Business Daily #1317 June 14, 2017 by Business Daily

Business delegation of 60 to visit Portugal and Cape Verde OBOR Page 6

Wednesday, June 14 2017 Year VI Nr. 1317 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm

www.macaubusinessdaily.com

Gaming

Auto industry

Crown employees charged in China with promotion of gambling Page 7

Legislator Coutinho looking for “young blood” to enter Legislative Assembly Page 3

Bond connect

Foreign investment not easy to attract to China with current hurdles Page 8

Apple confirms developing autonomous driving technology Page 16

Look West, Expand East Regional development

Connecting China with Portuguese-speaking countries is the MSAR’s “biggest advantage” says top gov’t representative. Attracting start-ups from Portugal, creating a platform of creativity and innovation and offering more employment options for residents. All under ‘One country, two systems’. Although plans for OBOR and Greater Bay Area integration date to 2008, residents have until June 28 to express their opinions. Page 2

Eat, shop and be merry

Training, ideas and angels

A co-financed fund bringing together gov’t and private investment. Providing academic training and taking advantage of proximity to nearby manufacturing and innovation hubs. The way to building local start-ups, say experts. Keeping a foot in the MSAR and one in Portugal could bridge the gap between qualified labour and ideas, funding and manufacturing to kickstart a city that “has money but doesn’t have projects.”

Consumers The city’s consumers have posted the highest local satisfaction rate for shopping and restaurants in 11 years. A study records a satisfaction rate for shopping up 4.5 pct, with restaurants up 1.6 pct. Although food was judged too pricey. Local restaurants should highlight traditional local cuisine for better international recognition, says the study. Page 5

Canal to isolation

Innovation Page 4

HK Hang Seng Index June 13, 2017

25,852.10 +144.06 (+0.56%) Worst Performers

Galaxy Entertainment Group

+2.64%

Link REIT

+1.52%

China Merchants Port Hold-

-0.92%

Kunlun Energy Co Ltd

-0.45%

Sands China Ltd

+2.63%

Sino Land Co Ltd

+1.49%

China Resources Power

-0.78%

CK Hutchison Holdings Ltd

-0.45%

Geely Automobile Holdings

+2.43%

Bank of East Asia Ltd/The

+1.19%

CK Infrastructure Holdings

-0.68%

China Mengniu Dairy Co Ltd

-0.38%

AAC Technologies Holdings

+1.83%

Henderson Land Develop-

+1.10%

Cathay Pacific Airways Ltd

-0.65%

CLP Holdings Ltd

+0.12%

New World Development

+1.72%

Sun Hung Kai Properties Ltd

+1.09%

Hang Lung Properties Ltd

-0.48%

China Resources Land Ltd

+0.73%

27° 31° 28° 32° 27° 32° 25° 30° 25° 30° Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Diplomacy Panama has announced the opening of diplomatic relations with China. Dealing the latest blow to Taiwan’s ambitions of being recognised internationally as an independent country. Reducing to 20 the number of nations recognizing the government in Taipei. Page 8

2 Business Daily Wednesday, June 14 2017

Macau Greater Bay Area

All roads lead to Portuguese-speaking world The specificities of Portuguese culture are what make Macau’s difference in the Greater Bay Area and the One Belt, One Road initiative, a government official claimed yesterday. Now, it is time to bring the Fado Sheyla Zandonai sheyla.zandonai@macaubusiness.com

he MSAR’s connections with the Portuguese-speaking countries are the city’s best asset within the Greater Bay Area as well as the One Belt, One Road (OBOR) initiative, according to Kou Chin Hung, Advisor to the Office of the Chief Executive. Speaking in a press conference held yesterday at the headquarters of the local government to announce the launching of the public consultation for the ‘Planning and Construction of the Metropolitan Area of the Greater Bay Guangdong-Hong Kong-Macau,’ Mr. Kou stressed several times the role Macau holds in connecting China with the Portuguese-speaking world. “Macau is a small city, but its biggest advantage is its relationship with the Portuguese-speaking countries, and then its connections with the Chinese diaspora,” the Advisor to the Office of the Chief Executive stated. The participation of lusophone countries in fostering Macau’s

regional integration “is very important,” said Mr. Kou, mentioning that the local government has already brought several representatives and entrepreneurs from those countries on official visits to Macau and nearby cities in the Mainland, such as Foshan. “Take Fado, for instance, an extraordinary example. There should be more initiatives to bring it to Macau,” suggested Mr. Kou referencing a traditional genre of Portuguese music. When asked about on-hand actions linked to the ‘priority areas’ defined advertisement

within the Planning framework (see box) the government official referred to the build up of a list of start-ups from Portugal, as part of the development of Macau as a platform of creativity and innovation, in addition to current initiatives to set up young entrepreneurs in a creative park in Jiamen, for which a protocol of internships has already been established with the University of Macau. Overall, Mr. Kou explained, one of the goals is to increase the number of employment options for Macau residents. He complemented the comments by noting that another comparative advantage the city enjoys is being part of the ‘one country, two systems’ arrangement. “I have been told that the Great Bay Area is similar to the Bay of Tokyo, but they are within one political system only. We have the one country, two systems, which we know how to apply well,” he opined.

Intrinsically connected

On the basis of what Mr. Kou identified as a “nation-building project,” the MSAR integrates into the planning for the Greater Bay Area as one of the eleven cities making up the ensemble. The so-called ‘9+2,’ including the two Special Administrative Regions and the nine cities of Guangdong Province “is a question inscribed in the economic development of the country. So it is a very high level order [project],” Mr. Kou explained. The ‘General Guidelines of the Planning for the Reform and Development of the Pearl River Delta Region’ date back to 2008. “Macau has an intrinsic relationship with Hong Kong and Guangdong,” recalled Mr. Kou, citing a series of

examples of long-term and recent co-operative actions between the city and the pan delta region. These include projects in the areas of economic development and trade (with Jiamen, Foshan, and Zhonsan), education (with Shenzhen and Hengqin), and infrastructure (with Shenzhen). Stretching out the Delta to the Road, the government representative explained that efforts to integrate Macau further within the Bay have been linked to the OBOR initiative since 2015, mentioning in particular the signing of a memorandum of understanding to strengthen co-operation with Shenzhen as one of its entry points that same year.

Public consultation

Starting yesterday and until June 28, the government will be collecting ideas, opinions, and suggestions from residents about the ways they would like to see Macau’s participation in the Greater Bay Area develop, announced Lao Pun Lap, Co-ordinator for the Policy Research Office (GEP). Online access, telephone, and post mail are the options available to the Macau population to express opinions. The officials explained that given the short time available for public consultation no session for discussion and the collecting of opinions will be held on this occasion. “We have started consulting associations and specialists and have already forwarded opinions to the central government. We are now collecting opinions once again,” explained Mr. Kou. Asked about whether or not he thought the time for collecting opinions was short, Kou responded that “any delays would not be convenient to the central government.”

Eight priorities Create links of co-operation and openness to the Greater Bay Promote adequate economic diversification through multilateral co-operation Co-ordinate efforts to develop a good living environment in Guangdong, Hong Kong and Macau, negotiating equal treatment for Macau residents in the three regions of the Greater Bay Foster the exchange of people and promote cultural enrichment Encourage bilateral co-operation, support young entrepreneurs, and expand space for the development of small and medium enterprises Strengthen connection between infrastructures Actively use cutting-edge technology to create a system of innovation, supporting the development of new economies, technologies and sectors of Macau Strengthen the promotion of the Greater Bay Area

Business Daily Wednesday, June 14 2017 3

Macau

Elections

A New Hope Regarding the manifesto of the group for this year’s election, Coutinho revealed that “the basic necessities of life and death are our demands”

ncumbent legislators José Pereira Coutinho and Leong Veng Chai leading the New Hope (Macau) group submitted their candidate list at the Public Administrative Building yesterday, having gathered 500 signatures for nominations from voters. Coutinho revealed that 11 candidates are on the list, with Rita Santos trustee. The group lists Coutinho and Leong second, while Monica Tan Si Wan and Gilberto Camacho are third and

fourth, respectively. C a m a c h o p r ev i o u s l y participated in the 2013 election. Legislator Coutinho said the group has invited more young people to take part in this year’s election. “We hope to share our own experiences in these coming years to allow more young blood to enter the Legislative Assembly,” said Coutinho, adding that the absence of a district council in Macau would pose great challenges for young people

interested in getting involved in the political field. Coutinho perceived that young people need time to train and get more experience in order to note and understand the demands of society. “Hence, we hope to put more attention on education, especially the teaching of politics,” said the legislator. Coutinho pointed in particular to the demand for higher transparency in the works of the Legislative Assembly (AL), suggesting that the current six groups in the AL “should open their doors to the media, to students and citizens in order to allow the public to know how these six groups deliberate [upon] a bill”. Coutinho gave the example of the open door meetings of the Legislative Council in Hong Kong, with live

broadcasting. “Therefore, we hope this will happen in the near future, to let the citizens enjoy high transparency and also official accountability,” the legislator said. Meanwhile, in response to press enquiries regarding how many seats the group would like to acquire, Coutinho said “it depends upon the general public”. The legislator lamented the limited number of fulltime legislators in the AL, stating: “It is a pity that our AL has too many business people, many of whom do not [overly] consider the real needs of society”. Regarding the manifesto of the group for this year’s election, Coutinho revealed that “the basic necessities of life and death are our demands”. He indicated that the problems are the same,

despite four years having passed since the last election, specifically pointing to the lack of accommodation for civil servants. “No accommodation has been built since the return to the Mainland 17 years ago,” said the Macanese legislator. Recently, Coutinho suffered a foot injury, resulting in several absences from AL sessions. When asked if the injury would affect the upcoming campaign the legislator said it depends upon his doctor’s opinion. “I hope my doctor will allow me to go on the streets and listen to the demands of citizens so we can improve,” said Coutinho. “Because we’re still working on our manifesto and we’ll keep collecting opinions and inserting elements that are suitable [regarding] citizens’ demands and benefits.”

