Business Daily #1241 February 24, 2017

Beijing updates key drugs list Pharma industry Page 8

Friday, February 24 2017 Year V Nr. 1241 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Coloane

Secretary of Transport reiterates shipyards demolition necessary Page 5

Legislation

Mozambique implements MSAR gaming laws Page 2

www.macaubusinessdaily.com

Prices

MICE

Inflation in Singapore gathers speed Page 11

Local delegation attends Melbourne fair Page 2

Economy Stabilising GDP

A splendid end to last year. But the territory saw its economy shrink 2.1 per cent. The main reason for the contraction was weaker demand. New gov’t figures, however, suggest growth is in the air, with the downward spiral reverted. Page 2

More tourists spending more

A great beginning to the tourism year. MSAR Gov’t figures confirm a healthy boost in visitors. And subsequent spending. Good news for the core engine of the city.

Power to the people

Energy sector Outlining the future of the energy sector in the MSAR for the foreseeable future. CEM will expand facilities linking the Mainland’s power supply. Become more eco-friendly. And return the Morais plot to the gov’t in 2018. Page 4

Balancing act

Gaming Crown Resorts announced its results yesterday. The Australian capital partner of Melco’s local resorts is immersed in a change of key positions. Whilst observing how the business environment is evolving in China after authorities arrested marketing staff last year. Page 7

Mass means less

Arrivals Page 3

HK Hang Seng Index February 23, 2017

24,114.86 -87.10 (-0.36%) Worst Performers

New World Development Co

+3.27%

Sun Hung Kai Properties

+0.88%

Want Want China Holdings

Hang Seng Bank Ltd

-1.22%

Galaxy Entertainment Group

+1.94%

Cathay Pacific Airways Ltd

+0.88%

PetroChina Co Ltd

-1.61%

Cheung Kong Infrastructure

-1.10%

Sino Land Co Ltd

+1.69%

Swire Pacific Ltd

+0.56%

China Resources Power

-1.52%

Bank of Communications Co

-1.06%

Sands China Ltd

+1.42%

CLP Holdings Ltd

+0.51%

AAC Technologies Holdings

-1.36%

Lenovo Group Ltd

Hang Lung Properties Ltd

+1.22%

Bank of China Ltd

+0.50%

China Mobile Ltd

-1.26%

HSBC Holdings PLC

-4.86%

-0.91% +0.36%

12° 14° 12° 14° 14° 18° 16° 20° 16° 21° Today

Source: Bloomberg

Best Performers

Sat

Sun

I SSN 2226-8294

Mon

TUE

Source: AccuWeather

Stock markets Mass business. Reputedly dragging down the performance of Sands China on the Hong Kong markets. The return of the VIPs to domestic resorts is playing against the company. While its results still benefit from its business focus the firm is lagging competitors. Page 6

2 Business Daily Friday, February 24 2017

Macau GDP

MSAR economy contracts 2.1 pct in 2016 For the whole year of 2016, the economy shrank 2.1 per cent year-on-year in real terms

G

DP for the fourth quarter of 2016 expanded by 7.0 per cent year-on-year in real terms, the Statistics and Census Service (DSEC) revealed yesterday, saying the rising exports of services were responsible.

The figures surpassed the 4.4 per cent growth of the previous quarter.

‘Total exports of services increased by 8.2 per cent year-on-year, underpinned by the continued expansion in tourism and gaming services,’ DSEC explained, adding ‘Exports of gaming services and other tourism services rose by 8.1 per cent and 8.4 per cent,

respectively, while exports of goods weakened, declining further by 21.2 per cent.’

Domestic demand slipped slightly, as private consumption expenditure dropped 0.5 per cent. The government’s final consumption expenditure remained stable, while gross fixed capital formation rose marginally by 0.2 per cent. Imports of goods declined by 8.0 per cent, while the import of services increased 1.6 per cent.

‘Moreover, the implicit deflator of GDP that measures changes in prices increased by 1.0 per cent year-on-year in the fourth quarter of 2016,’ said DSEC. ‘Economic growth

for the second and third quarters was revised upwards to -6.8 per cent and 4.4 per cent, respectively.’

Economy improving

For the whole year of 2016, the economy of Macao shrank by 2.1 per cent year-on-year in real terms, an apparent improvement from the 21.5 per cent drop in 2015. The economy contracted by 9.7 per cent in the first half of the year, followed by a rebound of 5.7 per cent in the second half.

‘The economic contraction in 2016 was mainly due to the weakening of total demand.

Domestic demand slackened, diminishing by 5.8 per cent year-on-year; private consumption expenditure and gross fixed capital formation reduced by 1.3 per cent and 13.3 per cent, respectively,

whereas government final consumption expenditure rose by 1.7 per cent,’ the authority added.

External demand recovered significantly in the second half of the year; total exports of services declined at a slower rate of 2.5 per cent amid continued growth in visitor arrivals and spending; exports of gaming services

and exports of other tourism services shrank by 4.4 per cent and 1.0 per cent respectively whereas exports of goods dropped by 21.8 per cent, DESEC found. ‘In 2016, GDP amounted to MOP358.2 billion and per-capita GDP was MOP554,619 (about US$69,372). The implicit deflator of GDP increased by 0.9 per cent year-on-year.’ A.L.

Gaming

Mozambique legislation to follow MSAR path New rules foster concentration of casinos The government of Mozambique has approved new regulations for the country’s Gaming Law, increasing the number of gaming licences and reducing the size of areas where casinos can operate, Mozambique news agency AIM reported.

The new regulations intend to boost the Portuguese-speaking African country’s tourism, with Mozambique

expected to receive 1.6 million tourists in 2017, according to statements made by Vice-Minister of Culture and Tourism Ana Comoana, following a ministerial council meeting in the country’s capital of Maputo.

Citing the Macau gaming model as reference for the regulations, Ms. Comoana said the authorities wanted to increase the concentration

of casinos in specific areas in order to allow gamers to change casinos quickly if they felt that they would have a better chance to win elsewhere or perceived security conditions to be better in a different venue.

The Vice-Minister of Culture and Tourism of Mozambique said the regulations will allow the country’s capital to have four casinos within a 100-metre perimeter of each other, while the neighbouring cities of Beira and Chimoio will be allowed a maximum of two to three casinos.

Currently, Mozambique divides cities into three administrative categories, with Maputo classified as A, Beira as a B and Chimoio a C, with each category allowed a different

number of gaming licences according to the new regulations.

Eased entry

Ms. Comoana also announced that the country’s minimum investment amount requirements for entry visas for foreign nationals engaged in investment activities would be reduced from US$50 million (MOP400 million) to US$500,000, as a way of improving the country’s business environment.

Non-residents will now also be allowed to obtain a visa in the country upon entry, without having to apply for one at the Mozambique consulate or embassy in their respective country.

Local culture

Linguist launches Patuá course at USJ Business promotion

IPIM leads MICE delegation to Melbourne The Macao Trade and Investment Promotion Institute (IPIM) organised a delegation of representatives of Macau’s convention, exhibition, and tourism industries – also known as MICE (Meetings, Incentives, Conferences, and Exhibitions) – to participate in the Asia Pacific Incentives and Meetings Expo (AIME) 2017 held in Melbourne, Australia, on 21 and 22 February.

According to a release by IPIM, ‘the delegation aimed to present to Australian as well as international MICE event organisers, senior managers, and professionals the strengths of Macau’s convention and exhibition industry, as well as IPIM’s ‘One-stop Service’ for MICE Bidding and Support in Macau.’

In addition to IPIM, eighteen local companies were present at the Melbourne Expo’s Macau pavilion, comprising hotels, tourism agencies, professional meetings and event organisers, destination management companies, and conference service providers. Some of the exhibitors from Macau included MGM Macau, Sh u n Ta k Chi n a T rav e l Shi p Management (Macau) Ltd. – Turbojet,

the Travel Industry Council of Macau, Able Tours Ltd., and A Plus Mice & Event, according to AIME’s online information.

According to IPIM, over 300 business matching sessions were arranged in the 120-square metre pavilion themed ‘Macau – your business events destination.’ Representatives from IPIM also participated in a dozen matching sessions arranged by AIME organisers to meet and discuss with prospective buyers the advantages of choosing Macau as a destination for conferences and events.

IPIM also engaged in the organisation of a side event, a cocktail reception for 50 potential MICE buyers and representatives from Europe and the Asia Pacific region themed ar64nd the twelve Chinese zodiac animals in a bid to boost co-operation and promote “mutual understanding in an interesting and relaxed atmosphere.”

AIME is an annual exhibition which attracts professionals and suppliers from and for the MICE industry, with visitors including agencies, associations, corporations a n d p r o f essi o n a l c o n f e r e n c e organisers. S.Z.

This week, several Macanese people attended the first class on patuá, the Portuguese-based creole language of Macau, held at the University of Saint-Joseph (USJ), hoping to learn more about the history of the language spoken by their grandparents.

The patuá course is an old project of Alan Baxter’s, a linguist and former director of the Department of Portuguese of the University of Macau (2007-2011) who is a specialist in Portuguese-based creoles. Baxter returned to Macau last year to head the Faculty of Humanities of USJ. “It is important [to organise these classes] because they aren’t offered by any other institution and I think it’s also important to the community to know more about the reality of this traditional language and its history as well as the ways the language works, which words are part of it, and its grammar,” explained Baxter. As the professor noted, though, “they aren’t exactly lessons of patuá,” but rather “a course about patuá writing.”

However, “it is very possible that some [students] will end up by speaking some of it,” given that theatre plays will be read and represented in the final phases of the course.

The patuá, derived from the Kristang creole of Malacca, which also integrates Portuguese and Chinese elements, was the language formerly spoken by the Macanese community, but has but stopped being used. Today, the dialect has

been essentially maintained thanks to the Dóci Papiaçam di Macau, a local theatre group which produces a play every year primarily performed in the creole language.

Baxter’s goal in organising the course, of which the first module will have eight sessions, is also to promote the language.

The course will embrace different historical periods and genres, including verse, “supposedly personal” letters, theatre plays, and “a bit of romance written by José dos Santos Ferreira.”

The course, which started on 22 February, is open to all, but was particularly designed with the Macanese community in mind. In the first batch of 16 students, many are indeed Macanese people.

Business Daily Friday, February 24 2017 3

Macau

Tourism

Visitor spending rebounds Total visitor spending in 2016 grew by 3 per cent year-on-year while per capita spending increased 2.2 per cent, as compared to decreases in 2015 Kam Leong kamleong@macaubusinessdaily.com

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isitors to the MSAR spent MOP1,701 (US$212.6) per capita for the whole year of 2016, a rebounding increase of 2.2 per cent year-on-year, while their expenses were primarily on shopping, accommodation and food & beverage, according to the latest official data of the Statistics and Census Service (DSEC).

For the whole year of 2016, total spending of visitors, excluding gaming expenses, registered an increase of 3 per cent year-on-year to MOP52.7 million. The numbers

contracted to a decline of 17.2 per cent year-on-year in total visitor spending and a drop of 15 per cent in per capita spending one year ago.

