Business Daily #1223 January 27, 2017

Beijing to keep deficit target as in 2016 Budget Page 11

Friday, January 27 2017 Year V Nr. 1223 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Results

Las Vegas Sands’ figures miss forecast Page 8

Yuan

Forex regulator issues new rules to tame outflows Page 16

www.macaubusinessdaily.com

Public administration Economic message

E-services to be ready in the next two years Page 9

Premier Li says China will offer stability and openness Page 11

Capital buffer

Secretary for Economy optimistic about stricter requirements for junkets Page 2

Jobs as usual

Employment

The latest figures on the local job market confirm a steady situation. Unemployment increased just slightly, showing a rosy picture. However, the completion of massive construction projects on the Cotai strip meant fewer workers were employed in the sector. Page 2

Kicking-off poll time

The new electoral commission for this year’s Legislative Assembly Elections was presented yesterday. Its chairman unveiled just a few details, but noted that candidates giving media interviews outside of the campaign period could be punished.

Election Page 4

Wheels on fire

Transportation The Traffic Affairs Consultative Committee gathered yesterday with most of its members offering positive views on the recently increased transportation fees in the territory. The committee was also informed that 711 roadwork projects will be started this year. Page 4

Bye bye bears

Gaming Stock markets are starting to love the city’s gaming business again. The move toward mass market is paying back with a growing trust in casino operators among investors, a private analysis shows. Page 9

Construction supports China’s core

The newspaper will be back on Wednesday 31st.

HK Hang Seng Index January 26, 2017

23,374.17 +325.05 (+1.41%) Worst Performers

Want Want China Holdings

+3.84%

Bank of East Asia Ltd/The

+2.50%

Sands China Ltd

-0.71%

China Petroleum & Chemical

+0.32%

China Unicom Hong Kong

+3.61%

CNOOC Ltd

+2.27%

Cathay Pacific Airways Ltd

-0.57%

Cheung Kong Infrastructure

+0.33%

+3.00%

Hang Lung Properties Ltd

+2.13%

CLP Holdings Ltd

-0.07%

Wharf Holdings Ltd/The

+0.34%

China Mengniu Dairy Co Ltd

+2.78%

China Construction Bank

+2.10%

Hong Kong & China Gas Co

+0.28%

Ping An Insurance Group Co

+0.37%

Hengan International Group

+2.56%

Tencent Holdings Ltd

+2.09%

Li & Fung Ltd

+0.30%

Power Assets Holdings Ltd

+0.42%

Belle International Holdings

28° 31° 28° 31° 28° 32° 28° 32° 28° 32° Today

Source: Bloomberg

Best Performers

SAT

sUN

I SSN 2226-8294

Mon

Tue

Source: AccuWeather

Happy Holiday

Industrial figures China’s major industrial firms ended their period of profit declines and reaped good returns in 2016 on the back of a construction boom, the National Bureau of Statistics said yesterday.

Page 10

2 Business Daily Friday, January 27 2017

Macau Employment

2016 unemployment rate at 1.9 pct The jobless rate of local residents, meanwhile, rose by 0.2 percentage points year-on-year to 2.7 per cent Kam Leong kamleong@macaubusinessdaily.com

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he city’s overall jobless rate stood at 1.9 per cent for the whole year of 2016, while that of local residents reached 2.7 per cent, the latest official data released yesterday by the Statistics and Census Service (DSEC) shows.

Compared to 2015, the local general unemployment rate went up by 0.1 percentage points, and the jobless rate of local residents rose by 0.2 percentage points.

Meanwhile, median monthly employment earnings in the MSAR reached MOP15,000 (US$1,875) for the whole year, while that of local residents amounted to MOP18,000, both figures remaining unchanged compared to 2015.

In addition, the median monthly employment earnings per household continued to hover at MOP28,000 similar to 2015, according to DSEC. As at the end of 2016, the city’s total labour force amounted to 392,600, of which those who were employed accounted for some 385,000, a drop of 500 compared to the period of September to November, or a decrease of

9,200 compared to the third quarter of 2016.

The total unemployed population, on the other hand, reached 7,600 as at the end of last year, of which 8.9 per cent were fresh labour force entrants searching for their first job, the Bureau said.

Industries

Analysed by industry, 23.7 per cent of the city’s employed population were working in the fields of recreational, cultural, gaming and other services as at the end of the year.

Some 14.9 per cent, meanwhile,

were employed in hotels, restaurants & similar activities, followed by another 12 per cent working for the wholesale & retail industries.

The other major employers were the construction industry, real estate & business activities and public administration & social security sectors.

However, the city’s construction industry saw its employment drop by 7,900 quarter-to-quarter to 37,200 as at the end of last year, due to the successive completion of large-scale casino projects in the city, DSEC explained.

Compared to 39,300 for the

September-November period, the number of employed construction workers also dropped by 2,100.

In addition, both the wholesale & retail trade and hotel business saw fewer workers as at the end of the year compared to the September-November period, down by 1.2 per cent and 2.5 per cent, amounting to 46,300 and 30,200, respectively.

Nevertheless, period-on-period, total employment in the city’s gaming and junket activities jumped by 4.4 per cent to 79,600 while that of restaurant businesses also registered an increase of 1 per cent to 27,000.

Employment

DSAL cancels 10 blue cards due to infractions The Labour Affairs Bureau (DSAL) cancelled work permits – also known as blue cards – of ten non-resident workers during the first eleven months of 2016, its director Wong Chi Hong said.

Replying to legislator Ella Lei Cheng I’s written enquiry, the DSAL head said the cancellations were

due to the job responsibilities of these foreign workers having been found to not meet the job titles on their blue cards, involving a total of three employers.

The official stressed in his reply that the Bureau would cancel the blue cards of non-resident workers if they violated any local labour

regulations.

He warned that employers would also be held legally responsible if they provided false statements to the authorities in order to obtain work permits for foreign workers.

‘Regarding the grants of working permits, DSAL will analyse and evaluate applications based on the

government policy, the overall economic situation, the supply-demand of the city’s local labour market and employers’ recruitment situations,’ Mr. Wong wrote.

In the enquiry, the unionist legislator urged the government to carry out effective measures to combat people trying to illegally obtain work permits, arguing that such infractions are affecting the city’s human resources and local security. K.L.

Gaming

Leong: Higher junket thresholds for healthier development Secretary for Economy and Finance, Lionel Leong Vai Tac believes increasing the minimum capital requirements for junket operators will lead to healthier development of the local gaming industry, according to local broadcaster TDM Radio.

Over the weekend, the director of the Gaming Inspection and Co-ordination, Paulo Martins Chan said the law amendments raising the thresholds for junket companies are progressing, adding that there would be a significant increase from

the current amount of MOP100,000 (US$12,500).

On the other hand, the Secretary opined that the decrease in the number of licensed junket operators in the MSAR would actually bring positive impacts to the industry, noting that the public does not need to be concerned about the adjustment.

According to Wednesday’s Official Gazette, the number of licensed junket operators for this year dropped by 10.6 per cent to 126, down from 141 as of January last year. C.U.

Public administration

Universal e-public services earliest next year The government plans to launch universal electronic public service platforms in the next two years, said the director of Public Administration and Civil Service Bureau (SAFP), Kou Peng Kuan.

The official said the Bureau would initiate preparation works for the e-services this year, such as law amendments or other required legislation.

Currently, the government operates one online service platform named ePass, but the director said the authorities are not likely to expand the platform’s service scope to more

personalised services due to a lack of the required legislation or systems at the moment.

The official revealed the information in his reply to legislator Kwan Tsui Hang’s enquiry. Ms. Kwan queried whether the government has a timetable for introducing e-public services.

According to the SAFP head, each government department has been requested to draft its own plan for e-services based on its own needs.

He expects the government will gradually introduce more e-services in the future. K.L.

Business Daily Friday, January 27 2017 3

Macau

4 Business Daily Friday, January 27 2017

Macau Opinion

Pedro Cortés*

Chiclet workers According to this week’s news, it seems that in order to satisfy some xenophobic voices, who consider that Macau does not need nonresidents in order to be an international gaming and tourism destination, the Macau Government is willing to not renew “bluecards” of managerial and top executive offices.

I have nothing against policies that are designed to protect and develop our great city. Nonetheless, it seems that we have here a “Chiclet” policy (a famous brand of chewing gum in my youth) to the extent that has those who have assisted Macau, with their knowhow, to become what it is today, are no longer needed and, therefore, must be thrown away.

People who have worked hard for many years and consider Macau their hometown. They have had children here, bought houses, and developed that unique feeling of belonging to a place like Macau.

In the words of the Labor Affairs Bureau head, it is something like this: “And we have already told the gaming companies we will not renew those work permits.”

There are studies for everything in our city. Is there a study for this?

I have nothing against Macau residents, but it seems that without any common sense, we are trying to promote people just because of their ID card and not on the basis of their outstanding skills.

