Business Daily #1243 February 28, 2017

China regains its crown as top buyer of art works Artprice report Page 16

Tuesday, February 28 2017 Year V Nr. 1243 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Crime

Gaming-related crimes climbed nearly 20 pct y-o-y in 2016, say authorities Page 4

Employment

Unemployment hits 2 pct for first time since August 2015 Page 6

www.macaubusinessdaily.com

Transportation

Radio taxi offers handicap accessible service despite insurance woes Page 6

Funding

A change of rules makes it cheaper for Mainland firms to raise offshore debt Page 9

Wifi Go-ing going, gone Infrastructure

Commission of Audit slams the WiFi Go service as “ineffective”, with gov’t throwing MOP161 mln at the project for a somewhat “useless” service, given that the city’s telecom regulator has failed to orientate the service or its users, or supervise its operations and quality.

In some cases, despite not fulfilling contracts, service providers were still paid, states the CA. Page 2

Luxury drive-through

Building a Legend

Three outside-run junket operations and one self-run VIP room have kicked off David Chow’s latest local gaming and hospitality project: Legend Palace. With 223 ‘boutique’ rooms and 15 new gaming tables, the local mogul doesn’t want to define clients by mass, premium or VIP, and expressed his hopes to develop a musical hall and MICE offerings at Fisherman’s Wharf in the future.

Retail Retail sales in the MSAR reached their highest values for the year in Q4 last year, hitting MOP15.9 billion, while whole-year volumes saw a 6.6 pct drop, dragged down by a near-50 pct slash in motor vehicle sales and a 33 pct drop in motorcycle sales. Watches, clocks and jewellery made up 21 pct of Q4 sales at MOP3.3 bln, while leather sales went up 18 pct y-o-y. Page 5

HKEX volume impact profits

Gaming Page 6

HK Hang Seng Index February 27, 2017

23,925.05 -40.65 (-0.17%) Worst Performers

AIA Group Ltd

+2.77%

AAC Technologies Holdings

China Resources Power

-1.68%

China Life Insurance Co Ltd

-1.23%

China Mengniu Dairy Co Ltd

+1.98%

Kunlun Energy Co Ltd

+0.89%

PetroChina Co Ltd

-1.47%

Industrial & Commercial

-1.17%

Hengan International Group

+1.97%

Link REIT

+0.46%

CITIC Ltd

-1.41%

Bank of China Ltd

-1.01%

CK Hutchison Holdings Ltd

+1.90%

CLP Holdings Ltd

+0.45%

CNOOC Ltd

-1.39%

HSBC Holdings PLC

-0.87%

China Merchants Port Hold-

+1.87%

Swire Pacific Ltd

+0.43%

Hong Kong Exchanges &

-1.31%

Li & Fung Ltd

-0.85%

+1.63%

16° 20° 14° 22° 15° 20° 17° 19° 18° 20° Today

Source: Bloomberg

Best Performers

WED

THU

I SSN 2226-8294

FRI

SAT

Source: AccuWeather

Results Weak trading volumes dragged down HKEX operator’s 2016 profits. Average daily trading on the bourse in 2016 fell 37 per cent compared to the previous year. London Metal Exchange subsidiary also saw trading volumes decline 8 per cent year-on-year. Page 8

2 Business Daily Tuesday, February 28 2017

Macau

Telecom

Auditor slams WiFi Go as “ineffective” The city’s free wifi service has cost the government over MOP161.3 million so far, but the local audit department doesn’t think it is money well spent Kam Leong kamleong@macaubusinessdaily.com

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he government-backed free access wireless broadband service, WiFi Go is somewhat “useless” as the city’s telecommunication regulator has failed to clearly orientate the service and its target users, as well as being slack in its supervision of the service’s operation and quality, the latest report from the Audit Commission points out.

The service was launched in September 2010 by the former Bureau of Telecommunications Regulation (DSRT), which merged with Macao Post last month to form the Macao Post and Telecommunications Bureau. According to the audit report, there were a total of 183 access points for the service as of March 2016, with the total cost amounting to some MOP161.3 million (US$20.2 million).

‘The service has cost a huge amount of public money from the MSAR government in the past years, but its effectiveness is not in line with the expectation,’ the audit department wrote in its latest report released yesterday. ‘Due to its frequent basic technical problems, such as the difficulties of network connection and the instability of the network, the service is criticised by both residents and tourists.’

The Commission adds that the lack of improvements in these technical problems makes users feel the service is useless and affects their confidence in government-backed programs, despite the fact that the service was supposed to be a facility that improved public convenience.

Wrong locations & poor connections

According to the audit report, the locations of some WiFi Go access points were “unreasonable” and “cost-ineffective”.

The audit report points out that some of these service points have been set up at venues for presentations and speeches, or at locations already equipped with Internet access facilities and exclusively for members, or at venues only open for a short period of time every day.

‘The number of users at some of the access points is rather low. The 20 fewest used service points only served between 54 and 178 people

every month, suggesting the cost of serving one user [at these venues] amounts to some MOP22.2 and MOP94.4,’ the audit department report reads.

While the DSRT describes the aims of the service as “promoting Macau’s international image” and “stimulating the city’s economic development,” it told the Commission that user flow was not its only consideration for location selection.

But the audit department says the regulator, rather than focusing on these “not-so-related” aims, should have focused more on providing cheaper and higher-quality telecommunication services and business environment.

In addition, the Audit Commission found that the success rate for passing a speed test and connecting to the network of the service was only about 66.6 per cent during its inspections of 30 access points.

Users first need to pass a speed-test before they can attempt to connect to the network, according to the report.

The results show there are ‘certain levels of problems in the connection quality of WiFi Go,’ the Commission says.

In particular, it indicates the success rate at nine of the access points was lower than 50 per cent, two of which were in the top 10 most used points in the city.

Poor supervision

The Commission, meanwhile, blames the DSRT’s lack of supervision for the poor services provided. The Commission found that the Bureau had carried out only three on-record inspections of the service since its launch.

According to the report, the latest inspection dated back to December 2015, when the Bureau checked a total of 50 service points and found five with quality problems. Meanwhile, the other two inspections took place in June 2014 on three service points, and the first commenced in February 2013 and is still taking place.

However, the Commission indicates that its inspections in January 2016 showed that three of the five service points determined to have quality problems back in 2015 still had the same problems.

The report slams the Bureau’s passive way of inspecting the service, pointing out that the operator of the service would follow up on problems

of the service and complaints from users, while the DSRT would not carry out any further checks or follow-ups on the issues.

Procurement

On the other hand, the audit report found the DSRT had also paid extra public money to procurement contractors in six of the eight phases of the installation of wireless access points.

According the Commission, the DSRT had awarded eight procurement contracts for the hardware installation as of March 31, 2016, each of which stated the amount of hardware needed, the cost of purchase and the cost of installation.

But for the first six contracts, granted between 2009 and 2015, only 528 of the stated 553 wireless access points were installed. Meanwhile, the Bureau, despite being aware of the situation, still paid the contractors the total contract amount of MOP6.55 million – including MOP422,000 for the missing hardware.

The DSRT explained that the number of wireless access points installed were fewer than the number stated in the contracts due to “the changes in plans caused by environment restrictions or requirements from other departments,” the report reads.

The audit department added that the DSRT only amended its contract terms with contractors in September 2016, after it received the report from the audit body.

Quality over quantity

In the report, the Commission urged the regulator to focus on improving

service quality rather than only the number of service points. ‘[Government departments] should avoid proposing empty slogans and carrying out unclear targets. [They] should make sure their implementation of policies meets their orientation and targets. [They] should not only chase numbers based on unclear targets, or abuse public resources for an increase in number,’ the audit body warns.

It added that it is time for the telecom regulator to ‘review the importance of its work execution, especially its orientation of the scheme and its monitoring of the service’.

‘Recognising its policy target and its own role will avoid the department taking a passive role caused by its lack of enforcement, which affects the improvement of services and indirectly worsens technical problems that could be solved quickly,’ the body wrote.

‘We’ll improve’

Meanwhile, the current regulator – Macao Post and Telecommunications Bureau – responded to the Commission, noting that it agreed with the report and the suggestions.

‘Even though the Bureau has been supervising and improving the WiFi Go service, there is always room for improvement,’ it wrote. ‘The Bureau will strengthen the service in different ways in order to make sure public resources are appropriately used and to increase the overall benefits of the service.’

The Bureau added it would further review the service with the operator to improve its inspection of the services.

Business Daily Tuesday, February 28 2017 3

Macau Economy

Fitch maintains ‘stable outlook’ for MSAR The ratings agency expects the city’s economy will rebound by 2.5 per cent this year. However, it points out the territory’s rating is constrained by its high reliance on gaming and mainland tourists Kam Leong kamleong@macaubusinessdaily.com

P

rojecting Macau’s economy to pick up this year, ratings agency Fitch said yesterday it is maintaining a ‘stable outlook’ for the territory’s AA- rating.

‘Macau’s ratings are underpinned by the territory’s credible policy framework and exceptionally strong public and external finances, which continue to strengthen despite three consecutive years of economic contraction,’ the agency noted in its latest report.

The ratings agency expects the

city’s Gross Domestic Product (GDP) will rebound by 2.5 per cent in real terms this year, as compared to a contraction of 2.1 per cent for 2016.

It explained the expected economic growth is supported by the improvement of gaming revenue driven by new casino openings. ‘Data suggests the VIP and mass-market customer segments recorded positive growth in [the fourth quarter of 2016], increasing the likelihood of a recovery this year,’ it wrote.

In addition, the agency points out the city’s budget remains in ‘strong surplus’ in spite of the economic contractions.

Crime

Common practice Service contract practices described by the prosecution are common in gov’t departments in Macau, say hired contractors of front companies run by the defendants in the corruption case against former Prosecutor-general Ho Chio Meng Nelson Moura nelson.moura@macaubusinessdaily.com

In the MSAR, it is common for government departments to use methods of awarding public contracts similar to those used by the Public Prosecutions Office (MP) during the tenure of former Prosecutor-general Ho Chio Meng, according to several former subcontractors heard yesterday at the Court of Final Appeal.

As the corruption trial against the former top official continued, the defence looked to prove that contract practices which Mr. Ho and his alleged associates are accused of using to abscond with almost MOP50 million (US$6.2 million) of public funds, are actually common government practice in the MSAR. Several businessmen hired by the front companies run by the defendants in the case lent some weight to this argument, stating that contract methods mentioned by the prosecution are used frequently by departments such as the Macau Economic Services (DSE), the Land, Public Works and Transport Bureau (DSSOPT) and the Macau Cultural Affairs Bureau (IC).

The prosecution has repeatedly questioned former employees of the Office Integrated Management Team (IMT) and assistants of the former prosecutor-general, as to why some companies were invited to propose budgets or were awarded service contracts directly.

In some instances it was also revealed that in order to avoid requirements demanding that contracts over MOP750,000 be awarded through public tenders and registered in writing, certain contracts were divided into periods of only half a year and then constantly renewed.

