Business Daily #1224 February 1, 2017

Society not ready for B&B concept, says Secretary Tam Hospitality Page 4

Wednesday, February 1 2017 Year V Nr. 1224 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Transit

Traffic fines up; Uber contributes to over 1 million infringements Page 2

Gaming

Edward Tracy to lead Hard Rock’s new Japan division Page 7

www.macaubusinessdaily.com

Currencies

Tobacco impact

Trump’s kickoff spurs weakest dollar since 2008 Page 14

Study reveals smoking globally costs US$1.4 trillion Page 16

Craving Korea Tourism

Nearly half a million people visited the MSAR during CNY weekend.

Over half came from the Mainland - although 23.4 pct fewer visited the MSAR on package tours in 2016. South Korean visitation increased 14 pct y-o-y. While outbound residents on package tours rushed to Korea, stealing numbers from the Mainland and Taiwan. Page 2

Trading places

External merchandise trade deficit hit MOP6 bln as at December. Exports of MOP753 mln fell 16 pct y-o-y.

Imports fell 2.9 pct, to MOP6.7 bln in the period. Principal destinations were Hong Kong, the Mainland and the Philippines.

The highest export increase was to Portuguese-speaking countries, up nearly 600 pct.

VIP bounce-back

Gaming Local gross gaming revenues.

Expected to undergo largest y-o-y increase since 2013, say analysts. A recovery of nearly 10 pct y-o-y could be driven on a VIP increase. Which could overtake mass again, at 53 pct of the total. CNY is driving healthy revenue estimates. Page 6

Hong Kong prices nudging Monaco

Trade Page 3

HK Hang Seng Index January 26, 2017

23,360.78 -13.39 (-0.06%) Worst Performers

Power Assets Holdings Ltd

+2.83%

Cathay Pacific Airways Ltd

Sands China Ltd

-1.71%

Belle International Holdings

-0.83%

Want Want China Holdings

+2.77%

Galaxy Entertainment Group

+0.95%

China Mengniu Dairy Co Ltd

-1.35%

China Construction Bank

-0.68%

Cheung Kong Infrastructure

+2.12%

Hang Seng Bank Ltd

+0.89%

PetroChina Co Ltd

-1.27%

CNOOC Ltd

-0.61%

CK Hutchison Holdings Ltd

+1.25%

MTR Corp Ltd

+0.76%

China Petroleum & Chemical

-1.11%

Bank of China Ltd

-0.56%

Bank of East Asia Ltd/The

+1.22%

Hong Kong & China Gas Co

+0.69%

AAC Technologies Holdings

-1.11%

Wharf Holdings Ltd/The

-0.43%

+1.15%

16° 21° 17° 20° 17° 19° 17° 19° 16° 22° Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Property The shopping spree continues.

Mainland firms are zeroing in on Hong Kong real estate. Chinese companies acquired almost a third of all the land sold for development during the 2015-2016 period. Propelling local luxury property prices into the stratosphere. Page 8

2 Business Daily Wednesday, February 1 2017

Macau Politics

Entry denied

Raymond Chan Chi-chuen, a member of the Hong Kong Legislative Council and Chairman of the radical democratic political coalition People Power, was denied entry to the MSAR during the Chinese New Year holiday, Hong Kong based media HK01 reported. Chan was refused entry

to the MSAR due to a perceived “threat to internal security and stability.” According to HK01, Chan criticized the MSAR authorities for not having a uniform standard for the blacklist, saying that his visit in Macau was planned after his party’s co-worker Christopher Lau Gar-hung had succeeded in entering the city.

Tourism Visitors during this year’s three-day Chinese New Year holiday period reached almost half a million

More and more Hotels and guesthouses in the MSAR saw a 13.6 per cent yearly increase in guests to reach 12 million in 2016 while package tour visitors decreased 23.4 per cent y-o-y at 7.54 million Nelson Moura nelson.moura@macaubusinessdaily.com

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lmost 500,000 people visited the MSAR during the Chinese New Year holiday period between January 28 and 30, of which 264,000 came from Mainland China, according to data provided to Business Daily by the Public Security Police Force (PSP).

Meanwhile, according to data provided by the Statistics and Census Service (DSEC) visitors on package

tours for the whole of 2016 decreased 23.4 per cent at 7.5 million.

Of the total, Mainland China continued to be the main source of package tour visitors - with almost 6 million visitors - despite a considerable 26.2 per cent year-onyear decrease.

Beyond Mainland China, Taiwan and the Republic of Korea were the main sources of package tour visitors despite Taiwan seeing a 21.3 per cent year-on-year decrease in 2016 at 427,000. The Republic of Korea posted a large yearly increase of 14.1

per cent, hitting 371,000 visitors for package tours throughout the year.

The largest increase in visitors in 2016 was registered by Thailand, posting a 14.5 per cent year-onyear jump to 140,700 visitors, while Malaysia registered the largest decrease with a 32.4 per cent drop to 58,700.

In December 2016, the number of package tour visitors reached 706,000, a 2.6 per cent year-on-year decrease from the same month in 2015.

Less work for travel agencies

In the whole of 2016, outbound residents utilising travel agency services decreased 14.3 per cent to 1.25 million. Residents travelling to Mainland China via these services registered a total of 648,600 in 2016, a 27.4 per

cent yearly decrease from 2015.

Outbound trips to Hong Kong registered a small 1 per cent yearly decrease in 2016 amounting to 238,100, while residents visiting Taiwan increased by 4.2 per cent to reach 144,800.

The Republic of Korea and Japan saw their popularity as travel agency destinations surge as at the end of 2016, with the number of residents travelling to Korea increasing by almost 100 per cent year-on-year to 74,000 and visitors to Japan rising 31.2 per cent year-on-year to 51,800.

More hotel rooms, more guests

As at the end of 2016, the number of hotels and guesthouses operating in Macau was 107 with the number of guestrooms increasing by 4,000 to 36,000 rooms. The increase in the number of rooms was primarily attributable to the 3,000-room increase in 3-star hotels, but guest rooms of 5-star and 4-star hotels still accounted for 81.3 per cent of the total number of rooms.

The increase in the number of rooms seemed to accompany the increase of guests at hotels and guesthouses, with 12 million guests registered in 2016, a 13.6 per cent yearly increase.

Mainland China guests in hotels and guesthouses increased by 12.8 per cent year-on-year in 2016 to reach 7.6 million while Hong Kong saw the number of guests increase 17.8 per cent to 1.78 million.

The Republic of Korea registered the largest increase of guests in the MSAR in 2016 with a 34.3 per cent yearly jump to 304,400, followed

by Taiwan with a 24.7 per cent rise to 477,200.

The average occupancy rate in 2016 grew 1.8 percentage points to 83.3 per cent, with 4-star hotels seeing the highest occupancy rate at 86.3 per cent.

Traffic

Tickets galore The arrival of Uber services in Macau helped the number of illegal transport service infractions grow by 260 per cent in 2016 as overall traffic and road infringements exceeded 1 million A r o u n d 1 , 287 i n f racti o n s f o r t ra n s p o rt s e rvi c es w i th o u t a permit - which includes carsharing application Uber - were registered in 2016, a considerable 260 per cent yearly jump from the previous year, while taxi-service related infractions decreased 18.2 per cent to 4,125 cases, according to data provided by the Public Security Police Force (PSP).

More than 1 million infractions of the MSAR traffic law and regulations

were registered in 2016, a 32.1 per cent yearly increase, of which illegal parking infractions represented almost 94 per cent of the total, with a considerable 34.8 per cent yearly increase from the previous year.

A total of 14,353 infractions for speeding in public lanes were registered in 2016, which represented a 24.2 per cent decrease from the previous year. However, speeding infractions on the Nobre de Carvalho Bridge - where only public buses and

taxis can drive - saw a considerable surge from 6 infractions in 2015 to 319 infractions in 2016.

The locking of illegally parked vehicles in areas with parking meters decreased by 2.5 per cent to 8,872 while vehicles locked for illegal parking in public lanes increased by 6 per cent year-on-year to 2,520.

A total of 619 vehicles were removed for illegal parking in public lanes, while no information was provided on vehicles removed from paying parking spots.

Around MOP207 million (US$25.9 million) was collected for traffic violation fines in 2016, a nearly 14 per cent yearly increase from the previous year, as reported by Business Daily previously.

The latest data indicates that an average of four fines were handed out for each of the 250,871 vehicles

registered in the MSAR as at the end of 2016, with an average of MOP824 demanded per vehicle. N.M.

Business Daily Wednesday, February 1 2017 3

Macau

Trade

Commerce slowing The MSAR closed its external merchandise trade in December 2016 with a MOP6 billion deficit.

Although it exports less, the MSAR’s commercial exchanges with Portuguese-speaking countries, while still low on the account, scored high Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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he v a l u e o f t o t a l merchandise exports from the MSAR for December 2016 fell 16.1 per cent year-on-year, amounting to MOP753 million, as compared to the MOP898 million registered for the same period in 2015, according to the latest data released by the Statistics and Census Services (DSEC).

The value of re-exports (MOP597.4 million) and domestic exports (MOP155.7 million) also underwent year-on-year decreases, of 17.1 per cent and 12.2 per cent, respectively.

On the imports side, trade reached MOP6.78 billion, down 2.9 per cent

from December 2015 (MOP6.98 billion) although less than the 22.4 per cent year-on-year plunge observed between December 2014 and December 2015.

In December 2016, the MSAR merchandise trade deficit amounted to MOP6.03 billion, similar to that of December 2015 (MOP6.08 billion). The trade deficit was more consequential in the fourth quarter of 2016, totalling MOP17.30 billion. The MOP2.31 billion total value of merchandise exports and the MOP19.61 billion total value of merchandise imports registered during the fourth quarter both represented year-on-year declines, of 8.7 per cent and 7.3 per cent, respectively.

For the whole of 2016, the MSAR’s

external merchandise trade totalled MOP81.39 billion, down 14.6 per cent when compared to 2015 (MOP95.36 billion). The merchandise trade deficit totalled MOP61.31 billion in 2016.

In 2016, the total value of merchandise exports reached MOP10.04 billion, dipping 6 per cent from the MOP10.69 billion posted for the whole of 2015.

Places and goods

T h e c i t y ’ s p r i n c i p a l ex p o r t destinations were Hong Kong (55.3 per cent), Mainland China (17.4 per cent) and the Philippines (2.9 per cent). The primary origins of its imports were Mainland China (36.2 per cent), Hong Kong (8.7 per cent) and France (7.9 per cent).

Ex p o rts t o M ai n l a n d Chi n a decreased 4.7 per cent year-on-year to MOP1.75 billion, of which exports to the nine provinces of the Pan Pearl River Delta fell 7.4 per cent (MOP1.64 billion). Exports to the European Union (EU) and the United States fell by 22.7 per cent (MOP175 million)

and 20.6 per cent (MOP156 million), respectively.

The highest amount was recorded by exports to Portuguese-speaking countries, which jumped 594.6 per cent to MOP6 million.

Merchandise imports from Mainland China and the EU in 2016 decreased by 18.9 per cent (MOP25.84 billion) and 9.6 per cent (MOP17.03 billion) respectively, year-on-year.

