed.

In Macau, one may have different interpretations. *lawyer and frequent contributor to this newspaper.

Ratings

Report: Macau 19th liveable city for expats in Asia Pacific Meanwhile, Singapore tops both the regional and global ranking in the latest survey conducted

by ECA International Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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acau is ranked 19th most livable city for expatriates in the Asia Pacific region, reveals the latest Location Ratings survey for expatriate living conditions published yesterday by global consulting firm ECA International.

Globally, the Special Administrative Region occupied 82nd position in a list of 470 locations, which represents a decrease of one place compared to last year’s ranking.

According to ECA International,

the assessment criteria range from climate conditions and air quality, availability of health services, and housing and utility conditions, to infrastructure, personal safety, and political environment.

Hong Kong, evaluated 15th most liveable city in Asia Pacific for expatriates this year, saw its global ranking drop one place to 29th.

According to Lee Quane, Regional Director of Asia, ECA International, the neighbouring SAR’s decrease in the ranking results from a combination of both internal and external factors.

While other locations in Asia Pacific – mainly in Australia, Japan and

New Zealand – have improved their overall living conditions over the past five years, poor air quality levels and ‘ongoing social-political tensions’ have contributed to Hong Kong’s slight decline in this year’s ranking, the regional director explained.

In fact, in a different survey by ECA International last November, the consultancy firm forecasts a better salary hike for employees based in Macau than for those based in Hong Kong.

The report expects MSAR employees will experience an increase in real wages of 1.7 per cent, overtaking Hong Kong in the regional rankings.

The best and the worst

Singapore tops both the regional and global list for a fifth consecutive year, according to the report.

Taipei, meanwhile, is considered

by ECA to be the 2nd best city for expatriates to live in, in the Asia Pacific region, climbing two places in the global ranking to 69th.

Australia hit the jackpot, with Oz cities occupying five of the top ten locations with the best quality of life in the globe. By order of their scores they are Adelaide, Brisbane, Sydney, Perth and Canberra.

Wellington in New Zealand land­ ed sixth position both regionally and globally.

On the other hand, Kandahar (275th) and Lashkar Gah (276th), both located in Afghanistan, presented the highest levels of difficulty for expatriates to adapt to living and working.

The worst global score for air quality went to Beijing and New Delhi.

Monetary

Forex reserves expand in March Macau’s foreign exchange reserves posted an increase of 0.3 per cent to MOP155.1 billion (US$19.38 billion) in March vis-à-vis MOP154.6 billion the previous month, the Monetary Authority of Macao revealed yesterday.

As at the end of last month, total foreign exchange reserves held by the MSAR represented 11 times the currency in circulation or 90.6 per cent of Pataca M2 as at the end of February, 2017.

M e a n w h i l e , t h e m o n t h’ s trade-weighted effective exchange rate index for the Pataca stood at 109,

Appointment

LEGO appoints new head for SARs, Taiwan office LEGO Hong Kong Ltd. welcomes a new General Manager next month. Troy Taylor is taking up the role at LEGO operations overseeing the Hong Kong, Macau and Taiwan business, AdNews reported.

According to the news outlet, Mr. Taylor was head of marketing for LEGO Australia and New Zealand for the past three years.

In March 2016, the group expanded its Shanghai office facilities – one of LEGO’s five main offices worldwide, saying in a press release that the expansion seeks to ‘support the strong growth in the Chinese market.’

LEGO invested 2.9 billion Danish krones (US$428.99 million/MOP3.43 billion) ‘in property and building production capacity’ in 2016, including the opening of a new factory in Jiaxing, China, according to the company’s annual report for the year. S.Z.

a growth of 0.02 points month-tomonth or an increase of 3.08 points

year-on-year.

This suggests the exchange rate of the Pataca advanced against the currencies of Macau’s major trading partners in overall terms. C.U.

Business Daily Friday, April 14 2017 5

Macau

Property

Housing prices drop 3.4 pct in 2016 Although the market has been on the path to recovery since the second quarter of last year in terms of price Kam Leong kamleong@macaubusinessdaily.com

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he city’s housing prices picked up momentum in the second quarter of 2016, although the year’s residential price index was still lower than that for 2015, notes the Statistics and Census Service (DSEC) in its latest survey released yesterday.

According to DSEC, the overall residential price index fell 3.4 per cent year-on-year to 219.3 for 2016, a narrower decrease compared to the 227 of 2015.

In particular, the price index of housing units on the Macau Peninsula registered a decrease of 3.9 per cent year-on-year to 222 whilst that for Taipa & Coloane posted only a mild decrease of 0.4 per cent yearon-year to 207.

The local census body notes the index - calculated with 2011 as the base year - is compiled on the basis of methodology proposed by the University of Macau in the study report ‘Compilation of Residential Price Index of Macau’ released in October 2016. The report used administrative records of application for payment of stamp duty provided by the Financial Services Bureau.

By type of property, the price index for completed housing units was 225, a decrease of 3.8 per cent year-on-year. In particular, average prices for those units built over 20 years ago went down by 3.6 per cent year-on-year.

Meanwhile, average prices for housing units under construction dropped by 2 per cent year-on-year to 200.8 during the year.

In terms of size, the price index for

Tourism

MGTO unveils tourism promotion in Malaysia Macau has launched a tourism promotion event in Malaysia this week to attract high-value visitors from mid-haul markets and promote multi-destination tourism, Macao Government Tourism Office (MGTO) said yesterday.

The tourism body unveiled ‘Experience Macau-Malaysia’ in the central district of Kuala Lumpur late Wednesday, showcasing the city’s diversities of tourism, culture, sports and gastronomy for Malaysian citizens, the travel trade and media to experience.

Maria Helena de Senna Fernandes, MGTO Director

The five-day event also promoted multi-destination tourism with the tourism authorities of China’s Guangdong, Guangxi and Fujian. MGTO said it is part of endeavours to offer Macau’s unique features as a world centre of tourism and leisure, and to tap into a variety of visitor markets and attract high-value visitations from mid-haul markets to Macau or other destinations by highlighting the destinations’ tourism strengths and geographic advantages.

MGTO Director Maria Helena de Senna Fernandes said at the opening ceremony that Malaysia has been one of Macau’s major mid-haul markets. Being a unique travel destination brimming with blended cultural gems from the East and West, Macau is a stop with various itineraries which encompasses other destinations on the map.

On the first day of promotion, many travel agencies were on hand to offer special travel packages to Macau as well as other multi-destination tourism products in different combinations, such as Guangdong-Macau, Guangxi-Macau, Fujian-Macau, Hong Kong-Macau and Guangdong-Hong Kong-Macau.

The MSAR, Hong Kong and neighbouring provinces of the Chinese Mainland organised a joint tourism promotion event in Jakarta, Indonesia on Monday. Xinhua

units with a floor area of less than 50 square metres decreased by 4.9 per cent year-on-year to 221.7 whilst those with a floor area of 75 to 99.9 square metres and those with 100 square metres or more posted a lower drop, both down 3.2 per cent year-on-year.

Momentum

Throughout the year 2016, the second quarter reversed the downtrend in residential housing prices, registering an increase of 6.9 per cent quarter-to-quarter. The trend was followed by the third and the last quarter of the year, which posted an increase of 2.8 per cent and 4.3 per cent quarter-to-quarter, respectively.

Nevertheless, on a year-on-year basis, the downtrend in the home market was only halted in the fourth quarter of 2016, when an increase of 10.3 per cent year-on-year in the average prices was evident.

DSEC notes the highest level of the city’s housing prices were between the second and third quarter of 2014, with the indices for the Macau Peninsula (233.7) and Taipa & Coloane (230.1) rising 7.8 per cent and 23.2 per cent year-on-year, respectively.

The government bureau adds such information on the residential price index will be regularly released in the quarterly brief report of ‘Private Construction and Real Estate Transactions’ from now on.

6 Business Daily Friday, April 14 2017

Macau

By the end of May, Auto Italia’s agreement with Ferrari to import and distribute its automobiles in the SARs will terminate

Motoring

Burnt rubber In May, the Ferrari importer loses the distribution rights that contributed 45 pct to revenues of the group last year Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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uxury automotive distributor and investment holding company Auto Italia could lose up to 45 per cent of its consolidated revenue this year following the termination of its agreement with Ferrari to import and distribute the luxury automobiles in the Macau, Hong Kong and China regions, according to the group’s annual report.

As previously reported by Business Daily, the company’s agreement will terminate with effect from May 27 of this year, having received ‘an advice’ from the car manufacturer to end its import and distribution rights on November 29 of last year.