According to the owner of a cleaning company, surnamed Leung, her company was asked by phone to perform several cleaning services for the Civic and Municipal Affairs Bureau (IACM) and for the Macau Government Headquarters, with contracts divided per half-year and renewed for periods of almost 10 years.

Some witnesses also stated that it is also common practice for public

contractors to hire sub-contractors for services provided to the government, a practice that the prosecution has targeted as the main method for the front companies, allegedly run by the defendants, to gain illicit profits from the MP. A businessman, surnamed Wong, mentioned that his company’s air conditioning maintenance company was frequently hired as a sub-contractor by another company that didn’t have enough personnel to provide comprehensive services to the IC, while saying that subcontracting is common in contracts awarded by the DSSOPT.

Important differences

However several of the witnesses did underline that there were differences in the way their companies were invited to provide quotations in the case of the Public Prosecutions Office.

While for other government departments their employees would contact the companies, for services provided to the MP, the companies were always contacted directly by one of the defendants in the ongoing court case, and never directly by the department employees.

Another businessman noted that his computer and electricity company would in some cases also recur to sub-contractors for complementary services that sometimes could be paid for at a price 10 per cent less than the amount demanded by the government departments.

However several employees of the front companies run by the defendants have stated in court previously that expenses could be increased by between 30 per cent and 50 per cent when presented to the MP.

‘Fitch estimates the 2016 budget surplus was 6.2 per cent of GDP, above the government’s original budget estimate of 1 per cent, due to a higher gaming revenue intake,’ the report reads.

The agency is now projecting Macau’s budget surplus will amount to 5 per cent of GDP this year, above the government’s forecast of a MOP5.6 billion (US$700 million) surplus – around 1.5 per cent of GDP. ‘[The projection reflects] the agency’s expectations of roughly 6 per cent gaming revenue growth in 2017,’ it indicated.

Gaming and mainland-reliant

Nevertheless, the agency also noted that the city’s high concentration in the gaming sector and its high reliance on mainland Chinese visitors were constraining its rating.

‘These two risks have contributed to Macau’s high GDP growth volatility and increased the economy’s vulnerability to changes in China’s broader policy environment, including

changes to visa regulations or the legalisation of gaming in other Chinese territories - although we do not expect the latter to occur in the near term,’ the agency claimed.

On the other hand, Fitch pointed out the exposure of local banks in Mainland China may be a potential risk.

‘The agency estimates that Mainland China exposures accounted for 33 per cent of banking system assets at [the end of the first half in 2016], up from 26 per cent at end-2015; the highest proportion among the eight Asian economies captured in our periodic survey,’ the report noted.

But it added that risks to the sovereign balance sheet are ‘mitigated’ as the city’s banking sector is nearly entirely foreign owned.

‘In addition, a significant proportion of exposures are to mainland Chinese banks in the form of parent bank guarantees, direct placements and other short-dated trade finance claims, such as discounted letters of credit,’ the report reads.

4 Business Daily Tuesday, February 28 2017

Macau Opinion

Albano Martins*

February’s inflation will be below 2 per cent I wrote a few days ago that inflation in 2017 could be between 2.19 and 2.55 percentage points, and in a worst-case scenario, if real estate and gaming grow at double-digits, it could reach values of around 2.66 per cent.

I also said that it was natural for inflation to come down until May and then start climbing again in the following months.

In January 2017, according to the most recent DSEC information, Macau’s inflation went from 2.37 percentage points (Dec 2016) to 2.2 per cent (annualized change).

This confirms what I stated before.

Inflation has begun to descend! Although, curiously, we had an absolute monthly growth of the price index, which was only surpassed by that of October 2015.

In February, inflation will continue to fall to below 2 per cent, probably between 1.95 and 1.98 per cent.

Lower values than these were last seen in September 2010.

Of course I’m talking about the average change in the last twelve months (annualized change).

So, we will stay below the 2 per cent level in February.

But do not rub your hands together in glee, for after a few months of falling, inflation will start to rebound again in around June, and will then rise above the 2 per cent mark.

Believe me!

Who will be the bad guys in this situation?

The “good guy” will be the way the index is built, with the weights used for the 11 sections, although this index does not impress me, in that I am not sure it really translates the effective inflation rate.

The “bad guys” of the party, that is, those who are always more likely to push inflation up, will always be real estate and gaming and, of course, the mountains of visitors knocking on our door - more a consequence of gaming than an autonomous factor.

These are the ones who always drive up the famous “meals out of the house” category of the CPI. Of course, tourists impact on other things too, because they trigger prices in almost every section where demand influences price growth, including hotels, taxi fares, supermarkets, hairdressers, etc.

Do not believe that prices only increase for our visitors, that our business community, involved in this type of business or others in their beards, is not xenophobic!

What this community does not like is to lose, even if only with beans, including losing business opportunities that knock on the door.

But as I usually say, let’s not leave this exercise of forecasting only to the witches! * an economist and contributor to this newspaper

Crime

Crime on the rise Crime was up across the board last year, as gaming-related crime linked to non-residents surged, and police claim more investigation efforts caused case numbers to increase Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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he Macau SAR saw gaming-related crimes climb by 19.2 per cent for the whole of 2016 when compared to 2015 crime rates, noted the Secretary for Security, Wong Sio Chak, in a press conference held yesterday, which gathered all the heads of the Macau Public Security Police Force (PSP).

In tandem with last month’s announcement by the director of the Judiciary Police (PJ), Chau Wai Kuong, the Secretary stressed yesterday that the hike recorded in the number of gaming or casino-related crimes was mainly due to increased efforts by the local police to investigate and combat illegal practices and criminal activities, in particular, taking the initiative to examine the cases.

Addressing queries from the press, Secretary Wong explained that the efforts included “more investigations and work against illegal immigration, more patrolling of waters by the Macau Customs Service, as well as the handling of more operations on the part of both the PSP and the PJ.” Overall, the Macau police opened files on a total of 14,387 cases during the whole year of 2016, representing a 5.4 per cent increase, or 734 more criminal cases, when compared to 2015. The majority of crimes registered were divided between two types, “crimes against property” and “crimes against a person,” amounting to 53.2 per cent and 20.2 per cent of the total crimes in 2016, respectively.

Crimes by type

According to Mr Wong, the hike in “violent crimes” was mostly due to an increase in kidnapping cases – which represented 60 per cent of the entirety of cases of violent crimes registered in 2016 – up from 410 in 2015 to 504 recorded last year. The total number of violent crimes reached 840 cases for the whole year, which made for an increase of 11.3 per cent from a year earlier.

As for “crimes against personal integrity,” which include kidnapping, threats, injury, and rape, the police authorities opened files on a total of 2,909 cases, representing a rise of 6.9 per cent year-on-year.

“Crimes against property” were the only type of criminal offense that did not record a significant increase when compared to the previous year, climbing only 1 per cent year-on-year, totalling 7,658 in 2016.

With the exception of loan-sharking crimes, which recorded a significant increase, other crimes in that category, such as theft, robbery, and fraud,

all decreased.

Other felonies that increased in 2016 included “crimes against the territory” (1,585 cases), recording a 39.5 per cent increase from 2015, and “crimes against social” (989 cases), representing a 21.7 per cent rise from the previous year.

Secretary Wong noted that crimes of distribution of counterfeit money, included in the latter group, recorded a significant surge of 65.5 per cent year-on-year. Speaking to the press, he explained that, although the number of criminal cases was on the rise, the value of counterfeit currency transacted, especially U.S. dollars, was lower than that recorded for the whole year of 2015. Other counterfeit currencies apprehended by the police were renminbi and Hong Kong dollars.

Gaming-related crimes

In 2016, the Macau police opened files on 504 kidnapping cases, up 22.9 per cent from the 410 files opened a year earlier, and 469 criminal cases of loan-sharking, up 32.5 per cent from the 354 cases recorded in 2015.

The majority of offenders and suspects were individuals with no residency status in Macau. In general, crimes were carried out inside casino premises which, Wong Sio Chak argued, means that they “do not present harm to public security as a whole.”

During the press conference, Secretary Wong confirmed the latest statistical data on casino-related crimes and casino-inspection activities, handled by the PJ, for the year ended December 2016, which was previously provided in January 2017, as reported by this newspaper.

According to the Secretary, the local police opened files on a total of 1,851 cases related to casino crimes based on enquiries and complaints, an increase of 19.2 per cent compared to the number of crimes recorded in 2015. In the announcement, the figure for 2015 previously reported by the PJ was, nevertheless, corrected: the total number of cases was 1,553, and not 1,467, as reported in January 2017.

The number of defendants in

gaming-related crimes also climbed by 15.3 per cent, from 1,737 culprits in 2015 to 2,003 for the whole year of 2016.

Triads down

The police further claimed that they had successfully prevented crimes that would be “susceptible to affect or directly influence the stability of public security,” remarked Wong. In this regard, the Secretary informed that there was no rise recorded in cases of violent and aggravated criminality, such as homicide, abduction, or gang formation, which remained close to “zero.” Though the police opened files on two cases of gang association, it noted it had not observed any suspect or abnormal gang activity related to the period of adjustment of gaming revenues. On the other hand, the number of criminal association cases more than doubled, from 13 cases recorded in 2015 to 32 in 2016.

The authorities noted that they would continue to conduct “active policing” against gaming-related crimes, “repressing offenders through the efficient implementation and active execution of the law, as well as accelerated investigation and the resolution of cases with high efficiency.”

The police also communicated that they would reinforce patrolling groups, in order to keep up roundthe-clock inspections of the largest casinos.

Exchange and cooperation with security forces and units in China and Hong Kong, as well as neighbouring and other international regions, will also be intensified. Communication and cooperation with the Gaming Inspection and Co-ordination Bureau (DICJ) will be strengthened, in tandem with the private security of casinos and control and monitoring services, noted the authorities.

Immigrants

In 2016, offenses classified as juvenile delinquency totalled 45 cases, two cases less than 2015. The majority of offenders were male.

Crimes for undocumented immigrants and excess of permanency in the Macau SAR territory totalled 28,061 cases, down 8 per cent from 2015, when 30,506 similar cases were recorded. The number of undocumented immigrants from Mainland China totalled 1,224 individuals, down 31.2 per cent from 2015. “Foreigners” who exceeded their time of permanency in Macau totalled 649 individuals, down 20.7 per cent from 2015.

Crimes against the territory Offense Disobedience False declaration

Domestic violence

2015 845 219

Since the Domestic Violence Prevention and Correction Law was enacted in October 2016, and until December that same year, the police

2016 1,324 168

Variation ­479 cases ¯ 51 cases

­ 56.7% ¯ 23.3%

recorded nine criminal cases, of which seven were related to physical mistreatment, one to psychological mistreatment, and one to both psychological and physical mistreatment.