My memory is not what it used to be, so I may have already mentioned this point previously in this column: it would be interesting to have a study of the origin of all those who support this policy. Were they born in Macau? Are their parents from Macau? Are they protecting their egoistic rights without any sense of what Macau will be in the future?

Don’t we all want Macau to be an outstanding international destination for tourism and gaming?

Shouldn’t the government protect all those managers and top executives who have brought outstanding products to Macau and made this city different?

How can the responsible parties throw away these skills and know-how? Of course, they are going to be hired by Singapore and other gaming and tourism destinations. We may even see some of those people in Japan in the future. Are the concessionaires prepared for this?

In a city that has always integrated foreigners (irrespective of their origin), it is hard to believe that this is going to happen. *lawyer and frequent contributor to this newspaper.

Elections 2017 Cooperation with the Chinese government to assess candidate’s

loyalty to the MSAR to be considered by new electoral committee

MSAR candidates waiting for the rooster Clear rules for this year’s election will have to wait until after Chinese New Year, but the new electoral commission chairman admits candidate interviews with the media before the campaign could be considered an infraction Nelson Moura nelson.moura@macaubusinessdaily.com

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nterviews given to the media by possible candidates before the 15-day period allowed for campaigning could be considered an infraction under the new Electoral Law, said the chairman of the new electoral commission for this year’s Legislative Assembly Elections, judge of the Court of Second Instance, Tong Hio Fong.

“The law is very clear about what is considered campaigning and what can be discussed by candidates, but we’ll have to see case by case,” said Mr. Tong.

However more questions than answers remained after the first official presentation of the new committee yesterday, with the newly appointed

chairman saying the changes implemented by the modified Electoral Law will only be clarified after the first committee meeting.

When questioned in regards to one of the most contentious alterations of the electoral law - the requirement for candidates to pledge loyalty to the MSAR and its Basic Law - Mr. Tong said that the definition of what constitutes loyalty, and whether past actions by legislators would be taken into account when assessing their eligibility, would also be made clearer after the committee’s first meeting.

The new committee chairman also said cooperation with the Chinese central government in regards to the loyalty matter would be “considered”.

When questioned about the fact that some lawmakers and experts

consider the electoral law revisions to be more restrictive of electoral freedoms, Mr. Tong said that “the committee’s duties only involve strictly enforcing the Electoral Law”.

Before the election for sure

No specific date was given for the first meeting of the committee, with Mr. Tong only saying it would take place after Chinese New Year, and with the election date still to be determined.

“We will have more frequent meetings to properly use the time left.

The new election law changes will be clearer after the first meeting,” he said.

Amendments to the city’s current Legislative Assembly electoral law passed their final reading at the legislature in December, including special measures aimed at preventing campaign corruption especially for the 12 legislators elected by associations.

Implemented changes include candidates having to pay a guarantee deposit of MOP25,000 (US$3,125), association presidents being responsible for infractions committed by their organizations, and a MOP4.5 million maximum limit for campaign expenses.

Transportation

Effective adjustment Cecilia U cecilia.u@macaubusinessdaily.com

Most committee members agree that the results of the new adjustments to the city’s transportation fees have been positive, said committee representative Kou Kun Pang after yesterday’s Traffic Affairs Consultative Committee meeting.

Kou revealed however, that some members expressed their doubts over the increase in the fees for renewing taxi driving licenses, from MOP40

(US$5) to MOP100, indicating that the change in the price will not have a significant impact on the number of vehicles in the city.

“But the [Transport] Bureau replied that the adjustment is based on the unchanged price for a long period of time,” said Mr. Kou. He also reported that the rate of usage of parking meters has increased from 40 per cent to 50 per cent following the adjustment, commenting on the improved awareness of drivers to pay for the meters.

M ea n w h i l e, th e c o m m i tt e e representative reported that the number of vehicles in the city has increased 0.8 per cent compared to the previous year.

“We hope we can free more space on the roads,” Mr. Kou echoed.

Last year’s data

The registration of some 990 vehicles was canceled in the first 20 days of this year, up 55 per cent compared to the same period in 2016, Mr. Kou reported.

Regarding vehicle inspections, only three out of some 8,000 vehicles did not pass the vehicle inspection test, Mr. Kou commented, adding that drivers are more aware of maintaining their vehicles and preparing for the inspection.

He stated that the Director of the Transport Bureau explained that the three problematic vehicles had also passed the test eventually.

“As long as drivers prepare for the inspection, it would not be a big problem to pass the inspection,” noted Mr. Kou. On the other hand, some 711 road projects or construction works will occur in 2017, reported the committee representative.

He affirmed that the Transport Bureau will undertake measures to reduce the impact of the road works, such as conducting operations during the night.

Business Daily Friday, January 27 2017 5

Macau

6 Business Daily Friday, January 27 2017

Macau M&A

Shun Tak buys Singapore commercial complex for nearly HK$2 bln This is the second move by the enterprise to build up its presence in the country in less than 12 months Kam Leong kamleong@macaubusinessdaily.com

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ong Kong-based conglomerate Shun Tak Holdings Ltd has acquired a majority stake in a commercial development in Singapore for a total consideration of S$350 million (HK$1.92 billion/US$239.1 million),

the company announced late on Wednesday night.

The statement reads that the company has purchased a 70 per cent interest in a commercial complex located at 111 Somerset Road, while the other 30 per cent stake in the project is held by Singapore-based Perennial Real Estate Holdings Ltd that Shun Tak describes as a ‘longstanding strategic partner in both its

Tongzhou and Hengqin integrated projects’.

The complex, occupying a total gross floor area of some 766,550 square feet, will comprise a total net strata area of 572,000 square feet including 13 stories of office units, two stories of medical suites and office units, as well as two levels of retail podium, the statement reads.

According to Shun Tak, the property is currently undergoing a substantial asset enhancement program, which is expected to be completed by late next year or early 2019, while the retail portion of the property has been vacated for renovation and the offices are approximately 75 per cent leased.

‘The Group believes the Singapore office market will remain healthy in the medium to long run, backed by sound government policy and solid underlying fundamentals,’ the company said in the announcement, noting this investment opportunity offers ‘attractive return potentials and short payback period’.

In fact, this is the second property in Singapore acquired by the conglomerate in less than 12 months.

Last May, the company acquired a 25,741 square foot freehold site in the central business district in Singapore for a consideration of HK$835.2

million, for which a hotel development is planned.

‘The Group is pleased to build its presence and commitment in Singapore with this second property acquisition it made over the last six months. The decision is also consistent with its strategy to expand its real estate portfolio into international gateway cities,’ it noted in Wednesday’s statement. K.L.

Retail

I.T sales drops in fiscal Q3 Clothing retailer I.T Ltd saw its comparable store sales growth jump in the mainland for the three months ended November 30, despite a decrease registered in its home market Hong Kong.

According to a filing with the Hong Kong Stock Exchange, the retailer’s comparable store sales in Hong Kong fell by 4.6 per cent year-on-year for the three months, but sales in Mainland China recorded a notable increase of 18.5 per cent year-on-year.

The company did not reveal the related financial figures for the period in the filing.

‘The overall economic environment, including our sector, continued to be very challenging in the [fiscal] third quarter,’ the company noted. ‘A strengthened HK [Dollar] that has the effect of encouraging outbound spending, has continued to place downward pressure on our Hong Kong operation.’

The filing shows that the group’s overall gross profit margin rose slightly by 0.7 percentage points

year-on-year to 63.9 per cent for the three months, with the Hong Kong market increasing year-on-year by 1.2 percentage points to 60.5 per cent and the Mainland Chinese market decreasing by 1.2 percentage points to 64.6 per cent from one year ago.

‘This uplift was primarily as a result of the withdrawal of several price discounting programs, as well as a sales mix focused on higher margin products during the period,’ the retailer said.

Meanwhile, for the nine months ended November 30, the Hong Kong-listed retailer registered a decrease of 2.1 per cent in its comparable store sales in Hong Kong, while those in the mainland rose by 9.5 per cent year-on-year.

For the first six months of its fiscal year, the company’s net profit increased by 9.2 per cent year-on-year to HK$39.1 million (US$4.9 million), but its sales generated from the MSAR went down by 9.2 per cent year-onyear to HK$91.7 million, according to its recent interim report. K.L.

Property

HNA acquires third parcel at Kai Tak Hainan Airline’s parent company, HNA Holding Group Co Limited, has acquired a third parcel of a land at Hong Kong’s Kai Tak, the site of the former Hong Kong international airport, for HK$5.53 billion, according to a report from South China Morning Post.

The company – an industrial conglomerate operating hotels, golf courses and infrastructure – bought the property through its subsidiary, Top Genius Holdings, bringing up its total investment in Kai Tak land plots in the past three months to HK$20

billion, notes the publication.

HNA is one of many interested buyers in the area, including gaming operator Galaxy’s founder Lui Chee-woo. HNA’s purchase represents a 27 per cent increase on the HK$10,220 per square foot price paid in December by Lui Chee-woo’s K Wah International, when the company acquired its second parcel at Kai Tak. HNA paid HK$13,000 per square foot.