Meanwhile, imports from Portuguese-speaking countries increased 10.7 per cent (MOP666 million).

Exports of non-textiles declined by 5.1 per cent year-on-year (MOP9.36 billion), while exports of textiles and garments declined by 16.8 per cent (MOP691 million). The value of exports of tobacco and wine (MOP832 million) grew 35.6 per cent.

Imports of consumer goods dropped 11.5 per cent to MOP44.74 billion, with the import of watches (MOP4.78 billion) and motorcars and motorcycles (MOP1.33 billion) decreasing 23.3 per cent and 53.5 per cent, respectively.

The value of imports of fuels and lubricants (MOP6.11 billion), mobile phones (MOP4.79 billion) and construction materials (MOP1.96 billion) declined 11.4 per cent, 40 per cent and 37.7 per cent, respectively.

4 Business Daily Wednesday, February 1 2017

Macau Opinion

José I. Duarte*

Looking back The Year of the Rooster has just begun. The signs are encouraging, leading people to believe the economy is coming out of a severe downturn. At least, the worst of the crisis seems to be over. For many years, many might be forgiven for (really) thinking that the sky was the limit. Still, it was inevitable that sooner or later reality would re-introduce itself in the picture.

It did, and earlier growth expectations were shattered. A new confidence is building but it would be wise to be more guarded.

Extraordinary changes happened in the last twelve years. On the previous Rooster visit, who would have guessed how different things would look today?

Then, the first casino of the new era, as it were, had just been operating for a few months. Most of those that came later were still on the drawing board. How different does the beginning of 2017 look compared to the start of 2005?

The population increased fast, at about 2.8 per cent per year, on average. If sustained, such an average rate would mean the doubling of the population in just about one generation. By demographic standards that is very fast – if not too fast!

Most of the rise was the result of a growing number of non-resident workers.

The workforce increased by about three-quarters in the same period – it could double in just about 15 years!

The number of casinos and hotel rooms (not to mention other associated facilities) rose even faster, well before our eyes. At the end of 2016, the revenues generated by gambling had increased more than fivefold, driving a remarkable growth of GDP and GDP per capita. Hotel rooms, all categories included, rose more than fourfold; in the top layer, 5-star hotels, the same figure stood six times above the one recorded by the end of 2005.

Due to changes in accounting methodology, the direct comparison between the number of visitors at the beginning and end of this cycle is not possible. However, the figure is currently oscillating at or above a mind-bending average of 2.5 million every month – which almost looks unexceptional nowadays.

We could go on. Whatever indicators we use, the changes they point to are often stunning. As we start a recovery, it is important to take stock of what came before. And realise the landscape has changed; the future is unlikely to be just a reenactment of the past. *economist and permanent contributor to this newspaper.

Hotels

Secretary Tam: B&B would raise issues

T

he Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, said on Sunday that residents perceive that the operation of family hostels or bed & breakfast would produce issues.

Regarding the results of a survey conducted by the Macao Government Tourism Office (MGTO) earlier this month, Secretary Tam pointed out that Macau has less space compared to other regions, which limits the development of family hostels in the city.

The survey conducted by MGTO reveals that Macau residents’ intention of developing family hostels in the city has dropped slightly from over 62 per cent in 2014 to 61 per cent last year, while the proportion of neutral responses increased from 42 per cent in 2014 to 84 per cent in 2016.

MGTO notes that the increase is ‘mirroring the downturn in the degree of public concern nowadays compared with two years ago.’ In particular, regarding land availability, less than half of the surveyed residents ‘agreed that family hostels can be built in reconstructed residential premises or upon urban lands designated for residential purposes, suggesting the general concern about change of land use,’ note the results. Some 42 per cent of the surveyed residents agreed, a 4 per cent drop from those surveyed in 2014.

Tam said that, as also stated in MGTO’s press release, the drop in society’s support for the development of family hostels is also triggered by the need to produce more and new policies and measures, couched in the report as ‘residents laid more stress on the necessity of government

regulation,’ seeing an increase from 28 per cent to 41 per cent in surveyed residents, in 2014 and 2016, respectively.

The Secretary revealed that the city had once accommodated different villa-style hostels in years gone by but operations were halted due to the enforcement of new regulations.

Secretary Tam perceived that the current supply in hospitality, with the presence of budget, 1-star, 2-star and 3-star hotels, is enough to accommodate the city’s demand for hotels.

The results of the survey indicate that ‘it has not yet become mainstream in society for residents to support the development of family hostels in their own neighbourhoods,’ due to concerns about ‘public safety, environmental hygiene, traffic conditions, and so on’. C.U.

Minimum wage

CE: Confident in establishing minimum wage The MSAR Chief Executive (CE) Fernando Chui Sai On stated that the government is confident it will be

able to establish a minimum wage for all industries by 2019.

The CE said the government is

Arson

Nam San blaze: Authorities suspect foul play Authorities suspect that arson could be the cause of a fire that destroyed seven motorcycles and damaged six others, according to local news broadcaster TDM. The fire, occurring in Taipa next to the Nam San building blocks across from the Jockey Club, started around 4:00am on Tuesday, according to authorities, who suspect foul play and have

passed the case to Judiciary Police.

No-one was injured during the blaze and none of the surrounding residential buildings were evacuated.

This new potential arson case comes after about a month ago a discarded cigarette butt caused nearly 100 motorcycles to go up in flames in the Areia Preta region of Macau, near the border gate.

currently focusing its attention on evaluating the effectiveness of establishing a minimum wage after the introduction of a minimum wage for security guards and property cleaners, affirming that the government will propose a minimum wage for all sectors to the Legislative Assembly (AL) within a reasonable period of time in order to provide an adequate amount of time for the Assembly to deliberate.

He reiterated the intentions of the MSAR Government to introduce a minimum wage system, stating, however, that the government should respect the [wishes of the] Legislative Assembly as well as co-ordinating with the work of its members. C.U.

Business Daily Wednesday, February 1 2017 5

Macau Heritage

Scuttling Coloane’s shipyards Government to demolish 11 shipyards in Coloane in the first half of this year

T

he government will start demolishing 11 shipyards near Coloane Village at risk of collapsing as soon as March of this year, the Director of the Marine and Water Bureau, Susana Wong, told local broadcaster TDM. The demolition process is to start with two shipyards in more serious condition, with the remaining

buildings to be torn down “gradually” with all demolitions expected to be completed in the first half of 2017, said the Marine and Water Bureau Director.

According to Wong’s statements, the “required administrative procedures” for the demolitions have been finished and suppliers will be “invited” by the Bureau for the process.

After a shipyard collapsed in April

2016 the government cancelled the licences of 11 shipyards in Coloane, conducting inspections on their general condition. Of the inspected shipyards, only four were considered to be in condition to continue operations, three of which are expected to be developed into cultura3 and creative

areas by the Cultural Affairs Bureau.

With regard to the use planned for the land once the shipyards are demolished, Ms. Wong stated that it was up to the Land, Public Works and Transport Bureau (DSSOPT) to decide its “future development and functions.” N.M.

Crime

Counterfeit currency scheme uncovered The city’s Judiciary Police (PJ) have arrested a man for his involvement in a counterfeit currency scheme, according to local broadcaster TDM Radio. Police authorities revealed that

the notes in question are U.S. dollars, saying that the arrested man had exchanged HK$54,000 for 80 US$100 dollar bills (HK$62,074) with another individual. According to TDM, a total of 100 banknotes are believed to have been exchanged for other currencies.

Surveillance video provided by local casinos identify the same individual wandering around other casinos in Macau, said PJ spokesperson Choi Ian Fai. The suspect was arrested whilst trying to cross the border in Macau, and later allegedly revealed that he had swapped the notes on behalf of other individuals. The suspect added that more notes are being readied for transit from Mainland China. The PJ are currently tracking the source of the counterfeit currency. C.U.

Economy

Uncertainties persist The MSAR is set to be affected by, and challenged by, worldwide uncertainties, the Macao Chamber of Commerce president, Ma Ian Lai, commented while speaking on TDM Radio programme Macao Forum, as reported by local broadcaster TDM Radio News.

Despite the unstable international environment, president Ma perceives that the city’s economy will stabilise under the scrutiny and mobilisation of the city’s population and the guidance of its Chief Executive.

Ma remarked that the city’s business environment will steady in the year ahead, further expressing his hope that employers will continue adjusting workers’ salaries according to company performance. C.U.

6 Business Daily Wednesday, February 1 2017

Macau

Results

A prosperous year Gaming industry players see upticks for 2017, with an emerging strength in VIP Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com

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evenues for local gross gaming revenues are expected to undergo their largest year-on-year increase on record since 2013 this year, according to predictions by Deutsche Bank analysts. The group estimates an overall recovery of 9.8 per cent year-on-year, as opposed to 2016’s 3.3 per cent year-on-year drop and the previous year’s 34.3 per cent drop.

The data also predicts that for the year revenues will go back to being driven by the VIP segment, making up 53 per cent of overall revenues, and reaching US$16.44 billion (MOP131.36 billion). This would imply 10.4 per cent year-on-year growth on the US$14.88 billion made off the sector in 2016.

Mass revenues are expected to reach US$14.23 billion for 2017, according to the analysts, with 9 per cent increase year-on-year, a marked improvement on the 1.2 per cent growth year-on-year growth seen in the sector the previous year, and miles from the 26 per cent year-onyear loss the sector saw in 2015.

In total, gross gaming revenues for the year are expected to reach US$30.67 billion in 2017, while those in the following year are predicted to undergo a 6.4 per cent year-on-year increase, reaching US$32.64 billion.

Estimates are for year-on-year VIP growth to halve to 5 per cent while that of mass continues grow, at 8.1 per cent year-on-year increases in revenue, with VIP continuing to lead revenues, at US$17.26 billion, as opposed to mass’ US$15.38 billion.

Kick-off

Results for the first month of 2017 are estimated to put the month up 7 per cent to 10 per cent compared to last year’s gross gaming revenue results, with Aegis Capital analysts predicting revenue up until January 29 reaching MOP18.3 billion. Analysts at Wells Fargo note a similar range, anticipating around 7 per cent to 9 per cent growth ‘in January/February.’

The group notes that ‘Chinese New Year visitors [are] tracking up yearon-year,’ with analysts at Aegis Capital pointing out that the holiday drove ‘higher bet limits as well as strong visitation and occupancy over last weekend.’

Wynn

Wynn Macau’s parent company, Wynn Resorts, experienced results for the fourth quarter of 2016 that

‘exceeded low expectations,’ according to analysts at Wells Fargo, noting that the group had reported ‘its best result in eight quarters.’

‘The beat was clean, and driven by a solid increase in market share, slightly higher opex (operational expenses) […] it’s clear Wynn is benefitting from the rebound in the VIP market and that the Palace has started ramping,’ note the analysts.

The group’s property EBITDA (earnings before interest, taxation, depreciation and amortisation) was 7 per cent above street, hitting US$226 million and driven by ‘higher than expected market share, inline promotions and discounts quarter-to-quarter, higher than expected non-gaming revenues, and slightly higher opex,’ note the analysts.

