Jockey Club's annual losses balloon Gaming Page 4
Monday, February 6 2017 Year V Nr. 1227 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Brands
Polarization of U.S. society drags down commercial brands Page 16
Retailing
Hong Kong shops continue to face falling trends Page 9
Subsidies
MOP9.2 mln in SME loans approved in January Page 2
www.macaubusinessdaily.com Retail
Gov’t gives nod for Tesla to deliver Model S cars Page 4
Construction
Average wages of workers jumps in Q4 2016 Page 3
Prospective App Market Start-up
Launched last August, local food delivery app Food4U already has 40,000 users and 200 restaurants registered on its platform, handling approximately 1,500 orders per day. Founder of the app, Dwain Lei, believes local mobile application businesses are a viable and sustainable option, but the government should provide more support. Pages 6 & 7
Macau-China bilateral trade plunges
Trade activities between the two parties amounted to US$3.29 bln for 2016, a slump of 31.1pct y-o-y, according to the Ministry of Commerce. The official data shows there were more approved projects invested in by Macau firms in the country during the year, but the level of capital invested in the projects fell.
Tighter yuan
Monetary policy China’s central bank tightened monetary policy by raising the interest rates it charges on open-market operations and on funds lent via its Standing Lending Facility, as it shifts to reining in asset prices and inflation. Page 10
Bye bye “zero-fee tours”?
Imports & Exports Page 5
HK Hang Seng Index February 3, 2017
23,129.21 -55.31 (-0.24%) Worst Performers
Belle International Holdings
+2.08%
Sun Hung Kai Properties Ltd
+0.75%
Want Want China Holdings
-1.67%
China Mobile Ltd
-0.97%
China Mengniu Dairy Co Ltd
+1.50%
CNOOC Ltd
+0.72%
China Shenhua Energy Co
-1.58%
China Resources Power
-0.90%
Cheung Kong Infrastructure
+1.26%
Hong Kong & China Gas Co
+0.69%
Bank of East Asia Ltd/The
-1.35%
PetroChina Co Ltd
-0.82%
China Life Insurance Co Ltd
+0.94%
New World Development
+0.67%
Hengan International Group
-1.33%
Bank of Communications
-0.70%
Sands China Ltd
+0.89%
China Resources Land Ltd
+0.62%
BOC Hong Kong Holdings
-1.30%
HSBC Holdings PLC
-0.68%
17° 21° 17° 19° 14° 20° 13° 18° 14° 17° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Tourism Macao Government Tourism Office says it is taking actions to combat “zero-fee tours” to the city, proposing that local travel agencies be banned from organising these types of tours, in its latest bill amending regulations on travel agencies and tour guides. Page 2
2 Business Daily Monday, February 6 2017
Macau In Brief Motorcycles
MOP3,500 to owners for two-stroke motorcycle impound The government will offer MOP3,500 (US$437.5) to owners of two-stroke motorcycles if they bring their vehicles in to be impounded. The measure, announced in a release, comes as the government continues with its plan to remove highly polluting vehicles from circulation. The decision came about after consulting with various parties, notes the release, including the business sector, environmentalists and transit specialists. Vehicles registered after September 1, 2014 are not eligible for the plan, and only motorcycles with a valid registration can be taken in for impounding.
Transport
270 cases of illegal parking in public car parks in 2016 The Transport Bureau (DSAT) said some 270 cases of illegal parking were recorded in the city’s 41 public car parks in 2016, an increase of 36 per cent year-on-year. The majority of the violations involved light vehicles, with only 13 involving motorcycles. DSAT added that owners of 170 vehicles had already paid the related penalties for their infractions and moved their vehicles out of the car parks, while 81 vehicles were removed by the authorities and 19 had their registrations cancelled. According to the Bureau, vehicles are considered to be parked illegally once they occupy a parking lot for more than eight days, occupy a private or reserved parking lot, park in areas that cause inconvenience or take up more than one parking space at a time. C.U.
Tourism
MGTO to ban “zero-fee tours”
T
he Macao Government Tourism Office (MGTO) is to ban local travel agencies from accepting or organising “zero-fee tours” to the MSAR, according to its director Maria Helena de Senna Fernandes. In a reply to legislator Kwan Tsui Hang’s written interpellation, the MGTO director said the bill amending the current regulations on travel agencies and tour guides, which has already been entered into legislative procedures, will prohibit local travel agencies from organising tours which
New hotel regulations bill still awaiting revision MGTO said the bill for licensing regulations for hotels, restaurants and bars is still awaiting revision, but hopes its future implementation will simplify licensing procedures, local broadcaster TDM English News reported. In the wake of the closure of the Beijing Imperial Palace Hotel due to serious administrative irregularities and a failure to conduct essential fire safety measures, the Office admitted that the current regulations for hotel establishments are outdated, in particular those related to fines. In 2011, the MSAR government
charge lower than total costs. The MGTO director claimed the proposed regulation was made based on the opinions collected from the city’s tourism industry and associations. A zero-fee tour usually charges cheaper transportation and accommodation fees, but forces tourists to shop at certain stores in order for the agent to make up the difference by earning commissions from the stores. According to Ms. Fernandes, the Office received a total of 67 complaints and requests for assistance from mainland tourists traveling on
announced its intention to require local hotels to undergo a mandatory evaluation every six years, with hotels having their star ranking downgraded if they failed to pass the evaluation. The proposal, however, has not made any progress after six year’s of consultation. The MGTO director said the simplification of licensing procedures in the bill would be handled by the Public Administration and Civil Service Bureau (SAFP), without providing any timetable. She added that the types of licenses would also be reviewed, while application procedures would be made easier for investors to understand. C.U.
The local tourism head added that MGTO also inspected 323 package tours from the mainland last year, in addition to 1,401 on-site inspections at local immigration and tourist points. K.L.
Financial aid
DSE grants MOP9.2 mln in SME loans in January The latest DSE data shows fewer SMEs applied for financial support from the government in the first month of this year Cecilia U cecilia.u@macaubusinessdaily.com
The government disbursed a total of MOP9.2 million (US$1.2 million) in the first month of 2017 to support local SMEs via its SME Aid Scheme, a substantial decrease of 55 per cent compared to MOP20.44 million handed out in the first month of 2016. According to the latest data released by Macao Economic Services (DSE), a total of 46 applications for the SME Aid Scheme were received by the government department last month, with DSE green-lighting 29 requests,
compared to 54 recorded in January of 2016. The SME Aid Scheme, implemented in 2003 and updated in 2012, aims to provide interest-free business loans with a maximum value of MOP600,000 per applicant for different financial purposes, with a repayment period of up to eight years. In terms of sectors, the city’s retail industry received the largest allocation in the month, taking up over half of the total amount granted – 51.2 per cent, amounting to MOP4.7 million. In addition, the Bureau distributed
Forgery
Over 200 entries by mainland woman with forged documents A woman from Guangdong who allegedly used falsified documents to travel between the mainland and the MSAR has been sentenced to three months in jail, according to the publication Shanghai Daily. The woman is believed to have travelled between Macau and the province over 200 times before being found out, after police from the Fengxian District began investigations. The investigations into a Shanghaibased travel agency that fabricated the documents the woman used, found that the woman had paid the travel agency to apply for entry-exit permits for business travel to the MSAR, which allowed her access during a three-month period. Within the period, she travelled 202 times between the mainland and Macau.
package tours in 2016, of which one of the cases involved violations by one local agency and its tour guides. Meanwhile, another five cases were related to mainland travel agencies, which MGTO had reported to the country’s tourism bodies, the official said.
809 applications for intellectual property registration
In the month of January, DSE received a total of 809 applications for intellectual property registrations, according to the Bureau’s latest data. Compared to the same month of 2016, the number of applications represents a decrease of 14.8 per cent.
Of the total, 746 applications were filed to register trademarks in the MSAR, accounting for 92 per cent, while 42 applications were for extensions of invention patents and 10 for invention patents. In addition, nine applications were filed to register industrial designs or models, while two applicants submitted applications for utility patents.
some MOP1.8 million to businesses involved in personal services such as vehicle maintenance, and hair and beauty salons, accounting for 19 per cent of the total. Beneficiaries engaged in construction and public projects received the third biggest support in the month, with a total of MOP1.2 million, or 13.1 per cent of the total. Meanwhile, another five applications were filed for subsidies under the Bureau’s Credit Guarantee Scheme and for Specific Projects. However, the government department did not approve any of these applications in January.
Fewer applications for youngstart up aid scheme
On the other hand, the government allocated a total of MOP2.3 million in loans under Young Entrepreneur Aid Scheme, down by 66 per cent year-on-year. The number of loan applications received in the month also saw a decline, with only 19 applications, compared to 33 applications in January of 2016. During the month, DSE approved nine applications, of which retail businesses took up the largest amount, at 31.9 per cent of the total amount granted, or MOP750,000. Restaurants and hotels, meanwhile, obtained the second largest amount of subsidised loans, accounting for 25.5 per cent or MOP600,000.
Business Daily Monday, February 6 2017 3
Macau
Construction
Keep building The average daily wages of the city’s construction workers increased from the third quarter to the fourth quarter of 2016 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he average daily wages of construction workers saw a 6.1 per cent quarterto-quarter increase in the fourth quarter of 2016, amounting to MOP815 (US$101.9), according to the most recent data from the Statistics and Census Service (DSEC). The wages were noticeably driven by increases in demand for public housing projects, private residences and hotel properties, in particular relating to interior finishings. Local construction workers saw an 8.3 per cent quarter-to-quarter
increase in average daily wages to MOP1,041, while their non-resident counterparts saw a 2.3 per cent wage increase in the same period, amounting to MOP721. Quarter to quarter, increases in wages for unskilled workers only rose 1.2 per cent, according to the DSEC data, while those of skilled and semi-skilled workers rose 6 per cent. Unskilled workers overall made MOP408 per day, while skilled and semi-skilled workers made MOP819 in the same period, according to the data. The highest daily wages for construction workers were found in the carpentry segment, with local
carpenters making a daily wage of MOP1,575, while non-resident carpenters made MOP1,051 daily. The lowest earnings of non-resident skilled and semi-skilled workers were for painters, who made an average of MOP611 per day, while their local counterparts made an average of MOP988 daily in the fourth quarter of the year. Construction workers in structural iron erecting saw the highest quarter-to-quarter increase in daily salaries, with workers making 7.6 per cent more on average, bringing daily salaries to MOP730 for nonresident workers and MOP1,266 for resident workers. Painters were the only construction workers to see an average decrease in their daily earnings quarter-to-quarter in the fourth quarter, with a 1.3 per cent reduction in earnings.
