Business Daily #1216 January 18, 2017

Thu, 26 January 2017 | 6pm ­ 8 pm | Terrazza, Galaxy Macau

MGM, Melco announce bonuses Gaming Page 6

Wednesday, January 18 2017 Year V Nr. 1216 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong

www.macaubusinessdaily.com

Monetary tool

Aviation

Chinese central bank liquidity weapon outperforms reserve ratio impact Page 8

US plans

Foxconn expansion plans disturb Chinese Government Page 9

Hotels

Cheaper room rates, higher occupancy in December Page 5

Gov’t considers airport expansion, reclaiming nearby water area Page 2

‘Not an effective platform’ Sino-Luso

Earlier this week, the Secretary for Administration and Justice, Sonia Chan met with the Brazilian Parliament Chamber, exalting the city’s role as a platform for co-operation between Brazil and China.

But the reality, claim representatives of the local Brazilian business community, is quite different. They say the community’s relationship with Forum Macao has become “cold”, especially after the former deputy secretary-general of the permanent secretariat of the body, Rita Santos, stepped down in 2015. Page 4

For the last month of 2016, average housing prices soared by 15 pct m-o-m, or 32 pct y-o-y.

Despite the price growth, total transactions rose by 5.9 pct m-o-m, or 141.7 pct y-o-y, boosted by notable increases in home sales in Taipa, according to the official data from the Financial Services Bureau.

Property Page 3

HK Hang Seng Index January 17, 2017

Transfer anywhere, anytime

Banking ATM operator Joint Electronic Teller Services Ltd says it will launch a new mobile money transfer service in the MSAR in the second half of the year. The service will allow customers to transfer and receive money via a mobile app, with only the phone number of the recipient required. Seven local banks have teamed up with the operator for the new service. Page 5

IMF upgrades China forecast

Economy The International Monetary Fund has upgraded its growth forecast for China’s economy in 2017 to 6.5 pct, 0.3 percentage points higher than their October forecast, on the back of expectations for continued government stimulus.

The world’s second largest economy ended 2016 on a firm note after a rocky start to the year.

Page 10 22,840.97 +122.82 (+0.54%)

Worst Performers

Cheung Kong Property

+2.22%

Belle International Holdings

+1.52%

China Mengniu Dairy Co Ltd

-2.05%

MTR Corp Ltd

-0.39%

China Petroleum & Chemical

+2.16%

China Resources Power

+1.51%

Cheung Kong Infrastructure

-0.97%

Hang Seng Bank Ltd

-0.27%

China Merchants Port Hold-

+1.75%

PetroChina Co Ltd

+1.13%

Sands China Ltd

-0.58%

CK Hutchison Holdings Ltd

-0.22%

Cathay Pacific Airways Ltd

+1.66%

China Unicom Hong Kong

+1.03%

Li & Fung Ltd

-0.57%

Want Want China Holdings

-0.20%

HSBC Holdings PLC

+1.58%

China Mobile Ltd

+0.95%

Swire Pacific Ltd

-0.51%

Bank of Communications

-0.17%

18° 20° 15° 21° 14° 19° 14° 18° 15° 19° Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Surging home prices

2 Business Daily Wednesday, January 18 2017

Macau In Brief Energy

Electricity tariff to increase this quarter Local electricity supplier Companhia de Electricidade de Macau (CEM) announced it will increase the tariff to MOP33 cents per kWh for first quarter of this year, a 2 cent rise per kWh compared to the previous quarter. The company said the hike is due to the increase in international fuel oil prices. Tariff Group A, B and C customers will all be affected by the latest adjustment. Last October, the electricity supplier lowered the electricity tariffs due to “the new electricity prices of China Southern Power Grid” and a falling Chinese yuan exchange rate since last July. “CEM will continue to choose the best energy mix in a bid to provide stable electricity tariffs for local citizens,” the company said in a press release yesterday. C.U.

Transport

636 cancellation of vehicle registration requests in 15 days The Transport Bureau received 636 applications to cancel vehicle registrations in the first half of this month, surging by 41 per cent yearon-year, according to its press release yesterday.

For the whole year of 2016, a total of 12,910 vehicle registrations were

cancelled, which is an increase of 14 per cent.

The sharp increase in the number of vehicle registration cancellations within the first half of January can be explained by the skyrocketing increase in transport fees and fines implemented on the first day this year.

The adjustment in prices covers a wide range of services, with the fee for the removal of vehicles due to illegal parking seeing the highest growth, jumping by between 400 per cent and 1,233 per cent, while regular vehicle inspection fees were also increased by two to ten-fold.

Meanwhile, DSAT said it assisted with the removal of 4,561 vehicles discarded on public roads last year, an increase of 18 per cent year-onyear. C.U.

Aviation

Tigerair to launch Macau-Taichung route on March 29 Budget airline Tigerair Taiwan is to commence a new flight route connecting the MSAR to Taichung, Taiwan on March 29, the company announced on Monday. The new route will operate one daily return flight in its beginning stage.

Currently, the carrier provides daily flights connecting the MSAR to two other Taiwan cities, namely, Taipei in the north and Kaohsiung in the south. The total number of flights between Macau and these two Taiwanese cities amounts to some 30 per week.

The launch of the new route will likely bring competition to another Taiwan-based airline, Eva Air, which is currently the only carrier providing direct daily flights for the Macau-Taichung route. A.L.

Aviation

Gov’t considers airport expansion The MSAR government will submit a request to the central government this year for land reclamation for the expansion plan Cecilia U cecilia.u@macaubusinessdaily.com

T

he MSAR government is considering expanding the city’s international airport, with the first phase being to reclaim the water area nearby the airport.

According to the Macau International Airport Master Plan released by the Civic Aviation Authority, the expansion is necessary due to some of the facilities already being

at capacity, such as the general aviation facilities, the passenger terminal and the road transport facilities, while some others ‘will become saturated very soon and therefore no longer meeting the demand and affecting the service quality.’

The proposed expansion programme consists of three stages, with the ultimate aim being to expand its capacity to accommodate a maximum of 15 million passengers, 58,000 tons of freight as well as 107,000 aircraft movements per year.

Meeting

CPPCC Guangdong committee to focus on youth exchanges Wang Rong, chairman of the Guangdong provincial committee of the Chinese People’s Political Consultative Conference (CPPCC), said that the committee would focus on strengthening exchanges with the young generation from Macau, Hong Kong and Taiwan, for their business development opportunities in the mainland, local broadcaster TDM Radio reported yesterday. The provincial committee of the CPPCC held a meeting yesterday, discussing the promotion of the central government’s policy towards Macau and Hong Kong, as well as providing advice for co-operation between the MSAR and the mainland. A.L.

Current layout of the Macau International Airport

Expected layout after the expansion

In addition, it expects to increase the number of aircraft stands to 47, of which 20 would be equipped with loading bridges.

For the first phase of the project, the authorities will initially need to reclaim the water area between the current two taxiways in order to create more land for the expansion, in addition to the construction of a business aviation terminal.

‘In 2017, the SAR Government will apply to the central government for land reclamation in the water area between the two taxiways that link the artificial island and the apron, as well as the surrounding water area,’ the authority wrote.

In later stages, the authority also plans to build a new passenger terminal linkage to the Pac On Ferry Terminal, as well as reconstructing the aircraft maintenance hangar, parking apron and business jets hangar.

The airport, which commenced operations in 1995, currently has 24 passenger aircraft stands, with the terminal building covering a total of 45,000 square metres.

Last year, the airport registered a new record in passenger volume in 21 years. Total passenger volume reached over 6.6 million for the year, with over 56,000 aircraft movements recorded, up by 14 per cent and 2 per cent year-on-year, respectively.

The master plan, initiated in 2010, aimed to integrate the airport with the developments in the Pan-Pearl River Delta. The first draft of the plan was released in 2011.

Yet following a request by the airport operator, Macau International Airport Company Limited (CAM), to build a new business jet hangar, and with its improved financial situation after obtaining financial support from shareholders, the plan was later updated and completed in the fourth quarter of 2015.

‘In accordance with the Master Plan, the airport concessionaire will devise their business plan to detail how they will implement the project and arrange the relevant financing,’ the authority notes.

Business Daily Wednesday, January 18 2017    3

Macau Property

Home transactions up 6 pct in December Housing prices, meanwhile, surged 15 pct m-o-m, or 32 pct y-o-y Annie Lao annie.lao@macaubusinessdaily.com

T

he total number of property transactions in the month of December last year saw a 5.9 per cent month-onmonth increase, reaching 1,211 transactions, according to the latest data released by the Financial Services Bureau (DSF).

When compared to the same period of the previous year, total property sales showed an increase of 141.7 per cent, from the 501 registered in December 2015. This was fuelled by a dramatic increase in property sales in Taipa, which rose 572.4 per cent year-on-year to 585 sales in the month, as compared to 87 sales registered in December 2015.

Average property prices increased by 14.8 per cent month-on-month in December, to MOP103,805 (US$12,995) per square metre.

When compared to the previous year, it indicates an increase in overall pricing in the MSAR of 32.2 per cent.

This was largely due to an increase in property prices on the Macau Peninsula and Taipa.

Property prices on the Macau Peninsula saw a 4.2 per cent increase month-on-month to MOP84,938 per square metre on average, or 13 per cent year-on-year. Taipa pricing experienced a 15.4 per cent increase month-on-month to MOP116,110 per square metre on average, or a 41.7 per cent increase year-on-year.

However, Coloane saw a slight

drop in property prices, reaching an average of MOP106,143 per square metre, after a 15.2 per cent monthon-month drop, which was still however an 11.8 per cent increase year-on-year.

Property sales

Most of the properties sold during the period were on the Macau Peninsula, accounting for 611 or 50.5 per cent of the total in December, a decrease of 25.3 per cent month-on-month.

Taipa had the second largest number of sales, accounting for 585 or 48.3 per cent of the total in December, an increase of 144.8 per cent month-on-month.

However, Coloane recorded property sales of just 15 units, or 1.2 per cent of the total in December, a decrease of 82.8 per cent month-on-month.

In terms of districts, the Areia Preta and Iao Hon areas on the Macau Peninsula recorded the most sales, at 71 units, at an average sale price of MOP80,891 per square metre in December.

However, these same areas also saw a 27 per cent decrease monthon-month in the number of sales, and a 1.64 per cent decrease in selling price.

In Taipa, the Central District saw the highest number of properties sold throughout December, with 502 units sold at an average price of MOP115,033 per square metre, an increase of 226 per cent in total

sales, and a 28.9 per cent increase in average prices month-on-month.

Pricy units

The most expensive property price was recorded in the Fai Chi Kei district on the Macau Peninsula, selling at MOP121,431 per square metre in December. A total of 50 units were sold in the district throughout the month.

In Taipa, the most expensive district for properties was Ocean Gardens and Taipa Pequena, at MOP132,090 per square metre on average.

Completed flats sold accounted for 56.4 per cent of the total property sales in December, while off-plan sales accounted for 43.6 per cent of the total.

Sales of completed flats in Areia Preta and Iao Hon on the Macau Peninsula saw the highest number of

sales, totalling 65, with an average selling price of MOP74,136 per square metre in December.

Meanwhile, the Central District in Taipa recorded the highest sale of completed units, with 109 sold at an average selling price of MOP85,754 per square metre.

Off-plan sales up

In December, the city’s off-plan sales recorded an increase of 172 per cent month-on-month, to 528 units, as Taipa recorded a dramatic increase in property sales, reaching 13 times the value seen in November, at 436 units or 82.6 per cent of the total.

Fai Chi Kei and Taipa Central District had the highest numbers of off-plan sales, with 29 units sold at MOP136,373 per square metre on average and 393 units at MOP122,453 per square metre on average, respectively.

