Business Daily #1320 June 19, 2017

China’s government to foster green financing Environment Page 8

Monday, June 19 2017 Year VI Nr. 1320 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Budget

Gov’t surplus hits four times 2017 budget in May, but only 12.8 pct of PIDDA budget used by May Page 3

HKZM

www.macaubusinessdaily.com Hospitality

Neighbouring gov’t finds 116 abnormalities in results of concrete tests on HK section of HKZM bridge Page 2

Forex

May occupancy rate near 90 pct but hotel room prices down 7 pct y-o-y Page 3

Sales of foreign exchange in Mainland banks rise Page 8

Cold brew, tough skin Import

Opportunities in the Chinese market require patience, capacity for adaptation and a good local partner.

But you gotta have tough skin, says Unicer Bebidas de Portugal’s International Manager. With the MSAR essential for its Asia campaign, a decrease in mainstream beer consumption in China coupled with a rise in premium and super-premium beer, the Super Bock makers are ready to serve up a cold glass of quality. Pages 4 & 5

Right to abode?

Lights, camera

East meets West, not only on the silver screen but in the meeting room, says the new Artistic Director of the 2nd International Film Festival and Awards Macao, Mike Goodridge.

With ‘artful but accessible’ films set to grace this year’s edition and a ‘small but exciting’ local film industry, this edition can serve as a ‘gateway to China’.

AL Voted down - a proposal for a debate on imposing restrictions on non-residents purchasing housing in the reclaimed urban zones. Some legislators fear negative impacts on real estate and limits on development, while others point out that lower and middle income brackets can’t afford to purchase affordable housing. Division of new units to public and private remains the question. Page 2

Hong Kong aims at U.S. secondary listings

Film Page 6

HK Hang Seng Index June 16, 2017

25,626.49 +61.15 (+0.24%) Worst Performers

Hengan International Group

+1.28%

China Unicom Hong Kong

+0.89%

Geely Automobile Holdings

-2.35%

AAC Technologies Holdings

-0.98%

Industrial & Commercial

+1.17%

HSBC Holdings PLC

+0.81%

Hang Lung Properties Ltd

-1.80%

China Petroleum & Chemical

-0.79%

CITIC Ltd

+1.16%

Bank of China Ltd

+0.79%

Want Want China Holdings

-1.68%

CK Hutchison Holdings Ltd

-0.76%

+1.15%

China Construction Bank

+0.79%

Henderson Land Develop-

-1.33%

Galaxy Entertainment Group

-0.74%

Hong Kong & China Gas Co

+0.69%

China Overseas Land &

-1.29%

Hang Seng Bank Ltd

-0.62%

China Resources Land Ltd Swire Pacific Ltd

+0.91%

27° 29° 28° 31° 28° 31° 28° 31° 28° 31° Today

Source: Bloomberg

Best Performers

Tue

Wed

I SSN 2226-8294

Thu

Fri

Source: AccuWeather

Markets HKEx announces a plan for a new listing intended to attract firms that are inclined to select New York. The proposal will try to lure big companies that chose the U.S. due to its more open regulations regarding corporate structures and profitability. Page 10

2 Business Daily Monday, June 19 2017

Macau Real estate

To restrict or not to restrict A proposal to debate if restrictions should be imposed on non-residents regarding the sale of future housing developed in the MSAR New Areas was rejected by the Legislative Assembly, with legislators asking the government to develop a concrete plan as to which new housing developments will be public and private Nelson Moura nelson.moura@macaubusinessdaily.com

L

egislators voted down a proposal for debate by legislator Ng Kuok Cheng last Friday, on whether restrictions should be imposed on non-residents looking to purchase housing in the future new urban zones to be developed.

“The Government has to be resolute, to implement the new reclaimed land policy for Macau people, creating a system of restrictions on the purchase and sale of housing units located in new reclaimed land […] in order to establish a distinction between their intention for housing or speculation, and to ensure the needs of residents who intend to buy a home to live in,” read the proposal by legislator Ng Kuok Cheng.

The Macau New Urban Zone includes five new land plots that will increase the MSAR land area by 3.5 square kilometres, with 50,000 housing units to be developed in the newly reclaimed areas and 28,000 to be for public housing.

According to the directly elected legislator, any remaining units that are granted for private housing or economic housing, to be sold on the private market in the future, should be subject to purchase and

sale restrictions, in order to support local residents in finding housing.

However, the debate proposal was rejected at the Legislative Assembly (AL) plenary session on Friday with 14 votes against and 12 in favour, with legislators divided over whether polices should be put in place to favour local residents in purchasing the housing units.

Free market

Several legislators from the construction and investment sector considered that applying restrictions on the sale of housing units would go against the capitalist and free market system in place in the MSAR until 2049, while constituting discrimination against outside investors and buyers.

“We have to think of the practical applications of the policies to revert secondary effects of housing.

We can’t impose a limit on housing purchases. This won’t improve the situation and will have a negative impact on the real estate. It doesn’t make sense that people that come to invest in the Greater Bay Area can’t purchase in the region. Too many restrictions will just limit development,” legislator and President of the Macau Association of Building Contractors and Developers, Tommy Lau Veng Seng, said.

