Business Daily #1281 April 24, 2017

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

Followed by breakfast from 8:30am

CTM ‘solves’ Internet issue that affected 30,000 Telecom Page 6

Monday, April 24 2017 Year VI Nr. 1281 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm One Belt, One Road

No plans for Chief Executive or other gov’t officials to attend One Belt, One Road forum in May Page 7

Police

Complaints against PSP should be viewed in the context of number of agents and police interventions, says committee Page 3

www.macaubusinessdaily.com

Risks

Former Chinese finance minister warns that debt is still the main danger for the Mainland economy Page 8

Financial products

Wealth management product business shrinks amid crackdown Page 9

Post-CNY blues Business climate

More than half of surveyed retailers reported a decrease in sales and receipts in February, following a slowdown in business post-Chinese New Year. Adult clothing vendors, department stores and supermarkets described the largest decreases in sales in the month. Motor vehicle sales, however, were up in the month.

Surveyed restaurants on average saw a fall in receipts for the month, except for local cafes and congee and noodle shops. Page 3

How much again?

Knowing the value of your property is a universal need, bridging the public and private sectors. Enter Vigers, the Hong Kong based valuation company operating in the MSAR since 2007 and counting the local gov’t as well as integrated resort companies like Galaxy as clients. Operating in four first-tier Chinese cities as well, the MSAR office accounts for ‘a quite big piece’ of the company’s business, says the group’s MSAR Director and General Manager Franky C.H. Wong.

Rising, rising

Inflation Alcohol and tobacco continued to see the highest price increases in March, as the overall inflation rate nearly doubled from the previous month to 0.72 pct. CPI was 108.78 for the month, with the annual inflation rate during the month at 1.69 pct.

Housing and fuel costs saw y-o-y drops, while food and non-alcoholic beverages experienced a slight uptick. Page 6

Fear of the protectionist

Interview | Valuation Pages 4 & 5

HK Hang Seng Index April 21, 2017

24,042.02 -14.96 (-0.06%) Worst Performers

AAC Technologies Holdings

+3.62%

CITIC Ltd

+0.74%

China Resources Land Ltd

-2.49%

Power Assets Holdings Ltd

-1.03%

Cathay Pacific Airways Ltd

+2.22%

Bank of Communications

+0.69%

China Unicom Hong Kong

-1.73%

Kunlun Energy Co Ltd

-0.83%

+1.61%

Hengan International Group

+0.68%

Sino Land Co Ltd

-1.68%

New World Development

-0.82%

+1.14%

China Petroleum & Chemical

+0.64%

Wharf Holdings Ltd/The

-1.12%

CK Hutchison Holdings Ltd

-0.80%

+0.82%

China Mengniu Dairy Co Ltd

+0.54%

Cheung Kong Infrastructure

-1.09%

China Shenhua Energy Co

-0.78%

Lenovo Group Ltd China Merchants Port HoldBank of China Ltd

23° 25° 24° 26° 21° 27° 19° 23° 21° 23° Today

Source: Bloomberg

Best Performers

Tue

Wed

I SSN 2226-8294

Thu

Fri

Source: AccuWeather

IMF summit With fears increasing that the Trump administration will follow through on its threats to raise trade barriers, world finance ministers are united on one message: protectionism threatens the global economy. Except that the word “protectionism” was omitted from the final statement of the International Monetary Fund’s semi-annual meeting Saturday.

However Trump’s envoy softened his message. Page 16

2 Business Daily Monday, April 24 2017

Macau

AL

CE: confident public housing applications will be reopened during tenure The significant shortage of social and affordable housing in the city was the most discussed topic during Friday’s question and answer session with the Chief Executive at the Legislative Assembly Cecilia U cecilia.u@macaubusinessdaily.com

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he MSAR Chief Executive (CE) Fernando Chui Sai On said he is confident that applications for public housing will be reopened during his tenure in office.

During the question and answer session at the Legislative Assembly on Friday, the CE re-asserted that the location chosen for the next public housing project – on Avenida de Wai Long - is confirmed, despite concerns over its proximity to the incineration centre as well as the city’s airport – resulting in recently voiced concerns by communities. “[The Wai Long housing project] meets the public demands and also the majority of needs,” explained the top official.

However, lawmakers Ella Lei Cheng I and Au Kam San were both unsatisfied with the CE’s pledge, with legislator Au demanding the exact timetable for more housing units to become available.

The CE replied that he could not guarantee that new applications would be available within this year, claiming that he would urge departments to commence related projects as soon as possible.

Meanwhile, the top official also acknowledged the cases of affordable housing applicants who were unable to sign contracts with the Housing Bureau due to alterations in their marital status, while Legislators Lei

CE: construction on new hospital complex in Cotai 80 pct complete in 2019 The CE stated on Friday during the question and answer session that the new hospital complex located in Cotai will be 80 per cent complete, in terms of construction, in 2019, adding that construction of the complex’s foundations have

and Au criticised the Housing Bureau for switching its position on affordable housing applications over time.

The Bureau initially made assurances to applicants that their applications would be successful if married couples had separate property ownerships, but related regulations on its official website were later found to have been removed when the Bureau withdrew housing units from newly-wed applicants, according to lawmaker Au. In response, the CE affirmed that a detailed report would be compiled by the Secretary for Transport and Public Works, and the Housing Bureau would carry out research regarding the law’s intention for affordable housing, adding that the Commission Against Corruption (CCAC) had also commenced investigations in the wake of receiving complaints lodged by housing applicants.

Given the significant concerns about public housing, the government has appointed an entity to carry out a survey of the city’s demand for housing, with the results to be announced in September, said the CE. The CE also replied to legislator Angela Leong On Kei’s enquiry about whether the aforementioned survey would include research on the feasibility of newly categorised housing - specifically for the younger population.

Strong private real estate market

As the city’s gaming industry

begun.

He replied to legislator Wong Kit Cheng’s enquiry that hopefully the complex will commence services by the end of 2020.

The top official explained that the addition of 200,000 more square metres for the complex, for a total of 700,000 square metres, was due to consideration of future demands.

rebounds, particularly with revenue from VIP gaming at Macau casinos increasing by 16.8 per cent year-onyear in the first quarter of the year, the CE disclosed that real estate market prices in the city have also recovered to their highest levels since the city’s handover back to Mainland China.

He added that some 80 to 90 per cent of buyers are local residents, with the majority making purchases of two to five flat units.

The CE concluded that the purchasing power of local residents is strong, given that the number of housing transactions has been significant despite the high mortgage requirements from banks.

The CE stated that policies would be rolled out if the city’s real estate market overheats.

Nevertheless, the top official echoed that the government would prioritise the construction of social housing, followed by affordable housing.

Graft issues

Legislator Kuan Tsui Hang brought up the hiring issues occurring within public recruitment processes, as well as procurements by public departments, which recently made headlines after a CCAC report criticised the government for its unlawful hiring practices.

The CE said a dispatch had already been posted to rescind the authoritative right to recruit staff without conducting examinations, adding that he would not make any exemptions for any department leaders or supervisors who don’t have qualifications or work experience during his time in office.

CCAC received a total of 910 reports and complaints last year, of which 658 were complaints against public departments.

Progress on reclaimed lands

During Friday’s session at the legislative assembly, the CE reported on the progress of the city’s new urban zones, noting that the reclamation project for Zone A will be finished by the end of this year, with its preliminary planning conditions currently under preparation.

Due to a disruption in sand supply,

Many of these complaints against public departments were related to public procurement and recruitment.

The top corruption case currently under way, involving former prosecutor-general Ho Chio Meng – who faces 1,970 charges of illegal activities covering 13 types of crimes, including 646 instances of fraud, 434 instances of abuse of power and 434 instances of illegally sharing economic benefits – also includes alleged unlawful procurement and recruitment practices.

“Being the chief executive, I feel particularly sad about the negligence of regulations on recruitment practised by public departments,” lamented the top official.

Building a tourism education station

On the other hand, legislator Chui Sai Peng enquired about the MSAR Government’s current progress in taking part in the Guangdong-Hong Kong-Macau Greater Bay Area development. The top official’s response was that Macau is to become a tourism education and training station and laboratory, in order to help with the development of the Greater Bay Area plan.

The latest international ranking of the Institute for Tourism Studies (IFT) in the field of hospitality and leisure management – placing the MSAR second in Asia – plus the hardware available in Cotai, led the CE to perceive that Macau is able to play an important role in developing the Greater Bay Area, he noted.

He also encouraged local tertiary education institutions to offer places for non-resident students so as to build up strong human resources in tourism in order to support the plan.

the reclamation project for Zone A missed its scheduled deadline, originally slated for the end of 2015.

While reclamation of Zone B has already been completed, the design for Zone C will be wrapped up within this year, and the tender for Zone D will also be opened in the second quarter of this year, the CE asserted.

Business Daily Monday, April 24 2017 3

Macau Restaurants and retail

Falling moon More than half of retailers and restaurants interviewed by the Statistics and Census Service reported yearly decreases in receipts in February Nelson Moura nelson.moura@macaubusinessdaily.com

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he percentage of retailers reporting a year-on-year decrease in sales in February of this year went up by 21.8 percentage points from the month prior, to 53.4 per cent, with the percentage of restaurants claiming to have experienced yearly decreases in receipts rising by 23.9 percentage points month-to-month to 52.2 per cent, the latest data released by the Statistics and Census Service (DSEC) revealed.

The increase in negative perceptions of year-on-year growth by the two sectors was attributed by the interviewed businesses, to a slowdown in business occurring after Chinese New Year at the end of January, with last year’s Lunar New Year having taken place in February.

The data was cited by the department’s ‘Business Climate Survey on Restaurants & Similar Establishments and Retail Trade’, which interviewed a total of 135 retailers and 167 restaurants & similar establishments, accounting for 70 per cent and 53 per cent of each industry’s receipts respectively.

were the businesses that registered the largest rises in the percentage of interviewed establishments reporting yearly decreases in sales in February.

The number of adults clothing retailers claiming to have seen yearly falls in sales increased by 55 percentage points between January and February to 75 per cent, while the number of supermarkets and department stores reporting declining sales

Retail woes

Within the retail trade sector, adults clothing retailers, together with department stores and supermarkets,

Police

Looking at the big picture Following the release of a report indicating a rise in complaints about the conduct of Public Security Police Force officers in 2016, the Security Forces Disciplinary Committee told Business Daily that the number of complaints should be viewed in the context of 7,000 agents and ‘hundreds of thousands of actions and police interventions’ in the MSAR The 70 complaints received by the Security Forces Disciplinary Committee (CFD) regarding abuse of power and misconduct by police authorities should be ‘contextualised in an environment of more than 7,000 agents and hundreds of thousands of actions and police interventions’ existing in the city, the department told Business Daily.