The group also points to a positive of removal of construction barriers that have disrupted access to the property, noting Wynn ‘Palace is currently surrounded on all four sides by construction.’

According to Wynn Macau’s filing with the Hong Kong Stock Exchange, the group saw a 10.7 per cent decrease in casino revenues in Wynn Macau in the fourth quarter of 2016, hitting US$498.4 million. The group’s property EBITDA also dropped 7 per cent year-on-year in the quarter to US$148.9 million. Table games drop in VIP fell 17.2 per cent year-onyear, while mass dropped 7.5 per cent year-on-year.

Non-gaming revenues were 14.6 per

cent down year-on-year to US$75.6 million, with room revenues for the property falling 16.9 per cent and the average daily rate (ADR) undergoing an 18.9 per cent decrease.

Wynn Palace, however, saw its first full quarter of data, showing that casino revenues hit US$373.2 million in the fourth quarter. VIP turnover was US$10.33 billion, while mass market drop was US$725 million.

Non-casino revenues for the Palace hit US$86.1 million in the quarter, while occupancy stood at 88.4 per cent in the quarter.

‘While impressive, we believe Palace results are likely hold driven, as can happen over short durations, and as such, expectations around first quarter 2017 EBITDA results should be tempered,’ note analysts at Deutsche Bank.

The analysts note that the Palace’s mass market share rose to 5.5 per cent, from 1.9 per cent in the third quarter of last year, while the property’s VIP market share was 6.6 per cent, as opposed to 3.4 per cent in the previous quarter.

‘We’ve consistently noted over the past two months that Wynn is highly leveraged to VIP and that the VIP segment has been accelerating and driving Macau market growth,’ said analysts at Wells Fargo, commenting that the operator’s management had stated that the VIP “outlook is promising” with “sustained” strength over the last two months.

Analysts at Telsey say VIP results for the quarter were ‘higher’ than expected, while mass market drop was ‘modestly lower’ than predicted.

Total revenues for Wynn Resorts in

the fourth quarter reached US$1.03 billion, a 37.3 per cent increase yearon-year, according to the group’s filing, while the net income attributable to Wynn Resorts reached US$113.8 million, a 30.5 per cent year-on-year increase in the quarter.

Melco

According to analysts at Aegis Capital, Melco Crown Entertainment has seen improvements in its local properties as well as its overseas operations, following trends seen throughout the market.

‘We believe City of Dreams has benefited from continued market improvements in the premium mass and VIP segments [and] benefited from the phased opening of new retail,’ note the analysts.

Predictions by Wells Fargo place Melco’s full-year 2016 total revenue at US$4.52 billion, with most – US$2.56 billion – contributed by the group’s City of Dreams operation.

Predictions for revenue increases in 2017 estimate a 5.4 per cent year-onyear increase in total revenue, including the group’s overseas operations, to US$4.76 billion, while seeing only a 0.9 per cent year-on-year increase in the group’s City of Dreams operations in the same period.

Of note, the group’s Manila operations are ramping quickly, with analysts at Aegis pointing to ‘both VIP rolling chip and mass drop up over 30 per cent year-on-year at City of Dreams, Manila driven by overall market strength and junket utilisation.’

Analysts at Wells Fargo are predicting a 58.3 per cent year-on-year increase in net revenue for the Manila operation for full-2016, with a reduced 5.26 per cent increase yearon-year increase in net revenue for full-2017, reaching US$500 million.

Business Daily Wednesday, February 1 2017 7

Macau Gaming

Betting on experience Hard Rock International appoints former CEO of Sands China Ltd. as CEO of its recently launched Japan division Nelson Moura nelson.moura@macaubusinessdaily.com

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ormer CEO of Sands China Ltd., Edward Tracy, has been appointed CEO of Hard Rock Japan LLC, the newly launched Japan division of the hotel and gaming group Hard Rock International, according to a company release.

“As the former CEO of Sands China Ltd. and CEO of the Trump Organization, Tracy brings more than 30

years of proven gaming, hospitality and integrated resort experience to Hard Rock,” Jim Allen, chairman of Hard Rock International, stated in the release.

Hard Rock International currently owns six Hard Rock Cafe establishments in Japan and Tracy’s appointment is described as an attempt to ‘support the company’s growth plans in the region.’

The move comes after the Japanese Government approved an Integrated Resorts Promotion Bill, which will allow the development and exploration of gaming integrated resorts in designated areas of Japan.

According to the release, Hard Rock International will use its ‘expertise and recognition’ created by its 24 hotels and 11 casinos worldwide to assist in becoming a ‘major contender among the bidders for resort licences’

with Tracy’s experience in the sector seen as an advantage for the group’s intentions in the country.

Prior to his current appointment,

Tracy worked in roles including CEO of Sands China between 2011 and 2015, and as President and CEO of Trump Organization, an investment and venture conglomerate founded and previously owned

by United States President Donald Trump. N.M.

Growth

SJM: Rooster to outperform Monkey Executive Director and CEO of local gaming operator Sociedade de Jogos de Macau (SJM) Dr. Ambrose So expects the Year of the Rooster, which begun on January 28, to bring “renewed growth and prosperity” after more than two years of decline in gaming revenues.

The comments came during SJM’s annual New Year dinner at the Grand Lisboa casino-hotel in which Dr. So recalled how the gaming industry at the beginning of last year followed the “descending trend that marked the two previous years” but that at the end of 2016 there was “a refreshing restart of some growth” - referring to the increases in casino revenues, for the first time in 26 months, in August.

“The market needs to wake up, and the rooster arrives really on time

for that. As everybody knows, the rooster is the alarm clock of the animal kingdom. We anticipate it will bring renewed growth and prosperity to Macau,” asserted the CEO of the company founded by magnate Dr. Stanley Ho.

With regard to Grand Lisboa Palace, possibly the last project to be launched in the wave of new casinos and SJM’s only contribution to the Cotai Strip, in 2018, Dr. So noted “positive progress in the construction.”

In addition to being the “incorporation of five virtues in Chinese culture,” the rooster “is also a national symbol of Portugal,” stressed So, highlighting the fact that “Macau’s unique Portuguese heritage” connects China and Europe, placing the city “in an advantageous position to contribute to and benefit from the national “One Belt, One Road’ policy,” a project of investment fostered

by China in order to enhance its position as a commercial and financial centre in Asia.

The latest data released by SJM reveals a decline of 11.1 per cent in its gaming revenues as at the third quarter of 2016 when compared to the same period in 2015.

Macau’s 38 casinos closed 2016 with MOP223.21 billion in revenues, a decrease of 3.3 per cent year-on-year, according to information from the Gaming Inspection and Co-ordination Bureau (DICJ). S.Z. with Lusa

New markets

Business

Japan is a gambling hotspot even before casinos arrive

Gaming magnate decides to pass

The financial attraction of casinos for Japan is obvious, especially if they can help lure more Chinese tourists Emi Nobuhiro

Even before Shinzo Abe’s government opened the door to potential casino development in Japan, the nation’s gamblers wagered 23.3 trillion yen ($203 billion) on Pachinko and slot machines in 2015.

Even though that market is shrinking as the population ages and finds other forms of entertainment, and the amount bet is down by almost a third from the peak in 2005, it’s still equivalent to about 4 percent of Japan’s gross domestic product.

In addition to Pachinko and slot

machines, you can legally bet on boat, horse and bicycle races, motorcycle speedway, and buy lottery tickets.

The financial attraction of casinos for Japan is obvious, especially if they can help lure more Chinese tourists, keep them in the country longer and increase the amount of money they spend.

While parliament in December passed legislation to allow casinos, a separate bill for the creation of so-called integrated resorts must be agreed upon before things move forward. Wrangling over this could mean no casinos in time for the 2020 Tokyo Olympics. There’s also debate on whether casinos should only be open for foreign tourists.

Japan had no such qualms in the post-war era, when gambling venues spread and the revenue they produced flowed into government coffers to help pay for reconstruction.

If casinos are built and allow Japanese customers to gamble, they will attract some people away from Pachinko, but probably won’t have much effect on the other types of gambling, according to Masatoshi Yamamoto, an analyst of regional government, gambling and finances at Mitsubishi UFJ Research and Consulting. Bloomberg

Sheldon Adelson backs out of US$1.9 billion deal for stadium in Las Vegas Las Vegas Sands Corp. chairman and Chief Executive Sheldon Adelson has backed out of a US$1.9 billion (MOP15.1 billion) proposed deal to invest in a new stadium in Las Vegas for American football team the Oakland Raiders.

The bid involved a US$650 million investment by Mr. Adelson, an additional US$750 million in Las Vegas hotel room taxes approved by the Nevada Government, and US$500 million provided by the football team.

According to the gaming billionaire, the decision to withdraw his involvement in the bid was due to not being consulted on the team’s proposal to the city’s stadium authorities, which

placed restrictions on the stadium being used by local events opposed by local officials.

“I was deeply disappointed by the disregard the Raiders showed our community partners (…) It’s clear the Raiders have decided their path for moving to Las Vegas does not include the Adelson family,” stated the businessman.

Without Adelson’s investment the football team and his private partners - which include international global investment group Goldman Sachs will now have to support a US$1.15 billion share of the deal.

Mr. Adelson saw his gaming group net income in the fourth quarter of 2016 increase 5.6 per cent year-onyear to reach US$607 million, but with his Macau subsidiary Sands China Ltd. registering a 7.9 per cent fall in the same period, to reach US$348 million in net income. N.M. with Reuters

8 Business Daily Wednesday, February 1 2017

Greater china Law enforcement

Beijing smog inspectors on frontlines of war on pollution Some Beijing residents fear the government’s environmental policies will fail if they ignore polluters in surrounding areas Joseph Campbell

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ougher law enforcement has reduced the number of environmental offenders in Beijing in recent years, but more companies need to adapt to the emissions standards in China’s capital, its environmental inspection squad says.

Beijing has been on the frontlines of a “war against pollution” declared

by Premier Li Keqiang in 2014, as part of a central government promise to reverse damage done by decades of growth, and strengthen powers to shut down and punish polluters.

With more than 500 environmental inspectors working to identify offenders, thousands of companies have been investigated and punished in the past four years.

But beyond simply enforcing standards, the squad faces the critical task of persuading more firms of the value of protecting the environment, said Wang Yankui, the chief of Beijing’s central environmental inspection squad.

“The difficulty we face now is how to influence more companies to actively make improvements for the sake of environmental protection,”

Wang added. “Some companies have this intention, but they don’t know how to do it.”

Besides dealing with violators, the inspectors also keep tabs on “model” companies that have already adopted city standards.

The squad runs a hotline for city residents to report potential polluters, who could eventually join its network of identified offenders.

“If we don’t obey the rules, then we might be penalized, or shut down,” said Li Qiang, an official of a car finishing factory on the outskirts of Beijing, which has managed to keep pace with changing environmental standards for several years.

“As a business, survival needs profits, and profits are made under the pre-condition that we abide by the provisions or requirements of the government.”

Cars, not industries, are Beijing’s primary polluters, the national environmental protection bureau said this month, blaming vehicles for more than 31 per cent of harmful emissions.

