Business Daily #1276 April 17, 2017

WeChat baccarat gambling ring busted by PJ Crime Page 3

Monday, April 17 2017 Year VI Nr. 1276 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Infrastructure

Hong Kong Link Road to be connected this month Page 6

Protest

Finance

Saipan casino construction workers protest for wages Page 7

www.macaubusinessdaily.com

China’s March fiscal spending surges over 25 pct y-o-y Page 10

Graft

Senior Chinese banking regulator under investigation for suspected links to loan scandal Page 8

There can be only ONE Interview | Sports

Creating a franchise like no other, dominating the Asian sports scene, and building local heroes – these are the goals ONE Championship have achieved or are within reach of, says CEO and founder Victor Cui. With worldwide audiences in a chokehold, 1 billion viewers in 18 countries, an IPO on the horizon, investment from the Singapore gov’t and social media in their palm, the company is ready to go all the rounds. Pages 4 & 5

Pushing for answers

Turn it back around

Trade between China and Portuguese-speaking countries increased 33 pct y-o-y in Jan-Feb, hitting US$14.84 bln. Imports to China from the countries saw 44 pct y-o-y growth after a weak period last year, while m-o-m trade increased 20 pct, hitting US$6.62 bln in February. Trade with Brazil grew 36 pct y-o-y in the two months, reaching US$10.35 bln.

Gaming If you can’t beat ‘em, meet them: Macau Legend CEO David Chow heads to Portugal to negotiate with Setúbal authorities to consider a riverfront development project as a National Interest Project. The group aims to ‘seek solutions to start the investment’ ASAP for the 250 mln euro project, bringing forward the meeting date from May. Page 7

N. Korean failed missile test eases tensions

Trade Page 2

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° 27° 23° 27° 23° 27° 20° 26° 21° 24° Today

Source: Bloomberg

Best Performers

Tue

Wed

I SSN 2226-8294

Thu

Fri

Source: AccuWeather

Politics North Korea’s failed ballistic missile launch on Sunday drew a muted response from the Trump administration, easing the risk of imminent retaliation as Vice President Mike Pence arrived in Seoul. Initial reports indicate the projectile was a medium-range missile and failed after about four or five seconds. U.S. policy advisers say it won’t need to respond given that the launch was unsuccessful. Page 16

2 Business Daily Monday, April 17 2017

Macau

Trade

Trade between Brazil and China represented almost 70pct of all Sino-Luso trade in the first two months of 2017

Getting back on track 4.61 per cent month-to-month to US$5.02 billion.

Sino-Luso trade grows by 32.64 per cent year-on-year to US$14.84 billion in the first two months of this year Nelson Moura nelson.moura@macaubusinessdaily.com

T

rade between China and Portuguese-speaking countries between January and February of this year amounted to US$14.84 billion (MOP118.83 billion), a 32.64 per cent increase from the same period last year, according to data released by the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao).

The annual comparison is weighted down by the first two months of 2016 registering a decline of 25.54 per cent

The Holy Trinity

year-on-year in Sino-Luso trade, reaching US$11.19 billion.

The increase in the first two months of this year was mainly driven by imports to China from Portuguese-speaking countries, which grew by 43.74 per cent year-on-year to US$10.28 billion, with exports from China increasing by almost 13 per cent to US$4.56 billion.

On a monthly comparison, Sino-Luso trade in February reached US$6.62 billion, a 19.39 per cent drop from the previous month, with exports from China decreasing by 45.68 per cent month-to-month to US$1.60 billion, while exports from Lusophone countries decreased

In the first two months of this year, trade between China and its largest Portuguese-speaking trading partner, Brazil, grew by 35.64 per cent yearon-year to US$10.35 billion.

Total trade between Brazil and China represented almost 70 per cent of all Sino-Luso trade in the first two months of 2017.

Exports from the South American country to China rose by 40.54 per cent year-on-year to US$6.66 billion, while goods imported by Brazil from China went up 27.61 per cent when compared with the same period last year, to US$3.69 billion.

China’s second largest Lusophone trading partner, Angola, registered the largest yearly increase in trade in the first two months of this year, a

42.4 per cent jump to US$3.48 billion.

The increase was largely influenced by a 48.69 per cent year-on-year rise in China's imports from the Portuguese-speaking African country to US$3.23 billion, with imports from China representing 92.8 per cent of the total trade volume between the two countries.

However exports from China to Angola between January and February of this year went down by 7.72 per cent yearly to reach US$252.14 million.

Of China’s three largest trading partners, Portugal was the only one to register a yearly decrease in trade in the first two months of 2017, a 12.84 per cent drop to US$704.92 million.

The decrease was based on a 35.73 per cent drop in exports from China to the European country, reaching US$425.36 million in January and February of this year.

However Portugal’s exports to China increased considerably in the first two months of 2017, going up 90.26 per cent year-on-year to US$279.55 million.

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Business Daily Monday, April 17 2017 3

Macau Crime

Illegal WeChat betting scheme busted in Macau The Macau Judiciary Police have arrested a group of Mainland Chinese men involved in an illegal operation of bet placing in local VIP baccarat rooms, but their mastermind is still at large Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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he Macau Judiciary Police (PJ) have busted an illegal scheme of wager placing through WeChat in local VIP baccarat rooms, arresting seven Mainland Chinese men allegedly involved in organizing the activity, according to local media.

The men were running the operation from an apartment in the Nam Van area on the Macau Peninsula, which the police raided following a tip-off that the location was being used as an unlicensed guesthouse, according to

gaming publication GGRAsia.

The operation consisted of arranging for gamblers to place bets on games taking place in one or several VIP baccarat rooms in the city, with some of the suspects actually participating in the gambling activity of those rooms, from where they would report the results of each game immediately via WeChat, according to the publication.

Business Daily made enquiries to the Judiciary Police about which casino or casinos were involved in the scheme, and if the suspects were collaborating with or had close ties to junket operators, but no response

had been received by the time this story went to press.

Gamblers were also said to have been recruited in Mainland China prior to their arrival in Macau through the same social media mobile application, under a group labeled ‘Macau baccarat games live broadcast,’ according to the police, as cited by TDM. In comments to the gaming publication, the officials said that the group was “very well organized in splitting their tasks.” While some would handle accounting via computer and control the betting of their partners in the casino, others would be responsible for collecting bets from the WeChat group members.

TDM added that the police have confirmed that all monetary transactions were run through the third-party payment platform Alipay.

During the raid, three laptops and several mobile phones containing

betting records worth RMB10 million (US$1.45 million/MOP11.62 million) were apprehended by the police, which estimates that the gang had an average of 40 gamblers betting on a daily basis in the past month, according to the broadcaster.

The police also believe that the suspects collected profits by charging player commissions and by making hedging bets on baccarat game results.

The seven suspects were identified as coming from Zhejiang Province on the eastern coast of China, and are believed to have been operating the scheme for at least one month.

The police have further reported that the mastermind behind the scheme is still at large.

If convicted, the suspects could face charges of formation of a criminal group and the promotion of illegal gambling.

Politics

Chui pledges to safeguard national security The MSAR’s Chief Executive Fernando Chui Sai On swore Friday to continue to safeguard national security, unity and territorial integrity.

Chui made the remarks on the eve of the second anniversary of the National Security Education Day, which falls on April 15 each year, to raise awareness of national security among the public.

National security is closely related to our daily lives, and given the current unfortunate incidents in international communities, the regional security is of vital importance for Macau’s citizens, Chui said in a speech to the public.

As the stability of Macau relies on national security, we should work together to safeguard both of them, he added.

Chui also reiterated that Macau should stick to the “one country, two systems” principle, and that the “one country” should be the basis and prerequisite of the “two systems.”

He noted that as Macau is an integral part of China, and the Macau Special Administrative Region is under

the direct leadership of the central government with a high degree of autonomy, it should shoulder its

responsibility to safeguard national security, in accordance with law.

The Macau SAR Government will

continue to deepen education on the Constitution, and the Basic Law of Macau, and to promote the tradition of love for the country and Macau, so as to raise awareness about national securityamong the public, Chui said. Xinhua

Olympics

2022 Beijing Olympic recruiting locals Candidates from Macau, Hong Kong and Taiwan, as well as foreign Chinese nationals from outside China succeeded in passing a written exam in Beijing on April 15, making them eligible for staff positions to help in the preparations for the 2022 Beijing Winter Olympic and Paralympic Games, as published by Inside the Games.

According to a previous report from the State Council of the People’s

Republic of China, last March the 2022 Beijing Olympic Organizing Committee launched a call for applications for 22 staff to work in planning and construction, venue management, marketing, media, law, finance, and foreign languages for the event.

After a preliminary screening, the selected candidates moved on to the written examination stage, which will be now be followed by another

evaluation period that includes an interview (in May) and a subsequent background and health check.

The Committee is seeking to recruit

a total of 11 staff members worldwide to fill 10 different positions, who will join the current 170 employees who are already working in the preparations for the 2022 Beijing Winter Olympics, according to the publication. S.Z.

4 Business Daily Monday, April 17 2017

Macau Interview | Mixed martial arts

Building heroes Founder and CEO of Asia’s largest sports media property ONE Championship, Victor Cui, explains the company’s moves towards a potential IPO, industry firsts they’ve achieved, the power of a regional sport, building and maintaining engagement through various media channels and the Singapore government’s investment in the business.

Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

H

ow do you feel about the growth you’ve experienced as you’re coming up on ONE Championship’s 6th anniversary?

I’ve been very lucky. It’s an interesting story for sports in Asia that we’ve exploded and we’re the largest sport property in Asia now by every major metric that you can think about, in terms of regional. There’s no sport property that has a larger global broadcast than us. A billion viewers in 18 countries, we’re holding the most events across Asia, we’re in the biggest stadiums, we have the biggest fan base on social media. So by all these major metrics we continue to exponentially grow and I think that it’s a combination of – we have a fantastic team of people in the company but also that it’s a sport that we’re building local heroes in. And in most sports, actually in almost every other sport, it’s very difficult for Asians to be the best in the world.

But one infrastructure that has existed for 5,000 years and continues to exist very strongly is in Martial Arts.

There’s very clear processes for when you are a baby, a five year old kid, until you want to go to the national team, to professional – that whole infrastructure is there in martial arts.

So that’s why, when you added the pro level – which is what ONE Championship is – if you look at the pyramid of a sport, of the grass roots as you improve, improve, improve to get to the elite level, ONE Championship is the epitome of a martial artist’s career.

Are you worried that you could reach a saturation point?

I think we’re just at the very early stages. We’ve grown fast but we’re still scratching the surface. We’ve got 4.1 billion people here in Asia and that’s a lot of fans to make. We have 2 billion people in one single time zone in Asia. If you think about America, it has six time zones in one country. In one country!

We have 2 billion people in one time

zone! So when we’re broadcast live on a Friday night here, we’re the only sport across Asia broadcast live because every other sport that’s from the West is on the Western time zone.

What about the Western audience that’s already been consuming MMA through other formats – are you targeting them specifically also or more focused on the Asia market?

We’re definitely focused first on Asia.

