Business Daily #1226 February 3, 2017

Netizens vote most hated personalities in SARs Celebs Page 3

Friday, February 3 2017 Year V Nr. 1226 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro ‘One Belt’ strategy

Mainland projects for Sri Lanka meet violent opposition Page 10

Education

Gov’t spends MOP28.4 mln on higher education in Q4 2016 Page 4

Twin cities

Local delegation visits Ipoh to promote tourism Page 5

www.macaubusinessdaily.com Corporate

Apple loses steam in Greater China Page 5

Markets

Chinese bankers and brokers expect smaller bonus after weak 2016 Page 8

PHOENIX RISING? Gaming results

More was expected. Analysts are dissecting developments as the Year of the Rooster takes off in the gaming sector.

Following a hopeful end-2016, the delicate balance between VIP and mass players has gone under the microscope.

And all the numbers have yet to come in. Page 7

Fragile freedom

NGO report Hong Kong has had its freedom ranking downgraded following a politically-troubled 2016. The city is considered only ‘partially free’ – in great part because of an incident which occurred last year in its legislative assembly. Page 2

Money for science

Fewer zero-tariff exports

Exports from the territory to Mainland China under the CEPA zero-tariff programme almost halved in January.

The value of exchanges plunged MOP1 mln compared to 2016.

The number of licences, however, maintained an upward trajectory.

Public spending Local authorities invested MOP140.35 mln. Financing projects developed by local universities and schools in Q4 2016. The University of Macau and the University of Science and Technology and its Foundation received most of the funds. Page 2

What happened to Xiao?

Trade Page 3

HK Hang Seng Index February 2, 2017

23,184.52 -133.87 (-0.57%) Worst Performers

China Mengniu Dairy Co Ltd

+2.65%

Bank of East Asia Ltd/The

+0.45%

Galaxy Entertainment Group

-1.66%

Li & Fung Ltd

Cheung Kong Infrastructure

+1.52%

China Shenhua Energy Co

+0.36%

China Resources Land Ltd

-1.53%

China Life Insurance Co Ltd

AAC Technologies Holdings

+1.41%

China Unicom Hong Kong

+0.11%

AIA Group Ltd

-1.46%

China Mobile Ltd

-0.96%

Sino Land Co Ltd

-1.38%

China Overseas Land &

-0.86%

New World Development

-1.33%

Hang Lung Properties Ltd

-0.82%

Hengan International Group

+0.79%

China Resources Power

China Petroleum & Chemical

+0.65%

HSBC Holdings PLC

+0.00% -0.15%

17° 20° 18° 20° 17° 22° 17° 20° 17° 19°

-1.20%

Today

-1.17% Source: Bloomberg

Best Performers

SAT

SUN

I SSN 2226-8294

MON

TUE

Source: AccuWeather

Missing tycoon A confusing chain of rumours, events and what-ifs. Mainland tycoon Xiao Jianhua remains missing.

Rumours speculate the 2015 stock market debacle might be behind a supposed abduction shaking Hong Kong to its foundations. Page 16

2 Business Daily Friday, February 3 2017

Macau Tourism

Lucky Rooster

The MSAR registered more than 770,000 visitor entries during the Chinese New Year holiday period spanning January 27 to February 1, a 6.7 per cent increase from the same period of last year, according to the most recent data provided to Business Daily by the

Public Security Police Force (PSP).

Of that number, some 532,775 originated from Mainland China, an 8.5 per cent year-on-year increase, with the majority of visitors passing though the Gongbei Border Gate.

The data provided by the PSP excludes non-resident workers or student entrants to Macau. N.M.

Funding

Investing in Science

F

unding for Science and Technology Development granted MOP140.35 million to finance projects developed by local universities and schools, as well as a few individuals and technology companies, in the fourth quarter of 2016, according to data published by the Official Gazette.

Among the universities that received funding, the University of Macau (UM) and the University of Science and Technology (MUST) and its Foundation were the main beneficiaries.

UM received MOP71.67 million, of which MOP13 million was attributed to Rui Paulo Da Silva Martins, the University’s ViceRector and Director of the State Key

Laboratory of Analogue and MixedSignal VLSI, the largest recipient of a single research initiative. MUST and the MUST Foundation received MOP52.58 million.

The University of Saint Joseph (USJ) received MOP1.40 million to finance three research projects, while the Polytechnic Institute of Macau was attributed one single grant of

MOP123,000.

The remainder attributed for the period was distributed to dozens of schools, associations, and a handful of companies such as Gexus Technology Limited (MOP180,000), Hope medical electronic technology Co. Ltd. (MOP110,000), and Air Macau Company Limited (MOP114,000). S.Z.

Political freedom

Going down liberty lane Chinese central government intervention in Hong Kong’s legislative affairs has led to a downgrade in the city’s civil rights freedom ranking, raising concerns that similar influences could be extended to the MSAR following electoral law changes A report on the evolution of international civic rights freedom in 2016 conducted by non-governmental organisation Freedom House has downgraded Hong Kong’s position to a score of 61 on a scale of 100 (with 100 considered most free) with the city remaining classified as ’partly free’.

The ‘encroachment on freedoms in the territory and the [Chinese] central government’s unilateral reinterpretation of the Basic Law’ was mentioned as some of the main reasons for the drop, as two pro-democracy legislators were blocked from holding

office in the city’s legislative assembly for having proclaimed a pledge of allegiance deemed incorrect and offensive.

Although the MSAR is not mentioned in the report, an amendment in the recently approved electoral law has raised concerns by local pro-democracy legislators that a similar intervention by the Chinese central government could occur in Macau.

The approved changes to the electoral law mandate that to be qualified to run for a seat in this year’s Legislative Assembly election, candidates will have to declare their loyalty to

the MSAR and that they will uphold the city’s Basic Law. In his first press conference, the chairman of the new electoral commission for this year’s Legislative Assembly Elections stated that co-operation with the Chinese central government in regard to candidates’ eligibility would be “considered.”

Hong Kong’s downgrade was further described as due to the ‘detention by Mainland authorities of five Hong Kong booksellers, [and] shrinking journalistic and academic independence.’

Mainland China’s political freedom

situation in 2016 was described as ‘not free’ due to ‘the chilling effect on private and public discussion, particularly online, generated by cybersecurity and foreign NGO laws, increased Internet surveillance and heavy sentences handed down to human rights lawyers, microbloggers, grassroots activists, and religious believers,’ notes the report.

Of the 11 countries in the report that saw developments ‘of major significance’ leading to an alteration in their aggregate scoring, only one of the countries, Colombia, saw improvement in its score. The group notes this is ‘due to a historic reduction in violence resulting from the peace process between the government and left-wing FARC guerrillas.’

The United States remained classified as ‘free’ for the year, receiving a score of 89 out of 100. The only two countries to get a perfect score of 100 in the ranking were Norway and Sweden. N.M.

Sport

Dollars roll in for sports events Sports Fund splashes out MOP208.33 million in financial support in 2016 The Sports Fund granted MOP208.33 million (US$26 million) in financial support for the whole of 2016, according to an Official Gazette dispatch.

The amount represents a 1.7 per cent yearly increase from the MOP188.17 million handed out in the previous year, with the Wushu Masters Challenge event held in July 2016 receiving the largest single amount awarded by the Sports Fund of MOP20 million.

A total of MOP44.5 million was

handed out by the Sports Fund in the last three months of 2016 with the Macau Badminton Federation receiving the largest single amount in the last three months of the year, MOP4.6 million for organising the 2016 Macau Badminton Championship.

Some MOP1.7 million was set aside for the Automobile General Association Macau-China (AAMC) for subsidies for local drivers participating in the 63rd edition of the Macau Grand Prix, exceeding the MOP1.5 million handed out in prizes during the racing competition.

The total amount awarded in 2016 only represented 23 per cent of the MOP816.75 planned Sports Fund budget for the whole year.

Most of the Sports Fund revenue comes from taxes or profit from the ticket sales of sporting events, donations, heritage or the ceding of multi-sports venues by the MSAR Sports Bureau, with the Fund acting as a financial reserve for the department, receiving in addition banking certifications of applicants of public tenders for sporting events in Macau. N.M.

Telecom

Going wireless Fixed line services continue to decline while mobile creeps upwards The number of mobile subscribers in the city increased 3.9 per cent yearon-year in December 2016, according to the most recent data available from the Bureau of Telecommunications and Postal Services (CTT).

In total, there were 1.97 million

mobile services users in the MSAR in December, the majority of whom, some 723,552 users, were subscribed under prepaid services, while just 343,742 were using postpaid services.

The number of ‘One SIM Two Numbers’ users, with the Macau number as secondary amounted to 56,089, some 48 fewer than the previous month.

The number of fixed line services also fell, by 7.8 per cent year-on-year, hitting 134,072, divided between residential lines - which totalled 79,990, a 9.56 per cent decrease year-on-year - and commercial lines – which totalled 54,082, a 5.15 per cent decrease year-on-year. K.W.

Business Daily Friday, February 3 2017 3

Macau Trade Exports under the CEPA agreement reached a total of MOP773.5 mln since its implementation in 2004

CEPA deals cut by half The value of zero-tariff goods exported under the Close Economic Arrangement programme fell by almost half monthon-month in January 2017 Nelson Moura nelson.moura@macaubusinessdaily.com

T

he value of exports of zerotariff goods under the Close Economic Arrangement ( C E PA ) p r o g r a m m e operating between the MSAR and Mainland China dropped by almost half month-on-month in January 2017, according to the most recent data from the Macao Economic Services (DSE).

The total value of exports under the programme between Macau and the Mainland reached some MOP7.1 million (US$884,623) during the first month of this year, a 42.5 per cent

drop when compared to the MOP12.3 million registered during the previous month.

On a yearly comparison, the CEPA values for January 2017 registered a decrease of almost MOP1 million from the MOP8 million registered in the same month of the previous year, with exports registering 30.3 per cent month-on-month drop at the time.

Since the beginning of the scheme’s implementation in January 2004 the value of exports has reached MOP773.54 million.

As at the end of January, a total o f 616 se rvi c es a nd ag e nci es had received certificates under the Macau Service Supplier arrangement, with four more licences granted by the government since December 2016.

Local service providers under the arrangement are allowed to operate their businesses in the Mainland with zero-tariff treatment, with almost half of the certificate holders - some 298 - providing transport services, including freight forwarding

agencies, logistics, storage and warehousing.

After these services, the medical and dental services sector received the largest amount of licences, with 147 licensees, comprising 24 per cent

of all licences granted. Companies in the convention and exhibition sector held 41 certified companies, while the real estate sector had 33 certificate holders under the scheme.

The smallest number of certificate holding companies remain the travel agency and tourism operators sector with 21, and the construction and engineering sector with 16 licensees.

