Thu, 26 January 2017 | 6pm 8 pm | Terrazza, Galaxy Macau
20 VIP operators denied licenses for 2017 License Page 2
Monday, January 23 2017 Year V Nr. 1219 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Courts
Ho Chio Meng claims he was not trying to escape arrest when he attempted to leave the MSAR last year Page 2
Gaming
www.macaubusinessdaily.com
Tourism
Vietnam announces three-year pilot plan to allow locals to gamble Page 7
Big Banks
Chinese travellers considered a diplomatic weapon Page 10
Beijing supporting banks before Chinese New Year Page 9
Restarting the engine Economy
The MSAR economy in 2016 saw its lowest inflation rate since 2009. Increases in the consumer price index were driven by price hikes in alcoholic beverages, tobacco, education and transportation. Predictions by the University of Macau see 3.2 pct growth in GDP for 2017, set to hit MOP342.3 bln, although fluctuations could occur based on gaming revenues being ‘highly influenced’ by gov’t policy. Pages 2 & 3
The Uber of the sky - is what Captain Vicente Serafim, CEO of Macau Jet International Co Ltd, calls casino operators using corporate resources to commercially fly their clients. The gov’t seems unwilling, or unable, to do anything about it, despite complaints. In addition, a lack of infrastructure and failure to prioritise its allocation to local companies, hinders expansion and local registration of planes, says Serafim. Interview | Aviation Pages 4 & 5
HK Hang Seng Index January 20, 2017
LVS pays US$7mln to end bribery case Penalty Sands China’s parent company, Las Vegas Sands, paid out US$6.96 million in criminal penalties to end a U.S. DOJ probe into whether it violated federal anti-bribery laws. In question: payments to a consultant to help the business in Macau and China. A non-prosecution agreement was signed, admitting executives knowingly failed to set up accounting controls. Page 6
As expected
China’s GDP Mainland’s economy ended 2016 on a positive note, supported by consumer spending and a booming property market, and remained a key engine for global economic expansion. China’s economy grew 6.7 percent year-on-year in 2016, a slowdown from the 6.9-percent growth registered in 2015, the National Bureau of Statistics data shows. Page 8 22,885.91 -164.05 (-0.71%)
Worst Performers
Cathay Pacific Airways Ltd
+0.77%
Sun Hung Kai Properties Ltd
+0.00%
Hengan International Group
-2.64%
China Resources Power
-1.61%
CK Hutchison Holdings Ltd
+0.55%
BOC Hong Kong Holdings
+0.00%
Belle International Holdings
-2.48%
Industrial & Commercial
-1.46%
Kunlun Energy Co Ltd
+0.33%
Hang Lung Properties Ltd
-0.56%
Cheung Kong Property
-2.21%
PetroChina Co Ltd
-1.27%
CLP Holdings Ltd
+0.13%
Hong Kong & China Gas Co
-0.98%
CNOOC Ltd
China Mobile Ltd
+0.06%
Sands China Ltd
-7.87%
China Overseas Land &
-2.00%
China Mengniu Dairy Co Ltd
-1.23%
-1.98%
China Merchants Port Hold-
+0.50%
14° 18° 15° 18° 15° 18° 15° 19° 15° 20° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Staying on the radar
2 Business Daily Monday, January 23 2017
Macau Inflation Annual inflation reaches lowest level since 2009
Putting on the brakes Annual inflation growth rate for 2016 decreased by half year-on-year, while parking space rental, car prices and property management fees continued to increase
Nelson Moura nelson.moura@macaubusinessdaily.com
T
he city’s annual inflation rate slowed to 2.37 per cent for 2016, compared to a growth rate of 4.65 per cent in 2015, the lowest rate recorded since 2009 when it reached 1.17 per cent, according to the latest data released on Friday by the Statistics and Census Service (DSEC). The slower rate of growth in the
average price index in the territory was nonetheless contributed to by higher rentals for parking spaces, increased charges for eating out and rising prices of motor cars and cigarettes, as well as increases in property management fees, which altogether pushed up the annual inflation rate by 1.77 percentage points from 2015, the government department said. In terms of sector, the price index of Alcoholic Beverages & Tobacco again registered the most notable
For December, the average Composite Consumer Price Index (CPI) reached 108.86, up 1.44 per cent when compared to the same month of 2015. The increase in CPI for the last month of 2016 was driven by growth in prices for Alcoholic Beverages &
Tobacco, which surged 7.92 per cent year-on-year, while higher tuition fees and transportation costs boosted the price indexes for Education and Transport by 7.38 per cent and 6.69 per cent year-on-year, respectively. Average prices for Communication and Housing & Fuels registered yearon-year decreases in December 2016, down 1.92 per cent and 1.45 per cent, respectively. The composite CPI for the last month of 2016 grew 0.17 per cent month-on-month, with prices for Clothing & Footwear, Recreation & Culture and Transport increasing by 3 per cent, 1.41 per cent and 0.81 per cent, respectively. Monthly inflation was attributable to the arrival of winter clothing and footwear, increased charges for package tours, and rising airline fares and gasoline prices, according to the DSEC.
make proposals for purchasing. After further inquiries made by the presiding judge Song Man Lei, the councillor admitted that Chan had assigned another staff member to create a proposal using the same company that Lei had once lodged a complaint about for bad quality
of service. Meanwhile, two other witnesses revealed that they were neither informed of the awarded companies, nor the quotations from those companies, when they had requested the purchase of products and services. Both said they were shown information of the products needed, but the details of the price and the responsible company had been covered up. The prosecution presented a list showing the content of services for the maintenance of information equipment in which USB flash drive maintenance was included. The two witnesses said they had never requested or needed maintenance services for USB flash drives, in response to another presiding judge Lai Kin Hong questioning whether USB flash drives need maintenance. The corruption trial will resume today.
increase during the year, up 21.73 per cent year-on-year on average. In addition, costs for Education jumped 8.39 per cent year-on-year in 2016, while prices for Transport went up 6.99 per cent year-on-year. Meanwhile, average charges for Clothing & Footwear and Communication both registered slight decreases of 2.33 per cent and 0.90 per cent year-on-year in 2016, respectively.
Up and away
Trial
Ho Chio Meng: not trying to escape The ex-official denied during Friday’s hearing that he was trying to run away prior his arrest Cecilia U cecilia.u@macaubusinessdaily.com
During Friday’s hearing of the corruption case against the former Prosecutor-general Ho Chio Meng, the ex-official declared that he was not trying to avoid arrest. Prosecutor Kuok Un Man stated that, in February last year, Ho had obtained a one-way ferry ticket to Hong Kong from the Public Prosecutor’s Office (MP), adding that the former top official later changed his plans - to take a helicopter instead of the ferry. In response, Ho stated that the return ticket for the ferry was with him and his change of plans to take a helicopter instead, was due to a request from one of his friends in Hong Kong. Prosecutor Kuok refuted Ho’s claim, saying that the return ticket had not been found on Ho after he was arrested. Mok Zi Cing, a driver at the Public Prosecutor’s Office, took the stand on Friday’s trial, indicating that he drove Ho to the Outer Harbour Ferry Terminal. Mok said he received Ho’s phone call earlier that day to collect the ferry ticket at the Prosecutor’s Office, and later picked Ho up from his One Grantai residence, dropping him at the Ferry Terminal. The prosecutor questioned Mok as to whether Ho had asked him to keep his mobile when he was driving Ho to the Ferry Terminal, enquiring if he noticed whether Ho had thrown something out of the car. The driver answered that he had not noticed, given that he was driving
at the time. According to Kuok, Ho’s mobile was not found either on Ho himself or at his residence.
Another multi-tasking driver
During Mok’s testimony, he admitted that Ho had requested on a number of occasions that he bring some of Ho’s belongings up to the 16th floor of the Hotline Building, after the prosecution presented some CCTV images showing Mok on the 16th floor in December 2014. Mok was shown carrying luggage and entering one room of the apartments and later entering a separate room accompanied by another person. Meanwhile, the prosecution also presented invoices from travel agents, of several hotel rooms in Guangzhou and Zhuhai, under Mok’s name. Mok claimed that he did not know and had never stayed in the same hotel room with any of the women whose names also appeared on the invoices.
Confusing purchasing
Three more witnesses were also called to testify, all of whom are currently working at the Public Prosecutor’s Office. The current technical councillor of the MP office, who previously worked in the Integrated Management Team which was in charge of purchases and asset management, said that she had always followed orders made by her boss – the former assistant of the Prosecutor-general’s Office. She revealed that Chan would always provide information including the company and price for her to
CCAC commissioner talked to Ho after first investigation session
accepted Ho’s request to meet and Cheong was only able to reveal that he had urged Ho to assist in the investigation in accordance with the law. Cheong emphasised that CCAC commissioners can accept a party’s request to meet if such a meeting could aid the investigation. He added that the CCAC respects the facts and acts in accordance with the law, as well as stressing that no one would be protected.
Statement from the Public Prosecutor’s Office
been improving its outsourcing procedures since December 20, 2014. The Office noted its efforts to seek a higher level of transparency when outsourcing, and welcomed inspection and monitoring of the Office’s expenses.
The city’s Commission Against Corruption (CCAC) commissioner, André Cheong Weng Chon, confirmed his meeting with Ho Chio Meng on the day of Ho’s investigation session with the CCAC, after Ho mentioned in Friday’s hearing that he had spoken with Cheong. According to local broadcaster TDM Radio News, commissioner Cheong
In the wake of reports about inappropriate practices conducted by the Public Prosecutor’s Office when outsourcing to companies for refurbishment projects, the Office stated that it has
Trade
Stepping into Guangzhou Local companies participating for the first time in the Macau-Guangzhou Fine Products Fair have hailed the event’s networking and promotional capacity Macau SME’s participating for the first time in the Macau-Guangzhou Fine Products Fair, co-organized by the Macau Trade and Investment Promotion Institute (IPIM), commented that the event was a good opportunity for them to promote their products and services to the Mainland China market, according to an IPIM release. The three-day event attracted
about 15,000 visitors, notes the group, who co-organised the event together with the Guangzhou Municipal Commission of Commerce. The fair took place between January 6 and 8 at the Poly World Trade Centre in Guangzhou. Local companies participating for the first time included sales consultancy company Tecnologia Stargate (Macau) Limitada, and local
Hokkaido food products producer Fábrica de Produtos Alimentares Hokkaido. Representatives from both companies informed IPIM that the event allowed them to test the Mainland China market and receive feedback on their products, while contacting clients and merchants. In order to support the promotion of MSAR companies, IPIM offered participants an incentive programme providing a standard booth, accommodation, transportation, round-trip freight transportation, storage area and temporary staff. However, local companies still had to pay a participation fee of MOP2,000 (US$250) for a booth or MOP1,800 for a ‘raw space’. N.M.
Guangzhou Fair
Business Daily Monday, January 23 2017 3
Macau Economy
Steady economic growth University of Macau expects GDP will increase at a rate of 3.2 pct this year Kam Leong Kamleong@macaubusinessdaily.com
T
he MSAR economy is expected to register steady growth this year, according to predictions by the Department of Economics at the University of Macau (UM), with a projection that GDP (gross domestic product) will grow at a rate of 3.2 per cent year-on-year to MOP342.3 billion (US$42.8 billion) for 2017. ‘Macau’s economy is beginning to recover. The growth of Macau’s real GDP turned positive, with a 4 per cent year-on-year increase and MOP86.7 billion recorded in the third quarter of 2016 […] Based on the forecast, Macau’s economy will continue its steady growth in 2017,’ the department wrote in its latest 2017 macroeconomic forecast, released last Friday. However, the UM department notes
that there is a possibility that the city’s economy could experience a range of adjustments to GDP in 2017: ‘from a pessimistic forecast of [a negative rate of] 6.9 per cent to an optimistic rate 13.2 per cent per cent in 2017’. This is based on the fact that gross gaming revenue ‘is highly influenced by government policies and may adjust greatly throughout the year,’ the report reads, adding that adjustments might be reflected in short-term fluctuations.