Authorities have responded by clamping down on the number of vehicles on the road when smog alerts are issued.

But most of the smog originates

from polluting industries in surrounding provinces that must be convinced of the need to obey the law, said Greenpeace campaigner Dong Liansai.

“If we only rely on the basic law enforcement authorities and polluting companies to play some sort of cat-and-mouse game, then there may be no way of solving the current pollution problems,” he added.

While many of Beijing’s polluting industries have moved to other provinces, Wang said local authorities have jurisdiction and enforcement is up to them.

Some Beijing residents fear the government’s environmental policies will fail if they ignore polluters in surrounding areas.

“I think (Beijing’s) current policies

are to treat the symptoms but not the cause,” said Zhou Gesun, a technician working in the information technology industry.

There is only minor payoff from efforts such as odd and even license-number curbs on vehicle use, and halting work on construction sites, he added.

“The big factors are the areas surrounding Beijing, for instance, heavy industrial factories in Hebei. I think they should bring these factories under their control.”

Besides the squads, Beijing will set up a police force to specifically target environmental offenses and polluting activities including open-air barbecues and garbage and biomass burning, the capital’s acting mayor, Cai Qi, said this month. Reuters

Real estate

Mainland firms expand property footprint in Hong Kong Hong Kong’s average price per square foot for luxury property, at US$3,000 is ranked second most expensive in the world, trailing just after Monaco Venus Wu and Clare Jim

Mainland Chinese companies have piled into Hong Kong property in 2015-2016, outbidding some of the territory’s most powerful developers to gobble up 29 per cent of land sold for development in one of the world’s most expensive real estate markets, according to new industry figures.

That is almost a six-fold increase from their purchases of just 5 per cent of the land sold in public land auctions in the years 2013 and 2014, the data from real estate broker Midland Realty shows.

The buying frenzy comes at a time when home prices in Hong Kong have reached new record highs, bucking government cooling measures, and potentially fuelling discontent in a city whose population is already under strain from high living costs and a widening wealth gap.

Nearly 200,000 Hong Kong residents, half of them under the age of 35, have resorted to living in wire

cages, half of a bunk bed, or partitioned apartments often smaller than car park spaces.

Land grab

The purchases by the likes of HNA Group and China Overseas Land & Investment drove mainland institutional investment in real estate to US$6.6 billion last year, according to DTZ/Cushman & Wakefield, compared with just US$1.46 billion in 2015.

The land grab is set to drive skyhigh apartment prices up even further, realtors said.

Denis Ma, head of research at real estate services firm JLL in Hong Kong, said luxury apartments to be built on HNA Group’s latest plot of land, purchased for US$713 million at the former airport site of Kai Tak, could fetch HK$25,000 (US$3,200) per square foot, almost 40 per cent higher than residential units sold recently in the area.

Hong Kong’s average price per

square foot for luxury property, at US$3,000 is ranked second most expensive in the world, trailing just after Monaco, according to Christie’s International Real Estate. By comparison, London is the third most expensive at US$1,930 while New York is at US$1,860.

“There is a high chance they (mainland companies) will reset the benchmark in areas like Kai Tak,” Ma said of the district overlooking the city’s iconic Victoria Harbour.

Hong Kong will auction a site valued at as much as US$2.2 billion in the first quarter, the first sale of commercial land in the Central business district in more than 20 years, and it is widely expected to be snapped up by a mainland Chinese developer, market participants told Reuters.

Fading influence

The dominance of Hong Kong’s wealthy property tycoons is increasingly being challenged as many are unwilling to compete with spiralling prices.

Some Hong Kong developers “said they would not bid for land at the moment, because the price has gone beyond what’s reasonable. We share very similar views,” Ronnie Chan, chairman of one of Hong Kong’s biggest real estate companies, Hang Lung Properties, said at an earnings briefing this week.

Thomas Wu, the managing director of another major Hong Kong real estate company, Hopewell Holdings, told an earnings conference this week his company would not actively participate in the Hong Kong property sector as prices had “deviated from the market”.

The strong rise in overseas property investment and an increase in deals for other foreign assets has alarmed Chinese authorities and they have stepped up measures to stem capital outflows in the face of a weakening

currency.

The crackdown by Beijing has delayed some deals, though many mainland companies already had offshore assets and financing, property advisers said. Hong Kong is the second most favored destination for Chinese outbound deals after the U.S. Stanley Wong, executive director of capital markets at CBRE Hong Kong, told Reuters three transactions that his company was advising on, involving land parcels and office space, had been held up, pending capital from mainland China. The bidders were in the property, insurance and finance sectors, he said, adding that the deal size ranged from HK$1 billion to HK$3 billion (US$129 million to US$387 million).

“In the past when these large companies needed to take capital here, it would take State Administration of Foreign Exchange (SAFE) two to three weeks to approve,” Wong said.

“But now we still have not heard back from SAFE ... it’s already been two to three months.”

Chinese developers listed in Hong Kong, including China Vanke, Country Garden and CIFI told Reuters their overseas investment plans had not been affected by Beijing’s clampdown, as they had sufficient access to offshore funds.

“While the capital control measures definitely have a certain degree of impact on the market, the impact is only limited to new capital inflows,” said Marcos Chan, head of research at CBRE Hong Kong, southern China and Taiwan.

Thomas Lam, senior director at property consultancy Knight Frank, said the arrival of any new players from mainland China would make it even harder for mid- and small-sized local property developers to acquire new land.

“The rules of the game have changed,” he said. Reuters

Business Daily Wednesday, February 1 2017 9

Greater China Airlines

In Brief

Cathay Pacific to cut emissions with switch to biofuel The company has suffered huge hedging losses in the first half of last year as the price of oil plunged from its peak Hong Kong flag carrier Cathay Pacific will switch to biofuels made from landfill rubbish on select long haul flights, reports said yesterday, in an effort to cut harmful emissions.

Cathay flights to Hong Kong from the US, where the new fuel is produced, will use a combination of conventional jet fuel and biofuels starting in 2019, the South China Morning Post reported.

The airline hopes to cut emissions on those flights by 80 per cent.

“Aviation biofuels will play a key role for Cathay and the aviation industry’s quest for lower emissions,” Cathay Pacific biofuel manager Jeff Ovens told the Post.

The carrier had invested in the USbased sustainable biofuel developer Fulcrum BioEnergy, which converts municipal solid waste into aviation fuel, in 2014.

“These fuels will have a lower

carbon footprint than fossil fuels, and the pricing we have is competitive with traditional fuels,” Ovens said.

Cathay and other airlines have also been facing volatile oil prices.

The company has suffered huge hedging losses in the first half of last year as the price of oil plunged from its peak.

Oil hedging is when an airline locks in price of fuel -- a huge chunk of most airlines’ outlay costs -- at a pre-determined level for a certain amount of time.

In the first six months, Cathay recorded hedging losses at HK$4.49 billion (US$578.8 million), and saw its net profit drop 82 per cent from a year earlier to HK$353 million.

Cathay shares plunged in October after it said it did not expect business to improve in the second half of 2016, citing competition and overcapacity.

In 2015, China’s Hainan Airlines flew from Shanghai to Beijing in the country’s first commercial flight using biofuel made from cooking oil.

“These fuels will have a lower carbon footprint than fossil fuels, and the pricing we have is competitive with traditional fuels” Jeff Ovens, Cathay Pacific biofuel manager

Report

Nominal GDP growth to accelerate China’s nominal GDP growth is expected to accelerate in the first quarter of the year due to signs of improving economic activity and low bases, according to a Chinese investment bank.

The nominal GDP growth, which is calculated without adjusting for inflation, will be 9.5 per cent or even higher in the first quarter, said China International Capital Corp. Ltd. (CICC) in a research report. Official data put China’s nominal GDP growth at 8 per cent in 2016, while the real GDP growth with inflation taken out was 6.7 per cent.

Pollution

The Boeing 737 plane used a 5050 mix of conventional jet fuel and biofuel made from waste cooking oil collected from restaurants in China.

A u st ra l i a’ s Q a n tas a n d Ai r Canada have both tested biofuel on commercial flights. AFP

Top auditor says environment funds “not effectively used” China’s top auditor has found that RMB17.6 billion (about US$2.56 billion) of fiscal funds earmarked in 2016 for pollution control and resource management was not used effectively.

The finding was part of the results released after the National Audit Office (NAO) sent inspection teams to 18 provincial regions to review the use of fiscal funds for water pollution prevention and control. The NAO inspectors also found that a total of 397 water pollution protection projects had failed to achieve desired effect, and some environment funds were not distributed in accordance with special protection plans.

Spring festival

Trade

Australian wine imports soar A bilateral free trade agreement signed in 2015 has boosted sales by cutting tariffs Harry Pearl and Tom Westbrook

The value of Australian wine exports to China surged 40 per cent in 2016, industry figures showed on Friday, unexpectedly driven by sales of premium labels rather than the cheaper wines that major producers had been looking to boost.

Key Points Total value of Australian wine exports up 7 pct Premium bottled wine is fastest-growing segment Shipments to Hong Kong fall as exporters send to China directly Exports to U.S. and U.K. also rise Rising exports to China, Australia’s No. 1 wine export market, also lifted the total value of annual Australian wine shipments by 7 per cent to A$2.22 billion (US$1.67 billion), according to figures published by industry group Wine Australia.

The jump defies a Chinese government crackdown on corruption that has cooled flashy spending there. If anything, industry insiders said the anti-graft campaign had been a boon for the likes of Treasury Wine Estates’ top label Penfolds.

“Rather than drinking the super-expensive French wines, they were turning to Australian wines

which were more affordable. Penfolds in comparison is (much cheaper),” wine exporter Greg Corra, managing director of Canberra-based Inland Trading, told Reuters.

A bilateral free trade agreement signed in 2015 has also boosted sales by cutting tariffs, and encouraged Chinese purchases of vineyards and grape processing plants in Australia.

Even so, France continues to dominate China’s wine market with a market share about twice the size of Australia’s.

“I think the premium end is always going to underpin some of the growth at Treasury because it’s better known for its premium wines,” said Mark Daniels, investment director at fund manager Aberdeen Asset Management, which holds a small stake in

the company.

Last August the company reported a doubling of annual profit underpinned by a 76 per cent surge in sales by volume to Asia. The company said at the time it expected fastest growth in the mid-market, where it was targeting millennial drinkers.

The fastest-growing export segment was wine priced between A$30 and A$50 (US$22 to US$38), according to the Wine Australia. Australian exports to the United States and Britain also rose.

But shipments to Hong Kong fell by 16 per cent as many exporters re-routed stock directly to mainland China, where tariffs once as high as 20 per cent are now below 9 per cent.

Another tariff reduction, which took effect on Jan. 1, could see exports for 2017 jump by another 20 per cent, d’Arenberg vineyard chief winemaker Chester Osborn told Reuters.

