Business Daily #1211 January 11, 2017

Report: More than half of start-ups not yet broken even Entrepreneurship Page 2

Wednesday, January 11 2017 Year V Nr. 1211 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Sino-Luso

Forum Macau prioritises the five goals of Premier Li Page 3

Banking

BNU to open Hengqin branch next Wednesday Page 5

www.macaubusinessdaily.com

Davos summit

Financing

Xi Jinping to be first Chinese President to attend World Economic Forum Page 8

Lower borrowing costs in China after gov’t relaxes hold Page 11

Yuan dip: ‘No notable impact’

Finance

The renminbi’s depreciation has no significant impact upon the MSAR. So says Eddie Kong, CEO of BCM Bank. On the sidelines of launching a new branch in the territory yesterday. Meanwhile, the local monetary watchdog says it’s mulling making local acquiring services stricter. Page 5

Park at your peril

MOP206.9 million for 2016.

Up 13.9 pct on 2015. Total traffic fines are taking their toll on drivers and riders alike. The number of fines for illegal parking exceeded one million, the Public Security Police Force told Business Daily.

G2E to launch worldwide legal guide

Gaming A new initiative. Named Global Gaming Legal Guide. To be unveiled during this year’s Global Gaming Expo from May 16 to May 18. Launched by Lex Mundi, the project enables users to compare regulatory differences between jurisdictions worldwide. Page 7

Factories defeat consumers Transport Page 4

HK Hang Seng Index January 10, 2017

22,744.85 +186.16 (+0.83%) Worst Performers

Belle International Holdings

+3.35%

China Resources Power

+2.42%

China Unicom Hong Kong

-1.83%

Hang Seng Bank Ltd

-0.07%

Wharf Holdings Ltd/The

+3.03%

CLP Holdings Ltd

+2.37%

CNOOC Ltd

-1.32%

PetroChina Co Ltd

+0.00%

Hong Kong & China Gas Co

+2.99%

New World Development

+2.24%

CITIC Ltd

-0.70%

China Mobile Ltd

+0.12%

Sino Land Co Ltd

+2.65%

Sands China Ltd

+2.17%

HSBC Holdings PLC

-0.55%

Cathay Pacific Airways Ltd

+0.19%

Want Want China Holdings

+2.45%

China Merchants Port Hold-

+2.16%

Lenovo Group Ltd

-0.20%

Ping An Insurance Group Co

+0.25%

17° 21° 15° 19° 15° 18° 15° 18° 14° 17° Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Inflation China’s producer price growth beat market expectations in December. Supported by rising commodity prices and robust demand. While consumer inflation remained mild, official data showed. Page 8

2 Business Daily Wednesday, January 11 2017

Macau E-commerce

DSE, Alibaba launches training course

Macao Economic Services (DSE) and Hong Kong-based Alibaba Entrepreneurs Fund are organising a training course for local SMEs and young entrepreneurs on e-commerce platforms and developments, according to a press release from DSE. The course seeks to

encourage local start-ups and SMEs to seize the development opportunities of the new business model. The course, taking place in February, will cover the operation and promotion of e-commerce, marketing and client relations. Registration for the course coordinated by the Centre of Technological Productivity and Transfer of Macau (CPTTM) are open until January 19. S.Z.

Entrepreneurship

Survey: Over half start-ups not yet broken even Setting up in the city would, on average, require investment of some MOP1.14 million Annie Lao annie.lao@macaubusinessdaily.com

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ore than half of the city’s start-ups have not yet broken even, according to the latest report of the Entrepreneurship Environment Index released by the SMEs Service Platform.

During the fourth quarter of 2016, only 40.8 per cent of 201 interviewees claimed that they had achieved breakeven for their businesses whilst some 55.7 per cent said they had not yet reached this milestone.

In addition, 15.4 per cent of interviewed entrepreneurs said they had withdrawn from the ownership and management of their businesses, a decrease of 3.6 per cent quarter-on-quarter.

More than half said the main reason for quitting was due to the businesses being unprofitable.

required the highest amount at around MOP2.7 million.

This was followed by businesses related to recreation, culture and sports requiring some MOP2.52 million in investment whilst education-related businesses demanded MOP2.03 million on average.

Other industries requiring lower input included the processing industry (MOP200,000), transport and

warehouse industry (MOP175,000), environmental technology industry (MOP30,000) and event planning industry (MOP100,000).

About 40.8 per cent of interviewees said they were the major funding providers for their business.

Meanwhile, 79.6 per cent of interviewed entrepreneurs engaged in their business ventures full time.

Some 31.3 per cent of respondents were the sole owner of their business, while 68.2 per cent ran the business with partners.

The average time used to prepare for launching a new start-up company

Investment

According to the survey, establishing an SME in the territory required initial investment of some MOP1.14 million (US$142,500) on average.

In particular, food-related business

was about 7.1 months, the survey shows.

In terms of human resources, 83.6 per cent of interviewees said that they hired 5.7 full-time employees on average whilst 71.9 per cent of workers recruited by the interviewees are local residents.

Industries

B y s e c t o r, 76 . 6 p e r c e n t o f entrepreneurs engaged in the personal service industry, with 25.9 per cent in retail; 13.9 per cent in the restaurant sector; 12.4 per cent in food products; and 10.4 per cent in running cafés.

The remaining 20.4 per cent are in the business services industry, only 3 per cent of whom are in manufacturing and construction.

In terms of size, nearly all of these start-ups are small-sized businesses, at 97 per cent of the total. The surveyor classifies those with fewer than 20 employees as small-sized businesses.

Meanwhile, 95.5 per cent of these ventures are located on the Macau Peninsula whilst those located in Taipa and Coloane amounted to only some 4 per cent and 0.5 per cent.

The survey was conducted from October 26 to December 6 last year via telephone interview.

MICE

Land

China Expo Forum first to be held in Macau

Antonio Ng pushes land reclamation for locals only

Executive member of Macao Trade and Investment Promotion Institute (IPIM) Irene Lau said the 13th edition of China Expo Forum for International Co-operation, which will be held in Macau for the first time, has the highest number of Lusophone countries participations.

According to local broadcaster TDM Radio News, the MSAR Government will be responsible for operation fees, with a budget of up to MOP7 million (US$876,325).

Meanwhile, Deputy Director of the Department of Exposition of

the China Chamber of International Commerce, Wang Rui, commented that Macau’s exhibition industry has positive potential, while noting that the sector has insufficient support due to the limited space of the city.

Wang added that it would be comparatively more advantageous for Macau to develop the conference industry than exhibitions.

The 13th edition of the Expo will be held in Macau from January 12 to 14, with some 800 exhibition specialists and businessmen from 25 different countries attending. C.U.

Legislator Antonio Ng Kuok Cheong is urging the MSAR Government to ensure the city’s land reclamation areas are developed to fulfill the housing demands of local residents.

In his latest written interpellation, the directly elected legislator queried whether the authorities could guarantee that the future development of the reclamation areas would be prioritised for local housing rather than for paying off land debts, given it has not yet approved any private projects in the zones.

He urged the government to make pledges prior to the completion of the reclamation works so that the city’s new land would not be exchanged for other idle plots seized by the government.

In addition, the legislative member suggests that the purchase of new residential units in the reclamation areas should be restricted to local permanent residents with no more than one residential unit, in order to ensure the fairness of buying new residential units for first-time home buyers. A.L.

Business Daily Wednesday, January 11 2017 3

Macau

Forum Macau

Getting down to it Achieving the five measures for developing Macau as a Sino-Luso platform by 2019 will be the priority for Echo Chan Keng Hong following her return to the role of Deputy Secretary-general of Forum Macau Nelson Moura nelson.moura@macaubusinessdaily.com

F

ulfilling the five goals set for Macau by Chinese Premier Li Keqiang will be the priority for Echo Chan Keng Hong, who has returned to the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries as Deputy Secretary-general.

“We’ll work to turn Macau into a special economic platform between Portuguese-speaking countries and Mainland China, to launch a confederation of businessmen from Lusophone countries, and to develop the

centre for young entrepreneurs and for bilingual professionals formation, and to construct the complex for Forum Macau,” said Ms. Chan at the Spring Reception of Forum Macau yesterday.

The five measures were part of the 18 measures that China plans to implement in order to enhance its financial co-operation with Portuguese-speaking countries in Africa and Asia as announced by Premier Li Keqiang at the 5th Ministerial Conference in October.

Questioned if the announced relocation of the US$1 billion (MOP8 billion) headquarters of the Fund for Co-operation Between China and the

Portuguese-speaking Countries from Beijing to Macau would take place this year, Ms. Chan only responded that the negotiations “are going well”, whilst “all efforts” would be made for the relocation to take place this year.

According to local broadcaster TDM, some developers have requested the public tender deadline for the project be extended for one month due to the changes in the presented development plans and the absence of the plans in Portuguese.

Saying the matter falls under the Land, Public Works and Transport Bureau (DSSOPT), the Deputy Secretary-general claimed Forum Macau was unaware of the requests of contractors and architects.

The complex - which will be built on plots C15 and C16 in Zone C near Nam Van Lake and will occupy an area of approximately 14,200 square metres - will serve as the meeting venue for Forum Macau.

Regarding the possible entry of Sao Tome and Principe into Forum Macau following the African Lusophone country nreaking diplomatic relations with Taiwan and reinstating relations with China, Ms. Chan said

the organ is open to receiving requests from the country but that there were no developments at the moment.

The return

This was her first public event after returning to the position she resigned in November 2015 for personal reasons.

She said that her return to the organ was per the invitation of the Secretary for Economy and Finance Lionel Leong Vai Tac, saying she “had much pleasure doing the job” during her previous brief eightmonth tenure.

The Secretary-general of Forum Macau, Xu Yinzheng, perceives Ms. Chan is the “right person” to help develop the initiatives set until 2019 due to her previous organizational experience.

Asked whether a replacement has been determined for the role of co-ordinator of the supporting office of the secretariat, which has been left vacant following the resignation of Cristina Gomes Pinto Morais, Ms. Xu said no decision has been made but the delay would not affect the operations of the organ.