In its 2016 annual report, the CFD informed that it had received 64 complaints relating to the conduct of the Public Security Police Force (PSP), six against the Judiciary Police (PJ), and two complaints involving the Correctional Services Bureau and the Macau Corps of Firefighters.

The figures represent a 63 per cent year-on-year increase in complaints against the PSP, with the

CFD noting in the report the rise of ‘improper execution procedures, poor attitude, slowness in law enforcement procedures, denial of justice, misconduct, abuse of police power and misuse of force’.

In its response to Business Daily, the CFD noted that, as an external department that audits the city’s security forces and services, it makes recommendations on how to improve correct conduct and public services, saying its recommendations were ‘always well received’.

Some of the department’s suggestions involved the creation of ‘specialised proximity teams’ serving mainly as a ‘first line of intervention’ for ‘domestic violence cases’, while recommending that a ‘call centre’ be created for ‘clarifying doubts on immigration issues’. N.M.

both increased by 33.4 percentage points, to 55.6 per cent and 66.7 per cent, respectively.

On the other hand, the percentage of motor vehicle retailers registering increases in receipts in February reached 44.4 per cent, a month-to-month rise of 11.1 percentage points.

In terms of expectations for receipts in March, only 22 per cent of interviewed retailers expected to see year-on-year growth, while 40 per cent expected a decrease in receipts.

Losing hunger

In terms of restaurants and similar establishments, 65.9 per cent of Chinese restaurants, 55 per cent of Western restaurants and 56.3 per cent of Japanese & Korean restaurants

claimed to have registered a yearon-year fall in receipts in February.

When compared to January, Chinese restaurants, Western restaurants and Japanese & Korean restaurants saw a rise in the percentage of interviewees reporting a decrease in receipts of 61.4 per cent, 30 per cent and 18.8 per cent respectively.

Meanwhile a total of 52 per cent of interviewed Local Style Cafes, and Congee & Noodle Shop establishments reported an increase in receipts in February, an 8 percentage point hike from January.

When questioned about prospects for March, only 20 per cent of interviewed restaurants and similar establishments expected yearly growth in receipts in March, with 47 per cent expecting a year-on-year decrease in receipts.

4 Business Daily Monday, April 24 2017

Macau

Franky C.H. Wong, Vigers - Macau, Director and General Manager

Interview | Valuation

Putting a price on it Wondering what your house is worth? Vigers has you covered, the group’s Director and General Manager of Macau, Franky C.H. Wong tells Business Daily. Having worked with integrated resorts, the government, and recently evaluated the HK$250 million Lilau Square property, the group operates in China in four first-tier cities, as well as Hong Kong and Macau, and across the globe.

Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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iven its headquarters are in Hong Kong, what first brought Vigers to the MSAR? Around 2003 many people from Hong Kong came to Macau, when the casino business was developing, and we had so

many bankers from Hong Kong coming to Macau to conduct business. So then, given that they were used to having independent valuation services for property operators, when they came to Macau from Hong Kong they tried to ‘copy and paste’ [the model]. That’s why we also came to Macau, formally, and opened a branch here [in 2007], to

have a business here to work with the banks. Vigers Macao Company Limited is our wholly-owned subsidiary registered in Macau. It is recognized by the Macau Government and local banks as a professional independent valuer. There are increasing disputes over land matters in Macau, very often resulting in attendance at Court, which require

independent valuation services with international experience.

What are the main services Vigers currently provides and when did the company start?

Our main business units are property appraisal and consulting, building consultancy, business valuation, facilities management, hospitality consulting, and realty services. We serve clients around the globe. Like many other surveyor firms, Vigers was originally from the UK and started operations nearly a hundred years ago. We set up our Hong Kong office in 1975, when Vigers was employed by Mass Transit Railway Corporation (MTR) as its appraiser. With the setting up of the Hong

Business Daily Monday, April 24 2017 5

Macau Kong office in 1975, Vigers officially entered the Asia Pacific market and later Mainland China, in the 1980s. Today, Vigers has subsidiaries in four first-tier Chinese cities - Beijing, Shanghai, Guangzhou, Shenzhen - and we have also set up the office in Macau to take care of the regional projects, which account for a quite big piece of Vigers’ business. Currently, our management portfolio includes residential, commercial, industrial, retail, hotels, car park slots, and so on.

“Our main clients are banks, developers, government departments, and property funds” Where are your main clients located?

For overseas projects, most likely, the clients are PRC (People’s Republic of China) companies, or the listed companies in Hong Kong, because now you can see so many listed companies in Hong Kong that go outside Hong Kong, Macau, and China to develop overseas property investments. So, we have the chance to have valuation tasks outside Hong Kong, Macau, and China. We grow with our clients as well.

One of the most controversial land dispute matters that have taken place in Macau recently have involved the Polytec Group.

Was Vigers involved in the Pearl Horizon project?

No. I know [about it], but we are not the valuer of the government or the developer on that piece of land.

In the Pearl Horizon case, clients had already bought residential units before the land concession expired and the land was recovered by the government. Could a similar case happen in Hong Kong?

That is not the case in Hong Kong.

In Hong Kong, when I buy land it depends on whether the land is what we call an owned ‘government lease’ or a ‘lease ground’. This will have an impact on whether, when they want to pre-sell the residential flats, it will come under what we call a consent scheme or a nonconsent scheme, governed by the land ground contract.

“Vigers has subsidiaries in four first-tier Chinese cities Beijing, Shanghai, Guangzhou, Shenzhen - and we have also set up the office in Macau to take care of the regional projects, which account for a quite big piece of Vigers’ business” In the older type of government lease in Hong Kong, you could apply to have a pre-sale – this is under the non-consent scheme – then, the responsibilities and the rules will be held liable by the solicitors. This is not the case in Macau. [In Hong Kong] you could say that we don’t have a ‘land law,’ because we have the conveyance law, that is, the title of the law is not land law, it is about

conveyance. Another law [we have] regards the government lease, and from the bottom part of it, we say that the government lease itself is a contract. So it would be governed by the contract law as well. Because, as you may know, Hong Kong applies the common-law system, while Macau is continental law.

Different judicial systems apply here and in Hong Kong. How does that work for you in terms of regulation? Is there conflict or complementarity across the regions?

W e a r e p r o f e s s i o n a l l y s e l fregulated, and, personally, I am a professional member of RICS, the Royal Institute of Chartered Surveyors from the UK, and also a professional member of the Hong Kong Institute of Surveyors (HKIS).

There are two institutions, one in Hong Kong and one in the UK. And both institutions are members of the International Valuation Standards Council. So, now, effective since 2017, there is an update on the International Valuation Standards (IVS). Market approach, income approach, and cost approach are the three main approaches recognized by the new IVS 2017. So, we have to follow both institutions’ standards, that is RICS and the HKIS, which, in turn, incorporate the international valuation standards. Here, in Macau, we also apply the IVS, so that our services offered to clients are consistent across Hong Kong, Macau, or even the PRC [People’s Republic of China], and overseas countries.

What primarily do the international standards consist of, and what types of valuation does Vigers carry out?

The standards are only available to members. For example, the standards set out the most common values and what you have to include in your valuation report, and even in your engagement matter. Now, the IVS 2017 not only includes property issues, but also business valuation and the plant and machinery (P&M) valuation. We also offer business valuation and P&M valuation as well, but I focus on property valuation.

We also have team members for business valuation and P&M valuation, but business valuation is less common in Macau. What they do is, for example: I have a company, which does active business, and I want to transfer the company to you. Then [we work on] how to determine the consideration, the price, and the fair price for me to transfer the company to you - on how to value this business. Otherwise, in some cases - in Hong Kong, there are thousands of companies listed - for senior management, they usually grant share options to the senior management or the staff, in which case we have to value the market price of the share options. This is a very common type of business valuation. Sometimes, they value the patent, trademark, or even the license. For example, in Hong Kong, taxi licenses or mini-bus licenses can be valued. All these are intangible assets, and intellectual property [-related assets]. This is now what the Hong Kong Government is encouraging, to have business in intellectual property.

Your focus in Macau is on property valuation. Who are your main clients here?

O u r m ai n c l i e n ts a r e ba n ks, developers, government departments, and property funds.

We have also worked for the Housing Bureau, to evaluate the rental price of retail shops on the ground floor of the government’s residential projects in Seac Pai Van. Some of the local developers appoint us as well. When they are planning to build a building, they want us to advise on the value of

the project, so that they can have a report for financial purposes, or for their own investment purposes.

For example, the owners of The Residencia, a residential project in the north of Macau, hired us. At the time they developed the project, we provided a report to them, and they used the report to submit to the bank for financing, for the building mortgage. We provided them the gross development value, that is, the value after completion, the market value. Because the project at that moment was under construction, there was a difference between the value after completion and before completion.

Vigers produces valuations for the hotel business as well. Which integrated resorts have you worked with?

At the time Galaxy Entertainment and others were building the casino mega-projects [in Cotai], in 2007 to 2008, we also had a chance to work with those mega-projects, on some company issues. For example, when they buy the land, they have to report the market value on their bank sheets, and that’s what we did for Galaxy Entertainment Group.

We have worked mainly with Galaxy, both the StarWorld and [the one in] Cotai. We also have some hotel values and experience here, for example, the Lan Kwai Fong, near Waldo [casino]. Now, we are working with the owner of China Hotel, just opposite the airport. The owner just wants to know how much [the property] is worth.

“There are increasing disputes over land matters in Macau […] which require independent valuation services of international experience” Apart from the private sector, do you continue to provide valuations for the local government?

Yes. One of the reasons why the company is registered in Macau is because we also provide valuation services to the Macau Government.

Last time - it should be two to three years ago, when they sold the economic housing - we advised them on how much each residential flat could be sold for on the open market. For example, if I tell them the [open market price] is MOP1 million, then they may offer it to

residents at a discount, maybe for only MOP700,000, for example.

So, they wanted us to advise them about what the price was on the open market.

What kinds of criteria would be involved for the valuation of that type of (public housing) property?

The main criteria would be the location, the facilities offered, c o m p a r e d t o o t h e r p r i va t e residential estates, whether there is a swimming pool, a landscaped garden - because most units for the residential estates now have a gymnasium room, a swimming pool, a clubhouse, a landscaped garden - and we compare all these facilities with the government’s project. Then, there is the location whether it is located in the centre or not - and then we compare the size and the floor level of each building, because we value every residential unit in the project. For example, if you take unit A on the tenth floor, and then you take unit A on the eleventh floor, the eleventh floor [price] should be a bit higher than the tenth floor.

