Xiaomi’s India sales surpass US$1 bln Business Page 9
Friday, January 6 2017 Year V Nr. 1208 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Funds
Crimes
MSAR seizes Ao Man Long’s UK funds Page 2
www.macaubusinessdaily.com
Consumer rights
Singapore files 16 charges against Falcon branch manager Page 11
Trade
Consumer Council logged 1,673 complaints last year Page 2
MSAR-China trade plummets 31.4 pct in November Page 5
Money Machine
Crime
Illegal cash withdrawal services. Via modified point-of-sale terminals. Discovered by local police. Eight shops were raided, and 23 arrested. An underground factory for modifying the terminals was also uncovered. JP Morgan analysts believe the raid won’t affect legal UnionPay transactions. Page 3
Ma family a financial force? M&A The Ma family may acquire a 24 pct stake. In Novo Banco Asia S.A., according to broadcaster TDM Radio. As part of a joint offer with Hong Kong-based Well Link Group. Macau’s monetary regulator is purportedly still reviewing the proposal. Page 4
Eco-related business in the MSAR has potential. So says director / founder of Macau ECOnscious, Gilberto Camacho. But residents’ awareness must first be enhanced. The company primarily sells eco-friendly shopping bags and takeaway boxes. Environment Page 6
HK Hang Seng Index January 5, 2017
Checkmate
Politics Taiwan’s Chinese Nationalist Party - a.k.a. the Kuomintang - warns against getting involved in the ‘big power play’. Involving U.S. President-elect Donald Trump. KMT vice chairman Jason Hu reckons Taiwan can’t afford to play that game. Page 8
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Eco-consciousness first
2 Business Daily Friday, January 6 2017
Macau Funds
Ao Man Long’s UK funds seized by MSAR
The funds were handed over by the government of the United Kingdom due The government coffers have received over to a previously signed accord between the MOP345.8 million confiscated from former MSAR and the territory. A report published Secretary of Transport and Public Works Ao by the third standing committee of the Legislative Assembly took note of the Man Long, recovered by authorities in the United Kingdom, according to Portuguese- funds returned, originating from the sale of a property of the former official as well language broadcaster TDM. The former official was previously sentenced to 29 and as accounts held by the disgraced former a half years in prison for acts of corruption. Secretary in the United Kingdom.
Consumer rights
Consumer Council receives 1,673 complaints in 2016 Total complaints about communication equipment and services decreased in the year but still topped the list Cecilia U cecilia.u@macaubusinessdaily.com
I
n 2016, the Consumer Council processed 6,420 cases, of which 1,673 were complaints from consumers. In particular, complaints about the telecommunication sector topped the list, according to a press release from the Council yesterday. For the whole year, the total number of complaints received by the Council
represented a 12 per cent decrease year-on-year. Of the total, those related to communication equipment amounted to 198 cases, a drop of 35 per cent year-on-year, whilst those related to telecommunication services totalled 144 cases. Other complaints primarily involved the real estate sector, public transport and food & beverage products, amounting to 184, 99 and 92, respectively. According to the Council, complaints
related to the aforementioned five sectors totalled 717, accounting for 43 per cent of the total number of complaints received by the Council last year. It claimed that the number of complaints related to telecommunication services, public transport and food & beverage products had decreased compared to that of last year, while those related to the real estate sector experienced year-on-year growth due to more disputes regarding the purchase of real estate by local residents in
Mainland China in the first half of the year. A total of 683 complaints made by tourists last year were recorded, accounting for some 10 per cent of the total. Complaints by tourists were primarily related to the quality and prices of watches, jewellery and communication equipment, according to the press release. The Council added that it had met with several related associations for the first time last year to discuss the complaints and to look for the causes of the complaints.
Politics
CE: MSAR Gov’t supports freedom of the press The city’s Chief Executive (CE) - Fernando Chui Sai On - said yesterday that the Portuguese and English media act as a bridge to cultural exchange between the East and the West and play an important role in the development of the MSAR. Th e C E h o st e d a l u n ch e o n gathering representatives from
English-language and Portuguese-language media outlets yesterday. The CE reiterated in his speech that the MSAR Government highly respects the freedom of expression, information and publication in the city. He said his government would listen to the views and suggestions of the press. A.L.
Intellectual rights
DSE receives over 12,000 intellectual property applications in 2016
Investment
Sun Kian Ip building Cambodia’s tallest towers Local developer Sun Kian Ip Group will engage in the construction of the world’s fifth tallest twin towers in the capital city of Cambodia, Phnom Penh, online publication Shanghaiist reported yesterday. According to the outlet, two Chinese companies were the bid winner for the US$2.7 billion (MOP21.7 billion) project, which will also be backed by Cambodian company Thai Boon Roong Group as well as Sun Kian Ip. The building will feature a luxury hotel, apartments, office space, retail area, exhibition hall, theatre and restaurant, with 133 floors reaching 560 metres high. The construction project, expected to kick off once the companies finalise their funding agreement, is
estimated to take about five years to complete. Once completed, the project will become the world’s fifth tallest buildings. Sun Kian Ip Group is owned by local billionaire Ng Lap Seng, who is now in custody in the U.S. and will face a federal trial on January 23 for the alleged bribery of the late ex-president of the United Nations (UN) General Assembly, John Ashe. The businessman is alleged to have given Ashe over US$500,000 (MOP62,500) in bribes for the UN official to seek support from the global organisation for the building of a conference centre in the Special Administrative Region to be developed by the Sun Kian Ip Group. Mr. Ng has pleaded not guilty. A.L.
The Economic Services Bureau (DSE) received 12,266 applications for the registration of intellectual property for the whole year of 2016, down 11.7 per cent compared to 13,886 applications recorded in 2015. Of the total applications registered in 2016, some 11,507 were for registering trademarks, 452 for extension of invention patents and 218 for industrial design and model registrations. Applications for registering utility patents and the name and emblem of establishments, on the other hand, amounted to only 15 and 23, respectively. For December alone, the number of applications for intellectual property registrations recorded a slight increase of 2.9 per cent, an increase of 30 compared to the same period in 2015, amounting to 1,081, a result in the subtle growth in the number
of trademark applications. On a month-on-month comparison, the number of applications jumped 5.26 per cent. Of the total applications in December, applications for trademark registrations accounted for 94.3 per cent or 1,019, up 5.05 per cent year-on-year and by 6.7 per cent month-on-month. The latest DSE data shows no application for the registration of name and emblem of establishment in the city last month whilst the number of registrations of invention patent extension decreased, down by seven applications year-on-year or 12 month-on-month. The number of applications filed for registering industrial design and model, invention patent and utility patent amounted to 24, three and three in the month, respectively. C.U.
Business Daily Friday, January 6 2017 3
Macau
Crime
PJ cracks down on illegal cash withdrawal operation Local police have uncovered the operation of illegal cash withdrawal via modified POS terminals Cecilia U cecilia.u@macaubusinessdaily.com
J
udiciary Police (PJ) have cracked down on eight local shops that operate illegal cash withdrawal services via modified POS (point of sale) terminals, local broadcaster TDM Radio News reported. These eight shops are primarily located in the ZAPE district on the Peninsula and Taipa Island. In addition, the action, taken in collaboration with the Monetary Authority of Macau (AMCM), uncovered an underground factory
in one Taipa store that modifies the terminals. Police believe the store had sold its modified terminals to other shops that engaged in the illegal activities. During the search of the stores, the PJ seized a large number of swiped card receipts as well as HK$7.5 million (US$967,224). Meanwhile, 23 we arrested during the raid, nine of whom are local residents, with the oldest aged 85. Of the arrested, 12 are male and 11 female, while three were directors of stores and 10 were engaged in hustling chips in casinos. According to JP Morgan, the tampered terminals fake the
location of transaction as ‘domestic’ in order to avoid paying overseas charges and foreign transaction fees to UnionPay. But analysts of the brokerage said in a note yesterday following announcement of the case that it is “nothing much to read”, explaining that the crackdown has nothing to
Update on Coutinho brothers Yesterday, the PJ gave further details of the drug-dealing case involving the two sons of directly elected legislator José Pereira Coutinho. The brothers were arrested on December 21 whilst collecting a parcel in central. The PJ said yesterday
do with the UnionPay transactions at shops using proper terminals. JP Morgan analysts added that numerous ongoing crackdowns involving illegal UnionPay operations have been the norm for the past two years, pointing out that the latest case is no different to other previous investigations.
that the parcel contained one kilogram of cannabis. In addition, the two are believed to have obtained five kilograms of cannabis via the same method prior to their arrest while the cannabis could have been sold in local nightclubs for some MOP2.5 million.
Monetary
Deposits with local banks slightly up in November The MSAR’s money supply continued growing in November while total bank deposits reached MOP930.8 billion Nelson Moura nelson.moura@macaubusinessdaily.com
Total deposits with local banks registered an increase of 0.7 per cent month-on-month for the month of November, amounting to MOP930.8 billion (US$116.4 billion), according to the latest official data released yesterday by the Monetary Authority of Macau (AMCM). In the month, deposits of local residents rose 0.6 per cent month-onmonth to MOP506 billion whilst those
of non-residents dropped by MOP2 billion to MOP264.7 billion from the amount registered in October 2016. Public sector deposits with the banking sector, on the other hand, increased by 2 per cent month-onmonth, amounting to MOP160.2 billion. On a year-on-year comparison, residents’ deposits with local banks jumped 10.5 per cent whilst those of non-residents and the public sector fell 1.3 per cent and 11.4 per cent compared to the same month of 2015, respectively. Of total deposits, the shares of Macau Pataca (MOP), Hong Kong Dollar (HKD), Renminbi (RMB) and U.S. Dollar (USD) accounted for 21.1 per cent, 47 per cent, 5 per cent and 24.1 per cent of the total, respectively.
Lending more
Meanwhile, local banks approved domestic loans worth MOP415 billion to the private sector in the month, a month-on-month increase of 0.3 per cent. Of the total, MOP123 billion was denominated in MOP, while some MOP269.3 billion was denominated in HKD, accounting for 29.6 per cent and 64.9 per cent, respectively. External loans approved by local banks reached MOP371.3 billion in the month, down 0.5 per cent month-on-month. Of the total, 53
per cent were USD-denominated, at MOP196.7 billion, followed by those HKD-denominated, at MOP292 per cent or MOP108.4 billion. As at the end of the month, the loan-to-deposit ratio for the residential sector saw a decrease of 0.4 percentage points month-on-month to 62.3 per cent.
Money supply up
On the other hand, the city’s currency in circulation increased by 0.3
per cent month-to-month, while demand deposits decreased by 4.4 per cent, resulting in the money supply (M1) falling 3.5 per cent month-on-month. As quasi-monetary liabilities rose by 1.3 per cent month-on-month, M2, the sum of the item and M1, saw a slight increase of 0.6 per cent monthto-month, reaching MOP519.4 billion. On a year-on-year comparison, M1 and M2 went up by 11.8 per cent and 10.6 per cent, respectively. In November, the shares of MOP, HKD, RMB and USD in M2 were 30.8 per cent, 53.8 per cent, 4.4 per cent and 8.7 per cent, respectively.
