Business Daily #1229 February 8, 2017

Credit card turnover up 7 pct q-to-q, 1 mln cards in circulation Finance Page 5

Wednesday, February 8 2017 Year V Nr. 1229 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Visa

Chinese nationals comprise majority of Portugal’s Golden Visa recipients Page 4

Tourism

Gov’t to launch Ka Ho Village study as cultural tourism product Page 4

www.macaubusinessdaily.com

Private poll

Economists predict outflows will cause RMB decline in spite of Trump Page 8

Investment

Foreign businesses operating in Mainland fear gov’t intervention Page 10

Look Westward, Macau

Challenges

Using European Union policies as inspiration. To help the MSAR cope with waste management, tourism re-branding, environmentally friendly measures and energy consumption, recommends a report. True economic diversification will require reworking the licensing system, taxation and human resources to attract new investment, in particular from Europe. Page 2

Sake’s cup runneth over

The value of imports of Japanese sake increased 600-plus pct in the last decade. With Japanese cuisine popular worldwide, nearly half of the money spent importing rice wine to the MSAR goes to Japanese producers.

While demand in China has more than tripled for the beverage in recent years.

Clean air at a stroke

Transportation A newly introduced scheme seeks to curb moped pollution levels. But pricing, legislation and practicality will upend it, say industry insiders. Financial incentives, including driving lesson subsidies, could be introduced to encourage participants to trade in two-stroke mopeds. Page 3

China crosses red line

Imports Page 6

HK Hang Seng Index February 7, 2017

23,331.57 -16.67 (-0.07%) Worst Performers

AAC Technologies Holdings

+3.45%

New World Development

Cathay Pacific Airways Ltd

+2.87%

CLP Holdings Ltd

Sands China Ltd

-1.98%

China Shenhua Energy Co

+1.17%

Galaxy Entertainment Group

-1.84%

Tencent Holdings Ltd

-0.96%

Belle International Holdings

+2.81%

Henderson Land Develop-

+1.05%

China Mengniu Dairy Co Ltd

-1.73%

Kunlun Energy Co Ltd

-0.49%

China Unicom Hong Kong China Life Insurance Co Ltd

+2.61%

Industrial & Commercial

+0.42%

China Petroleum & Chemical

-1.62%

China Mobile Ltd

-0.45%

+2.17%

Bank of China Ltd

+0.28%

BOC Hong Kong Holdings

-1.29%

PetroChina Co Ltd

-0.33%

+1.54%

11° 20° 11° 18° 12° 17° 13° 17° 15° 18°

-1.11%

Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Forex reserves Forex reserves on the Mainland continued to shrink in January. Falling for the seventh consecutive month, to below the US$3 tln red line.

National regulator cites intervention in supplying foreign exchange to maintain market equilibrium for decline. Page 16

2 Business Daily Wednesday, February 8 2017

Macau Future development Poor environmental practices and increases in energy consumption,

traffic, and elderly population seen as the MSAR’s main challenges

The European way European Union initiatives to attract investment and develop trade, human resources and improve the general quality of life and sustainability should be applied locally, states report Nelson Moura nelson.moura@macaubusinessdaily.com

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rue economic diversification of the MSAR could be achieved by promoting and attracting new investments, developing the city as an international trade hub, supporting business licensing, enforcing tax benefits and improving human resources, according to a joint report by the Macau European Chamber of Commerce (MECC) and the Institute of European Studies of Macau (IEEM).

The growth of medical assistance needs, energy consumption, border control security, food safety issues, traffic and waste management were also considered Macau’s greatest current challenges.

The report suggests that in order to solve these issues the MSAR Government could take inspiration from several policies inspired by European Union (EU) measures for waste management, tourism re-branding, environmentally friendly mobility, and low energy consumption.

Becoming desirable

The current licensing system is described as involving ‘too many departments and taking too long,’ making European companies avoid investing locally, with the authors suggesting a one-stop service should be created by the Macao Trade and Investment Institute (IPIM) for supporting overseas investors in obtaining approvals, and simplifying licensing and administrative procedures.

Favourable taxation policies such as removing double taxation on income and dividends for holding companies and offering tax benefits for leasing companies were also considered as ways to attract investment.

One important step considered by the report was that a ‘clear’ future plan for the development of the gaming and hotel industry and the granting of concessions in the MSAR was essential to generate ‘confidence’ to outside investors.

Boosting trade

In order to promote imports and

exports between the European Union and the MSAR, the report suggests import logistics in the city be developed by ‘simplifying the import procedures for small orders’ and by developing the storage capacity of Coloane Port.

The report mentions that European companies are facing difficulties in using the Closer Economic Partnership Arrangement (CEPA) zero-tariff agreement as a gateway to Mainland China due to various policies enforced in different Chinese provinces, which should be standardised.

The authors also suggested Macau companies should benefit from preferential treatment when investing in Mainland China, so that European companies could use them as front-runners in the region, and that a mechanism for import and export credit insurance should be put in place.

According to the report, the European Union’s total bilateral trade with Macau in 2015 amounted to 851 million euros (MOP7.27 billion/ US$908.2 million), a 39.3 per cent increase from the previous year, with EU countries being Macau’s second largest supplier after Mainland China.

EU imports comprised 22 per cent of all imports to the MSAR in 2015 with France, Italy and Germany the main countries of origin, the report states.

Most imports from the EU comprised luxury goods, food and beverages, machinery and transport equipment, while European countries mainly imported machinery, textiles and clothing, food and other raw materials from the MSAR.

Opening the gates

The report considered that current policies restricting experienced and qualified workers from being hired

by Macau companies are reducing the city’s competitiveness and quality of its labour force.

‘Taking public infrastructure industry as an example, [a] highly qualified European engineer who wants to work for [the] Macau public work sector will need to finish a twoyear internship in Macau and pass an examination before being able to

work here. In this case, most of the companies would not be willing to pay for an expert doing internship work. The restrictions might constrain quality delivery in the long term,’ the report stated.

The local government opening up the local market to skilled foreign professionals is described as beneficial to both the economy and local society.

The report also suggests that such openness of the MSAR market should be extended to local government procurement contracts, suggesting that foreign companies be allowed to join public tenders, so that local companies could ‘learn from their experienced practices and further refine their work.’

The further improvement of translation personnel training, especial-

Estimates of Macau by 2020 Population to reach 700,000 500 more doctors and 639 more nurses needed Energy consumption to reach 106 kilowatts per hour Total volume of waste requiring incineration to reach 4,000 tonnes ly in European languages such as Portuguese, was also described as a favourable initiative for expanding the local market globally.

Quality of life issues

The report also focuses heavily on how to improve current challenges to sustainable development and environmental issues created by traffic, excessive energy consumption and waste management.

The solution would encompass the implementation of smart city measures similar to those implemented by the EU for developing sustainable mobility, urban planning and infrastructure.

The current number of registered vehicles in the city and the narrowness of local streets are described as factors leading to increased traffic congestion and pollution, an issue that could be improved by applying electric public transportation, thus reducing carbon emissions.

As at November 2016, some 250,871 vehicles were registered in Macau

- including cars and motorbikes - an almost 400 per cent increase since the city’s handover to Mainland China, according to data from the Statistics and Census Services (DSEC).

The report also addresses waste management issues created by an annual increase of solid waste of between 8 per cent to 10 per cent, while the recycling rate is only 0.11 per cent of all waste production. Furthermore, the report estimates that by 2020 the total volume of waste the city will have to incinerate will reach 4,000 tonnes.

The study also indicates that the city’s economic growth and local residents’ lifestyle would lead the city’s energy consumption to reach 106 kilowatts per hour by 2020, a 29 per cent increase over a 10-year period.

Macau residents are said to ‘lack environmentally friendly living and consumption patterns,’ suggesting the city government could apply EU minimum energy efficiency measures such as standards and rules on labelling and developing environmentally friendly designs for products, services and infrastructure.

The report suggests certain European Union initiatives for waste reuse be applied, such as a ‘five-step waste hierarchy’ where recycling and re-use would be placed as a priority, while landfill disposal would be considered as a last resort.

Tourism and health

In addition, the report addresses the largest current challenges of the city’s quality of life and suggests measures applied in the European Union to correct them.

With life expectancy in the MSAR having risen to almost 83 years of age and with the local population expected to reach 700,000 people in 2020, further strain will fall upon medical services and elderly resident care, notes the report.

The report states that to meet the increase in the population the number of doctors and nurses should increase by 500 and 639, respectively, until 2020, as increased medical assistance needs increase.

Developing the city into a World Centre of Tourism and Leisure is described as a goal that could benefit from a ‘coherent strategy for diversifying the promotion of tourist services and capitalising on heritage’. Macau’s ‘brand’ images should be developed in co-operation with neighbouring cities in order to complement promotional efforts and differentiate its tourist appeal from other international destinations.

Business Daily Wednesday, February 8 2017 3

Macau

Transportation

Not so keen on green scheme In the wake of the introduction of the motorcycleswap scheme, motorbike industry representatives think riders are not likely to swap their current bikes because of revised regulations prohibiting the carrying of passengers on 50cc mopeds Cecilia U cecilia.u@macuabusinessdaily.com

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egulations mandating that riders of new 50cc motor mopeds may not carry passengers are the largest obstruction for the execution of the latest motorcycle-swap scheme, according to both the President of the Macau Motor Traders Association, Patrick Tse, and the manager of local motorbike dealership Ieok Ma Motor Company Ltd., Marjorie Lau. On Monday, the Environmental Protection Bureau (DSPA) announced a scheme to scrap two-stroke motorbikes in order to reduce the city’s air pollution, indicating that an amount of MOP3,500 (US$438) would be offered to riders successfully applying for the scheme before July, and whose motorcycles meet the criteria.

According to a dispatch released in the Official Gazette, motor vehicle owners whose licences have been renewed since September 1, 2014 cannot apply for the scheme.

DSPA Director Tam Vai Man explained during Monday’s press conference that the limiting of licence renewal after 2014 is to prevent those who have cancelled their licence from

re-registering after applying for the new scheme.

Mr. Tse said the scheme in itself is supported by the motor vehicle industry but the Association president pointed out that riders might not be greatly attracted to swapping their old motorcycle simply for a MOP3,500 subsidy.

“Many of these two-stroke 50 cc motorcycles which are eligible for the scheme are eight years old or older,” said Mr. Tse. “But the government has previously amended the law to prohibit 50cc motorcycles from carrying passengers - but many of these eligible vehicles for the scheme were bought before the revised law came out and they are [even] still used to carry passengers.”

He added that the intent of people buying motorcycles is generally to transport family members, and as such he opines that riders are less likely to swap their old vehicles for a new one that cannot carry passengers.

Thus, Mr. Tse thinks that only around one-third of the 9,000 twostroke motorcyclists will choose to participate in the scheme.

In terms of motorcycle sales, shop manager Lau commented that the scheme would only attract riders who

are already thinking of purchasing a new motorcycle.