We get a lot of interest from all around the world for ONE Championship to expand there, everywhere from Russia, Kazakhstan, to Turkey and Brazil and Canada. But right now our focus is here. We’re Asian based, we’ve got Asian heroes, top Asian athletes working with us. We were here in Macau last year and just really focused on continuing to build those Asian heroes. There’s a lot of opportunities.

How difficult was it to arrange something in Macau?

Doing business in Asia is different country to country and it all has its

individual challenges. One great thing about doing business in Macau is that there’s a lot of experience with working with international brands and international properties coming here.

So it’s not a new thing, as opposed to when you go to Myanmar. We’re the first and only international sport property that’s broadcast live out of Myanmar. When we were there we were the first event in something like 15 years that was broadcast live out of there. So that’s a whole different set of challenges.

Macau is set up for international businesses to come and to thrive and to succeed and the infrastructure is there. Now when you have great partners like Venetian, they’re experts at it, they know what to do.

So it’s definitely a little bit easier that way. I think one of the challenges in Macau is you’re focusing on an inbound tourist audience and the homegrown crowd is a little bit tougher, because they tend to be more mobile. As opposed to in Singapore, every event builds on each other because the fans that went from one event are going to come to the next event and they live there and they’re residents. There’s not a lot of people that make their home in Macau that you can turn into fans all the time.

Social media is a huge part of how ONE Championship promotes itself.

You mentioned that when a ring girl streams the event she can get around 25,000 followers at any time. How big a part is the ‘entertainment’ and female presence in the social media direction?

I think our ring girls are just one little piece of it. The real focus is around our champions and most of the attention of our fan base really is around the legitimate heroes and world champions that we’ve got: Angela Lee or a story like Edward Folayang who’s had five siblings die and his parents can’t even read. And to come from that to a world champion, these are great stories.

The crazy thing is that those stories are actually commonplace in Asia with a lot of athletes. There’s hundreds of athletes in Thailand that are orphans that have become Muay Thai world champions. Hundreds of athletes in the Philippines that are orphans that become national champions - or Manny Pacquiao from selling on the street to multiple world champion.

So there are a lot of great stories like that in Asia that just have not been told before.

Your group uses ‘influencers’ – people with large social media followings, on Facebook and other social media sites – sponsors them to come to events and broadcast ringside. Do you pay them?

We don’t pay them. There’s people that accept payments, but they’re not the kind of people we want to work with. Because we see this as – it’s like when the President of the United States travels on Air Force One with the same journalist. And they just build a relationship – and it’s great for the journalist and it’s great for the President – and they have a trust and a relationship that’s mutually beneficial.

That’s how I look at it.

These guys every month are getting a free holiday for three days. Every month they get to travel to Manila, travel to Bali, they get to travel to Macau. And they spend two days seeing the sights and live streaming and doing all that kind of stuff and on fight night they’ll live stream for four hours at our event and it’s a win-win for everybody.

You have a lot of experience, in particular with media and promotions and you knew exactly what you were doing when you set this up.

Was that live streaming concept a part of your initial idea when you

Business Daily Monday, April 17 2017 5

Macau were setting up ONE Championship?

Because technology has come a way since then.

No, it was not. Six years ago even social media, and its dominance, was not where it is today. And the tools that you have on Facebook have completely changed. On Facebook now the majority of it is how do you stop the thumb because it’s all live streaming and all videos and video content.

We’ve just got an amazing team that understand digital-first concepts and that’s been the focus of my company.

Also, a lot of our fans are primarily mobile-phone focused first for the content. So we make sure that that’s how we deliver it: to reach them.

Your company had an industry first in terms of the Temasek (fund) investment. Were you expecting that?

How did that come about?

Well the Singapore government is very conservative in their investments. And they do an extreme amount of due diligence on any business that they want to do.

They’ve been watching us for a long time, since we started. Because we were Singapore based, obviously growing very fast. And I’m very fortunate that my chairman and my other board members are seasoned entrepreneurs and already multi-billionaires, and they’ve built the story time and time again - from scratch to IPO (initial public offering) – they’ve done it so they understand.

So ONE Championship from day one was actually built like a public company. Very, very transparent.

From our books being audited every year by Ernest & Young to every document that we have – it’s like a public company from day one already.

So it was very easy for a fund like Temasek to look at us and see what the business is and what’s going on.

But we’d been approached by several funds throughout, and until today businesses continue to want to invest in us. Mostly – there’s not a lot of businesses in Asia that have [not only] this kind of gathering of financial backers, but [also the] leadership team and of the IP (interpersonal) side of it. There’s not a lot of businesses that have a multi-billion dollar payout at the end. A lot of businesses have a great US$50 million growth, or a US$100 million growth. But in the media business and sports we’re one of the few businesses – actually right now in Asia we’re the only sport that has the ability to be global.

There’s no other sport in Asia that is applicable and appealing to the Asian audience that also people in America want to watch.

By partnering up with other strong brands like Marvel, what other opportunities did that bring about? Did they target you?

The reason why Marvel Comics and Disney are two of the most protected and greatest brands in the world is because they have some of the most innovative and greatest marketers. And with Marvel it was basically this – they looked at it and said: they’ve got these great brands: Thor, Deadpool, Avengers, Captain America, Ironman, Guardians of the Galaxy. But no one in Asia grew up reading those comic books.

Nobody grew up in Asia reading Ironman, no one in Asia knows the story of Thor, it’s not what Asians grew up with.

So you have these heroes on the big screen and a very big disconnect between the big screen heroes and what the masses really know.

We are one of those bridges to heroes that they can understand and relate to [so they can see] how the hero in ONE Championship most closely represents the hero on a big screen. So you draw that emotional connection.

Captain America versus Iron Man – we launched the movie for them – and so that was red versus blue.

Iron Man is red, Captain America is blue. ‘Choose your side’ was the whole theme. So we ran the exact

same campaign with us, in line with them. They would have a display in a shopping mall with ‘Choose your side’ so we’d have our athletes ‘choose your side’. Who do you want – red or blue? And then people make that emotional connection from their local hero to the big screen hero.

How difficult is it breaking into China – what limitations have there been so far?

We’ve opened two new offices in China – Beijing and Shanghai - and started hiring up there. China, like any other country, has its own unique challenges. I think what’s different in China is that the opportunity of the scale is obviously significantly different.

So we’ve held five events already in China, we’re looking to do another four or five this year in China again.

And just really focus on building our fan base there and letting our international audience know that we’re on the hunt for the next heroes out of China.

You mentioned a US$1 billion valuation – are you thinking about an IPO? It’s one of the directions, a possible outcome, that the Singapore government would like for us. For them to take a homegrown company to an IPO on the New York Stock Exchange at a multi-billion dollar valuation is the ultimate story for them. We’re still a few years away from that and I don’t know as a company exactly the timeline of what that would be, but let’s call it three years to four years or something like that if it makes sense for us. That’d be one direction to go.

Given how you mentioned earlier that you set up the company like a public company, how much preparation would you need for that IPO? There are always institutional changes when you want to list at the highest levels. But we’re very fortunate that my board has already done that several times. What’s different about ONE Championship, is people always look at it and go ‘wow how could you grow so fast, what did you do?’ The thing is – most sports – 99.9 per cent of sports in Asia - were started by ex-sportsmen. I’m a swimmer, I’m gonna become the president of the swimming association. I’m a track and field athlete I’m going to become the president of the track and field, and then I’ll do a local track meet.

Tennis, basketball, squash – you name it, that’s typically how it is.

ONE Championship was started by a group of businessmen and media experts that wanted to commercialize and bring the level of martial arts to a professional level for the first time in the history of Asia.

So we look at this from a business perspective of – how do we make great entertainment and great value for the fans, as opposed to if I was an ex-fighter or gym owner I might not have that business acumen or that business experience. We’re very

lucky that our board and everybody can look at it from a 10,000 foot level, of what the opportunity for sports in Asia is. And I can look at it and say – what do we need to deliver to broadcasters, what do they need, what do partners need, where are the gaps in the market that I’ve seen in my experience in business in Asia?

And make sure that our property delivers that.

How do Weibo and WeChat fit in?

That’s part of our China strategy.

We’re still very young with that, with our development of it. But I think the opportunity is huge and we’re going to see an exponential growth in that.

The great thing is – we have all this great content already, we have all this great stuff that we’re already producing in English – and that makes it very easy to adapt that for the Chinese market. So that’ll be our focus in this

next 12 months – continue to ramp that up quite aggressively.

What about India?

India maybe we’ll look at in 2018, end of 2018, or 2019.

How do you see UFC? Do you see it as type of competition?

I’d say UFC is the biggest in the West and we’re the biggest in the East. But the thing is, UFC has been in Asia much longer than ONE Championship. They were in Asia four, five years before I even started the company. So it’s not anything new for us. We’ve built our plan and I’ve built the business focusing on what I think our strengths are, what will make us successful in this market. Because UFC was already here, it’s not like I woke up this morning and suddenly I’m like ‘Oh my God! There’s a company called UFC? They’re in Asia?’

6 Business Daily Monday, April 17 2017

Macau HKZM bridge

Hong Kong Link Road to be connected this month

T

he Hong Kong Link Road of the Hong Kong-Zhuhai-Macau Bridge will be fully connected this month, according to an announcement by the Highways Department late last week. This marks an important milestone for the project, according to the group. The 12-kilometre road connects the Main Bridge of the HKZM infrastructure project on the mainland to the Hong Kong Boundary Crossing Facilities.

“The casting of all tunnel box segments in the link road’s Scenic Hill Tunnel has been completed,” wrote the Hong Kong department, pointing specifically to “the last part of the segment being jacked to its final position underneath the Airport Express Line.”

The Highways department revealed that the road surfacing, installation of road facilities for the link road, as well as the Hong Kong Boundary Crossing Facilities are still on-going.

The department also expressed that there had been complications in carrying out the construction of the road.

“To build the link road in close proximity to the Hong Kong International Airport, one of the busiest airports in the world, the department has faced difficulties during planning and construction,” stated the department.

A recent document released by the Hong Kong Labour Department claims that a total of five deaths and 235 injuries had occurred on the bridge construction sites between 2011 and the third quarter of 2016.

Apart from the fatalities during the construction, the Hong Kong Secretary for Transport and Housing disclosed details earlier this year about the cost overruns of the colossal bridge, with the extra costs to be shared between the three governments.

Construction on the bridge started

in 2009, and was originally budgeted to cost some RMB15.73 billion (MOP18.27 billion/US$2.29 billion) with Macau to contribute RMB1.98 billion.

Meanwhile, CCCC Fourth Harbour Engineering Co., Ltd., the contractor of the border, claimed last month that the construction of the Macau Border facilities for the Hong

Kong-Zhuhai-Macau Bridge is slated for completion by the end of this year.

The MSAR Government also expects the city’s two links – namely, the one connecting the Peninsula to the reclamation area of Zone A, and the other connecting Zone A to the artificial island – to be completed in the third and fourth quarters of this year, respectively. C.U.

made RMB7.64 billion.

In terms of revenues, the group registered a total of RMB13.87 billion in 2016, a 40.46 per cent drop year-on-year.