4 Business Daily Friday, January 6 2017
Macau Opinion
Banking
Ma family reportedly acquiring stake in Novo Banco Asia Pedro Cortés* Remarkable 1st of January Dear Unknown Official who decided to change a fine from MOP300 to MOP1,500 overnight. I am writing to send you my best wishes and to let you know that last Saturday I had a great New Year’s Eve with my golfing friends. It was an amazing night with lots of meat deliciously barbecued by one of my readers. At 3:00 am in the morning, I went to bed as I had another round of golf later that day, on the 1st of January. Teetime was at around 11:20am, thus I awoke at 10:00am and arrived at my car at around 10:45am. The entire Rua Cinco de Outubro in Coloane (riverside) has a parking ticket zone and almost all the cars were clamped, including mine. The ticket was left by a diligent policeman at 9:20am. I imagine that he did not have such a wonderful night and had surely started issuing tickets at around 9:01am, as Caesar must be paid from 9:00am to 20:00pm. I like it when officials do their duties well. It was a remarkable Sunday, 1st January. After golf I went to the traffic department in Taipa and paid the fine (MOP100). After that I was told to call Companhia de Parques de Macau. This was around 5:00 pm. I called and, of course, no-one could speak any language other than Cantonese. I don’t ask everyone to speak Portuguese (or, maybe, I should) but at least English. At around 8:00 pm all was resolved, having called my secretary for the requisite translation. I realised then that now we pay a removal penalty of MOP1,500 once the car is clamped irrespective of being removed or not. It was a remarkable Sunday, 1st of January. Once again, my dear Unknown Official, I am pleased that you have done this in such good faith and prior notice. I am glad that from now on parking will be different in Macau. Public transportation changed from 31st December to 1st January in a way that we now all can use the buses of the three concessionaires and nice taxis. In addition, several public parks (including in Coloane) were inaugurated at 1:00 am on 1st January and therefore we can now find places to park the car easily. I heard that that inauguration had plenty of fireworks which made the Unknown Official very competent unlike some of his/her colleagues who could not have fireworks on time for New Year’s Eve. It was, indeed, a remarkable Sunday, 1st of January. Well, not for me, but at least for Forehap Parking Management Co. Ltd. *lawyer and frequent contributor to this newspaper.
While American firm Lone Star’s 750 million euro acquisition proposal for banking group Novo Banco was considered by Portugal’s central bank as frontrunner in the bid, the local Ma family has also proposed purchasing a stake in the banking group’s local arm Nelson Moura nelson.moura@macaubusinessdaily.com
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he Ma family has taken part in a 175 million euro (MOP1.5 billion/US$183.9 million) acquisition deal in locally incorporated Novo Banco Asia S.A. - a local arm of Portuguese banking group Novo Banco - broadcaster TDM Radio reported yesterday. According to the news outlet, the Ma family and Hong Kong-based Well Link Group has proposed acquiring 75 per cent stake in Novo Banco Asia, of which the Hong Kong company will buy 51 per cent whilst the Ma family is to acquire 24 per cent. The broadcaster said the Monetary Authority of Macau (AMCM) was still reviewing the proposal, adding the decision would be made based on three major factors: the suitability of investors, the origin of the funds, and the ability to manage a financial institution. In fact, the Portuguese-based banking group Novo Banco first entered into negotiations for the sale of its Macau unit to Well Link last August but the deal was rejected by AMCM. Following that, the president and management of the banking group visited the city trying to unlock the deal, TDM Radio said. The
representatives also reportedly met with the Secretary for Economy and Finance Lionel Leong Vai Tac. Previously, a source close to the bank told Business Daily that the sale of the local unit of the bank could impact its performance as Novo Banco Asia at the time had finished the second quarter of 2016 with losses of some MOP551,000. According to financial statements published by the local unit in the Official Gazette the branch posted losses of some MOP1.5 million for the third quarter of the year, with revenues totalling MOP33 million whilst expenses amounted to MOP34.5 million.
Trailing around
Currently, the Portuguese banking group is in another round of stake sales that will last until August this year, following its failed attempt to sell its stake in November 2015, the bidders of which included Chinese holding company Anbang Insurance Group and Chinese group Fosun International Ltd. Recently, the Portuguese central bank - Bank of Portugal (BoP) considered that American private equity firm Lone Star’s purchase offer of 750 million euros for the entire shares of the group was the ‘best positioned to conclude the purchase
with success’. However, the Portuguese central bank added that the remaining offers - which include a joint offer by U.S. funds Apollo Global Management and Centerbridge Capital Partners and that by investment company China Minsheng Financial Holding Corporation Limited (CMFH) – have not yet been excluded and the parties can still improve their bids. Novo Banco Group was set up in 2014 in order to take over the commercial business of Banco Espírito Santo (BES) which went bankrupt after recording massive losses in the same year. However, Novo Banco registered accumulated losses of 360 million euros in the first 9 months of 2016.
Protecting public funds
The Portuguese central bank considered that despite being the frontrunner, Lone Star’s offer could have a potential impact upon state accounts, since its proposal implies an Asset Protection Scheme (APS) under which the Portuguese state government guarantees the coverage of the ‘bad’ assets connected to Novo Banco. In an interview with Portuguese newspaper Diario de Noticias, Portugal Finance Minister Mário Centeno admitted Novo Banco could be nationalised as a solution for the group’s financial woes, saying “nothing is out of the question when it comes to maintaining the stability of the financial system”. However, the official added the possibility of turning Novo Banco into public assets would not guarantee “support [for] a private deal that puts at risk taxpayers’ money”.
Retail
Foreign cosmetics cut price in Mainland Estee Lauder and AmorePacific have reduced product prices by up to 30 pct in the Mainland Two foreign cosmetics companies, US-based Estee Lauder and South Korean based-AmorePacific, have both reduced their product selling prices in Mainland China by up to 30 per cent, according to South China Morning Post yesterday. The price reduction by the two companies is in response to the Chinese government’s new tariffs on
imported products to the Mainland, which have been reduced to 29 per cent from the previous 84 per cent since 2016. Starting from January 15, AmorePacific will cut prices of 327 product lines by about 3 to 30 per cent in the Mainland, including Laneige, Innisfree, Etude House and Sulwhasoo, the company said in a press release
on Wednesday. Meanwhile, Estee Lauder has also cut product prices by about 18 per cent on more than 300 product lines in the Mainland, including Clinique, Bobby Brown, MAC and Jo Malone, effective from yesterday. “These global cosmetics names are now narrowing the price gap between China and overseas, and we believe more are probably about to follow suit,” Ben Cavender, Director of the China Market Research Group, said, as quoted by the publisher. A.L.
Business Daily Friday, January 6 2017 5
Macau
Trade
Aviation
MSAR-China trade Air Macau increasing fuel surcharges slumps 31.4 pct in November But the value surged 30.3 pct compared to that of October 2016 Kam Leong kamleong@macaubusinessdaily.com
T
otal trade value between the MSAR and Mainland China plunged 31.4 per cent year-on-year for the month of November 2016, totalling US$310 million (MOP2.5 billion) as the country’s exports to the city slumped, according to the latest official data released yesterday by the Chinese Ministry of Commerce. During the month, China’s exports to the city amounted to some US$300 million, plunging 29.6 per cent yearon-year whilst the country’s imports from Macau declined 5.9 per cent year-on-year, amounting to some US$10 million.
However, on a month-on-month comparison, the total trade value of the parties represents a significant increase of 30.3 per cent. In particular, local exports to the Mainland surged 61.9 per cent while vice versa trade jumped by 29.3 per cent. For the first eleven months of last year, the total trade value between the two parties recorded a decrease of 31.4 per cent year-on-year to US$3.01 billion. Of the total, China’s exports to the MSAR amounted to US$2.88 billion, plunging 31.8 per cent yearon-year, whereas the city’s exports to the Mainland dropped 22.5 per cent year-on-year to some US$130 million. Meanwhile, 624 investment projects of Macau firms were approved by the Mainland authorities during the
Local flag carrier Air Macau Co. Ltd. is to increase fuel surcharges for passenger flights, effective January 17. Surcharges of the airline will increase from US$5 (MOP40) per sector to US$7.5, according to a press release from the company. Increased charges will be applicable to flights originating from Macau for Mainland China,
Taiwan, Thailand, South Korea, Japan and Vietnam. The press release reads that the same fuel surcharge amount will apply to all flight tickets for adults, children and infants. Since March 2016, the airline ceased levying passenger fuel surcharges for all air tickets originating from Macau, resuming them in July last year. C.U.
eleven months, surging 34.2 per cent year-on-year. Nevertheless, total actual capital used on these projects by local companies decreased 11.8 per cent year-on-year to US$760 million. As at the end of November, some 15,022 projects of local companies were green lighted by the Mainland government, with total capital used amounting to US$13.5 billion, accounting for 0.8 per cent of foreign direct investment that the country had attracted so far. For the same eleven-month p e ri o d, n o n -fi n a n c i a l d i r ec t
investment of Mainland companies in the Special Administrative Region totalled US$450 million whilst the accumulative amount reached US$2.2 billion as at the end of November. In addition, Mainland Chinese companies were awarded 27 projects in the MSAR during the eleven months worth US$830 million. Total sales from the projects amounted to US$1.6 billion. As at the end of the month, some 121,394 workers from the Mainland were working in the Special Administrative Region, said the ministry.
6 Business Daily Friday, January 6 2017
Macau
Environment
‘Eco-business faces difficulties with low eco-consciousness’ It is hard to sell eco-friendly products in the city due to the lack of awareness in protecting the environment by local residents, says local eco-company Macau ECOnscious Annie Lao annie.lao@macaubusinessdaily.com
A
local SME - Macau ECOnscious - has found it difficult to sell ecofriendly products in the city given residents’ low awareness of the subject coupled with local businesses placing less value on such goods. The company, founded in February 2016, primarily sells biodegradable a n d c o m p o stab l e c o r n sta rch shopping bags as well as takeaway boxes to local restaurants, cafes and supermarkets. Speaking to Business Daily, founder and director Gilberto Camacho said he smelled the potential of this business after realising the use of plastic bags is one of the serious environmental problems in the territory. Currently, about 15 local businesses from supermarkets to cafes to restaurants buy his products, he said, adding major customers tend to be foreigners or local people who have more awareness about environmental protection. “For those who have a Chinese education background here, they tend to think making money is the most important thing rather than making things that are sustainable and friendly for the environment,” Mr. Camacho opined. He added that his sales of ecofriendly products are more popular among businesses in Taipa than those on the Macau Peninsula. “I sold around 100 bags in two months in Taipa as many foreigners are living in Taipa, while to one local supermarket located in Fai Chi Kei on the Macau Peninsula, I only sold two bags in half a year,” he claimed. The challenges, in his opinion, were aggravated by the fact that ecofriendly products are usually more expensive than ordinary products, thus increasing the operating costs of buyer companies. “My potential clients would ask: why would I need to buy your eco-friendly bags that cost MOP1 (US$0.13) for one if I can buy a cheaper plastic bag that only costs MOP0.5,” Camacho said. He added that the low awareness of local residents towards eco-friendly products, in this case – bags, was owing to local businesses being used
to offering plastic bags for free so that people are not willing to spend more to buy one eco-friendly bag themselves. “Some of them don’t even know why eco-friendly bags are more expensive as they only care about the cost,” he said.