Mr. Tse believes that most motorcyclists would rather continue to ride their old bikes until the licence expires rather than substitute them under the scheme.

Tse explains that the fiscal incentive isn’t enough to override the need for the vehicle’s use, explaining: “For example, the licence of a motorcycle will expire by the end of this coming October; the rider would then rather forgo the MOP3,500 and continue driving his old vehicle until the licence expires.”

New scheme unlikely to boost sales

Kevin Ieong, Managing Director of Agencia Comercial Fer (Macao), Ltd. said the scheme would have little impact upon the sale of new motorcycles.

“Most two-stroke 50cc mopeds cost over MOP10,000,” said Mr. Ieong.

“With the newly adjusted transport fee, MOP3,500 would only be able to cover the increased amount of expense.”

He further explained that 50cc motorcycles with four-stroke engines are very limited in choice, saying riders would rather spend their money on acquiring a motorcycle licence in order to ride more powerful motorcycles. However, the price of higher cc motorcycles, such as 125cc motorcycles, would be at least MOP20,000.

“So riders may think: ‘Why don’t I have my 50cc motorcycle inspected and continue riding it,” remarked Mr. Ieong. “Why would riders spend 10

times more to buy a new vehicle? […] as long as it [the current bike] passes the inspection?”

Mr. Ieong also mentioned that those who own motorbikes with two-stroke engines that are 20 to 30 years old would be highly unlikely to hand in their vehicles, since the vehicle itself has become an antique and the market price of the vehicle would be favourable.

Meanwhile, Mr. Ieong revealed that there are ways to improve or upgrade two-stroke motorcycles to pass inspection and become more environmentally friendly.

“For me, I’ve been working on improving old vehicles to pass inspection,” Mr. Ieong said. “It is very easy - by adding new components […] such as filters to make the engine emit fewer pollutants.”

He also referenced cases in Taiwan in which many older vehicles have passed inspection by upgrades to their engines, adding that vehicles in Taiwan can be inspected by vehicle companies instead of compulsorily inspected in centres managed by the government, as is the case in Macau.

“The Macau Government doesn’t know these alternative ways to improve [motorcycles],” said Ieong.

Attracting more scheme participants

Mr. Tse, on the other hand, has spoken with the government to suggest ways - such as offering easier or simplified examinations for riders with 50cc licences to acquire a bigger cc motorcycle licence - to attract more riders to scrap their old bikes.

“In terms of the way of riding, 50 cc motorcycles and bigger cc motorcycles are very similar,” Tse commented. “There are ways such as organising express or simplified examination, or providing a course for 50cc riders, without going through all the procedures of getting the bigger cc motorcycle licence,” he concluded.

4 Business Daily Wednesday, February 8 2017

Macau Opinion

José I. Duarte*

Exhaust policies The government has just published in the Official Gazette a plan to encourage the scrapping of two-stroke motorcycles. Under the scheme, owners will receive MOP3,500 to remove their vehicles from the streets of Macau.

Two-stroke engines are known to be more polluting than four-stroke engines. This is a general design feature.

The fuel combustion is less efficient; they let out more unburned fuel. Until research brings forth more efficient two-stroke engines, it is generally true that equivalent four-stroke engines emit fewer pollutants.

The replacement with more efficient engines may then have a significantly positive impact, provided two conditions are met: the owners adhere to the scheme in sizeable numbers, and the replacement vehicles are, in absolute terms, less polluting.

The success of the policy hinges then on two unknowns – and it is not known if the government has conducted any studies concerning their likelihood. First, it depends upon how many vehicles that are already in fact abandoned or unused, or would be replaced anyway, will be brought in under the scheme. Is there an estimate of the expected impact of the policy regarding the renovation of the stock?

Second, the subsidy may encourage the acquisition of motorcycles with bigger engines. The gains in relative efficiency may be, at least partially, lost if the average engine size increases.

Note that the Administration has tried before, or at least that was the stated purpose, to encourage the renovation of the city’s vehicle stock. It used tax deductions, going up to MOP60,000 to promote the acquisition of new and purportedly more efficient cars.

It is possibly not unfair to say, on the face of the apparent changes in the composition of the Macau fleet, that such a scheme proved to be more of an incentive to buy bigger cars than an effective policy tool to reduce car exhaust pollution. It would be interesting to know if an evaluation of the policy was made, and what the conclusions were.

Time will tell if this new policy will achieve its primary objective. The implementation should, therefore, be carefully monitored. Other aspects could be questioned.

It is nonetheless a movement in the right direction and, as such, it must be praised.

Hopefully, it is a first step, leading to the set up of a more structured policy approach to fighting vehicle pollution – including other types of vehicles and starting with some of the notorious polluters that roll on our streets. *economist and permanent contributor to this newspaper.

Immigration

Golden opportunity Chinese nationals comprise 71.3 per cent of the 4,423 foreign nationals who have received Portugal’s special residence permit since the programme started in 2012, with the connection to Macau seen as one of the main factors for the large percentage Nelson Moura nelson.moura@macaubusinessdaily.com

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n January 2017, Portugal granted a total of 221 special residence permits - known as Golden Visas - to foreign residents, bringing the total number of permits granted since the special residence programme was created in 2012 to 4,423, according to data provided by the Portuguese Immigration and Borders Service (SEF).

Of these, some 71.3 per cent were granted to Chinese nationals – a total of 3,154 visas -followed by

Brazilian and Russian nationals, the second and third largest nationality groups granted Golden Visas, at 282 and 159, respectively.

The Golden Visa was created by the Portuguese Government as a way of attracting investment and creating employment, allowing citizens from outside the European Union to have temporary Portuguese residence permits.

Non-residents wanting to apply for a Golden Visa can obtain it by transferring capital equal to or exceeding 1 million euros (US$1.14 million / MOP9.12 million), creating at least 10 job positions,

or purchasing real estate property valued at or over 500,000 euros.

According to the SEF, since its creation the investment generated by the visa scheme has reached 2.71 billion euros, of which 2.44 billion euros were obtained through real estate purchases and 266 million euros through capital transfers.

Unsurprisingly, real estate was the main avenue adopted for obtaining a residence permit in Portugal, with 4,171 Golden visas granted for real estate purchases, 246 for capital transfer, and six for job creation.

“The real estate investments are good [and] the weather factor is very important; the Chinese have a centennial connection to Portugal through Macau and this is a nation that remains calm, everything is very tranquil,” the President of the Association of Chinese Businessmen in Portugal (AECP), Huang Yongjie, told Portuguese newspaper Diário de Notícias.

Lisbon, Portugal

Tourism

Ka Ho village tourism project study this year DSSOPT says village land possession disputes would be carefully handled Kam Leong kamleong@macaubusinessdaily.com

The government will launch its feasibility study of developing the Ka Ho Village of Our Lady in Coloane as a cultural tourism project this year, says the Director of the Land, Public Works and Transport Bureau (DSSOPT), Li Canfeng.

In a reply to legislator Si Ka Lon’s enquiry into the preservation and development of the village, the DSSOPT Director cited the Macau Government Tourism Office as saying that the actual proposal for the tourism plan would need further evaluation based upon the recovery of the area as well as transport, auxiliary and other hardware facilities.

The Ka Ho Village of Our Lady once

served as a village for leprosy patients and the village houses Our Lady of Sorrows Church - built in the 1960’s - as well as six other houses built in the 1930’s.

In fact, this plan was first proposed

by Secretary for Social Affairs and Culture Alexis Tam Chon Weng when he visited the village in June of last year.

In the enquiry, the legislator, however, notes that the disputes regarding the legality of “silk paper land contracts” are restricting development of the area.

These land contracts, written on silk paper, were claimed to be issued to village residents by the government during the Qing Dynasty, with many villagers not filing any land registration with the authorities when the

city was under Portuguese administration. Following the handover, the MSAR Government has not accepted the legality of these land possession contracts, mandating that no sales, leasing, development or renovation can be conducted on the plots.

‘The MSAR Government has not been able to fully resolve the disputes, which is restricting the tourism development of Ka Ho village,” the legislator wrote. “On the other hand, ageing houses related to the contracts are only allowed to be renovated or rebuilt when they cause dangers. These dilapidated houses will make it hard to attract tourists to visit.”

But the DSSOPT head reaffirmed that all the related plots are nationally owned, indicating that the MSAR Government would cautiously handle the disputes based upon the city’s new Land Law and urban planning law.

Crime

Busted: 49 illegal workers detained in December 2016 Some 49 illegal workers were discovered to be labouring in the city in the month of December last

year, according to the most recent data released by the city’s Public Security Police Force (PSP). The

number had increased 63 per cent month-on-month compared to 30 illegal workers identified in November 2016. In co-operation with the Labour Affairs Bureau and other departments, the PSP conducted inspections at 273 locations, in which construction sites, private properties, commercial and industrial buildings were included. The number of illegal workers found during the month is a 123 per cent increase compared to the same month in 2015, when oversight operations apprehended 22 illegal workers. C.U.

Business Daily Wednesday, February 8 2017    5

Macau

Banking

Credit card spending grows As at the end of 2016 the city saw more credit cards in circulation, higher credit limits granted and more money spent using credit cards Kam Leong kamleong@macaubusinessdaily.com

Total credit card turnover in the city registered a quarter-to-quarter increase for the fourth quarter of 2016 as the total credit limit granted rose in the same period, according to the latest official data released yesterday by the Monetary Authority of Macau (AMCM).

During the three months, credit card turnover reached some MOP5.02 billion (US$627.5 million), up 7.2 per cent compared to the MOP4.68 billion of the third quarter of 2016. On a yearon-year comparison, the amount represents an increase of 5.7 per cent.

Of the total turnover, that of cash

advances was slightly down - by 2.1 per cent - to MOP216 million from MOP220.66 million one quarter ago, accounting for 4.3 per cent of total credit card turnover. Compared to the same period of 2015, total cash advances turnover had decreased marginally by 0.2 per cent.

On the other hand, the local banking sector extended MOP25.3 billion of credit limit as at the end of last year, rising 5.4 per cent quarterto-quarter from MOP24 billion in the third quarter. The amount surged by 19.7 per cent year-on-year.

Total credit card receivables jumped by 9.5 per cent quarter-to-quarter, or 6.1 per cent year-on-year, to MOP2.5 billion. Of the total, rollover

amounted to MOP740.5 million, an increase of 3.1 per cent quarter-toquarter or 10.2 per cent year-on-year.

Receivables overdue for more than three months decreased by 12.1 per cent to some MOP30.3 million from the previous quarter yet still saw 13.4 per cent growth compared to one year ago.

Total credit card repayments, in which payments for interest and fees are included, grew 1.6 per cent from the previous quarter to MOP4.87 billion in the three months, which, compared to one year ago, rose by 6.3 per cent.

Cards in circulation

As at the end of the quarter, some 1.06 million credit cards issued directly or indirectly by local banking sector were in circulation in the territory, an increase of 2.7 per cent quarterto-quarter, or a growth of 14.4 per cent year-on-year.