4 Business Daily Wednesday, June 14 2017

Macau Entrepreneurialism

Spreading the wealth The MSAR should make use of its considerable capital reserves for early stage start-up funding while improving its entrepreneurs’ academic training, say representatives from the largest startup development organisations in Portugal Nelson Moura nelson.moura@macaubusinessdaily.com

he MSAR should explore its considerable amount of gaming capital and create a public-private co-financing fund to invest in early-stage start-ups, representatives of two of the largest start-up incubators and accelerators in Portugal told Business Daily. “I think Macau still has a long road to walk but it has an amazing capacity for acceleration and response to start-ups that is completely different from what exists in Europe,” Miguel Ruas, Special Projects Manager of Startup Lisboa, told Business Daily. According to Mr. Ruas, the capital produced by gambling could be used to fund early stages start-ups, noting that the gaming sector is also a fertile ground for start-up ideas. For António Lucena de Faria, President of Fabrica de Startups (Startup Factory), the MSAR could develop some policies implemented by European governments to encourage early investors - known as ‘angel investors’ - to place money in new companies. Such polices could pass through a co-financed investment fund, via the public and private sector, with the government supporting a percentage of the angel investment. “Co-financing funds for angel investors are an excellent mechanism of financing, by joining the public and the private sectors. Investing other people’s money needs a special care that is more present in the private sector,” said Faria. As an example he mentioned the 200M fund, created by the Portuguese Government, from which at

Introducing the players

Created in 2012, Startup Lisboa is a non-profit organisation that has supported more than 250 projects/companies to date, helping fundraise around 80 million euros of investment for incubated projects. “We focus on producing companies in the tourism and commerce sectors. The support can be from offering a physical space or virtual

least 200 million euros (US$224.1 million/MOP1.80 billion) in venture capital will be provided for start-up financing, in co-operation with private investors. The entrepreneur also suggested the creation of a tax deduction for early-stage investment, such as the Enterprise Investment Scheme (EIS) implemented in the UK which offers a 30 per cent tax break up to 1 million pounds (MOP10.2 million/US$1.2 million) of investment per tax year.

“An entrepreneur shouldn’t just look at the market in his country but the whole world”

Developing academic skills

For the Managing Director of Startup Lisboa, the MSAR is “growing incredibly” in economic terms but it “still needs to develop its academic training and theory aspect” in order to create future entrepreneurs. According to Mr. Ruas, during meetings with local representatives he was told that the city “has money but doesn’t have projects”, seeing Portugal as the opposite. “This is an issue that can probably be resolved with its access to China’s qualified labour.” The representative believes the academic and research training level in Mainland China is still not “mature” but would probably reach European and North American level in “two years” and “surpass it”.

António Lucena de Faria, President of Fabrica de Startups

António Lucena de Faria

Members of the Portuguese startup community also consider that its proximity to Shenzhen allows Macau to make the most of the manufacturing and innovation capacities of the area. “We visited a hardware start-up incubator in Shenzhen named HAX Accelerator that was just impressive. The centre representative told us that

while in Europe start-up members will probably require three weeks or one month to set up a prototype. In the centre, the parts can be bought right next door. What takes a month to produce in Silicon Valley can take a week in Asia,” Ruas told Business Daily. Both representatives were part of a business delegation of 20 entities from technology start-ups, investors and start-up incubators-to-accelerators that visited the MSAR this month. With the city developing itself as a bridge for China to overseas markets,

support,” the organisation Special Projects Manager told Business Daily. In the last five years the start-up incubator received more than 3,500 applications from start-ups from 35 countries, contributing to the creation of more than 1,500 jobs. Also created in 2012, Fabrica de Startups was founded by António Lucena de Faria, an entrepreneur

in his own right who has founded and developed more than 10 companies. The business accelerator focuses on the internationalisation of the start-ups it supports, having extended its operations to Brazil, with plans to create centres in Asia. “An entrepreneur shouldn’t just look at the market in his country but the whole world,” Mr. Faria told Business Daily.

Using the advantages

“What takes a month to produce in Silicon Valley can take a week in Asia” Miguel Ruas, Special Projects Manager of Startup Lisboa

Miguel Ruas

the development this year of two centres in Portugal and Macau for the exchange of entrepreneurs and start-ups is seen as another important step. Having collaborated for last year’s StartUP Macau Forum - a pitch competition that attracted teams from Portugal, Mainland China and Macau - Mr. Faria told Business Daily he hoped the event can become a permanent fixture. “I think there’s some good projects in Macau, with ideas in need of being diversified. We’ll continue supporting local entrepreneurs and local startups entering Europe. Maybe we’ll see projects created already, with a foot on each side initially,” he added.

Dispensing advice

When questioned what advice he would give to local entrepreneurs, Mr. Faria stated that Fabrica de Startups focused more on business-to-business (B2B) projects, since he considered it better that a start-up’s clients be the “people that finance the project”. “It’s better than constantly looking for an investor to start the project and then looking for clients. Business-to-consumer (B2C) start-ups also require more money for marketing efforts,” he said. Faria also considers the Internet the “great equaliser” in business, allowing any start-up with online applications to access “going global” by being able to interact with markets easier than companies presenting physical products. Both representatives agreed that an essential trait for entrepreneurs is having perseverance and not being discouraged by failed projects. “For every 10 start-ups that are born, eight or nine die. Some of the entrepreneurs in our accelerator are already on their fifth start-up,” said Ruas. The Startup Lisboa Special Projects Manager also advised entrepreneurs to thoroughly study the market and identify a solution for an identifiable existing problem, and not a problem “only they believe exists”. “This should be followed by a well structured business model, while being prepared to change and pivot many times,” he added.

Business Daily Wednesday, June 14 2017 5

Macau Economy

Highest local satisfaction rate for shopping and restaurants in 11 years Local residents are happier to spend in Macau on shopping and eating out now than in previous years Cecilia U cecilia.u@macaubusinessdaily.com

he city’s consumers are satisfied with shopping and having meals in restaurants in the city this year, the latest results of the Macao Consumer Satisfaction Index 2017, conducted by the Institute for Sustainable Development (ISD) of the Macau University of Science and Technology (MUST), reveals. The survey recorded a satisfaction rate of 74.3 per cent for shopping by local residents, up 4.5 percentage points when compared to the previous year. The rate of satisfaction for restaurant performance stood at 70.9 per cent, registering an increase of 1.6 percentage points, year-on-year. Both increases, as stated by ISD in its survey result, are the highest in the past 11 years. In specific terms, the three indicators of satisfaction with shopping in the city all saw their rates increase year-on-year – namely, the quality of products (74.6 per cent), service (73.3 per cent) and value for money (73.2 per cent). For the indicators of satisfaction of restaurants in Macau, growth was also seen in the quality of food (71.1 per cent), service (71.0 per cent) and value of money (69.0 per cent). The survey also addressed the satisfaction of local consumers with shops

and restaurants in Zhuhai. The rate of satisfaction for shopping in Zhuhai dropped 1.5 percentage points year-on-year, standing at 65.5 per cent, while a growth of 5 percentage points appeared for restaurants, reaching 69.5 per cent. According to ISD, the difference in ratings between restaurants in Macau and Zhuhai has narrowed from 3.6 percentage points for 2015 and 2016 to 1.4 percentage point in 2017. In particular, more local residents think that the amount that they paid for meals in restaurants in Macau is higher than it should be, with survey results showing the rate for the value-for-money of local restaurants is lower than that of the restaurants in Zhuhai. The survey, as stated by the ISD, seeks to provide indices and

Cars

comparisons for assisting the city in its goal of becoming a World Centre of Tourism and Leisure and City of Gastronomy. The city applied to become a member of the UNESCO Creative Cities Network, a City of Gastronomy, in April. The survey was conducted via telephone calls with the assistance of computers to perform random sampling. The period of the survey spanned May 4 to 23, with 810 local respondents.

Suggestions

For local retailers selling clothes and shoes, ISD suggested keeping the current quality of products and gradually improving the quality of service. Retailers should consider

using promotional events to raise consumer’s value of money for the products, the ISD also suggested. The survey moderator also advised that restaurants in Macau continuously explore traditional local cuisine, rich in characteristics, in order to build more significance into Macau’s featured cuisine and menus. In general terms, ISD points to the importance of grabbing the development opportunities of ‘one centre, one platform’, the Greater Bay Area, and the exploitation of Hengqin. With Macau positioned as the bridge between the Mainland and Portuguese-speaking countries, it is important the MSAR expand its markets to the aforementioned regions and promote itself to the rest of the world.

Legal

Electric airbag malfunction Moon Ocean returns to Court Tesla says an update to fix an airbag software anomaly has already been installed in its Model X vehicles in the city American electric car manufacturer Tesla has already deployed an overthe-air update to all Model X vehicles in Macau in order to solve an airbag software anomaly, the company told Business Daily. Last week, Tesla informed customers by mail that its right-hand drive Model X models - available in Macau, Hong Kong, the UK, Australia, Japan and New Zealand - would require a software update. In the e-mail the company declared that during a routine test it had identified an anomaly with the software controlling the airbag in right-hand drive Model X cars, recommending people not use the front passenger seat of the vehicle until the update was upgraded.

The company emphasized that no issues were found with customer cars that had been sold, with the update purely precautionary. In February of this year Tesla confirmed it had started delivering its first orders of Model X cars to Hong Kong in January and that it had already received approval from the MSAR Government to deliver its first batch of Model S cars ordered by local residents. The company told Business Daily that deliveries for the new Model X have yet to begin in Macau. ‘In Macau, we will continue to add destination chargers at the places our customers like to visit (e.g.) hotels, shopping malls, to enhance their charging experience,’ the company told Business Daily. N.M.

of First Instance following win The Court of Second Instance has decided in favour of developer Moon Ocean regarding the five land plots located near the airport intended for luxury residential project La Scala. In a case brought by the developer against five entities, including the local government, the court has ruled it will remit to the Court of First Instance, given the decision taken by the Court of Second Instance that Moon Ocean ‘is not requesting the reinstatement of the concession contract premium paid to the government, but the amounts paid for the transfer of rights resulting from the concession,’ notes local broadcaster TDM Radio. Moon Ocean faces off against the local government, Macau International Airport Company Ltd. (CAM),

Sociedade de Turismo e Diversōes de Macau (STDM) and developer Tai Lei Loi as well as investment group Tai Fok Wah – the original concessionaires of the plots. At the time Moon Ocean paid out MOP1.37 billion to transfer the provisional concession, as well as about MOP220.5 million in project development on the plot use plan, previously agreed upon, notes the broadcaster. In 2012, the Chief Executive annulled the transmission of the concession for the five lots due to the corruption case involving former Secretary of Land and Public Works Ao Man Long. After this, Moon Ocean proceeded with its case against the entities to regain the money spent on concession transmission and works conducted.