4 Business Daily Wednesday, January 11 2017

Macau Fines

Ticketing away The Public Security Police Force handed out more than one million fines for illegal parking as of November 2016, representing a 34.7 per cent year-on-year increase from 2015 Nelson Moura nelson.moura@macaubusinessdaily.com

T

he Public Security Police Force (PSP) imposed over one million fines for illegal parking in 2016 whilst total traffic fines received from the authorities for all kinds of infringements amounted to MOP206.9 million (US$25.9 million), according to information obtained

by Business Daily from the police department.

The number of illegal-parking fines issued by the PSP last year represents an increase of 34.8 per cent compared to 747,009 fines for the whole year of 2015 whilst the number of total fines received by the authorities jumped 13.9 per cent compared to MOP181.5 million for 2015.

As at the end of 2016, there were 250,871 vehicles registered in the MSAR, which implies each vehicle received four fines for illegal parking for the year on average, contributing MOP824 to total traffic fines on average.

The information follows the Transport Bureau (DSAT) enforcing new regulations increasing the city’s general transport fees on January 1.

In particular, the locksmith fee for a vehicle being locked by the authorities for illegal parking registered the biggest growth, jumping 400 per cent and 1,233 per cent to MOP750 for motorcycles and MOP1,500 for light vehicles.

According to PSP’s official data, the authorities locked some 9,537 light vehicles and 1,148 motorbikes for the first eleven months of 2016, suggesting some 867 light vehicles and 114 motorbikes were locked per month on average.

Following the increase in these penalties, and assuming the number

of vehicles being locked stays at the same level this year, the authorities could rake in some MOP1.4 million per month from such fines of light vehicles and motorbikes - MOP1.3

million from locked light vehicles and MOP85,500 from locked motorbikes.

This would suggest a jump of 406 per cent compared to the average monthly recipients of such fines of some MOP273,780 for 2016 MOP160,100 from light vehicles and MOP13,680 from motorbikes.

In fact, last week the Director of DSAT, Kelvin Lam Hin San, explained in a press briefing that the increased penalties were to cover

the government expenses incurred in towing illegally parked vehicles.

Business Daily requested the g o v e r n m e n t’ s e x p e n s e s f o r vehicle towing for last year but the authorities failed to provide the related information, saying in an e-mailed reply that ‘it was too difficult to calculate the specific towing expenses.’

But it did say 619 vehicles were towed in prohibited parking areas for the whole year of 2016, without providing the information for the number of those being towed due to their exceeded use of parking space on parking meters.

Tourism

Tourism master plan draft attracts over 1,000 opinions The Macao Government Tourism Office (MGTO) has received a total of 1,185 public opinions on the draft of the Macao Tourism Industry Development Plan.

The public consultation was conducted from May to July, 2015.

Of the total, some 28.7 per cent of public opinions were collected from

forums held by industries and groups, 17.6 per cent were from e-mails, and 12.2 per cent were from letters.

MGTO grouped the opinions it had received into 11 different categories and 51 sub-categories.

The category of tourism resources and products received the highest attention, followed by urban

development, the source market of tourists visiting the city, and targeted customers.

The master plan focuses on promoting combined tourismrelated projects to diversify the city’s tourism industry as a World Centre of Tourism and Leisure, as well as being in line with the Macau SAR’s Five Year Development Plan, the government office said earlier last year.

Th e t o u r i s m o f f i c e sa i d i n yesterday’s press release that it would make appropriate adjustments to the master plan based on analysis and research of public opinion.

It added that it would make certain suggestions in its second-stage report for strengthening the promotion of themed tourism routes, promoting the city’s Free Yacht Travel scheme, developing marine tourism products with the characteristics of sightseeing and transportation functions, suitably exploiting new tourism sites, targeting high-end customers and emphasising Macau’s cultural distinctiveness and diversified tourism products.

Once completing discussions about the feasibility of the plans, a final plan will be put together, the Office said. C.U.

Business Daily Wednesday, January 11 2017 5

Macau Banking

BCM: Renminbi depreciation will not affect local market The CEO of the local bank said the depreciation of the currency would not have any notable impact upon the city’s economy Cecilia U cecilia.u@macaubusinessdaily.com

T

he renminbi’s depreciation would not significantly affect the local market, said Eddie Kong, Chief Executive Officer of BCM Bank yesterday.

Speaking on the sidelines of the company’s opening ceremony for its new branch in Rua de Pedro Coutinho, the CEO said the currency experiences adjustments at times, indicating the current adjustment is adequate and ordinary for economic growth.

Meanwhile, Mr. Kong believes the recent increase in U.S. interest rate would definitely have an impact upon local users, but he added that the

Strengthening guidelines for acquiring services

Following the recent crackdown on operating illegal cash withdrawal via modified POS (point of sale) terminals, the president of the Monetary Authority of Macau (AMCM), Anselmo Teng Lin Seng, said the Authority would consider

adjustment would be slow.

“The hike of U.S. interest rate was made following a long period of precipitation,” he said. “This would have given enough time for local users to get their budget ready thus it would not have any great impact.”

On the other hand, the company executive indicated that the bank’s business and credit quality did not see any significant change although the city was still undergoing the economic adjustment phase of the past year.

In fact, he claimed that such economic adjustment would provide opportunities for banks to expand their businesses and services given the government’s support for developing a diversified economy.

Asked by reporters whether there were more SMEs applying for

strengthening its guidelines for local financial institutions for performing acquiring services.

Speaking on the sidelines of yesterday’s opening ceremony of the new BCM branch, the president said the future adjustment of the guidelines would take into account the current market situation.

Banking

BNU to launch Hengqin branch next Wednesday This is also the local banking group’s first operation on the Mainland Banco Nacional Ultramarino (BNU) will open its new branch in Hengqin on January 18, which is also the group’s first branch in Mainland China, the company has announced.

The opening of the new branch on the Mainland is for the development of commercial relations between the MSAR and the country, as well as the role of the MSAR as a platform between Mainland China and Portuguese-speaking countries, the bank’s CEO, Pedro Cardoso, said in October.

“We have a significant number of businessmen and clients who have investments in Mainland China such as factories, service provisions or real estate investments - and we want to provide financial services to these clients obviously,” he said.

“We want to take this opportunity

of having a presence in China to develop the commercial relations between China and Portuguesespeaking countries – where the group’s parent company Caixa Geral de Depositors has an absolute unique presence since it is operating in seven Portuguese-speaking countries, in which five it is the market leader,” he continued.

In Macau, BNU operates 19 branches.

For the first half of 2016, its profits totalled MOP278.5 million (US$34.8 million), an increase of 17 per cent from the same period last year. In addition, the number of its clients amounted to 220,000, accounting for nearly one-third of the city’s total population.

In addition, BNU is a note-issuing bank in the MSAR, as is Bank of China (BOC) Lusa

BCM launched its new branch in Rua de Pedro Coutinho yesterday

loans from BCM during the period, Mr. Kong said the bank has been supporting SMEs as well as individual investments.

Since the recent crackdown involves POS machines illegally brought into the city from Mainland China, Mr. Teng added that the MSAR Government would co-operate with related Chinese departments to fill the loophole in the future.

In addition, he said the second amendments on the legal system

“We haven’t changed our support towards local SMEs and the credit of these local enterprises remains healthy,” said the CEO.

for financial leasing companies had been completed.

The official specified that without the involvement of public deposits the new changes of the legal system would loosen the supervision of the government, allowing more development and expansion in the industry.

6 Business Daily Wednesday, January 11 2017

Macau Telecoms

Opinion

3 Denmark extends data-roaming coverage to MSAR

its data roaming scheme 3LikeHome to the MSAR on January 23, according 3 Denmark - a subsidiary to online publisher Telecompaper yesterday. of Hong Kong-based mobile telecommunication In addition to the MSAR, the service will cover operatorHutchison Mainland China, Sri Lanka Whampoa that also and Indonesia from the operates 3 Macau - is to same day. A.L. extend the coverage of

José I. Duarte* Mismanaging fees In an ideal world, policies should succeed based exclusively upon their merits, which would be plain to see and as widely beneficial as possible. Most often, however, policy outcomes are uncertain and impose different costs and benefits upon the various parts of society. The resulting calculations and therefore the policy justification are, at the same time, more complicated and more critical.

A new policy, likely to affect a lot of people in significant ways, needs to be clearly defensible – for example, in terms of a valid social cost-benefit assessment.

So, departments and officials involved should strive for a broad awareness and acceptance of the changes.

That is more likely if they are seen as legitimate, and government demonstrates an appropriate grasp of the various interests at stake.

Also, the authorities should put forward the arguments for change with due antecedence and comprehensively.

Changes that are well understood are easier to accept and comply with by those affected, even if they harbour some reservations. Thus, the way policy is introduced is not a minor issue. The smooth implementation of a policy hinges at times more on that process than on the policy’s intrinsic worth.

That said, the recent fees increase for the removal of illegally parked cars – in itself a minor subject – seems an exercise on how not to do things. To start with, the arguments put forward could be stronger. The primary justification invoked was that these fees had not been raised for a long time. That’s a plausible argument but not a sufficiently compelling one. The main beneficiaries are the parking operators. The fairness of the specific price adjustment cannot be seen in separation from their concession’s overall package of duties and privileges. So, the argument is partial, incomplete.

While the legality of the changes has not been questioned, the way they were introduced, almost by stealth and as a fait accompli, nearly suggests that those in charge had qualms about their fairness and, ultimately, their legitimacy.

And then, we have the absence of proper promotion of public awareness – it was virtually non-existent. If any effort was made, at any moment, it was so discreet that it caught everyone by surprise. (Should we ready ourselves for more surprises?) That shows carelessness, at least.

Worse, it will breed the suspicion that the impact of policies on people is not a matter of concern for the public services. *Economist and permanent contributor to this newspaper.

Luxury retail

Retail sales tarnished for Chow Tai Fook The lowest performer for the SARs and the Mainland was the same store sales volume growth, which in both cases saw a 9 per cent year-on-year decline Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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ewellery giant Chow Tai Fook saw its sales values across the board go through a year-on-year decline for the last three months of 2016 for its Hong Kong and Macau operations, according to the group’s filing with the Hong Kong Stock Exchange.