Among the cards, the majority, 70.5 per cent, were Pataca (MOP) cards, amounting to 747.2 million, an increase of 2.3 per cent quarter-toquarter. The number of Hong Kong Dollar (HKD) cards and Renminb (RMB) cards in circulation grew quarter-to-quarter by 4.5 per cent and 3.4 per cent to 91.57 million and 220.66 million, respectively.

As compared to one year ago, the number of MOP, HKD and RMB cards all witnessed double digit growth, up by 12.2 per cent, 13 per cent and 23.2 per cent, respectively. AMCM explained that the increases are due to the growth in dual-currency and triple-currency cards.

According to official data, there were some 209.1 million MOP/ RMB dual-currency cards in circulation in the city as at the end of the year, soaring 17.9 per cent year-on-year and 2 per cent quarter-to-quarter.

6 Business Daily Wednesday, February 8 2017

Macau Beverage industry

Filling up the sake cup Macau customers are enjoying different varieties of wine from across Europe and the Pacific.

Following the latest global trend, local imports of sake, a rice wine from Japan, have drastically increased in the last ten years Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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n total, MOP34.34 millionworth of rice wine - equivalent to roughly 1.23 million litres of alcohol - was imported into the MSAR last year, according to the latest external trade data from the Statistics and Census Service (DSEC).

Nearly half of it, or MOP17.24 million-worth of imports, originated from Japan. The purchase of rice wines from Mainland China came a close second, totalling MOP15.71 million in value, distantly followed by imports from Korea (MOP1.14 million), Hong Kong (MOP177,730), and Malaysia (MOP56,362).

Over the last ten years, Japan and Mainland China have been the main exporters of rice wine (sake or baijiu) to the MSAR both in terms of quantity and purchase-value. But the import of Japanese sake surpassed that of Mainland China for the first time in 2013, when Japan’s national drink became the most locally consumed alcohol produced from rice.

According to a report by Nikkei

Asian Review, the export of Japanese sake rose by 10 per cent in 2016 from a year earlier, reaching 15.5 billion yen (MOP1.10 billion/US$137 million).

The total import of rice wine for the whole year of 2016 in Macau was slightly up from the MOP32,33 million recorded in 2015, when Japan topped local rice wine imports once again (MOP16.23 million), followed

by Mainland China (MOP14.56 million). Both imports from Japan and Mainland China were up from 2015.

Until 2012, Mainland China was still the most important exporter of rice wine to Macau, selling MOP17.95 million-worth of the alcohol to the SAR during that year, followed by Japan (MOP14.39 million).

The global import value of rice wine by the MSAR over a ten-year span has nearly doubled, from MOP18.2 million to MOP34.34 million, with Japanese sake imports rising quickly, from MOP2.73 million in

Telecom

MSAR highest mobile penetration in 2016 The MSAR led the Asian continent in terms of overall mobile penetration in 2016, says the latest report on Asia Mobile Network Operators by market research database ResearchMoz. According to a press release, the city’s mobile penetration reached 326 per cent last year, ranking the highest in the region, followed by Hong Kong and the Maldives, with mobile penetration at 227 per cent and 220 per cent for last year, respectively.

Figures rise over 100 per cent due to users having more than one mobile device.

According to official data of the Statistics and Census Service, the MSAR had a total of 1.92 million mobile subscribers as at the end of November last year, while the latest population estimate was about

647,700 for the third quarter of the year.

In terms of the total number of subscribers, China’s mobile market tops the list with 1.32 billion subscribers as at the end of 2016, accounting for 33 per cent of an estimated 4 billion mobile subscribers in the continent.

The report says the overall m o bi l e m a r k et c o n ti n u e d t o experience moderate growth in terms of subscribers last year while total market growth had eased considerably compared to previous years.

‘This is not surprising given that a significant number of markets have [been] well and truly saturated over the last year or so,’ the release explains.

2006 to MOP17.24 million in 2006, representing a 631 per cent increase.

Taste buds

Japanese sake has enjoyed increased demand due to the growing popularity of Japanese cuisine. According to a survey conducted by Japan’s Ministry of Agriculture, Forestry, and Fisheries, the number of Japanese restaurants abroad totalled some 89,000 locations in the Summer of 2015, up from the 55,000 restaurants recorded in 2013, as reported by Nippon online.

As the consumption of rice as a staple food continues to decline in Japan, rice harvests are going to other ends, becoming a more important ingredient in Japan’s exports through the production of sake, reported Nikkei.

The United States remains the largest overseas market for the fermented beverage, followed by South Korea, Taiwan, and China, making up 70 per cent of total exports, according to a report by The Japan Times. The same report points to China as the fastest growing market, with demand increasing more than threefold between 2008 and 2015, while nearby demand more than doubled in South Korea during the same period.

Citing the Trade Statistics of Japan by the Ministry of Finance, the Sake Samurai Association, headquartered in Tokyo, Japan, reports that the United Kingdom is the biggest market in Europe, although it only represents 2 per cent of the totality of Japanese exports of the product.

Sake

served hot or cold.

There are many different varieties of sake, as specified by the Japanese Government - including ginjo, daiginjo, junmai ginjo, tokubetsu junmai, and junmai daiginjo. Sake’s roots are said to stretch back 2,500 years to a period when rice cultivation began to dominate Japanese agriculture. [Source] Japan Sake Brewers Association

Japanese cuisine in Macau

and drinking places that year, with gross surplus leaping 138 per cent for the same period to MOP51.62 million, The following year, a 3.9 per cent year-on-year growth in receipts was recorded, equalling MOP743 million throughout the year.

Although booming in 2014, the segment began to slow in 2015, with a 22.8 per cent reduction in gross value added, dropping from MOP281 million in 2014 to MOP220 million in 2015, with the DSEC noting that ‘the growth of expenditure far outpaced that of receipts,’ causing Japanese and Korean restaurants to register a MOP45.99 million deficit during the year.

Gross value added equals receipts, plus changes in inventories, minus purchases of goods and services for sale, commission paid and operating expenses. Data for 2016 is not yet available.

Wine vs. wine

remains the largest wine seller to Macau, occupying 81 per cent market share in the first half of 2016, valued at MOP468 million.

During the same period, Portugal was the third most important exporter of wine to the city, although with sales much lower than those of France, at MOP28.3 million, representing only 5 per cent market share. It takes the second position in terms of volume sold with 993,000 litres reaching the local market.

Made primarily from rice, sake is a fermented beverage brewed using a microorganism called koji along with yeast. It is a clear refined rice wine with an alcohol content of about 13 per cent to 18 per cent, which makes it a bit stronger than wine. Sake is brewed like beer although not distilled like vodka, and it can be

Macau is, of course, amongst the thousands of locations where the pairing of Japanese food delicacies and Japan’s national drink has enjoyed increasing popularity.

In 2015, Japanese and Korean restaurants combined increased by 12 year-on-year to 146, according to the latest survey on Restaurant and Similar Establishments by the DSEC for 2015. Speaking to Business Daily, a DSEC spokesperson explained that detailed data by restaurant type only started to be requested in 2014. However, there is no specific data produced exclusively for Japanese restaurants to date.

In 2014, revenue from Japanese and Korean restaurants saw a 32.4 per cent year-on-year growth, together raking in MOP704 million, posting the highest growth among restaurants, eating

Apart from imports of rice-based alcoholic beverages, those of non-rice based wine has also risen, with DSEC data showing that the city imported MOP1.05 billion-worth of wine (red, white, and rosé combined) for the whole year of 2016, corresponding to 4.4 million litres, nearly four times the quantity of rice wine imported during the same period, at 1.23 million litres.

According to a previous report

by Business Daily, France

Business Daily Wednesday, February 8 2017 7

Macau Gaming

Analysts: CNY driving up revenue growth JP Morgan estimates that the daily run-rate in the first five days of the month is the best in 2.5 years Kam Leong kamleong@macaubusinessdaily.com

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nalysts believe this month’s gaming revenue growth will be boosted based on strong performance exhibited during the first five days of Chinese New Year.

projects a growth of between 5 per cent and 9 per cent year-on-year.

Last month, local gaming revenue amounted to MOP19.3 billion, an increase of some 3.1 per cent from the same month of 2016.

According to JP Morgan analysts, led by D.S. Kim, the strength of tailend VIP demand this week would be another key determining factor in the sector’s performance this month as some VIPs only visit the MSAR after the holiday to avoid heavy traffic.

‘All-in-all, we are comfortable about our industry [gaming revenue] estimates, which will likely accelerate into good double-digit growths from March (and at least until July) on easy comps,’ the analysts at JP Morgan wrote.

Happy CNY

In its latest research notes, JP Morgan predicts that the city’s gaming revenue will increase by between 6 per cent and 10 per cent year-onyear for this month - from MOP19.5 billion (US$2.4 billion) one year ago - adding that ‘it’s likely to come in at the higher end of the range given the strong CNY’ whilst Wells Fargo

Claiming ‘Macau’s CNY was very happy,’ the brokerage estimates that the first five days of February have already raked in some MOP6.3 billion in gaming revenue, implying average daily revenue of some MOP1.26 billion.

‘No matter how we look at it, this is a very strong print: this is the best daily run-rate in two and a half years and the second highest CNY run-rate on record (only after 2014 CNY),’ they wrote, adding that the estimated average daily rate implies a growth of 30 to 50 per cent over the same CNY period last year.

Wells Fargo analyst Cameron McKnight and Telsey Group analyst David Katz hold similar projections,

respectively predicting average daily revenue for the first five days of MOP1.2 billion to MOP1.3 billion and HK$1 billion to HK$1.2 billion.

‘The start to the holiday period positions the market for a strong month and a strong holiday period on a like for like basis,” Katz wrote, while McKnight expects the daily revenue rate will slow to some MOP700 million in the following week and MOP620 million for the remainder of the month.

Strong VIP

In fact, JP Morgan notes that the

strength of the performance in the past few days is because ‘VIP demand came in particularly strong.’

It cited its checks with junkets that the run rates of the sector have increased by two to two and a half times year-on-year in the first five days, adding that mass is also projected to have recorded growth of 60 to 70 per cent year-on-year.

‘We understand overall VIP winrate remained within normal levels, suggesting underlying demand was indeed very solid,’ they wrote, while Wells Fargo cited its contact as saying ‘VIP hold was about normal.’

Dispute

Wynn requests overturn of Okada case The Nevada Supreme Court is deliberating upon whether to overturn two district court orders in a dispute involving gaming mogul Steve Wynn and former partner Kazuo Okada, according to the Las Vegas Review Journal.

The combined cases relate to documents turned over to Okada’s company and its parent group, including a report produced by a former federal judge and FBI director, Louis Freeh, which state that Okada and associates made payments and gifts to gaming regulators at Philippine gaming authority Pagcor.