With regard to the high-end, luxury property segment, would the house in Lilau Square, that you have valued at MOP250 million, be the most expensive residential estate in Macau?

Not really. Lilau is still an expensive area to buy property in Macau, but so is Sai Van Lake area, which would be the most prime, luxury houses area in Macau, with some of the houses [worth] around HK$400 million or HK$500 million. But they are also bigger, and mostly family-owned properties. Honestly, they won’t trade out, because you can just value, but when you own this kind of house, they won’t sell.

Because if they sell, then, of course, they will cash back several hundred millions, but nowhere could they buy [a similar property]. If you go to Hong Kong and want to buy a house of such a type, it costs at least HK$1 billion. For example, at the Peak, you can enjoy the Victoria Harbour view, and that is the most expensive area in Hong Kong. Your neighbours are top government officials or the consulates. Similarly, in Macau, in the Penha area, there are also top governmental officials and big families, so the nature of the neighbourhood is nearly the same. There is nowhere else in Macau where you have a similar environment. And this area is close to the central area of Macau, the same as in Hong Kong. Likewise, from the Peak area, you can go down to the central area of Hong Kong.

So this is the case, when you buy property, that the most important thing is the location. [Penha] is already preferred as a prime, luxury area in Macau. Similar to the Peak in Hong Kong.

6 Business Daily Monday, April 24 2017

Macau Opinion

Sheyla Zandonai* Alternative circuits This month, Macau witnessed the opening, or the rooting in of two cultural scenes in town: the Cinemateca Paixão, which opened in ‘experimental mode’ in September 2015 and is now proposing movie screenings on a regular basis; and the Macau Jazz • Sunday Sessions, a private initiative ensuing from three friends who have partnered up with a well-known and beloved venue in town, the Live Music Association (LMA).

Located on a small street near Saint Paul’s, the Cinemateca was born as a public project spearheaded by Guilherme Ung Vai Meng when he was still the head of the Cultural Affairs Bureau. Several films and workshops have already been hosted there. What they are proposing now, under the management of Albert Chu and Rita Wong of the Audiovisual Association CUT, is that the venue becomes a reference for cinephiles, with thematic programmes every month and a membership option to follow soon. Local films and directors are being shown this month. In May, Xavier Dolan, the young French Canadian movie prodigy will be on the screen.

Films by women directors will follow in June.

The Macau Jazz • Sunday Sessions – which is not the Jazz Club, although it is supported by it – was launched in early April by Henrique Silva, Rui Farinha, and Ilda Cristina Ferreira. With a resident band, The Bridge, in addition to a second band followed by a jam session every Sunday evening, the initiative has become quite a sensation, attracting dozens of professional and amateur musicians and audience members alike.

Business-wise, the Macau Jazz is a combination of planning ahead and ‘improvisation,’ something which strikes quite the chord with what they are proposing: a space in which people feel welcome and not reluctant to join. Indeed, Miles Davis once said that there are no mistakes in improvisation.

Both recently launched initiatives show two sides of a story. There is a varied offering in town, with local filmmakers presented on the big screen and musicians from younger and older generations converging on the stage – not to speak of several other talented musicians working on different projects in the city. On the other hand, there is demand, as a diverse public keeps being regularly driven to both venues.

In the big scheme of things, the projects of the Cinemateca and Macau Jazz show that Macau is also a ‘city of entertainment and leisure’ for locals. They were not planned with tourists in mind. And they are quite the hit. *scholar and contributor to this newspaper.

Inflation Alcohol, tobacco and education costs see largest yearly increases in average prices in March

The cost of the city The annual inflation rate in March reached 1.69 per cent after a yearly growth of the average price index of 0.72 per cent Nelson Moura nelson.moura@macaubusinessdaily.com

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he city’s inflation grew by 0.72 per cent year-on-year, with the city’s Composite Consumer Price Index reaching 108.78, according to the most recent data from the Statistics and Census Service (DSEC).

The results come after February saw the lowest growth in the inflation rate since January of 2010, with only a 0.37 per cent rise.

The DSEC explained that the yearly

average price index growth in March was due to higher charges for ‘eating out, an increase in tuition fees and higher gasoline prices’.

The city’s annual inflation rate in March of this year reached 1.69 per cent.

Alcohol, tobacco and education costs up

The largest increase in average price growth for the month when compared to last year was registered in the prices of alcoholic beverages and tobacco, which grew by 8.8 percentage

points year-on-year, followed by a hike in the price index of education, which went up by 7.38 percentage points year-on-year, and transportation, which increased 4.33 percent points year-on-year.

According to the report, the average prices for food and non-alcoholic beverages - the largest household expenditure - increased by 0.37 percentage points year-on-year in March.

The largest yearly decreases in average prices in March were registered in housing and fuel costs, which fell by 1.74 percentage points year-onyear, and in communications, which went down by 1.67 percentage points.

On a monthly comparison, the average price index in March grew slightly by 0.01 percentage points from February, with seasonal changes leading to the clothing and footwear segment registering the largest month-to-month decrease in the price index, with a drop of 1.9 percentage points.

Quarterly hikes

In the first three months of 2017, the average price index went up by 0.95 percentage points year-on-year to 108.94.

The largest increase in the first quarter of 2017 was registered in the cost of alcoholic beverages and tobacco, which went up by 7.48 percentage points when compared to the same quarter of last year, and education and transport costs going up by 7.37 percentage points and 6.45 percentage points, respectively.

On the other hand, the housing and fuels price index went down 1.80 percentage points year-on-year in the first three months of the year, with the average price index for communications decreasing by 1.68 percentage points year-on-year.

Business

Entrepreneur competition at UM

competition organised since 2011 by the Hong Kong University of Science and Technology (HKUST).

The competition looks to promote entrepreneurial culture and discover potential business plans, with this year’s edition taking place in five regions, namely Macau, Hong Kong, Guangzhou,

Shenzhen, and Beijing.

The Macau regional final will see 12 local teams - composed of local tertiary students of higher education institutes, or local residents studying in higher education institutes overseas - present their business proposals and make a quick sales pitch, known as an ‘elevator pitch’.

The prizes for first-, secondand third-placing teams are set at MOP50,000 (US$6,243), MOP30,000 and MOP10,000, respectively, with a MOP5,000 prize to be awarded to the Best Trade Show and Best Elevator Pitch winners.

In August, the three winning teams will be sent to Nansha, Guangzhou to compete for the MOP1 million startup fund, against the winners from the other regional finals. N.M.

and Telecommunications Bureau (DSRT) afterwards.

The company also vowed to ‘continue to conduct a series of planned software upgrades’ and to ‘keep close

monitoring on network operations’ so as to ‘improve the compression capabilities of related network devices’ and to enhance the stability of its Internet service. N.M.

The local regional final of the One Million Dollar Entrepreneurship Competition will be held at the University of Macau on April 25, giving local entrepreneurs a chance to win a MOP1 million start-up fund The University of Macau (UM) will host the ‘Bank of China Trophy One Million Dollar Macao Regional Entrepreneurship Competition - Trade Show and Elevator Pitch’ on April 25, a university release stated.

The event is the Macau regional final of the One Million Dollar Entrepreneurship Competition, a

Communications

Fixing the bug Companhia de Telecomunicaçōes de Macau (CTM) announced it had solved the Internet server problem that led to the Internet access shutdown on April 19, a company release stated.

According to the release, CTM ‘conducted an upgrade project on 20 and 21 April’ that ‘successfully’ managed to upgrade and solve an issue that left 30,000 residents with no Internet access for four hours last week.

After the incident - which originated from an overload of traffic on two of the company’s six Internet servers providing online access in the city - CTM assumed ‘full responsibility’ for the malfunction, with a report being sent to the Macao Post

Business Daily Monday, April 24 2017 7

Macau Politics

MSAR officials won’t attend Belt and Road Forum

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he city’s top official has no current plans to attend the Belt and Road Forum for International Cooperation, to be held on May 14 and 15 in Beijing, according to a response to Business Daily’s enquiries.

‘The Government Information Bureau has so far received no information regarding the Chief Executive or any officials taking part in the Belt and Road Forum for International Cooperation,’ reads the response, noting that in regards to any future change of plans, the ‘Government would announce in due course should there be further official news on this issue.’

To date, the forum is set to

welcome 28 heads of state and government, including Chinese President Xi Jinping, Russian President Vladimir Putin and Philippine President Rodrigo Duterte, as well as High Representative

of the European Union for Foreign Affairs and Security Policy, Federica Mogherini. In addition, over 80 leaders of international organizations, 1,200 delegates from countries and regions and

Chinese President Xi Jinping will host the forum

100 ministerial-level officials are set to attend, notes People’s Daily.

A three-day trip by top officials, initiated last Wednesday, including Hong Kong’s Chief Executive Leung Chun-ying (CY Leung) to visit the cities under the Greater Bay Area plan, came in advance of the meeting, aimed at bringing the two SARs and the nine cities in Guangdong comprising the plan, closer together. However the MSAR’s top official was also not present for the trip.

The central government’s ‘Greater Bay Area’, ‘One Belt, One Road’ and new Silk Road project aim to promote commercial ties worldwide through investment, infrastructure building and commercial opportunities. K.W.

M&A

Australia says Chow Tai Fook’s Alinta takeover has won approval David Stringer and Edward Johnson

Chow Tai Fook Enterprises Ltd., the Hong Kong conglomerate best known for its jewellery stores, has won Australian regulatory approval to acquire gas and electricity provider Alinta Energy Holdings Ltd. The deal has been approved by the Foreign Investment Review Board and is subject to strict conditions, a spokeswoman for Treasurer Scott Morrison said by phone Sunday,

without elaborating on the details.

Morrison decides on approvals for overseas investors on advice from the investment board.

Chow Tai Fook in March agreed to pay investors including buyout firm TPG Capital more than A$4 billion (US$3 billion) for Alinta, people with knowledge of the matter said at the time. Alinta’s assets in Australia span nationwide energy retailing through power generation for industrial customers.

Calls to Chow Tai Fook Enterprises’ head office in Hong Kong went unanswered Sunday. Alinta Energy didn’t answer a phone call placed outside normal office hours. The approval was reported earlier by the Australian Financial Review, which didn’t say where it got the information.

The transaction follows in the path of Li Ka-shing’s Cheung Kong Infrastructure Holdings Ltd., which on Friday won approval for a A$7.4 billion takeover of Australian power

provider Duet Group. Li-controlled companies already own stakes in Australian assets including SA Power Networks, Powercor Australia and Australian Gas Networks.