According to DSEC, visitors on average spent 43.7 per cent of per capita spending on shopping, amounting to MOP744, a decrease of 2.4 per cent year-on-year.

In particular, local food products and cosmetics & perfume were their favourite shopping items in the city, accounting for 29.5 per cent and 21.1 per cent of their per capita shopping spending, respectively.

Meanwhile, visitors’ per capita spending on accommodation and food & beverage amounted to MOP463 and MOP355, up 9.3 per

Tourism

Arrivals jump 17.6 pct in January Chinese New Year attracted more Mainland Chinese and Hong Kong visitors to the territory Kam Leong kamleong@macaubusinessdaily.com

The city recorded some 2.88 million visitor arrivals during the first month of this year, a notable increase of 17.6 per cent year-on-year as those from Mainland China and Hong Kong both post significant growths, the latest official data released yesterday by the Statistic and Census Service (DSEC) reveals.

According to the Bureau, the increase in total visitor arrivals was primarily driven by the Chinese New Year that fell in January rather than in February as last year.

Visitor arrivals from Mainland China thus surged 20.4 per cent year-onyear to nearly 2 million, accounting for around 70 per cent of the total. In Individual Visit Scheme soared 43.8 per cent year-on-year to 1.13 million.

By province, the number of Chinese visitors from Guangdong soared 29.6 per cent year-on-year to some 991,200, while those from Hunan jumped 16.7 per cent year-on-year to 70,700. However, the city saw fewer visitors from Fujian in the month, the

number of whom fell 14.8 per cent year-on-year to 57,300.

Apart from Mainland visitors, those from Hong Kong, the second biggest source of the city’s tourist arrivals, increased 17.6 per cent year-on-year to 527,200.

Notable increases were also apparent in the number of those from South Korea, America and Canada, which grew 17.6 per cent, 10.2 per cent and 12.8 per cent year-on-year, amounting to some 81,400, 15,400 and 6,100, respectively.

However, those from Taiwan decreased by 2 per cent year-on-year in the month, amounting to 84,300, while tourists from Japan decreased 0.2 per cent year-on-year to 25,800.

In terms of visitor type, the proportions of same-day visitors and overnight visitors were 52. 6 per cent and 47.4 per cent for the month, amounting to some 1.51 million and 1.36 million, respectively According to DSEC, visitors’ average length of stay decreased by 0.1 days on average to 1.1 days for the month, with overnight visitors spending some 2.1 days in the territory on average.

cent and 3.2 per cent year-on-year, respectively.

Chinese highest spenders

In terms of origin, visitors from Mainland China had the highest per capita spend for the whole year, totalling MOP1,975, a slight increase of 0.5 per cent year-onyear. However, per capita spending of those travelling under the Individual Visit Scheme fell 1.4 per cent year-on-year to MOP2,260.

Meanwhile, per capita spending of visitors from Japan registered a significant growth of 12.1 per cent year-on-year for 2016, at MOP1,780, while those from Singapore increased per capita spend by 2.8 per cent yearon-year to MOP1,773.

By type of visitor, overnight visitors contributed MOP42.1 million, up by 4.8 per cent year-on-year although their per capita spending went down by 4.5 per cent year-on-year to MOP2,681.

By contrast, total spending of same-day visitors dropped 3.6 per cent year-on-year to MOP10.6 million but their per capita spending went up by 3.7 per cent year-onyear to MOP693.

DSEC notes that the per capita spending of visitors coming to the city for MICE events jumped by 10.1 per cent year-on-year to MOP2,700 despite their proportion only comprising 0.7 per cent of total spending.

Meanwhile, the results of the Bureau’s Visitors’ Comments Survey shows 90.1 per cent of interviewed visitors said they were satisfied with the services and facilities of local hotels for the year whilst 84.2 per cent expressed satisfaction with local gaming facilities.

Nevertheless, only some 69.4 per cent were satisfied with the city’s public transport and 44.8 per cent said local tourist attractions were ‘adequate.’

4 Business Daily Friday, February 24 2017

Macau Opinion

Pedro Cortés*

Aftermath Being a politician or a high official is not an easy job.

If we look into what our neighbouring former Chief Executive is facing in the courts and add what is happening to our former Chief Prosecutor in the Last Instance Court we may conclude that all persons in some jobs are great during their term but, suddenly, are devils incarnate who must face justice.

By professional deference, I respect the institutions: courts, governments, legislative bodies. But it seems that whenever someone occupies a certain office, they are at the best above suspicion, without any defects appointed, but, abruptly, they must stand in the dock and face those who have always been allied with them before.

It is something that happens all around the world.

In Portugal, we have a former Prime Minister waiting some two years for a decision on whether he shall face a criminal trial.

This only happened after he had been ‘ousted’ by the previous Prime Minister. In Macau, we have a former Public Prosecutor whom no-one suspected, due to the body he headed, of alleged criminal practices.

And here we are, common persons, thinking whether we should trust those who represent us, who should serve the public interest among other things, when what we have is more than one case where such public interest is soon a private interest or a higher interest.

Wherever there is a human being, error exists. The temptations of power are quite extraordinary and may make certain officials consider themselves above the law and immune or exempted from charge or suspicion. Well, during the term of their office, at least.

What I cannot understand is why it is that only after people vacate their office are they considered at a glance guilty and the root of all evil.

I recognise that the example of the aforementioned two situations should be something to be taken into consideration by current officials and that a decision of a court to jail a former Chief Executive is a persuasive antidote to the above referred temptations. But, on the other hand, it may also help overly apply the brakes to the actions of incumbent officials who, fearful of zealousness, avoid executing their duties.

This situation should, in the public interest, not occur. *lawyer and frequent contributor to this newspaper.

Natural resources

CEM: Morais land to be handed back to government The city’s electricity supplier indicated that it has gradually commenced clearance of the Morais power station, announcing it will transfer the plot to the gov’t in the second half of next year Cecilia U cecilia.u@macaubusinessdaily.com

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he Macao Power Station located on Avenida de Venceslau de Morais will be vacated by the second half of 2018, said Bernie Leong, chairman of CEM - Companhia de Electricidade de Macau – Executive Committee on the sidelines of the Media Spring Luncheon hosted by CEM. The chairman indicated that clearance procedures had gradually commenced, with preliminary stages such as soil treatment.

The government announced last Summer that the land plot where the power station is currently located will be used for public housing, social

Local production of electricity increased 2.7 per cent y-o-y

The city’s production of electricity has increased by 2.7 per cent year-on-year to 988 million kWh, official data released by the Statistics and Census Bureau (DSEC) reveals.

However, the importation of electricity also increased - by 6.2 per cent - compared to 2015 to 4,306 million kWh (kilowatthour).

Natural gas, as the DSEC data shows, registered the highest growth in import rate during 2016, up 346.9 per cent year-on-year to 9.49 million cubic metres.

The stark yearly increase was due to the increased demand

facilities and a government complex.

The removal of the current station’s chimney, which is one of the primary focuses of the environmental assessment, was green-lighted by the Environmental Protection Bureau last year.

Mr. Leong confirmed that the removal of the chimney will be undertaken gradually by the end of this year.

Meanwhile, the local sole electricity supplier will carry out the construction of the third interconnection for the importation from China Southern Power Grid, which will increase the total capacity by 33 per cent once the newly built circuits commence serving.

The construction of the third interconnection, said Mr. Leong, has

for natural gas in public housing, hotels and transportation.

Simultaneously, the consumption of natural gas last year also saw substantial growth, up 420.5 per cent to 10.05 million cubic metres.

The city, on the other hand, saw a rise of 5.5 per cent year-onyear in its total consumption of electricity to 5,294 million kWh. All three sectors - establishments, households and the government - have increased year-on-year consumption of electricity.

In particular, establishments and the government have both increased 6.3 per cent compared to last year, with establishments responsible for the highest electricity consumption of 3,844 million kWh. C.U.

yet to begin, but he commented that the location of the interconnection has been decided – from Zhuhai Yantang main substation, passing through Hengqin Shizimen Waterway to the Intersection of Avenida dos Jogos da Asia Oriental and Estrada Governador Albano de Oliveira in Taipa (near the Macau Roosevelt), ending in Pac On main substation.

The total length of the interconnection is about 7 kilometres.

“The construction [of the third interconnection] will start within this year,” said the chairman. “We wish to launch the new circuit in 2019.”

With much of the many road constructions related to CEM, the chairman affirmed it will co-ordinate with other public construction projects in order to reduce inconvenience. He also revealed that the station for the new circuits will cost from MOP400 million (US$50 million) to MOP500 million.

Eco-friendly station on the way

In order to reduce emissions from supplying electricity, CEM is planning to establish a new power station with gas turbine engines.

Mr. Leong revealed that it has negotiated with the government on several occasions, saying that a safety testing report is required.

“We wish to submit the [safety testing] report to the government in a month’s time and wish to receive a response within this year,” said Mr. Leong.

Meanwhile, CEM revealed its intention to increase the percentage of local electricity supply, although Mr. Leong said the supply would not exceed 20 to 30 per cent even once the new station is operational.

In other words, 70 per cent of electricity will still need to be imported from Mainland China, the CEM chairman concluded.

Kim Jong Nam murder

Malaysia denies visiting MSAR to obtain DNA Malaysian authorities dismissed media reports yesterday that the country had sent a team of investigators to Macau to obtain DNA samples from Kim Jong Nam’s son, Kim Han Sol, reported Singaporean news outlet Channel NewsAsia.

According to the news outlet, the Inspector-general of Police of Malaysia, Khalid Abu Bakar, told reporters yesterday no families have formally come forward to claim the body believed to be Jong Nam, the half brother of North Korean leader Kim Jong Un, following his murder in Kuala Lumpur International Airport on February 13.

The police official added that the authorities will give the families of Jong Nam “a little bit more time” to make their arrangements.

Jong Nam’s eldest son, Han Sol, is currently believed to be in Macau.

Earlier this week, he was said to be flying to the Malaysian capital city from Macau to claim the body of his father but has not been spotted there.

Asked by Business Daily whether it had received any request for co-ordination from the Malaysian Government, the MSAR’s Office of the Secretary for Security responded yesterday that it had no comment on the issue at the moment.

The Office said earlier this month it would pay utmost effort to protecting the safety and legal benefits of local residents, visitors and other individuals in the MSAR, adding it would pay close attention to developments in the murder case.

Jong Nam was attacked by a Vietnamese woman who sprayed his eyes with a toxic substance at the Malaysian airport; he died during the trip to the hospital.

Malaysian authorities have arrested four people suspected of being involved in the North Korean’s murder and are searching for seven North Korean nationals - including the second secretary of the North Korean embassy in Kuala Lumpur - for possible involvement in the murder.

The allegations were refuted by the embassy yesterday.

The Malaysian authorities have already requested Interpol to apprehend the four North Korean nationals and requested the North Korean embassy to interrogate the second secretary. N.M.