For legislator Vong Hin Fai, applying

the measures would create the notion that the MSAR wasn’t an “inclusive society”, with the city having a history of receiving people from many countries.

“The capitalist regime is implemented here and the market follows its rules,” legislator Vong stated.

However, like many of the legislators that voted against the proposal, Vong considered that the government should conduct a study and present a clear plan on what the regulations will be for the housing that will be sold privately.

“The MSAR Five-Year plan has a general urban planning, but of the 50,000 housing units, what will be the regime for housing that’s sold privately?” he added.

Legislator Song Pek Kei opined that the debate would be a good opportunity for members of the government to clarify questions on the “absence of an overall long term plan” for the new areas.

Protecting the people

The legislators that voted in favour of debating the restrictions considered

that, with the rapidly escalating prices of housing, younger residents from lower to middle income brackets are not able to purchase affordable housing and should be protected by the government.

Referring to the recent data provided by the Financial Services Bureau (DSF), that the average price per square metre in Macau increased by 48 per cent year-on-year in May of this year, reaching MOP114.463 per square metre, legislator Ho Ion Seng considered that the government policies to control real estate prices were failing and that the offer of affordable housing needed to be increased.

Legislator Melinda Chan Mei Yi, who also voted in favour, stated that efforts should be made to protect the “sandwich” or middle class sector of society who wants to purchase housing for the first time.

“Before, paying 10 per cent of the house value was enough to buy a first house, but now people have to invest millions of patacas. Even in London, a real estate market similar to Macau, young people’s salaries allow them to purchase a house,” she added.

Super bridge

Interpellation

Seek and ye shall find

Gov’t considers wage subsidy buffer mechanism

HKSAR gov’t authorities announced that 116 abnormalities were found in the HKZM bridge Cecilia U cecilia.u@macaubusinessdaily.com

The Hong Kong Government announced on Saturday that 116 abnormalities of the concrete cube test results were found for the Hong Kong section and related projects of the Hong Kong-Zhuhai-Macau bridge, according to the press release posted by the Hong Kong Information Services Department.

Acting Director of Civil Engineering & Development Department (CEDD) Norman Heung said the results were produced from a review of the concrete cube test reports conducted by the contracted laboratory, Jacobs China, from 2013 to 2014.

Problematic test results were being delivered to the Highways Department for follow-up action.

Heung revealed on Saturday that abnormalities were also found in 130 results from another 55 projects involving the laboratory in

question, during a period from 2013 to 2014.

The department head said the subsequent analysis disclosed that the abnormalities from the 55 projects pose no impact regarding compliance with the General Specifications for Civil Engineering Works requirements.

Heung added that further analysis will be performed to check for abnormalities of the Hong Kong-Zhuhai-Macau Bridge Hong Kong section and related projects.

In late May, accusations were raised over Jacobs China for falsifying concrete test results of the super bridge.

Earlier this month, the Hong Kong Chief Executive Leung Chun-ying affirmed that there was no problem with the concrete used on the bridge, according to the results produced from non-destructive concrete strength tests, both on samples and on-site, since the falsification of concrete test results surfaced.

A proposal for a wage subsidy buffer mechanism, to be in place until a full universal minimum wage is implemented, could be taken into account by the government, according to a Labour Affairs Bureau response to a legislator’s enquiries. The proposal, by pan-democratic legislator Ng Kuok Cheong, urges the government to roll out a dynamic buffer mechanism to support local workers who are receiving wages that don’t meet the minimum wage rate, by providing subsidies during the first year of the law’s implementation.

The DSAL response noted that ‘the MSAR Government would continue to hold open attitude to listen to opinions from different groups’.

The legislator also enquired of the government about its plan to encourage small businesses to continue to employ their staff after the

implementation of the minimum wage.

Ng further urged the government to request small businesses that are being supported by the wage subsidies to increase the salary rate by no less than 6 per cent for workers every year.

Meanwhile, DSAT confirmed that public consultation on the implementation of a universal minimum wage will start in the fourth quarter this year.

The consultation period will span 45 days.

A year after the minimum wage law for property security guards and cleaners was implemented, the Bureau stated it has commenced a review of the situation, which will act as a reference for the future implementation of a universal minimum wage. C.U.

Business Daily Monday, June 19 2017 3

Macau Hotel

Improved hotel occupancy for Labour Day and Dragon Boat Festival

T

he city saw an increase of 8 percentage points year-on-year in the general hotel occupancy rate in the month of May, hitting 89.7 per cent, according to the latest data released by the Macao Government Tourism Office (MGTO).

The rate for May also indicated an increase of 1 percentage point month-on-month.

The occupancy rate for 5-star hotels, in particular, experienced the highest yearon-year increase, growing 10.2 percentage points to 89.5 per cent, while for 3-star (89.5 per cent) and 4-star (91.2 per cent)

hotels, the occupancy rate increased 5.5 percentage points and 2.4 percentage points year-on-year, respectively.

The latest data also shows that the average hotel room prices dipped 7.1 per cent yearon-year to MOP1,185.7 (US$147.6), with the lowest drop recorded in 4-star hotels.