Materials
Regarding construction materials, the average price of a cubic metre of concrete underwent a 3.4 per cent increase quarter-to-quarter in the
last quarter of 2016, bringing the price up to MOP824, as compared to the MOP797 registered in the previous period. The price of sand underwent a slight reduction of 1.4 per cent quarter-to-quarter, hitting MOP214 per cubic metre, as compared to MOP217 the previous quarter, while a tonne of ‘Ordinary Portland cement’ saw a 0.3 per cent reduction in price, to MOP861, down from MOP864 the previous quarter. Steel bar, spiral and round reinforced saw a 2.1 per cent increase in price quarter-to-quarter, going from MOP4,410 per tonne to MOP4,504 per tonne, while ordinary clear sheet glass saw a 1.5 per cent reduction in price from the third quarter to the fourth quarter of last year, hitting MOP91.9 per square metre. The price index for residential buildings increased 1.5 per cent quarter-to quarter, while the average price index for the whole of 2016 saw a small rise of 0.8 per cent, yearon-year.
4 Business Daily Monday, February 6 2017
Macau Gaming
Opinion
Sands China CFO resigns after four months
Chief Financial Officer of gaming operator Sands China Ltd, Stephen Law Cheuk Kin has resigned after only four months in the position, reported South China Morning Post on Saturday. According to the news outlet, the gaming operator confirmed the departure of Mr.
Sheyla Zandonai*
Water matters Last week, a member of the Urban Panning Committee, Leong Chong, suggested the government should consider developing maritime links between the Macau peninsula and Taipa, in order to ease pressure on land transportation systems. Residents and tourists, to different extents, might find the idea attractive. Travelling or commuting by water would offer an agreeable way to enjoy Macau’s now dazzling skyline, if not to avoid the herds on public buses. It should be a goal to boost a sector of economic activity which has great potential for the tourism and entertainment businesses. The city was built, after all, owing much to its links with the water: trade, fishing and transport. Though dormant, those links remain simmering. Maritime transportation services for passengers between Macau, Taipa, and Coloane were a fact of daily life in the 1950s. A road connection between Taipa and Macau would have to wait another twenty years or so to materialize, when in 1974, the Governador Nobre de Carvalho bridge was opened to traffic. Road and water connections could be complementary modes for facilitating the movement of people and goods. There is space to accommodate both. Surely, there are businesses craving for the opportunity, so that options could extend way beyond carrier services. No doubt the Yacht Scheme launched last year was a huge step in such a direction, lest it not be stalled by red tape. Now, should last week’s announcement by the government, that the majority of the old shipyards in Coloane will be destroyed, be a reason for concern? Yes. First, the abandon, then, the hazards that have gradually deteriorated the site since the government dithered in its 2012 renovation plans, have done no good. Not maintained accordingly, replacing them by other structures may be the only option available now. The question, though, is: what is going to be replacing them? The site has recently received project proposals from people in the sailing and maritime businesses that have approached the government and have been assessed and studied in the past. The Institute of European Studies of Macau (IEEM), for one, conducted a study of the area a few years ago, in partnership with the Polytechnic University of Milan and the University of Saint Joseph. The tourism bureau has also announced plans for the three to-be-standing shipyards, which will fall along the now typical lines of culture, the arts, and tourism activities. But as per what has become practice, what these plans mean and what the government is truly concocting for the site is a behind-closed-doors matter.
*scholar and contributor to this newspaper.
Law, yet declined to disclose the reason for his resignation. ‘Sands China Ltd does not comment on the movement of personnel,’ the newspaper quoted the company as saying in a statement. Prior to joining Sands China last September, Mr. Law served as the finance director of Hong Kong’s mass transit railway operator MTR Corporation Ltd.
Gaming
Jockey club annual loss over MOP100 mln
T
he Macau Jockey Club is expected to have recorded a loss of over MOP100 million (US$12.5 million) for the whole year of 2016, said the company’s executive director and chief executive Thomas Li Chu Kwan. According to local broadcaster TDM English News, the executive explained that the significant loss was due to ‘the general economic
environment’ where all gaming operators have seen adjustments in their business performances. The expected loss for the year represents an increase of at least 13.6 per cent compared to the company’s loss of MOP88 million in 2015. According to the official data of the Gaming Inspection and Coordination Bureau, total revenue generated from horserace-betting amounted to MOP141 million for the
whole year of 2016, a decline of 15 per cent from MOP166 million in 2015. In fact, the horserace-betting operator has failed to make an annual profit since 2005. As at the end of 2015, its accumulative losses totalled MOP3.96 billion for the past decade, according to the company’s 2015 annual report. Having held the monopoly for the horseracing and betting business in the city since 1978, the company will see its current horserace-betting concession expire on August 31 this year, but Mr. Li said the operator is confident that it will obtain an extension of its business license from the government. “We have been in talks with the government over how to better our operations, such as stables and track conditions. Many of these facilities need refurbishment to make the Jockey Club more competitive. This industry requires time to get better. It does have a market,” Mr. Li is quoted as saying by the broadcaster. The company executive added that he is putting efforts in to changing the company’s image to a leisure attraction by upgrading facilities and holding international-level competitions. C.U.
Results
Imperial Pacific January VIP turnover US$5.59 bln A total of US$5.59 billion (MOP44.7 billion) in VIP rolling chip was recorded by Imperial Pacific Holdings Ltd, operator of a temporary casino on the island of Saipan, during the month of January, according to a filing with the Hong Kong Stock Exchange. The company’s results represent a 146 per cent year-on-year increase in VIP rolling chip, with the first days of Chinese New Year falling in the month of January this year, as opposed to in February last year. The results, the highest from the group so far, come after the January 4 announcement of the soft opening of the group’s Imperial Pacific Resort on the island, expected in the first quarter of 2017. According to a previous filing on
the stock exchange, there are ‘over 2,000 workers working around-theclock to ensure early completion’ on the project, whose construction has
been ‘progressing smoothly’. Total VIP rolling chip for the group in 2016 amounted to US$32.37 billion, according to the group’s filings.
Electric Cars
Tesla green-lighted to deliver Model S cars to MSAR American electric car manufacturer Tesla has already received approval from the MSAR government to deliver its first batch of Model S cars ordered by local residents to the territory, the company’s representatives told Business Daily. The spokespersons, however, declined to disclose the total number of electric cars ordered by local residents, saying only that the manufacturer had delivered a total of 76,230 Tesla Model S cars globally in 2016. According to the representatives, the company’s supercharger station, installed last August at the integrated
resort Studio City by Melco Crown Entertainment, has already started operations and is available for owners of Tesla cars in the city.
In a response to Business Daily’s enquiries, the Office for the Development of the Energy Sector said the Macau government plans to install 50 electric vehicle charging stations in local public car parks in 2017, with 200 charging facilities planned to be installed in the territory by 2019. Meanwhile, representatives from Tesla said the company also started delivering its first orders of Model X cars to Hong Kong last month, yet declined to reveal the possible date for delivering the same model to the MSAR. N.M.
Business Daily Monday, February 6 2017 5
Macau
Trade
MSAR-China trade slumps by 31 pct in 2016 Last year, the country attracted total capital of US$820 million from Macau companies Kam Leong Kamleong@macaubusinessdaily.com
T
he city saw its total trade value with Mainland China plunge by 31.1 per cent to US$3.29 billion (MOP26.3 billion) for the whole year of 2016 compared to one year ago, the latest official data from the Chinese Ministry of Commerce reveals. For the year, the MSAR’s imports and exports from and to the country both recorded significant declines,
down by 31.4 per cent and 24.3 per cent year-on-year, amounting to US$3.15 billion and US$140 billion of the total, respectively. Meanwhile, total trade value between the two parties amounted to US$280 million for December 2016 alone, a significant decline of 31.6 per cent year-on-year. On a monthon-month comparison, the monthly value also represents a drop of 8.3 per cent. Of the total, China’s exports to Macau accounted for US$270 million in
During the year, a total of 676 projects by Macau firms in China were approved by the mainland authorities, up by 19.4 per cent year-on-year. However, total capital used by local firms on projects in the mainland declined by 7.7 per cent year-on-year to US$820 million. According to the Ministry, the
mainland authorities had given a green light to 15,074 projects invested in by Macau firms in the country as at the end of 2016, with accumulative capital used totalling US$13.6 billion. Nevertheless, the Ministry said the value of capital from the MSAR only accounted for 0.8 per cent of its total accumulative foreign investments. On the other hand, the country’s total non-financial direct investment in the MSAR amounted to US$460 million for 2016, bringing its accumulative non-financial investments in the city to US$2.18 billion as at the end of the year, the data shows. Mainland companies were awarded 43 project contracts worth a total of US$1.1 billion in the city for 2016, with sales generated from these projects totalling US$1.82 billion. As at the end of the year, there were 122,636 PRC nationals working in the MSAR, said the Ministry.
local authority noted that it ‘tries to intercept the illegal import and export of ivory through exchange of information and intelligence’ by maintaining open ‘communication and co-operation with the international and neighbouring regions’ and ‘will also actively co-operate with the Central Government to curb’ the import of ivory and processed ivory products. The Customs Service noted that since its establishment ‘we have seized 16 cases involving ivory or ivory products and seized about 1,300 kilogrammes of these products’. According to current laws, falling under the provisions relating to the
International Trade of Endangered Species of Wild Fauna and Flora Regulations, applicable to the MSAR, ‘a person who fails to comply’ with the provisions relating to the trade of a sample of animal or plant listed under the convention ‘shall be liable to a fine of between MOP500 (US$62.5) and MOP5,000’ and the goods ‘are also declared to belong to the region,’ notes the response. The seized ivory is then transferred to the Macau Economic Services, under current regulations, who ‘in the event of a violation of the provisions of the law […] will, in accordance with the law, impose a fine and dispose of the goods’.
the month of December, dropping by 31.2 per cent year-on-year or 8.3 per cent month-on-month, while its imports from the city amounted to US$10 million, a slump of 40.8 per cent year-on-year or 7.1 per cent month-on-month.
Investments
Ivory
Stopping the trade After mainland authorities announced their intention to stop the trade of ivory and ivory products, the local Customs Service has upped patrols, despite no ivory being seized last year Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
After officially ceasing the import of processed ivory made before it signed on to an international convention against the trade of endangered species in February of 2015, China recently released a notice stating that it would terminate the processing and sale of ivory and ivory-related products for commercial purposes by the end of this year. The notice, released by the General Office of the State Council of China, drew comments from the spokesperson for the PRC’s Ministry of Foreign Affairs, who noted that since the signing of the treaty, authorities have been ‘exercising strict control over import and export as well as domestic trade in ivory,’ and have ‘successively ceased the import of ivory sculptures, ivory souvenirs for hunting and ivory products made before the signing of the convention,’ according to the spokesperson. In a further bid to stop the trade, the
country ‘will encourage more international forces to join us in elephant protection,’ noted the spokesperson, while on the home-front, pushing to ‘step up efforts’ against the processing, sale, transport and smuggling of the products.