Education & government support
In order to promote the business, the businessman believes more education is needed. “It’s not only the responsibility of the government to educate the people and do recycling here. It’s actually everyone’s responsibility because the planet is ours,” he stressed. “Awareness of environmental protection should be heavily promoted on TV, in newspapers and in social media.” Recently, legislator Si Ka Lon filed a written enquiry questioning the effectiveness of the city’s Macau Environmental Protection Plan for 2010 to 2020 that seeks to improve the living environment of local residents. The legislator pointed out in his interpellation that the city had failed to meet the standards outlined in the plan in terms of clean energy utilisation, waste recycling and
domestic sewage treatment in the city. In fact, Mr. Camacho has also noticed that the city is becoming more polluted than before and that the measures taken by society to protect the environment are insufficient.
“It’s not only the responsibility of the government to educate the people and do recycling here. It’s actually everyone’s responsibility because the planet is ours” Gilberto Camacho, founder and director of Macau ECOnscious He added that he had sought the co-operation of the government to handle the environment issues of the city during the beginning stage of his business but failed to fully engage it. “I presented the eco-bag idea to the Environmental Protection Bureau (DSPA) that would go ahead at that
time but they didn’t see a way of cooperating with me. After a long wait, the answer was still no,” he added.
Business plans
Amid the current difficulties, the company has to give 10 per cent commission to local supermarkets for each of his eco-bags sold in order to reach a wider range of consumers in the city, Mr. Camacho said. But offering commissions may not still appeal enough to supermarkets, he said, as most of the supermarkets here perceive the co-operation as not profitable. Nevertheless, Camacho believes that there is potential in this business. “It is a big potential in Macau as long as the people are well educated in protecting the environment so that they switch to using eco-friendly products. Otherwise, it’s very hard for me to convince them to buy my products,” he reckons. Looking forward, the businessman said that his company is planning to introduce new organic food products to the city and teach people how to plant their own vegetables. “People can feel the good food they eat as eating something good doesn’t require education. I think organic food is the future of [our] kind of company,” he said. He added that this is also one of his business strategies to diversify his income source. “I think it is more profitable for my business when people buy organic food than shopping bags and lunchboxes,” he concluded.
“It is a big potential in Macau as long as the people are well educated to protecting the environment so that they switch to using eco-friendly products” Gilberto Camacho, founder and director of Macau ECOnscious
Business Daily Friday, January 6 2017 7
Gaming Project
Imperial Pacific pushes Saipan resort opening to Q1
It said in the filing that the resort - set to provide 200 new gaming tables and 400 new slot machines - is ‘progressing smoothly, with over 2,000 workers Casino operator Imperial Pacific International Holdings Ltd. said its integrated resort Imperial Pacific working around-the-clock to ensure early completion’. The casino operator started gaming operations on the Resort on the Island of Saipan will ‘commence soft Pacific island via its ‘Temporary Casino’ in July 2015. opening in the first quarter of 2017’, according to a company filing with the Hong Kong Stock Exchange. For the whole of 2016, the company raked in US$32.4 billion (MOP259.2 billion) in VIP rolling chip turnover, The company had said previously its project on the which is higher than the total gaming revenue of Island would commence operation prior to Chinese MOP223.2 billion in Macau for the same period. N.M. New Year at the end of this month.
Junkets
GPDP: No official application for debtor database The Personal Data Protection (GPDP) said it had not yet received any official application or detailed information on the junket-proposed debtor database system from the related parties. The Office revealed the information in an emailed statement in response to Business Daily’s
recent enquiry. Meanwhile, the city’s gaming regulator - Gaming Inspection and Co-ordination Bureau (DICJ) - said in an email that the Bureau ‘has maintained close communication with the association regarding the credit database’, stressing that ‘their database must comply with Macau’s
personal data protection rules’. Kwok Chi Chung, President of the Macau Association of Gaming and Entertainment Promoters revealed his expectation of the official establishment of the system this month, saying that the system has already passed its trials. Mr. Kwok added then that the
system would be launched once official approval from the MSAR Government was obtained. DICJ claimed in its latest statement that its communication would continue even after the database is established. The debtor database system, which is required to abide by the city’s Personal Data Protection Law, will include a statement in all loan contracts that debtors’ information will be saved in the database and used for reference by members of the database. C.U.
Gaming
Jack Lam casino dumped as ASEAN meeting venue Jack Lam’s Fontana Hot Spring Leisure Parks and Casino has been dumped as a venue for the hosting of the upcoming ministerial meeting of the Association of Southeast Asian Nations (ASEAN) taking place in the Philippines this year, according to a report by The Philippine Star. Located in Clark Freeport Zone in Pampanga, Fontana was shut down by the Philippines Amusement and
Gaming Corporation (PAGCOR) on December 2 due to illegal online gambling. The raid followed an arrest order on Lam by Philippines President Rodrigo Duterte on charges of bribery and economic sabotage. Lam is said to have fled to Macau. According to the news outlet, the Director of the Philippine Department of Tourism in Central Luzon,
Ronnie Tiotuico, said the Subic Freeport is now being considered by the National Organizing Committee (NOC) as the possible venue for the ASEAN event. In February 2016, Fontana expanded its premises with a new convention property in order to host the Asia-Pacific Economic Cooperation (APEC) summit. The raid on Fontana was linked to
an Interpol-coordinated operation targeting multi-million telephone and e-mail scams across Asia. Known as ‘Operation First Light 2016,’ Interpol conducted raids on suspicious call centres, with the largest one in the Fontana, where police arrested some 1,300 Chinese nationals lacking immigration papers and working on the scams. Countries participating in Interpol’s operation included Austria, China, Hong Kong, Japan, Korea, the Philippines, Thailand, East Timor and the United States. S.Z.
8 Business Daily Friday, January 6 2017
Greater China Politics
Taiwan opposition warns of Trump’s ‘chess game’ before Tsai trip Trump’s willingness to question the decades-long U.S. foreign-policy consensus on China threatens to make Beijing more aggressive in using its economic leverage to pressure Taiwan Debra Mao
Taiwan’s main opposition party warned against getting involved in the “big power play” of Donald Trump, ahead of President Tsai Ingwen’s transit stop in the U.S. this weekend. Taiwan should instead seek to strengthen one-on-one ties with countries such as the U.S., China and Japan, according to Jason Hu, a vice chairman of the China-friendly Kuomintang party that lost power last year. President-elect Trump broke diplomatic protocol by taking a call from Tsai last month and later linking the U.S.’s policy on Taiwan to a better trade deal with China, drawing a rebuke from Beijing.
Taiwan can’t afford to get involved in a “multilateral chess game,” Hu, who previously served as foreign minister, said in an interview on Wednesday in Taipei. “We should not be antagonistic to any of the major powers of the world,” he said, without referring to Tsai’s trip specifically. “Taiwan is small, we need to make friends with everybody.” Trump’s willingness to question the decades-long U.S. foreignpolicy consensus on China threatens to make Beijing more aggressive in using its economic leverage to pressure Taiwan. More broadly, his approach risks turning the island into the biggest flash point between the world’s two biggest economies, even as many
in Taiwan appreciated his gesture in speaking with Tsai. While Tsai’s office has not announced any scheduled meetings with Trump officials and her transit through the U.S. en route to Central America is in line with past practice, Hu urged caution among Taiwan’s 23.5 million people. “People in Taiwan thought he could do this for us, he could do that,” Hu said, when asked about his hopes for the incoming U.S. leader. “We’re not on the front burner.” The 10-minute conversation on Dec. 2 was one of the most significant interactions a Taiwanese leader has had with a senior U.S. politician since Washington established ties with the Communist government in Beijing almost four decades ago. Tsai’s Democratic Progressive Party stands for greater independence from the Mainland, which considers Taiwan part of its territory. She has declined to explicitly endorse the One-China concept - a longstanding
acknowledgment that the two are part of the same nation, even if they disagree on what that means -- while endorsing the Taiwanese constitution, which claims its territory includes Mainland China.
Economic leverage
Ma Ying-jeou, Tsai’s predecessor and former Kuomintang President, acceded to the One-China principle. That resulted in eight years of rapprochement and greater economic integration across the Taiwan Strait. China is Taiwan’s largest export destination, followed by the U.S. and Japan. F o l l o w i n g t h e T r u m p -Ts a i call, China stepped up military movements around Taiwan, sailing its aircraft carrier and five warships near the island before conducting drills in the South China Sea. The number of nations that recognize the government in Taipei, rather than Beijing, was cut to 21 last month when China re-established diplomatic ties with the small West African island nation of Sao Tome and Principe. Tsai will transit in Houston on Saturday. She’ll attend the inauguration of Nicaragua’s president and visit Honduras, Guatemala and El Salvador before stopping in San Francisco on the way back to Taiwan. Her office has declined to say whether she’ll meet any U.S. officials during the stopovers.
‘Wrong signal’
Former President Ma transited in Houston and Los Angeles during a March trip to Central America. Still, China last week urged the U.S. to stop Tsai from passing through. The U.S. should not send “any wrong signal” to pro-independence forces in Taiwan, Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing last month. She urged “concrete steps to uphold the overall interests of China-U.S. relations and maintain peace and stability across the Taiwan Strait.” “There are people in Taiwan who consider Mainland Chinese enemies,” the KMT’s Hu said in the interview. “The best way to change your enemy is to make him your friend.” Bloomberg
Jason Hu, vice chairman of the China-friendly Kuomintang party
Forex
China enhances forex scrutiny to target illegal practices Each person’s annual exchange limit of US$50,000 will remain unchanged Chinese individuals intending to purchase foreign currency now have to file more detailed information in their applications. The increased scrutiny will not hamper normal forex purchases for overseas study or travel, but aims to counter illegal investment, authorities said. Those who want to buy foreign currency have to specify their purpose and provide additional information, according to last week’s new rules from the State Administration of Foreign Exchange (SAFE). The SAFE stressed that each person’s annual exchange limit of US$50,000 will remain unchanged and overseas trips and study will not be affected. The statement reiterated that individuals should not purchase foreign currency to buy property overseas, stocks, life insurance and other specified items and said it would monitor transactions more closely and frequently, as well as punish rule-breakers. In addition, from July, to fight money laundering, financial institutions will have to report any international transfer over RMB50,000 to the People’s Bank of China (PBOC), down from the current level of
RMB200,000. The new rules caught market attention amid concerns about capital outflows as the world’s second largest economy slowed and the Chinese currency is under depreciation pressure.