Australian utilities such as Alinta and Duet have attracted foreign interest because of steady cash flows from their gas and electricity assets.

The country’s power companies are overseen by national and state regulators, which decide how much network operators can charge. Bloomberg

8 Business Daily Monday, April 24 2017

Greater China

Forecast

IMF says may raise Mainland 2017 GDP again The fund said it expects certain parts of China’s economy, including its real estate market and its shadow banking sector, to cool in the second half of this year

C

hina’s economy may grow faster than the International Monetary Fund (IMF) had expected for all of 2017 after a first-quarter performance that beat forecasts, the fund said, as it urged Beijing to address entrenched financial risks in the country.

Data this month showed China’s economy grew at a faster-than-expected rate of 6.9 per cent in the first three months of this year after record credit growth, a gravity-defying property boom and higher government infrastructure spending juiced activity.

The better-than-anticipated data prompted the IMF this week to raise its 2017 and 2018 growth forecasts for the Chinese economy, and Changyong Rhee, director of the Asia and Pacific Department at the fund, said on Friday there was a chance it may lift its 2017 estimate again.

The IMF, which holds its spring meeting this week for central bankers and finance ministers, lifted its 2017 growth projection for the Chinese economy, the world’s second largest, to 6.6 per cent from 6.5 per cent on Tuesday.

“There is upside risk to our current

Former finmin

Domestic rising debt poses biggest risk to economy China’s total private and public debt has exceeded 250 per cent of GDP High leverage is the biggest risk facing China’s economy as debt has piled up despite government efforts to deleverage, exposing the world’s second-largest economy to systematic financial risks, a former finance minister was quoted as saying on Friday.

Household debt has crept up to about 50 per cent with a shift in consumption habits and record mortgage lending last year, Lou Jiwei, former finance minister and chairman of China’s National Council for Social Security Fund, said during a forum

Lou Jiwei, former finance minister

in Beijing, according to state television CCTV. Lou also stressed there was a silver lining to some recent default cases involving local governments that failed to pay off their debt, as they sent a strong message that the central government would not bail them out.

“It’s a good thing, educating the market that whether you are a stateowned or private company, you will have to take responsibility if you default on your debt, nobody will save you,” he said.

Data from the Bank for International Settlements showed China’s household debt as a proportion of gross domestic product (GDP) had more than doubled to 43.2 per cent in October in less than 10 years.

While developed nations have higher rates of household debt, Chinese families are much more leveraged because income is lower and so proportionately the costs of social welfare, from pensions to healthcare, are much higher.

China’s total private and public debt has exceeded 250 per cent of GDP, up from 150 per cent before the global financial crisis, according to the Organisation for Economic Co-operation and Development (OECD).

Lou said the Chinese economy had not hit the “Lewis Turning Point”, a tipping point where there is no surplus of rural labour and urban wages rise dramatically, but he remained cautious about China’s economic outlook, saying it may stick to an “L-shaped” pattern of “horizontal” growth. Reuters

projection,” Rhee told reporters at a briefing.

But at the same time, the fund said it expects certain parts of China’s economy, including its real estate market and its shadow banking sector, to cool in the second half of this year.

“There is upside risk to our current projection” Changyong Rhee, director of the Asia and Pacific Department at IMF The fund said it has always advised China that the country’s financial trends are “dangerous and

unsustainable”.

These include an “excessive” role of the state, large resource miscalculation in many areas, state-owned companies that lack budget constraints and financial discipline, said Markus Rodlauer, deputy director of the Asia and Pacific Department at the IMF. “When this would unravel in some way or another, nobody can predict,” said Markus Rodlauer, deputy director of the IMF’s Asia and Pacific Department, adding the fund was hopeful that China could untangle its problems.

China’s debt-to-GDP ratio rose to 277 per cent at the end of 2016 from 254 per cent the previous year, with an increasing share of new credit being used to pay debt servicing costs, according to an estimate from UBS. Reuters

Business Daily Monday, April 24 2017 9

Greater China Regulator

In Brief

National WMP growth eases in Q1 amid crackdown China’s banking and securities watchdogs have recently upped their campaign against risky lending The growth of Chinese wealth management products (WMPs) and interbank liabilities eased in the first quarter of the year, China’s banking regulator said late on Friday, amid a crackdown by Beijing on risky behaviour in the financial markets.

The China Banking and Regulatory Commission (CBRC) said in a statement the value of banks’ wealth management products totalled RMB29.1 trillion (US$4.23 trillion) at the end of March, up 18.6 per cent from the start of the year.

It said this growth rate was down close to 35 percentage points from the rate in the same period last year.

China’s banking and securities watchdogs have recently upped their campaign against risky lending, with the top securities regulator urging stock exchanges earlier this month to “brandish their sword” and punish market misbehaviours

“with no mercy”.

“The overall risk situation remains complex and severe,” the CBRC said, adding it would “vigorously manage financial chaos”.

The CBRC added in the statement it would take a “proactive” stance to prevent rising financial risks, including boosting credit controls, appropriately controlling property financing as well as improving regulation of online lenders.

The banking regulator has recently issued a slew of policy directives aimed at lenders’ shadow banking business and risk management. The insurance regulator has also called on insurers to tighten supervision of their operations and investments.

Commercial banks’ non-performing loans (NPLs) totalled RMB1.58 trillion by the end of March, up RMB67.3 billion since the start of the year, it said, adding the NPL rate was

1.74 per cent, very slightly down from the same period in 2016.

Zhou Xiaochuan, the governor of China’s central bank, said on Saturday China’s corporate and financial sectors were broadly resilient, with risks “well under control”.

Key Points Banks’ WMPs up 18.6 pct at end-March from start of year CBRC says “overall risk situation remains complex and severe” Commercial bank NPLs total 1.58 trln yuan by end-March PBOC gov: confident in preventing and eliminating systemic risks “The banking sector’s capital and provisions remain adequate, with non-performing loans staying low.

China is fully confident in preventing and eliminating systemic risks,” he said. Reuters

Illegal trades

Stocks regulator fines ex-official China’s securities regulator has fined a former Shenzhen bourse official RMB251 million (US$36.5 million) for making illegal trades to profit from company IPOs, underscoring Beijing’s drive to root out bad behaviour in its equities markets. The China Securities and Regulatory Commission (CSRC) said on its official microblog late on Friday it had fined Feng Xiaoshu, formerly a member of the Shenzhen exchange’s listing approvals committee, and confiscated RMB248 million he made through the trades. Feng had used relatives’ accounts to buy shares in companies ahead of initial public offerings, which he would then sell after the price had shot up following the listing, it said.

Forecast

C.bank chief says 6.5 pct growth target “within reach” China’s 2017 growth target of 6.5 per cent is “within reach”, the governor of the country’s central bank said in a statement on Saturday, amid stronger economic signs at the start of the year. Zhou Xiaochuan, governor of the People’s Bank of China, said in an International Monetary and Financial Committee (IMFC) statement China’s corporate and financial sectors were looking broadly resilient and risks were under control. “As the growth of investment and trade stabilised and recovered, consumption grew steadily, and employment remained broadly stable,” he said. “The expected 6.5 per cent growth for this year is within reach.”

Currencies

Commodities

U.S. to continue probe into whether China dumping aluminium foil The U.S. Commerce Department is expected to announce a preliminary decision on countervailing duty on or about June 2 The U.S. International Trade Commission has made affirmative determinations in its preliminary phase anti-dumping and countervailing duty investigations of aluminium foil from China, the agency said on Friday.

The USITC voted for continued investigations into whether aluminium foil imports from China were being dumped or subsidized, it said in a statement.

‘China produces over half the world’s aluminium and exported 1.1 million tonnes of foil last year’ U.S. aluminium foil producers have filed petitions with the U.S. government accusing Chinese manufacturers of dumping the product in the United States, the first such case since President Donald Trump took office.

China produces over half the world’s aluminium and exported 1.1 million tonnes of foil last year, up 13 per cent from 2015 and more than double levels at the turn of the decade.

The U.S. Commerce Department is

expected to announce a preliminary decision on countervailing duty on or about June 2, and a preliminary decision on anti-dumping duty on or about Aug. 16, the USITC said in a statement later on Friday.

The investigation follows petitions filed in March by the Aluminium Association Trade Enforcement Working Group, a U.S. trade group, which hailed the USITC announcement on Friday.

“Domestic aluminium foil producers have suffered extensive injury by unfairly traded imports from China

for many years, and are pursuing these actions to bring about a return of fair pricing to the U.S. market that will allow them to make investments to further strengthen their competitiveness,” Heidi Brock, the group’s president and chief executive, said in a statement.

Aluminium foil imports from China increased by 38.8 per cent from 2014 to 2016, and accounted for more than 70 per cent of all such imports in 2016, driven by low prices, the group said.

Just before leaving office, the Obama administration launched a new complaint against Chinese aluminium subsidies at the World Trade Organization, accusing Beijing of artificially expanding its global market share with cheap state-directed loans and subsidized energy. Reuters

PBOC deputy says SDR market not sufficiently liquid The global market for the special drawing right (SDR) basket of major currencies is not sufficiently liquid and transaction costs are high, China’s official Xinhua news agency reported on Saturday, citing the deputy of the country’s central bank. Yi Gang, vice governor of the People’s Bank of China (PBOC), said more market participants and global central banks should use SDRs to help inject liquidity into the market.

“Currently the SDR market lacks sufficient liquidity, while hedging and settlement costs are relatively high,” Xinhua quoted Yi as saying at a forum in Washington.

Real estate

Robust demand for property as mortgage loans jump China extended RMB1.7 trillion (US$247 billion) in property loans in the first quarter of 2017, central bank data showed on Friday, reflecting robust demand in the sector. Property loans, comprised mainly of individual mortgages and loans for real estate development, accounted for 40.4 per cent of all new loans made in the quarter, data from the People’s Bank of China (PBOC) showed. In the first quarter of 2016, lending was RMB1.5 trillion (US$218 billion) and sales growth accelerated to a near threeyear high boosted by a range of official stimulus measures.

10 Business Daily Monday, April 24 2017

Greater China Auto industry

Mainland’s quota threat charges up electric car market The quota plans have brought some pushback, with German Chancellor Angela Merkel lobbying Chinese Premier Li Keqiang over the issue Julien Girault

C

hina’s electric-car market is already the world’s biggest, but a government proposal to introduce “new energy” vehicle quotas for automakers is further charging it up.

With the threat of the measure looming, major manufacturers at the annual auto show in Shanghai are announcing big plans to boost their electric vehicle (EV) offerings in China.