Celebrities

Most hated celebrities listed by SARs’ netizens Th e d i r e c t o r o f th e r e c e n t l y brought-to-life ‘God of Gamblers’ series - including the film ‘From Vegas to Macau’ - ranks as the third most hated celebrity, as voted by netizens from the Hong Kong and Macau SARs. Comedy d i r ec t o r W o n g Ji n g r ec e i v e d 9,177 votes, placing him behind

female Hong Kong Cantopo singer cum TVB actress Jinny Ng Yuek Hei. The voters appeared to be reacting to Ms. Ng’s pre-marital pregnancy and Mr. Wong’s recent attempts at rekindle the ‘God of Gamblers’ series, which star famous regional actors including Chow Yun Fat.

Hong Kong pop singer G.E.M. Tang, who has performed in Macau, topped the list of the most hated celebrities for the second year in a row, garnering 15,297 votes.

The online poll was created

by King Jer Entertainment, an unofficial Hong Kong-based online Facebook group. C.U.

4 Business Daily Friday, February 3 2017

Macau Opinion

Education

Higher education awarded MOP28.4 million in Q4 2016

Pedro Cortés* Sheyla Zandonai sheyla.zandonai@macaubusiness.com

Fresh air B&B Since our Secretary for Social and Cultural Affairs has been in office, I have most of the time agreed with his political views and decisions.

Furthermore, he is a polite politician with a constant smile on his face, even when there are difficult decisions to take. These days, finding someone with his character and profile is not easy.

That appreciation does not prevent criticism of his recent statement relating to the possibility of legalising the popular B&B concept, which if practiced is considered a crime under current law.

The world has developed very fast in recent years to the extent that, contrary to his statement, tourists demand other types of accommodation. Alternatives to hotels, which sometimes overcharge visitors and place lots of restrictions and other conditions, are welcome everywhere in the civilized world. With rules, of course, the goal of which is to protect the consumer.

There are examples in some parts of the world that could be taken by our administration to the benefit of the diversification of the economy whilst putting more money in the pockets of Macau residents.

The best of those alternatives is that consumers negatively rate places, owners and businesses that do not deliver. On the other hand, places with sometimes better conditions than hotels, can be rated well and charge more.

It is the market functioning at its best.

From a government perspective, it could be also another source of revenue as taxes generated by the enterprises should not be disregarded. Another class of entrepreneur, particularly young people, can, after risking their hand in other areas, create other ventures from income they earn. In addition, more jobs are created and thus the economy will benefit everyone.

Is this a dream? Well, taken into consideration the latest statement by our Secretary, yes. Macau, which could be an outstanding tourism destination, seems to like the fate of having a sole type of visitor. Those who go to the casinos, who take travel agency packages, and cannot have a click and stay option. Once again, with rules, which, I am sure, the great advisors of the Government will be very capable of putting in place to the benefit of all: residents, visitors, public coffers, suppliers, contractors who could refurbish the places . . . in a nutshell, to the benefit of the diversification of the economy.

I wish all readers and friends a great Year of the Rooster! *lawyer and frequent contributor to this newspaper.

T

he Macau SAR Government disbursed some MOP28.4 million to finance the projects and activities of higher education institutions, related associations, and scholarships in the fourth quarter of 2016, according to data published by the Tertiary Education Services Office (GAES) in the Official Gazette.

A total of MOP17.34 million attributed in the three months leading up to the end of 2016 were allocated to three higher education institutions: the University of Science

and Technology (MUST) and its Foundation, the City University of Macau, and the University of Saint Joseph (USJ).

MUST and MUST Foundation alone received nearly MOP12.67 million of all funds in the fourth quarter - MOP4.27 million and MOP8.40 million, respectively - with the latter amount attributed to the purchase of a licence for the use of electronic library databases in 2017. In the third quarter of 2016, MUST Foundation received MOP4.35 million from GAES and MO12.50 million from the Macau Foundation.

Although the University of Macau was not among the beneficiaries in the fourth quarter it had received

MOP1.42 million in the third quarter of 2016.

The activities subsidised range r es ea rch, th e Ac q u i si t i o n o f equipment (USJ) and IT to the training of bilingual staff in Portuguese and Chinese.

Additional financial support was granted to student associations such as Fujian University Macau Student Association, and cultural associations like the Heritage Ambassadors Association as well as civic associations such as the New Chinese Youth of Macau.

Some MOP7.54 million was also spent on scholarships granted to 244 graduate students, representing MOP31,145 per person.

Banking

New blood on board Portuguese bank Caixa Geral de Depósitos’ (CGD) new administration has appointed a new person responsible for overseas operations, including its local operations at Banco Nacional Ultramarino (BNU) bank.

The new overseer of the overseas

operations, José João Guilherme, will also oversee the group’s international operations in France, East Timor and Lusophone countries in Africa, and will integrate into the group’s new administration headed by Paulo Macedo, managing the state-owned

bank from February 1.

Mr. Guilherme has worked previously as an administrator at Portuguese banking groups Millennium BCP and Novo Banco S.A (Novo Banco) – both of which have branches in the MSAR - and venture capital fund ECS Capital.

The new CGD administration will take office after former administrative council president António Domingues spent only three months in the role, having refused to adhere to legislation passed in the Portuguese parliament mandating that administrators of the state-owned bank would have to present an asset declaration to the country’s Constitutional Court.

Although CGD filed losses of 205.2 million euros (MOP1.8 billion/ US$229.2 million) for the first half of 2016, it has described BNU as one of its better performing international branches, with the Macau group contributing 36.9 million euros to the group’s consolidated results in the same period. N.M.

Maritime

Seven yachts approved by new scheme Following the official launch of the Zhongshan-Macau Free Yacht Scheme in November last year, some seven yachts have been approved to sail to the city under the scheme, according to the Marine and Water Bureau (DSAMA).

In response to Business Daily’s enquiries, DSAMA revealed that some 100 yacht captains are qualified in the MSAR. The DSAMA also stated that it will consider adding extra yacht berths at the cross gate waterway area near Ocean Garden, according to demand and development of the scheme. Meanwhile, the Bureau notes that the current berths at Macau Fisherman’s Wharf and in Coloane are adequate to meet current demand.

In the wake of the government’s announcement of its intention to demolish 11 shipyards near Coloane

Village, also known as the Lai Chi Ven shipyards, as early as March of this year, the DSAMA affirmed that it has no plan for using the land near Lai Chi Van for the development of the Free Yacht Scheme as of yet. C.U.

Business Daily Friday, February 3 2017 5

Macau

Business

Chinese market takes bite out of Apple sales Apple sales declined 12 per cent in Mainland China, Macau, Hong Kong and Taiwan in the first quarter of 2017 Cecilia U cecilia.u@macaubusinessdaily.com

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lobal tech giant Apple Inc. experienced a decrease of 12 per cent in its Chinese sales revenues, including from Macau, Hong Kong and Taiwan, for the first quarter of its 2017 fiscal year that ended December 31, 2016.

The sales performance of Mainland China, according to the company’s

latest filing, is the only region to experience a yearly decline in revenue.

The tech giant recorded US$16.2 billion (MOP129.7 billion) income from China compared to US$18.4 billion recorded in the same period of the year in 2016.

The company’s filing shows that Japan has the highest growth in its first quarter sales, up 20 per cent year-on-year to US$5.8 billion.

Other regions - including the

Americas (9 per cent), Europe (3 per cent) and the rest of Asia Pacific (8 per cent) - all enjoy increasing sales performance in this year’s first quarter when compared to the same period last year.

Regarding overall performance, the company posted US$78.4 billion revenue in the first quarter of its 2017 fiscal year, up 3 per cent year-on-year compared to the first quarter in 2016.

In terms of sales of Apple products, revenue in the first quarter this year generated by iPad has dampened 22 per cent year-on-year, amounting to US$5.5 billion compared to US$7.1 billion produced in the same period of 2016.

A total of 13.1 million iPads were

sold vis-à-vis 16.1 million registered in 2016, according to the filing.

Revenue generated by other products such as Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories decreased by 8 per cent year-on-year. Meanwhile, the revenue of iPhones and units sold both experienced 5 per cent increase, with sales amounting to US$54.4 billion and 78.3 million iPhones being sold in the first quarter of 2017.

There is currently one official Apple Store in the MSAR territory - opened last year in June in Phase II of Galaxy Macau.

“We’re thrilled to report that our holiday quarter results generated Apple’s highest quarterly revenue ever, and broke multiple records along the way. We sold more iPhones than ever before and set all-time revenue records for iPhone, Services, Mac and Apple Watch,” said Tim Cook, the CEO of Apple, as cited by the company’s press release.

Diplomatic

A tale of two cities Macau Media Group is representing the territory to find new deals with Malaysia Cecilia U cecilia.u@macaubusinessdaily.com

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ocal firm Macau Media Group paid a visit to Ipoh, located in Perak state in Malaysia, during Chinese New Year to seek out co-operation deals, according to Malaysian-based newspaper Sin Chew Daily.

The director of Macau Media Group, Ke Jiangang, together with Malaysian state Tourism, Arts and Culture committee chairman Datuk Nolee Ashilin Mohd Radzi, discussed the tourism promotion of both cities as well in order to establish direct flights between both cities.

Nolee Ashilin commented that the establishment of direct flights between the two cities would be dependent upon the decision made by the Department of Civil Aviation Malaysia, claiming that the international

airport of Ipoh is able to provide facilities for flight operations.

She added that the possible establishment of twinning the city of Macau but indicated that the final decision could only be made by the Mentri Besar (the head of government of Perak State).

The discussion also involved Macau Group Media introducing foreign investment in Perak, to launch, for instance, a 5-star hotel.

Perak State seeks to attract 8 million tourists this year. If Macau Media Group can assist in attracting two million tourists, Perak State would hence have opportunities to co-operate with other Chinese cities, said Nolee Ashilin.

Meanwhile, according to Sing Chew Daily, Mr. Ke revealed the goal of attracting 10 million tourists to visit Ipoh, hoping to focus tourism promotion on Ipoh in this year’s Macao International Travel (Industry) Expo.

Direct flights between the two cities were suggested

The visit to Ipoh has been motivated by the implementation of ‘One belt, one road,’ with Macau initiating co-operation with Ipoh and later with other overseas Chinese cities.

Business Daily attempted to reach Macau Media Group for further information but had yet to receive a response by the time the story went to press.

Government

Markets

New Deputy Director at Public Affairs Bureau

Changes in Jacobson Pharma board moves

The Secretary for Justice and Administration, Sónia Chan Hoi Fan, has appointed Ms. Lo Kin I to the post of Deputy Director of the Public Affairs Bureau for a period of two years, starting from February 2, as published in the MSAR’s Official Gazette yesterday.

Ms. Lo, who entered the public administration arena in 2005, assumes the new position following her

two-year service as Cabinet Advisor to the Secretary for Social Affairs and Culture, Alexis Tam Chong Veng.