Business Daily Tuesday, February 28 2017 5

Macau Retail

Vehicles down, luxury up and expectations grim for Q1 Motor vehicle sales underwent a 45.7 per cent drop in 2016 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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etail sales in the MSAR reached their highest value of 2016 in the fourth quarter, according to the latest data from the Statistics and Census Bureau (DSEC).

While there was only a 1.1 per cent increase year-on-year for the quarter, with figures hitting MOP15.89 billion, this still beats the MOP14.8 billion seen in the first quarter, the highest value recorded until yesterday’s data was revealed.

In annual terms, the retail value fell by 6.6 per cent in 2016, amounting to a total of MOP57.5 billion, noticeably affected by the ‘vehicle tax hike at the end of 2015 and the economic adjustment of Macau,’ notes the DSEC.

Zoom, zoom

The concentration of the retail sales dip was seen primarily in motor vehicle sales, as well as those of motorcycles and parts and accessories. Motor vehicle sales underwent a 45.7 yearon-year drop from 2015 to 2016, while motorcycles and their parts and accessories saw a 35.2 per cent drop year-on-year.

Regarding the fourth quarter, the two automotive segments saw slightly softened falls, with a

43.6 per cent year-on-year drop in motor vehicle sales value and a 25.6 per cent year-on-year drop in sales for motorcycles and parts and accessories. Interestingly, the sales values for the two segments saw upticks quarter-to-quarter, with a 28.5 per cent increase for motor vehicles and a 12.3 per cent increase in motorcycles, parts and accessories.

Luxury

The above mentioned segments accounted for just 6.1 per cent of overall retail sales, which were dominated by the watches, clocks and jewellery segment, taking up 21 per cent of the fourth quarter total at MOP3.3.4 billion, a 1.6 per cent drop compared to the third quarter.

Annual figures for the segment hit MOP11.76 billion, a 14 per cent drop year-on-year in the quarter.

Leather goods, adults clothing, and cosmetics and sanitary articles and goods in pharmacies made up 11.5 per cent, 13.2 per cent, and 7 per cent of the retail sales during the quarter, all of which saw single digit yearon-year growth in the quarter, at 6.1 per cent, 4.1 per cent and 5 per cent growth, respectively.

Over the course of 2016, leather goods saw an 18.1 per cent yearon-year increase, only topped by that of dried seafood, whose sales increased 23.2 per cent during the

year compared to 2015.

Noticeable year-on-year drops were seen in communication equipment, which fell 19 per cent year-on-year in the quarter to MOP319 million, and household appliances, which saw a 10.3 per cent year-on-year drop.

Expectations

For the first quarter of the year, nearly 50 per cent of surveyed retailers predict that sales volumes will remain stable, while only 4 per cent predict them to increase year-on-year.

In terms of pricing, a majority 74.5 per cent predict that retail prices will remain stable, while 8.3 per cent expect prices to increase.

O n a q u a r t e r- t o - q u a r t e r comparison, 49.8 per cent of surveyed retailers predict that business performance will deteriorate in the first quarter of 2017, while only 6.8 per cent predict an improvement.

Business segments in which over 50 per cent of respondents predict first quarter results will deteriorate quarter-to-quarter include: goods in supermarkets (50.6 per cent), goods in department stores (61.8 per cent), dried seafood (53.4 per cent), cosmetics and sanitary articles (57 per cent), footwear (66.43 percent), leather goods (56.2 per cent), household appliances (54.5 per cent), furniture and lighting (57.2 per cent), and others (53.2 per cent).

6 Business Daily Tuesday, February 28 2017

Macau Opening

Legend Palace opens doors Three outside-run VIP rooms and one self-run, but David Chow doesn’t want to “categorise customers” Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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he latest development by local businessman David Chow opened its doors today, with the “five star hotel which will also be an iconic boutique hotel with 223 rooms,” welcoming local government officials, business people and tourists and locals alike.

The property, which features three outside-run junket rooms as well as one self-run VIP operation, and focuses on “Southeast Asian visitors,” according to the CEO of Macau Legend Development Ltd, cost about HK$2.6 billion to develop, joining the HK$1.4 billion spent on developing the group’s previously opened local project: the Harbourview Hotel. The three VIP rooms are scheduled to launch next month.

Regarding the group’s next project, the Legendale Hotel, the local mogul said he is “still waiting for the government to grant either 60 meters or 90 meters” for height restrictions “in order not to waste my drawing fees,” with

Macau Legend CEO David Chow (R) with Legislative Assembly president Ho Iat Seng (L) in Legend Palace on opening night

further plans to develop a “musical hall and a MICE venue occupying some one million square feet,” noted the businessman. The MICE (meetings, incentives, conferences and exhibitions) venue would be located between Macao Science Museum and the current Fisherman’s Wharf plot.

The group will operate its own VIP room with “around 11 to 12 tables”, while the three outside-run VIP operations, with about four tables each, are since the company “needs to provide diversified options,” noted Chow.

Everybody’s welcome

However the focus will not be only

on VIP, as Chow stated “we should not categorise our customers into mass, premium mass or VIP. The gaming industry itself should be very diversified […] We cannot forget the contribution of the junkets, but we can develop new markets”.

“VIP recovery depends on innovation,” added the mogul.

Predictions for the local economy are that “Macau may suffer a bit,” largely since Chow opines: “I don’t think China’s economy will be very good this year”.

The CEO referred to the recently opened resorts on the Cotai strip as white elephants, only boosting

gaming revenue growth by 3 per cent in January, despite Chinese New Year falling at the end of the month.

Regarding the overall scene in the MSAR, Chow noted that the city needs to improve its public transportation, however he seemed little worried this would influence Legend Palace’s occupancy, stating “I don’t think there will be any big problems”.

“Given the service and style provided, I believe the hotel will attract Southeast Asian visitors. There are many different people worldwide who know of our company,” stated the CEO, adding that “if 223 rooms can’t be fully booked, I’ll go home and sleep”.

Transportation

Taxis on the way Cecilia U cecilia.u@macaubusinessdaily.com

Manpower

Unemployment rate grows to 2 pct as at January-end The city’s unemployment rate rose to 2 per cent for the three months ended January, an increase of 0.1 percentage points period-to-period, while the construction, hotel and restaurant fields all cut employment in the same period.

According to the latest official data, released yesterday by the Statistics and Census Service (DSEC), the total unemployed population in the MSAR rose by 4 per cent, or 300, to 7,900 period-to-period. Of the total, 7.6 per cent were fresh labour force entrants searching for their first jobs.

Prior to the growth, the local unemployment rate had hovered at 1.9 per cent since August 2015.

The total labour force decreased period-to-period by 0.7 per cent to 389,900 as at the end of January, while the total employed population also went down by 0.8 per cent periodto-period to 381,900.

Analysed by industry, employment in restaurants & similar activities registered the highest drop during the three-month period, down by 8.3 per cent year-on-year to 24,800.

The construction industry and hotels & similar activities also hired fewer workers in the months, with total employment in these sectors decreasing by 5.3 per cent and 1.1 per cent, amounting to 35,200 and 29,900, respectively.

However, employment in gaming & junket activities jumped by 3.6 per cent period-to-period to 82,500 while in the wholesale & retail trade it also rose by 2.5 per cent period-toperiod to 47,400.

By proportion, 24.6 per cent of the city’s employed population were working in recreational, cultural, gaming and other services during the three months, while some 14.3 per cent were employed in hotels, restaurants & similar activities.

The number of workers in the wholesale & retail trade sector accounted for 12.4 per cent of the total and that in the construction field accounted for 9.2 per cent.

In addition, those working in real estate & business activities, and public administration & social security accounted for some 7.9 per cent and 7.2 per cent, respectively. K.L.

The greatest challenge at the moment in providing taxi services in the MSAR, is having an insurance company to underwrite the taxis, the Chairman of Macau Radio Taxi Services Limited (MRTS) Cheong Chi Man said yesterday, after a demonstration of their handicap accessible taxis.

“The insurance company declined to underwrite our vehicles because taxis are risky for them,” Mr. Cheong said, adding that the company might need to approach the Monetary Authority (AMCM) to co-ordinate with the three insurance companies to jointly underwrite the taxis.

The MRTS won the bid for the city’s ‘special taxi licence’ last September.

The license, valid for eight years, entitles the company to run 100 special taxis in the city.

The Chairman also revealed yesterday that they are currently undergoing procedures with the city’s Transport Bureau and tax-related matters with the Macao Economic Services (DSE).

The special taxi services will start operations this April 1, with the first batch of 50 special taxis available on the roads within the first half of the year.

Five of these taxis will be handicap accessible.

The Chairman stated that the other

batch of 50 taxis will be ready by May, noting that MRTS will evaluate and review the business before introducing the second batch.

He affirmed that further announcements will be made regarding the second round.

Meanwhile, a passenger surnamed Wu - who took a test ride yesterday - expressed his hope that the city will introduce more handicap accessible vehicles since there are over 1,000 individuals with disabilities living in the city.

The five barrier-free taxis use both electricity and petrol to power them.

The rear door of the taxis is equipped with a boarding ramp, and the taxi itself contains anti-skid handrails, a non-slip carpet, free Wifi network and chargers.

The special taxis can only be hailed by telephone, online order or through a mobile phone application.

Incineration

Incineration service contract costs MOP65 mln The MSAR government has put some MOP65.85 million into the new contract with Consórcio CCSC — Incineração de Resíduos de Macau, to provide waste incineration and sludge treatment services in the city.

According to a dispatch released in the Official Gazette the amount will be paid in three instalments over three consecutive years, starting this year. The first allocation is MOP24.5

million, with MOP26.1 million slotted for next year and MOP15.2 million in 2019. The ‘Macau’s Environmental Condition in 2015’ report released by the Environmental Protection Bureau, revealed that some 500,000 tons of waste were sent to the local incineration plant in 2015, a figure higher than other neighbouring cities in terms of the quantity of municipal waste per capita. C. U.

Business Daily Tuesday, February 28 2017 7

Macau

VIP

MSAR lifted by Chinese high rollers flush from home prices February’s gaming receipts probably rose 10 per cent to about MOP21.5 billion (US$2.7 billion), according to eight analysts Daniela Wei

C

hinese high rollers are pulling Macau out of its doldrums, helping reverse the gambling Mecca’s two-year slump with cash created by soaring real-estate values and busy factory floors.

Revenue for some of the biggest junket operators - middle-men who extend credit to big spenders - has jumped more than 20 per cent since the last quarter compared to a year ago, according to Kwok Chi Chung, president of the Association of Gaming & Entertainment Promoters of Macau.

“VIP room operators are very happy when we meet in the street or at the parties,” Kwok said in a phone interview. “Six months ago, they would complain about the bad market for the whole day.”

The windfall illustrates the close ties between the fortunes of the world’s largest gambling hub and China’s real estate market, in spite the government measures to curb capital outflows and a crackdown on efforts to attract the country’s citizens to gamble overseas. February’s gaming receipts probably rose 10 per cent to about MOP21.5 billion (US$2.7 billion), according to eight analysts surveyed by Bloomberg.