Going low
Chinese banks continued to see net foreign exchange sales in November,
and the volume expanded, while forex reserves fell for the fifth straight month to US$3.05 trillion, the lowest level since March 2011. However, the SAFE dismissed huge pressure of capital outflow last month, saying the situation is still controllable. Despite recent drops, China is still home to the world’s largest forex reserve and enjoys forex inflows from its trade surplus and foreign direct investment of about US$620 billion each year. It has been reported that some
people lend their own annual forex quota to others who use them to buy overseas houses and other illegal items, which violate the spirit of the regulations and might contribute to fraud, money laundering and underground banks. Individuals can purchase in excess of US$50,000 as long as they provide an authentic reason, according to the SAFE. A disorderly flow of large amounts of capital might trigger financial volatility and weigh on economic growth, as shown in previous financial crises. The government’s latest moves might help counter the drop in forex reserves, but that does not mean that China is backtracking on opening up the capital market, said Zhou Yu, a researcher with Shanghai Academy of Social Sciences. Individuals should not blindly follow the trend of purchasing U.S. dollars as the forex market is constantly changing, Zhou added. The dollar stepped further from a 14-year peak against a basket of currencies on Thursday, as investors locked in gains from a two-month rally since Donald Trump won the U.S. presidential election. The central parity rate of the Chinese yuan strengthened against the U.S. dollar on Thursday, after the biggest daily gain in about a year in offshore yuan on Wednesday. Xinhua
Business Daily Friday, January 6 2017 9
Greater China Media
In Brief
Apple pulls New York Times app in China after government request Apps from other international publications whose websites are blocked by Chinese regulators, including CNN, The Wall Street Journal and the Financial Times, were still available in the app store
A
pple Inc has removed the New York Times Co’s news apps from its app store in China following a request from the Chinese authorities, the companies said separately on Thursday. Apple removed both the English-language and Chinese-language apps from the iTunes store in China on Dec. 23, according to the New York Times, which first reported the action. The request comes as the Cyberspace Administration of China (CAC), the country’s top internet regulatory body, has called for greater media scrutiny, citing fears of social disorder, moral harm and threats to
national security. The regulator did not immediately provide a comment on the removal of the New York Times app. “The request by the Chinese authorities to remove our apps is part of their wider attempt to prevent readers in China from accessing independent news coverage by The New York Times of that country,” the New York Times spokeswoman Eileen Murphy told Reuters. “We have asked Apple to reconsider their decision,” Murphy said. The Chinese government has blocked The Times’ websites since 2012 after a series of articles on the wealth amassed by the family of Wen
Jiabao, who was then prime minister, according to the New York Times report. “We have been informed that the app is in violation of local regulations,” Fred Sainz, an Apple spokesman told Reuters. An Apple spokeswoman in China declined to comment on which regulatory body they conferred with and specific reasons behind the request.
Removal
Apple has previously removed news apps from its China app store, but none as high-profile as the New York Times.
Key Points Both English, Chinese versions pulled on Dec. 23 -NYT Newspaper’s website blocked since 2012 -NYT Regulator has called for greater media scrutiny Apple also removed its iBooks store and iTunes Movies services in April 2016 on request from authorities. The services remain blocked. Apps from other international publications whose websites are blocked by Chinese regulators, including CNN, The Wall Street Journal and the Financial Times, were still available in the app store on Thursday. Chinese mainstream media has not reported the app removal but it was discussed widely on social media. “This must be coming from the request of The Wall right?” said one user on Chinese social media service Weibo, referring to the country’s state-backed internet censorship program. “Apple has made enough money in China, it’s OK for it to take the blame this time for the sake of the money.” Other users said they would attempt to change their country ID within the app store to restore access to the app. While the New York Times has remained blocked since 2012, mirroring sites managed by anti-censorship advocates have periodically made its content available in the country. Reuters
Telecom
Xiaomi’s India sales pass US$1 bln as Mainland brands hold sway India is increasingly attracting foreign players as global demand stagnates Saritha Rai
Xiaomi Corp. surpassed US$1 billion in annual India revenue two years after selling its first smartphone in the country, as Chinese names begin to dominate the world’s fastest-growing major market at the expense of local players. Xiaomi said it grew shipments by almost 150 per cent in 2016, selling two million smartphones in the third quarter alone. The company had focused on India since failing to meet sales targets and dropping to number four in a home market it once led. India is increasingly attracting foreign players as global demand stagnates. Apple Inc. is said to be exploring ways to expand its business there. Chinese companies in particular went on an advertising blitz in 2016, touting superior specifications at affordable prices. That helped Chinese brands from Xiaomi and Oppo to Lenovo Group
Ltd. account for 51 per cent of smartphone shipments in November, according to Counterpoint Research. In contrast, local names such as Micromax Ltd. saw their share dive to less than 20 per cent from a high of
over 40 per cent earlier in the year. Samsung Electronics Co. held onto top spot in the country. Xiaomi assembles over three-quarters of its Indian smartphones in the country under the government’s “Make in India” program. Oppo, currently the sales leader in China, is planning to invest RMB1.5 billion (US$217 million) on its own industrial park in India within two to three years, with an initial output of 50 million units, Caixin reported last month. This week, local rival OnePlus will open its first store in India, in Bangalore. Blomberg
Politics
Chinese media say ‘Big Sticks’ await Trump if he seeks trade war Chinese state media warned U.S. President-elect Donald Trump that he’ll be met with “big sticks” if he tries to ignite a trade war or further strain ties. “There are flowers around the gate of China’s Ministry of Commerce, but there are also big sticks hidden inside the door -- they both await Americans,” the Communist Party’s Global Times newspaper wrote in an editorial Thursday in response to Trump’s plans to nominate lawyer Robert Lighthizer, who has criticized Beijing’s trade practices, as U.S. trade representative. The latest salvo from state-run outlets followed others last month aimed at Peter Navarro, a University of California at Irvine economics professor and critic of China’s trade practices whom Trump last month named to head a newly formed White House National Trade Council. Energy
China highlights ecological protection in offshore wind power development will highlight ecological protection in developing offshore wind power, according to a regulation released Wednesday by the nation’s energy and oceanic authorities. The regulation, jointly released by the National Energy Administration and State Oceanic Administration, said that an offshore wind power project should be no less than 10 kilometres from the shore, and water should be no less than 10 meters deep if the beach measures more than 10 kilometres in width. It also said no projects should be developed in oceanic nature reserves, special marine reserves, natural and historical sites, major fishing waters, wetlands in estuaries, gulfs and coasts, bird migration corridors, and other forbidden areas. The regulation covers development plans, project approval, use of sea areas and islands, environmental protection, construction and operation. Post
Chinese couriers to collect RMB500 bln in 2017 China’s burgeoning courier service sector is predicted to generate RMB500 billion (US$72 billion) in business revenue this year, a postal official said Thursday. Over 40 billion express parcels will be sent in 2017, said Ma Junsheng, head of State Post Bureau (SPB). In 2016, 31.3 billion parcels were sent, and the service created over 200,000 jobs, data from SPB showed. The sector collected RMB400 billion of business revenue last year, compared to just shy of RMB30 billion in 2006, Ma said, calling the sector a “dark horse” of the economy. China’s courier market has grown from a handful of small businesses into a vibrant market contested by industry heavyweights, expanding 50 per cent annually over the past six years, he said. Leading delivery service provider ZTO Express became an NYSE-listed company in October 2016, the biggest U.S. IPO by a Chinese company after e-commerce giant Alibaba.
10 Business Daily Friday, January 6 2017
Greater China Trade
Mainland says hit with record retaliatory trade measures in 2016 Twenty-one countries and regions took 49 remedies against Chinese steel
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hina was hit with a record number of retaliatory trade measures last year, the Ministry of Commerce said on Thursday, with countries around the world claiming it had flooded global markets with cheap steel and other products. “Trade disputes are becoming increasingly politicised, measures are increasingly extreme and final
tariff rates are relatively high,” said ministry spokesman Sun Jiwen at a regular briefing, singling out measures taken against China’s steel, solar panel, ceramics and tyre industries. Chinese policymakers are wary of U.S. President-elect Donald Trump’s protectionist stance on global trade, as he has promised a hard line against China, threatening to raise tariffs on
its exports to the United States once he takes office on Jan. 20. Sun said that in 2016, 27 countries and regions took out 119 trade remedies against China, with the relevant cases totalling US$14.34 billion, up 76 per cent from the previous year. Twenty-one countries and regions took 49 remedies against Chinese steel, costing US$7.90 billion, up 63.1 per cent from 2015. Trade remedies are trade policy tools that allow governments to take remedial action against
imports which are hurting domestic industries. They include antidumping actions, countervailing duties and emergency measures to safeguard industries. The world’s second-largest economy is frequently blamed for dumping cheaper goods on world markets because of subsidies. China will increase its targets for capacity cuts in steel and coal in 2017, while extending its campaign against overcapacity in industries such as cement and glass, state media reported in December. Reuters
Expansion
Caixin services PMI rises to 17-month high Optimism about growth prospects in 2017 reached a four-month high China’s service sector continued to expand in December 2016, posting its strongest rate in 17 months, according to a private survey Thursday. The Caixin General Services Purchasing Managers’ Index (PMI) edged up to 53.4 from 53.1 in November 2016, according to the survey conducted by financial information service provider Markit, sponsored by Caixin Media. The previous high was 53.8 in July 2015. A reading above 50 indicates expansion, while below 50 represents contraction. Demand in the sector picked up as new orders at service companies rose in December at the fastest pace in 17 months. R i s i n g ra w - m a t e r i a l c o s t s
for service companies caused expenses to soar at their quickest rate in nearly two years, but service providers only slightly raised their prices in December due to market competition. Optimism about growth prospects in 2017 reached a four-month high, with surveyed companies generally showing more confidence due to improving market conditions and company expansion. The Caixin China Manufacturing PMI, released Tuesday, hit a 47-month high of 51.9 in December. The strong performance in the two sectors meant the Caixin Composite Output Index, which reflects performance in both sectors, hit a 45-month high of 53.5 in December
from November’s 52.9. Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, an investment research firm, said the figures showed continued recovery in China’s economy. “The Chinese economy performed better in the fourth quarter than in the previous three quarters. It is without
Agreement
Competition
Didi partners with Brazil’s largest counterpart to promote ridesharing
Mengniu got milk
The Brazil mobile transportation giant offers ondemand mobility services across 550 cities in Brazil Chinese mobile transportation giant Didi Chuxing partnered with Brazil’s largest local shared mobility provider 99 to promote ridesharing, the company announced Thursday. Under the terms of the partnership, Didi has made a strategic investment in 99, and will assume a seat on the Brazilian firm’s board of directors, according to the statement released by Didi. In addition, Didi will provide strategic guidance and support, spanning technology, product development, operations and business planning, as 99 continues its active expansion across Brazil and the broader Latin American market. The Brazil mobile transportation giant offers on-demand mobility (ODM) services across 550 cities in Brazil, the world’s second fastest-growing Internet market. It has over 140,000 registered drivers and
more than 10 million user downloads. The two companies will share their experiences to explore sustainable technology solutions to support smart-city initiatives, as the two nations work toward a comprehensive strategic partnership. “We welcome Didi to Latin America, whose financing, state-of-art technology and operational knowledge will play a key supporting role as 99 actively expands our network and services in Brazil and reshapes the competitive landscape in Latin America,” said Peter Fernandez, 99 CEO. “China and Brazil are the world’s foremost emerging markets with enormous opportunities for our ridesharing industry,” said Cheng Wei, founder and CEO of Didi Chuxing, adding that Didi looked forward to working with more global partners. Xinhua
The larger issue for Mengniu, which warned of a “substantial loss” for 2016, is competition rather than costs Nisha Gopalan
The cows are coming home. But China Mengniu Dairy Co., which is taking over China Modern Dairy in an US$892 million deal from KKR & Co. and CDH Investments Fund Management Co., should be concerned less about owning the farm and more about getting the right products on supermarket shelves. Modern Dairy gives Mengniu access to a plant in New Zealand and farms throughout China. The timing is good, because milk prices are recovering after a multi-year glut: Mengniu, the nation’s second-biggest maker of milk products after Inner Mongolia Yili Industrial Group Co., is working to keep costs down, and control of raw materials will help. However, the larger issue for Mengniu, which warned of a “substantial loss” for 2016, is competition rather than costs. Inner Mongolia Yili and foreign brands are eating into its share not just of the milk market but also of infant formula, where sales are poised to grow after China abandoned its one-child policy. Memories linger of the 2008 infant fatalities caused by tainted milk, so convincing Chinese consumers of the value of a domestic
question that the government full year growth target will be reached,” Zhong said. China’s GDP grew 6.7 per cent in the first three quarters of 2016, within the government target of between 6.5 and 7 per cent for the year. National Bureau of Statistics data showed that China’s manufacturing and non-manufacturing PMI posted the second highest monthly reading of 2016 in December, adding to signs of economic stabilization. Xinhua
firm won’t be easy. The real fight for Mengniu, if it wants to win overall share from Yili, will be expanding fast enough in the premium market - organic milk and high-end yogurt. Yili late last year went upmarket by acquiring more than one-third of China Shengmu Organic Milk Ltd., the largest such producer. Higher-margin premium products will be key to winning over affluent urban consumers. The bulk of Mengniu’s offerings, as Bloomberg Intelligence analyst Thomas Jastrzab notes, remain mass-market products like fresh milk “with limited product differentiation” -- one carton is much like another, unless it’s a foreign brand.