The Mainland Chinese company now owns the equivalent of 1.5 million square feet of residential gross floor area in the site that is to be transformed into Hong Kong’s second business district.

The HNA Group continued to expand its portfolio in the asset management business this month by acquiring a majority stake in SkyBridge Capital, an alternative investment firm with US$12 billion (MOP96 billion) in assets under management or advising, founded and co-managed by an adviser to U.S President Donald Trump, Anthony Scaramucci. S.Z.

Business Daily Friday, January 27 2017 7

Macau

8 Business Daily Friday, January 27 2017

Macau Results

LVS results not what analysts were expecting Lower than expected market share, higher promotions, and higher than expected operating expenditure drove the miss, note analysts Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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he results announced by local casino operator Sands China’s parent company, Las Vegas Sands, were seen as ‘disappointing’ and ‘below expectations’, according to analysts at Wells Fargo and J.P.Morgan. The results, released yesterday, showed that the group’s local property EBITDA (earnings before interest, taxation, depreciation and amortisation) came in 5 per cent below the Street, while the normalized EBITDA was 11 per cent below consensus, point out the Wells Fargo analysts. ‘The miss was driven by: lower than expected market share, higher promotions, and higher than expected opex [operation expenditure],’ note the analysts.

The adjusted property EBITDA for the group in the fourth quarter of the year came in at US$610 million, which was a 3 per cent quarter-toquarter drop, but a 5 per cent yearon-year increase, falling short of J.P.Morgan analysts’ consensus by 4 per cent to 6 per cent, with the group noting that: ‘although management’s tone was upbeat for both the short term […] and the long term, the kneejerk reaction to the stock is likely to be negative.

‘We held towards the low end of our expected hold range in mass tables. We estimate low hold in mass tables, particularly at The Parisian Macau, impacted EBITDA negatively by between US$15 million and US$20 million,’ notes a release

by Sands China summarizing the earnings call given by Las Vegas Sands (LVS) Chairman and CEO Sheldon Adelson.

‘We think it was a disappointing quarter,’ note analysts at Wells Fargo, pointing to overall local market revenues increasing 10 per cent quarter-to-quarter.

‘Total net revenues for Sands China increased 12 per cent to US$1.86 billion in the fourth quarter of 2016,’ counters the Sands China filing on the Hong Kong Stock Exchange. ‘Net

income […] decreased 7.9 per cent to US$348 million,’ details the filing.

Results

The group’s local properties saw significant reductions in different areas, with the Venetian undergoing a year-on-year drop in the group’s Convention, Retail and Other sectors of 30 per cent, down to US$21 million, and net revenues dropping 12.1 per cent.

Both the property’s casino revenues and room revenues fell by 12 per cent and 12.5 per cent year-onyear, hitting US$602 million and US $ 44 m i l l i on, respecti ve l y.

The group’s slot handle suffered a 22.4 per cent drop, while its rolling chip fell 13.9 per cent in the quarter, year-on-year.

The group’s Sands Cotai Central operations also saw a fall in the slot

Sands China employees get raise and bonus

Sands China has announced that it will increase the salaries of eligible full-time staff ‘by an average of 2 per cent to 6 per cent’ starting from March 1, according to a press release by the operator yesterday. The company is the only one of the six gaming concessionaires to announce a raise in salary as well as a ‘discretionary bonus’ in advance of the Chinese New Year holiday, as opposed to the other operators which have only announced bonuses for eligible employees.

handle, of 14 per cent, and rolling chip volume of 31.5 per cent, year-onyear, with revenue from the casino falling 14.3 per cent in the quarter, year-on-year, to US$365 million.

Convention, retail and other activities also saw a 14.3 per cent year-on-year reduction, to US$6 million.

New kid on the block

The first full-quarter results from Sands China’s newest property, The Parisian Macao, showed that the casino brought in US$301 million in revenue, while the rooms brought in US$30 million, with 91 per cent occupancy in the quarter. Rolling chip hit US$3.31 billion.

J.P.Morgan analysts note that ‘both its [the Parisian’s] gaming and nongaming performed solidly’.

‘Overall the group’s gross gaming

revenue rose 8 per cent quarter-to quarter […] with its mass gross gaming revenue up 6 per cent quarter-toquarter and VIP up 13 per cent quarter-to-quarter […] non-Parisian mass gross gaming revenue actually fell 7 per cent quarter-to-quarter, dragged down by Sands Cotai in particular down (14 per cent quarterto-quarter),’ note the analysts.

The group’s oldest local property, Sands Macao, suffered cannibalization from the new property, as its rolling chip volume fell 47.9 per cent yearon-year in the quarter, hitting US$1.4 billion, and overall casino revenue fell 21.7 per cent, to US$155 million.

The property still saw 98.6 per cent room occupancy, while suffering a 6.2 per cent year-on-year drop in the average daily rate of rooms.

CNY

The group notes the raise and bonus is to ‘reward their contributions towards the company’s continuing success and achievements’.

Full-time employees making MOP12,000 or less will receive a MOP600 salary raise, while those earning over MOP12,000 will receive ‘an average of a 2 percent to 2.5 per cent pay rise’.

The discretionary bonus will be for employees who have worked in the company for at least one year and will be equivalent to one month’s salary. The group will also distribute a bonus in July of this year.

The management’s expectations for Chinese New Year, note analysts at J.P.Morgan, are ‘upbeat’: “CNY holiday demand is likely to be off the chart huge”, which the group notes as ‘in line with feedback from junkets, operators and hotel booking trends.

“To date we have invested approximately US$13 billion in Macau […] We remain confident that our […]

Cotai Strip portfolio of properties will continue to provide the economic benefits of diversification to Macau […],” states the group’s Chairman and CEO. ‘We can and will continue to return excess cash to shareholders while maintaining our ability to invest in new development opportunities,’ notes the filing.

representatives also noted that a US$20 million contribution for a solar power project in Brazil had recently been approved. Since it was created in 2013, the fund has approved finance for three investment projects in Portuguese-speaking countries.

IPIM representatives believe the fund headquarters will be relocated from Beijing to the MSAR this year, as part of the Chinese government’s plans to develop Macau as a bridge between China and Lusophone countries. N.M.

Tourism

Take the money and build David Chow’s integrated resort project in Cape Verde to receive US$20 million from ChinaPortuguese Speaking Countries Co-operation and Development Fund The China-Portuguese Speaking Countries Co-operation and Development Fund will provide a US$20 million (MOP159.8 million) investment to local businessman David Chow’s (pictured) integrated resort project in the African country of Cape Verde, local broadcaster TDM reported.

The projected funding analysis period is “almost finalised”, said the Assistant General-Director of the fund management department, Song Feng during a presentation session for the US$1 billion fund held by the Macau Trade and Investment

Promotion Institute (IPIM).

The US$282.3 million project in the Portuguese-speaking country is being developed by David Chow’s casino and hotel operator, Macau Legend Development Ltd. and will be located in the Cape Verdean capital Praia on Santiago Island.

The project will be the first gaming development in the country, and will occupy a land and sea area of 152,700 square metres, where a resort with gaming facilities, hotels, retail, dining, convention centre, a marina and other facilities will be created.

The development fund

Business Daily Friday, January 27 2017 9

Macau

Uptick

Casino stock bears vanish before CNY rush Rattled by the recent slowdown, casinos and resorts in Macau looked to middle-class tourists to revive sales Adam Haigh and Kana Nishizawa

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nvestors are turning more positive about Macau following a two-year slump in the world’s biggest gambling hub.

A sharper focus on the more profitable mass market is paying off for casino operators, while VIP punters are starting to return after their wings were clipped by Chinese President Xi Jinping’s crackdown on corruption. Betting in Macau rose 10 per cent last quarter to 60.4 billion patacas (US$7.6 billion). The signs of recovery are scaring away the bears.

“Although the long term growth looks pretty good, it’s more like the market already knows about it so I don’t think there is much room to improve” Angelamaria Hanlee, an analyst at China Merchants Securities (Hong Kong) Co.

Rattled by the recent slowdown, casinos and resorts in Macau looked to middle-class tourists to revive sales. Wynn Macau Ltd.’s new casino on the Cotai strip and Sands China Ltd.’s Parisian are attracting crowds, while restrictions on cash machine withdrawals weren’t as harsh as some had feared. The MSAR is set for a further boost over the week-long Lunar New Year holiday, which this year starts on Jan. 27. This is usually peak season for visitors. DS Kim, a Hong Kong-based analyst at JPMorgan Chase & Co., said booking trends for junkets and hotels are upbeat and might be on track to surpass the

Golden Week holiday in October last year. “We stay bullish on the sector for genuine upturns in demand, profits and cash flows in 2017 and onward,” he said.

Upward trend

Over the past 12 months, returns on a Bloomberg gauge of casino stocks were almost three times higher than those of the Hang Seng Index. In January 2016, Wynn Macau’s shares touched a record low and Sands China was trading at the lowest level since 2012. They’re up 84 per cent and 52 per cent from this time last year. Galaxy Entertainment Group Ltd., another industry leader, has jumped 72 per cent.