Service trade to expand
Meanwhile, regarding trade in services, local exports of services are forecast to increase by some 2.5 per cent year-on-year to MOP254.3 billion in 2017, given that Mainland China is expected to register stabilised growth in the year, while imports of services are also expected to jump by 4 per cent year-on-year, reaching around MOP32.7 billion.
Nevertheless, the report anticipates local exports of goods will go down by 7.6 per cent to some MOP11.8 billion this year, whereas imports of goods will fall slightly by 0.2 per cent for the year to approximately MOP97.2 billion, due to a slowdown in local consumption. Local private consumption spending, meanwhile, is forecast to grow by 1.8 per cent in 2017, while total investment in local casinos and hotel projects is expected to increase by 3.8 per cent, according to the report. On the other hand, the UM department expects local consumer prices will continue to drop this year, with the inflation rate anticipated to be 2.1 per cent for the whole year. For the aggregate economy, the GDP price deflator is expected to increase by 2.2 per cent in 2017. In addition, the UM department notes that the city’s labour market will also stabilise this year, with the unemployment rate to hover around 2 per cent on average. Median monthly earnings of local workers may enjoy growth of 1.2 per cent, to MOP15,321 for this year.
In Brief VIP
Some 20 VIP promoters denied licence renewal Some 20 VIP promoters were denied licence renewals this year by the Gaming Inspection and Co-ordination Bureau (DICJ), stated its director Paulo Martins Chan last Friday. According to the official, the reasons for the denials were primarily due to the failure of their accounts to meet requirements. Last year, the DICJ approved licenses for 141 junket operators. Mr. Chan added that the regulator would carry out special audits on the accounts of other VIP operators following Chinese New Year. On the other hand, the DICJ head said the legal amendment to increase the minimum required capital for junket companies is progressing, adding the new amount would be significantly more than the current amount of MOP100,000 (US$12,500). Aviation
Spring Airlines to commence Macau-Harbin route Shanghai-based low-cost carrier Spring Airlines is to launch a new flight route connecting the MSAR to the Chinese city of Harbin in the Northeast, from February 21, according to a company announcement. The airline will offer three return flights per week. The company said in the same announcement that it will commence a Harbin-Zhuhai route on February 19, which will offer four two-way flights per week. Currently, the budget airline provides one daily return flight connecting the MSAR to Shanghai. It will also be the only carrier flying between the city and Harbin following the launch of the new route. Cultural fund
Cultural Industries Fund dispenses MOP33 mln last year Culture
Leung Hiu Ming new President of IC The Secretary for Social Affairs and Culture, Alexis Tam has nominated the current Vice-President of the Cultural Affairs Bureau (IC), Leung Hio Ming, to be the department’s new President, with Mr. Leung having initiated his functions in the role on January 17. The announcement was made during the IC Spring Festival dinner, with the Secretary commending the work of former IC president Ung Vai Meng, who took on the position in 2010, and is now retiring to pursue his own artistic endeavours. Leung has worked for the IC since 1995, having also previously occupied the position of Director of the Macau Conservatory. N.M.
Former president of the IC, Ung Vai Meng
Investment
Getting to know the fund A clarification session on the US$1 billion (MOP8 billion) Sino-Luso Cooperation and Development Fund, cosponsored by the China Development Bank and Macau Industrial and Commercial Development Fund, will take place on January 25, according to a Macau Trade and Investment Promotion Institute (IPIM) release. The event will take place at 10am on the 5th floor of the World Trade Centre building, and will be attended by representatives from the China Development Bank, in order to provide information on how to proceed with investment requests, and the current situation of projects financed by the fund. The development fund aims to support investment and expand business opportunities between
Mainland China and MSAR companies with businesses of Lusophone countries. During his visit to Macau for the 5th Ministerial Conference of the Forum for Economic and Trade Cooperation between China and Portuguese-speaking countries, Chi n es e P r e m i e r Li K e q i a n g announced that the headquarters of the fund, in Beijing, would be relocated to the MSAR. According to Echo Chan, the recently re-appointed Deputy Secretary-general of the Permanent S ec r eta ri at o f th e F o r u m f o r Economic and Trade Co-operation between China and Portuguesespeaking Countries (Forum Macau), efforts were being made to ensure that the relocation could take place this year. N.M.
The city’s Cultural Industries Fund approved subsidies of some MOP33 million for a total of 20 projects in 2016, said the Fund’s administrative council member, Chu Mui Lai. The member revealed on Saturday that the Fund had received a total of 63 applications last year, of which evaluations for 42 had been completed. Of the 20 approved projects, nearly half were given no-interest loans. Ms. Chu was speaking on the side-lines of a briefing about the Fund for the city’s fashion design industry. The member said the Fund had handed out financial aid to a total of 18 fashion design projects between 2014 and 2016. Politics
Driving in Hengqin requirements to be eased after CNY Zhuhai’s Mayor, Zheng Renhao said the policy to allow Macaulicensed vehicles to drive in Hengqin would be loosened following Chinese New Year. According to the Chinese official, the Zhuhai government is discussing with the MSAR’s transport departments, plans to ease the current restrictions. The policy was implemented on December 20 last year, but the first phase of the scheme only allowed those operating at least one company on Hengqin Island to apply for entry permits for their Macau-plate vehicles.
4 Business Daily Monday, January 23 2017
Macau Interview | Aviation
Flying high Captain Vicente Serafim, CEO of Macau Jet International Co., Ltd. tells Business Daily about the shift seen in recent years in demand for private jet services, and the difficulties brought about by lack of infrastructure and government-mandated criteria of infrastructure use by private and business jets with commercial clients – all putting restraints on business growth. Annie Lao annie.lao@macaubusinessdaily.com
W
hen did your company begin operations? Macau Jet was set up in 2006 as a jet management company. In 2008, we had the first management aircraft based in Kuala Lumpur and the second one based in Macau. In 2008, we got our certificate from the authority for maintenance and we got our first airplane. In 2010, we got our AOC, an air operator’s certificate. Was it difficult to obtain the certificate in Macau? Yes, of course. The standard requires a lot of manpower, resources and technology. The standard is the same. The way to achieve it is a bit difficult because [in Macau] we have an authority that sometimes does not facilitate much. The authority does not offer much help to have things properly done in a way that everyone knows what to do and when to do it. What has been the major change for your company in the last five years? Technically, the company has improved a lot by using the latest technology. In terms of business, Macau does not contribute too much with that. The people who came to play in the casinos were high rollers at that time, and they did not use much of the business jet services as they had their own aircraft to come in or the junket operators who engaged them to come here. The junket operators and casinos knew how much it cost to have their own aircraft. When the bad times came, they had to sell their airplanes. Probably, with the new settlement of the mass market, they may realize it is cheaper to use business charter companies. What is your major source of revenue? It is from the international business.
The international business is for the ones who use private jets as transportation. For example, famous movie stars come to fly on business jets and those are the kinds of people who cannot fly with airlines anymore. Or they have their own private jets. We have around 85 per cent of the revenue from the international traffic of overseas people who come to use our service for business, and the other 15 per cent is from Macau. Why does Macau only account for 15 per cent of your company’s revenue? The major Macau economy is from the casinos and everything is related to the casinos. The casinos themselves have their own aircraft. They have money to buy their own aircraft. Also, the junket operators have their own aircraft. So they don’t come to our company because they don’t need it. But only when their aircraft don’t work, they call us to fix them. How competitive is the market here? In terms of competition, Macau has a lot of competition, as Macau is an open sky. Everybody can come here and go. We don’t have any protection. The MSAR government does not protect the local companies in any way. The government does not give them the right to use infrastructure. For example, we don’t have a hangar to put our aircraft in or to fix the aircraft. The government should give the infrastructure to the local businesses in order to be competitive. If I had my infrastructure here, I could give services for people who want to come here. How do you stay competitive? What we are doing is what our other competitors can do. We don’t have any benefits at all from being a Macau company and having all the certifications because the Macau government is treating the industry as the open sky. We can only be more competitive if we have regulations
just for this type of business by the authority. Secondly, if we can get access to the infrastructure here in order to produce services for those who require services - this is the way we can be more competitive. They have the infrastructure here available. The problem is the criteria for giving the infrastructure to those who are in need of it. If you look into who is using the infrastructure, there is no policy or criteria. The criterion should include being a Macau company and with certifications.
“We are the only business jet company that has every required certificate here so we are capable of growing technically and commercially. But without infrastructure we cannot grow” Have you faced any challenges running your business? The difficulty is lack of infrastructure and the rules for this particular type of aviation. Macau does not have dedicated rules for this type of operation and this makes us not competitive. Another thing is difficulties with the infrastructure. We have a small airport and the airport is to serve local businesses. Of course, we need the people to come here, but mainly we need to have suppliers who are local companies with local capital to do the services. This could also be a joint venture
with the well-known companies. The airport should give the infrastructure to the local companies to work with. What we see is the aviation authority and the airport company who don’t have criteria to give access to the infrastructure to the local companies. We end up not having the possibility of having the infrastructure in order to grow. How have you brought this to the attention of the government? We have made requests to the government on what we need in different ways. And so far we don’t see anything happening - and that is the problem. Definitely, we have to prepare for the future. There is potential to grow. We are the only business jet company that has every required certificate here, so we are capable of growing technically and commercially. But without infrastructure we cannot grow. We need a hangar to maintain our aircraft but we don’t have one. We need space to put our equipment and we don’t have it. We need a space in the hangar to set up the services we provide to our potential clients who come here with business jets, and we don’t have that. Do you find it difficult to hire people in Macau? We have different levels. On the technical level, it is not so difficult. Nevertheless, we cannot compete with the casinos because the casinos are the big companies. They pay well and they can pay much better than we can pay our employees. We only have people who don’t like to work on shifts, so they come here to work for a more relaxed life than working in the casinos. Basically, the government has to control the cost of living here, as we cannot afford to increase the salaries for the employees every year by 2 per cent to 5 per cent. How do you promote your services? It is basically the distribution system. Locally, we go from door-to-door as people who want to use this kind of transportation don’t want to be known. Internationally, we are part of the big distribution channel that does the promotional job. Do festival seasons affect your business? Locally, yes. But it does not affect the business clients who fly with private jets. Locally, the family people usually use private jets to go outside Macau for holidays.