The securities broker controls MOP48.9 million (US$6.1 million) of the issued capital of Sun Hung Kai Investment Services (Macau) Limited, an inactive subsidiary of Hong Kong based financial group Sun Hung Kai Financial Limited, of which Everbright holds a 70 per cent share.

Everbright’s non-executive Director, Au Sing Kun, is also the vice

chairman of the Macau Association of Banks and CEO of HSBC (Macau).

The decrease in revenues and profits occurred the same year Everbright was listed on the Hong Kong Stock Exchange, with chairman Xue Feng stating in the release that the company faced a ‘sluggish market’ in 2016.

Despite the decrease, Mr. Xue said the group managed to achieve ‘steady growth in primary businesses’ and to make ‘speedy progress in innovative businesses’ and that it would ‘push ahead’ with reform development. N.M.

Securities

Everbright losing shine Chinese securities broker company Everbright Securities Company Limited saw its profits go down 60.6 per cent y-o-y in 2016 to RMB3 billion Chinese state-owned securities broker Everbright Securities Company Limited saw a 60.6 per cent yearon-year decrease in net profits in 2016, as the group’s results reached RMB3.01 billion(MOP3.48 billion/

US$435.5 million) a company release to the Hong Kong Stock Exchange on Friday revealed.

The decrease comes after the group saw a 270-per cent year-on-year increase in profit in 2015, when it

Business Daily Monday, April 17 2017 7

Macau Mega-project

Speeding up procedures A delegation from local gaming operator Macau Legend met with authorities from Setúbal, Portugal to discuss how to initiate the previously announced mega-project on the region’s riverfront Nelson Moura with Lusa nelson.moura@macaubusinessdaily.com

A

delegation from Macau Legend Development Limited met with the authorities of the Portuguese city of Setúbal to discuss how to initiate the planned mega-project on the region’s riverfront, according to a release from the Setúbal Government.

The delegation, led by Macau Legend’s chief executive officer, David Chow Kam Fai, met with the mayor of Setúbal, Maria das Dores Meira, to prepare a request to Portuguese authorities to consider the region’s riverfront development as a National Interest Project (PIN).

According to Ms. Meira, in the event that the project receives the designation, it will allow it to ‘speed up the development process with several central government entities’ kickstarting the project with a total cost estimated at 246 million euros (MOP2.09 billion).

‘The meeting was initially scheduled to take place in May, but the local gaming company CEO wanted to push forward the date, linking it with his trip to Cape Verde, where Macau Legend already is developing a similar project to that planned for the riverside area of Setúbal,’ Ms.

Meira added.

According to the Macau Legend representative in Portugal, Duarte Pinto Gonçalves, the meeting looked to ‘reassert the group’s interest in investing in Portugal, particularly in Setúbal, and to seek solutions to start the investment as soon as possible’.

On the riverside

In July of 2016, Macau Legend signed a memorandum of agreement with the Setúbal authorities for the project development, with the first phase said to start this year with a 150 million euro investment, followed by a second phase of 100 million euros, according to newspaper Journal de Negócios.

The project in the Sado river estuary will include a four-star and five-star luxury hotel on the waterfront, a residential building with 60 apartments, a yacht club and several commercial units, the release stated.

Estimated to create as many as 3,000 job openings, the development includes a maritime connection with the Troia peninsula where the Troia Casino is located.

Last year, Macau Legend reached an agreement with Portuguese companies Fundo Aquarius, Amorim Turismo and B&G - which owns Troia Casino - to establish a joint venture to develop the Setúbal project.

The deal also includes a 40 million euro proposal for the casino - which has 220 slot machines, 13 gaming tables and a gaming concession valid until 2031 - to be managed by the new venture.

The establishment of the joint venture, in which Macau Legend will hold a 55 per cent share, is still pending approval from the Portuguese Government.

Portugal’s Ministry of the Sea is also yet to approve the riverside development, having expressed concerns it could disrupt maritime access to the Setúbal harbour.

David Chow Kam Fai, CEO of Macau Legend Development Ltd.

Workers’ rights

Abandoning the old for the new The New Macau Gaming Professionals Association has urged the management board of SJM Holdings Ltd to investigate the cases of senior dealers being dismissed and new dealers being hired for lower costs, local broadcaster TDM Radio reported.

During a press conference, the Association, together with nine other dealers, disclosed that dealers were

dismissed last month, allegedly without having exhibited any misconduct or received any warnings about work performance.

Cloee Chao, president of the association, noted during the conference that current staff are worried about unjustified dismissal, and disclosed that new staff were being employed despite no new tables being added to

the company’s operations.

Business Daily contacted SJM for comment about the allegations as well as its reply to the request made by the dealers, however no response had been received by the time this story went to press.

SJM had previously denied dismissing old staff members and replacing them with new employees without just cause, while noting that the gaming operator has an internal system for employee promotion and dismissal. C.U.

Protest

Saipan casino workers protest for payment as FBI cites illegal labour The company said it opened its new casino on March 31 but the attached resort remains unfinished with equipment strewn across the workplace More than 50 construction workers hired for a casino resort on the Pacific island of Saipan staged a street protest on Friday demanding to be paid, after their employer was charged with illegally importing Chinese workers on tourist visas.

The Chinese workers, who entered Saipan on tourist visas and are not allowed to work, demanded that casino contractor MCC International Saipan, a unit of state-owned Metallurgical Corporation of China Ltd, pay them wages, said eye witnesses.

“MCC return my hard earned money,” read a protest banner, according to a Facebook live update. The Facebook videos could not be verified independently by Reuters.

MCC did not respond to a request for comment.

“No passports. No work. No money,” said local legislator Ed Propst, who observed the protests.

Hong Kong-listed Imperial Pacific operates the Best Sunshine Live casino in Saipan. MCC is one of the contractors engaged to complete

construction of the casino resort.

“Imperial Pacific International is strongly reiterating that it does not condone the hiring and or employment of individuals by illegal means,” the company said in an email to Reuters.

“Imperial Pacific International is emphatic in its request to all of its contractors and subcontractors to follow all local and federal labor and immigration laws and regulations in the conduct of its business, including and in particular, the hiring of construction workers.”

MCC, together with Beilida Overseas (CNMI) Ltd, were charged by the U.S. Federal Bureau of Investigation (FBI) on April 3 with illegally importing and employing Chinese workers, including one who died in March, court documents showed.

Saipan is part of the Northern Mariana Islands and has been controlled by the United States since the end of World War Two. Its cash-strapped government approved a casino in 2014, after which

Chinese investment has skyrocketed and Chinese signs and business have mushroomed across the island.

Since Imperial Pacific opened a temporary casino on the island under two years ago, its revenues have wildly outperformed the top casinos in Macau in spite of China’s battle to stop capital flight.

Scrutiny of the new Saipan casino project has intensified after the death of a construction worker in March and an FBI raid in April that found a list of more than 150 undocumented workers in a contractor’s offices, as well as a safe containing several thousand dollars in U.S. currency, several hundred Chinese yuan and employee pay stubs.

Imperial told Reuters in April that it had paid construction contractors “requisite fees for processing needed applications for workers to work on the construction problems”.

The company said it opened its new casino on March 31 but the attached resort remains unfinished with equipment strewn across the workplace. There has been a slew of more than 100 work-site injuries from fractures to crushings in the past year, volunteers helping the injured told Reuters. Reuters

Opinion

Sheyla Zandonai*

Flexible arrangements Who has not yet had the occasion to deal with CTM, the local telecom company?

And how many people would have a happy experience to report about their “CTM moment”?

CTM, which is owned by CITIC Telecom International (99 per cent interest), operates several of the local telecommunication’s market segments – mobile phone excluded. In good old jargon, that is a monopoly.

Overall, monopolies tend to benefit companies and, to some extent, governments, if they manage to cut a deal that yields good tax returns.

More often than not, though, clients are barely to benefit from such deals.

One point worth considering is the lack of competition.

Why should CTM provide better and more efficient services? For the principle of a decent client-business relationship, you may say.

But if there is no other option in town, there is no incentive for them to improve their offer.

Another point is the public service “syndrome.”

CTM’s home provision, say, for Internet installation, is only delivered during business hours. On top of that, appointments can only be scheduled within 10 to 15 days after a client’s request.

Note be made too that punctuality is not their strongest asset. Put together, the whole package becomes a hassle.

For one, during business hours, people are also working, and that usually takes place outside, not at one’s home. It is still to be found where it is written that everybody should start working, have lunch, and leave work at the same hours.

But apparently this is how things have been running here for a while.

It does not seem particularly difficult though to figure out that a flexible time arrangement for service provision would be beneficial for all parties, clients and companies alike. CTM’s employees would not have to work more, but simply shifting turns a bit. In return, customers would very likely be more satisfied. It is not a matter of labour law. It is a matter of common sense.

That could also work well for banks. In fact, online banking has already made life much easier for us. But why not take it a step further? Banks in Canada, for instance, have adopted a flexible working-hours system to comply with clients’ needs. One day per week, at least, customers can visit branches at evening time until 9pm. Some open on Saturday afternoons while closing on Tuesdays.

Any candidates here to consider the alternative? *scholar and contributor to this newspaper.

8 Business Daily Monday, April 17 2017

Greater China Banking

Senior Chinese banking regulator under investigation

A

senior official at the China Banking Regulatory Commission (CBRC) is under investigation for suspected links to a loan scandal, the financial magazine Caixin reported, citing sources close to the matter.

Yang Jiacai, assistant chairman of CBRC, has been under investigation since April 9 in connection with the scandal in Hubei province, Caixin said late on Saturday, following days of rumours circulating online that Yang had gone missing.

China’s graft watchdog on April 9 also announced an investigation into the chairman of the country’s insurance regulator, Xiang Junbo, the most senior financial regulator to be investigated as part of a government fight against graft.

Yang could not be reached for comment.

No official announcement of an investigation into him has been made.

His name and profile were still accessible on the CBRC website on Sunday.

Caixin reported last Friday that Yang had been relieved of his duties, citing people with knowledge of the matter.

CBRC did not respond to a faxed request for comment on Friday or to a second fax on Sunday about the investigation.

Yang’s last public appearance was on April 7 speaking at a news conference about new risk control guidelines for lenders as part of efforts to

contain risks from a rapid build-up in debt.

China’s top leaders have pledged this year to address financial risks and asset bubbles.

President Xi Jinping has pledged to wage war on deep seated graft in the ruling Communist party until officials at all levels dare not be corrupt, warning that a failure to check the rot

could threaten the party’s existence.

Yang and his wife and son were all placed under investigation due to their suspected involvement in a loan scandal in Hubei, Yang’s home province, Caixin said.

Yang spent most of his career in Hubei and was deputy head of the central bank’s Wuhan city branch in Hubei from 1997 to 2003, according

to his official profile.

According to the article, investigations into the scandal have already led to a number of official probes, including into chief risk officer of China’s Bank of Communications, Yang Dongping, who was expelled from the party on Feb. 24.