Volvo has confirmed it will introduce its first 100-per cent electric car in China in 2019, while Ford will market its first hybrid vehicle in early 2018 and envisions 70 per cent of all Ford cars available in China will have electric options by 2025.

Industry players say the push could have a profound impact on the greencar sector, as resulting economies of scale bring down the costs of producing and buying such cars.

Chinese sales of “new energy” vehicles jumped 53 per cent last year to 507,000 units, fuelled by government incentives.

Overall, a world-leading 24.38 million passenger cars were sold in China in 2016.

“Right now, the (EV) market has been driven by regulatory and government (subsidies),” admitted David Schoch, Ford’s Asia-Pacific president.

“But we do believe that in the very

near term, as we scale up more batteries, the cost will come down.”

China has offered incentives for EV purchases to help fight chronic air pollution, but has begun scaling back those inducements this year, causing sales to stumble.

Instead, the government intends to force the hand of manufacturers.

A proposal published in September could require “green” vehicle production quotas as early as 2018, under a complex system of earned credits.

Gearing up

Market leader Volkswagen sold four million cars in China in 2016 but only a few hundred were “green”. The German manufacturer now plans to begin production of an electric car in

China next year, in a joint venture with Chinese group JAC. VW expects to sell around 400,000 new-energy vehicles in China in 2020, said Jochem Heizmann, CEO of Volkswagen China.

The quota plans have brought some pushback, with German Chancellor Angela Merkel lobbying Chinese Premier Li Keqiang over the issue.

Chinese Industry Minister Miao Wei said in March that a reduction or deferral of the quotas was possible.

But automakers plan to get ready.

“We are fully, with all forces, working to be able to fulfil this quota system already next year,” Heizmann said.

General Motors says it plans to launch at least 10 new energy vehicles in China, targeting 150,000 in annual sales by 2020.

“We have a pipeline ... that is going to put us in a very good position from a fuel-economy requirement

perspective” that will enable GM to meet any EV rules, said Matt Tsien, head of GM China.

Irreversible trend The Chinese market is dominated by local manufacturers including sector pioneer BYD, which sold 96,000 EVs last year.

Despite the reduced subsidies, “the trend of electrification is irreversible,” said BYD president Wang Chuanfu.

“We have reached the point where (economies of scale) in production will allow for more affordable prices,” he said.

Most electric cars in China already sell for less than RMB250,000 (US$36,000) before subsidies, but they are typically models with a limited range.

“The market above 250,000 doesn’t really exist yet,” said Hubertus Troska, president of Mercedes China.

This has not stopped start-ups from challenging Tesla Motors in the limited niche for high-end EVs. They include Qiantu, whose RMB700,000 sports model will be marketed soon; Chehejia, founded by an entrepreneur dubbed the “Chinese Elon Musk”; and Nio, a brand by Chinese electric-car maker NextEV that has received investment from deep-pocketed Chinese IT giants Tencent and Lenovo.

“We feel that now in China, firstand second-tier cities have this need (for premium electric cars), but it is yet to be satisfied,” NextEV founder William Li told AFP, while also promising an electric car for the U.S. market in 2020. AFP

Freight

Air China says Beijing green-lights ownership reforms of cargo business Domestic media has previously reported China’s top airline freight carriers could merge to form a cargo transport giant Air China Ltd has received the green light from Beijing to push ahead with mixed-ownership reform of its air freight logistics business, the firm said late on Friday, signalling a potential shake-up of China’s cargo carrier market.

‘China’s long-awaited mixed ownership reforms will allow private capital to invest in firms run directly by the central government’ In a filing to the Hong Kong stock exchange the carrier said its

state-owned parent, China National Aviation Holding Company (CNAHC), had received the approval from China’s top state planner, the National Development and Reform Commission.

China’s long-awaited mixed ownership reforms will allow private capital to invest in firms run directly by the central government, and are part of an ambitious revamp of the country’s sclerotic and debt-ridden state sector.

“CNAHC will start to push forward the mixed-ownership reform in air freight logistics,” it said, adding the move would likely affect the listed company and some of its subsidiary firms.

Domestic media has previously reported China’s top airline freight carriers could merge to form a cargo transport giant.

An official at the Civil Aviation Administration of China told the official Xinhua news agency in 2015 that Air

China Cargo, China Cargo Airlines and China Southern Cargo could be combined.

Earlier this month the news agency reported China would soon release details of ambitious ownership reform plans at central government-owned firms, including telecom giant China Unicom and China Eastern Airlines.

The central government, which has made mixed ownership reform

one of its priorities, currently owns and administers 102 enterprises in sectors from nuclear technology to medicine.

Last week, China’s cabinet endorsed guidelines by the country’s state planner to reduce leverage in the corporate sector and push forward with mixed-ownership reforms at state-owned enterprises this year.

Reuters

Business Daily Monday, April 24 2017 11

Asia Forex

Japan’s Aso pushes back on U.S. call for scrutiny of currency moves Policymakers fear the Trump administration may accuse the Bank of Japan of using ultraloose monetary policy to weaken the yen

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apanese Finance Minister Taro Aso said on Saturday trade imbalances cannot be fixed through exchange-rate adjustments alone, pushing back against Washington’s calls to have more rigorous IMF scrutiny of currency moves.

Earlier, U.S. Treasury Secretary Steven Mnuchin called on the International Monetary Fund to enhance surveillance of its members’ exchange rates and external imbalances, as large trade imbalances would hamper “free and fair” trade.

But Aso told the IMF’s steering committee there were limits to using exchange-rate assessments to address current account imbalances for a country like Japan.

That is because the recent increases in Japan’s current account surplus are driven largely by rising dividend payments and repatriation of revenues from overseas investments, instead of any boost to exports from a weak yen.

“In cases where ‘excessive’

Finance Minister of Japan Taro Aso (C) attends the official group photo call of the G20 Finance Ministers and Central Bank Governors at the International Monetary Fund (IMF) headquarters in Washington. Lusa

imbalances exist, they should be addressed by a package of macroeconomic and structural policy measures,” Aso said in a speech to the International Monetary and Financial Committee.

“Adjustment through changes in the exchange rate is not necessarily required,” he said.

U.S. President Donald Trump has criticized countries like Japan, Germany and China for running large

trade surpluses with the United States and weakening their currencies to gain an unfair trade advantage.

Japanese policymakers fear the Trump administration may accuse the Bank of Japan of using ultra-loose monetary policy to weaken the yen and bind Tokyo’s hands on currency intervention to address any unwelcome spike in the yen.

“With downside risks and uncertainty persisting, the stability

of financial and exchange rate markets is especially important,” Aso said.

“Excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability,” he added, referring to language in the G20 agreement that Tokyo cites as giving it room to intervene in the currency market to stem sharp yen gains. Reuters

M&A

China Mobile, others approached for buying into Singapore telco M1 Singapore’s well-regulated telecoms market offers stable cash flows Anshuman Daga

Top shareholders in Singapore telecoms company M1 Ltd have approached potential buyers China Mobile and global private equity firms, among others, to sell their combined majority stake in the firm, sources familiar with the matter said.

The three main shareholders of Singapore’s smallest listed telecoms player, who own a combined 61 per cent, flagged a strategic review of their investments last month, and jointly appointed Morgan Stanley as their financial adviser.

They did not give a reason behind the review of their stake in the S$1.9 billion (US$1.36 billion) company.

The sources said the three shareholders - Malaysia’s Axiata Group, Singapore Press Holdings (SPH) and Keppel Telecommunications & Transportation - had also reached out to other telecoms firms, cashrich business groups in China and Japanese tech firms to gauge their interest.

First-round bids for M1, long seen as a target due to its small size and diverse shareholding, are expected in a few weeks, the sources said. They added that talks between the parties were still at an early stage and there

was no certainty the process would succeed.

They did not provide details on how China Mobile or the other prospective bidders have responded to the approach.

When contacted for comments, Keppel, SPH and Axiata referred Reuters to their joint statement issued last month. M1 referred the query to its shareholders. China Mobile declined to comment.

The sources declined to be identified as they were not authorised to speak to the media.

The sale process comes as competition heats up in Singapore, with Australia’s TPG Telecom set to launch its services next year after winning a licence to become the city-state’s fourth telecom operator. Analysts expect M1 to be the most vulnerable to new competition.

M1’s shares have nearly halved over the past two years due to its weak business performance amid increased competition.

But Singapore’s well-regulated telecoms market offers stable cash flows. Some telecoms firms could also use the city-state as a launch pad into a region that is still developing, industry executives and analysts said.

“It’s actually a decent business for

current owners or any new ones if you factor in the upsides,” said Rameez Ansar, co-founder of Singapore firm Circles.Life, which leases towers from M1, referring to weakness in M1’s share performance and Singapore’s position as a tier-one market and high user revenues.

M1 could also fit in a portfolio of other telecoms ventures.

“M1 could become part of a portfolio of investments in telecom-related assets. Someone looking for financial returns could be interested, if other portfolio companies could help to enhance M1’s overall value,” said Gregory Yap, analyst at Maybank Kim Eng Securities.

Under Singapore’s rules, an acquirer of a 30 per cent or more stake in a

listed company is required to make an offer to buy out the rest of the shareholders.

Some of the sources said M1’s main shareholders would require a substantial control premium for the sale to get done.

State-run China Mobile, as well as local peers China Unicom Hong Kong Ltd and China Telecom Corp Ltd, the country’s big telecoms firms, are pursuing expansion plans beyond their home market.

If China Mobile acquires M1, it would mark its biggest overseas foray. The world’s largest mobile operator bought an 18 per cent stake in Thailand’s True Corp in 2014 after buying Pakistan telecoms firm Paktel in 2007. Reuters

12 Business Daily Monday, April 24 2017

Asia In Brief Strategy

Lotte Group to combine units into holding company South Korea’s Lotte Group plans to combine parts of four units including flagship retailer Lotte Shopping Co Ltd into a holding company to resolve cross-shareholding issues, online website Money Today reported. The boards of Lotte Shopping, Lotte Confectionary, Lotte Chilsung Beverage, and Lotte Food will convene as early as next week to discuss the issue, the domestic business website reported, citing unidentified sources. The move may take the form of splitting the four firms into two companies each, after which four out of the resulting eight firms will be combined into one holding company, Money Today reported.