The second order requires Wynn to turn over communications between legal firm Brownstein Hyatt and Wynn shareholders, which Wynn’s appeal states will isolate Nevada ‘on a corporate law island

Kazuo Okada, former business partner of Steve Wynn

as the least attractive place for corporate governance.’

Okada’s attorney said the turnover would be voluntary waivers of client-attorney privilege, thus limited in scope, notes the publication. K.W.

8 Business Daily Wednesday, February 8 2017

Greater china Lenders

New loans could beat monthly record Despite the central bank ordering lenders to strictly control new loans

P

artial government data for January showed China’s new lending was near, and possibly exceeded, the previous monthly record, according to people familiar with the matter.

Regulators estimate new loans rose last month to a range that could exceed the RMB2.5 trillion (US$364 billion) record in January 2016, said the people, who asked not to be identified because they aren’t authorized to speak publicly. The People’s Bank of China report due for release in coming days will show new loans increased to RMB2.41 trillion in January, according to the median of analyst estimates in a Bloomberg survey as yesterday.

It’s not clear whether the partial January lending data factored into the central bank’s move on Jan. 24 to increase interest rates on the medium-term loans it uses

to manage liquidity. The rates are becoming one of the main policy tools as the central bank moves away from old benchmarks.

The credit surge highlights the

Forex

Yuan to fall as outflows overshadow Trump rhetoric RMB is then expected to fall to 7.18 in one year Rahul Karunakar

China’s currency is expected to fall to a near decade-low in the year ahead, according to a Reuters poll of FX strategists, as authorities struggle to stem capital outflows and despite the central bank’s surprise short-term interest rate hikes.

The bearish views on the yuan come against U.S. President Donald Trump’s accusations that Beijing has devalued its currency to gain a trade advantage and his open displeasure at the United States’ historic strong dollar policies.

The poll of over 50 foreign exchange analysts this week showed further losses for the yuan, also known as the renminbi, were possible over the next 12 months.

Jason Daw, head of emerging market FX strategy at Societe Generale, said that emerging market currencies, like the yuan, “require a positive narrative” to sustain a recovery.

“Risk premia should remain elevated as the market grapples with U.S. policies, with Asia in particular risk from protectionism,” he noted.

“Beijing’s ultimate goal is to let the (yuan) reach a market clearing price sooner rather than later, albeit without a major one-off devaluation during the process. This is already

challenging enough and now the potential policy mix from the Trump administration has further complicated the task.”

China’s central bank has spent hundreds of billions of dollars in reserves to keep the yuan from falling further and has taken several measures in recent months aimed at making it more difficult for Chinese individuals and companies to send money abroad.

Despite this, the closely-managed yuan fell almost 7 per cent last year, marking its biggest loss against the dollar since 1994, in part due to an uncertain outlook on China’s economy.

The currency has found some support in recent developments, such as a revival in government borrowing and spending.

The central bank also raised short-term interest rates last week in a surprise move and set a firmer official midpoint than markets had expected on Monday, which pushed the yuan higher to 6.86 against a subdued dollar.

But while the currency is forecast to trade around that level to the dollar by the end of the month, it is then expected to fall to 7.18 in a year, which would mark its lowest level in nearly a decade if reached.

“A rising dollar and an unrelenting desire for FX diversification by local residents means more (yuan) depreciation pressure,” added Societe Generale’s Daw. Reuters

challenge policy makers face as they strive to prioritize reducing leverage and deflating asset bubbles this year. The central bank has ordered lenders to strictly control new loans in the first quarter of the year, people familiar with the matter told Bloomberg last month, in another move to curb excess leverage in the financial system.

The PBOC didn’t immediately respond to faxed questions seeking comment.

PBOC Assistant Governor Zhang Xiaohui said in a recent article that although monetary policy has been prudent since 2011, there has also

been a tendency toward slight easing in practice due to downward economic risks and financial market turbulence.

The possibility of further tightening action in the money market can’t be fully ruled out, given the strong loan growth and deleveraging, said David Qu, markets economist at Australia & New Zealand Banking Group Ltd. in Shanghai.

“Monetary policy has entered an unclear period,” he said. “We still think that the PBOC should maintain the overall liquidity condition, so a sharp tightness should be a low possibility.” Bloomberg News

Business Daily Wednesday, February 8 2017 9

Greater China Trade

In Brief

Solid rise for Taiwan exports, short-term outlook positive Manufacturers report robust increases in output, total new orders and employment J.R. Wu and Faith Hung

Taiwan’s exports rose for a fourth straight month in January, though growth momentum slowed substantially from a peak in late 2016.

January’s exports expanded 7.0 per cent on year, above the 1.39 per cent gain forecast by analysts in a Reuters poll. In December, there’s was a 14 per cent annual increase, a four-year high.

Demand for the island’s tech gadgets is expected to remain solid through the first quarter as the global economy recovers, although the protectionist stance of U.S. President Donald Trump points to an uncertain longer-term outlook.

“We don’t deny that amid the recovery, global uncertainties remain on the rise,” Beatrice Tsai, an

official at Taiwan’s finance ministry, told a news conference yetserday.

“Trump’s policies are not clear yet and companies are still monitoring,” said Tsai.

The ministry said that shipments will likely pick up sharply in February, after a lull for the Lunar New Year holidays, which reduced the number of working days in January.

Taiwan is one of Asia’s major exporters, especially of technology goods, and its export trend is a key gauge of global demand for technology gadgets.

Taiwanese manufacturers reported robust increases in output, total new orders and employment in January, despite the rates of expansion easing since December, according to the Nikkei/Markit Taiwan Purchasing Managers’ Index.

Ta i w a n S e m i c o n d u c t o r Manufacturing Co (TSMC), the world’s top contract chip maker, said last month that its revenue in the first quarter would be below the fourth quarter, though profit margins would hold steady.

Exports to China and the United States, Taiwan’s biggest destinations, rose 7.6 per cent and 3.8 per cent in January, respectively, the ministry said. In December, exports jumped 21.4 per cent and 2 per cent.

Key Points Jan exports +7.0 pct y/y, rise for 4th straight month Shipments to China +7.6 pct, to U.S. +3.8 pct Taiwan says exports in Feb will increase sharply Shipments of electronic components increased 10 per cent on year, while information and communications products climbed 2.6 per cent, the ministry said.

Exports of basic metals and their products rose 13.7 per cent. Reuters

Globalization

The EU commissioner praised Chinese President Xi Jinping’s speech at the World Economic Forum in the Swiss resort of Davos last month

“If others around the world want to use trade as a weapon, I want to use it as a tonic, a vital ingredient for prosperity and progress”

Commissioner Cecilia Malmstrom told a business conference on EU-China relations, without explicitly mentioning Trump or the United States in her comments.

“If others are closing their doors, ours are still open - as long as the trade is fair. And we will give China every opportunity to uphold its pledge against protectionism, and towards a multilateral agenda, too,” she said.

But Malmstrom added that “many barriers and irritants” remained to EU-China trade and said economic relations were far from balanced.

Trade with China was worth one fifth of EU imported goods but only one tenth of its goods exports. Chinese

investment flows into the EU rose to a record high of almost 40 billion euros (US$42.93 billion) last year, while EU investment into China fell to a 10-year low of less than 8 billion.

Malmstrom said she hoped the latter issue could be addressed with an EU-China investment agreement, currently under negotiation. She said she hoped for a “new impulse” in talks this year.

The EU commissioner praised Chinese President Xi Jinping’s speech at the World Economic Forum in the Swiss resort of Davos last month that portrayed China as the leader of a globalised world where only international cooperation can solve the big problems.

Malmstrom said she agreed with Xi that a trade war would be catastrophic for all parties, adding that the Chinese leader’s big challenge this year would be to match rhetoric with reform. Reuters

Cecilia Malmstrom, European Union Trade Commissioner Beijing says it will work with Washington to resolve any trade disputes, but state media have warned of retaliation if Trump takes the first steps toward a trade war.

“If others around the world want to use trade as a weapon, I want to use it as a tonic, a vital ingredient for prosperity and progress,” Trade

Consumer inflation expected to pick up China’s consumer inflation in January was expected to increase due to food price rises, economists said yesterday, a week before the publication of official data.

The consumer price index (CPI), a main gauge of inflation, is likely to increase by 2.4 per cent in January from a year ago, 0.3 percentage points higher than December, said Lu Zhengwei, chief economist with the Industrial Bank.

Food prices are expected to rise by 2.5 per cent month on month in January, driven by rising grain prices, according to China Merchants Securities’ analyst Xie Yaxuan.

Private economy

Guangdong reports added value growth Guangdong Province saw the added value of the private sector increase 7.8 per cent year on year, reaching nearly RMB4.26 trillion (US$620 billion). Statistics from the provincial statistics bureau showed that Guangdong’s private sector made up 53.6 per cent of its GDP last year, up 0.2 percentage point over 2015, and up 3.9 percentage points from 2010.

In addition, the private sector contributed 55.5 per cent to the province’s GDP growth, which was 7.5 per cent in 2016, up 1.3 percentage points than 2015. The Pearl River Delta achieved RMB3.15 trillion in added value of the private sector last year, accounting for 72.5 per cent of the province’s total.

Commodities

EU trade chief backs Beijing in fight against protectionism

The European Union is ready to join China in fighting protectionism worldwide but Beijing also needs to show it can play fair on trade and investment, the bloc’s trade chief said on Monday.

U.S. President Donald Trump has threatened to impose punitive tariffs on Chinese imports, blaming China’s trade practices for U.S. job losses.

CPI

Cecilia Malmstrom, European Union Trade Commissioner

Xinjiang gold output up in 2016 Gold output in resource-rich Xinjiang Uygur Autonomous Region reached over 20.5 tonnes in 2016, up 6.5 per cent year on year, according to local authorities. Xinjiang has five gold producing areas: output in Ili, Turpan and Tacheng saw growth in 2016, while output in Altay and Hami fell 5 per cent and 10 per cent, respectively, year on year. Xinjiang is aiming to produce 22 tonnes of gold in 2017, an annual increase of 7.3 per cent. Gold sales are expected to reach RMB6 billion (US$875 million), up 8.1 per cent year on year.

Bird flu concerns

Central Mainland halts live poultry trade A suspension has been placed on the sale of live poultry in several markets in the central province of Hunan over bird flu concerns. Hunan has reported 20 H7N9 human infections, including five fatalities, since 2017, according to the provincial centre for disease control and prevention yesterday. The centre expects more infections in the following months and, thus, decided to close several markets in cities including Changsha and Yueyang. The markets were ordered to disinfect on a regular basis to prevent the virus from spreading.

10 Business Daily Wednesday, February 8 2017

Greater China

Investors

As doors open, foreigners worry about exits By containing capital outflows, regulators are counteracting market-opening steps that have included allowing all types of medium to long-term investors into the interbank bond market Justina Lee

C

hina’s doors to foreign investors may be opening ever wider, but that’s not enough for many worried about finding an exit.