Yang became assist chairman of the CBRC in 2013. Reuters

Economy

Trade

Official: China still faces challenging trade outlook

Mainland-HK trade down 1.5 pct in first two months

China faces a complex and grim trade outlook which is not likely to improve anytime soon, a senior commerce official warned, despite buoyant trade figures in the first quarter.

China’s foreign trade retained robust growth in the first quater to reach RMB6.2 trillion (US$902.47 billion) in volume, up 21.8 per cent year-on-year.

Vice Commerce Minister Fang Aiqing said at the opening of the 121st China Import and Export Fair, known as the Canton Fair, that factors of uncertainty and instability have notably increased facing China’s trade and these difficulties are not short-termed.

Fang, however, said the fundamentals for China’s trade development had not changed and the industries between China and developed and developing countries remain complementary.

He said China will continue to push for structural adjustment in trade, carry on innovative reform,

coordinate the balanced development of trade and investment, and maintain the stabilizing trend of trade.

The Canton Fair is held every spring and autumn and is seen as a barometer of the country’s foreign trade.

The current event will run through to May 5. Nearly 25,000 domestic and foreign companies set up booths.

Xu Bing, spokesperson for the fair, said optimism prevailed as traders were enthusiastic, based on an organizer’s pre-event survey and air ticket booking information.

Li Xinghao, president of Chigo Air Conditioning, is one of the upbeat businessman.

He said the company’s export of corporate air conditioners grew by 20 per cent in the first quater and the trend was expected to continue throughout the year. He attributed the bright prospects to the integration of cloud computing and big data into the manufacturing of air conditioners. Xinhua

Trade between the Chinese Mainland and Hong Kong Special Administrative Region totalled US$36.6 billion in the first two months of this year, down 1.5 per cent year on year.

Statistics from the Ministry of Commerce showed that Mainland-Hong Kong trade during the period accounted for 6.5 per cent of the Mainland’s total overseas trade volume.

In January and February, Mainland exports to Hong Kong hit US$35.5 billion, an increase of 1.5 per cent on a year-on-year basis, while the Mainland’s imports from the region saw a decrease of 48.9 per cent to US$1.1 billion.

Hong Kong is the Mainland’s

sixth-largest trade partner and fourth-largest export market, according to the ministry.

The Mainland approved 1,847 Hong Kong-invested projects in the first two months, with the actual use of Hong Kong capital reaching US$14.9 billion, up 27.5 per cent from the same period of last year.

By the end of February, the Mainland had approved 400,813 Hong Kong-invested projects, with the actual use of Hong Kong capital reaching US$929.7 billion, accounting for 52 per cent of the total overseas investment in the Mainland.

China securities watchdog urges stock exchanges to toughen supervision. Xinhua

Business Daily Monday, April 17 2017 9

Greater China Forex exchange

U.S. urges China to open trade after sparing manipulator tag China meets only one of the three criteria for having a large trade deficit -- that’s used by the U.S. Treasury Department as a threshold for manipulation.

Andrew Mayeda and Saleha Mohsin

T

he U.S. stopped short of branding China a currency manipulator, but urged the world’s second-largest economy to let the yuan rise with market forces and embrace more trade.

No major trading partner is manipulating its currency for an unfair trade advantage, according to the first foreign-currency report released by the Treasury Department under President Donald Trump on Friday.

It kept China, South Korea, Japan, Taiwan, Germany and Switzerland on its foreign-exchange monitoring list.

“China currently has an extremely large and persistent bilateral trade surplus with the United States, which underscores the need for further opening of the Chinese economy to American goods and services,” as well as quicker reforms to boost household consumption, according to the Treasury report.

Trump declared on Wednesday that he’ll back away from a campaign promise to name China a currency manipulator, a move that would have created friction between the world’s largest economies as they try to boost trade cooperation and address North Korea’s nuclear threat.

Trump, in a Wall Street Journal interview, said China hasn’t manipulated the yuan for months, while accusing nations that he didn’t identify of devaluing their currencies and saying the dollar is getting too strong.

The report contains an implicit threat that unless China gives U.S. exporters greater market access and further rebalances the economy, the U.S. could act to rectify the trade imbalance, according to Eswar Prasad, former head of the IMF’s China division and author of “ Gaining Currency: The Rise of the Renminbi.”

“While China now meets only one of the three criteria for currency manipulation listed in the report, the text makes clear that China’s large

bilateral trade surplus with the U.S. is by itself enough to warrant careful scrutiny of China’s trade and currency practices,” said Prasad, a professor at Cornell University in Ithaca, New York.

The Treasury report said that for a decade China engaged in one-way, large-scale interventions to hold down the currency, and then only allowed it to strengthen gradually -- a practice that imposed “significant and long-lasting hardship on American workers and companies.”

While China has been intervening to prevent a depreciation of the yuan, its selling of foreign currency reserves abated early this year, Treasury said.

Now, China needs to show that its lack of intervention in the currency markets “to resist appreciation” over the past three years is a “durable” policy by allowing the yuan to strengthen “once appreciation pressures resume,” the Treasury said.

China’s Ministry of Foreign Affairs didn’t immediately respond to an email Saturday seeking comment on the report.

Foreign reserves

Treasury avoiding the manipulator label reflects that China’s current-account surplus as a share of output is much reduced, and currency intervention now supports yuan strength, according to Bloomberg Intelligence economists Tom Orlik and Justin Jimenez. China has burned through almost US$1 trillion of its foreign reserves, or about a quarter of the total stockpile, since mid-2014 to help support the currency.

“After much hoopla, and with a few extra bells and whistles, the Treasury’s position is completely unchanged,” Orlik and Jimenez wrote in a report. “Treasury does have some choice words for China, accusing it of causing ‘long-lasting hardship’ to American workers. And there’s what looks like a change in the criteria, opening the possibility that China’s outsize trade surplus

alone will be enough to keep it on the watch list.”

Like the last report by the Obama administration in October, China met only one of the three criteria -- for having a large trade deficit -- that’s used by the Treasury as a threshold for manipulation. China’s US$347 billion goods trade surplus with the U.S. was the largest of major trading partners last year, according to the report.

Taiwan also met one condition, while the other four met two.

“While China now meets only one of the three criteria for currency manipulation listed in the report, the text makes clear that China’s large bilateral trade surplus with the U.S. is by itself enough to warrant careful scrutiny of China’s trade and currency practices” Eswar Prasad, former head of the IMF’s China division The Treasury said Germany has a “responsibility” to help balance global demand and trade flows. Europe’s biggest economy should use fiscal policy to encourage strong domestic demand, which would put “upward pressure” on the euro. Switzerland “could increase reliance on policy rates in order to limit the need for foreign-exchange interventions, which should be made more transparent.”

In Asia, Taiwan, Japan and South Korea were urged to keep interventions

to a minimum, and aspire to have flexible and transparent exchange rate policies.

“The United States cannot and will not bear the burden of an international trading system that unfairly disadvantages our exports and unfairly advantages the exports of our trading partners through artificially distorted exchange rates,” the report stated. “Treasury is committed to aggressively and vigilantly monitoring and combating unfair currency practices.’’

The department is required by law to report to Congress twice a year on whether America’s major trading partners are gaming their currencies.

The report is the government’s formal channel to impose the manipulator designation, leading to a year of negotiations for a solution and penalties if the practice continues.

The U.S. hasn’t branded any country a manipulator since 1994.

A senior Bank of Korea official said South Korean foreign-exchange authorities maintain their stance that the exchange rate is to be determined by the market as the report emphasized fair competition. The official asked not to be identified because the central bank hasn’t issued a statement the report.

A spokesman for Taiwan’s presidential office referred a request for comment to the central bank. An official at the monetary authority, who asked not to be identified, said Saturday that the central bank is in continued contact with the U.S. and has good communication channels with Washington.

The Treasury left the criteria for manipulation unchanged at having a trade surplus with the U.S. above US$20 billion; having a current-account surplus amounting to more than 3 per cent of gross domestic product; repeated currency depreciating by buying foreign assets equivalent to 2 per cent of output over the year.

Commerce Secretary Wilbur Ross has said that the issue of “currency misalignment” -- which could also include unintentional devaluations -- will be addressed in a study of trade abuses by nations that run large surpluses with the U.S., which is due to be ready in June. Bloomberg

10 Business Daily Monday, April 17 2017

Greater China In Brief Pollution

Taiwan to spend US$1.2 billion to cut PM2.5 Taiwan plans to spend TWD36.5 billion (US$1.2 billion) in the next two years to reduce air pollution.

The Taiwan authority announced it aimed to cut the density of PM2.5, airborne particles measuring less than 2.5 microns, by 18.2 per cent to 18 micrograms per cubic meter by the end of 2019, local media reported Friday.

In addition, the project will be backed by Taiwan Power Company (Taipower), which will spend TWD10.1 billion, and TWD168.4 billion from the private sector.

Data from Taiwan’s environmental protection department showed that emissions from motor vehicles was the biggest source of pollutants, taking up about one-third of the total.

Therefore, the department planned to phase out 1 million heavy-polluting motorcycles by 2019.

Economy

China March fiscal spending surges over 25 pct on-year

C

hina’s fiscal spending surged 25.4 per cent in March from a year earlier, accelerating from the first two months of the year as the central and local governments pump money into infrastructure projects to support economic growth.

Growth in government spending quickened from 17.4 per cent seen in January and February combined, the finance ministry said on Friday.

Central government spending rose 24.3 per cent in March from a year earlier, while spending by local governments jumped 25.6 per cent, the ministry said in a statement on its website.

For the first quarter, fiscal spending rose 21 per cent in from a year

earlier, it said.

Buoyed by sustained government infrastructure spending and a gravity-defying housing market, China’s economy likely grew by a solid 6.8 per cent in the first quarter, the same pace as the previous quarter, due according to a Reuters poll.

First-quarter GDP data will be reported today.

Combined fiscal revenues rose 12.2 per cent in March, the ministry said, slowing from 14.9 per cent in the first two months.

Revenues rose 14.1 per cent in the quarter.

The figures were earlier reported

by Chinese state media.

China has kept its budget deficit at 3 per cent of gross domestic product (GDP) for 2017, the same as last year,

and pledged to clamp down on risks associated with local government debt.

Moody’s Investors Service said last week that the fiscal stimulus that China’s government is providing to the economy is larger than headline deficit figures suggest.

In addition to on-budget spending, China’s government provides support to the economy using off-budget funds, combined with spending and revenue measures by the broader public sector, including state-owned enterprises and government-owned policy banks, Moody’s said.

Moody’s calculates that the direct fiscal impulse that includes transfers in and out of funds was close to 4 per cent of GDP over the past two years. Reuters

Stocks

Chinese regulator approves 10 IPO applications China’s stock market regulator has approved the initial public offering (IPO) applications of 10 companies.

The companies will be allowed to raise up to RMB5.1 billion (US$741.9 million), China Securities Regulatory Commission (CSRC) said in a statement.

Six companies will be listed on the Shanghai bourse, one on the Shenzhen small- and medium-enterprise board and three on the ChiNext, China’s NASDAQ-style board.

The 10 firms and their underwriters will confirm the dates for the IPOs and publish prospectuses following discussions with the exchanges.