Debt

Singapore court approves judicial management for Swissco A Singapore court on Friday approved Swissco Holdings Ltd’s application to be placed under judicial management after the debt-burdened rig and vessel charter firm reached an impasse with major lenders last year. Judicial management is a process that gives a financially distressed company leeway to return to financial health under court supervision. Singapore’s offshore and marine industry has been hit by low oil prices, weak charter rates and delays to projects. Oilfield services firm Swiber Holdings is also under judicial management. Last month oilfield services provider Ezra Holdings Ltd filed for U.S. bankruptcy protection.

Private poll

Japan Inc braces for labour reform, plans to boost productivity The impact of labour shortage is already pressuring earnings at some firms Tetsushi Kajimoto

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apan’s plans to implement more employee-friendly laws are set to prove painful for many companies, with half saying labour costs will rise and two-thirds considering ways to lift productivity to offset the impact of the reforms, a Reuters poll showed.

Prime Minister Shinzo Abe’s government last month endorsed an action plan for sweeping reforms of employment practices, including caps on overtime and better pay for part-time and contract workers.

The proposals, which may come into effect from 2019, will only add to strains already being felt as firms grapple with a deepening labour shortage due to a rapidly aging population. That said, more pressure to boost productivity is seen as long overdue and could boost growth in the long-term.

“Coming on top of labour shortages, Abe’s plan will cause declines in sales and profits. We have done what we can in terms of streamlining,” wrote a manager at a machinery maker, one

of the nine per cent of firms which saw a considerable jump in labour costs.

The Reuters Corporate survey, conducted April 4-17, showed 41 per cent saw costs rising somewhat, while 38 per cent expect no change and 11 per cent forecast that labour costs will decrease.

The impact of Japan’s labour shortage is already pressuring earnings at some firms, and at others, management has found it no longer has the bargaining power it used to have as failure to reward employees sufficiently can result in less staff.

Convenience store chain Lawson Inc last week forecast its first decline in annual profit in 15 years, due in part to investments in new technology that will help it cope with fewer workers.

And this week, delivery service firm Yamato Holdings Co slashed its profit estimates for the financial year just ended by almost half, saying it needed to pay unpaid overtime for the past two years.

Service sector firms - which include labour intensive industries such as retailing and construction - are the most vulnerable. Nearly 60 per cent of non-manufacturers polled in the survey said costs will increase.

The survey, conducted monthly for Reuters by Nikkei Research, polled 529 big and mid-sized businesses.

Commodities

Freeport Indonesia granted permit to export copper concentrate Miner Freeport McMoran Inc.’s Indonesia unit has been granted a permit to export 1.11 million wet metric tonnes of copper concentrate until February of next year, a trade ministry official said. Oke Nurwan, director general of foreign trade at Indonesia’s trade ministry, told Reuters the permit was valid until Feb. 16, 2018. Production and exports at Freeport’s mine in the eastern province of Papua have been disrupted due to a contract dispute between the company and the government.

Marketing

Diamond miners have India in sight with Real is Rare slogan The world’s top diamond producers will try to spur demand in India with the launch of their “Real is Rare” slogan in September, after the withdrawal of high-value bank notes dented the world’s third biggest diamond market. The marketing slogan was launched in the United States in 2016 by the Diamond Producers Association (DPA), which groups the biggest producers including De Beers, part of Anglo American, Russia’s Alrosa and Rio Tinto.

DPA Chief Executive Jean-Marc Lieberherr told Reuters early indications were that the slogan was effective and diamonds had captured the interest of the millennial generation.

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Around 240 firms, which reply on condition of anonymity, answered the questions on labour.

Shrinking workforce

Japan’s working-age population shrank to 77.2 million in 2015 from a peak of 87.2 million in 1995 and is forecast to fall further to 45.2 million by 2065.

At the same time, Japan - the world’s third-largest economy - ranks higher than many other advanced economies in terms of annual total working hours per worker, while its per-capita GDP undershoots most of them, government data shows.

“The government wants companies to seize this opportunity to raise productivity to cope with labour shortages, and many firms appear to share the objective,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute, who reviewed the survey results.

Public outrage over long working hours has also motivated Abe to make labour reform a key policy plank. The suicide of a young worker at advertising agency Dentsu Inc in 2015, later ruled by the government as ‘karoshi’ or death by overwork has only fuelled momentum for reform.

In addition to legal caps on excessive overtime that would carry penalties for infringements, Abe’s action plan calls for better pay for part-time and contract workers, with the government noting that around 40 per cent of Japanese workers are ‘non-regular’ workers and are paid far less compared to other advanced countries.

Investing in technology - from new computer systems to artificial intelligence, robots and the internet of things - was the most cited method of boosting productivity in the survey. But implementing this could be easier said than done.

“One problem is that Japanese firms are short of talented workers in the fields of IT and AI,” said Tokuda.

Firms also said they would introduce flexible work schedules, cut down on internal meetings and train employees to multitask more. Reuters

Trade

S.Korea to raise issue of U.S. steel import restrictions at WTO Trade minister Joo Hyung-hwan will have a meeting with Korean steel companies on April 27 to gather opinions and discuss ways to deal with the situation Hyunjoo Jin and Jane Chung

South Korea plans to raise the issue of U.S. restrictions on steel imports at World Trade Organization committee meetings next week, its trade ministry said on Friday.

The move comes after U.S. President Donald Trump launched a trade probe on Thursday against China and other exporters of cheap steel into the U.S. market, raising the possibility of new tariffs.

The United States has already slapped a series of anti-dumping duties on steel imports from South Korea and other countries. The United States is the biggest market after China for South Korean steel products, and accounted for about 12 per cent of the country’s total exports of the metal in 2016, according to South

Korea’s steel association.

A South Korean steel company official told Reuters that the government and South Korea’s steel industry should consider all measures including filing a complaint with the WTO in response to “deepening U.S. trade protectionism.”

A senior official at South Korea’s trade ministry said the government was considering its response to the U.S. move.

“We are open to all possible options including filing a complaint with WTO but nothing has been decided. We will decide after listening to opinions of the Korean steel industry,” the official said.

The ministry official and the company official asked not to be identified because of the sensitivity of the matter.

“The government will closely monitor related trends and will actively respond together with private companies,” the Ministry of Trade, Industry and Energy said in the statement.

It said the issue would be raised at WTO committee meetings set to be held on April 25-27 in Geneva.

Trade minister Joo Hyung-hwan will have a meeting with Korean steel companies on April 27 to gather opinions and discuss ways to deal with the situation, the ministry said.

POSCO shares closed up 2.5 per cent on Friday and Hyundai Steel ended up 1.1 per cent, outperforming the wider market’s 0.7 per cent rise.

“Rising trade protectionism is negative to the steel industry overall, but the industry has been recovering, helping cushion the negative impact,” said Will Byun, an analyst at NH Investment & Securities.

POSCO said on Tuesday that its first-quarter operating profit more than doubled, beating its estimate on solid demand from China. Reuters

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Business Daily Monday, April 24 2017 13

Asia

Vijay Mallya, owner of a Formula One team and founder of the Kingfisher beer brand was arrested on Tuesday in Britain Loans

How bad corporate debts are holding back India’s growth Regulators, eager to spur growth, allowed many industries to restructure loans rather than write them off Megha Bahree

T

he recent arrest of Vijay Mallya highlighted the problem of bad loans in India, but analysts say the tycoon’s unpaid debts are just the tip of an iceberg that is already holding back the country’s economic growth.

The multimillionaire owner of a Formula One team and founder of the Kingfisher beer brand was arrested on Tuesday in Britain, where he fled a year ago after allegedly defaulting on loans from Indian state banks worth more than US$1 billion.

From the mid-2000s onwards, Mallya and much of corporate India went on a shopping spree, picking up assets both at home and overseas even as a financial crisis hit the global economy.

As a result, Indian banks are now saddled with some of the highest levels of bad debts in the emerging markets according to the International Monetary Fund.

“Banks are so stretched that they’re not even lending to healthy companies, holding back growth” Rajeswari Sengupta, economist “Banks are so stretched that they’re not even lending to healthy companies, holding back growth,” Rajeswari Sengupta, an economist in Mumbai, told AFP. “That’s a very big collateral damage... The biggest fall-out is the lack of private sector investment -- banks are stressed, private sectors are stressed, lending to corporates by banks has totally stalled.”

Banks coughed up cash for projects even when the business plans made no sense -- such as a Formula One track on the outskirts of the Indian capital that was practically abandoned after three races.

Regulators, eager to spur growth, allowed many industries to restructure loans rather than write them off,

and also agreed to a moratorium on interest payments.

The excesses of the period remained hidden as banks sought to keep companies afloat by giving them enough capital to service their loans -- a practice known as ever-greening -- to disguise their own bad debts.

By 2015, the share of companies it monitored that could not even service the interest on their loans had reached nearly 40 per cent, Credit Suisse said in a February report.

That has led to a situation where both banks and their clients are financially stretched.

India remains the world’s fastest-growing major economy, with GDP expanding by seven per cent in the last three months of 2016 -the last quarter for which data is available.

But economists say that growth is fragile because it is being driven by consumer spending rather than investment.

‘Rotten system’

India’s government is seeking to extradite Mallya and try him for fraud.

He has said there is a “witch hunt” against him, arguing that there were much bigger defaulters.

By September 2016, about 16.6 per cent of loans to corporates -- or about 8.4 per cent of GDP -- had been declared non-performing, according to Credit Suisse.

“Eight per cent of the GDP is a very big number,” Sengupta told AFP. “When the size of NPAs (non-performing assets) hits five per cent of the GDP, that is considered a crisis, and we have gone way past that.”

Banks were finally forced to confront the problem in September 2015 when the central bank set them a deadline of March 2017 to clean up their balance sheets.

But more than a year into the forced clean-up, “corporate NPL formation still hasn’t abated at both (state-owned) and private corporate lenders,” according to the Credit Suisse report.

By its count, some 12 trillion rupees (US$185 billion) have soured, the bulk of it at public-sector banks.

The 10 largest corporates in the country -- including the owner of that abandoned F1 track –- are also the most burdened with debt and owe a collective 7.5 trillion rupees.

“There is still no sign that the affected companies are regaining their health, or even that the bad debt

problem is being contained,” said Ashish Gupta, Credit Suisse’s head of equity research.

“To the contrary, the stress on corporates and banks is continuing to intensify, and this in turn is taking a measurable toll on investment and credit.”

Finance Minister Arun Jaitley is looking for solutions.

One idea his ministry mooted was to create a single “bad bank” which would take over all bad loans and leave the existing lenders in healthier

shape.

Another was to create asset management companies to tackle the problems.

But not everyone is convinced that there is a way out.

“We’ve been sitting on this ticking time bomb for so long that I don’t even know what are the solutions,” Sengupta said.

