Thu, 26 January 2017 | 6pm 8 pm | Terrazza, Galaxy Macau
VIP gaming revenue jumps 12 pct y-o-y in Q4 2016 Gaming Page 7
Tuesday, January 17 2017 Year V Nr. 1215 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Forex
MSAR’s foreign exchange reserves reach MOP155.7 bln at 2016-end Pag 2
www.macaubusinessdaily.com
Compensation
Unpaid wages and court cases arise amidst Beijing Imperial Palace shutdown Page 2
Markets
Mainlanders use Hong Kong Exchange links to escape controls Page 8
Private investors
Chinese government pressures to reform telecom companies Page 9
Illusions and lies
A regional affair Infrastructure
Recent media reports described an expanded Macau, insinuating the closing of the local airport, to be integrated into the Zhuhai airport. Although airport authorities have dispelled the rumours, plans for integrating the PRD into a mega-city, given new infrastructure projects such as the HKZM bridge, are likely to bring about both opportunities and threats. Page 3
Did you read the memo?
Former Prosecutor-general Ho Chio Meng’s trial continues. A former assistant at the Prosecutor General’s Office states the department received instructions to change contract details and expense amounts, with the knowledge of those higher up. Changes to be made came on Post-its, some relating to IT material and mandarin orange trees. Other official travel records were also, in some instances, altered to remove destinations, names and dates. Courts Page 4
HK Hang Seng Index January 16, 2017
Never fear, the PJ’s here!
Crime Gaming related crimes in the city climbed nearly 20 pct in 2016 y-o-y, but there’s no need for alarm, says the Judiciary Police director. The increase is due to the police more actively ‘taking the initiative’ to investigate crimes, with the strategy being ‘very effective’. Overall, crimes increased by 9.2 pct y-o-y in the MSAR in 2016, with authorities focusing more on IT related crimes. Page 6
Shoppers healing balm
Consumption Chinese consumers over-performed again, showing the transition toward a services model is gaining momentum. Cinemas, malls and online shopping figures during Christmas and New Year campaigns have proved to be a real healing balm at a moment when trade is facing serious hurdles. Page 8 22,718.15 -219.23 (-0.96%)
Worst Performers
Cathay Pacific Airways Ltd
+3.04%
Lenovo Group Ltd
+0.59%
China Mengniu Dairy Co Ltd
-2.79%
China Unicom Hong Kong
-1.79%
Power Assets Holdings Ltd
+2.76%
CLP Holdings Ltd
+0.27%
China Life Insurance Co Ltd
-2.32%
PetroChina Co Ltd
-1.75%
AAC Technologies Holdings
+1.00%
BOC Hong Kong Holdings
+0.17%
CITIC Ltd
-2.26%
China Shenhua Energy Co
-1.71%
Cheung Kong Infrastructure
+0.98%
AIA Group Ltd
+0.11%
Hang Lung Properties Ltd
-2.10%
Henderson Land Develop-
-1.61%
Hengan International Group
+0.67%
Belle International Holdings
China Overseas Land &
-1.96%
CK Hutchison Holdings Ltd
-1.58%
+0.00%
17° 20° 18° 21° 15° 22° 14° 19° 15° 18° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
It’s not so much the lies that are told in Macau, but the way they’re disguised. For years, we have witnessed a systemic barrage of lies, both from the private sector and the government. These are lies and half-truths, often disguised as public relations exercises. Yesterday, the Land, Public Works and Transportation Bureau (DSSOPT) published a full page ad in Chinese and Portuguese newspapers, informing the public about how it plans to go about strengthening the interconnection between public green spaces. Despite being often alerted to the need to inform all the public about its campaigns, English media readers were, once again, ignored. Meanwhile, the government insists that the English language is essential in a city that aims to become more international. Just a few days ago, during the traditional Portuguese and English media luncheon with the Chief Executive, in the presence of all the secretaries – including the one that oversees the DSSOPT – Chui Sai On guaranteed all media his full support, just like he did at the Chinese media luncheon. These are circumstantial words, which are not reflected in the real world, where the government departments keep showing complete disregard for the English media. This newspaper has already spoken with secretary Raimundo do Rosário, just as it has spoken with all the other secretaries. They all listen and agree, but the results are here for all to see. Empty dailies, but for a few exceptions. Information is scarce and access to sources is difficult, not to mention the fact that the English media does not enjoy the privileges of the old law – from the Portuguese administration - that guarantees other newspapers exclusive ads, annual subsidies and other benefits. The current president of the Cultural Affairs Bureau, who has already resigned, is one of the officials who promised much, but did little. Before taking office, he was one of the independent voices, but just a couple of years later, he was doing the same as everyone else. Such is the power of the system. Quite a few government websites still provide no English versions, which is revealing of how political intentions have no reflection in practical life. It’s not a matter of ignorance, because this government is well aware of the power of the international language, and it’s not for lack of money either. Thus, it can only be negligence or some other obscure reasons. If this is the way it is, then just admit it once and for all and enough with the hollow words of respect and support for the media and freedom of expression. What’s happening is a filtering effort, as illustrated by the Health Bureau (SSM). Despite all the appeals from the secretary himself, the SSM seem to be immune and its leadership remains inside a selective bubble of silence, talking to some and ignoring the rest - no explanations given. The secretary has been, more than once, placed in a very uncomfortable position by their actions. Powerless. We wonder what the SSM hopes to gain by this. We’re sure their answer would be quite interesting. If only the silence was broken.
2 Business Daily Tuesday, January 17 2017
Macau Monetary
Forex reserves jump as at 2016-end
T
he city’s foreign exchange reserves reached MOP155.7 billion (US$19.5 billion) as at the end of last year, reveal preliminary estimates by the Monetary Authority of Macau (AMCM). The amount represents an increase of 2.8 per cent from that of MOP151.4 billion as at the end of November, or a growth of 3.2 per cent from MOP150.8 billion for the same month in 2015. Meanwhile, as at the end of the year, the SAR government’s foreign exchange reserves represented 12 times the currency in circulation, or
97.3 per cent of Pataca M2 as at the end of November last year. ‘M2’ refers to that part of the money supply that includes physical coins and currency, as well as readily liquid assets such as on-demand bank deposits and money held in cheque accounts plus all time-related deposits, savings deposits, and non-institutional money market funds. On the other hand, the trade-weighted effective exchange rate index for the pataca amounted to 110.2 in December of last year, which is an increase of 1.67 points month-on-month, or a growth of
2.91 points year-on-year. The increases suggest the exchange rate of the local currency, in general,
advanced against the currencies of the city’s trading partners, according to AMCM. K.L.
Politics
Consultation over new municipal organ delayed Secretary Sonia Chan added that an electoral commission for this year’s AL election would be set up by this month Secretary for Administration and Justice Sonia Chan Hoi Fan revealed that the government’s consultative works for the establishment of a new municipal organ would be delayed. Speaking to reporters yesterday, the Secretary explained that the postponement is because the MSAR government will first need to ask advice from the central government, adding that the two parties are now exchanging opinions on the matter. The government’s intention to set up a municipal organisation was announced in its 2015 Policy Address
and the government continues to stress that this new body will not be granted any political power. Explaining that the new set-up would be complementary to the Chief Executive elections in 2019, the
Worker’s compensation
Pay up! In the wake of the announced forfeiture of the hotel license by the operators of the Beijing Imperial Palace Hotel, Macau Hotel Developers Limited, a number of former workers and service providers of the companies linked to the property are seeking legal and governmental means to recover the funds they are owed. Announced yesterday by the Labour Credit Guarantee Fund, are two separate cases to be settled by the fund for compensation relating to employees under both the license forfeiter, Macau Hotel Developers Limited, and the gaming arm of the property, run by Greek Mythology Entertainment Group Corporation Limited. A total of 23 former workers of the Greek Mythology Casino are claiming damages amounting to MOP1.32 million in back-pay, to be paid out by the fund within eight days of the initial
official claimed that the government would later speed up the progress of the delayed works in order to complete the consultation procedures within this year. Meanwhile, Chan said that an
electoral commission for this year’s Legislative Assembly election is expected to be formed within this month. She added that the government is still waiting for local courts to recommend candidates to chair the Commission. On the other hand, the official said she has not yet received any notice regarding investigations by local anti-graft watchdog the Commission Against Corruption into her recommendation of a family member to work in the Prosecutor’s Office. The recommendation was disclosed recently by former-prosecutor general Ho Chio Meng during the trial into his alleged corruption. At the beginning of the month, Commissioner Andre Cheong Weng Chon confirmed to the press that the anti-graft watchdog had received a complaint against the Secretary’s actions, adding that the body was following up the case and could not reveal any further information at this point in time.
Fuel prices
notice, it was announced yesterday. A single employee is also seeking MOP78,000 in pay owed by Macau Hotel Developers Limited, to be paid out by the fund. Furthermore, seeking legal action against the Greek Mythology Entertainment Group is security company Guardforce (Macau), to the amount of about MOP3.36 million as well as interest payments, as announced yesterday by the Court of First Instance. The company has 30 days to contest the action. Previous data supplied by the group in October stated that 281 employees had filed complaints regarding unpaid salaries. In the same month, about 10 employees from the property staged a protest, threatening to jump from a ledge of the building. The protest lasted around two hours. Business Daily requested updated information on the total number of complaints received from former employees of the hotel and casino, however had not received a reply by the time this went to print. K.W.
Government welcomes new fuel suppliers to increase competition The government will continue to monitor changes in gas and fuel prices and take adjustment measures when necessary, in order to control price fluctuations and increase competition in the industry, according to Tai Kin Ip, Director of the Macao Economic Services (DSE). The director’s comments came in response to legislator Ho Ion Sang’s written enquiry, urging the government to monitor prices, given that the city’s gas and fuel prices are higher than in neighbouring Hong Kong. Director Tai explained that the increases are due to the transport costs associated with importing gas and fuel from Mainland China, resulting in higher prices. D i r e c t o r Ta i s a i d t h a t t h e government is open to any new gas and fuel suppliers wishing to operate in the city. According to the data collected in November by the DSE and cited by Director Tai, 60 per cent of the current storage area in the Ka-Ho Oil Terminal is in use for fuel storage
and 70 per cent of the gas storage available in the terminal is currently in use, with sufficient space for new fuel importers, Director Tai added. Legislator Ho cited data noting: “from February 2015 to August 2016, the average imported price for gas was around MOP3.09 per kg and the fuel price was MOP4.97 per kg. However, the selling price was about MOP13.58, with a difference of MOP8.61”. Ho argued that the mark up price was too high and urged the government to set up regulations to standardize gas and fuel prices in the city in order to create healthy competition. Director Tai replied that the government is working with the gas and fuel industry to set a standard price in the market so as to avoid any dramatic changes in pricing in the future. In addition, the concession contract of Ka-Ho Oil Terminal will expire in 2018 and the government welcomes proposals, noted Director Tai, commenting that so far the Bureau has not received any applications. A.L.