Morningstar analyst Chelsey Tam said in a recent note that Macau’s mass gaming revenue growth will peak at 15 per cent in 2019, as the Chinese traveling population grows and the opening of the Hong Kong-Zhuhai-Macau Bridge and light rail transit alleviate capacity constraints and help increase visitors. Growth will taper to high single digits through 2025, Tam said.

While valuations have come off November highs, when the Bloomberg Intelligence Macau Gaming index had a price-earnings multiple of 29, the highest since April 2010, the gauge is still trading at 25 times estimated earnings.

“It all comes down to valuation,’’ said Angelamaria Hanlee, an analyst at China Merchants Securities (Hong Kong) Co. “Although the long term growth looks pretty good, it’s more like the market already knows about it so I don’t think there is much room to improve.’’ Risks to the recovery include a wider smoking ban in VIP gaming areas later this year and potential for Chinese government policies restricting capital outflows.

“Capital flight controls from the continued depreciation of the yuan could limit VIP growth and junket operators’ financing capabilities,” said CICC Research, which is “cautiously optimistic” on the Macau gaming sector. Bloomberg News

10 Business Daily Friday, January 27 2017

Greater China

Official data

Industrial profits rise most in 3 years Producer prices surged the most in more than five years in December Elias Glenn and Lusha Zhang

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rofits for China’s industrial firms rose the most in three years in 2016 as a construction boom fuelled a rally in prices of building materials from steel to cement, giving companies more flexibility to start chipping away at a mountain of debt.

Strong profit growth of 8.5 per cent last year suggests there may be a solid pick-up in industrial investment in 2017, though many analysts still expect China’s overall economic growth to cool to around 6.5 per cent this year from 6.7 per cent in 2016.

Industrial profits fell 2.3 per cent in 2015.

Profits in December rose 2.3 per cent from a year earlier to RMB844.4 billion (US$122.76 billion), the National Bureau of Statistics (NBS) said yesterday, slowing sharply from growth of 14.5 per cent in November.

But the earnings recovery remained uneven across the industrial sector, with coal miners and processors such as steel mills and oil refiners continuing to see sharper gains than other firms.

Profits in the coal mining sector surged 223.6 per cent in 2016, while those for iron and steel production and processing companies rose 232.3 per cent.

Baoshan Iron and Steel (Baosteel) said last week that it expected its net profit to rise 770 per cent in 2016 from a year earlier.

Baosteel Group is taking over rival Wuhan Steel to create the world’s second-largest steelmaker, in the government’s biggest effort yet to consolidate its fragmented steel industry.

China’s stock market investors have cashed in on the industrial revival. An index tracking the industrial sector has risen around 22 per cent since June 2016 and reached a 10-1/2-month high in November.

Underlying weakness

The NBS said a narrower loss for the mining sector, and stronger profit growth in equipment and high-tech manufacturing contributed to the overall 2016 earnings turnaround.

But part of the reason for the strong numbers last year was simply due to a weak base of comparison from the previous year and the foundation for further improvement in the industrial sector was not stable, the stats bureau added.

“Average profit growth over the last two years has not kept up with output growth,” NBS said in a statement.

“An unreasonable demand structure, difficulties collecting funds and high costs are a drag on corporate profits.”

Indeed, the amount of time it took companies to collect payment rose to 36.5 days in 2016, while the increase in accounts receivables accelerated to 9.6 per cent. The efficiency of production also fell, with companies

having to invest more to generate the same amount of revenue as in the past.

The stats bureau said the slower profit growth in December was due to volatility in oil prices and adjustments by some firms to their product structure.

Profits for firms which make computers and other electronic equipment fell 10.5 per cent in December, after rising 45.4 per cent in November, possibly due to fewer new product launches at the end of the year.

Key Points China industrial profits +8.5 pct 2016, +2.3 pct y/y in Dec Profits rise largely on recovery in coal, steel industries Stats bureau warns foundation for industrial recovery still weak Some analysts fear price rally being fueled by speculators China’s state firms fared worse than the broader industrial sector, with profits at government-owned firms rising only 1.7 per cent in 2016, the Ministry of Finance said earlier yesterday.

Total profits at state firms stood at RMB2.3 trillion for the year, while revenue rose 2.6 per cent to RMB45.9 trillion.

China increasingly relied on its lumbering and often inefficient state

firms to generate economic growth last year as private investment cooled.

State firms’ total liabilities rose 10 per cent year-on-year to RMB87 trillion at the end of December. For industrial firms overall, liabilities rose 5.6 per cent in 2016.

Commodity prices rally

China’s producer prices surged the most in more than five years in December, bolstered by a monthslong rally in prices of coal and raw materials and contributing to a reflationary pulse felt across the global manufacturing sector.

Government efforts to force bloated “smokestack” industries to shut excess and inefficient capacity also helped feed the rally by reducing supply.

But some analysts worry the strong price gains may have been fuelled by growing speculation in China’s commodity futures markets, adding to the risk of asset bubbles in the economy which the central bank has vowed to prevent in 2017.

Chinese futures prices for steel reinforcing bars used in construction have risen more than 10 per cent so far this month, on top of a gain of more than 60 per cent in 2016.

Tackling debt

Still, the stronger cash flow will in theory give China’s big state industrial champions more room to tackle their debt burdens.

Chinese firms as a group owe some US$18 trillion, equivalent to about 169 per cent of gross domestic product, according to the most recent figures from the Bank for International Settlements. Most of it is held by state-owned firms.

China’s industrial output is likely to grow around 6 per cent in 2017, similar to the pace seen in 2016, a state-run newspaper quoted Chinese industry minister Miao Wei as saying in December. Reuters

Business Daily Friday, January 27 2017 11

Greater China Economic view

In Brief

Premier Li says nation to remain open and stable He also highlighted the new engines of expansion, such as services and consumption Premier Li Keqiang said China will continue to champion economic openness while providing stability for the global economy with on-going domestic reforms.

“This is a testing time,” Li wrote in the latest edition of Bloomberg Businessweek. “China offers an anchor of stability and growth with its consistent message of support for reform, openness, and free trade.”

China remains convinced that “economic openness serves everyone better, at home and abroad,” Li said, echoing President Xi Jinping’s recent speech to the World Economic Forum in Davos that warned against trade wars and protectionism.

Those sentiments contrast with President Donald Trump’s action to withdraw from the Trans-Pacific Partnership trade pact soon after taking office, fulfilling a campaign promise and raising concern about more protectionist policies in the U.S. Li spelled out some of the positive outcomes China has managed to achieve in pressing ahead the structural reforms and forming new growth drivers, confronting criticism that the resilient economic growth came at a cost of delayed reform measures.

“Structural reforms are showing results,” Li wrote. In 2016, China shed more than 65 million tons of excessive

steel capacity and 290 million tons of inefficient coal mining capacity, he said, adding that a total of 700,000 workers nationwide have transitioned to new jobs.

Li also highlighted the new engines of expansion, such as services and consumption, that are reshaping traditional sectors including high-tech and equipment manufacturing.

“Entrepreneurship and innovation are taking root,” Li wrote. “Meanwhile, new business models are thriving, transforming many previously unimaginable services into

daily conveniences. The mobile internet-enabled sharing economy is only one obvious case.”

The premier summed up the efforts policy makers have made to streamline administration, open new sectors and widen market access. “More measures are in the pipeline to ensure all businesses registered in China are treated equally,” Li wrote.

The state council, which Li oversees, last week rolled out plans to relax foreign investment restrictions in some long-closed areas of the economy including banking and insurance, while pledging to level the playing field for products made by foreign companies in China. Bloomberg News

Service trade deficit rises China’s foreign service trade deficit continued to grow last month, the State Administration of Foreign Exchange (SAFE) said yesterday. The deficit stood at US$26.1 billion in December, up from US$25.4 billion in November and 20.9 billion dollars in October, SAFE data showed.

Income from trade in services was US$26.7 billion, while expenditure totalled US$52.8 billion. In contrast with the huge surplus in goods trade, China’s service trade, although growing rapidly, has had a deficit for years as the service sector is less competitive than global markets.

Viaduct

First cycleway in the air starts trial operation

Debt risks

Government keeps budget deficit goal for 2017 The challenge for the authorities is how to encourage more investment without seeing money siphoned into speculative plays China’s policymakers plan to keep their budget deficit target for 2017 at the same level as last year to underscore a focus on debt reduction and reform, though they have wiggle room to increase fiscal stimulus if the economy needs support again.

A budget deficit target of 3 per cent of gross domestic product, unchanged from 2016, was endorsed by top leaders at the Central Economic Work Conference in December, according to sources with knowledge of the meeting’s outcome.

After government investment propped up activity for much of 2016, policymakers are looking for a recovery in private investment through public-private partnership

Competition

(PPP) infrastructure projects to drive growth this year.