6 Business Daily Wednesday, June 14 2017

Macau Opinion

Urban Planning

Architects and urban planning professionals urged to finish registration

José I. Duarte*

he Land, Public Works and Transport Bureau (DSSOPT) has revealed that 1,286 people have successfully registered as professionals in the fields of architecture and urban planning in Macau. According to yesterday’s press release, since the implementation of the qualification system related to architecture and urban planning in July 2015 over 2,600 related professionals are registering. As at April, the council of professions in architecture, construction and urban planning had handled 2,606 applications, with 2,282 applications accepted and 193 rejected, while more applications are currently

Land law Land occupation matters are often contentious. In Macau, given its geographical and social characteristics, they may be very delicate indeed. The issues relating to the application of the Land Law (Lei de Terras, in Portuguese), approved in 2013, seem impossible to move away from the public agenda. Two legislators have just submitted a new law proposal to change - or clarify - some details of the law. Maybe this (piecemeal?) approach will be more successful than other attempts, but speculating about it is beyond our purpose here. Most of the public debate has centered on the proposed changes themselves, in very general terms, and on speculation about their chances of success. It might be worth trying to deepen our understanding of the wider issues at stake. First of all, some people argue that the law – unanimously approved, remember – is currently applied based upon a very strict ‘reading’ of its contents. That is an interesting question. Can it be argued that the prevailing interpretation, apparently reiterated by the courts, goes against the expectations and intent of the legislators? ‘Real world’ enforcement outcomes are diverging from those envisaged by the lawmakers? That the letter of the law, in this case, somehow misinterprets their aims? If that were true, or could at least be reasonably argued, certainly there would be grounds for a revision or clarification of the relevant legal provisions. Second, some have claimed that at least part of the responsibility lies with the Administration. Again, that issue deserves further enquiry. Our relationship with the government is, by its very nature, an unequal one. As much as the formal respect of the law, matters of fairness and good faith, and the perceptions thereof, are particularly significant and sensitive. Misgivings on these issues are undesirable and will be compounded if a perception of public irresponsibility – that is, that nobody will be held responsible for the Administration’s failures – were to take root. The willingness to ascertain the nature and extension of the mistakes made by public services, if they exist, and to determine who should be held responsible, is a necessary basis for good governance. Further, if an offence was made against the legitimate interests of others the matter of compensation cannot be skirted. Deepening this debate may be relevant well beyond the particulars of this case. Some of the associated issues have broader implications. As such, they deserve further enquiry and a more careful evaluation. *Economist and permanent contributor to this newspaper.

undergoing scrutiny. Currently, there are 938 approved civil engineers, 385 architects, 282 electrical & mechanical engineers, 254 electrical engineers and 234 mechanical engineers. The MSAR Government is informing individuals who are engaged in architecture and urban planning and who comply with regulations to register as professionals. DSSOPT also reminded interested parties that the transition period will end on the last day of June, and that individuals who apply for registration would have to sit examinations and an internship if they applied after the transition period. C.U.

Banking

Who are you? Rating agency removes the rating given to Novo Banco Asia’s long term and short term credit due to insufficient information available on the local unit’s new majority shareholders Well Link Group Holdings Limited Nelson Moura nelson.moura@macaubusinessdaily.com

Dagong Europe Credit Rating has announced it will withdraw its long term and short term loan credit ratings for Novo Banco Asia S.A. due to insufficient information being available on the Hong Kong group that recently purchased a majority stake in the banking unit, a release from the credit agency announces. According to the release, Dagong Europe considered that the information available on Hong Kong company Well Link Group Holdings Limited was ‘insufficient for the purpose of monitoring the ratings’ of the bank, and therefore the rating company withdrew the ‘CCC+’ rating it had awarded Novo Banco Asia’s long term and short term credit. Previously a fully owned subsidiary of Portuguese bank Novo Banco

S.A., the local unit was changed into a non-core asset and put up for sale as part for the bank’s divestment strategy and of placing more focus on the Portuguese and Spanish markets. In early August of last year, Novo Banco Asia agreed on the sale of its Macau unit to the Hong Kong company, a transaction that was not enacted because of a refusal by the AMCM (Monetary Authority of Macau), Business Daily reported previously. In January, TDM reported that the Ma family made a 175 million euros (MOP1.5 billion/US$183.9 million) joint bid with Well Link for the unit, proposing that the Hong Kong company acquire 51 per cent of Novo Banco Asia whilst the Ma family was to acquire 24 per cent. However, the involvement of the Ma family in the purchase was not confirmed after the reports, neither by members of the family or the bank

management. Last month, AMCM approved the purchase at a value of 145.8 million euros, with Well Link receiving a 75 per cent share of the unit, with an option of acquiring the remaining 25 per cent in the next five years. Well Link is a company incorporated in Hong Kong that provides services such as securities and futures brokerage, asset management and insurance broking.

One Belt, One Road

Mixing business with pleasure A delegation of 60 local businessman will participate in economic co-operation forums held in Cape Verde and Portugal Starting June 16, more than 60 Macau businessman will participate in economic forums held in Portugal and Cape Verde dedicated to business co-operation between China and Portuguese-speaking countries. According to the Macau Trade and Investment Promotion Institute (IPIM), which organised the delegation, the group will take part in the Meeting of Entrepreneurs for Economic and Trade Co-operation between China and Portuguese-speaking Countries held in Cape Verde from June 16 to 18, going afterwards to forums in the Portuguese cities of Lisbon and Porto. The business meeting in the Cape Verde capital of Praia will bring together 150 businessmen from Macau and Mainland China, with a session for the introduction of the US$1 billion (MOP8 billion) Chinese founder supporting investments in lusophone countries, the headquarters of which were transferred from Beijing to Macau on June 1 in order to attract more applications.

The delegation will comprise businessmen from the manufacturing, import and export, commerce service, consultancy and energy sectors. The group will visit the local industrial park and tourism resort being developed by local businessmen

David Chow’s company Macau Legend Development Limited. Following the trip to Cape Verde the delegation will travel to Portugal to participate in an introductory session for the current economic investment situation in Macau and China, jointly organised by IPIM with the China Council for Promotion of International Trade (CCPIT) and the Portuguese Trade and Investment Promotion Agency (AICEP). The delegation will then depart for Porto to participate in the first Forum & International Business Fair China-PLPE (FIN2017), which will take place at the convention centre Exponor from June 21 to 23. Lusa

Business Daily Wednesday, June 14 2017 7

Gaming Court

Crown employees charged in China with promotion of gambling Gaming authorities in Australia are also likely to assess the outcome to determine whether Crown is allowed to continue holding casino licenses at home, says expert Angus Whitley

rown Resorts Ltd. said its staff held in China have been charged with gambling-related offenses, the most significant development in the case since the employees were rounded up by mainland authorities in October. All the workers, including those released on bail, have been charged with offenses related to the promotion of gambling and the cases have been referred to the Baoshan District Court, Melbourne-based Crown said in a statement on Tuesday. Crown’s head of international high-roller operations, Australian Jason O’Connor, Malaysian national Alfread Gomez and 17 others are due to appear in court on June 26 at 9:15 a.m., according to a notice on the Shanghai court’s website. It’s illegal to gamble or promote gambling in China, other than in Macau, and the detentions raised concern of a renewed clampdown on overseas casino operators that woo Chinese citizens offshore to gamble. The case’s progression may mark the beginning of a resolution for Crown after the crackdown triggered a slump in high-roller gambling at

the company’s Australian resorts and upended the company’s international operations. Billionaire James Packer, who’s the biggest shareholder, returned to the board, replaced the chief executive officer, and made resolving the situation in China his top priority. The case is key not only because it might shed light on why Crown’s staff were targeted, said Ben Lee, Macau-based managing partner at Asian gaming consultancy IGamiX. Gaming authorities in Australia are also likely to assess the outcome to determine whether Crown is allowed to continue holding casino licenses at home, he said.

Corporate clash

Crown shares have jumped 11 per cent this year as the company pulled out of Macau, announced a special dividend and pushed on with a stock buyback. The case is Australia’s highest profile corporate clash with Chinese authorities since 2010. Stern Hu, the Australian who led Rio Tinto Group’s iron-ore unit in China, was found guilty in March of that year of bribery and stealing commercial secrets and sentenced to 10 years in prison by a court in Shanghai.

Australia’s Department of Foreign Affairs and Trade said Tuesday it continued to provide three detained Australians with consular assistance. Crown’s high-roller gaming in Australia cratered as the crackdown deterred VIP gamblers from visiting its casinos. Packer scrapped a spinoff of overseas assets and sold Crown’s stake in Macau casino operator, formerly known as Melco Crown

Entertainment Ltd. Also binned: a proposed initial public offering of a trust holding Crown’s Australian hotels. Under John Alexander, who replaced Rowen Craigie as CEO in February, Crown is focusing on its hotels and casinos in Australia, including a new A$2 billion (US$1.5 billion) luxury resort on Sydney’s waterfront. Bloomberg

8 Business Daily Wednesday, June 14 2017

Greater china Diplomacy

Panama establishes ties with Beijing, ditching Taiwan Taiwan’s government said it was sorry and angry over Panama’s decision Elida Moreno and Philip Wen

anama has established diplomatic ties with China and broken with Taiwan in a major victory for Beijing, which continues to lure away the dwindling number of countries that have formal relations with the self-ruled island. Panamanian President Juan Carlos Varela said in a televised address on Monday that Panama was upgrading its commercial ties with China and establishing full diplomatic links with the second most important customer of its key shipping canal. “I’m convinced that this is the correct path for our country,” Varela said. Taiwan’s government said it was sorry and angry over Panama’s decision, and said it would not compete with China in what it described as a “diplomatic money game”. “Our government expresses serious objections and strong condemnation in response to China enticing Panama to cut ties with us, confining our international space and offending the people of Taiwan,” David Lee, Taiwan’s minister of foreign affairs, told a briefing in Taipei. Taiwan would immediately end cooperation with and assistance for Panama, and evacuate embassy and technical personnel “in order to safeguard our national sovereignty and dignity”, Lee said. China is deeply suspicious of Taiwan President Tsai Ing-wen, who it thinks wants to push for the island’s formal independence, although she says she wants to maintain peace with Beijing. China and Taiwan have tried to poach each other’s allies over the years, often dangling generous aid packages in front of developing nations, although Taipei struggles to compete with an increasingly powerful China. Panama is the second country to

switch its recognition to Beijing since Tsai took office last year, following a similar move by Sao Tome and Principe in December, trimming to 20 the number of countries that formally recognise Taiwan. Taiwan had as many as 30 diplomatic allies in the mid-1990s, and its remaining formal ties are with mostly smaller and poorer nations in Latin America and the Pacific. China’s Foreign Minister Wang Yi met his counterpart from Panama, Isabel de Saint Malo, in Beijing yesterday and signed a joint communiqué establishing ties. “This is a historic moment. China-Panama relations have opened a new chapter,” Wang said, describing Panama’s decision as in “complete accordance” with its people’s interests and “in keeping with the times”.