Business Daily Tuesday, January 17 2017 3
Macau
Development
CAM: No plan to close the city’s airport Although there does not seem to be any plan to phase out Macau’s local airport as the MSAR becomes more integrated with regional cities, as announced by regional media, members of various sectors express divergent opinions about creating a “Great Macau”, integrating the PRD’s urban hubs Cecilia U cecilia.u@macaubusinessdaily.com
A
fter regional media reports that the local airport could be integrated into a centralized plan for the Pearl River Delta, eliminating the airport from Macau, Macau International Airport Company Limited (CAM) confirmed with Business Daily yesterday that the city’s airport has no plans to integrate its operations with that of Zhuhai Jinwan Airport, or to halt its operations in order to fulfil a development concept named by the media report, as “Great Macau”. According to Hong Kong-based newspaper Oriental Daily, in the future, Macau will be connected to other Chinese cities in the region including Zhuhai, Hengqin and Sanxiang (located in Zhongshan city) through a handful of large-scale infrastructure projects such as the Hong Kong-Zhuhai-Macau Bridge and Shenzhen-Zhongshan Bridge. The publication reported that, according to an authoritative source, in order to achieve a complete urban integration plan with Zhuhai, the MSAR airport might halt its operations in order to integrate it with the Zhuhai Jinwan Airport. In its reply to Business Daily, the local airport operator denied the existence of an integration plan with the neighbouring Chinese city’s airport, indicating that it “was not notified about the plan”. Meanwhile, Oriental Daily revealed that the suggestion to close the city’s
airport was based on safety considerations, citing the (previously mentioned) authoritative source as saying that busy air traffic has heightened safety concerns due to the operations of five airports – Hong Kong, Guangzhou, Shenzhen, Zhuhai and Macau - in the Guangdong area. From the government’s side, the Civil Aviation Authority (AACM) noted that it had no solid response to either the airport issue or the city’s development concept before this story went to press.
Inevitable integration
Wu Chou Kit, Council President of the Macau Institution of Engineers as well as a member of the city’s Urban Planning Committee, suggested that the airports of Macau and Zhuhai should be connected instead of integrating both into one and closing down the other, if a “Great Macau” scheme is to be implemented. He said that with the Macau International Airport serving primarily passenger flights and Zhuhai Jinwan Airport focusing on cargo flights, each can complement the other when both airports are well-connected by land transportation avenues. Regarding the city’s overall development, Mr. Wu said that once transportation has developed to its optimum stage, the integration with Chinese cities such as Zhuhai and Zhongshan would provide residential areas for the increasing number of Macau residents. “With the geographical integration between Macau and other
neighbouring cities, Macau residents are to be provided a better living environment and choice,” said Mr. Wu, adding that prices of real estate would stabilise when alternatives outside the city become available. Mr. Wu commented that the city’s airport and Border Gate are not adequate for handling the future number of tourists, opining that the integration of the Guangzhou-Zhuhai Intercity Railway and Macau’s Light Rail Transport system within the “Great Macau” development plan would be advantageous for the city in regards to establishing itself as a World Centre of Tourism and Leisure. Local SMEs (Small and Medium Enterprises), meanwhile, would be exposed to more opportunities, in other words creating a triple win situation, said Wu. With the “One country, two systems” policy remaining unchanged for 50 years, Mr. Wu said the gradual merger of political ideas in Macau and other cities is based on the current trend and development. Mr. Wu added that Macau’s recent policies have a similar direction as the ones in Zhuhai and those of the central government. “With all the benefits mentioned earlier, the integration with the neighbouring Chinese cities is the current trend,” remarked Mr. Wu.
Bright tourism future
President of the Macau Tourist Guide Association, Angelina Wu Wai Fong, opined that a more connected environment with nearby cities would benefit the cities’ tourism industries. “Nowadays tourists don’t want to just visit one place for one holiday,” said Ms. Wu. “Tourists tend to join tours if different places with distinctive features are able to be all included in one tour.” She further commented that the increased connection between cities will help them to complement each other. “We don’t have any theme-park
in Macau but there is one in Hengqin,” Ms. Wu said. “The development would strengthen the city’s tourism industry.” With the co-operation between cities, Ms. Wu said it would be competing internationally, on par with trips such as European tours. Meanwhile, Ms. Wu revealed that in order to be able to run tours that include Chinese cities, local tour guides might be required to obtain a license from Chinese authorities.
Losing identity
On the other hand, pan-democratic legislator Au Kam San commented that the integration plan would gradually erase the distinctive identity of the city. “Although the scale of the city’s airport is small, it is Macau’s airport and it has its specific flights to specific places,” the legislator remarked. Legislator Au said the safety concern of having too many airports in nearby places is not a reasonable explanation for the proposed closure of the city’s airport. “These airports have been operating for a long time,” said the legislator. “Macau is a Special Administrative Region, so why should Macau’s airport be removed but not the others’?” The legislator does not deny the conveniences created from more transportation infrastructure connecting cities, but he pointed out the influence this would have on the idea of maintaining the “One country, two systems” policy. “We should protect things that are distinctive to the city,” said legislator Au. “We should not generalise the MSAR with other Chinese cities just because of the desire to have more conveniences.” He emphasised that on a day-today basis, to a certain extent, integration with neighbouring Chinese cities is reasonable, but it is unacceptable if the level of integration blurs or erases the distinctive character of the Special Administrative Region.
4 Business Daily Tuesday, January 17 2017
Macau Opinion
Albano Martins*
The Gaming Industry and diversification 1. George Soros, an 86-yearold Hungarian Jew and naturalized American, calls Trump a con man and a dictator! Coming from a man of the world of financial investment, he is not very much in favor of the president-elect of the United States, who rejects the wave of new immigrants today, even though he is also the son of immigrants, and always married to women of non-American nationality. How long will this man endure and how many complications will he be able to generate? No one, honestly speaking, can predict the near future, either economically or politically! But we are beginning to fear what comes next, with his choices for the White House and future secretaries! 2. In Macau, the gaming industry became the marshal of all Small and Medium Size Enterprises (SMEs). Too much talk about diversification, but at the same time it is trying to make the gaming industry one of the main buyers of SMEs. We must be careful as we might make the remaining economy even more vulnerable and dangerously more dependent on the gaming industry. We need the gaming industry to please our people (the SMEs), politically a good idea, but then it is this same gaming industry that will give them bad balance sheets, in periods of revenue downturn! If I was a casino, of course I would see this measure as positive, because there would be many more people in the same boat as I, rather than just the six de facto casinos operators. A storm would impact many more people, which would upset those who really make decisions. 3. The gaming industry will recover in 2017, if Trump does not complicate the world economy and especially the Chinese economy, and if the measures taken by China do not condition its performance! Growth came up in August. Achieving 2015 levels of income, is very easy, it just needs a simple revenue growth of 3.4 points! To reach the values of 2014, it would be necessary for the growth of the gaming industry in 2017 be about 57.5 per cent! Impossible! In this universe of greater uncertainty created by the U.S.A., we will need at least another four years to reach 2014 revenue levels, if we are capable of achieving an average annual growth of income of 12 per cent! Of course, that is if you let the game be played freely, and no more artificial limitations are created to impede its growth, simply to justify desired diversification, which by the way, will only be achievable maybe by 2040! * an economist and contributor to this newspaper
Crime Prosecutor’s office “made up” activities to justify
paying former prosecutor-general’s travel expenses
Post-it deals
A former Prosecutor General Office assistant admitted changes were made to publicly awarded contract expenses and information with the knowledge of former prosecutor-general Ho Chio Meng and former chief of the prosecutor’s office, Antonio Lai Kin Ian Nelson Moura nelson.moura@macaubusinessdaily.com
T
he city’s Court of Final Appeal continued the trial of former prosecutor-general Ho Chio Meng yesterday, with former assistant of Prosecutor General’s Office, Chan Ka Fai, being called to testify for the majority of the day. During his testimony, Mr. Chan stated that his department received many instructions to change contract details and expense amounts with the knowledge of the former prosecutorgeneral’s ex-chief of the prosecutor’s office, Antonio Lai Kin Ian. According to Mr. Chan, the requested changes would be made by his superiors through Post-it notes placed in the contract documents. Mr. Chan was an employee at the Office from 2000 to 2015 and was in charge of a department created by Mr. Ho to deal with material purchases, a department that received direct orders from Mr. Lai.
Superior orders
In some instances, purchases would allegedly be made without the knowledge of the Office’s Financial Department, such as furniture acquired by Mr. Ho on official visits. “There were many instances where the prosecutor-general would consider certain furniture would be suitable for purchase. We wouldn’t know if it was for private or official use,” stated Mr. Chan. The expenses would then be liquidated through a company owned by one of the accused businessmen in the trial, Wong Kuok Wai. The former assistant stated that his department had agreed with the businessman that he would receive a
5 per cent commission on the works, if the services required him to source materials from other companies. The prosecution responded that the businessman had, in many instances, received a 20 per cent commission for leasing materials, with Mr. Chan stating there was a “verbal agreement”, but admitted that, since in many instances just the total final expense amounts would be presented to his department, the amount paid by Wong Kuok Wai for rental of materials was something that couldn’t be verified.
Tangerines and computers
During his testimony, Mr. Chan described multiple instances of contracts and expenses being altered, such as when an expense to be paid to a company owned by the businessman for the purchase of information technology (IT) material was raised from an initial MOP23,000 (US$2,879) to MOP31,000 to “settle a debt” with Wong Kuok Wai. In another instance, the businessman decorated the Prosecutor’s Office for Chinese New Year with tangerine trees, without requesting and presenting a bill afterwards. When the prosecution questioned Mr. Chan as to whether he had agreed with this informal system or if he had complained about the companies owned by Wong Kuok Wai receiving “so many” service contracts, the former assistant stated that he had indeed complained about it to Mr. Lai, but that his then-superior would “get upset” and say “it was his decision”. The former department assistant also stated that he and his colleagues didn’t have a good relationship with Mr. Lai when he was their superior at the Prosecutor’s Office.
According to the prosecution, the alleged association, run by the former top official and his associates, created a total of 10 shell companies between 2006 and 2014, receiving some MOP50 million in benefits from the Office’s public contracts.