Business Daily Friday, February 24 2017 5

Macau

Shipyards

Of shipyards and shipping Secretary for Transport and Public Works Raimundo Arrais do Rosário has reiterated that the demolition of Coloane shipyards is necessary for security reasons, and that the Pac On Ferry Terminal would be operational in the second quarter of this year The demolition of 11 shipyards deemed to be at risk of collapse in Coloane are necessary to “maintain public security” and for the “revitalisation” of the Lai Chi Vun area, according to the Secretary for Transport

and Public Works, Raimundo Arrais do Rosário.

In statements made following a meeting of the Urban Planning Committee (CPU) yesterday, the Secretary said that Chief Executive

Fernando Chui Sai On was “very clear” when he said public safety would come first before the redevelopment of the village starts, with the Cultural Affairs Bureau (IC) participating in the revitalisation process.

Secretary Rosario refused to comment upon statements by former IC Director Ung Vai Meng that the IC “wasn’t consulted by the DSSOPT” before the demolitions were announced.

At the beginning of the year the Marine and Water Bureau (DSAMA) and DSSOPT announced that 11 of 14 shipyards located in the Lai Chi Vun area would be demolished, with three considered in good enough condition to be preserved and redeveloped by the IC.

On schedule

The Secretary also said that the opening of the Pac On Ferry Terminal was still set for the second

quarter of this year with no further delays anticipated. The initial proposed budget of MOP583 million (US$73 million) for the 150,000 square metre terminal has ballooned to an estimated MOP3.9 billion.

Water leaks

The Secretary also said a “long term solution” for flooding issues in the Hennaing tunnel was being developed by DSSOPT, after a burst water pipe led to the shutdown of the four-lane tunnel for 10 hours between February 20 and 21.

When questioned by a reporter on why these issues appeared “in a tunnel that cost MOP2.2 billion” the Secretary responded that such problems appear “only once in a while” and that “at the moment there is no danger” to residents with normal traffic already resumed. N.M.

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6 Business Daily Friday, February 24 2017

Macau Debt securities

Imperial Pacific completes another second issuance of unsecured notes by unsecured notes issuance Casino operator Imperial Pacific International Holdings Ltd. said it had completed the issuance of the 7.8 per cent per annum unsecured notes due 2019 to Inventive Start Ltd. amounting to US$100 million (MOP800 million), according a company filing with the Hong Kong Stock Exchange yesterday. This is the

the company this year. Earlier this month, the firm announced it had completed the issuance of 8.5 per cent per annum unsecured notes while ratings agency Fitch said it was not assigning a rating to that issuance amounting to US$70 million. Imperial Pacific operates a casino business on the island of Saipan.

Hang Seng Index

Sands missing stock rally as rivals pull in VIPs The company is now trading near its cheapest level when looking at projected price-to-earnings to rival Galaxy since 2014

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ashing in on the tourists and recreational bettors who flock to the gambling enclave of Macau had long been Sands China Ltd.’s recipe for success, but it’s hit a snag.

The so-called mass market -casual gamblers who visit Macau’s casinos as much for the replicas of European landmarks as the baccarat tables -- has been overshadowed the past three months by a revival in VIP custom, data compiled by Bloomberg Intelligence show. For Sands China, the casino company that pioneered mass in Macau by importing billionaire founder Sheldon Adelson’s (pictured) brand of Las Vegas-style pizazz, that’s being reflected in the shares - it’s the biggest loser this year on Hong Kong’s Hang Seng Index.

“Lower end mass is something that is very stable when the sector is pretty volatile but it is also a sector that was not that strong in growth compared to others,” said Angelamaria Hanlee, an

analyst at China Merchants Securities (Hong Kong) Co. who covers Macau’s casino industry. “The major focus these days is the VIP sector. I think that’s why the market has been losing some interest in Sands China compared to the others.”

Sands China’s retreat is made even starker by fresh signs of frothiness in the Macau casino stock universe, which has been recovering after an anti-graft crackdown helped wipe US$146 billion of value from a 2014 peak. Sands China, which reported below-estimate earnings in January despite a mass market-led revival in Macau’s fortunes, is trading near its biggest price discount to the wider Hang Seng gauge since August 2015, missing out on a rally that has seen Hong Kong stocks lead equity gains in Asia this year.

The company is now trading near its cheapest level when looking at projected price-to-earnings to rival Galaxy Entertainment Group Ltd. since 2014.

some analysts are making it out to be,” he said.

Govertsen says Sands China is a better long-term bet and investors should take advantage of its recent losses to get the shares at a good price.

Sands China, which is controlled

by Adelson’s Las Vegas Sands Corp., earned US$985 million from massmarket gaming in the third quarter of last year, the most among six Macau casino companies, according to BI data. Galaxy’s mass-market revenue was US$642 million, while its takings from VIPs were about one-and-ahalf times Sands China’s, the data show.

Adelson’s Asian offshoot may also be a victim of its own success, with last quarter’s disappointing earnings a result of its new casino, the Parisian, sapping mass-market customers from its older Macau operations, Daiwa Capital Markets analysts wrote in a note last month.

Sands China’s 5.3 per cent drop in 2017 compares with a 0.3 per cent decline in the Bloomberg Intelligence Macau casinos index, which trades at an average of 23 times projected earnings, compared to Sands China’s ratio of 20 times. But the gauge’s surge to a 16-month high in December was the result of a “generally false exuberance” in the market, according to Grant Govertsen, an analyst in Macau at Union Gaming Group.

“We think that the VIP recovery is actually not nearly as strong as

Bloomberg News

handset and accessory sales plunged 63.8 per cent year-on-year to HK$2.7 billion. In addition, service revenue dropped 3.7 per cent year-on-year to HK$2.67 billion.

The telecom operator explained in the filing that the decline in service revenue was ‘due to customers continuing to migrate to SIM Only plans, weakness in the prepaid segment

and the increasing use of [over-thetop] services affecting voice roaming revenues.’

However, it claimed the slump in accessory sales had only limited impact upon the company’s profitability as margin improved.

The company declared an interim dividend of 27 HK cents per share for the six months. Reuters

“Lower end mass is something that is very stable when the sector is pretty volatile but it is also a sector that was not that strong in growth compared to others” Angelamaria Hanlee, an analyst at China Merchants Securities

Likewise, Hanlee at China Merchants reiterated her “buy” recommendation at the start of the month.

“The reality is, the government, whether you want to say Beijing or Macau, they’ve endorsed that the future of Macau is mass market,” Govertsen said. “Sands, in particular, is the most leveraged Macau casino company to the mass market.”

Investment

Hard Rock seeks up to 60 pct in Japanese casino The company has identified 20 to 30 potential partners Thomas Wilson and Emi Emoto

Hong Kong-based telecom operator SmarTone Telecommunications Holdings Ltd. saw its operating losses in the city expand 42.9 per cent year-on-year for the first half of its fiscal year ended December 31 as revenue generated from the local market decreased by nearly half.

According to its filing with Hong Kong Stock Exchange yesterday, it posted some HK$16.8 million (US$2.1 million) in operating losses in the MSAR

for the six months, which increased by some HK$5 million from the same period of last year.

The operator’s segmental revenue in the city plunged by 44.6 per cent to HK$217.5 million as compared to HK$392.7 million one year ago.

Meanwhile, the total interim net profit of the company amounted to HK$393.4 million, a decrease of 2.3 per cent year-on-year, while total revenue halved from HK$10.2 billion to HK$5.4 billion year-on-year.

In particular, that derived from

Business Daily Friday, February 24 2017 7

GAMING Corporate changes

Packer accelerates Crown makeover as CEO leaves they’re happy with their cash position,” O’Loughlin said. “That buys a little bit of confidence. The decline in VIP revenue was probably well anticipated by the market.’’

Packer, whose investment company owns 48 per cent of Crown, returned to the board last month and has made resolving the situation in China his top priority. The company has already scrapped a spinoff of overseas assets and sold more than

of 83 Australian cents a share. The stock climbed to the highest level since the China detentions, which raised concern of a renewed clampdown on overseas casino operators that woo Chinese citizens offshore to gamble.

Crown joined Australian rival Star Entertainment Group Ltd. in freezing its Chinese business until it grasps the scope of the Chinese clampdown.

There’s been no clarity on the employees being held and Crown has stopped marketing in the country, Alexander said.

“Frankly we look at that as a pause

luxury hotel and casino on Sydney’s waterfront -- a six-star resort that’s due to be completed in 2021 and will focus on high-roller gamblers. Crown is confident the project will be profitable, partly because it would be attractive to local gamers, too, Alexander said.

Mainland China represents less than half of Crown’s VIP customer base, Alexander said. The other half is sprinkled between Singapore, Malaysia, Indonesia, Hong Kong and other parts of North Asia, he said.

Earnings at Crown before significant items fell 9.1 percent to A$191.3

half its stake in Macau casino operator Melco Crown Entertainment Ltd. as it now focuses on its hotels and casinos in Australia.

Crown scrapped a proposed initial public offering of a trust holding the company’s Australian hotels partly because it raised capital instead from the sale of Melco Crown shares.

The stock jumped 8.2 per cent to A$12.32 at 2:46 p.m. in Sydney as Crown announced a special dividend

rather than a retreat,” he told reporters in Melbourne. “We are waiting for clarity on China and the details behind that, but no intention to retreat from where we stand in the market.”

Alexander said there were now 14 Crown employees being held in China after one was released. Crown, which initially said 18 had been detained, didn’t explain the discrepancy.

Amid the crackdown, Crown is pushing ahead with a A$2 billion

million in the six months ended Dec. 31 as revenue at Crown’s Australian resorts declined. Turnover from the VIP program dropped 45 percent to A$19.6 billion.

Star, which runs Sydney’s only licensed casino, last week said total bets from Star’s international VIP clients slumped 27 percent in November and December in the wake of the Crown detentions. Bloomberg News

recent passage of the [Integrated Resorts] Promotion Bill in Japan,’ the company wrote in a filing with the Singapore Stock Exchange on Wednesday. ‘We continue to track the progress of the IR Execution Bill which will pave the way for the formal bidding process for a Japan gaming licence.’

The operator added it ‘has sufficient financial resources and is well placed to bid for this opportunity.’

For the whole year of 2016, the

company saw its net profit nearly double to S$384.5 million (US$271.9 million/MOP2.2 billion) from 2015, while adjusted EBITDA totalled S$779 million although total revenue fell 7 per cent year-on-year to S$2.22 billion from S$2.4 billion one year ago.

Japan’s gaming regulations are expected to be laid out by this December following the country legalising operations last December. Meanwhile, different casino operators worldwide have already expressed their interest in grabbing a slice of Japanese cake.

Speaking in a briefing held Wednesday at a CLSA Ltd. conference in Tokyo, MGM Resorts International Chief Executive Officer James Murren touted the Las Vegas-based operator’s size and clout in bringing in entertainers, and said it was hiring more staff to explore gaming options in Japan.

The MGM CEO added that the company prefers working with Japanese partners rather than having full ownership of a project.