Previously, Ms. Lo acted as Chief of the Financial and Administrative Division of both the Identification Services Bureau (2006-2011) and the Statistics and Census Bureau (2014). Between 2011 and 2013, she was Compliance Manager at Resorts World Sentosa in Singapore. S.Z.

Jacobson Pharma Corporation Limited, a pharmaceutical and biotechnology company which distributes over 700 generic drugs and Traditional Chinese Medicine products, announced that the group’s Executive Director, Mr. Lo Chun Bun, is stepping down from the position, as well as from the remuneration committee, effective February 1, according to the company’s filing with the Hong Kong Stock Exchange.

Replacing Mr. Lo is Ms. Pun Yue Wai, who will assume both positions vacated by the former Executive Director.

Ms. Pun is also the vice-president of the company in charge of the administrative functions of the Group.

Jacobson Pharma is one of the largest generic drug distributors in Hong Kong, with an estimated market cap of between MOP2.2 billion and MOP3 billion in 2016, The group recently acquired two local companies - Victor Luck Limited and Happy Echo Limited – principally engaged in the manufacturing, marketing, and sale of proprietary medicines under the brand name Ho Chai Kung. S.Z.

6 Business Daily Friday, February 3 2017

Macau Gaming

New Year uncertainty February gaming revenue up 3-9 pct y-o-y: analysts Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

J

anuary’s gross gaming revenue results were ‘a bit more balanced,’ note analysts at Deutsche Bank, after revenues from the sector in the fourth quarter of last year revealed a changing paradigm in which VIP returned to overtake mass yet again.

Although pointing out that January’s revenue results - at MOP19.25 billion (US$2.41 billion) according to the Gaming Inspection and Co-ordination Bureau (DICJ)

- were 390 basis points below the group’s estimates, the group notes that ‘checks coming into monthend spoke more to low double digit growth,’ year-on-year, as compared to the 3.1 per cent increase when compared to the same month in 2015.

The analysts are expecting to see VIP play ‘pick up this weekend,’ as noted in a report released on Wednesday, saying that ‘VIP customers tend to drive CNY (Chinese New Year growth later in the holiday period)’. However, with regard to mass, analysts are finding it difficult to correlate the solid occupancy seen in the integrated resorts with ‘mass revenue acceleration,’ explaining that ‘we think this relationship will come into greater focus in the first quarter of 2017.’

‘We find results disappointing,’

declared analysts at Aegis Capital led by David Bain. ‘We continue to believe last weekend was strong, just not strong enough to lift results to Street or our expectations given the mid-month decline into the holiday,’ notes Bain, although pointing out that ‘it does not diminish the Macau recovery thesis.’

February foresight

Predictions by the group are for a February gross gaming revenue increase of between 3 per cent and 7 per cent year-on-year.

These predictions fall under those

by Wells Fargo, which estimate a 5 per cent to 9 per cent year-on-year increase in gaming revenues for the month of February, noting that ‘at the top of the range, this assumes February will be very strong during

the peak Chinese New Year Period during the first five days of the month,’ predicting moderation for the remainder of February.

Combining the first two months of the year the group anticipates around 5 per cent to 6 per cent growth, which ‘would represent slight trend growth.’

‘Given the CNY shift, we believe looking back at 2012 is likely the most appropriate barometer,’ Deutsche Bank analysts conclude, pointing out that in that comparison ‘we find the inability to improve from historical sequentials as a modest negative given the ramp of two new properties in the market.’

The analysts add that ‘the respective ramps are coming primarily at the expense of the others, rather than expanding the market.’

Results

Earnings

Pagcor 2016 net profit up 18 pct

Scientific Games’ revenue increases in Q4 2016

Total income from licensed casinos during 2016 reached P18.8 bln Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

The Philippine Amusement and Gaming Corporation (Pagcor), the operator of publicly owned casinos and regulator of the Philippines’ gaming market, saw an uptick in its yearly net profit for 2016, posting an 18.05 per cent increase year-onyear to reach P4.46 billion (MOP720 million/US$90 million), according to the group’s results published on their website.

The regulator’s total income generated by gaming activities under its supervision throughout 2016 amounted to P53.3 billion, of which the government saw P25.26 billion

in its 50 per cent direct gaming tax.

Of the results, the group’s income from junket gaming operations amounted to P618.84 million, a 22.7 per cent increase from the previous year, which earned P504.2 million.

Table games winnings for the year, which reached P10.14 billion, saw a 4 per cent year-on-year reduction.

Electronic gaming operations overshadowed junket operations, reaching P1.71 billion, but still suffered a 23.4 per cent reduction year-on-year, while slot machines pulled in P11.93 billion, an 8.17 per cent increase year-on-year.

Total income from licensed casinos during the 2016-year amounted to P18.8 billion, a large yearly increase of 66.57 per cent, while that from offshore gaming operations amounted to only P73.72 million during the period.

In total, the group paid out P1.45 billion in salaries and wages during the period and invested P15.66 billion in land as well as land improvements.

Money lost

In December of last year Philippine President Rodrigo Duterte, commenting upon the illegal gaming operations undertaken by Jimei Group’s Jack Lam in the Philippines, noted that “we weren’t able to determine how much we have lost” in tax revenue from Lam’s operations, stating “he cheated us.”

Pagcor Assistant Vice President Arnel Ignacio noted in recent statements that Lam only paid 1 per cent of the junket earnings from the junket operations in the country to the authorities, saying the exact amount owed in taxes would be provided later. Estimates by Philippine media place the amount Lam owes the authorities at P13.9 billion.

Gaming machine manufacturer Scientific Games is expecting a 4.5 per cent year-on-year increase in its full-year revenue for last year, according to its press release on Wednesday.

The group is expecting to see revenue for the period range between US$2.87 billion and US$2.88 billion for the full year, whilst predicting a maximum 2.44 per cent year-on-year increase for the three months ended December 31, 2016, amounting to between US$748 million and US$755 million.

“Our preliminary results for the fourth quarter 2016 reflect ongoing improvements in our gaming, lottery interactive operations as well as the initial benefits from our recently implemented business improvement initiative that is expected to reduce our annualized cost structure by US$75 million,” stated CEO and President of Scientific Games Kevin Sheehan.

The group notes that it is releasing its preliminary expected results ‘in

connection with a plan to refinance and extend the maturity dates of its term loan debt and revolving credit facility, and otherwise take advantage of favourable market conditions to lower its cost of debt and extend maturities’.

The company expects its net loss for the fourth quarter to be in the range of US$105 million to US$115 million.

The group expects its AEBITDA (Attributable earnings before interest, taxation, depreciation and amortization) to be between US$290 million and YS$295 million,’ which Deutsche Bank analysts deem ‘better than expected.’

Analysts at Wells Fargo point out that the company ‘remains levered to domestic slots operations, where we have a reasonably cautious view.

The domestic landscape remains challenged with few new casino openings and relatively static slot capex (capital expenditure).’

Analysts opine that the company’s focus this year will ‘be on reducing debt.’ K.W.

Business Daily Friday, February 3 2017 7

Gaming

Results

Konami revenue down but profits rocket Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com

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onami H o l d i n g s C o r p o ra t i o n , w h i c h operates under a variety of arms including pachinko and pachislot, saw its profits increase 229.8 per cent yearon-year for the first nine months of its financial year, ended December 31, according to an announcement on the group’s website.

Total profit attributable to owners of the company amounted to 20.65 billion yen (MOP1.47 billion/ US$183.5 million) according to the announcement.

Revenue for the group during the nine-month period contracted 8.5 per cent for 163.94 billion yen.

The group also saw a contraction in

its ‘Amusement Business’ segment, the revenues for the nine-month period of which fell 17.3 per cent yearon-year, amounting to 17.12 billion yen, as opposed to the 20.71 billion yen made in the same period in 2015.

The group recently restructured its segments, uniting the arcade games business with Pachislot and Pachinko Machines under the title ‘Amusement Business’.

The group also saw year-on-year losses in its Digital Entertainment, Healthy and Fitness and Gaming and Systems segments, with 9 per cent, 3.1 per cent, 10.8 per cent and 17.3 per cent reductions, respectively.

The group notes that it debuted a series of products at the MGS Entertainment Show, held in Macau November 15 to 17 of last year, claiming ‘these exhibitions received

considerable attention by visitors from all over the world.’

Segmented

Regarding the group’s Gaming & Systems segment, the products of which were debuted in the MSAR, the group notes that the North American market presents it with ‘harsh competition’ which is ‘intensifying due to the entry of European manufacturers in recent years,’ but that ‘the market is gradually on the path to recovery.’

The focus will be on ‘a wider offering in the Central and South American and European markets’ and to ‘expand our line-up’ of products and game contents ‘which are subject to a participation agreement (in which profits are shared with casino operators).’

The group notes that these products ‘raised higher expectations and willingness from players, and contributed stable earnings’.

Regarding the other side of the world, ‘in the Asian and Oceana markets, we developed a richly diverse product line-up,’ notes the report.

‘As for pachislot and pachinko machines, business in this industry was conducted in an unusual environment,’ notes the group, singling out the ‘self-imposed moratorium on replacement of pachislot and pachinko machines’ for a one-month period due to the ‘impact of the G7 Ise-Shima Summit in May 2016’.

The segment under which these fall, Amusement, saw ‘harsh conditions’ for the period; the group notes it ‘promoted business operation efficiency and profit structure improvement.’

The group predicts a 10 per cent decrease in revenues year-on-year for the upcoming fourth quarter of its fiscal year, ending March 31, estimating hitting 225 billion yen, while seeing a 128.2 per cent increase in profits – to hit 24 billion yen.

8 Business Daily Friday, February 3 2017

Greater china In Brief Property

Builders buying into new ventures fuels creditor worry Chinese property developers investing in new ventures outside their core business are hurting their bonds. The notes of Sunac China Holdings Ltd and Dalian Wanda Commercial Properties Co. may come under more pressure this year as the groups branch out into non-core businesses. Purchases by highly leveraged Chinese developers unrelated to real estate raise the “knee-jerk question” of whether they might be having problems with their existing business, said Bryan Collins, a fixed-income portfolio manager at Fidelity International in Hong Kong. Chinese builders face increased competition and tighter profit margins at home.

Tie-up

Beijing invests in Mexican auto plant A Chinese-Mexican tie-up yesterday unveiled plans to invest over US$200 million in a Mexican car plant in a welcome sign of confidence even as threats from U.S. President Donald Trump have paralyzed investment plans by U.S. companies. Mexico’s Giant Motors and China’s Anhui Jianghuai Automobile (JAC Motor), along with distributor Chori Company Limited, will invest more than 4.4 billion pesos (US$212.46 million) in an existing plant to build SUVs in the central state of Hidalgo, state governor Omar Fayad told a news conference.