Travel split
The former Prosecutor’s Office assistant also admitted that in some instances in regards to official trips and travel, that Mr. Lai would request that destinations, names and dates not be disclosed in the documents handed to the department in order for them to be “confidential”. Regarding the 2005 trip by the prosecutor-general to a Public P r o s e c u t o r’ s c o n f e r e n c e i n Copenhagen, the prosecution resumed its enquiries, focusing on accusing the former top official of using public funds to pay for a family ‘private trip’ for 14 days. The former top official claims only his wife and nephew accompanied him on the trip, with former Chief Executive, Edmund Ho, having authorised him to take his spouse. Ho Chio Meng has defended himself against this charge by stating that he partially paid for the expenses of his nephew. However a fax shown by the prosecution previously showed Ho’s brother-in-law, Zhou Wen Sheng, and another nephew, Lee Kin Kei, also accompanied him on the trip. A receipt for travel expenses was shown detailing that expenses for the trip reached a total of MOP569,261, with Mr. Chan stating that the expenses exceeded the department’s maximum annual budget of MOP280,000 with the remaining having to be paid in 2006. The former assistant then stated that Lai had asked his department to divide the expenses into six instalments to be paid to the travel agency responsible for organising the trip, with Chan stating that his department had “made up activities to justify the expenses”. However, despite stating that his superiors and other assistants knew about this dividing up of travel expenses, Mr. Chan admitted that he couldn’t say for sure that Ho Chio Meng knew about these actions. Th e t r i a l w i l l c o n t i n u e o n Wednesday.
Business Daily Tuesday, January 17 2017 5
Macau
6 Business Daily Tuesday, January 17 2017
Macau
Judiciary Police director Chau Wai Kuong (C)
Security
Gaming related crimes soar in 2016 But the PJ said the growth is attributable to their enhanced efforts in digging up the cases Kam Leong kamleong@macaubusinessdaily.com
T
he city saw gaming-related crimes climb by 19.2 per cent for the whole year of 2016 compared to that of 2015, the director of the Judiciary Police (PJ), Chau Wai Kuong announced yesterday. For the year, the police force opened
files on a total of 1,851 cases related to casino crimes, an increase of some 384 cases compared to the 1,467 cases seen in 2015. In particular, there were 441 cases relating to loan-sharking for the year, jumping by 38.7 per cent from 318 cases in 2015, while the number of cases related to illegal detention totalled 503, surging by 37.4 per cent from 366 cases in 2015.
Subsidy
Temporary subsidy for building facility maintenance to be extended The MSAR government is extending the temporary subsidy for the maintenance of the common facilities of low-rise buildings for one more year, according to a dispatch released yesterday in the Official Gazette. The scheme is applicable for buildings with no more than seven floors. Applicants
for the subsidy can obtain no more than MOP15,000 (US$1,878) per building for the maintenance of the building entrance, MOP40,000 for power facilities, MOP40,000 for water facilities and MOP15,000 for each sewage and draining project. The temporary subsidy scheme was established in 2009. C.U.
The PJ director announced the information during the Bureau’s annual media briefing yesterday. According to Mr. Chau, the police body transferred the cases of 2,003 suspects involved in these gaming-related crimes to the Prosecutor’s Office last year, with 1,341 of these involved in loan-sharking. However, the director stressed that the hike in the number of casino-related crimes was due to the body’s enhanced efforts in combating such activities, in particular, taking the initiative to look into the cases. “We’ve been taking the initiative to investigate the cases based on the intelligence we receive in order to combat the crimes,” said the Judiciary Police chief. “This is also the most efficient way. This principle [of taking the initiative] is actually very effective in combating crimes, particularly, gaming-related crimes.” He added that intelligence was primarily gathered from mainland residents, who informed the local police force via phone calls or messages when their family members were illegally detained. Other information sources included local residents, foreign consulates and Interpol. “That’s the reason why you see a higher number of gaming-related crimes, as we have successfully closed more cases,” the director said. “One time we closed some 20 cases of illegal detention in one day.” The police chief, meanwhile, emphasised that there were no signs to indicate that these types of criminal activities – which primarily take place in casinos – were expanding into local neighbourhoods. “These cases, so far, are still basically happening inside local casinos. We haven’t yet seen their negative impact on the general security of society,” he said, adding the police force will continue taking the initiative to fight against such illegal activities.
Total crimes increase
In 2016, the Judiciary Police opened files on a total of 12,346 cases, an increase of 9.2 per cent from 2015 when there were 11,305 cases. Of the total, ad-hoc investigations amounted to 5,584 cases, an increase of 3.5 per cent year-on-year. But the PJ director said the body had already closed 11,713 of these cases last year, while a total of 3,806
suspects were passed on to the Prosecutor’s Office, representing a growth of 10.8 per cent compared to 2015. Information-related crimes reached 466 cases for the year. These types of crimes cover computer fraud using POS (point of sale) terminals and bankcards. According to the police data, the number of crimes related to POS terminals reached 25 last year, a decrease of five from 2015, while those related to UnionPay cards, credit cards and debit cards totalled 79, a notable decrease of 100 from 2015. The PJ head told reporters yesterday that the aforementioned crimes were also the focus of the police department in its fight against finance-related crimes. He claimed that the PJ has been teaming up with local supervisory bodies, such as the Monetary Authority of Macau (AMCM), to combat such illegal activities. “We will keep enhancing our enforcement against the sector. Besides cross-department co-operation within the MSAR, the PJ will also co-operate with mainland authorities for information exchanges in order to combat the cases,” said the director.
Fake base stations
In addition, the police force cracked down on a total of four fake base stations (typically used to send misleading information via telecom networks for scams) in 2016, a decline of two year-on-year. But the Bureau noted that there were a few more types of crimes that could be derived from the stations, namely, online scams and illegal gambling. It added that the victims of such cases, who are primarily mainland residents, did not usually report the cases to the PJ but instead to the mainland authorities, given that the victims were only lured into the scam upon returning to the mainland, resulting in the number of cases recorded by local authorities remaining rather low. On the other hand, 245 cases of phone scams were reported in 2016; 277 cases of the use or the passing on of counterfeit banknotes; 32 crimes related to criminal organisations; and two activities related to Triad gangs, according to the official information.
Business Daily Tuesday, January 17 2017 7
Macau Gaming
VIP revenue grows 12.7 pct in Q4
T
otal gaming revenue derived from the VIP sector jumped by 12.7 per cent year-on-year for the fourth quarter of 2016, amounting to MOP33.3 billion (US$4.2 billion) compared to MOP29.6 billion for the same period the previous year, according to the latest information released yesterday by the Gaming Inspection and Co-ordination Bureau (DICJ). Revenue generated from the mass
gaming floors, including slot machines, also increased by 7.3 per cent year-on-year for the quarter, totalling MOP27.1 billion, compared to MOP25.2 billion in Q4 2015. Year-on-year, VIP gaming revenue, however, still dipped by 6.93 per cent, from MOP127.8 billion in 2015 to MOP118.96 billion in 2016. Meanwhile, total mass gaming revenue in 2016 amounted to MOP104.3 billion, a slight increase of 1.2 per cent compared to MOP103 billion in 2015.
From slot machines alone, the sector generated some MOP11.4 billion in revenue for the year, a decrease of 3.1 per cent from MOP11.8 billion in 2015. Yet revenue derived from Live Multi Games rose by 10.8 per cent year-on-year to MOP2.4 billion, up from MOP2.1 billion the previous year. For 2016, the shares of the VIP revenue and the mass revenue were 53.3 per cent and 46.7 per cent respectively, compared to shares of
55.4 per cent and 44.6 per cent as at the end of 2015. There were a total of 6,287 gaming tables operating in the territory, in addition to 13,926 slot machines as at the end of the year. Local gaming revenue has rebounded year-on-year for five consecutive months since last August, following a previous slump of 26 months. For 2016, total gaming revenue totalled MOP223.2 billion, a decline of 3.3 per cent compared to 2015. K.L.
Gaming workers
Same legal rights for gaming workers at satellite casinos The MSAR government makes it a priority to protect the legal rights of all the gaming workers in the city, including the ones working at satellite casinos, according to Paulo Martins Chan, director of the Gaming Inspection and Co-ordination Bureau (DICJ). The comment came in response to a written enquiry filed by legislator Ella Lei Cheng I, urging the government to set up measures to ensure the rights of gaming workers at satellite casinos. Director Chan noted that all employers are required to provide the best working conditions and benefits to employees, regardless of whether the property is directly under a concessionaire or subconcessionaire, or set up as a satellite under one of them.
Director Chan added that the operations of satellite casinos are monitored by the DICJ on a regular basis, under the same monitoring mechanisms used for the six gaming operators in the city. However, the DICJ head pointed out that, currently, the government does not require satellite casinos to hire their workers from the six gaming operators, and hotel or junket operators can hire their own labour. In addition, legislator Lei also filed a written enquiry yesterday to urge the government to establish relevant measures in order to prohibit nonresident workers holding tourist visas from working illegally in the city, and asked the government to announce a timetable for implementing such a measure as soon as possible. A.L.
Detained
Investigation into Crown employees detained on mainland could run into 2018 The investigation of the 17 Crown Resorts staff detained in China could stretch into 2018, according to a Department of Foreign Affairs response from the mainland to an Australian Department of Foreign Affairs to the Australian Financial Review. The detainees include Crown’s head of international VIP, Jason O’Connor and two other Australian citizens. ‘The Chinese investigation is ongoing and could continue for over
a year,’ reads the bureau’s reply to the enquiry. The group is currently being held at the Shanghai Detention Centre on the outskirts of Shanghai, having been arrested late last year. Consular officials visited the Australian nationals on December 21 and January 13, notes the publication. The group is still unaware what charges they are facing aside from being “gambling related crimes”. K.W.