4 Business Daily Wednesday, January 18 2017

Macau Travel

MSAR passport 31st most “powerful” in the world

The passport of the Macau Special Administrative Region is ranked as the 31st most powerful when compared to other passports worldwide, shows the latest Passport Index of global financial advisory firm Arton Capital.

Currently, MSAR passport

holders can enter 115 countries or jurisdictions with visa exemptions.

Meanwhile, German passports top the list by offering 157 visaexemptions. The passport of the neighbouring SAR, Hong Kong is ranked 18th on the list with 139 visa exemptions. Chinese passports, with which holders can travel to 58 countries visa-free, are ranked 66th. C.U.

Trade

Brazilian Cold Representatives of the Brazilian business community in the MSAR consider the engagement in co-operation between the country’s businessmen and Forum Macau has become ‘cold’ Nelson Moura nelson.moura@macaubusinessdaily.com

R

epresentatives of the Brazilian business community in Macau believe their mother country, the largest Lusophone trading partner with China, might leave the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macau) due to a lack of interest shown by both the nation and the organisation.

“I believe Brazil has had a foot out of Forum Macau. Since 2013, I haven’t seen a lot of enthusiasm from Brazil to take part in the events organised by the department,” said Porfirio Gomes, Chairman of the Board of Directors of the Chamber of Industry and Commerce Brazil-China of Macau.

According to Mr. Gomes, Brazil has not been very active in participating in the major events organised by Forum Macau, such as the 21st Macao International Trade & Investment Fair (MIF) and the 5th Ministerial Conference.

With only some 13 representatives at the MIF last year, Mr. Gomes said the committee was “very low-key” and many Brazilian businessmen are not “even aware of the Forum Macau activities”.

Fierce competition between China and Brazil for business in Portuguese-speaking countries, especially in the African markets, is considered as one of the factors for the lack of engagement, Mr. Gomes said.

“Many Brazilian construction and mining companies have businesses in Angola and Mozambique, competing with Chinese companies in the same sectors,” he told Business Daily.

The chairman of the Brazil-China chamber of commerce also believes Brazilian businessmen do not recognise Macau as an effective platform between the countries.

“If Brazilian businessmen want to develop business in China, they go straight to Shanghai and Guangdong…

I talk to many Brazilian businessmen and politicians about the importance of Macau and [that of] having good relations with the Forum, but there’s a lot of skepticism about the organisation and Macau’s role as a bridge,” he claimed.

Not enough importance

After a meeting on Monday with representatives of the Brazilian Parliament Chamber, the city’s Secretary for Administration and Justice, Sonia Chan Hoi Fan exalted the close relations between Brazil and China, as well as Macau’s role in working as a platform for developing economic and tourism co-operation between the parties.

However, according to Mr. Gomes, the importance given by the Macau government for improving Brazil-China economic relations does not equal the trade level between the two countries.

“It’s true that trade [activities] have been affected by the rising price of commodities, but commercial relations between Brazil and [China] are still really significant, as the country is not just the most important Lusophone partner [to China], but also the largest in South America,” he said.

Prime meat

One of the Brazilian businessmen who had enjoyed the co-operation between the two countries is Lúcio Leal, chef at the Brazilian barbecue restaurant Fogo Samba, formerly located at The Venetian Macao, and which may re-open again soon at Fisherman’s Wharf together with a Brazilian food products store.

The Brazilian chef was also previously involved in trading food products between Brazil and the MSAR, but the high cost of importing the products through Hong Kong didn’t make it a sustainable business, he said.

Mr. Leal, who is also a long-term member of the Brazil House of Macau, said he has seen the engagement in co-operation between Macau and Brazilian businessmen become “disinterested” in the past years.

“There should be a larger focus on increasing opportunities [for Brazilian businessmen] and bringing people from Brazil that could provide products and even medical services, an area Brazil is very developed in,” Mr. Leal said.

“I believe Brazil has had a foot out of Forum Macao” Porfirio Gomes, Chairman of the Board of Directors of the Chamber of Industry and Commerce Brazil-China of Macau The Brazilian businessman added that the engagement by Forum Macau with the Brazilian community has become “much colder” following the departure of former deputy secretary-general of the permanent secretariat of Forum Macau, Rita Santos, from her position in 2015.

“We had a representative that looked much more to create closer business links. After her departure, business plans for Brazil-China-Macau were a bit forgotten and left only as promises,” Mr. Leal told Business Daily.

Ms. Santos’ position was assumed by the then-director of the Macau

Trade and Investment Promotion Institute (IPIM) Echo Chan Keng Hong, who resigned eights months after she took over the office but then returned to the position again earlier this month.

“Ms. Santos had a very expressive presence in bringing food products and helping setting up businesses.

Business is like a plant, without water, it dies. For me, the Forum died after Ms. Santos left the position,” Mr. Leal claimed.

Not so far

Speaking to Business Daily, Ms. Santos believes Brazil will not leave Forum Macau since it was one of the most enthusiastic founders of the organisation that was set up in 2003 to connect Mainland China, Macau and Lusophone countries.

“I don’t think it would be politically and economically correct for Brazil to leave the Forum…I’ve even had talks with the incumbent Brazilian President and he said the country has the utmost interest in remaining in the organization,” Ms. Santos said.

She added that it’s not appropriate for her to comment on whether her successors “have or have not” done the job well.

“During my 12 years in Forum Macau, we pushed for the establishment of the Brazil House of Macau (…) we also tried to resolve local Brazilian traders’ problems of exporting products to Mainland China,” she said.

Ms. Santos believes Forum Macau could give more support to SMEs that are involved in trade business between China and Brazil, especially for those in meat exports and imports since “most Brazilian meat consumed in China comes through Macau”.

Business Daily questioned Forum Macau and Ms. Echo Chan on the issue but no response was received before this newspaper went to print.

Biggest partner

Rita Santos was the deputy secretary-general of the permanent secretariat of Forum Macau until 2015

For the first eleven months of 2016, bilateral trade between the two countries amounted to US$61.9 billion (MOP494.7 billion). Despite a 6.48 per cent year-on-year drop, Brazil remained as China’s main economic partner in the Lusophone world.

Of the total, China’s exports to Brazil fell 21.6 per cent year-on-year in 2016 to US$19.9 billion, but its imports from the South American country only increased 2.9 per cent year-onyear to US$42 billion.

Meanwhile, trade activities between the MSAR and Brazil saw a 21.7 year-on-year increase to MOP354.9 million for the same period, of which meat and meat preparations accounted for 91.3 per cent, worth a total of MOP324.1 million.

Business Daily Wednesday, January 18 2017 5

Macau Banking

Cashless banking JETCO is partnering with seven local banks to bring a new P2P money transfer method to the territory Sheyla Zandonai sheyla.zandonai@macaubusiness.com

J

oint Electronic Teller Services Ltd (JETCO) announced yesterday that it is to launch a new dual-currency peer-to-peer (P2P) mobile money transfer service in the MSAR during the second half of the year.

The company said in a press conference yesterday that it is teaming up with seven local banks for this service. The app will allow customers of the participating banks to use their mobile phones to transfer and receive money in the currency of their choice – either Macau patacas or Hong Kong dollars.

The mobile service will only require the mobile number of the recipient, without the need to enter the bank account number of the recipient for every transaction.

“There is a lot of e-payment and e-banking services out there, but what we are proposing is to replace checks, cards, and cash all at once,” Angus Choi, JETCO’s CEO, explained to Business Daily.

The company executive pointed out that authentication would be the company’s most important concern, in order to both protect customers from hacking activities, as well as to

comply with the current regulations on anti-money laundering.

He added the company has been working with international partners that can provide the best security solutions to ensure data protection, such as end-to-end encryption, a dynamic pin pad, and a device binding verification function.

Asked about the daily cap amount for the new service, the CEO said that they are targeting at about MOP5,000

(US$625) per day, though the decision on the exact maximum amount allowed is pending approval from the Monetary Authority of Macau.

According to the CEO, when the company first launched the same service in Hong Kong last year, the cap was at HK$3,000 over a two-day span, but the limit was later increased to HK$5,000 per day, The CEO also highlighted that the service for the MSAR is currently designed to be a “separate solution” from that in Hong Kong, though he expressed the company’s interest to work on a “trans-border” solution between Macau and Hong Kong, and possibly Mainland China, in the near future. As for the fees regarding currency conversion and money

transfers, Mr. Choi noted they are likely to follow the amounts defined by local bank practices.

The local participant banks include Banco Comercial de Macau S.A. Banco Nacional Ultramarino, S.A., Tai Fung Bank Limited, Bank of China Limited, Macau Branch, Industrial and Commercial Banking of China (Macau) Limited, Luso International Banking Limited and OCBC Wing Hang Bank Limited.

In order to use the service, Macau customers holding an account in one of the seven partner banks, will first have to register for the service at their own bank. After that, they will also need to register their mobile number and bank account in the P2P mobile app of JETCO.

Angus Choi, JETCO’s CEO

Hospitality

Public finance

Getting cheaper

Lionel Leong expects budget plans to improve

Average room rates fell 12.7 pct in 2016 while occupancy increased 2 pct y-o-y Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

Three-star hotels continued to lead in the local hospitality industry in terms of occupancy for the month of December of last year, as further decreases in prices were implemented by hotels at all ends of the market to maintain their occupation levels, according to data compiled by the Macau Hotel Association and published by the Macau Government Tourism Office.

Displaying 97.1 per cent occupancy, the three-star hotels in the region, which also experienced the highest year-on-year drop in room rates, still managed to, on average, price their rooms MOP19.1 higher than their four-star counterparts, at MOP835.6, yet a decrease of 13.1 per cent year-on-year.

Meanwhile, four-star hotels also recorded a drop of 4 per cent in price year-on-year.

Towards the higher end of the range, five-star hotels saw the

second-highest year-on-year drop in room rates of the three categories, at 8.8 per cent, seeing average room prices falling from MOP1,728.8 in December 2015 to MOP1,576.4 in December 2016. This accompanied a 7.1 per cent year-on-year increase in occupancy rates by the five-star hotels, reaching 92.1 per cent, 1.5 per cent shy of four-star hotels’ average occupancy and 5 per cent below that of three-star hotels.

On average, hotel occupancy rates hit 93.1 per cent for the month, as compared to 86 per cent in December 2015, and average room prices hit MOP1,268.2 as compared to MOP1,382.6 in December 2015.

Cheaper and more occupied

For the whole of 2016, data from the Macau Hotel Association shows a lower average room rate reduction than that compiled by the Statistics and Census Bureau (DSEC), relating to the average price of accommodation for tourists – which also includes information on guesthouses and hostels.

While a 12.7 per cent reduction year-on-year in average room rates was found by the association, a 21.2 per cent reduction was indicated in the DSEC data.

The largest reduction in rates was for three-star hotel rooms, down 17.3 per cent year-on-year, yet championing occupancy with 90.4 per cent, up 3.1 per cent year-on-year. Fourstar hotels saw a 14.5 per cent room rate reduction year-on-year, and achieved 86.3 per cent occupancy, while five-star hotels saw an 11.6 per cent room rate reduction year-onyear and stabilized at 84.2 per cent occupancy for 2016.

On average, for the year, rooms cost MOP1,287, a 12.7 per cent year-onyear drop, and were 85.4 per cent occupied, a 2 per cent year-on-year increase.

The Legislative Assembly approved the execution report on the 2015 budget yesterday Annie Lao annie.lao@macaubusinessdaily.com

Secretary for Economy and Finance, Lionel Leong Vai Tac expects the city’s future budget plans could be more precise regarding expenditure for public investment plans (PIDDA) following the amendments to the budget framework law.