Chief Executive Officer Lawrence Ho Yau Lung also said at the same event that the company will “spend whatever it takes to win [the bid],” while Las Vegas Sands Corp. boss Sheldon Adelson said that he could spend as much as US$10 billion to build an integrated resort given the country’s business opportunity is the “ultimate.” K.L. with Bloomberg

The stock climbed to the highest level since the China detentions Brett Foley and Angus Whitley

B

illionaire James Packer accelerated his restructure of Crown Resorts Ltd., replacing the chief executive officer and scrapping a hotels listing as the casino operator seeks to recover from a gambling crackdown in China.

John Alexander, who’s worked for the Packer family for almost two dec-

“We are waiting for clarity on China and the details behind that, but no intention to retreat from where we stand in the market” John Alexander, Crown chairman ades and was named Crown chairman last month, will also take over the CEO role from Rowen Craigie next week, the company said yesterday. The concentration of power reflects Crown’s tighter focus on its Australian operations, after a group of employees were detained on the Chinese mainland in October for alleged gambling-related crimes.

Crown shares soared in Sydney as it announced a special dividend and pushed on with a A$500 million (US$384 million) stock buyback. That overrode investor concern about a slump in high-roller gambling stemming from Crown’s crisis in China, said William O’Loughlin, an investment analyst at Rivkin Securities Pty in Sydney.

“If they’re willing to pay that, then Gaming

Genting eyeing Japanese casino The Singapore-based gaming corporation said it is well placed and has sufficient funds to grab the opportunity Brett Foley and Angus Whitley

Singaporean casino operator Genting Singapore PLC is planning to bid

for a Japanese gaming concession to diversify its business, it said in its annual results.

‘We are encouraged by the

8    Business Daily Friday, February 24 2017

Greater china In Brief

Local governments

Finance ministry warns on illegal debt guarantees China's finance ministry said yesterday some city and county-level governments are illegally providing guarantees for borrowing by related entities, as the country struggles to control rapidly growing debt.

China will stop these illegal activities, the Ministry of Finance said in a notice on its website, and strictly control local government debt risks. The ministry on Tuesday issued rules for local-government bonds this year, telling regional governments to set "reasonable" bond issuance plans for 2017 and to control the pace of debt sales.

Real estate

Government can stabilise homes prices China's property prices will remain stable in the first quarter, housing minister Chen Zhenggao said yesterday, adding the government has the capacity and methods to stabilise the market. "We are aware that the property market faces many contradictions and problems in 2017, and there are increasing uncertainties," Chen told reporters. "But I believe the positive aspects outweigh the negative ones and we have the ability and methods to stabilise the market." The vice housing minister told reporters separately that preparatory work was now being done for a nationwide property tax, but he did not provide further details.

Trade tariffs

Imported truck, bus tires found to not hurt U.S. industry The U.S. International Trade Commission said on Wednesday that subsidized bus and truck tires imported from China had not damaged the U.S. industry, and as a result it would not issue anti-dumping and countervailing duty orders on the products. The negative finding represented a rare outcome for the panel, which said in a statement that three of the five members who voted came out against the damage determination. The ITC said one of its six commissioners did not participate. In 2015, U.S. imports of more than 8.9 million truck and bus tires from China were worth US$1.07 billion.

Bird flu

Premier urges poultry markets to shut China's Prime Minister urged local authorities to shut down live poultry markets in places affected by the H7N9 bird flu virus which killed 79 people in January, a statement from China's cabinet said. Chicken prices sank to their lowest level in more than a decade last week and concerns about H7N9 deepened after global health authorities said the strain had evolved into a more severe form for birds. Until now, H7N9 bird flu has shown little or no clinical symptoms in birds, despite being highly pathogenic in humans, but China has detected an evolution in the virus capable of causing severe disease in poultry.

Drugmakers

Beijing updates key drug list in boost for Big Pharma Drugs on the list can be reimbursed by up to 80 per cent depending upon local implementation Adam Jourdan

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hina has updated list of medicines covered by basic medical insurance schemes, a long-awaited fillip for drugmakers in the world's second-largest drug market where many new drugs have been kept out of patients' reach because of high costs.

The new list of reimbursable medicines, the first update in eight years, includes blockbuster drug compounds to treat major illnesses such as cancer, hepatitis and haemophilia.

High drug costs and a lack of access to the most recent treatments is a major flashpoint in China, where patients often are forced to resort to risky grey markets to get cheaper medicines.

The list includes 2,535 Western and traditional Chinese medicines, 339 more than the most recent update of the list in 2009, the Ministry of Human Resources and Social Security said in a statement on Thursday. The number of Western-style medicines included rose by 133 to 1,297.

Reuters reported in January that China was set to add more than 300 modern and traditional drugs to the list.

Added to the list are compounds such as tenofovir disoproxil, a hepatitis B drug sold as Viread by GlaxoSmithKline

PLC as well as gefitinib, a lung cancer drug sold as Iressa by AstraZeneca PLC. "We are pleased to see the publication of the update to the NRDL which will greatly improve the access and affordability of innovative medicines," a GSK spokesman said.

"We have already seen a major increase in the uptake of our Hep B medicine (Viread) since reducing its price by 67 per cent last year and inclusion in the NDRL will drive further access

Key Points Drug list last updated in 2009 Addition to list boosts volumes GSK, AZ, Shire welcome update around the country."

Dublin-based drugmaker Shire PLC, whose haemophilia treatment ADVATE will also benefit from the list update, said it welcomed the announcement which signalled "the lifting of restrictions" for its own and similar treatments. wAstraZeneca did not immediately respond to requests for comment.

Patient burden

The ministry said the move would reduce the financial burden on patients

and help support innovation and development in China's pharmaceutical market.

Inclusion on the NRDL means a drug is accessible via state insurance schemes, making it affordable to the mass market. Any new drug approved for sale since the last update of the list in 2009 was until now largely paid for out-of-pocket by patients.

Drugs on the list can be reimbursed up to 80 per cent depending on local implementation.

"For pharma companies this is definitely a boost," said Andrew Chen, Shanghai-based partner at Parthenon EY. However, addition to the list does not come for free, he added.

"Once your drug becomes reimbursed, your volumes will go up, but your pricing will have to go down, meaning slimmer margins."

The ministry said there were also 45 "negotiable" drugs that were expensive but that had high clinical value. It added there would be further discussion about these, after which a further list would be announced.

It also called for provinces to publish regional lists by July 31, which should stick closely to the national list.

The delayed update to the NRDL, which determines which drugs are part state-sponsored, is a welcome tonic for global drug companies, most of whom saw China sales growth slow or contract last year.

Monetary work

Central bank policy to prevent asset bubbles PBOC economist says consumer prices are likely to rise around 2.5 per cent this year People's Bank of China headquarters in Beijing

China's monetary policy this year will contain risks posed by debt, prevent asset bubbles and keep

Business Daily Friday, February 24 2017 9

Greater china Legislation

Four regulators acting as one shows shift in curbing risk The idea of consolidation among regulators has been around for at least a decade

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hina’s regulators are putting together a unified front seeking to beat back growing risks to the financial system from US$8.7 trillion in asset management products, including investments in bonds and risky offbalance-sheet lending by banks.

They’re working to draft sweeping new rules governing the surge in these products, Bloomberg News reported earlier this week and a regulator confirmed Wednesday.

That level of collaboration signals

unprecedented," said Hou Wei, a Hong Kong-based analyst at Sanford C. Bernstein & Co. "Regulatory arbitrage is rampant. For instance when the CBRC plugged the loophole of trusts, brokerages filled in the vacuum, and they were overseen by different regulators."

The idea of consolidation -- or at least greater cooperation -- among regulators has been around for at least a decade, and there’s no guarantee the rules being drafted will be adopted.

Still, more coordination could enable

wealth management products issued by banks amounted to 26 trillion yuan, an increase of 30 percent from 2015, according to the People’s Bank of China.

Different types of asset management plans issued by institutions governed by separate regulators are being used to get around regulatory control, according to Morgan Stanley analysts.

Reduced transparency

"This has greatly reduced the transparency of China’s financial system," Morgan Stanley’s Richard Xu wrote in a Feb. 21 note. "We believe unified regulatory requirements would

responded to faxed requests for comment Wednesday.

Umbrella agency

Some analysts are sceptical whether an umbrella agency is the solution. Absent the lack of a distinctly different regulatory emphasis and discipline, renaming or creating new working bodies will have little impact, said Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen.

"Unless China decides to crack down on credit growth, the rearranging of the deck chairs will not matter a lot," he said.

Regulatory competition among the

"Authorities realized the need for much better coordination, and the attempt this time seemed to be unprecedented" Hou Wei, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

a shift toward a more unified approach to financial market supervision, which is currently governed by separate agencies overseeing banks, stock markets and insurance companies, in conjunction with the central bank.

Until now, when a regulator such as the China Banking Regulatory Commission sought to curb sales of risky products by banks, financial innovators rushed in to develop alternative products overseen by other regulators, such as the China Securities Regulatory Commission.

Known as regulatory arbitrage, that may soon get harder.

"Authorities realized the need for much better coordination, and the attempt this time seemed to be

them to close regulatory loopholes that helped fuel the exponential growth of risky products, seen by some investors as a systemic risk.

"This could be the first step toward a single regulatory body," said Fraser Howie, co-author of the book "Red Capitalism" who has two decades of experience in China’s financial markets. "It signals that the political elite know there are real financial risks, that things can’t go on as they have been."

Many of these asset management products -- which total RMB60 trillion (US$8.7 trillion), or more than three quarters of China’s US$11 trillion gross domestic product -- aren’t recorded on institutions’ balance sheets. As of the end of last year, off-balance-sheet

economic growth on track, the central bank's chief economist said yesterday.

In December, Chinese leaders pledged monetary policy would be "prudent and neutral" in 2017, as they looked for a path of stable and healthy growth.

Ma Jun, chief economist at the People's Bank of China, said that policy would "prevent rapid rises in leverage ratios and avoid asset bubbles, under the premise of maintaining reasonable economic g r o w t h a n d ba s i c a l l y st ab l e inflation", according to a transcript seen by Reuters of a speech made in Singapore.

The central bank recently moved to raise short-term interest rates to help rein in debt risks.

Ma predicted a rebound in China's exports this year, alongside quickening manufacturing investment, while he said he expected property investment to slow.

China's consumer prices are likely to rise around 2.5 per cent this year, Ma said.

Consumer inflation accelerated to 2.5 per cent in January from a year earlier, the highest for a month since May 2014.

According to the transcript, Ma also said China is studying plans to appropriately extend interbank bond market trading hours.

China's measures to further open up its bond market to foreign investors could pave the way for its inclusion in major global bond market indexes, he said. Reuters

help reduce the level of regulatory arbitrage."

After China’s stock market turmoil in 2015, China began again considering whether a super-regulator could merge existing agencies under one umbrella, said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore.

It’s still in the process of reviewing mechanisms for greater regulatory coordination and is studying the regulatory models of other major financial centres, he said.

None of the regulatory agencies

agencies has made fast growth and financial innovation possible over the past two decades, said Chen Zhiwu, a finance professor at Yale University in the U.S. and a former adviser to China’s State Council. Without that competition, China’s corporate bond market and fund management industry wouldn’t have grown so energetically and so fast, he said.