“The VIP is going down so we are flying more because the junket operators don’t have aircraft anymore. They realized that having an aircraft wastes a lot of money” What is your client base? Now, it is growing with local clients flying with their families. Instead of going to Hong Kong to pick up an airline, it is better to charter an airline out of Macau. Especially at Chinese New Year or Christmas, we have more local people flying with us. It has been changing, from 15 per cent, now growing to 30 per cent in the family clients, and a very few clients from the casinos. In the past, it was not much, but now it has grown much more because the junket operators don’t have any aircraft as they sold their aircraft two years ago - so they
Business Daily Monday, January 23 2017 5
Macau
Captain Vicente Serafim, CEO of Macau Jet International Co., Ltd.
come to us. The VIP is going down so we are flying more, because the junket operators don’t have aircraft anymore. They realized that having an aircraft wastes a lot of money. Potentially, in the future we think we are going to grow. Are the casino operators direct competitors? In a certain way, the casino operators are competitors because they are using their own corporate resources to fly commercially with their own clients, which is illegal. But nobody cares about that. If you have a company, you have your own jet. This is like the problem of Uber with the government saying it is illegal. They are private cars, which are not registered, doing commercial services. It is the same thing for a company with their own aircraft. But if you ask your clients to come and pay for the services that you provide and to sit in your aircraft, it is commercial and it is illegal. Does the government know of these illegal practices? For sure, the government knows about it and does not do anything because the aircraft are not registered in Macau. They are registered in the U.S. or Hong Kong. We have discussed this with the authority. The authority replied, saying that there is nothing they can do because the aircraft are not registered in Macau and nobody controls that. Those are our direct competitors because they are providing commercial
services without being certified and authorized to do it. It is the same case of Uber. How could the government prevent this? I doubt the authority will do inspections into this illegal activity because this would have an impact immediately on the casino business. In fact, they are now our competitors because they are doing something that we could do and this could put our business down. Even the junket operators were using their private aircraft to fly their clients. The authority knows because we have discussed this issue with them several times over a long period of time. They don’t do anything and said it is very difficult. This is pushing us to grow quickly and create critical mass. We have to have public demand in order to readjust the means. So that is why we are looking more towards our international market. Do you think the international market is sustainable? Th e c o m m e rc i a l m a r k e t h a s potential to grow because we have big corporations coming to China. The international market is becoming more or less stable, but it doesn’t allow us to grow fast and the plan is to within five years have three more airplanes. At the beginning, we thought it was a good chance to attract some aircraft to be registered in Macau and it proved exactly wrong. So far, going again to the government is a wall that does
not promote properly or have the right tools in the right place in order to convince the aircraft owners that Macau is a good place to stay and to have the aircraft. Over a period of 20 years we are still the only business jet registered in Macau and something is wrong. Macau is a very nice place and we don’t pay taxes compared to Hong Kong. We have one aircraft and one helicopter, both of them are registered in Macau. I think now there are about 22 aircraft in total registered in Macau. But if you go inside the hangars, you don’t see any aircraft registered in Macau inside. Macau has three hangars now, one of them is for the business jets in Macau but inside that hangar, you don’t find one single Macauregistered aircraft. You can go there and see a lot of airplanes that are not registered in Macau, but they belong to somebody in Macau. There is lack of standards here. Will the expansion plan of the airport have an impact on your business? We hope so. In my opinion, the expansion of the airport is very late and it should have been done much earlier. It is because when we talk about the expansion, we need to talk about the planning, approving the plan and then we have to start implementing the plan until you are ready to start selling your infrastructure. It will take about ten years. Don’t forget, they have an area they need to reclaim from the sea and this will take at least five years. One thing, we know the Hong
Kong – Zhuhai – Macau Bridge will be ready next year. It will definitely have an impact on us and it will be in a good way. The bridge will give the chance to people so if they don’t get a slot operating at the Hong Kong airport, they can come to Macau. It will be one more chance for them to come to Macau not only by ferry or helicopter.
“In a way, the casino operators are competitors because they are using their own corporate resources to fly commercially with their own clients, which is illegal” What future plans do you have? In five years, we will need to have the infrastructure here because the company has all the certifications and capability to provide services. At the same time, we never know, as we [Macau] have only one source of revenue - the casinos. We don’t have other industries here. So it is always risky as you look at the casinos. They buy their own things.
6 Business Daily Monday, January 23 2017
Macau Opinion
Sheyla Zandonai* Get real Last week, Macau’s three beloved public transportation companies – TCM, Transmac and Nova Era – conscientiously sent their executives and managers to speak on the radio programme “Forum Macau” on TDM’s Chinese channel. Now, here is a group of people that most Macau residents would be keen to listen to, although it is less sure they would expect to hear great things. In fact, as the programme revealed – and as anyone who has ever ventured to ride on one of Macau’s public buses may have noticed – people have a hard time concealing their annoyance. Though customers will, more often than not, restrain their exasperation, sighing deeply instead of casting a vicious curse upon the driver’s mother, people are clearly unsatisfied with the current state of affairs. There are limits, even to Chinese patience. Generally, there is a feeling of impotence and resignation. The need to improve Macau’s urban transport systems is a well-known issue these days, and so the companies’ representatives have voiced it to some extent. Drivers who are ill-prepared – and, allow me to say in passing, seemingly unafraid of death – force commuters to become unwilling participants in infuriating races. Nova Era has said that it will add 57 vehicles to its fleet by the first half of 2017. Now, that raises another problem: where are they driving? Again, there is confusion between quantity and quality, as if having more cars in circulation would mean that a company is being run successfully, despite knowing that this might not be beneficial to passengers and residents, on the whole. So the problem is not identifying the variables that are causing popular discontent. The problem is tackling them. At first, it is understandable that higher demand – more than 200 million passengers in 2016 – pushes companies to react quickly rather than plan ahead. So companies have responded by suggesting solutions or amendments that merely add more layers to the problem: hiring more (crazy) drivers; adding more buses to existing routes; and replacing smaller vehicles with larger ones to travel through congested neighbourhoods. Whether due to a lack of imagination or lack of principle, there are no changes to the outcome. On average, the quality of services remains dubious, air and sound pollution higher, and traffic worse. Public transport companies should have been employing clean-energy technology for a while now. There are opportunities for business, profits to be made, and demands to supply. So: why the delay? *scholar and contributor to this newspaper.
Penalty
Las Vegas Sands pays US$7 mln to end U.S. criminal bribery case The fine is 25 per cent below the minimum recommended under federal guidelines Jonathan Stempel
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as Vegas Sands Corp agreed to pay a US$6.96 million criminal penalty to end a U.S. Department of Justice probe into whether it violated a federal anti-bribery law by making payments to a consultant to help it do business in China and Macau. The casino operator run by billionaire Sheldon Adelson on Thursday also entered a non-prosecution agreement, in which it admitted that executives knowingly failed to set up accounting controls to ensure that the payments were legitimate, and were properly recorded in its books and records. From 2006 to 2009, Las Vegas Sands transferred about US$60 million to the consultant to promote its business and brands, and paid him about US$5.8 million without any “discernable legitimate business purpose,” according to settlement papers. The resolution of the Foreign Corrupt Practices Act case follows Las Vegas Sands’ related US$9 million civil settlement last year with the U.S.
Securities and Exchange Commission over its dealings with the consultant. Investigators said the consultant was used in part to conceal the company’s effort to buy a team in the Chinese Basketball Association, which barred gaming companies from ownership, and part of a Beijing building despite a casino gambling ban there. Thursday’s fine is 25 per cent below the minimum recommended under federal guidelines, in part reflecting Las Vegas Sands’ cooperation and “extensive” remedial measures, including revamped compliance controls, the Justice Department said.
“The company is pleased that its cooperation and long-term commitment to compliance were recognized in reaching this resolution. We are equally pleased that all inquiries related to these issues have now been completely resolved,” Las Vegas Sands spokesman Ron Reese said in an email to Reuters. Adelson, 83, was not accused of wrongdoing. He is worth US$31 billion, according to Forbes magazine. Las Vegas Sands’ properties include the Venetian and the Palazzo in Las Vegas, the Venetian in Macau, and the Marina Bay Sands in Singapore, among others. Reuters
Gaming
Success Universe expects annual loss to grow by up to three times Casino Ponte 16 operator, Success Universe Group Ltd expects to see its annual loss expand by one to three times for the 2016-year, due to a decrease in income generated from its flagship property in the MSAR. According to a filing by the operator on the Hong Kong Stock Exchange, the full-year loss projection followed ‘a significant increase’ in net loss recorded for the first eleven months of
2016, compared to the same period in 2015. The group explained that the expected increase in annual net loss is primarily due to a decline in the company’s share of profits from the associates of Ponte 16, as well as a notable decrease in operating revenue and increase in losses from its lottery business. The company added that the
impairment loss on the carrying value of the trademark of the company’s travel business also drove up the annual net loss. For the 2015-year, the company registered a net loss after tax of some HK$11.6 million (US$1.5 million). Meanwhile, for the first half of 2016, the company’s interim net losses quadrupled to HK$15.7 million, up from HK$3.8 million registered one year ago. As at June 30 last year, the casino at Ponte 16 was operating 109 gaming tables, including 94 mass gaming tables, nine high-limit tables and six VIP tables. K.L.
Business
Wait for it
Gaming
Galaxy announces bonus issuance Casino operator Galaxy Entertainment Group announced last week the awarding of a discretionary bonus to its eligible workers at senior manager level and below on Wednesday.
According to the company’s announcement, the majority of the workers will receive a bonus equivalent to at least 110 per cent of their monthly salary. ‘This discretionary bonus is determined based on three factors in considering its usual criteria, including the market condition, the company’s past year business performance and the performance of the team members,’ the company wrote. The same announcement reads that the operator’s awarded shares to its employees under the “Special Share Award” scheme in 2014 will be vested at the end of the year. All other major gaming operators in the city, with the exception of Sands China Ltd, announced the issuance of bonuses to their workers earlier this month.
Melco International Development Ltd (Melco) has delayed the release of information relating to the purchase of the majority ownership of Melco Crown Entertainment Limited (Melco Crown) until February 21 of 2017, according to a company filing with the Hong Kong Stock Exchange. According to the dispatch, signed by Melco’s Company Secretary, Vincent Leung Hoi Wai, a circular with more information on the Share Purchase and the Stock Loans and ‘other information required by the Listing Rules’ was to have been released by January 20 of this year. However, due to additional time being required to prepare and finalise ‘certain information’, the circular will now be delayed to ‘not later’ than February 21. The information regards the purchase by Melco of 13.4 per cent of Melco Crown’s outstanding shares belonging to Australian businessman James Packer’s gaming group Crown Resorts for US$1.2 billion (MOP9.6 billion). After the deal, the company, owned by local businessman Lawrence Ho Yau Lung, will hold a majority stake of 51.3 per cent of Melco Crown, with Crown Resorts holding a 14 per cent stake in the joint venture. N.M.
Business Daily Monday, January 23 2017 7
Macau Casino
Homeless Korean casino gambling addicts signal warning for Japan The proliferation of gambling addicts in Sabuk, Korea is serving as a warning for lawmakers in South Korea - and more recently Japan Kanga Kong
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our years ago, Kim Jong-gu went to the South Korean mountain town of Sabuk to find out why his thirty-something daughter kept asking him for money. “When I found her at the casino, she was laden with debt from loan sharks,” Kim said, recalling his visit to Kangwon Land, the only casino of 17 in the nation open to Koreans. Soon, Kim himself became hooked on gambling, racking up losses of some 180 million won (about US$155,000). Realizing he no longer had a home to return to, he decided - at the age of 77 - to accept government subsidies provided to those who promise to kick the habit. He’s now living in a US$200-a-month apartment in the town. The proliferation of gambling addicts in Sabuk is serving as a warning for lawmakers in South Korea - and more recently Japan - enticed by the potential for tax revenues and economic gains. While Kangwon Land has brought jobs to the former coal-mining town, it’s also brought social ills in an area that has a suicide rate that’s twice the national average. The casino opened at the turn of the century in a bid to revive the fortunes of Sabuk. The collapse of the mining industry took a heavy toll, with the town’s population slumping to about 5,500 from 50,000 in its 1980s heyday. While the resort has brought jobs, the seedier elements pose challenges for lawmakers looking at opening a second resort for locals on South Korea’s west coast. Sabuk is littered with pawnshops and brothels, and telephone poles are plastered with ads for loan sharks.