Yesterday, the Legislative Assembly read and passed the execution report of the 2015 budget.

During the discussion, legislator Antonio Ng Kuok Cheong urged the city’s financial chief to better monitor the budget of local infrastructure projects, which are worth more than MOP100 million (US$12.5 million).

“There are more public works projects being constructed in the MSAR than before. However, the current supervision budget mechanism is not sufficient enough to lead the government to spend accurately,” the directly-elected legislator opined.

But the Secretary believes there will be improvements in the government’s budgets once the amendments to the city’s budget framework law get implemented.

The amendments will require government departments to estimate the total expense and yearly budget for a multiple-year infrastructure project, in addition to the timetable for the construction.

“Each quarter of the year, all

progress reports of the public works projects are required to be submitted to the AL for discussion and review,” Secretary Leong said.

He stressed that the total costs of a public project, the execution of the budget as well as the timetables should all be clearly released to the public so they can monitor the progress of the projects.

Vocational training

Meanwhile, legislator Mak Soi Kun argued that the government’s total spending on vocational training was too low.

“Since the city’s economy is in a transitional stage, the government should provide more vocational training in order to meet the changing demands and to diversify the local economy,” Legislator Mak suggested.

Secretary Leong replied that the MSAR Government has given priority to providing vocational training in order to assist local employers to effectively manage their human resources during the adjustment period of the local economy.

He believes these vocational training courses can also help with the career development of employees so they will be able to change to different jobs more easily.

“However, more research is needed to study which particular sectors would require more vocational training among different industries,” the official said.

6 Business Daily Wednesday, January 18 2017

Macau Opinion

José I. Duarte*

Survey confidence In Macau, all kinds of studies and surveys are frequently carried out. They address the most varied social and economic subjects. Unfortunately, we can rarely feel certain about the representativeness or reliability of the findings.

Basic information necessary for that purpose is usually missing.

The sampling methodology, or the characteristics and size of the sample, are rarely specified. Stating the margin of error and the degree of confidence is even more unusual – it is hard to remember a survey that bothered to indicate such esoteric information. The actual questions asked and the rates of valid response are also never mentioned.

That is, the real significance of the findings is unknowable for all practical purposes.

The outcomes communicated could either be an accurate representation of the opinions or tastes of society; the result of some hidden sample bias; a pure statistical accident; or just an expression of the promoter’s preconceptions or interests, under a pseudoscientific guise.

Essentially, we cannot know.

This state of affairs is regrettable. It implies that the impact and significance of the results are necessarily weakened. That way, we are wasting resources and, in many cases, the good intentions of the promoters.

Few matters are as powerful regarding their long-term social impact as the change in women’s social roles and status. Studies concerning the evolution of the position of women in society and the economy always raise politically relevant questions and should provide subject matter for meaningful reflection. A women’s association has just produced such a survey. The study found some resonance in the media. It concluded that, overall, there had been little change in the role of women in society and the family.

Can we trust this and other conclusions?

No technical data is provided.

If it exists, the media failed either to ask for it or to report it – thus essentially devaluing the results published. If such information does not exist, or the survey failed to follow the adequate technical procedures, the results are unavoidably untrustworthy, if not meaningless – no matter how much they conform to our opinions or prejudices.

Let me then suggest to the media, especially the printed variety, that when reporting on surveys or polls, always reserve a box for the detailed technical information. That will help readers to judge the soundness of the findings. And if that data is missing, make it clear: “Technical data not provided. The trustworthiness of reported conclusions is undetermined.” Hopefully, that will encourage better research and communication standards.

*Economist and permanent contributor to this newspaper.

Benefits

MGM China, Melco Crown announce bonuses

G

aming operators MGM China and Melco Crown Entertainment both announced yesterday that they would issue bonuses equivalent to one month’s salary to their eligible workers in non-management positions.

According to MGM, the company’s latest bonus is additional to its Special Bonus scheme announced in 2016, which is divided into two phases and equal to one month’s salary in

MGM Cotai to launch in “second half”

Gaming operator MGM China said the opening of its new casinoresort project MGM Cotai will be adjusted ‘from the second quarter of 2017 to the second half of 2017,’ according to its filing with the Hong Kong Stock Exchange yesterday.

The company explained the postponement is due to the complexity of the design of the new integrated resort as well as to its commitment ‘to a successful opening that reflects the demands of the current market’.

total. The first half of the scheme was paid last October, while the second half is expected to be issued on July 5 this year.

Meanwhile, Melco Crown said in a statement yesterday that its bonuses will be paid out prior to Chinese New Year.

Claiming in the announcement that Melco Crown “has accomplished many good results in 2016,” the chairman and CEO of the company, Lawrence Ho Yau Lung said: “I am

confident 2017 will be another promising year for the company.”

Ea r l i e r thi s m o n th, ga m i n g operators SJM Holdings Ltd and Wynn Macau Ltd both announced the issuance of bonuses to their employees. K.L.

‘However, ultimately, the final opening date of MGM COTAI will also be subject to obtaining the required government approvals,’ the gaming operator wrote.

Over the past weekend, the company’s CEO, Grant Bowie, said the corporation was now targeting the launch of the new project for the third quarter of the year, according to broadcaster TDM. The casino project was initially slated for a 2016 opening date, then later pushed back to the first quarter of this year, before it was further postponed to the second quarter. K.L.

High-roller

Analysts: VIP on the road to recovery But this recovery could be dragged down again in 2018 if the bill proposing a full smoking ban inside casinos is passed Kam Leong* kamleong@macaubusinessdaily.com

Analysts are projecting the city’s VIP gaming revenue to record a rebounding growth of between 2 per cent and 10 per cent for the year. However, such an increased rate could contract the following year if the implementation of a universal smoking ban inside local casinos goes ahead.

Carlo Santarelli, a senior analyst with Deutsche Bank, predicted in a note on January 13 that local VIP revenue growth may reach 10.4 per cent year-on-year in 2017. But Chelsey Tam, an analyst with Morningstar Asia Ltd, forecast on the same day that the increase might only amount to 2 per cent.

‘Our conversations with industry participants in the VIP segment indicate that a cyclical VIP recovery is on the cards,’ wrote Chelsey Tam in a note. ‘Additionally, we have heard from several junkets that the VIP segment has improved recently, as the number of players and the frequency of visits have increased, while the bet size per customer has not changed.’

CNY to benefit February reporting

The upcoming Chinese New Year (CNY) is more likely to benefit February revenue, said Deutsche Bank analyst Carlo Santarelli in a note on January 14.

‘Business tends to soften in the weeks leading up to CNY and the week that includes CNY itself is generally, ‘just ok,’ prior to [gross gaming revenue] meaningfully accelerating in the period post the holiday,’ the analyst notes.

The year’s CNY starts on January 28.

In general, he forecasts the city’s gaming revenue will register an

For the fourth quarter of 2016, the city’s VIP revenue saw its first increase since the first quarter of 2014, jumping by 12.7 per cent year-onyear to MOP33.3 billion (US$4.2 billion). Yet, total VIP revenue for the whole year of 2016 still dipped by 6.93 per cent year-on-year to MOP118.96 billion in 2016.

Union Gaming Group analyst, Grant Govertsen said he would remain cautious about the sector. “While we are very happy to finally see VIP turn positive, we remain cautious on the outlook for this segment, which is driven by increasing concerns on Beijing’s stance on capital flight,” he said.

“The strength seen in the fourth quarter was not primarily driven

by VIP. It was driven by mass,” said Govertsen. “This is very important in the context of what we see as a sustainable mass market led recovery.”

The growth rate of VIP revenue could be overstated, as some casinos had reclassified higher-end mass market tables as VIP to skirt smoking restrictions in late 2014, Govertsen said yesterday.

increase of 6 per cent year-on-year for the two-month period, while average revenue per day will grow by 7.5 per cent year-on-year.

Cameron McKnight, a senior analyst with Wells Fargo Securities, also forecasted in a note last week that the performance for CNY could be better than expected.

‘Near term, tightening capital controls and a more bearish outlook could drive a better-thanexpected Chinese New Year,’ he wrote.

But he added that the brokerage firm remains cautious and does not expect a v-shaped recovery in the short term.

The likely gain for VIPs during the period may be closer to 7 per cent, and 13 per cent for the mass market, he said. Official data shows revenue generated from the mass gaming floors, including slot machines, totalled MOP27.1 billion for the quarter, a growth of 7.3 per cent year-on-year.

The importance of VIPs to Macau has been declining, with the highstakes market contributing about 53 per cent to gaming revenue in 2016, data from the gaming regulator showed, down from the peak of 73 per cent in 2011.

Macau’s casino market continues to face challenges, amid growing concerns that China’s increased scrutiny on capital outflows will curtail spending at the gambling tables.

But the analysts from Morningstar and Deutsche Bank both agree that 2017 will be the first year for the gaming industry to see a whole-year growth since 2013.

Tam expects total gaming revenue will record a growth of 6 per cent year-on-year, and mass will jump by 9 per cent, whereas Santarelli anticipates total revenue growth will hit 9.7 per cent for the year, with mass also jumping by 9 per cent.

Smoking ban impact in 2018

However, Chelsey Tam adds that the annual VIP growth could see a 6 per cent decrease in 2018, given the possible impact from the full smoking ban.

‘We think the government could pass the bill that bans smoking in VIP gaming areas, with the exception of VIP smoking lounges, before August.

As the government may allow some time for casino operators to construct smoking lounges and ventilation systems, we think our forecast for a ban being implemented in 2018 is reasonable,’ the analyst notes.

The view is echoed by Deutsche Bank’s Carlo Santarelli, who points out the universal smoking ban could bring ‘bigger variables’ for the gaming industry in 2017 and 2018, expecting VIP growth will moderate next year with an increase narrowed to 5 per cent. *with Bloomberg

Business Daily Wednesday, January 18 2017 7

gaming Results

Cautiously waiting for worse Junket operator Neptune won’t invest more in the local gaming market, diversifying to the money lending business instead Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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eptune Group Limited will be moving further away from its junket business and more towards its money lending business, according to the group’s filing to the Hong Kong Stock Exchange. Describing 2016 as “not a good year”, the group’s Chairman, Danny Huang, notes that “there is no fast track back to past glory,” hoping that the “slow recovery will finally arrive and gain traction over time”.

Despite shifting focus to the group’s new money lending business, described as “in its infancy”, the group does not expect “positive contributions” in the short term from the segment.

“The performance of our core business has not been satisfactory in the past and we expect the same will persist,” notes the chairman, pointing to government policy, local regulations,

Chief Financial Officer and Executive Director Mr. Stephen Chan Shiu Kwong, appointed to the role in April of 2005, will resign, effective from January

consumer spending, the consumer confidence index and generic tourism numbers as curbing the group’s “new investment in this [gaming promotion] industry,” pending “more solid signs of growth”.

Results and outstanding

The group’s results, previously announced at December-end, describe a HK$466.7 million (US$58.1 million) loss, of which HK$202.1 million is attributable to the owners, on the back of a 41.2 per cent year-on-year slowdown in revenue, most noticeably seen in a 55.2 per cent yearon-year drop in revenue from the group’s Grand Lisboa operations, it’s second-highest earner of the three VIP clubs it directly operates in Macau (others are located in the Venetian and Sands).

As at the end of its fiscal year ended June 30 of last year, the group had outstanding bank borrowing of HK$16.4 million.

However, more importantly, the

31 of this year. The group notes that it ‘would like to express its appreciation for Mr. Chan’s contribution to the company during his tenure of service’.

ETG

Japan’s slot market Slot manufacturers look to customize content and partner up with Japanese companies Although primarily predicted to be a VIP-driven market, the possibilities for Japan’s gaming industry, once off the ground (or in the ground), offers many opportunities for gaming equipment producers, although the first-mover advantage would most likely fall to those based in the country.