“It’s a completely rotten system and it’s been like this for so long that there’s no good solution any more.”

AFP

14 Business Daily Monday, April 24 2017

International In Brief Reform

Argentina to beat Q1 deficit goal Argentina will beat its first-quarter fiscal goal, the treasury minister said on Saturday, adding that the government slashed more than 10,000 jobs over the last year and a half. Speaking on the side-lines of International Monetary Fund meetings in Washington, Nicolas Dujovne said the government would best its target of a 0.6 per cent deficit as a per cent of gross domestic product for the January-March period. “It’s going to be a little below it. We are going to beat the goal,” he said.

Development

Germany pushes plan to boost private investment in Africa Narrowing the gap between rich and poor is key to avoiding a destructive rise in populism, German Finance Minister Wolfgang Schaeuble said on Saturday as he laid out a plan to boost private investment in Africa.

“If we do nothing to change this, we can expect a rise in populist parties and demagogues, and a rise in instability around the world, with all its negative effects for sustainable growth”, he said.

Germany is pushing a plan to have African nations partner with certain G20 countries and international lenders, such as the World Bank, to attract outside investors to the continent, he said.

Debt

Fitch cuts Italy’s debt rating Ratings agency Fitch downgraded Italy’s sovereign debt on Friday, citing the country’s sluggish economic growth, fiscal slippage, weak government, banking problems and political risk ahead of elections due in 2018.

Fitch cut Italy’s sovereign credit rating to ‘BBB’ from ‘BBB+’, a move that could put further pressure on its borrowing costs which have already been rising in recent months. The outlook for the rating is now stable, it said. The agency had put the euro zone’s third largest economy on watch in October with a negative outlook ahead of a referendum on constitutional reforms.

Creditor talks

Puerto Rico government pushing forbearance deal Lawyers for Puerto Rico’s government are drafting a forbearance agreement that could allow the U.S. territory to avoid invoking bankruptcy protections in the short-term, two sources with direct knowledge of the discussions revealed to Reuters on Friday.

Puerto Rico and its creditors wrapped up roughly a week’s worth of mediated talks in New York, aimed at striking a deal to restructure much of the US$70 billion in debt the island cannot pay.

It remains unclear if creditors would support such an offer to extend talks past a May 1 deadline to reach an agreement.

Reform

EU executive to present euro zone budget idea next month Commission Vice President says under the plan of further euro zone integration, the new institutional setup should be ready by 2025 Jan Strupczewski

T

he European Commission is working on an idea of a budget for the 19 countries sharing the euro currency that could support investment and also serve as an unemployment re-insurance plan, Commission Vice President Valdis Dombrovskis said on Friday.

The Commission will present various options for further institutional development of the euro zone by the end of May. The euro zone budget is to be called a “fiscal stabilisation function.”

“We are now working on a paper on completing the Economic and

Monetary Union (EMU) by the end of May, with more institutional aspects, including a euro area fiscal stabilisation function,” Dombrovskis told Reuters.

Speaking on the side-lines of the annual meetings of the International Monetary Fund and World Bank in Washington, he said the details of how the budget would be financed, who would be in charge of it and how big it would be were yet to be discussed.

“We are assessing different models, but respecting conditions ... like the one that it should not result in permanent transfers among euro zone member states and not create moral hazard,” he said.

The budget’s investment support function could be modelled on the existing European Fund for Strategic Investment (EFSI), which encourages private investment in infrastructure, research and development and energy sectors by covering the more risky parts of projects through the leveraging of public funds.

Dombrovskis said setting up the unemployment re-insurance scheme would be politically more difficult and require some prior convergence of euro zone labour market institutions.

The scheme would likely employ a claw-back principle, where budget funds spent on supporting unemployment spending in countries hit by asymmetric shocks would have to be repaid when the business cycle turns.

“The ambition is not to set out all the details, but to outline the direction of work and if there is agreement on the direction, then we can work on the details,” Dombrovskis said.

“It is no secret there are very different signals from different member states on this,” he said.

Under the plan of further euro zone integration, the new institutional setup should be ready by 2025, Dombrovskis said.

The European Union of all 28 countries already has a budget, equal to around 1 per cent of Gross National Income of the EU, or around 145 billion euros, spent mainly on supporting agriculture and the development of the bloc’s poorer regions. Reuters

Oil industry impact

U.S. businesses getting hammered by Venezuela crisis The country was once considered one of the juiciest markets for U.S. businesses Jean-Louis Doublet

The political and economic crisis in Venezuela is costing U.S. companies dearly, as General Motors can attest following the unexpected nationalization of its plant there.

The big auto-maker shut down its operations in Venezuela and laid off its 2,700 workers after the government on Wednesday seized the plant, which had been idle because of the chaotic market environment.

The group had been operating in the South American country for 69 years.

GM isn’t the only U.S. business to be walloped by Venezuela’s crisis.

Kimberly-Clark, a personal-care paper group, had its factory taken over last July, and posted a charge of US$153 million to deconsolidate its Venezuela operations.

Biscuit-maker Mondelez -- behind America’s well-known Oreo brand -also took a one-time charge of US$778 million to reconfigure its Venezuela operations as an investment in its accounts, to prevent them dragging the group’s earnings down. Although Mondelez products still sell in Venezuela, it’s unable to track sales.

Same story for Pepsi, which reported a US$1.4 billion loss last October from its Venezuela business.

A crude let-down

The conditions in Venezuela are a formidable challenge for any company, with hyperinflation, capital controls, political turbulence, mass demonstrations and consumers who have barely enough money to buy food and basic items.

The country was once considered one of the juiciest markets for U.S. businesses, boasting the biggest oil reserves in the world, a free-spending

middle class with a taste for American products, and proximity.

But a slump in global crude prices coupled with mismanagement has devastated the country’s economy.

And nearly two decades of Socialist rule by late president Hugo Chavez and his successor Nicolas Maduro have badly frayed ties with the U.S., which has halved the amount of Venezuelan oil it imports.

Venezuelan authorities regularly accuse Washington of being behind the unrest they are dealing with.

U.S. unease

U.S. Secretary of State Rex Tillerson is in an uncomfortable position, having been the boss of American oil giant ExxonMobil before becoming President Donald Trump’s diplomatic chief.

‘Venezuelan authorities regularly accuse Washington of being behind the unrest they are dealing with’ In 2014, the Venezuelan government was ordered by a World Bank disputes tribunal to pay ExxonMobil US$1.4 billion for nationalizing an oil field. But that ruling was overturned on appeal in March this year to the World Bank’s International Centre for Settlement of Investment Disputes.

ExxonMobil also plans to drill for oil in an offshore field in a zone that both Guyana and neighbouring Venezuela

lay claim to. The find is a source of friction between the two countries since 2015.

Another point of contention between Venezuela and the United States is Citgo, a network of gas stations in America owned by Venezuela’s state oil company PDVSA. U.S. lawmakers, especially former Republican presidential candidates Marco Rubio and Ted Cruz, have expressed concerns that the Russian oil company Rosneft might end up owning Citgo, which is based in Houston, Texas.

That stems from the fact that PDVSA put Citgo up as collateral for a corporate bond issue in December that Rosneft underwrote. If PDVSA defaults, Rosneft could demand Citgo as compensation.

“We are extremely concerned that Rosneft’s control of a major U.S. energy supplier could pose a grave threat to American energy security, impact the flow and price of gasoline for American consumers, and expose critical U.S. infrastructure to national security threats,” Rubio, Cruz and four other senators wrote in an April 10 letter to U.S. Treasury Secretary Steven Mnuchin.

Patience ‘wearing thin’

According to Matthew Taylor, an expert on Latin America at the Centre for Foreign Relations in Washington, the Trump’s administration policies towards the Venezuelan crisis seem to be the same as those of predecessor Barack Obama.

“The United States has imposed targeted sanctions against individual Venezuelans, including Vice President (Tareck) El-Aissami, but has wisely avoided the temptation to more directly and unilaterally confront the regime, allowing Latin America to lead,” he said in a blog.

“But patience is wearing thin in Washington.” AFP

Business Daily Monday, April 24 2017 15

Opinion

Will economic illiteracy trigger a trade war?

Portugal is a Keynesian mirage Ferdinando Giugliano a Bloomberg View columnist

T

hroughout the euro-zone crisis, the European Commission has been accused of imposing unnecessary austerity on countries in distress. Economists, particularly from the left, argued that tax hikes and spending cuts were self-defeating, as lower growth only makes budget targets harder to achieve.

The supporters of this view felt vindicated two weeks ago, when Portugal posted the best budget figures since becoming a democracy in 1974. Despite raising pensions and publicsector wages, the left-wing coalition government led by Prime Minister Antonio Costa announced a government deficit just below 2.1 per cent of gross domestic product.

The European Union had set Portugal a target of 2.5 per cent.

Keynesians shouldn’t celebrate too soon, however. The Portuguese fiscal miracle also reflected deep cuts in capital spending, to make up for a shortfall in tax receipts. So yes, the government boosted transfers and lowered the budget deficit -but at the cost of forgoing productive investment for the future.

According to data from the Portuguese Public Finance Council, Lisbon cut public investment by 28.9 per cent last year. Only 2.9 billion euros were spent on roads, hospitals, and suchlike. This is equivalent to a meagre 1.6 per cent of GDP, the lowest since at least 1995, and less than a third of the pre-crisis peak of 2010.

This collapse shouldn’t be blamed entirely on Portugal’s government. Funding from the EU for capital investment halved from 1 billion euros to 503 million euros. Yet the government did little to counter this decline.

Instead, it oversaw an increase of 1.4 per cent in current spending, as the total public-sector payroll climbed by 2.8 per cent and transfers increased by 1.1 per cent.

Overall, Portugal’s improving fortunes offer a heartening example for countries such as Greece that are struggling to leave behind years of crisis. But the Lisbon approach doesn’t amount to an alternative, left-wing model for sustainable growth. Portugal’s government is redistributing the fruits of this recovery, but failing to plant the seeds for a new crop. Bloomberg View

‘The Portuguese fiscal miracle also reflected deep cuts in capital spending, to make up for a shortfall in tax receipts’

N

early 100 days after U.S. President Donald Trump took office, he and his commerce secretary, Wilbur Ross, continue to commit an economic fallacy that first-year economics students learn to avoid. They claim that America’s current-account deficit (or trade deficit), which is in fact the result of America’s low and falling saving rate, is an indicator of unfair trade practices by Germany and China, two currentaccount surplus countries. Their embrace of economic ignorance could lead to disaster.