Transport system

Mainland sees rising traffic as holiday nears end China’s transport system saw rising traffic Wednesday as millions of people started to return to work after the week-long Lunar New Year Holiday. Some 9.7 million passenger trips were estimated on Chinese railways on Wednesday, year-onyear growth of 9 per cent, as the week-long holiday draws to a close yesterday, according to China Railway Corporation. Traffic on expressways around major cities also increased, leading to rising congestion. During the New Year holiday, hundreds of millions of people go back to their hometowns to meet relatives and old friends.

Investment

Start-up scales back U.S. plans Electric luxury car startup Faraday Future, one of several Chinese-funded companies taking aim at Elon Musk’s Tesla Inc, is throttling back on plans to build vehicles in the United States, the company and public officials said. Faraday, an affiliate of Beijing-based Leshi Internet Information and Technology Corp, has also pared its planned product portfolio down from seven to two vehicles, according to two sources with direct knowledge of the company’s plans.

Faraday will build a much smaller auto assembly facility than originally planned in North Las Vegas, Nevada, a city official said late on Tuesday.

Markets

Domestic bankers sing the bonus blues Industry profits fell 50 per cent to RMB123.4 billion, according to the Securities Association of China Engen Tham

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ankers and brokers in China are expecting a brutal bonus season over the next few weeks, as business dwindled on local stock markets last year, dragging industry profits down by half.

Data from head-hunters and i n d u st r y s o u rc es s u gg est a n equities trader in China would have earned between RMB500,000 and RMB850,000 (US$73,000US$124,000) in 2016, with a 12-month bonus paid in the first half.

But this year the industry is struggling after the stock market boom came to a turbulent end in 2015 and regulators stepped in to manage the turmoil, hitting local banks and global players trying to boost their Asia business.

Key Points Chinese brokerage industry profits slump 50 pct in 2016 Firms slashing costs, cutting perks, parties, pay Bonuses seen sharply lower, some expecting nothing IPO bankers fared better, seen outperforming in 2017 too According to Brett Rose, head of the Shanghai branch of recruitment firm Robert Walters, around 40 per cent of investment bankers on the mainland are expecting no bonus at all.

Some brokers are also planning lay-offs, having already pared back some of the perks that staff have long taken for granted, people at five brokerages and analysts said.

Shanghai-based Orient Securities, which reported a 68 per cent drop in 2016 profit, has already signalled its belt-tightening, two executives at the brokerage said.

First the free sweet treats and coffee disappeared from the pantry, then half-year bonuses were scrapped, they said, and most recently the cash advance on the annual bonus, customarily paid ahead of Lunar New Year, was slashed to a quarter for one of the sources.

“This year performance was, broadly speaking, very bad, so it’s possible that (the year-end bonus) will only be half or a third of last year’s,” said the source.

Orient Securities has yet to respond to a request for comment.

A source at Shenwan Hongyuan Group, the fifth-largest mainlandlisted brokerage, said a new policy sacking the bottom fifth of last year’s performers on the business side would take effect by end-March.

Shenwan Hongyuan did not return

requests for comment.

Many Chinese brokers, highly dependent on trading fees, were badly hit by a 50 per cent fall in average daily turnover in stocks and funds to RMB500 billion last year, according to a January report by Haitong Securities.

Government restrictions on margin financing continued to weigh on trading, while crackdowns on property-related and other structured products also hit revenues.

Industry profits fell 50 per cent to RMB123.4 billion, according to the Securities Association of China.

Global knock-on

Staff at global banks that have bet on China to drive growth in their Asian equities trading franchises are also due to receive news of their bonuses in coming weeks.

They typically earn as much as twice their Chinese counterparts’ basic pay, but they will also have to pull in their horns.

“Global banks’ Asian revenues had been propped up by China’s massive stock market rally in 2015, but the secondary market is down considerably from its amazing bull run, which means sales and trading compensation should be lower,” said Benjamin Quinlan, CEO of Hong Kong consultancy Quinlan & Associates.

The slump in secondary market b u si ness, t og ethe r w ith cost pressures, is likely to drag down average investment banking bonuses in Asia by 20 to 30 per cent at the worst-performing global banks, said Quinlan.

Even the best performers are likely to see bonuses fall 10 to 15 per cent, he added.

An employee at Credit Suisse Founder Securities said he was expecting a bonus of three to four months’ salary, down from seven last year.

The firm also cancelled its annual party and halved employees’ phone allowance, he said.

A spokesman for the Swiss bank’s joint venture firm said it cancelled the party in favour of team-building events, and the new phone allowance was adequate for all but a few.

He said the firm planned to expand this year.

A source at Morgan Stanley Huaxin said some staff there were expecting a 50 per cent fall in annual bonuses.

Morgan Stanley Huaxin declined to comment.

For Chinese bankers working in the primary equity markets such as initial public offerings (IPO) and private share placements, the situation is less dire, with profits from IPOs falling just 5 per cent last year to RMB10.3 billion, according to Haitong estimates.

At Beijing-based UBS Securities (UBSS), some IPO and private placement bankers received 12 months’ bonus last year, but are expecting around 10 months this year, two people at UBSS said.

Staff in the firm’s primary equity markets team are divided into three levels, with the most junior making around RMB420,000 a year in basic pay, while a managing director could command up to RMB2.5 million, according to one banker.

UBS declined to comment.

Primary markets executives are likely to outdo their colleagues on the trading desks again in the coming year, as money flowing into several expected IPOs may drain liquidity from the broader market, said Jiahe Chen, chief economist at Cinda Securities. Reuters

Business Daily Friday, February 3 2017 9

Greater China Oil industry

Mainland trader’s Mideast spree shakes up world crude flows The purchases by the trader known as Chinaoil have helped raise the value of Middle East crude Serene Cheong

Crude purchases in one corner of the oil market by a Chinese trader are contributing to the shake-up of supply flows across the globe.

China National United Oil Co. last month bought at least 7 million barrels of Middle East crude for March loading as part of an assessment process operated by Platts used to set price benchmarks, data compiled

by Bloomberg show. The spree was made at a time the region’s supply is shrinking as producers including Saudi Arabia shoulder a majority of global output curbs.

‘Crude imports

by China, the world’s biggest energy consumer, rose to a record average of 7.63 million barrels a day in 2016’

OPEC and import requirements for strategic petroleum reserves,” said John Driscoll, the chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore.

“That can trigger a spree and lift Dubai prices against Brent and WTI, leaving the arbitrage window for oil flows from west to east wide open.”

Officials who answered calls to Chinaoil’s Beijing headquarters and parent company China National Petroleum Corp. said there was no one available to comment during the on-going Lunar New Year holidays.

Pricing process

In the Platts price assessment process -- which traders refer to as the window -- bids, offers and deals are reported through e-mails, instant messages and phone conversations in a fixed period each day. These are used to create end-of-day price assessments for various commodities

and form benchmarks for transactions around the world. The company is a unit of S&P Global Inc. “S&P Global Platts’ role is to produce robust price assessments that reflect the value of commodities including fuel oil,” a spokeswoman for the company said in an e-mail. “It is not our role to regulate trading in the physical markets where we produce price assessments.”

Under the Platts pricing mechanism for Dubai crude, so-called partial cargo deals need to be combined into a 500,000 barrel shipment if the same buyer and seller trade 20 of the 25,000-barrel lots in a single month.

Chinaoil last month purchased 339 out of the 346 partials traded for March, according to Platts.

Full cargoes bought by the company included Abu Dhabi’s Upper Zakum oil and Qatar’s Al-Shaheen crude, data compiled by Bloomberg show. Sellers included Royal Dutch Shell Plc and Reliance Industries Ltd. Chinaoil has bought much more in a single month previously. It made a record haul of 36 million barrels in August 2015.

The premium for Brent, the benchmark for more than half the world’s crude, over the Dubai oil marker fell to US$1.27 a barrel last month, the least since September 2015. Meanwhile, U.S. WTI slipped to a discount versus the Middle East measure in December amid an increase in American drilling.

Dubai’s strength made Middle Eastern varieties less alluring than Brent-linked supplies from Africa and Europe. West African producers this month will send the most crude to top oil market Asia in at least five years.

Citigroup Inc. estimates 33 million barrels of European North Sea crude is set to sail to Asia between December last year and this month, versus 58 million barrels from January to November 2016.

Crude imports by China, the world’s biggest energy consumer, rose to a record average of 7.63 million barrels a day in 2016, official data show.

Inbound shipments increased as domestic production fell and more strategic petroleum reserve units were brought online. Bloomberg News

The purchases by the trader known as Chinaoil have helped raise the value of Middle East crude, which had already turned costlier relative to supplies from other regions on OPEC’s deal to cut production. The increase in the Dubai crude benchmark versus West Texas Intermediate and Europe’s Brent has spurred previously unviable flows of cargoes into Asia from areas such as the Gulf of Mexico and boosted shipments from West Africa and the North Sea. “Larger importers like Chinaoil can create purchasing strategies based on expected oil demand, taking into account production cutbacks by

Tourism

Domestic tourists embrace foreign cultural experience With industrialization and urbanization on the fast track in China, tracing natural attractions and wildlife have become popular among Chinese tourists As Chinese Spring Festival has become an opportunity for Chinese people to travel, many tourists are shifting their interest from shopping abroad to multiple choices in celebration of the holiday. They choose foreign countries to experience their exotic culture and services.

Taking the travel to Japan as an example, after “shopping spree” became a catchword of 2015, more and more Chinese tourists prefer buying a physical check-up or experiencing the Japanese culture and services to being obsessed about shopping.

Meng Fanhai, owner of a tourism agency in Tokyo, said his agency arranged more than 200 cases of physical check-ups and medical treatments in 2016, up 50 per cent from 2015, accounting for about one third of his agency’s total Chinese tourists.

Li Xuejing, marketing manager of the agency, said Chinese tourists are getting more willing to experience local culture and characteristic services, including staying in private homes, appreciating bonsai and watching monkeys in hot springs.

Yang Min, co-partner of a tourism agency specializing in receiving

Chinese tourists in Kenya, said the country is unfamiliar to most Chinese people in 2005, but since 2010, more and more Chinese tourists have taken the African country as a destination to experience biodiversity there.

“During July and August, nearly 90 per cent of tourists in Kenya’s Masai Mara National Reserve are from China. They are keen to watch the great

Chinese tourists in Thailand

migration here,” he said.

Zhang Renquan, a senior Africa tourism practitioner, said Chinese tourists are gradually getting familiar with African countries besides South Africa and Egypt -- two pillars of Africa tourism-- and experiencing more programs including safari, diving and parachuting.

Chinese tourist Guo, who is taking a vacation on an island in the Philippines, said now she pays more attention to relaxation and enjoyment during holidays instead of shopping or choosing gifts for relatives as she did years ago.

“When I book a hotel, I will take

into consideration the massage, the spa and other special services, in one word, to enjoy myself,” she said.