No ivory in 2016
According to a response by the Macau Customs Service to Business Daily’s enquiries, during the whole year of 2016, the service ‘did not seize any ivory or ivory products,’ and has ‘kept strict control at all ports’. In an effort to inhibit smuggling activities, the ‘patrols of vessels and people have been strengthened in the area of maritime and coastal patrols,’ noted the response. In line with China’s statements that it would ‘bring about collective actions by source, transit and consumption countries, cut off the profit chain of illegal hunting and trade, and effectively crack down on illegal activities such as poaching and illegal trade in ivory,’ the
6 Business Daily Monday, February 6 2017
Macau
Dwain Lei, founder of Food4U and the first investor
Interview | Start-up
Getting food home Founder of local food delivery app Food4U, Dwain Lei, talks with Business Daily about the challenges he faced starting a different kind of food delivery business, and what it takes to break into the competitive local market of food-related apps. Nelson Moura nelson.moura@macaubusinessdaily.com
W
hat projects were you involved in before starting Food4U? I never had any projects in Macau before, but I have an app development company in Taiwan that I started two years ago. Previous to that, I worked in Macau as a marketing director for The Venetian, Galaxy and City of Dreams. I don’t have knowledge in programming, but my partner - also my brother - works for Microsoft Taiwan, and he’s in charge of my app company in the country.
“[The gov’t] could provide more support for local app development… I still consider that mobile application businesses are still a viable and sustainable business option” Dwain Lei, founder of Food4U
How did you come up with the idea for Food4U? Seven years ago I went to Manchester in the United Kingdom and saw that a friend had received a meal, which he said was ordered through an online takeaway website. I didn’t know about that concept, and after researching it and seeing other takeaway websites, I decided to apply
that concept in Macau. I thought it would be a good idea for the city, so I launched the company in August of 2016, after developing the mobile application through my company in Taiwan. What are the services that Food4U provides? Users have to register for free on the application, verify their identity, and then they can order food through it. We have printers in the registered restaurants that print the takeaway order when someone makes an order. Restaurants and users need to pay us MOP25 for each order. How many users does Food4U have at the moment? At the moment, we have 200 restaurants registered and 40,000 users, mostly on iPhone iOS (Apple operating system), which locals prefer, and
Learn from Taiwan
Previously one of Asia’s four economic tigers, in recent years Taiwan has had to learn how to transform from a hardware tech giant to a startup and software centre. With a population of 23 million people, Taiwan ranks 14th for competitiveness and 17th for innovation in the most recent World Economic Forum global competitiveness report. This transformation involved several measures to better exploit the abundance of web programmers and engineers. Recent policies of the Taiwanese government to boost local entrepreneurship and innovation have included creating the first outpost by an Asian country in Silicon Valley in 2015, and funding local startups to move
with 2,000 being Android (Google operating system) users. Was it hard to persuade restaurants to join the platform? A bit, yes. When I went into the restaurants, it was hard to find the manager or the responsible persons, since they were never in sight. The solution was to get three sales representatives to search and contact restaurant owners to join the service. Now we have six call-centres to call restaurants and ask them to join our service. How many orders does the app process per day and how long is the average delivery time? The programme receives around 1,500 orders per day. Normally after the restaurant receives the order, they will contact our call-centre to assign a driver to deliver the food to the
and develop their startups in the area. The Taiwanese government has also recently diverted US$310 million to develop a new technological park in order to become Asia’s own Silicon Valley. Funds gathered by Taiwanese government-backed investment funds also reached a total of US$400 million in 2016, with a government department named “Head Start Taiwan” Project being created solely to develop the country’s startup ecosystem. Other initiatives involved the implementation of an entrepreneur visa, which allows foreign nationals, including Hong Kong and Macau residents, to obtain an initial one-year resident permit, if they intend to invest in local startups or develop their own companies in the country.
clients. The whole process normally takes around 40 minutes and at the moment we have 37 scooter drivers. Are the drivers local residents? Yes, all of them are locals. We don’t use ‘Blue Card’ work permit holders. Was it easy to find workers for the company? No, it was very hard to find drivers in Macau. We wanted to find fulltime workers that had knowledge of English, so at the time all the ones we found were still studying at the University here. We only operate between 11am and 3am so we offer two shifts, one for day-time and another for night-time.
“At the moment, we have 200 restaurants registered and 40,000 users” Are you looking to increase your workforce at the moment? Yes, the company’s takeaway charge will be increased, so we will be able to hire more drivers. We get many orders per day, so my 37 drivers are not enough at the moment, and we expect to have a headcount of up to 100 drivers by 2018. We also have a programme to hire people suffering from reduced mobility diseases such as Amyotrophic Lateral Sclerosis (ALS) to work in the office, or even to do deliveries close to the office if they are able to. We’re contacting local support institutions for this purpose. How much was the initial investment for the company? When I created the company I didn’t rent an office in Macau, I just created the app. After we did some posts about the service on Facebook, a lady that owned three pharmacies contacted us to make the first investment in the company, of around
Business Daily Monday, February 6 2017 7
Macau MOP3 million. We also got a MOP10 million investment from a Chinese Australian investor. I worked in the casino industry for many years so I had a good network of people I could contact to see if they were interested in investing in the company. Where was the money invested mainly? The money will be used in the future for promoting the service on buses and to give some MOP20 vouchers for members to make their first orders on Food4U. It will also be used to hire more drivers as well.
“Many restaurant owners are very stingy, they don’t want to spend money to join the service and don’t understand exactly how the online takeaway concept can increase their orders”
restaurant owners are very stingy, they don’t want to spend money to join the service and don’t understand exactly how the online takeaway concept can increase their orders.
Has the company reached breakeven? At the moment it is not balanced, it’s still 10 to 20 per cent unbalanced, but I think it will get balanced in the future shortly.
There are a lot of similar applications to yours in Macau. What differentiates yours from the others? It’s true there are many food delivery services in Macau. The largest difference with our company is that people can order from the restaurants’ set menus [via the app] and change the order. For example, if you want a Wonton soup, you can decide if you want to add beef or if you want to remove onions, and other personal requests that other apps don’t do.
What was the largest challenge when starting Food4U? Probably persuading restaurants to join the service, it still is. Many
Has the Macau government helped your company via any means? No, but I really hope the government could help the restaurants
who register with our app to pay the takeaway fees. For each MOP25 the restaurants provide, I need to use MOP10 to pay the driver’s salary. In your opinion what more can the government do to help startups and SMEs in Macau? They could provide more support for local app development. I’m currently developing another app service for Macau. I still consider that mobile application businesses are still a viable and sustainable business option. Is it easy to find tech programmers in Macau? It’s not easy, since good programmers will normally be working in the casinos where they can get a better salary. Macau is not the best place to find professional programmers, and it’s one of the reasons why I opened my app development company in
Taiwan, where it is easy to find quality programmers for lower salaries. The market there is also larger. What do you think Taiwan does better in terms of supporting startups? The Taiwanese government will sometimes require my company to make projects for them such as government websites and apps. What would be your advice for local entrepreneurs considering starting up a company? Mobile app services startups need to be willing to work hard and spend a lot of time on different tasks. When I started this business I would spend around 16 hours per day for one year just focusing on the company, making calls or even deliveries to clients myself if drivers weren’t available. I needed to do it if I wanted to improve my business.
8 Business Daily Monday, February 6 2017
Greater China Currency
Beijing says no to “currency war” after criticism of yuan Many economists say that in the past year Beijing has been working to prop up the yuan’s value
C
hina said on Friday it has never used its currency as a tool to gain an advantage in trade and was not seeking a “currency war”, after U.S. President Donald Trump criticised Beijing for harming American companies and consumers with a devaluation of its yuan.
“We have no intention of fighting a currency war. From a long-term perspective this is not beneficial to China”
Chinese Foreign Ministry spokesman Lu Kang, in the government’s first response to Trump’s remarks following a week-long recess for the country’s Lunar New Year holiday, said that trade problems between China and the United States should be resolved through talks. “China has never and won’t use a currency war to seek advantage in trade or to raise competitiveness in trade,” Lu told reporters at a daily news briefing. “We have no intention of fighting a currency war. From a long-term perspective this is not beneficial to
China,” he said. While China was widely viewed to have held down the value of the yuan to gain a trade advantage five to 10 years ago, many economists say that in the past year, Beijing has been working to prop up the yuan’s value. China’s central bank has spent hundreds of billions of dollars in reserves to keep the yuan from falling further in the face of capital outflows caused by economic uncertainty. But the currency still fell nearly 7 per cent last year, its biggest loss against the dollar since 1994. Trumps latest criticism signals a weakening of the U.S. commitment to that agreement among the financial leaders of the world’s top 20 economies, struck after the 2008 financial
crisis, that countries would not pursue policies to target exchange rates for competitive purposes. It was also an indication that the first-term Republican president is prepared to jettison two decades of “strong dollar” policies advocated by predecessors dating back to the Clinton administration. If the U.S. Treasury Department declares Beijing a currency manipulator, it starts a process under which the Trump administration is required by law to demand special negotiations with Beijing to resolve the issue. That process could end in punitive duties on Chinese goods aimed at eliminating any advantage that currency manipulation would provide. Reuters
Lu Kang, Chinese Foreign Ministry spokesman Throughout his election campaign, Trump threatened to levy punitive tariffs against China in order to bring down the U.S. trade deficit, and any formal declaration of China as a currency manipulator could provide a mechanism for launching that effort. Trump on Tuesday unleashed a barrage of criticism against Japan and China, saying the two key U.S. trading partners were devaluing their currencies. Japanese policymakers hit back on Wednesday at Trump’s accusation, stressing that Japan was abiding by a G20 agreement to refrain from competitive currency devaluation.
Retail
Hong Kong 2016 sales post worst slump in two decades Total visitor arrivals fell 4.5 per cent to 56.65 million in 2016 Donny Kwok
Hong Kong’s retail sales shrank for the third year in a row in 2016 and by the most in nearly two decades, hurt by the city’s economic downturn and fewer tourists from mainland China. The prolonged slump in the onceflourishing retail industry may be bottoming out, but analysts say it is too early to call for a recovery yet as store closures and lay-offs continue.