The group’s annual results, published recently and submitted to the

Hong Kong Stock Exchange, appear to contradict previous statements made by the company in response to Business Daily enquiries, given that on November 30 the company told the newspaper that: ‘The Board considers that the cessation of Ferrari business will have no material adverse impact on the profitability of the Group.’

However, in the group’s annual report, it points out that ‘The sale of new “Ferrari” cars contributed to approximately 45 per cent and 36 per cent of the Group’s consolidated revenue for the years ended 31 December 2016 and 2015, respectively.’

In addition, the group has signed a non-legally binding Term Sheet, including details of the ‘transfer of the assets relevant to the “Ferrari” brand, including property, plant and equipment,’ according to the filing.

However, notes the group, if Auto Italia is ‘unable to reach agreement with Ferrari S.p.A. and conclude a formal agreement to transfer the property, plant and equipment’ in line with the previous terms then ‘the recoverable amounts of the relevant property, plant and equipment may be lower than their carrying values, which may lead to impairment of relevant property, plant and equipment.’

The filing notes that at the end of last year ‘the carrying amount of goodwill and property, plant and equipment amount were HK$2,480,000 [US$310,000] and HK$53,852,000, respectively.’

The same statement issued to Business Daily notes that ‘For the time being, we have no further comment on this subject’. Subsequent enquiries over the past four months have not been responded to.

Another challenging year

The group’s Executive Chairman and CEO, Mr. Benny Chong Tin Lung, expects the coming year to be a “challenging year, especially after a series of ‘black swans’ in 2016 . . . we expect to see a more perplexing business environment in the sale of luxury

cars in the Hong Kong market.”

In addition, despite its previous confidence that the company would be unaffected by the Ferrari contract termination, the CEO now notes that “while we remain confident that our car business operation will continue to be profitable for our shareholders, its long-term financial performance may likely be limited due to the fact that we now only operate Maserati dealership businesses in Hong Kong.”

In an attempt to ensure that the recoverable amounts come in line with expectations, the CEO notes that “we are in sincere communication and co-operation with Ferrari in order to smoothly hand over the business, safeguard both customers’ and the company’s interests.”

The company ended 2016 with a loss of HK12.38 million vis-a-vis a profit of HK$27.76 million last year.

The group’s revenue shrank 23.7 per cent to HK$742.5 million.

The group will continue to hold the import and distribution rights for Maserati, noting that its plans for the year are ‘aggressive sales and marketing strategies, improvement of operational efficiency and maintaining high levels of financial discipline.’

Retail

Prada earnings slide to lowest since IPO The luxury brand is now seeking a turnaround Robert Williams

Prada SpA reported the lowest fullyear profit since its 2011 initial public offering though said it’s confident of a turnaround as the maker of Miu Miu apparel sees signs of revival after a slump in Asian luxury demand.

Net income fell 16 per cent to 278.3 million euros (MOP2.36 billion/ US$295 million) in the year through January, the Milan-based group said Wednesday. While that missed the average analyst estimate of 294.7 million euros, Prada said that in keeping with peers such as LVMH it has seen better indications in both Asia and Europe.

The maker of Car Shoe footwear was hit harder than most by a downturn in demand across Asia, where it gets about half its revenue. Recent indicators have been better: sales returned to growth in January, an initial sign that Prada is on the mend.

The company raised its dividend to 12 euro cents a share, which it said is a sign of confidence in future growth.

“We believe that Prada is at trough Ebit margin and see new and appealing products in store for the consumer,” Luca Solca, an analyst at Exane BNP Paribas, said by email. Profit missed estimates partly because of a higher tax rate, he said.

Speeding recovery

A decline in sales slowed to 6 per cent

at constant exchange rates in the second half from 13 per cent in the first six months, Prada said. The company saw a “strong rebound” in Mainland China, which had double-digit sales growth in the fourth quarter.

There were also signs of recovery

in Europe, with the U.K. showing double-digit growth in the second half as the drop in the value of sterling drew in foreign tourists.

“2016 marks a turning point as we are now firmly on the pathway to sustainable growth,” Chief Executive Officer Patrizio Bertelli said in a presentation.

The company has said it hopes

to speed up recovery by boosting e-commerce, particularly in footwear, and by reaching out to clients more aggressively on social media. It has also introduced more entry-priced accessories to hook a broader range of consumers.

“Coming up with fresh ideas in quick turnaround times has always been our specialty,” Bertelli said.

The company is open to possible acquisitions, though has no active plans, he said. Bloomberg

Business Daily Friday, April 14 2017 7

Macau Tourism

Mainland Chinese tourists spent 12 pct more in 2016 The country remained the biggest source market of global tourism last year Kam Leong kamleong@macaubusinessdaily.com

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otal spending of outbound Chinese visitors registered an increase of 12 per cent in local currency to US$261 billion (MOP2.09 trillion) for the whole year of 2016, making the group the biggest travel spender in the world, according to the latest World Tourism Barometer released by the United Nations World Tourism Organization (UNWTO).

The organisation notes the growth consolidates China’s

position as the number one source market in the world since 2012, following a trend of double-digit growth in tourism expenditure every

year since 2004.

The number of Chinese outbound tourists totalled some 135 million last year, an increase of 6 per cent year-on-year.

According to the report, the growth in Chinese’s outbound travel benefited

The number of Chinese outbound tourists totalled some 135 million last year, according to UNWTO

many places in the Asia and the Pacific region - in particular, Japan, South Korea and Thailand – in addition to long-haul destinations such as the United States and several places in Europe.

Other big spenders

Following China, the United States, Germany, the United Kingdom and France are the other top spenders in the world.

Other major sources of outbound tourists in the Asia Pacific were South Korea and Australia - whose travel spending both increased by over 8 per cent year-onyear in 2016, totalling US$27 billion.

Meanwhile, Hong Kong saw expenditure of its outbound

residents jump 5 per cent year-on-year to US$24 billion in the same year.

“The latest data on outbound tourism spending is very encouraging. Despite the many challenges of recent years the results of spending on travel abroad are consistent with the 4 per cent growth to 1.2 billion international tourist arrivals reported earlier this year for 2016,” commented UNWTO Secretary-General Taleb Rifai.

“People continue to have a strong appetite for travel and this benefits many countries all around the world, translating into economic growth, job creation and opportunities for development,” he added.

Crime

Fixed jackpot Members of a Russian criminal syndicate operating slot machine scams that previously targeted MSAR casinos have been arrested in Singapore Two Russian nationals in a criminal group operating slot machine scams in casinos in the United States, Europe and Macau were arrested in Singapore, The Strait Times newspaper has reported.

Acc u s e d o f u si n g a dva n c e d

technology to record play patterns of certain slot machines to predict the next payout, Russian Vladislav Logachev and Andrei Egorov have been sentenced to prison for 45 months and 30 months, respectively.

Last year, Singapore authorities arrested Czech national Radoslav Skubnik, who was accused of being an accomplice of the two in a scam that garnered S$108,995(MOP625,793/ US$78,160) from slot machines in the Marina Bay Sands (MBS) and Resorts World Sentosa in Singapore last May, according to the news outlet.

The group’s modus operandi involves the use of devices to record the play patterns of targeted slot machines, whilst a ‘master’ - or team leader - would upload the information to an unknown server for analysis and decoding whereupon team members as players would

make use of the information to obtain payouts from the machines, the report said.

As much as 20 per cent and 10 per cent of the earnings would be distributed to the team leader and members, respectively, whilst the remaining amount would be taken by the syndicate.

According to Singapore authorities, all the earnings obtained by the group in the country’s casinos have been recovered.

Replying to Business Daily's enquiry, Judiciary Police say they do not have any record of similar scams having taken place in the city. N.M.

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8 Business Daily Friday, April 14 2017

Consigliere

How to have your best-ever trip to Europe this summer For your best-ever trip to the continent, here’s where to stay, when to go, and what not to miss Nikki Ekstein

If you love cities ...

... there’s no place like Paris.

London’s also having a moment.

Barcelona’s g

The City of Light will twinkle even more brightly this July, when the lights officially flick back on at Rosewood’s Hôtel de Crillon (pictured).

It took four years to update the 258-year-old palace hotel—located right on the Place de la Concorde—but the investment has paid off. An old ballroom in which Marie Antoinette used to practice piano has been converted into a grand suite; new apartment-style suites on the fourth floor will debut, with interiors by Karl Lagerfeld; and the new Bar Les Ambassadeurs will have the largest Champagne selection in town (no small feat in Paris). Rooms from US$1350.