“The two countries’ governments agreed to develop good friendly relations on the principles of mutual respecting sovereignty and territorial integrity, non-aggression, mutual non-interference in internal affairs, mutual benefit, and peaceful coexistence,” China’s Foreign Ministry said in a statement on its website.

Chinese largesse

Panama’s government said in a statement that it recognised there was only one China, with Taiwan belonging to the Asian giant, and that it was severing ties with Taipei. “The Panamanian government is today breaking its ‘diplomatic ties’ with Taiwan, and pledges to end all relations or official contact with Taiwan,” the statement said. The establishment of links with Panama is a coup for China, which has been showering largesse on countries throughout Central America in recent years in an attempt to get them to

break ties with Taiwan. As recently as December, Panama’s deputy foreign minister had said he did not expect any change in Panama’s relations with Taiwan or China. Panama is one of Taiwan’s oldest friends, but some diplomats in Beijing had speculated that the Central American country could become the next nation to break ties. Tsai visited Central American allies earlier this year but did not stop in Panama. In Beijing, Panama’s foreign minister de Saint Malo said President Varela had expressed 10 years ago his interest in establishing ties with China, and that she hoped the move would lead to trade, investment and tourism opportunities, especially for “exporting more goods from Panama to China”. Monday’s diplomatic move could also raise questions about the future of a Chinese-backed project to build another Central American waterway to rival the Panama Canal in Nicaragua. Earmarked at a cost of US$50 billion, the Nicaraguan scheme was met with widespread incredulity when it was announced in 2013, and critics have raised questions about its feasibility. Reuters

Chinese Foreign Minister Wang Yi (R) speaks during a joint press briefing with Panama’s Vice President and Foreign Minister Isabel de Saint Malo (L) in Beijing, China, yesterday. Lusa

Oil industry

Government issues third set of fuel export quotas under processing scheme China has granted 32.365 million tonnes of fuel export quotas this year Chen Aizhu and Jessica Jaganathan

China has issued 9.06 million tonnes of refined fuel export quotas under so-called processing trade terms in its third batch of quotas, two trading sources with knowledge of the matter said yesterday. The current round of quotas is 49 per cent higher than last year’s batch, which were all issued under the processing category, of 6.085 million tonnes. The new quotas increased the total number of processing permits to 24.76 million tonnes granted so far in 2017. The quotas will be valid till the end of this year and were assigned to China National Petroleum Corp (CNPC), Sinopec Corp, China National Offshore Oil Corp (CNOOC) and Sinochem Group, the sources said. The government issued 6.29 million tonnes of exports under the separate general trade category in May, taking the total under that scheme to 7.605 million tonnes for the year. Combined by category, China has granted 32.365 million tonnes of fuel

export quotas this year, and all to the same four state oil companies. The Ministry of Commerce did not immediately comment. The third round of export quotas rose to accommodate a growing surplus of refined fuel as overall Chinese refinery throughput is set to increase

even with possible run cuts by Sinopec, as peak maintenance season ends and new capacity additions are expected later this year, said oil analyst Nevyn Nah of consultancy Energy Aspects. “Even with run cuts, we still have Chinese run (rates) up conservatively by 600,000 barrels per day (bpd) year-on-year in the third quarter,” said Nah. For the latest batch of processing

quotas, also called tolling quotas, Sinopec won 5.05 million tonnes, followed by CNPC at 2.7 million tonnes, Sinochem at 700,000 tonnes and CNOOC at 610,000 tonnes. China earlier this year barred the country’s independent oil plants from exporting fuel. Under the general trade category, refiners get tax refunds after exports are completed or get a tax waiver on fuel exports, a policy that Beijing granted in 2016.

Key Points China issues fuel quotas under tolling and general trade terms Tolling quotas total 24.8 mln T so far in 2017 Quotas under general trade 7.605 mln T in 2017 3rd batch quotas under tolling 49 pct more than a year ago Under the processing rules, refiners are exempted from import taxes on crude oil and export taxes for oil products, but have fixed volumes and time slots to export, both under the tight scrutiny of Chinese customs. China’s demand for oil products will grow by 360,000 bpd this year, down from the annual demand growth of 550,000 bpd in 2016, said Energy Aspect’s Nah. Reuters

Business Daily Wednesday, June 14 2017 9

Greater China

Markets

Bond link faces familiar hurdles for wary foreigners Volume in China’s bond market is less than 10 per cent of that in the U.S China is about to broaden foreign access to its US$10 trillion debt market -- but international investors are likely to be wary. The bond connect with Hong Kong is in the final stages of preparation, Charles Li, chief of the city’s bourse operator, said on Monday. Overseas money managers own less than 2 per cent of Chinese debt, leaving plenty of scope for increased inflows. Still, the new channel for foreigners to access the world’s third-biggest bond market is getting a mixed reception. E Fund Management (H.K.) Co. and Shenwan Hongyuan Asset Management see persistent obstacles to international participation. They include capital controls, lack of faith in mainland credit ratings and concerns over liquidity -- volume in China’s bond market is less than 10 per cent of that in the U.S.

“Foreign investors will most likely wait and watch, and the connect isn’t likely to become a big hit right away” James Yip, a Hong Kong-based money manager at Shenwan Hongyuan

“The trading link will attract a limited amount of additional inflows,” said James Yip, a Hong Kong-based money manager at Shenwan Hongyuan. “There are still a lack of details and a lot of uncertainties, and issues such as thin liquidity. Foreign investors will most likely wait and watch, and the connect isn’t likely to become a big hit right away.” Pacific Investment Management Co., too, doesn’t see a sudden surge in demand via the connect. Sally Wong, chief executive of the Hong Kong Investment Funds Association, said

her group’s members see the bond connect as another channel to access China’s capital markets. The minimum size of the offers that overseas investors need to submit will be RMB1 million (US$147,126), according to trading rules that the China Foreign Exchange Trade System published Monday. Here are some of the major issues flagged by foreign investors and analysts:

Capital curbs China has been working to staunch outflows, going so far as to limit mainland companies’ overseas acquisitions, curbing money transfers to offshore accounts and increasing scrutiny on citizens’ foreign-currency conversions. The moves, criticized by global investors and companies, mean foreign funds are worried they won’t be able to move proceeds abroad if they use the bond connect to buy onshore securities, said Zhu Qi, a portfolio manager at E Fund Management in Hong Kong. “Foreign investors still need to re-build confidence in the Chinese government and regulators, which will take more time,” said Zhu. Due to the curbs and yuan depreciation, “very few overseas funds will use the northbound route at the moment.”

Yuan control Beijing appears to be trying to regain some control over the yuan, with officials saying on May 26 that they were considering adding a new factor to the formula used to determine the daily reference rate. The shift was viewed by analysts as a way for China to keep the yuan stable and dilute the market’s role. That would be a concern because currency flexibility is becoming an increasingly important factor in investment decisions, says Luke Spajic, Pimco’s head of portfolio management for emerging Asia. “With a managed currency, the risk premia can be compressed for long periods of time, and when the currency weakens, large volatility and losses can occur,” Spajic said. “The counter-cyclical factor adds

more complexity to currency analysis and valuation.”

Thin trading Trading volumes in China’s bond market are about 7 per cent of those in the U.S., with recent efforts to curtail financial leverage further denting liquidity, data compiled by Bloomberg show. In China, banks dominate debt trading, and they have less impetus to buy and sell their holdings than money managers do. That situation has worsened recently as a spike in debt yields prompted Chinese companies to scrap a record RMB200 billion (US$29 billion) of bond sales over the past two months. “The market efficiency will be very low when trading is thin,” said Shenwan Hongyuan’s Yip. Fluctuations in liquidity can be wilder in China than in developed nations, as local traders cut positions at the same time, he added.

Credit ratings Foreign investors have long been

sceptical about Chinese rating companies, as they tend to give inflated assessments amid fierce competition, says David Qu, a markets economist in Shanghai at Australia & New Zealand Banking Group Ltd. Foreign funds probably won’t be interested in any debt graded lower than AA+, he said. Local rating firms, including Dagong Global Credit Rating Group and China Chengxin International Credit Co. have said that their Chinese peers are compromising evaluations to win business. In addition to the above, HSBC Holdings Plc has also flagged what they called China’s “relatively tedious” trade settlement procedures, saying the connect should be linked to international settlement systems as a way of luring foreign interest. For Goldman Sachs Group Inc. the connect has immense potential, but more precise details on exact trading procedures and hedging feasibility is needed before they can assess what the implication for inflows will be. Bloomberg News

Bonds

Beijing to make 1st overseas debt issuance after Moody’s downgrade But analysts expect the issuance to draw heavy subscription given the global ambitions of Chinese banks China’s finance ministry unveiled yesterday plans to sell yuan and dollar-denominated bonds, in the first overseas issuance of national debt following Moody’s sovereign downgrade. The ministry said it will issue RMB14 billion (US$2.06 billion) of

treasury bonds denominated in yuan, and dollar-denominated sovereign bonds equivalent to RMB2 billion in a rare, albeit small-sized offering. It said the treasury bonds will be issued in Hong Kong in two separate tranches of RMB7 billion each. The first will be issued by June 30, and the

other in the second half of this year. The RMB2 billion worth of dollar-denominated sovereign bonds will be issued in 2017’s second half. Commerzbank economist Zhou Hao called the dollar-denominated offering “an unusual move but since the amount is small, there may not be a huge implication.” Beijing’s move comes after Moody’s Investors Service on May 24 month downgraded China’s credit ratings for the first time in nearly 30 years. It cut the rating one notch, to A1 from Aa3.

The bond sale will test if the rating agency’s action would increase borrowing costs for Chinese borrowers. While the yuan-denominated offering will be an offshore benchmark for China issuers’ overseas offerings to price from, the dollar tranche might stem from an investor asking China to sell bonds, according to Marc Ostwald, global strategist at ADM Investor Services, a brokerage. “An issue of two billion yuan is US$300 million - that is a microscopically-sized issue, not even bench-

Key Points First China sovereign bond offering post-Moody’s downgrade Fundraising includes rare dollardenominated bond issue mark,” he said But analysts expect the issuance to draw heavy subscription given the global ambitions of Chinese banks. “There will be huge demand given that the Chinese banks are expanding overseas they tried to build up their US dollar balance sheets,” said Zhou of Commerzbank. “They would like to buy sovereign bonds to help them grow the asset side.” Reuters

10 Business Daily Wednesday, June 14 2017

Greater China Markets

Evergrande bond rally puts lingering leverage worry in focus The company’s shares have rallied about 225 per cent this year

rally in bonds of China’s most-indebted developer has some analysts warning that steps to cut borrowings have yet to bring leverage down to healthy levels. China Evergrande Group said Friday that it has agreed to sell its stake in China Vanke Co. for RMB29.2 billion (US$4.3 billion), freeing up cash as it cuts its debt load. That came after Evergrande raised RMB39.5 billion selling a stake in a property unit on May 31. The builder also said last week that it plans to sell new bonds

and exchange them with four sets of existing notes totalling US$3.2 billion, and that it is accelerating a plan to cut its debt load by redeeming all perpetual securities by June 30. While the property giant controlled by Chinese billionaire Hui Ka Yan has seen its bonds and stock rally in recent weeks, it still faces questions about its debt load. Evergrande’s leverage will likely improve, but will remain high, said Franco Leung, an analyst at Moody’s Investors Service. Its leverage is one of the highest among sizable Chinese developers,

Hui Ka Yan. Bloomberg

a concern amid the government’s intensified crackdown on developer financing, according to Alan Jin, a property analyst at Mizuho Securities Asia Ltd. and Danielle Wang, China property analyst at DBS Vickers Hong Kong Ltd. “It’s a significant decline of leverage, but it doesn’t make them healthy,” Jin said, adding the positive effect of perpetual bond redemption may be overstated by the market. “Their debt burden is still very high.” Evergrande declined to comment.