Deal premium
Mengniu shares fell after the deal was announced Thursday morning, even though the transaction, at a slim 7 per cent premium to Modern Dairy’s Jan. 4 close, isn’t particularly pricey. The HK$1.94 bid price is well off the HK$2.13 high for 2016 reached in November. Investors declined to congratulate Mengniu less because of worries about indigestion than over disappointment that it didn’t go organic. Bloomberg/Gadfly
Business Daily Friday, January 6 2017 11
Asia Investigation
Singapore files 16 charges against Falcon branch manager amid 1MDB-linked probe Authorities in Singapore have frozen his assets although the 34-year-old has not been charged with any offence related to 1MDB Fathin Ungku
S
ingapore prosecutors on Thursday filed 16 charges against the former local branch manager of Swissbased Falcon Private Bank AG as part of an on-going investigation tied to scandal-hit state investment fund 1Malaysia Development Bhd (1MDB). The bank, which is also under investigation at home, was the second Swiss lender whose Singaporean unit was ordered to cease operations last year after BSI Bank Ltd. The action came as the city-state tried to repair the reputation of its financial centre which played host to some 1MDBrelated activity. 1MDB, founded by Malaysia’s Prime Minister Najib Razak, is the subject of money laundering investigations in at least six countries, including Switzerland, Singapore and the United States. U.S. investigators traced nearly US$700 million that was sent from an account at Falcon in Singapore in 2013 to accounts in Malaysia belonging to “Malaysian Official 1”, which U.S. and Malaysian officials have told Reuters refers to Najib.
Najib, who also chaired 1MDB’s a dv i s o r y b o a r d, h a s d e n i e d wrongdoing and said Malaysia will cooperate with international investigations. 1MDB has also denied wrongdoing. I n Si n ga p o r e o n Th u rs da y , prosecutors filed 10 charges of p r o vi di n g fa l s e i n f o r m ati o n , five charges of failing to disclose suspicious information and one charge of failing to submit suspicious transactions against Swiss national Jens Sturzenegger, who headed Falcon’s local branch. Falcon is owned by Abu Dhabi’s International Petroleum Investment Co PJSC . In Switzerland, Falcon said Sturzenegger is a former employee of the bank and declined to comment.
Singapore authorities previously identified the financier, commonly known as Jho Low, as a person o f i n t e r e st i n 1 M DB- r e l a t e d investigations. Low is also named in civil lawsuits filed by the U.S. Department of Justice, which allege more than US$3.5 billion was misappropriated from 1MDB. Authorities in Singapore have frozen Low’s assets though the 34-yearold has not been charged with any offence related to 1MDB. Reuters
could not reach Low for comment. Falcon’s Sturzenegger intends to plead guilty at a hearing on Jan. 11, his lawyer Tan Hee Joek from Tan See Swan & Co told the court. It was not immediately clear on which charges he would plead guilty. Singapore last year jailed three ex-BSI bankers, seized assets and sanctioned several lenders in what it has called its most complex, sophisticated and largest moneylaundering case. Reuters
False information
The charge sheet states Sturzenegger, who was arrested in October, gave false information to officials at the Monetary Authority of Singapore and Singapore Police Force’s Commercial Affairs Department. In one instance, Sturzenegger said he became aware of Malaysian financier Low Taek Jho through press articles though he knew him “in person”, the charge sheet showed.
Authorities from Singapore and five other countries are investigating 1MDB
Currency
Energy
Credit Suisse bullish on India’s rupee amid ‘dollar dominance’
Investors interested in Laos-Vietnam oil pipeline: Lao minister
India’s basic surplus swelled to a record US$30 billion in the 12-month period ended September Narae Kim
Go long on the Indian rupee and ignore the noise over Prime Minister Narendra Modi’s surprise ban on cash. That’s the advice from Credit Suisse AG to emerging-markets investors looking for bets to counter a strong dollar.”We like the rupee as India has a very strong basic balance surplus, which affords a shield against the rising U.S. dollar and interest rates,’’ Koon How Heng, senior FX investment strategist at Credit Suisse, said in an interview with Bloomberg TV on Tuesday. “A lot of people don’t realize this because the attention is on demonetization.”The dollar surged to a 14-year high on Tuesday before paring gains after a report showed American manufacturing expanded at the fastest pace in two years in December, taking gains since the U.S. election to more than 6 per cent. A stronger greenback and rising Treasury yields lead to capital outflows from developing markets, weakening local currencies. Less reliance on exports and one of the world’s fastest economic growth rates will help make India a safer investment destination this year, said Heng.
Turnaround
India’s basic surplus swelled to a record US$30 billion in the 12-month period ended September as Modi’s measures to attract foreign direct investments took hold, said Heng. That’s a turnaround for a country struggling with “deep deficits” of about US$50 billion in 2012-2013, he said. “EM countries with strong basic surpluses are better poised to
withstand risks of capital outflows,” he said, contrasting India’s outlook with Indonesia, which has been running fiscal and large current-account deficits. “This year will be a year of dollar dominance.” “This twin deficits makes the rupiah very susceptible to any capital outflows and bouts of volatility,” he said. “This is why the Indonesian currency weakened significantly in the week following Trump’s successful election in early November.” India’s economy will grow 6.9 per cent in the year through March as the banknote recall triggers a slowdown, according to the median estimate in a Bloomberg survey published late last month. That’s slower than the 7.3 per cent predicted by a survey in November and the previous year’s 7.6 per cent actual expansion. Still, analysts expect the impact to be transient. Morgan Stanley predicts expansion of 7.6 per cent next year, according to a Dec. 8 report. The government is due to publish its first growth estimate for the year through March on Friday. The rupee weakened 2.6 per cent last year, its sixth straight annual decline against the dollar. Bloomberg
The project is expected to help reduce transportation costs for oil products and ensure energy security for Laos Many investors have expressed interest in the planned construction of an oil supply pipeline project that will transfer petrol from Vietnam to Laos, Lao Minister of Energy and Mines, Khammany Inthilath has said. Initially, Lao Petro Company was set to solely invest in the 500 million US dollar project, but many fuel companies later expressed an interest in joining the proposed project. Finally it was decided that the project would be fully financed by investors, reported local daily Vientiane Times on Thursday. The investors are seeking finance to realize the 306 kilometre pipeline project, which will carry diesel and petrol from a wharf at the Hon La coastal port in Vietnam’s Quang Binh province to Laos’ Khammuan province, said the report. Assistant President of Lao Petro Company, Veth Malavong confirmed that many fuel companies have expressed their interest in joining the development of the project, including Lao State Fuel Company. “We will welcome business partners to join the project development,” Veth told media on Wednesday. The feasibility study for the project is being finalised and is expected to be submitted to Lao government for consideration in Feburary, Veth said.