Fourteen months after qualifying for official reserve-currency status, and after a series of steps opening up domestic markets to overseas funds, the take-up remains below estimates. For all China’s attraction as the second-largest economy with large and expanding domestic capital markets, regulators’ efforts to tamp down on outflows of money have stoked concerns.

“There’s no return lower than not getting your money back,” Brad Holzberger, chief money manager of QSuper Ltd., an Australian pension fund that oversees the equivalent of US$47 billion, said in a Jan. 13 interview.

“We’re worried about understanding the transparency of decision making -- as well as property rights, rule of law, transmission of capital controls and those sorts of things.”

It’s another case of China’s conflicting goals, alongside the Communist leadership’s pursuit of both growth and leverage reduction across the economy. By taking increasingly aggressive steps to curtail domestic money from flowing abroad -such as more stringent vetting of cross-border transactions -- regulators are effectively counteracting market-opening steps that have included allowing all types of medium to long-term investors into the interbank bond market.

China’s curbs on money flows stoked anxiety among foreign businesses -- read more about that here.

In a sign of how far China has to go to stoke appetite for its assets, Australia’s QSuper is happy to put money into Brazil -- an emerging market with a turbulent financial past that’s featured bailouts from the International Monetary Fund -- but

not China.

“There’s too much discretion by the policy makers, giving foreign investors a lack of a rule-based system,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, who previously worked at the IMF and European Central Bank. “It’s not a very favourable signal” to implement curbs on money leaving the country, he said. But “for Chinese authorities, the priority is to prevent a financial crisis.”

The State Administration of Foreign Exchange, or SAFE, actively protects the legitimate rights and interests of foreign enterprises, the agency said. Dividends and profits can be transferred without restriction, SAFE said. Foreign-invested groups can also transfer shares and withdrawals from banks, with the authentic and complete documents required, it said.

Yuan impact

Broader participation by foreign investors in Chinese markets could help balance its capital flows, offsetting moves by domestic funds and households to diversify some of their holdings overseas. That in turn could reduce longer-term downward pressure on the yuan, which slid the most against the dollar last year in more than two decades.

In a chicken-and-egg situation, more balanced flows would also give regulators space to follow through on the goal set in 2015 to make the yuan convertible by 2020.

For now, while the inflow of foreign funds shows impressive growth rates, the data are flattered by low starting points. Relative to other big economies, foreign participation in China’s financial markets remains limited.

Overseas holdings of Chinese shares rose 41 per cent last year to 649 billion yuan (US$94 billion) -- less than half of what Norway’s sovereign wealth fund alone holds in American

equities as of September. China has expanded access for global funds to its onshore equities, launching two stock exchange links with Hong Kong since 2014.

Bonds held by foreign investors climbed 12 per cent to 853 billion yuan last year, central bank data show. That’s little more than India’s stockpile of Treasuries as of November, and less than one-eighth of what China officially owns in U.S. government debt.

Overseas investors in January were net sellers of Chinese bonds for the first time since October 2015, which was a month before the IMF gave approval to the yuan to join its Special Drawing Right basket of official currencies.

“The accelerated yuan depreciation in the fourth quarter and tightening capital controls are affecting overseas investors’ interest,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong.

“For Chinese authorities, the priority is to prevent a financial crisis” Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong Even so, some foreign investors see curbs on outflows as a worthy price to pay for currency stability. After what Bloomberg estimates as US$1.6 trillion left China from 2015 through last November, the latest indicators suggest a slowing in the outflows.

Along with dollar weakness, outflow curbs have helped the yuan rebound 1.2 per cent so far this year.

“More barriers on capital flows always make it more difficult for investors to know what the real price of the currency is,” said Rajeev De Mello, head of Asian fixed income in Singapore at Schroder Investment Management Ltd., which has onshore Chinese bonds among its holdings.

“That’s what keeps the market calmer

though. They don’t have too many policy choices right now.”

Feeling squeeze

One concern De Mello does have is the cost of hedging his China holdings. Moves by China to squeeze speculation in the offshore yuan market, part of officials’ efforts to avert continual declines in the exchange rate, have involved big swings in money market rates, making it costlier to hedge. China is still in the process of developing an onshore market where all foreign asset managers can hedge.

Another worry among some investors abroad is anecdotes they hear about others having difficulty getting money out.

One case involving a regulator’s reported discussions on a withdrawal of funds was linked to Deutsche Bank AG. When the German lender was selling its stake in a Chinese bank, SAFE proposed that the proceeds be remitted in batches, rather than in one go, Bloomberg News reported in September, citing people with knowledge of the matter. SAFE said that media accounts of its talks with Deutsche Bank were untrue.

Also limiting foreign appetite is China’s continuing exclusion from major global indexes -- a reversal of which could see as much as US$180 billion go onshore, according to HSBC Holdings Plc estimates. A senior official at China’s securities regulator has said the nation is in no rush to win inclusion into an MSCI stockindex and entry into bond indexes isn’t a priority.

The conclusion of Song Yu, the top forecaster for Chinese economic indicators since 2012: rising concerns about tightening capital controls are offsetting the benefits of policies encouraging foreign investment.

With more overseas investment, “there will be more professional analysts and traders, more fundamental analysis, less overshooting, more mature institutional investors -- which will make China’s markets more mature,” said Song, chief China economist at Beijing Gao Hua Securities Co. “This is very significant.

It’s not just a matter of valuation and price levels.” Bloomberg News

Business Daily Wednesday, February 8 2017 11

Asia Monetary policy

Australia’s central bank holds rates Central bank head has repeatedly argued that cutting rates further could carry risks for debt that outweighed any economic benefit Wayne Cole

A

ustralia’s central bank held rates steady at its first policy meeting of the year yesterday, playing down a recent soft patch in economic growth as a temporary hiccup that would not prevent a pick up to a healthy 3-per cent pace over time.

The Reserve Bank of Australia’s (RBA) optimistic tone lifted the local currency 20 ticks to US$0.7662 as markets widened the odds on another policy easing.

the economy looked to have bounced back to “reasonable growth” after a surprise contraction in the third quarter of last year.

“The Bank’s central scenario remains for economic growth to be around 3 per cent over the next couple of years,” Lowe said, waving aside fears Australia may have slipped into its first recession in 25 years.

He also reiterated the bank’s

forecasts for a gradual pick up in underlying inflation, which is currently pinned at a record low of 1.5 per cent.

The RBA will release its latest forecasts for the economy in a quarterly policy statement due on Friday.

With Lowe accentuating the positive, investors trimmed bets on another rate cut for the near term with interbank futures implying around a 16 per cent of a move by June.

Hot housing

Lowe again noted that prices for Australia’s key commodity exports had risen sharply in past months, which blessed the country with its largest

trade surplus on record in December.

Analysts expect that windfall to percolate through profits, wages and tax receipts in a boon for nominal growth and an argument against further rate cuts.

Minutes of the December RBA meeting showed the board was mindful of balancing the benefits of easy policy against the risks of encouraging a renewed borrowing binge by households, many of which are already heavily in debt.

Lowe has repeatedly argued that cutting rates further could carry risks for debt that outweighed any economic benefit. Reuters

Key Points RBA holds rates at 1.5 pct as widely expected Says slower GDP growth temporary, sees pick up to 3 pct Market implies modest chance of another cut later in year The central bank kept rates at a record low of 1.5 per cent for a seventh straight month, following easings in August and May last year. All 72 economists in a Reuters poll expected a steady outcome this week.

Notably, Governor Philip Lowe said

Speculation probe

Malaysian ringgit crackdown saps volatility, deters investors A measure of one-month volatility for the ringgit has tumbled since mid-November Liau Y-Sing and Yumi Teso

Malaysia’s crackdown on currency speculators has come at a cost.

While it has successfully reduced ringgit volatility, it is threatening to discourage overseas investors.

The central bank’s steps to curb trading in offshore non-deliverable forwards (NDF) last year has made it harder for global funds to hedge their exposure to Malaysia, according to Macquarie Bank Ltd. Global funds cut holdings of Malaysian debt by a combined 25.2 billion ringgit (US$5.7 billion) in November and December, the biggest two months of outflows since 2008, central bank data show.

The difference between onshore and forward prices for the ringgit jumped to a record in November, spurring the central bank to crack down on NDF trading. Since then, the currency’s volatility has dwindled to the lowest in four years, while the ringgit slid to the weakest since 1998 even as oil prices stabilized and the central bank dismissed speculation it was about to impose capital controls.

“The initial imposition of the NDF restrictions did lead to talk of the potential of further restrictions and even capital account closure,” said Julian Wee, a senior market strategist at National Australia Bank in Singapore. “These sort of measures

tend to lead to a loss of confidence in the market, which was already jittery. However, the overall direction and movement in the dollar-ringgit has been due to the overall dollar trend in addition to BNM’s inability to resist it.”

A measure of one-month volatility for the ringgit has tumbled since midNovember when the central bank warned foreign banks not to engage in NDF-related transactions, turning the currency into emerging Asia’s least volatile, from the most. Volatility dropped to 2.5 per cent last week, the lowest since December 2012.

The ringgit has fallen almost 2 per cent since Nov. 15, the region’s worst performer after the yen, and reached 4.5002 per dollar on Jan. 4,

the weakest since the Asian financial crisis. The currency will slide to 4.53 by mid-year, according to a Bloomberg survey.

Not everyone is pessimistic.

United Overseas Bank Ltd. predicts the ringgit will strengthen to 4.35 per dollar by June 30 as it regains a positive correlation with crude oil.

Oil-related products are Malaysia’s second-largest export.

“The ringgit’s previously highbeta or sensitivity to dollar moves is clearly diminished,” said Peter Chia, a currency strategist at UOB in Singapore. “Factors in favour of a firmer ringgit include our estimated fair value of 3.90 and a return of the positive correlation to firmer oil prices.”

Bank Negara blamed the “opaque” offshore NDF market for worsening the pressure on the ringgit and said the currency’s pricing should never

be disconnected from real economic activities in the onshore market.

Traders remain wary even after central bank Governor Muhammad Ibrahim allowed for greater hedging flexibility in the onshore currency market in an attempt to discourage the use of NDFs. In measures that took effect in December, Bank Negara pledged to ensure there would be “continuous liquidity of foreign currency” in the onshore market, and placed a cap on the amount of export proceeds companies can hold in foreign currency.

Malaysia’s dwindling foreignexchange reserves mean it has less power to defend its currency.

Reserves dropped to a 14-month low of US$94.3 billion, according to the most recent data through Jan. 13. The country is the only one in Southeast Asia to have seen reserves decline in each of the past four years.

The ringgit is poised to end this year at 4.80 per dollar, close to the record low of 4.8850 reached in January 1998, according to Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. in Singapore.

The NDF crackdown has done some harm for market players, he said.