The average price for 3-star hotels in May was MOP744.4, down 9.5 per cent year-on-year, and the largest drop among the hotel room prices in the month.

Rooms for 5-star and 4-star hotels cost some MOP1,515.2 and MOP716.8, respectively, decreasing by 8.3 per cent and 0.9 per cent year-on-year, respectively.

For the first five months of the year, the hotel occupancy rate jumped 6.9 percentage points year-on-year to 86.9 per cent, while the average room price dipped 3.3 per cent to MOP1,264.5. C.U.

the development of Big Data for the sharing of information for social service; the digitisation of medical documents; improving qualifications of medical and social professions; the cross-border sharing of medical and pension resources for the elderly; improving the competitiveness of the young local population; and co-operation on environmentally friendly measures and standards between cities.

There were also suggestions for cooperation between regions in strengthening the training of medical and nursing personnel in order to unlock Macau’s medical specialties, integrate the city into the construction of the GBA development, and promote the internationalisation of

medical services.

In terms of future disputes and to ensure the rights of Macau citizens, some proposed the setting up of a special department to provide legal consultancy services regarding the regional development initiative.

With the MSAR pushing for the development of the Traditional Chinese Medicine (TCM) industry, some opined that the MSAR could act as an external window and platform for exchange, and cooperate in developing the technology behind TCM in the city.

Other suggestions, such as further capitalising on the city’s cultural background to build diversified cultural tourism, were also raised.

Greater Bay

Nursing the Greater Bay Area Opinions gathered from the medical and social welfare field about Greater Bay Area development Cecilia U cecilia.u@macaubusinessdaily.com

Fitting the MSAR’s medical, technology and environmental measures into the Greater Bay Area initiative will require structure and development, according to representatives of the city’s health care, social security and social services fields.

The suggestions came during a meeting held by the MSAR Government’s Policy

Research Office coordinator, Lao Pun Lap, and assistant coordinator Ung Hoi Ian, held to collect opinions on the city’s participation in the regional plan.

The majority of the participants at the meeting expressed their agreement with the city taking part in the initiative, and pushing the diversification of the city’s economy.

Many were aware of the challenges that the city will need to face, suggesting:

Surplus

Gov’t surplus four times 2017 budget, but PIDDA budget only 12.8 pct used by May The current government surplus saw a 44.7 per cent year-on-year increase in the first five months of the year, reaching MOP23.79 billion and amounting to 427 per cent the budgeted surplus for the whole year, according to the most recent data published by the Financial Services Bureau.

Taxes from gaming saw a 12.4 per cent increase, to MOP37.12 billion, while indirect taxes were up by 51 per cent, year-on-year, to MOP2.03 billion.

The MSAR’s current revenue also rose by 11.9 per cent year-on-year during the five-month period, to MOP44.78 billion.

However, overall expenditure was down by 11 per cent year-on-year. Capital expenditure on the other hand, saw a 263.7 per cent year-on-year increase, and the territory’s PIDDA investment plan going up 88.4 per cent year-on-year, although showing an execution rate of just 12.8 per

cent, whereas total expenditure was only 24.6 per cent.

Capital revenue was down by 39.5 per cent year-on-year, with the sale of capital assets dropping 61 per cent during the period and seeing only a 3.7 per cent execution rate.

4 Business Daily Monday, June 19 2017

Macau Interview

One Beer, One Road to China With China now being its largest export market, Unicer Bebidas de Portugal, SGPS, SA, the largest Portuguese beverage company and responsible for Super Bock beer, continues to probe what makes the perfect beer for the Chinese consumer, João Torres Martins, the International Manager of the company tells Business Daily, also explaining the challenges of entering the Chinese market and the rise of the craft beer market Nelson Moura nelson.moura@macaubusinessdaily.com

H

ow did you get involved with Unicer?

I have a bachelor in food engineering and an MBA. I entered Unicer in 1993, when it had a small international presence, already exporting small amounts to Macau. I made a path through the commercial and distribution areas of the company in Portugal and helped develop two importers in the MSAR, at a time when distribution to mainland China was insignificant.

Afterwards, I worked in Spain as General Director, going to Asia to help in a project for non-alcoholic beers in Saudi Arabia, which turned into a production agreement with the leading local brand Moussy. I also helped in the first steps of entering the Chinese market, with Unicer Macau being created at the beginning of this year.

How did the company’s Asian expansion progress?

We’ve been in Macau for a long time and we have an interesting presence in the city, not just in terms of beer, but in water products such as Água das Pedras, Vitalis and Caramulo.

As a business, we can’t allocate investment without having profits, so we make small market tests. No company survives without having some leverage that can support its costs.

At the moment, Carlsberg owns 40 per cent of Unicer, with a Portuguese core that owns the majority of the capital and makes the international strategy decisions.

Obviously, as a Portuguese company, we direct ourselves a lot to countries with large Portuguese communities, with the main Asian target markets, in this aspect, by importance being Macau, Hong Kong, East Timor and Australia. We target what we call the ‘homesickness market’ using small businessmen to supply these niche communities.