Under the current IPO system, new shares are subject to approval from the CSRC, which controls both the timing and pricing.

Property

Hainan to impose new curbs on real estate investment China’s southern island province of Hainan has drawn up measures to clamp down on real estate speculation, the official Hainan Daily newspaper reported, the latest in a flurry of steps to tame hot property prices.

Cities across China have been rolling out much tougher real estate restrictions this year in an effort to contain resurgent demand from home buyers and property speculators, as earlier cooling measures appeared to

be having limited effect.

While most analysts do not see a high risk of a property market crash, they note increasingly stringent regulations could eventually curb investment and construction, weighing on economic growth.

Hainan’s new investment restrictions will prevent buyers from getting mortgages to buy third homes, and will also ban non-residents from buying second newly built homes in the province, the paper

said, citing a notice approved by the local government.

Down payments for residents of Sanya, one of China’s most popular cities for touriara, have been raised to 50 per cent for a second home.

In the rest of the province, residents still paying back previous loans will also have to make a down payment of 50 per cent for a second home.

The capital of China’s Sichuan province said on Wednesday that newly-bought homes cannot be sold again for at least three years.

China was also forced to crack down on real estate speculation in Hebei after announcing the launch of a new economic zone in the province. Reuters

M&A Co-operation

China to create 10 “mega” coal companies through M&As

China-France relationship is one of the most mature and stable examples of ties between major countries, Chinese Foreign Minister Wang Yi said Friday.

Wang made the remarks during his talks with French Foreign Minister Jean-Marc Ayrault, saying that the two sides should continue to respect each other’s core interests and major concerns.

The comprehensive strategic partnership between France and China will continuously move forward regardless of French presidential election’s result, Ayrault said, noting that he visited Beijing before the presidential election to underscore the importance of the FranceChina relationship and its significance to world peace and stability.

China aims to create 10 “mega” coal producers by the end of the decade as part of its drive to consolidate the industry and tackle overcapacity, the official China Daily reported on Friday, citing an energy official.

Wang Xiaolin, deputy director of the National Energy Administration, said China was preparing guidelines to create 10 new industry giants each with annual production capacity of more than 100 million tonnes.

The report said China already has six firms with production capacity above 100 million tonnes.

According to the China Coal Trade and Distribution Association, the new guidelines will compel coal mining regions to consolidate smaller mines over the next two years, and close those that are not restructured.

The association said large-scale state miners, including the Shenhua Group, China’s biggest coal producer, are also set to undergo restructuring.

China is in the middle of a programme aimed at tackling

China, France to boost bilateral ties

price-sapping supply gluts in the coal sector, and aims to shut at least 500 million tonnes of production capacity by the end of the decade, with smaller mines shut or consolidated.

China aims to shut at least 150 million tonnes of coal production capacity this year alone, and the campaign has helped drive up coal prices by more than a quarter since the beginning of the year. Reuters

Business Daily Monday, April 17 2017 11

Asia e-commerce

Amazon, Flipkart battle in India for e-commerce’s ‘last frontier’ The battle to dominate the fast-growing e-commerce market in the country is set to heat up Alexandre Marchand

W

ith 100 million new internet users every year, Amazon is betting big on India, but a major new investment in homegrown rival Flipkart means the battle to dominate the fast-growing e-commerce market is set to heat up.

Flipkart announced last week that top international companies including Microsoft, eBay and China’s Tencent had pledged investments totalling US$1.4 billion, among the largest sums ever raised by an Indian start-up.

The 10-year-old e-commerce company needs all the help it can get to compete with Amazon after the Seattle-based giant made India’s 1.25 billion inhabitants a global strategic priority, earmarking US$5 billion in investment funds.

“They need to have a substantial amount of cash in order to fight in the market with Amazon,” said Jaideep Mehta, South Asia director at the International Data Corporation.

Every three seconds, an Indian connects to the Internet for the first time, according to Google.

One in three Indians currently uses the Internet, but the number is forecast to swell by 300 million by 2020, mainly due to growing smartphone use.

McKinsey analyst Ashish Tuteja said 70 per cent of online sales in India were done on a smartphone.

“It’s very much a mobile-first market,” he told AFP. Projections for the size of the market by 2020 differ wildly, ranging from US$50 billion to US$120 billion.

But all agree that it will be worth considerably more than the current US$15 billion, thanks to an expanding middle class and rapidly growing internet use.

Amazon only opened its doors in India in 2013, but quickly overtook local start-up Snapdeal to become the second-biggest player.

E-retailers in India typically adopt a “marketplace” structure, acting as platforms that connect buyers and sellers rather than stocking their own products.

Amazon marketed its services aggressively, touring markets around the country with its “chai carts” to sell the idea of e-commerce to small traders over a cup of tea.

Under another initiative dubbed “Feet-on-Street”, an Amazon employee would be sent to photograph their products and help them to sign up online.

Alibaba ambush

Flipkart, Amazon and Snapdeal are now engaged in a price war, with each Indian festival an occasion for

aggressive cuts.

“At some point, they will have to make money,” said Mehta -- something experts say will necessitate consolidation of the sector.

That process has already begun, with Flipkart absorbing two rival portals, Myntra and Jabong. According to Indian media, a deal for Flipkart to buy Snapdeal is next.

India also represents a chance for a rematch after Amazon lost out to Alibaba in China. Although currently more focused on Southeast Asia, billionaire Jack Ma’s group has made no

secret of its interest in India.

The Chinese giant has taken a stake in Indian online payments company Paytm and has ambitions to develop as an online sales platform in its own right.

For Amazon, India is the “last big frontier”, said Mehta.

“Amazon is a 100-billion-dollars-plus retailer. To keep driving growth, they need to keep leadership positions in large markets outside the U.S,” he said.

“They will continue to be very committed.” AFP

Retail

The great Japan potato-chip crisis: panic buying, US$12 bags The panic buying came after Calbee warned on Monday that it will temporarily halt the sale of 15 types of potato chips due to a bad crop in Hokkaido, a key potato-producing region.

Shoko Oda

Demand for potato chips has surged in Japan this week, with products on offer for 6 times their retail price online after Japanese snack company Calbee Inc. halted the sale of some of its most popular chip brands.

Calbee’s pizza-flavored chips were going for about 1,250 yen (US$12) on Yahoo Japan Corp.’s auction website Friday. One bag usually sells for less than 200 yen. Photos of near-empty shelves at their local supermarkets were trending on Twitter.

The crunch came after Calbee warned on Monday that it will temporarily halt the sale of 15 types of potato chips due to a bad crop in Hokkaido, a key potato-producing region. The northern island was hit by a record number of typhoons last year. Calbee, which has a market value of 507.9 billion yen and is 20 per cent-owned by PepsiCo Inc., has a 73 per cent market share of potato chips.

Potato chips are a big deal in Japan, a

country also known for its senbei rice crackers and Pocky sticks. Calbee’s potato-snack products were the most and second-most popular snacks in a TV Asahi poll of 10,000 people and 13 confectionery makers last year, and the subject of a primetime show that lasted more than two hours.

While the focus has been on potato chips following Calbee’s announcement, the shortage may spread to fast-food chains and restaurants that rely on spuds for their dishes in what appears to be shaping up to be the nation’s “Potato Crisis,” according to the Nikkei newspaper.

“We’re doing everything we can to resume sales again,” said Rie Makuuchi, a spokeswoman for Tokyo-based Calbee. She said the company will consider using more imported potatoes from the U.S. and ask potato farmers in the southern island of Kyushu to harvest their crop earlier than scheduled. She also cited regulatory hurdles, which limit the amount of imported potatoes that can be used in products, as partly

responsible for the shortage.

It’s not the first time Japan’s seen a shortage of food staples -- a declining number of dairy farmers and lack of imports due to high tariffs has led to butter shortages in the past, accompanied by exhaustive media coverage.

Smaller potato-chip rival Koikeya Inc. has also halted the sale of 9 snack products. The company only uses domestic potatoes and therefore won’t rely on imports, according

to spokesman Kazuya Obata. Both Koike-ya and Calbee said they aren’t sure when sales will resume.

Twitter users sent encouraging tweets to Calbee, which apologized for the crunch via its official Twitter account. If nothing else, the shortage appeared to remind people how much they liked their potato chips.

“I realized how addicted I was to potato chips after the halt,” one person tweeted. “I’ll be waiting for sales to resume. Hang in there!” Bloomberg

12 Business Daily Monday, April 17 2017

Asia In Brief Transport

Myanmar to buy over 1,000 buses from China Myanmar’s Yangon regional government had entered a contract with Chinese Yutong company for buying over 1,000 buses to supply Yangon Bus Services System, official media reported Saturday.

The buses will arrive next month and run on Yangon Bus line, an official of Yangon Region Transport Authority was quoted as saying.

Yangon Region Chief Minister U Phyo Min Thein vowed that Yangon bus services system will be upgraded to meet international standard early next year.

All 300 old bus lines running in Myanmar’s former capital city of Yangon were abolished and replaced with up to the 79 new bus lines starting on Jan. 16 in an effort to reduce traffic jam in the city and make the bus lines systematically operational.

Inclusive growth

Indian PM Modi committed to inclusive growth Indian Prime Minister Narendra Modi Friday said he is committed to building an inclusive India “of Babasaheb Ambedkar’s dreams” as he inaugurated thermal power units in western city of Nagpur to pay tributes on the social reformer’s 126th birth anniversary.

Bhimrao Ramji Ambedkar, popularly known as Babasaheb, was one of India’s tallest leaders -- the architect of what is probably the world’s longest constitution, a legal scholar, a spiritual leader and, most importantly, the undisputed leader of Dalits -- who had campaigned hard against social discrimination against “untouchables.”

“None would be prouder of a strong, inclusive and developed India than Babasaheb.

Creating an India that he would be proud of is our aim. Fulfilling the vision of Dr. Ambedkar for developed & inclusive India,” Modi posted on Twitter from his personal account.

Labour

Vietnam sees surge in labour demand in Q1 Demand for new skilled staff at Vietnamese enterprises increased in the first quarter of 2017, according to local job recruitment agencies on Friday.

Recruitment demand for middle- and senior-level staff rose by 73 per cent year-on-year in the first quater, according to the latest report by Navigos Search, the popular provider of executive search services in Vietnam.

In the period, most of the positions were in such sectors as manufacturing, IT, consumer goods and retails, banking and finance, and business services, reported state-run news agency VNA on Friday.

The IT sector alone witnessed a 2.5 times increase in labor demand over the past five years, according to Navigos Search General Director Nguyen Phuong Mai.

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Insurance

Malaysia said to mull enforcing foreign insurer holding cap 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 a speech in October at an insurance summit in Kuala Lumpur.

Elffie Chew

M

alaysia 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.

Central bank governor Muhammad Ibrahim warned last year that foreign insurers “need to contribute more to justify their presence” in the Malaysian market. Some participants’ undue focus on short-term profits had come at the expense of serving their customers, Muhammad said in

Stagnant penetration

The Southeast Asian nation’s life insurance penetration has remained stagnant at 55 per cent in the past three years, after jumping from 33 per cent in 2001 to 51 per cent in 2010, Muhammad said at the time. Bank Negara Malaysia didn’t immediately reply to emailed questions.