Howard Klein, a casino expert who worked with Caesars and Bally estimates demand for slots and gaming tables could range from 15,000 to 25,000 units, in his comments made to the Las Vegas Review Journal.

“I totally expect global leaders like International Game Technology and Scientific Games to be linking up with Japanese companies – to partner or establish branches there,” he told the publication. “Japanese makers […] will be a major looming presence in the business,” says Klein.

Partnerships are not uncommon for gaming manufacturers, with companies such as IGT having formed joint ventures with Macau-based LG to better access the market.

“Once you know which operators will be granted licenses, then you will know what relationships you have in place and which ones you need to cultivate,” Phil O’Shaghnessy, IGT’s senior direct of global communication, notes.

Cha-ching

Analysts are estimating the value of Japan’s potential gaming revenue to hit US$40 billion (MOP320 billion), once ramped up, but it will not be a “blockbuster” market, says Marcus Prater, executive director of the Association of Gaming Equipment Manufacturers, noting that the operators who win the bids for integrated resorts in the country will walk away with the lion’s share.

“Using a limited resort model, Japan will not drive tens of thousands of machines,” Prater told the publication.

There were a total of 6,287 gaming tables in Macau in the fourth quarter of last year, whereas there was more than double that number of slot machines, at 13,826, which was nearly 2,000 less machines than in the third quarter.

A total of MOP11.38 billion was made in revenue from slot machines in the fourth quarter, while MOP2.35 billion was made off Live Multi-Game machines, according to information from the Gaming Inspection and Coordination Bureau.

As in the Macau market, these machines will also need to have culturally relevant content in Japan, something gaming equipment manufacturers from outside Asia struggled with when first entering the market.

“Some content will be very unique, specifically targeted towards Japanese and their affinities,” says Derik Mooberry, Scientific Games’ Group Chief Executive of Gaming, noting however that: “there is content that can be globally successful regardless of where it is in the world,” which will make its way to Japan’s gaming floors. K.W.

group notes that 43.8 per cent of its total trade receivables are due from one debtor, while 100 per cent is due from ‘the three largest customers’ of the group.

‘The group’s exposure to credit risk is influenced mainly by the individual characteristics of each debtor rather than the industry or country in which debtors operate, and therefore significant concentrations of credit risk primarily arise when the Group has significant exposure to individual debtors,’ notes the filing.

Total trade receivables and other receivables for the group amounted to HK$407.28 million for the fiscal year, while ‘all the customers of the Group failed to settle the revenue of approximately HK278,651,000 recognised for the year,’ adds the filing.

No ladder

‘We may have reached the bottom of the downward spiral,’ the filing explains, ‘however, there is no guarantee of a successful rebound or

return to our profitability soon’. The group ascribes this as being due to a reduction in table count for its own and associated operations, which currently amount to: 14 tables in the Venetian, 10 tables in Sands, 13 tables in Galaxy, 8 tables in Grand Lisboa and 10 tables in City of Dreams, for a total of 55 - a 7-table reduction year-on-year.

‘Two years ago, 10 VIP operators controlled 85 per cent of the market, now just three,’ notes the filing. ‘Some other rivals of ours are even closing down,’ it adds, without mentioning which rivals.

In particular, the group points out that ‘new regulations and capital needs make new VIP entries problematic, that is synonymous as a niche for the existing operators,’ highlighting the central government’s ‘policy to curb Chinese bank card withdrawal limits per transaction’ and visa entry ‘limitations’ causing them to ‘continue to observe and ensure our existing investment does not worsen’.

8 Business Daily Wednesday, January 18 2017

Greater china Monetary instrument

PBOC adopts mid-term credit tool as old benchmark fades away The reserve ratio of funds that banks must lock away has been kept on hold since the last cut in February

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hina is increasingly managing the flow of credit with more finely-tuned instruments than its old method of changing how much of their deposits lenders must keep locked away.

Banks’ required reserve requirements haven’t changed for almost a year. Instead, the central bank has used short-term lending channels to add almost six times as much funding than would have been added by lowering banks’ RRRs by half a percentage point.

With the new tool playing its part in stabilizing the economy -- data Friday is estimated to show a 6.7 per cent expansion for 2016 -- the People’s Bank of China is switching its focus to risk management. Another advantage of targeted lending: it adds funds without signalling broad easing that adds to downward pressure on the yuan and fuels further capital flight.

The PBOC pumped in a net RMB270 billion (US$39 billion) through open-market operations yesterday, the most in a year, data compiled by Bloomberg show. That followed last week’s RMB305.5 billion of MLF operations, the main short-term lending tool used to meet banks’ medium-term cash demand. Analysts said the efforts can help stabilize liquidity before the week-long Chinese New Year holiday at the end of this month.

The PBOC increased the total outstanding of its Medium-term Lending Facility (MLF) last month to a record RMB3.46 trillion. That compares with the RMB600 billion that economists estimate was added to the banking

system after the last required reserve ratio cut in February, when it was lowered by half a percentage point.

Bank deposits stood at RMB155 trillion in December, greater than U.S. gross domestic product.

By moving away from traditional tools such as cutting bank reserve requirements and using funds tied to specific duration and interest rates, the central bank can use those to help rein in excessive leverage by pushing up specific borrowing costs for lenders.

“The PBOC has been resorting to MLF (Mediumterm Lending Facility) to make up the loss in monetary base since the first quarter in 2016” Zhou Hao, an economist at Commerzbank AG in Singapore The mid-term lending program is the central bank’s way of adapting as the economy evolves, according to Tommy Xie, an economist at OCBC Bank in Singapore. As economic activity moves away from export-led growth, less capital is flowing in,

which effectively reduces the central bank’s reserves and in turn decreases the central bank measure of liquidity supply.

Monetary base

“The PBOC has been resorting to MLF to make up the loss in monetary base since the first quarter in 2016,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “The difference between a RRR cut and MLF is that the latter has pushed up borrowing costs, which shows the policy makers’ intention to reduce leverage and prevent financial risks.”

Another factor policy makers are considering is how different tools affect the yuan. Recent depreciation pressure has made cutting the reserve ratio impossible for policy makers, Zhou said, effectively leaving midterm lending as their best option.

The reserve ratio of funds that banks must lock away has been kept on hold since the last cut in February.

While that ratio is one of the highest in the world, RRR cuts still remain unlikely because producer prices are rising at the fastest pace in five years, said Larry Hu, head of China economics at Macquarie Securities

Ltd. in Hong Kong.

Compared with traditional RRR cuts, the MLF tool has the following advantages: MLF gives the PBOC more command of the amount and duration of funds banks hold Banks pay interest on MLF funds, which means those borrowing costs can be raised as a tool to deflate bubbles and reduce leverage Unlike RRR cuts, MLF operations expire in three months to a year, which means banks can’t use the funds as freely as they would if they held less reserves MLF puts less downward pressure on the yuan Still, there are costs. Banks can’t plan long-term for funds raised from MLF operations and may even need to hoard liquidity if they don’t know when the PBOC will extend new financing, said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong.

“Financial institutions love RRR cuts more than the MLF, which offers more expensive liquidity that can push up lending cost in the real economy,” he said, adding that the central bank will be more inclined to cut the reserve ratio when pressure on the yuan eases. Bloomberg News

Speculators

Hedge fund winning on yuan says next short is stocks In the latest sign of investor nervousness, shares in Shenzhen and Shanghai dropped suddenly on Monday afternoon, before recovering into the close When Kevin Smith realized late last year that China was getting serious about defending its currency, his first move was to dial back bearish bets on the yuan. His second move: double down on wagers against Chinese stocks.

Smith, whose global macro hedge fund has returned about 350 per cent over the past decade, says China’s attempts to prop up the yuan are tightening domestic monetary conditions and making a credit crisis increasingly likely. To him, that means shares of banks and other “zombie” companies may be the first dominoes to fall as China faces a reckoning after years of debt-fuelled growth.

“These recent monetary tightening measures point to the increased risk that Chinese officials will trigger the credit crisis first,” said Smith, the Denver-based founder and chief executive officer of Crescat Capital, whose China bets in the global macro fund returned about 3.4 per cent last quarter. “It really only increases our conviction that there are opportunities on the equity-side short, particularly if they continue to defend the currency.”

While Smith’s pessimism clashes with consensus calls for a soft landing

in Asia’s largest economy this year, his bearish view on stocks appears to be gaining traction. Speculators in the U.S. have boosted short sales of an exchange-traded fund tracking China’s domestic equity market to a one-year high, while the CSI 300 Index has slumped more than 6 per cent since the end of November.

A deeper slide would re-focus global attention on a US$6.5 trillion market that proved remarkably resilient in the second half of 2016 as the yuan sank to an eight-year low.

Stocks have gotten support from purchases by state-run funds, along with China’s broader effort to backstop the economy with fiscal and monetary stimulus.

Smith says the era of easy money in China may be coming to an end.

The nation’s three-month interbank lending rate, known as Shibor, has climbed for 62 straight days, while the average yield on top-rated, fiveyear Chinese local corporate bonds just posted the biggest quarterly jump since end of 2013. The move was partly explained by rising interest rates globally, but government efforts to support the yuan have accelerated the trend by removing liquidity from the banking system.

The People’s Bank of China didn’t immediately reply to a faxed request

for comment.

Smith, who oversees about US$96 million and has been betting against the yuan for most of the past two years, said he exercised two bearish options at a profit before a short squeeze on Jan. 4 sparked record gains in the currency offshore. He decided not to roll over the contracts, opting instead to increase his short sales of Chinese exchange-traded funds.

He has bets against the iShares MSCI China ETF, the iShares China LargeCap ETF and the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which all have heavy weightings in Chinese lenders and other stateowned companies. Short interest in the CSI 300 fund climbed to about 13 per cent of shares outstanding on Jan. 12, the highest level since the start of 2016, according to data compiled by IHS Markit and Bloomberg.

While Smith expects the yuan to fall below 8 per dollar by year-end (a nearly 14 per cent slump from its level on Monday) and still has some wagers against the currency, he’s holding off on new positions for now.

If a crisis in Chinese debt markets forces authorities to flood the banking system with cash, that will be the time to go “heavy” on bearish yuan bets, he said.

“Clearly China is taking extreme measures to defend the currency,” Smith said. “They are making a strong statement, but I don’t think it’s sustainable.” Bloomberg News

Business Daily Wednesday, January 18 2017 9

Greater China In Brief Yuan

S.Korea hopes currency swap to be extended South Korea yesterday said it hopes to extend a bilateral currency swap deal with China before it expires in October even with the political uncertainty in the background over Seoul’s decision to deploy a U.S. anti-missile system. South Korea and China in April 2016 agreed in principle to extend a swap worth RMB360 billion (US$52.25 billion), but the row over the U.S. Terminal High Altitude Area Defence (THAAD) being deployed in Korea has chilled Seoul’s ties with Beijing. Extending the swap “must be done, I think,” South Korea Deputy Finance Minister Song In-chang told reporters in Sejong, south of Seoul.

HR

Baidu names former Microsoft exec as COO

Expansion plans

Beijing said to be concerned about Foxconn’s intentions A potential strategic shift unnerves authorities because the company employs roughly a million workers across the country China’s government has conveyed its concern over Foxconn Technology Group billionaire Terry Gou’s plan to expand the Apple Inc. assembler’s operations in the U.S. after Presidentelect Donald Trump takes office, people familiar with the matter said.

A high-ranking Chinese official recently expressed Beijing’s concerns directly to Gou, the people said, asking not to be identified because the conversation was private. In response, the Taiwanese billionaire told the senior bureaucrat he won’t withdraw capital from China. The U.S. investment plan hasn’t been finalized and is dependent on the policies of the incoming administration, Gou said, according to the people.