Casino operator
Ham Seung-huie, the chief executive of Kangwon Land Inc., defended the casino in a phone interview. He said it makes a positive contribution to the economy, providing highly paid jobs to high school dropouts. “Without these jobs, this town would be devastated,” he said. Ham said that while there are likely “hundreds” of long-term gambling addicts in Sabuk, the casino is the “only one on Earth that limits the
number of times a gamer can enter and we’re planning to strengthen the rule further from this year.” Gamblers who spend 15 days a month at the casino for two straight months can come back after taking classes on addiction problems, he said. From April, they’ll be banned in the third month. “Kangwon Land is a state-owned company and we can’t just leave these addicts out without making any efforts to heal them,” Ham said. Kim Kwan-young, a lawmaker with the opposition People’s Party, introduced a bill in August to open a second casino for Korean nationals. He sees “enormous” economic benefits because part of the 3 trillion won (US$2.6 billion) that he said Koreans spend on gambling overseas would return to the country. “We can do better if we have stricter rules to prevent addiction,” Kim said, citing the example of Singapore’s Marina Bay Sands resort. But he has a fight on his hands. The Ministry of Culture, Sports and Tourism, which oversees casino policy, opposes the opening of a second resort for Koreans. Kim Hong-pil, a director at the ministry’s international tourism division, points to gambling addiction and the breakup of families. In Japan, where lawmakers just passed a law legalizing casinos, opponents cite similar concerns as debate heads up over a second required piece of legislation on regulations for gambling resorts. TV news shows and some lawmakers in Tokyo are using Kangwon Land as an example of the harmful effects of allowing locals to gamble. International gaming companies including MGM Resorts International and Las Vegas Sands Corp. have been mulling investments in Japan amid a boom in tourism, particularly from China. Opening two integrated resorts in major population centres could bring in US$10 billion in revenue, with potential for US$30 billion if they spread across the country, according to a report by CLSA in December.
Casino ‘panhandlers’
Some 12,000 people go to Kangwon Land more than 50 days a year, with about 2,000 gambling more than 100
Kangwon Land hotel and casino, Sabuk, South Korea
days, the resort operator said. Around 500 people in the town are homeless casino addicts, according to the resort. A typical “casino panhandler” is a male in his fifties from Seoul who has stayed in Sabuk longer than three years because he has nowhere to return after losing between 500 million won and 1 billion won, according to a survey last year by Catholic Kwandong University of 300 casino addicts staying in the area. The state-run Korea Centre on Gambling Problems runs a branch near Sabuk to help rehabilitate addicts and provide them with what they need to endure the mountainous area’s frigid weather. In return, they promise to stop gambling. Inside the casino, flashing lights and a lack of windows make it hard to tell if it’s night or day. Bleary eyed gamblers - mostly in their 40s or 50s - yawn as they plough chips into the 1,360 machines or place bets on the 200 tables at the resort. In casual hiking clothes and sandals, they light up in smoking booths dotted throughout the premises and chew gum to help them stay awake. The casino is open from 10 a.m. to 6 a.m., and admission is 9,000 won (cash only). During closing hours the addicts go back to their temporary homes to sleep. On the road into the resort, visitors are greeted by a sign showing a dead body being carried by mini-bus. This marks the location of a shelter set up more than a decade ago by a pastor who saw how addiction caused families to break up and led to frequent suicide attempts. “Several times I rescued addicts who called me at the last minute before killing themselves,” said
58-year-old pastor Bang Eun-keun. “Still, it’s extremely hard to stop them from returning to the casino if they manage to get money.” Data from the provincial health centre shows the suicide rate in Jeongseon county was 47.2 for every 100,000 people -- nearly double the national average of 23.9 nationwide in 2014. Kim Hyo-yeol, a senior manager in Kangwon Land’s public relations team, said that the suicide rate in Gangwon Province is higher than the national average, and the county is in line with that.
Tax revenue
The government has few incentives to shut the casino down. In 2015, Kangwon Land contributed 615 billion won in tax revenue and payments to central and local government coffers as well as a government-run fund to develop the regional economy. That compares with a combined 299 billion won from the 16 casinos that only permit foreigners. According to Lee Hoon, a lawmaker with the main opposition Democratic Party of Korea, Kangwon Land has brought in more than 6 trillion won in tax revenue since it opened. It also provides most of the jobs in the town. Even so, Kim Chang-wan, a former miner who now runs a rehabilitation centre for addicts - operated by Kangwon Land - said it’s devastating to see addicts change the atmosphere of the town. “Over the past three years, we’ve seen many government officials, mostly from Japan, visit us to ask about our problems,” Kim said. “I constantly deliver the same message that they should avoid casinos for residents if they have other options.” Bloomberg
Regulations
Vietnamese to be allowed entry to casinos in 3-year pilot scheme The handful of casinos operating in the country now are strictly foreigners-only My Pham
Vietnamese will be allowed to gamble in approved casinos and under certain conditions, in a three-year pilot project announced by the government on Friday. People over 21 years old with a regular monthly income of at least 10 million dong (US$443) will be allowed to use the casinos, the government said in a decree that will come into effect on March 15. To receive government approval, the casinos must be part of an entertainment and hotel complex project with investment capital of at least US$2 billion, half of which must have
been disbursed, and comply with several other requirements, it said. Vietnamese are passionate gamblers, from clandestine card games to bets on European soccer with underground bookies, but the handful of casinos operating in the country now are strictly foreigners-only. Three years after the first project opens to Vietnamese, the government will review the decree and decide whether to keep it. A change in legislation could make Vietnam an attractive bet for big gaming companies such as Las Vegas Sands, Genting Bhd, Nagacorp and Penn National Gaming, which have expressed interest, should locals be
allowed to take part. The appeal is much to do with Vietnam’s demographics and its location, just a few hours from many Asian capitals and within easy reach of wealthy Chinese, who provide the lion’s share of gaming revenue.
There are fewer than 10 casinos in operation in the country. Only foreign passport holders can enter and gamble there. AFP
8 Business Daily Monday, January 23 2017
Greater China In Brief Investment
Beijing sets up internet fund China has set up a RMB100 billion (US$14.55 billion) fund to support investment in the internet sector, said official news agency Xinhua yesterday. The fund, backed by China’s cabinet, is designed to help turn China into a major player in internet technology, said the report. An initial RMB30 billion has already been raised from major banks and telecoms firms including ICBC, China Mobile and China Unicom. Up to RMB150 billion in credit will be available to companies that have been invested by the fund, Xinhua said. Listed firms
Regulator to curb excessive fund raising China’s securities regulator said on Friday it will restrict excessive fund raising by listed companies, and tighten approvals for additional share sales, official Securities Times reported. Meanwhile, the China Securities Regulatory Commission (CSRC) encouraged companies to issue convertible bonds and preferred stocks to address structural imbalance in financial activities, the newspaper stated on its website. Last year, Chinese companies raised over RMB1 trillion (US$145.47 billion) via private placement of shares, which is eight times the proceeds from initial public offerings (IPOs), according to official Xinhua News Agency. GDP
Shanghai’s economy grows 6.8 pct Shanghai’s economy grew 6.8 per cent in 2016, the local statistics bureau announced yesterday. It outpaced the country’s 6.7 per cent GDP growth but is slightly lower than the 6.9 per cent increase in the previous year. Shanghai’s GDP reached RMB2.75 trillion (US$400 billion) with continued expansion of the tertiary sector, which made up 70.5 per cent of last year’s gross domestic product, 2.7 percentage points more than in 2015. Value added in primary industries dropped 6.6 per cent to RMB11 billion, while growth in secondary and tertiary industries were 1.2 per cent and 9.5 per cent, respectively. Regulator
Authorities to increase transparency of FX market data China will increase the transparency of its foreign exchange market data, the State Administration of Foreign Exchange (SAFE) said on Friday. The exchange said it would take steps including improving its statistical reporting of foreign exchange derivatives, as well as raising the amount of data that is available electronically, according to a notice posted on its website.
Growth
GDP beats expectations but debt risks loom Housing helped prop up growth again in the fourth quarter, with property investment rising a surprisingly strong 11.1 per cent in December Kevin Yao and Elias Glenn
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hina’s economy grew a faster-than-expected 6.8 per cent in the fourth quarter, boosted by higher government spending and record bank lending, giving it a tailwind heading into what is expected to be a turbulent year. But Beijing’s decision to prioritise its official growth target could exact a high price, as policymakers grapple with financial risks created by an explosive growth in debt. China’s debt to GDP ratio rose to 277 per cent at the end of 2016 from 254 per cent the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a note. The fourth quarter was the first time in two years that the world’s second-largest economy has shown an uptick in economic growth, but this year it faces further pressure to cool its housing market, the impact of government efforts at structural reforms, and a potentially testy relationship with a new U.S. administration. “We do not expect this (Q4 GDP) rebound to extend far into 2017, when a slowdown in the property market and steps to address supply shortages in the commodity sector ought to drag again on demand and output,” said Tom Rafferty, regional China manager for the Economist Intelligence Unit. The economy expanded 6.7 per cent in 2016, the National Bureau of Statistics said on Friday, near the middle of the government’s 6.5-7 per cent growth target but still the slowest pace in 26 years. Economists polled by Reuters had expected 6.7 per cent growth for both the fourth quarter and the full year. Housing helped prop up growth again in the fourth quarter, with property investment rising a surprisingly strong 11.1 pct in December from 5.7 per cent in November, even as house prices showed signs of cooling in some major cities.
Consumer spending was also strong, with retail sales in December rising at their fastest pace in a year on stronger sales of cars and cosmetics.
Stability a priority
Fixed asset investment grew 8.1 per cent, the slowest pace since 1999, as investment by private firms slowed again in December on a monthly basis. Private sector fixed asset investment fell to 4.07 per cent from 4.93 per cent in November, according to Reuters calculations based on statistics bureau data. Consumption contributed the bulk of growth last year, but income growth didn’t pick up, and a measure of China’s income inequality rose slightly last year, the statistics bureau said.
Key Points China Q4 GDP growth faster than expected, boosted by housing Housing and stimulus tailwinds expected to slow this year China to focus on stability ahead of key political meeting 2016 Q4 GDP growth 6.8 pct, full-year growth 6.7 pct Amid signs of stabilisation, policy sources told Reuters that China’s leaders will lower their economic growth target to around 6.5 per cent this year, giving them more room to push reforms to contain debt risks. They will not want to let growth fall too sharply, however, ahead of a key party meeting in the autumn when a new generation of leaders will be picked. “Economic stability is always important but will be an even higher priority ahead of the 19th Party Congress,” said Tim Condon, Singapore-based economist at ING. In a sign of the tasks ahead, the People’s Bank of China unexpectedly cut the amount banks must keep in
reserve on Friday, a measure aimed at easing tight liquidity ahead of the upcoming Lunar New Year holiday. “Today’s move seems to suggest that liquidity conditions are tighter than authorities’ expectations, as capital outflows remain strong,” said Zhou Hou, senior emerging markets economist at Commerzbank in Singapore. Capital outflows have been putting strong downward pressure on the yuan, which lost nearly 7 per cent last year, making it the worst performing major Asian currency.