"Combining all financial regulators into one would do more harm than good to the Chinese economy and society," he said. "What if that super agency would just ban financial innovation or choose inaction over many things? Who would be there to put competitive pressure on them?"

The "unprecedented" level of coordination by the regulators on the draft rules reflects the importance of the issue, said Karine Hirn, a partner at East Capital in Hong Kong, an emerging markets fund manager that oversees about US$3 billion.

"The wealth management sector in China has grown to a size where mismanagement could imply systemic risks," she said. "Hence, we welcome the fact that all relevant authorities are willing to coordinate their efforts to clarify the rules of the game." Bloomberg News

10 Business Daily Friday, February 24 2017

Greater china

Commercial pressure

Clampdown on North Korean trade squeezes border towns China seems to be increasingly irked by what it sees as Kim's recalcitrance on the nuclear weapons issue Brenda Goh

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s Beijing tightens its grip on trade with North Korea, the economies of Chinese towns along the 1,400-km border the two countries share are floundering.

On Saturday, China said it would ban all coal imports from North Korea, the latest move to enforce United Nations sanctions aimed at depriving Pyongyang of hard currency for its nuclear weapons and ballistic missile programmes.

The sanctions have had a wider impact on trade, locals on the border complain, as North Koreans struggle to finds funds to pay for goods. Even smugglers are feeling the pinch.

"A few of my friends who used to smuggle goods from North Korea have gotten out of the business in the last two years because it's getting dangerous and not as lucrative," said an owner of a events hall in Kuandian, about 100 km north of Dandong, the largest city on the border.

"I don't know whether it's related, but people are spending less these days. It's getting harder to earn money."

While Beijing, North Korea's sole major ally, has previously said it would comply with UN sanctions, it has been criticised by the United States for not vigorously enforcing them.

China buys 70 per cent of North

China buys 70 per cent of North Korea's exports Korea's exports and Dandong, the main gateway for trade with the hermit state, is the best place to gauge the impact of the restrictions it has put in force.

Linked to the North Korean city of Sinijiu via the Friendship Bridge, Dandong has boomed in recent years, swept up by speculation that North Korea's young leader, Kim Jong Un, would, in time, copy China's export-oriented economic reforms.

More than 1,000 border trading companies set up shop in office complexes overlooking the river, while developers flocked to build new apartment blocks.

But many of those firms have since

Revenue

Ctrip forecasts sales surge The firm wants to become a one-stop platform for travellers around the world Swati Pandey

Ctrip.com International Ltd. forecast revenue growth of as much as 45 per cent this quarter, as the Priceline-backed online travel service benefits from its market dominance during the busiest season for Chinese tourism.

China’s largest online travel operator is predicting revenue growth of 40 to 45 per cent in the March quarter, which encompasses the peak Lunar New Year travel period, after reporting results that outpaced analysts’ projections.

Non-GAAP earnings almost tripled to RMB797 million (US$116 million) in the quarter. Revenue grew 76 per cent to RMB5.1 billion, beating the RMB4.98 billion average of estimates compiled by Bloomberg.

Ctrip, in which Priceline Group Inc. owns a stake, wants to become a one-stop platform for travellers

around the world. Long-time executive Jane Sun assumed the role of chief executive in November and is now trying to expand the service beyond its core markets.

Non-GAAP operating profit for the current quarter will be as much as RMB850 million, Chief Financial Officer Cindy Wang said on a conference call.

Sun was instrumental in orchestrating its largest-ever acquisition, a RMB$1.7 billion deal for Skyscanner Holdings Ltd. in 2016. She plans to convert the U.K.-based price comparison website into a full travel platform and intertwine its search engine with Ctrip’s services as it markets its brands to other Asian markets.

Domestically, it shored up its presence in rural China in 2016 by acquiring Traveling Bestone, a chain of 5,000 agencies in lower-tier cities. Bloomberg News

folded, residents and traders say.

Construction on at least two apartment complexes in Dandong has stalled and empty shop fronts are scattered across the city.

"These shops couldn't carry on because they rely on the North Koreans, and there are fewer North Koreans coming here too," said a trader, who only wanted to give his name as Jin, who helps North Korean buyers procure goods such as washing machines and construction materials from China.

"Three years ago we could make a profit of 30-40 per cent on an order, now you can't even hope for 20 per cent."

Coal ban

It is not in China's interest to ditch its old ally totally. A sudden regime collapse could throw North Korea into chaos and send hundreds of thousands of North Koreans fleeing across the border, diplomats have said.

But China seems to be increasingly irked by what it sees as Kim's recalcitrance on the nuclear weapons issue.

Saturday's coal ban came after Beijing had announced in April last year that it would stop importing North Korean coal. But it made exceptions for deliveries intended for "the people's wellbeing" and

not connected to the weapons programmes.

In fact, China bought about 22 million tonnes of coal from North Korea last year, up 15 per cent, with most of it arriving by sea through five ports along China's east coast.

Still, the impact of the April ban had already been felt heavily in Dandong.

"They've stopped letting in coal since July," said a security guard at the biggest coal yard in the inland port city, now empty barring two small mounds of coal. "All the workers were sent home by the company in October. Once the government decided, the port stopped allowing in the coal, it's not like we could do anything," he said, only giving his surname as Tang.

Local management at state-owned Liaoning Greenland Energy Coal Group, which runs the yard, confirmed the suspension of coal shipments, which used to arrive by boat on the Yalu river that separates China from North Korea.

It remains unclear how rigorously the latest coal ban will be enforced.

Many people in Dandong complained that trade across the river had already fallen broadly.

"Dandong's economy relies on trade with North Korea," said a truck driver waiting to cross the Friendship Bridge, who estimated his income had fallen by around a third as a result.

"We don't have any factories that churn out goods. We don't have light industries, nor do we have heavy industry." Reuters

Business Daily Friday, February 24 2017 11

ASIA

CPI

Singapore inflation accelerates The Monetary Authority and Ministry of Trade and Industry kept their 2017 forecasts for both headline CPI and core CPI Fathin Ungku

Singapore's inflation rose at its fastest pace in two years in January, led by services and oil-related items, virtually shutting out the prospect of further monetary policy easing at the central bank's next meeting in April.

The all-items consumer price (CPI) in January rose 0.6 per cent from a year earlier, official data showed yesterday, the fastest growth since September 2014.

The momentum in consumer prices,

combined with stronger-than-expected economic growth at the end of 2016 and the government's generous budget for the coming year will take near-term monetary policy easing off the table, analysts said.

"Given that budget 2017 was expansionary and growth and inflation are actually evolving in line with MAS (Monetary Authority of Singapore) expectations, I think this reduces the odds of any shift in ... policy at the April meeting," said Weiwen Ng, and economist for ANZ. Ng said the rise in CPI reflects higher transport costs and can be partly attributed to a low base of comparison from a year ago.

ANZ still sees a risk of further policy easing although the possibility of such a move at the next meeting in April is now lower, Ng said.

The central bank last eased its exchange rate-based policy in April 2016.

Singapore posted its fastest growth in more than six years in the fourth quarter, expanding at an annualised 12.3 per cent from the previous three months.

But risks from rising protectionism

Key Points Jan all-items CPI +0.6 pct y/y, highest since Sept 2014 Core CPI +1.5 pct y/y, highest since +1.5 pct in Dec 2014 CPI rises due to higher prices of oil-related items, services MAS, MTI keep 2017 all-items and core CPI forecasts unchanged in the United States and a still-soft services sector point to an underpowered economy that may be in need of more stimulus.

Headline CPI had been dragged down over the past two years by

lower global oil prices, only rising for the first time in two years in December 2016.

Looming water price hikes and plans for a carbon tax could further stoke inflation.

The MAS core inflation measure in January rose 1.5 per cent from a year earlier, the fastest rise since December 2014. In December it rose 1.2 per cent.

The MAS and Ministry of Trade and Industry kept their 2017 forecasts for both headline CPI and core CPI. Imported inflation is likely to rise on the back of a higher global oil prices while domestic inflation should be muted due to a subdued labour market, they said in a joint statement.

The central bank has said that core CPI is the most relevant indicator for monetary policy. The MAS core inflation measure excludes changes in the price of cars and accommodation, which are influenced more by government policies. Reuters

Spending plans

Australia’s business investment slips again All the weakness was in mining with investment in other parts of the economy unable to offset the plunge Swati Pandey

Australian business investment has fallen for the fourth straight quarter as miners continue to cut back, but other sectors narrowly upgraded their spending plans for the year in tentative signs of recovery.

Yesterday's figures from the Australian Bureau of Statistics showed investment slipped 2.1 per cent in the fourth quarter to A$27.6 billion (US$21.18 billion), when analysts had looked for a fall of only 1 per cent.

The decline was entirely driven by the mining sector where spending fell over 9 per cent, even as new investment in manufacturing climbed 3.1 per cent.

Figures due next week are generally expected to show the economy grew around 0.6 per cent to 0.7 per cent last quarter Importantly, spending on equipment, plant and machinery did edge up in the fourth quarter which adds to expectations economic growth bounced after a shock contraction

in the previous quarter.

Figures due next week are generally expected to show the economy grew around 0.6 per cent to 0.7 per cent last quarter.

While economists are convinced that Australia has dodged its first recession in 25 years, the data are yet to show a meaningful recovery in the non-mining economy.

I n d e e d, s p e n di n g p l a n s f o r 2017/18 came in at A$80.6 billion, the lowest in a decade and under the A$84 billion many analysts had looked for.

Again all the weakness was in mining with investment in other parts of the economy unable to offset the plunge.

"That shows the momentum is still down. That's not what you want. What you want to see is a rise in those estimates," said Shane Oliver, chief economist at AMP Capital.

The decline was entirely driven by the mining sector where spending fell over 9 per cent

"I think it keeps alive the prospect for another rate cut although the RBA has set a very high hurdle for taking rates lower."

After cutting rates to a record low of 1.5 per cent last year, the Reserve Bank of Australia (RBA) has been on hold in the expectation that growth in the A$1.6 trillion economy will accelerate to around 3 per cent.

Just this week, RBA Governor Philip Lowe argued the drag from mining was almost over and cutting rates again would only serve to inflate a debt-driven bubble in the housing market.

Businesses, however, do not seem keen to co-operate.

"Even though the mining capex drag is fading away, the recovery in non-mining is really tepid at this point," said Ben Jarman, an economist at JPMorgan.

"We are seeing global business sentiment surveys rally quite a bit but it doesn't appear like Australian firms are following suit with their capex plans at the moment." Reuters

12 Business Daily Friday, February 24 2017

Asia

Bank of Korea Governor Lee Ju-yeol Monetary meeting

Cautious Bank of Korea keeps interest rates steady Governor maintained a neutral stance throughout his post-decision news conference Christine Kim and Cynthia Kim

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outh Korea's central bank opted for stability yesterday, keeping its interest rates unchanged for an eighth straight month as it faces declining consumer confidence, trade challenges, and a government in turmoil from a political scandal.