China is pivotal to Foxconn’s massive electronics assembly operation, which cranks out more iPhones and iPads than any other in the world. One of China’s largest employers, Foxconn has said it’s in preliminary discussions to broaden its investment in the U.S., without elaborating. Trump has often articulated his vision of bringing manufacturing jobs back to America from China, which became the world’s factory floor thanks to cheap labour and central policy support.

And he’s singled out Apple in the past.

A potential strategic shift by F o xc o n n u n n e r v e s C h i n e s e authorities because the company employs roughly a million workers across the country. Major factory job cuts have been known to trigger protests in the past, even as maintaining social stability remains among the top priorities of the ruling Communist Party.

“Gou wants officials to know that he still sees China as a market of greatest importance,” said James Yan,

Beijing-based research director for Counterpoint. “Foxconn very much relies on China for both assembly and consumer businesses and its suppliers are also in Asian countries.

That is not going to change at least in the next five years.”

“Foxconn very much relies on China for both assembly and consumer businesses and its suppliers are also in Asian countries. That is not going to change at least in the next five years” James Yan, Beijing-based research director for Counterpoint

Foxconn announced the potential expansion hours after a pledge from SoftBank Group Corp.’s Masayoshi Son to invest US$50 billion in the U.S. and create 50,000 jobs. A document Son held up for reporters after a December meeting with the President-elect included the words “Foxconn” and “US$7 billion” alongside SoftBank’s numbers.

It remains unclear how SoftBank and Foxconn may be working together, or what sort of promises may have been made to Trump.

Gou told the Chinese official he was

invited to the former reality TV star’s Jan. 20 inauguration but didn’t plan on attending, according to the people familiar with the matter.

The Taiwan Affairs Office of the State Council and the Association for Relations Across the Taiwan Straits, the two mainland Chinese organizations that handle relations with Taipei, didn’t answer calls seeking comment. Foxconn didn’t respond to e-mailed requests for comment and calls to company spokesmen went unanswered.

Foxconn now operates factories in Chinese cities including Zhengzhou, Shenzhen, Taiyuan and Wuhan. But rising wages and persistent worker shortages are prompting electronics manufacturers look elsewhere: Lenovo Group Ltd. and OPPO are among those that have set up facilities in Southeast Asia, for instance.

Foxconn itself has been increasing its use of robots to reduce its reliance on migrant labour, and studying plans to increase its footprint in India.

Any shift back to the U.S. may involve Apple, which now accounts for about half of Hon Hai’s revenue.

Apple Chief Executive Officer Tim Cook, however, told 60 Minutes in 2015 that the U.S. simply lacks enough skilled workers in advanced manufacturing.

Then there’s cost. The components of an entry-level iPhone 7, which sells for US$649, cost US$224.80, according to research firm IHS Inc. Assembling those parts into a finished product, mostly in China, costs about US$10 now, Jason Dedrick, a professor at Syracuse University, has estimated. Doing that work in the U.S. would add US$30 to US$40, he reckons.

Foxconn’s rivals however are reportedly open to the possibility.

Pegatron Corp., another major assembler of Apple products, can expand its U.S. capacity three- to five-fold if necessary, a Taiwanese financial outlet cited Chairman Tung Tzu-Hsien as saying on Sunday.

“Foxconn may expand its research and development as well as some high-precision manufacturing to the U.S.,” Yan said. “But the main part of the assembly business will stay in China.” Bloomberg News

The company said it has appointed a former Microsoft executive as chief operating officer, part of a push into artificial intelligence as earnings from its core search engine business wane.

Baidu has been refocusing its business strategy after the introduction of new advertising regulations, aimed at medical advertising in particular, led to a 16 per cent drop in ad customers during quarter ended in September. Qi Lu, who was an executive vice president at Microsoft and headed its unit in charge of Office, Bing and Skype until last September, will help develop artificial intelligence as a key strategic focus for Baidu over the next decade.

Automotive industry

Cadillac sees double digit growth in Mainland Cadillac, General Motors Co’s luxury brand, is predicting a double digit growth rate in China sales this year, the brand’s country chief Andreas Schaaf told Reuters yesterday. The brand - which opened its first dedicated factory in China last year, helping boost Cadillac sales in the country by 46 per cent expects China to become its top market in less than five years, Schaaf added.

Cadillac and Ford’s Lincoln are among a second wave of luxury car brands in China, the world’s biggest auto market.

One Belt, One Road

Djibouti breaks ground on massive free trade zone The president of Djibouti on Monday formally launched the construction of a project touted as Africa’s largest free trade zone, to be built in the tiny Horn of African nation with Chinese backing.

The agreement to build the 48 sq km free trade zone was signed in March 2016 as part of China’s bid to expand trade routes, a series of infrastructure initiatives stretching across 60 countries that the Chinese have dubbed “One Belt, One Road”.

10 Business Daily Wednesday, January 18 2017

Greater China Forecast

IMF upgrades growth estimate on stimulus The IMF maintained its forecast that global growth will pick up to 3.4 per cent this year

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he International Monetary Fund on Monday raised its forecast for China’s economic growth this year by 0.3 percentage points to 6.5 per cent, on expectations of continued policy stimulus.

At the same time, it downgraded India’s growth outlook by 0.4 percentage points to 7.2 per cent as consumption in Asia’s third-largest economy takes a hit from the government’s recent decision to abolish large currency notes.

this year, and the head of the state planning agency said China would cap the corporate debt ratio at current levels.

But China’s record RMB17.8 trillion (US$2.58 trillion) in credit last year has left analysts sceptical that policymakers will be able to wean the economy off years of debt-fuelled growth and still hit official growth

targets.

The IMF’s forecast for a 6.5 per cent expansion this year is roughly in-line with analysts and policy insiders who have said China is likely to target around 6.5 per cent growth in 2017.

The IMF raised its forecast for China’s 2016 growth to 6.7 per cent from 6.6 per cent, but still expects China’s growth to slow to 6.0 per cent in 2018.

The IMF maintained its forecast that global growth will pick up to 3.4 per cent this year and 3.6 per cent in 2018 from the 2016 estimate of 3.1 per cent.

The institution cited China as a key factor driving a faster global recovery this year, but a slowdown in the world’s second-largest economy is also as one of the main downside risks to global growth.

India, which has recorded some of the world’s strongest recent growth, is experiencing a shock to consumption from the government’s decision in early November to withdraw larger currency notes from circulation to crack down on tax dodgers and counterfeiters.

Citing the blow to the cash-reliant economy, the IMF chopped a full percentage point off its fiscal 2016-17 growth outlook to 6.6 per cent. The fiscal year ends on March 31.

The Fund trimmed its fiscal 201718 forecast for India to 7.2 per cent from 7.6 per cent. Reuters

‘IMF cited China as a key factor driving a faster global recovery this year’ China’s economy grew 6.7 per cent over the first three quarters of 2016, in line with the country’s 6.5 to 7 per cent growth target, but risks are also increasing with growth reliant on government spending, record lending by state banks and an overheating property market.

The IMF warned of the risks to China’s economy of a sharp slowdown or disruptive adjustment as the government has been slow to tackle high corporate debt, with capital outflows also potentially exacerbating pressures.

China’s corporate debt has climbed to 169 per cent of GDP and international institutions have repeatedly urged Beijing to act quickly to tackle the problem in order to avoid a financial crisis.

The country’s leadership said China will focus on tackling financial risks

IMF head Christine Lagarde

Capacity

Bank of America says commodity rally to fade Slowing momentum in infrastructure and property investment and easing policy support for auto purchases should eat into commodities buying Narae Kim

The surge in prices of a raft of commodities in the past several months, propelled by China, will probably wane this year thanks to expanded production, according to Bank of America Merrill Lynch.

“The notable rise in commodity prices in 2016 was mainly due to capacity reduction on the supply side” Bank of America Merrill Lynch note A sharp rally seen in products from thermal and coking-coal futures to glass and even garlic since mid2016 carried signs that China’s great ball of excess liquidity had found its way into commodities. Rather than speculative investors, it’s good old

fashioned laws of supply and demand that have propelled prices, Helen Qiao and fellow economists at Bank of America Merrill Lynch wrote in a Jan. 13 note.

China’s commodity-consuming property market was still going strong in 2016, with lending and buying curbs starting to kick in only late in the year. On the supply side, policy makers have for some time pressed producers to shut down highly polluting and excess facilities.

“The notable rise in commodity prices in 2016 was mainly due to capacity reduction on the supply side,” Qiao and her colleagues wrote.

Coal proves a case in point, the team said: The bank cited the case of steel in early 2016 as a template for what could happen with other commodities now. After steel prices jumped in the spring, production rose in response, damping price pressures, the analysts wrote.

And on the demand side, slowing momentum in infrastructure and property investment and easing policy support for auto purchases sh o u l d eat i n t o c o m m o di ti es buying.

In the auto market, a tax on smallengine cars is set to rise to 7.5 per cent from 5 per cent, spurring sales growth to drop to 7 per cent from an “impressive” 18 per cent last year, the analysts wrote.

“While government-led supplyside reforms will likely expand beyond the coal and steel industries this year, the risk is that if margins

are attractive enough amid elevated prices, closed capacities may be restarted,” they wrote.

Given that commodities account for about 30 per cent of the PPI basket, the BofAML economists expect Beijing to be more tolerant of supply restarting, as it seeks to maintain “overall price stability” in the economy. Bloomberg News

Business Daily Wednesday, January 18 2017 11

Asia Trade

Singapore exports jump on solid China sales Local economy has been on the ropes in the last two years with growth slipping to a seven-year low Fathin Ungku

S

ingapore’s exports in December jumped for a second month thanks to solid shipments to China in a tentative sign of recovery for the external sector, but analysts were cautious about the outlook amid protectionist concerns stoked by incoming U.S. President Donald Trump.

Non-oil domestic exports (NODX) rose 9.4 per cent last month from a year earlier, the trade agency International Enterprise Singapore said in a statement yesterday, well above a rise of 5.8 per cent predicted in a Reuters poll.

The strong December figures were helped by a 33.5 per cent year-onyear jump in shipments to China, the city state’s major export market.

It comes after a surprise 11.5 per cent rise in exports in November, which were driven by a sharp rise in shipments of pharmaceuticals and overall increases in sales to the European Union and China.

While the solid export figures suggested early signs of recovery in external demand, it failed to mask concerns about the outlook as investors wait to see if Trump carries through on his protectionist threats after he takes office on Jan. 20.

“Despite improvement in the economic conditions, trade policy

from U.S. is a great uncertainty and also China’s own domestic reform could affect medium growth. But the worst of the exports cycle is already behind us”, said Irvin Seah, economist at DBS bank.

In a speech on Monday, Singapore’s central bank chief Ravi Menon underscored the anxiety felt by export-reliant economies such as Singapore, and cited Trump’s rejection of the Trans-Pacific Partnership (TPP) trade deal as well as threats to label major trade partners as currency

manipulators and impose heavy import tariffs on them as risk factors.

“Some of these actions may well attract retaliatory measures, leading to trade conflicts with disastrous c o n s e q u e n c es f o r th e g l o ba l economy,” Menon said.

Singapore’s economy has been on the ropes in the last two years with growth slipping to a seven-year low 1.8 per cent in 2016, as exports fell away amid slow world growth. A small minority of analysts say a weak growth outlook could force the central bank to ease at its next review in April 2017 after it kept its exchange-rate based policy unchanged in October.

The December data backs an

improvement seen in some regional economies, including in South Korea and Taiwan, which are among the most vulnerable to rising protectionism.

Singapore’s sales last month were boosted by electronics rising 5.7 per cent on-year.