“While Bank Negara can say the onshore USD/MYR deliverable forward market could provide that hedge option, it is less liquid, certainly for after hours trades. The cost of hedging for foreign investors has definitely risen at the margin.” Bloomberg News

12 Business Daily Wednesday, February 8 2017

Asia Monetary head

New Zealand’s central bank chief to step down The RBNZ will begin the process of picking a successor later in the year Charlotte Greenfield

N

ew Zealand’s central bank Governor Graeme Wheeler will not be seeking a second term when his current stint ends in September, three days after a general election and as global risk mount for the trade-dependent economy.

Economists say a new chief at the Reserve Bank of New Zealand (RBNZ) opens the possibility the central bank could move to a more flexible approach on how inflation will guide its future monetary policy decisions.

inflation had put the central bank in a bind during Wheeler’s term.

The governor, a former World Bank official, had cut rates to record lows to boost price growth, but this also stoked the property market and raised financial stability concerns.

“It did raise a lot of discussion about the appropriateness of solely focusing on the inflation target,” said Christina Leung, economist at think tank the New Zealand Institute of Economic Research.

Inflation has lingered outside of the bank’s target range of 1 to 3 per cent for the past two years, before finally

making it back to 1.3 per cent in the fourth quarter.

The new governor will sign an agreement with the finance minister over the central bank’s policy targets.

While economists thought it unlikely the target would be completely reworked, it was possible a more flexible approach would be taken.

“The scope could be broadened in terms of inflation measures that the bank takes its cues from,” Leung said.

Wheeler’s focus was largely on the consumer price index, which remained tepid and excluded surging house price inflation.

The next governor will likely inherit a challenging economic environment as New Zealand’s growth races ahead on increased migration

and tourism, while the global outlook remains volatile.

Kiwibank said yesterday that “international risks remain elevated creating a large amount of uncertainty.”

“These hazards include how fiscal policy plays out in the U.S.,” Kiwibank said in a note.

The long time frame before a new governor is appointed makes it hard to predict possible successors, economists said. Spencer, who had served as deputy governor since 2007, had been planning to retire this year, but agreed to defer that for his temporary term.

The RBNZ meets on Thursday when the central bank is widely expected to keep rates on hold at 1.75 per cent.

Reuters

Key Points RBNZ Governor Wheeler to step down in Sept after 5-year term Deputy gov to serve six-month term during search for replacement Change may lead to more flexible inflation targeting - economist Appointed in 2012, Wheeler’s tenure has been marked by a strict adherence to the RBNZ’s inflation measures as he steered an economy performing better than its developed peers after it emerged from recession in the wake of the global financial crisis. His five-year term ends on Sept. 26.

The RBNZ will begin the process to pick a successor later in the year and Grant Spencer, deputy governor and head of financial stability, will serve a six-month term as acting governor while the search is conducted.

“It was my intention, when I was appointed, to serve one term, and then to take on governance roles,” Wheeler said in a statement.

New Zealand’s sky-rocketing house prices combined with low headline

New Zealand’s central bank Governor Graeme Wheeler

Currencies

Indian rupee to weaken to record low over the coming year While the rupee has gained nearly 0.5 per cent since demonetisation, continued capital outflows may weigh Krishna Eluri

India’s rupee will reverse recent gains and sink to a record low in the coming year on expectations for a rise in the dollar even though U.S. President Donald Trump has made clear his dislike of a strong currency, a Reuters poll found.

The rupee has appreciated more than 1 per cent so far this year, with most of those gains coming toward the end of January on hopes for fiscal stimulus in the Indian government’s Feb. 1 budget presentation.

A subdued dollar also helped the rupee regain some ground after weakening over 2 per cent in 2016.

Still, the latest poll of more than 30 foreign exchange strategists taken over the past week showed the rupee weakening to 68.00 per dollar by the end of the month from 67.17 it was trading on Monday.

The currency is expected to weaken

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to 69.50 a dollar in 12 months, which would be a record low for the currency.

The consensus forecasts were largely unchanged compared with last month’s poll, suggesting any gains

made will only be temporary.

“Whatever we are seeing is a kneejerk reaction to Trump’s statements, but once things settle and are a little more actionable, the trend for dollar index strength would resume once again,” said Navneet Damani at Motilal Oswal Commodities.

“We have seen the dollar index appreciating very sharply but nothing has happened on the USD/ INR front. Going forward, some bit

of depreciation would be required to be competitive in terms of trade.

So a natural depreciation would be something the government will not mind at the moment.”

‘Rupee is expected to weaken to 69.50 a dollar in 12 months’ Though Finance Minister A r u n Ja i t l e y a c k n o w l e d g e d demonetisation will hurt growth, he made few concessions in the latest budget and instead targeted a fiscal deficit of 3.2 per cent for 2017-18.

While the rupee has gained nearly 0.5 per cent since then, continued capital outflows may weigh.

Expectations for the Reserve Bank of India to ease policy as early as Feb. 8 and a further cut later in the year are also set to keep downward pressure on the rupee. Reuters

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Business Daily Wednesday, February 8 2017 13

Asia Monetary policy

In Brief

Sri Lanka keeps rates steady, but flags possible tightening soon Analysts said further tightening in policy looks inevitable Shihar Aneez and Ranga Sirilal

Sri Lanka’s central bank kept its key rates steady yesterday for a sixth straight month, but flagged possible “corrective measures” in the months ahead in a sign further tightening might be on the cards to temper inflation pressures and safeguard a fragile rupee.

The Central Bank of Sri Lanka (CBSL) left the standing deposit facility rate (SDFR) and the standing lending facility rate (SLFR) at 7.00 per cent and 8.50 per cent, respectively.

It has tightened monetary policy three times since December 2015, while the government has kept a tight leash on fiscal policy in the past year to trim the budget deficit in line with a condition for a US$1.5 billion International Monetary Fund loan.

The central bank said the economy is gradually responding to the stabilisation measures adopted by CBSL and the government since late 2015.

“However, close monitoring of

macroeconomic developments is necessary in the period ahead, with a view to adopting further corrective measures, if required,” it said in a statement.

Analysts said further tightening in policy looks inevitable even as private sector credit growth has slowed slightly to 21.9 per cent on-year by end of 2016, from a near four-year high of 28.5 per cent in July.

“Looking ahead, tighter monetary policy is needed to contain rapid credit growth and rising price pressures,” Krystal Tan Asia economist at Capital Economics said in a client note.

A Reuters poll last week showed economists were split on their views.

Seven out of 13 economists surveyed predicted the central bank would keep both its SDFR and SLFR unchanged. The rest expected at least a 25-basis-point rate hike in both policy rates.

The prior tightening steps have dragged on the economy, which grew at a slower 4 per cent annual pace in the first nine months of 2016 compared to 5.7 per cent in the same period the year-before.

Policy makers face a tricky balancing act as the rupee comes under fresh selling pressure, hurt by capital

outflows thanks to the Federal Reserve’s more hawkish policy outlook and uncertainty caused by U.S. President Donald Trump’s policies on trade, immigration and international relations.

The Sri Lanka rupee fell 3.9 per cent in 2016 and has eased around 0.5 per cent so far this year.

Sri Lanka’s consumer prices rose to a six-month high of 5.5 per cent in January from a year earlier, accelerating from the previous month’s 4.5 per cent under a revised calculation method that came into effect this last month.,

Key Points Economy gradually responds to past measures - c.bank C.bank assures policy changes “if required” Analysts expect rate hike sooner than later Rate hike needed to ease pressure on rupee - economist “Although private sector credit growth has slowed in recent months, it remains at an unsustainable rate.

Interest rate hikes will also be needed if the CBSL wants to support the currency, particularly as we expect the US Fed to raise interest rates further than markets currently anticipate this year,” Tan said. Reuters

Markets

SGX holds talks with Saudi Aramco on secondary listing Singapore lacks listings of large international oil companies Singapore Exchange has held talks with Saudi Aramco on a secondary listing, two sources familiar with the matter said on Monday, after the oil and gas company suggested last week it would likely list on more than one exchange.

The planned listing next year of up to 5 per cent of Aramco is expected to be the world’s biggest initial public offer (IPO). Saudi Energy Minister Khalid al-Falih said last week the company was evaluating concurrent listings on more than one exchange.

The two sources told Reuters that the talks with SGX were still at an early stage, with Aramco reviewing several markets including New York, London, Hong Kong and Japan.

“This transaction is very open and in the public space. The key thing is there is quite a bit of time for due diligence and SGX is keen to play up its international appeal in this sector,”

Treasury

Thai gov’t defends low reserves Thailand’s treasury reserves dropped to 74.91 billion baht (US$2.14 billion), while the government said it still remains “at an appropriate level”, local media reported yesterday. The country’s treasury reserves, the balance between revenue and expenditures of the government, has dropped 85 per cent since the junta took power in a coup in 2014. Apisak admitted that the treasury balance now, some 75 billion baht, is much less than the 495 billion baht in 2014, but he said, the drop was a healthy adjustment and meant the government was relying less on loans.

M&A

SK Hynix submits bid for a Toshiba memory stake South Korea’s SK Hynix Inc has submitted an initial bid to acquire a stake in Toshiba Corp’s memory chip business, a person familiar with the matter told Reuters yesterday.

The person said it has not been decided how much a stake SK Hynix, the world’s No. 2 memory chip maker, will acquire in Toshiba’s memory business as the deal is in early stages. A SK Hynix spokesman declined to comment, and Toshiba could not be immediately reached for comment.

Prices

Philippines inflation at more than two-year high

SGX has taken measures to boost market liquidity and attract bigger IPOs

said one source.

Aramco, slated to list in 2018, could also interest Singapore’s sovereign wealth fund GIC Pte Ltd, another source told Reuters, but a decision on the size of stake would depend on Aramco’s financial details and valuation.

Aramco and GIC declined to comment, while SGX said in a statement that it was the world’s most international exchange and “offered unique access to Southeast Asia’s markets”.

SGX has taken measures to boost

market liquidity and attract bigger IPOs but it has mostly become a large Asian centre for Real Estate Investment Trusts listings.

In pitching for Aramco, Singapore is highlighting its status as a leading oil trading hub, with 80 per cent of the top 30 oil and gas companies having a presence in the city, according to data from government agency International Enterprise Singapore.

Singapore is a waypoint on the main shipping lanes between the Middle East’s crude oil exporters and North Asia’s leading industrial hubs of China, Japan, South Korea and Taiwan.

The city-state’s centrality within emerging Southeast Asia has also attracted oil traders as has the fact that Australia’s rising oil and natural gas exports flow via Singapore.

Being at the heart of the region’s oil shipping routes has allowed trading in Singapore to set Asia’s oil pricing benchmarks, with price reporting agencies like S&P Global Platts using physical oil deals to set the daily prices off which refined products like diesel or gasoline are priced.

To extend its energy trading into financial products, SGX and Japan’s TOCOM last November announced they would join forces in order to colist Asian LNG and electricity futures, and there are also plans to establish more oil futures products.