With land prices, home values and industrial profits all increasing last year, some of that cash trickled down south to Macau.

Casino revenue from VIPs rose 13 per cent last quarter, and their contribution to Macau’s overall gambling revenue gained about six per centage points from July to January, according to data compiled by Bloomberg Intelligence.

The Bloomberg Intelligence index of Macau casino stocks has rallied more than 20 per cent in the past

six months. Sell ratings on Galaxy Entertainment Group Ltd. and Sands China Ltd., the enclave’s two largest casino operators, have disappeared.

Galaxy rose as much as 1.8 per cent Monday in Hong Kong, set to extend gains to about 40 per cent in the past six months. Wynn Macau rose as much as 1.9 per cent Monday while the benchmark Hang Seng Index was little changed.

More confidence

“There’s a lot more confidence,” Ian Michael Coughlan, president of Wynn Macau, said during a Jan. 27 conference call. “There appears to be more liquidity in the market, particularly with the junkets, and it’s being sustained. The outlook is pretty promising.”

The junket revival comes after President Xi Jinping’s campaign against corruption caused VIP revenue to plunge for two years beginning in 2014 before bottoming out last year.

That led to the shutdown of about half of the junket operators, leaving about 120 such companies currently in business, according to the Macau government.

The largest junket operators have boosted liquidity in recent months because of the consolidation, giving them more money to attract highstake gamblers, said Ben Lee, managing partner at consultant IGamiX.

‘On steroids’

“Only the VIPs can drive a significant recovery in the gaming industry here in Macau,” Lee said. “The VIP segment has always been growth on steroids in good times, and it looks like this is what’s happening now.”

Still, casino operators say their long-term focus is on bringing in more tourists and leisure gamblers, in line with Xi’s order for Macau to diversify its economy. Las Vegas Sands

Corp. reported its Parisian casino with an Eiffel Tower replica posted adjusted earnings of US$95 million in its first full quarter of operation.

Melco Crown Entertainment Ltd.’s US$3.2 billion Studio City resort opened in late 2015 targeting mass market gamblers, before adding its first VIP rooms in August.

“I think VIP has surprised in terms of its recovery,” Melco Chief Executive Officer Lawrence Ho told analysts on a conference call Feb. 16.

“But at the same time, ultimately, the future of Macau is going to be pinned on the growth of the mass market.”

There are also signs the wave may be cresting soon for the VIP revival, with China expanding curbs on home purchases and imposing tighter restrictions on property lending in an attempt to ward off a housing bubble.

New-home prices increased in January in only 45 of 70 cities tracked by the government - the fewest in a year.

China’s foreign-exchange regulator also announced measures last month

to curb capital outflows, while the government’s detention of Crown Resorts Ltd. employees in October initially sparked concerns of a broader crackdown on luring mainland gamblers to Macau’s baccarat tables.

Crown is still reeling, as turnover from its VIP program dropped 45 per cent in the six months ended Dec. 31.

In the meantime, Kwok’s junket compatriots are enjoying the winning streak while they can. Property developers, coal-mine owners and other businessmen not only have money to pay back previous gambling debts, they also have more money to play again, Kwok said.

During the Lunar New Year holiday this month, some mid- and smallsized junket operators even had difficulty booking hotel rooms for their clients, he said.

“In the good times, hotel rooms were always full during holidays,” Kwok said. “Now we’ve started to see this again. We haven’t seen that for a long time.” Bloomberg

8 Business Daily Tuesday, February 28 2017

Greater China Market operator

HKEX 2016 profit slides on weak trading volumes The exchange cautioned that the operating environment for financial markets is expected to remain challenging and volatile this year

H

ong Kong’s stock exchange operator said yesterday its 2016 net profit fell 27 per cent due to a decline in fees generated by stocks and metals trading on the bourse as it struggled to match stellar volumes seen during 2015’s record rally.

and created a challenging market environment for the Group,” HKEX said in a statement.

Average daily trading on the bourse in 2016 fell 37 per cent to HK$70 billion compared with the previous year.

Group profits were also dented by the bourse’s London Metal Exchange subsidiary, which saw trading volumes fall 8 per cent year-on-year due to subdued metals demand causing commodities-related revenues to decline 10 per cent to HK$1.6 billion.

Stocks trading volumes struggled last year to match the records seen in 2015, when a dramatic rally on the Mainland drove frantic activity on the Hong Kong bourse.

The exchange cautioned that the operating environment for financial markets is expected to remain challenging and volatile this year due to “many political and economic uncertainties”.

HKEX chief executive Charles Li has banked on deepening the bourse’s ties with Mainland China to sustain profit growth, despite fears over the Chinese economy which is saddled with rising bad debt. The bourse said on Monday it would continue to broaden its connectivity schemes with the Mainland.

The exchange’s shares have risen around 8 per cent this year, compared to a 9 per cent year-to-date rally in the main Hang Seng benchmark. Reuters

Key Points 2016 volumes struggle to match record-breaking 2015 levels Metals contracts also down due to weak global demand HKEX cautions on challenging outlook amid political uncertainty Hong Kong Exchanges and Clearing Ltd (HKEX) reported a net profit of HK$5.8 billion (US$747.36 million) for 2016, slightly below analysts’ average estimate of HK$6 billion, according to Thomson Reuters data.

“The global financial markets were volatile and overshadowed by political and economic uncertainties.

At home, there were concerns that Mainland China’s economy was slowing down and that interest rates would rise. All these contributed to cautious sentiment among investors

Industry

Factories seen posting 7th month of modest growth But analysts warned the official readings could be distorted by the timing of the long Lunar New Year holidays Activity in China’s manufacturing sector likely grew modestly for the seventh month in a row in February as resources prices extended a rapid rally and on signs of improving global demand for Chinese exports, a Reuters poll showed.

Key Points China official PMI seen slipping to 51.1 in Feb (vs 51.3 Jan) Still seen expanding for 7th month as continued building boom Data due on March 1 at 0100 GMT Signs of sustained solid growth could give authorities more confidence to act as they cautiously move to contain risks from a mountain of debt which has built up after years of debt-fuelled stimulus.

The official manufacturing Purchasing Managers’ Index (PMI) probably edged down to 51.1 in February from January’s 51.3, but remained well within positive territory, according

to a median forecast of 33 economists in the Reuters poll.

A reading below 50 indicates a contraction in activity, while a reading above indicates an expansion on a monthly basis.

The central bank raised key shortterm interest rates in late January and early February, in a further sign of policy tightening as the economy shows signs of steadying.

While the rate increases were modest, they reinforced views that Chinese authorities are intent on both containing capital outflows and reining in risks to the financial system.

But signs that momentum may be slowing means policymakers will likely tread carefully with any tightening as they balance increased oversight of risky activity with maintaining strong growth.

China’s top leaders said last week that the country must maintain economic stability to ensure a successful party congress, a key meeting later this year where President Xi Jinping will look to cement his grip on power.

But analysts warned the official factory and services sector readings

on Wednesday could be distorted by the timing of the long Lunar New Year holidays, which started on Jan. 27. Many factories and offices close for a week or more.

Readings on price trends will be closely watched for clues on whether inflation pressures are growing, after consumer prices and producer prices both rose more than expected in January.

A sustained pick-up in inflation could bolster expectations of further tightening by the People’s Bank of China (PBOC), though consumer prices so far remain well within the central bank’s comfort zone.

China’s iron ore and steel prices hit multi-year highs last week, underpinned by expectations that strong

infrastructure spending would continue to spur demand for building materials.

Investors will also be looking for signs of further growth in export orders. Shipments rose more than expected in January following a dismal performance in 2016, but worries of a rise in U.S. trade protectionism are clouding the outlook longer-term.

The official PMI number will be released on March 1, along with the official services PMI. The private Caixin/Markit PMI survey will also be published on March 1.

Analysts expect the Caixin PMI, which focuses more on small and mid-sized firms, to come in at 50.8, down slightly from December’s reading of 51.0. Reuters

Business Daily Tuesday, February 28 2017 9

Greater China Funding

In Brief

Mainland companies seek cheaper offshore debt after rule change The State Administration of Foreign Exchange now allows companies to offer a guarantee attached to their onshore entity Umesh Desai

More Chinese companies are looking to raise debt offshore after Beijing approved a new funding structure last month that makes it easier and cheaper to tap foreign lenders.

China’s foreign exchange regulator in January let domestic companies bring home cash raised through offshore bonds secured by onshore guarantees, in a potential gamechanger for domestic borrowers.

The change, which lowers the cost of funding, has sparked more interest in offshore borrowings, bankers and lawyers told Reuters. Chinese firms prefer to raise debt offshore where the market is much deeper and more liquid, allowing them to sign larger and longer-term deals.

However, those wanting to raise money offshore for the purpose of bringing it back to China could previously only do so using relatively weak legal agreements that made it expensive to borrow.

The State Administration of Foreign Exchange (SAFE) now allows companies to offer a guarantee attached to their onshore entity,

giving investors more assurance they can get their money back.

Market watchers said the move was designed to help support the yuan by making it easier to raise foreign currency for the purpose of bringing it back home.

China’s foreign exchange reserves fell below the closely-watched US$3 trillion level in January for the first time in nearly six years. The renminbi slumped around 6.6 per cent last year, its biggest annual loss since 1994.

The move is good news for domestic corporates which could see borrowing costs fall by up to 50 basis points as foreigners are effectively put on an equal footing with domestic creditors.

“We view favourably any changes to Chinese regulations which place offshore bondholders on a more equal footing with onshore creditors,” said Aberdeen Asset Management’s head of emerging market credit research Paul Lukaszewski.

“Allowing Chinese borrowers to provide offshore bondholders with guarantees from important onshore entities would accomplish just that.”

More corporates are switching to the new funding structure.

“There will be more issuers using the guarantee structure. In a few deals that we have kicked off after the Chinese New Year, issuers have switched to guaranteed structures,” said William Liu, partner at law firm Linklaters.

One banker said he had seen a lot of new activity in the debt issuance pipeline as a result of the rules.

Chinese borrowers accounted for more than 40 per cent of hard currency bonds from Asia exJapan last year when issuance rose to a record US$217.3 billion, and the supply flow from the world’s second-largest economy is expected to continue this year.

Previously, Chinese firms could only offer foreign investors security through letters of credit and so-called “keep well” agreements.

Key Points SAFE has liberalised rules on use of onshore guarantees Rule change puts foreign and domestic investors on even footing Greater security likely to reduce borrowing costs up to 50 bps “Keep well” agreements are deeds borrowers can use to enhance their credit worthiness but unlike guarantees they are not legally binding and have not been tested in Chinese courts.

Fears over the creditworthiness of Chinese borrowers have grown amid a broader economic slowdown that has seen a flurry of debt defaults in recent months.

Fredric Teng, head of high yield product group at Standard Chartered Bank, said direct guarantees would help assuage fears and make borrowing between 25-50 basis points cheaper than deals that use “keep well” agreements.