Zhou, a tourist from China’s Shandong province, said Chinese tourists have transferred their interests from shopping to personal hobbies.

“One of my partners comes to the Philippines to take a diving exam and gain the certificate, out of personal interest,” she said.

For Britain, China has become the most valuable source of foreign tourists, and Chinese tourists average spend three times higher than other foreign tourists. According to statistics, an average increase of 22 Chinese tourists creates one new post for British tourist industry.

Though the devaluation of pound is one of factors ignites Chinese tourists’ enthusiasm for travelling to Britain, it has no longer been a whole picture for Chinese overseas tourism. Britain’s rich history and famous education tradition have caught ordinary Chinese people’s eyes.

Zhang, a tourist from China’s Fujian province, said “my main purpose to Britain is to guide my child to museums, to broaden his horizon.”

Li Xiaotong, chairman of a tourism agency in France, said as more Chinese people travel abroad, consumption style is changing from purchasing luxury goods to popular brands, and cosmeceuticals have become their favourite. Xinhua

10 Business Daily Friday, February 3 2017

Greater China

Sri Lanka President Maithripala Sirisena Investment strategy

“Silk Road” push stirs resentment and protest in Sri Lanka The Sri Lankan protests are not the first sign of opposition to China’s One Belt plans Shihar Aneez

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hina signed a deal with Sri Lanka late last year to further develop the strategic port of Hambantota and build a huge industrial zone nearby, a key part of Beijing’s ambitions to create a modern-day “Silk Road” across Asia.

The agreement was welcome relief for the island nation of 20 million people. As they try to reduce the country’s debts, officials in Colombo see China’s plans to include Sri Lanka on its “One Belt, One Road” initiative as an economic lifeline.

China has spent almost US$2 billion so far on Hambantota and a new airport and wants to spend much more.

But Beijing now faces a new and unpredictable challenge to its presence in Sri Lanka and broader Silk Road project.

Hundreds of Sri Lankans clashed with police at the opening last month of the industrial zone in the south, saying they would not be moved from their land. It was the first time opposition to Chinese investments in Sri Lanka turned violent.

Leading the campaign against the latest deal, which he says is too generous to China, is former President Mahinda Rajapaksa, an influential opposition politician who first allowed Chinese investment in Sri Lanka when he was leader from 2005-15.

The clashes, in which demonstrators threw stones and police used tear gas and water cannon, underlined the depth of resentment at China’s expansion felt by some local people, who feared they would be forced from their homes.

The Chinese foreign ministry said Beijing was doing what was best for both countries. The Chinese embassy in Colombo did not respond to a request for comment on investments in Sri Lanka.

The Sri Lankan protests are not

the first sign of opposition to China’s One Belt plans to build land corridors across Southeast Asia, Pakistan and Central Asia and maritime routes opening up trade with the Middle East and Europe.

Rail links from China through Laos and Thailand have hit the buffers over resistance to what they say are Beijing’s excessive demands and unfavourable financing.

“Impinges on sovereignty”

Under the original deal negotiated

by Rajapaksa during his tenure, the container terminal at Hambantota was to be operated by a joint venture between China Harbour Engineering Co. and state-run China Merchants Port Holdings for 40 years.

The Port Authority of Sri Lanka would retain control of all other terminals in the harbour, as well as a 6,000 acre industrial zone.

But last month, the administration of Rajapaksa’s successor President Maithripala Sirisena, who came to office threatening to cancel high-value Chinese contracts on the grounds they were unfair, approved a deal to lease 80 per cent of the port to China Merchants Port Holdings for US$1.12 billion.

The company also got the lease for 99 years.

Officials said Sirisena’s hand was forced by the country’s high debt burden and the fact that inflows from countries including India and the United States were less than expected, despite a US$1.5 billion, three-year IMF loan programme agreed last year.

“A 99-year lease impinges on Sri Lanka’s sovereign rights, because a foreign company will enjoy the rights of the landlord over the free port and the main harbour,” said Rajapaksa.

“This is not an issue with China or with foreign investors. It is about getting the best deal for Sri Lanka,” he told Reuters in an interview.

The government also announced the lease of a much bigger 15,000 acres of land around the port for an industrial zone controlled by China Merchants Port Holdings, which has become a lightning rod for protests.

The demonstrators said they feared eviction from their land to make way

for the site, a concern that China put down to a misunderstanding.

“Chinese companies have from the very start upheld the holding of talks and consultations with Sri Lanka on the basis of one’s own free will, equality and mutual respect according to market principles,” said Chinese foreign ministry spokeswoman Hua Chunying.

China Merchants Port Holdings declined to comment on the protests.

“We are not leaving”

China has spent US$1.7 billion building Hambantota port and the adjacent Mattala Rajapaksa airport, named after the former president, both of which are under-utilised and losing money.

Losses at the port added up to around US$230 million in the five years to the end of 2016, according to the Sri Lankan finance ministry.

China’s ambassador to Sri Lanka, Yi Xianliang, said the country would invest US$5 billion more in the next three to five years and create 100,000 jobs “if everything goes well.”

Last week, a policeman stood guard at the foundation stone of the proposed new zone in a forest clearing in Hambantota to prevent protesters from marching on the area.

“We are firmly against this project.

We don’t want our land to be given to the Chinese. We are not leaving the area,” said Upul Dhammika, a farmer whose land is located where the government has tried to survey for the industrial zone.

Sleepy outpost

Rajapaksa questioned the need for the Chinese to be given 15,000 acres, which he said was more than three times the area of all other economic zones in the country combined.

Isolated from the West over allegations of human rights abuses during the country’s civil war, Rajapaksa struck major deals with the Chinese when he was in power, including Hambantota and the nearby airport.

Sirisena, elected two years ago, vowed to review some of those agreements, including a US$1.4 billion “port city” in the capital Colombo which was put on hold in 2015.

That, said a Chinese source with knowledge of the recent negotiations, upset Beijing, and so it pushed for the best possible deal on Hambantota.

“They (China) were really angry with the new government, until it agreed (to) an 80 per cent port deal,” the source said, speaking on condition of anonymity because of the sensitivity of the talks.

The Chinese embassy in Colombo did not respond when asked about that aspect of the negotiations.

Beijing also threatened lawsuits when the new administration sought to review some of the old agreements, an official in the international trade ministry said.

China’s position was that it won the contracts on merit and a change of government should not have a bearing on these deals.

Key Points Protests erupt against Chinese projects in Sri Lanka Beijing’s “One Belt, One Road” plan hits a speed bump Sri Lanka’s debt problems weaken its bargaining position China pushed for generous terms on port, industrial zone Sri Lankan Port Minister Arjuna Ranatunga said Hambantota port was losing money and the government had to go for a debt-for-equity deal to reduce the financial burden on the country.

Sri Lanka’s national debt stands at around US$64 billion, or 76 per cent of gross domestic product, one of the highest among emerging economies.

It owes China over US$8 billion.

For now, Hambantota remains a sleepy outpost. Four years after the port and airport were completed, there is one flight a day and barely five to six ships docking each week.

The highway leading to the town is largely deserted, a new conference hall is unused and even a large cricket stadium built by the Chinese is used mainly for wedding receptions. Reuters

Business Daily Friday, February 3 2017 11

Asia Prices

S. Korean inflation rises most in over 4 years Core inflation, which strips out volatile food and fuel prices, rose 1.5 per cent, up from 1.2 per cent in December Cynthia Kim and Christine Kim

S

outh Korean consumer prices rose at their fastest pace in more than fouryears in January, meeting the central bank’s inflation target for the first time since it was lowered last year and tempering calls for another cut in interest rates.

The consumer price index rose 2 per cent in January from a year ago, driven by soaring food prices, data showed yesterday, up from 1.3 per cent in December and marking the biggest rise since a 2.1 per cent gain in October 2012.

of bird flu, the higher inflationary pulse may keep the Bank of Korea (BOK, pictured) on the side-lines for a while.

At last month’s meeting, the BOK kept interest rates at a record-low 1.25 per cent as it monitors uncertainties including the pace of rate increases by the U.S. Federal Reserve and President Donald Trump’s proposed trade policies.

Hong Chun-uk, an economist at Kiwoom Securities said the central bank is likely to keep rates steady for the rest of the year as inflation is likely

to remain high at least until end-June, despite a sluggish economic recovery.

The BOK last cut rates in June 2016, and 7 out of 23 analysts surveyed in January had expected the bank to cut rates further some time this year.

Inflation has been lagging the BOK’s target level for years, even after the target was lowered to 2 per cent at the start of last year from a range of 2.5 per cent to 3.5 per cent previously.

The data showed prices up on a monthly basis too, with the CPI up 0.9 per cent on-month, above the survey’s expected 0.4 per cent increase and the fastest rise in nearly nine years.

Core inflation, which strips out volatile food and fuel prices, rose 1.5 per cent, up from 1.2 per cent in

December.

“Food prices have been rising recently, so in the first quarter we’ll be seeing the effects of that on inflation. It looks like price pressures are normalising as oil prices rise as well,” said Park Jung-woo, economist, Korea Investment and Securities.

“This accelerating trend is likely to continue for a while.”

Fresh food prices soared, jumping by 12 per cent on-year, while egg prices soared 61.9 per cent following an outbreak of avian influenza.

A separate statement from the nation’s finance ministry said January inflation had surged mainly on agricultural product prices and base effects from a drop in oil prices a year ago. Reuters

Key Points Jan CPI +2.0 pct y/y (Reuters poll +1.5 pct) Jan CPI +0.9 pct m/m (Reuters poll +0.4 pct) Inflation at highest since Oct 2012 Fresh food prices jump 12 pct y/y The inflation rate was well ahead of a 1.5 per cent rise projected in a Reuters survey.

Analysts say while South Korea may need a few more months to see if more expensive grocery bills are due to stronger consumption or from temporary factors like crops harmed by foul weather and an outbreak

Environment

Philippines to shut mines, suspend others as clampdown tightens Some of the mines that have been ordered to close had their production suspended last year by the government The Philippines will close down over 20 mines, mostly nickel producers that account for about half of output in the world’s biggest nickel ore supplier, as a government campaign to fight environmental degradation

deepens.

Manila is also suspending operations at six other mines, including the country’s top gold miner.

Environment and Natural Resources Secretary Regina Lopez ordered

the closure of 21 mines and the suspension of several others, including a gold mine operated by Australia’s Oceanagold Corp, for causing environmental destruction. Shares of Oceanagold fell more than 14 per cent.

“Why is mining more important than people’s lives?” Lopez told a media briefing.

Lopez, a staunch environmentalist, said several of the mining operations that were shut were in functional

watersheds.

“My issue here is not about mining, my issue here is social justice,” she said, after showing footage of environmental damage caused by mining in the Southeast Asian nation.

Lopez said the nickel mines ordered to shut account for about 50 per cent of the country’s annual output. These mines, along with others, can appeal their case to President Rodrigo Duterte.