The insurance penetration rate, measured by the ratio of total number of life insurance and family takaful policies in force to the total population in Malaysia, has remained fairly

AIA Group Ltd. is among foreign companies that have wholly owned general insurance and life insurance operations in Malaysia

static within the range of 54 per cent to 56 per cent over the last five years, according to a report released by Bank Negara Malaysia.

Affordability and access required to service policies in under-served market segments remained key barriers to higher level of penetration, the central bank said. Initiatives taken in recent years to improve transparency, encourage product innovation and expand channels of distribution are expected to improve prospects of achieving the 75 per cent penetration target set out in a 10-year blueprint that aims to transform the nation into an industrialized country by 2020, it said.

AIA Group Ltd., Great Eastern Holdings Ltd. and Tokio Marine Holdings Inc. are among foreign companies that have wholly owned general insurance and life insurance operations in Malaysia, according to their latest annual reports. They compete with local participants including Malayan Banking Bhd.’s Etiqa Insurance Bhd. unit and Tune Insurance Malaysia Bhd., backed by tycoon Tony Fernandes.

Combined assets in Malaysia’s insurance and takaful industry expanded 5 per cent last year to 277 billion ringgit (US$62.7 billion), according to a central bank report released in March. Total premiums and contributions increased 4.4 per cent to 61.3 billion ringgit.

Malaysia liberalized foreign ownership rules in 2009, allowing overseas insurance companies to hold as much as 70 per cent of local firms. Higher ownership levels could be allowed on a case-by-case basis for companies that can facilitate consolidation and rationalization of the insurance industry, according to a statement at the time. Bloomberg

Insurance

Mitsui Sumitomo Insurance to boost Japanese corporate debt investment Ayai Tomisawa and Noriyuki Hirata

J

apan’s Mitsui Sumitomo Insurance Co plans to increase its investment in Japanese corporate debt this fiscal year to hunt for higher yields amid the low-yielding domestic bond environment, a senior executive said on Friday.

The core company of MS&AD Insurance Group Holdings, which had 6.57 trillion yen in total assets as of September 2016, plans to invest about 100 billion yen in Japanese corporate bonds for the year ended March 2018, Tomonori Mano, manager of investment planning department at Mitsui Sumitomo, told Reuters in an interview. That’s an increase from 70 billion yen in investment during last fiscal year.

With Japanese government bond yields staying low under the Bank Of Japan’s negative interest rate policy, the insurer plans to keep its domestic bond assets flat this year.

“We have enough holdings of JGBs, so there is no point buying them just because they are trading slightly positive now,” Mano said. “The main investment in our domestic assets will be corporate bonds and loans.”

The insurer expects the 10-year Japanese government bond yield to

trade between zero to 0.2 per cent throughout this fiscal year. On Friday, it was 0.02 per cent.

With uncertainty around the upcoming French presidential election and rising U.S. tensions with Russia, North Korea and Syria, Mano said that although he acknowledges such risks, he expects overall market trends will not change.

“Geopolitical risks can create volatility in the market, but asset classes’ prices should eventually return to the pre-event levels, as we saw after Brexit and Trump’s election last year,” Mano said.

The insurer plans to buy 35 billion yen worth of foreign bonds. It also plans to invest in foreign stocks through exchange-traded funds.

“We see ETFs as convenient. As a non-life insurance company, we want to secure both liquidity and returns at the same time especially after we learned a lesson from Thailand floods,” Mano said, referring to Thailand’s devastating floods in 2011, which exposed the company to more than 200 billion yen in losses.

Last fiscal year, the insurer invested 70 billion yen to 80 billion yen in risky assets, such as foreign bonds, stocks and private equity commitments and the company has allocated 60 billion to 70 billion yen for such investments

this fiscal year.

Mano expects the dollar to trade between 105 yen 115 yen and the euro to trade between 110 yen to 130 yen.

Mitsui Sumitomo Insurance plans to cut holdings of domestic stocks as it is in the final year of a four-year plan to reduce such exposure by a total of 500 billion yen.

Many Japanese insurers have been slowly unwinding their cross-holdings of shares, recognising the risk they pose to their financial health.

Reuters

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Business Daily Monday, April 17 2017 13

Asia Banking

As succession looms, a top Thai banker is off saving trees Bangkok’s secondlargest lender may become the next Thai landers to pass from family hands Chanyaporn Chanjaroen

T

hese days, the head of Thailand’s Kasikornbank Pcl spends much of his time saving trees in the remote province of Nan and promoting his romantic novel, rather than running the country’s second-largest lender in Bangkok.

“I have the forest to worry about,” Banthoon Lamsam, who as chief executive officer took over 25 years ago from his father, said in a March interview at his teak home, built according to the influence of feng shui and characters from his 600-page book, on nine wooded acres near the Lao border where he’s moved his official household registration.

Yet back in Bangkok, it’s succession at the bank that’s cause for concern.

Banthoon, 64, wants to retire. None of Banthoon’s three children wants to take over the bank, and it’s unclear which, if any, of the three presidents he has appointed will take his place.

“The succession issue can be very problematic given that this is a big bank with no clear plans on who will be the next leader,” said Yupana Wiwattanakantang, associate professor at the National University of Singapore’s Business School.

What does seem certain is that Kasikornbank will become the next of Thailand’s lenders to pass from family hands, leaving Bangkok Bank Pcl as the only major family-run bank not to have succumbed to the business pressures of modern finance and disobliging genealogy. Since the 1997 Asian Financial Crisis, many of Southeast Asia’s family banks have either been merged because of bad debts or sold to international players.

In the interview, Banthoon was sanguine about the prospect of handing over to an outsider, who would become the first non-Lamsam family leader since Kasikornbank was founded as Thai Farmers Bank in 1945.

“It doesn’t matter one bit,” said Banthoon, wearing a cowboy hat and giant, angular sunglasses while sitting in a covered patio at his Swiss-chalet house on stilts. “I didn’t want to run it. My father ordered me to run it.”

Tightening regulations and a changing industry mean skilled management and finance proficiency are more valued than the family connections of old.

“These days, banks do not only face domestic competitors, but also non-bank companies looking to take on their market share in financial services and payment systems, the likes of Alipay and Facebook,” said NUS’s Yupana. “It’s pivotal that banks’ leaders stay very close to the scene.”

Banthoon gave up a dream to become a medical doctor and ended up finding banking interesting only when he focused on the challenges of management and organizational structure, he said.

“Enjoy? How do you define enjoy?” he said. “I am not very passionate about financial transactions.”

Kasikornbank was founded by Banthoon’s grandfather at the end of World War II in order to help Thailand, then known as Siam, rebuild its economy. Banthoon’s main achievement is having steered the bank through the 1997 crisis that wiped out a number of other Southeast Asian

Banthoon Lamsam, chief executive officer of Thailand’s Kasikornbank Pcl

family-run banks and reduced the Lamsam family’s shareholdings.

Their current level is less than 5 per cent, spread among various family members.

Known as iconoclastic in his management style, Banthoon brought in foreign consultants, aggressively wrote off bad loans during the crisis, and introduced a performance culture for employees, who now number more than 20,000. Banthoon grew the bank’s assets from US$14 billion to US$79 billion as of 2016.

An investor who bought the bank’s stock 10 years ago would have seen a 236 per cent gain through March from the investment, including dividends. That compares with a 197 per cent return from the Thai benchmark stock index during the same period.

Banthoon said that despite spending much of his time in Nan, 560 kilometers (350 miles) north of Bangkok, he’s still responsible for the bank’s bottom line, yet leaves the bank’s day-to-day functioning to his managers. He plans to give up the CEO title when he has full confidence in a successor, he said.

“We are still at a critical juncture of the bank,” he said. “I have to make sure it’s sustainable after I leave, not collapse after I leave.”

Back at the bank headquarters, a 40-story glass and steel tower on the Chao Phraya River, there had been four presidents, all veterans with at least 20 years at the lender, handling daily operations. On April 3, one of them, Teeranun Srihong, 51, resigned by mutual agreement.

A veteran of almost three decades at Kasikornbank, he had led the bank’s technology group prior to his departure, which was made public at the annual general meeting.

The remaining three presidents are Predee Daochai, 58, who handles risk management; Kattiya Indaravijaya, 51, who handles finance operations and human resources; and Pipit Aneaknithi, 49, who oversees international banking, including branches and offices in China, Cambodia and Laos.

In an interview in February,

Kattiya, the most senior woman at Kasikornbank, said she felt fortunate to have been able to join the lender, where women now outnumber men 2-to-1.

“The environment allows both men and women opportunities as long as they perform,” she said. “It is the same opportunity provided to everybody who works hard and performs.”

For now, Banthoon isn’t ready to choose—nor say whether his suc-

“The succession issue can be very problematic given that this is a big bank with no clear plans on who will be the next leader” Yupana Wiwattanakantang, associate professor at the National University of Singapore’s Business School

cessor will necessarily be among the three.

“It’s still too early to decide,” Banthoon said, noting that the presidents get paid the same salary and bonuses. “I am still assessing the situation every day. There’re so many elements for a good CEO.” Succession probably won’t change the bank’s strategy, said Chief Investment Officer Adithep Vanabriksha at the Thai unit of Aberdeen Asset Management Plc, one of the top 20 shareholders in the bank.

“Our view is that succession planning is there, and their practice is to promote from within,” Adithep said in a phone interview. “And we believe in the current management team, rather than one particular executive.”

One difficulty Banthoon has in transferring power is that he’s also the bank’s chairman, a rarity for Thai

banks. He assumed the chairmanship in 2013 when his uncle, Banyong, retired. The arrangement for the dual role came with a six-year permit from the Bank of Thailand, on the condition that Kasikornbank has a board of independent directors.

By the end of 2019, he will need to relinquish one of the titles. He will have stepped down down as CEO, though he may remain chairman “for a while,” he said. “I hope it’s not a long while.”

Banthoon has been traveling to Nan province with increasing frequency since 2010, when he purchased a old wooden hotel in the capital city of Nan that he turned into high-end boutique lodging with rooms from about US$60 to US$100 a night.

In 2013, he published his novel centering on a fictional local king that Banthoon said reflects his philosophy of life and similar personality, and could have been himself in a former life. A small second house on his property, with a dining area and shrine, is named Residence of Mafai, the fictional king’s much-loved consort whom he had executed after realizing she had performed black magic to win the king’s love from his eight concubines. Banthoon’s book jacket and a painting in his hotel both depict a scene from the tale.

In 2014, he started his campaign to protect the local forest, engaging Princess Maha Chakri Sirindhorn, a sister of the current king, as well as the Thai prime minister, to raise awareness and halt deforestation through better land management.

At his chalet, Banthoon was busy preparing to host 800 attendees at a seminar on the Nan river and its forest. He said he hopes his presence in Nan can halt more encroachment of the forest. Nearly 30 per cent, an area slightly larger than the U.S. state of Rhode Island, has been lost as villagers have cut down trees to grow corn for animal feed. Banthoon described the practice as “a very stupid trade-off” that damages the source of Thailand’s major rivers.