Then we have our internationalisation exercises, when the brand gets out of the niche Portuguese community market, having a communication strategy towards local consumers, with mainland China and Taiwan as examples of that strategy.

What were the largest challenges in entering the Asian market?

I believe the largest obstacle to be the cultural differences. These projects involve working in cooperation with other local companies, and these

companies have a ‘specific DNA’ in the way they are managed.

Unicer is over 120 years old, so we have a very specific culture. We’re a Porto (aka Oporto, Portugal) company with mainly capital from that city; our shareholders are from that area and they constantly accompany our decisions.

“Consumers want to differentiate themselves and look for products with a unique identity” Portuguese have a very sui generis (unique) identity, with mixes from Africa, the Middle East, South America, India and parts of Asia, while the Chinese culture is very defined, and those cultural differences end up conditioning business cooperation.

You just need to see the number of large international companies that still have difficulties coming to Asia

to understand that much more than good will is necessary to be successful here.

In mainland China there are many difficulties such as brand registration, counterfeit and copied products, the work method of local companies and the level of ethics.

The Taiwan market is relatively dominated by its state-owned beer brand Taiwan Beer. It’s a very protectionist market with high entry taxes that limit the competitiveness. However, every market has entry barriers, an aspect where Macau and Hong Kong have advantages by having no entry fees.

What’s your level of exports to those countries?

Just in Macau, our export level of beer and water is already significant, at around 1 million litres this year. Hong Kong receives a more reduced level of around five containers.

The Portuguese community in Australia is large, so our export level can reach around 10 to 15 containers per year, with Taiwan receiving the same amount.

Taiwan has had a long-term distribution relationship by us, with the help of friends from Macau who moved to the country and helped establish a distribution network.

We’ve established a large guanxi (personal connections) network with a great focus on mainland China too, by multiple presences at fairs in Shanghai in order to get to know the local business community.

At this moment, mainland China is the largest exporting market for Unicer, but I can’t reveal the exact amount of volume exported there.

How important is Macau for your Asian strategy?

Business success is based on the capacity for integration and Macau for us is an essential experience, as a unique city in Asia with its own personality. It helps us connect with mainland China and it’s an important part of our internationalisation strategy in the country.

“Business success is based on the capacity for integration and Macau for us is an essential experience, as a unique city in Asia with its own personality”

João Torres Martins, International Manager of Unicer Bebidas de Portugal, SGPS, SA

Last year, mainland China replaced Angola as the largest export market for Unicer. In your view, what is the essential element for a company to break through into the Chinese market?

A businessman looking to enter the Chinese market needs to have a lot of patience, capacity for adaptation, [and] have a good local partner. He also has to have thick skin because he will be beaten up constantly.

Otherwise he won’t be able to survive in this market.

The beer business requires a large supply and distribution network of on-trade. In Asia, people tend to drink beer on the street with their friends, so we need a structure that can go door-to-door in bars and restaurants.

Therefore, there is a need to have a company responsible for the daily management of the supply chain, delivery and communication. With all those factors, there is the possibility

Business Daily Monday, June 19 2017 5

Macau

of creating a successful market test. If there’s a successful reception of the brand and of its concept by the local consumers, the right communication will do the rest.

For us, the most important is to know the Chinese consumer and communicate with him in an efficient way.

“A businessman looking to enter the Chinese market needs to have a lot of patience, capacity for adaptation, [and] have a good local partner. He also has to have thick skin because he will be beaten up constantly” How would you describe the average Chinese consumer?

It’s a complex question and there are many variables. It’s a country with brutal economic growth and a one-child generation who really likes to go out with their friends and lose their inhibitions. Being an only child is not really a good socialising environment, so nothing better than a couple of beers to help loosen up a bit.

If you look at the Chinese beer market, you’ll see a decrease in volume of the mainstream low-cost beer brands, with an increase in the premium and super-premium sectors.

That increase has also been registered in imported beer brands.

It’s a normal phenomenon, as the Chinese economy improves and people want to consume more quality, imported products, since the country always had an issue with the quality of products produced inside its borders.

In terms of food and beverage, consumers always want products that have characteristics similar to the ones they’re used to. Chinese consumers are used to simple tasting beverages, easy to drink with their type of food, therefore they will go for beers that have ‘easier’ tastes. I believe Super Bock is a very easy beer to drink.

What are the international beer brands with the strongest presence in China at the moment?

China is an extremely competitive

market, with some international brands that have positioned themselves in the country for many years having some predominance. The four main ones are InBev - a company created by the merger of Belgium-based company Interbrew and Brazilian brewer AmBev - which has been present in the country for many years in a massive way; then C.B. Miller, Heineken and Carlsberg.

What advantages do the beers produced by Unicer have over other brands?

Super Bock has the advantage that it is all produced in the same factory, in the district of Leça do Balio, in Porto. Having a capacity of production of around 500 million litres, this industrial beer site produces all the beer that is consumed in Asia. When compared to the factories included in the Carlsberg universe, it is one of the most advanced in terms of technology, efficiency and quality of production.

Unicer has a very vast portfolio of beers, producing stout beers, lemon flavoured beers, craft beers, and our beers are produced with malt grown in the Portuguese Alentejo region.