“We were always cautious on those ‘keep well’ agreements but if going forward bonds are issued with guarantees, it will make us look again,” said Sanjiv Shah, CIO at Sun Global Investments, a Londonbased emerging markets wealth management firm. Reuters

Forex

Regulator says strengthening supervision of forex market The regulator also announced that trade deficit in services narrowed China’s FX regulator said yesterday that it will strengthen supervision of the foreign exchange market in 2017, while improving policy transparency and promoting the further opening of financial markets.

Chinese authorities have taken a raft of steps in recent months to curb capital flight from the country to support the weakening yuan currency, while trying to attract more foreign investment.

Key Points China FX regulator to strength supervision of market Says cross border capital flows are becoming more balanced Softer dollar has eased pressure on yuan, for now Pan Gonsheng, head of the State Administration of Foreign Exchange (SAFE) said that China’s foreign exchange market is relatively stable and cross-border capital flows are becoming more balanced, according to a statement posted on its website.

The SAFE recently uncovered a

underground bank in the southern Chinese city of Shenzhen involving RMB50 billion (US$7.27 billion), and cases of firms’ using fake documents and fake trade deals to transfer foreign exchange overseas.

China’s foreign exchange reserves unexpectedly fell below the closely watched US$3 trillion level in January for the first time in nearly six years.

But the January decline was the smallest in seven months, indicating China’s renewed crackdown on outflows appears to be working, at least for now.

A recent pullback in the dollar after a multi-month rally has also helped

ease pressure on the yuan and other emerging currencies, though most analysts expect depreciation pressure to resume soon as the U.S. central bank positions for what could be several interest rate hikes this year.

Services trade deficit

The regulator also announced that trade deficit in services narrowed to US$20.9 billion in January from US$26.1 billion in December.

January’s deficit was largely due to a US$19.7 billion gulf in spending between foreign tourists and the Chinese, who splurge more abroad than foreign tourists in China, data from the SAFE showed.

China’s trade deficit in services widened to US$260.1 billion last year, from US$206.5 billion in 2015. Reuters

Commodities

Beijing said to probe speculation in futures China’s top economic planner is investigating whether speculation has distorted commodity futures prices, due to concerns that the recent rally will drive inflation higher, according to people with knowledge of the matter. The National Development & Reform Commission this month questioned futures brokers on whether distortion had occurred, said the people, who asked not to be identified because the information is confidential. The agency is worried over the potential impact on producer and consumer prices, they said.

China tightened rules and raised fees on commodities trading last spring.

Technology

ZTE unveils world’s first smartphone with 5G Chinese telecoms company ZTE unveiled Gigabit Phone, the world’s first smartphone with 5G technology, in Barcelona, the host city of the upcoming Mobile World Congress (MWC) in Spain.

With a download speed of up to 1 Gbps per second, the phone is powered by a Qualcomm Snapdragon 835 processor that features an integrated X16 LTE modem and represents an important step for 5G technology. The phone “marks an important cornerstone for the 5G mobile era,” the company said in a statement,.

Belt and Road

Cartoon, game cooperation fostered China will push international cooperation in the cartoon and game industry in countries along the Belt and Road, said authorities on Sunday. A cooperation and exchange program in the sector was launched on Sunday, said organizers of the China International Cartoon and Game Expo scheduled for July in Shanghai. The event will have a special Belt and Road hall to exhibit cartoon works from participating countries and boost commercial cooperation.

China’s Ministry of Culture has made it a key task this year to strengthen cooperation in the cartoon and game sector along the Belt and Road.

Wildlife protection

Sharp decline in ivory smuggling in 2016 The amount of smuggled ivory tracked down in China fell 80 per cent in 2016 from previous peak years, the State Forestry Administration (SFA) said Sunday. Liu Dongsheng, deputy head of the SFA, made the remarks at the opening ceremony of a wildlife protection campaign, without specifying detailed numbers. China will stop commercial processing and sales of ivory by the end of this year. Last year, it imposed a threeyear ban on ivory imports in an escalated fight against illegal trading of wild animals and plants.

10 Business Daily Tuesday, February 28 2017

Greater China

RCEP

Art of the trade deal: Beijing-championed pact faces tricky talks The RCEP covers investment, intellectual property and economic and technical cooperation Karlis Salna and Isabel Reynolds

T

rade negotiators are under pressure this week to make progress on a blockbuster Asia pact, after Donald Trump pulled the U.S. out of a rival Pacific agreement. But officials meeting in Japan face some significant sticking points.

China is championing the 16-nation Regional Comprehensive Economic Partnership (RCEP), which does not include the U.S. or Canada. It’s a chance for it to seize the moment amid the U.S. president’s protectionism -- evidenced by his withdrawal from the 12-country Trans-Pacific Partnership -- keeping free trade on track and boosting its global clout.

Still, some nations are uneasy about rushing to get the RCEP done, even with the failure of the TPP. And while the talks should be simpler -- the RCEP is more of a traditional trade deal -- there are disputes over tariff cuts and the service sector.

“The stumbling blocks are multiple,” according to Iman Pambagyo, the RCEP trade negotiating committee chief. Pambagyo, who is director-general of international negotiations with Indonesia’s Trade Ministry, said negotiators had only agreed on about 700 of more than 5,000 tariff lines covered in the deal.

‘Speed over quality’

The RCEP could help develop supply chains in Asia, according to Japan’s State Minister for Foreign Affairs Kentaro Sonoura.

“This is the first meeting of the year,” he said. “I have strong expectations of progress towards the

early conclusion of a high-quality agreement.”

Still, the Japan meeting may only take officials about 30 per cent of the way to a deal, said an official involved in the talks. Some countries want to offer different degrees of market access to member nations, but that is not an approach with universal support, said the official, who asked not to be identified because the discussions are private.

“It’s possible RCEP could take over from TPP as the model for future agreements.

But if they try to rush, it might be thin” Yorizumi Watanabe, a former trade negotiator with Japan’s foreign ministry For the RCEP, “it depends whether they prioritize speed over quality,” said Yorizumi Watanabe, a former trade negotiator with Japan’s foreign ministry, now a professor at Keio University. “It’s possible RCEP could take over from TPP as the model for future agreements. But if they try to rush, it might be thin.”

The shadow of the TPP will hang over the Kobe meetings. While China pushes the RCEP, some TPP members are calling for that pact to be

revived: By proceeding without the U.S., or waiting for Trump to change his mind.

Australia insists the TPP can continue without the U.S. and will seek support for that view in ministerial talks next month in Chile. A spokesperson for Trade Minister Steven Ciobo said negotiations on the RCEP are challenging and significant work remains on market access.

“The seven countries in both the TPP and RCEP are busy scrambling to figure out what to do about TPP with the U.S. withdrawal,” said Deborah Elms, executive director of the Asian Trade Centre, a Singapore-based consultancy. “If TPP does not move forward, it is possible that many TPP provisions will be moved across into RCEP by some members.”

The RCEP was conceived as an expansion of Southeast Asian trade ties with China, India, Australia and Japan. It includes New Zealand and South Korea, which already have free trade pacts with the Association of Southeast Asian Nations. It would cover almost half the world’s population and 30 per cent of the global economy.

Asean members “now see RCEP coming into play,” according to Rebecca Fatima Sta Maria, senior policy fellow at the Economic Research Institute for Asean and East Asia and a former secretary-general of Malaysia’s trade ministry.

Sta Maria said there must be a clear timetable and agreement reached in the Kobe meeting on “what aspects must be in for it to be substantially concluded,” if the RCEP has any hope of being ratified this year. “There has to be political will. I think from a political will perspective, I think there is that will.”

Service sector

The RCEP covers investment,

intellectual property and economic and technical cooperation. It would introduce dispute-resolution mechanisms. Unlike the TPP it would not require members to protect labour rights or improve environmental standards. Like the TPP there are big stumbling blocks.

India is arguing for greater liberalization of services, a sector that contributes over 50 per cent to its gross domestic product and affects the movement of labour across borders. A particular sticking point is loosening rules to make it easier for its IT workers to move abroad.

Indonesian Trade Minister Enggartiasto Lukita said there’s a stand-off between “India and several other countries” on the issue of a special business travel card.

‘Hard to do’

“The problem for RCEP is that you are trying to get an agreement with 16 countries in more than a dozen chapters,” Elms said. “That is just hard to do. In particular, you are creating an agreement that will connect the major markets in Asia together for the first time.”

Meanwhile Australia will keep pushing the TPP. Ciobo discussed the idea of China joining a rebooted version of the TPP during a trip to the country last week, and said Monday it would likely be revisited in Chile.

“I’m sure they’ll have a representative there for the discussions,” Ciobo said by phone. “Ultimately it’s a decision for the Chinese authorities what they might choose to do and understandably they would hold off from any decisions until the future of the TPP is more clear.”

Under the terms of the TPP at least 85 per cent of the combined gross domestic product of the 12 original signatories must be represented for it to be ratified. Kim Jong-hoon, a former Korean trade minister, said that with the U.S. accounting for about 60 per cent of that total, the TPP was “a dead deal”.

According to Indonesia’s Pambagyo, “everyone’s eyes are now looking at RCEP.” “It’s the only game in town and we have to make sure we work together toward a quality agreement.”

Bloomberg News

Business Daily Tuesday, February 28 2017 11

Asia SGX

Singapore said to consider giving traders lunch break back Many Asian stock markets have a midday break, including Hong Kong, Mainland China and Malaysia Andrea Tan

S

ingapore stock traders may finally get their lunch break back.

Singapore Exchange Ltd., which runs the city’s equity market, is considering reinstating the midday intermission, according to people familiar with the matter. SGX in March 2011 scrapped the break, which lasted from 12:30 p.m. to 2 p.m. every day, in an effort to boost trading.

The bourse is expected to have a public consultation on the issue in the coming weeks, the people said, asking not to be identified as the information is private. SGX will also propose a test that would widen the price increment at which shares are quoted to bring day traders back, according to the people. The proposals come after traders and SGX officials had several meetings since Loh Boon Chye became chief executive officer in July 2015, the people said.

When SGX cut the midday break, then-CEO Magnus Bocker said in January 2011 the move would make Singapore “one of the most accessible markets in Asia and in the world.”

Having continuous trading from 9 a.m. to 5 p.m. could also boost volume by as much as 10 per cent, Bocker said.

Many Asian stock markets have a

midday break, including Hong Kong, Mainland China and Malaysia.

The daily average value of shares traded on SGX this year has risen 6.4 per cent, to US$809 million, compared with the average for 2016, according to data compiled by Bloomberg. While up from last year, it’s down from US$1.12 billion a day in 2013, the year of a penny-stock crash that has been blamed for shaking confidence in the city’s markets. An average of US$1.18 billion shares changed hands each day in 2010, before the intermission was abolished, the data show.

SGX said in an e-mailed response to queries that it doesn’t comment on speculation.