“The challenge is for me to be here before I get too old,” he said. Bloomberg

14 Business Daily Monday, April 17 2017

International In Brief Income

Russia’s Putin earns about US$157,000 in 2016 Russian President Vladimir Putin earned nearly 8.86 million rubles (US$157,000) in 2016, the Kremlin announced on its website Friday. His income was slightly down from 8.89 million rubles in 2015, but still higher than 7.65 million in 2014. Putin owns 1,500 square meters of land, a 77-square-meter apartment, a garage and three cars, according to the statement. A separate statement showed that Russian Prime Minister Dmitry Medvedev earned about 8.59 million rubles in 2016

Egypt

Former interior minister sentenced 7 years in jail An Egyptian court sentenced on Saturday Habib al-Adly, the longest serving interior minister under the ousted president Hosni Mubarak, seven years in jail over embezzlement of public funds, official news agency MENA reported.

Al-Adly and twelve of his aides were accused of illegally seizing two billion pounds (US$11 millions) belonging to the Interior Ministry during their time in office from 2000 to 2011.

In November 2014, a court dropped charges against Mubarak, al-Adly and six of his aides over the killing of hundreds of protesters during the 2011 revolution.

He was acquitted in another corruption charges in March 2015.

He served a three-year sentence he was given for taking advantage of his position and forcing police conscript to work for his property.

Several Mubarak-era figures have been recently released pending retrials on charges of corruption for lack of evidences.

Banking

Trump pick for Export-Import Bank is critical of its mission Jennifer Epstein

P

resident Donald Trump said Friday he’ll nominate a critic of the U.S. Export-Import Bank -- one who has derided the bank as “corporate welfare” -- to run the institution, which has been operating under strict lending limits because of a partisan battle over its mission.

Trump, who as a candidate said he didn’t think the bank needed to exist, named former New Jersey Representative Scott Garrett, one of the biggest recipients of Wall Street donations among House members, to be the bank’s chairman and president. He tapped former Alabama Representative Spencer Bachus for a seat on the bank’s board of directors. Both positions require Senate confirmation.

Trump hinted at a shift in his position on Ex-Im during an interview on April 12. “Actually, it’s a very good thing. And it actually makes money; it can make a lot of money,” Trump told the Wall Street Journal. “It turns out that, first of all, lots of small companies are really helped, the vendor companies.”

In 2015, Trump told Bloomberg that the bank’s role amounted to “featherbedding” for some politicians and companies. The guarantees loans for international buyers of products from U.S. companies.

Boeing Co. Chief Executive Officer Dennis Muilenburg is said to have helped change the president’s view

of the agency. Boeing is by far the largest beneficiary of the bank among exporters, to the tune of several billion dollars annually, followed by General Electric Co.

No Quorum

Small-government conservatives shut down the bank in 2015 by blocking its reauthorization. While the bank was revived, its five-member board has lacked a quorum, which restricted it from granting loans of more than US$10 million. Former President Barack Obama’s late-term nominees were blocked by Senate Republicans, including Senator Richard Shelby of Alabama.

In Garrett, Trump has chosen a critic of a government agency to run it -- similar to his appointment of Scott Pruitt as administrator of the Environmental Protection Agency.

“The Export-Import Bank’s long legacy of crony capitalism has hurt the livelihoods and businesses of many Americans who don’t get special treatment from this misguided government program,” Garrett said in a 2015 statement. Conservative groups, including Heritage Action and Americans for Prosperity, oppose the bank for similar reasons.

House Minority Whip Steny Hoyer, a Maryland Democrat, urged senators to reject Garrett’s nomination because of his past stance.

‘Act of Sabotage’

“In Scott Garrett, the president has nominated someone who helped

lead the charge to shut down the Export-Import Bank in Congress against a super-majority that was in favour of keeping it open so it could continue creating and supporting American jobs and exports,” Hoyer said in a statement. “If former Representative Garrett is confirmed to lead the Bank, it would be the ultimate act of sabotage.”

Garrett, 57, failed to win re-election in 2016 after seven terms in Congress.

He lost the backing of major Wall Street donors after a report that he’d told fellow Republican lawmakers he wouldn’t give money to the party’s congressional campaign arm because it supported openly gay candidates.

Bachus, a former chairman of the House Financial Services Committee, has previously supported the Ex-Im bank, sponsoring a 2012 law that reauthorized the bank. Bachus retired from Congress in 2015.

Backers of the bank say that most of its lending supports small and medium-sized businesses.

In fiscal 2014, the bank’s last full year of operation, it backed US$27.5 billion in exports -- somewhat less than 2 per cent of the U.S. total. This financing supported 164,000 American jobs that year, according to the bank, and about 90 per cent of the bank’s deals helped small businesses.

The U.S. Chamber of Commerce has pushed for the bank’s lending powers to be fully restored, saying that without it, jobs might be lost to competitors in China or Russia.

Bloomberg

Scott Garrett, one of the biggest recipients of Wall Street donations among House members, is named to be the chairman of president of the bank

Brexit

Irish passport applicants’ number surges An increasing number of applications for Irish passports from Northern Ireland and Britain have been reported as Brexit is underway.

Figures from the Irish Department of Foreign Affairs showed that the applications for Irish passports from the two regions have risen by 68 per cent in the first three months of this year compared with the same period last year, local media said.

The department had received a record number of overall applications in 2016.

The surge came after Britain voted for Brexit last year since an Irish passport would allow its holder to continue to move and work freely within other EU member states once Britain steps out of the EU. The Department of Foreign Affairs said the overall increase in applications was “attributable to a variety of causes including an expanding population and a significant increase in outbound travel in recent years.”

Results

Uber’s revenue hits US$6.5 billion in 2016, still has large loss Ride-hailing service Uber Technologies Inc generated US$6.5 billion in revenue last year and its gross bookings doubled to US$20 billion, the company said on Friday.

Its adjusted net loss was US$2.8 billion, excluding the operation in China it sold last year, Uber said.

As a private company, now worth US$68 billion, Uber does not report its financial results publicly. It confirmed the figures in an emailed statement after Bloomberg reported the results.

Uber did not provide first quarter figures, but a spokeswoman said they “seem to be in line with expectations.”

For the final quarter of 2016, gross bookings increased 28 per cent from the previous quarter, to US$6.9 billion. But Uber’s losses grew to US$991 million in the period, as revenues grew 74 per cent to $2.9 billion from the third quarter.

In a separate emailed statement, Rachel Holt, Uber’s regional general

manager for the United States and Canada, said: “We’re fortunate to have a healthy and growing business, giving us the room to make the changes we know are needed on management and accountability, our culture and organization, and our relationship with drivers.”

Uber has been rocked by a number

of setbacks lately, including detailed accusations of sexual harassment from a former female employee and a video showing Chief Executive Travis Kalanick harshly berating an Uber driver.

The company is in the process of hiring a chief operating officer to help Kalanick manage it, repair its tarnished image and improve its culture.

Two of Uber’s high-level executives recently said they intended to leave, and last week the company’s communications head announced her departure. Reuters

An Uber office in Hong Kong

Business Daily Monday, April 17 2017 15

Opinion OPEC warns of a world that still has far too much oil Julian Lee a Bloomberg Gadfly columnist

T

he oil market is tipping slowly from glut to equilibrium, as output cuts from OPEC and 11 non-OPEC countries start to reduce crude flows.

It’s not quite there yet. Indeed, the grand “re-balancing” of supply and demand has yet to take place, although the International Energy Agency does at least believe “that the market is already very close to balance,” according to its latest monthly report.

What’s more worrying, and where the IEA’s number-crunchers differ sharply with their OPEC counterparts, is what happens next?

Re-balancing is one thing, but the OPEC output cut was also meant to usher in a period when demand would start running ahead of supply, and when inventories would be reduced.

It’s here where there’s a hell of a discordance between the two groups, and even within the IEA’s own figures.

True, the volume of oil held in tankers – the most expensive storage option – has dropped.

So, too, has the amount stored in commercial facilities in places such as the Caribbean and South Africa’s Saldhana Bay. U.S. crude inventories fell in the week to April 7 by nearly 2.2 million barrels. But before we get too excited, that was the first big drop this year. While refined product inventories in the U.S. are falling sharply, it’s really only the middle distillates (which include jet fuel, heating kerosene and gas and diesel oils) that are bucking typical seasonal trends.

The IEA shows global inventories falling at a rate of 200,000 barrels a day during the first quarter of this year. But its analysis of observed stockpiles – and there are plenty of places where volumes in storage are not easily counted – suggests “global stocks might have marginally increased” over the period. Confused?

You’re not alone.

OPEC, which published its own monthly report a day before the IEA, paints a much less optimistic picture.

I t sh o w s g l o ba l oil inventories increasing by 430,000 barrels a day in the quarter just ended. No confusion there. The world is still over-supplied with oil, according to its biggest producer nations.

And the surplus is big. The IEA reckons about 986 million barrels of oil were added to global inventories in the last three years. OPEC puts the figure at 1.2 billion barrels. Some of that is needed to fill new pipelines and to provide operating inventory for new refineries, but most is merely the result of over-supply.

The outlook for the current quarter is no clearer. The IEA sees further progress, with demand for OPEC oil running about 1 million barrels a day ahead of production, implying a similar-sized stock draw. But OPEC sees a world with supply still running ahead of demand, which will add about 280,000 barrels a day more to inventories.

There’s one thing they both agree on, though.

Things will change in the second half of the year (as the chart above shows). If the sixmonth output cut is extended, as seems likely, inventories could be drawn down at a rate of about 1.2 million barrels a day in the third quarter. But extending the cuts will be painful for producers. Many, within OPEC and outside, have brought forward planned maintenance (which involves shutting production) to help reach their targets. They won’t be able to repeat that trick later in the year. Bloomberg Gadfly

‘The grand “re-balancing” of supply and demand has yet to take place, although the International Energy Agency does at least believe “that the market is already very close to balance”’

Capital keeps flowing into Latin America

B

OGOTÁ – Latin America – and South America, in particular – has been in crisis for years. Yet foreign capital, both direct and financial investment, has continued to flow into the region. This is unprecedented.

In the past, the interruption of financial flows – or “sudden stops” – has been an essential feature of crises in Latin America and elsewhere in the developing world. The Latin American debt crisis of the 1980s brought an eight-year interruption.

The Asian financial crisis that erupted in mid-1997 and subsequently spread across the emerging economies caused an interruption lasting six years. The interruption associated with the Great Depression of the 1930s lasted several decades.

Yet these dynamics seem to be changing. After the collapse of the U.S. investment bank Lehman Brothers in 2008, capital flows were interrupted for only about a year. Indeed, despite the magnitude of the initial shock, capital flows and risk margins had essentially normalized by 2009, when bond financing in Latin America began to surge, soon reaching triple the pre-2008 average.

The shocks that have occurred since then have had an even smaller impact on financial flows. In 2013, the U.S. Federal Reserve began to roll back its bond-buying program, and commodity prices collapsed in mid-2014. In late 2015 and early 2016, developments in China roiled financial markets. More recently, Donald Trump was elected U.S. president, and the Fed moved forward with its first two interestrate hikes.