It may not be in the EU much longer, but for now, it still counts. With the pound struggling post-Brexit, your money will go unusually far. Book into the Ned, a hotel of epic proportions in the City. It’s the brainchild of two Midas-like masterminds: Soho House and Sydell Group. (The latter birthed the cool-kid Freehand brand and New York’s Nomad hotel.) There’s also the Four Seasons Hotel at Ten Trinity Square, in a historic 1915 building that now has a wine program by Château Latour and a restaurant by French power chef Anne-Sophie Pic. Rooms from US$310 and US$534, respectively.

Despite its rep for w hasn’t always had mer it gets several i pack. The first entry is up next, in early window alcoves ju Rooms from US$47

When to go: Late July, after the Crillon gets its rhythm but before the city shuts down in August.

When to go: June, to avoid wet or overly hot weather.

What not to miss: Croissants at Sébastien Gaudard, right around the corner from your posh digs. To this writer’s estimation, they’re the best in the city.

What not to miss: Scones and tea in the atrium of the Wallace Collection, an under-the-radar museum in an immaculately preserved London townhouse.

If you love beaches ...

When to go: July, to-the-public eve month-long siesta

What not to miss: crowds at Barcelon interpretation of lo tropical fruit paleta

If you love

... skip Santorini and head to Mykonos.

... the Englis has a new jew

There’s more to do, from prettier beaches to a vibrant old town and a stunning new hotel: Myconian Kyma, which just opened under the Design Hotels umbrella. Like everything else on this postcard-perfect island, the building is a series of sugar-white cubes. But inside are punchy pops of colour: dining room chairs in cotton candy pink, lemon-coloured throw pillows, plush pool lounges in navy blue, and turquoise Aegean views from every window. Rooms from US$233.

It’s Lympstone M verted into a 21-r (pictured). On the parkland and a n duce Champagne are just a few min Exeter. Rooms fro

When to go: There’s no bad time to go to Mykonos (pictured). But go in May if you’d rather see the island’s quieter side.

When to go: The

What not to miss: No trip to Greece is complete without a meal of grilled octopus under an olive tree-shaded pergola. Find it at Kiki’s, a beachside spot that’s refreshingly free of pretence on this otherwise-sceney island.

Let the French Riviera lure you The super-stylish team behind Paris’s Le Pigalle has just set up shop amid a string of tiny fishermen’s villages on the Provence coast, midway between St. Tropez and Cannes. Their Hôtel Les Roches Rouges is an idyllic escape, with a saltwater swimming pool that’s cut into natural rock formations, an open-air cinema, and a pétanque court. As for the 50 rooms and suites: They’re all whitewashed with wicker and sand accents, most with either sea views or private gardens. Rooms from US$223.

When to go: The region is at its buzziest in July and early August; if a quiet retreat is what you’re after, go in June or pre-Labour Day.

What not to miss: The town of Saint-Raphaël, where Les Roches Rouges is based, lies at the foot of the Massif de l’Estére hiking trails. It’s worth spending a day amid the red rocks and mossy vegetation that seem to tumble right into the shore.

And know this: Croatia no longer requires a yacht.

Go to Westeros in luxurious style by visiting two new properties on the island’s two prettiest beach towns. First is the just-redone Excelsior in Dubrovnik (pictured), all glitz and glam in a landmarked royal villa. And then there’s Little Green Bay, a sweet gem of a property that’s brimming with design smarts. No boat required, but that doesn’t mean you can’t get on one for fun. Rooms from US$386 and US$413, respectively.

When to go: Avoid crowds by travelling in May or June.

What not to miss: Walk Dubrovnik’s Old Town ramparts: You’ll see how the city’s picturesque terra cotta roofs edge all the way up to the coastline. (You might spy a few recognizable Game of Thrones landscapes while you’re at it.)

What not to mis you’ll see the id Cockwood.

Portugal is

And you wouldn the Anantara Vila venerable Asian you’ll find built-i er-designed golf and six restauran and the pastel-co

When to go: Jul tons of local fes

What not to mis as the purple sw series of coastal l

Switzerland

Over in Lake Luc of Sophia Loren, t as a summertime serve as four sepa boutique four-star the Palace Hotel, w strewn with fur th in Switzerland are

When to go: Late restaurants, spa, and the Palace is

What not to mi where. Stay put, a

Business Daily Friday, April 14 2017 9

Consigliere

A

cross Europe, spring is finally in the air. The trees are blooming, the parks are springing back to life, and inbound summer fares are about to surge through the roof.

Fret not. If you’re still unsure about your summer vacation plans, here’s everything you’ll need to (very quickly) plan your best European jaunt yet, from the hottest, of-the-moment hotels to the destinations you might be overlooking.

Life hack

The daily routine of Richard Branson

getting a big upgrade

And Rome was rebuilt in 18 months

world-class architecture, this Spanish culture capital much to offer in the way of great hotels. This sumimpressive additions, with the Almanac leading the y for this nascent five-star brand (a Vienna Almanac y 2019), it’ll have 92 sumptuous rooms with deep ust a five-minute walk from the Plaza de Cataluña.

76.

At least the Dorchester Collection’s Hotel Eden was. It has just reopened after a top-to-bottom redo. A reduction in rooms, from 121 to 98, means that the gilded accommodations (and marble bathrooms) are ultra-spacious; on the rooftop you’ll find a stunningly sophisticated restaurant with floor-to-ceiling windows that open up for an al fresco feel. That you’re around the corner from the Spanish Steps and Villa Borghese is icing on the (olive oil) cake. Rooms from US$663.

when the city comes to life with tons of openents, or August; the city doesn’t take Europe’s a too seriously.

When to go: June, before the summer crowds really swarm.

: A day trip to the beaches. It’s worth braving the neta beach (pictured) to hit up Surf House, a chic ocal chiringuitos (beach bars) with slushy drinks, as (ice pops), and macaron ice cream sandwiches.

What not to miss: The best pizza you’ve ever tasted awaits at Antico Forno Roscioli, a third-generation operation in Campo de’ Fiori. And then there’s dessert at the family’s new bakery down the block, Roscioli Caffè, where you can get flaky, cone-shaped cornetti filled to order.

The billionaire founder of Virgin unveiled in its blog his daily habits. It is impossible to know how this routine might have affected his success but it might inspire a new breed of entrepreneurs.

He wakes up at 5 AM and just makes some exercise before breakfast and spend time with his family. He explains that such early schedule makes easy for him to keep connected with different branches in different time-zones. “Being a modern business leader is all about having your finger on the pulse and knowing what you’re talking about,” he says in his blog.

He also leads a frantic activity reading and replying emails, getting informed, posting in his blog and checking social media.

Branson says he drinks around 20 cups of tea per day.

And his ‘life hack’ is to take always a notebook where he can write down his ideas.

e the country ...

sh countryside wel in its crown.

Manor, a Georgian pile in Devon that’s been lovingly conroom hotel by the locally beloved chef, Michael Caines e expansive grounds, you’ll find 28 acres of gardens and newly-planted vineyard, which Caines hopes will proe-style wines by 2021. Bonus: The Jurassic Coast beaches nutes down the road, as are the towns of Exmouth and om US$378.

e English countryside is beautiful all summer long.

ss: Bike along the eight-mile Exe Estuary trails, and dyllic towns and villages of Topsham, Exton, and

the place to be this year.

n’t be doing it right if you stuck to the cities. Base yourself at amoura-Algarve Resort, the first European property for this brand. Aside from their impeccable hospitality standards, in activities for the whole family. (There’s an Arnold Palmf course, separate kids’ and teens’ clubs, an Ayurvedic spa, nts.) You’re also within easy reach of vineyards, beaches, olored town of Vilamoura. Rooms from US$266.

ly and August are the driest months; June offers stivals.

ss: Spot flamingos (and tons of other unusual birds, such wamphen) in the tidal flats at Ria Formosa Natural Park, a lagoons and wetlands that stretch across 18,000 hectares.

isn’t just for skiing.

cern (pictured), the Bürgenstock Resort—once a favorite the Carters, and the Danish royals—will soon be reborn paradise. Following a US$545 million investment, it will arate hotels: a five-star, an inn, a wellness resort, and a r option in a 1904 Belle Époque building. The latter, called will be the first to open, in June, with 108 wood-lined rooms hrows and brass fixtures. (Remember, four-star standards e five-star-worthy anywhere else.) Rooms from US$436.

er in the summer. The various hotels, 12 , and golf course are all opening as they’re ready— s just one piece of the puzzle.

iss: With a resort this sprawling, you’re not going anyand enjoy those epic lakeside sunsets.

Macau must to...

One week to sail away “Sailing for Dream — Works by Kwok Woon” exhibition is about to close its doors in the MSAR. So if you were procrastinating a visit deadline has arrived and you should go this week.

According to the Instituto Cultural do Governo da R.A.E. de Macau website, “the Cultural Affairs Bureau organised the exhibition ... at the Navy Yard No. 1, featuring over 40 works by the artist Kwok Woon.”