8 Business Daily Tuesday, January 17 2017
Greater China Outflow
Exiting cash seen finding a home in Hong Kong stocks As China tightens its grip on capital controls, one state-sanctioned haven from a weakening yuan is drawing attention Kana Nishizawa
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ainland investors will turn to buying Hong Kong stocks through cross-border exchange links as other ways of purchasing overseas assets become more difficult, said Kenny Tang, vice chairman at Jun Yang Financial Holdings Ltd. An increase in flows would provide a boost to a stock market that has trailed global peers over the last four years, he said. Policy makers stepped up measures
to stem outflows as the yuan suffered its worst annual loss against the U.S. dollar in more than two decades, including requiring extra documentation from individuals converting yuan and blocking the use of Chinese bankcards to buy insurance products in Hong Kong. As a high-profile part of President Xi Jinping’s pledge to integrate China’s financial markets with the world, the Shenzhen and Shanghai bourse links aren’t facing the same threat, even with money flowing into Hong Kong so far in 2017 outpacing cash
being sent the other way. “If you look at the channels which are open right now, they are closing, and the stock connect still remains a channel which is open,” said Sam Le Cornu, co-head of Asian-listed equities at Macquarie Investment Management Ltd. “It’s a closed-loop system but arguably you can get exposure to Hong Kong-denominated assets, which are pegged” to the U.S. dollar. While Mainland investors using the link have to be repaid in yuan when they sell their Hong Kong shares, they are shielded from any depreciation in the Chinese currency while their money is on the other side of the border. The fortunes of Hong Kong’s stock market are becoming more closely
linked to the ebb and flows of those funds. Record monthly spending on the city’s shares in September via the Shanghai link helped the Hang Seng Index cap its biggest quarterly advance in seven years. Those funds dried up in early October, and the gauge suffered a 5.6 per cent loss in the final quarter of 2016. Inflows picked up again toward the end of December as the yuan fell to a fresh 8-1/2 year low, before slowing again this month. Hong Kong’s bourse links are the best way for Mainland investors to buy assets whose value is pegged to America’s currency, BNP Paribas SA said in a report on Jan. 9. Southbound flows may accelerate this year, supporting Hong Kong-traded Chinese shares, it said. The connection with Shanghai started in November 2014, giving Mainland individuals direct access to shares listed in the former British colony for the first time, and the Shenzhen program began last month. Because the links have closed-loop designs - Chinese investors get the proceeds in yuan when they sell - purchases don’t count toward an individual’s US$50,000 annual quota for foreign currency conversion. Hong Kong’s equity market could use an influx of buyers. The Hang Seng Index eked out a gain of just 0.4 per cent last year, compared with 9.5 per cent for the S&P 500 Index, and has underperformed an index of global equities since 2013. The measure trades at valuations 28 per cent below that of the MSCI All-Country World Index, according to data compiled by Bloomberg. Bloomberg News
Consumption
Mainland shoppers ended 2016 on bright note Chinese consumers flocked to malls, restaurants and cinemas ahead of the year’s biggest holiday season, highlighting the consumption power transforming the economy Foot traffic at shopping centres and eateries edged up while online sales climbed from a year earlier, according to data from Baidu Inc., operator of the nation’s dominant search engine, and No. 2 e-commerce platform JD.com Inc. Consumer confidence and box office receipts also rose, while car sales held up. While Christmas isn’t observed, that hasn’t stopped businesses from introducing shopping holidays around the end of the calendar year, and the trend is increasingly attracting middle-class shoppers. The week-long Lunar New Year holiday starting at the end of this month is the major one for buying gifts and - for hundreds of millions of people - heading home to see the family. China’s shoppers are helping the economy transition away from over reliance on investment-led growth, though the latter remains a key pillar. Still, headwinds are blowing as both box office and car sales are expected to slow down. These five charts give a read on how consumers are faring: Foot traffic at restaurants and malls increased in December from a month earlier, Baidu data show. Year-end auto sales appeared brisk, while tourism slumped during a period without public holidays. Online outlets are taking businesses from bricks-andmortar shops, where activity edged down from a year earlier. The gauges
are based on location data of mobile users. Online consumption pulled back from a November record spurred by the Singles Day national shopping bonanza, yet still saw robust growth from a year earlier across categories from alcohol to cosmetics, according to JD Finance, a unit of e-commerce platform JD.com. Online sales surged 30 per cent in December, with diamonds the most dazzling product throughout the year, according to a report by Shanghai-based CEBM Group based on JD data.
The Westpac MNI China Consumer Sentiment Indicator rebounded to 116.6 in December from 114.9 in November as shoppers had a brighter outlook for their personal financial situation. Box office activity jumped during a key movie season, according to entertainment research firm EntGroup Inc. in Beijing. “The Great Wall,” a historical adventure starring Matt Damon and directed by Zhang Yimou, racked up RMB979.4 million last month despite poor reviews. Japanese animated film “Kimi no na wa,” or “Your Name” enjoyed acclaim and strong sales. Expansion of the movie industry, an emerging battleground for global entertainment companies aiming to attract Chinese consumers, fell short of sustaining the prior year’s epic
gains. Total box office rose 3.7 per cent from a year earlier in 2016 to RMB45.7 billion (US$6.6 billion), government data show. That compared with a 49 per cent surge in 2015. The auto sector was a bright spot for the economy in 2016, with vehicles sales rising 13.7 per cent. December sales held up, while the expansion will probably slow this year.
“With private sector investment still subdued and question marks around the export environment, the Chinese consumer is likely to again be a key swing factor for the wider economy” Matthew Hassan, senior economist at Westpac Banking Corp The MNI China Car Purchase Sentiment Indicator rose to 89.8 in December from 88.3 in the prior month as consumers expected lower fuel costs. “The planned car budget of Chinese families continued to trend toward the middle ranges in November with the more expensive bands falling out of favour,” MNI analysts wrote in a report. Bloomberg News
Business Daily Tuesday, January 17 2017 9
Greater China In Brief IPO
Experts see normalization good for economy The normalization of initial public offerings (IPOs) in China could help raise the financing efficiency of companies and direct more capital into the real economy, experts have said. Since an IPO suspension between July and November 2015, the country’s securities regulator has progressively sought to normalize IPOs. In 2016, 227 companies went public, raising total funds of RMB147.6 billion (US$21.42 billion). Sun Yizheng, vice president of China Merchants Securities, said that most companies waiting for IPO approvals were excellent players in emerging industries. Commodities free zone
Domestic firms expand footprint in Dubai Forex
Authorities should stop intervening in FX market China should stop intervening in the foreign exchange market, devalue the yuan and let it float freely to restore stability, a senior researcher at a government-backed think tank said Xiao Lisheng, a finance expert with the Chinese Academy of Social Sciences, made the remarks in an article yesterday in the official China Securities Journal amid a growing debate among the country’s economists on whether authorities should let the closely-managed currency trade more freely. The yuan lost 6.6 per cent against the dollar last year, the biggest annual loss since 1994. “The more the government delays the release of depreciation pressure, the greater the impact and destructive power of the release of depreciation pressure will be,” Xiao wrote.
The authorities should “let the yuan exchange rate have a one-off adjustment to realize a free float” of the currency, he said. The yuan is allowed to trade in a band of 2 per cent on either side of a daily reference rate managed by the central bank. Authorities have said repeatedly there was no basis for continued depreciation of the unit, but many currency strategists predict a further weakening this year if the U.S. dollar remains strong, spurring further capital outflows from China. Xiao said the current mid-point formation mechanism, adopted in
2015, is still immature and in transition, although it has eased depreciation pressure and curbed sharp declines in the country’s foreign exchange reserves. “But any foreign exchange rate mechanism without a free float cannot fundamentally reach a market clearing (price),” he wrote. The mechanism for setting the daily reference rate was adopted after a one-off devaluation of the yuan in August 2015. It is opaque, but factors in the closing price from a day earlier and the movements of various other currencies. Yu Yongding, a former central bank adviser, has also advocated that China stop intervening to help preserve its dwindling foreign exchange reserves, and suggested the central bank set a “bottom line” of 25 per cent for the yuan to depreciate. Reuters
Private investment
Government eager for telecoms reform Telecommunications is not the only industry being encouraged to adopt what the government calls “mixed-ownership” structures The Chinese government has renewed calls for private investment in the country’s telecommunication firms as it encourages them to cut fees and other costs and become more competitive in offering internetrelated services. The country’s big telecoms firms, China Telecom Corp Ltd, China Unicom Hong Kong Ltd and China Mobile Ltd, are all units of unwieldy state-owned enterprises. Those parent firms are seen as heavily overstaffed, inefficient and slow to develop key technologies. The government will open the telecommunications industry to private investment and give “free rein to telecommunications companies in the development of the internet,” according to a notice issued by the CPC Central Committee and the State Council. The notice, the latest in a string of increasingly proactive directives, urged further cuts to telecoms fees and said the government was committed to bolstering competition in the sector by easing rules and reining in subsidies. It also pledged to give venture capital firms and small internet businesses a freer rein.
Concerned by the need to build high-speed networks in povertystricken and remote areas and lower bandwidth costs, China’s leadership has been gradually opening core technology requirements to private firms which have shot ahead in developing cloud and big data services as well as mobile software. China Unicom has recently forged a series of partnerships with the country’s top tech firms including
Baidu Inc and Alibaba Group Holding Ltd. Telecommunications is not the only industry being encouraged to adopt what the government calls “mixed-ownership” structures. In guidelines issued in 2015, the central government said it would seek to overhaul corporate governance in underperforming SOEs. In September, China launched a US$52.5 billion fund to restructure lumbering SOEs. China Mobile is one of 10 firms investing in the fund. Most recently, Chinese stateowned arms manufacturer, China North Industries Group (Norinco) said on Jan. 5 it would consider a mixed ownership structure and work to amend its management structure. Reuters
Dubai’s Multi Commodities Center (DMCC), the largest free zone in the United Arab Emirates (UAE), is counting on rising UAE-China relations for further expansion. “The DMCC’s collaboration and partnerships with international entities such as the Shanghai Pilot Free Trade Zone further underpin the DMCC’s drive to boost commodity trade along the West to the East corridor - connecting directly with China’s Belt and Road initiative,” Krysta Fox, Executive Director of DMCC Free Zone, told Xinhua in an exclusive interview. The DMCC is the UAE’s largest and fastest growing Free Zone with over 12,900 member companies. Securities stake
Morgan Stanley gets regulatory nod Morgan Stanley has received China securities regulator’s approval to boost its stake in its Chinese securities venture to 49 per cent, said a person with direct knowledge of the matter, making it the first foreign bank to get such a nod. The confirmation came after the Shanghai office of the China Securities Regulatory Commission (CSRC) posted on its website it had approved the important terms of the articles of association of joint venture Morgan Stanley Huaxin Securities Co Ltd. China allowed foreign banks to boost holdings in securities joint ventures to a maximum 49 per cent in 2012 from the previous cap of a third. Monetary policy
Taiwan cbank to issue minutes from June Taiwan’s central bank said yesterday that it will begin to issue minutes of its quarterly policy meetings from June this year, in a bid to raise the transparency of monetary policy deliberations and align with the practice of other global central banks. The minutes will be issued six weeks after the rate review and the voting decision of each member of the central bank board will be disclosed, the central bank said. Taiwan’s central bank usually meets near the end of every quarter, meaning the first minutes will likely be issued in early August, after the June-end policy-setting meeting.