“We’re very excited about it, it’ll make quite a significant difference,” he said. Reuters

More tourists as holiday travel continues Some 258.1 million visitor trips have been made in China during the first four days of the Lunar New Year holiday, which started Friday, a 14.2 per cent increase compared with the same period last year, according to official data. From Friday to Monday, China’s tourism revenue reached RMB316 billion (about US$45.95 billion), up 16 per cent year on year, data from the China National Tourism Administration (CNTA) showed. The CNTA previously expected that China will see 343 million visitor trips during the week-long Lunar New Year holiday, a growth of 13.6 per cent from the holiday last year.

Cinema

Mainlanders rewrite single-day box office record China’s box office raked in RMB802 million (around US$117 million) on Saturday, Lunar New Year’s Day, setting a record for a single day. Box office takings on Saturday, the second day of a holiday week in China, broke the record of Feb. 8, 2016 when the box office reached RMB660 million, according to cinema ticket sales website Maoyan. com. Director Stephen Chow broke his own box office record with “Journey to the West: The Demons Strike Back,” sequel to the 2013 hit film “Journey to the West: Conquering the Demons.”

10 Business Daily Wednesday, February 1 2017

Asia Monetary policy

Cautious Bank of Japan raises growth forecast Data released yesterday showed factory output rose for a second straight month in December Leika Kihara

T

he Bank of Japan (BOJ) kept monetary policy steady and maintained its optimistic price forecasts yesterday, signalling its confidence that a steady economic recovery will accelerate inflation to its 2 per cent target without additional stimulus.

As widely expected, the BOJ maintained a pledge to guide shortterm interest rates at minus 0.1 per cent and the 10-year government bond yield to around zero per cent.

It also left unchanged a loose commitment to buy government bonds at the current pace so the balance of its holdings rise at 80 trillion yen (US$705 billion) per year.

“I expect inflation to pick up, but this will lag economic growth,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“The BOJ can afford to stay on hold because it has already pushed out the timing for (meeting) its inflation target a lot.”

In a quarterly review of its forecasts, the BOJ raised its growth estimates for the fiscal year beginning in April and the following year, nodding to brightening prospects for exports.

But the central bank left unchanged its already optimistic inflation forecasts for the coming years despite external factors that push up prices, such as a rebound in oil prices and rising import bills from a weak yen.

“Risks to both economic activity and prices are skewed to the downside,” the BOJ said in the quarterly forecast report.

“The momentum for achieving our 2 per cent inflation target is maintained, but lacks strength,” it said.

Key Points BOJ keeps yield curve targets steady Board revises up growth projections No change to timing for hitting price goal Focus on Kuroda’s view of Trump policies With domestic demand still weak, many central bankers remain wary on whether price rises driven by external factors could transform into sustained price growth.

The BOJ said it expects inflation to hit 2 per cent target by around March 2019, unchanged from its forecast in November.

New challenges

Japan’s growth remained anaemic in the first half of last year as consumption slumped. But a pick-up in global demand has helped exports recover, giving rise to market bets the BOJ’s next move may be to hike - not cut - rates.

Data released yesterday showed factory output rose for a second straight month in December as automakers boosted production.

“If the economy continues a steady

recovery in coming months, we expect the BOJ’s next step to be a tightening, not an easing, of policy, “said Yuichiro Nagai, an economist at Barclays Securities Japan.

But uncertainty over Trump’s policies is emerging as a new headache for Japanese policymakers worried about a resurgence of the yen, which hurts exports.

The dollar slumped against the yen on Monday, which benefited from its safe-haven status as Trump’s tough stance on migration rattled investors and curbed risk appetite.

Kuroda could also seek at his postmeeting briefing to allay market concerns the BOJ may taper its massive monetary stimulus sooner than expected.

Such speculation emerged after the BOJ drove up bond yields last week by abruptly skipping a muchanticipated auction to buy short-term bonds.

Global bond yields have risen on expectations that Trump’s pledge of big infrastructure spending could lead to higher U.S. inflation, putting upward pressure on Japanese longterm rates.

The BOJ was forced to revamp its policy last September into one targeting interest rates, rather than the pace of its money printing, after more than three years of aggressive bond buying failed to accelerate inflation to its 2 per cent target.

But the new framework, dubbed “yield curve control” (YCC), has brought new challenges. With markets accustomed to huge bond buying by the BOJ, any sign of slowdown in its purchases has prompted market speculation it could withdraw stimulus. Reuters

Survey

Australian business conditions jump sharply The Reserve Bank of Australia (RBA) has recently been optimistic on the economic outlook Australian business conditions recovered strongly in December as firms reported a marked pick up in sales and profits, the latest in a string of surveys pointing to gathering momentum going into the new year.

National Australia Bank’s monthly survey of nearly 400 firms showed its index of business conditions jumped 5 points to +11 in December. That took it back to the highs seen in mid-2016 and well above the long run average of +5.

The survey’s measure of business confidence held steady at +6 in December.

Its index of sales doubled to +20 for the month, even though the retail sector remained weak overall, while the measure of profits climbed 8 points to +14. A healthy 5 point rise in forward orders seemed to augur well for further growth, while employment held steady in the month.

The biggest improvement in conditions came in Western Australia, a sign activity might be stabilising in the hard-hit mining state.

Riki Polygenis, NAB’s head of Australian economics, was cautious

on reading too much into one month’s figures reflecting in part the bank’s view that a slowdown in the economy will force two more cuts in interest rates later in 2017.

“A spike in business conditions could point to a stronger outlook, but we remain cautious given that some aspects of the survey suggest the rebound might prove to be

temporary,” said Polygenis.

She noted there had yet to be much evidence of a recovery in business investment outside of mining.

The Reserve Bank of Australia (RBA) has recently been optimistic on the economic outlook and played down the need for further easing, having already cut rates in August and May.

‘The biggest improvement in conditions came in Western Australia, a sign activity might be stabilising in the hard-hit mining state’ Several other surveys of businesses from the Australia Industry Group had also found a marked improvement in activity in December with manufacturing at a five-month peak.

Reuters

Business Daily Wednesday, February 1 2017 11

Asia Trade

In Brief

New Zealand’s meat and dairy exports fall in 2016 Despite the quantity of milk powder, butter, and cheese exported increasing to a new high of 3 million tonnes New Zealand’s top two export commodities, meat and dairy, both fell in value in 2016, the government statistics agency said Monday.

The total value of all export goods was NZ$48.4 billion (US$35.24 billion) in 2016, down NZ$544 million (US$395.87 million) from the previous year, according to Statistics New Zealand.

It was the second annual fall in a row for exports.

The biggest fall by value was for meat and edible offal, the second largest export group, with sales down

NZ$909 million (US$681.84 million) to NZ$5.9 billion (US$4.29 billion), and the quantity down 7.4 per cent.

The United States accounted for three-quarters of the fall in beef, while the European Union accounted for nearly half of the fall in lamb.

“The large fall in meat exports for 2016 reflects a decline from the record meat season in 2015 for both value and quantity,” international statistics senior manager Nicola Growden said in a statement.

“The 2016 year’s meat exports have returned to levels similar to those

seen in 2014.”

The quantity of milk powder, butter, and cheese exported rose to a new high of 3 million tonnes, but the value of dairy exports dropped by almost 3 per cent NZ$11.2 billion (US$8.15 billion).

The quantity of dairy exports had been rising since 2013 and was 14 per cent higher than then, with China accounting for 25 per cent of the total in 2016, up from 23 per cent in 2015.

“The large fall in meat exports for 2016 reflects a decline from the record meat season in 2015 for both value and quantity” Nicola Growden, international statistics senior manager The value of imported goods was NZ$51.6 billion (US$37.56 billion) in 2016, down 1.7 per cent from the annual high in 2015.

The fall was led by cheaper oil and petrol, and partly offset by a rise in cars, trucks and parts.

In 2016 the annual trade deficit of NZ$3.2 billion (US$2.33 billion), or 6.6 per cent of exports was smaller than the deficit of NZ$3.5 billion (US$2.55 billion) for the 2015 year, which saw the largest annual deficit since 2008. Xinhua

Industry data

Thai factory output up Thailand’s industrial output rose for a second straight month in December, boosted by stronger demand for steel, electronics, rubber and jewellery, but the gain was still small, suggesting the economic recovery remains fragile. The Industry Ministry said yesterday its manufacturing production index (MPI) in December was up 0.54 per cent from a year earlier. A Reuters poll forecast a rise of 2.50 per cent. In November, output rose a revised 3.88 per cent from a year earlier.

Industrial goods accounted for around 80 per cent of total exports, which rose 6.2 per cent in December from a year earlier after November’s 10.2 per cent jump.

Employment

Japan jobless rate unchanged Japan’s jobless rate was flat at 3.1 per cent in December and the availability of jobs improved, data from the Ministry of Internal Affairs and Communications showed yesterday. The seasonally adjusted unemployment rate matched the median estimate in a Reuters poll of economists and was unchanged from November.

The jobs-to-applicants ratio rose to 1.43 from 1.41 in November. That was the highest since July 1991 and compared with the median estimate of 1.42.

Forecast

Commodities

Thai rubber producers to maintain exports despite floods Industry body expects output to fall by 7.6 per cent this year to 4.38 million tonnes Panarat Thepgumpanat and Patpicha Tanakasempipat

Thai rubber exporters say they have enough of the commodity in stockpiles to ensure only minimal disruption to scheduled shipments in the wake of deadly floods in key growing regions.

Global rubber prices this week soared to five-year highs on worries over supply following floods that started in December, swamping plantations in the world’s top producer at the height of the tapping season.

But Thai exporters of rubber, used to churn out everything from tyres to surgeons’ gloves, told Reuters they did not expect any major impact on shipments due to stocks already in place.

Key Points Some plantations have been swamped by floods But producers say can use inventory to make deliveries Govt auction also set to boost local supply

“Exports are still happening in January and should still be fine in February because most traders have stocked up supplies since November,” said Chaiphot Ruangwarunwathana, president of the Thai Latex Association.

A.T.S. Rubber in Nakhon Si Thammarat, the heart of the rubber growing region, said it had plenty of unsmoked sheets in stock to turn into coagulated rubber for export.

Domestic supply will also receive a boost when the government auctions about 100,000 tonnes of rubber from state stockpiles on Feb. 14, said Luckchai Kittipol, honorary president of the Thai Rubber Association.

Thai farmers usually stop tapping rubber during a wintering season from March to May, so exporters are looking to replenish their supplies at the state auction, said Korakod Kittipol, marketing manager at Thai Hua Rubber Pcl, a major Thai rubber exporter.

Prices for unsmoked USS3 rubber sheets in Nakhon Si Thammarat were quoted at 88.77 baht (US$2.52) per kilogram on Monday, the highest in more than four years, according to

Reuters data.

Thailand’s rubber industry body has said it expects output to fall by 7.6 per cent this year to 4.38 million tonnes as a result of the floods.

Some small traders might have faced delayed shipments, but floods in the south have already receded in some areas, allowing farmers to resume tapping this week, said Somporn Thammachart, general manager of Chana Latex in Songkhla, which exports latex to Europe and Asia.

“I’m not worried,” Somporn told Reuters. “There were some small delays last week, but we should be able to complete those orders within the next week.”