Growth in retail sales value fell by 6 per cent year-on-year for the SARs, contrasting values seen on the Mainland, for which the group saw 7 per cent year-on-year growth.

No figures for revenue or profit were provided in the filing.

Same store sales growth was also contrastive between the SARs markets and that of the Mainland,

with Hong Kong and Macau seeing a 2 per cent decline year-on-year, while the Mainland posted a 4 per cent growth for the same period, year-on-year.

The lowest performer for both segments, SARs and Mainland, was the same store sales volume growth, which in both cases posted a 9 per cent year-on-year decline.

Shiny

Gold continued to be the group’s best-selling product, taking up 58 per cent of total retail sales values. It was followed by gem-set jewellery, which made up 24 per cent of the sales value by product. Platinum/ karat gold products comprised 11 per cent of the group’s sales value, while watches made up only 5 per cent.

The three-month period ended December 31 marks the group’s third quarter of its fiscal year, for which it noted that, despite both the Mainland and the SARs recording a decline in same store sales volume, the average selling price grew during the quarter.

‘In particular, average selling price of gold products increased as the average international gold price rose 10 per cent during the third quarter compared to the same period last year,’ notes the group in the filing.

‘The percentage of retail sales value settled by China UnionPay or Renminbi to the total retail sales value of Hong Kong and Macau market, a proxy for sales contribution for Mainland tourists, declined to 47 per cent in the quarter, as compared to 51 per cent of the same period last year,’ notes the group’s filing.

However, it adds that the number represents an improvement when compared to the first half of the fiscal year when it was only 45 per cent.

Property

CSI sells HK properties for HK$1.7 billion H o n g K o n g- l i s t e d p r o p e r t y investment company CSI Properties Ltd. is selling three groups of properties in Hong Kong to Compass Times International Ltd. for HK$1.7 billion (US$219 million), according to the company’s filing with the Hong Kong Stock Exchange.

These properties include the property housing J Plus Hotel, three properties in Pennington Street and

one in Keswick Street.

The group expects it will gain some HK$1.08 billion before taxation from the sale of the properties.

Recognising it is an appropriate timing for the sales, the company indicated the sales of properties would strengthen the cash flow of the group.

‘The company considers the sale to be a good opportunity for the

company to realise its investment at a gain. The cash realised will strengthen the financial and liquidity position of the group and its cash flow,’ it wrote.

In addition to property investment, CSI runs a repositioning and development business in Macau, Hong Kong and the Mainland China.

It currently manages the Broadway Centre and Macau Ginza Plaza on the MSAR Peninsula. A.L.

Business Daily Wednesday, January 11 2017 7

Macau G2E

Under one roof Global Gaming Expo debuts a gaming jurisdiction guide, integrated resort focus, and second edition of Asian Gaming Awards

W

ith a new theme, focusing on the Integrated Resort E x p e r i e n c e, a n d spearheading a technological mind-meld of over 120 future technology leaders from various segments of the industry, the Global Gaming Expo this year - taking place from May 16 to 18 - will also peel back the curtain behind regulatory differences between jurisdictions, and let the ‘voice of the industry’ be heard once again.

In an initiative launched by Lex Mundi, an invite-only group that aggregates over 160 full-service law

firms from jurisdictions around the world - with one firm per jurisdiction - a Global Gaming Legal Guide will be launched during the course of the expo.

Edwin Seah, Head of Business Development and Strategy for the Asia/ Pacific region for Lex Mundi notes that local law firm MdME being invited to the group added the final piece necessary to begin the guide’s creation.

“When MdME joined Lex Mundi as a member from Macau we then gained a perspective that the global gaming industry is really gaining a lot of traction […] what used to be a very highly regulated, jurisdiction-specific,

government-linked type of industry has become more seamless and cross-border in nature,” notes the head stating: “It would have been a shame to create any form of global guide without Macau in there.”

Guiding hand

Rui Pinto Proença, partner at MdME, explains that the guide is innovative in that it follows a frequently-asked question format across all jurisdictions, allowing for comparisons between each on the online-only platform. “It will allow clients to compare, for example, tax. So What’s the tax on gaming in Macau, Nevada, Singapore? – and give you a very client-friendly overview of that across the jurisdictions.”

“This initiative came really from the clients’ needs to operate in several jurisdictions in a highly regulated

From left to right: Edwin Seah, Rui Pinto Proença, Stephanie Lee, Luis Pereira and Praveen Choudhary

Integrated resort development

Praveen Choudhary, Managing Director of Morgan Stanley Asia, speaking at the press conference, points out that Macau’s nongaming revenue has currently reached around 12.6 per cent of the amount contributed by

gaming revenue in the third quarter of 2016, according to the group’s data.

Mr. Choudhary says “we expect it to continue to go up further” although generally it should “stabilise around 15 per cent or lower.” This compares with the 65 per cent revenue contributed by

non-gaming in Las Vegas in 2015, and will depend primarily upon transportation infrastructure, hotel rooms and entertainment options.

He also points out that nongaming space in typical integrated resorts accounts for about 93 per cent of total gross floor area of the properties.

industry,” notes Mr. Proença.

The guide bases itself on the experience of its membership, which Proença claims lends authenticity to advise on the larger “grey areas” in less regulated markets such as Laos and Cambodia, whose governments MdME has already worked with. “[We] work with them and try to understand what they want to achieve with the gaming industry – which sometimes are things that are very different [from region to region] – and try to help them shape the regulations to achieve those goals,” applying this experience to the guide, said the lawyer.

He said Macau is an example for some of the positive points, although “you cannot take everything that was done here and transplant it but […] surely can learn from the Macau experience”.

The Voice

Fitting within G2E’s theme for the year – Integrated Resorts – the Asia Gaming Awards returns for its second edition this year, with the Integrated Resort category - “probably, if not the most coveted award, one of the top” in the “Oscars of Asian gaming,” says Luis Pereira, Managing Director and Co-founder of Asia Gaming Brief, which created the awards.

“Asia is arguably a very hard market to break into. And it requires a lot of dedication and experience to be able to create solutions that work in Asia for the Asian player,” notes Pereira, pointing out that the awards this year will focus more on gaming products for the nominations – five shortlisted groups picked from over 1,000 nominations last year and voted on by over 8,000 – rather than only on companies.

This year, Mr. Pereira expects to grow to over 500 attendees at the awards ceremony, held the first night of the expo. “The Asian gaming industry has a voice, and we want to hear it,” he states.

Plans for the awards in coming years could include a jurisdiction award, reveals Pereira, noting that the regulatory bodies in gaming jurisdictions throughout Asia “have been hard-pressed to develop clear and stable gaming frameworks for an industry whose growth is outpacing everything else. We believe they deserve to be celebrated.”

Gaming

Packer returns to Crown board as overseas plans fall apart The businessman is regaining control of the Australia-based casino following his step-down at the end of 2015 Angus Whitley

Billionaire James Packer is re-exerting control of his Australian casino operator that’s seen its international ambitions clipped after a Chinese clampdown put overseas revenue at risk.

Packer will return to the Crown board, while removing Robert Rankin as Crown chairman and chief executive officer of the businessman’s privately held investment company, Consolidated Press Holdings Pty., according to a filing by Melbourne-based Crown on Tuesday.

Consolidated Press is Crown’s controlling shareholder.

Since Packer stepped down as a Crown director in December 2015, the company has more than halved its stake in Macau casino operator Melco Crown Entertainment Ltd., ditched a proposed development in Las Vegas and abandoned a spin-off of international assets. That proposed spin-off had been complicated by a clampdown by Chinese authorities in October, when 18 Crown staff were detained for alleged gambling crimes.

“Crown has some really big hurdles to jump over in the next few years,” said Evan Lucas, a market strategist at IG Ltd. in Melbourne. “It’s known that Packer has not been impressed with what has happened since he stepped aside.”

Back on the board, Packer is now closer to Crown’s management as it gauges the extent of the crackdown on overseas casino operators in China. It’s still not clear if any of the detained Crown workers will be jailed. At the same time, Crown is pushing on with a planned AUD2 billion (US$1.5 billion) high-stakes, luxury gaming resort in Sydney.

Crown shares fell as much as 2.1 per cent to AUD11.48 in Sydney, the biggest intraday decline in more than three weeks and valuing the company at AUD8.4 billion. The stock has fallen for the past three years, its worst run since listing in 2007.

The top-level reshuffle reflects Crown’s almost sole focus on its Australian resorts and development projects in Australia.

Packer, who lured Rankin from Deutsche Bank AG a little over two

years ago, said it made sense for him to step aside as chairman given the casino firm’s change in geographic focus. Rankin, who has been based in London and Hong Kong for the past 16 years, will be replaced at the head of Crown’s board by deputy chairman John Alexander on February 1.

Packer had stepped down as a

director of Crown amid speculation he was closer to a deal to take some of the company’s casino assets private.

That was just months after he’d quit as chairman.

Guy Jalland will become CEO of Consolidated Press. Rankin will remain as a Crown director and a director of Melco Crown. Bloomberg

8 Business Daily Wednesday, January 11 2017

Greater china

Inflation

Producer prices accelerate at fastest pace in over 5 years The statistics bureau said volatility in exchange rates was one reason for the increase in producer prices Elias Glenn

C

hina’s producer prices surged the most in more than five years in December and by more than expected as prices of coal and other raw materials soared, adding to expectations that global inflation may be stronger in 2017.

The pick-up in prices reinforces views that the world’s second-largest economy is on steadier footing heading into the new year, underpinned by stronger factory activity and domestic demand which is being driven by a lending and construction boom.

But some analysts worry the strong gains in producer prices may also be fuelled by growing speculation in commodities futures markets, adding to the broader risk of bubbles in China’s economy even as leaders attempt to control explosive growth in debt.

“I don’t think there’s an inflation issue in China, it’s an asset bubble,” said Commerzbank senior emerging market economist Zhou Hao in Singapore.

The producer price index (PPI) jumped 5.5 per cent in December from a year earlier, the most since September 2011, compared with a

3.3 per cent increase in November, the National Statistics Bureau said yesterday.