Tick-size idea

The exchange’s tick-size proposal would reward brokers for making markets in less liquid stocks by widening the spread they earn when buying and selling shares, the people said. That could encourage trading in small-cap companies, they said.

If the plan goes ahead, it would be at least the third time in a decade that SGX has tweaked stock spreads. In 2011, it cut tick sizes to offer what it called “one of Asia’s most cost-competitive trading environments.” It made a similar move in 2007.

The U.S. in October started a two-year test that raised ticks for small-company stocks amid complaints from exchanges that liquidity has dried up. Japan Exchange Group in December 2014 said it was backtracking on tick cuts for some of the biggest companies less than six months after it was implemented because it failed to get the boost it sought.

SGX in 2015 cut the board lot size, or trading unit, investors needed to buy to 100 from 1,000 to help make higher-priced shares easier to invest.

Last year, it consulted on having at least 10 per cent of shares in the initial public offering of companies on its main venue to boost retail participation. Bloomberg News

Trade

South Korea exports seen growing for fourth month January factory output was forecast to increase 0.3 per cent from a month earlier after falling 0.5 per cent in December South Korea’s exports likely rose for a fourth straight month in February, a Reuters poll showed yesterday, on a rebound in commodity prices and improving global demand.

The median forecast from 13 analysts was for exports to jump 14.7 per cent from a year earlier, compared with 11.2 per cent growth in January.

Imports were expected to grow 21.7

per cent.

“Brisk demand and rising unit costs for semiconductors and petrochemical products would have lifted up exports,” Park Ok-hee, an economist at IBK Securities said.

Park said another boost came from this February having two more working days than a year earlier, due to timing of the Lunar New Year holiday.

Higher prices for memory chips and growing use of semiconductors in smartphone chips have been lifting shipments out of Asia’s fourth largest economy. January’s semiconductor exports were a monthly record of more than US$6 billion.

The finance minister last week said he sees exports to rise for a fourth month, while sluggish consumption is still holding back the recovery.

Policymakers face challenges including lagging private consumption, fears the United States will take protectionist measures and on on-going

political crisis involving President Park Geun-hye.

Seoul is also worried about any further retaliatory action from Beijing on South Korean companies as China has vehemently protested Seoul’s decision to deploy the U.S. advanced missile defence system inside South Korea.

Key Points Feb exports seen +14.7 pct y/y, imports +21.7 pct y/y Feb CPI rise seen cooling +1.6 pct y/y Jan industrial output seen +0.3 pct m/m s/adj Trade data due on 0000 GMT Wednesday The Reuters poll also showed February annual inflation was seen at 1.6 per cent, below January’s more than four-year high of 2 per cent.

January factory output was forecast to increase 0.3 per cent from a month earlier after falling 0.5 per cent in December.

The trade data is due on Wednesday, industrial output on Thursday and inflation on Friday. Reuters

12 Business Daily Tuesday, February 28 2017

Asia In Brief Energy

Philippines needs additional power to support growth The Philippines needs to build an additional 7,000 megawatts of power generation capacity over the next five years to support its growing economy and is seeking foreign investors in the sector to meet those needs, its energy minister said yesterday.

Investors from China, South Korea and Japan have expressed an interest in participating in Philippine power projects, Energy Secretary Alfonso Cusi told Reuters in an interview. The Southeast Asian nation, with a population of more than 100 million people and one of the world’s fastest growing economies, aims to double its power generation capacity by 2030.

Trade

Thai exports slightly below forecast Thailand’s customs-cleared exports rose for a third straight month in January, by slightly less than expected, a good sign for the trade-dependent economy that has lagged regional peers. Exports were up 8.8 per cent in January from a year earlier after December’s 6.2 per cent increase, commerce ministry data showed yesterday. A Reuters poll predicted a 9.85 per cent increase for January. The commerce ministry has forecast export growth of 2.5-3.5 per cent this year, while the central bank projects shipments will be flat.

Consumption

South Korea department sales speeds up South Korea’s department store sales in January rose at the fastest pace in three months, trade ministry data showed yesterday, as demand rose thanks to the Lunar New Year holiday. Combined sales last month at department stores run by Hyundai Department Store, Lotte Shopping and Shinsegae Co climbed 4.6 per cent in January for a year earlier, accelerating from 3.3 per cent in December. January’s rise was the fastest since a 6.0 per cent jump in October. Retail sales tend to rise around Lunar New Year, which can fall anywhere between mid-January to mid-February, as consumers ramp up purchases of gifts and food.

NPL

Vietnam targets US$1.48 billion from bad loans The state-owned Vietnam Asset Management Company (VAMC) is set to take drastic measures to recover around 33 trillion Vietnamese dong (US$1.48 billion) of non-performing loans (NPLs) in 2017, according to VAMC Chairman Nguyen Tien Dong yesterday. In order to meet the target, VAMC would focus on restructuring and classifying its bad debts, so that it can sell its secured assets and recoup the debts, the state-run news agency VNA quoted Dong as saying. “An analyst group specialized in restructuring enterprises with bad debts will also be set up to boost the debt settlement,” Dong added.

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Impeachment

S.Korea’s acting president declines to extend corruption probe Should the Constitutional Court uphold parliament’s impeachment of Park, South Korea would hold an election within 60 days of the ruling Se Young Lee and Ju-min Park

S

outh Korea’s acting president Hwang Kyo-ahn will not extend the current special prosecutor’s investigation into an influence-peddling scandal that could topple President Park Geun-hye, Hwang’s office said yesterday.

Hwang’s spokesman Hong Kwonheui said during a televised briefing that the special prosecution probe had served its purpose and it was in the country’s best interests for the investigation to conclude as scheduled today.

“After much deliberation the acting president has decided that it would be best for the country’s stability to not extend the special investigation and for the prosecutors to take over,” Hong said.

The corruption scandal erupted late last year over accusations that Park colluded with a friend, Choi Soon-sil, to pressure big businesses to donate to two foundations set up to back the president’s policy initiatives.

The scandal has led to weekly protests by tens of thousands of Koreans.

While some of the protesters support Park, most want her to become South Korea’s first democratically elected leader to be thrown from office.

Park, 65, was impeached by parliament in December and has been stripped of her powers while the Constitutional Court decides whether to uphold parliament’s impeachment vote, with Hwang acting president in her place.

She cannot be prosecuted while she remains president.

The scandal has also engulfed Samsung Group, South Korea’s largest chaebol, or conglomerate. Jay Y. Lee, the head of the smartphones-to-biopharmaceuticals conglomerate, was arrested on Feb. 17.

Park, Choi, Lee and Samsung all deny any wrongdoing.

Hwang, who was appointed prime minister by Park in 2015, is seen as a potential candidate if Park’s impeachment is upheld, which would necessitate an election.

However, soon after announcing there would be no extension of the investigation, Hwang found himself dragged into the scandal’s fallout when South Korea’s two main opposition parties said they would seek

his impeachment.

Special prosecution spokesman Lee Kyu-chul said Hwang’s decision to decline the investigation team’s request for an extension was “very regrettable” and that it had not had enough time to complete its probe, which ultimately targets Park.

“The special prosecutor’s office will complete its investigation in a thorough manner,” Lee said.

The special prosecution has already indicted former Park aide Kim Kichoon and former culture minister Cho Yoon-sun.

It had also sought to question Park but was now unlikely to have time.

Should the Constitutional Court uphold parliament’s impeachment of Park, South Korea would hold an election within 60 days of the ruling.

The president’s office has voiced concern that the special prosecutor’s investigation could affect the outcome of any early presidential election. Reuters

President Park Geun-hye. Lusa

Trade relations

New Zealand, Iran lay foundations for rebuilding trade Primary Industry Minister’s visit is the third ministerial visit to Iran in 12 months New Zealand is looking to step up exports to Iran after the signing of two agreements between the two countries, Primary Industry Minister Nathan Guy said yesterday.

The signing of a meat arrangement agreement in Tehran would enable the resumption of sheep and beef exports to Iran, Guy, who is currently in Iran, said in a statement from his office.

“This is a crucial step for New Zealand meat companies as they look to re-enter the Iranian market,” said Guy. The arrangement between the Iranian Veterinary Organisation and New Zealand’s Ministry for Primary Industries provided the conditions

for chilled and frozen sheep and beef exports to resume with Iran.

The agreement was witnessed with Iranian Minister of Agriculture Mahmoud Hojjati during a meeting with Guy, when they discussed an action plan for agricultural cooperation in the year ahead.

They also witnessed the signing of a statement of intent between New Zealand kiwifruit giant Zespri and Iran’s Ministry of Agriculture acknowledging the potential of the Iranian market as a large fruit consuming and growing country.

“Current import conditions mean that New Zealand is unable to export kiwifruit to Iran. However the letter of intent outlines undertakings to

further explore commercial opportunities in Iran,” said Guy. Iran had well established kiwifruit orchards and supply chains, and operated in a counter seasonal supply window to New Zealand.

“This visit is an important opportunity to strengthen our agricultural relationship, following the signing of an Agricultural Cooperation Arrangement last year,” said Guy. “Iran has traditionally been an important market for New Zealand agricultural exporters, particularly dairy, and this visit has identified areas in which we can diversify these commercial ties and further technical cooperation.”

Guy’s visit is the third ministerial visit to Iran in 12 months, reflecting the growing importance of New Zealand’s relationship with the second largest economy in the Middle East and North Africa region.

In December last year, Trade Minister Todd McClay led New Zealand’s first trade mission to Tehran in 12 years.

New Zealand has been striving to rebuild trade with Iran since the lifting sanctions over Iran’s nuclear program began last year.

New Zealand commodity exports to Iran fell to less than NZ$90 million (US$64.72 million) in the year ending September 2015, down from over NZ$163 million (US$117.21 million) in 2014. Xinhua

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Business Daily Tuesday, February 28 2017 13

Asia Investment

Malaysia’s currency curbs boomerang on bond markets The central bank said that the non-deliverable forwards market is volatile, opaque and subject to abuse Vidya Ranganathan

When Malaysia forced foreign investors in its markets not to dabble in offshore derivatives in its currency last year, its target was speculative pressure on the ringgit, but it appears to have shot itself in the foot.

The ringgit was the weakest currency in emerging Asia last year after China’s yuan, prompting Malaysia’s central bank to get a written commitment from foreign banks to stop trading ringgit non-deliverable forwards (NDFs), offshore contracts they use to hedge their exposure to the currency.

The upshot has been a flood of money leaving Malaysian bonds as foreigners, who own US$47 billion of them, were unable to hedge their risks in onshore markets because of a lack of liquidity.

“It’s a market that’s kind of been destroyed,” said Gene Frieda, the London-based global strategist at bond giant fund Pimco, who blamed the inability to hedge for making it difficult to make significant bond trades.

Although Frieda said the currency now looked cheap compared with regional peers, he couldn’t see it rallying under the circumstances.

“We don’t find the bond market particularly interesting at these levels,” he said.