“Kwok Woon (1940-2003) was born in Guangdong, Mainland China, and came to Macau in the 1980s. Passionate about the arts, he devoted endless efforts to his dream of becoming an artist. After settling in Macao, he set up the ‘Círculo dos Amigos da Cultura de Macau’ and dedicated himself to the promotion of the development of visual arts in the city; in 1997, he established and headed the Macao International Visual Arts Centre.

He made a significant contribution to the exploration and exhibition of creative means of artistic expression and to the cultural exchange with several regions, and had a far-reaching impact on the stimulus to the development of Macao’s visual arts.”

“This exhibition features Kwok Woon’s most important works from the 1980s, 1990s and later years, which is a significant period in his artistic career. “ It is opened until 23 April 2017 at the Navy Yard No.1, located at Rua de S. Tiago da Barra, daily from 10am to 7pm, closing on Mondays.

Admission is free.

10 Business Daily Friday, April 14 2017

Greater China In Brief Electricity

China’s power consumption accelerates in Q1 China’s electricity use rose significantly in the first quarter of the year, signalling a pick-up in economic activities, the country’s top economic planner said Thursday. “Power consumption rose 6.9 per cent year-on-year in the first three quarters of this year, 3.7 percentage points higher than the same period last year,” said Yan Pengcheng, spokesperson of the National Development and Reform Commission. In March alone, power use rose 7.9 per cent year-on-year to 513.9 billion kilowatt hours, 2.3 percentage points higher than the level a year ago, Yan told a press conference. Electricity use in the primary industry climbed by 10.1 per cent in the first quarter from a year earlier, while power consumption in the secondary industry went up 7.6 per cent.

Investment

Q1 fixed-asset investment in projects at RMB240.9 bln

Energy

Mainland takes no coal from North Korea in March More than 2 million tonnes of North Korean coal did not clear customs before the import ban went into effect and are stranded at ports

C

hina did not import coal from North Korea in March, customs data showed, as it bids to comply with United Nations’ sanctions against Pyongyang’s nuclear and missile programmes.

The data issued on Thursday did not give monthly imports by country, but China’s customs office gave a separate first-quarter volume for North Korea at 2.678 million tonnes, which is the same as its shipments for January-February.

In a news briefing, the General Administration of Customs said China has not imported North Korean coal since Beijing issued a ban on the imports on Feb. 18.

More than 2 million tonnes of North

Korean coal did not clear customs before the import ban went into effect and are stranded at ports, two trading sources told Reuters this week.

“It will be up to the trading companies to deal with the cargos that have been shipped to China but did not arrive before the ban,” said Huang Songping, a spokesman for customs.

Reuters reported on Monday that China ordered trading companies to return coal shipments received from North Korea after the ban was implemented.

Coal imports from North Korea in the first quarter - without the March shipments - were half of what they were a year ago.

China’s total coal imports in March

rose 12.2 per cent from the same month last year, the customs data showed, reflecting strong consumption from power stations.

The year-on-year increase suggests a sustained appetite in China for lower-priced foreign coal amid a prolonged domestic coal price rally, which has been triggered by the government’s curbs on smog and overcapacity.

“The year-on-year increase in monthly coal imports is quite high and quite unexpected,” said Zhang Xiaojin, a coal analyst with Everbright Futures. “Demand for imported coal remains strong in April, but shipments could trend lower due to the Australian cyclone.”

The monthly imports, at 22.09 million tonnes, were up 24.9 per cent from February, the data showed.

Coal imports for the first quarter totalled 64.71 million tonnes, up 34 per cent from the same period a year ago. Reuters

China’s top economic planner said Thursday that it had approved 56 fixed-asset investment projects with total investment reaching RMB240.9 billion (about US$35.04 billion) in the first three months of this year. “The projects mainly covered water conservation, energy and transportation sectors,” said Yan Pengcheng, spokesperson with the National Development and Reform Commission (NDRC).

Water conservation projects took the largest share of the investment, with RMB99.8 billion going to nine projects, including a flood control project on the Chaohu Lake, the country’s fifth largest fresh water lake. China’s fixed-asset investment grew 8.9 per cent year on year to RMB4.1378 trillion in the first two months the year, up from 8.1 per cent in 2016, according to the National Bureau of Statistics.

Energy

Oil imports surge past U.S. to record as output stagnates China’s crude imports in March surged to a record, and topped the U.S. as the world’s biggest overseas buyer during the first quarter, as domestic output sags after producers cut spending last year amid oil’s crash. The world’s biggest energy user imported 9.21 million barrels a day last month, according to Bloomberg calculations based on data Thursday from the General Administration of Customs. Inbound shipments during the first quarter rose 15 per cent to almost 105 million tons, customs figures showed, which averages about 8.5 million barrels a day. The U.S. imported almost 8 million barrels a day in March and about 8.15 million during the first three months, Bloomberg calculations using weekly data show. China’s daily production in the first two months of this year declined 8 per cent year-on-year after falling at a record pace in 2016 as the country’s energy giants shut high-cost wells at older fields.

The nation had to import more oil to fill the gap, according to SCI International, a Shandongbased commodity researcher.

FDI

Mainland FDI growth slows in March Total FDI in the first three months of the year hit RMB226.5 billion Foreign direct investment (FDI) into the Chinese mainland rose 6.7 per cent year on year in March, slowing from February, official data showed Thursday.

FDI reached RMB87.8 billion (US$12.8 billion) in March, the Ministry of Commerce (MOC) said in a statement.

The growth rate was lower than the 9.2-per cent increase recorded in February.

Total FDI in the first three months of the year edged up 1 per cent year on year to RMB226.5 billion, the MOC said.

During the same period, 6,383 new foreign-funded enterprises were established on the Chinese mainland, up 7.2 per cent year on year.

Most investment went to the service sector, which saw FDI expand 7.1 per cent year on year in the first quarter to account for 73 per cent of the total FDI. Investment in utility services soared 165.6 per cent year on year,

while high-tech services attracted RMB28.7 billion of investment, up 12.4 per cent year on year.

Investment from the European Union grew 11.2 per cent in the first quarter, the MOC data showed.

Last year, China attracted US$126 billion of foreign direct investment, the largest recipient among developing countries, data showed. Xinhua

Business Daily Friday, April 14 2017 11

Greater China Special economic zone

China’s US$290 Billion Dream to Make Backwater a New Shenzhen

T

he scent of fast money hovers over China’s Xiongan New Area, a special economic zone that’s attracting a stampede of dealmakers.

Among them is Xie Lanyou, who rushed to the area on an overnight train from his home town Chongqing, more than 1,000 miles away.

On Tuesday, the restaurant operator spotted a storefront available for rent in Xiong county, a two-hour drive southwest of Beijing. Minutes later, he pulled out a roll of cash and paid landlord Wang Na a RMB1,500 (US$218) deposit for a lease. Xie then strode across the shop to rip the “for rent” signs from the windows.

Such is the boomtown atmosphere in this new economic zone in Hebei province near Beijing and Tianjin, northern China’s two largest cities. Announced on April 1, President Xi Jinping’s longrange vision is to transform a sleepy region known for its orchards and lotus flowers into a glittering new technology and innovation hub teeming with companies, universities and world-class transportation and business infrastructure.

It’s the kind of audacious spending that speaks to China’s economic ambitions to ease urban congestion in the capital and nudge the economy toward services and high-tech industries. “In five years, Xiongan New Area is going to be the most highend tech center,” said Xie, 42. “This new area is going to drive China’s economy.

It’s President Xi Jinping’s project.”

The government’s grand ambition is for “a strategy crucial for a millennium to come,” the official Xinhua News Agency reported. Morgan Stanley expects the investment in infrastructure and relocation to run about RMB2 trillion (US$290 billion) in the first 15 years.

China has had a long history of setting up economic zones to spur investment and growth. Shenzhen, the southern metropolis and tech hub adjacent to Hong Kong, symbolized China’s opening to the world in 1979. Shanghai’s Pudong New Area, established in the early 1990s, is now the nation’s financial center.

Others wonder if the stateled mega project in Xiongan is wise given China’s rising debt levels and the government’s stated goals of slower and more sustained economic growth and smarter capital allocation. Total credit

20 shops, discovering that rents had already jumped.

He wasn’t deterred, saying that the food business isn’t risky.

“Business prospects here are great,” Zuo said. “With full government support, it’ll take off.”

Employment worries

Others fear Xiongan’s economy is likely to suffer as the local government forces industrial facilities to relocate, triggering job losses.

Landlord Wang says some factories near her family’s cable-manufacturing plant were ordered to close after the new area was announced.