That is boosting profits for China’s heavily indebted smokestack industries, which are largely state owned, and generating more cash flow to help pay off their loans.

Analysts had expected a 4.5 per cent gain, a Reuters poll showed.

Reflecting surging demand for building supplies and coal for both heating and steelmaking, and government-mandated cuts in excess industrial capacity, raw materials and mining prices continued to show the fastest gains, rising 9.8 per cent and 21.1 per cent, respectively.

The statistics bureau said volatility in exchange rates was one reason for the increase in producer prices, as commodity imports became more expensive.

The yuan weakened 6.5 per cent against the dollar last year, its worst performance since 1994.

Consumer inflation rose 2.1 per cent on-year, missing expectations, as food prices rose at a more modest 2.4 per cent pace.

Global reflation, higher interest rates?

For the first time in nearly five years, economists at HSBC have raised their forecast for global growth and inflation over the next two years based on robust manufacturing activity, a resilient China and above all the fiscal boost expected to come in the United States under incoming President Donald Trump.

Key Points China reflating largely due to heavy industry, construction boom Surging China prices adding to stronger global inflation view Some analysts warn speculation in commodities may be building Dec producer prices +5.5 pct y/y, fastest growth since Sept 2011 Dec consumer prices +2.1 pct Hopes of stronger spending under Trump are sparking expectations of stronger U.S. economic growth and inflation which more interest rate hikes from the Federal Reserve.

China’s sustained producer price jump has not yet started filtering into consumer prices, suggesting its central bank will not be under pressure to tighten monetary policy as soon, analysts say.

But policy insiders already expect a tilt towards more conservative monetary policy this year as top leaders struggle to strike a balance between supporting the economy with ample credit and preventing a destabilising build-up in debt.

Commerzbank’s Zhou said that a bubble in commodities, led by coal and steel prices, could complicate policy decisions if economic growth slows and some easing of monetary conditions is needed.

The PBOC reaffirmed it would keep liquidity in the financial system stable while taking steps to prevent asset bubbles and financial risks in its annual work meeting for 2017.

Capital Economics expects consumer price inflation to pick up this month, in part because Lunar New Year falls in late January, earlier than in 2016, but it said the price rebound could be short-lived.

“We think the pick-up (in inflation) will mainly be driven by movements in commodity prices and is unlikely to be sustained,” Capital Economics economist Chang Liu said in note.

The government think tank, the China Academy of Social Sciences (CASS), forecast that the country’s CPI would grow 2.2 per cent in 2017 and PPI would rise 1.6 per cent for the year.

For 2016, CPI rose 2.0 per cent while PPI slid 1.4 per cent. Reuters

Globalization summit

Xi to address World Economic Forum meeting in Davos The event will provide a forum for the President to tout China’s role in the global economy President Xi Jinping will become the first Chinese head of state to address the World Economic Forum, leading an entourage of business executives to Switzerland next week as the country seeks a larger role in shaping the global economic order.

Xi will speak at the opening session on Jan. 17 of the annual gathering of billionaires and political elites in the Alpine resort town of Davos, the WEF’s chief China representative, David Aikman, said at a briefing yesterday in Beijing. Xi was expected to hold conversations with global leaders among more than 3,000 attendees, who include U.K. Prime Minister Theresa May, Aikman said.

Executives accompanying Xi to the meeting include Alibaba Group Holding Ltd. founder Jack Ma, Dalian Wanda Group Co. Chairman Wang Jianlin and Baidu Inc. President

Zhang Yaqin. Huawei Technologies Co. Chairwoman Sun Yafang, China Telecom Corp. Chairman Yang Jie, and China Poly Group Corp. Chairman Xu Niansha will also attend.

The trip comes as China casts itself as an advocate of globalization in the wake of Donald Trump’s election as U.S. president on an “America First” platform that was critical of freetrade deals. Trump is scheduled to be inaugurated in Washington on the final day of the meeting.

The event will provide a forum for Xi to tout China’s role in the global economy, as he prepares for a key Communist Party gathering this year expected to give him a second term as leader. He will likely highlight signature projects such as the Asian Infrastructure Investment Bank and the One Belt, One Road trade-andinfrastructure initiative, which help leverage Chinese economic might

Executives accompanying Xi to the meeting include Alibaba founder Jack Ma, Dalian Wanda Chairman Wang Jianlin and Baidu President Zhang Yaqin

into geopolitical clout.

Chinese Premier Li Keqiang used the Davos meeting in 2015 to reassure the international business community about the country’s “new normal” of slower economic growth. His

predecessor, Wen Jiabao, attended in 2009, weeks after unveiling a US$586 billion stimulus package amid the financial crisis. Last year, the Chinese delegation was led by Vice President Li Yuanchao. Bloomberg News

Business Daily Wednesday, January 11 2017 9

Greater China M&A

Alibaba leads bid for retailer Intime It operates 29 department stores and 17 shopping malls in China E-commerce firm Alibaba Group Holding Ltd and the founder of Intime Retail Group Co Ltd have jointly bid to take the Chinese department store operator private for HK$19.79 billion (US$2.55 billion), the partners said yesterday.

Alibaba Investment Ltd and Shen Guo Jun have offered HK$10 per Intime share. That would represent 42.25 per cent more than the stock’s last price of HK$7.03 on Dec. 28 when trading was suspended pending an announcement. The stock price surged 35 per cent when trading resumed yesterday.

The Alibaba group currently holds

27.82 per cent of Intime while Shen owns 9.17 per cent. The pair plan to finance the purchase through internal cash resources and external debt financing.

Intime said in a statement to Hong Kong’s stock exchange that Alibaba and Shen planned to explore development opportunities and implement a series of long-term growth strategies, which could affect its short-term growth.

“We don’t divide the world into real or virtual economies, only the old and the new,” said Alibaba Group Chief Executive Officer Daniel Zhang in a separate statement. “Those who

cling on to the old ways of retailing will be disrupted.”

“Our combination with Intime will enable us to tap into the longterm growth potential of a new form of retail in China powered

by Internet technology and data,” Zhang said.

China’s retail sector is worth US$4.5 trillion and is growing at 10.7 per cent a year, Alibaba said. The e-commerce firm also said it was working with offline retailers to create a new shopping experience.

Key Points Offer represents 42 pct premium to price before trading halt Alibaba says move to tap new form of retail in China China’s retail sector worth US$4.5 trillion -Alibaba Alibaba initially took a stake in Intime in 2014 with an investment of US$692.25 million.

Intime operates 29 department stores and 17 shopping malls in China, mainly in so-called first- and secondtier cities. In August, it posted a 21.3 per cent fall in first-half profit amid declining sales, saying e-commerce had transformed the competitive landscape.

Its shares fell 8 per cent in 2016, compared with a 0.4 per cent rise in the benchmark Hang Seng Index.

Separately, Alibaba Executive Chairman Jack Ma met U.S. Presidentelect Donald Trump on Monday and laid out his firm’s plan to bring a million small U.S. businesses onto its e-commerce platform to sell to Chinese consumers over the next five years. Reuters

RMB

Goldman Sachs sees authorities using fixing to strengthen currency The offshore yuan posted a record gain last week as soaring funding costs squeezed short sellers Ye Xie

China’s central bank has altered its yuan fixing mechanism since the U.S. presidential election in favour of a stronger currency as capital outflows mounted and President-elect Donald Trump threatens to adopt protectionist trade policies, according to Goldman Sachs Group Inc.

‘The PBOC earned plaudits last year for adhering more closely to a new fixing method that takes into account global currency moves’ Before Nov. 8, broad dollar moves and the closing yuan price explained 90 per cent of the next day’s yuan fix, validating the government’s publicly-announced methodology, strategists led by Robin Brooks wrote in a note Monday. The correlation has since fallen to 80 per cent. The People’s Bank of China sets the fix daily and lets the yuan move 2 per cent of either side.

The shift allows the central bank to let the yuan rise more than it used to when the dollar weakened and let it fall less in a broad U.S. currency rally, reversing the pattern before the election, Goldman Sachs’s model

showed.

“China’s policy makers putting their best foot forward as they await the new administration, though it is also possible they are trying to slow capital outflows via stronger RMB fixing,” Brooks wrote, referring to the yuan by its official name, the renminbi. “In either case, some RMB weakness is likely being ‘stored up,” which will eventually materialize given the country’s weakening balance of payments, he said.

The offshore yuan posted a record gain last week as soaring funding costs squeezed short sellers. The rally came as a surprise to some investors as the central bank struggled to contain capital outflows. Goldman Sachs has recommended selling the yuan against the dollar via non-deliverable forwards as one of its top trades for 2017.

If verified, the shift in fixing would

mark a reversal of policy makers’ tactics. The PBOC earned plaudits last year for adhering more closely to a new fixing method that takes into account global currency moves and the previous day’s yuan price.

But the transparency and predictability have also limited the scope for the central bank to shore up the yuan and deter speculators. China’s foreign-exchange reserves fell for a sixth straight month in December, dropping US$41.1 billion to a fiveyear low of US$3.01 trillion, the PBOC said over the weekend.

China has adopted measures to downplay the dollar’s role in defining the yuan’s value: This year, it expanded the number of currencies in a basket used to determine the yuan’s daily fixing. That reduced the dollar’s weighting to 22.4 per cent — little more than twice the share for South Korea’s won.

The PBOC has raised the yuan’s fixing by 0.2 per cent this month, while a gauge of dollar strength has fallen 0.4 per cent. Bloomberg News

In Brief State planner

Economic growth expected around 6.7 pct China’s economic growth in 2016 was expected to be around 6.7 per cent, Xu Shaoshi, director of the National Development and Reform Commission (NDRC), said yesterday.

Consumption accounted for 71 per cent of China’s GDP growth in the first three quarters of 2016, Xu told a media briefing in Beijing.

China’s government had targeted 6.5-7 per cent economic growth in 2016.

Activity was boosted by higher government spending, a housing rally and record high levels of bank lending, which, however, also led to an explosive increase in debt.

EU antitrust

ChemChina, Syngenta submit remedy proposals State-owned China National Chemical Corp (ChemChina) and Swiss pesticides and seeds group Syngenta AG on Monday submitted proposed remedies to the European Union’s antitrust watchdog to address concerns over their US$43 billion merger.