Key Points Dec retail sales fall 2.9 pct y/y in value, down for 22 months Dec jewellery sales rise 2.3 pct, ending 27 months of decline Retail sales value falls for 3rd consecutive year Tourist arrivals rise 5.4 pct in December, up 4.8 pct in January “Looking ahead, the near-term outlook for retail sales business will still depend on whether the recent improvement in inbound tourism could gain more traction and the extent to which local consumer sentiment would be affected by
various external uncertainties,” the government said in a statement. Overall retail sales slid 8.1 per cent to HK$436.6 billion (US$56.3 billion) in value terms, its biggest percentage drop since 1998 when sales fell 16.7 per cent during the Asian financial crisis. Retail sales volume was down 7.1 per cent last year, government data showed on Friday. In December, retail sales value slid for the 22nd straight month, down 2.9 per cent from a year earlier to HK$42.4 billion. That compared
with a revised 5.4 per cent fall in November. A narrower decline in December reflected a revival in visitor arrivals, the government said. In volume terms, December sales fell 2.8 per cent from a year earlier. Hong Kong, once a favourite shopping destination for mainland Chinese, has been facing greater competition from Japan and South Korea. Hong Kong’s simmering political tensions with China and a strong local dollar - pegged to the U.S. currency - have added to retailers’ frustrations. The city’s retailers have scaled back expansion and are moving out of
expensive shopping districts to cope with hard times. “We can’t say the adjustment has come to an end, nor has it come to a stage where we are about to rebound,” said Kent Wong, managing director of Chow Tai Fook Jewellery. The jeweller aims to close 5 to 6 stores in the city in 2017. Sales of jewellery, watches, clocks and valuable gifts rose 2.3 per cent in value terms, ending 27 consecutive months of decline. Department store sales value fell 3.2 per cent in December.
Tourism slumps
Total visitor arrivals fell 4.5 per cent to 56.65 million in 2016, of which mainland visitors dropped 6.7 per cent to 42.78 million. In December, the arrivals number rose 5.4 per cent, an improvement against a 2.1 per cent fall in November and 2.4 per cent decline in October. Mainland China visitors rose 6.1 per cent in the month. The government said on Thursday the total number of visitors rose 4.8 per cent in January, while mainland visitors climbed 7.5 per cent. “So we are seeing an increase in tourist arrivals starting from the last quarter of last year and it carried on through December to January,” said Gregory So, Secretary for Commerce and Economic Development, but added it was premature to predict any trends. Reuters
Business Daily Monday, February 6 2017 9
Greater China Protectionism
If Trump hits Mainland, regional demand would ease blow in Asia Chinese consumers are keeping a floor under the regional supply chain in a time of subdued global demand Enda Curran
If Donald Trump slapped China with punishing tariffs, the pain would also be felt by Japan, South Korea and Taiwan, vital cogs in a regional supply chain that allows China to build widgets and gadgets for the world. But Asia boasts a fast-growing middle class now numbering in the hundreds of millions, meaning China and other regional exporters rely less on U.S. consumers, and Trump may not have the leverage his predecessors enjoyed in decades past.
“If Donald Trump’s bark is followed by his bite on trade, then we could see a replay of the 1930s scenarios and there would be tit-for-tat retaliation around the world” Razeen Sally, an associate professor at the National University of Singapore Trade among Asian countries grew to 57 per cent of their overall trade in 2015 from just under 46 per cent in 1990, according to Jong Woo Kang, an economist at the Asian Development Bank and the main author of the lender’s 2016 Asian Economic Integration Report. According to Kang, cross-border investment in the region by Asian companies is fuelling more trading activity than investment from nonAsian companies, and the region’s corporates are more engaged in global value chains than non-Asian companies, providing a growing protective buffer against new trade barriers. “We do have more demand coming
out of Asia than before,” said Deborah Elms, Singapore-based executive director of the Asian Trade Centre. “So there will be less of an impact than there might have been at other points of history.” To be sure, if Trump hits a wide array of Chinese goods with tariffs the pain will be acute, and may spread into a full-blown global trade war. The U.S. remains a major buyer of China-made final products and that demand won’t be easily replaced. The U.S. trade deficit with China for the 11-months to the end of November last year came in at US$319 billion. Research by Kevin Lai, the Hong Kong-based chief economist for Asia excluding-Japan at Daiwa Capital Markets, found that even tariffs of 15 per cent -- Trump at one stage flagged 45 per cent -- would result in a loss of GDP for China of 1.8 per cent annually, excluding the impact of foreign companies pulling out. Chinese state media has already warned Trump will be met with “big sticks” and that U.S. investment in sectors like electronics and textiles will be targeted in the event of a trade war. China is also stepping up its scrutiny of U.S. companies and options include taxing their Chinese operations or deploying antitrust probes, according to people familiar with the matter.
Trump’s bark
“If Donald Trump’s bark is followed by his bite on trade, then we could see a replay of the 1930s scenarios and there would be tit-for-tat retaliation around the world,” said Razeen Sally, an associate professor at the National University of Singapore. More immediately, it would also hit other Asian exporters. Japanese shipments to China hit a record in December, fuelled by orders for car
parts, plastics and electrical circuits for use on the world’s factory floor. Still, overall exports gained thanks to wider Asian demand, one reason the Bank of Japan upgraded its growth forecasts this week. In South Korea, where exports account for about half of overall economic output, shipments in January rose the most since 2012, helped by an increase in commerce with China, Vietnam and Japan. Asian demand also helped Singapore’s industrial production jump the most in five years in December, led by rising electronics exports.
Border tax
A report by Credit Suisse warned that a border-tax plan mooted by Republicans in the U.S. Congress would trigger a 3 per cent to 4 per cent fall in Asian exports, reducing the growth rate in the region by 0.5 per centage point. “Even a relatively small tariff increase on umbrellas or children’s toys can be quite catastrophic for producers of those products because the margin is so small,” Elms said. Trump wouldn’t be the first U.S president to target Asia. Barack Obama went after Chinese-made tires and both Bill Clinton and Ronald Reagan butted heads with their Japanese counterparts over everything from car parts to computers. Trump has also accused Japan of unfair trading. Even before Trump took office, global trade was already experiencing a creeping rise in protectionism, according to the World Trade Organization, with entrenched disputes in areas like steel, chemicals and agriculture.
Chinese consumers
Still, for now at least, Chinese consumers are keeping a floor under the regional supply chain in a time of subdued global demand, and Chinese exporters are shipping more goods to other Asia partners even as Beijing seeks to transform the economy to one driven more by domestic consumption. That means Asia could withstand a heightened dispute, for a period at least. And even if Chinese goods are targeted by the U.S., a rival Asian nation could step into the gap. “If you push one part of the balloon, the other part of the balloon could inflate,” Kang said. “Asian countries can still adjust.” Asian governments are also pushing ahead with an alternative regional trading pact that doesn’t include the U.S. after Trump withdrew from the Trans-Pacific Partnership. It means there’s more resilience than might be appreciated by the White House trade hawks, according to Elms. “It’s something that the team in Washington doesn’t understand,” she said. “They still see the U.S. as having the same levers of control in the 1980s.” Bloomberg News
In Brief
Trade
Beijing warns U.S. over high taxes on steel China is disappointed at continued high U.S. tax rates on Chinese steel products and will take necessary steps to protect the rights of its enterprises, a Ministry of Commerce official said on Saturday. The United States moved closer to slapping duties on imports of stainless steel sheet and strip from China last week, issuing a final determination that the products were being subsidised and dumped in the U.S. market at below fair value. Wang Hejun, head of the trade remedy and investigation bureau at China’s Ministry of Commerce, questioned the way in which the U.S. anti-dumping investigation is being conducted Green vehicles
Authorities impose administrative penalties China has imposed administrative penalties on seven “new energy” vehicle makers for producing and selling vehicles with batteries that had lower power capacity than advertised. The companies are China Youngman Automobile Group Co, SAIC Tangshan Bus Ltd, Lifan Group Corp, Zhengzhou Nissan, Shanghai Sunwin Bus, Nanjing Special Auto Manufacturing and Chongqing Hengtong Bus, the Ministry of Industry and Information Technology said in a statement on its website on Saturday. The government has accused dozens of carmakers of breaking rules on green car subsidies. Protests
Beijing says Bangladesh protest not aimed at China A protest last week against a US$2.4-billion Chinesebacked power plant in Bangladesh which turned violent was not against Chinese participation in the project but due to residents’ “different opinions”, China’s Commerce Ministry said on Friday. The coal-fired plant being built 265 km southeast of Dhaka, the capital, is a major draw for foreign investment in Bangladesh, and is expected to begin power generation by the end of 2019. At least one person was killed and about a dozen were injured in the protest. Energy
Government to launch green certificates China will launch the trading of green certificates for solar and wind power on July 1 in a bid to help reduce government subsidies to the renewables sector, the National Development and Reform Commission (NDRC) said on Friday. In a pilot program, the NDRC said solar and wind producers would be issued tradable certificates, proving that electricity has been generated through renewable energy sources. Renewable energy users such as private and state businesses would be encouraged to buy the certificates, which would then entitle them to an unspecified payment.
10 Business Daily Monday, February 6 2017
Greater China
Monetary policy
Central bank raises short-term interest rates It also raised the lending rates on its standing lending facility short-term loans Winni Zhou and Elias Glenn
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hina’s monetary authority surprised financial markets on Friday by raising shortterm interest rates on the first day back from a long holiday, in a further sign of policy tightening as the economy shows signs of steadying. While the rate increases were modest, they reinforced views that Chinese authorities are intent on both containing capital outflows and reining in risks to the financial system created by years of debtfuelled stimulus. Higher interest rates could prod debt-laden firms into deleveraging, though at the risk of stunting growth. “It appears to be an intent to control a real estate bubble. It could also be aimed at arresting the yuan’s depreciation, although it is on the reverse repo they touched upon and the impact remains to be seen,” said Naoto Saito, chief economic researcher at the Daiwa Institute of Research In Tokyo. “All in all, it comes across as a move to tweak interest rate levels to accompany a broader monetary policy shift.” The People’s Bank of China (PBOC) raised the interest rate on open market operation reverse repurchase agreements (repos) by 10 basis points, effective on Feb. 3. It also raised the lending rates on its standing lending facility (SLF) short-term loans. PBOC assistant governor Zhang Xiaohui said later on Friday that monetary policy will be kept generally prudent and stable, while also avoiding either a rapid slowdown in economic growth or excessive liquidity injections.