Two pipelines
The project, which has been supported by the governments of Laos and Vietnam, would involve the building of two pipelines to carry diesel and petrol, as well as constructing warehouses and pumping stations. The bonded warehouse at Hon La seaport is expected to be capable of storing 300,000 to 500,000 cubic metres of fuel products; Another 100,000-200,000 cubic metre
warehouse will also be built in Lao Khammuan’s Thakhek district. A bonded warehouse is a building in which dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty. Transporting oil products via the pipeline between Hon La seaport and Khammuan is seen as a convenient route thanks to the short distance between Quang Binh and Laos. The project is expected to help reduce transportation costs for oil products and ensure energy security for Laos. Minister Khammany said there is another idea to build a refinery plant in Laos and import unrefined oil through the pipeline to be fully processed in Laos in order to reduce energy costs, saying that crude oil on the global market is cheap. However, he added that proper studies are needed to research potential social and environmental impacts of importing crude oil for a refinery. Xinhua
12 Business Daily Friday, January 6 2017
Asia Fiscal
Japan’s monetary base hits record high by end-2016 The Japanese central bank has been bolstering liquidity as part of its ongoing efforts to achieve its inflation target of 2 pct
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apan’s monetary base reached a fresh record high by the end of 2016, as the Bank of Japan (BOJ) continued its efforts to combat deflation by pumping the markets with liquidity, the central bank said Thursday. According to the latest BOJ data, the monetary base at the end of 2016 stood at 437.43 trillion yen (US$3.76 trillion), up for the tenth consecutive year to a record high. Balance of financial institutions’ current account deposits at the BOJ, the biggest component of the monetary base, stood at 330.23 trillion
yen, up by 30.5 per cent on year. Cash in circulation, another component of the monetary base, stood at 107.2 trillion yen, up by 4 per cent compared to the end of 2015. The Japanese central bank has been bolstering liquidity as part of its on-going efforts to achieve its inflation target of 2 per cent, though falling consumer prices keep hampering the achievement of the target. Japan’s core consumer prices dropped 0.4 per cent year-on-year in November 2016, marking the ninth successive month of decline, as a
result of falling prices of energy. The BOJ has decided to keep its monetary policy unchanged following a two-day policy meeting last month, including continuing
expanding the monetary base until the year-on-year rate of increase in the observed CPI exceeds 2 per cent and stays above the target in a stable manner. Xinhua
Forex
S.Korea plans US$1 bln FX bond sale, fresh measures on housing market South Korea last sold dollar bonds in June 2014, when it issued US$1 billion of 30-year notes at 4.14 pct M&A
United Engineers said to seek bids for century-old company At least 10 parties including regional property developers, private equity firms and real estate funds have indicated interest Joyce Koh and Pooja Thakur
United Engineers Ltd.’s largest shareholders have started formally assessing buyer interest in the century-old Singapore property group, according to people with knowledge of the matter. The major shareholders of the company, which has a market value of S$1.7 billion (US$1.2 billion), have been sending preliminary financial information on United Engineers’ business to potential bidders since the end of December, the people said. At least 10 parties including regional property developers, private equity firms and real estate funds have indicated interest, the people said, asking not to be identified because the information is private. First-round bids are due by the end of this month, according to the people. Shares of United Engineers rose as much as 4.3 per cent Thursday in Singapore, the biggest intraday gain in nearly three weeks, before trading was halted pending an announcement. United Engineers’ biggest owners, Singapore lender Oversea-Chinese Banking Corp. and its insurance unit Great Eastern Holdings Ltd., said in September they were reviewing strategic options for their combined stakes in the company. “Investors looking to buy these assets would be looking at it as a play on yields,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. “A
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yield of at least five per cent on the assets would make them attractive.”
Keen eyes
United Engineers has been selling non-core assets in recent years, including stakes in property management companies in China, a Singapore luxury car distributor and an Indonesian steel fabrication business. Its current property portfolio includes Singapore shopping centers like Rochester Mall and Seletar Mall and mixed-use developments such as UE BizHub City, as well as condominiums, hotels and serviced apartments, according to its website. “The reported keen bidding for this portfolio is not surprising,” P ri y a ra n ja n K u m a r, r egi o n a l executive director of capital markets at Cushman & Wakefield Inc. in Singapore, said by e-mail Thursday. “One would expect pricing to reflect a premium to book value, given the strategic value of the assets and the significant time and risk that anyone would otherwise take to replicate a portfolio of this size in Singapore.” Representatives for OCBC and United Engineers declined to comment. OCBC, Great Eastern and the bank’s founding Lee family own more than 30 per cent of United Engineers, people with knowledge of the matter said in September. Buying their shareholdings would trigger a mandatory takeover offer for the company under Singapore rules. Bloomberg
South Korea’s finance ministry said on Thursday it plans to sell about US$1 billion of foreign exchange stabilization bonds this year to strengthen its reserves against currency market volatility and the risks of capital outflows in 2017. In its annual report detailing top priorities for this year, the ministry said the plan is to “secure more foreign currency funds to prepare for any increase in volatilities,” without giving further details about arrangers or the timing. South Korea last sold dollar bonds in June 2014, when it issued US$1 billion of 30-year notes at 4.14 per cent, according to the finance ministry. Then, the extra yield investors demanded to hold South Korea’s sovereign securities instead of U.S. Treasuries was 72.5 basis points. “Demand will be solid for the debt given Korea’s resilient economic fundamentals, but now is a tricky time to issue,” Kim Doo-un, a fx analyst at Hana Futures said. “It could be tough to issue at a competitive borrowing cost given there are uncertainties related to the Federal Reserve’s policies and Donald Trump administration as he takes office soon.” Credit rating agency Standard &
Poors upgraded South Korea’s sovereign rating by one notch to AA in August 2016. Still, political risks related to a corruption scandal engulfing President Park Geun-hye are clouding the outlook for a successful offering as it hurts investment sentiment for Asia’s fourth-largest economy. Park could become the nation’s first democratically elected leader to leave office early after parliament voted to impeach her in December over a corruption scandal. The constitutional court has up to 180 days to approve or overturn the decision. The won is hovering around the weakest level since March 2016 against the dollar as investors gradually relocate their funds from emerging markets to the United States in expectations of higher yields.
New housing measures
The ministry also said it will come up with fresh measures in the first half of this year to curb risks in the housing market, saying it would take a targeted approach according to conditions in different parts of the country. South Korea said in November that it plans to limit resales of newly built homes in Seoul and some parts of Busan to curb overheating of the property market. The targeted approach would be necessary due to heated competition for new apartments in some regions, such as the affluent Gangnam district of Seoul, while other areas are suffering from an oversupply of homes. Separately, the trade ministry said it does not expect any renegotiation in the bilateral free trade agreement between South Korea and the United States. “We do not expect a renegotiation to take place as we have been explaining to them how the FTA has been mutually beneficial for both parties, and we will continue to do so going forward,” vice trade minister Jeong Marn-ki said in an embargoed briefing for the ministry’s annual work report. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Friday, January 6 2017 13
Asia Currency
In Brief
South Korea may be named currency manipulator, think tanks warn Of the three criteria laid out by the U.S. Treasury to determine if currency practices are unfair, Korea matched two in the October report Jiyeun Lee
A
s Donald Trump prepares to be sworn in as U.S. president, state-run think tanks in South Korea are raising the possibility of the country being labelled a currency manipulator along with China. Korea was listed in the U.S. Treasury Department’s currency watch list in October, along with China, Japan, Germany, Taiwan, and Switzerland, for meeting two of the three criteria used to monitor currency practices. There’s concern in Seoul that the U.S. may adjust the criteria so Trump can make good on his pledge to brand China a currency manipulator within 100 days of taking office, and that changes could also apply to South Korea. While Trump’s focus with Korea has been more on the free trade agreement with the U.S. and how it has affected his country’s trade deficit,
the Korea Institute for International Economic Policy warned in a Jan. 4 report that changes to the criteria would bring a “high possibility” of Korea being tagged a manipulator. The think tank also noted that the U.S. may target smaller economies like Taiwan and Korea before China.
Previous warnings
The Institute of Foreign Affairs and National Security, run by the foreign ministry, also warned last month of the possibility of Korea being labelled a manipulator in the first half of 2017. It said the government should focus on persuading U.S. officials that Korea’s export competitiveness is not maintained via the exchange rate. Finance Minister Yoo Il-ho told reporters over the weekend that he doesn’t think the nation will be named a manipulator, citing the current criteria. He added that he’s aware of concerns that the U.S. targeting China may result in Korea
being bundled into the manipulator label. Of the three criteria laid out by the U.S. Treasury to determine if currency practices are unfair, Korea matched two in the October report: an economy having a significant bilateral trade surplus with the U.S. and a material current account surplus. China matched one. The other criteria is engaging in persistent, one-sided intervention in the currency market. Korean authorities have repeatedly sai d that th e y o n l y p e rf o r m “smoothing operations” when volatility in the currency markets is high, and that they don’t target a specific direction or level. Korea’s trade surplus with the U.S. was more than US$23 billion in 2016, and its current-account surplus is expected to amount to US$97 billion in 2016, close to seven per cent of gross domestic product. The latest official verbal intervention by Korea’s finance ministry and central bank was in February 2016, aimed at easing rapid won weakness to beyond 1,220 per dollar. The won has weakened for the last three straight years. It appreciated in 2013 and 2012. Bloomberg
Award
Int’l Olympic Committee gives prestigious award to Cambodian PM The International Olympic Committee (IOC) has awarded the “IOC President’s Trophy” to Cambodian Prime Minister Samdech Techo Hun Sen in recognition of his efforts in developing sports, the National Olympic Committee of Cambodia (NOCC) said on Thursday. The award was to honor his outstanding contributions and efforts in developing sports in Cambodia as well as promoting the Olympic Movement in building a peaceful and better world through sports and Olympic ideals, the NOCC said in a statement. “This trophy is the most prestigious award of the IOC that is given to Samdech Techo Hun Sen to honor himself personally and the nation as a whole,” said the statement, adding that the award was a pride for Cambodia. According to the statement, IOC’s executive board member Ng Ser Miang will present the trophy to the prime minister on Jan. 25 at the Peace Palace in the capital city of Phnom Penh. Technology
Sony’s new high definition TV has a screen that’s also a speaker
Energy
Japan governor tells Tepco bosses nuclear plant to stay shut The Japanese government last month nearly doubled its projections for costs related to the disaster to US$185 bln Kentaro Hamada
The governor of Japan’s Niigata prefecture reiterated his opposition to the restart of Tokyo Electric Power’s (Tepco) Kashiwazaki-Kariwa nuclear plant, adding it may take a few years to review the pre-conditions for restart. During a meeting on Thursday with Tepco Chairman Fumio Sudo and
President Naomi Hirose, Governor Ryuichi Yoneyama, who was elected in October on his anti-nuclear platform, repeated his pledge to keep the plant shut unless a fuller explanation of the 2011 Fukushima nuclear disaster was provided. He also said that evacuation plans for people in Niigata in case of a nuclear accident and the health impacts that the Fukushima accident have had
would need to be reviewed before discussing the nuclear plant’s restart. The restart of the Kashiwazaki-Kariwa plant, the world’s largest, is key to helping Tepco rebound from the aftermath of the 2011 disaster at its Fukushima-Daiichi plant.