Wang, 35, was initially excited by the project. She visualized a future for the area with landmark buildings like Pudong’s Oriental Pearl Tower in Shanghai. But when she learned that her factory and other businesses would have to relocate, she became more concerned temporary disruptions may drag on the local economy.

“This place is going to be great in the future, and everyone hopes their hometown will develop and advance,” Wang said. “For now, there are inconveniences. But if they improve education and medical facilities, my children, the next generation, will have good times.”

Farmer fears reached about 258 per cent of economic output last year, up from 158 per cent in 2005, according to Bloomberg Intelligence estimates.

“State-directed efforts to create new cities do not have a good track record,” said David Dollar, a former U.S. Treasury attache in Beijing and now a senior fellow at the Brookings Institution in Washington. “Shenzhen and Pudong were undeveloped areas sitting right next door to major cities, so those were natural places to have new urban zones. It’s not obvious to me that Xiongan is an obvious place for a new urban agglomeration.”

Xiongan spans three counties. The infrastructure buildout will cover 100 square kilometres initially, expand to 200 square kilometers in the mid-term and eventually occupy a space of about 2,000 square kilometres, similar to Shenzhen now, the government says.

Some universities in Beijing and the headquarters of several state-owned enterprises are expected to be moved to Xiongan, a region with less than 1 per cent of the capital’s economic output.

The new area is also intended as a demonstration project to explore a new model of optimized development in densely-populated areas, and help restructure the urban layout in the Beijing-Tianjin-Hebei region.

“It would be much more effective to turn the whole country into a new area,” said Junheng Li, the founder of JL Warren Capital LLC, a China-focused research firm in New York. “Most likely this will become another failed experiment in gigantism.”

Xiongan will have 5.4 million people and boost China’s investment growth by 0.3 percentage point and its gross domestic product by 0.13 percentage point to 0.19 percentage point per year, according to Morgan Stanley’s base-case estimate.

The struggle over China’s efforts to curb reliance on investment-led expansion will be seen in GDP data scheduled for release Monday. First-quarter growth will probably increase to 6.8 per cent from the year-earlier period, according to economists surveyed by Bloomberg as of Wednesday. Forecasters say the expansion held up

amid robust consumption, rising demand for steel and cement, and increased property investment after housing sales boomed.

Nationwide industrial production likely expanded 6.3 per cent in March from a year earlier, retail sales rose 9.7 per cent while fixed-asset investment in the first quarter was up 8.8 per cent for the year, economists project before reports due Monday at 10 a.m. Beijing time.

Dying Northeast

Elsewhere in Xiongan, another recently-arrived aspiring restaurateur pressed his face against the glass door of a closed shop to see inside, then took out his phone and dialled the number on the advertisement in the window. Zuo Baicheng recently arrived from Heilongjiang province in the northeastern rust belt, where economic prospects are dim.

“My whole family moved here for the business,” he said Wednesday, his fourth day in town. “The Northeast is dying.”

He said that he plans to open a barbecue place and checked out more than

The plan also makes farmers anxious. Some are nervous that they’ll need to relocate or uncertain about making a living if their land is seized for development.

“I can’t do anything without the land,” said Yang Qiuhan, 52, a vegetable farmer in Wangjiafang village. “When I heard the news I was excited.

We are people of the special zone! But there are all sorts of rumours. I don’t know which way this is going.”

Xie sees no downside. In addition to opening a restaurant selling stir-fried Chongqing dishes, he says he also plans to rent another 600-square meter space in the area for a restaurant and boutique hotel that will eventually become a chain.

He plans to settle in Xiongan and move his family from Chongqing if good schools are built in the new area. Even after 2022, when Xi’s term is expected to end, Xie sees the project thriving with the president’s support.

“So long as the path is right, subsequent leaders will follow,” Xie said. “Like Deng Xiaoping and Shenzhen, all the leaders followed it. It will be the same with Xiongan and Xi Jinping.” Bloomberg News

12 Business Daily Friday, April 14 2017

Asia Outlook

Bank of Korea sees slightly faster growth ahead, eyes risks Governor Lee Ju-yeol said the BOK needed to pay more attention to financial stability and cited external risks including trade relations and geopolitical tensions Jiyeun Lee and Hooyeon Kim

S

outh Korea’s central bank held its key interest rate steady on Thursday while upgrading its growth and inflation forecasts for the year.

In its quarterly economic outlook, the Bank of Korea said the economy would grow 2.6 per cent this year, slightly faster than the 2.5 per cent projected in January, while inflation would be 1.9 per cent, just higher than its previous forecast of 1.8 per cent.

The central bank held its policy rate at a record-low 1.25 per cent, its level since June last year. The unanimous decision was widely expected by economists.

Governor Lee Ju-yeol cited strengthening exports and corporate investment plans for the upgrades, but said the BOK needed to pay more attention to financial stability and cited external risks including trade relations and geopolitical tensions, including over North Korea. ”It’s true that the necessity of a rate cut has decreased, but the BOK will keep an accommodative policy stance as external uncertainties persist,” Lee said during a news conference.

Responding to a question about whether the upgraded forecasts suggest the BOK may raise rates as early as this year, Lee said inflationary pressure isn’t large, and the negative output gap is expected to persist despite the economic recovery. He also

said he wasn’t too optimistic about the outlook for the job market.

Neutral stance

In its policy statement, the BOK said the global economic recovery has expanded, but the pace of improvement in exports and domestic demand is expected to be limited.

“Lee was basically taking a neutral stance, keeping a positive outlook on the economy while saying that there are still many uncertainties remaining,” said Yoon Yeo-sam, a fixed-income analyst at Mirae Asset Daewoo Co. “The BOK may consider raising rates late next year if the rate difference between the U.S. and Korea widens more than 50 basis points.”

Record household debt and the Federal Reserve’s tightening are seen reducing the likelihood of further easing in Korea, while a rate hike would add to the repayment burden of many consumers. The debt hit 1,344 trillion won (US$1.2 trillion) at the end of last year, a level the central bank already sees as limiting consumption.

Of 27 analysts surveyed by Bloomberg, 21 forecast no change in the policy rate for the rest of the year. Three see a cut to 1 per cent, while three see an increase to 1.5 per cent.

Lee said the central bank was closely monitoring changes to U.S. policy, and that the general view was the U.S. wouldn’t name Korea a foreign-exchange manipulator in

Bank of Korea

a report expected from the Treasury Department this month.

On the impact of the Federal Reserve’s rate-hike path, Lee said the yield gap wasn’t the sole factor behind capital outflows, and were unlikely to cause Korean yields to rise rapidly.

The won strengthened against the dollar on Thursday. It has weakened about 0.9 per cent in April, the biggest loss among Asian currencies, as investors worried the U.S. may consider military action to contain North Korea. Lee said capital outflows remain stable but authorities will take prompt action if that changes.

Finance Minister Yoo Il-ho said this week that the economy performed

better than expected in the first quarter as exports, production, and investment all recovered. Overseas shipments, which account for about half of Korea’s gross domestic product, expanded for a fifth month in March, and inflation accelerated at the fastest pace in almost five years.

“Positive exports in the first quarter seems to be behind the BOK projecting higher growth, but I think the economy probably has passed its peak,” said Park Jong-youn, a fixed-income analyst for NH Investment & Securities in Seoul. “With China limiting tourism to South Korea, unless oil prices rise fast, the pace of economic growth will be gradual.”

Bloomberg

Forecast

OECD endorses Japan’s monetary easing, urges caution against risks Japan should raise the minimum wage further and improve productivity at small- and medium-sized enterprises, the OECD said The Bank of Japan should maintain quantitative easing until inflation exceeds its price target but it must be alert to the risks posed to asset prices and the financial sector, the Organisation for Economic Co-operation and Development said.

The OECD raised Japan’s 2017 economic growth forecast slightly because of an expected pickup in consumer spending, exports, and capital expenditure.

However, the Paris-based think tank left unchanged its forecast for growth to slow the following year, highlighting the difficulty Japan faces in achieving sustainable growth.

To improve this situation, Japan should raise the minimum wage further and improve productivity at small- and medium-sized enterprises, the OECD said in its latest economic assessment.

“Achieving the 2 per cent inflation target should remain a top priority, while monitoring the potential costs and side effects,” the OECD said in its report.

The BOJ currently applies a negative

Business Daily is a product of De Ficção – Multimedia Projects

0.1 per cent interest rate on a small portion of commercial banks’ excess reserves.

The BOJ also buys government debt to keep the 10-year bond yield near zero and buys exchange-traded funds to lower risk premiums.

The BOJ’s holdings of government debt now total around 40 per cent of all outstanding debt, which could hurt liquidity and lead to market instability when the BOJ exits the policy, the OECD said.