Yet the longest interruption in bond financing brought about by these shocks – which took place during the second half of 2015 – lasted just six months. The commodity-price collapse in 2014 caused Latin American risk spreads to grow, but only by 1.5 percentage points, which was about one-third the impact of the Lehman Brothers shock.

More remarkably, the Fed’s two recent interestrate hikes have had no perceptible impact on risk margins and financial flows, though higher rates have been transmitted to Latin America. Trump’s election increased Latin American risk margins by less than one percentage point, and that premium had disappeared by the end of the year.

At the same time, all Latin American countries, with the exception of Venezuela, have retained access to private external financing. Brazil had access to capital markets even at the peak of its political crisis last year. Last April, Argentina pulled off the largest bond issue in Latin America’s history,

“

José Antonio Ocampo a Professor at Columbia University and Chair of the UN Economic and Social Council’s Committee for Development Policy, and former Minister of Finance of Colombia and UN Under-Secretary-General for Economic and Social Affairs

after a settlement with “holdout” creditors from an earlier debt rescheduling ended its pariah status in markets. Ecuador has carried out several bond issues as well. During the first quarter of 2017, bond issuance in Latin America was up 53 per cent year-on-year, and it came at a lower cost.

Even Mexico, one of the main targets of Trump’s protectionist rhetoric, has suffered no adverse impact on its external financing.

While Trump’s victory did trigger a depreciation of the Mexican peso, the exchange rate soon normalized and has returned to pre-election levels.

Does this mean the days of sudden stops in external financing and abrupt capitalflow reversals are over?

Not exactly. Latin America’s recent success at avoiding financing interruptions can be attributed to two main factors. The first is regional: Latin American countries experienced a sharp reduction in their debt ratios from 2003 to 2008. With the commodity boom during this period sustaining massive accumulation of foreignexchange reserves, the region’s external debt, net of reserves, fell from more than 30 per cent of GDP to less than 6 per cent.

The second factor is global. Low interest rates in developed countries since the financial crisis have made those markets less attractive to investors, who have sought higher yields in emerging economies.

Whether Latin America can continue to avoid sudden stops in the face of new shocks depends on whether these conditions persist.

As it stands, the region’s debt ratios are rising, but only moderately; on average, they remain well below the levels that prevailed at the beginning of this century. Adjustment policies have helped, no doubt at the cost of significant growth slowdowns and even recessions. Similarly, though developedcountry interest rates will continue to rise until they are eventually normalized, the process is occurring slowly, even in the U.S. Latin America’s recent ability to avoid sudden stops in external financing is good news, and it seems likely to endure. This gives the region’s governments some macroeconomic breathing room, allowing them to avoid further contractionary policies and enabling their economies to participate in the global recovery that is now underway.

Latin America – and South America, in particular – has been in crisis for years.

Yet foreign capital, both direct and financial investment, has continued to flow into the region.

This is unprecedented

”

16 Business Daily Monday, April 17 2017

Closing Politics

North Korea missile failure deflates tension as Pence tours Asia Initial reports indicate the projectile was a medium-range missile and failed after about four or five seconds Kanga Kong and Justin Sink

N

orth Korea’s failed ballistic missile launch on Sunday drew a muted response from the Trump administration, easing the risk of imminent retaliation as Vice President Mike Pence arrived in Seoul.

Initial reports indicate the projectile was a medium-range missile and failed after about four or five seconds, a White House foreign policy adviser told reporters. While the U.S. has a range of options including military and diplomatic to deal with North Korea, it won’t need to expend any resources to respond in this case given that the launch was unsuccessful, the adviser said.

“The president and his military team are aware of North Korea’s most recent unsuccessful missile launch,” U.S. Defence Secretary James Mattis said in a statement. “The president has no further comment.”

The reaction helps deflate tensions that escalated in recent weeks as President Donald Trump sent warships to the region amid speculation that Kim Jong Un’s regime would conduct a nuclear or intercontinental ballistic missile test to mark the country’s biggest holiday. Still, the long-term risk remains: Trump has said military options are on the table and threatened to act unilaterally if China -- North Korea’s main ally and benefactor -- fails to do more to curb its neighbour’s activities.

China’s State Councilor Yang Jiechi and U.S. Secretary of State Rex Tillerson exchanged views on the situation on the Korean Peninsula by phone on Sunday, China’s foreign ministry said, without giving more details.

War risk

Any U.S. military strike risks leading to a war that may devastate South Korea and Japan, two American allies in striking range of retaliatory attacks.

China has backed North Korea since the peninsula was last at war in the 1950s, in part to prevent having an American ally on its border.

Pence arrived in Osan, south of Seoul, hours after the test for a previously planned trip to Asia. He immediately travelled to the National Cemetery, where he placed a wreath in honour of South Korea’s war veterans.

“This morning’s provocation from the North is just the latest reminder of the risks each one of you face every day,” Pence told a fellowship of U.S. soldiers and Koreans at a dinner in Seoul.

U.S. and South Korean military officials are conducting further analysis of the missile launch, which took place at Sinpo on North Korea’s eastern coastline. Japan’s defence ministry will work closely with the U.S. and South Korea to gather and analyse information on North Korea, it said on its website.

North Korea’s activities “are a threatening demonstration against the entire world,” South Korea’s foreign ministry said in a statement.

“We have to warn again that if this

leads to a strategic provocation of a nuclear or ICBM test, the North will face strong punitive measures that it will find hard to endure.”

Warship fleet

Kim’s regime has test-fired ballistic missiles five times this year in his quest to develop a device that can carry a nuclear warhead to North America. He has launched dozens of projectiles and conducted three nuclear tests since coming to power after his father’s death in 2011, and claimed in January to be almost ready to test-fire an ICBM. As tensions mounted last week, Chinese Foreign Minister Wang Yi on Friday urged all parties “to stop provoking and threatening each other and not to make the situation irretrievable.”

Kim showed off a range of longrange missiles at an elaborate military parade on Saturday, including submarine-launched ballistic missiles for the first time and what appeared to be a new ICBM, South Korea’s Yonhap News reported. In 2012, North Korea unveiled long-range missiles that some arms analysts dismissed as fake.

‘Annihilating strike’

“If the U.S. provokes recklessly, the revolutionary forces will take an annihilating strike,” Choe Ryong Hae, a senior regime official, said in a speech

at the parade. North Korea is ready for a nuclear or full-scale war if the U.S. wants it, he added.

Two new ICBM launchers were the most striking weapons on display at the military parade, according to Jeffrey Lewis, director of the East Asia Nonproliferation Program at the Middlebury Institute of International Studies at Monterey. It also suggested that North Korea has two different ICBMs under development in addition to the KN-08, a liquid-fuelled road-mobile missile capable of reaching the U.S. “We saw more new systems for the first time in this parade than ever before,” Lewis said. “The North Koreans are committed to deploying a credible nuclear deterrent that is capable of deterring an attack and ‘repelling’ an invasion.”

Pence trip

While the White House said Pence will mostly be dealing with business issues on a 10-day swing through Asia, administration officials said Thursday that he will also discuss economic sanctions and military options for North Korea if a provocation occurs. He will meet with Acting President Hwang Kyo-ahn, who is looking after the South Korean government before an election to choose a successor to the ousted Park Geun-hye. Bloomberg

Kim Jong Un (Right), supreme leader of the Democratic People’s Republic of Korea (DPRK), waves as he reviews the grand celebrations marking the 105th birth anniversary of DPRK founder Kim Il Sung in central Pyongyang on Saturday. DPRK on Saturday showcased its military muscles by parading all of its most advanced ballistic and tactic missiles, including a submarine-launched ballistic missile which could strike targets 1,000 kilometres away.(Xinhua)

Technology

Graft

Gas

Apple approved in California to test self-driving cars

Brazilian construction giant Queensland may expand pays US$3.3 bln in bribes land quarantine

Apple Inc has secured a permit to test autonomous vehicles in California, fueling speculation that it is working on self-driving car technology in a crowded arena of companies hoping to offer those cars to the masses.

The permit allows it to conduct test drives in three vehicles with six drivers, the state Department of Motor Vehicles said on Friday. The vehicles are all 2015 Lexus RX450h, according to the DMV. Although it has never openly acknowledged it is looking into building an electric car, Apple has recruited dozens of auto experts in recent years, and the permit pulls the curtain back a bit on any possible plan.

“This does confirm what’s long been rumored: that Apple is at least toying with the idea of getting into the autonomous game in some capacity,” said Chris Theodore, president of consultancy Theodore & Associates, and a former vice president at Ford Motor Co and Chrysler.

The permit does not mean Apple is definitely building a car. “This is not necessarily automobiles as initially rumored, but software or possibly hardware associated with autonomous technology,” Theodore said.

An Apple spokesman declined to comment directly on the filing, pointing back to a statement the company made in November when it wrote to the U.S. National Highway Traffic Safety Administration (NHTSA) on the subject of regulating self-driving vehicles. Reuters

Brazilian construction giant Odebrecht paid a total of US$3.37 billion in bribes to government officials from 2006 to 2014, local media reported on Saturday.

According to a detailed chart submitted to prosecutors by Hilberto Mascarenhas, a former executive, bribes gradually grew from US$60 million in 2006 to US$730 million in both 2012 and 2013, news network Globo said on its website.

Mascarenhas used to head a special department specifically established to pay officials for lucrative public works contracts. The department continued to function until 2015, even after federal police launched Operation Car Wash, a wide-ranging investigation into government corruption.

Mascarenhas said that payments were made with suitcases full of cash delivered to middlemen working for the politicians, or through companies expressly created and registered in offshore tax havens for the purpose of making the transactions.

A trove of plea deal testimonies unsealed this week by Edson Fachin, a Supreme Court justice, revealed that the scandal was uncovered three years ago because of a kickback investigation at the state-run oil company Petrobras.

Odebrecht, once Latin America’s most successful engineering firm, negotiated a far-reaching plea agreement with Brazilian investigators last year, according to testimony by about 80 company executives and employees. Xinhua

The state of Queensland may expand the amount of land available for gas exploration to overcome looming gas shortages and high prices on the east coast of Australia.

A coal seam gas exploration program in the state’s Surat Basin, which plans to reserve gas for Australian use, may be expanded, according to a government statement Sunday.

“Urgent action is required to increase domestic gas supply to protect industry and to secure jobs,” said Queensland Natural Resources Minister Anthony Lynham. “We are looking at further and larger land releases in the Surat Basin with the same Australian market conditions.”

Natural gas prices for some customers across Australia’s patchwork power markets have jumped as exports rise from Queensland’s three liquefied natural gas projects while drilling bans in several states limit supply.

Prime Minister Malcolm Turnbull will hold a second meeting with gas producers on Wednesday to seek further supply commitments after receiving pledges from executives last month to raise production of the fuel.

Other proposed measures by the Queensland government include new gas pipelines, which could be funded from the North Australia Infrastructure Facility, and federal funding of water study initiatives. Tenders close on April 20 for the initial Surat Basin exploration round. Bloomberg