Thavorn Para Rubber Industry in Songkhla, southern Thailand, also said it was still able to ship about 20,000 tonnes of latex to China as it does each month. Reuters

Indonesia expects investment in energy to soar The Indonesian government has forecast investment in energy sector will rise significantly this year following relaxation of the country’s export ban on raw mining products amid rising global commodity prices. Indonesian Energy and Mineral Resources Minister Ignasius Jonan said on Monday that the ministry estimated the investment in energy sectors will increase by nearly 50 per cent to US$43 billion this year from that of last year. To support the target, the government on Monday launched an integrated single-window facility to process investment in the sector, which will only take three hours, according to the minister.

Migrants

Immigration continues at record levels in NZ A record number of arrivals drove New Zealand’s new migrant numbers to an annual high last year, the government statistics agency said yesterday. A record 70,600 more migrants arrived in New Zealand than left in 2016, surpassing the previous annual record set in November 2016. The net gain reflected an increasing number of people arriving and fewer leaving to live overseas. “The increase in migrant arrivals was driven by an increase in people arriving with work visas,” population statistics manager Jo-Anne Skinner said.

Migrant arrivals hit an annual record of 127,300 last year, while migrant departures were 56,700.

12 Business Daily Wednesday, February 1 2017

Asia In Brief Minutes

Bank of Korea may prefer to preserve policy space South Korea’s central bank board members all pointed to heightened uncertainty and financial market risks as they unanimously decided to keep the benchmark interest rates at a record low of 1.25 per cent on Jan. 13, minutes of the meeting showed yesterday.

The minutes, which displayed a more hawkish tone than in previous months, showed members were worried about growing household debt and its impact on the financial market as market rates are expected to increase further with the Federal Reserve’s policy tightening.

Oil industry

Shell sells Thailand gas field stake Royal Dutch Shell said yesterday it would sell its stake in Thailand’s Bongkot gas field to Kuwait Foreign Petroleum Exploration Company for US$900 million. The move is the latest stage of the AngloDutch company’s push to reduce debt after buying smaller rival BG Group for US$70 billion, bringing its total divestments since April 2015 to 8.7 billion. The transaction will include Shell’s 22.2-per cent equity stake in the Bongkot field and adjoining acreage off the coast of Thailand consisting of Blocks 15, 16 and 17 and Block G12/48, Shell said in a statement.

Results

Australia’s Future Fund tops target Sovereign wealth manager, the Future Fund, beat its target in the year ending Dec. 31 with a return of 7.8 per cent after shifting cash to infrastructure and private equity. “Over the quarter we deployed capital into our private equity program, primarily through co-investments in venture capital and growth,” said David Neal, managing director of the A$127 billion (US$96.02 billion) Future Fund. He said the fund cut its cash allocation to 19.7 per cent, from 22.1 in the last quarter, due to a falling Australian dollar. The Aussie shed more than 6 per cent in the quarter to December.

Investors

Japan fund managers slightly raise bond exposure Japanese fund managers slightly increased bond holdings in their model portfolios in January while shaving their exposure to equities as global markets braced for potential turbulence under new U.S. President Donald Trump. The survey of five Japan-based fund managers conducted between Jan. 17 and 24 showed respondents on average wanted to allocate 56.4 per cent of their portfolios to bonds in January, up from 56.2 per cent in December.

Within bonds, the respondents cut their North American debt exposure to 32.3 per cent in January from 34.9 per cent in December.

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Public spending

India’s health budget may rise after minister warns of funding crunch India has seven doctors for every 10,000 people, half the global average Aditya Kalra

I

ndia’s health ministry is likely to see a substantial increase in funding, after it warned that its programmes were short of cash and sought more than US$1.2 billion in additional money, according to government officials and documents seen by Reuters.

The final numbers could change when Finance Minister Arun Jaitley presents the budget for fiscal 2017/18 today. But one official familiar with the numbers said the health ministry is expected to get a US$1.5 billion, or 27 per cent, increase in funding to around US$7 billion.

The health and finance ministries did not respond to requests for comment.

An increase in the budget allocation, if finalized, would signal an acknowledgment from Prime Minister Narendra Modi’s administration that the country needs to ramp up spending on the sector.

Successive administrations have faced criticism from public health advocates for spending only around 1 per cent of India’s gross domestic product on public health, less in per centage terms than countries like Afghanistan and Sierra Leone.

More than a million Indian children die every year before reaching the age of five. Hundreds of millions of poor people rely on India’s public health programmes which provide basic services like vaccinations, disease prevention and free drugs.

Until May last year, Jagat Prakash Nadda, the federal health minister, had publicly maintained that the sector had no funding issues but needed to get better at spending the money it had.

Between 2005 and 2013, the ministry only once spent all of its allocated funds.

But letters sent by his ministry to the finance ministry between June and January, not previously disclosed, show that Nadda has also come around to the view that his department needs a larger pot to meet its public health objectives.

“These are the bare minimum requirements,” Nadda wrote in a letter to Jaitley on Jan. 10, outlining his request for additional funds.

“There are several other significant programmes experiencing paucity of financial resources.”

The government has been increasing allocation to the health sector after criticism over its social sector cuts in 2015.

But pressures on the budget are rising. It must also step up spending on roads, railways and irrigation projects to stimulate growth while keeping the fiscal deficit in check.

Repeated requests

In his letter, Nadda wrote that he needed an extra US$589 million to implement a programme to screen patients for cancer and other illnesses, while the HIV/AIDS treatment programme required an infusion of US$74 million.

Nadda also wrote that there was an “urgent requirement” of around US$520 million for the current year’s spending, the absence of which “will adversely impact key programmes like malaria, tuberculosis, polio and

other vector borne disease”.

Nadda’s letter followed requests from other health officials in the preceding months.

In November, the health ministry’s top bureaucrat, C. K. Mishra, wrote to the finance secretary saying he had been informed that his ministry would receive less funds than were promised during mid-year reviews.

The lack of adequate funding, Mishra wrote, “will give a serious setback” to new initiatives and existing programmes.

Key Points Health officials warned finance officials of funding shortages Ministry wants more for HIV/AIDS, vaccination, tuberculosis Health allocation likely to increase in budget, officials say Health ministry officials also cited delays in getting funds to implement Modi’s directive to upgrade dozens of district hospitals into medical colleges, in order to add new doctors.

India has seven doctors for every 10,000 people, half the global average, according to the World Health Organization.

It is not clear how the federal budget for 2017/18, or individual state budgets that supplement it, will split health spending across various programmes.

The government official who has knowledge of the budget numbers said the increase in the health ministry budget would be sufficient for on-going projects.

“But given escalation costs, there is no space for new health innovations,” the official said. Reuters

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Business Daily Wednesday, February 1 2017 13

Asia Abe-Trump meeting

Japan eyes U.S. job, investment initiative ahead of summit Japanese officials still trying to assess just what Trump wants from Japan Takashi Umekawa and Linda Sieg

Japan is hammering out plans to show U.S. President Donald Trump its firms are ready to create U.S. jobs, according to a document whose contents were revealed to Reuters, as Prime Minister Shinzo Abe prepares for a summit where automotive trade will be high on the agenda.

Abe will visit Washington on Feb. 10 for the talks at which Trump is expected to seek quick progress toward a two-way trade deal.

An early draft of the document, called “U.S.-Japan Growth and Employment Initiative”, listed five areas including infrastructure. The document, which was read to Reuters, did not mention automotive trade, which Trump has targeted as “unfair” in an echo of complaints by Washington decades ago.

The document left blanks for the numbers of jobs to be created and the scope of investment but a government source said several hundred thousand jobs could result.

It also referred to the idea of buying dollar-denominated “infrastructure bonds”, a proposal that has been floated as a way Japan could take part in Trump’s promised upgrade of U.S. infrastructure.

Japanese officials said they were still trying to assess just what Trump wants from Japan. In addition to singling out cars, he has also lumped Japan with China and Mexico as big contributors to America’s trade deficit.

However, Japan’s share of the U.S. global trade gap has shrunk to 9 per cent from more than half in the early 1990s.

Automobiles and car parts account for about three-fourths of the overall U.S.-Japan trade gap, making it an easy target.

‘Buy American’

In a phone call with Abe on Saturday, Trump reiterated his pledge to create jobs in the United States and asked that the Japanese auto industry contribute, the Nikkei business daily reported, quoting unidentified Japanese government officials.

Abe is expected to meet Toyota Motor Corp CEO Akio Toyoda this week, possibly on Friday.

“Mr. Trump has made a promise to ‘Buy American, Hire American’,” said one former Japanese diplomat.

“Symbolically, autos are a very big player.”

The renewed focus on the automotive trade has some Japanese officials and media reminiscing - and not happily - about heated U.S.-Japan auto talks more than 20 years ago.

A last-minute deal in June 1995 averted U.S. tariffs on Japanese luxury cars when Japan’s automakers crafted “voluntary plans” to boost purchases of American auto parts and expand U.S. production. That allowed the Japanese government to maintain its opposition to setting official numerical trade targets while letting U.S. negotiators also claim a win.

Yoshihiro Sakamoto, the top

Toyota comments

Thai car sales seen rising after 4 years of decline However, car exports from Thailand are expected to drop 11 per cent to 282,000 units this year Pairat Temphairojana

Thailand’s total domestic car sales are expected to rise for the first time in five years in 2017, by 4.06 per cent to 800,000 units, Toyota Motor Corp’s Thai unit said yesterday, citing new models and strong government spending among factors.

Toyota, which commands about a third of the Thai market, predicted its own 2017 auto sales in the Southeast Asian nation to rise 8.1 per cent to 265,000 vehicles from last year, Kyoichi Tanada, president of the Toyota Thai unit, told reporters.

The end of a five-year restriction on people selling cars bought under a government subsidy scheme will also help boost car sales, he said.

Overall domestic car sales in Thailand contracted 3.9 per cent in 2016, the fourth straight year of decline, hurt by weak consumption and the fading effect of the car scheme that ended in 2012, when sales surged.

Tanada said 2016 was “a tough year” for the Thai auto market, despite government measures to

spur economic growth.

The military government has introduced stimulus measures and ramped up investment in infrastructure projects in a bid to revive growth in Southeast Asia’s second-largest economy, which has lagged peers.

Thailand is a regional production and export hub for the world’s top carmakers, and the sector accounts for about 10 per cent of the nation’s gross domestic product.

Tanada said the trade protectionism of the United States should not have an impact on the firm’s exports and imports in Thailand.

“We don’t have any direct business here with the U.S. whether it’s the export or imports there,” Tanada said, adding about a third of its exports from Thailand go to the Middle East region.

However, car exports from Thailand are expected to drop 11 per cent to 282,000 units this year, largely due to fewer orders from Middle Eastern countries as oil prices stay low, he said. Reuters

Japan’s Prime Minister Shinzo Abe

Japanese trade bureaucrat in those talks two decades ago, said such plans - drafted behind the scenes by the auto industry and trade ministry could be a model for addressing the situation now. Some experts pointed out, however, the ministry’s clout had waned since those days.

“What America wants is investment,” Sakamoto told Reuters.