Market gains

Evergrande’s 8.25 per cent notes due in 2022 have risen to about 105.8 cents on the dollar from par, or 100 cents, when they were issued in March, according to data compiled by Bloomberg. The company’s shares have rallied about 225 per cent this year. The gains reflect enthusiasm for the improvements, even if more remains to be done. Evergrande’s proposed transfer of its share ownership in Vanke is credit positive for both Evergrande and Vanke, though their ratings will not be immediately affected, Moody’s said in a press release yesterday. S&P Global Ratings said in a statement yesterday that the impact of the transfer on overall leverage will “only be mildly credit positive” and that the amount Evergrande gets for the stake sale is not material compared with its adjusted total debt of RMB653 billion as of Dec. 31, 2016. It added that its ratings on Evergrande are not affected by the sharesale. Moody’s had projected Evergrande’s

adjusted debt leverage, measured as a percentage of revenue to adjusted debt, will increase to between 55 per cent and 60 per cent over the next 12-18 months, from 32 per cent at the end of December 2016. S&P expects its leverage multiple will decline to 10 to 12 times this year and next year, from 14.8 times in 2016.

“The recent moves to deleverage through stake sales and by paying off perpetual debt are creditor friendly” Anne Zhang, executive director for fixed income, currencies and commodities at JPMorgan Private Bank in Asia Still, Evergrande’s debt leverage as measured by revenue to adjusted debt will still be the weakest among the top five developers rated by Moody’s as measured by contracted sales. “The recent moves to de-leverage through stake sales and by paying off perpetual debt are creditor friendly,” said Anne Zhang, executive director for fixed income, currencies and commodities at JPMorgan Private Bank in Asia. “Hopefully, they can continue down this track, because in the last few years, leverage has come up to a dangerous level.” loomberg News

Trade

U.S. beef exports to Mainland closer to restart as rules issued Some trade groups and companies have been sceptical that U.S. beef exports to China will be significant Megan Durisin and Jeff Wilson

The resumption of American beef exports to China after a 14-year hiatus took another step closer after the U.S. Department of Agriculture said trade rules have been finalized. The latest development was announced Monday by the USDA in a statement. It follows the agreement reached last month by the U.S. with China to promote market access for American products including beef amid a broader effort to reshape the trade relationship between the countries. China halted beef shipments in 2003 amid concerns about mad cow disease. Beef destined for China must be sourced from cattle that were born, raised and slaughtered in the U.S., or animals that were imported from Canada and Mexico before being slaughtered domestically, the USDA

said separately on its website. Cattle must be traceable either to their birth farm or, if initially imported into the U.S., to the first place of residence or port of entry. “About 10 per cent of U.S. cattle may meet traceability requirements,” Derrell Peel, an agricultural economist at Oklahoma State University in Stillwater, said in a telephone interview. “If we see a noticeable increase in sales volume by the end of the year, that will be promising. It takes time to develop trade.” Some trade groups and companies have been sceptical that U.S. beef exports to China will be significant. An executive at Brazil’s JBS SA, the world’s largest beef supplier, said last month that the deal won’t be a game-changer for the U.S. industry. The U.S. Meat Export Federation has said that U.S. shipments may see a slow start, while the market shows

promise in the long term. There will be a period of adjustment and added costs involved with the new requirements, the group said in a Monday statement. “We hope that by getting our foot in

the door we can develop a long-lasting and mutually beneficial relationship with China,” Craig Uden, president of the National Cattlemen’s Beef Association, said Monday in an emailed statement. Bloomberg News

Business Daily Wednesday, June 14 2017 11

Asia Forex

Asia central banks rebuild defence as Fed hike looms Money is also pouring back into Asia as investors double down on the economic potential of countries like the Philippines, Malaysia and Indonesia Enda Curran and Anirban Nag

sia’s central banks are stacking the sandbags. Foreign-exchange reserves are being rebuilt as monetary authorities brace for the Federal Reserve’s third rate hike in six months. While the expected move has been well telegraphed, prolonged periods of Fed tightening can cause jitters for emerging markets. Asia was slammed in 2013 when then-Fed Chairman Ben Bernanke’s hint of an end to quantitative easing sparked the “taper tantrum.” The turnaround is being led by China’s resumed purchases of U.S Treasuries, after it cut holdings last year by the most since 2000. The world’s biggest reserves pile grew by US$24.03 billion to US$3.054 trillion in May -- the biggest increase since April 2014 -- as a stronger yuan and an easing of capital outflows help authorities in Beijing to shore up their buffer. There have also been sizable gains in Malaysia, Indonesia and Singapore. India’s foreign-exchange reserves

are at record highs, buoyed by strong inflows into the stock market. “Asia is strengthening its defences,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “This will give regional central bankers a stronger hand to counter any potential volatility in the coming months, should the Fed tap the brakes more firmly than expected.” Fed rate hikes can reverberate through Asia as capital is lured to rising yields in America, sparking financial market volatility and driving up borrowing costs for the region. Southeast Asia in particular is often vulnerable because of dollar-denominated debt serviced in local currencies, an arrangement dubbed “Original Sin” by economists Barry Eichengreen and Ricardo Hausmann after the region’s 1997-98 meltdown. This time around, calmer markets, a dollar that’s yet to sustain a break higher and a steady flow of money

into Asia is giving central banks a window to top up their foreign currency holdings. Improving fundamentals help explain the reserves build-up. Growth across the region remains solid due in large part to China’s economy continuing to defy predictions of a sharp slowdown. Buoyed also by U.S. and European demand, exports from countries such as South Korea and India are at multi-year highs, even amid worries over rising protectionism. “We think this current Asian trade recovery has legs, driven by a synchronized global recovery, including rising capital spending in both the U.S. and China,” said Chua Hak Bin, a Singapore-based senior economist with Maybank Kim Eng Research. Money is also pouring back into Asia as investors double down on the economic potential of countries like the Philippines, Malaysia and Indonesia. S & P G l o ba l Ra t i n g s ra i s e d

Indonesia’s credit rating to investment grade in May, bringing it in line with the other two main rating companies and paving the way for more fund inflows into Southeast Asia’s largest economy. “The region is benefiting from better growth prospects, solid macro fundamentals, advancing of reforms and strong external positions, accompanied by lowering of domestic political uncertainties,” said Bejoy Das Gupta, chief economist for Asia Pacific at the Institute of International Finance. Asia’s expansion will probably exceed 5 per cent in 2017 and 2018, compared with about 3.5 per cent for the world this year, according to the International Monetary Fund. The better conditions have put a floor under currencies and helped bolster current accounts.

Less pressure

While the Fed is tipped to raise rates this week, soft reports on employment and inflation mean investors are easing up on bets for additional hikes. Goldman Sachs Group Inc. has pushed back its forecast for a third rate increase this year to December from September and investors are now pricing in less than one rate hike in 2018 for the first time since the eve of the U.S. elections in November. That’s taking the pressure off Asia’s currencies. “The third big U.S. dollar rally of the post-Bretton Woods era has stalled,” economists at Societe General wrote in a recent note. While all of that’s good news for central bank reserves in Asia, it doesn’t mean governments can afford to ease up on domestic reforms, said HSBC’s Neumann. “Sound fundamentals, after all, offer the best insulation from potential storms brewing elsewhere.” Bloomberg News

Football

South Korea urges talks on joint World Cup Chinese officials have said they want to host the World Cup at the earliest opportunity South Korea’s football association yesterday said it wanted talks with China and Japan about a joint bid to host the 2030 World Cup along with North Korea, an initiative aimed at easing tensions in the region. The South’s new President Moon Jae-In first proposed the ambitious idea to FIFA chief Gianni Infantino in a meeting Monday, although Korean officials acknowledge China is likely to be lukewarm. “We want to start discussions with China and Japan on this idea,” a spokesman for the Korea Football Association (KFA) Cho Jun-Heon told AFP. South Korea and Japan co-hosted the 2002 World Cup but a four-way split is unheard of, let alone between two countries -- the Koreas -- who are technically still at war. KFA president Chung Mong-Gyu told reporters that the North -- which does not have formal diplomatic ties with Japan or South Korea -- would likely be keen to host if the other countries all agreed to participate. But China could be cool to the

proposal as it apparently wants to host the world’s largest sporting event alone, Chung added.

Speaking at the FIFA meeting Monday, Moon said sport could play a role in easing tensions in the region. “If East Asian countries, including the two Koreas, host the World Cup, I think this will help build up peace on the Korean peninsula as well as in the region,” Moon told Infantino,

according to the presidential Blue House. Infantino said he respected Moon’s “vision”, and would discuss the proposal with China’s President Xi Jinping when he meets in Beijing today, the Blue House statement said. North Korea has often boycotted sporting events overseas, including the 1988 Seoul Olympics after Seoul rejected Pyongyang’s demand to host the Games jointly. AFP

“If East Asian countries, including the two Koreas, host the World Cup, I think this will help build up peace on the Korean peninsula as well as in the region” Moon Jae-In, President of South Korea

Chinese officials have said they want to host the World Cup at the earliest opportunity, which appears to be 2030.