Zhang also said China will keep the yuan basically stable and will avoid large volatility in interest rates and foreign exchange rates. The comments were made in an essay published by China Finance, a PBOC-affiliated magazine, through the messaging service WeChat. Analysts said the tightening of primarily money market rates suggested the PBOC wanted to retain policy flexibility as it balances the need to keep the economy from slowing again.
Key Points China raises short-term rates in latest policy tightening move Rate rise modest but seen aimed at prodding firms to cut debt, discourage speculative investments Stronger economy giving policymakers room to tackle debt risks Moves could offer support for yuan currency Other moves in recent months had signalled that Beijing was eyeing a gradual shift from its loose policy stance. In late January, the PBOC raised rates on its medium-term loan facility (MLF) for the first time since it debuted the liquidity tool in 2014. It was the first time it has raised one of its policy interest rates since July 2011. Analysts expect any further steps to be gradual as policymakers weigh their impact on economic growth, and believe the PBOC will be in no hurry to raise the policy lending rate
for now. The one-year policy lending rate was last cut in October 2015 to 4.35 per cent. “China’s economic recovery is still shaky, while the global economic situation is unstable, so raising open market rates is more appropriate than raising benchmark rates,” said Li Huiyong, chief economist at Shenwan Hongyuan Securities. “It’s a flexible tool, which can be easily reversed if China’s economy shows signs weakness again.” The world’s second-largest economy grew 6.7 per cent last year - roughly in the middle of the government’s target range. But heavy policy stimulus - evident in record lending from mostly state-owned banks and increased government spending - has fuelled worries about the risks of high debt levels and an overheating housing market that could threaten financial stability if not addressed. China’s debt to GDP ratio rose to 277 per cent at the end of 2016 from 254 per cent the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a note.
A different type of tightening
Asian stock markets extended modest early losses after the rate rise, while China bond futures fell as much as 1.5 per cent at one point. Most Chinese and global metal prices also fell on fears that higher rates will sap demand. The PBOC raised the seven-day open market operations rate -- its unofficial policy rate -- to 2.35 per cent from 2.25 per cent, while also lifting rates for SLF loans. The SLF rate acts as a de facto ceiling for interbank lending, analysts said. China’s central bank also injected funds through 7-day, 14-day and 28-day repos on Friday, although there was a net drain of funds for the day owing to maturing open market
operations. “It’s not a good kick off of the Lunar New Year. It is a clear sign that the central bank has switched to tighten its monetary policy,” said a trader at a Chinese bank in Shanghai. China’s economy has seen a broadbased pickup in recent months, due largely to a strong housing market and higher government spending on infrastructure projects. At the same time, however, capital flight from the tightly managed economy has been strong, fuelled by expectations that the yuan currency will depreciate further after sliding to more than eight-year lows against the dollar. The yuan fell nearly 7 per cent last year, its biggest loss against the dollar since 1994, on worries about shaky growth early in the year and amid a surge in the dollar. Bearish yuan views have persisted despite a slew of moves in recent months aimed at making it more difficult for Chinese individuals and companies to send money abroad. China’s currency reserves fell by a tenth last year and, at US$3.011 trillion, are close to falling below psychologically significant levels. “The signal is very clear,” said Zhou Hao, senior Asian emerging market economist at Commerzbank in Singapore, referring to the latest rate move. Hao said this time the tightening was more targeted compared with China’s previous tightening cycle that ended in 2013. “Inflation at that time was rising very rapidly and at this time inflation is not really an issue. Secondly, the yuan was under pressure to appreciate at that time.” “Right now it’s totally different. If you have capital outflows, that’s already tightening. And then you tighten further, which is a doublewhammy.” Reuters
Business Daily Monday, February 6 2017 11
Asia Graft probe
South Korea’s presidential Blue House blocks search Prosecutors were also searching the offices of the Korea Fair Trade Commission and the Financial Services Commission Ju-min Park and Christine Kim
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outh Korean special prosecutor officials withdrew from the presidential Blue House on Friday after it blocked them from searching offices there, in the latest twist in a corruption scandal that has gripped the country for months. Park was impeached by parliament on Dec. 9 on suspicion of colluding with a long-time friend, Choi Soonsil, to pressure big business to donate to two foundations set up to back the president’s policy initiatives. Park is also accused of allowing Choi to exert inappropriate influence over state affairs. Both of them have denied wrongdoing. The special prosecution office has not explained why it needs to search the Blue House, saying only that it would be done in connection with its investigation. A prosecution team trying to carry out a search on Friday was blocked
at a gate into the compound, the office said. The prosecution said later it had asked acting President Hwang Kyoahn for cooperation in getting access to search the presidential offices. “We arrived at the conclusion we cannot force our search if the subject refuses,” Lee Kyu-chul, the spokesman for the special prosecutor, told a media briefing. Lee said he believed the search could go ahead if the acting president gave his approval. The Blue House expressed regret and called the attempt to search the presidential office unconstitutional as the president can not be charged with a crime while in office. “It is a deep regret that their excessive investigation with a warrant naming the president as a suspect violates the constitution,” the office said in a statement, referring to the prosecutor’s warrant to raid the office. The law states that as long as Park
remains president, she cannot be charged with any criminal offence except insurrection or treason. The Blue House said earlier the offices could not be searched for security reasons and it would instead provide documents as requested by prosecutors.
Key Points Special prosecutor officials withdraw from Blue House Acting president may be asked to intervene
Other searches
Park was stripped of her powers after parliament voted to impeach her, but she remains in the Blue House compound. Her prime minister, Hwang, has been acting president since then, while she waits for the Constitutional court to either uphold or reject the parliamentary vote. Television broadcaster YTN had said the prosecutor’s office wanted to search the offices of the Blue House chief of staff, as well as offices used
by Park’s bodyguard detail. No raid has ever been successfully carried out on the Blue House. Lee, the spokesman for the special prosecutor’s team, said investigators would question the president in person, regardless of the outcome of their effort to search her office. Prosecutors were also searching the offices of the Korea Fair Trade Commission and the Financial Services Commission in their investigation of Samsung Group, whose leader, Jay Y. Lee, has been named a suspect in the scandal. He has denied wrongdoing. A Korea Fair Trade Commission spokesman confirmed that investigators were conducting a raid but did not comment on details. A spokeswoman for the FSC said prosecutors were making copies of documents and searching offices. The FSC spokeswoman said the raid was linked to prosecutors’ suspicion that the Samsung Group had provided bribes to Park and Choi for favours regarding its businesses. If Park’s impeachment is upheld by the Constitutional Court, she will become the first democratically elected leader in South Korea to be removed from office. Reuters
No raid has ever been successfully carried out on the Blue House
IPO
India’s BSE exchange soars in market debut The public offering, the first in India’s markets this year, was 51 times subscribed Abhirup Roy and Devidutta Tripathy
Shares of India’s second-biggest stock exchange, BSE Ltd, jumped as much as 49 per cent on their market debut on Friday, after the exchange raised about US$185 million in an initial public offering that had been heavily over-subscribed. Asia’s oldest exchange is expected to benefit from a surge in retail investments into mutual funds as well as government efforts to steer more pension money into stocks. The government’s scrapping of old high-value banknotes, leading to a surge in bank deposits, has raised hopes some of these savings would be channelled into financial markets. Investor demand for BSE’s stock was also strong due to its attractive valuations. “They offer a full bouquet of products which is basically the fundamental strength of this exchange,” said Deven Choksey, managing director at KR Choksey Shares and Securities. “I think the way in which BSE
has carved out its business model provides confidence to investors. Plus, they are profit making and have cash in the balance sheet.” BSE, which also offers clearing and data, reported a net profit of 760 million rupees (US$11.3 million) in the quarter ended September, up 78 per cent from a year earlier. The exchange had 2.5 billion rupees of cash on its books as of Sept. 30.
Robust demand
More than 250 shareholders,
including Singapore Exchange Ltd and billionaire George Soros’ Quantum, raised 12.43 billion rupees (US$184.5 million) in the BSE IPO last week. BSE did not sell any of its shares in the IPO. BSE’s bumper listing augurs well for bigger rival National Stock Exchange, which has filed for an IPO that bankers say could happen towards the middle of the year and raise as much US$1 billion. India’s IPO market had its best year in six in 2016 with US$4 billion
worth of share sales, led by a US$900 million issue in ICICI Prudential Life Insurance Co Ltd, the biggest private sector life insurer. The momentum is expected to continue this year, especially after the government’s plan to list US$1.6 billion worth of stakes in state-run insurers. “We could exceed last year’s fundraising from IPOs,” said Subhrajit Roy, head of ECM origination at Kotak Investment Banking, one of the top
Key Points Shares rise as much as 49 pct on trading debut Bourses seen gaining from rising financial market investments Indian IPOs set for strong 2017 after $4 bln raising last year IPO advisers last year. “Issuers were in wait-and-watch mode till budget. Now we should see a pick-up in (IPO) mandate activity,” he said, referring to India’s federal budget for the coming financial year presented in parliament on Wednesday. The BSE IPO, the first in India’s markets this year, was 51 times subscribed. Demand from institutions and individuals was strong as the IPO had been priced attractively, analysts said. Reuters
12 Business Daily Monday, February 6 2017
Asia Forecast
Japan’s economy seen expanding for 4th straight quarter Core machinery orders, a leading indicator of capital spending, were seen rising 3.1 per cent in December from the previous month Kaori Kaneko
J
apan’s economy was seen growing for a fourth straight quarter in October-December thanks to stronger exports and a pickup in capital spending, a Reuters poll found on Friday. Poll respondents saw the economy as likely continuing to recover even though uncertainty over the policies of U.S. President Donald Trump remains deep.
Key Points Q4 annualised GDP seen +1.1 pct vs +1.3 pct in Q3
senior economist at Mizuho Research Institute. “Japan’s economic recovery is expected to continue, helped by global economic growth and yen weakness. But downside risks are also high because of uncertainty over protectionism in the U.S. and the political situation in Europe.” The poll found net exports added 0.3 per centage point to growth in October-December, the same as it contributed in the third quarter. Capital spending was seen growing 0.9 per cent in the last quarter, the poll found, rising for the first time in two quarters.
Private consumption, which accounts for roughly 60 per cent of gross domestic product, was seen flat in the last quarter, after posting modest gains in the previous three quarters. The Cabinet Office will announce the GDP data on Feb. 13 at 8:50 a.m. (2350 GMT, Feb. 12). Japan’s core machinery orders, a leading indicator of capital spending, were seen rising 3.1 per cent in December from the previous month, up for the first time in two months. The highly volatile data series, regarded as an indicator of capital spending in the next six to nine months, fell 5.1 per cent in November. From a year ago, core orders, which exclude orders for ships and electrical equipment, were expected to rise 4.6 per cent in December after a 10.4 per cent gain in November.