The European Commission’s website showed the companies had submitted “commitments” on Jan. 9, which typically means the parties have proposed remedies such as asset divestment or product pricing commitments. The website did not show any further information on the nature of the commitments. “Details of the remedy proposals are confidential,” a spokesman for ChemChina told Reuters.

M&A

Valeant to sell Dendreon unit to Sanpower Canada’s Valeant Pharmaceuticals International Inc said its affiliate will sell its Dendreon cancer business to China’s Sanpower Group Co Ltd for US$819.9 million, as the drugmaker continues to shed its non-core assets to repay debt. Dendreon makes prostate cancer vaccine Provenge that was approved by the U.S. Food and Drug Administration in 2010.

“With this sale, we are better aligning our product portfolio with Valeant’s new operating strategy by exiting the urological oncology business, which is one of our noncore assets,” Valeant Chief Executive Joseph Papa said in a statement on Monday.

Innovation

Authorities to promote materials development China will step up efforts to promote development of new materials to help build the nation into a manufacturing power, Vice Premier Ma Kai said Monday. New materials is an important leading industry with fundamental significance, Ma said at a meeting of the national leading group on new materials industrial development.

Quickening the development of the industry is a strategic decision taken by the central authorities with no time to be wasted, he stressed.

10 Business Daily Wednesday, January 11 2017

Greater China

Cryptocurrency

Big domestic bitcoin exchange says no pressure on outflows Many experts say Chinese exchanges overstate their volumes in the digital currency John Ruwitch

T

he head of a major bitcoin exchange in China says few people there use the cryptocurrency to get around rules on how much money they can take out of the country, and despite a publicized meeting with the central bank last week the exchange, BTCC, hasn’t been told explicitly to check capital outflows.

Bitcoin’s price took a steep dive on Friday after China’s central bank cautioned investors to take a rational and careful approach to investing in the digital currency. The price had surged to record highs.

The central bank’s comments come as Beijing escalates a campaign to check capital outflows and slow the depreciation of the yuan currency, which lost nearly 7 per cent of its value against the U.S. dollar last year.

With bitcoin’s soaring price and the relative anonymity it affords, some believe the digital currency was becoming an attractive option for tech-savvy Chinese to hedge against the yuan and circumvent rules that limit individuals to US$50,000 of foreign exchange each year.

The Shanghai office of the People’s Bank of China (PBOC) said on Friday it had met with BTCC to understand the platform’s operations, highlight

the risks, remind the exchange to abide by the law, and “urge the platform to carry out self-examination and corresponding clean-up and rectification” according to law.

Asked if BTCC had received direct pressure on outflows, CEO Bobby Lee, who founded BTCC in 2011, said: “No. Not as of yet... Nothing verbal or written to us.”

In Beijing, the PBOC told two of China’s other big bitcoin exchanges, Huobi and OKCoin, not to mention the depreciating yuan when advertising their platforms, the influential news outlet Caixin said, citing people familiar with the meeting.

Star Xu, CEO and founder of OKCoin, confirmed there had been a meeting of the PBOC and leading bitcoin exchanges on Friday to discuss the operation of trading platforms.

“The industry can benefit from balanced, risk-based regulation and/ or oversight, and we look forward to further constructive discussions with the regulators and industry participants,” Xu told Reuters in an emailed comment.

Huobi’s chief operating officer Zhu Jiawei said in an emailed response to Reuters queries that Huobi plans to work with other bitcoin firms to establish an alliance and rules to self-govern the industry.

While it’s possible to buy bitcoin

with yuan and then sell it abroad for a foreign currency, BTCC’s Lee said “to be honest, not many” people were doing it because of the cost.

The renminbi price of bitcoin carries a premium to the price in other currencies, he noted. In addition, buy or sell orders in the RMB100,000 (US$14,423) to RMB1 million (US$144,233) range, and up, would influence the bitcoin spot price and affect the transaction.

“For that range, you’re not going to be able to do it at a good rate. You’re going to lose 10 per cent of your money,” Lee said. “Maybe the individual household might buy 20,000 more dollars worth of bitcoin than their US$50,000 (forex) quota, but that’s a drop in the bucket.”

Still, Lee said various indicators, like active trading accounts, new users, actual deposits and withdrawals, were “very active” in China, and some key BTCC metrics were at “alltime highs”, though he declined to be more specific.

Not legal tender

Bitcoin is not regulated in China, but the PBOC has declared it is not legal tender, and is instead a “virtual good”, Lee said. That puts it in the same category as other goods.

“If I pack a suitcase and take a plane to the United States, do the clothes, does the computer in my suitcase, does the watch I wear count towards capital flight?” he said. “Where do you draw the line?”

He said no new or planned rules regarding bitcoin were discussed in the latest meeting with the PBOC, and he estimates it will be two to three years before China regulates bitcoin.

In a statement on its website, BTCC, which calls itself the world’s longest running bitcoin exchange, said it regularly meets with the PBOC and “work(s) closely with them to ensure that we are operating in ac-

Key Points Bitcoin price fell sharply last week after PBOC comments China central bank urged caution in trading bitcoin BTCC CEO says no direct pressure, yet, from regulators Says few Chinese use bitcoin to skirt forex quotas cordance with the laws and regulations of China.”

Exchanges in China say they account for more than 90 per cent of global bitcoin trading, which would help explain why a shift in Chinese demand would sharply affect the price.

But many bitcoin experts say Chinese exchanges overstate their volumes in the digital currency, and attribute sharp moves to speculation by, for example, U.S.-based hedge funds. Reuters

Business Daily Wednesday, January 11 2017 11

Greater China Lending environment

Offshore borrowing costs drop as Beijing relaxes hold The sharp drop in borrowing rates meant there were no seekers at Hong Kong’s daily and term emergency funding facility for the yuan Saikat Chatterjee and Michelle Chen

O

vernight borrowing costs for the yuan eased dramatically yesterday after rising to multi-year highs last week as authorities relaxed their grip on the offshore market in Hong Kong after burning speculative bets against the currency.

Borrowing costs in the renminbi surged last week to more than 60 per cent after Chinese banks - the biggest lenders of overnight money - suddenly withheld funds, forcing hedge funds who borrowed heavily in the interbank market to bet on further yuan weakness scrambling to cover their positions.

That triggered a jump in offshore yuan against the dollar, prompting it to post its best weekly performance on record and also opened a rare gap in favour of the Chinese currency traded overseas against its onshore counterpart.

“From the perspective of Chinese regulators, yuan short sellers have been largely squeezed which means HIBOR rates do not need to be kept at a high level as seen last week,” said Raymond Yeung, chief economist, Greater China for ANZ based in

Hong Kong referring to the overnight borrowing rate.

Yesterday, funding pressures eased further with the CNH Hong Kong Interbank Offered Rate benchmark dropping to 6.8 per cent from 14.05 per cent on Monday and a high of 61.33 per cent on Friday.

“Financial institutions that can conduct business in both onshore and offshore markets may have brought more funds to the offshore market” Raymond Yeung, chief economist, Greater China for ANZ The sharp drop in borrowing rates meant there were no seekers at Hong Kong’s daily and term emergency

funding facility for the Chinese currency. Currently, Hong Kong operates three emergency renminbi funding lines for a total of RMB38 billion (US$5.49 billion).

“Financial institutions that can conduct business in both onshore and offshore markets may have brought more funds to the offshore market as returns of these funds are much higher than onshore thanks to the higher rates here,” ANZ’s Yeung said.

The sharp fluctuations in offshore rates has had little impact on the onshore market.

The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, has remained around 2.5 per cent in the last 10 days.

A trader at a European bank said the sharp decline in overnight borrowing rates has led to Chinese banks stepping up lending activities in the interbank market, but demand has been thin on concerns over another

wave of intervention by Beijing to curb bearish bets against the yuan.

“Overall conviction remains low and traders are in re-evaluation mode, deciding their next move,” said Stephen Innes, senior trader at FX broker OANDA based in Singapore.

Non-deliverable offshore markets traded in the Chinese currency also limped back to normalcy with the spread between the one-year contract for the yuan and the onshore rate contracting sharply from a one-year high at the end of 2016.

But despite its reversal, the yuan is still expected to lead losses in emerging Asian currencies this year after falling around 6.6 per cent against the dollar last year. A Reuters poll predicts it will weaken to 7.20 per dollar by end-December.

NDF contracts also reflect that weakness with one-year forwards trading at 7.19 per dollar, a 3.8 per cent discount versus onshore rates, indicating broader depreciation expectations remain unchanged. Reuters

12 Business Daily Wednesday, January 11 2017

Asia

Shops

Australian retail softens but still set for strong quarter But the latest signs show that consumers entered the New Year in a mood to spend Swati Pandey

A

ustralian shoppers tightened their purse strings in November after three months of splurging, but retail sales were still running well ahead of the previous quarter and pointing to a much-needed pick up in consumer spending.

Data from the Australian Bureau of Statistics (ABS) out yesterday showed retail sales grew a disappointing 0.2 per cent in November from October when they increased 0.5 per cent.

However, sales in October and November put together were 1.5 per cent faster than the first two months of the previous quarter, bolstering hopes the economy had turned around after contracting in

the July-Sept period.

The ABS’s experimental estimate of online retail sales also jumped 10.8 per cent in November, enjoying a fourth month of solid gains to top A$1.1 billion for the first time.

“The strong start to the quarter means real consumption growth probably still rebounded in the fourth quarter,” said Kate Hickie, economist at Capital Economics.

She estimates December quarter retail sales growth at 1.3 per cent, compared with 0.7 per cent in September quarter.

“That would be welcome, given the outright fall in real GDP in the third quarter. It would provide more hope that Australia avoided its first recession in 25 years in the fourth quarter.”

Household consumption accounts for 56 per cent of annual economic

output, versus the less than 9 per cent produced by Australia’s emblematic mining industry.

Figures out last week showed Australia boasted its first trade surplus in almost three years in November as surging commodity prices boosted export earnings, and likely economic growth as well.