The BOJ’s policy mix could push up asset prices by encouraging excessive risk-taking, the OECD said. Negative interest rates could hurt bank earnings and make asset management more difficult for pension funds and life insurers, the report said.

Exiting quantitative easing is still far away given that inflation is around zero, the OECD acknowledged in the report.

New year

The OECD was more upbeat about Japan’s growth prospects this year.

It raised Japan’s GDP forecast to 1.2 per cent growth from its November forecast of 1.0 per cent growth.

However, the OECD stuck with its view that growth will slow to 0.8 per cent in 2018 as consumer spending and net exports lose momentum.

The OECD called on Japan’s government to promote consumption by raising the minimum wage to half the level of median wages. Currently Japan’s minimum wage is around 40 per cent of the median level and one of the lowest among OECD member countries.

Japan also needs a better system to encourage cooperation between the private sector and academia on research and development, which should improve productivity, the report said.

Japan’s public debt burden, which is the worst among advanced nations at more than twice the size of its economy, needs to be brought down with spending cuts and gradual increases in the sales tax, the OECD said. Reuters

Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Friday, April 14 2017 13

Asia In Brief Economy

World Bank forecasts Vietnam’s economic growth to hit 6.3 pct in 2017 The World Bank (WB) forecast here on Thursday that Vietnam’s gross domestic product (GDP) will expand by 6.3 per cent in 2017. The prediction was made in the WB’s East Asia and Pacific Economic Update launched in Hanoi on Thursday. Accordingly, Vietnam’s medium-term outlook remains favorable as GDP growth is projected to improve gradually in 2017-2019 period. Growing by 6.3 per cent this year, the country’s GDP is expected to expand by 6.4 per cent in 2018 and 2019, driven by robust domestic demand and export-oriented manufacturing, said the bank.

Earlier this week, the Asian Development Bank forecast that Vietnam’s GDP growth would reach 6.5 per cent this year while the country’s government set a target of 6.7-per cent GDP. NEER

Singapore dollar NEER rate remains well within policy band: central bank

Disclosure

Planned rules to shake up Asia wealth managers’ fee-sharing business Assets of the 20 largest private banks in Asia rose by 6 per cent last year to a record US$1.6 trillion Saikat Chatterjee and Sumeet Chatterjee

H

ong Kong and Singapore are set to launch new disclosure rules for wealth managers on what they are paid by funds to sell their products, moves aimed at revealing conflicts of interest but which could disrupt a business that generates billions of dollars in fees.

Regulators in the two main Asian wealth hubs are framing rules that will make such disclosures mandatory, people with direct knowledge of the matter said. Wealth managers in the two centres generally don’t disclose the overall revenues they make from recommending funds to clients.

The moves could upend the existing fee-sharing model between the funds industry and wealth managers as clients may increase scrutiny of the products they buy to discern any conflicts of interest.

It may lead to a drop in fees from such deals and could even make clients bypass wealth managers altogether and source products directly from fund managers, with smaller wealth managers most vulnerable because their revenue mainly comes from selling third-party products to clients, analysts say.

“The increased transparency will allow investors to have much clearer visibility of how much money investment advisers make from fund managers for distributing their products, and investors may think more carefully before buying a fund,” said Karen Man, partner at law firm Baker McKenzie.

“It will likely increase competition for all the players, and mainly the smaller ones, who may depend on product distribution as a

principal source of revenue,” said Man, who focuses on financial service regulation.

Assets of the 20 largest private banks in Asia rose by 6 per cent last year to a record US$1.6 trillion, according to data from industry tracker Asian Private Banker. The bulk of the assets in the region are invested in the equity markets directly or via funds, making it lucrative for the wealth managers to earn fees on sale of those products.

Key Points HK, Singapore wealth managers may have to disclose fund fees Potential new rules to hit smaller wealth managers most Move follows initiatives by some Western nations’ regulators The wealth managers get a cut of 0.5 per cent to as much as 6.0 per cent of the management fees charged by investment firms on the assets clients put into funds. They also get the socalled trailer fee, which is money paid to them annually as long as clients hold the investment products in their portfolios.

Consultation paper

The moves by Hong Kong and Singapore to increase disclosure follow similar initiatives by regulators of some Western nations after investors faced hefty losses on structured products linked to the collapse of Lehman Brothers.

D e f a u l t s o f s o m e i l l i q u i d, high-yielding bonds in Singapore last year also cast the spotlight on the role of wealth managers in “pushing” the products, the sources said.

Hong Kong’s Securities and Futures Commission (SFC) received industry feedback on fee disclosures earlier this year in response to a consultation paper. The paper argued that fee disclosures would make it easier for clients to spot potential instances of conflicts, and lead to lower fees in the long run.

“Based on a preliminary review, the responses received are generally supportive of our proposal to enhance disclosure with comments on the suggested manner of disclosure,” SFC said in an emailed response to Reuters, adding it will issue conclusions on the consultation after a detailed review.

The Monetary Authority of Singapore said that “work is under way to require trailer fees to be disclosed in the Product Highlight Sheet.”

For the smaller wealth managers in Asia, the disclosure requirements could come at a particularly tough time as they are already reeling from higher costs and cutthroat competition.

As a result, many smaller Western wealth managers have shut shop, despite Asia-Pacific being the fastest growing wealth region in the world with nearly 5 million individuals having US$1 million in liquid assets.

Andrew Hendry, director at HongKong based Westoun Advisors, said the potential fee disclosure rules could make clients approach fund houses directly and cut out wealth managers.

“We are starting to see a lot of negotiations in the fee sharing space,” he said.

Clients of wealth managers, however, back the proposed changes.

“Since the Lehman mini-bond debacle, wealth managers have become more careful of stuffing unwanted products down clients’ throats for fees and this new push to transparency is welcome,” said a client of a European private bank in Hong Kong. Reuters

Singapore’s central bank, the Monetary Authority of Singapore (MAS) announced on Thursday that Singapore dollar nominal effective exchange rate (NEER) remains well within its policy band given the subdued economic outlook for growth and inflation.

As global economy picked up, Singapore’s growth remains uneven as the recovery has been restricted to trade-related sectors, said MAS. The turnaround in the global IT cycle is expected to continue benefit the domestic semiconductor and precision engineering industries. The performance in the rest of the manufacturing sector, however, will remain patchy, said MAS. The modern services cluster including the financial sector and firm demand for ICT services is also expected to expand at a slightly faster pace this year.

Insurance

Malaysia mulling enforcing cap on foreign insurer ownership Malaysia is weighing tougher enforcement of a cap on foreign ownership of insurers as it seeks to boost local participation in the industry, people with knowledge of the matter said. The central bank is considering more strictly applying an existing policy that foreign companies owning 100 per cent of local insurance firms must pare their stakes to no more than 70 per cent, according to the people. It could make an announcement on the matter as soon as this month, the people said, asking not to be identified because the information is private. Bank Negara Malaysia, which has routinely granted extensions to firms that didn’t comply, may be less lenient in the future and require such companies to show they have the country’s best interests at heart, the people said. While details are still being discussed, criteria that may be used include hiring more Malaysian workers for highly skilled jobs and creating products fulfilling the needs of niche local market segments, according to the people.

14 Business Daily Friday, April 14 2017

International In Brief Risk

Russia c.bank: if new sanctions imposed, we will try to curb risks If new sanctions are imposed on Russia, then the central bank will try to mitigate the risks, the bank’s First Deputy Governor Ksenia Yudayeva said on Thursday. Yudayeva added that the central bank did not rule out moving its key rate by more than 25 basis points when it meets on monetary policy later this month, repeating what Governor Elvira Nabiullina has said. Yudayeva also told journalists that the central bank was taking measures to ensure that inflation stayed near the central bank’s target of 4 per cent in 2018-2019.

Government

Ukrainian experts mostly positive about government’s first year in office The Ukrainian government led by Prime Minister Volodymyr Groysman on Friday will mark one year since assuming office, with most local experts assessing its performance over the period as positive. Although some promises made by the cabinet in April 2016 have yet to be delivered on, the main goals outlined in the government plan for the first 12 months in power were reached, including the key task of achieving macroeconomic stability.

“This government can be described as a government of stabilization and economic recovery. In my opinion, its main achievement is the restoration of economic growth. Although the figures are modest, about 2 per cent, the trend of economic decline of the 2014-2015 years has been overcome,” said Volodymyr Fesenko, director of the Penta Center for Applied Political Studies.

The Ukrainian economy grew by 2.3 per cent in 2016 compared with a consolidated decline of 16.5 per cent over the previous two years.

Meanwhile, inflation has slowed down to 12.4 per cent last year from 43.3 per cent in 2015.