The Bank of Korea (BOK) left its base rate at 1.25 per cent, a record-low, with Governor Lee Ju-yeol noting the board's views on the economy had not changed since January when it last convened.

"There is no change to our previous stance that policy will be kept accommodative," Lee said.

South Korea has worried that its exports are at risk from U.S. President Donald Trump's threatened trade tariffs, especially if the United States declares South Korea a "currency manipulator".

"I don't see a large possibility of Korea being named a currency manipulator," Lee told a news

conference.

"The (official stance of the BOK) is that the FX rate should be determined by the market. Authorities only smooth when volatility is extreme from herd behaviours."

Yoon Yeo-sam, fixed-income analyst at Mirae Asset Daewoo Securities, shared the governor's view that the likelihood of the United States branding Seoul a currency manipulator was remote.

"There is little grounds to do that," Yoon said. "There will be damage to the U.S. if it names South Korea a currency manipulator, so it seems reasonable to think that Korea won't get that label."

Lee maintained a neutral stance throughout his post-decision news conference, stressing exports were not yet out of the woods but were expected to do better this year than forecast.

I n f l at i o n , d es p i t e a r ec e n t acceleration, would also linger close to the bank's 2-per cent inflation target, he said.

A majority of analysts forecast the bank will stay its hand through yearend, although the Bank of Korea has been eyeing steadily snowballing household debt. Data earlier this week showed the debt soared last quarter at its fastest annual pace in more than a decade.

Lee also noted that FX swap rates, used in transactions aimed at avoiding currency risk, were falling because of a narrowing interest rate differential between overseas countries and South Korea's domestic market.

"Chances of FX swap rates falling further from current level aren't that big."

A BOK statement noted that the BOK board would closely monitor domestic and external threats from the U.S. Federal Reserve's normalization of monetary policy.

"The BOK is likely training its focus outside the country, as policy in the United States is still fluid while there are upcoming elections in Europe," said Kim Jin-a, a fixed-income analyst at ILK Securities.

"At this point it looks like the BOK will keep rates unchanged all year."

The South Korean central bank is also waiting for the Constitutional

Court to decide in coming weeks whether it will uphold parliament's vote to impeach President Park Geunhye over an influence-peddling scandal.

Park is accused of acting with her long-time friend, Choir Soon, to pressure big businesses including Samsung Group to donate to two foundations set up to back the president's policy initiatives.

Jay Y. Lee, scion of Samsung Group, has been kept behind bars since he was arrested on Feb. 17 for his alleged role in the corruption scandal.

Park is also accused of allowing Choir to exert inappropriate influence over state affairs. Both women have denied wrongdoing.

If Park is impeached, a presidential election will be automatically triggered within 60 days. This could mean many policy changes, including economic measures, and the central bank is unlikely to change policy amid such uncertainty.

Concerns over trade protectionism expanding under U.S. President Donald Trump are a factor for the BOK to observe closely, given South Korean exports have begun to recover. Reuters

Environment

Philippine minister says Duterte agrees with mining ban A mining industry group has said the mining closures and suspensions would affect 1.2 million people Neil Jerome Morales

The Philippines' environment minister yesterday said President Rodrigo Duterte had backed her decision to ban mining in watershed areas at a meeting earlier this week, winning his support once more for her crackdown on the sector.

Duterte who warned last year that the Southeast Asian nation could survive without a mining sector had supported Lopez's decision this month to shut over half the country's mines.

But he later did not rule out reviewing her order amid the potential revenue losses from mining.

"He said: 'I agree with you. Don't worry, you are my cabinet secretary and I also believe that there should

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be no mining in watersheds'," Regina Lopez told a media briefing, recalling her meeting with Duterte on Monday.

Lopez on Feb. 2 ordered the closure of 23 of 41 mines in the world's top nickel ore supplier for environmental violations, saying many of them were in watershed zones that threaten water supply and quality. Another five mines were suspended.

She also ordered the cancellation of 75 mining contracts, or nearly a third of mineral production sharing agreements for mines that have yet to go into production, for being located in watershed areas.

She reiterated her stance yesterday, saying she would not allow mining at the expense of the environment and people who depend on seas and farms

Key Points Minister has ordered closure of over half country's mines President has said he would review minister's decision Philippines is world's top nickel ore exporter for their livelihood. Lopez also repeated that her decisions were above board.

"Every step of the way, I followed due process," she said.

The recent moves by Lopez, a staunch environmentalist long before she joined Duterte's cabinet last June, have angered domestic miners many of whom have appealed their case with the president.

Miners that have filed appeals with Duterte can continue operating unless he rules otherwise.

A mining industry group has said the mining closures and suspensions would affect 1.2 million people.

The Chamber of Mines of the Philippines last week sought to block

Lopez's appointment, saying her recent moves showed an "undeniable bias" against the sector. Lopez is among a few cabinet members who have yet to be confirmed by Congress and her next confirmation hearing is on March 1.

Amid the uproar, a government interagency panel will have its own review of the 28 affected mines that will begin in March and will take three months.

The Mining Industry Coordinating Council will engage experts from state universities and other independent professionals for the review.

The council will submit its recommendations to Duterte who will make the final decision on the environment agency's closure and suspension orders, Finance Undersecretary Bayani Agabin said in a statement on Thursday.

Still largely underexplored, the Philippines' mining sector contributes less than 1 per cent to the overall economy, with only 3 per cent of 9 million hectares identified by the state as having high mineral reserves being mined, according to government data. Reuters

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Business Daily Friday, February 24 2017 13

Asia In Brief

Investment

Vietnam's FDI attraction up

Legislation

Singapore rattles sharing economy with rule change New rules highlight increasing scrutiny by regulators globally and growth challenges facing new economy businesses like Uber and Airbnb Fathin Ungku and Jeremy Wagstaff

S

ingapore, a keen early adopter of the sharing economy, has fired a warning shot across the bow of Airbnb and Uber with tighter rules that could shake up their business models and growth ambitions in Asia.

The rules, some say, are a sign that even governments sympathetic to companies that allow citizens to rent out their expertise or property have a hard time striking the right balance between encouraging disruptive technologies and keeping them in line.

"I know a lot of people will give back their keys, that's for sure," said Lionel Ong, 33, an Uber driver, who wants to look for a less demanding part time job.

As its traditional manufacturing industry has hollowed out in the past decade or so, the affluent city-state has been quick to embrace opportunities in the digital economy, hosting the Asian headquarters of Airbnb and Uber, inviting its executives to conferences and investing in Uber's regional rival Grab through a unit of its investment arm for Temasek.

It’s too early to say what impact the new rules would have on Uber and Airbnb, but they highlight increasing scrutiny by regulators globally and growth challenges facing these new economy businesses.

April Rinne, an expert on the sharing economy who has advised companies and governments, including Singapore, says the city state's case mirrors other early adopter countries like Denmark, where legislators are mulling laws which would require taxis to have seat sensors, video surveillance and taxi meters.

"It’s a watershed that should also sound warning bells," Rinne said.

The sharing economy business is billed for explosive growth, estimated by PWC to reach US$335 billion by 2025” Singapore's new rules, passed this month, will be implemented in stages from the second half of this year.

They allow officials to suspend a ride-sharing company for up to a month after three or more instances of their drivers getting caught without a proper licence or insurance. The drivers themselves face fines and jail.

In the case of Airbnb, officials will

have the right to force their way into homes to check whether residents were renting them out illegally, adding teeth to a rarely enforced law which bans the renting out of private property for less than six months.

High growth market, hurdles

The sharing economy business is billed for explosive growth, estimated

by PricewaterhouseCoopers to reach US$335 billion by 2025, from around US$15 billion in 2016.

So there’s a lot at stake for companies. And the worry, says Adrian Lee, who runs a car-sharing service called Tribecar in Singapore, is that other markets might ape the city state's stance.

“I'm afraid other legislators may take a leaf from our play book without allowing these services to get to critical mass."

Singapore had been one of the few bright spots in Asia for Uber, which has been facing legal scrutiny in many markets across the region.

Uber has suspended its service in Taiwan and has withdrawn from China after selling its business there. And in South Korea and Japan, authorities have limited its operations.

Jean Chia, a Singapore-based academic who studies the sharing e c o n o m y , s a y s s i n c e s h o r tterm renters "were previously operating in a grey area", the tighter regulations raise some immediate questions around the business model of Airbnb.

Airbnb's director of public policy in Asia Pacific, Mike Orgill, echoed those concerns, saying there are “thousands of people earning supplemental income … so the lack of clarity is of concern for hosts."

Drivers of Uber and Grab said a requirement for all drivers to obtain a vocational licence would force out a lot of part-time drivers, while the threat of fines and even jail would deter others.

There is no comparable measure in "the more than 450 cities we operate in," Uber's Singapore general manager Warren Tseng said of the rule change, warning it would affect tens of thousands of drivers and "hundreds of thousands of commuters."

Uber's strong regional rival Grab, which is planning to invest $700 million in Indonesia, one of Asia's biggest markets, is more sanguine about the new laws.

Grab's country head Kell Jay Lim said though the company expects some drop-off after the regulations kick in, the rules showed that Singapore was now absorbing the sharing economy into the mainstream.

"It's a stamp of approval of what we're trying to do.” Reuters

Vietnam attracted US$3.4 billion worth of foreign direct investment (FDI) in the first two months of 2017, up 21.5 per cent against the same period last year, according to the country's Foreign Investment Agency yesterday. Since the end of 2016, Vietnam has licensed 313 new foreign-invested projects with total registered capital of US$2.029 billion, rising 6.5 per cent in value year-onyear. Meanwhile, a total of 137 existing projects has applied for capital adjustment with an added amount of US$1.378 billion. Of 18 fields and industries receiving new foreign investment, manufacturing and processing industry led the pack.

Prices

Japan lowers assessment of consumer spending Japan's government lowered its assessment of consumer spending in February, the first downgrade in 11 months, as some shoppers have become increasingly frugal in the face of rising food prices. The government left unchanged its overall assessment that the economy is recovering gradually though pockets of weakness remain. The dim view of consumer spending could become a source of concern for policymakers, as it suggests the economy may continue to struggle to generate inflation. "The recovery in consumer spending has stalled recently," the Cabinet Office said.

Central bank

Thailand monitoring short-term capital inflows Thailand's central bank is tracking short-term capital inflows which are causing the baht currency to strengthen but is not worried at this point, central bank governor Veerathai Santiprabhob said.

He said if the baht became too strong it would be bad for the economy. "Foreign investors see Thailand as a safe haven so capital inflows are short term and cause the baht to strengthen. Once the money leaves it creates currency instability which we don't like very much. Thus we are looking at this quite closely but we are not at the stage of worry," he said.

Growth

Indonesian central bank revises down projection The Indonesian central bank, Bank Indonesia (BI), yesterday revised down the country's first quarter growth estimation initially set at 5.05 per cent. "Growth in the first quarter this year would be lower than 5.05 per cent, to be much affected by insufficient government spending. As we already knew, the spending was consolidated late last year," BI Governor Agus Martowardojo said here yesterday. He said exports would likely become the major driver in the first quarter's growth due to price recovery in commodities. Indonesia posted 5.02 per cent growth last year, lower than the revised target of 5.1 per cent.