‘Household consumption accounts for 56 per cent of annual economic output’ Yesterday’s data will provide some relief to the Reserve Bank of Australia (RBA) which has been counting on a pickup in household consumption to offset weakness in mining investment.

The RBA has been playing down the need for further easing following cuts last August and May that took the cash rate to an all-time low of 1.5 per cent.

As a result, financial markets had all but given up on the chance of a further rate cut and were even toying with the idea of a hike in 2018.

Th e l at est si g n s sh o w that consumers entered the New Year in a mood to spend. A survey by ANZ and Roy Morgan out on Tuesday showed sentiment surged in the first week of January, with consumers much more upbeat about their finances and eager to buy big-ticket items.

“This is a reasonable indicator of consumer spending, suggesting a solid Christmas and holiday spending period is underway,” said ANZ senior economist Jo Masters.

“It is encouraging that households’ views on future finances are in a strong upward trend, likely supported by a solid labour market and rising house prices.” Reuters

Trade data

Surge in Philippine imports points to strong 2017 The government expects 2016 growth around 7 per cent The Philippine economy may have ended 2016 on a strong footing if a surge in purchases of capital and consumer goods in November is anything to go by, and solid consumer spending and investment will probably continue to underpin growth this year.

Imports climbed 19.7 per cent in November, the biggest annual gain in six months, driven by hefty increases in nearly all of the country’s other major import items like iron and steel, and transport equipment, the statistics agency said yesterday.

That brought the trade deficit wider to a near record-high US$2.6 billion from US$2.2 billion in October.

“The robust pace of import growth underscores still-solid domestic demand conditions and remains broadly consistent with our forecast for fourth GDP growth of 6.5 per cent,” Nomura said in a research note.

Nomura said it expects domestic demand to stay robust this year as President Rodrigo Duterte focuses on boosting infrastructure spending

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which should help offset weak exports.

Exports declined 7.5 per cent in November from a year earlier as the

country’s major shipments posted annual declines due to sputtering demand from some of its major markets including Japan and the United States.

But Economic Planning Secretary Ernesto Pernia remained hopeful government’s efforts to expand trade relations with other markets, like

China and Russia, would eventually give the exports sector a boost.

“While we are expanding our trade relations with potential markets, we need to further harness our existing free trade agreements and continue to push for reforms. This will improve our business environment and increase our attractiveness to foreign investors,” Pernia said in a statement.

Key Points Nov exports fall 7.5 pct in Nov, first in 3 mos Nov imports rise at its fastest pace in six months Rise in imports point to strong domestic demand

Port of Manila

Growth reached an annual 7.1 per cent in the third quarter of the year, Asia’s second highest and the strongest quarter for the nation in three years. The government expects fullyear growth around 7 per cent.

Duterte, who won the presidential election in May by a huge margin on pledges of wiping out crime and illegal drugs, has vowed to prioritise infrastructure spending to help lift long-term economic growth and address poverty. Reuters

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Business Daily Wednesday, January 11 2017 13

Asia Impeachment

In Brief

S. Korean court warns against delayed trial The court has up to 180 days to deliberate, but it has been speeding up the deliberation by holding trials twice a week to minimize the power vacuum South Korea’s constitutional court, which is deliberating a motion to impeach President Park Geun-hye, yesterday warned against the possible delay of trial on the impeachment bill as it speeds up the deliberation process.

Chief Justice Park Han-chul said in the third pleading session that future proceedings must not be postponed for the reason of time shortage in preparations, urging both the defendant and plaintiff sides to bear that in mind.

The head of the nine-judge court asked both sides to speed up the legal proceedings, but it actually targeted President Park’s legal team, which offered details on the impeached leader’s whereabouts on the day of the ferry-sinking disaster to the court yesterday, 19 days after the court’s demand.

The suspected absence of President Park in the presidential Blue House when the passenger ferry Sewol capsized and claimed over 300 lives on April 16, 2014, was cited as one of the main reasons for the impeachment that was passed in the parliament on Dec. 9.

The court has up to 180 days to deliberate, but it has been speeding up the deliberation by holding trials twice a week to minimize the power vacuum. A presidential election must be held in 60 days if the court upholds the bill.

Park’s legal team has been under fire for the suspected delay of legal proceedings. Park’s lawyers have demanded a criminal trial on all counts of five constitutional and eight criminal charges against the president.

Proving all the charges will take much longer time than the

constitutional ruling, which allows the president to be fired on disciplinary grounds if Park violated any of the 13 counts.

Key witnesses also refrained from attending the trial. Park’s long-time confidante Choi Soon-sil at the centre of the presidential scandal as well as two former presidential secretaries refused, or delayed, the court’s summoning.

‘Park’s legal team has been under fire for the suspected delay of legal proceedings’ The head of the parliamentary judiciary committee, which serves as prosecutors in the constitutional trial, raised suspicion that Park’s legal team may be intentionally postponing the proceedings by discouraging witnesses from attending the hearing. Xinhua

President Park Geun-hye

Australian police say they are helping with 1MDB investigations Malaysia Prime Minister Najib, who also chaired 1MDB’s advisory board, has denied wrongdoing

‘Civil lawsuits filed by the U.S. Department of Justice allege more than US$3.5 billion was misappropriated from 1MDB’ Civil lawsuits filed by the U.S. Department of Justice allege more than US$3.5 billion was misappropriated from 1MDB. The lawsuits seek to seize US$1 billion in assets allegedly siphoned off from 1MDB and diverted into luxury real estate in New York, Beverly Hills and London, valuable paintings, and a private jet.

S.Korea says consumption sluggish South Korea’s exports and production have been improving over recent months but consumption is showing signs of sluggishness, the finance ministry said in its monthly assessment of the economy yesterday. “There is a chance the economic recovery momentum may slow as improvement in consumption dulls,” said the ministry in a statement after analysing the prior month’s data. The ministry said it would act pre-emptively to head off a slowdown in the economy by swiftly implementing this year’s policy plans that were announced in December.

Labour

Vietnam creates 1.64 mln jobs in 2016 Vietnam created 1.641 million jobs in 2016, including domestic jobs and exported labourers, Deputy Minister of Labour, Invalid and Social Affairs (MoLISA) Dao Hong Lan said yesterday. In addition, the country provided vocational training for 1.974 million people, increasing the rate of trained labours to 53 per cent of workforce last year. The unemployment rate stood at 2.3 per cent in 2016, local Ha Noi Moi newspaper quoted the MoLISA as saying. Reports from 63 localities nationwide showed that 70 per cent of enterprises planned 2017 New Year bonus for their employees with average amount of 1.253 million Vietnamese dong (US$56.19) each, up 6.2 per cent year-on-year.

M&A

Political scandal

The Australian Federal Police (AFP) said yesterday they are working with international law enforcement agencies to investigate companies associated with Malaysia’s scandal-hit sovereign wealth fund.

1Malaysia Development Bhd (1MDB), founded by Malaysian Prime Minister Najib Razak (pictured), is the subject of money laundering investigations in at least six other countries, including Switzerland, Singapore and the United States.

Official data

Najib, who also chaired 1MDB’s advisory board, has denied wrongdoing and said Malaysia would cooperate with international investigations. 1MDB has also denied wrongdoing.

The AFP is responsible for investigating breaches of proceeds of crime laws by Australian companies, citizens and residents.

“The AFP is aware of allegations relating to companies associated with 1MDB and have assisted our foreign law enforcement partners with their investigations in relation to a number of these matters,” the AFP said in an emailed statement.

“As the AFP continues to evaluate

Malaysian Prime Minister Najib Razak

these allegations it would not be appropriate to provide any further comment at this time,” it said.

The AFP did not respond to Reuters’ questions about reports they were investigating whether any financial gains from the scandal were in Australia or with which international agencies it was working.

Singaporean authorities have frozen the assets of Malaysian financier Low Taek Jho, commonly known as Jho Low, who has not been charged with any offence related to 1MDB but has been identified as a person of interest in related investigations.

Singapore prosecutors filed 16 charges last week against the former local branch manager of Swiss-based Falcon Private Bank AG as part of its investigation into 1MDB. Authorities in the city-state jailed two former bankers from Swiss wealth manager BSI last year on charges including forgery and failure to disclose suspicious transactions involving Jho Low. Reuters

Takeda ready for fresh acquisitions Japan’s Takeda Pharmaceutical Co said it has the financial capacity for fresh acquisitions to bolster its drug portfolio after agreeing on Monday to acquire cancer drug maker Ariad Pharmaceuticals in a US$5.20 billion deal. The Ariad deal, at a 75 per cent premium, is the latest example of pharmaceutical companies paying handsomely to snap up promising drugs owned by rivals in a bid to secure revenue growth.

Pfizer Inc agreed in August to pay US$14 billion for Medivation Inc, the maker of the US$2.2 billion-a-year cancer drug Xtandi.

Palm price

Malaysia sees 2017 below current levels Palm oil prices will this year average between 2,700 and 2,800 ringgit, Malaysia’s minister of plantation industries and commodities said yesterday. That would be well below current prices for the edible oil, used to churn out everything from ice cream to shampoo and biofuels, which stood around 3,135 ringgit (US$701) yesterday afternoon. “(Palm oil) prices have fluctuated quite substantially ... because there is a lot of off take by certain countries and production also came down (in 2016),” minister Mah Siew Keong said at an industry event.

14 Business Daily Wednesday, January 11 2017

International In Brief Protests

Strikes bring fresh transport chaos to Britain Industrial action brought fresh disruption for travellers in Britain yesterday as rail workers and airline cabin crew walked off the job, the day after a major strike on the London Underground.

British Airways was forced to cancel 48 flights over two days at London’s Heathrow airport after cabin crew began a 48-hour strike, but said it would ensure that all passengers were able to travel. The Unite union called the strike after rejecting a deal proposed by the airline in December, which union leaders called “poverty pay” levels for staff who joined after 2010.