“Corporate investment sentiment is picking up as a brighter mood is spreading in the global economy although we cannot dispel risks from U.S. policy,” said Takumi Tsunoda, senior economist at Shinkin Central Bank. The Cabinet Office will publish the machinery orders data at 8:50 a.m. on Feb. 9. The poll found Japan was likely to post a current account surplus of 1.29 trillion yen (US$11.42 billion) in December, which would be 30 straight surplus month. The corporate goods price index (CGPI), which measures the price companies charge each other for goods and services likely stopped falling in December helped by price gains in oil- and coal-related products after 21 straight months of posting year-on-year declines. Reuters
External demand seen adding 0.3 pct point to GDP Dec core machinery orders f’cast +3.1 pct vs -5.1 pct in Nov GDP due at 2350 GMT Feb 12
The economy was expected to expand at an annualised rate of 1.1 per cent in the fourth quarter, according to the poll of 20 analysts, after posting growth of 1.3 per cent in the third quarter. Under those circumstances quarter-on-quarter growth would a 0.3 per cent gain, unchanged from July-September. “Data will likely confirm the economy is on a moderate recovery led by a pickup in overseas economies,” said Hidenobu Tokuda,
Monetary stance
Indonesia signals end of easing cycle on U.S. policy uncertainty Central bank Governor Agus Martowardojo said that policy makers were taking a more cautious approach Karlis Salna and Rieka Rahadiana
Indonesia’s central bank gave its strongest signal yet that it may be done with cutting interest rates as it adopts a cautious stance with the U.S. Federal Reserve set to tighten further and President Donald Trump pursuing a new trade policy. Bank Indonesia cut its benchmark rates six times in 2016, by a total of 150 basis points, in a bid to boost lending and revive economic growth. The bank left rates unchanged last month while maintaining at the time that there was room for further easing. The aggressive easing seen last year -- which made Indonesia the biggest rate cutter in Asia -- could however be at its end with Bank Indonesia Governor Agus Martowardojo saying on Friday that policy makers were taking a more cautious approach in the face of growing global economic uncertainty. The central bank is closely monitoring U.S. fiscal and trade policies as they “will have a big impact on the world,” he said. Trump’s decision to dump the Trans-Pacific Partnership has stoked concerns that the world’s biggest
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economy was set to adopt a more protectionist stance on trade. “Based on those considerations, our stance in general is cautiously accommodative. If previously the stance was an easing bias, now we’re cautious about easing,” Martowardojo said after a meeting of Indonesia’s Financial System Stability Committee. Bank Indonesia kept its seven-day reverse repurchase rate at 4.75 per cent when it last met in January.
A Bloomberg survey in November showed most economists were expecting the bank to remain on hold through 2017 and into 2018.
Limited room
“Given Bank Indonesia’s preference to keep the real rate positive, in part to support a stable currency, we believe room for further cuts remains limited,” Nomura Holdings Inc. economists Euben Paracuelles and Lavanya Venkateswaran said in a report dated Feb. 1. “We reiterate our forecast that BI will keep its 7-day reverse repo rate unchanged at 4.75 per cent this year.” Indonesia may post “much better”
economic growth this year and the country’s financial stability would “be manageable” though it faced some domestic and external risks, Finance Minister Sri Mulyani Indrawati said Friday. Southeast Asia’s largest economy, which has been growing at about 5 per cent annually, may expand 5.3 per cent in 2017, the World Bank estimates.
“If previously the stance was an easing bias, now we’re cautious about easing” Agus Martowardojo, Bank Indonesia Governor
“External risks that need to be watched out for are global economic recovery that isn’t solid or stable, the dynamic of global market that is influenced by the policy direction taken by the U.S. government and a plan to raise the Fed funds rate which will pressure capital flows and exchange rates,” Indrawati said. “We also view the process of economic balancing in China to potentially add to the pressure and risks.” Bloomberg News Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Monday, February 6 2017 13
Asia Investors
In Brief
BNP, Commerzbank give jittery Asia millionaires cash alternative The global implementation of Basel III capital and liquidity rules is another factor encouraging banks to channel money out of certain types of deposit Viren Vaghela
Wealthy Asian investors who are nervous about the market’s outlook after President Donald Trump’s election are moving into products that are almost as safe as cash and offer the possibility of extra returns. BNP Paribas SA has sold more than US$150 million of its ‘Helium’ structured notes since October that promise investors a higheryielding alternative to holding cash, according to Prashant Bhayani, the chief investment officer for Asia at BNP Paribas Wealth Management. Commerzbank AG and Citigroup Inc. are offering similar products. “Going into 2017, despite our best efforts lots of clients are sitting on cash,” said Singapore-based Bhayani. “They are looking for what’s low risk in terms of volatility and can generate higher returns.” Defying investor expectations that Trump’s victory would hurt shares, the Dow Jones Industrial reached a record high in January, while bond yields jumped on speculation his promised tax cuts and infrastructure spending would fuel inflation. Tumbles in U.S. shares last week on Trump’s immigration order highlighted the risk that his policy decisions could weigh on equity markets as well. BNP Paribas’ dollar-denominated 3 . 5 - y ea r p r o d u ct g u a ra n t e es investors’ capital, is tied to the performance of four funds across asset classes and allows investors to exit at any time for a fee. It also
has a cap to guard against volatility if markets drop too sharply and a hedge against rising interest rates eroding the value of the embedded bonds. The minimum investment is US$100,000, making high net worth individuals its target buyers. “Investors are concerned by the risk of rising rates. This is not a guaranteed return, getting just your capital back is the downside and historically we have been targeting a 4 per cent annual return,” according to Bhayani, who said that the current performance is flat.
Europe demand
Commerzba nk AG has sold similar notes tied to mutual funds in Europe to clients dealing with negative rates and are developing a product for Asian clients who are holding too much cash, according to Franck Fayard, Hong Kong-based head of product engineering for equity and funds at the bank.
“Some clients are interested in deposit alternatives that can be redeemed at any time,” he said. “They are becoming more cautious and want products with protection as they may have lost money or received no coupons last year.” Citigroup’s offering in this area includes a fund-based product with a minimum three-month holding period paying the London interbank offered rate plus 30 basis points that has attracted more than US$1 billion since launching last January, according to Cyrille Troublaiewitch, the head of the multi-asset group for Asia Pacific at the U.S. bank. The product doesn’t offer capital protection. “Last year many investors were sitting on the sidelines,” he said. “There was an unexpected rally after Brexit and Trump that investors didn’t benefit from so now they are looking for cash alternatives. They don’t want risky products as the Trump rally may flatten out this year.” The global implementation of Basel III capital and liquidity rules -- designed to make banks safer during a crisis -- is another factor encouraging banks to channel money out of certain types of deposit. “It’s still expensive for banks to set aside capital against large deposits under Basel III rules so they are keen to offer alternatives,” said Troublaiewitch. Bloomberg News
Australia’s resources minister said the government is considering providing public funds for the construction of new “clean coal” power stations in the country’s north, The Australian newspaper reported on Saturday. Matthew Canavan said he was open to using some of the A$5 billion (US$3.84 billion) Northern Australia Infrastructure Fund (NAIF) to help build new high-efficiency coal-fired power plants in the state of Queensland and had already received interest from a number of parties, including from abroad. Prime Minister Malcolm Turnbull has flagged energy security as a primary focus for 2017. M&A
Japanese firms takes in new Areva Two Japanese firms agreed to buy a combined 10 per cent stake in the new company being split off from Areva for 500 million euros (US$538 million) on Friday, helping a state-backed rescue of the French nuclear group. Japan Nuclear Fuel Limited (JNFL) and Mitsubishi Heavy Industries (MHI) will take stakes in NewCo and Areva, whose equity has been wiped out by years of losses, said NewCo remains open to other investors. Areva has held talks about China’s National Nuclear Corporation taking a stake in NewCo, but the two sides could not agree on terms.
Japan readies package for Trump
India considering easing foreign investment limits Prime Minister Narendra Modi’s administration is trying to lure foreign capital to boost economic growth
India is planning to allow more foreign investment by relaxing limits in various industries in the year starting April 1 to help regain its lost position as the world’s fastest growing major economy. The government will make it easier for foreign companies to seek approval and could ask ministries to clear investment proposals, Economic Affairs Secretary Shaktikanta Das said in an interview in New Delhi on Friday. These steps follow the government’s decision this week to scrap the 1990-era Foreign Investment Promotion Board that was often criticized as a bureaucratic hurdle slowing projects and proposals. “The idea is to make process the simpler and faster,” Das said declining to name industries where foreign investment limits can be relaxed.
Australian government considering “clean coal” project
Employment
Economic Affairs Secretary
Shruti Srivastava and Unni Krishnan
Energy
Easing of limits is under the consideration of the government, he added. India and China are renewing a push for globalization at a time when the UK and U.S. are turning increasingly protectionist. With two of the world’s largest populations, the Asian economies and foreign companies need each other to create jobs and maintain sales growth. FDI inflows between April-September rose 31 per cent from a year earlier to US$21.7 billion, Finance Minister Arun Jaitley’s advisers told parliament on Tuesday. That’s still a fraction of roughly US$118 billion received by China in 2016. Prime Minister Narendra Modi’s administration is trying to lure foreign capital to boost economic growth that’s set to slow to 7.1 per cent in the year ending March 31 after hitting close to eight per cent last year. The effort to boost expansion suffered a
blow after the government withdrew high denomination banknotes in an economy where bulk of consumer transactions are done in cash. There are foreign investment caps in over a dozen industries from banking to defence manufacturing which is often cited as a barrier to investment in world’s second most populous country. Apple Inc. is set to begin making iPhones in India by the end of April after a prolonged negotiation over the relaxation of a rule that requires single-brand retailers to source 30 per cent of components from within India.
“The idea is to make process the simpler and faster” Shaktikanta Das, India’s Economic Affairs Secretary
Das said he had no knowledge of any relaxation handed out to the maker of iPhones. The Finance Ministry did not find sufficient grounds to relax the rules for Apple to start retailing in India as the government was keen to boost local manufacturing, he said. “I’m not aware of any such proposal that has come to the government,” Das said. “It might have come to other ministry but not to my knowledge. There is no rethink on 30 per cent sourcing.” Bloomberg News
Japan is putting together a package it says could generate 700,000 U.S. jobs and help create a US$450-billion market, to present to U.S. President Donald Trump next week, government sources familiar with the plans said. The five-part package, to be unveiled when Prime Minister Shinzo Abe visits Trump on Feb. 10 in Washington, envisage investments in infrastructure projects such as high-speed trains and cybersecurity, said the sources, who declined to be identified as they were not authorized to speak to the media. M&A
Sale of Singapore’s Global Logistic hots up with offers Interest in Singapore-listed Global Logistic Properties (GLP) hotted up on Friday with the warehouse and distribution centre operator revealing it had received several bids, including some involving its own senior management. GLP, which is backed by sovereign wealth fund GIC and whose customers include Amazon and JD.Com, operates about US$40 billion of industrial properties worldwide and earns two-thirds of its revenue from China. The interest in GLP comes as it has built up a dominant market share in China, where a boom in e-commerce business is fuelling demand for modern warehouses and logistics facilities.