14 Business Daily Friday, February 24 2017

International In Brief Watchdog

Emails show ties between new EPA head, energy firms Emails released by the Oklahoma attorney general's office show a cosy relationship between energy companies and Scott Pruitt, who was the state's top prosecutor before being sworn in last week as the new chief U.S. environmental regulator, a media watchdog group said on Wednesday. The Centre for Media and Democracy has sought the release of emails between energy companies and Pruitt for the past two years, saying they show energy companies drafted language that Pruitt's attorney general office then used in suing the U.S. Environmental Protection Agency, the office he now heads, over regulations on energy operations.

Real estate

U.S. home sales hit 10-year high U.S. home resales surged to a 10-year high in January as buyers shrugged off higher prices and mortgage rates, signalling rising confidence in the economy and bolstering expectations of a pickup in growth in the first quarter.

The National Association of Realtors' (NAR) report came as the labour market nears full employment and investors wait for the Trump administration to act on its promises to cut taxes, increase infrastructure spending and reduce regulations. Existing home sales jumped 3.3 per cent to a seasonally adjusted annual rate of 5.69 million units last month, the highest level since February 2007, the NAR said.

Markets

EU gives wiggle room to comply with new derivatives rule The industry has warned of potential disruption given that many firms will not be ready in time due to lengthy paperwork and had called for a six-month phase in period Huw Jones

E

uropean Union regulators can use discretion in enforcing a new rule for derivatives from next week as long as firms show they are making an effort to comply with changes which some said they had not had enough time to be ready for.

The EU's European Securities and Markets Authority (ESMA), the European Banking Authority (EBA), and the European Insurance and Occupational Pensions Authority announced the softening yesterday, saying they were aware of "operational challenges" in meeting the deadline, especially at smaller firms.

The rule, which was agreed in the aftermath of the 2007-09 financial crisis to make the US$544 trillion market safer, is aimed at firms which use swaps or privately traded derivatives contracts to hedge against interest rate or currency risks.

From March 1 users must post a "variation margin" in the form of cash or bonds to cover day-to-day

swings in market prices and ensure there is enough cash to cover losses.

The industry has warned of potential disruption given that many firms will not be ready in time due to lengthy paperwork and had called for a six-month phase in period.

Among the concessions, regulators could take into account the size of

Key Points EU action falls short of formal transition period Industry welcomes room for regulatory discretion Steps aimed at helping smaller firms in market exposures in swaps contracts and default risk when going about their day-to-day enforcement work, the three watchdogs said in a statement yesterday.

Market users would still have to document the steps taken towards full compliance and put in place

alternative arrangements to ensure that risk of non-compliance is contained.

"This approach does not entail a general forbearance, but a case-bycase assessment from the competent authorities on the degree of compliance and progress," they added.

Scott O'Malia, chief executive of ISDA, the global body that represents the derivatives sector, welcomed the move.

"As the regulators point out, many firms already post margin, so taking a case-by-case approach wouldn't lead to an increase in systemic risk," O'Malia said.

While the U.S. Commodity Futures Trading Commission has issued a "no-action" letter giving six months to get up to speed and regulators in Hong Kong, Singapore and Australia have taken similar steps, EU watchdogs don't have powers to grant a formal transitional period without changing the law.

They said the start date for the new rule has been known since 2015, and "it is unfortunate that the financial industry has not managed to prepare for the implementation".

They expect the industry's difficulties to be solved "in the coming few months" and that all trades from March 1 remain subject to a variation margin. Reuters

IMF's Lagarde

Greece needs debt restructuring Greece doesn't need a debt haircut at the moment, International Monetary Fund Chief Christine Lagarde said, adding that debt restructuring and interest rate cuts on bailout loans were necessary.

"We are much more confident after the progress made by the Greek authorities to come in the direction of the institutions to satisfy the requirements that we have in order to engage in a programme," Lagarde told German public broadcaster ARD after talks with Chancellor Angela Merkel in Berlin. She said Greece should implement pension and income tax reforms demanded by the IMF as a condition for taking part in a bailout programme.

Brexit

Morgan Stanley to weigh moving jobs Morgan Stanley is scouting for office space in Frankfurt and Dublin for an enlarged European Union hub following the U.K.’s vote to leave the political bloc, according to three people with knowledge the matter. The bank may initially move about 300 workers to one of the cities, the people said without giving a time frame. They asked not to be identified because the plans aren’t public. “Our focus is on ensuring that we can continue to service our clients whatever the Brexit outcome,” Hugh Fraser, a spokesman for Morgan Stanley, said.

Federal Reserve headquarters in Washington Dollar

Federal Reserve minutes point to rate hike 'fairly soon' Last week, Fed Chair Janet Yellen said waiting too long to raise rates again would be "unwise" Many Federal Reserve policymakers said it may be appropriate to raise interest rates again "fairly soon" should jobs and inflation data come in line with expectations, according to the minutes of the Fed's last policy meeting released on Wednesday.

The minutes of the Jan. 31-Feb. 1 discussion, at which the U.S. central bank voted to keep rates unchanged, also showed the depth of uncertainty at the Fed because of a lack of clarity on the new Trump administration's economic program.

"Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labour market and inflation was in line with or stronger than their current expectations," the Fed said in the minutes.

Last week, Fed Chair Janet Yellen said waiting too long to raise rates again would be "unwise" and gave a strong indication that the central bank remains on track to consider raising rates again by the summer.

Fed Governor Jerome Powell, one of the voting members at the central bank's last policy meeting, said on Wednesday a rate hike would be on the table at the Fed's next meeting in March.

Seventeen policymakers deliberate at each meeting on whether to change the interest rate, although only 10 of them have a vote.

Among voting members in general there was much less urgency to raise rates with many seeing only a "modest risk" that inflation would increase

"Participants again emphasized their considerable uncertainty about the prospect for changes in fiscal and other government policies" Federal Reserve minutes

significantly and that the Fed would "likely have ample time" to respond if price pressures emerged.

In December, the Fed forecast it would raise rates three times in 2017

and so far robust readings on the economy have bolstered the confidence of many policymakers.

Still in the dark on Trump policies

Set against that is the continued uncertainty over President Donald Trump's economic plans, with Fed policymakers awaiting details in order to assess how the policies would affect the economic outlook.

According to the minutes, "participants again emphasized their considerable uncertainty about the prospect for changes in fiscal and other government policies as well as about the timing and magnitude of the net effects of such changes."

Trump has announced plans to roll back financial regulations and implement tax cuts, while possible new taxes on imports and increased infrastructure spending could boost inflation.

Fed policymakers noted both upside and downside risks to the economy from such policies and most "thought some time would likely be required for the outlook to become clearer."

The Fed has struggled to raise rates since the Great Recession after they were cut to near zero. A rate increase at its meeting last December was only the second hike since 2006.

The Fed's rate-setting committee next meets on March 14-15. Reuters

Business Daily Friday, February 24 2017 15

Opinion As EBay returns to China, it may be onto something Adam Minter a Bloomberg Gadfly columnist

A

bout a decade ago, EBay Inc. made a legendary retreat from the Chinese auction business in the face of growing local competition. It was a defeat so humiliating that it became a business school case study. Since then, however, the Chinese e-commerce market has changed drastically -- and so has EBay. As the company makes its return to the mainland, it may be at the forefront of an important trend in online trade.

EBay recently announced that it's partnering with Ningbo, a major port and manufacturing hub, to help boost the city's e-commerce with the rest of the world. That's a farsighted move. In 2016, Chinese shoppers made a whopping US$86 billion in online purchases from vendors in other countries. Globally, such trade was just as healthy, adding up to US$300 billion in 2015 and growing at nearly 25 percent a year -- faster than domestic e-commerce. At a time when globalization otherwise seems to be in retreat, companies taking advantage of this kind of trade are looking like the future of retail.

As EBay has figured out, the phenomenon revolves around China. Ningbo's e-commerce pilot zone is one of more than a dozen recently established by the Chinese government. Companies operating in these areas can get several benefits, including expedited imports and tax breaks. More crucially, they can set up bonded warehouses to store imported goods for quick dispatch to customers -- thereby reducing shipping times by as much as 80 per cent.

That's much appreciated by Chinese shoppers, who have long sought out foreign alternatives to unsafe local products. In the late 2000s, after repeated scandals over contaminated infant formula, Chinese parents bought up foreign brands in such quantities that they created shortages overseas. (If you've ever encountered tins of baby formula at a duty-free shop, it's thanks to those scandals.) Now e-commerce is making such products far more accessible: As of 2015, China's legal imported formula market was worth US$2.5 billion annually.

A growing demand for luxury is also contributing to the trend. One recent survey from McKinsey & Co. found that 50 percent of Chinese consumers "now seek the best and most expensive product" when they shop. Last year, those shoppers purchased US$5 billion worth of goods online from South Korea alone, with luxury items such as cosmetics, clothing and accessories topping the list. Although there's local competition in all those categories, foreign brands are still widely perceived to be superior -and cross-border e-commerce has become the easiest way to buy them.

Outside China, meanwhile, it's bargains -not luxuries -- that are driving this trade.

San Francisco-based Wish.com has built a multibillion-dollar business on the insight that U.S. consumers will buy low-quality products directly from China -- and then wait forever for them to ship -- so long as the stuff is cheap. Wish's hugely popular app offers an endless stream of such goods. In the market for a pair of suede men's oxford shoes? If you don't mind waiting until the spring equinox, they're scrolling by for just US$6.95.

EBay shoppers aren't strangers to this kind of deal. They've long used to the platform to snap up cheap foreign goods, from squirt guns to chrome-plated muffler silencers.

With the Ningbo partnership, EBay is hoping to improve this process by training local workers to help manufacturers meet the demands of overseas customers. It's a big bet that cross-border online commerce will keep growing in the years ahead -- even as international trade stagnates and protectionism rises.

That trend won't benefit everyone, of course. It will surely take a toll on traditional retailers. And brick-and-mortar shops that target bargain-minded customers will probably be especially vulnerable. Wish, for one, has been upfront about its plans to compete with Wal-Mart Stores Inc. For consumers, though, that kind of competition is a good thing. It means international borders are no longer an impediment to shopping -- or to getting a good deal. Bloomberg View

China’s weapons of trade war

C

China exports more to the United States than the US exports to China. That makes US President Donald Trump furious – so furious, in fact, that he may be willing to start a trade war over it.

Trump has leveled tough protectionist threats against China. As he attempts to consolidate his presidency, he is unlikely to back away from them. And with the Communist Party of China’s 19th National Congress set to take place in Beijing in November, Chinese leaders are unlikely to yield to US pressure.

A trade war would undoubtedly hurt both sides.

But there is reason to believe that the US has more to lose. If nothing else, the Chinese seem to know precisely which weapons they have available to them.

China could stop purchasing US aircraft, impose an embargo on US soybean products, and dump US Treasury securities and other financial assets.