10 Business Daily Tuesday, January 17 2017
Greater China M&A
Cheung Kong deal to test Australia’s foreign investment regime DUET’s board has decided to recommend CKI’s A$7.37 billion offer in the absence of a higher bid Jamie Freed
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UET Group has agreed to recommend an increased US$5.51 billion bid from a consortium led by Cheung Kong Infrastructure Holdings, in a deal that is likely to test Australia’s appetite for foreign investment in its key energy assets. In what is seen as an increasingly protectionist stance, Australia has been thwarting attempts by foreign investors to buy strategic assets in the country. Recently, it blocked a bid by Hong Kong’s Cheung Kong Infrastructure (CKI) to buy stateowned firm Ausgrid on national interest grounds.
“The fact (CKI) are proceeding in a fairly timely manner having learnt from previous things, they’ll be addressing (foreign investment concerns) the best they can,” said Jason Beddow, the chief executive of Argo Investments, eleventh largest shareholder in DUET. DUET’s board has decided to recommend CKI’s A$7.37 billion offer in the absence of a higher bid. “It is a very high valuation for
DUET,” RBC Capital Markets analyst Paul Johnston said, adding it equated to 1.6 times DUET’s regulated asset base. “The market is now focused on FIRB. The assets of DUET are less sensitive (than Ausgrid) I think from a national security point of view.” DUET’s assets include a gas pipeline in Western Australia as well as suburban power grids that are smaller than Ausgrid’s, the network for Australia’s largest city, Sydney. CKI yesterday said in a statement the DUET purchase would be done through a consortium that also included related companies Cheung
Kong Property Holdings, CK Hutchison Holdings and Power Asset Holdings. DUET Chairman Doug Halley said the company believed the offer fully recognised the value and future growth platform the management team had created as well as the operating and financing cost savings available to the CKI-led consortium. In a report issued on Dec. 5, Morningstar analyst Jennifer Song said the value accretion available to CKI from its bid was poised to come primarily from lower debt costs. Reuters
Key Points DUET recommends raised offer from Hong Kong’s Cheung Kong Consortium led by Cheung Kong offers A$7.37 billion for DUET Parties seem confident of FIRB approval -DUET shareholder Australia has since imposed limits on foreign ownership in the sales process for a smaller power grid, Endeavour Energy, as sensitive assets such as ports and energy grids come under increased scrutiny. While CKI’s latest bid to buy DUET for A$3.03 a share - up A$0.03 from an earlier offer - remains subject to approval from the Foreign Investment Review Board (FIRB), a shareholder in the Australian firm said the deal was proceeding as if the parties “are confident they will get it”.
Cheung Kong Infrastructure’s founder Li Ka-shing
Property
Wang Jianlin says controls put market on roller-coaster ride Dalian Wanda Group’s revenue from real estate business fell below 50 per cent of the total for the first time in 2016 China’s richest man, Wang Jianlin, criticised the country’s close control of its property industry, saying the “excessive cyclicality” caused by that was a reason for his conglomerate’s planned move to exit the real estate development business. China has been tightening home and land purchase requirements in major cities since mid-last year to tame a housing bubble, after loosening in the previous year to drive economic growth. The criticism is a rare one from Wang, who has previously backed China’s measures to guide the property industry. It comes after his Dalian Wanda Group said on Saturday 2016 revenue dropped by 13.9 per cent, weighed by a 25 per cent decline in its commercial property unit. It was the first decline in Dalian Wanda Group’s revenue after years of double-digit growth. “Wanda’s decision to exit real estate development is not because of its bearish take on China’s real estate industry but primarily based on two reasons,” Wang told an internal company annual meeting on Saturday, according to a Dalian Wanda release published on Monday. “First, China’s real estate development market is too cyclical, to a
degree that is, so to speak, rare around the world.” “I have been in the real estate industry for 28 years...and I have witnessed some ten rounds of market control, which happens around every approximately three years, with no boom lasting for four years or longer,” Wang said. “The excessive cyclicality of the industry tends to cause instability of cash flows and frequent changes in market expectation.” China’s Ministry of Housing and
Urban-Rural Development was not immediately available for comment. Dalian Wanda Group’s revenue from real estate business fell below 50 per cent of the total for the first time in 2016, as the group diversifies to cultural and tourism operations amid slowing property sales. The group has also recently been moving towards an asset-light strategy, which means eventually being a property service provider, rather than selling property. Wang cited the changed business model as the second reason for exiting the development business. It forecast group operating income to rise 3.9 per cent in 2017, a similar level as last year. The commercial
real estate arm, Dalian Wanda Commercial Properties, is expected to reverse the revenue decline and post mild growth, with a boost in rental income offsetting the diminishing sales business, it said.
“The excessive cyclicality of the industry tends to cause instability of cash flows and frequent changes in market expectation” Wang Jianlin, Wanda’s head
Wanda Commercial, which already includes more than 130 shopping malls and over a dozen planned mega-cultural developments throughout China, will open 50 more malls and sign contracts for around three more Wanda City this year, the group said in the statement. “After the completion of all Wanda City projects, Dalian Wanda Commercial Properties will gradually exit from the real estate development industry,” Wanda said. Reuters
Business Daily Tuesday, January 17 2017 11
Asia Industry
Japan core machinery orders fall Trump has rattled Japanese automakers by threatening a large border tax on the cars they manufacture in Mexico and export to the United States Stanley White
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ore orders for Japanese machinery fell in November at their fastest in seven months, a sign companies may be deferring capital expenditure as uncertainty over the incoming Trump Administration’s trade policies and global demand worries take hold. Core orders, a highly volatile data series regarded as a leading indicator of capital expenditure, fell 5.1 per cent in November from the previous month, Cabinet office data showed yesterday, more than the median estimate for a 1.7 per cent decline. Many economists originally forecast that capital expenditure would gradually increase this year, but growing concerns that U.S. President-elect Donald Trump may adopt protectionist trade policies could cause companies to scale back investment. Trump vowed to withdraw from the Trans-Pacific Partnership free trade pact, a blow for Japan because
it was counting on the TPP to boost exports and drive structural reform in its farm sector. “There is some uncertainty about the new U.S. government, but this has not been fully factored in yet,” said Shuji Tonouchi, senior market
economist at Mitsubishi UFJ Morgan Stanley Securities. “Depending on what happens, Japanese companies could be forced to rethink their capex plans. There are also worries that domestic consumer spending may not accelerate.” Core machinery orders, which exclude ships and heavy electrical equipment, fell in November due to a decline in orders from chemicals makers, oil refiners and the transport sector, the data showed. Orders from the wholesale and
retail industries also fell in November. Orders from the services sector fell 9.4 per cent in November after a 4.6 per cent increase in the previous month. Orders from manufacturers rose 9.8 per cent, following a 1.4 per cent decline in the previous month. Trump, who takes office on Jan. 20, has rattled Japanese automakers by threatening a large border tax on the cars they manufacture in Mexico and export to the United States.
Key Points Nov core orders -5.1 pct m/m vs forecast -1.7 pct Core orders +10.4 pct yr/yr vs forecast +8.1 pct Capex considered essential to higher economic growth Some economists worry that once Trump takes office his criticism could shift to the goods Japan manufacturers within its own borders for export to the United States, which could discourage Japanese capital expenditure. There are also concerns that trade friction with the United States could hurt Japanese consumer sentiment, which would then weigh on household spending. Reuters
Going public
Singapore to prop up Southeast Asia’s muted IPO market in 2017 Sizeable listings are planned in Malaysia but market sentiment has been crushed by a slump in commodity prices Liz Lee and Anshuman Daga
Singapore is set to be 2017’s hottest spot for initial public offerings (IPOs) in tropical Southeast Asia with sales of stakes in business and real estate trusts, while currency volatility and weak investor sentiment curb deals elsewhere in the region.
Key Points Business trusts, REITs push up Singapore listings Currency volatility, weak sentiment to blunt SEA IPOs Commodities slump, financial scandal hit Malaysia in 2016 Malaysia market to recover this year -securities official Singapore’s stock exchange has promoted itself as a centre for business trusts and real estate investment trusts (REITs), which offer stable dividends. That has helped it partly make up for a drop in major share sales as large Chinese firms favour the higher valuations and liquidity of Hong Kong. Fundraising via IPOs in Singapore hit US$1.7 billion last year, up fivefold from 2015 when it slumped to its lowest since 1998, Thomson Reuters data showed. “REITs and business trusts have
been the flavour for some time because they give a steady income stream for investors and typically the play in Singapore has been dividend-focused rather than pure capital gains-focused,” said Srividya Gopalakrishnan, managing director of corporate finance advisor Duff & Phelps Singapore. Dasin Retail Trust, comprising three shopping malls in Zhongshan city in China’s Guangdong province, kicked off its S$146 million (US$102 million) IPO this month. Bankers also expect Singapore Telecommunications Ltd to list broadband unit NetLink Trust in the second half of the year, in a deal that could raise about US$2.5 billion.
Muted markets
Elsewhere in Southeast Asia, significant fluctuation in the rupiah over the past year could dampen appetite for listings in Indonesia, while firebrand politics and a drop in the peso are risks for the Philippines, bankers and analysts said. Higher benchmark interest rates under a new government in the United States could also tempt international investors to pull money out of riskier emerging markets, they said. Sizeable listings are planned in Malaysia but market sentiment has been crushed by a slump in commodity prices and a financial scandal involving state investor
1Malaysia Development Bhd. Last year, just US$238 million was raised in Kuala Lumpur IPOs, the lowest since 2008, Thomson Reuters data showed. “We think that there is a healthy pipeline out there. However, because capital markets are so acutely vulnerable to investor sentiment and market conditions, it would be a matter of timing as to when these listings will happen,” said Wong & Partners deputy managing partner Munir Abdul Aziz. Oil and gas engineering firm Serba Dinamik Holdings Bhd, which aims to raise US$130 million through a listing early this year, has not secured cornerstone investors.