Duterte has backed Lopez’s mining audit, warning shortly after taking office last June that the Philippines could survive without a mining industry.

Some of the mines that have been ordered to close had their production suspended last year by the government, leading to a spike in nickel prices.

Three-month nickel on the London Metal Exchange fell 0.4 per cent to US$10,210 a tonne by 0533 GMT, with a holiday in China dampening trading.

Oceanagold, in a statement, said it has not received any official suspension order from Manila’s Department of Environment and Natural Resources.

“There is no legal basis for any proposed suspension,” the miner said. Reuters

12 Business Daily Friday, February 3 2017

Asia Commerce

Australia celebrates record trade surplus as exports boom Wayne Cole

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ustralia boasted its biggest trade surplus on record in December as surging commodity prices showered the resource-rich nation in cash, a windfall that could lessen the risk of a downgrade to its triple A credit ratings.

Yesterday’s data from the Australian Bureau of Statistics showed a trade surplus of A$3.51 billion (US$2.67 billion) in December, handily outpacing forecasts of A$2.2 billion.

Key Points

might cut Australia’s top credit rating.

“The current account deficit is the mirror image of our borrowing from the rest of the world,” said CBA chief economist Michael Blythe. “The implication is that our reliance on the savings of the rest of the world should decline.”

“These developments should feed into the debate about the sustainability of Australia’s AAA rating in a positive way.”

Economic rebound

The rush of export earnings will ripple through the economy via higher

profits, incomes and tax receipts, likely ensuring a rebound in gross domestic product after a shock 0.5 per cent contraction in the third quarter.

“This contribution and an expected bounce back from the weather-affected Q3 figure suggests a Q4 GDP outcome in the order of 1 per cent or higher,” said Tapas Strickland, an economist at NAB. “That should eliminate any fears out there that Australia was at risk of recording a ‘technical recession’.”

It would be a welcome source of support given another engine of growth - residential construction

- looks to be near a peak.

A separate report out yesterday showed approvals to build new homes dipped 1.2 per cent in December, the fourth fall in five months.

“After housing activity rose consecutively for four years, its longest ever boom, we now think that it has probably already peaked at over 6 per cent of nominal GDP,” said George Tharenou, an economist at UBS. If that view is right, home building could make little net contribution to economic growth over all of 2017, having added half a per centage point last year. Reuters

Dec trade surplus jumps to A$3.5 bln, smashes forecasts Shrinking current account deficit lessens risk of ratings cut Economy looks to have rebounded after Q3 contraction Approvals to build new homes dip 1.2 pct as market cools The previous month was also revised up sharply to A$2.0 billion, a double win that lifted the local dollar a quarter U.S. cent to US$0.7624.

Exports jumped by 5.3 per cent to a record A$32.6 billion, led by double-digit gains in coal and iron ore, while imports edged up only 0.7 per cent.

China was the standout customer as exports surged 28 per cent to top A$10 billion for the first time ever.

For the December quarter as a whole, the country notched up a surplus of A$4.8 billion in a startling turnaround from the previous quarter’s A$3.8 billion shortfall.

That will also sharply shrink the fourth-quarter current account deficit, a timely improvement given S&P Global Ratings has cited a reliance on foreign funding as one reason it

Bondholders payment

Mongolian citizens offer donations to pay off gov’t debt Prime Minister said that while the government would accept the donations, it had already “found a solution” for the March bond payment Private citizens in Mongolia are donating cash, jewellery, gold and even horses to help the government make a near US$600 million payment to bondholders next month.

The cash-strapped nation has been embroiled in an economic crisis brought about by a collapse in foreign investment, slowing growth in China and weak commodity prices.

Its currency, the tugrik, lost nearly a quarter of its value last year.

The government has been in talks with China and the International Monetary Fund for assistance, but investors are worried that any bailouts might not be negotiated in time, with the Development Bank of Mongolia’s US$580 million of bonds due in March.

Though the Mongolian public has been hit by welfare cuts, rising food and fuel costs and a tough winter that is threatening to kill large numbers of livestock, donations began to flood

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in this week after a campaign was launched by a prominent economist and members of parliament.

Corporate groups and legislators

were also chipping in with cash contributions of as much as 100 million tugrik (US$40,650).

Mongolia’s foreign currency reserves are at a seven-year low, according to credit rating agency Fitch, and redeeming DBM’s bonds could halve its total stockpile, which stood at US$1.1 billion in September last year.

“What is the intention of the government remains the key,” said a Hong Kong-based trader.

“If they don’t get the IMF bailout, where do they get the resources for this payment, without which they can’t do a new bond to refinance? It’s a chicken and egg situation.”

Prime Minister Jargaltulga Erdenebat said that while the government would accept the donations, it had already “found a solution” for the March bond payment and would

‘Foreign currency reserves are at a seven-year low’

Panorama of Mongolia’s capital with Parliament building in the center

spend the cash elsewhere.

“The government cannot prohibit the start of any citizen-run campaign,” he said in a statement released on Wednesday.

“The cabinet has decided to spend voluntary donations on health, education and reducing smog as well as public infrastructure,” he added.

A senior Mongolian finance official said late last year that the country was looking to refinance its debt through lower-interest loans, and insisted the payments would be met in full. Reuters

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Business Daily Friday, February 3 2017 13

Asia In Brief Inflation

Vietnam’s CPI to rise 0.46 pct The consumer price index (CPI) of Vietnam in January 2017 rose 0.46 per cent over December 2016 and 5.22 per cent compared to the same month last year, according to the General Statistics Office (GSO) yesterday. Of 11 items in the CPI calculation basket, the prices of nine groups increased, with the highest rise recorded in transportation, at 3.21 per cent compared to the previous month. The price of pharmaceuticals and healthcare service was up 1.01 per cent, while that of housing and construction materials increased 0.57 per cent, goods and other services, up 0.48 per cent, and education, up 0.47 per cent.

Official visit

Japan considers buying more U.S. energy Japanese officials have been scrambling to respond to Trump’s scattershot comments since he took office Tomo Uetake and Nobuhiro Kubo

Japanese Prime Minister Shinzo Abe is considering increasing energy imports from the United States, two sources familiar with the plan told Reuters, as he prepares to meet President Donald Trump, who has complained about Japan’s trade surplus.

Japan is putting together a package of plans for Japanese companies to invest in infrastructure and job-creation projects in the United States for Abe to take to the Feb. 10 meeting

with Trump in Washington.

Another idea is to offer to increase liquid natural gas (LNG) imports from the United States, a source in the ruling coalition told Reuters.

Another option, if Abe determines that Trump is most concerned about the trade gap, is to increase imports of U.S. shale oil or gas on top of the investment package, according to a top executive at a major Japanese corporation who is close to Abe. Japanese officials have been scrambling to respond to Trump’s

scattershot comments since he took office.

He has threatened to impose a tax on car imports from Mexico, criticised Japan’s trade gap with the United States and most recently accused Japan, along with China and Germany, of devaluing their currencies to the detriment of U.S. companies. “(Abe) wants to know what’s the most important thing for Trump,” said the executive, who declined to be identified.

“If it is the trade surplus that Trump cares the most about, for instance, then we could come up with a few possible solutions,” including importing more U.S. shale oil or gas.

Abe’s approach toward Trump would be “not accommodating, not opposing”, he said.

Utilities would be resistant to buying more U.S. shale gas because they have already committed to buying large amounts and Japan’s demand for energy is falling, an executive at a Japanese gas importer told Reuters on condition of anonymity.

‘Japan is the world’s biggest buyer of the gas cooled to liquid form for transport on ships and takes in nearly a third of global shipments’ Prices for LNG in Asia have fallen by almost a fifth this year amid a supply glut.

Japan is the world’s biggest buyer of the gas cooled to liquid form for transport on ships and takes in nearly a third of global shipments.

Once seen as a panacea for Japan’s energy crisis after the Fukushima nuclear disaster in 2011 led to the shutdown of most reactors in the country, U.S. shale gas is now just one of many options for Japan to meet its needs.

Japan took in its first shipment of shale gas in liquid form this month and more shipments are likely to come as more export terminals start shipments this year and next.

The Yomiuri newspaper said yesterday Abe’s growth and jobs initiative would include a plan for Japan and the United States to jointly develop a US$450 billion “infrastructure market”, into which the Japanese government and companies would invest US$150 billion over 10 years. Reuters

Power

S. Korea’s electricity consumption rises Industrial electricity consumption in South Korea rose in the fourth quarter of last year as demand increased from the semiconductor sector, which led the country’s growth in the quarter, a government report showed yesterday. Power consumption for industrial purpose advanced 3.5 per cent in the October-December quarter compared with a year earlier, according to the Ministry of Trade, Industry and Energy.

Demand in the semiconductor industry surged 18.6 per cent during the quarter due to the booming chip market. Power consumption among oil refiners gained 9.3 per cent amid higher oil prices, while the figure in the chemical sector climbed 4.3 per cent.

Dairy

Fonterra raises Australian farmgate milk price Dairy giant Fonterra on Wednesday raised its Australian farmgate milk payout slightly to A$5.20 (US$3.97) per kilogram of milk solids, in line with its forecasts, as falling production pushed up prices. The A$0.10 per kilogram increase by the New Zealand co-operative comes amid a recovery in global dairy prices that began last year after two years of falls.

“Production has fallen across the major exporting regions, particularly Europe and New Zealand, and we’ve seen a significant decline in Australian milk supply,” Australia managing director René Dedoncker said in a statement.

Shipping sector

S.Korea court expects to declare Hanjin Shipping bankrupt A South Korean court said yesterday it decided to end Hanjin Shipping Co Ltd’s court receivership process and expects to declare bankruptcy on February 17 after a two-week period for appeals. The Seoul Central District Court said in a statement that it made the decision as the firm’s liquidation value would be worth more than its value as a going concern. Hanjin Shipping, which had been the world’s seventh-largest container shipper, applied for court receivership in late August after its creditor banks halted further support.

Swiss shipping group MSC said its unit has bought a stake in Hanjin Shipping’s U.S. port operator.

14 Business Daily Friday, February 3 2017

International In Brief Law enforcement

German prosecutors investigate Deutsche Boerse chief German police and prosecutors investigating possible insider trading by the head of Deutsche Boerse have searched the office and apartment of the man who is leading a planned merger with the London Stock Exchange. State prosecutors in Frankfurt said the investigation centred on whether secret merger talks with the London Stock Exchange were under way when Deutsche Boerse Chief Executive Carsten Kengeter bought shares in his company in Dec. 2015. The allegations coincide with growing resistance in Germany towards plans to put the merged group’s main headquarters in London.

High earners

London led growing ranks of EU’s million euro bankers Britain boasted the most bankers earning more than a million euros a year in the European Union during 2015, with their overall ranks rising despite policymakers’ efforts to curb pay. Figures released yesterday by the European Banking Authority (EBA) showed the number of high earners in banking hit 5,142 in 2015, up from 3,865 in 2014, with 80 per cent of those paid above a million euros based in London.