Analysts at Nomura say November-to-January capital outflows from Malaysia hit a record for a threemonth period, when 27.9 billion

ringgit (US$6.3 bln) of foreign cash upped and left. Foreign holding of government bonds fell to 46 per cent of the total outstanding value, from 51.6 per cent in October.

The Southeast Asian nation’s US$97.7 billion of currency reserves are looking vulnerable after having fallen by US$3 billion in three months, and the ringgit has fallen 5.7 per cent since the end of October.

Drying up

The central bank, Bank Negara Malaysia (BNM), insists that the NDF market is volatile, opaque and subject to abuse, and it told Reuters it was committed to its policy.

“BNM will continue to enforce the policy of non-facilitation of NDF trading rules on the onshore banks to protect consumers’ interests,” it said.

It also insisted that the onshore markets were deep and broad enough to facilitate hedging, with spot and forward trade volumes worth more than US$152.4 billion over January and until Feb. 22, of which non-residents accounted for 42.5 per cent.

But foreign investors say that while the BNM has succeeded in drying up the NDF offshore market, there just aren’t enough onshore sources of dollars to take the other side of their trade.

“The NDF market is now extremely illiquid,” said Prashant Singh, lead portfolio manager with Neuberger Berman in Singapore.

“The onshore market is also

illiquid, and there is no natural seller of dollars other than BNM themselves for now.”

Traders say the BNM’s own sales are too irregular to be reliable for their purposes.

The capital outflows do not yet represent a crisis for an economy that still runs a trade surplus, but further capital outflows could result in a sharper ringgit fall, tighten financial conditions and thus threaten both growth and market stability.

Investors’ immediate concern is that the foreign money in 10.5 billion

ringgit of bonds maturing in midMarch will flee. They already suspect that much of the overseas cash in an 8.75 billion ringgit chunk that matured in mid-February has left the country.

Mohammad Hasif Murad, investment manager at Aberdeen Islamic Asset Management Sdn Bhd, which holds Malaysian government bonds and has some bonds maturing in February and March, said the firm had repatriated some of the proceeds of matured bonds, but has also “strategically reinvested in specific tenors where we see value”.

Aberdeen Asia has assets of US$3.5 billion, and its allocation to Malaysian local currency assets is approximately US$110 million.

Fixed income managers at Old Mutual Global Investors, which has 29 billion pounds (US$36.4 billion) under management, paint a gloomy picture.

“We are currently underweight Malaysian bonds and underweight duration given the risk of increased outflows from offshore investors and a likely re-steepening of the local curve as domestic demand will struggle to absorb new debt supply,” they said in a note.

There was little incentive to invest in Malaysian bonds without the ability to hedge, given the likelihood that the ringgit will remain undervalued due to increased capital outflows, they said in a note.

Pimco’s Frieda says the currency could at some point be an attractive buy, provided there was enough liquidity to transact freely.

“You still have to be able to get in and get out,” he said. Reuters

14 Business Daily Tuesday, February 28 2017

International M&A

LSE scuppers Deutsche Boerse merger hopes by rejecting EU demand The exchanges had already agreed to sell part of LSE’s clearing business, LCH SA, in order to satisfy antitrust requirements Rachel Armstrong, John O’Donnell and Andreas Kröner

T

he London Stock Exchange has all but ended a planned merger with Deutsche Boerse to create Europe’s biggest stock exchange by ruling out meeting a European antitrust demand, saying it has strong prospects alone.

In a bid to create a European trading powerhouse that would better compete against U.S. rivals making inroads on their home turf, the two exchanges struck a 29 billion euro (US$30.1 billion) deal just over a year ago.

But in a highly unusual step, the London Stock Exchange (LSE) on Sunday pre-empted a European Commission antitrust decision, saying it was unlikely to give clearance for the merger after the London bourse had refused to sell an electronic trading platform in Italy.

The exchange added that it would still work to make the merger with Deutsche Boerse succeed, but that would be impossible unless the Commission, which declined to comment, changed its position.

The plan to create what the head of Deutsche Boerse dubbed a financial bridge between continental Europe and Britain, had been called into question by Brexit, with German politicians demanding Frankfurt not London be the headquarters of the group because Britain would be leaving the trading bloc.

Deutsche Boerse said that decision not to sell the MTS trading platform had been made by the LSE, adding that it expected a decision by the Commission by the end of the month.

Shares in Deutsche Boerse slipped by more than 2 per cent at the opening of trading in Frankfurt yesterday, while LSE stock was down by about 1 per cent.

The LSE had said in a statement late on Sunday that the Commission had asked it to sell its 60 per cent stake in fixed-income trading platform MTS to satisfy antitrust concerns over the merger of Europe’s two largest market operators.

Disproportionate

Calling the request “disproportionate,” the British exchange said it believed that it would struggle to sell MTS and that such a sale would be detrimental to its business.

“Based on the commission’s current position, LSE believes that the Commission is unlikely to provide clearance for the merger,” it said.

The exchanges had already agreed to sell part of LSE’s clearing business, LCH SA, in order to satisfy antitrust requirements.

LSE said the Commission had also raised concerns this month about the impact on the European market landscape of access to bond and repo trading feeds were the two exchanges to merge. LSE said it had offered certain proposals to address this but that the commission had requested they sell all of MTS instead.

MTS is a small part of LSE’s business

but it said it was a major platform for trading European government bonds, particularly in Italy, and that it was “systemically important”.

LSE said that such a sale would need regulatory approval from several governments in Europe, and it would be detrimental to its wider Italian business.

‘Based on the commission’s current position, LSE believes that the Commission is unlikely to provide clearance for the merger’ “Taking all relevant factors into account, and acting in the best interests of shareholders, the LSE Board today concluded that it could not commit to the divestment of MTS,” the exchange said. Reuters

Economic forecast

Euro-area in better shape to repel 2017’s threats Consumer prices probably rose an annual 1.9 per cent in February Catherine Bosley

Put aside the dark clouds of Greece’s debts and the French elections for a moment: The euro-area economy appears in better shape than it’s been for years.

While just a year ago European Central Bank officials were debating easing policy further, the tables could now be turning -- though to be sure Brexit, the state of Greek finances and a wave of populism in some nations remain formidable threats. Capturing the shift in tone, Bundesbank President Jens Weidmann said market expectations for an interest-rate increase in 2019 didn’t sound “absurd.”

A bevy of data this week is likely to confirm the improvements in the

19-country bloc. It will also be the last major batch of figures for officials to consider before the March 9 policy decision, when they’ll also unveil their latest forecasts.

Consumer prices probably rose an annual 1.9 per cent in February, essentially meeting the central bank’s price-stability goal of just below 2 per cent for the first time in four years.

While officials including Weidmann argue that the time to talk about an exit is coming closer, ECB President Mario Draghi contends that extraordinary stimulus -- record-low interest rates coupled with a 2.3 trillion-euro (US$2.4 trillion) quantitative-easing program -- is still necessary to produce a sustained pickup in inflation. Underlying price

pressures remain subdued, and the core rate is expected to have stayed at 0.9 per cent this month.

‘Falling unemployment and weak inflation have provided a boost to consumption and a support to growth’ Falling unemployment and weak inflation have provided a boost to consumption and a support to growth.

Economic confidence is forecast to have hit its strongest since 2011 this

month, while the jobless rate is at its lowest since 2009. Yet the youth unemployment rate is still twice as high, and a pickup in inflation could erode real incomes.

Moreover, growth in three of the bloc’s five largest economies fell short of expectations in the final three months of the year and Greek output unexpectedly contracted, highlighting on-going fragilities in the region.

Against that backdrop, ECB Executive Board member Peter Praet stressed the recovery is still reliant on accommodative policy. “We cannot see the situation as fully satisfactory,” he said in London on Feb. 23.

Still, a broad measure of euro-area economic activity unexpectedly rose to the highest level in almost six years in February, with national Purchasing Managers’ Indexes showing that France outpaced Germany for the first time since 2012. This could signal growth in the euro region is becoming more broad-based. Final readings from IHS Markit for those gauges are due on Friday. Bloomberg News

Business Daily Tuesday, February 28 2017 15

Opinion

‘Bityuan’ won’t push China’s banks over a cliff - yet Andy Mukherjee a Bloomberg Gadfly columnist

Making crises great again

N

ow it’s becoming clear that China’s central bank will be one of the first to issue a digital currency, it’s legitimate to ask if “bityuan” will send the country’s banking system over the edge.

The short answer: Not just yet.

An initial version of bityuan will probably be a tame affair. Research at the People’s Bank of China favours a system where the monetary authority would issue the cryptocurrency to banks, which would supply it to their customers.

That shuns a more dramatic approach in which the PBOC would take “banking out of cash,” bypassing commercial lenders altogether and transacting directly with customers. That’s what happens with physical cash. While cash pays no interest, it’s possible for a central bank to pay interest on a national digital currency -- or that’s current thinking at the Bank of England, which is also toying with the idea.

An interest-bearing bityuan could be problematic. The Chinese aren’t exactly enamoured of the interest they get on bank deposits, which leaves smaller lenders overly dependent on shortterm financing.

In the little more than three years they’ve been around, negotiable certificates of deposit have swelled to more than US$1 trillion. Now that the PBOC wants to tighten new NCD issuance, smaller banks are worried about financing their longerterm investment in other lenders’ wealthmanagement products. By eroding the little sway they have over retail depositors, an interest-paying bityuan could trigger a liquidity crisis.

That’s the last thing Beijing wants. So for now, bityuan would simply mimic the existing reserves that lenders maintain with the PBOC to settle claims on one another, but with one major difference: cryptography.

A part of single-ledger-based electronic money would give way to a distributedledger-based digital currency similar to bitcoin. Whereas bitcoin resembles gold, which some people mine and others use as an asset, bityuan would be the liability of the PBOC. Money-laundering, the Chinese central bank’s No. 1 concern with private digital currencies, won’t be a problem for bityuan.

Once banks have it, bityuan would pop in and out of customers’ digital wallets, giving lenders a chance to reclaim the payments business they’ve surrendered to Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc. The trio has used its dominance of the Chinese internet to surround core mobile-wallet offerings with everything from peer-to-peer lending, to insurance and credit scoring.

Bityuan, were it to take off, could show China’s banks a way to reenter the game.

However, once the technology is in place, nothing would stop the PBOC from moving to a version 2.0.

The Bank of England’s analysis reckons an interest-bearing national digital currency could give a permanent boost to GDP. Once the PBOC feels confident enough to reach for those benefits, China’s banks should really worry. Bloomberg Gadfly

‘Negotiable certificates of deposit now exceed US$1 trillion’

D

ebates about financial regulation tend to focus on quantity, not quality. But “more versus less” isn’t so much the issue; the details are. And when it comes to financial reform in the United States, President Donald Trump is unlikely to get the details right.

Earlier this month, Trump issued an executive order directing a comprehensive review of the DoddFrank financial-reform legislation of 2010. The administration’s goal is to scale back significantly the regulatory system put in place in response to the 2008 financial crisis. This is a risky move.