Malaysia revival
Southeast Asia’s IPO markets are typically volatile. Last year, fundraising from listings more than halved in Thailand to US$1.25 billion
while in Indonesia, fundraising rose more than 50 per cent to top US$1 billion. But the decline has been particularly sharp for Malaysia, which was Asia’s IPO capital in 2012 with blockbuster listings from Felda Global Ventures Holdings Bhd and IHH Healthcare Bhd. One senior official at Securities Commission Malaysia, however, expects a recovery this year. Listings planned include property developer Eco World International Bhd and fast-food restaurateur QSR Brands, which are looking to raise US$478 million and US$500 million respectively. “We see global IPO markets picking up and we also see our IPO market picking up,” Commission chairman Ranjit Ajit Singh said on the side-lines of an industry event on Thursday. “Our estimates are around 7 billion ringgit (US$1.6 billion).” Reuters
12 Business Daily Tuesday, January 17 2017
Asia Trade
Indonesia’s exports beat forecast A steeper decline in imports helped the country to post a trade surplus of US$8.8 billion Nilufar Rizki and Gayatri Suroyo
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ndonesia’s exports rose faster than expected in December on stronger commodities prices, helping to narrow the pace of decline in full-year trade for the resource-dependent economy. Shipments from Southeast Asia’s largest economy in 2016 were worth US$144.4 billion, down 3.95 per cent from a year earlier, data from the statistics bureau showed yesterday, slower than the 14.6 per cent decline recorded in 2015. Exports in December rose 15.57 per
cent from a year earlier to produce the biggest earnings in 24 months. The country saw the first annual increase in exports in nearly two years in August. Exports then continued to grow on a yearly basis every month in the final quarter of 2016. “It is worth noting that although we posted a surplus, our exports were still lower than 2015 and imports too. This means we have not fully recovered and that recovery takes time,” Suhariyanto, the head of the statistics bureau, told reporters. Indonesia, a big commodities exporter, has been struggling amid weak
prices for oil and gas as well as palm oil and coal, among other resources. Total exports, which peaked at US$203.5 billion in 2011, have been falling in each of the past five years. In 2016, Indonesia’s shipments of oil and gas were particularly weak as they tumbled nearly 30 per cent in value. The country also earned less from overseas sales of coal, palm oil, coffee and cocoa, among other key commodities, but its exports of manufactured goods rose 1.07 per cent. Meanwhile, Indonesia’s total imports last year were US$135.7 billion, down 4.94 per cent from 2015. A steeper decline in imports helped the country to post a trade surplus of US$8.8 billion, larger than the US$7.7
billion in 2015. ANZ’s economist Weiwen Ng said incoming U.S. President Donald Trump’s “stimulative fiscal policy will underpin commodity prices”, adding that Indonesia may benefit. Ahead of the trade data, ANZ said Indonesia, along with some other emerging economies in Asia, “are emerging from a trade recession which had plagued the region since late 2014”.
Key Points Dec exports, imports rise y/y, stronger than forecasts 2016 total exports, imports decline slower than in 2015 Govt says 2016 ‘bottom of the trough’, recovery to take time
It argued that a low comparative base from the previous year for Asia’s export prices will continue to drive overall export growth in the first half of this year. Indonesia’s deputy head of the statistics bureau, Sasmito Hadi Wibowo, said the government’s recent policy change on mineral exports will likely help accelerate export growth this year. “But the main point is 2016 should be the lowest, the bottom of the trough, and I hope they (exports) rise in 2017,” Wibowo said. Weak trade performance was one of the reasons Indonesia’s economic growth was 5.02 per cent in the third quarter, slower than markets had expected. Growth is expected to stay around that level in the final three months of last year, bringing 2016 GDP to 5 per cent, according to government forecast. The economy is expected to grow 5.1 per cent this year. Reuters
Private report
Crackdown on Aussie banks boosted mortgage standards Last year, the largest lenders substantially reined back their lending to foreign investors Emily Cadman
Australian banks have “appreciably improved” their mortgage-lending standards, the nation’s regulator said, as it left the amount of additional capital banks are required to hold as a buffer against the build-up of credit risk at zero.
“In 2016, APRA maintained its focus on reinforcing and improving sound lending standards” Australian Prudential and Regulatory Authority annual report The pace of lending to property investors is currently at around half of the regulator’s recommended levels, and higher-risk mortgages -- such as those with loan-to-value ratios
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of over 90 per cent -- had fallen, the Australian Prudential and Regulatory Authority said in its annual report on the operation of the counter-cyclical capital buffer. APRA has intervened multiple times in the last few years to curtail real estate lending after growing concerned about surging loans for property investment amid rapidly increasing home prices. Measures included setting a limit of 10 per cent
on the pace of loan growth by banks to investors and introducing new requirements on how the lenders should assess loan affordability. “In 2016, APRA maintained its focus on reinforcing and improving sound lending standards,” the regulator said. “In response to this, APRA believes the industry has appreciably improved its residential lending standards.” The counter-cyclical capital buffer is a tool that the regulator can use to require the banks to hold more capital at times when it judges that excessive credit growth could lead
to higher systemic risk. It can also be reduced in times of stress to help ensure credit is not suddenly shut off.
Price surge
While that framework applies to all forms of credit risk, the regulator’s focus has been on residential mortgage lending, which accounts for between 40 per cent and 60 per cent of the big banks’ balance sheets. Last year, the largest lenders from Commonwealth Bank of Australia to Westpac Banking Corp. substantially reined back their lending to foreign investors, essentially cutting off those who were reliant on overseas incomes. Still, prices in the country’s biggest cities continued to increase, rising at the fastest pace in seven years in 2016, data from CoreLogic Inc. released two weeks ago showed. Fitch, which in December lowered its Australian bank sector outlook to negative, reiterated in a report published on Monday that it sees the property market as a “key risk” to the banking industry. Among the concerns cited by the ratings company were a looming oversupply of new apartments and the fact that interest-only mortgages accounted for 39 per cent of all residential mortgages in September 2016. Bloomberg News
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Business Daily Tuesday, January 17 2017 13
Asia Property
In Brief
Tokyo office boom fades with more space Worries over falling rents are already feeding into property firms’ share prices Junko Fujita
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ommercial property prices in Tokyo, a bellwether for Japan’s market, look to have peaked as the capital faces a glut of new offices even as the number of office workers is set to decline. The property market had rebounded in the past three years as Prime Minister Shinzo Abe’s economic policies, with ultra-low interest rates, drew in investors attracted by the wider gap than in other developed markets between returns on property and borrowing costs. Also, as Japanese companies regained confidence, they sought more space, helping drive down office vacancy rates in the capital. Rents have been rising since 2014. But office rents are now expected to start falling as early as next year as new space comes on to the market, analysts and commercial property owners say. “Tokyo’s office space is almost full, but if the economy turns negative, some tenants may reduce their space or move to a cheaper location,” said Masashi Saio, section manager at the real estate department of Nippon Life Insurance, which owns office buildings nationwide. “If that happens, owners of office properties may have to cut rents. We expect a large supply of office space that could affect the balance between supply and demand,” he added. Between 2018 and 2020, when Tokyo is due to host the Olympic Games, the capital expects to add 2 million square meters of new office space - equal to more than 8 per cent of its total as of mid-2016, said Shunji Kobayashi, senior manager at the real estate research team for Sumitomo Mitsui Trust Bank. “Newer space may be filled, but there will be vacancies in older properties,” he said. “Demand for new office space is not expanding
because financial institutions are not growing their space like they used to.” Worries over falling rents are already feeding into property firms’ share prices, with the performance of the Topix real estate index ranking 26th out of 33 sub-indexes last year. Mitsui Fudosan, one of Japan’s largest property developers, is already marketing space in its Tokyo Midtown, a 10-year-old office and retail complex in Roppongi, which is expected to become almost one-third vacant, a Tokyo-based broker said. Yahoo Japan Corp last year moved from the complex to the newly built Tokyo Garden Terrace, developed by Seibu Holdings Inc. And Fast Retailing Co, which operates the Uniqlo clothing retailer, also plans to move some of its operations out of the complex to a warehouse in a cheaper location.
More offices to let
Tokyo’s office vacancy rate has fallen in almost every month since June 2012, from 9.43 per cent to 3.61 per cent, said Miki Shoji, a broker, and office rents rose 10.6 per cent over that period, though that increase was tempered by the prospect of so much new office space coming on-stream. The vacancy rate is expected to rise again, to around 6 per cent - more than the 5 per cent level considered healthy - and that will push down rents from 2019, said Kobayashi at Sumitomo Mitsui Trust. CBRE, a global real estate research firm, predicts Tokyo’s prime office rents will fall 1 per cent in 2017-18, and some new office towers will open with vacancies. With an average annual office rent of US$160 per square foot, Tokyo’s Marunouchi financial district ranks sixth among global business centres, some way behind Hong Kong’s Central (US$290) and London’s West End (US$262), according to CBRE.
Predictions of falling rents have already slowed property deals, with the value of office property transactions falling 28 per cent to 1.3 trillion yen (US$11.37 billion) last year. Urban Research Institute, a think-tank affiliated with Mizuho Trust & Banking Co, reckons this is because prices have risen too high for investors to justify future income. Office deals made up less than a third of all transactions last year, down from 41 per cent in 2015, according to Urban Research. Meanwhile, firms are still on the move. Trading firm Mitsui & Co is due to move into a new headquarters building in mid-2020, leaving Nippon Life, the owner of its current offices in the upmarket 22-floor Marunouchi Garden Tower, to find new tenants.
Key Points Tokyo office market set to decline due to oversupply Office property deals already fell last year Tokyo office space increasing, even as fewer workers As co-owner of its new headquarters, Mitsui & Co will also have to find tenants for part of the twin-tower office and retail complex that will add 360,000 square meters of new space. The other owner, Mitsui Fudosan, is also developing a 35-storey building in Hibiya, near the Imperial Palace, to be completed by next January, as well as a 31-storey tower due in the same year in Nihonbashi. Nippon Life must also secure tenants for a 28-storey office tower due to be completed in August 2018 in Hamamatsucho. While the office space mounts up, the Tokyo government expects the capital’s workforce will have declined by nearly a tenth in the 25 years to 2035 as Japan’s population shrinks. Reuters
Japan central bank
Kuroda repeats readiness to adjust policy Bank of Japan Governor Haruhiko Kuroda yesterday reiterated the central bank’s readiness to adjust monetary policy as needed to achieve its 2 per cent inflation target. “Japan’s economy continues to recover moderately as a trend and is likely to expand moderately ahead,” Kuroda said in a speech at a quarterly meeting of the central bank’s regional branch managers. Under a new policy framework adopted in September, the BOJ now pledges to guide short-term interest rates at minus 0.1 per cent and the 10-year government bond yield around zero per cent through aggressive asset purchases. Forex
S.Korea deposits decline for 4th mth South Korea’s foreign exchange bank deposits in December inched down for a fourth straight month as conglomerates dipped into their dollar-denominated deposits for trade-related settlements, the central bank said yesterday. Foreign exchange bank deposits stood at US$58.91 billion as of end-December, down from US$61.05 billion in November and marking the lowest level of deposits since end-May last year, according to the Bank of Korea. Dollar deposits fell to US$49.66 billion from US$52.03 billion over the same period, the central bank said, as businesses also withdrew dollars to repatriate for local won payment purposes. Toll
Singapore imposes road charge on foreignregistered cars Singapore’s Land Transport Authority (LTA) announced yesterday that all foreign-registered cars will have to pay a Reciprocal Road Charge (RRC) of S$6.40 (US$4.48) per-entry when they enter Singapore via the Tuas or Woodlands Checkpoint. The new rule which took effect from January 15, 2017 onward is to match the Malaysia’s road charge of S$6.40 Singapore (US$4.48) implemented in November last year. Singapore’s Transport Minister Khaw Boon Wan said in parliament on Jan. 9 that this decision is to ensure that Malaysia takes into consideration Singapore’s response whenever they raise their tolls or introduce a new levy. Presidential poll
S.Korea’s ex-opposition head beats ex-UN chief Former head of South Korea’s biggest opposition party beat former UN chief in recent presidential poll though the latter’s return to his home country boosted hopes among conservative voters, a local survey showed yesterday. Moon Jae-in, former chief of the main opposition Minjoo Party, won an approval rating of 26.1 per cent last week, according to a Realmeter survey of 2,526 voters from Monday to Friday. It was down 0.7 per centage points from a week ago.