U.S. car investments

Toyota has come under fire from Trump for plans, announced in 2015, to shift production of its Corolla sedan from Canada to Mexico. Earlier this month, Japan’s top automaker said it would invest US$10 billion in the United States over the next five years, the same as the previous five years.

On Monday, Honda Motor Co Ltd and General Motors Co said they would jointly produce pollution-free hydrogen fuel cell power systems in the United States from around

2020. The companies said they would invest US$85 million to add a production line at a GM battery plant in Brownstown, Michigan, and create 100 jobs.

Boosting output in the United States, however, could force Japanese car makers to make tough decisions about reducing production - and jobs - back home.

Central Japan Railway Company, or JR Tokai, has given the government estimates of how many jobs would be created by proposed high-speed Shinkansen railways in California and Texas and a high-tech “maglev” railway along the U.S. east coast, a JR Tokai spokeswoman said. She declined to release the figures.

Abe, who is close to JR Tokai Chairman emeritus Yoshiyuki Kasai, has touted maglev or magnetic levitation as a “dream technology” that could link New York and Washington in under an hour. Reuters

14 Business Daily Wednesday, February 1 2017

International In Brief Households

U.S. data bolster economic outlook U.S. consumer spending accelerated in December as households bought motor vehicles and cold weather boosted demand for utilities amid a rise in wages, pointing to sustained domestic demand that could spur economic growth in early 2017.

There are also signs that inflation firmed last month.

The growth outlook was further bolstered by other data on Monday showing a jump in contracts to buy previously owned homes. A strengthening economy, rising price pressures and tightening labour market could allow the Federal Reserve to raise interest rates at least three times this year.

Angola

Currency injections return to pre-crisis levels The sale of foreign currency by the National Bank of Angola (BNA) to the country’s commercial banks practically doubled last week, to €633.4 million, one of the highest weekly amounts since the start of the crisis in the country.

In the previous week the central bank’s foreign cash injections totalled €325.8 million. According to the report from the central bank, to which Lusa had access, the foreign currency provided – exclusively in euros since March 2016 – the equivalent of US$707.7 million, used to the needs of the industrial sector (€155.4 million), as well as airlines (€44.7 million).

Trump threat

France promises to defend Iran nuclear deal France vowed on Monday to defend Iran’s nuclear deal, which U.S. President Donald Trump has threatened to tear up, but said it was imperative Tehran abide strictly by the conditions of the accord. Foreign Minister Jean-Marc Ayrault arrived in the Iranian capital just as relations between Tehran and the new U.S. leadership were strained by new U.S. immigration orders that the French minister called “dangerous” and said should be revoked. Ayrault said it was in the “common interest” that the 2015 accord under which Iran agreed to curb its nuclear programme in return for lifted sanctions was obeyed.

Steel

Russia appeals to WTO over EU duties Russia appealed to the World Trade Organisation on Monday to settle a dispute with the European Union over anti-dumping duties imposed on its steelmakers, one of a number of trade disputes between the two.

The EU introduced duties in August of between 18.7 and 36.1 per cent on Russian cold rolled steel, a product used in the construction and automotive industries, following allegations Russian steelmakers were exporting at unfairly low prices. It also imposed duties on Chinese cold rolled steel.

Euro zone

From north to south economy steams into 2017 The ECB has indicated it is in no rush to turn off the taps Jeremy Gaunt

T

he euro zone economy has kicked off the year robustly, data from the Baltic to the Mediterranean showed, evidence for the European Central Bank that its massive cash stimulus is working but also posing questions about what comes next.

There are risks ahead - some economic, some political - but for now the 19 member states of the euro zone are doing better than many expected.

German inflation came in strongly if slightly below the economic consensus. At 1.9 per cent year-on-year, it was the highest since July 2013 and basically spot on the ECB’s just-under 2 per cent target for the euro zone as a whole.

Spain, the euro zone’s fourth largest economy, reported its output grew last year at 3.2 per cent, adding to 3.2 per cent and 1.4 per cent in the previous two years and signalling a strong recovery from a banking-debt crisis and a recession.

Manufacturing confidence in the Netherlands - the fifth largest economy - hit its highest level since 2008.

The Dutch central bank then underlined the mood by raising its growth forecast for 2017 to 2.3 per cent from 1.9 per cent.

Various economic sentiment indexes for the euro zone as a whole came in better than expected. Bloc-wide economic sentiment, for example, hit a near six-year high.

Less heralded were signs of growth among the currency bloc’s smaller economies - Lithuania’s year-onyear GDP was 3.0 per cent in the fourth quarter and Latvia’s came in at 2.1 per cent, while Austrian inflation accelerated and its purchasing managers’ index soared.

The data comes after a week in which other reports showed relatively strong performances continuing into this year from 2016 for heavyweights Germany and France.

“2017 seems to have started on

a very solid footing,” said Jennifer McKeown, Capital Economics’ chief European economist. “The economy is performing (well).”

Headwinds

All this will be good news for the ECB, which has so far pumped just over 1.5 trillion euros (US$1.6 trillion) into the euro zone economy to try to stave off deflation and kick-start some growth, along with providing negligible interest rates.

But it will also add pressure on the ECB to pull back on some of its largesse.

German officials in particular take a dim view of the ECB’s free spending and its impact on prices, something ING economist Carten Brzeski encapsulated in a note entitled “Return of Germany’s economic bogeyman: inflation”.

ECB policymaker and Bundesbank chief Jens Weidmann made clear his view last week, saying: “If this price development is sustainable, the prerequisite for the withdrawal from the loose monetary policy is created.”

The ECB, however, has indicated it is in no rush to turn off the taps. Indeed, ECB rate setter Ewald

Nowotny pretty much shut down any move soon, particularly about tapering, or easing off its asset-buying programme.

Part of this is because the ECB wants to see sustainable improvement and does not believe it has evidence of this yet. Some inflation, for example, stems from rising energy prices that will soon have played out in the comparative data.

Similarly, Barclays suggests that growth in Spain will moderate as the positive effects of temporary factors pushing consumption - including a 2015 income tax cut - wane.

But there is also a series of political events that could complicate and even derail the euro zone’s progress.

There are a lot of “ifs” involved, but the presidential election in France could result in an administration led by the National Front’s anti-euro Marine Le Pen, while a similar anti-euro result featuring the 5-Star movement could occur in Italy.

Greece, meanwhile, has so far failed to get the latest tranche of its third international bailout. Two years ago it almost became the first country to fall out of the euro zone.

The ECB will be mindful of all this despite the increasing growth. Reuters

Currencies

Trump dooms dollar to worst January since 2008 Initial enthusiasm has waned in the absence of much detail on fiscal policy in his first 10 days in charge The dollar was on course for its worst start to a year since 2008 on Tuesday as concerns over the broader shape of policy under President Trump outweighed the expectations of higher U.S. inflation which dominated the end of last year.

The dollar dipped another 0.2 per cent against the yen after falling 1 per cent on Monday as Trump’s ordering of a ban on travellers from seven largely-Muslim states spurred protests worldwide and across the United States.

The euro, hit by a combination of marginally weaker-than-expected German inflation numbers and nerves over French politics in the previous session, also jumped against the greenback after strong

French and Spanish numbers.

Investors bought the dollar strongly after Trump’s victory last November on the assumption that he would spur repatriation of capital to the United States, spend aggressively on infrastructure and encourage a rise in inflation.

But that enthusiasm has waned in the absence of much detail on fiscal policy in his first 10 days in charge, with currency markets also unnerved by signs both the president and his nominee for Treasury Secretary would prefer a weaker dollar.

“Trump’s travel ban - and his associated decision to fire the acting Attorney General - dominates sentiment and remains good for Treasuries, the yen and gold, but bad for bonds and the dollar,” said Kit Juckes, a strategist with Societe Generale in London.

“My bias is still that we’ll get back to the Trump economic program, and the implications for Fed policy, before too long. More prosaically, markets will focus on the US jobs data due Friday.”

“My bias is still that we’ll get back to the Trump economic program, and the implications for Fed policy, before too long.

More prosaically, markets will focus on the US jobs data due Friday” Kit Juckes, a strategist with Societe Generale The Fed started a two-day meeting yesterday and any improvement in the board’s view of the economy in its statement today would be liable to trigger bets on another rise in interest rates within months. Reuters

Business Daily Wednesday, February 1 2017 15

Opinion Business Wires

The Korea Herald South Korea’s national debt surpassed 900 trillion won (US$770 billion) last year largely due to the government’s expansionary fiscal policy to cope with a years-long economic slump, data showed yesterday. The conservative administrations of Lee Myung-bak and Park Geun-hye have favoured the issuance of debts to finance the fiscal expansion, instead of hefty taxes. The country’s debt, which covers the central government’s general and special accounts and funds, reached 918 trillion won at the end of 2016, according to the local financial investment industry. It marks the first time that the national debt of Asia’s fourth-largest economy has exceeded 900 trillion won.

Chinese President Xi Jinping during his speech at the meeting in Davos

Trumping the renminbi

A The Times of India Union Budget 2017 will see a departure from a lot of things - tradition for one (instead of February 28 or 29th in the event of a Leap Year or the last working day of the month, it will be tabled in Parliament today), merging the Railway Budget with the total budgetary outlay, and likely giving up of the distinction between the plan and non-planned expenditure. This has been mooted ostensibly to ensure that the entire exercise is advanced; schemes, programmes, annual spending plans and tax proposals will be now rolled out April 1st onwards, instead of June.

Bangkok Post The Fiscal Policy Office (FPO) has painted a brighter outlook for the economy this year, raising its GDP growth forecast to 3.6 per cent but marginally cutting its estimate for last year to 3.2 per cent. Contributing to this year’s better economic growth will be an acceleration in state spending, higher farm income in line with rising commodity prices, improving private consumption, the still-solid tourism sector and an export rebound, said FPO director-general Krisada Chinavicharana. The latest 2017 economic growth forecast has already taken into account the impact of deadly floods in Thailand’s South.

Viet Nam News The Ministry of Agriculture and Rural Development has issued regulations to tighten the import of antibiotics to prevent misuse of the substances in breeding of sea animals. Accordingly, antibiotics importers are only licensed to import antibiotic materials to produce veterinary medicines that are granted certificates for circulation in the market or listed as permissible in Việt Nam. Currently, there are 57 types of antibiotic materials on the list. While seeking licences to import a batch of antibiotic materials, the importers must report on the use of the previous shipments and other information such as the addresses of the sellers.

t the recently concluded World Economic Forum Annual Meeting in Davos, Switzerland, Chinese President Xi Jinping mounted a robust defence of globalization, reaffirming his country’s “open door” policy and pledging never to seek to start a trade war or to benefit from devaluation of its currency.

Soon after, US President Donald Trump, in his inaugural address, effectively made the opposite pledge: using the word “protect” seven times, he confirmed that his “America first” doctrine means protectionism.

Trump speaks of the United States as an economy in decline that must be revitalized. But the reality is that the US economy has been performing rather well in the last two years. Its recovery has outpaced that of other advanced economies; job creation has been impressive; and the dollar has been strong.