Risks increase
Rapid monetary expansion and expectations of slower economic growth at home, along with a rising U.S. dollar, also hit the yuan. “The key risk to the Chinese economy in 2017 and 2018 is the possibility that faster than expected U.S. interest rate increases could intensify Chinese capital outflows and increase stresses on China’s financial system,” said Bill Adams, senior economist at U.S.based PNC Financial Services Group. China’s sluggish exports could also come under fresh pressure if President Donald Trump follows through on pledges to impose tough protectionist measures. “Relations with a Trump administration is the biggest known unknown. Trump advisers and cabinet-nominees have identified the U.S.-China relationship as in need of adjustment to support the president-elect’s objective of a manufacturing renaissance,” said Condon. China’s central bank could slightly tighten credit conditions this year to encourage debt-laden companies to deleverage, but it’s unlikely to rush to raise interest rates despite an expected pick-up in inflation, policy insiders said. “Looking at the economic forces out there both globally and domestically, I think that China will face a few headwinds. Externally, mainly from a change in the climate in the U.S. with regards to China’s exports...(and) within China I think we will see a bit of impact from the slowdown in property investment,” said Louis Kuijs, head Of Asia economics at Oxford Economics in Hong Kong. Reuters
Business Daily Monday, January 23 2017 9
Greater China Liquidity
Government says it offered temporary funding to support banks or holidays,” said Xia Le, chief economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. The PBOC is using a new tool because older ones offer funds at a high cost and longer duration than needed, and it’s wasteful for banks that need money for five days to have to borrow for a full year, Xia said.
A PBOC statement Friday didn’t say whether the temporary funding required collateral China’s central bank said it provided a “temporary liquidity facility” to some major commercial banks for 28 days to help ease a cash crunch before the Lunar New Year holiday. The operation provides more effective liquidity transmission before the week-long break, the People’s Bank of China said in a statement Friday. The PBOC said the new lending facility will have a funding cost for banks that’s around the same as open-market operations for a similar 28-day period, which is about 2.55 per cent. That means the tool differs from cutting the ratio of deposits big banks must hold in reserve and suggests a fresh evolution of tools policy makers have been overhauling. The measures announced Friday are helpful for banks that may not be able to provide enough collateral to use operations that require it, according to Ming Ming, head of fixed-income research at Citic Securities Co. in Beijing and a former PBOC official. Commercial banks had RMB11 trillion (US$1.6 trillion) of sovereign and financial bonds outstanding as of December, Ming said, and have pledged about 43 per cent of those to access funding through central bank open market operations, limiting room for further such operations. The PBOC’s statement Friday didn’t
say whether the temporary funding required collateral. Should none be required, that would be unusual because most such tools involve collateral. The PBOC has shifted toward selective tightening after a two-year easing cycle. President Xi Jinping and other policy makers decided at their annual economic conference last month China should plan prudent and neutral monetary policy this year to prevent financial risks. “It’s too premature to conclude that there’s a change in China’s monetary policy direction,” Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, wrote in a note. “Liquidity management and leverage control seem to be more appropriate
expressions to describe the policy direction of China’s central bank.” Cash demand surges before the annual holiday week, when hundreds of millions of people make withdrawals to travel home, put on family feasts and give relatives and friends traditional red cash gift packets. The holiday starts Jan. 27. The central bank last week injected a record amount of funds in open-market operations, helping stop a surge in the overnight money-market rate. The main PBOC lending tool recently has been a mid-term lending facility, offering funds from three months to a year. “It’s likely the central bank will use temporary liquidity facility as a regular tool in the future to ease liquidity shortage before quarter-end
“Liquidity management and leverage control seem to be more appropriate expressions to describe the policy direction of China’s central bank” Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong
Bloomberg, Reuters and Caixin reported earlier Friday that the central bank cut the ratio of deposits the nation’s five biggest lenders must hold in reserve by 1 percentage point to help ease a shortage of cash, citing people familiar with the matter. The central bank has kept the main required-reserve ratio for large banks unchanged at 17 per cent for almost a year. Bloomberg News
10 Business Daily Monday, January 23 2017
Greater China
Tourism
Playing politics? Domestic travellers under scrutiny as Lunar New Year nears Chinese tourists are expected to spend US$210 billion abroad this year Brenda Goh and Muyu Xu
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ith 6 million Chinese tourists expected to travel abroad over the Lunar New Year break, China’s Jan. 27 to Feb. 2 holiday is crucial for Taiwan tour agency operator Li Chi-yueh, who relies on Mainland visitors for a third of his revenue. But Li’s hopes are not high this year, after the number of Mainland tourists plummeted 36 per cent since President Tsai Ing-wen took power in May. Though Tsai says Taiwan wants peace with China, Beijing suspects she seeks formal independence. “China uses its sightseeing tourists as a diplomatic weapon,” said Li, owner of Taipei-based Chung Shin Travel Service, who has been representing Taiwan’s tour operators to lobby Tsai to improve ties with Beijing. “There’s a lot of concern that the industry won’t survive if we carry on like this.” The concern is not confined to Taiwan - tour operators and government officials elsewhere in Asia say they fear China is using its increasingly high-spending tourists as a lever to pressure or reward its neighbours. A government official from South Korea - which has irked China by agreeing to let the United States deploy an anti-missile system - said Chinese and Korean tour companies had told him the China National Tourism Administration (CNTA) had instructed Chinese agencies to cut tours to South Korea by at least 20 per cent between November and February. The official calculated that thousands of potential travellers were lost after eight applications
to add charter flights between the countries in January and February were rejected without explanation. “This is not a win-win situation it is mutually disadvantageous. But what can we do? As far as defence is concerned, we have no room to compromise,” said the official, declining to be named due to the sensitivity of the matter. Chinese companies told him the measure was designed to cut an excessive number of low-quality, low-priced tours for Chinese tourists visiting Korea, the official said. The CNTA did not respond to Reuters’ requests for comment. The number of Chinese tourists visiting South Korea inched up 1.8 per cent on year in November, versus a 70.2 per cent increase in August and a 22.8 per cent rise in September. That was the worst since August 2015, when arrivals slid 32 per cent after a Middle East Respiratory Syndrome outbreak. In early November, the United States said it would deploy the antimissile system battery in South Korea within eight to 10 months.
Political uncertainty
China has not said it is seeking to limit tourists to South Korea or Taiwan to express displeasure at political disputes. Earlier this month, when asked about the limiting of charter flights over Lunar New Year, China’s Foreign Ministry said it did not understand the details of the situation but that cooperation and exchanges between the two countries needed to “have a basis in public opinion”. For Taiwan, China has said it was natural that Chinese tourists were choosing not to visit Taiwan at a time
of political uncertainly. By contrast, the Philippines and Malaysia are enjoying strong spurts in growth of Chinese tourism as Beijing removes travel warnings and eases visa rules. Chinese tourist arrivals between March and December in Malaysia jumped 83 per cent from a year earlier. Both countries have been moving diplomatically closer to Beijing in recent months. Malaysian Prime Minister Najib Razak returned from a November state visit with about US$34 billion in deals, prompting criticism at home that he was “selling off” his country. The Philippines, historically at odds with Beijing over territorial disputes in the South China Sea, has seen its President Rodrigo Duterte make overtures to China at the expense of traditional ally United States since he was elected in May 2016. The number of tourists visiting the Philippines from China rose 40 per cent in the first 10 months of 2016 compared with the previous year. Chinese tourists are the world’s highest overseas spenders. They are expected to spend US$210 billion abroad this year, Euromonitor data shows, double the amount Chinese firms spent on overseas mergers and acquisitions in 2016.
“Unwelcome”
Mainland travel companies Reuters spoke to acknowledged that traveller numbers to some countries were changing, but declined to comment on whether they had received government directives to discourage particular destinations. “Travellers are voting with their feet. They are choosing to go the country that will make them happy and avoid the country that might make them feel unwelcome,” said Xu Xiaolei, chief brand officer at China Youth Travel Service (CYTS), one of
China’s top three state-owned travel companies. “Of course political and diplomatic matters are also under our consideration, as tourism is part of diplomacy in many ways. But demands of tourists are always the core principle when designing our travel packages.” Shanghai Spring International Travel Service, parent of Spring Airlines, told Reuters its tours to Taiwan had become less frequent and had halved in size, without saying when. Its tour groups to South Korea have shrunk by 20 per cent. Chinese tourists were “turning to other destinations that are more friendly in terms of travel environment” because of “wellknown” reasons, Shanghai Spring International said. Chinese flag carrier Air China said travellers were visiting new destinations in Europe and Southeast Asia.
Key Points Lunar New Year sees 6 million Chinese travel overseas Mainland visitors to Taiwan have plummeted since election Growth in visits to Korea stalls; coincides with missile spat Tourism to Malaysia, Philippines growing rapidly SE Asia expansion comes as leaders forge ties with Beijing “As an airline we make our route arrangements according to market demand,” said Luo Yang, head of marketing. Mercy Ma, a translator who plans to visit Cambodia with her family over the Lunar New Year break, said political events in Turkey and Thailand had deterred her from visiting those countries, but she paid less attention to other countries’ ties with China. Taiwan was, in fact, a destination she had long wanted to visit, but was crimped by visa restrictions. “We had been prepared to go to Taiwan, but then found out that there were quite a bit of restrictions, so we eventually decided against it.” Reuters
Business Daily Monday, January 23 2017 11
Asia Trade
Trump strategy starts with quitting Asia commercial pact The president has sparked worries in Japan and the rest of the Asia-Pacific with his opposition to the TPP and his campaign demands for allies to pay more for their security David Brunnstrom
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he new U.S. administration of President Donald Trump said on Friday its trade strategy to protect American jobs would start with withdrawal from the 12-nation Trans-Pacific Partnership (TPP) trade pact. A White House statement issued soon after Trump’s inauguration said the United States would also “crack down on those nations that violate trade agreements and harm American workers in the process.” The statement said Trump was committed to renegotiating another trade deal, the North American Free Trade Agreement (NAFTA), which was signed in 1994 by the United States, Canada and Mexico. “For too long, Americans have been forced to accept trade deals that put the interests of insiders and the Washington elite over the hard-working men and women of this country,” it said. “As a result, blue-collar towns and cities have watched their factories close and good-paying jobs move overseas, while Americans face a mounting trade deficit and a devastated manufacturing base.” The statement said “tough and fair agreements” on trade could be used to grow the U.S. economy and return millions of jobs to America. “This strategy starts by withdrawing
from the Trans-Pacific Partnership and making certain that any new trade deals are in the interests of American workers.” If NAFTA partners refused to give American workers a fair deal in a renegotiated agreement, “the President will give notice of the United States’ intent to withdraw from NAFTA,” the statement added.
“This strategy starts by withdrawing from the Trans-Pacific Partnership and making certain that any new trade deals are in the interests of American workers” White House statement The TPP, which the United States signed but has not ratified, had been the main economic pillar of the Obama administration’s “pivot” to the Asia-Pacific region in the face of a fast-rising China. Proponents of the pact have
Donald J. Trump arrives to be sworn in as the 45th President of the United States in Washington. LUSA
expressed concerns that abandoning the project, which took years to negotiate, could further strengthen China’s economic hand in the region at the expense of the United States. Australia’s position that a change of heart remains possible in the U.S. and that the trade deal can proceed, is unchanged despite the White House statement, Damon Hunt spokesman for the Australian prime minister,
told Reuters on Saturday. Trump has criticized China’s trade practices and threatened to impose punitive tariffs on Chinese imports. The Chinese government said on Thursday that China and the United States could resolve any trade disputes through talks, while a Chinese newspaper warned that U.S. business could be targets for retaliation in any trade war ushered in by Trump. Reuters
Monetary warning
India pressed ahead with banknote ban despite concerns Despite its own doubts, the testimony showed, the RBI board approved the plan to ban 500-rupee and 1,000-rupee notes Rajesh Kumar Singh and Suvashree Choudhury
India pushed ahead with its decision to scrap banknotes even as the Reserve Bank of India’s (RBI) own board expressed concern whether the cash could be replaced quickly enough, the central bank has said in written testimony to parliament. The revelation comes amid growing criticism about whether the central bank and the government had sufficiently assessed the potential fallout from the Nov. 8 ban of about 86 per cent of the cash then in circulation. Prime Minister Narendra Modi’s shock move caused a severe cash shortage that brought large parts of the economy to a virtual standstill, as the central bank struggled to print new 500-rupee and 2,000-rupee notes to replace the old currency. A copy of the private testimony to a parliament panel, seen by Reuters, showed the central bank had also warned the government of “possible inconvenience to the public for some time,” among the potential consequences of the massive exercise. Despite its own doubts, the testimony showed, the RBI board approved the plan to ban 500-rupee and 1,000-rupee notes, as it believed the move would rein in counterfeiting and reliance on cash, and pull unaccounted cash into the financial system.