South Korean President Moon Jae-in (R) poses with FIFA president Gianni Infantino (L) holding a shirt he received as a gift during their meeting in Seoul, South Korea, 12 June 2017. Lusa

12 Business Daily Wednesday, June 14 2017

Asia NAB report

Australian business conditions remain upbeat in May The measure of employment dipped a point to +6 but again was above average

measure of Australian business conditions eased just a touch from decade highs in May with growth reported across all sectors, a sign the economy may have picked up speed after a sluggish first quarter. National Australia Bank surveyed more than 400 firms to compile its index of business conditions which dipped a point to stand at +12 in May, still well above the long-run average of +5.

for only the second time since 2010,” said NAB chief economist, Alan Oster. The run of upbeat surveys held out hope for bounce in economic activity after bad weather kept growth to just 0.3 per cent in the first quarter. “We continue to expect economic growth to accelerate in the second half following weather-related disruptions in the first half of the year,” said Oster. “But the longer-term outlook could be less sanguine in our view as important growth drivers

begin to fade.” The Reserve Bank of Australia (RBA) argued that growth would revive when it held interest rates steady at 1.5 per cent following a month policy meeting last week. The main pullback in the NAB survey for May came in its measure of business profits which eased 4 points to +10, while business sales held at an historically high +17. The measure of employment dipped a point to +6 but again was above average. NAB said that outcome was consistent with annual job creation of around 230,000, or around 19,000 per month, and was

enough to nudge the unemployment rate lower from the current level of 5.7 per cent. Forward orders also held at a firm +3, suggesting the improvement in demand could have legs. The survey’s measure of capacity utilisation jumped a full percentage point to 82.4 per cent, which could bode well for business investment. There was still little sign of inflationary pressure in the survey, with labour costs subdued. Retail prices actually fell at a quarterly rate of 0.2 per cent, suggesting some downside risks for consumer price inflation in the second quarter. Reuters

“We continue to expect economic growth to accelerate in the second half following weather-related disruptions in the first half of the year” Alan Oster, NAB chief economist The survey’s measure of business confidence fell back 6 points to +7, though that merely retraced a jump in April and left it a point above the long-run average. “The strength looks to be quite broad-based, with all industries recording positive business conditions

Official visit

India’s Modi and Trump to hold first talks on June 26 in Washington The United States has emerged as a top arms supplier to India and the two sides will be looking to move forward with deals such as unarmed drones that India wants for its navy India’s Prime Minister Narendra Modi will hold talks with U.S. President Donald Trump in Washington on June 26, the Indian foreign ministry and the White House said on Monday, the first meeting between the leaders. Ties between the two big democracies grew rapidly under the administration of former President Barack Obama which saw India as a partner to balance China’s growing weight in Asia. But Trump has focused on building ties with China, seeing it as key to tackling regional problems such as North Korea’s nuclear programme. The Indian ministry said Modi’s talks with Trump would lay the ground for a further expansion in ties, allaying some of the anxiety that had crept in about a drift in relations. “Their discussions will provide a new direction for deeper bilateral engagement on issues of mutual interest and consolidation of multidimensional strategic partnership between India and the U.S.,” the ministry said in a statement. In Washington, White House

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spokesman Sean Spicer said the two leaders will discuss topics including economic growth, the fight against terrorism, expanding defence cooperation and growing U.S.-India trade. “You can expect the two of them to set forth a vision that will expand the U.S.-India partnership in an ambitious and worthy way,” Spicer said.

The United States has emerged as a top arms supplier to India and the two sides will be looking to move forward with deals such as unarmed drones that India wants for its navy, sources said. One issue that the two leaders face is resolving conflict arising out of the push they are both making at home to boost industry and create jobs. Modi has been driving a makein-India campaign to press foreign arms suppliers to set up factories in India and transfer technology instead of selling off-the-shelf, which has made India one of the world’s biggest

arms importers without any domestic production base.

“Their discussions will provide a new direction for deeper bilateral engagement on issues of mutual interest and consolidation of multidimensional strategic partnership between India and the U.S.” Indian foreign ministry

Trump, on the other hand, has railed against firms moving factories outside the United States and has demanded U.S. companies invest at home as part of his “America First” campaign. Trump’s review of a visa programme under which thousands of skilled Indian workers go to the United States is also a top concern for India. Reuters Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Wednesday, June 14 2017 13

Asia Settlement

In Brief

Indonesia strikes tax deal with Google for 2016 Indonesia is eager to ramp up tax collection to narrow its budget deficit and fund an ambitious infrastructure programme Hidayat Setiaji and Eveline Danubrata

Indonesia has reached a tax settlement with Alphabet Inc’s Google for 2016, the country’s finance minister said, following a monthslong dispute over allegations that the search giant had not made enough annual payments to the government. A senior tax official had said in September that Indonesia, Southeast Asia’s biggest economy, planned to pursue Google for five years of back taxes and the company could face a bill of more than US$400 million for 2015 alone if it were found to have avoided payments. “We already have an agreement

with them based on 2016. But we can’t disclose the figure,” Indonesia Finance Minister Sri Mulyani Indrawati told reporters yesterday. It was unclear if both sides were still locking horns over Google’s taxes for other years. Google did not immediately respond to requests for comment. Indonesia is eager to ramp up tax collection to narrow its budget deficit and fund an ambitious infrastructure programme. Other governments around the world are also seeking to clamp down on what they see as corporate tax avoidance. Last year, Google agreed to pay 130 million pounds (US$164 million) in

back taxes to settle a probe by Britain’s tax authority, while Thailand is studying plans to toughen tax collection rules for internet and technology firms. According to Indonesian tax officials, most of Google’s revenue generated in the country is booked at its Asia Pacific headquarters in

Key Points Indonesia and Google have been in tax row for months Indonesia finmin declines to disclose settlement amount Governments are chasing tech companies for tax avoidance Singapore. They also estimated that total advertising revenue for the industry in Indonesia was around US$830 million, with Google and Facebook Inc accounting for around 70 per cent of that. But Google has pointed to a joint study by the company and Singapore state investor Temasek that estimated the size of Indonesia’s digital advertising market at US$300 million for 2015. Senior executives from Google’s Asia Pacific headquarters also met Indonesian tax officials in October to discuss its tax bill, a person with knowledge of the matter said. Reuters

Official

Slowdown in Bank of Japan bond buying a result of stable yields Governor Haruhiko Kuroda has repeatedly said the central bank still had plenty of bonds to buy Leika Kihara

The Bank of Japan (BOJ) rebuffed speculation that it was engaging in “stealth tapering” as its massive asset-buying programme nears its limit, stating instead its reduced bond buying reflected receding upward pressure on Japanese yields from U.S. Treasuries. Masayoshi Amamiya, the BOJ’s executive director overseeing monetary policy, told Parliament yesterday the pace of bond buying had slowed because U.S. Treasury yields have fallen - enabling the central bank to cap Japanese long-term rates while also reducing its purchases. “The slowdown came as a result of our policy of guiding yields at

appropriate levels,” he told parliament, when asked by a ruling party lawmaker why the BOJ’s purchases were slowing. “The BOJ will continue to take necessary steps to stabilise prices, while keeping an eye on how they affect its financial health,” he said. After three years of heavy asset buying failed to drive up inflation, the BOJ switched its policy framework last year to one that capped long-term interest rates from a policy that had targeted the pace of money printing. BOJ Governor Haruhiko Kuroda has repeatedly said the central bank still had plenty of bonds to buy, and that it was premature to openly debate an exit strategy from the stimulus programme. advertisement

Real estate

S. Korean fin min says to tackle property speculation South Korea’s finance minister said the government will focus on curbing speculative investments in new measures it will prepare to stem soaring property prices. “A pre-emptive, surgical approach will be made to address regions showing signs of overheating,” Kim Dong-yeon told other ministers at a policy meeting in Seoul. Commentators have speculated the government will tighten rules on how much home buyers can borrow in proportion to a home’s value when current regulations expire next month. Currently home buyers can borrow up to 70 per cent of the property value, with repayments allowed to take up to 60 per cent of their annual income. Finance minister

Japan won’t set uniform restrictions on regional bank bond holdings Japan has no plan to set a one-size-fits-all rule restricting regional banks from holding government bonds, Taro Aso, minister in charge of financial regulation, said yesterday. A new regulatory framework under consideration by the Financial Services Agency (FSA) will instead require regional banks to ensure they do not take on excessive interest-rate risk when extending loans or investing in government bonds, he said. “We have absolutely no plan to uniformly restrict regional banks from holding government bonds,” Aso told parliament. Expansion

Hyundai exec says no plan to buy other automakers But buying large amounts of Japanese government bonds is expected to become increasingly difficult as the central bank already owns more than 42 per cent of the entire JGB market. Indeed, recent data showed the BOJ’s bond buying has slowed considerably in recent months.

Key Points Upward pressure on yields from US market receding - BOJ official BOJ may debate fate of loose bond-buying pledge BOJ board meets for rate review June 15-16 Most analysts expect the BOJ to slow the pace further to around 60 trillion yen (US$546 billion) by the end of year and to omit from its policy statement a loose pledge to increase its JGB holding by 80 trillion yen a year at some point. The fate of the pledge may be among topics the BOJ’s nine board members will discuss at their two-day policy meeting that starts on Thursday. With the BOJ now targeting interest rates, many central bank policymakers see the 80-trillion-yen pledge as obsolete and largely symbolic. But some remain wary of removing the pledge now fearing it could be misinterpreted as a sign the BOJ is contemplating withdrawing its stimulus programme at short notice. Reuters

Hyundai Motor Co Vice Chairman Chung Eui-sun said yesterday the South Korean firm has no plan to buy other automakers, although it will beef up cooperation with other technology firms. His comments were made at the launch of the Kona, a small sport utility vehicle. The automaker aims to sell over 200,000 Kona models in South Korea and overseas next year as it tries to revive flagging sales and catch up with rivals in the SUV segment. IPO

Brunei’s largest bank to raise up to US$500 mln Bank Islam Brunei Darussalam, aims to raise as much as US$500 million in an IPO - the first by a firm from the Southeast Asian nation although the bank will be listed on the Malaysian bourse, IFR reported. JPMorgan and Malayan Banking Bhd (Maybank) are set to be joint global coordinators for an initial public offering of US$200 million–US$500 million this year, said IFR, a Thomson Reuters publication. A book runner is also likely to be added, it said.