Reactions
The Japanese government last month nearly doubled its projections for costs related to the disaster to 21.5 trillion yen ($185 billion), increasing the pressure on Tepco to step up reform and improve its performance. Many of Japan’s reactors are still going through a relicensing process by a new regulator set up after the Fukushima disaster, the world’s worst since Chernobyl in 1986. Shutting the Kashiwazaki-Kariwa plant for additional years would mean that the company would have to continue relying heavily on fossil fuel-fired power generation such as natural gas. Governors do not have the legal authority to prevent restarts but their agreement is usually required before a plant can resume operations. Three reactors at Tepco’s Fukushima-Daiichi nuclear plant melted down after a magnitude 9 earthquake struck Japan in March 2011, triggering a tsunami that devastated a swathe of Japan’s north-eastern coastline and killed more than 15,000 people. Reuters
Sony’s XBR-A1E Bravia 4K is the electronics maker’s first commercial foray into the niche market for televisions that use OLED, or organic light-emitting diode, technology. While the vivid, power-sipping screens have found their way onto smartphones, the cost of making them has so far limited their appeal for TVs. What’s different about Sony’s new A1E TV, however, is that the screen doubles as a speaker. By vibrating the display itself, Sony said it will be able to offer the “perfect unification of picture and sound unattainable by conventional TVs.” This is possible because OLED screens don’t require a backlight, according to the Tokyo-based company. While Sony didn’t announce pricing or a sale date for its new flagship TV, it’s a rare glimmer of innovation for a company that once embodied cutting-edge audio-visual design and technology. The new OLED could help the company get some of that shine back. Finance
Vietnam’s credit growth set to hit 18 pct in 2017: central bank Vietnam has set a credit growth target of 18 percent for 2017, according to the State Bank of Vietnam (SBV) Deputy Governor Nguyen Thi Hong on Thursday. Pledging to continue measures to keep credit growth suitable to the country’s economic development, Hong said the measures are aimed to ensure the safety and efficiency of the banking sector and the economy, reported local Vietnam News online newspaper. Nguyen Duc Long, deputy director of the SBV’s monetary policy department, said credit of the whole 2016 grew by 18.71 percent compared to the end of 2015, falling within the range of credit growth rate of 18-20 percent targeted for 2016.
14 Business Daily Friday, January 6 2017
International Electricity
Tesla flips the switch on the Gigafactory The start of mass production is a huge milestone in Tesla’s quest to electrify transportation, and it brings to America a manufacturing industry that’s long been dominated by China, Japan, and South Korea
idden in the scrubland east of Reno, Nev., where cowboys gamble and wild horses still roam—a diamond-shaped factory of outlandish proportions is emerging from the sweat and promises of Tesla CEO Elon Musk. It’s known as the Gigafactory, and today its first battery cells are rolling off production lines to power the company’s energy storage products and, before long, the Model 3 electric car. The start of mass production is a huge milestone in Tesla’s quest to electrify transportation, and it brings to America a manufacturing industry—battery cells—that’s long been dominated by China, Japan, and South Korea. More than 2,900 people are already working at the 4.9 million square-foot facility, and another 4,000 jobs (including temporary construction work) will be added this year through the partnership between Tesla and Panasonic. By 2018, the Gigafactory, which is less than a third complete, will double the world’s production capacity for lithium-ion batteries and employ 6,500 full-time Reno-based workers, according to a new hiring forecast from Tesla. The company’s shares, having touched their highest point since August, closed up US$10 at US$226.99 in New York trading.
unreachable deadlines. After missing almost every aggressive product milestone it set for itself over the last decade, Tesla must prove to investors and customers that it can stay on schedule for its first massproduced car. Th e re a re prom i si ng si g ns. Wednesday marked the third successful target Tesla met for the New Year. The company fulfilled its promise to rapidly complete a massive battery storage project to back up the grid in California; it promptly rolled out promised software upgrades to cars equipped with new Autopilot hardware ; and now its begun battery cell production at the Gigafactory. That said, the company did fall short of its target to deliver 80,000 cars in 2016, reporting just 76,230 completed in time. The Gigafactory itself is moving ahead briskly. The hiring plans put Tesla and Panasonic two years ahead of their original agreement with the state of Nevada. The company initially promised to provide fulltime jobs to 4,000 local residents by 2019 and 6,500 jobs by 2020. In May, Tesla moved its forecast for peak battery production at the Gigafactory up two years, to 35 gigawatt hours of cell production and 50 gigawatt hours of pack production by 2018. It was an audacious move that Wall Street, at the time, mostly shrugged off as impossible.
The expansion of the Gigafactory
Battery power
Tom Randall
H
The full activation of the Gigafactory carries existential significance for Tesla, representing a new sense of urgency at a company known for its
For Tesla to succeed, battery production is crucial—there simply aren’t enough lithium-ion batteries being made anywhere for Tesla to
achieve its goal of 500,000 Model 3 sales by 2018. Equally problematic is the fact that current market prices are too high for the US$35,000 car to be profitable. Tesla took its unprecedented leap into the desert in the hope that the massive scale of the US$5 billion Gigafactory would drive down costs, and demand would arrive just in time to keep it all afloat. Batteries are the limiting factor for electric cars, but few automakers have made a similar commitment to producing them, choosing instead to let suppliers like LG Chem and Samsung shoulder the risk. In 2015, 88 per cent of the global lithium ion cell manufacturing took place in China, Japan, and South Korea, according to a report by the Clean Energy Manufacturing Analysis Centre. Making America a central player in the battery production marketplace isn’t just about cars. Tesla is also building battery packs to power homes and back up the electric grid. In September, the company announced a deal to supply a record 20 megawatts/80 megawatt-hours of energy storage to Southern California Edison as part of a wider effort to prevent blackouts, replacing fossilfuel electricity generation with lithium-ion batteries. The Powerpacks were assembled at the Gigafactory, using imported versions of the new 2170 cell format Panasonic designed with Tesla, and deployed in record time. Thus an energy-storage project that would previously have taken years was completed in less than four months. The cells produced at the Gigafactory today will be used to fill more energystorage products until cell production for the Model 3 begins in the second quarter, according to Tesla. Tesla also aims to begin shipping the Powerwall 2 home batteries by the end of January, at prices that by some estimates are 30 per cent cheaper than the closest competitor.
“We believe Tesla battery sales are accelerating,” said Baird analyst Ben Kallo, who recently listed Tesla as the best stock pick for 2017. “The ramp of Tesla Energy and Model 3 production could exceed expectations.” The storage products fit into Musk’s long-term vision of transforming Tesla from an electric car company to a clean-energy company. That’s the same motivation behind his recently concluded deal to acquire SolarCity Corp., the largest U.S. rooftop solar installer. Last week, the company reached a deal with Panasonic to expand its relationship to produce solar cells in Buffalo, N.Y., bringing some 1,400 jobs to the region.
Standing apart
At a time when President-elect Donald Trump has taken to Twitter to skewer manufacturers for moving jobs to Mexico or China, Tesla sits apart as an all-American carmaker, battery maker, and solar producer. About 95 per cent of the Model 3’s components will be made in the U.S., and 25,000 of the company’s 30,000 employees are based there. Musk, who visited Trump recently in New York City, was named to a strategy group to advise the new Republican president. Betting on batteries is a risky business. Prices worldwide fell 22 per cent in 2016 and will drop another 15 per cent to 20 per cent in 2017, according to forecasts by Bloomberg New Energy Finance. For electric carmakers, that’s a good thing, but for battery producers it makes it difficult to stay ahead of the industry. Those price declines may soon slow, as prices boil down to unyielding raw-material costs. Some battery makers are already struggling to profit in the increasingly competitive environment. It’s not clear yet whether Tesla’s bet on batteries was the right one, at the right time. But after today, we’re another step closer to finding out. Bloomberg
Business Daily Friday, January 6 2017 15
Opinion Business Wires
Phnom Penh Post A marketing initiative rolled out last year that provides monetary incentives to airlines that use Sihanoukville’s airport for international flights has been credited in part with encouraging airlines to open new routes and increasing the amount of passenger traffic to the coastal airport. Last January, Cambodia Airports, the French-owned firm that operates the Kingdom’s three international airports, began offering airlines US$10 per passenger on international scheduled flights departing from Sihanouk International Airport, to a maximum of US$1,000 per flight. The incentive program aimed at offsetting the costs for airlines establishing scheduled service to the little-used airfield. Khek Norinda, spokesman of Cambodia Airports, said yesterday that the success of the program prompted the company to continue it for another year.
Taipei Times The commercial property market might recover modestly this year from a sharp decline last year as investors gain confidence to increase stakes amid an improving economy at home and abroad, international real-estate consultancies said yesterday. “Investors sidelined by Brexit and the US presidential election might feel more comfortable taking action this year, as the market has been pretty stable thus far,” Jones Lang LaSalle Inc managing director Tony Chao told a media briefing in Taipei. Excessive savings, defined by the consultancy as the amount of savings minus loans, totalled NT$9.6 trillion (US$297.58 billion) and part of those funds could be guided to real-estate investments to generate better returns, Chao said.
Bangkok Post The tourism boom is expected to continue in 2017 and remain a major growth driver for the economy even as the industry sees falling Chinese arrivals in the first few months. The crackdown on zero-dollar tours in September negatively affected arrivals from China, but authorities and private tourism operators are confident they will gradually return. The Tourism and Sports Ministry projects tourism revenue in 2017 will reach 2.71 trillion baht, of which 1.78 trillion will come from foreign tourists, growing 8.5 per cent from 2016, and 930 billion will stem from domestic tourists, up 7.5 per cent. This target has been increased from 2.6 trillion baht forecast earlier, and is 8.2 per cent higher than the 2.5 trillion baht expected in 2016. The number of international tourists to Thailand is expected to reach 35 million in 2017, up from 32.5 million in 2016. The Fiscal Policy Office predicts the Thai economy will expand by 4 per cent in 2017.
Can the EU Survive populism?