“It might not immediately be possible to replace these notes fully in terms of both value and volume,” the board felt at a meeting ahead of Modi’s Nov. 8 announcement, according to the central bank submission. But the RBI’s board ultimately believed that “corrective” action could be taken and decided to recommend the move, the document showed. The RBI also believed the impact of such an exercise would be “transitory”, given its efforts to quickly replace the old notes, it said in the testimony. The RBI’s endorsement of the government action has drawn strong criticism from several former policymakers, including former Prime
Minister Manmohan Singh, the architect of India’s 1991 financial reforms and a former central bank governor. The document also notes the proposal to ban the cash had come from the government, in a letter a day before the announcement that advised the RBI to “immediately” put the plan before its board for approval. Under India’s RBI Act, such a move was necessary. The central bank did not immediately respond to Reuters’ request for comments on its submission to parliament.
In a letter to RBI Governor Urjit Patel, unions of central bank employees called such criticism “painful”, and accused the government of steering decisions behind the replacement of the banned notes, saying that “blatantly encroaches” on the central bank’s jurisdiction.
“Painful” for RBI
RBI expected impact of ban to be “transitory”
Since Modi declared the ban, the central bank has been forced to announce a barrage of measures to soften the impact, including several high-profile reversals, undermining confidence in it.
Key Points Gov't advised central bank to abolish banknotes - RBI submission Documents show RBI warned of potential fallout
The government, however, has denied it was taking the decisions during the implementation, saying that it was merely cooperating with the RBI and reiterating that it fully respected the autonomy of the central bank. Power and Coal Minister Piyush Goyal said such cooperation was necessary, since it involved an unprecedented “exercise” and that the flurry of action showed India’s flexibility in taking the necessary measures. “They never had got an experience of this kind of a war-type situation,” Goyal said, referring to the RBI. “So, every organization which is doing this is doing it for the first time. You will learn as you go along.” Previous banknote bans have not had such a dramatic impact as they removed only a small fraction of cash from circulation. Reuters
12 Business Daily Monday, January 23 2017
Asia In Brief Banking
SBI eyes up to US$1.5 bln capital raising India’s biggest lender by assets, State Bank of India, could tap capital markets next fiscal year to raise up to US$1.5 billion, its chief said on Friday, though it first needs to complete a planned merger with its subsidiary banks. In an interview with Reuters on the side-lines of the World Economic Forum in Davos, Arundhati Bhattacharya also said the lender would look to raise funds from stake sales in its life insurance unit that could list in a year to 18 months, and by paring its holding in UTI Asset Management Co, which is also looking to go public. Bribery scheme
U.S. asks SK to arrest former UN chief’s brother The U.S. government has asked South Korea to arrest a brother of former UN Secretary-General Ban Ki-moon on charges that he engaged in a bribery scheme to carry out the sale of a Vietnamese building complex, a U.S. prosecutor said on Friday. During a court hearing in federal court in Manhattan, Assistant U.S. Attorney Daniel Noble said that a request had been made for the arrest of Ban Ki-sang, who was an executive at South Korean construction firm Keangnam Enterprises Co Ltd. Expansion
Nepal’s largest bank plans branches in China and India
Political scandal
S.Korea’s culture minister arrested over arts blacklist The presidential Blue House denies that such a blacklist exists Ju-min Park and Jeongeun Lee
S
outh Korean prosecutors arrested the culture minister on Saturday, on suspicion of abuse of power for drawing up a blacklist of artists, writers and entertainers critical of the country’s impeached president, Park Geun-hye. Cho Yoon-sun became the first sitting minister ever to be arrested, the special prosecutor’s team said, before she was taken in for questioning in the afternoon, refusing to speak to reporters. Cho, 50, had offered to quit, Yonhap news agency reported, adding that Prime Minister Hwang Kyo-ahn, serving as acting president while the Constitutional Court decides what happens to President Park, would accept her resignation quickly. A corruption scandal, which is still unfolding, led to parliament impeaching Park last month. She could become the first democratically elected leader to be removed from office if the Constitutional Court upholds the impeachment. Park supporters braved the snow on Saturday to complain about the impeachment, penned in by scores of police whose buses were used as barricades. An anti-Park rally was expected later in the day in what has become a routine weekend event in recent months.
Faced with a spreading political crisis, the government and state entities used the blacklist as “guidelines” to penalise artists and censor content, the special prosecutor’s office told reporters last week. Seoul Central District Court said on Saturday in a text message to reporters that minister Cho was arrested because her crime had been “verified and there were concerns over destruction of evidence”. The special prosecutor’s office on Wednesday asked the court to issue warrants to arrest Cho and a former presidential chief of staff on suspicion of abuse of power and perjury. The former chief of staff, Kim Kichoon, was also arrested. The same court on Thursday refused to grant an arrest warrant for the head of Samsung Group, the country’s largest conglomerate, on charges of bribery, embezzlement and perjury amid the corruption scandal. The reprieve for Jay Y. Lee, 48, may only be temporary, as the prosecutors said they would pursue the case. The prosecution team questioned Cho and Kim this week over allegations that they created the blacklist of actors, writers and other cultural figures considered critical of the current administration, which both have publicly denied. Park has been accused by legal authorities and lawmakers of putting
Rastriya Banijya Bank (RBB), Nepal’s largest bank, is considering opening branches in both China and India, the two neighbouring countries, a senior bank official said. Chief Executive Officer of the state-owned Kiran Kumar Shrestha told Xinhua on Saturday that they have started preparations after the bank’s board, about two months ago, instructed the bank’s management to work towards opening branches in the neighbouring giants. A few Nepalese banks have opened their liaison offices abroad. But, Shrestha said that they were planning to open full scale branches in China and India. Trade
SK exports jump South Korean exports during the first 20 days of this month jumped 25 per cent over the same period a year ago in U.S. dollar terms, while imports rose 25.9 per cent, customs data showed on Saturday. Korea Customs Service, which does not provide detailed numbers, showed South Korea posted a trade surplus of US$1.49 billion for the Jan. 1-20 period.
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Culture Minister Cho Yoon-sun arriving at the office of special prosecutors before attending a court hearing to review the legality of her detention. LUSA
pressure on the entertainment industry in retaliation against satirical attacks and criticism. The allegations have evoked bad memories of the oppression suffered when Park’s late father, Park Chung-hee, ruled the country.
Blacklist? What blacklist?
The presidential Blue House denies that such a blacklist exists. Culture Minister Cho has said many times that she has heard reports of such a list but that she had nothing to do with it. Park was impeached by parliament in December after accusations that she colluded with long-time friend Choi Soon-sil to pressure big businesses to donate to two foundations set up to back the president’s policy initiatives. Park, 64, remains in office but has been stripped of her powers while the Constitutional Court decides whether to uphold the impeachment.
Key Points Culture minister suspected of abuse of power Yonhap news agency reports minister offers to quit Case follows impeachment last month of President Park Government and minister deny existence of blacklist The special prosecutor’s office said on Friday it summoned Samsung Electronics Co Ltd Executive Vice President Hwang Sung-soo for questioning. It did not elaborate. Hwang is the fifth Samsung Group executive the prosecutor has summoned. Samsung Electronics is the flagship company of Samsung Group and is the world’s top manufacturer of smartphones, memory chips and flat-screen televisions. A Samsung Group spokesman declined to comment. Hwang was not available for comment. The special prosecutor’s office is investigating whether the conglomerate paid bribes to Park’s confidant, Choi Soon-sil, to win support from the National Pension Service for the 2015 merger of two Samsung Group affiliates. Park and Choi have denied wrongdoing. Samsung has acknowledged making contributions to entities controlled by Choi but has denied accusations of lobbying to push through the merger. In another scandal indirectly affecting South Korea, the United States has asked Seoul to arrest a brother of former UN SecretaryGeneral Ban Ki-moon on charges that he engaged in a bribery scheme to carry out the sale of a Vietnamese building complex. Ban, who is ranked second in opinion polls among potential candidates for South Korean president, said in Seoul he knew nothing about the case but issued an apology for family members who have caused public concern. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors 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 Monday, January 23 2017 13
Asia World Economic Forum
Bank of Japan head upbeat on global outlook On Japan, Kuroda said the country’s top policy priority was to overcome deflation Martinne Geller and Noah Barkin
Bank of Japan (BOJ) Governor Haruhiko Kuroda said on Friday the prospects of faster U.S. growth may push up the dollar, and he offered an upbeat view on the world economy, dismissing concerns that protectionism could spread and undermine global trade. He said Japan’s economy was likely to head towards sustainable growth, but he warned that the country had yet to address major challenges such as anaemic wage growth. “Growth in the U.S. economy is
likely to accelerate this year and next year, and price inflation may rise somewhat. All of (this) may make interest rates rise and the dollar might also appreciate,” Kuroda told reporters after a session at the World Economic Forum in Davos, Switzerland. “But exchange rate movement is very difficult to predict. You cannot say anything definite because exchange rates are affected by so many factors, not just interest rates (and) economic growth,” he said when asked if the dollar could keep rising, helping export-reliant Japan
by weakening the yen. Kuroda dismissed concerns that incoming U.S. President Donald Trump’s policies and European elections this year could trigger a global tide of protectionism and hurt world trade. “Most countries, including the G7 and G20 major economies ... are strongly committed to promoting global trade, and so can help prevent protectionism from spreading,” he said. “It would be very problematic if protectionism spreads, but I don’t think that will happen,” said Kuroda, formerly head of the Asian Development Bank.
Japan recovery intact
On Japan, Kuroda said the country’s
top policy priority was to overcome deflation. The major challenges are to heighten inflation expectations and prod firms to raise wages, he said. “Firms have remained cautious about wage increases, which is one reason why inflation hasn’t been gathering momentum,” he told a session on the global economic outlook. But Japan’s economy is likely to expand 1.5 per cent both in the fiscal year ending in March and in the following year, he said, citing a rebound in global demand.
Key Points Japan economy to achieve sustainable growth - Kuroda Adds overcoming deflation top policy priority G7, G20 can keep protectionism from spreading FX moves hard to predict as swayed by various factors
Bank of Japan Governor Haruhiko Kuroda speaks during a plenary session in the Congress Hall during the closing day of the 47th annual meeting of the World Economic Forum. LUSA
“Japan’s economy has shown clear signs of recovery in exports and industrial production,” he said. Kuroda’s optimistic comments on recovery prospects suggest the BOJ will maintain its upbeat economic and price forecasts when its ninemember board conducts a quarterly review of projections on Jan. 30-31. The growth projections Kuroda offered are higher than the BOJ board’s median forecasts for a 1.0 per cent expansion this fiscal year and 1.3 per cent the following year. It is rare for a BOJ governor to offer specific growth projections that vary from the BOJ board’s median forecasts ahead of the quarterly forecast review. Kuroda later clarified to reporters that the projections were his personal views and not representing the forecasts of the BOJ board. Reuters
Commerce environment
Australia’s finance minister downplays threat of trade wars He said that local economy probably didn’t contract in the fourth quarter after shrinking 0.5 per cent in the third quarter Chris Bourke and David Roman
Australia’s Finance Minister Mathias Cormann said he doesn’t expect an all-out trade war between the U.S. and China and is pushing ahead with the Trans-Pacific Partnership despite incoming U.S. President Donald Trump vowing to kill it. “We don’t believe there’ll be a trade war, we don’t believe there should
be a trade war,” Cormann said in an interview with Bloomberg Television’s Francine Lacqua in Davos on Friday. “We are very committed to TPP” and “there’ll be conversations to be had in relation to this, not only with the U.S.,” he said. Australia has much to lose from deteriorating relations between the world’s top two economies. The U.S. is the largest investor in Australia, while China is its biggest trading partner, said Cormann.