Dodd-Frank’s key features – such as higher capital requirements for banks, the establishment of the Consumer Financial Protection Bureau, the designation of Systemically Important Financial Institutions, tough stress tests on banks, and enhanced transparency for derivatives – have strengthened the financial system considerably.

Undermining or rescinding them would substantially increase the risk of an eventual recurrence of the 2007-2008 financial crisis.

This is not to say that current legislation could not be improved. The most straightforward way to do that would be to restore some of the worthwhile features of the original plan that have been weakened or negated over the last seven years. Dodd-Frank might, in theory, also benefit from a more efficient trade-off between the compliance costs that banks and other financial institutions confront and the danger of systemic instability (in areas like the “Volcker Rule” restricting proprietary trading by banks).

But achieving this would be a difficult and delicate task.

Contrary to what some in the financial industry seem to believe, there is no evidence that Trump will manage it properly.

On the contrary, even before the review of Dodd-Frank gets going, Trump has already gotten financial regulation badly wrong.

As Trump ordered the review of Dodd-Frank, he also suspended implementation, pending review, of the so-called fiduciary rule, adopted, after extensive preparation, by President Barack Obama’s administration. The rule, which was supposed to take effect in April, is intended to ensure that professional financial advisers and brokers act in the best interests of their clients when collecting fees to advise them on assets invested through retirement plans.

The need for such a rule is clear. Many investment advisers and brokers are motivated by conflicts of interest to recommend a stock, bond, or fund that is not quite as good as another. For example, the adviser may receive an undisclosed commission or de facto “kickback” for recommending a particular product. It may be the advising firm’s own offering.

Because most investors assume that their advisers are obliged to act in their best interests, they don’t second-guess the recommendations. The end result is underperformance of the saver’s retirement account.

Cancelling the fiduciary rule would have no purpose other than to maximize financial institutions’ profits, at the expense of the average American family. The rule’s opponents make the argument

“

Jeffrey Frankel Professor of Capital Formation and Growth at Harvard University

that the requirement amounts to government overreach, because it deprives families of choices.

This is disingenuous, because it disregards the reason why savers seek the services of financial advisers in the first place: to help them figure out what investments best serve their interests.

A saver could always choose not to hire a financial adviser. Those who believe their judgment to be superior to that of the average investor can choose which individual assets or actively managed funds to buy and sell. Such investors distil information on their own and have no need for a retirement savings adviser to help them sift through the huge variety of financial assets, products, and funds that is available, particularly in a country like the U.S. But there are downsides to this approach. Most investors who pursue it buy and sell too often, burn through a lot of money in cumulative transaction costs, and are unrealistically optimistic about their ability to pick winners or time the market.

An alternative, recommended by most economists, would be for savers simply to park their money in broadly diversified lowcost funds, such as the index funds offered by Vanguard.

Here, too, there is no need for a professional adviser.

Recommended allocations of individuals’ total financial wealth are something like 60 per cent equities, 30 per cent bonds, and 10 per cent cash, depending mainly on the saver’s degree of risk aversion and need for liquid assets.

Yet many small investors just can’t bring themselves to believe that index funds are the best they can do. Recognizing that they lack the time, skills, or interest necessary to invest their savings independently, they seek the services of an investment adviser.

They want to discuss their portfolios with an expert, with someone they can trust to give them good advice. But if that expert can’t be relied upon to put savers’ interests first, why are they collecting fees?

Of course, not all financial advisers act contrary to their clients’ interests. Some apply a fiduciary standard in practice, to earn their clients’ trust, even though the law does not yet require them to do so. Truly ethical advisers tend to support Obama’s fiduciary rule, because the removal of unscrupulous competitors is good for their business.

In this sense, the financial industry is no different from the used-car business. The dealers who would oppose a law preventing them from turning back the odometer are probably the ones engaging in that practice. Honest dealers would favour it as a way to level the playing field. They do not claim that such laws deprive consumers of the “choice” to buy a used car under fraudulent terms.

It is in ordinary Americans’ best interest for the fiduciary rule to go into effect in April, as planned. They would be best served if the Trump administration kept its hands off Obama’s other financial reforms, too. Project Syndicate

Even before the review of Dodd-Frank gets going, Trump has already gotten financial regulation badly wrong

”

16 Business Daily Tuesday, February 28 2017

Closing Prices

Mainland’s February inflation forecast at 1.4 pct

for nearly one-third of the prices used, said Tang Jianwei, the bank’s senior economist, in a report.

China’s consumer price index (CPI) is expected to grow by about 1.4 per cent The growth of food prices in February in February from a year earlier, the Bank are expected to decrease 1.8 percentage points from last month, said Tang. of Communications said yesterday.

Annual CPI growth will be around 2.5 The official CPI in February, a main gauge of inflation, is due to be released per cent, well below the official target of around 3 per cent, according to the by the National Bureau of Statistics report.

(NBS) on March 9.

China’s CPI rose 2.5 per cent year on A drop in vegetable, egg and aquatic year in January, up from the 2.1-per cent product prices may drag down the rise in December, NBS data showed. Xinhua February CPI, as food prices account

Artprice report

Global art sales plummet, China biggest market After five years of dominance, Mainland lost its title as top art market to the United States in 2015, but a year later was back

G

lobal art sales plunged in 2016 as the number of high-value works sold dropped by half, while China regained its status as the world’s top market, Artprice said in an annual report released yesterday.

Art auctions worldwide totalled US$12.5 billion (11.8 billion euros) last year, down 22 per cent from US$16.1 billion in 2015, it said.

The world’s biggest database for

art prices and sales, working with Chinese partner Artron, attributed the drop to a plunge in the number of works worth more than US$10 million each -- from 160 in 2015 to 80 last year.

“On all continents sellers are choosing a policy of ‘wait-and-see’,” Artprice CEO Thierry Ehrmann said.

Top-dollar auctions last year included that of an Impressionist painting of a haystack by Claude Monet, “Meule”, which went for US$81.4

million and a Peter Paul Rubens masterpiece, “Lot and his Daughters”, sold for US$58.1 million, both at Christie’s.

Contemporary art had its standout moments, too, with an untitled painting from American painter JeanMichel Basquiat that went to a Japanese collector for US$57.3 million, and Wassily Kandinsky’s “Rigid and Curved” from 1935, which went under the hammer for US$23.3 million.

country lost its title as top art market to the United States in 2015, but a year later was back, recording US$4.8 billion in auction sales.

That figure represented 38 per cent of total world sales, said Artprice, which compiled the data with its partner firm Artron of China.

Traditional calligraphy and painting comprised the vast majority of sales in China.

The country’s biggest sale in 2016 was a scroll painting of “Five Drunken Kings Return on Horses” by early 14th-century Chinese artist Ren Renfa that went for US$45.89 million.

But contemporary art sales, too, are becoming frequent in Hong Kong which “has become an unmissable spot on the art market”, Artprice said.

China, art ‘superpower’

A year of ‘consolidation’

But it was China which chalked up the highest total sales and “established itself clearly as the superpower” of the art world, the report said.

After five years of dominance, the

Despite the drop in overall value of sales, the global art market witnessed an 11-per cent rise in “fine art” transactions, a category that excludes antiques, applied art like pottery and furniture.

“The range of prices under US$50,000 shows the strongest progression and currently makes up 96 per cent of the market in the West”, the art database said.

In 2016, “the principal objective was to consolidate the core of the market, to the detriment of a new race to reach record prices,” it said.

New York City remained the undisputed capital for art auctions, chalking up US$3.2 billion in sales, over Beijing’s US$2.3 billion and London’s US$2.1 billion.

Chinese artists were also the main moneymakers in the auction world, taking three of the five top spots for 2016 sales.

Works by China’s Zhang Daqian fetched the highest amounts, followed by 20th-century master Pablo Picasso, then Chinese watercolorist Qi Baishi and “father” of Chinese contemporary art Wu Guanzhong, and, finally, the German contemporary artist Gerhard Richter. AFP

Alliance

Property

Official data

Delta, Korean Air in joint venture talks

Mainland can manage financial Singapore’s service industry risks if property tax introduced business receipts up

Korean Air Lines Co. is in talks with Delta Air Lines Inc. for a joint venture in a move that would give the second-largest U.S. carrier a bigger foothold in Asia where rising incomes are fuelling a boom in air travel.

Details of the partnership would be disclosed later, the Asian airline’s President Walter Cho told reporters at a briefing in Seoul’s Incheon Airport yesterday, declining to elaborate. It would be premature for Delta to comment on any future joint venture partnership, the carrier’s corporate communications department in Japan said in an e-mailed response to questions.

Delta, which has said it will rely on tie-ups in Asia to improve connectivity to the region’s largest economies, is extending an existing pact with Korean Air beyond code-sharing. While a joint venture will provide the Atlanta-based carrier a hub in Seoul and help it compete with other U.S. rivals, its partner could get greater access in North America as South Korea prepares to host the 2018 Winter Olympics.

“A venture would give Delta greater access to Asia, where the travel market is growing rapidly,” Um Kyung-a, an analyst at Shinyoung Securities Co. in Seoul, said by phone. Bloomberg News

China could manage the resulting financial risks if a property tax is introduced and causes the housing market to correct, a state newspaper said yesterday in a front-page commentary that sought to dispel fears that such a tax would burst a price bubble and spark a calamitous rise in bad loans for banks.

“The risks are overall manageable, despite the possibility of bringing short-term shocks to the market,” the Economic Information Daily said, estimating China would be able to weather a 20 per cent decline in house prices.

China has for years mulled an annual property tax, which could deter speculation in real estate, though little progress has been made due to resistance from stakeholders, such as local governments who heavily rely on land sales for revenue.

Only Shanghai and Chongqing have implemented a limited property tax as a pilot program since 2011.

Prices of new homes in China surged 12.4 per cent last year, the fastest rate since 2011, leading more than 20 cities to introduce property curbs to cool the market since October.

Concerned by the stubbornly strong market, China’s leaders have called a “long-term mechanism” to be established quickly to restrain property bubbles and prevent price volatility. Reuters

Business receipts of Singapore’s service industries, excluding wholesale and retail trade, and accommodation and food services, rose 3.6 per cent in the fourth quarter of 2016 over the previous quarter, according to Business Receipts Index (BRI) for services conducted the Department of Statistics Singapore (SingStat) yesterday.

Among them, the transport and storage services industry reported the highest growth of 5.9 per cent, followed by information and communication as well as financial and insurance services industries, which grew by 5.5 per cent and 3.9 per cent respectively in the fourth quarter over the preceding quarter.

On the other hand, the education services and the recreation and personal services recorded a decline of 1.7 per cent and 1.1 per cent in business receipts respectively compared to the previous quarter, according to SingStat.

On a year-on-year basis, overall business receipts rose 0.5 per cent, with a mixed performance among the industries.

Services industries which performed well included the education services, health and social services, and information & communications services industries. Xinhua