“Fiscal policy is clear. It’s necessary to maintain last year’s 3 per cent deficit ratio, although there is room to increase it slightly,” said one of the sources, a policy adviser.

Preliminary finance ministry data this week implied an actual deficit of 3.8 per cent of GDP in 2016.

However, China’s budget accounting allows it to use unspent money from previous years and funds from a Central Budget Stabilisation Fund so it can report a final deficit in line with the target.

Total fixed-asset investment rose 8.1 per cent in 2016, the slowest pace since 1999, despite an 18.7

per cent increase in investment by state entities, as private investment grew just 3.2 per cent, the weakest on record.

Since mid-2015 the National Development and Reform Commission, the nation’s economic planner, has released PPP proposals worth RMB6.4 trillion (US$930 billion).

The government has also been simplifying approval processes and offering incentives for private investment in infrastructure.

Key Points 2017 Deficit/GDP ratio to be same as previous year -sources Deficit target endorsed by leaders at Dec meeting -sources Policymakers to tolerate weaker growth, curb debt risks Look to stronger private investment to underpin growth “The PPP projects will help boost private investment, but it’s hard to predict how big the impact will be,” he said.

Debt risks

The challenge for the government is how to encourage more investment without seeing money siphoned into speculative plays such as property, or propping up failing companies.

Analysts at investment bank UBS said China’s debt-to-GDP ratio could exceed 300 per cent within two years, up from an estimated 277 per cent in 2016 and 254 per cent in 2015.

UBS estimated that government debt, including explicit and quasigovernment debt, rose to 68 per cent of GDP in 2016 from 62 per cent in 2015, while corporate debt climbed to 164 per cent of GDP in 2016 from 153 per cent the previous year. Reuters

China’s first bicycle path in the air, at a length of 7.6 kilometres, started a trial run yesterday in Xiamen, eastern China’s Fujian Province. According to Xiamen City Public Bicycle Management, the path will be open to all kinds of bikes, including public and private bikes, from 6:30 a.m. to 10:30 p.m. during the month-long trial, in a bid to promote green transport. The path appears as a winding viaduct and is built beneath the city’s overhead BRT (Bus Rapid Transit) lanes. The highest section of the bicycle path is five meters above ground.

SOE

State firms profits edge up in 2016 Combined profits of Chinese state-owned enterprises (SOEs) rose 1.7 per cent year on year in 2016, a sharp contrast to the 6.7-per cent drop in 2015, official data showed yesterday. Last year, total SOE profits stood at US$2.32 trillion (about US$338 billion), the Ministry of Finance said in a statement. Profits of SOEs under central government control fell 4.7 per cent, while those for locally administered SOEs climbed 16.9 per cent year on year.

Building materials, transport and real estate companies posted strong increases, while textile, oil, tobacco and petrochemical SOEs reported major drops.

Fund managers

Equity exposure to 19-month high Chinese fund managers have raised suggested equity exposure for the next three months to the highest level in 19 months, betting the market will rise after the Lunar New Year holidays, a monthly Reuters poll showed. The fund managers increased their suggested equity allocations to 82.1 per cent, according to a poll of seven China-based fund managers conducted this week, up from 78.1 per cent a month earlier and the highest since June 2015.

Meanwhile, the fund managers reduced their suggested bond allocations for the coming three months to 5 per cent from 6.3 per cent a month ago.

12 Business Daily Friday, January 27 2017

Asia Tag

S.Korea to boost economic cooperation with China Beijing is widely believed in South Korea to be retaliating over military collaborations with U.S. Christine Kim

W

orried that Beijing is punishing it over plans to deploy a U.S. anti-missile system, South Korea yesterday said it will look to improve communication and cooperation with China to resolve difficulties faced by South Korean companies there.

The South Korean government will expand meetings with local businesses doing trade with or in China and engage Chinese officials more frequently in international meetings, South Korea’s finance ministry said in a statement released after a regular government meeting on external economic conditions.

Beijing strongly objects to South Korea’s decision last year to allow the United States to base a Terminal High Altitude Area Defence (THAAD) anti-missile battery in the country, worried that the system’s powerful radar can penetrate its territory.

South Korea and the United States say THAAD is only intended to curb the missile threat from North Korea.

Beijing is widely believed in South Korea to be retaliating over THAAD, including discriminating against some of its companies and cancelling performances by Korean artists without explanation.

“These measures could not have

come out of thin air,” a senior finance ministry official, who was not authorised to speak with the media and declined to be identified, told Reuters.

“It’s on everyone’s minds right now.”

Finance Minister Yoo Il-ho has said the government was looking into whether China’s recent rejections for South Korean charter flight

applications was related to the THAAD deployment.

Yesterday, he said uncertainties linked to China, South Korea’s biggest trading partner, could pose a threat to Asia’s fourth-largest economy.

Kang Chang-beom, vice president at South Korean battery maker LG Chem Ltd, said in a Thursday earnings presentation that plans were under way to minimise the risk from China as much as possible, such as exporting batteries that it makes in China to offset declining sales there.

“I think there’s a risk the Chinese

government’s discriminatory measures against foreign companies will continue for the time being because of political issues,” he said.

On Tuesday, renowned South Korean soprano Sumi Jo said on her Twitter account that her China tour had suddenly been cancelled after two years of preparations. It had been China that had initially invited her to perform, she said.

“It is greatly unfortunate that conflict between countries is now interfering with pure culture and arts,” said Jo.

Key Points S.Korea to expand meetings, exchanges with China officials Soprano Sumi Jo’s China tour cancelled with ‘no reason’ -Tweet China foreign ministry stresses its opposition to THAAD

South Korea and the United States say THAAD is only intended to curb the missile threat from North Korea

Beijing has not confirmed whether such actions were linked to the anti-missile system deployment and Chinese Foreign Ministry spokeswoman Hua Chunying said on Wednesday she did not know anything about the Sumi Jo issue.

“As for people-to-people exchanges, we have consistently supported China and other countries having friendly people-to-people exchanges, as we think that these exchanges and the deepening of friendships are very important to developing relations between countries,” she said.

“But under these circumstances, we hope South Korea can attach importance to China’s serious concerns and create even better conditions for normal people to people exchanges between the two countries.” Reuters

GDP

Philippine economic growth tops 3-yr high Gross domestic product rose 1.7 in the fourth quarter from the previous three months Neil Jerome Morales

The Philippine economy grew faster than expected at the end of last year, carrying solid momentum into 2017 that analysts say will help weather external risks from rising protectionism in the United States.

Robust domestic demand and higher infrastructure spending helped spur full year growth to a three-year high of 6.8 per cent, beating China’s 6.7 per cent and cementing the Philippines as one of the fastest growing

economies in the world.

Those same drivers, backed by President Rodrigo Duterte’s ambitious plans to spend up to US$180 billion over six years, will continue to underpin growth this year, economic planning secretary Ernesto Pernia said.

“Our strong economic performance will likely be sustainable over the long run,” Pernia told a news conference.

“This will be the golden age of infrastructure.”

Gross domestic product rose 1.7 in

the fourth quarter from the previous three months, government data showed yesterday, picking up from an upwardly revised 1.5 per cent growth in the third quarter and just ahead of the 1.6 per cent forecast in a Reuters’ poll.

With growth expected to be driven by private and government consumption, the economy would be less vulnerable to U.S. President Donald Trump’s protectionist trade policies compared with its export-reliant neighbours.

“Exports are not as key to the Philippines as other countries as it relies more on service exports rather than merchandise. As such, given that it is more domestic-demand driven, we are not particularly concerned,” said Trinh Nguyen, economist at Natixis in Hong Kong.

Central bank may be in play

Philippine President Rodrigo Duterte. Lusa

Business Daily is a product of De Ficção – Multimedia Projects

Domestic politics and U.S. monetary policy were also cited by analysts as risk factors.

Duterte, who took office in June last year, has rattled investors with his fierce outbursts, especially those directed against the United States, a major trade partner and a key source of foreign direct investment.

Pernia said the government is confident of hitting this year’ 6.5-7.5 per cent growth target, indicating a solid head of steam and raising the possibility of the first rate hike in over two years to temper growing inflationary pressures.

After the data was released, Bangko Sentral ng Pilipinas (BSP) Governor

Amando Tetangco said he saw no need to tweak monetary policy, but added that policymakers were monitoring external developments and would act if needed.

All the same, some economists say the BSP, which has not tinkered with its monetary policy since it raised rates by 25 basis points in September 2014, may have to push up rates to get ahead of the curve.

“A more positive output gap, along with a significantly higher inflation trajectory this year, strengthens the case for monetary policy tightening,” Nomura said in a research note.

That view was borne out by strong household consumption in the fourth quarter growing 6.3 per cent on the year, underpinned by around US$40 billion worth of inflows from business outsourcing contracts and millions of Filipinos working overseas.

Business investment also added to the growth impulse, climbing 15.0 per cent in the fourth quarter from a year earlier, faster than the 13.3 per cent in the same period the previous year.