“We don’t believe there’ll be a trade war, we don’t believe there should be a trade war” Mathias Cormann, Australia’s Finance Minister
Trump’s focus on making the U.S. economy strong is “going to be good for the world, is going to be good for Australia,” he said. Australia’s economy probably didn’t contract in the fourth quarter after shrinking 0.5 per cent in the third
quarter, Cormann said. The government is committed to returning the budget to a surplus position by 2021 and values its AAA rating, he said. The nation faces the prospect of a downgrade after S&P Global Ratings put its debt on negative outlook in July. Australia’s struggle to balance its books has been complicated by recession-level wage rises and weaker growth as the economy adjusts to the end of a mining boom.
The economy’s contraction in the third quarter was the first in more than five years, surprising both policy makers and economists. The Australian dollar also isn’t going the government’s way, gaining 4.4 per cent against the greenback so far this year, hurting currency-sensitive services industries such as education and tourism. Cormann declined to comment on the currency, saying “it is what it is.” Bloomberg News
14 Business Daily Monday, January 23 2017
International In Brief ECB survey
Euro zone underlying inflation remains anaemic Underlying inflation in the euro zone will remain weak for years to come, a survey showed on Friday, suggesting that the European Central Bank is still far from scaling back its unprecedented stimulus measures. Underlying inflation, a key measure watched by the ECB, is seen rising to just 1.1 per cent this year, barely half of the bank’s inflation objective, then inching up to 1.3 per cent in 2018 and 1.5 per cent in 2019, the ECB said in its quarterly Survey of Professional Forecasters. WTO
World trade chief warns against ‘talking ourselves into a crisis’ The world should be wary of stumbling into trade wars that would destroy jobs, World Trade Organization DirectorGeneral Roberto Azevedo said on Friday. Azevedo was speaking at the World Economic Forum in Switzerland, hours before the presidential inauguration of Donald Trump, who has promised sweeping changes in trade policy with the aim of protecting U.S. workers. “I’ve heard a lot in Davos about trade wars. That would destroy jobs, not create jobs,” Azevedo said after a trade ministers’ meeting attended by representatives of 29 WTO members.
Trump impact
Vice Chancellor says Germany must prepare for ‘rough ride’ German government sources told Reuters this week that Merkel was working to set a date this spring for a meeting with Trump Joseph Nasr
G
ermany will need a new economic strategy geared toward Asia should the new U.S. administration start a trade war with China, Vice Chancellor Sigmar Gabriel (pictured) said on Friday, warning against protectionism hours after President Donald Trump was sworn in. “I think we have to prepare for a rough ride,” Gabriel said in an interview with the public broadcaster ZDF, in the first official G e r m a n r eacti o n t o T r u m p ’ s i n a u g u rati o n . H e a d d e d that
Trump’s election was the result of “a bad radicalisation”. The leader of the left-leaning Social Democrats (SPD), coalition partners of Chancellor Angela Merkel’s ruling conservatives, dismissed suggestions that Trump may not pursue some controversial promises, such as imposing high tariffs on cars imported from Mexico. “He means it extremely seriously,” said Gabriel. “What we heard today were high nationalistic tones.” He added that all that was missing from Trump’s speech was comparing parliament to a “Quasselbude” or “talking shop,” a term used by Hitler before he took power to discredit
Big Oil
China-U.S. trade tensions high on worry list Oil executives and Middle East producers are concerned that trade tensions between the United States and China risk clouding the outlook for global energy demand growth and a recovery in the price of oil. “It is not unique to our country to feel a certain level of anxiety (about tensions). But there is a lot of wisdom on both sides... I hope this anxiety will prove unfounded,” Saudi Energy Minister Khalid al-Falih told Reuters. Chinese President Xi Jinping offered a vigorous defence of free trade in Davos on Tuesday. Strategy
Morgan Stanley, Citi plan Brexit job moves U.S. banks Morgan Stanley and Citigroup have identified many of the roles that will need to be moved from Britain following its exit from the European Union, sources involved in the processes told Reuters. Morgan Stanley, which bases the bulk of its European staff in Britain, will have to move up to 1,000 jobs in sales and trading, risk management, legal and compliance, as well as slimming the back office in favour of locations overseas, according to one source. Citigroup, which already has a large banking unit in Dublin, will need to shift 100 positions in its sales and trading business, sources with knowledge of the matter said.
German Vice Chancellor Sigmar Gabriel
the parliamentary democracy of the Weimar Republic in the 1920s. Gabriel said the European Union and Germany must stand together “to defend our interests” and to prevent such nationalistic fervour from gripping the continent. Germany will hold a general election in September in which the anti-immigration Alternative for Germany (AfD) party is expected to enter the national parliament for the first time.
‘China offers new opportunities’
Trump has criticized Merkel’s decision in 2015 to throw open Germany’s borders to asylum seekers fleeing wars and conflicts in the Middle East and elsewhere and has said he believes other countries will leave the EU after Britain. Merkel, who had a close relationship with former U.S. president Barack Obama, responded to his comments in a newspaper interview earlier this month by saying that Europe’s destiny was in its own hands. German government sources told Reuters this week that Merkel was working to set a date this spring for a meeting with Trump. The United States is Germany’s biggest trading partner and Trump has warned that his administration will impose a border tax of 35 per cent on cars that German carmaker BMW plans to build at a new plant in Mexico and export to the U.S. There are fears that a protectionist trade policy by Trump could harm the global economy. A trade war with China would be particularly harmful for Germany, a leading exporting nation that gets nearly half its gross domestic product from exports. “Should the United States start a trade war with China and all of Asia then we as Europeans and Germans are fair partners,” Gabriel said. “Europe and Germany need a strategy geared toward Asia and China and we have new opportunities.” He added: “We should neither be submissive nor have fear.” Reuters
Inflation
Venezuela 2016 inflation hits 800 pct The oil sector, which provides nearly all of Venezuela’s hard currency, in 2016 shrank 12.7 per cent Corina Pons
Venezuelan consumer prices rose 800 per cent in 2016 while the economy shrank 18.6 per cent, according to preliminary central bank figures seen by Reuters, the sharpest economic contraction in 13 years and the worst inflation reading on record. An extended slump in oil prices has turned the OPEC nation’s once-prosperous economy into a mirror of the latter day Soviet Union, with rampant product shortages forcing some to skip meals and wait hours in food lines. President Nicolas Maduro’s government blames the situation on an “economic war” led by political adversaries with the help of the United States. As the problems mounted, the central bank stopped releasing quarterly and monthly economic indicators. The oil sector, which provides nearly all of Venezuela’s hard currency, in 2016 shrank 12.7 per cent, according to an excerpt of a document containing the figures that was shown to Reuters. The non-oil sector shrank by 19.5 per cent, according to the
document. The figures could be changed in the process of approval by the central bank’s board of directors, according to a source with direct knowledge of the situation. Economy Vice President Ramon Lobo played down the inflation figure reported by Reuters while speaking with journalists on Friday, but declined to offer a figure himself.
‘Economy Vice President Ramon Lobo played down the inflation figure reported by Reuters’ “Let’s wait until the central bank announces it, but that figure is totally crazy,” said Lobo, though he acknowledged that “the economy is facing a difficult situation.” In 2015, the economy contracted 5.7 per cent while inflation reached
180.9 per cent, the central bank said last year. Maduro accuses opposition-linked businesses of artificially creating economic problems. He says inflation is the result of speculative price-gouging by unscrupulous capitalists, and insists workers are better off as a result of minimum wage increases in 2016 that totalled 454 per cent. “In a year we have raised minimum wage five times, and I say today that (those increases) are well above 2016 inflation,” he said during a news conference earlier this week, without offering an inflation figure. The country’s currency controls have left businesses unable to obtain dollars, meaning merchants struggle to stock shelves and factories sit idle for lack of raw materials or machine parts. Venezuelans last year began crossing into neighbouring Brazil and Colombia in droves to buy groceries. Investor concern that Venezuela may not be able to continue servicing its foreign debt has made its bonds among the highest-yielding emerging market securities, paying investors on average 21 percentage points more than similar U.S. Treasury notes. Maduro has dismissed rumours that the country or state oil company PDVSA could default, noting that the ruling Socialist Party has never missed a bond payment. Reuters
Business Daily Monday, January 23 2017 15
Opinion
Trump pledges to be president -- of some Jonathan Bernstein a Bloomberg View columnist
D
onald T rump b e gan his presidency the same way he began his campaign for the job. Literally. He ended with the same “Make America great again” flourishes (“strong again ... wealthy again ...”) he used in his convention speech, as well as his campaign rallies. Much of what he had to say -describing the United States as a miserable hellhole, using the still-divisive “America First” slogan, and more -- was just recycled campaign rhetoric. This was no doubt catnip for the new president’s strongest supporters. It was not, however, presidential. Or I suppose we should now say: Traditionally presidential. Presidents in the past have used their inaugurations to reach out to the entire nation, especially those presidents who have (as Trump did) won narrowly. Trump today had little for anyone beyond those strongest supporters. Nothing for Democrats; little even, for that matter, for mainstream conservative Republicans who voted for him despite being less than enthusiastic. More to the point: There was no effort to move from campaigning to governing. All new presidents begin campaigning for their second terms from the beginning of their first ones, but most of them do so by acting presidential. Trump may get there, but not today. Of course, Trump is not only entitled to articulate the themes he campaigned on and intends to govern with, but it is appropriate that he do so. Usually, however, presidents discard much of the specific wording they used from the campaign (which is sure to remind all those who voted agai n st th e m o f that opposition), and broaden their language in an attempt to be more inclusive. Trump did very little of that in his inaugural address. And the reasons for him to do all of that are so much more pressing than they are for most presidents, who after all come in with more solid election victories and higher popularity. He also has more to prove to the people he’s now going to have to work with in Congress, in the executive branch, and the rest of permanent Washington than most presidents have. The challenge for Trump in his inaugural address was to find a way to signal to his strong supporters that he was still very much with them -- while also welcoming Americans open to giving his presidency a chance. A rehash of a campaign speech did the first, but not the second. All that said: How he acts from this point forward will matter far more than what he said today. Inaugural speeches tend to be disappointing, at least those not delivered by Abe Lincoln. What matters more is his botched transition and whether he finds a way to get his administration up and fully functional as quickly as possible despite all the formidable obstacles already in place and the new and unpredictable ones all presidents wind up facing. Today’s speech was a missed opportunity. He’ll have others, but the clock is running now. Bloomberg View
‘The challenge for Trump in his inaugural address was to find a way to signal to his strong supporters that he was still very much with them’
Taming the chaebols
T
he indictment of Lee Jae-yong, the heir apparent at Samsung, is but the latest explosive development in the political scandal that has been rocking South Korea. Already, the National Assembly voted to impeach President Park Geun-hye, the daughter of former president Park Chung-hee, on December 9. The Constitutional Court now has six months to justify her permanent removal from office. Depending on its decision, a presidential election may be held in the next few months. But, as Lee’s indictment demonstrates, more than the presidency is at stake in this crisis. At the heart of the scandal is the reciprocal relationship between politicians and the chaebols, South Korea’s giant family-owned conglomerates. If the government takes this opportunity to transform the economy’s chaebol-dominated structure, it would reshape the country’s economic future as well – for the better. Park is accused of using her political influence to benefit her long-time confidante, Choi Soon-sil, who is charged with forcing the chaebols to funnel about 80 billion Korean won (US$70 million) into two non-profit cultural foundations that she effectively controlled. She is also suspected of interfering in various state affairs, including ministerial appointments and state visits, despite having no official position. Park is being ridiculed as Choi’s puppet. To some extent, this is nothing new in South Korea. Most administrations have extracted money from the chaebols, often with the help of prosecutors and the tax authorities. In exchange for that money, which is used to finance costly state projects or even political campaigns, the chaebols gain favours, such as cheap bank loans or preferential regulations. This reciprocal relationship has existed since the start of South Korea’s economic transformation in the 1960s. The country’s rapid progress is attributed to strong manufacturing exports, carried out by firms that were able to compete in global markets only with the help of government incentives. Park’s father, who led South Korea from 1961 until his assassination in 1979, worked closely with the chaebols, helping them first to build comparative advantages in labour-intensive manufacturing and then to progress to more capital-intensive industries, including automobiles, shipbuilding, and chemicals. Today, the chaebols produce almost two-thirds of South Korea’s exports – no small feat, in the world’s sixth-largest exporting country. Samsung Electronics is the largest chaebol, and accounts for 20 per cent of total exports. Ranking 13th on the Fortune 2016 Global 500, Samsung’s market capitalization comprises one-fifth of the South Korean stock market. Beyond government support, the chaebols’ ownership and governance structure has contributed to their success. With the founding families in charge, chaebols’ top management can focus on a long-term vision, instead of short-term profits, and can mobilize resources swiftly. The efficiency of this model is apparent in the chaebols’ success as “fast followers” of top U.S. and Japanese firms. Yet the chaebols’ hierarchical management structure is often too rigid to correct bad decisions. Many conglomerates went bankrupt during the 1997 Asian financial crisis, having made excessive and unprofitable investments. Moreover, the chaebols’ ownership is often opaque, with webs of cross-shareholdings allowing founding families to exercise controlling power, despite holding only a small portion of equity.