But overall exports to the U.S. fell sharply by 16.4 per cent from a year earlier, while those to the European Union also fell 4.8 per cent after a sharp 48.1 per cent jump in November.

Key Points Dec non-oil domestic exports +9.4 pct y/y vs +5.8 pct f’cast Dec NODX +1.0 pct m/m sadj vs -5.5 pct forecast NODX to Europe -4.8 pct; NODX to China +33.5 pct Shipments to US -16.4 pct

The Singapore government’s advance estimate of fourth-quarter gross domestic product released in early January showed the economy posted surprisingly strong growth at the end of 2016, but many economists see the risk of a further slowdown this year.

“This recent strong print (in exports data) might be in a nascent stage, and could actually be dampened by geopolitical tensions as well as the rise in protectionism,” said Weiwen Ng, an economist for ANZ. Reuters

Business mood

New Zealand business confidence rises to two-year high Growing optimism was broad-based, led by the booming construction sector New Zealand business confidence rose to the highest level in more than two years in the fourth quarter and inflation pressures picked up, a private think tank said yesterday.

Signals of an economy racing along reinforce the likelihood of the Reserve Bank of New Zealand (RBNZ) holding interest rates when it meets in February, after cutting three times last year to combat low wage growth and inflation.

A net 28 per cent of firms surveyed, the most since June 2014, expected general business conditions to improve compared with 26 per cent in the previous quarter, the New Zealand Institute of Economic Research’s quarterly survey of business opinion (QSBO) showed.

“This indicates continued solid momentum in the New Zealand economy, which should provide a buffer against the downside risks from unexpected events both here and abroad,” said Christina Leung, senior economist at NZIER. Growing optimism was

broad-based, led by the booming construction sector as well as a bounce back in global dairy prices giving hope to rural regions. Strong business confidence in Wellington showed the deadly earthquake that

damaged buildings in the capital in November had not hit businesses’ outlook hard.

A net 7 per cent of firms, the highest level in two years, reported raising prices after 4 per cent cut prices the previous quarter. This was in line the RBNZ’s projections that inflation would pick up at the end of 2016.

“This suggests we’re going to see

a pick up in annual inflation across 2017,” said Leung, adding she expected it would settle around 2 per cent.

“This indicates continued solid momentum in the New Zealand economy, which should provide a buffer against the downside risks from unexpected events both here and abroad” Christina Leung, senior economist at NZIER

The country’s central bank (headquarters pictured) slashed interest rates last year to a record low 1.75 per cent to help stoke inflation

The country’s central bank slashed interest rates last year to a record low 1.75 per cent to help stoke inflation, which, at just 0.2 per cent sits well below the bank’s target band of 1 to 3 per cent. Reuters

12 Business Daily Wednesday, January 18 2017

Asia Investment limits

Vietnam’s Premier to raise foreign-investor caps on banks The government is developing initiatives to improve the country’s investment environment Nguyen Dieu Tu Uyen and John Boudreau

V

ietnam will increase the limits of foreign ownership in banks as early as this year to quicken the overhaul of the nation’s banking system and further lure overseas investments to boost economic growth, Prime Minister Nguyen Xuan Phuc said.

“We will raise the ceiling and will also expand access to the securities market” for foreign investors, Phuc said in an interview with Bloomberg Television’s Haslinda Amin at the Government Office in Hanoi on Friday. “We will try to make it this year,” he added.

Vietnam caps foreign ownership in banks at 30 per cent and is seeking more investment to help strengthen the financial system, which has been

hobbled by a surge in non-performing loans to state-owned companies.

Phuc didn’t specify the new ceiling to be introduced this year, but he indicated that the government may sell out completely from the more troubled banks. He singled out OceanBank, taken over by the State Bank of Vietnam in 2015, as a weak institution the government is willing to part with immediately.

“Right now, if there are any foreign investors interested in buying any of our under-performing banks, we will sell them entirely,” he said.

Financial services companies led gains in Vietnam stocks today, driving the benchmark VN Index to its first advance in four days.

‘Positive step’

Allowing greater foreign ownership of banks will attract more funds to

the country and help the government deal with non-performing loans, said Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. “This will be a positive step forward should it happen,” she said.

The government set up the Vietnam Asset Management Company in 2012 to acquire bad loans from the banks, reducing the ratio to 2.5 per cent of total loans in November from 17 per cent. However, less than 5 per cent of the transferred non-performing loans have been resolved, the World Bank said in July.

As well as considering higher foreign ownership in banks, the government is pushing ahead with moves to divest state companies outside the financial sector. It’s working to sell its entire stakes in the country’s two top breweries, Saigon Beer Alcohol Beverage Corp. and Hanoi Beer Alcohol Beverage Corp. Vietnam’s State Capital Investment Corp. last month sold 78.4 million shares in Vietnam Dairy Products JSC, the nation’s

Local bank branch

largest company that’s known as Vinamilk.

Foreign investment

Phuc, 62, a former vice premier before becoming prime minister in April last year, said he wants to make Vietnam among the top four investor-friendly economies in Southeast Asia this year. The government is developing initiatives to improve the country’s investment environment, including more protection on intellectual property rights, tax breaks and better access to electricity and land, he said.

“Vietnam enjoys a so-called golden population -- we have a very young workforce and we need to train them and make sure they are ready,” he said. “We will increase our investment in infrastructure.”

Foreign investment, led by companies such as Samsung Electronics Co. Ltd., make up about 70 per cent of Vietnam’s export industry and has transformed the economy into a manufacturing hub in Southeast Asia.

Disbursed FDI climbed to a record US$15.8 billion last year, helping to underpin economic growth of more than 6 per cent.

Phuc forecast “even higher growth” beyond this year, with an average of 7 per cent economic expansion through 2020.

“That requires us to improve the restructuring of the economy in all sectors,” he said. “We also need to reduce corruption and graft and develop a strong force of officials who are able to better integrate the Vietnamese economy into the world and implement the commitments that Vietnam has made” in its trade agreements, Phuc added.

“After 30 years of reform Vietnam has achieved a lot of accomplishments,” Phuc said. “However, the economy still faces many challenges. Economic restructuring is still making very slow progress and that leads to low productivity and low income.” Bloomberg News

R&D

South Korea reigns in world innovation rankings Japan dropped the most of any economy in the top 25 In the battle of ideas, Sweden climbed to No. 2 and Finland cracked into the top five of the 2017 Bloomberg Innovation Index, which scores economies using factors including research and development spending and the concentration of high-tech public companies.

South Korea remained the big winner, topping the international charts in R&D intensity, value-added manufacturing and patent activity and with top-five rankings in hightech density, higher education and researcher concentration. Scant progress in improving its productivity score — now No. 32 in the world — helps explain why South Korea’s lead narrowed in the past year.

Silver medal winner Sweden owes most of its rise to improvement in the manufacturing value-added metric, while Nordic neighbour Finland

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jumped two spots in large part because of the rise of high-tech firms in the country. Norway held its No. 14 spot from last year.

The biggest loser in this year’s Bloomberg Innovation Index was Russia, plunging 14 spots to No. 26, almost five times the size of the

next-largest drop in the rankings.

Battered by sanctions and the after-effects of a couple years of subdued energy prices, Russia’s solid scores last year in manufacturing and productivity were destroyed in this year’s tally.

Japan, where the yen is still

struggling to recover from an almost two-year slide, dropped the most of any economy in the top 25, moving to No. 7 from No. 4 as they lost their best-in-world distinction for patent activity. Croatia also slipped three spots, to No. 41 from No. 38.

The U.S. fell one spot to No. 9, while Israel moved up one notch to No. 10. China held its title as the strongest-ranked emerging market, at No. 21, as it improved its tertiary education score while its high-tech concentration wavered.

‘China held its title as the strongestranked emerging market, at No. 21’ The ranking began with over 200 economies, from which those that didn’t report data for at least six of seven categories measured were eliminated, trimming the list to 78.

Bloomberg released overall and category scores for the top 50 innovative economies. Bloomberg News Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Wednesday, January 18 2017 13

Asia Natural disaster

In Brief

Thai floods may cost up to US$3.4 bln if they last longer The national rubber authority recently said output in 2016-2017 would be about 10 per cent lower because of the floods Widespread flooding in southern Thailand may cost 85-120 billion baht (US$2.4-US$3.4 billion), or 0.5-0.7 per cent of gross domestic product (GDP), if its lasts for 2-3 months, the Thai Chamber of Commerce said yesterday.

But if they end in one or two weeks, the damage could be around 10-15 billion baht, or 0.1 per cent of GDP, Vichai Assarasakorn, vice-chairman of the chamber, told reporters.

important producers of natural rubber and the national rubber authority recently said output in 2016-2017 would be about 10 per cent lower because of the floods.

Global rubber prices have risen on concern about the impact.

More rain is expected in the region in coming days, a top disaster agency official said on Sunday.

Bank of Thailand Governor

Veerathai Santiprabhob said last week that the flooding should not have as long-lasting an impact on the economy as a disaster in 2011.

The country’s worst floods in half a century in 2011 killed more than 900 people and crippled industry, cutting economic growth that year to 0.8 per cent.

Thailand’s economy, Southeast Asia’s second-largest, has slowly improved since the army seized power in May 2014 to end months of street protests. But growth remains uneven, with exports and domestic demand remaining stubbornly weak.

Last month, the central bank maintained its economic growth forecast at 3.2 per cent for this year and in 2016.

Official 2016 GDP data is due next month. Reuters

Vietnamese military-run Viettel said its joint venture with two Myanmar companies has won a telecoms licence in Myanmar and will invest a combined US$2 billion in the project, up from an original projection of US$1.5 billion.

The joint venture of Viettel Global, Viettel’s investment arm, Myanmar National Telecom Holding Public Limited and Star High Public Company Limited, received Myanmar’s fourth, and last, telecom licence on Jan. 14, Viettel said in a statement seen by Reuters yesterday.

Berkshire Hathaway wins reinsurance licence in Malaysia

Chamber says floods may cost 10-15 bln baht if they end in 1-2 weeks Says no big impact on tourism Thai economy slowly improving but still wobbly

Foreigners wearing rain ponchos walk in the rain in a popular tourist area of Khaosan road in Bangkok, Thailand, 10 January 2017. Thailand’s Meteorological Department warned of continuing heavy rains which may cause flash floods across ten southern provinces. Lusa

Environment

Greenpeace says HSBC funding Indonesian forest destruction The bank said it did not knowingly provide services to directly support palm oil companies that do not comply with their policies on deforestation Greenpeace yesterday accused banking giant HSBC of helping to arrange billions of dollars in financing for companies whose palm oil operations have been blamed for destroying vast swathes of Indonesian rainforest.

The environmental group said the British bank had broken its own guidelines which ban supporting palm oil companies involved in unsustainable practices as it was part of syndicates that had arranged US$16.3 billion of loans since 2012.

The bank was also involved in arranging nearly US$2 billion of corporate bonds, the activists said in a new report.

“HSBC claims it’s a respectable bank with responsible policies on deforestation. But somehow these fine words get forgotten when it’s time to sign the contracts,” said Annisa Rahmawati, senior forest campaigner for Greenpeace Southeast Asia.

The bank said it did not knowingly provide services to directly support palm oil companies that do not comply with their policies on deforestation.

Vast tracts of Indonesian jungle have been cleared in recent years to make way for plantations to feed insatiable global demand for the edible vegetable oil, which is a key ingredient in goods from shampoo to biscuits.

This has led to the destruction of the habitats of endangered animals such as orangutans. Burning land to make

Viettel says JV wins Myanmar licence

Services

Key Points

However, any impact on tourism has not been large and is manageable, with about 10-20 per cent of booked hotel rooms cancelled, he said.