But despite its well-established trade links and regulations, and use of English as an official language, Singapore still lacks listings of large international oil companies, which tend to prefer London or New York where liquidity is much greater. Reuters

Consumer prices hit their highest in more than two years in January, due to higher water and energy costs among other commodities, the statistics agency said yesterday. Annual inflation was 2.7 per cent last month, faster than December’s 2.6 per cent but within the central bank’s 2-4 per cent target this year. It was slower than the analysts’ forecast of 2.8 per cent in a Reuters poll but well within the central bank’s 2.3-3.2 per cent projection for the month. Core inflation was steady at 2.5 per cent in January. Prices rose 0.3 per cent last month from December.

Forex

Japan finmin reiterates pledge against devaluation Japan will stick to a G7/G20 agreement against competitive currency devaluation and continue to use monetary policy to achieve its inflation goal, without targeting currencies, Finance Minister Taro Aso said yesterday. Aso declined to comment when asked about the yen’s recent gains. The dollar slid to two-month lows against the yen earlier amid a drop in U.S. Treasury yields. He also told reporters after a cabinet meeting that he hoped Prime Minister Shinzo Abe and U.S. President Donald Trump would engage in constructive dialogue that would benefit both sides and improve bilateral economic ties when they meet this week.

14 Business Daily Wednesday, February 8 2017

International In Brief Financial controls

Draghi worried about relaxing regulations Financial regulation since the global financial crisis underpins stability and the idea of relaxing bank rules is ‘very worrisome’, European Central Bank President Mario Draghi said. The new U.S. administration last week ordered a review of major banking rules that were put in place after the 2008 financial crisis, signalling that looser banking regulations are coming.

“The last thing we need at this point in time is the relaxation of regulation,” Draghi told the European Parliament’s committee on economic affairs in Brussels. “The idea of repeating the conditions that were in place before the crisis is something that is very worrisome.”

Forecast

Goldman economists see more risks for U.S. economy A fiscal boost to the United States is more likely in 2018 than this year, according to Goldman Sachs economists, as “the balance of risks is somewhat less positive” one month into the new year and as U.S. President Donald Trump’s growth-boosting agenda could be offset by negative effects of restrictions on trade and immigration. Following the election, the positive shift in sentiment among investors suggested that the probability of tax cuts and easier regulation was higher than the probability of meaningful restrictions to trade and immigration, according to the note by economist Alec Philips dated Feb. 3.

M&A

Deutsche Boerse, LSE offer clearing house sale to ease merger The proposed deal has drawn sharp rebukes from France, Belgium, Portugal and the Netherlands

S

tock exchange operators Deutsche Boerse and London Stock Exchange (LSE) said yesterday they would offer to sell French clearing house LCH Clearnet as they push for regulatory approval of their planned merger.

The two firms, whose operations include the London and Frankfurt stock markets, “decided to formally submit the divestment of LCH Clearnet SA by LCH Clearnet Group as a remedy to the European Commission in order to address anti-trust concerns,” they said in a statement.

Plans to offload the French arm of LSE’s clearing house business have been brewing since early January, when the British firm agreed in principle to sell it to European rival Euronext.

If the merger with Deutsche Boerse -- in the works since February 2016 -- goes ahead, Euronext will buy LCH Clearnet for some 510 million euros (US$545 million).

Monday evening was the deadline for Deutsche Boerse and LSE to

offer remedy proposals to alleviate Brussels’ competition fears over their tie-up.

Clearing houses are a key part of the infrastructure of markets. They act as an intermediary between buyers and sellers of financial instruments, ensuring settlement of trades.

It remains to be seen whether EU authorities, who opened an in-depth probe in September, will accept the sale as sufficient to assure the deal is waved through.

The proposed deal has drawn sharp rebukes from France, Belgium, Portugal and the Netherlands, fearful for their own stock exchanges, owned

by Euronext.

Deep concerns over competition helped scupper two earlier attempts by the companies to merge, in 2000 and 2005.

And Britain’s vote to quit the European Union in June has not helped the merger’s cause, with German regulators reluctant to see the Frankfurt exchange managed from London.

LSE noted in its own statement that the firms’ submission extended the

European Commission review period to April 3 from the previous deadline of March 13, giving the Brussels authority more time to “market test” the disposal of Clearnet.

Deutsche Boerse’s supervisory board issued a second statement Tuesday saying that it “unanimously expresses its full confidence in the chief executive Officer Carsten Kengeter”.

‘If the merger with Deutsche Boerse goes ahead, Euronext will buy LCH Clearnet for some 510 million euros’ German authorities have been investigating Kengeter since last week on suspicion of insider trading.

The allegations relate to Deutsche Boerse shares Kengeter bought in December 2015, two months before the merger plans became public. AFP

Corruption

Brazil prosecutor seeks probe into former President A top prosecutor has asked the Supreme Court for per­ mission to investigate an ex-President, two senators and the former head of a unit of the state oil company for alleged efforts to thwart the country’s largest corruption probe. Prosecutor General Rodrigo Janot accused ex-President Jose Sarney, who now sits in the Senate, along with senators Romero Juca and Renan Calheiros of carrying out “political manoeuvres” in a bid to quash the inquiry into political kickbacks at state-run oil firm Petrobras. All are allies of President Michel Temer.

Rating

Moody’s warns growing debt weighs on Mexico Rating agency, which has put Mexico on watch for a credit downgrade, said the Mexican government’s debt rose more than expected last year and weak growth could further pressure policymakers this year. “Worse-than-expected fiscal performance is credit negative for Mexico and weighs on its creditworthiness amid muted economic activity and rising tensions with the United States,” Moody’s Mexico analyst Jaime Reusche wrote. The report cited data from the country’s Ministry of Finance, showing the federal government deficit increasing to 2.9 percent of GDP in 2016, up from 2.8 percent in 2015.

Frankfurt Stock Exchange trading posts

Industry figures

German data shows steepest monthly fall since 2009 The decrease was mainly caused by a 3.4 per cent drop in manufacturing output Michael Nienaber

Weaker output in manufacturing and construction drove the biggest monthly drop in German industrial production in nearly eight years in December, dashing prospects for robust growth in the final quarter of 2016.

The surprisingly feeble figures, published by the Economy Ministry in Berlin yesterday, were put down to special factors. They also came after industrial orders posted their strongest rise in around 2-1/2 years in December, pointing to a rebound in manufacturing at the start of the year.

Industrial output fell by 3.0 per cent on the month, yesterday’s data showed. This was weaker than any prediction in a Reuters poll and far below the consensus forecast for a rise of 0.3 per cent. It was the steepest drop since January 2009.

“Even though it looks dramatic, today’s December drop should be taken with a pinch of salt,” ING economist Carsten Brzeski said, adding that special factors such as the unusually cold winter temperatures and an extraordinary Christmas effect

were probably the main reasons for the sharp drop in December.

The fall was mainly caused by a 3.4 per cent drop in manufacturing output, with production of capital goods especially weak, and a 1.7 per cent decrease in construction, the data showed.

Key Points Industrial production slumps 3.0 pct Weaker that forecast of 0.3 pct rise Analysts point to special factors Ministry expects rebound in early 2017

The November reading was revised up to a rise of 0.5 per cent from a previously reported rise of 0.4 per cent, helping quarterly output to decline by just -0.1 per cent.

The Economy Ministry said the outlook was looking better.

“Orders in manufacturing and construction and also sentiment

indicators in these sectors are signalling a revival of output growth in coming months,” the ministry said.

Commerzbank economist Ralph Solveen agreed, saying he expected industrial production to rebound strongly in January.

But ING’s Brzeski gave a more cautious outlook, hinting to political risks such as the unknown outcome of negotiations following Britain’s decision to leave the European Union and a possibly protectionist U.S. trade agenda under Donald Trump.

“Uncertainty in and about two of Germany’s most important trading partners, the U.S. and the UK, should put a cap on any upward potential,” he said.

Higher demand at home and abroad for goods needed in production drove the biggest monthly increase in German industrial orders since July 2014, pointing to a strong first quarter of 2017.

The German economy grew by 1.9 per cent in 2016, the strongest rate in half a decade, helped by soaring private consumption, increased state spending on refugees and higher construction investment.

For this year, the government expects weaker growth of 1.4 per cent due to fewer work days and weaker exports. Reuters

Business Daily Wednesday, February 8 2017 15

Opinion

JPMorgan cracking China bonds is great news... for China

Africa’s decade of industrialization

Christopher Langner a Bloomberg Gadfly columnist

C

hina typically doesn’t do things by halves and that attitude extends to its debt capital markets.

Not everyone is going to be happy, though.

JPMorgan Chase & Co. said on Monday that it has won approval, alongside BNP Paribas SA, to underwrite bonds in China’s interbank market, where about 90 per cent of securities are issued. It’s another step in the nation’s economic opening, coming about six months after foreign banks were permitted to trade debt in the same venue.

For Beijing, it’s a good get. The New Yorkbased bank has topped the investment grade bond underwriting tables in the U.S. every year since 2009 and was No. 1 in high yield last year, according to data compiled

by Bloomberg. BNP has ranked fourth for European bonds for the past two years and seldom fallen from the top 10. China’s trillion RMB National Association size of China’s bond of Financial market Institutional Investors, or NAFMII, is certainly bringing in the pros.

About time, too. China’s corporate bond market is already the world’s second largest by issuance and could soon eclipse the U.S. The US$926 billion offered onshore last year was equivalent to two-thirds of that in America and almost four times what was sold in 2010.

Despite its size, market standards aren’t comparable to those in the West. While China has plenty of credit-rating companies, until recently they scored pretty much everything AAA. Investors also have only started to become more discerning, demanding higher yields for similarly graded bonds with longer tenors versus shorter ones.

Authorities look to have come to the conclusion that what they need now is some serious external expertise, and naturally, hearts on Wall Street are beating slightly faster as investment bankers consider what big figures might be involved.

Bank investors, however, shouldn’t get too excited. To begin with, fees for Chinese deals are notoriously low and getting any traction in the local market will probably require a significant investment that could outpace potential profit for years to come. By the time foreign institutions’ domestic operations reach critical mass, Beijing may likely have levelled the playing field, letting everyone else in too and partly eroding any first-mover advantage.

Doing business in China is also all about relationships. Local banks have been lending to local companies for hundreds of years.

Breaking that comfortable bond will require a lot of effort, and JPMorgan might want to be twice as careful considering it last year paid about US$260 million to settle allegations it hired children of China’s rich and powerful to win mandates.

That the biggest U.S. bank is about to get more active onshore in China is great news ... for China. For JPMorgan shareholders, not so much. Bloomberg Gadfly

43.7

I

n today’s interdependent global economy, Africa remains a weak link. If the world is to achieve the Sustainable Development Goals, thereby completing the United Nations 2030 Agenda for Sustainable Development, it must help Africa accelerate its development by promoting rapid and responsible industrialization.

Africa is by no means destined to lag behind the rest of the world economy. On the contrary, it could easily become a global economic powerhouse – and within the next decade. But, to fulfil its economic potential, Africa must industrialize.