The dollar’s value has risen particularly high in the last few months, as Trump’s promises to increase government spending, lower business taxes, and cut regulation have inspired a flight to quality by investors. By contrast, the Chinese renminbi has weakened significantly – from RMB6.2 per dollar at the end of 2014 to RMB6.95 at the end of last year – owing largely to declining investment and exports.

Trump has accused China of intentionally devaluing the renminbi, in order to boost its export competitiveness. But the truth is quite the opposite: in the face of strong downward pressure on the renminbi, China has sought to keep the renminbidollar exchange rate relatively stable, – an effort that has contributed to a decline of more than US$1 trillion in official foreigncurrency reserves.

China does not want the renminbi to depreciate any more than Trump does. But no country has full control over its exchange rate. From technological developments to geopolitical rivalries to policy shifts among major trading partners, the causes of the renminbi’s decline – and, thus, the factors influencing China’s exchange-rate policy – are varied and complex.

One factor affecting exchange rates is a rapidly changing global supply chain. Evolving consumption patterns, regulatory regimes, and digital technologies have lately encouraged more domestic production. In the US, manufacturing has received a boost from technologies like robotics and 3D printing. That has supported economic recovery, without increasing its imports from Asia.

Meanwhile, China is already shifting from an export-driven growth model to one based on higher domestic consumption, so a stronger renminbi might serve its economy better. China’s currentaccount surplus fell to just 2.1 per cent of GDP in 2016, and the International Monetary Fund projects it to narrow further, as exports continue to fall.

But the current account is not the only relevant factor. Given the role of capital flows in exchange rates, BIS economist Claudio Borio argues for looking at the financial account as well. Here, too, a depreciating renminbi doesn’t serve China.

According to the IMF, by 2021, the US net investment position will probably deteriorate – with net liabilities rising from of 41 per cent of GDP to 63 per cent – while China’s net investment position remains flat. This means that other surplus countries like Germany and Japan are likely to be financing the growing US deficit position, from both their current and financial accounts. (The expanding interest-rate differentials between

“

Andrew Sheng a Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance Xiao Geng President of the Hong Kong Institution for International Finance, is a professor at the University of Hong Kong

the US and its advanced-country counterparts reinforce this expectation.)

But perhaps the biggest challenge for China today lies in its capital account. Since the renminbi began its downward slide in 2015, the incentive to reduce foreign debts and increase overseas assets has intensified.

China’s total foreign debts (public and private), already very low by international standards, have fallen from 9.4 per cent of GDP (US$975.2 billion) at the end of 2014 to 6.4 per cent of GDP (US$701.0 billion) by the end of last year. And this trend seems set to continue, as Chinese citizens continue to diversify their asset portfolios to suit their increasingly international lifestyles. A weaker renminbi will only bolster this trend.

Of course, Trump, who has repeatedly threatened to impose tariffs on China, could also influence China’s exchange-rate policy. But, in a sense, Trump’s irreverence makes him practically irrelevant. After all, judging by his past behaviour, it seems likely that he will accuse China of currency manipulation, regardless of the policy path it chooses: a completely free float with full convertibility, the current managed float, or a pegged exchange rate.

So what is China’s best option?

A free-floating exchange rate can be ruled out right away.

In the current dollar-driven international monetary regime, such an approach would produce too much volatility.

But even the current regime is becoming difficult to manage.

Considering the cost of recent efforts to maintain some semblance of exchange-rate stability, it seems that not even the equivalent of US$3 trillion in foreign-exchange reserves is enough to manage a currency float.

To be sure, China can – and should – broaden and deepen its international investment position, in order to support currency stability. At the end of 2015, China’s gross foreign assets were relatively low, at 57.2 per cent of GDP, compared to about 180 per cent for Japan and many European countries and around 130 per cent for the US. Meanwhile, China’s net foreign assets amounted to only 14.7 per cent of GDP, compared to 67.5 per cent for Japan and 48.3 per cent for Germany (negative 41 per cent of GDP for the US). Reforms in the real and financial sectors would enable this level to rise.

For now, however, the best option may be for China to peg the renminbi to the dollar, with an adjustment band of 5 per cent, within which the central bank would intervene only lightly, to guide the market back to parity over the long term.

Investors are, after all, focused almost exclusively on the renminbi-dollar exchange rate.

Whatever path it chooses, China will pay a heavy price for advocating globalization and pursuing currency stability. In a world in which announcing new policies – and thus moving markets –is as easy as sending a tweet, politics will trump rational economic discussion. Project Syndicate

For now, however, the best option may be for China to peg the renminbi to the dollar

”

16 Business Daily Wednesday, February 1 2017

Closing Energy

China will install over 110 million China to boost development of photovoltaic power technology kilowatts of solar power by 2020, China will promote the development of photovoltaic power technology in the next five years to upgrade the country’s energy structure.

China will accelerate the technological and industrial upgrade of photovoltaic power and speed up elimination of out of date capacity during 2016-2020, according to the National Energy Administration (NEA) solar power development plan for the next five years.

according to the plan and reduce the price of photovoltaic power by at least 50 per cent compared with 2015.

China had the world’s largest installed capacity of photovoltaic power in 2015, with an annual growth rate of over 33 per cent from 2011 to 2015.

China is aiming to lift the proportion of non-fossil fuels in energy consumption to 20 per cent by 2030 from the present 11 per cent. Xinhua

Study

Smoking costs US$1.4 trillion in healthcare, labour loss China consumes over a third of the world’s cigarettes and has a sixth of the global smoking death toll Mariëtte Le Roux

S

moking cost the world economy more than US$1.4 trillion in 2012, and sucked up a twentieth of health care spending, a study said yesterday.

The killer habit consumed the equivalent of nearly two per cent of global economic output or GDP, according to experts from the World Health Organization (WHO) and the American Cancer Society, with almost 40 per cent of the burden falling on developing countries.

These included a US$422 billion price tag for treatment and hospitalisation, as well as indirect costs from labour lost to illness and death.

“Smoking imposes a heavy economic burden throughout the world, particularly in Europe and North America, where the tobacco epidemic is most advanced,” said the study published in the journal Tobacco Control.

“These findings highlight the urgent need for countries to implement stronger tobacco control measures to address these costs.”

The authors say the study is the first ever to include low- and middleincome countries in a more accurate estimate of the tobacco epidemic’s total, global cost.

Most previous work has focused on rich nations.

The team used data from 152 countries representing 97 per cent

of the world’s smokers in Africa, the Americas, the Eastern Mediterranean, Europe, Southeast Asia and the Western Pacific.

They included UN and World Bank data on illness and death attributable to smoking, national employment rates and national GDP.

“These findings highlight the urgent need for countries to implement stronger tobacco control measures to address these costs”

world’s cigarettes and has a sixth of the global smoking death toll.

The researchers said the real cost was likely much higher.

They did not include data on the health and economic harm caused by second-hand smoke inhalation, or by smokeless forms of tobacco use, such as chewing.

Second-hand smoke, the team wrote, was responsible for an estimated six million deaths per year.

“Their inclusion would thus have a measurable impact on our estimate of the economic cost of smoking.”

And smokeless use, particularly in southeast Asia, may account for as much as 30 per cent of medical expenditure attributed to tobacco.

Curbing the habit globally would

go a long way towards achieving one of the UN’s Sustainable Development Goals -- to cut premature deaths from non-infectious diseases by a third by 2030.

Tobacco use is “one of the biggest public health threats the world has ever faced,” according to the WHO, which says taxes are the most costeffective deterrent.

Yet “only 33 countries, with 10 per cent of the world’s population, have introduced taxes on tobacco products so that more than 75 per cent of the retail price is tax,” the WHO says on its website.

“Tobacco tax revenues are on average 269 times higher than spending on tobacco control, based on available data.” AFP

Study published in the journal Tobacco Control

In 2012, they found, “diseases caused by smoking accounted for 12 per cent (2.1 million) of all deaths among working age adults aged 3069 -- with the highest proportion in Europe and the Americas.”

Public health threat

Almost 40 per cent of the global economic cost was borne by lowand middle-income countries -- a quarter by Brazil, Russia, India and China alone.

China consumes over a third of the

Impeachment

Power supply

Finance ministry

S. Korean prosecutors Mainland’s nuclear power fleet India’s growth to ‘return to interrogate President next week to overtake U.S. within decade to normal’ after cash crunch South Korean prosecutors independently probing the scandal involving President Park Geun-hye are talking with the presidential office to interrogate the impeached leader next week, local newspaper Donga Ilbo reported yesterday.

The independent counsel team had requested a face-to-face interrogation of President Park next Monday or Tuesday, but the presidential office Cheong Wa Dae wanted to delay it to between Wednesday and Friday for further preparations, the newspaper said without elaborating on sources.

The exact date has yet to be set. If conducted, Park would become the first sitting South Korean president to be probed by prosecutors.

The face-to-face interview would reportedly be conducted in the “third place” except for the independent counsel team’s office and the presidential Blue House. The interrogation will not be made public to local media outlets.

Lee Kyu-chul, spokesman of the special prosecutors, told a regular press briefing yesterday that nothing has been decided yet though it is true that the team is discussing with the presidential office about the date and the place for the interrogation. Xinhua

China’s rapid nuclear expansion will result in it overtaking the U.S. as the nation with the largest atomic power capacity by 2026, according to BMI Research.

The world’s second biggest economy will almost triple its nuclear capacity to nearly 100 gigawatts by 2026, making it the biggest market globally, analysts said in a note dated Jan. 27. The nation added about 8 gigawatts of nuclear power last year, boosting its installed capacity to about 34 million kilowatts, according to BMI. China has committed to boosting nuclear power, which accounted for about 1.7 per cent of its total generation in 2015, to help reduce reliance on coal, which accounts for about two-thirds of the country’s primary energy. The nation has 20 reactors currently under construction, according to the International Atomic Energy Agency. Another 176 are either planned or proposed, far more than any other nation, according to the World Nuclear Association.

China General Nuclear Power Corp., along with its fellow state-run nuclear giant China National Nuclear Corp., is seeking to sell and build nuclear power plants across the globe as part of the country’s efforts to export technology and surplus production capacity as it copes with a slowing domestic economy. Bloomberg News

India’s economy is expected to grow by between 6.75 and 7.5 per cent in the coming fiscal year, the finance ministry said in its pre-budget Economic Survey yesterday, roughly in line with this year’s expected 7.1 per cent.

Asia’s third-largest economy should steady after a hit from Prime Minister Narendra Modi’s decision in November to scrap most cash in circulation in a strike against “black money” - untaxed wealth and the proceeds of crime and corruption.

“Economic growth expected to return to normal as new currency notes in required quantities come back into circulation,” the finance ministry tweeted, publishing details of the survey.

The survey’s forecasts will underpin Finance Minister Arun Jaitley’s annual budget today, in which he is expected to offer some tax ‘sops’ to voters to soothe the blow to jobs and business inflicted by so-called demonetisation.

The survey also said government pay rises and muted tax receipts could put pressure on the fiscal deficit in the coming fiscal year.

Senior officials had said that Jaitley may allow the federal deficit to overshoot an earlier target of 3 per cent of gross domestic product to create room for public investment. Reuters