The current-account balance, measuring the balance of trade in goods, services, net factor income, and transfer payments from abroad, is equal to national saving minus domestic investment.

That’s not a theory. It’s an identity, save for any statistical discrepancy between gross national product (GDP) and gross national income (GNI).

It’s true whether you are liberal or conservative, populist or mainstream, a Keynesian or a supplysider. Even Trump and all his deal making can’t change that. Yet he is threatening a trade war because of deficits that reflect America’s own saving-investment imbalance.

A country runs a currentaccount deficit if investment exceeds national saving, and runs a surplus when investment is less than national saving. For a country with a balanced current account, a deficit can arise if its investment rate rises, its saving rate falls, or some combination of the two occurs.

Suppose that the U.S. is trading with foreign countries that maintain protectionist policies.

If these countries liberalize their trade regimes, they will tend to import more U.S. goods that compete with their own industries. The size of the import-competing sectors will then shrink, freeing up workers and capital to increase output in export sectors. As exports rise, so will the foreign-exchange earnings that pay for the higher import bill.

Suppose, conversely, that the U.S. imposes new import barriers in response to its current-account deficit. These import barriers would pull workers and capital into import-competing sectors and away from export sectors, roughly leaving the U.S. trade balance unchanged while lowering national income and average living standards. The trade deficit could fall if the import barriers were in the form of trade taxes that lowered the budget deficit (thereby raising government saving) but that effect would work through the budget, not through trade policy per se.

There is no particular reason why a reduction of foreign trade barriers or an increase in U.S. trade barriers would have any first-order effects on the U.S. saving and investment rates, and therefore

“

Jeffrey D. Sachs Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and the UN Sustainable Development Solutions Network

on the U.S. current-account balance. To reduce its current-account deficit, the U.S. must either save more or invest less in its economy.

It’s not hard to see why the U.S. runs chronic current-account deficits. The U.S. national saving rate – the sum of private saving plus government saving, measured as a share of GNI – has declined markedly during the past 30 years. Most of the decline in the U.S. saving rate is due to a decline in the government saving rate.

Government in the U.S. (federal, state, and local) is a net dis-saver, meaning that current outlays (for consumption, interest payments on the public debt, and transfers) exceed revenues, currently by around 2 per cent of GNI. This is not surprising. The lion’s share of the problem is at the federal level.

Every president since Ronald Reagan has promised “middle-class tax cuts” and other tax breaks, undermining revenues and leaving the federal budget in chronic deficit. Democratic presidents favor the supposed Keynesian “stimulus” of tax cuts, while Republicans champion their alleged “supply-side” effects.

Both the Democratic and Republican parties are practitioners of populism, American-style: they repeatedly cut taxes, increase the public debt (which doubled from 35 per cent of GDP in 2007 to 74 per cent of GDP at the end of 2015), and generally blame somebody else for the slow U.S. growth that arises from low saving and investment rates. Now it’s the turn of China and Germany to be in U.S. leaders’ crosshairs.

America’s trade and budget imbalances could soon get a lot worse if Trump and congressional Republicans get their way in cutting federal taxes still further. This would be a ruinous fiscal policy, yet perhaps a popular one in the short term – before the economic bills start coming due. With a larger budget deficit, America’s current-account deficit would soar as well, just as it did when Reagan’s tax cuts expanded the federal budget deficit sharply in the early 1980s. One can imagine that the rising trade deficit would then lead to even more outlandish claims by Trump and his officials about alleged Chinese and German trade perfidy.

Americans should not allow themselves to be fooled. The emperor has no clothes, imported or domestic; and, apparently, he has no competent economic advisers, either. Project Syndicate

To reduce its currentaccount deficit, the U.S. must either save more or invest less in its economy

”

16 Business Daily Monday, April 24 2017

Closing IMF

Mnuchin sweetens America First as chance for better world growth His first foray into global policy making last month in Baden-Baden, Germany, was marked by an inability to agree on trade language Jeff Black, Andrew Mayeda, Enda Curran and Eric Martin

D

onald Trump’s America First doesn’t necessarily leave the global economy last.

After three months of agonizing by policy makers over what the U.S. president’s combative policy stance would mean for trade and economic stability in the rest of the world, Treasury Secretary Steven Mnuchin is now sending a reassuring message to his counterparts: What works for us can help you too.

“Sustained U.S. economic growth is good for global growth,” Mnuchin said Saturday during a discussion with International Monetary Fund Managing Director Christine Lagarde in Washington. “If we can grow the U.S. economy, that’s not just good for the U.S. worker, that’s good for international growth and it creates opportunities. So that’s what we’re focused on, and if we do a good job, that can carry over in the spillover.”

That’s a new tone for an administration which has pledged to rebalance global commerce in its favour, repatriate American manufacturing jobs and right the wrongs it sees as emanating from the current World Trade Organization-centred system.

And facing political risks to business confidence and output in Europe and Asia, global finance chiefs attending the IMF and World Bank spring meetings in Washington this week were ready to smooth over conflicts with the leaders of the world’s largest economy.

Free, fair

“Everybody is in line that we need free and fair trade,” Mexican central bank governor Agustin Carstens said in Washington on Saturday. He echoed Italian Finance Minister Pier Carlo Padoan, who put differences over trade barriers that just a month ago stymied a Group of 20 meeting in Germany down to a matter of

IMF Managing Director Christine Lagarde (C, back) talking to IMFC members at the IMF Headquarters in Washington. Lusa

linguistics.

The IMF’s steering committee adopted the position on trade taken by the G-20 last month in an effort to accommodate the U.S., which is considering how far to go in fulfilling the president’s campaign pledges to impose tariffs and reshape international accords. That meant that a previous commitment to avoid “all forms of protectionism” was excised from the group’s common statement.

Still, that doesn’t mean America and the rest of the world are on a collision course, according to Padoan.

“I can assure everybody that at the meetings we had these past days, the general mood is that there is no way protectionism should increase, and this attitude may be with different nuances in the language shared by all members,” he said at a press briefing.

Reciprocal deals

Mnuchin channeled Trump’s intentions on trade, and joked about the number of bilateral meetings he’s had in the two international policy meetings he’s attended since taking office.

“The president believes in reciprocal trade deals, and reciprocal free trade,” he said. “If our markets are open, there should be a reciprocal

Real estate

nature to other people’s markets.”

Mnuchin’s first foray into global policy making last month in BadenBaden, Germany, was marked by an inability to agree on trade language.

Now, he said, he feels “much more comfortable” in his new role.

Still, while delegates at the IMF expressed less concern about the Trump administration’s intentions, a few said there’s still no clear direction. A mooted border-adjustment tax that raised greatest alarm among global partners hasn’t been fleshed out yet, and a probe into steel imports announced this week could yet raise tensions with China, the world’s biggest producer of the metal.

“I don’t think it’s clear to anyone at this point” what trade policies Trump will pursue, Philippine central bank governor Amando Tetangco said.

France’s Michel Sapin also pleaded for more clarity.

“We’re hoping they’ll move in a rational manner from slogans to arguments and from arguments to decisions that will allow us to see where the American government wants to go,” he said.

French elections

Political risks to the global economy still loom elsewhere, most

Insurance

immediately in France where the first round of a presidential election took place yesterday. The prospect of anti-euro candidate Marine Le Pen advancing into the second round prompted European Central Bank officials to sound reassuring noises on their readiness to soothe potential market turmoil.

“The central bank should be ready for any shocks that should materialize,” Governing Council member Ignazio Visco said at a press conference Saturday.

After a year in which the world was rocked by the UK's decision to leave the European Union and Trump’s election, some delegates are trying to focus on what’s actually an improving global economy -- even as it still faces risks including conflict on the Korean peninsula or a fragmentation of the euro.

Mnuchin called the IMF’s outlook for the U.S. economy a “little conservative” as he repeated Trump’s goal of getting to growth of 3 per cent or more.

“We hope that this is the beginning of a new growth cycle,” Australian Finance Minister Mathias Cormann said in an interview in Washington.

“It’s early days in terms of the U.S. administration.” Bloomberg News

Trade

Shanghai property market cools, Beijing vows greater scrutiny prices to be stable in 2017 of insurers in risk crackdown

China exports record diesel volumes in March

Home prices in China’s financial hub of Shanghai will remain stable in 2017, as cooling measures have taken some heat out of the market, housing authorities were quoted as saying yesterday.

Property prices have soared in China’s biggest cities such as Shanghai and Beijing since last year, prompting regulators to step up control to rein in the market to avoid a crash.

Shanghai’s price trends are stabilising as property overheating has been contained after a slew of cooling measures introduced in March and October last year, state news agency Xinhua said, citing Gu Jinshan, director of the Shanghai housing bureau.

Gu said Shanghai has given priority to demand from genuine buyers instead of speculators, and cracked down on market irregularities.

A city-based property control approach endorsed by the central government had set “an important foundation” for stabilising price trends in the city, Gu added.

Authorities have been careful to not correct the property market too hard as they have refrained from drastic blanket measures such as increasing interest rates. Reuters

China exported record volumes of diesel in March and boosted sales of gasoline and kerosene as refiners continued to turn to foreign markets to offload their excess product, while liquefied natural gas imports also jumped, customs data showed yesterday.

Diesel exports jumped 53 per cent to 1.91 million tonnes, data from the Chinese customs authority showed, outpacing the previous record of 1.78 million set in December.

Gasoline exports rose 25 per cent in March compared with the same month a year earlier to 840,000 tonnes, but were down 21 per cent from February.

The high monthly shipments led to big increases in the first quarter and will reinforce concerns that China, one of the world’s top energy markets, is contributing to a fuel overhang as refiners churn out more products like gasoline and diesel than the market can absorb.

China became a net exporter of fuel products in late 2016.

LNG imports totalled 1.99 million tonnes in the month, up 18 per cent year-on-year but down 19.5 per cent from February and the lowest monthly total since October last year. Reuters

China’s insurance regulator said yesterday it will ramp up its supervision of insurance companies to make sure they comply with tighter risk controls and threatened to investigate executives who flout rules aimed at rooting out risk-taking.

The China Insurance Regulatory Commission said in a notice on its website it had told companies to strengthen controls in 10 areas, including liquidity risk and capital management, and implement 39 measures to stamp out risky investments and behaviour.

It did not specify what those 39 requirements are.

The statement is another show of resolve by Beijing in its latest efforts to tackle risk in the financial system in the world’s second-largest economy. On Thursday, the regulator called on insurers to strengthen supervision of investment activity and correct market disorder.

Some insurers have taken sizeable stakes in market-listed companies in recent years, often funded by the issuance of high-yield, short-term universal life insurance and other investment products. Reuters