“The largest population of high earners in the EU of 4,133 is located in the United Kingdom...and most of them are remunerated in pounds,” the EBA said in a statement.

UN

Global FDI fell in 2016, facing bumpy 2017 Last year China was the third largest outward investor globally, with big spending in Brazil, Germany and Spain Tom Miles

G

lobal foreign direct investment (FDI) fell 13 percent in 2016 and a possible 10 percent rise in 2017 is beset by uncertainty, the United Nations trade and development agency UNCTAD said on Wednesday.

FDI, which largely comprises cross-border mergers and acquisitions (M&A) and investment in startup projects abroad, is a bellwether of globalisation and a potential sign of growth of corporate supply chains and future trade ties.

“FDI recovery continues along a bumpy road,” said UNCTAD Secretary-General Mukhisa Kituyi.

“Significant uncertainties about the shape of future economic policy developments could hamper FDI in the short-term.”

Global FDI was an estimated US$1.52 trillion in 2016. The United States was the top destination with

US$385 billion, an 11 percent rise from 2015. Britain was second with US$179 billion, up almost six-fold because of three big M&A deals, and China third with US$139 billion.

Inflows to India and Africa both slipped about 5 percent, and Latin America by 19 percent. Europe saw a 29 percent fall, partly because of a significant drop in investment channelled via low tax regimes in Switzerland, Ireland and the Netherlands.

The 2017 growth forecast is based on expected economic growth and rising commodity prices, but the outlook is clouded by uncertainty over the policies of U.S. President Donald Trump and the evolution of Britain’s plan to leave the European Union.

Until the fog lifts, companies might keep plans on hold, said UNCTAD’s investment chief James Zhan.

If Trump cuts taxes on repatriated profits, U.S. firms will have an incentive to bring foreign earnings back to the United States, but that might not translate into an investment boom

there, Zhan said.

“The challenge is that those who are holding large earnings overseas may not be those companies that are in the business of infrastructure or those areas (requiring investment), and besides, the interest rate in the U.S. has been low, so liquidity or capital shortage hasn’t been a problem.”

‘Global FDI was an estimated US$1.52 trillion in 2016’ While domestic tax enticements may mean the United States draws down its stock of investment globally, China is going in the other direction, having become a net source of FDI for the first time in 2016.

Last year China was the third largest outward investor globally, with big spending in Brazil, Germany and Spain. But after several years of “spectacular” growth, China’s boom in outward FDI may slow down this year due to policies to reduce capital flight, Zhan said. Reuters

UN

World food prices hit near two-year high World food prices rose to a near two-year high in January and look set to be higher and more volatile in 2017, the United Nations food agency said yesterday. Food prices on the Food and Agriculture Organization’s (FAO) index have fallen for five straight years due to ample supply, a slowing global economy and a strong U.S. dollar. But in January, the index, which measures monthly price changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 173.8 points, a high not seen since February 2015.

Portugal

Espírito Santo investors lodge 400 legal actions Investors who bought corporate paper over the counter at failed Portuguese bank Banco Espírito Santo that was issued by other group companies that subsequently failed have in the meantime lodged hundreds of legal actions against the state, BES and other entities, according to the annual report from the office of Lisbon’s attorney-general. The report, which was released on Wednesday, shows that between July and September of last year actions were lodged against Novo Banco, the securities markets commission, the CMVM, the sector regulator, the Bank of Portugal, and the banking sector Resolution Fund.

Monetary policy

Fed leaves interest rates unchanged, remains upbeat on economy Fed policymakers are still awaiting clarity on the possible impact of Trump’s economic policies Lindsay Dunsmuir and Jason Lange

T

he Federal Reserve held interest rates steady on Wednesday in its first meeting since President Donald Trump took office, but painted a relatively upbeat picture of the U.S. economy that suggested it was on track to tighten monetary policy this year.

The U.S. central bank said job gains remained solid, inflation had increased and economic confidence was rising, although it gave no firm signal on the timing of its next rate move.

“Measures of consumer and business sentiment have improved of late,” the Fed said in a unanimous statement following a two-day policy meeting in which it left its benchmark interest rate in a range of 0.50 per cent to 0.75 per cent.

The Fed also highlighted that the unemployment rate, currently at 4.7 per cent, was still hovering near its recent low.

Financial markets were little changed after the rate decision, while investors were still expecting the next rate increase to occur in June, according to Fed funds futures data compiled by the CME Group.

The Fed raised rates in December for only the second time in a decade

and forecast three rate increases in 2017.

Fed Chair Janet Yellen recently underscored that, with the economy near full employment, the central bank risked a “nasty surprise” on inflation if it is too slow with rate hikes.

The Fed said in its statement that it still expects inflation to rise to its 2 per cent target in the medium term, although it noted that inflation compensation was still low and longterm inflation expectations were little changed.

Key Points Central bank says job gains still solid, inflation rising Financial markets little changed after policy statement It did, however, indicate that the effects of weak oil prices had ended, something that will give it a “clean” read on inflation in the future. On Monday, the Commerce Department reported an uptick in inflation to 1.7 per cent.

“The economy continues to chug along and sentiment has improved.

The Fed does sound more confident about eventually getting to its 2 per

cent inflation target,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management.

Fiscal policy uncertainty

Investors had all but ruled out a rate increase this week, given the uncertainty surrounding Trump’s fiscal and trade policies and how they would affect the Fed’s outlook.

Trump’s promises on infrastructure spending, tax cuts, regulation rollbacks and a renegotiation of trade deals could quickly spur higher inflation, which may necessitate a faster pace of rate hikes.

T h e b u s i n e s s m a n - t u r n e dpolitician has offered few specifics on his economic plans or a timeline for their rollout, while the announcement of policies viewed by many as protectionist and an immigration crackdown have caused market jitters in recent days.

“There is still uncertainty about fiscal policy, so the Fed is likely waiting for a bit more data and more certainty,” said Tony Bedikian, head of global markets at Citizens Bank.

Th e Lab o u r D e p a r t m e n t i s scheduled to release its closelywatched monthly jobs report for January on Friday. Yellen may also give a clearer signal on the Fed’s thinking when she provides semiannual testimony to Congress in mid-February.

There are seven more Fed policy meetings in 2017, with the next one scheduled for March 14-15. Reuters

Business Daily Friday, February 3 2017 15

Opinion Democratization of debt pushes more of it into shadows Lisa Abramowicz Bloomberg Gadfly

A

divide is growing in the U.S. corporate debt market.

On the one hand, publicly issued bonds have become more transparent. They are more regulated and more easily accessible to all types of investors through stock-like shares of exchangetraded and mutual funds.

But on the other, an increasing share of corporate debt is moving into the shadows. Privately sold bonds account for a growing proportion of the U.S. credit market, especially among lower-rated companies. The total amount of North American private debt assets under management surged 35 percent from the end of 2012 through mid-2016, to almost US$400 billion, according to Preqin data that tracks private-equity style, closed-end private debt funds. Just as a reference point, the U.S. junk-bond market grew by 26 percent in that period, according to Bank of America Merrill Lynch index data.

This is important, especially now. Investors are ploughing billions of dollars into publicly traded credit funds in the wake of the U.S. election in November. While these debt investors are seeking to profit from a benign economy without the risk of stock-like losses, they’re entering something that more greatly resembles a gambling parlour because of its susceptibility to sharp moves based on traders’ shift in sentiment and strategy as opposed to underlying fundamentals of companies. Big institutions, meanwhile, are increasingly taking on the lending role that big banks had, except without the same amount of regulatory scrutiny.

The route here is fairly easy to map. The U.S. corporate bond market tracked by indexes swelled in the past decade, largely because of the Federal Reserve’s unprecedented effort to suppress bond yields after the 2008 financial crisis. Companies sold trillions of dollars of debt to take advantage of record-low borrowing costs. Investors, seeing few better opportunities, were willing buyers.

But as yields dropped, more sophisticated i n v est o rs m o v e d a growing amount of their business out of the public market into direct-lending strategies or privately placed debt that offered higher yields in exchange for less liquidity.

This is still happening. The investment advisory arm of Penn Mutual Life Insurance, for example, recently hired Sean McTernan to be director of business development, a new role that will specialize in private debt strategies.

This unit “will be able to market aggressive fixedincome strategies for a private fund managed by an off-the-radar insurer instead of a public venture,” according to a Jan. 31 report by Brian Reynolds, chief market strategist at New Albion Partners.

“Not only will this product be out of sight of the regulators, but it will also be outside the view of the bearish macro funds that like to short credit products. “It makes sense for Penn Life to do this.

And it’s certainly not alone; insurance companies have substantially increased their allocations to private debt in recent years. Not only do they expect to earn more, but it takes their investments out of the casino-like atmosphere, where a politician can torpedo an entire market with a Twitter post.

This is an uncertain time, and many traders are turning to the public credit markets to express their jitters by buying or selling funds that track broad indexes of companies. Institutions are looking to opt out of the fray, pinpointing more idiosyncratic opportunities -- such as lending money to one specific company after doing a lot of research and expecting to get repaid along with some interest.

In the meantime, the credit market continues to become more bifurcated. And the American shadow bank continues to grow. Bloomberg Gadfly

‘But as yields dropped, more sophisticated investors moved a growing amount of their business out of the public market into directlending strategies’

ASEAN logo with members’ flags

ASEAN and the Rohingya Crisis

T

he worsening plight of Muslim Rohingya communities in Myanmar’s Rakhine state could soon imperil the country’s government, as well as the reputation of its leader, the Nobel Peace Prize laureate Daw Aung San Suu Kyi. The crisis has been escalating since last October, when Myanmar’s military launched an offensive in which 130 Rohingya were killed, and dozens of their buildings were torched.

At the time, the military’s leaders claimed that the attack was part of an effort to locate unidentified insurgents who were thought to be responsible for the slayings on October 9 of nine policemen at three border posts in the district of Maungdaw.

According to a Human Rights Watch analysis of satellite images, still more Rohingya villages were destroyed over the course of nine days in November, bringing the number of buildings razed to 1,250; meanwhile, 30,000 people have reportedly been displaced. The United Nations considers the stateless Rohingya to be among the world’s most persecuted minorities.

Now, other countries in an otherwise stable region are becoming embroiled in the crisis; indeed, countries such as Bangladesh, Thailand, and Indonesia are increasingly feeling the spillover effects, as Rohingya seek asylum within their borders. The persecution of the Rohingya can no longer be described as merely a domestic problem for Myanmar.

ASEAN has been criticized for approaching the Rohingya issue too cautiously, and for failing to recognize that the on-going conflict could divide the bloc along ethno-religious lines. The region’s population is 60 per cent Muslim, 18 per cent Buddhist, and 17 per cent Christian; continued discrimination against the Rohingya already has become a rallying cry for sympathetic Islamic extremist groups in countries that provide asylum.