A burst of campaign spending in the run-up to the May presidential polls last year helped take the sting off the impact of weak exports and a decline in farm output.

While analysts expect some cooling in growth this year, the new government’s pledge to raise and accelerate infrastructure spending should put a solid floor under the Philippine economy.

“The uncertain political situation at home and Donald Trump’s election in the US represent the major downside risks to the economy,” said Gareth Leather, senior economist at Capital Economics in a note. 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 Friday, January 27 2017 13

Asia Public spending

In Brief

India plans expansive budget despite growth A fiscal advisory panel has advocated widening the budget deficit to free up funds for infrastructure projects Manoj Kumar

India’s finance minister is likely to borrow more than originally planned when he presents the budget on Feb. 1, senior aides and officials said, despite counting on revenues from a national sales tax whose launch date is still unknown.

Arun Jaitley is looking at how to fund giveaways to taxpayers and higher public investment to help nurse Asia’s third-largest economy back to health after the government’s shock decision in November to abolish high-value banknotes.

Key Points Jaitley eyes tax giveaways, state investment in Feb. 1 budget May slightly overshoot 3 pct deficit target - sources Budget likely to assume nominal GDP growth of about 12 per cent Economists worried by optimistic growth, revenue assumptions

That is raising concern among some economists and investors that the government will take too many fiscal risks.

Arun Jaitley, India’s Finance Minister

Yet officials say that, given the choice, they would choose growth sustained by state investment over a fiscal straitjacket.

“Some degree of flexibility on fiscal discipline should not be seen as irresponsible fiscal management,” one senior government official told Reuters, requesting anonymity due to the sensitivity of the matter.

A fiscal advisory panel, which includes central bank head Urjit Patel, has advocated widening the budget deficit to “slightly over” 3 per cent of gross domestic product to free up funds for road, railway and irrigation projects.

“It is not possible to keep up the pace of capital expenditure without increasing the fiscal deficit beyond 3 per cent of GDP,” another official, briefed on the committee’s findings, added.

New Delhi earlier aimed to cut the federal deficit to 3 per cent of GDP over the next two fiscal years,

compared with 3.5 per cent in the year now drawing to a close.

Independent economists are also pencilling in a higher federal deficit in the coming fiscal year, at 3.3-3.4 per cent of GDP, creating room for the government to invest an extra US$6 billion.

That has drawn a warning from ratings agency Standard & Poor’s, which says that slowing the pace of fiscal consolidation could delay India’s chances of an upgrade due to its high and rising debt levels.

Heroic assumptions

Jaitley’s team forecasts a recovery in nominal GDP growth, the key driver of tax revenues, to around 12 per cent in 2017/18.

Yet that assumes oil prices of US$55-60 per barrel and a longdelayed Goods and Services Tax being implemented in July.

And the economy is still getting over the shock of Prime Minister Narendra Modi’s decision in November to scrap 86 per cent of cash in circulation in a bid to purge the economy of illicit “black money”.

The International Monetary Fund has chopped a per centage point off India’s forecast of real economic growth to 6.6 per cent in the current fiscal year to March, meaning China regains the crown as the world’s fastest-growing large economy.

The Washington-based lender has also shaved 0.4 of a per centage point off its forecast for the coming fiscal year.

Finance ministry officials remain tight-lipped about how quickly they expect growth to bounce back after it slowed following so-called demonetisation.

International prices for crude oil, India’s most expensive import item, could meanwhile overshoot the finance ministry’s expectations as exporting nations curb output, hurting the growth and revenue outlook.

“This budget is presented in a very uncertain situation,” said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a New Delhi thinktank that is partly funded by the government.

Modi faces the imminent verdict of voters in five regional elections, most importantly in the battleground state of Uttar Pradesh that is home to more than 200 million people.

A setback there for his nationalist party could harm his chances of winning a second term in 2019.

Election authorities have barred the government from offering targeted budget ‘sops’ to buy votes.

And even if the government does ramp up public investment in Jaitley’s fourth budget, it has little room for manoeuvre - nearly nine in every 10 rupees it spends go on servicing debt or paying wages and subsidies.

“It will not be a populist, but a pragmatic budget,” said a senior finance ministry official with direct knowledge of budget planning. Reuters

Employment

Singapore jobless rate hits 6-yr high Singapore’s jobless rate hit a six-year high in the fourth quarter, while total employment in 2016 grew at the weakest pace in over a decade, as labour market conditions softened amid a slowdown in economic growth. The total unemployment rate rose to 2.2 percent in the fourth quarter from 2.1 percent in the third quarter, rising to a level last seen in the fourth quarter of 2010, preliminary data from the Ministry of Manpower showed. While the rise in the unemployment rate is milder than what was recorded during economic recessions in the past, it raises concerns on the economy’s outlook, analysts said.

Commerce deal

Japan PM says free trade talks with U.S. possible Japanese Prime Minister Shinzo Abe said yesterday it was possible Tokyo and Washington could hold bilateral free trade talks in the wake of U.S. President Donald Trump’s withdrawal from the Trans-Pacific Partnership (TPP) this week.

Trump said the TPP would rob Americans of jobs and investment. Asked about talks on a U.S.-Japan trade deal on Wednesday, Abe said he would refrain from speculating about Trump’s trade policy until his cabinet line-up was approved and policies became clearer.

Trump has made clear he favours two-way trade deals over multilateral ones.

Bribery allegation

Indonesian ex-minister arrested Indonesia’s anti-graft task force arrested a former minister, who now serves as a judge in supreme body of Constitutional Court (MK), over an alleged bribery case. Patrialis Akbar, who served as Legal and Human Rights minister from 20092011 in the administration of then-President Susilo Bambang Yudhoyono, was arrested in a west Jakarta hotel on Wednesday. Head of the nation’s task force (KPK) Agus Rahardjo said that KPK personnel also arrested several others related to the case involving Patrialis. “We will convey the development over the arrest against him in the near future,” Agus said yesterday.

Lending

Bank loan rates in S.Korea hit 22 month-high Rates for bank loans to households in South Korea rose to the highest in 22 months on expectations for the U.S. Federal Reserve’s rate hikes this year, central bank data showed yesterday.

Rates for household loans extended by deposit-taking banks were an annualized rate of 3.29 percent in December, up 0.09 percentage points from the previous month, according to the Bank of Korea (BOK). It was the highest since February 2015, keeping an upward trend for four months in a row.

14 Business Daily Friday, January 27 2017

Macau INTERNATIONAL IN BRIEF BANKING

French Senate expresses concerns on Basel The French Senate’s finance commission raised concerns yesterday over proposed new Basel banking rules, urging the central bank governor to defend domestic banks’ internal models and their treatment of specialised loans. The commission expressed worries that some of the Basel committee’s proposals could negatively impact the overall financing of the European economy, and added that it had written to the governor of the Bank of France on this matter. The Basel Committee of banking supervisors earlier this month postponed the approval of long-awaited rules designed to avert a repeat of the 2008 global financial crisis.

IMF

Angolan GDP set to expand 1.3 per cent Angola’s economy should expand by 1.3 per cent this year, after having stagnated in 2016, but continued wage “restraint” is advisable, the International Monetary Fund said in a report released on Wednesday. In a document approved by the IMF board following the annual consultation between the institution and Angola’s government and state institutions, the Fund’s economists recall that the oil price shock the country suffered from mid2014 onwards “has considerably reduced fiscal receipts and exports”. The IMF’s forecast for 2017, of 1.3 per cent growth in gross domestic product, contrasts with a government projection of 2.1 per cent.

ECONOMY MINISTER

Germany expects current account surplus to shrink slightly The country achieved a record trade surplus of US$262.10 billion Michael Nienaber

G

ERMANY’S record current account surplus is likely to shrink this year because a slowdown in global trade is dampening export growth while strong domestic demand is pushing up imports, Economy Minister Sigmar Gabriel said yesterday.

The European Commission and the International Monetary Fund (IMF) have repeatedly urged Germany to take advantage of record-low borrowing costs and increase investment as a measure to reduce the country’s large trade and current account surpluses.

The United States last year flagged concerns over economic policies in Germany and put Europe’s biggest economy on a new monitoring list together with other countries such as China and Japan, mostly due to their large surpluses.

Chancellor Angela Merkel’s government has reacted to the criticism and boosted domestic demand by introducing a national minimum wage, increasing state spending on infrastructure and accommodating and integrating a record influx of refugees.

“German exports will increase rather moderately whereas imports will grow more strongly due to robust domestic demand,” Gabriel told the Bundestag (lower house of parliament).

“The current account surplus will therefore shrink slightly - that will

please the European Commission,” he added.

Germany achieved a record trade surplus of 244.31 billion euros (US$262.10 billion) in 2015 due to the relatively strong competitiveness of its exporters.

The wider current account surplus has almost doubled over the past five years to reach 252.58 billion euros in 2015. This also reflects how Germans remain a nation of savers despite the European Central Bank’s policy of zero interest rates.