Revenue expectation

FIFA to Expand World Cup Sport’s most-watched event, the soccer World Cup tournament, has been expanded to include 48 teams, a move that governing body FIFA expects to deliver up to 25 per cent more in revenue while diluting the quality of the competition. The decision, agreed yesterday at a meeting of the Zurich-based organization’s ruling council, comes into effect from the 2026 event, FIFA said on its Twitter page. The next two tournaments - in Russia and Qatar - will retain the 32-team format first established in 1998. The move follows the election of Gianni Infantino to FIFA’s presidency last year.

Portuguese banks

BCP to repay €700M to government The Banco Comercial Português (BCP) is to increase its capital by €1.33 billion and use part of the money to fully repay the €700 million it still owes the Portuguese government. The loan involves €700 million in ‘CoCos’ (debt that can be converted into shares under certain circumstances) since the BCP had already repaid €50 million to the state on 30 December 2016.

Furthermore, the money from the capital increase will also be used to “bolster its balance sheet” the bank said on Monday.

M&A

L’Oreal to buy three skincare brands from Valeant French cosmetics group L’Oreal is acquiring three specialized skincare brands - CeraVe, AcneFree and Ambi - from Canada’s Valeant Pharmaceuticals International for US$1.3 billion in cash to expand into one of the fastest growing areas of the beauty industry.

The French cosmetics giant paid nearly eight times the brand’s combined annual revenue of US$168 million.

“These three brands, built on strong relationships with health professionals and widely distributed, will nearly double the revenue of our Active Cosmetics Division in the U.S. and will help us satisfy the growing demand for active skincare at accessible prices,” Frederic Roze, president and chief executive of L’Oréal USA, said.

Financial sector

London banks’ Brexit battle heads to Europe Banks have identified French politicians, EU regulators and government officials, as key groups to win over Andrew MacAskill and Anjuli Davies

B

anks with large London operations say they will step up lobbying European officials because they are running out of arguments to convince the British government the industry needs single market access after Britain leaves the European Union.

Banks have focused on pressuring British officials to push for as much market access as possible since voters decided seven months ago to leave the EU. They held fewer meetings with European officials, according to several senior sources in the financial services industry.

The focus is shifting because after scores of meetings and research reports, banks, which say they may begin moving staff and operations out of London in the next few months if there is no clarity, feel they are running out of new points to make.

Prime Minister Theresa May said on Sunday she was not interested in Britain keeping “bits” of its EU membership, interpreted by some as signalling she will favour immigration controls over access to the single market.

Banks are now planning a new round of lobbying to highlight how a hard Brexit could harm the EU and the UK. They have identified French politicians, EU regulators and government officials, as key groups to win over.

“The battle for Britain is over, the battle for France is about to begin,” said one senior lobbyist.

Another senior lobbyist for one of the major global banks said he will spend more time in Brussels this year to target the EU’s chief Brexit negotiator Michel Barnier and his teams as well as Didier Seeuws, a Belgian diplomat, who is helping coordinate the Brexit negotiations.

Another lobbyist said he is planning to visit Paris to meet with French politicians and regulators later this month.

Britain’s position as Europe’s financial centre is emerging as one of the main collision points in the Brexit talks. Some European politicians see an opportunity to challenge British dominance of finance after decades

of viewing its free-wheeling “Anglo-Saxon” model of capitalism with suspicion.

EU leaders like French President Francois Hollande have said they plan to weaken Britain’s grip on finance by, for instance, demanding the lucrative business of clearing euros should move to the euro zone.

Finance is Britain’s most important industry, accounting for about a tenth of its economic output and is its biggest source of business tax revenue.

Europe’s investment banker

But Britain also acts as “the investment banker for Europe”, Bank of England Governor Mark Carney said in November, with more than half the equity and debt raised for European governments and companies done in the UK. Banks will argue that Europe depends on the strength and the depth of the financial sector in London to service its economy and companies.

If access to the EU is cut off, regional financial stability could be in jeopardy, they will say.

Key Points Lobbying effort shifts to the continent Banks have spent months bombarding British govt New push will focus on French officials, EU’s Barnier UK-based banks had total outstanding loans of more than 1.1 trillion pounds to European companies and governments at the start of 2016.

The British government has also privately appealed to financial organisations to make their case in Europe if they want a transitional period where their ability to operate in the EU would be phased out gradually over several years.

Finance minister Philip Hammond told a meeting of finance executives at the end of November they should lobby European governments if they want to secure a post-Brexit transitional deal, according to two people who were present.

Hammond made the comments at the annual dinner of the All-Party

Parliamentary Group on Wholesale Financial Markets and Services, attended by executives from the major British and international banks, according to the people who attended.

“He basically said we need a transitional deal to avoid a cliff edge effect, but the EU also needs to argue for it,” one person at the dinner said. “He was implying that we need to help the government prepare the ground.”

A Treasury spokesman, when asked for comment, reiterated Hammond’s previous statements to lawmakers that Europe will harm itself if they use Brexit to undermine London’s position as the region’s principal financial centre.

Bankers say more work is needed on forging a consensus between Britain and Europe on what any transitional deal may look like. European officials say they will not discuss such a deal before Britain triggers Article 50 of the EU’s Lisbon Treaty to start the process of leaving the EU. “Everyone has a different definition of what it means in Europe and within Whitehall. We’re trying to get a common view on what transition means,” one of the lobbyists said.

Thawing relations

The British government’s relationship with business has gradually improved after months of friction after the vote.

It hit a low point during the Conservative party conference in October when May attacked a “rootless” international elite and officials privately suggested banks would get no special favours in the Brexit negotiations.

Nevertheless, banks feel they have largely finished putting forward their case for single market access.

“We feel we’ve been lobbying the UK government to death. We’ve presented every piece of evidence, every report, research, you name it,” one of the lobbyists said.

“We’ve been repeating ourselves for a month or two now... What else do they really need from us now?”

One government official, who asked not to be named, said regular dialogue with the finance sector will continue, but the number of meetings may reduce.

“The door is open if people want to talk to us. There is not an arbitrary point at which speaking to people is no longer helpful,” the person said.

“But it has been intense, as we wanted it to be, and that intensity may ease.” Reuters

Business Daily Wednesday, January 11 2017 15

Opinion

China banks’ liquidity squeeze is worse than you think Andy Mukherjee a Bloomberg Gadfly columnist

I

n their obsession with China’s falling foreign-exchange reserves, investors may be ignoring a more painful Catch-22: a growing shortage of bank deposits. Left unaddressed, the lenders’ liquidity squeeze could leave them dangerously exposed to fickle wholesale financing, while trying to ease the shortage could worsen capital flight.

Take Bank of Jinzhou Co. with just 0.3 per cent of the US$22 trillion in assets of the 35 publicly traded Chinese lenders, the bank appears remarkably liquid. Its 57 per cent loan-to-deposit ratio in June was below the median reading of 67 per cent. The Hong Kong-listed institution’s RMB200 billion (US$30 billion) deposit base offered ample support to a loan portfolio only a little higher than half that amount.

Of late, however, liquidity in China has been a mere accounting artefact. Customers’ deposits aren’t sufficient to finance Bank of Jinzhou’s RMB213 billion in shadow loans, which are debt securities that the billion RMB lender classifies as Bank of Jinzhou receivables. To make shadow loans up the shortfall, it has borrowed RMB142 billion from other financial institutions. Of this, as much as 78 per cent is short-term financing. After adjusting for shadow lending, S&P Global Ratings pegged Bank of Jinzhou’s loan-to-deposit ratio at the end of 2015 at 153 per cent.

Bank of Jinzhou is hardly the only Chinese bank flirting with illiquidity: Almost all are sitting on a pile of debt masquerading as receivables.

As a result, deposits required to sustain one bank’s bloated assets aren’t popping up at another lender. In S&P’s estimates, for the banking system as a whole, the true loanto-deposit ratio has increased to 80 per cent, a 10 percentage-point jump since 2013.

Even this might not be problematic if loans increased only a touch faster than the deposit growth rate of 11.5 per cent. However, if the latter slows to 10 per cent, and credit growth picks up speed to 15 per cent (from 13 per cent at present), the overall loan-to-deposit ratio would reach 100 per cent by 2021, according to Peter Redward, principal at Aucklandbased Redward Associates.

Banks’ excess reserves would be depleted, and even less onerous reserve requirements wouldn’t prevent them from becoming reliant for their financing on money, bond and equity markets. As Redward puts it: In a country with a banking system the size of China’s, funding from these sources at a systemic level is likely to prove challenging.

One big challenge may be capital outflows.

Expectations of a 5 per cent depreciation in the Chinese currency are already baked into the consensus forecast for end of 2018.

Deep cuts in reserve requirements could sink the yuan.

Doing nothing won’t be much of an option, either. Let a liquidity problem fester, and before long it morphs into a solvency scare.

China may yet sidestep a full-blown credit crisis, but not before missing customer deposits make their absence felt even more acutely. Bloomberg Gadfly

213

Trumpian uncertainty

E

very January, I try to craft a forecast for the coming year. Economic forecasting is notoriously difficult; but, notwithstanding the truth expressed in Harry Truman’s request for a one-armed economist (who wouldn’t be able to say “on the other hand”), my record has been credible.

In recent years, I correctly foresaw that, in the absence of stronger fiscal stimulus (which was not forthcoming in either Europe or the United States), recovery from the Great Recession of 2008 would be slow. In making these forecasts, I have relied more on analysis of underlying economic forces than on complex econometric models.

For example, at the beginning of 2016, it seemed clear that the deficiencies of global aggregate demand that have been manifest for the last several years were unlikely to change dramatically. Thus, I thought that forecasters of a stronger recovery were looking at the world through rose-tinted glasses. Economic developments unfolded much as I anticipated.

Not so the political events of 2016. I had been writing for years that unless growing inequality – especially in the US, but also in many countries throughout the world – was addressed, there would be political consequences.

But inequality continued to worsen – with striking data sh o w i n g that av e rag e l i f e expectancy in the US was on the decline.

These results were foreshadowed by a study last year, by Anne Case and Angus Deaton, which showed that life expectancy was on the decline for large segments of the population – including America’s so-called angry men of the Rust Belt.

But, with the incomes of the bottom 90 per cent having stagnated for close to a third of a century (and declining for a significant proportion), the health data simply confirmed that things were not going well for very large swaths of the country.