“
Lee Jong-Wha Professor of Economics and Director of the Asiatic Research Institute at Korea University
The Lee family has less than 5 per cent direct ownership of Samsung Electronics, but holds a 31.1 per cent stake in Samsung C&T, the group’s de facto holding company, which owns a 4.3 per cent stake in Samsung Electronics and a 19.3 per cent stake in Samsung Life Insurance. Samsung Life Insurance, in turn, has a 7.3 per cent stake in Samsung Electronics, which indirectly invests in Samsung C&T and Samsung Life Insurance. This type of ownership structure can be particularly problematic during transfers of ownership to new generations. As with any dynasty, no one is ever sure that the heir apparent is capable of doing the job. Lee recently took over as Samsung Electronics’ vice chairman. At a time of strong and growing market competition, he must provide the kind of visionary leadership that characterized his father and grandfather, the company’s pioneering founder, who transformed a small local trading company into a global semiconductor and smartphone powerhouse. Like the rest of the chaebols, Samsung risks losing ground in global markets, owing to the narrowing technology gap with China. Though South Korea is still ahead of China in high-tech branches like memory chips and automobiles, its lead is diminishing in many major industries, such as steel, ships, petrochemicals, and electronics. In emerging markets, Samsung Electronics has already lost market share to Chinese smartphone makers such as Huawei and OPPO. It is in this high-pressure context that, last year, Moon Hyungpyo, South Korea’s then-health and welfare minister, allegedly pressured the National Pension Service to back a controversial merger of two Samsung group affiliates that was essential to ensure a smooth transfer of managerial control to Lee. Moon, who then became chair of the NPS, has now been arrested for that move. Lee’s indictment, too, is linked to this effort. He is charged with donating to Choi’s two foundations, and of bankrolling Choi’s daughter, in exchange for the support he received. He is also accused of embezzlement and perjury. (The judge ruled that there was insufficient reason to issue the requested arrest warrant.) While the government makes deals with the chaebols, start-ups and small and medium-size enterprises (SMEs) are struggling to make their way into the market. SMEs’ labour productivity is just 35 per cent that of large firms. And labour productivity in the services sector is 45 per cent that of the manufacturing sector – just half the OECD average. To create a healthier business climate for innovative small firms and venture start-ups, the chaebols’ dominance must end. South Korea’s leaders must implement stronger regulations to prevent illegal transactions and unfair practices, including collusion between chaebols and government officials. They should also strengthen the rights of minority shareholders and outside directors to prevent expropriation by founding families. There was a time when what was good for the chaebols was good for South Korea. But times have changed, and the chaebol system is now doing more harm than good. With Park’s impeachment, South Korea has gained an ideal opportunity to leave behind her father’s legacy as well. Project Syndicate
To create a healthier business climate for innovative small firms and venture start-ups, the chaebols’ dominance must end
”
16 Business Daily Monday, January 23 2017
Closing Stats bureau
China’s producer prices face December as prices of coal and other raw materials soared. upward pressure in 2017 China’s producer prices face upward pressure in 2017 as the market situation continues to improve, the National Bureau of Statistics said yesterday in a commentary on its website, adding to expectations that global inflation may be stronger in 2017. China’s producer prices surged more than expected by the most in more than five years in
Stronger prices are welcome news for China’s heavily indebted smokestack industries, which are largely state owned and in need of more cash flow to help pay off loans. But some industries have not resolved their overcapacity issues, which could be a potential obstacle for further rises in factory prices, the NBS said. Reuters
Technology
Singapore 2G switch off highlights digital divide Government recently banned the sale of 2G-only mobile phones and new prepaid SIM cards no longer work on 2G handsets Toh Ting Wei
W
hen Singapore pulls the plug on its 2G mobile phone network this year, thousands of people could be stuck without a signal -digital have-nots left behind by the relentless march of technology. From technophobic pensioners to cash-strapped migrant workers, some 140,000 people in highly-wired Singapore still use the city-state’s second generation (2G) network and cheap, robust handsets. First rolled out in 1994 -- when playing Snake was the pinnacle of mobile entertainment -- 2G has long been superseded technologically, with new gold standard 5G offering lightning fast connectivity for a generation used to streaming movies and TV directly to phones. Singapore, which has one of the world’s highest rates of smartphone penetration, plans to turn off 2G in April in order to re-allocate scarce radio frequency spectrum and meet surging consumer demand for highspeed data. “It makes sense for a market like Singapore as operators need more capacity for data services,” Charles Moon, an analyst with information technology research firm Ovum, told AFP.
Japan and South Korea and U.S. telecom giant AT&T have already shut down their 2G networks and Australia is set to stop the service in September. Singapore recently banned the sale of 2G-only mobile phones and new prepaid SIM cards no longer work on 2G handsets. But globally, 2G is not set to vanish, even as the number of smartphones is projected to soar from four billion last year to some six billion by 2020, according to IHS Markit data.
By 2021, 2G will still account for some 11 per cent of total mobile subscriptions worldwide - mostly in Africa and Latin America, analyst Moon said. “Affordability is the major factor driving continued use,” he said, adding that the longer battery life and durability of 2G handsets was also important.
‘Use a payphone’
In wealthy Singapore, those most affected by the shift are likely to be the city’s migrant worker population, who rely on cheap 2G phones to stay in touch with family back home. “This is really their connection to the rest of the world,” said Debbie Fordyce of migrant worker welfare
group Transient Workers Count Too, which is asking the public to donate old 3G phones to help affected labourers. Bangladeshi construction worker Roshid Mamunun said his threeyear-old Nokia handset was all he could afford. “I can talk my family, I can call them, if I need help, I can contact people,” he told AFP. Sahadat, 26, another Bangladeshi worker, who goes by one name, said he was worried he would not be able to afford a 3G phone to make his daily call to hear his one-year-old son say “Papa”. The cheapest 3G-enabled phones ranged from S$35 to S$99 (US$25 to US$70) in local phone shops. Normal voice calls and text messages on 2G and 3G networks cost the same. For others devotees of 2G, it is the simplicity of the solid, old handsets that is the main selling point, and 80-year-old retiree Tan Ah Phong said he is dreading the April deadline. “We only need phones to make calls,” he said. “Just looking at the number of functions on a lot of phones nowadays gives me a headache.” Lee Soo Eng, 86, says her daughter gave her a touchscreen smartphone two months ago but she regrets giving up her 2G device. “At this age, my memory is not good, so I keep forgetting how to unlock it or use it to call,” she said. “When I need to contact anybody, I will just use a public payphone,” she told AFP. AFP
Pension reform plan
Smartphones
Trade
Thousands protest outside Taiwan Presidential Office
Tencent dominates Mainland mobile app use
Chief of Foxconn says rise of protectionism unavoidable
Thousands of military personnel, teachers, police and civil servants protested a plan to reform Taiwan’s pension system outside of the Presidential Office in Taipei yesterday, as a national conference to discuss reform was held in the Office. Vice President Chen Chien-jen announced a pension reform plan this week for teachers, civil servants and non-government employees which would delay a default in payments to retirees by a decade. The plan has angered the island’s public servants, many of whom say it would ruin their retirement plans and that it demonstrates incompetence by President Tsai Ing-wen. “Tsai Ing-wen step down,” shouted the protesters, barricaded from the Presidential Office by rows of wired fences and barriers. “We protest the Tsai government,” the protesters chanted, calling the reform plan “government bullying” and “majority tyranny.” Police said about 12,000 people are estimated to have taken part in the demonstration. Pension reform is critical for Taiwan as large payouts are no longer sustainable for the export-reliant economy. Reuters
Tencent Holdings Ltd.’s messaging services were by far the most popular Chinese mobile apps in 2016, leading steady growth in the world’s largest internet and smartphone market, the government’s online industry overseers said yesterday. WeChat remained the most heavily used app in the country in 2016, with almost 80 per cent of the online population employing the social media service frequently, the China Internet Network Information Center or CNNIC said in its annual report. Tencent’s QQ took second place, while Alibaba Group Holding Ltd.’s online bazaar Taobao came in third. Baidu Inc.’s mobile app and Alipay, the payments service run by Alibaba-affiliate Ant Financial, rounded out the top five. The rankings underscore how China’s “BAT” internet triumvirate -- Baidu, Alibaba and Tencent -- dominate the country’s internet industry, which is walled off from the likes of Google, Twitter Inc. and Facebook Inc. Internet users there climbed roughly 6 per cent to 731 million -- about twice the population of the U.S. The number of people who accessed the Internet through a mobile device surged more than 12 per cent to 695 million. Bloomberg News
The head of Foxconn, the world’s largest contract manufacturer of electronic goods and a major Apple Inc supplier, said yesterday that the rise of protectionism is unavoidable. Terry Gou, chairman of Foxconn, formally known as Hon Hai Precision Industry Co, warned that uncertainties for this year make it tough to have a very clear analysis and outlook, but he said it was clear politics would underpin economic development. His remarks came after U.S. President Donald Trump pledged to put ‘America First’ in his inauguration speech Friday, reinforcing concerns of a U.S. protectionist agenda that has cast a cloud over the outlook on global trade. “The rise of protectionism is unavoidable,” Gou said. “Secondly, the trend of politics serving the economy is clearly defined.” Gou, who did not directly refer to Trump, gave his remarks in a speech to an audience of employees and senior company executives at an annual company event yesterday. Taiwan’s tech-dominated manufacturers are nervous about potential U.S. trade policies because Trump has threatened to raise tariffs on imports from some countries, notably China. Reuters