14 Business Daily Wednesday, June 14 2017

International In Brief Diplomacy

U.S. senators reach deal on Russia sanctions U.S. senators reached an agreement on Monday on legislation imposing new sanctions on Russia, including a provision that would prevent the White House from easing, suspending or ending sanctions without congressional approval. The agreement, to be filed as an amendment to an Iran sanctions bill, is intended to punish Russia over issues including its alleged meddling in the 2016 U.S. election, annexation of Ukraine’s Crimea region and support for the government of Syria in that country’s six-yearlong civil war. Hacking

Cyber firms warn of malware that could cause power outages Two cyber security firms have uncovered malicious software that they believe caused a December 2016 Ukraine power outage, they said on Monday, warning the malware could be easily modified to harm critical infrastructure operations around the globe. ESET, a Slovakian anti-virus software maker, and Dragos Inc, a U.S. critical-infrastructure security firm, released detailed analyses of the malware, known as Industroyer or Crash Override, and issued private alerts to governments and infrastructure operators to help them defend against the threat. The U.S. Department of Homeland Security said it was investigating the malware. Gulf crisis

Qatar asks U.N. body to resolve airspace row Qatar has asked the United Nations’ aviation agency to intervene in an airspace rights’ dispute with three Gulf states following an escalating diplomatic row and trade blockade, two sources familiar with the matter said on Monday. Qatar has sent a letter to the International Civil Aviation Organization’s (ICAO) governing council in an effort to resolve the dispute after Saudi Arabia, United Arab Emirates and Bahrain closed their airspace to Qatari flights. The Gulf state has indicated that it will ask the council to resolve the conflict using a dispute resolution mechanism under the 1944 Chicago Convention which is overseen by ICAO. NAFTA

U.S steel association urges better coordination The top U.S. steelmakers’ association called for better coordination and enforcement of rules under a renegotiated North American Free Trade Agreement to guard against Mexico, the United States and Canada becoming a dumping ground for cheap steel from other countries. In comments to the U.S. Trade Representative ahead of NAFTA negotiations in August, the head of the American Iron and Steel Institute (AISI), Thomas Gibson, urged updates to NAFTA’s rules of origin - how much of a product is made in North American new measures to curb steel dumped on the market by non-NAFTA countries, and steps to improve customs procedures.

Regulation

U.S. Treasury unveils financial reforms, critics attack Changes proposed by the Treasury Department include easing up on restrictions big banks now face in their trading operations Pete Schroeder and Lisa Lambert

he U.S. Treasury Department unveiled a sweeping plan on Monday to upend the country’s financial regulatory framework, which, if successful, would grant many items on Wall Street’s wish list. The nearly 150-page report suggested more than 100 changes, most of which would be made through regulators rather than Congress, Treasury Secretary Steven Mnuchin said in an interview. “We were very focused on, what we can do by executive order and through regulators,” he said. “We think about 80 per cent of the substance in the report can be accomplished by regulatory changes, and about 20 per cent by legislation.” Republican President Donald Trump has gradually been nominating heads of financial agencies to carry out his agenda, but only Mnuchin and Securities and Exchange Commission Chairman Jay Clayton have been approved by Congress. Other agencies are operating under “acting” chiefs or have leaders appointed by Trump’s Democratic predecessor, Barack Obama. Changes proposed by the Treasury Department include easing up on restrictions big banks now face in their trading operations, lightening the annual stress tests they must undergo, and reducing the powers of the Consumer Financial Protection Bureau (CFPB), which has been aggressively pursuing bad behaviour by financial institutions. The plan would also expand the authority of the Financial Stability Oversight Council, which is chaired by Mnuchin, and change the way global capital standards are implemented to give U.S. banks a leg up against foreign rivals. Smaller banks would get some relief as well: Lenders with US$50 billion or less in assets would have to jump through fewer regulatory hoops than rivals with multitrillion-dollar balance sheets. The industry has long sought many of the proposed changes, which would mostly benefit banks like JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, Wells Fargo & Co, Goldman Sachs Group Inc and Morgan Stanley.

Industry trade groups applauded the proposal on Monday evening, though some said they wished there were more specifics on tricky questions, such as what level regulators should set for banks’ assets before subjecting them to stricter rules. “This is the first time in a while where there’s been an official undertaking where our concerns resonated with the folks in the driver’s seat,” said Rich Foster, senior counsel for regulatory and legal affairs at the Financial Services Roundtable, a trade group. Representatives for the six largest U.S. banks declined to comment, did not immediately respond or said they were reviewing the document. Reform advocates and Democratic lawmakers were quick to criticize the plan as a hand-out to Wall Street and a dangerous one for U.S. consumers who lost homes and jobs during the 2007-2009 financial crisis. Democratic Senator Elizabeth Warren, a critic of Wall Street, said it would “make it easier for big banks to cheat their customers and spark another financial meltdown.” Her Democratic colleague Senator Sherrod Brown noted that Treasury consulted with industry groups more than consumer groups, by a ratio of 17-to-1, while developing its report. “The Treasury proposal advances ideas that have been pushed by

industry lobbyists since Dodd-Frank was passed,” said Lisa Donner, executive director of Americans for Financial Reform. “We need more effective regulation and enforcement, not rollbacks driven by Wall Street and predatory lenders.” Mnuchin said the regulatory overhaul is needed to grow the economy, give consumers more choices and ensure U.S. taxpayers would not have to bail out big banks again. While the Trump administration has said it wants to protect consumers, existing rules limit their access to loans and investment products they want. By trying to make many of the changes through regulatory agencies, the Trump administration may avoid a lengthy and perhaps futile battle with Democratic lawmakers. Although the White House and Congress are led by Republicans, Democrats in the Senate can block legislation and are unlikely to support any overhaul that eases rules on big banks. Some of the Treasury’s proposals, like defanging the CFPB, would require new laws to be written and therefore face an uphill political battle. The report, which focused on banks, is the first of four examinations being carried out by the Treasury Department after Trump pledged to do a “big number” on the Dodd-Frank reform law. Proposals on capital markets, clearing houses and derivatives as well as the insurance and asset management industries and financial innovation and banking technology will come later. Reuters

Taxes

Brazil’s Temer mulls income tax cut to win support The idea would reduce the highest income tax bracket to as low as 18 per cent from 27.5 per cent Brazilian President Michel Temer’s administration is considering cutting the highest income tax threshold for individuals to shore up support among the middle class for his beleaguered government, O Estado de S. Paulo newspaper said on Monday. Temer’s main political advisory group backs the idea, which would reduce the highest income tax bracket to as low as 18 per cent from 27.5 per cent, Estado reported, without saying how it got the information. Temer’s press office said in an emailed response that the government had not yet made a decision on the matter. A member of Temer’s cabinet, who spoke on condition of anonymity

due to the sensitivity of the issue, told Reuters the economic team was unlikely to back a lower tax threshold due to its fiscal cost. The government would tax dividends in order to fund eventual revenue losses stemming from the income tax reduction, the report said. Those eligible for Brazil’s top social assistance program Bolsa Familia would get a 4.5 per cent hike in stipends - above annual inflation readings. The report adds to growing concerns that Temer may ease budget spending controls to assert himself in power after corruption allegations against him by members of a billionaire business family. Based on testimony from a member

of Brazil’s Batista family, prosecutors said Temer worked to obstruct justice by condoning efforts to pay for the silence of a potential witness.

‘The government would tax dividends in order to fund eventual revenue losses stemming from the income tax reduction’ Temer’s political advisors remain undecided whether the tax income proposal will be presented to Congress in an executive decree or through an allied lawmaker, Estado said. Reuters

Business Daily Wednesday, June 14 2017 15

Opinion Business Wires

The Korea Herald South Korea’s auto exports rose for four months in a row in May on an upturn in global demand, government data showed yesterday. The total value of vehicles shipped overseas reached US$3.51 billion last month, up 3.6 per cent from a year earlier, according to the data compiled by the Ministry of Trade, Industry and Energy. The number has remained in positive terrain since February when it rebounded to a 5.3 per cent rise from a 4.8 per cent fall in the previous month. Total vehicles shipped abroad also climbed 2.1 per cent on-year to 221,237 units in May.

The global age of complexity

E Bangkok Post The (Thai) Revenue Department is set to launch a tax evasion probe against steel-related companies nationwide to shore up revenue leakage and boost efficiency. The department will summon large downstream steelmakers to guide them on how to pay tax correctly so as to avoid accounting errors, said Prasong Poontaneat, director-general of the Revenue Department. For example, he said large steel producers might directly issue invoices on goods to upstream producers, bypassing middlemen and the Revenue Department, which cannot track the tax payment records of some small and mid-sized steelmakers, he said.

Viet Nam News The country’s inflation this year is forecast to reach 2.6 per cent barring fluctuations of prices on world markets and adjustment in the cost of public services, the National Financial Supervisory Commission (NFSC) reported. In the first five months of the year, the average inflation rate was at 4.47 per cent. But the commission forecast that inflation would drop toward the end of the year due to stability of food and restaurant prices. However, in its economic report for May and the first five months of 2017, the NFSC estimated that if the exchange rate of Việt Nam đồng against the US dollar rises 1 per cent, inflation will increase 0.17 per cent.

The Phnom Penh Post Cambodian Minister of Commerce Pan Sorasak put forward a proposal last week requesting that the World Trade Organization (WTO) share information of bilateral and regional trade agreements with all its members to help smaller economies integrate into global trade markets. Speaking during a meeting with the Council of Ministers from the Organization for Economic Cooperation and Development, Sorasak asked that the WTO help implement the decisions taken by its members, particularly for least developed countries (LDCs), and help its partners understand the outcomes of those decisions.

very century, it seems, has its “age.” The Renaissance, from a philosophical perspective, has been called the Age of Adventure. The seventeenth-century Age of Reason was followed by the Age of Enlightenment. The nineteenth and twentieth centuries were ages of ideology and analysis, respectively. As for the twenty-first century, I would argue that it is the Age of Complexity. On the one hand, science and technology have progressed to the point that humans can create life and, through ultra-advanced genomeediting technologies, even engineer new species. Futurologist Yuval Noah Harari anticipates the imminent rise of Homo deus: a species of humanity that can “play god” by manipulating nature in myriad ways, including delaying and ultimately even conquering death. Most of the technological trends identified by the U.S. Department of Defense as crucial in the coming years were unheard of just 30 years ago. On the other hand, much of humanity is besieged by feelings of helplessness and frustration, owing to the challenges we seem unable to resolve, from pollution and climate change to unrelenting radicalism and terrorism. Economic inequality – reinforced by job losses from automation, deeply entrenched social orders, and damaging political power dynamics – has contributed substantially to this sense of powerlessness. At a time when our power of creation, matched by our power of destruction, has reached unprecedented levels – when one weapons launch could change the course of history – the development of a more equitable and effective system could not be more urgent. In this new age of complexity, we need a new paradigm for thinking about the world, and thus for guiding our efforts to advance peace and prosperity. A prevailing worldview has always been essential to shaping human destiny. Alexander the Great would not have conquered most of the known world of his time without the influence of his philosopher-teacher Aristotle. And he was not unique: behind every great empire has been a great philosopher or historian whose worldview imbued the imperial drive with legitimacy and even sacred significance. (Were history written by the victims, not the victors, empire-building would look a lot less glorious.) As we move to develop a new worldview to guide our future, we must embrace a truly global perspective. In the past, analysis of the evolution of humanity’s worldview has tended to focus on the West, following the European and, later, American progression from exploration, colonization, and empire-building, to industrialization, the diffusion of market relations, and technological innovation. In the twenty-first century, however, this narrative is being revised. The global economic crisis that originated in the United States in 2007 exposed the fragility of the advanced-country model, giving rise to a new, more multipolar worldview, in which the emerging economies, led by China, India, and Russia, have increasingly challenged the status quo. Meanwhile, the challenges countries are facing have become increasingly interconnected, with global mega-trends, from climate change to financialization, playing out beyond the purview of individual governments. As the