And while America might be at the extreme of this trend, things were little better elsewhere.

But, if it seemed clear that there would be political consequences, their form and timing were far less obvious. Why did the backlash in the US come just when the economy seemed to be on the mend, rather than earlier? And why did it manifest itself in a lurch to the right? After all, it was the Republicans who had blocked assistance to those losing their jobs as a result of the globalization they pushed assiduously. It was the Republicans who, in 26 states, refused to allow the expansion of Medicaid, thereby denying health insurance to those at the bottom. And why was the victor somebody who made his living from taking advantage of others, openly admitted not paying his fair share of taxes, and made tax avoidance a point of pride?

Donald Trump grasped the spirit of the time: things

“

Joseph E. Stiglitz a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute

weren’t going well, and many voters wanted change. Now they will get it: there will be no business as usual. But seldom has there been more uncertainty. Which policies Trump will pursue remains unknown, to say nothing of which will succeed or what the consequences will be.

Trump seems hell-bent on having a trade war.

But how will China and Mexico respond? Trump may well understand that what he proposes will violate World Trade Organization rules, but he may also know that it will take a long time for the WTO to rule against him. And by then, America’s trade account may have been rebalanced.

But two can play that game: China can take similar actions, though its response is likely to be more subtle. If a trade war were to break out, what would happen?

Trump may have reason to think he could win; after all, China is more dependent on exports to the US than the US is on exports to China, which gives the US an advantage. But a trade war is not a zero-sum game. The US stands to lose as well. China may be more effective in targeting its retaliation to cause acute political pain. And the Chinese may be in a better position to respond to US attempts to inflict pain on them than the US is to respond to the pain that China might inflict on Americans. It’s anybody’s guess who can stand the pain better. Will it be the US, where ordinary citizens have already suffered for so long, or China, which, despite troubled times, has managed to generate growth in excess of 6 per cent?

More broadly, the Republican/Trump agenda, with its tax cuts even more weighted toward the rich than the standard GOP recipe would imply, is based on the idea of trickle-down prosperity – a continuation of the Reagan era’s supply-side economics, which never actually worked. Firebreathing rhetoric, or raving three a.m. tweets, may assuage the anger of those left behind by the Reagan revolution, at least for a while. But for how long? And what happens then?

Trump might like to repeal the ordinary laws of economics, as he goes about his version of voodoo economics. But he can’t. Still, as the world’s largest economy leads the way into uncharted political waters in 2017 and beyond, it would be foolhardy for a mere mortal to attempt a forecast, other than to state the obvious: the waters will almost certainly be choppy, and many – if not most – pundit ships will sink long the way. Project Syndicate

Trump seems hell-bent on having a trade war.

But how will China and Mexico respond?

”

16 Business Daily Wednesday, January 11 2017

Closing Markets

Indian Commodity Exchange to launch diamond futures

Board of India (SEBI) to start futures trading and the bourse will initially launch three contracts for stones sized The Indian Commodity Exchange 30 cents, equivalent to 0.3 carats, 50 (ICEX) is planning to launch three futures contracts for diamonds in March cents, equivalent to 0.5 carats, and 1 carat, it said. to provide exporters with a hedging The contracts are designed to consider tool, the exchange said yesterday. the requirements of market participants India is a global diamond polishing and the delivery centre will be the hub where 14 out of every 15 rough western Indian city of Surat, which diamonds in the world are polished. polishes around 80 per cent of the The exchange has received “inworld’s diamonds, said an official with principle” approval from the market ICEX, who declined to be named. Reuters regulator Securities and Exchange

Environment

Mainland’s clean air bid scares rivals China’s recent push to clean up its air is leaving some of its neighbours feeling threatened Heesu Lee and Tsuyoshi Inajima

T

he Asian country’s road to cleaner air has been gradual, with lead-free gasoline only becoming a requirement in 2000, almost three decades behind the U.S. This month, China imposed new curbs on the amount of sulphur in vehicle fuels to about a fifth of the previous standard, putting it on par with Europe, which has the world’s strictest emissions controls.

“No doubt China’s upgrade to cleaner fuels will be an accelerating factor for China to ship dirty fuel”

“Competition will surely heat up next year and we will have to fight to maintain market share,” Kim Wookyung, a spokeswoman at SK Innovation Co., South Korea’s biggest refiner, said in a telephone interview.

Already, China has been aggressively selling refined fuel in the region. In September, its diesel exports jumped more than 50 percent to a record, while its sales to the Philippines soared more than six-fold in 2016 through November to about 17 million barrels, according to Bloomberg calculations based on data from China’s General Administration of Customs.

With the decision to cut sulphur levels, there’s “no doubt China’s upgrade to cleaner fuels will be an

accelerating factor for China to ship dirty fuel,” said Wu Kang, a Beijing-based analyst with industry consultant FGE.

South Korea slump

Meanwhile, South Korea’s southeast Asian sales of diesel, its most-exported fuel, has slumped to its lowest level in six years. Oil-product exports from the country fell 2 percent in the quarter ended in September as shipments to the Philippines, for example, dropped 33 percent in 2016 from the previous year.

Japan’s supply to southeast Asia is poised to be the worst in a decade.

The country’s exports of gasoil to the region slid about 15 percent between January and November to 25,580 barrels a day, on course for its lowest annual volume since 2006.

The end result: China is likely to overtake South Korea as the region’s

Wu Kang, a Beijing-based analyst with industry consultant FGE

While the change helps China battle the smog that’s choking residents from Beijing to Xian, many of its refiners still produce the dirtier fuel. That’s causing concern in both South Korea and Japan that China will boost exports of low-quality diesel to markets such as Indonesia and Malaysia, where standards are laxer. Both depend on southeast Asia as a key customer for their diesel.

top diesel exporter by 2020, according to Peter Lee, a Singapore-based analyst at BMI Research.

Refiners have also been suffering from lower margins. The profit from turning benchmark Dubai crude into oil products in Singapore averaged less than $5.50 a barrel last year, compared with $7.72 in 2015, according to data compiled by Bloomberg.

Not all of China’s neighbors are concerned. India, the fastest-growing oil consuming nation globally, has been reducing diesel exports in order to meet its own needs, with oil demand there forecast to double through 2040 to 10.3 million barrels a day.

‘Self-consuming’

“There’s not much of a threat to Indian refineries because we are self-consuming,” said H. Kumar, managing director of state-run Mangalore Refinery & Petrochemicals Ltd. “But if there’s plenty of diesel coming into the market because of Chinese dumping, that can impact the margins for all refiners.”

Shares in Mangalore Refinery & Petrochemicals have surged about 67 percent over the past 12 months, while China Petroleum and Chemical Corp., also known as Sinopec, has jumped 39 percent. That compares with a 23 percent gain for SK Innovation, and a 30 percent increase for Tokyo-based refiner TonenGeneral Sekiyu K.K. State-owned oil majors PetroChina Co. and Sinopec have been investing heavily in facility upgrades to enable the production of higher-quality fuels, and they are now capable of meeting the new standard, said Amy Sun, analyst with Shanghai-based commodities researcher ICIS-China.

That also increases the risk low-sulphur fuel could flow into Japan from China, leading to more competition there as well.

“The quality of oil products exported from the county has improved to a level similar to those shipped from Japan,” said Kosuke Kai, a spokesman at TonenGeneral Sekiyu. “We expect competition in Asian oil-product markets will intensify.” Bloomberg News

Oil industry

Investment

Entertainment

Iraq cuts production under OPEC deal

China’s R&D spending estimated Nickelodeon to build Philippine to reach 2.1 pct of GDP in 2016 underwater theme park

Iraq has cut oil production by 160,000 barrels per day (bpd) since the beginning of January in line with an OPEC decision to lower output, the oil ministry said in a statement yesterday.

Oil Minister Jabar Ali al-Luaibi said he hoped that by the end of the month production would be cut by 210,000 bpd, in line with the OPEC-agreed cap for Iraq, according to the statement.

Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), said on Monday exports from its southern oil ports had reached a record 3.51 million bpd, but it was nonetheless lowering nationwide production.

OPEC agreed in November to cut output by 1.2 million bpd from January 2017 to support prices.

A separate ministry statement yesterday said Luaibi had invited Angolan oil company Sonangol to begin working at the Qayyara and Najma oil fields in northern Iraq by the end of February.

The ministry was “working to enable oil companies in Iraq to operate by removing obstacles” in areas recaptured in recent months from insurgents.

Sonangol had pulled out of an agreement to increase output at the Qayyara fields in 2014, citing the mounting security risk. Reuters

China’s investment in research and development (R&D) is expected to reach RMB1.54 trillion (around US$223 billion) in 2016, accounting for 2.1 per cent of GDP, according to Science and Technology Minister Wan Gang.

Last year’s R&D expenditure was estimated to increase by 9 per cent from 2015, with over 78 per cent of the spending coming from enterprises, Wan announced at a national work conference on science and technology held yesterday.

Wan said initial figures showed the value of technology transactions in China was anticipated to amount to more than RMB1.14 trillion, and the scientific and technological progress contribution to the country’s economic growth in 2016 had increased to 56.2 per cent.

He said that China was a world leader in invention patent applications, ranking third place, with over one million invention patents.

At the conference, Wan also announced that China had begun working on implementation plans of key projects that involved quantum communication and computers, brain science and brain-like research, deep sea stations, as well as space-ground integrated technology. Xinhua

American children’s television network Nickelodeon has announced it will build an underwater resort and theme park on an island known as the Philippines’ last ecological frontier, alarming environmentalists.

The firm behind SpongeBob SquarePants and Dora the Explorer said the park on Palawan island would be part of a 400-hectare undersea development showcasing the area’s marine life that would give fans a chance to “interact with the brand and the iconic characters they love”.

Palawan was chosen for the development because it “is known to have some of the most beautiful beaches in the world today,” Ron Johnson, an executive vice president with Viacom International Media Networks, which owns Nickelodeon, said in a statement emailed to AFP yesterday.

Viacom’s initial statement announcing the project on Monday said the resort would open in 2020 and feature restaurants and lounges six metres below sea level.

The development would “advocate ocean protection”, the statement said. AFP