We also have Super Bock 1927 which is almost a gourmet product, used

by Michelin restaurant chefs, and made with special characteristics to accompany certain dishes. It’s a niche market that forces the production to be smaller.

Our mineral water, Água das Pedras, is referenced worldwide for its gas being 100 per cent natural, and it has special mineral characteristics that allows it to compete with internationally known water brands like Dom Perignon.

Our flavoured mineral waters also are unique because they include pasteurised juice extracts with no sugar or preservatives, which, with the already present minerals, make it an extremely healthy product for children or even people suffering from diabetes. We only export our mineral water to Macau, since China is not a market that has the habit of drinking mineral water, although they like it flavoured.

Flavoured mineral waters are extremely popular in Macau and I would say that, the day my importer can maintain a decent supply to this market, it will be a success case.

How do you see the worldwide growth of the craft beer market?

It is a market trend that I think is related to the search for differentiation between beer brands. Consumers want to differentiate themselves and look for products with a unique identity. You can see that trend in car sales in Europe, with people looking

to purchase more customised cars.

There’s a quality-cost balance to be considered, since a product that is produced in bulk has lower production costs due to the industrial aspect of its production, while a smaller craft production has higher production costs.

There’s a tendency to transform certain types of beer into a commodity, and a need by the sector to develop those offerings in a way that makes that offer lose its commodity status.

For example, the craft beer movement originated in the United States

some years ago when Budweiser and Miller were market leaders, with the appearance of small regional factories. Nowadays, those small craft brands can be found in places like Hong Kong, with produced volumes that are as large as Unicer.

With its size, no craft beer company would be able to supply the entire Chinese market. The companies would have to construct a mega-factory.

However, Super Bock and its different variants are considered a craft beer in China when compared to American brands present in the country. advertisement

6 Business Daily Monday, June 19 2017

Macau Opinion

Sheyla Zandonai* The Road Exchanges and partnerships with Portuguese-speaking countries seem to be the clearest strategy the Macau SAR government has voiced so far, to claim its adherence to the One Belt, One Road (OBOR) initiative.

There are a couple of reasons for this.

First, the role of Macau as a ‘centre’ and ‘platform’ between China and the Portuguesespeaking countries feeds on a scheme that was established before OBOR took off and became duly noted in regular political parlance.

Secondly, because the Belt and Road initiative comprises a series of guiding principles which do not necessarily translate into policy, there is a vast extent of projects and ventures that could indeed claim the stamp.

Hence, tightening Sino-luso ties, which range from trade partnerships and tourism development to language training, may suitably appeal to the scheme, if only because nearly anything could at this stage.

For one, the strategy has been designed within the scope of China’s national plan for Macau. Moreover, it has been conceived – coincidentally perhaps – within the final geographical aim of the OBOR proper, that is, reaching out and engaging Europe – never mind the fact that countries such as Angola and Brazil are located far beyond the extent of either the ‘Belt’ or the ‘Road,’ which refer to the land and maritime chapter of the initiative, respectively.

What is lacking?

Although a local OBOR committee has recently been created, there is no specific funding consecrated to developing initiatives within such framework, so that government discourse keeps applying the term widely and, perhaps, randomly.

Tommy Lau, a legislator, raised the point last week. If there are no specific projects, nor bespoke financial means for channelling them, there is little relevance in claiming proposals are being made, and discussions held, under the Road and Belt scope.

If there is one feature that can define China’s new expansionist plan under Xi Jinping’s most forward foreign policy programme to date, it is investment in infrastructure.

Being a debt-financed strategy for infrastructure development is what defines OBOR’s DNA. China is pledging to spend some US$150 billion a year in the 68 countries that have signed up to the initiative.

That’s not negligible. And that’s how it all began in the first place.

The rest is talk.

In fact, Macau might not join the OBOR initiative to harness infrastructure development deals.

It does not really need that. But a clear, simple, and co-ordinated idea between its offices about what it is aiming to accomplish would be a good start. * Journalist.

Film industry

Business-flavoured IFFAM Mike Goodridge, a man with wide-ranging experience in the film business, has been chosen as the Artistic Director of the next edition of the International Film Festival and Awards Macao Sheyla Zandonai sheyla.zandonai@macaubusiness.com

M

ike Goodridge will act as the Artistic Director of the 2nd International Film Festival and Awards Macao (IFFAM), as announced during the Kick-Off Ceremony held by the festival’s Organizing Committee last Friday at Macau Tower.

Drawing on nearly 30 years of experience in the film industry, and having held various positions over the years as a journalist, film critic, moderator, host, producer, and financier, Mr. Goodridge will be in charge of managing the MOP55 million-budget allocated for the festival, which will be held from 8 to 14 December 2017.

Although this year’s budget cap was the same as last year’s, according to information provided by the Director of the Macao Government Tourism Office (MGTO) and acting President of IFFAM Organizing Committee, Maria Helena de Senna Fernandes, the second edition of the festival will harness business opportunities more overtly.

In addition to Mr. Goodridge’s various roles in the movie industry, the invited Artistic Director is the CEO of London-based Protagonist Pictures, a company engaged in film selling, financing, and production.