14 Business Daily Tuesday, January 17 2017
International In Brief M&A
Luxottica and Essilor agree merger Italy’s Luxottica and France’s Essilor have agreed a 46 billion euro (US$49 billion) merger to create a global powerhouse in the eyewear industry with annual revenue of more than 15 billion euros, they said in a statement yesterday. The deal, one of Europe’s largest cross-border tie-ups, brings together Luxottica, the world’s top spectacles maker with brands such as Oakley and Ray-Ban, with Essilor, the world’s leading manufacturer of ophthalmic lenses. By merging, the companies will be better positioned to take advantage of strong demand in a US$95 billion market expected to achieve continued growth because of an ageing global population and increasing awareness about eye care in Asia and Latin America. Protectionism
Trump threatens German carmakers with tariff Shares in German carmakers BMW, Daimler and Volkswagen fell after United States President-elect Donald Trump warned he will impose a border tax of 35 per cent on vehicles imported from abroad to the U.S. market. All three carmakers have invested heavily in factories in Mexico, where production costs are lower than the United States, with an eye to exporting smaller vehicles to the U.S. market. In an interview with German newspaper Bild, published yesterday, Trump sharply criticised the German carmakers for failing to produce more cars on U.S. soil. Oil prices
Venezuela will circulate new proposal Venezuela will circulate a new proposal to crude producers in a bid to support oil prices, President Nicolas Maduro said on Sunday, without providing details. The Organization of the Petroleum Exporting Countries agreed on Nov. 30 to cut output by 1.2 million barrels per day to 32.5 million bpd for the first six months of 2017, in addition to 558,000 bpd of cuts agreed to by independent producers such as Russia, Oman and Mexico. Maduro repeated that leaders of OPEC and nonOPEC countries should hold a summit in the first quarter of the year in Qatar to decide on strategy for the oil market. Security
Mogherini says EU to stand by Iran nuclear accord EU foreign affairs head Federica Mogherini yesterday insisted the bloc will stand by the Iran nuclear accord, bluntly condemned by U.S. president-elect Donald Trump, because it serves Europe’s security needs. “It is proof that diplomacy works and delivers... The European Union will continue to work for the respect and implementation of this extremely important deal, most of all for our security,” Mogherini said. Trump has repeatedly blasted the nuclear accord with Iran as “one of the dumbest deals I have ever seen”, claiming it will not stop Tehran getting atomic weapons.
Davos study
Businesses can unlock US$12 trillion via key development goals The study said businesses are still balking at longer-term investments, preferring instead to sit on cash or return it to shareholders via buybacks and dividends Sujata Rao
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ompanies could unlock at least US$12 trillion in market opportunities by 2030 and create up to 380 million jobs by implementing a few key development goals, according to a study by a group including global business and finance leaders. The report, released yesterday by the Business and Sustainable Development Commission, said pressure on business to become a “responsible social actor” was likely to grow. The group was launched at the Davos 2016 World Economic Forum to encourage businesses to take the lead in poverty reduction and sustainable development. Members include the chief executives of multinational firms such as Edelman, Pearson, Investec, Merck, Safaricom, Abraaj, Alibaba and Aviva, alongside academics, environmentalists, trade union leaders and philanthropists. The study said businesses have a key role to play in achieving the United Nations’ Sustainable Development Goals (SDG) to end poverty and protect the planet. “Achieving the global goals opens up an economic prize of at least US$12 trillion by 2030 for the private sector and potentially 2-3 times more,” the study said, adding this could be achieved by action in just four areas energy, cities, agriculture and health. The US$12 trillion - made up of business savings and revenue gains
- would be equal to a tenth of forecast global economic output while 90 per cent of the new jobs would be in the developing world, the study said. Progress has been slow, however, and the study said businesses are still balking at longer-term investments, preferring instead to sit on cash or return it to shareholders via buybacks and dividends. The 17 SDGs, adopted in September 2015, include targets on such issues as climate, clean water, gender equality and economic inequality. The last of these has grabbed attention in recent years, bringing to
prominence populist and nationalist politicians, especially in the West, as anger has grown over stagnant wages, migration, high CEO salaries and corporate tax evasion. “We anticipate much greater pressure on business to prove itself a responsible social actor, creating good, properly paid jobs in its supply chains as well as in its factories and offices,” the report said, adding that paying taxes transparently was key to rebuilding social contract. Other steps it urged include pricing pollution via carbon trading and reducing food waste, a step that by itself could be worth up to US$405 billion. The cost of achieving these goals by 2030 will likely require US$2.4 trillion of additional annual investment, however, especially in infrastructure, the study found. The group recommended “innovative financing” from public and private sector sources to raise this amount, adding: “The global finance system needs to become much better at deploying the trillions of dollars of savings into the sustainable investments that ... the world needs.” Reuters
Workers prepare the Congress Centre for the upcoming 47th Annual Meeting of the World Economic Forum (WEF) in Davos, Switzerland, 15 January 2017. Lusa
Oxfam report
World’s eight richest as wealthy as half humanity In 2010, by comparison, it took the combined assets of the 43 richest people to equal the wealth of the poorest 50 per cent Ben Hirschler
Just eight individuals, all men, own as much wealth as the poorest half of the world’s population, Oxfam said yesterday in a report calling for action to curtail rewards for those at the top. As decision makers and many of the super-rich gather for this week’s World Economic Forum (WEF) annual meeting in Davos, the charity’s report suggests the wealth gap is wider than ever, with new data for China and India indicating that the poorest half of the world owns less than previously estimated. Oxfam, which described the gap as “obscene”, said if the new data had been available before, it would have shown that in 2016 nine people owned the same as the 3.6 billion who make up the poorest half of humanity, rather than 62 estimated at the time. In 2010, by comparison, it took the combined assets of the 43 richest people to equal the wealth of the poorest 50 per cent, according to the latest calculations. Inequality has moved up the agenda in recent years, with the head of the International Monetary Fund and the Pope among those warning of its corrosive effects, while resentment
of elites has helped fuel an upsurge in populist politics. Concern about the issue was highlighted again in the WEF’s own global risks report last week. “We see a lot of hand-wringing - and clearly Trump’s victory and Brexit gives that new impetus this year - but there is a lack of concrete alternatives to business as usual,” said Max Lawson, Oxfam’s head of policy. “There are different ways of running capitalism that could be much, much more beneficial to the majority of people.”