Loans

Zimbabwe could soon use livestock as loan security Zimbabwean entrepreneurs could soon use movable assets -- including livestock and vehicles -- to secure loans from banks, according to a bill brought before the country’s Parliament this week. The southern African country’s economy is now dominated by informal business following the formal sector’s contraction by as much as 50 per cent between 2000 and 2008, according to government data, after President Robert Mugabe’s seizure of white-owned farms decimated the key agriculture sector. The Movable Property Security Interest Bill, brought before lawmakers by Finance Minister Patrick Chinamasa on Tuesday, seeks to make it easier for Zimbabwe’s burgeoning informal sector to access funding from banks. A copy of the bill seen by Reuters on Wednesday defines movable property as “any tangible or intangible property other than immovable property.”

Survey

Don’t allow Brexit to distract from other issues, firms say The BCC said in its report that while more than a quarter of manufacturers saw improved export sales, they face the most acute cost pressures in six years Lucy Meakin

T

he U.K. government mustn’t let Brexit negotiations divert it from the structural challenges facing businesses, according to the British Chambers of Commerce.

Firms are struggling to recruit workers with the required skills and a “significant proportion” anticipate having to raise prices over the next three months, the BCC said Thursday as it published a survey showing both services and manufacturing expanded in the first quarter.

Separately, the Bank of England’s Credit Conditions survey said that growth in corporate lending moderated in the first quarter, with weaker demand playing a part. While the

U.K.’s major lender said demand had been stronger than anticipated since the Brexit vote in June, “some also noted that it had remained subdued” in the past three months.

“This slowing in the growth rate was initially broad based across major industrial sectors and size of business, although, the most recent fall appears to have been among larger businesses,” the BOE said in its review of the data, based on information from lenders including Barclays Plc, HSBC Holdings Plc and Lloyds Banking Group.

The BCC said in its report that while more than a quarter of manufacturers saw improved export sales, they face the most acute cost pressures in six years, presenting a risk to growth in the medium term.

“There are longstanding structural issues here at home that we need to tackle to sustain success in the future,” said BCC director-general Adam Marshall. “The competitiveness of firms depends on a bold domestic economic policy -- not just a good Brexit deal.”

Businesses are facing an uncertain outlook after U.K. Prime Minister Theresa May triggered formal Brexit negotiations last month, saying she’d rather leave the European Union without a deal rather than agree to a bad deal. They’re already having to cope with the pound’s 16 percent slump since the Brexit referendum and have little clarity over how easy it will be to hire foreign workers in future.

Almost three-quarters of manufacturers and more than half of services firms surveyed said they are experiencing high levels of recruitment difficulties. The report was compiled from a survey of 7,300 businesses between Feb. 20 and March 13. Bloomberg

Bailout

IMF chief Lagarde says “halfway” there on Greek bailout talks Greece’s debt - now 178 per cent of gross domestic product - will need to be restructured to guarantee the stability of the country’s finances Francesco Guarascio

International Monetary Fund chief Christine Lagarde said on Wednesday Greece was heading in the right direction on reforms, but talks on its bailout review and the IMF’s potential role in it were “only halfway through”.

Last week, euro zone finance ministers agreed on the key elements of reforms that Greece needs to implement in exchange for a new loan under its 86 billion-euro bailout programme, the third since 2010.

The loan is needed to pay debt due in July, but talks continue and the IMF has not yet decided whether to join the bailout. The fund’s participation is seen as a condition for Germany to unblock new funds to Greece.

“What I have seen in the last couple of weeks is heading in the right direction,” Lagarde told a conference in Brussels, but “we are only halfway through in the discussions.”

She reiterated Greece’s debt - now 178 per cent of gross domestic product - will need to be restructured to guarantee the stability of the country’s finances.

The scope of any restructuring “will be decided at the end of the programme,” but “the modalities have to be decided upfront,” Lagarde said.

Germany, the largest European Union economy, opposes debt relief, believing that agreed reforms are enough to sustain financial stability.

But Berlin still wants the IMF to join the bailout, now provided by euro zone governments alone, to make it more effective and less expensive for euro zone countries.

Talks between Greece and its

lenders are continuing and no date is fixed yet for negotiators to return to Athens. The Greek government believes talks may resume in Athens after the IMF spring meetings on April 21-23.

“We are still elaborating under what terms we could possibly give some lending to the country. We are not there yet,” Lagarde said, adding any IMF loan to Greece would have to abide by strict conditions and no special treatment can be expected for Athens.

The IMF wants pension costs to be cut and the threshold for tax exemptions to be lowered. Athens has accepted the reforms, worth 2 per cent of its gross domestic product, but it wants to link their application to a reduction of its public debt burden.

Lagarde said the additional belt-tightening measures could be implemented “as soon as the conditions of growth are consolidated.”

Reuters

IMF chief Christine Lagarde

Business Daily Friday, April 14 2017 15

Opinion Business Wires

Straits Times Singapore’s economy grew a slightly lower-than-expected 2.5 per cent in the first quarter of 2017 from a year earlier, easing from the 2.9 per cent growth in the previous quarter, according to advance estimates released by the Ministry of Trade and Industry (MTI) on Thursday (April 13). Economists polled

by Bloomberg had tipped that gross domestic product (GDP) would expand by 2.6 per cent on a year-on-year basis.

While growth is slower than the 2.9 per cent expansion seen in the fourth quarter of 2016, the pace is still at the higher end of the Government’s full-year forecast of 1-3 per cent for this year, and the 2016 full-year growth rate of 2.0 per cent.

Philstar Filipinos will be granted visa-free entry to Taiwan starting June this year, in a move meant to encourage more tourists from other Asian regions to visit the island. According to a Taiwanese news website, Taiwan’s Ministry of Foreign Affairs (MOFA) announced that Philippine nationals would be granted visa-free stays on the island for a period of up to 30 days. The ministry said that this move would be on trial basis for one year from June 1 this year to July 31, 2018, the Taiwan media outfit reported.

Taiwan also extended its 30-day visa exemption for citizens of Thailand and Brunei to one year. Multiple-entry visa privileges meanwhile will be extended to nationals of India, Indonesia, Vietnam, Myanmar, Cambodia and Laos. This move

by Taiwan is part of its government’s “New Southbound Policy” which aims to establish closer trade and economic ties with south and southeast Asian nations, the website said.

The Japan News Tokyo Gas Co. and Kyushu Electric Power Co. have decided to join hands to share liquefied natural gas to cut procurement costs, it has been learned.

Tokyo Gas uses LNG to produce town gas while Kyushu Electric uses it as a fuel to generate electricity. Exposed to competition, which is expected to intensify due to the liberalization of the retail sales of electricity and town gas, the two companies aim to efficiently use LNG to lower electricity and gas rates through the planned cooperation. The demand for gas increases in winter for heating while electricity consumption rises in summer, when air conditioners are widely used.

Therefore, the amount of necessary LNG supply varies according to seasons. Tokyo Gas and Kyushu Electric judged that they can procure LNG more efficiently if they provide one another with their surplus LNG, which will make it possible to cut relevant costs. The two companies also aim to ensure stable LNG procurement in the event of a disaster.

A fiscal reality test for U.S. Republicans

U

.S. President Donald Trump’s first major legislative goal – to “repeal and replace” the 2010 Affordable Care Act (“Obamacare”) – has already imploded, owing to Trump and congressional Republicans’ naiveté about the complexities of health-care reform. Their attempt to replace an imperfect but popular law with a pseudo-reform that would deprive more than 24 million Americans of basic health care was bound to fail – or sink Republican members of Congress in the 2018 mid-term elections if it had passed.

Now, Trump and congressional Republicans are pursuing tax reform – starting with corporate taxes and then moving on to personal income taxes – as if this will be any easier. It won’t be, not least because the Republicans’ initial proposals would add trillions of dollars to budget deficits, and funnel over 99 per cent of the benefits to the top 1 per cent of the income distribution.

A plan offered by Republicans in the U.S. House of Representatives to reduce the corporate-tax rate from 35 per cent to 15 per cent, and to make up for the lost revenues with a border adjustment tax, is dead on arrival. The BAT does not have enough support even among Republicans, and it would violate World Trade Organization rules. The Republicans’ proposed tax cuts would create a US$2 trillion revenue shortfall over the next decade, and they cannot plug that hole with revenue savings from their health-care reform plan or with the US$1.2 trillion that could have been expected from a BAT. The Republicans must now choose between passing their tax cuts (and adding US$2 trillion to the public debt) and pursuing a much more modest reform.