The floods, which began on Jan. 1, have killed 43 people, cutting road and rail links, threatening crops and affecting about 1.6 million people.

The flood-hit areas are mainly agricultural, with no concentration of industry. Southern Thailand is a major rubber-producing region.

“The main economic crop is rubber, which will not survive more than 20 days of flooding,” Vichai said.

Thailand is one of the world’s most

Telecoms

way for plantations also causes huge forest fires that burn out of control most years and shroud the region in toxic haze.

Greenpeace, which analysed corporate financial data and company reports and statements, listed six firms it said received financial services from HSBC and whose palm oil operations had been accused of unsustainable practices.

The report said the companies were accused of activities including land seizures from local people, forest fires, abuse of workers and operating without legal permits.

HSBC said customer confidentiality meant it could not comment on

specific companies.

But the bank added it had no interest in financing customers involved in illegal operations, land clearance by burning, the conversion of high-value conservation areas, child or forced labour or the violation of local communities’ rights.

“We are not aware of any current instances where customers are alleged to be operating outside our policy and where we have not taken, or are not taking, appropriate action,” the bank said in a statement.

The companies mentioned in the report as having received financial services from the bank were: Bumitama Agri; Goodhope Asia Holdings; IOI Group; Noble Group; Posco Daewoo; and Salim Group.

Noble referred requests for comment to its sustainability information document, which said its plantation arm was a member of the industry’s Roundtable on Sustainable Palm Oil (RSPO) and it followed RSPO procedures.

The other companies did not respond to requests for comment. AFP

Warren Buffett’s Berkshire Hathaway has won a licence to provide reinsurance services in Malaysia, the billionaire investor’s group said, as it expands operations in Asia. Berkshire Hathaway Specialty Insurance Company (BHSI) said in a statement on Monday it has established an office in the Malaysian capital Kuala Lumpur to provide the nonlife reinsurance services.

“After putting down roots in Singapore, Hong Kong, and Macau, we are pleased to further expand our operations in Asia...,” BHSI Asia President Marc Breuil said in the statement.

Fresh funding

Indian healthcare platform raises US$55 mln Indian online healthcare platform Practo said yesterday it had raised US$55 million from new and existing investors in a fresh round of funding led by China’s Tencent Holdings.

Bengaluru-headquartered Practo, founded in 2008, acts as a one-stop shop for patients booking appointments with doctors for online and in-person consultations.

New investors in the latest round include Japan’s Recruit Holdings Co -owned RSI Fund and Thrive Capital, Practo’s founder and chief executive Shashank ND told Reuters. Sequoia Capital, Matrix Partners, Capital G and Tencent were among the existing investors, who also participated in the latest round of funding, he said.

Energy

Pertamina looks to U.S. for LPG imports Indonesian state energy company Pertamina expects to import liquefied petroleum gas from the United States to meet growing demand, with U.S shipments to Asia set to climb following transport developments like the extension of the Panama Canal. That comes as Southeast Asia’s largest economy is expected to look overseas to meet at least 70 per cent of its demand for LPG in 2017, said Daniel Purba, senior vice president of Pertamina’s integrated supply chain unit. Around 90 per cent of the country’s LPG imports are procured in term contracts.

14 Business Daily Wednesday, January 18 2017

International In Brief Automotive industry

European car sales up 6.5 pct

European car sales rose for a third consecutive year in 2016, with all major markets recording gains, industry data showed yesterday. New car registrations across the European Union and European Free Trade Area (EFTA) increased 6.5 per cent, including a 3.2 per cent rise in December, the European Automobile Manufacturers’ Association (ACEA) said. Volkswagen continued to lose market share in the wake of its emissions-test cheating scandal, but remained the best-selling brand in 2016, while France’s Renault overtook local rival Peugeot to take second place.

Expansion

Carlyle to become largest shareholder in Global Credit Ratings Carlyle Group has agreed to become the largest shareholder in Johannesburg-based Global Credit Ratings (GCR), the U.S. buyout fund said yesterday, looking to broaden the pan-African ratings agency’s services.

Terms of the deal, which was first reported by the Financial Times, were not disclosed.

Carlyle is set to buy around half of the equity in GCR from its management founders and German development finance business DEG, which will remain invested in the company, Carlyle said. GCR serves 400 customers across 20 countries and is the only ratings agency to have a strong presence in multiple geographies across Africa.

Monetary meeting

ECB to resist calls for tighter money in 2017 kickoff Some eurozone regions, such as Italy and Spain, are still lagging and in need of further stimulus Benoit Toussaint / Tom Barfield

T

he European Central Bank will hold to its course at its first meeting of 2017 Thursday, analysts said, resisting clamour to tighten monetary policy from critics pointing to increasing inflation.

Since December’s meeting of the ECB’s Governing Council, when it extended mass bond-buying from March to December 2017, price increases in the 19-nation single currency area have picked up.

The increase to 1.1 per cent from 0.6 average inflation across the eurozone in December still leaves the indicator well short of the ECB’s target of just below 2.0.

Opponents of the bank’s ultra-loose monetary policy - which also includes historic low interest rates and cheap loans to banks - nevertheless quickly called on the ECB to wind it down.

“It would probably be right if the ECB starts daring to head for the exit this year,” German Finance Minister Wolfgang Schaeuble said in a newspaper interview last week.

With above-average inflation of 1.7 per cent in Europe’s largest economy, German economists and commentators have been the loudest voices calling for a rise in interest rates and an end to the ECB’s mass

bond-buying.

Countries where inflation has been weaker, like Greece and Italy, would prefer to see the policy continue.

ECB policymakers “will have to try and explain why they are continuing quantitative easing when inflation has been a positive surprise,” Sylvain Broyer of Natixis bank told AFP. “There’s a big job to do teaching people about the rise in inflation.”

Short-term effect

“The ECB will probably say ‘it’s all very encouraging but doesn’t change our stance,’” analyst Ben May of Oxford Economics told AFP. “The inflation data are positive and moving in the direction that the ECB would hope,” he continued, but “underlying inflation pressures are weak and still not picking up.”

Governing Council members noted at their December meeting that much of the increase in inflation forecast for the following months was “contingent on the short-term outlook for energy prices,” while “measures of underlying inflation had remained broadly stable at low levels,” minutes published last week showed.

Continuing political uncertainty and weak core inflation justified extending QE - although the council will cut its pace to 60 billion euros

M&A

Blackrock optimistic on Deutsche Boerse-LSE deal Blackrock, the second-largest shareholder in both Deutsche Boerse and London Stock Exchange Group, publicly voiced its support for the US$28 billion merger of the two European exchanges as key regulatory decisions on the tie-up loom. Deutsche Boerse and LSEG have been working to overcome regulatory hurdles holding up the merger and looking to appease antitrust regulators. LSEG agreed this month to sell its French clearing business to Euronext.

“Sceptics of this merger must consider the need for stronger capital markets in Europe - as well as the ways the alliance could in fact benefit competition by deepening access to capital on the continent,” Blackrock Chairman Laurence Fink said.

Farming

Brazil to boost new crop financing Brazil will increase a subsidized credit line available to farmers to prepare for the 2017-2018 crop by about one-fifth to 12 billion reais (US$3.72 billion), President Michel Temer told Reuters on Monday. The new crop financing will allow Brazilian producers to purchase agricultural inputs such as seeds, fertilizers and pesticides at reduced interest rates to better plan future production. Last year, the government made 10 billion reais available to prepare for the 2016-2017 crop, which is on track to break records.

(US$64 billion) from 80 billion euros per month from April -- and keeping interest rates low, they agreed.

Such technical considerations may be tricky for German politicians to defend in an election year when Eurosceptic party Alternative for Germany (AfD) is expected to flourish -- meaning the grumbling from Berlin is likely to grow louder.

“It will get very tough to resist German pressure,” said Natixis’ Broyer, noting that low interest rates and accelerating inflation would squeeze German savers.

But ECB President Mario Draghi will “emphasise that uncertainty remains elevated and the mediumterm outlook has not changed much from last month” on Thursday, wrote UniCredit analyst Marco Valli.

Winding down

Draghi is likely to keep his counsel in the first half of the year, analysts said, riding out high-stakes elections in France, the Netherlands, and possibly Italy as well as the uncertainty created by the UK’s Brexit vote and the election of Donald Trump.

Nevertheless, “if we see a consistent run of very strong data, calls will grow” to tie off monetary stimulus, Oxford Economics’ May said.

Even then, observers will be waiting until “the second half of the year” before the bank could make a move towards “tapering”, or gradually reducing its monthly bond purchases towards zero, he said.

“The point of action is likely to be the autumn, they’ll want to preannounce plans for January three to four months before the end of the year,” May predicted.

Some eurozone regions, such as Italy and Spain, are still lagging and in need of further stimulus compared with comparatively strong performance from the German and French economies, Natixis’ Broyer pointed out.

But “given that the ECB began QE by justifying it with the question of inflation, everyone expects that it will put an end to it based on the same considerations,” he said. AFP

Brexit doubts

UK businesses wary about investment The Bank of England has identified a fall in business investment as one of the potential big drags on the British economy following June’s Brexit vote British businesses are increasingly cautious about their investment plans as they worry about how the country’s planned departure from the European Union will affect the economy this year, a survey showed yesterday.

Business confidence in December remained at its second-highest level since Britain voted to leave the EU in June, polling firm YouGov and the Centre for Economic and Business Research (CEBR), a think tank, said.

But the survey of 500 executives also showed expectations for investment softened after an increase in November.

The proportion of business decisionmakers expecting investments to increase over the next 12 months fell to 29 per cent from 31 per cent in November, it showed.

“While these latest figures suggest that, for the moment at least, British businesses are weathering the immediate post-Brexit referendum storm, they are still hesitant,” Scott Corfe, CEBR director, said.

“Although the majority of companies are optimistic about their own prospects and domestic sales over the coming 12 months, they are cautious about making big investments at the moment” Scott Corfe, Centre for Economic and Business Research director “Although the majority of companies are optimistic about their own prospects and domestic

sales over the coming 12 months, they are cautious about making big investments at the moment,” he said.

Business confidence slumped in July in the weeks after the vote.

It fell too in October when Prime Minister Theresa May said she would begin Brexit negotiations by the end of March and suggested she would take a tough approach in the talks.

S e p a ra t e l y y e st e r d a y , j o b s advertising firm REED said the 110,000 new jobs posted on its website so far in 2017 represented a 16 per cent rise from the same period in 2016.

But jobs in the training sector fell by more than 54 per cent and apprenticeships were down by 26.5 per cent.

“Although we must acknowledge the uncertainty in markets caused

by Brexit, these areas are where the future of our economy lies, and should not be ignored,” James Reed, chairman of reed.co.uk, said.

Britain’s labour market has so far largely weathered the Brexit shock.

Economists polled by Reuters expect official data due on Wednesday will show the unemployment rate remained at an 11-year low of 4.8 per cent in the three months to November. Reuters

Business Daily Wednesday, January 18 2017 15

Opinion Business Wires

The Phnom Penh Post Cambodia is on the verge of a rapid expansion in e-commerce – provided the government and private sector take adequate measures to support and promote online business activities, according to a study. The eCommerce Readiness and Opportunities in Cambodia report, published by Cambodia-based marketing firm Mango Tango and sponsored by the Mekong Business Initiative (MBI), presents the findings of surveys conducted with 27 e-commerce experts in the Kingdom whose expertise spans several industries. The respondents identified approval of the long-awaited e-commerce law and the creation of adequate consumer protection regulation as the main priorities in establishing a vibrant e-commerce sector.