The importance of this has been stressed repeatedly at recent international forums, including last August’s Sixth Tokyo International Conference on African Development (TICAD VI), and the G20 summit in Hangzhou, China, the following month.

For the first time, the G20 placed industrialization in Africa – and all of the Least Developed Countries (LDCs) – on its agenda. The African Union’s Agenda 2063 also supports this drive.

The recent UN General Assembly resolution declaring 2016-2025 the Third Industrial Development Decade for Africa is yet another push in this direction. The organization that I represent, the UN Industrial Development Organization (UNIDO), has been tasked with operationalizing and leading the implementation of the concomitant program, including mobilizing the needed resources.

All of these declarations and commitments are an important first step. But they will mean little unless they are translated into concrete and effective action that advances African industrialization, creates jobs, and fosters inclusive and sustainable economic growth and development. The question is how.

The short answer is money and action. We must challenge the international community and development partners to back their words with real financial commitments. And we must build partnerships to operationalize programs that will enable Africa to become the world’s next main engine of economic growth.

Such programs must recognize and tackle the acute challenges the continent faces. The economic growth experienced in recent decades has not been structurally driven, sustainable, or fully inclusive. Indeed, growth rates vary widely across the continent, and not all Africans are benefiting.

Though the middle class in Africa has expanded markedly in recent years, generating a consumer boom and boosting domestic investment, many people still struggle to make a living. Unemployment rates are high, especially for young people and women – a reality that drives many Africans to head north.

To keep them home, Africa’s economies must move beyond producing raw materials to build dynamic and competitive manufacturing sectors with higher value added. Here, Africa must draw on the opportunities presented by participation in global and regional value chains. New and innovative industrial-development strategies, as well as carefully tailored measures to attract foreign direct investment, must be introduced.

Of course, to develop such strategies and participate effectively in industrial value chains, Africans

“

Li Yong Director General of the United Nations Industrial Development Organization (UNIDO)

need knowledge. Investment in education and skills training is imperative to facilitate successful and lasting industrialization. By understanding and drawing on proven innovations from around the world, Africa could leapfrog more developed countries technologically, building the capacity to produce more sophisticated, higher-value goods.

Knowledge of other countries’ experiences will also help Africa to avoid the pitfalls of unbridled industrialization – particularly environmental damage. Africa must ensure that its industrialdevelopment strategy includes effective environmental safeguards.

Africa is well placed to industrialize. Beyond its massive natural-resource endowments, the continent has a favourable demographic profile (its rapidly growing population means that it will soon have the world’s largest workforce) and high urbanization rates. It also benefits from a highly educated diaspora.

But industrialization is never automatic.

Governments must step up to address market failures, while planning, implementing, and enforcing industrial policies that address the shortcomings of previous ineffective versions.

They must then institutionalize these new policies in national and regional development strategies.

To succeed, governments will need adequate capacity, competence, and legitimacy to mobilize and interact with all stakeholders, thereby creating an attractive investment climate. The necessary reforms will open the way for publicprivate partnerships, which can provide investment for infrastructure development and maintenance. They will also facilitate cooperation with international organizations and development finance institutions, which can provide additional funds, while helping countries to upgrade their productive capacity.

A recent report, prepared for the Hangzhou G20 Summit, features a number of recommendations for Africa. It suggests support for agriculture and agribusiness development and linking them with other sectors, as well as measures to boost resilience to price shocks. Furthermore, the report emphasizes the need to deepen, broaden, and update the local knowledge base, invest in energy- and material-resource efficiency, and promote green technologies and industries. Other recommendations relate to trade and regional integration, leveraging domestic and external finance, and promoting what it calls the “New Industrial Revolution.”

My numerous meetings with African leaders and visits to dozens of countries across the continent have convinced me that Africa is committed to industrialization. In fact, the process is already underway in many countries, including Ethiopia, Ghana, Rwanda, and Senegal. By offering our commitment and support, we can enable these countries to realize inclusive and sustainable development for the benefit of everyone. Project Syndicate

Africa’s economies must move beyond producing raw materials to build dynamic and competitive manufacturing sectors with higher value added

”

16 Business Daily Wednesday, February 8 2017

Closing Crude market

Mainland’s oil demand growth at three-year low in 2016

by only 6.7 per cent in 2016, the slowest pace in 26 years.

“Inventory-adjusted diesel posted the first China’s 2016 oil demand grew at the slowest pace in at least three years, Reuters’ calculations annual drop in 2016,” Harry Liu, associate director of oil markets with IHS Energy said. based on official data showed, the latest indication that demand from the world’s largest “Diesel consumption has been hit by an extended period of flood in the second quarter energy consumer has diminished.

China’s implied oil demand growth eased to 2.5 and less demand from the logistic sector as per cent in 2016, down from 3.1 per cent in 2015 efficiency continue to improve” Gasoline consumption was 3.6 per cent higher and 3.8 per cent in 2014, Reuters’ data showed, led by a sharp drop in diesel consumption and as than 2015. That compared with growth of 9.1 gasoline usage eased from double-digit growth. per cent in 2015 and a 13 per cent gain in 2014, The slowing occurred as the economy expanded Reuters data showed. Reuters

Forex

China’s currency reserves fall below US$3 trillion Some analysts fear a heavy and sustained drain on reserves could prompt Beijing to devalue the yuan as it did in 2015

C

hina’s foreign exchange reserves unexpectedly fell below the closely watched US$3 trillion level in January for the first time in nearly six years, though tighter regulatory curbs appeared to making some progress in slowing capital outflows.

China has taken a raft of steps in recent months to make it harder to move money out of the country and reassert a firmer grip on its faltering currency, even as U.S. President Donald Trump steps up accusations that Beijing is keeping the yuan too cheap.

Reserves fell US$12.3 billion in January to US$2.998 trillion, more than the US$10.5 billion that economists polled by Reuters had expected.

While the US$3 trillion mark is not seen as a firm “line in the sand” for Beijing, concerns are swirling over the speed at which the country is depleting its reserves and how much longer it can afford to defend the currency.

Some analysts fear a heavy and sustained drain on reserves could prompt Beijing to devalue the yuan as it did in 2015, which would sow turmoil in global financial markets and likely stoke political tensions with the new U.S. administration.

To be sure, the January decline was much smaller than the US$41 billion reported in December, and was the smallest in seven months, indicating China’s renewed crackdown on outflows appears to be working, at

least for now.

Economists expect more forceful tightening of regulatory controls after yesterday’s data, though China’s financial system is notoriously porous, with speculators quickly able to find new channels to get funds out of the country.

“With FX reserves below US$3 trillion, we can expect capital controls as well as tightening yuan liquidity to continue, as the authorities try to avoid a further drawdown,” said Chester Liaw, an economist at Forecast Pte Ltd in Singapore, referring the central bank’s surprise hike in short-term interest rates on Friday.

While the world’s second-largest economy still has the largest stash of forex reserves by far, it has burned

Investment

through over half a trillion dollars since August 2015, when it stunned global investors by devaluing the yuan.

The yuan fell 6.6 per cent against a surging dollar in 2016, its biggest annual drop since 1994.

Could have been worse?

The drop in January’s reserves could have been worse if not for a sudden reversal in the surging U.S. dollar in January, some analysts said. The softer dollar boosted the value of non-dollar currencies that Beijing holds.

The yuan has gained nearly 1 per cent against the dollar so far this year.

But analysts expect downward pressure on the yuan to resume, especially if the U.S. continues to raise interest rates, which would likely trigger fresh capital outflows from emerging economies such as China and test its enhanced capital controls.

The drop in reserves in January

FDI report

was mainly due to interventions by the central bank as it sold foreign exchange and bought yuan, China’s foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), said in a statement.

But SAFE said that changes in China’s reserves are normal and the market should not pay too much attention to the US$3 trillion level.

Key Points China FX reserves fall more than expected, breach key level Defence of weakening yuan currency burning through reserves Tighter controls slowing but not stopping illegal outflows Markets unsure how much longer China can support yuan Still, the government may be getting close to a key decision point.

Some analysts estimate China needs to retain a minimum of US$2.6 trillion to US$2.8 trillion under the International Monetary Fund’s (IMF’s) adequacy measures, and fears of a devaluation would likely intensify capital flight. Reuters

Fintech

Domestic insurers pour Mainland investment triples Dubai teams up with IBM US$240 bln into infrastructure in U.S., doubles in Europe on blockchain project Chinese insurers had initiated 651 investment projects with registered capital of RMB1.65 trillion (about US$239.8 billion) in infrastructure and livelihood improvement by the end of 2016, official data showed.

The investment was made through equity and bond purchases, as well as asset support plans, which mostly went into transport, energy, real estate, healthcare and elderly care, according to the Insurance Asset Management Association of China (IAMAC).

Chinese insurance capital has also provided funds to national development strategies such as the Belt and Road Initiative, the Yangtze River Economic Belt and the coordinated development of Beijing, Tianjin and Hebei.

Insurers have invested RMB592.3 billion in the Belt and Road Initiative and RMB135.9 billion in the Yangtze River Economic Belt by the end of 2016, said the IAMAC. The IAMAC said insurers should avoid speculative investment, safeguard the stability of the capital market and maintain good communications with stakeholders and management of listed companies. Xinhua

Combined Chinese direct investment in the advanced economies of North America and Europe more than doubled in 2016 as China’s rapidly maturing economy continued its transition to a new growth model, according to a report.

China’s foreign direct investment in the two regions rose a combined total of 130 per cent from 2015, to a new record of about US$94.2 billion, according to a report released by international law firm Baker McKenzie.

For the first time since 2013, Chinese investors poured more money into North America than Europe, with the U.S. accounting for about 94 per cent of the North American total, the report said.

“Well over half of all Chinese direct investment into Europe and North America since 2000 has taken place in the last three years, marking the continued influence of globalization and the rapid development of China’s economy,” said Michael DeFranco, global head of M&A at Baker McKenzie.

Privately-owned Chinese companies led the trend, outpacing investment by state-owned enterprises, closing deals accounting for 70 per cent of the total, signalling the continued rise of corporate China in the global economy. Xinhua

Dubai, one of the world’s largest trading hubs, has linked up with IBM to launch a scheme using blockchain computing technology to process transactions and keep track of goods being shipped, IBM said yesterday.

The initiative will provide real-time information about the state of goods and the status of their shipment to Dubai’s customs and trade agencies and companies involved in the trade process, IBM said.

Dubai, which registered 647 billion dirhams (US$176 billion) of non-oil trade in the first half of 2016, has cemented itself as one of the largest re-export centres for goods flowing between Asia and the Middle East and Africa.

IBM said it was also working with companies including du , a United Arab Emirates-based telecommunications firm, Dubai’s largest bank Emirates NBD, Spanish lender Banco Santander, Dubai-based logistics firm Aramex and an unidentified airline on the scheme.

Blockchain, which originates from digital currency bitcoin, works as an electronic transaction processing and record keeping system that allows all parties to track information through a secure network, with no need for third-party verification. Reuters