The surplus figures for 2016 have not been released yet, but the trend seen from January until November suggests that the surplus likely remained high.

The Bundesbank has said it expected the current account balance as a percentage of nominal GDP to rise to 8.9 per cent in 2016 and shrink to 8.1 per cent in 2017.

In his last speech as economy minister before becoming foreign minister as part of a cabinet reshuffle ahead of a federal election in September, Gabriel said the German economy was in solid shape thanks to the robust labour market.

The economy grew by 1.9 per cent in 2016, the strongest rate in half a decade, helped by higher household and state spending. The government expects the upturn to continue in 2017, albeit at a slower pace of 1.4 per cent.

In a sign that shoppers remain upbeat despite increased political uncertainties and an Islamist militant attack in Berlin, the mood among

German consumers improved further heading into February, a survey showed yesterday.

The slightly stronger-thanexpected data, published by the GfK research group, gave reassurance that private consumption will continue to propel growth in 2017.

But Gabriel warned against taking the economic upswing for granted and urged the government to use its budget surplus of around 6 billion euros (US$6.44 billion) to increase investment in infrastructure and education.

Key Points Economy minister: Strong domestic demand to cut surplus “That will please the European Commission” Gabriel warns that populism could destroy EU Says government needs to further increase investment He linked his push for more state spending with a warning that eurosceptic populism was posing a “huge danger” for growth and stability.

“The French presidential elections this spring are bitter, fateful elections for Europe,” Gabriel said.

“After Brexit last year, if the enemies of Europe manage again in the Netherlands or in France to get results then we face the threat that the largest civilization project of the 20th century, namely the European Union, could fall apart.”

REUTERS

EUROPEAN REPORT

Portugal’s lost €6.8bn from climate change Portugal suffered losses of almost €6.8 billion as a result of climate change between 1980 and 2013, with only a small part of that cost covered by insurance policies, according to a report released on Wednesday.

The report ‘Climate Change, Impacts and Vulnerabilities in Europe 2016’ from the European Environment Agency (EEA) highlights the fact that southern Europe, and Iberia in particular, will be the area worst affected by future climate change. In its economic analysis of the effects of climate change, the EEA estimates costs of €6.783 billion between 1980 and 2013, of which just €300 million, or 4 per cent, was covered by insurance.

Chancellor Angela Merkel’s government has boosted domestic demand by introducing a national minimum wage

GDP

U.K. economy dismisses Brexit threat as growth beats forecasts

EMPLOYMENT

Spain jobless rate lowest in seven years Spain’s unemployment rate hit its lowest level in seven years at the end of 2016, official data showed yesterday, as a booming tourism sector fuelled job creation.

The jobless rate fell to 18.6 per cent in the final quarter of 2016, its lowest level since the last three months of 2009, according to figures released by national statistics institute INE. While Spain’s jobless rate remains the second highest in the eurozone after Greece’s, the figures are further evidence that the Spanish economy is enjoying a steady recovery.

On an annualized basis, the U.K. economy grew 2.4 percent in the fourth quarter Brian Swint

The U.K. economy grew faster than economists forecast in the fourth quarter, continuing to defy expectations that the Brexit vote would derail the expansion.

The 0.6 percent gain beat the 0.5 percent median forecast of economists in a Bloomberg survey and marked a 16th straight quarter of growth. It was driven entirely by services, helped by consumer spending, with zero support from production and construction, the Office for National Statistics said yesterday.

The U.K. economy has performed better than predicted since the vote

to leave the European Union in June, though the latest data show that it remains overly reliant on one sector.

The support from consumers could weaken this year as the pound’s decline pushes up inflation, squeezing real incomes.

‘Manufacturing rose 0.7 percent’ The fourth-quarter estimate, based on 44 percent of the data that will ultimately be available, showed that services surged 0.8 percent, offsetting stagnation in industrial production.

Manufacturing rose 0.7 percent.

The growth meant the economy expanded 2 percent in 2016, though that’s down from 2.2 percent the previous year and marked the weakest since 2013. Economists forecast a further slowdown this year, to 1.2 percent.

For now, the near term is looking brighter than anticipated, a fact acknowledged by Bank of England Governor Mark Carney this month.

While he expects growth to cool in 2017, he’s indicated the BOE may raise its forecasts in February at its next policy decision.

On an annualized basis, the U.K. economy grew 2.4 percent in the fourth quarter. The U.S. is forecast to have expanded 2.2 percent in the period, down from 3.5 percent in the three months through September.

U.K. GDP per capita grew 1.3 percent in 2016, down from 1.4 percent the previous year. It’s now 1.9 percent above its level in the first quarter of 2008, the pre-crisis peak for GDP. BLOOMBERG NEWS

2017 15 Business Daily Friday, January 27 2017

Macau OPINION

Bitcoin freedom lovers, say thanks to China’s communists

China’s big sticks

Christopher Langner Bloomberg Gadfly

B

ITCOIN INVESTORS CAN THANK China for popping a bubble in the digital currency.

The 10-day volatility of bitcoin dropped 50 percent in a matter of days after authorities stopped leveraged bets and, on Monday, nudged exchanges to start charging transaction fees. The squeeze began in the first two weeks of January when a spike that took the currency’s price close to a record prompted regulators to inspect the offices of Huobi.com, OKCoin and BTCChina.

Perhaps more meaningfully, trading volume has plunged 98 percent compared with the first days of 2017, according to data from bitcoinity.org. On Jan. 1, when bitcoin traded at $1,012.3, 4.8 million coins exchanged hands.

On Wednesday, only 80,092 did. Sure, many Chinese investors, who still represent the lion’s share of trading, are away from their desks because of the Lunar New Year. Still, the speed and pattern of the decline make it hard not to draw a line to the regulatory action.

A conspicuous change in the yuan’s share of trading tells the story. On average, 97 percent of all bitcoin transactions between the end of July and Dec. 31 were performed in the Chinese currency.

This week, that number dropped to 63 percent; Wednesday’s 3 3 p e rc e n t w a s million US$ the lowest since Price of manipulation?

December 2013.

With the East-West balance restored, the digital currency is settling into a range and looks set to start following normal supply and demand factors again. However, the sudden spike in December and subsequent rapid drop are raising questions about how free bitcoin -beloved of libertarians because it’s outside the clutches of any central authority -- actually is.

Gadfly’s Tim Culpan and I have received several emails pointing to signs of manipulation, for instance. It’s hard to prove that anyone was deliberately moving the currency, but equally it wouldn’t take much to do so. Even at the peak, when bitcoin had breached US$1,000, there were only about 10,000 trades per minute. That suggests that it would take only US$50 million to dominate the market for five minutes, which could be enough to create momentum. This shows how easy it can be to move the price (bitcoinity. org even keeps track of how many orders would be necessary to cause a shift).

Bitcoin is a peer-to-peer system with transactions recorded on a public distributed ledger, so as well as being free from any central authority, it has no regulator. That means disgruntled investors have no one to go to, something that’s already been demonstrated by the demise of exchanges Bitfinex and Mount Gox. The closest thing to a supervisor ensuring the health of the market has been this month’s Chinese crackdown.

Libertarian bitcoin investors can breathe easy, then: A communist government has their backs. BLOOMBERG GADFLY

50

U

S P R ES I D E NT D O NA L D T RUM P’ S administration is making a major miscalculation by going after China. It appears to be contemplating a wide range of economic and political sanctions – from imposing punitive tariffs and designating China as a “currency manipulator” to embracing Taiwan and casting aside some 40 years of diplomacy framed around the so-called One-China policy.

This strategy will backfire. It is based on the mistaken belief that a newly muscular United States has all the leverage in dealing with its presumed adversary, and that any Chinese response is hardly worth considering. Nothing could be further from the truth.

Yes, the US is one of China’s largest export markets – and thus a central pillar of its spectacular 35-year development trajectory. Closing off the US market would certainly crimp Chinese economic growth.

But the US has also become heavily dependent on China, which is now America’s third largest and fastest-growing export market. And, as the owner of over US$1.25 trillion in Treasuries and other dollar-based assets, China has played a vital role in funding America’s chronic budget deficits – in effect, lending much of its surplus saving to a US that has been woefully derelict in saving enough to support its own economy.

This two-way dependency – the economic equivalent of what psychologists call codependency – has deep roots. Back in the early 1980s, in the wake of the Cultural Revolution, which left its economy in shambles, China was desperate for a new source of economic growth.

Coming out of a destructive bout of stagflation in the late 1970s and early 1980s, the US also needed a new economic recipe. The hard-pressed American consumer solved both problems, by becoming a powerful source of external support for Chinese growth and by benefiting from the lower prices of products made in China.

The two countries thus entered into an awkward marriage of convenience that served each other’s needs. China built an increasingly powerful economy as the Ultimate Producer while the US embraced the ethos of Ultimate Consumer.

As mirror images of each other, interactions between the two economies became increasingly comfortable and ultimately addictive – so much so that these co-dependent partners were keen to enable each other’s economic identities. The US opened the door to China’s accession to the World Trade Organization in 2001 – a milestone in China’s ascendancy as the Ultimate Producer.