A
nother year, another threat to the European Union’s survival. The good news is that the greatest disruption of 2016, Britain’s vote to exit the EU, appears manageable. The bad news is that both France and Italy face the prospect of a populist political takeover this year. Either outcome could well spell the end of the EU. The EU has lately become a prime target for populists. The phenomenon first took hold in Greece, when the left-wing Syriza party came to power in January 2015. But Syriza was not trying to pull Greece out of the EU; rather, it wanted a better deal with the country’s creditors, who had imposed devastating austerity measures on Greek citizens. Syriza’s approach largely reflected the will of the people. In a June 2015 referendum, voters overwhelmingly rejected a deal proposed by Greece’s creditors that would have meant even more austerity. Yet the government’s acceptance of a largely unchanged deal just a few days later received broad support. Greek voters understood that better terms were not worth losing eurozone membership. To be sure, not everyone considered EU membership to be worth the sacrifice. But there was an air of practicality in popular criticism of the EU, which largely focused on what the EU did, especially in the economic sphere. That is why such criticism has been loudest in the countries that were hit the hardest by the euro crisis, or that faced austerity, or, more recently, that felt left behind by trade agreements. That is no longer the case. Right-wing populism has gained traction in strong economies (Austria) and in countries where the benefits of EU membership are palpable (Hungary and Poland). In France, there was never any EU-imposed austerity; even European Commission President Jean-Claude Juncker admitted that the EU’s budget rules cannot actually be imposed on France, “because it is France.” Now, populists are focused not on what the EU does, but what it represents. Instead of asking whether the EU is making people richer or poorer, populists are focused on a more fundamental and powerful question: “Who are we?” At a time of large-scale immigration, this shift is not surprising. Societies that have long defined themselves according to shared background and culture now must struggle with the implications of multiculturalism. That is why most observers of populist parties, especially of right-wing parties, have focused on attitudes toward foreigners and minorities. With the shift toward identity politics – a terrain that is not particularly amenable to compromise – has come a shift in attitudes toward democratic institutions. Populist leaders operate on the assumption that the will of the “people” – as defined by the populist – should not be institutionally constrained. This controverts the fundamental premise of liberal democracy: that the power of the majority must be limited, not least to protect minorities, electoral and otherwise. Limits on the power of the majority of the moment are typically achieved through what Americans call “checks and balances,” which include, for example, an independent judiciary and super-majority requirements to alter fundamental elements of the political system. And such limits usually work, at
“
Daniel Gros Director of the Center for European Policy Studies
least for the most part. In the United Kingdom, for example, three High Court judges ruled that only Parliament – not the government – can trigger Article 50 of the Treaty of Lisbon, the formal process for leaving the EU. But populist politicians chafe under such constraints. Hungarian Prime Minister Viktor Orbán has not only openly stated his preference for an “illiberal” democracy; he has worked to dismantle checks on his government’s power. The same goes for Poland’s populist government, whose de facto leader, Jarosław Kaczyński, doesn’t even hold a formal position in the administration. Given their contempt for independent institutions, it is not hard to see why populists oppose the EU, which is, in a sense, the quintessential liberal democracy: governed by impersonal rules, rather than by the majority of the moment, with most decisions requiring either a super-majority or unanimity. For populists, the EU represents significant added constraints that are even harder to push past than domestic checks. That makes it a problem. In another sense, however, the EU suffers from insufficient democracy: as populist leaders routinely point out, its leaders in Brussels are unelected. (Populists use similar arguments to deny the legitimacy of, say, national courts.) The reality, of course, is that democratically elected governments and parliaments install EU leaders and bureaucrats (and independent judges) precisely to place limits on the majority of the moment and future governments. But populists reframe their followers’ understanding of this system, by declaring that such officials are part of the “elite,” selected by their fellow elites to frustrate the will of the people. There is little that mainstream politicians, much less EU officials, can do to counter this narrative. Some national politicians succumb to popular pressure, adopting the rhetoric – and even the program – of their populist adversaries. But the EU can do no such thing, without effectively hastening its own demise. When the problem was what the EU did, there was a possible solution: the EU could change tack on economic issues. And, indeed, the Commission has de facto abandoned austerity. Likewise, the EU’s new trade deal with Canada, signed in October, was concluded only after working out elaborate compromises. But the EU cannot change what it represents. It cannot accept, much less advance, the notion that checks and balances are obstacles to progress, or that foreigners threaten the European way of life. It cannot offer the kinds of radical, impossible, or illiberal solutions that populists use to win support. The EU must remain a bulwark of liberal democracy, with all of its unsexy yet necessary rules and procedures. In the current environment, this lumbering embodiment of a multi-level democracy and open economy cannot compete with populists’ lofty promises. When populists fail to deliver, however, it is back to the EU that the public will run. One only hopes that there will still be an EU waiting for them.
Instead of asking whether the EU is making people richer or poorer, populists are focused on a more fundamental and powerful question: “Who are we?”
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16 Business Daily Friday, January 6 2017
Closing Settlement
Deutsche Bank said to eye private equity help in settlement The deal could draw protests from consumer activists who argue that banks have not done enough to provide relief to borrowers Matt Scully
D
eutsche Bank AG is supposed to give relief to subprime mortgage borrowers as part of a US$7.2 billion settlement with the U.S. government. It is considering an unusual approach to meeting that requirement: lending money to private equity firms and hedge funds. Germany’s biggest bank, dogged last year by questions about its capital levels, is exploring ways to avoid using its balance sheet to buy soured mortgages that it can partially forgive, according to a person with knowledge of the matter. One option it’s reviewing is to instead lend to firms like Lone Star Funds, which specialize in buying bad mortgages from government auctions and lowering
consumers’ obligations. Amanda Williams, a spokeswoman for Deutsche Bank, declined to comment. Preliminary terms of the agreement with the Department of Justice included US$4.1 billion of relief to borrowers over at least five years, Deutsche Bank said last month. The bank is still finalizing the settlement that resolves a years-long U.S. investigation into its dealings in mortgage-backed securities. It’s not clear that the government would allow it to get credit for borrower relief by financing these funds, the person said. Other banks that have settled with the U.S. have bought loans, or have received credit for modifying loans they made themselves, even if they no longer owned them. “Lending money to private equity or hedge funds would tie up a vastly
smaller amount of capital than taking a soured security onto the balance sheet and writing it down to basically zero,” said Piers Brown, an analyst with Macquarie Bank Ltd. “The question is, will the DOJ accept this? They have accepted a lot of fudges from banks before and it would be weird for them to tighten on Deutsche Bank.”
Borrower relief?
If Deutsche Bank does go this route and the government approves it, the deal could draw protests from consumer activists who argue that banks have not done enough to provide relief to borrowers. Investors have had no trouble getting funding to buy bad loans from Fannie Mae and Freddie Mac, and the government doesn’t need to encourage banks to finance those bids, said Julia Gordon, an executive vice president at the National Community Stabilization Trust, a nonprofit that focuses on housing. The bank may also look to get credit for any prior financing it provided to investors like private equity firms, the person said, asking not to be identified because the matter is not public. The Justice Department declined to comment. Deutsche Bank’s settlement is the latest in a string of deals with big banks designed to hold the lenders accountable for excesses in mortgage-backed securities that helped inflate the housing bubble. The Department of Justice has extracted more than US$50 billion from banks in these agreements. The German bank’s deal features more consumer relief in percentage terms than prior settlements, which helped lift the company’s shares when it was announced late last month.
Bearing burden
The borrower relief provisions of these settlements have garnered criticism from investors, community groups and others, which have said that the banks have not had to bear the burden of the aid offered. Bank of America Corp., for example, received credit for relief on loans it originally made but had sold, and that others
had modified. Lawmakers including Elizabeth Warren joined with consumer groups in 2015 to criticize the kind of government auctions where Deutsche Bank would be funding bidders, saying that investment firms that buy soured loans often rush to foreclose on borrowers instead of modifying their mortgages. The agencies that run or help oversee the auctions, including Fannie Mae, Freddie Mac, their regulator, and the U.S. Department of Housing and Urban Development, have changed the rules to make it easier for non-profits to buy loans. A spokesman for HUD referred to an October 2016 report that shows that the agency has been reaching out to non-profits.
Lone Star
It may make sense for banks to have an incentive in their settlements to work with non-profits in auctions rather than investors like private equity firms to earn credit for mortgage relief, said National Community Stabilization Trust’s Gordon. “It’s outrageous to get credit for financing private equity firms,” Gordon said. “I don’t see how that helps the public good.” One of the firms that came up in Deutsche Bank’s internal conversations about the settlement is Lone Star Funds, which is among the most active at the auctions, the person said. The Dallas-based private equity manager won US$3.9 billion worth of mortgages during a single sale in 2014. The firm has been described by its own investors as “one of the best, if not the best” in the business of profiting from soured home loans. Christina Pretto, a spokeswoman for Lone Star, said that the company believes there is an opportunity to repair abandoned houses and modify mortgages to keep borrowers in homes, and that it views foreclosure as a last resort. It has kept more than 54,000 people in their homes since 2008, she said. Deutsche Bank is looking to avoid directly holding subprime mortgage assets because under new regulations the loans must be funded with relatively high levels of capital. Bloomberg
Inflation
Politics
Tourism
Philippine inflation up to 2.6 pct in December
Tillerson discloses global assets Brazil sees record high number of as much as US$400 million of foreign visitors in 2016
Philippine inflation increased to 2.6 per cent in December, bringing the average full-year 2016 inflation to 1.8 per cent, the National Economic and Development Authority (NEDA) said Thursday. Inflation in November was at 2.5 per cent. “The uptick in inflation last month was caused by price increases partly due to the holiday season and supply constraints on some food items,” said Socioeconomic Planning Secretary Ernesto M. Pernia, also NEDA director general. The full-year 2016 inflation of 1.8 per cent is below the government’s target range of 2.0 to 4.0 per cent for the year, but higher than the 1.4 per cent of 2015, he said. Excluding selected food and energy items, core inflation increased 2.5 per cent in December, the Philippine Statistics Authority said. Pernia said for 2017 and 2018, the government expects inflation to be within the target range of 2.0 to 4.0 per cent. This already considers the scenario of higher oil prices, pending petitions for adjustments in electricity rates, but especially, strong domestic economic activity. “The inflation outlook is supported by the country’s brisk domestic demand conditions, buoyed by solid private household spending, higher government expenditure, and adequate domestic liquidity,” said Pernia. The damage to rice resulting from three typhoons could also lead to faster inflation in early 2017, he said, noting that rice comprises a sizable portion of the Consumer Price Index basket. Xinhua
Rex Tillerson, President-elect Donald Trump’s pick for U.S. secretary of state, disclosed assets worth as much as US$400 million in a federal ethics filing that reflected investments spanning more than a dozen nations. If confirmed by the U.S. Senate, Tillerson will recuse himself for a year from government decisions involving Exxon Mobil Corp., where he served as chairman and chief executive officer until Jan. 1, according to a separate filing posted by the Office of Government Ethics on Wednesday. Because the company explores for oil and natural gas on six continents, he may have a lot of recusing to do. Tillerson stands to receive a cash payout of roughly US$180 million from Exxon in lieu of restricted stock awards that have yet to vest, the company said Tuesday. In his ethics filing, Tillerson said that money would be placed in an irrevocable trust that would be managed by an independent trustee. In all, Tillerson’s disclosures reflect more than US$300 million in Exxon interests and pension benefits and between US$28.6 million and US$98 million in other assets. Tillerson’s filing says he will divest from 156 different entities within 90 days of his confirmation. To avoid a conflict of interest with the multinational corporation Tillerson also needed to work out a resolution for the deferred compensation package that typically ties former executives’ personal fortunes to Exxon’s performance for a decade after they retire. Bloomberg
Brazil saw a record high 6.6 million foreign tourists in 2016, up 4.8 per cent compared to 2015, which is largely due to the Rio 2016 Olympic and Paralympic Games, according to the Ministry of Tourism. This sharp rise saw foreign tourists inject 6.2 billion U.S. dollars, a 6.2 per cent rise over 2015. In a press conference, Tourism Minister Marx Beltrao said this balance was very positive and showed the country could take advantage of such big events. “The numbers are very positive. In comparison with the international situation, we could still grow significantly. But we have shown we can learn how to take on mega-events in our country,” he pointed out. The largest source of visitors was Argentina, which saw 2.1 million tourists arrive in Brazil. The U.S. comes in second place, with around 600,000 visitors, followed by Chile, Paraguay, Uruguay, France, Germany, Italy, England, Portugal and Spain. Beltrao said that the government hoped to see a 6 per cent rise in foreign travellers, similar to other countries the year after they held the Olympic Games. A poll taken of foreign visitors during the Games showed that over 87 per cent of them intended to come back to Brazil and 94.2 per cent wanted to come back to Rio de Janeiro. Xinhua