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Andrew Sheng a Distinguished Fellow at the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance Xiao Geng President of the Hong Kong Institution for International Finance, is a professor at the University of Hong Kong

physicist-turned-ecologist Fritjof Capra and the chemist Pier Luigi Luisi remarked in their 2014 book The Systems View of Life, “the major problems of our time are systemic problems – all interconnected and interdependent.” Accordingly, “they require systemic solutions.” In this context, the world needs a more holistic worldview that accepts the pluralism and diversity – in terms of geography, tradition, and governance models – that reflect and reinforce the complexity of today’s global trends. Such an approach must recognize not just the need for countries to work together to shape the world, but also the limits of our ability to shape it at all. Humanity has long operated within a paradigm of determinism; we believe we can predict and manipulate outcomes. But we have not discovered any natural laws or equations that explain how life evolved into its current state, much less indicate how it will evolve in the future. Determinism has run its course, and must be replaced by a paradigm in which uncertainty is accepted as an irreducible fact of life. In the natural sciences, this is already happening. Quantum mechanics, general relativity, and uncertainty have been accepted as the way forward in physics and mathematics. In biology and neuroscience, there is a growing acceptance that life emerges through cognition (selfawareness and self-generation) and changes constantly, meaning that there is no “prestatable becoming,” in the words of the biologist Stuart Kauffman. Yet in the social sciences – from economics to politics – this transition has yet to take place. Economics continues to operate in a largely linear manner, guided by the deterministic eighteenth-century Newtonian framework. But simple mechanistic theories cannot deal with living, complex, and often quantum systems. Indeed, the reductionist logic, based on simplistic assumptions, that dominates economics today is at best incomplete, and potentially fundamentally wrong. Similarly, in politics, we continue to struggle to reach systemic solutions, not least because we often cannot agree on the nature of the complex problem we face. This partly reflects the global nature of today’s challenges and the diversity of perspectives that therefore must be reconciled. More fundamentally, it reflects the fact that humans are not always rational – a fact that a new “complexity economics” would do more to acknowledge. More broadly, a new “complexity worldview” must appreciate that human behaviour is driven by everything from politics and economics to culture and psychology – even by technology itself. In an age of complexity, the institutions we build and sustain demand a system-minded approach that evolves alongside the rapidly progressing natural sciences. Project Syndicate

Economics continues to operate in a largely linear manner, guided by the deterministic eighteenthcentury Newtonian framework

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16 Business Daily Wednesday, June 14 2017

Closing Tourism

Terror attacks dent visitor numbers at London sights

Terror attacks in Britain have lowered visitor numbers at London attractions and theme parks run by Merlin Entertainments, the company said yesterday. Merlin, which runs the London Eye and Madame Tussauds and a string of theme parks, said the Westminster attack on March 22 in which five people were killed initially led to “a softer domestic, day-trip market”. Two subsequent attacks in Manchester and London which killed 30 people and injured

dozens more “resulted in a further deterioration in domestic demand,” the company said in a stock market trading update. “Given the typical lag between holiday bookings and visitation, we are also cautious on trends in foreign visitation over the coming months,” the company said. Theme parks including Legoland had also been “adversely affected in recent weeks by the terror attacks and subsequent heightened security measures”. Merlin chief executive officer Nick Varney said the impact of the attacks was “unclear at this stage”. AFP

Auto industry

Cook says Apple is focusing on making an autonomous car system Apple invested US$1 billion last year in Didi Chuxing, the biggest Chinese ride-hailing service Alex Webb and Emily Chang

fter years toiling away in secret on its car project, Apple Inc. Chief Executive Officer Tim Cook has for the first time laid out exactly what the company is up to in the automotive market: It’s concentrating on self-driving technology. “We’re focusing on autonomous systems,” Cook said in an interview on Bloomberg Television on June 5. “It’s a core technology that we view as very important.” “We sort of see it as the mother of all AI projects,” Cook said in his most detailed comments to date on Apple’s plans in the car space. “It’s probably one of the most difficult A.I. projects actually to work on.” The prospect of self-driving cars has seen a slew of technology companies push into the auto industry, which is estimated to be worth US$6.7 trillion by 2030, according to McKinsey & Co. Alphabet Inc.’s Waymo unit has signed partnerships with Fiat Chrysler Automobiles NV and Lyft Inc. to develop the technology. And carmakers from BMW AG to General Motors Co. have opened sizable Silicon Valley offices and dedicated hundreds of millions of dollars to acquire autonomous vehicle start-ups. Apple had initially been seeking to build its own car, before recalibrating those ambitions last year to prioritize the underlying technology for autonomous driving, Bloomberg News reported. The iPhone maker

had hired more than 1,000 engineers to work on Project Titan, as the car team is known internally, after it started in 2014. Ballooning costs and headcount led to Apple veteran Bob Mansfield being given the reins of the team in 2016. Cook has never before openly outlined Apple’s plans, though public filings have surfaced in recent months that provided snapshots of Apple’s efforts.

‘The iPhone maker secured a permit from the California Department of Motor Vehicles in April to test three self-driving sports-utility vehicles’ The iPhone maker secured a permit from the California Department of Motor Vehicles in April to test three self-driving sports-utility vehicles, photos of which emerged several weeks later. A half-dozen vehicles had been surreptitiously testing the autonomous technology on public roads in and around the San Francisco Bay area for at least a year, according to someone familiar with Project Titan. Apple spokesman Tom Neumayr

declined to comment on how long the company has been conducting road tests. In December, Steve Kenner, Apple’s director of product integrity, penned a letter to the National Highway Traffic Safety Administration revealing the company’s interest in automotive technology. It became public when it was published on a federal website. In the letter, Kenner wrote about the company’s excitement surrounding the potential for automated systems in fields like transportation. “There is a major disruption looming there,” Cook said on Bloomberg Television, citing self-driving technology, electric vehicles and ride-hailing. “You’ve got kind of three vectors of change happening generally in the same time frame.” Cook was also bullish about the prospects for electric vehicles, a market which last week helped Tesla Inc. become the world’s fourth-biggest carmaker by market capitalization,

even as it ranks well outside the top 10 by unit sales. “It’s a marvellous experience not to stop at the filling station or the gas station,” Cook said. Apple invested US$1 billion last year in Didi Chuxing, the biggest Chinese ride-hailing service. The announcement came soon after Mansfield took over Project Titan and set about cutting hundreds of engineers. Whereas Apple had initially been building its own car, Mansfield scrapped those plans in favour of building an autonomous driving system. The company will make a decision on whether to proceed with the push later this year, the people said at the time. In the interview on Bloomberg Television, Cook was hesitant to disclose whether Apple will ultimately manufacture its own car. “We’ll see where it takes us,” Cook said. “We’re not really saying from a product point of view what we will do.” Bloomberg News

Apple CEO Tim Cook delivers the commencement address to the 2017 graduating class of the Massachusetts Institute of Technology in Cambridge last week. Lusa

Markets

M&A

Infrastructure

Great Wall’s jump shows risk of going short in Hong Kong

Reliance Communications to approach Citic on GCX sale

Thai junta vows to force through China railway

Short selling can be a tough business, as those betting on declines in Hong Kong’s equity market are finding out. Great Wall Motor Co. is the scene of the latest smack down. Short interest in China’s biggest SUV maker is near a five-year high, but the shares are in rebound mode, soaring 21 per cent on Monday to bring the recovery from last month’s nadir to almost 40 per cent. Traders have been similarly burnt by other targets in the city, with property developer China Evergrande Group earning the title of the world’s most painful short this year. AAC Technologies Holdings Inc. and Dali Foods Group Co. have also rallied despite being the subject of investigations into their accounting by short-selling research firms. For Great Wall -- which hasn’t been accused of anything -- the recent gains may be what’s bolstered the shorts, said Kenny Tang, vice chairman at Jun Yang Financial Holdings Ltd. In fact, short interest in Great Wall as a per centage of its free float was just above 14 per cent on Thursday after more than doubling this year, making it one of the most shorted stocks in Hong Kong. By comparison, Man Wah Holdings Ltd., targeted last week by well-known short seller Carson Block, has a short interest ratio of almost 15 per cent. Bloomberg News

Billionaire Anil Ambani’s Reliance Communications Ltd. has approached Citic Telecom International Holdings Ltd. as it makes a fresh attempt to attract a buyer for its undersea cable unit, people with knowledge of the matter said. Reliance Communications is reaching out to potential acquirers for the Global Cloud Xchange business, known as GCX, as the Indian carrier explores further asset divestments to pay down debt, according to the people. Hong Kong-based Citic Telecom, which has a market value of about US$1.1 billion, hasn’t decided whether to proceed with an offer, the people said, asking not to be identified because the information is private. GCX’s 7 per cent bond due in 2019 jumped 1.9 cents on the dollar, set for the biggest daily increase since May 31, according to data compiled by Bloomberg. A representative for Citic Telecom declined to comment, while a representative for Reliance Communications didn’t immediately respond to emailed questions. Citic Telecom had been in negotiations to buy Reliance Communications’s undersea cable assets in 2014 for more than US$500 million, people with knowledge of the matter said earlier. Bloomberg News

Thailand’s junta chief yesterday said he would invoke his ‘absolute powers’ to clear hurdles holding up a multi-billion-dollar deal with China to build a high-speed railway. The two countries, who are increasingly close friends, have agreed to lay the track that will ultimately cut through the Laos’ border to Thailand’s south. Beijing’s big plan is to link the southern Chinese city of Kunming by rail with Singapore and work has already begun on the line in Laos. But the deal with Thailand has been beset by delays, including a tussle over the initial loan terms from Beijing. More recently construction has been set back by a Thai law limiting the number of foreign nationals who can work as engineers and architects on mega-projects inside the kingdom. Yesterday Prime Minister Prayut Chan-O-Cha said he would force through the deal, if necessary using Article 44 -- a self-granted law dubbed an absolute power by critics. “The government must solve the problem otherwise it will hit snags or legal issues and it will look like the government can’t achieve anything,” he told reporters. AFP