And China’s voracious appetite for Treasuries in the early 2000s helped keep US interest rates low, sustaining the froth in asset markets that allowed the Ultimate Consumer to live well beyond its means – until the music stopped in 2008.

As in the case of humans, economic co-dependency is ultimately a very destructive relationship. Blinded by the gratification phase of co-dependency, both the US and China lost their way. Each became so caught up in its role of serving the other that both effectively repressed their economic sense of self.

Therein lies the ultimate twist of co-dependency:

“

Stephen S. Roach a faculty member at Yale University and former Chairman of Morgan Stanley Asia

one partner invariably looks inward and turns on the other, in order to recapture that missing piece of its identity.

That’s where Trump enters the equation, by targeting China as the villain that purportedly prevents America from being great. Trump has assembled a team of like-minded senior trade advisers to plan the attack. From Peter Navarro as Director of the National Trade Council, to Wilbur Ross as Commerce Secretary, Robert Lighthizer as US Trade Representative, and Rex Tillerson as Secretary of State, the new administration’s anti-China biases are without modern precedent.

Yet their battle plan overlooks a critical risk: codependency is a highly reactive relationship. When one partner changes the terms of engagement, the other, feeling scorned, usually responds in kind.

In the aftermath of the provocative December 2 phone call between Trump and Taiwan President Tsai Ing-wen, stunned Chinese officials said little at first. But as Trump’s China-bashing strategy started to crystalize around the advisers he appointed and the issues he raised, China’s official media finally warned that “big sticks” would be used in defence, if need be.

This is very much in keeping with what could be expected from the reactive phase of a destabilized co-dependency.

The scorned partner, China, is threatening to hit back. And now America will have to face the consequences.

Smugly confident that the US has nothing to fear, the Trump administration could quickly feel the full wrath of Chinese retaliation. If it follows through with its threats, expect China to reciprocate with sanctions on US companies operating there, and ultimately with tariffs on US imports – hardly trivial considerations for a growthstarved US economy. Also expect China to be far less interested in buying Treasury debt – a potentially serious problem, given the expanded federal budget deficits that are likely under Trumponomics.

But the greatest tragedy for the US may well be the toll all of this takes on the American consumer.

“America first” – whether it comes at the expense of China or via the so-called border-tax equalization that appears to be a central feature of proposed corporate tax reforms – will unwind many of the efficiencies of global supply chains that hold down consumer-goods prices in the US (think Wal-Mart).

With their incomes and jobs under long and sustained pressure, American consumers count on low prices for their economic survival. If Trump’s China policy causes those prices to rise, the middle class will be the biggest loser of all.

Sino-American co-dependency poses a formidable challenge to Trump’s strategy of China bashing. It frames the ominous prospect of a rupture in the world’s most important economic relationship, with potentially devastating spillovers on the rest of the world. PROJECT SYNDICATE

SMUGLY CONFIDENT THAT THE US HAS NOTHING TO FEAR, THE TRUMP ADMINISTRATION COULD QUICKLY FEEL THE FULL WRATH OF CHINESE RETALIATION

”

16 Business Daily Friday, January 27 2017

Macau CLOSING INCREASED SAILING

TurboJET increases HK-MSAR routes by 50 percent for CNY

implement the division measures for the ferry increases, and ‘travellers are advised to pay Starting from January close attention to the 27 and running until February 5, ferry operator instructions given at the TurboJET will be offering terminals’.

The group notes that due ‘approximately 50 per to ‘tight supply’ during cent extra capacity’ for its MSAR-HKSAR routes the Chinese New Year ‘to cope with the demand holiday, TurboJET advises passengers to buy tickets surge’. The group notes in advance. that each terminal will

FOREX REGULATOR

Beijing unveils fresh steps to curb capital outflows The regulator said it will standardise management of trade-related foreign exchange business

C

HINA’S foreign exchange regulator yesterday issued new guidelines aimed at helping curb capital outflows from the country and boosting foreign currency inflows, in the latest step to ease pressure on the yuan currency.

The State Administration of Foreign Exchange (SAFE) said it will strengthen monitoring of cross-border capital flows as it looks to promote “healthy development” of the foreign exchange market.

Key Points FX regulator says wants ‘healthy development’ of market New moves are latest in spate to try to contain outflows Documentation required for firms remitting $50,000 abroad Yuan weakened about 6.5 pct against the dollar in 2016 China will “establish a sound macro-prudential management framework under the capital flow management system, requiring banks and enterprises to comply with existing foreign exchange regulations”, the regulator said in a statement on its website.

“Real and legitimate cross-border payments and remittances will not be affected,” it added.

The new rules are effective immediately.

Chinese regulators have taken a spate of steps in recent months to combat waves capital outflows that have put pressure on the yuan and eroded the country’s foreign exchange reserves, while trying to lure more capital inflows.

Firms who want to remit foreign exchange profits equivalent or above US$50,000 out of China must submit resolutions from board of directors on profit distribution, alongside tax documents and audited financial

POPULATION

statements, according to the new rules.

The SAFE said it will standardise management of trade-related foreign exchange business and said exporters should collect their foreign exchange payments in a timely way.

Under the new rules, domestic firms must use proceeds from their exports to repay foreign exchange loans, rather than buying foreign exchange from banks.

Borrowers of overseas loans guaranteed by domestic banks can relend their loans inside China.

Domestic banks will be allowed to move their overseas deposits back to China, with the maximum amount

SWIFT REPORT

equivalent to their daily average outstanding deposits in the past six months. Previously, the transfer was capped at 50 per cent of the daily average.

SAFE said it will “strengthen the monitoring and early-warning of cross-border capital flows, strictly fulfil the requirements of authenticity and compliance, maintain high pressures and a crackdown on foreign exchange violations to maintain the order of healthy foreign exchange market.”

In 2016, the yuan weakened about 6.5 per cent against the U.S. dollar the biggest annual drop since 1994.

REUTERS

SOCCER

Mainland sees greying generation China’s hopes of globalising Lander buys stake as quarter of population by 2030 currency hit snag in buoyant Southampton The world’s most populous country is turning grey at an accelerating pace.

That aging has big implications for China’s economic growth, which could be undermined as the labour force declines sharply from 2021 to 2030.

It also strains the nation’s expenditures for public services, insurance, and health care, and puts a dent in domestic consumption.

China’s latest population development plan, released by the State Council late Wednesday, projects that about a quarter of China’s population will be 60 or older by 2030. That’s up from 13.3 per cent of the population in the country’s latest census in 2010.

The number of children 14 or younger will decline to 17 per cent over the same period, the plan estimated. About 36 per cent of the population in 2030 will be 45 to 59, it said. That age group accounted for about 20 per cent of the total population in the 2010 census.

Births in 2016 reached 17.86 million, the most since 2000, rising by 1.91 million from 2015, the National Health and Family Planning Commission said this month. That still falls short of the official projection. BLOOMBERG NEWS

China’s renminbi slipped a notch to become the sixth most-used global currency over the course of last year, hit by depreciation and government capital controls, a report said yesterday.

Analysts said the drop was a setback for Beijing’s ambitious plans to dramatically increase the use of its currency abroad and make it a mainstay for international payments on par with the dollar or euro.

China is viewed as having made progress over the years in gradually internationalising the unit, but new challenges have emerged recently in the form of slowing growth, a strong dollar and a surge in capital leaving the country in search of more profitable investments overseas.

The renminbi’s share of international payments fell from 2.31 per cent in December 2015 to 1.68 per cent last month, global interbank network SWIFT said in a report titled “RMB internationalisation stalls in 2016”.

It also said “the payments value for the RMB decreased by as much as 29.5 per cent in 2016”, but it did not provide corresponding overall figures. But the renminbi was pummelled last year as the dollar spiked. Investors moved huge sums of money offshore due to concern over China’s slowing economy and the currency’s future. AFP

Southampton became the latest English Premier League team to get Chinese investment yesterday, with stadium builder Lander Sports Development buying a stake in the club.

Lander, whose interest in Southampton was rumoured last year, said in a stock exchange statement that it had struck a deal with Saints’ owner Katharina Liebherr to buy into the soccer club’s holding company, without disclosing any terms.

Southampton, who on Wednesday beat Liverpool to reach the final of England’s League Cup, did not respond to a request for comment. Saints were runners up in the 1979 League Cup, their last visit to Wembley for a major final, after winning the FA Cup in 1976.

The club, 11th in the Premier League, join Manchester City, West Bromwich Albion and second tier Aston Villa, Birmingham City and Wolverhampton Wanderers in having Chinese investors.

Chinese entities and individuals have ploughed more than US$3 billion into overseas soccer investments over the past year or so, encouraged by avid fan President Xi Jinping who wants the country to become a soccer superpower.

Shares in Lander, which builds stadiums and organises sporting competitions, have been suspended since Oct. 14 when speculation surfaced of potential interest in Southampton. REUTERS