Speaking to Business Daily about the ways in which he thinks his experience may contribute to this year’s festival, Mr. Goodridge stressed the value of developing business partnerships.

Budget breakdown

The President of the IFFAM Organizing Committee and MGTO Director, Maria Helena de Senna Fernandes, explained that the budget of MOP55 million attributed to the festival will be backed

“It would be great to get the Western industry here to meet with the Asian industry, and see what opportunities there are. The great thing about Macau is that it is a very informal place. People can meet here without that sense of formality and they can really get to know each other in a kind of informal setting,” he said.

In addition to inviting “a lot of filmmakers,” Mr. Goodridge said he also plans to invite “a lot of industry as well,” believing that they “can create partnerships between East and West that are going to be really interesting.”

The list of “artful but accessible” films the Artistic Director expects to select with his team, to be shown during the festival, will come after they do the “full festival rounds,” which will include visits to festivals such as that of Shanghai, Venice, and Toronto.

“Small but exciting”

Questioned about the impact the festival would have on the local, incipient film industry, Mr. Goodridge noted: “the festival’s role is to spotlight the local efforts and to encourage, and to develop, and to help.”

“There is a burgeoning film industry in Macau. It is a small city, but more and more foreign films are shooting here, there are Macanese filmmakers that will be encouraged to develop their craft. Festivals are very good at doing that if they are well organized,” he points out.

Overall, Mr. Goodridge struck an optimistic note for this year’s edition.

“I think that we can create a

through MOP20 million from the Macau SAR Government and MOP35 million from the Macau Films & Television Productions and Culture Association (MFTPA), spearheaded by Alvin Chau, the CEO of Suncity Group.

Politics

CE to visit Shanghai Chief Executive Fernando Chui Sai On will meet with authorities in Shanghai on Wednesday to review the cooperation between the two cities and discuss further collaboration, according to a press release by the Government’s Spokesperson Office.

In particular, the Chief Executive aims to examine the urban planning conditions in Shanghai and attend the 75th anniversary ceremony of Tai Fung Bank’s Shanghai branch.

The Chief Executive will be

accompanied by the Secretary for Economy and Finance, Lionel Leong Vai Tac; the Chief of Office of the Chief Executive, O Lam; the director of Government Information Bureau, Victor Chan Chi Ping; and the director of the Protocol, Public Relations and External Affairs Office, Fung Sio Weng.

Meanwhile, the Secretary for Administration and Justice, Sonia Chan Hoi Fan will provisionally assume the Chief Executive’s duties during his two-day absence. C.U.

programme, an industry programme that is going to be really valuable, especially because it is a gateway to China.”

Ms. Senna Fernandes further expects to bring another component of the industry to Macau, based on opportunities for the exchange of experiences between the local and international industry.

“We know that in Shenzhen and in Guangzhou there are academies hosting movie faculties or film courses, and we think there is a possibility to attract these people to Macau during [the festival],” she said on the sidelines of the ceremony.

“The great thing about Macau is that it is a very informal place.

People can meet here without that sense of formality and they can really get to know each other in a kind of informal setting” Mike Goodridge, Artistic Director of the 2nd International Film Festival and Awards Macao (IFFAM) The director of the tourism bureau added that other initiatives in this regard will include master-classes – emulating last year’s programme – although the “line-up of speakers” is not yet final.

The IFFAM Organizing Committee also plans to introduce a new feature at the 2017 edition of the festival, notes Ms. Senna Fernandes, which will seek to combine “some gastronomic elements with films,” following the recent submission of Macau’s application as city of gastronomy to UNESCO last week.

Business Daily Monday, June 19 2017 7

Macau Tourism business

MITE your partners One Belt, One Road and “Sino-Portuguese tourism partnerships” in focus at the coming fair for tourism professionals in Macau, says MGTO Director Sheyla Zandonai sheyla.zandonai@macaubusiness.com

T

he 5th Macao International Travel (Industry) Expo (MITE) is gathering travel and tourism service providers from 19 countries and localities along the One Belt, One Road (OBOR) initiative, said Maria Helena de Senna Fernandes, the Director of the Macao Government Tourism Office (MGTO), during a press conference held on Friday to present details about the expo.

A total of 40 countries will be exhibiting at the fair, which will run from July 7 to 9. In addition to the 19 countries linked to OBOR, and 17 from other regions of the world, the remaining four are Macau, Hong Kong, Taiwan, and mainland China.

Accordingly, the event is also designed to “foster the Guangdong-Hong Kong-Macau Greater Bay Area development, integrating such endeavours with national development,” said the MGTO Director.

Ms. Senna Fernandes explained that the aim of the fair is “not only to promote products of Macau,” but also to “serve as a platform to attract more international exhibitors in the future.”

In order to contribute to the development of a sustainable tourism programme for the city, the MGTO Director told Business Daily that they are inviting buyers to come to Macau and to “commit to do business” during the fair.

“There are some requirements they will have to fulfil.

One is that buyers be present throughout the whole duration of the fair. The other is that they commit to signing deals during the event,” Ms.