14 Business Daily Monday, February 6 2017
International In Brief Legislation
U.S. Republicans ax disclosure rules on energy Republicans repealed a securities disclosure rule aimed at curbing corruption at energy and mining companies and voted to ax emissions limits on drilling operations, part of a push to remove Obamaera regulations on extractive industries. In a 52-47 vote, the Republican-controlled Senate approved a resolution to eradicate a rule requiring companies such as Exxon Mobil and Chevron Corp to publicly state taxes and other fees paid to foreign governments like Russia. The House of Representatives already passed the measure. President Donald Trump is expected to sign it within days. Cybersecurity
InterContinental confirms payment card breach InterContinental Hotels Group Plc on Friday confirmed a data breach from payment cards used at 12 of its hotels in the United States, a little over a month after it said it was investigating claims of a possible breach. A malware in the servers searched for track data - the cardholder’s name, card number, expiration date and the verification code - on the cards used at the hotels between August and December last year, the company said in a press statement. InterContinental said only payment cards used at the restaurants and bars were affected. FinMin
Euro exchange rate is too weak for Germany The euro’s exchange rate is too low for Germany and the European Central Bank’s expansive monetary policy has boosted the German economy’s export surplus, Finance Minister Wolfgang Schaeuble said in a newspaper interview. Schaeuble made the comments after U.S. President Donald Trump’s top trade adviser said earlier this week that Germany was using a “grossly undervalued” euro to gain advantage over the United States and its European partners. “The ECB must make policy that works for Europe as a whole,” Schaeuble said in a pre-released interview for Sunday’s edition of Germany’s Tagesspiegel. “It is too loose for Germany.” Commerce
Mexico, Turkey to speed up talks to sign trade deal Mexico and Turkey will speed up negotiations to sign a bilateral trade agreement, Mexican Foreign Minister Luis Videgaray said on Friday at an event in Mexico City with his Turkish counterpart. “A point of interest for both countries is to continue dialogue to build a free trade agreement between Turkey and Mexico,” Videgaray said, flanked by Turkish Foreign Minister Mevlut Cavusoglu. “We’ve agreed to an accelerated push to try and finalize this deal.” Videgaray, who is at the forefront of fraught trade, immigration and security discussions with top trade partner the United States, said he wanted to see more Turkish companies in Mexico, particularly in construction and agriculture.
Euro zone
EU founders speak of possible “multispeed” future after Brexit With the departure of long-time sceptic Britain, France and Germany are keen to develop closer EU ties
G
erman Chancellor Angela Merkel and leaders of other founding states of the European Union spoke on Friday of some countries moving ahead faster than others with further integration. After a summit in Malta at which all national leaders discussed plans for a formal declaration in March on the future of the bloc following Britain’s departure, Merkel and others offered endorsements of a so-called “multispeed Europe”, which some governments fear could damage EU unity in the wake of Brexit. Though they disagree on details, Berlin, Paris and many of the 17 other states which use the euro currency are keen to bind the euro zone closer together after years of crisis in which investors have doubted the currency’s survival. But some countries around the periphery of the bloc fear creating a system in which a hard core of states pushes the EU into policies they do not want. The last few years, Merkel told reporters, showed “that there will be an EU with different speeds, that not everyone will take part in the same levels of integration”. One area in which governments are divided over the degree of integration is defence. The 27 leaders are due to meet without British Prime Minister Theresa May on March 25 in the Italian capital to celebrate the 60th anniversary of the founding Treaty of Rome. French President Francois Hollande said he thought that the Rome statement could mention “several speeds” as a possible way forward, though he stressed: “European unity is essential.” In a reminder of divisions in the
bloc, Hollande, who will step down in May, took a dig at East European states which Paris complains fail to honour commitments -- such as taking in asylum-seekers -- while accepting big subsidies from Brussels: “Europe isn’t a cash-box, not a selfservice restaurant, a Europe where
you come and take what you need, where you take your structural funds or get access to the internal market and then show no solidarity at all in return,” he told reporters. In a paper offering proposals for the Rome declaration, the three Benelux neighbours said “different paths of integration and enhanced cooperation could provide for effective responses to challenges that affect member states in different ways”. Reuters
Employment
U.S. job growth accelerates but wages lag Nearly all sectors of the economy added jobs in January U.S. job growth surged more than expected in January as construction firms and retailers ramped up hiring, but wages barely rose, handing the Trump administration both a head start and a challenge as it seeks to boost the economy. Nonfarm payrolls increased by 227,000 jobs, the largest gain in four months, the Labour Department said on Friday. The unemployment rate, however, rose one-tenth of a percentage point to 4.8 per cent and wages increased by only three cents, suggesting that there was still some slack in the labour market. Federal Reserve officials view the jobs market as being at or near full employment. Average hourly earnings edged up 0.1 per cent last month, below expectations for a 0.3 per cent rise. December’s wage gain was revised down to 0.2 per cent from the previously reported 0.4 per cent increase. There was a big decline in earnings in the financial sector last month, which probably offset minimum wage increases that took effect in 19 states in January. The small gain lowered the year-on-year increase in earnings to 2.5 per cent from 2.8 per cent in December. Economists say a growth rate of between 3 and 3.5 per cent in wages is needed to lift inflation to the Fed’s
2 per cent target. Sluggish wage growth, if it persists, would suggest little urgency from the Fed to tighten monetary policy. The pace of rate hikes will, however, probably depend on how much inflation is generated from Trump’s proposed measures to bolster economic growth. The U.S. central bank, which raised rates in December, has forecast three rate increases this year.
Key Points Nonfarm payrolls increase 227,000 in January Unemployment rate rises to 4.8 per cent from 4.7 per cent Average hourly earnings edge up 0.1 per cent With its January employment report, the government published its annual “benchmark” revisions and updated the formulas it uses to smooth the data for regular seasonal fluctuations. It also incorporated new population estimates. The government said the level of employment in March of last year was 60,000 lower than it had reported. As the labour market nears full employment, the pool of workers is shrinking, which is slowing job
growth. The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, was at 62.9 per cent in January, the highest level since September. The employmentto-population ratio was at 59.9 per cent last month, the highest level since March 2016. A broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment rose two-tenths of a percentage point to 9.4 per cent last month. Manufacturing payrolls rose by 5,000 jobs, rising for a second straight month. The gains were mostly at factories making machinery, non-metallic mineral products, transportation equipment, food and furniture. Construction employment jumped 36,000, the largest increase since March, likely boosted by warm weather. The housing sector led the construction job gains. Employment in the financial sector increased by 32,000 jobs last month, an acceleration from December’s 23,000 gain. But average hourly earnings fell 1.0 per cent. Government employment fell for a fourth straight month in January. Further declines are likely after the Trump administration enforced a hiring freeze on civilian federal government workers on Jan. 22. Reuters
Business Daily Monday, February 6 2017 15
Opinion Business Wires
The Times of India GST (Goods and Services Tax) in India will not only ease the process of taxation, but bring in transparency, say experts. At an interactive awareness programme for start-ups in Jaipur, the experts said the government is expected to resolve the queries of entrepreneurs regarding GST. “GST will not only ease the process, but also bring transparency as all the invoices needed to be uploaded by sellers are visible to the buyer every month,” said Manish Ojha, Development Head of KDK Softwares Pvt. CEO Mohit Bhambani said many start-ups are into e-commerce and their logistic costs go up.
The Korea Herald The global market for automotive semiconductors is expected to grow 7.1 per cent annually by 2020, fuelled by strong investment by carmakers into electric and self-driving cars, according to a market estimate yesterday. With semiconductor demand for cars growing, Samsung Electronics Co. and SK hynix Inc. have expanded their automotive semiconductor businesses. Research firm Gartner recently predicted that the global market for automotive chips would grow to US$42.4 billion in 2020 from US$32.3 billion last year. The projected growth rate is higher than the growth forecast for the overall semiconductor market, which is expected to grow 3.7 per cent annually to US$393.3 billion in 2020.
Philstar The momentum of the Philippines’ economic expansion would be sustained this year, ANZ Bank said, with gross domestic product (GDP) growth accelerating further to 6.9 per cent amid the ramp-up in infrastructure spending by the Duterte administration. Eugenia Victorino, economist at ANZ Bank, said higher fiscal spending particularly for much needed infrastructure projects would boost the economy. “Looking ahead, we expect 2017 GDP growth to rise to 6.9 per cent on the back of increased fiscal spending. The Duterte administration’s renewed push for infrastructure is aimed at diversifying economic development away from the National Capital Region,” she said.
Bangkok Post British engineering giant Rolls-Royce has refused to supply information about its bribery admission involving Thai Airways International (THAI) with the national flag carrier’s probe panel. The British Serious Fraud Office (SFO) recently revealed 12 counts in which Rolls-Royce had engaged in corrupt acts or failed to prevent bribery in seven countries -- Indonesia, Thailand, India, Russia, Nigeria, China and Malaysia. The bribery case in Thailand involved the purchase of engines for THAI aircraft. Rolls-Royce admitted to bribing Thai state agents and employees of THAI. Spanning from 1991 to 2005, the scandal involves kickbacks totalling 1.28 billion baht.
Is the deflation cycle over?