Chinese enterprises could reduce their demand for US business services, and the government could persuade companies not to buy American. The bulk of numerous Fortune 500 companies’ annual sales come from China nowadays – and they already feel increasingly unwelcome.

Beyond being America’s second most important trading partner, China is America’s main jobs supplier. A trade war could thus cost the US millions of jobs. If China switched from Boeing to Airbus, for example, the US would lose some 179,000 jobs. Reduction in US business services would cost another 85,000 jobs. Soybeanproducing regions – for example, in Missouri and Mississippi – could lose some 10 per cent of local jobs if China halted imports.

Moreover, though the US exports less to China than vice versa, it is China that controls key components in global supply chains and production networks.

Consider the iPhone. While China provides just 4 per cent of value added, it supplies the core components to Apple at low prices. Apple cannot build an iPhone from scratch in the US, so it would have to search for alternative suppliers, raising its production costs considerably. This would give Chinese smartphone businesses an opportunity to seize market share from major players.

Today, 80 per cent of global trade comprises international supply chains. Declining trade costs have allowed firms to splinter their production lines geographically, with goods processed and value added in multiple countries along the chain.

If China threw a handful of sand in the gears of these chains, it could disrupt entire production networks, doing serious damage to the US (and, indeed, all the countries participating in such networks).

An escalating trade war, with each side erecting symmetric import barriers, would fuel inflationary pressure in the US, potentially driving the Federal Reserve to raise interest rates higher and faster than it would otherwise. That, together with diminished growth prospects, would depress equity markets, and declining employment and household income

“

Keyu Jin a professor of economics at the London School of Economics, is a World Economic Forum Young Global Leader and a member of the Richemont Group Advisory Board.

could lead to a sizeable loss of GDP in both the US and China.

A more likely scenario, however, is that both countries would initiate disputes in specific sectors, particularly traditional manufacturing industries like iron and steel production. Meanwhile, Trump will continue to accuse China of manipulating its exchange rate, ignoring the recent downward pressure on the renminbi (which indicates that the currency was actually overvalued), not to mention the simple fact that many governments intervene to manage their exchange rates.

Both Japan and Switzerland have engaged in outright currency intervention in recent years, and the US itself may well join their ranks, when the strong dollar’s impact on US export competitiveness becomes untenable.Inanycase,Chinacan probably forget about achieving “market economy status” under World Trade Organization rules until after Trump is out of the White House.

The trade confrontation between the US and China will also affect bilateral investment flows. The US may cite national security concerns to block Chinese investments.

It may also stop government purchases from Chinese companies like Huawei, and force Chinese firms and wealthy individuals to reduce investments that have hitherto bolstered US asset prices.

A high-quality US-China bilateral investment treaty would create a level playing field for American companies, giving them better access to China’s large market. But those talks will invariably be pushed back, while disputes over intellectual property rights and cyber security will be reinvigorated.

For now, China’s leaders seem convinced that they have little reason to bend to US pressure. For one thing, Trump seems more concerned with other priorities, such as repealing the US Affordable Care Act, reforming the tax system, and investing in infrastructure.

Even if a trade war does happen, China’s leaders assume, it probably would not be sustained for long, given the income and job losses that both sides would suffer. In any case, they have no intention of sending any signal of weakness to a leader so intent on testing other’s limits.

For the past five years, China has sought to establish a growth model that is less reliant on exports and more reliant on domestic consumption. But China often needs a crisis or an external shock to drive reform. Perhaps Trump is that shock. While his policies will be bad for China in the short term, they may also provide the impetus China needs to stop subsidizing exports and perpetuating distortions in the domestic economy. If this happens, China may actually emerge from the era of Trump better off than before. Project Syndicate

China often needs a crisis or an external shock to drive reform. Perhaps Trump is that shock."

”

16 Business Daily Friday, February 24 2017

Closing State Councillor

Beijng hopes BRICS summit to achieve four objectives

According to Yang, the 2017 BRICS Summit will be held on Sept. 3-5 in Xiamen in east China's Fujian Province. The theme of this year's event is "BRICS: China put forward four objectives that it believes Stronger Partnership for a Brighter Future." can be achieved at the ninth BRICS leaders' Yang said China expects the Xiamen BRICS summit, State Councillor Yang Jiechi said summit will promote members strengthening yesterday. solidarity and collaboration, and improving global Yang made the remarks at the First Sherpa governance; deepening pragmatic cooperation Meeting of the summit that opened on the same to achieve mutual benefit; increasing people-today in Nanjing, capital of east China's Jiangsu people exchanges, and enhancing public support; Province.

BRICS groups Brazil, Russia, India, China and South and strengthening institutional mechanism and improving cooperation platform, which are the Africa. The BRIC cooperative mechanism was four objectives.Xinhua established in 2006.

Top manager

'Le Cost Killer' Ghosn quits as Nissan CEO Ghosn took charge at troubled Mitsubishi after Nissan threw it a lifeline in May Miwa Suzuki

Nissan chief executive Carlos Ghosn said yesterday he will quit the post to focus on overhauling scandal-hit Mitsubishi Motors, but will stay on as chairman at the Japanese automaker he was credited with saving.

Ghosn, 62, who also heads up French automaker Renault, will hand over the reins to Nissan veteran Hiroto Saikawa in April.

Among a handful of foreign-born CEOs at Japanese firms, Ghosn earned the nickname Le Cost Killer for his aggressive restructuring at Renault and later the nearly-bankrupt Nissan in the late nineties.

He appointed Saikawa as his coCEO last year in order to focus on Mitsubishi's turnaround.

Ghosn took charge at troubled Mitsubishi after Nissan threw it a lifeline in May, buying a one-third stake for about US$2.2 billion as it wrestled with a mileage-cheating scandal that hammered sales.

Two of the affected vehicle models were being made for Nissan, which was the first to uncover problems with the fuel economy data.

Questions about Ghosn's succession have swirled around the company for years and they were reignited by string of defections by top Nissan executives in 2014.

Ghosn will remain CEO of Renault -- which holds a more than 40 per cent stake in Nissan under a longstanding alliance -- and chairman of all the three automakers, including Mitsubishi.

"Having recently taken on new

responsibilities at Mitsubishi Motors...

I have decided that the time is right for Hiroto Saikawa to succeed me as Nissan's CEO," Ghosn said in a statement yesterday.

'Pass the baton' He later suggested his plate was getting too full running a trio of major automakers.

"There’s a point in time where you have to be realistic about how much

things you do and you can do well," Ghosn told Bloomberg News.

"This is the trigger. There's a moment when you have to pass the baton to someone else.

"I’ve always said I would love to have a Japanese to be my successor and Saikawa-san is somebody I have been grooming for many years."

Renault came to the rescue of a struggling Nissan in 1999 and parachuted in the Brazil-born Ghosn, who set about slashing costs and jobs in a huge corporate overhaul.

The companies' fortunes have since shifted with the Japanese firm now accounting for the bulk of profits at

the Renault-Nissan alliance, a group that is effectively the fourth biggest automaker in the world behind Volkswagen, Toyota and General Motors.

Ghosn has a high profile in Japan and is known as a major advocate of the country's auto sector.

Toyota's boss heaped praise on his rival yesterday, calling Ghosn "the man who rehabilitated Nissan".

"There’s a point in time where you have to be realistic about how much things you do and you can do well" Carlos Ghosn, Nissan chief executive

"We'd like to continue to take advantage of his abilities for the sake of the automotive industry going forward," Akio Toyoda told reporters, according to Jiji Press news agency.

'Cosmic issues' Independent auto analyst Maryann Keller said that while Ghosn has held the alliance together the time is right for him to now take a different role.

"It’s appropriate for Ghosn to step away from running the business dayto-day, and to devote all his time to thinking about the cosmic issues confronting the business," Bloomberg quoted Keller as saying.

"It’s a different game today. You can’t play it the same you played it in 1995."

"He (Ghosn) is a busy man," said Toshihiko Matsuno, chief strategist at SMBC Friend Securities.

"He may stay a bit further away from Nissan, but as long as he has the right to represent the company the effect will be limited." AFP

US Treasury

PwC

Results

Mnuchin wants "very significant" tax reform by August recess

Mainland hits new record in world's investment in 2016

Glencore signals big dividend

U.S. Treasury Secretary Steven Mnuchin said yesterday that he wants to see "very significant" tax reform passed before Congress' August recess and that the Trump administration was looking closely at border tax issues.

"We are committed to tax reforms ... We want to get this done by the August recess." Mnuchin told CNBC, in what was his first interview since taking office last week.

"We've been working closely with the leadership in the House and the Senate and we're looking at a combined plan," he told CNBC. Mnuchin said the administration was "primarily focused on a middle income tax cut and a simplification for business."

President Donald Trump had promised major tax reform and leaner regulations as part of his election campaign, vows that have pushed U.S. equity markets to records highs since the election.

U.S. House Republicans are pushing for a suite of tax changes, including imposing a 20 per cent tax on imports, by preventing U.S. companies from deducting import costs from their taxable income to encourage investment and manufacturing in the United States.

Last week the U.S. Senate voted to confirm former Goldman Sachs banker Mnuchin as Treasury Secretary. Reuters

China has seen a 49 per cent increase in private equity (PE) and venture capitalist (VC) investment last year, though the scale of global fund raising and investment showed a reduction, according to a report.

Chinese PE and VC raised US$72.51 billion in 2016, up 49 per cent over 2015, while global PE and VC fundraising fell to US$336 billion in 2016 from US$347 billion in 2015, according to a review released yesterday by PwC. The increase was driven by a substantial uptick in RMB fundraising, which valued at US$54.89 billion, up 177 per cent.

"Traditional PE and VC fundraising was dominated by RMB for the first time, with a plethora of mid-small RMB funds raising money for domestic investing and A-share related activities and exits," said Ni Qing, PwC China Private Equity Group Funds Audit Partner.

In terms of deal volume, high-tech continues to be PE funds' most-favoured sector in 2016, followed by industry, real estate, media and entertainment.

The report expects fund raising to keep growing in 2017, as well as an increase in PE/VC-led M&A activities. Xinhua

Glencore Plc opened the door for a big dividend this year to reward shareholders, which includes its top executives and dozens of employees, for sticking with the company through the commodities crisis.

The mining giant, along with Rio Tinto Plc and BHP Billiton Ltd., surprised investors this month by promising bigger shareholder pay-outs as profits exceed analysts’ estimates. Glencore cut its debt in half last year and reported a 48 per cent jump in earnings on the back of higher metals prices.

"We could give our long-suffering shareholders a generous gift," Chief Executive Officer Ivan Glasenberg said on a call after the earnings results, adding there was potential to "kick out a big dividend" in 2017.

Glasenberg is the company’s second-largest shareholder, only behind the sovereign wealth fund of Qatar, with a stake of 8.4 per cent. Other senior executives, such as Daniel Mate, head of zinc, and Telis Mistakidis, head of copper, are also big owners.

It’s a remarkable U-turn for the company, which runs one of the largest commodities trading operations, after it had to suspend dividends and sell shares in late 2015 to raise cash. Bloomberg News