Super-charged capitalism
Oxfam called in its report for a crackdown on tax dodging and a shift away from “super-charged” shareholder capitalism that pays out disproportionately to the rich. While many workers struggle with stagnating incomes, the wealth of the super-rich has increased by an average of 11 per cent a year since 2009. Bill Gates, the world’s richest man who is a regular at Davos, has seen his fortune rise by 50 per cent or US$25 billion since announcing plans to leave Microsoft in 2006, despite his efforts to give much of it away. While Gates exemplifies how outsized wealth can be recycled to help
the poor, Oxfam believes such “big philanthropy” does not address the fundamental problem. “If billionaires choose to give their money away then that is a good thing. But inequality matters and you cannot have a system where billionaires are systematically paying lower rates of tax than their secretary or cleaner,” Lawson said. Oxfam bases its calculations on data from Swiss bank Credit Suisse and Forbes. The eight individuals named in the report are Gates, Inditex founder Amancio Ortega, veteran investor
‘Bill Gates, the world’s richest man who is a regular at Davos, has seen his fortune rise by 50 per cent or US$25 billion since announcing plans to leave Microsoft in 2006’ Warren Buffett, Mexico’s Carlos Slim, Amazon boss Jeff Bezos, Facebook’s Mark Zuckerberg, Oracle’s Larry Ellison and former New York City mayor Michael Bloomberg. Reuters
Business Daily Tuesday, January 17 2017 15
Opinion
China’s dalliance with funky finance is just starting Christopher Langner a Bloomberg Gadfly columnist
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hina’s love affair with assetbacked securities (ABS), the kind of financial product that helped spur the 2008 global credit crisis, has the intensity of a new passion. But for all the concerns about the speed at which things are moving, the market is only just getting started. After going from zero to US$61.5 billion in just two years, total sales of ABS slowed last year, according to data compiled by ChinaBond. Don’t expect that to continue, though. Structured notes backed by receivables, which form part of the ABS market, jumped 130 per cent to RMB455.2 billion (US$66 billion) in 2016, according to official data released last week that captures a lot more issuance than Chinabond. Those sorts of notes accounted for 54 per cent of all ABS issued in China, up from 33 per cent in 2015, that data show. The key is trust. ABS investors like to be sure that no matter what happens to the company that originally lent the money, they’ll be able to get their cash back. That’s done by putting loans into a company, or more often a trust, created to manage the assets Billion RMB and funnel proceeds Receivables-backed note to investors. issuance in China last year It’s partly thanks to this kind of structure that actual losses for mortgage-backed securities from the 2008 crisis weren’t that big. A study published last year by Juan Ospina and Harald Uhlig from the University of Chicago found that losses on the AAArated portion of 2,824 such bonds sold in the U.S. between 2006 and 2012 came to only 6 per cent of the total value, in spite of a spike in delinquencies. Debentures backed by subprime loans, particularly those early-vintage ones issued before the crisis, performed even better. That wouldn’t have been the case if those bonds weren’t legally separated from the firms that lent the money originally. Until August, Chinese companies weren’t allowed to use such structures when selling ABS in the interbank market, the nation’s main debt arena. As a result, pools of bank loans dominated, which, as the official data show, is no longer the case. And you can expect the numbers to balloon if the U.S. is any gauge. In 2015, total ABS issued in China represented 0.56 per cent of gross domestic product, compared with 1.4 per cent in North America. By that measure, things peaked in 2006 when U.S. companies sold ABS equivalent to 4.9 per cent of the economy. Whether the growth of this market in China could backfire depends on what kind of oversight local authorities impose on the loans being packaged into bonds. It would be a good time to bring in the expertise of global rating companies. After the flack they copped in 2008, they’ve learned a thing or two about evaluating pools of loans and perhaps that’s why Beijing is looking at doing just that. It would also be a welcome new stream of revenue for Fitch Ratings Ltd., S&P Global Ratings and Moody’s Investors Service Inc. But whether they’re involved or not, the reality is there’s no stopping this juggernaut: China’s relationship with structured finance is about to get serious. Bloomberg Gadfly
455.2
Trump border tax to pile on China capital flight pressure
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he ‘border tax’ Donald Trump and Republicans are considering will spur capital flight from China, with potentially large repercussions. House Republicans back a plan for a border tax adjustment, discussed at 20 per cent, which would impose a levy on imports while granting rebates to exports. While the Republican and Trump plans call for a border tax on all imports as a means to favour domestic production, Trump has also used the term to describe a punitive tax he threatens to levy directly on imports of companies which move production abroad. As ever with Trump, it is highly unclear what he intends or will attempt. Trump has in the past floated the idea of a 45 per cent tariff on Chinese imports to the U.S., a higher rate than is being discussed for the border tax adjustment. For China, and for financial markets, this is going to cause trouble, and not just because it would make Chinese and other foreign imports to the U.S. less competitive. A border tax implies a strengthening of the dollar, prompting former Treasury Secretary Lawrence Summers to warn this week of a “spike” in the greenback. All else being equal, which it seldom is, a 20 per cent border tax should prompt a similarly large appreciation in the dollar. That won’t likely happen, in part because other countries will pile in with their own border taxes or other measures, but the dollar would get a sizable boost. That poses a complex set of problems for China. Global dollar borrowing conditions would become more expensive and, importantly, pressure would intensify on the yuan to weaken in response. “The threat to Chinese stability at a time when it is already having trouble trying to limit capital flight from a new disruption of trade is a legitimate concern,” David Levy of the Jerome Levy Forecasting Center said in an interview. “This is not a great time from a Chinese point of view or global stability point of view to have anything that is disruptive to the flow of trade.” One fear is that Chinese yuan owners, anticipating a dollar spike, will try to front-run the effects on the yuan, seeking to move money into other currencies or stores of value, either by following Chinese rules or by skirting them. The yuan, which trades in a band set by China, fell by 6.6 per cent against the dollar in 2016 in a self-reinforcing downdraft.
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James Saft a Reuters columnist
to dollar strength. That honour belongs to emerging market countries which run a current account deficit and must attract dollars for financing. Yet two years of strong capital outflows have depleted China’s once, and arguably still, massive foreign currency reserves. China’s reserves fell by about US$320 billion to US$3.011 trillion in 2016, less than the US$513 billion decline of 2015 but also despite wide-ranging efforts by China to make capital flight more difficult. Seeking to circumvent capital controls, owners of yuan in China have turned to cryptocurrency Bitcoin, which more than doubled in value between September and Jan. 4. “Spot checks” on Bitcoin exchanges in China by state authorities this week sent Bitcoin down by 12 per cent. At any rate, money is eager to leave by any route possible. China still has huge FX reserves, but an IMF adequacy framework implies it needs to keep about US$2.7 trillion on hand. At last year’s depletion rate we will soon be there, and if a border tax accelerates matters the issue could soon become urgent. Asset management behemoth PIMCO said on Thursday China might float its currency in 2017. Yu Yongding, an influential former advisor to the People’s Bank of China, said on Thursday the central bank should set a “bottom line” depreciation level for the yuan in 2017 of 25 percent. Floating the yuan would certainly be a taste of his own medicine for Trump, who has threatened to brand the country a currency manipulator. It would also, however, potentially cause a very strong outflow of capital. Foreign exchange reserves would be preserved but capital flight could become a problem, and a limit on other policies. China is notable in that, with a semi-closed economy and great central control, it has been able to stimulate its way out of various upsets during and after the financial crisis. China may find it has less room to manoeuvre if capital is leaving, or if the yuan depreciates greatly, with or without a float. Remember too, all of this would be happening in and to China while most of the other emerging markets go through a crisis of similar origin. Regardless of its impact on U.S. exports, a border tax could easily cause massive turbulence in global markets. Reuters
Floating the yuan would certainly be a taste of his own medicine for Trump
Capital floats, usually
To be sure, China is not the nation most vulnerable
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16 Business Daily Tuesday, January 17 2017
Closing Aero industry
Airbus China site to deliver first A330 in 2017
Francois Mery, COO with Airbus Commercial Aircraft China, adding that the completion and delivery centre will be responsible for Airbus is expected to deliver its first cabin installation, painting and flight tests of A330 aircraft in September 2017 from its the A330. completion and delivery centre in north China’s Tianjin, said Airbus China yesterday. On March 2, 2016, construction on the Airbus China A330 completion and delivery centre According to Airbus China, by 2019, the Airbus China site will reach stable production started in Tianjin, where A330 aircraft will be completed and delivered to Chinese clients. capacity, completing and delivering two It is Airbus’ first completion and delivery A330 wide-body aircraft per month. “The cabin of the A330 is more complicated centre for wide-body aircraft outside Europe. The first A330 aircraft is expected to than the single-aisle aircraft due to the be delivered from the centre in 2017. Xinhua massive workload and difficulty,” said
Economic targets
Mainland local governments set poverty reduction goals Henan plans to lift about 1 million rural residents out of poverty in 2017
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everal Chinese provinces have rolled out goals for poverty reduction at the ongoing local “two sessions” - the plenary meetings of provincial lawmakers and political advisors. Central China’s Hunan Province has made poverty alleviation a priority on the government agenda, vowing to lift 1.1 million people, 10 counties and 2,500 villages out of poverty in the new year.
also promised to eradicate poverty for about 2.42 million people by 2018. Last year, 1.2 million people in the province emerged from poverty. Yin Li, governor of Sichuan Province in southwest China, said 1.07 million people were lifted out of poverty last year, and another 1.05 million will be in 2017.
Yunnan Province has also planned to eradicate poverty for 1 million people in 2017. Northern China’s Inner Mongolia Autonomous Region said 200,000 people will be aided to shake off poverty in the new year, in addition to another 210,000 people who were lifted out of poverty last year. Currently about 590,000 people live in poverty in the region, according to the regional government. China has aimed to eradicate rural
poverty by 2020, lifting its remaining 55 million rural poor people out of poverty. The country’s poverty line is RMB2,300 in annual income. In order to win the war against poverty, local governments have adopted means such as e-commerce, financing, industry, relocation and improvement of infrastructure. The country expects to achieve its 2016 target of lifting 10 million people out of poverty and has set the same target for the new year. Xinhua
“1.07 million people were lifted out of poverty last year” Yin Li, governor of Sichuan Province in southwest China The provincial government said it earmarked nearly RMB6 billion (US$870 million) to help 1.25 million people shake off poverty last year. Henan, one of China’s most populous provinces, plans to lift about 1 million rural residents out of poverty in 2017. The provincial government aims to eradicate poverty in the province by 2019. Over 5 million people lived below the poverty line at the end of 2014, about 3.5 million of whom had already been lifted out of poverty over the past three years. East China’s Shandong Province
Candidates
Chinese New Year
Forex
Hong Kong leadership race Food prices to see mild growth PBOC sells net RMB317.8 bln heats up after China decision before Spring Festival in FX in Dec China yesterday approved the resignations of two of Hong Kong’s top officials, including its financial secretary, paving the way for them to contest a March election to become the next chief executive of the financial hub. China’s State Council has accepted the resignations of financial secretary John Tsang, and of Carrie Lam, the city’s chief secretary, the official Xinhua news agency said. The former British colony returned to Chinese rule in 1997, and its next leader faces challenges such as maintaining its competitiveness as China’s economy slows, and reconciling longstanding tension between Communist Party leaders in Beijing and pro-democracy advocates demanding universal suffrage. Speculation had swirled over the fate of Tsang, once considered a frontrunner for the position since resigning more than a month ago, but Beijing’s silence until now had fuelled questions about China’s support for his bid. Tsang, 65, could not immediately be reached for comment and has not yet made a formal announcement on his intentions. Lam, 59, emerged as another leading contender last Thursday when she resigned and said she would contest the leadership election on March 26. Reuters
China’s food prices are expected to see mild growth before the Spring Festival as surging demand ahead of the holiday will boost consumption, the top economic planner said yesterday. The Chinese New Year, or Spring Festival, is China’s most important family holiday, with hundreds of millions of people heading for their hometowns to reunite with relatives and old friends. It falls on Jan. 28 this year. Thanks to high temperatures throughout most of the country, good transportation conditions and abundant supply, the rise of food prices will only be mild, said a report from the National Development and Reform Commission (NDRC). The report said markets should reserve goods well in advance to stabilize food prices in case extreme weather occurs during the holiday. Food prices, accounting for one-third of the the consumer price index (CPI) calculation, are a major driver pushing up consumer prices. Data from the National Bureau of Statistics (NBS) showed that CPI in December increased 2.1 per cent from a year ago, slightly down from November’s 2.3-per cent rise. Xinhua
China’s central bank sold a net US$46.1 billion worth of foreign exchange in December, as the authorities continued to support the sliding yuan in the face of a rising dollar and slowing economic growth. Net foreign exchange sales by the People’s Bank of China (PBOC) amounted to RMB317.8 billion (US$46.1 billion), according to Reuters calculations based on central bank data released on its website on Monday. That compared with net sales of RMB382.7 billion in November and RMB708.2 billion in December 2015. Earlier data showed China’s December foreign exchange reserves fell for a sixth straight month to US$3.011 trillion, the lowest level in nearly six years. The yuan fell around 6.6 per cent against the dollar in 2016, the most since 1994, forcing the authorities to tighten outbound investment as they scrambled to staunch capital outflows. The central bank is widely believed to have sold U.S. dollars to cushion the descent of the yuan in recent months, even as a slew of economic data has provided more evidence that the economy is stabilising. Reuters