The Trump deficit

Jakarta Globe President Joko “Jokowi” Widodo has warned the Indonesian Military and the National Police to brace themselves for rapid, massive changes in global politics and security — especially those caused by swift advancement in information technology. “We’ve been witnessing rapid global changes every day, hour, minute, second. New problems keep appearing even before we have solved the existing ones,” Jokowi said in a speech at the TNI headquarters in East Jakarta on Monday (16/01). The meeting was attended by a total of 184 high-ranking military and police officers.

The Star RAM Ratings views the Malaysian Financial Reporting Standard (MFRS) 9 Financial Instruments: Recognition and Measurement -- as a game changer for banks when it takes effect on Jan 1, 2018. It said yesterday the MFRS 9, which replaces MFRS 139, will address a key concern that had arisen during the global financial crisis, where credit losses were recorded too late in the economic cycle. “This new accounting standard will introduce a new impairment model based on expected credit losses, thereby bringing forward the recognition of credit losses,” it said.

The Straits Times Singapore’s three largest banks - DBS Bank, Overseas-Chinese Banking Corp and United Overseas Bank - face continued downward pressure on their asset quality and profitability in 2017, but the impact will be manageable, while strong government support will continue to underpin their Aa1 ratings, Moody’s Investors Service said yesterday.

“Declining asset quality and profitability for the three large Singapore banks contributed to the recent downgrades of their standalone credit assessments to a1 from aa3, but as we expect further headwinds to be manageable, we do not envisage further downgrades over the next 12-18 months,” says Simon Chen, a Moody’s vice president and senior analyst.

I

t is a post-financial-crisis myth that austerity-minded conservative governments always favour fiscal prudence, while redistribution-oriented progressives view large deficits as the world’s biggest free lunch. This simplistic perspective, while perhaps containing a grain of truth, badly misses the true underlying political economy of deficits.

The fact is that whenever one party has firm control of government, it has a powerful incentive to borrow to finance its priorities, knowing that it won’t necessarily be the one to foot the bill.

So expect US President-elect Donald Trump’s administration, conservative or not, to make aggressive use of budget deficits to fund its priorities for taxes and spending.

The most accurate framework for thinking about government budget deficits in democracies was proposed in the late 1980s by the Italian scholars Alberto Alesina and Guido Tabellini, more or less simultaneously with two Swedes, Torsten Persson and Lars Svensson. While their approaches differ slightly in detail, the basic idea is the same: You give money to your friends while you can. If there is less money to go around later, when the opposition party gets its turn in power, well, that’s just too bad.

One only has to recall recent US economic history to confirm the insight of the Italian/Swedish model – and to see the absurdity of claims that Republicans always aim to balance the budget while Democrats always try to spend beyond the country’s means.

Back in the 1980s, conservative hero Ronald Reagan was willing to tolerate enormous deficits to fund his ambitious tax-cutting plans, and he did so in an era when borrowing wasn’t cheap.

In the early 2000s, another Republican president, George W. Bush, essentially followed Reagan’s playbook, again slashing taxes and sending deficits soaring. In 2012, at the height of the standoff between the Republican-controlled Congress and Democratic President Barack Obama over deficits and the national debt, Republican presidential candidate Mitt Romney proffered an economic plan that featured eye-popping deficits to finance tax cuts and higher military spending.

On the other side of spectrum, Democratic President Bill Clinton, during what most academic economists consider to have been an extremely successful presidency, actually put the government into surplus. Indeed, at the end of the 1990s, some researchers actually wondered how international markets would function if the US government gradually retired all of its debt. Bush’s subsequent tax cuts and unfunded wars ensured that this never became a problem.

What, then, prevents deficits from spiralling upward as parties alternate power and borrow to help their supporters? In high-functioning democracies such as the United States or the United Kingdom, there is enough collective memory of the problems caused by high debt to allow some

“

Kenneth Rogoff a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University

support for periodic reduction of debt/GDP ratios.

But even in the US and the UK, budget deficits are not sterile and neutral forms of economic stimulus, as in the classroom Keynesian model.

Instead, deficits are almost always the product of fierce political infighting over fiscal priorities.

Of course, in a constantly changing world, the costs of carrying a large debt burden can shift over time. After falling for decades, interest rates are suddenly starting to rise.

Different attitudes toward risk are a central factor in the perennial controversy over how much stimulus is optimal. Until recently, many leftleaning economic commentators have been arguing for massive fiscal stimulus in the US, though they seem to have changed their position overnight (the night Trump was elected, to be precise). No one quite knows what a reasonable middle ground between debt and stimulus would be.

The Nobel laureate economist Thomas Sargent and others recently argued that the optimal level of debt for the US is in fact very close to zero, though he does not recommend trying to get there anytime soon, given that US government debt is now over 100 per cent of GDP. Sargent’s recommendation contradicts the view (espoused most recently in an Economist magazine leader) that instead of stabilizing debt, all advanced countries should be aiming to emulate Japan (where net debt is more than 140 per cent of GDP, the highest ratio among the advanced economies).

What matters is not only the level of debt, but also how it is managed – a question I examined in a recent commentary focusing on the right mix of long-term and short-term government borrowing.

Some, including Robert Skidelsky, seem to think that discussion of how the maturity structure of government debt should be managed is somehow a stalking horse for tight budgets and austerity.

But if interest rates shoot up in the Trump era (as well they could), the US government will wish that it had opted for less short-term borrowing and more long-term borrowing.

If a Trump presidency does entail massive borrowing – along with faster growth and higher inflation – a sharp rise in global interest rates could easily follow, putting massive pressure on weak points around the world (for example, Italian public borrowing) and on corporate borrowing in emerging markets. Many countries will benefit from US growth (if Trump does not simultaneously erect trade barriers). But anyone counting on interest rates staying low because conservative governments are averse to deficits needs a history lesson. Project Syndicate

No one quite knows what a reasonable middle ground between debt and stimulus would be

”

16 Business Daily Wednesday, January 18 2017

Closing IT

Beijing aims high in big data industry

The government is targeting a compound annual growth rate of around 30 per cent for the industry’s sales in 2016-2020, China aims to more than triple the scale according to the plan. of its big data industry by 2020 in a bid to foster new economic drivers, according It also set goals to create 10 worldto a government plan released yesterday. leading big data companies by 2020 and establish 10-15 experimental zones to The country’s big data industry should speed up the industry’s development. increase its annual sales to RMB1 Efforts to promote big data application trillion (US$145 billion) by 2020 from and make traditional industries smarter an estimated 280 billion yuan in 2015, can add new momentum to China’s said the plan released by the Ministry economic transformation, the MIIT said. of Industry and Information Technology (MIIT).

Xinhua

Investment

China’s richest man sees trade hit

by Sino-U.S. tensions Wang Jianlin said that his group was interested in buying one more U.S. movie studio Axel Threfall

C

hina’s richest man, Wang Jianlin, said yesterday that rising tensions between the United States and China will affect trade, although he’s confident that his Dalian Wanda Group’s investment in the country’s entertainment industry will not be hampered.

Wang, speaking to Reuters on the side-lines of the annual World Economic Forum in Davos, said his group has earmarked US$5 billion to US$10 billion each year for outbound investment, focusing on entertainment and sports.

The billionaire property tycoonturned-entertainment mogul said the United States would be the top priority for investment opportunities, followed by Europe, as his group seeks to extend its overseas buying spree.

“Certainly trade will be affected by the tension between the two governments,” Wang said, referring to Beijing and the government of U.S. president-elect Donald Trump. “If I can lobby I’m willing, but I’m not capable of lobbying both.”

Wang said his company would not be affected by the tension between the two sides because Trump would not block money going into the United States.

Trump often targeted China in the U.S. election campaign, blaming Beijing for U.S. job losses and vowing to impose 45 per cent tariffs on Chinese imports.

“We will go to invest in the U.S. and I believe they will not close the door to us but maybe they will have some regulations regarding trade,” Wang said.

In November, Dalian Wanda agreed a US$1 billion takeover of Dick Clark Productions, the company that runs the Golden Globe awards and Miss America pageants.

Speaking on the outlook for China’s property market, where Wanda started its business empire, the 62-year-old tycoon said there was a bubble “that was local in nature” and he expected a small correction due to government intervention.

Wang this month criticised China’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.

He shrugged off concerns over China’s government and corporate debt situation, saying he believed it was manageable thanks to solid growth in the country’s domestic economy.

The group was considering a “a very large” tourism project in Australia because it was one of the favourite destinations for Chinese tourists, Wang also said, without elaborating. Reuters

“We will go to invest in the U.S. and I believe they will not close the door to us but maybe they will have some regulations regarding trade” Wang Jianlin, Dalian Wanda Group head Wanda already owns Legendary Entertainment, co-producer of film hits such as “Jurassic World” - which was the biggest U.S.-China movie deal when it was sealed in January last year. It also owns U.S. cinema chain AMC Entertainment Holdings .

Wang told Reuters that his group was interested in buying one more U.S. movie studio although there was not substantial progress in the talks so far because few were willing to sell.

M&A

Environment

Impeachment

Tobacco giant BAT buys out Smog-choked Mainland US firm Reynolds in mega-deal may fast-track green debt

S. Korean prosecutors to interrogate president

British American Tobacco agreed yesterday to pay almost US$50 billion for control of US peer Reynolds American in a move which targets the lucrative United States market and the fast-growing e-cigarette sector.

BAT will purchase the 57.8-per cent of Reynolds American that it does not already own, the group said, unveiling an improved cash-and-shares offer after Reynolds had rejected its previous US$47-billion bid.

The deal brings together a raft of global brands, including BAT products Lucky Strike, Rothmans and Kent, and Reynolds’ brands such as Newport, Camel and Pall Mall.

The transaction will also create the world’s largest listed tobacco company with a strong foothold in the US, and a significant presence in high-growth markets including South America, the Middle East and Africa.

BAT added it would also create a “truly global” business for fast-growing next generation products (NGP) like e-cigarettes or vaping.

“We are very pleased to have reached an agreement with ... Reynolds and we look forward to putting the recommended offer to shareholders,” said BAT Chief Executive Nicandro Durante. AFP

South Korean prosecutors independently investigating a corruption scandal involving President Park Geun-hye will interrogate the impeached president by early February.

Lee Kyu-chul, spokesman of the independent counsel team, told a press briefing yesterday that face-to-face interrogation of President Park should be conducted as late as the beginning of February.

It marked the first time that the special prosecutors set the timing of investigation of Park, indicating its probe into the presidential scandal is getting to the point.

It remains to be seen whether President Park would accept a formal request for face-to-face interrogation, which the independent counsel team has yet to make.

Park had agreed to be quizzed by prosecutors before the launch of the independent probe, but she later rejected any face-to-face interrogation.

The impeached leader has been identified as a criminal accomplice to her long-time confidante Choi Soon-sil, who has been detained for meddling in state affairs behind the scenes and extorting money from conglomerates. Xinhua

China’s top underwriter of green bonds said the government may accelerate approvals in 2017 as the nation battles a toxic wave of smog.

Guotai Junan Securities Co. said the government should boost incentives for notes with proceeds earmarked for environmental projects, after a People’s Bank of China researcher said it may recommend tax breaks for investors. Chinese firms including banks, automakers, developers and power producers sold a world-leading RMB186 billion (US$27 billion) of the debt in the domestic market in 2016, including the nation’s debut offering onshore.

“This affects the air we breathe, it affects everyone,” said Huang Baoyi, general manager in the debt financing department of Shanghai-based Guotai Junan, which managed 11 per cent of 2016 issuance.

Dirty air forced more than 60 Chinese cities to issue health alerts this year, delaying hundreds of flights and encouraging consumers to stay at home.

China plans to invest RMB2.5 trillion in renewable energy through 2020 and outlined measures to channel funds toward reducing pollution at the G20 meeting in Hangzhou in September. Bloomberg News