The six elements

Exhibitors at MITE will cover six major categories of the tourism industry - Dining - Lodging - Transportation - Entertainment - Sightseeing - Shopping

Senna Fernandes explained.

She added that a “co-ordinating entity” will be in charge of computing the actions carried out by participants in the coming MITE, in a sort of “survey” that will serve as the basis for considering future invitations on the part of local authorities.

Therefore, as the MGTO director highlighted, a focus will be placed on “business matching.”

In particular, Ms. Senna Fernandes explained that MGTO “will continue to promote Sino-Portuguese tourism partnerships.”

In tandem, a seminar and networking session entitled ‘China-Portugal Tourism’ will be held during the fair.

Another strategy presented by the Director is to encourage Chinese businesses.

“We hope the fair provides opportunities for travel agencies in mainland China,” she added.

The fair

The space dedicated to the fair, to be held in the Cotai Expo at the Venetian Macau, has been expanded from about 6,000 square metres last year to 10,000 square metres, according to information provided by the President of the Macau Travel Agency Association, Alex Lao, who was also present at the press conference.

Mr. Lao added that

exhibitors – ranging from tour operators to tourism-related entities and enterprises – will be distributed over a total of 450 standard booths.

Two new dedicated areas have also been planned for this year’s event: the ‘Macau Street Exhibition Zone,’ and the ‘Nostalgia Creative Zone.’

According to information presented during the conference, the first will gather an array of local exhibitors from tourism-related fields, who will present “typical and authentic products” from Macau, while the second will display information about historical local shops, aiming to educate visitors about local customs and untapped tourism resources of Macau. advertisement

8 Business Daily Monday, June 19 2017

Greater China Currencies

Banks’ net forex sales rise to 4-month high in May The yuan has gained about 2 per cent against the dollar so far this year

N

et foreign exchange sales

by China’s commercial banks rose to their highest level in four months, official data showed on Friday, although capital outflows were kept under control by a string of tight regulatory steps.

China has tightened controls on money leaving the country to support the yuan and stem a slide in its foreign exchange reserves.

Key Points Banks’ May net forex sales US$17.1 bln, vs April’s US$14.9 bln Jan-May net sales total US$72.9 billion Regulator: forex supply and demand basically balanced in May C.bank net forex sales fall to 2-year low in May

remains stable currently, the regulator said.

China’s commercial banks sold a net US$17.1 billion of foreign exchange in May - the highest since January and above net sales of US$14.9 billion in April, the State Administration of Foreign Exchange said.

For the January to May period, net forex sales stood at US$72.9 billion, it added.

China’s foreign exchange supply and demand was basically balanced in May and market sentiment

Central bank’s net sales

Separately, data released by the central bank on Friday showed its net foreign exchange sales fell to the lowest in nearly two years in May as the yuan stabilises.

The People’s Bank of China (PBOC) sold a net RMB29.3 billion worth of foreign exchange in May, down from RMB42 billion in April, according to Reuters calculations based on central bank data.

The last time that PBOC had net sales of foreign exchange that were below the May level was in June 2015, before a surprising one-off devaluation of the yuan in August that year.

Earlier data showed that China’s foreign exchange reserves rose in May for a fourth consecutive month, and by more than markets had expected, as stringent capital control measures and a weakening in the dollar helped staunch outflows.

The yuan has gained about 2 per cent against the dollar so far this

Environment

Central bank plans fresh incentives to support green financing The government has given interest rate subsidies and preferential tax treatment for green projects China’s central bank plans to step up support for “green” financing, including incentives to encourage banks to extend more loans for projects friendly to the environment, a deputy governor, said on Friday.

The People’s Bank of China is studying plans to add banks’ qualified green credit into

collateral for monetary policy operations and to include institutions’ green credit performance in the central bank’s macro-prudential assessment (MPA), Chen Yulu told a news conference.

The government has given interest rate subsidies and preferential tax treatment for green projects, on top of special loans from the central bank, the PBOC deputy governor said.

Efforts will be made to innovate China’s green financing and lure more medium- and longterm private investment, he said.

China will unify its standards on identifying green projects and “green bonds”, and improve market transparency to ensure green funds are targeted at appropriate projects, Chen said.

Green projects with steady cash flows should rely on green bonds, while projects with higher potential risks should depend more on private equity funds and share listings, he said.

Green financing faces obstacles due to lower returns and higher risks from projects, but such funding has big “long-term

potential”, Chen added.

China’s cabinet on Wednesday said the government will encourage domestic and overseas investors to participate in “green financing”, and will set up pilot areas to experiment with green finance reforms.

China and the Asia Development Bank (ADB) have launched a green financing platform to support efforts by small- and medium-sized enterprises to cut pollution in the smog-hit Beijing-Tianjin-Hebei region, the ADB said on Friday.

‘Green financing faces obstacles due to lower returns and higher risks from projects’ China needs at least RMB2 trillion (US$293.53 billion) of green investment annually over the next five years to promote environmental protection and reduce the effects of pollution from its rapid industrial growth over the past three decades. Reuters

year, after dropping 6.5 per cent last year, as authorities took concerted steps to flush out bearish bets on the Chinese currency and head off risks to the economy from capital outflows.