The first scenario is unlikely for three reasons. First, fiscally conservative congressional Republicans will object to a reckless increase in the public debt. Second, congressional budget rules require any tax cut that is not fully financed by other revenues or spending cuts to expire within ten years, so the Republicans’ plan would have only a limited positive impact on the economy.

And, third, if tax cuts and increased military and infrastructure spending push up deficits and the public debt, interest rates will have to rise. This would hinder interest-sensitive spending, such as on housing, and lead to a surge in the U.S. dollar, which could destroy millions of jobs, hitting Trump’s key constituency – white working-class voters – the hardest.

Moreover, if Republicans blow up the debt, markets’ response could crash the U.S. economy. Owing to this risk, Republicans will have to finance any tax cuts with new revenues, rather than with debt. As a result, their roaring tax-reform lion will most likely be reduced to a squeaking mouse.

Even cutting the corporate tax rate from 35 per cent to 30 per cent would be difficult. Republicans would have to broaden the tax base by forcing entire sectors – such as pharmaceuticals and technology – that currently pay little in taxes to start paying more. And to get the corporate-tax rate below 30 per cent, Republicans would have to impose a large minimum tax on these firms’ foreign profits. This would mark a departure from

“

Nouriel Roubini CEO of Roubini Macro Associates and Professor of Economics at the Stern School of Business, NYU

the current system, in which trillions of dollars in foreign profits remain untaxed unless they are repatriated.

During the presidential campaign, Trump proposed a one-time 10 per cent repatriation-tax “holiday” to encourage American companies to bring their foreign profits back to the United States. But this would deliver only US$150-200 billion in new revenues – less than 10 per cent of the US$2 trillion fiscal shortfall implied by the Republicans’ plan. In any case, revenues from a repatriation tax should be used to finance infrastructure spending or the creation of an infrastructure bank.

Some congressional Republicans who already know that the BAT is a non-starter are now proposing that the corporate income tax be replaced with a value-added tax that is legal under WTO rules.

But this option isn’t likely to go anywhere, either.

Republicans themselves have always strongly opposed a VAT, and there is even an anti-VAT Republican caucus in Congress.

The traditional Republican view holds that such an “efficient” tax would be too easy to increase over time, making it harder to “starve the beast” of “wasteful” government spending.

Republicans point to Europe and other parts of the world where a VAT rate started low and gradually increased to double-digit levels, exceeding 20 per cent in many countries.

Democrats, too, have historically opposed a VAT, because it is a highly regressive form of taxation.

And while it could be made less regressive by excluding or discounting food and other basic goods, that would only make it less appealing to Republicans.

Given this bipartisan opposition, the VAT – like the BAT – is already dead in the water.

It will be even harder to reform personal income taxes. Initial proposals by Trump and the Republican leadership would have cost US$5-9 trillion over the next decade, and 75 per cent of the benefits would have gone to the top 1 per cent – a politically suicidal idea. Now, after abandoning their initial plan, Republicans claim they want a revenueneutral tax cut that includes no reductions for the top 1 per cent of earners.

But that, too, looks like mission impossible.

Implementing revenue-neutral tax cuts for almost all income brackets means that Republicans would have to phase out many exemptions and broaden the tax base in ways that are politically untenable. For example, if Republicans eliminated the mortgage-interest deduction for homeowners, the U.S. housing market would crash.

Ultimately, the only sensible way to provide tax relief to middle- and lower-income workers is to raise taxes on the rich. This is a socially progressive populist idea that a pseudo-populist plutocrat like Trump will never accept. So, it looks like Republicans will continue to delude themselves that supply-side, trickle-down tax policies work, in spite of the overwhelming weight of evidence to the contrary.

Ultimately, the only sensible way to provide tax relief to middle- and lower-income workers is to raise taxes on the rich

”

16 Business Daily Friday, April 14 2017

Closing Real estate

China’s land supply measures to have mixed effect on developers: report

report.

Wong said this slowdown would pressure gross China’s latest land supply measures will have mixed margins for those developers, while developers implications for property developers, according to operating in cities with large housing inventories -- mainly lower-tier cities -- would benefit as the a Moody’s report. measures would restrict new supply in those cities.

The Ministry of Housing and Urban-Rural This situation will give developers a better idea Development and Ministry of Land and Resources of land supply and should help them manage announced measures that cities with less than a year’s supply of housing inventory should increase their expectations on land availability and prices, and subsequently help them manage their land the amount of residential land for sale, and cities with more than three year’s supply should suspend acquisition plans, said the report.

The report said that it remained to be seen if the residential land sales. new measures would materially increase land The ministries also said that cities and counties supply within the next six to 12 months in high-tier with more than 1 million inhabitants should cities that have less than six months of inventory, formulate three-year (2017-2019) and five-year given the limited supply of land suitable for (2017-2021) plans for the supply of housing land development and the relatively long time frame for and make plans public by the end of June. redeveloping shantytowns.

“We believe that housing price growth will slow The move is among a slew of measures the Chinese in cities where land supply will increase, a credit government has implemented since late September negative for developers that purchased land at 2016 to cool fast growth in housing prices, including high prices during the past 12 months with the restrictions on home purchases and increased expectation that housing prices will continue to minimum down-payment requirements. Xinhua surge,” said Chris Wong, a Moody’s analyst, in a

Currency

China avoids U.S. manipulator tag, but not off the hook on trade The move was expected to help foster the friendlier tone between the world’s top two economies since Trump hosted President Xi Jinping in Florida last week John Ruwitch

U

.S. President Donald Trump may have decided not to declare China a currency manipulator, an acceptance of the difficulty of making such a charge stick, but that doesn’t mean Beijing is off the hook.

Trump’s pre-empting of the Treasury Department’s semi-annual report on such matters undoubtedly eased some concerns of an imminent trade war with China, but Washington has already opened up new fronts to target its large trade deficit with Beijing.

“We are definitely not out of

the woods in the bigger scheme of things,” said Louis Kuijs of Oxford Economics in Hong Kong.

“Currency is one thing, but I do think that they have not given up. On the contrary, they will be looking at ways to take steps.”

Trump cast the decision not to pin the manipulator label on China as a possible quid pro quo, suggesting it might make Beijing more inclined to help resolve an escalating row with North Korea over its nuclear weapons programme. It was also an acknowledgement, however, that Beijing had not recently intervened to weaken its currency.

The move was expected to help

foster the friendlier tone between the world’s top two economies since Trump hosted President Xi Jinping in Florida last week.

Chinese foreign ministry spokesman Lu Kang on Thursday reiterated China’s pledge to avoid competitive devaluations to support exports, adding: “We are willing to expand cooperation in a push for the development of a balanced trade relationship with the United States.”

On Thursday, the yuan hit a twoweek high after Trump’s remarks, in which he also said the U.S. dollar was too strong.

At the previous Treasury review in October, under the Obama administration, China only met one of the three criteria used to determine currency manipulation, and that was the size of its trade surplus with the United States.

Three other Asian economies - Japan, South Korea and Taiwan - met

two of the criteria, and the view seemed to be that while currency manipulation charges may not stick now, the U.S. would still be tackling what it saw as trade imbalances.

“There is no change in our stance that the likelihood of us getting that label is low, but we won’t be lowering our guards,” Bank of Korea governor Lee Ju-yeol said on Thursday, after his board held monetary policy steady.

“The ultimate aim of putting one under ‘enhanced analysis’ using the currency report is to reduce the trade deficit for the U.S., so they might assess valuation of each currency based on that,” he added.

Figures on Thursday showed China’s trade surplus with the United States was US$49.6 billion in the first quarter of 2017, little changed from US$50.6 billion a year earlier.

Other fronts

On the campaign trail Trump had pledged to immediately label China a currency manipulator, and he remained critical once in office, but the backdown is unlikely to be a sign of any slackening in his resolve to shrink the trade deficit.

Last month, the U.S. Commerce Department launched a review of whether China should be allowed the status of a ‘market economy’, which under World Trade Organization rules would constrain other countries from taking anti-dumping measures against some Chinese imports. The department is also studying trade abuses and their effect on U.S. trade deficits.

The U.S. Trade Representative’s office, controlled by the White House, criticised Beijing on a range of trade issues from industrial overcapacity to forced technology transfers and long-standing bans on U.S. beef and electronic payment services.

Jonas Short, with the research firm North Square Blue Oak Ltd in Beijing, said Trump could easily flip back to a more hostile stance if his popularity wanes among the supporters he fired up on the campaign trail by, in part, bashing China.

Analysts have also suggested that once the Treasury Department is staffed up by the new administration, it could re-think the three criteria of currency manipulation that now guide its semi-annual process. The results of the next review are due out in six months.

“There are demons below the surface and, given the unpredictable start of the Trump administration, it’s very hard to see what will happen come October,” Short said. Reuters