U
ntil the global financial crisis of 2008-2009, deflation had all but disappeared as a concern for policymakers and investors in the advanced economies, apart from Japan, which has been subject to persistent downward pressure on prices for nearly a generation. And now deflationary fears are on the wane again. By the mid-1960s, the advanced economies began an era of rising inflationary pressures, ignited largely by expansionary fiscal and monetary policies in the United States, and acutely compounded by the oil price hikes of the 1970s. Stagflation, the combination of low economic growth and high inflation, became a buzzword by the end of that decade. Most contemporary market forecasts extrapolated those trends, predicting an uninterrupted u p w a r d m a rch i n o i l a n d commodity prices. Inflation came to be seen as chronic, and politicians looked toward price controls and income policies. Real (inflation-adjusted) short-term interest rates were consistently negative in most of the advanced economies. Federal Reserve Chairman Paul Volcker’s monumental tightening of US monetary policy in October 1979 ended that long cycle. Stagflation gave way to a new buzzword: disinflation, which accurately characterized many advanced economies, as inflation rates fell from double digits. But disinflation is not the same as deflation. As shown in the figure, between 1962 and 1986, not a single advanced economy recorded an annual decline in prices. In many emerging markets, inflation rates soared into triple digits, with several cases of hyperinflation. As late as 1991, Greece had an inflation rate of about 20 per cent. Even in historically price-stable Switzerland at that time, inflation was running above 5 per cent. This seems a distant memory after the steady decline in prices in Greece since 2013, alongside a debt crisis and collapse in output. The Swiss National Bank, for its part, has been battling with the deflationary effects of the franc’s dramatic appreciation over the past few years. The deflationary forces were unleashed by the major economic and financial dislocations associated with the deep and protracted global crisis that erupted in 2008. Private deleveraging became a steady headwind to central bank efforts to reflate. In 2009, about one-third of advanced economies recorded a decline in prices – a postwar high. In the years that followed, the incidence
“
Carmen Reinhart Professor of the International Financial System at Harvard University’s Kennedy School of Government
of deflation remained high by post-war standards, and most central banks persistently undershot their extremely modest inflation objectives (around 2 per cent). Because US President Donald Trump’s stimulus plans are procyclical – they are likely to gain traction when the US economy is at or near full-employment – they have reawakened expectations that the US inflation rate is headed higher. Indeed, inflation is widely expected to surpass the Federal Reserve’s 2 per cent objective. But tighter monetary conditions act to mitigate the magnitude of the inflation spurt: while the expected rise in US policy rates is the most modest and gradual “normalization” in the Fed’s history, sustained dollar appreciation should limit price gains for a broad range of imported goods and their domestic competitors. This expected turning point in the behaviour of prices is not unique to the US. If the International Monetary Fund’s projections for 2017 are approximately correct, this year will be the first in a decade that no advanced economy is experiencing deflation (figure). Perhaps the long-awaited effects of the historic monetary expansion are finally yielding fruit. Most likely, currency depreciation in the UK, Japan, and the eurozone has been a catalyst. If 2017 really does mark a broad reversal of a decade of deflation, it is reasonable to expect that most major central banks will be not be inclined to overreact if, after a decade or so (longer for Japan) of mostly downside disappointments, inflation overshoots its target. Furthermore, the view that higher inflation targets (perhaps 4z per cent) may be desirable (because they would provide central banks with more space to lower interest rates in the advent of a future recession) has gained ground in some academic and policy quarters. Of course, there may be yet another factor motivating major central banks’ tolerance for higher inflation. But their leaders may be unwilling to acknowledge it openly: as I have argued elsewhere, a steady dose of even moderate inflation will help to erode the mountains of public and private debt advanced economies have built up in the past 15 years or so. Project Syndicate
If the International Monetary Fund’s projections for 2017 are approximately correct, this year will be the first in a decade that no advanced economy is experiencing deflation (figure)
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16 Business Daily Monday, February 6 2017
Closing Law enforcement
Beijing vows strong punishments for illegal financing activities
money-laundering, underground banks and online pyramid selling,” it added. Prosecutors will also step up a crackdown on China will severely punish people involved in illegal financing activities, especially targeting underground securities crime, such as market manipulation, insider trading and fake information releases, and banks and the stock market, after a series of crime in the real estate market like tax avoidance, scandals, state news agency Xinhua said yesterday, Xinhua said. citing the state prosecutor. The report pointed to several recent scandals, “Conscientiously follow the demands of the central government, put the prevention of financial risk in an including China’s biggest alleged online fraud - a nearly RMB60 billion (US$8.74 billion) case involving even more important position,” Xinhua said. online peer-to-peer lender Ezubao - and last month’s “Severely punish the illegal collection of public jailing of a Chinese hedge fund manager detained in deposits, fraudulent fund-raising and other the wake of China’s 2015 stock market crash. Reuters economic crimes involving the public, as well as
Society polarization
In the era of Trump, US companies must navigate a minefield products,” the conservative site The Gateway Pundit wrote.
Calls for boycotts often proliferate on internet forums such as Reddit and 4Chan, as well as social media platforms like Facebook and Twitter Jeremy Tordjman
S
tarbucks promises to hire 10,000 refugees? President Donald Trump’s supporters call for a boycott. Uber allegedly takes advantage of the president’s anti-immigration decree to drum up business? Users unsubscribe from the app en masse. Trump’s election has laid bare the deep divisions of American society, a discord that has forced many businesses to walk a fine line to avoid alienating consumers. “Companies that were working very hard to stay neutral no longer can,” says brand expert Bruce Turkel. “The biggest problem is anything they say can be misinterpreted.” Sportswear manufacturer New Balance, for instance, found itself embroiled in controversy after its CEO Matt LeBretton voiced optimism following the election. “We feel things are going to move in the right direction,” he said in an interview, prompting outrage on Twitter, where users called for a massive boycott of the sneaker company, forcing the
‘No margin in the middle’
brand into damage control. “From the people who make our shoes to the people who wear them, we believe in acting with the utmost integrity and we welcome all walks of life,” the company said. Beverage giant PepsiCo faced similar backlash from the opposite camp. Two days after the election, the company’s CEO Indra Nooyi said her employees “were all in mourning.” “And the question that they’re asking, especially those who are not white: Are we safe?” she said. The retaliation came instantly: “It’s probably a good time to pass on the Pepsi
Spring Festival
Calls for boycotts often proliferate on internet forums such as Reddit and 4Chan, as well as social media platforms like Facebook and Twitter. Others originate from more structured protests. The Grab Your Wallet site, launched in October, lists companies suspected of favouring Trump, either because their leaders contributed to the real estate billionaire’s campaign or because they do business with the Trump family. The long “boycott” list includes the department store Macy’s, retail giant Walmart and beer brand Yuengling. “Brands have always been political, but now consumers can see more of this activity and are making decisions
based on this information,” the site’s cofounder Shannon Coulter says. The impact of boycott campaigns is difficult to evaluate, however, because calls to blacklist specific companies tend to get lost in the frenzy of social media. “Consumers have an incredibly short memory,” marketing expert Merry Carole Powers says. Still, some companies fear losing customers by staying silent. Nordstrom, a chain of department stores, recently announced it would drop the Ivanka Trump clothing line belonging to the president’s eldest daughter. “There’s no margin in the middle,” says Turkel, who recently wrote the book “All About Them,” focused on company branding. “If you stay quiet, you get nothing out of it.” “You have to figure out who your audience is and what are their values.”
Super Bowl stakes
Uber appears to be playing by ear as it devises its strategy. The company first distanced itself from Trump’s executive order temporarily barring refugees and travellers from seven Muslim-majority countries. But it then came under fire for allegedly taking advantage of a New York taxi driver protest against the ban, prompting a wave
Structural changes
of unsubscriptions. As taxi drivers went on strike refusing to pick up passengers at JFK airport, Uber not only continued to operate but also dropped its surge pricing. Rival Lyft was quick to set itself apart, vowing to donate US$1 million to the American Civil Liberties Union, which has filed lawsuits against Trump’s measures. The strategy paid off with the Lyft app notching more iPhone downloads than Uber for the first time. Uber CEO Travis Kalanick then attempted to make amends by quitting Trump’s business advisory group, saying “the executive order is hurting many people in communities all across America.” And with the approach of the Super Bowl -- one of the advertising world’s central events -- every marketing move is facing microscopic scrutiny. The beer giant Budweiser is slated to air an immigration-themed advertisement focused on the difficulties the brand’s German founder faced when he arrived in the United States in the 19th century. South of the border, consumer trends are less divided. In Mexico, the campaign “Consumers, the cry of war” is urging people to boycott all American brands in protest against Trump’s anti-Mexican threats. AFP
Mining
46 billion electronic ‘red Mainland to deepen reform Team advised Philippine mine pocket’ sent over New Year in agricultural sector suspensions, not closures Chinese exchanged billions of electronic “red envelopes” over the Lunar New Year holiday, state media said Saturday, as more people turned to modern technology to perform the ancient tradition of handing out cash. For centuries parents, relatives and employers have distributed red paper envelopes containing money, known as “hong bao”, to children or menial workers to celebrate the dawn of the new year. But tech-savvy givers in China are increasingly opting to transfer money via their smartphones rather than go to the trouble -- and expense -- of buying envelopes and handing them out. About 46 billion electronic hong baos were sent or received via the popular messaging app WeChat from January 27 -- the eve of the Year of the Rooster -- to February 1, the China Daily reported. That was 43 per cent more than last year. On January 27 alone more than 14 billion electronic red envelopes were transferred on WeChat, which is owned by internet giant Tencent and has more than 800 million users. That was up nearly 76 per cent on last year, the newspaper said, and included a record 2,125 hong baos sent by a man in Shenzhen. AFP
China will deepen supply-side structural reform in agriculture to cultivate new development engines for the sector, according to a policy document released yesterday. The major problems facing China’s agricultural sector are structural ones, mainly on the supply side, according to the document by the Central Committee of the Communist Party of China and the State Council. The document calls for improving structure in the industry, promoting “green” production, extending the sector’s industrial and value chain, boosting innovation, consolidating shared rural development and enhancing rural reforms. This is the 14th year in a row that the “No. 1 central document” has been devoted to agriculture, farmers and rural areas. The “No. 1 central document” is the name traditionally given to the first policy statement released by the central authorities in the year and is seen as an indicator of policy priorities. When carrying forward supply-side structural reform for the sector, national grain security must be guaranteed, according to the document. It said that supply-side structural reform in the agricultural sector would be a long and challenging process. Xinhua
A team that reviewed an audit of Philippine mines recommended suspension of operations and payment of fines for environmental violations, rather than the closure of 23 mines ordered by the minister overseeing the process, two people with knowledge of the matter said. Environment and Natural Resources Secretary Regina Lopez on Thursday ordered the mines shut, saying many were operating in watersheds. The mines to be closed account for half of nickel ore output by the world’s top supplier of the metal. Another five mines were suspended. The decision has angered the country’s mining industry, with miners saying the shutdowns will affect 1.2 million people and some vowing to overturn the ruling. However, the review team that advised on the process believed some of the violations, which included insufficient rehabilitation of mined areas, absence of tree-cutting permits and construction of alternate haul roads, were rectifiable, and did not warrant permanent closure, one of the people said. “She’s the boss, she has all the discretion,” the person said. “The only question is what was her basis in her decision?” Reuters