This is an especially grave risk for Muslim-majority countries such as Indonesia.

The fleeing Rohingya live in deplorable conditions when they reach host countries, and they have been involved in chronic skirmishes with security forces. Facing constant struggle and on-going food shortages, the Rohingya are prime targets for terrorist recruiting. Not surprisingly, Islamic extremist groups have already posted online videos calling for jihad against Myanmar; and Indonesian authorities recently arrested two militants who were allegedly plotting an attack on Myanmar’s embassy in Jakarta.

As the Rohingya crisis deepens, more regional and international extremist groups will undoubtedly use it as a convenient tool to gain sympathy, recruit new members, and raise funds. ASEAN leaders must formulate an effective diplomatic solution to the crisis to prevent it from fueling more extremism in the region and disrupting trade

“

Syed Munir Khasru Chairman of the Institute for Policy, Advocacy, and Governance (IPAG), an international think tank

and people’s livelihoods. The much-heralded “ASEAN Way,” whereby member states adhere to quiet diplomacy and principled non-intervention, served the bloc well on the economic front in its first decades of existence. But as international criticism mounts, the ineffectiveness of a “see no evil, hear no evil” strategy for addressing internal issues should now be obvious.

Malaysia seems to recognize this. At the recent ASEAN foreign ministers’ meeting in Yangon, it called for the coordination of humanitarian aid and an investigation into alleged atrocities committed against Rohingya. Following t h e m e e t i n g, M y a n m a r showed willingness to grant humanitarian access and to keep the ASEAN members informed.

It is time for ASEAN to heed this call, shifting its mode of operation, so that mature democracies such as Singapore and Malaysia – which rank high in human-development indices – can become responsible global leaders, and expand their humanitarian problem-solving capacities.

ASEAN needs to grow into a strong, politically accountable, European Union-style community.

To do that, it must find peaceful yet effective ways to mitigate what is now a regional humanitarian crisis.

According to unofficial estimates, there could now be as many as 500,000 Rohingya refugees in Bangladesh alone. Since the latest military intervention, another 20,000 Rohingya have arrived. This puts Bangladesh, which already struggles to provide basic services to its own 170 million citizens, in an extremely difficult position.

Already, Myanmar’s Deputy Minister of Foreign Affairs has visited Dhaka for talks. And a threemember team of Myanmar’s Advisory Commission on Rakhine State visited the Rohingya slums in Bangladesh’s coastal area bordering Rakhine state.

ASEAN could help here. Member states such as Singapore enjoy friendly relations with both Myanmar and Bangladesh, and thus could provide a platform for the two countries to come together and arrive at permanent solutions to a decadesold problem.

But first ASEAN must decide to pull its political weight, and to expend some of its political capital, to bring about a just, long-term settlement. If it does, it can serve as an honest broker between Myanmar, Bangladesh, and, most importantly, representatives of the Rohingya community, who have suffered persecution for long enough.

The United Nations considers the stateless Rohingya to be among the world’s most persecuted minorities

”

Project Syndicate

16 Business Daily Friday, February 3 2017

Closing Profits

Sony cuts outlook on film unit write-down already-reduced outlook for 60 billion yen, Sony Corp.’s struggling movie division is weighing on the rest of the company, even as the PlayStation is booming and semiconductors show signs of a rebound.

The electronics and entertainment company cut its full-year profit forecast a second time in three months after posting quarterly earnings that missed estimates, following a 112 billion yen (US$1 billion) charge against its film business that was unveiled earlier this week.

Net income will be 26 billion yen in the 12 months ending March, a steep cut from an

the Tokyo-based company said in a statement yesterda. Still, solid performance by the games and chips businesses were bright spots, helping the company’s shares pare losses in European trading.

Sony has been seeking to recover from setbacks last year, when component production was halted due to earthquakes and a loss on the sale of its battery division. In the entertainment division, the lack of box-office hits and the increasing popularity of streaming services has eroded the profitability of the business. Bloomberg News

Tycoons in Hong Kong

Missing Chinese billionaire targeted over stocks crash There has been widespread speculation that Xiao’s disappearance was part of Chinese President Xi Jinping’s ongoing anti-corruption drive

A

Chinese billionaire who went missing from Hong Kong and is said to have been abducted by mainland security agents is reportedly under investigation in connection with China’s 2015 stocks crash.

Local media say financier Xiao Jianhua was last seen at his apartment in Hong Kong’s harbourfront Four Seasons hotel.

He was taken by mainland security agents last week, according to overseas Chinese-language media.

It is illegal for mainland agents to operate in semi-autonomous Hong Kong and the case has sparked new fears its freedoms are under threat from Beijing.

Three statements purportedly from Xiao -- a Canadian citizen -- denying he has been kidnapped have appeared on his company’s WeChat account and on the front page of a Hong Kong newspaper.

The Canadian consulate confirmed to AFP yesterday Xiao was a citizen and said its officials were in contact with authorities to “gather additional information and

provide assistance”.

According to the South China Morning Post (SCMP), Xiao, founder of Beijing-based Tomorrow Group, is in mainland China and “assisting investigations” into the stock market turmoil of 2015.

The Shanghai stock index tumbled nearly 40 percent over a period of little more than two months after peaking in mid-June that year.

Authorities helped inflate the bubble by encouraging investments. But when it burst, officials sought to pin blame on market manipulators.

It is unclear how Xiao is being linked to the crash, but mainland investigators have targeted several investment

executives on suspicion of insider trading since the stocks rout.

Last week former star hedge-fund manager Xu Xiang was sentenced to more than five years in prison for market manipulation.

Apple Daily reported yesterday he had been a neighbour of Xiao at the Four Seasons, before Xu was detained on the mainland.

The hotel has a reputation as a bolthole for Chinese tycoons.

‘Corruption target’

A hand-out photo made available by the Chinese University of Hong Kong on 02 February 2017 shows Chinese billionaire Xiao Jianhua speaking during a robotics symposium in Hong Kong, China, 21 April 2016. Lusa

The investigation into Xiao is also linked to China’s disgraced ex-spymaster Ma Jian, the SCMP said.

Ma was former deputy head of China’s ministry of state security and was expelled from the ruling Communist Pa rt y i n D ec e m b e r o n suspicion of taking bribes and “abusing power”.

There has been widespread speculation that Xiao’s disappearance was part of Chinese President Xi Jinping’s on-going anti-corruption drive, which some critics believe has been used to target his political opponents.

The campaign was launched after Xi took power in 2012 and has brought down government officials and corporate executives.

Xiao is said to have acted as a broker for the Chinese leadership, including for Xi’s family -- but there

were also reports he could be connected to members of rival political clans.

One US-based Chinawatcher said he believed Xiao was being targeted by Xi “to use him as a source to extract information on his enemies”.

Another source who said he had met Xiao at the Four Seasons described him as a “powerful deal broker” for China’s princelings.

“He’s low-key, but he’s very high-flying amongst Chinese bankers in Hong Kong,” he told AFP. Hong Kong news site Initium reported Xiao had wanted to move some of his companies to Japan as he no longer felt secure in the city.

Xiao had also been seeking business partnerships in Taiwan.

Taiwan’s Business Today magazine reported in 2009 he was courting connections there because he felt it was the safest place to flee, citing people familiar with Xiao.

Analyst Ma Ngok said other big Chinese businessmen based would now be likely to leave Hong Kong.

“They just don’t have the confidence that if something happens in Hong Kong the government or the police is going to help out,” said Ma, professor at Chinese University of Hong Kong.

Xiao’s case has echoes of the disappearance in 2015 of five booksellers known for publishing salacious titles about Beijing’s leadership.

One of the men, Lee Bo, a British citizen, vanished from Hong Kong triggering international condemnation and local protests.

All five booksellers resurfaced on the mainland. AFP

Cooperation

Investment ties

ECB study

Myanmar, Thailand sign bilateral agreements

Philippines, Russia in talks to tighten trade

Rating agencies appear to have learned from past errors

Myanmar and Thailand signed three bilateral cooperation documents in Nay Pyi Taw yesterday, said the President’s Office.

The three documents, which comprise two memorandums of understanding on fishery cooperation and development of emergency department at the Dawei General Hospital and one agreement on money transfer services, were signed shortly after Thai Deputy Prime Minister Dr. Somkid Jatusripitak arrived Nay Pyi Taw on a friendly visit.

Of the documents signed, the money transfer services agreement was between the Myanmar Economic Bank and Krung Thai Bank of Thailand for Myanmar migrant workers in the Southeast Asian member nation.

Before the signing, Somkid had met Myanmar President U Htin Kyaw and State Counselor and Foreign Minister Aung San Suu Kyi and the two sides discussed on enhancement of bilateral cooperation in infrastructure and rural development and boosting border trade and tourism sector.

The Thai Deputy Prime Minister arrived Myanmar on a four-day friendly visit yesterday. Xinhua

The Philippines and Russia are in talks to straighten ties in trade, energy, tourism and even in fighting crime, a government statement said yesterday.

The Philippine Department of Trade and Industry said talks are under way between Manila and Moscow to forge closer economic cooperation and strengthen trade and investment relations.

In a statement to the media, the government said that Russia’s Deputy Minister of Economic Development Alexander Tsybulskiy met last week Philippine Trade Undersecretary Ceferino Rodolfo in Manila to map out the plan to hold the inaugural meeting of the Philippines-Russia Joint Commission on Trade and Economic Cooperation or JCTEC in Manila before President Rodrigo Duterte’s visit to Russia in spring.

“The meeting discussed various areas of cooperation, including trade and investments, agriculture, industry, energy, manufacturing, infrastructure, transport, tourism, science and nuclear technology, labor and higher education,” the statement read.

Established in November 2015, the Philippines-Russia JCTEC is the primary bilateral mechanism for both countries to discuss ways to enhance trade, investments and economic cooperation. Xinhua

Global rating agencies appear to have learned from past errors and their current assessment may better reflect euro zone vulnerabilities before the continent’s debt crisis, a European Central Bank research paper concluded.

Ratings before 2010 did not serve as a leading indicator of debt and growth risks but there is some evidence that ratings are now more sensitive to institutional factors and economic fundamentals, the authors said in a paper that does not necessarily reflect the ECB’s views.

Some regulators and policymakers questioned the judgment of rating agencies for giving top-notch credit scores to debt that later unravelled, and for failing to properly appreciate the risks in more complex financial instruments.

EU lawmakers implemented new regulations on rating agencies after the crisis but some have called for even more stringent rules.

“While in the pre-sovereign crisis period buoyancy was masking latent vulnerabilities, there appear to have been some learning process by rating agencies since 2010, leading to a swifter adjustment of rating agencies to a move in fundamentals,” the ECB paper, published yesterday, said. Reuters