As China’s economy moves to a slower pace of expansion after years of sizzling growth, policymakers are concerned that rising debt levels could stoke bubbles. With the Federal Reserve continuing to raising rates, Beijing has also been keen to control the amount of money flowing out of the country. Reuters

Business Daily Monday, June 19 2017 9

Greater China In Brief FTZ

Beijing removes restrictions for foreign investment

Watchdog

Insurance regulator punishes illegal sales of HK products The Hong Kong life insurance market has seen very strong demand from mainland Chinese in the past year China’s insurance regulator will continue to crack down on illegal sales of Hong Kong insurance products by Mainland agencies, which it says has led to capital outflows and money laundering.

The China Insurance Regulatory Commission (CIRC) withdrew one agency’s permit and shut down 35 websites or public accounts on WeChat - a leading instant messaging platform - during a targeted investigation launched last year that was aimed at those products, the regulator said in a statement on Friday.

CIRC said that those activities have not only “distorted the order of the domestic insurance market” but also “disturbed the government’s foreign currency management and led to asset outflows and even money laundering.”

The regulator said in a statement posted on its website it would have

“zero tolerance” for the illegal sales of Hong Kong products, but did not provide details about the activities.

Chinese regulators, which have taken severe measures to halt the illegal outflows of funds since last year, are concerned that the purchase of overseas insurance products has become a channel for mainland Chinese to move money abroad, avoiding capital restrictions.

The Hong Kong life insurance market has seen very strong demand from mainland Chinese in the past year, despite some curbs imposed on purchases of insurance

by Chinese visitors to the city.

Most recently, China’s biggest bank card provider UnionPay said it would tighten regulations over how mainland customers can use its debit and credit cards to purchase Hong Kong insurance products, potentially restricting another gateway for capital flight.

Hong Kong’s life insurance market saw strong new business growth of 41.5 per cent in 2016, with a significant portion of business coming from mainland Chinese customers, Standard & Poor’s said.

Hong Kong life premiums are expected to grow at a slower rate of 10 per cent over the next two years, S&P said, mainly due to curbs on using UnionPay cards for cross-border insurance-related purchases.

Key Points Insurance regulator started crackdown since end-2016 Illegal sales distort market order, disturb FX management Says has “zero tolerance” for illegal sales of HK products Hong Kong’s new insurance regulator told Reuters late last year it saw Chinese demand for Hong Kong insurance products staying strong because of their high quality despite recent curbs on such purchases. Reuters

China has removed 27 restrictions in its newly issued negative list for foreign investment in its free-trade zones, its cabinet said on Friday in a notice. Chinese leaders have pledged to open the world’s second-largest economy wider to foreign investors but a negative list specifying the areas off limits to foreign capital is in place for its eleven free trade zones, which enjoy looser trade and financial regulations on a trial basis.

Among the beneficiaries of the new negative list across more than 20 industries are foreign makers of rail transport equipment and civilian satellites.

Markets

Stocks regulator approves 6 IPOs China’s securities regulator has said it has approved six initial public offerings (IPOs) that aim to raise a combined total of up to RMB3.4 billion (US$499.29 million). Three of the approved IPOs are on the Shanghai bourse, one on the Shenzhen small and medium enterprise (SME) board, and two on the start-up ChiNext board, the China Securities Regulatory Commission said in a statement on its official microblog on Friday.

North Korea

U.S. accuses Mainland company of moneylaundering The United States has accused a Chinese-based company of acting as a front for laundering money on behalf of a sanctioned North Korean bank and has filed a complaint seeking US$1.9 million from it, U.S. prosecutors said on Thursday.

Mingzheng International Trading Limited has facilitated prohibited dollar transactions through the United States on behalf of the Foreign Trade Bank, a North Korean bank, and laundered the proceeds, the U.S. Attorney’s Office in the District of Columbia said in a statement. The US$1.9 million forfeiture action “represents one of the largest seizures of North Korean funds by the Department of Justice,” it said.

M&A

Vanke in talks to join consortium bidding for GLP China Vanke, the country’s No.2 homebuilder by sales, is in talks to join a Chinese consortium led by Hopu Investment Management and Hillhouse Capital Group to bid for Global Logistic Properties, three sources said. Shenzhen-based Vanke has been in discussions with the Hopu-Hillhouse consortium for a couple of weeks, said one source, adding that the bidding group was talking to at least two other potential investors from China.

The consortium, also backed by the Singapore-listed firm’s CEO Ming Mei, plans to set up an investment fund for its bid, two sources said.

10 Business Daily Monday, June 19 2017

Greater China Markets

Hong Kong unveils plan to entice U.S. secondary listings The proposal follows the high profile loss of Alibaba’s record US$25 billion IPO to the NYSE in 2014 after the HKEX was unable to grant the company dual class shares Elzio Barreto and Michelle Price

T

he H o n g K o n g st o c k exc h a n g e u n v e i l e d a long-awaited proposal for a new stock listing board on Friday that will offer special voting rights and waive profitability requirements, in a drive to attract firms which typically choose New York over the Hong Kong bourse.

The proposal would allow Hong Kong Exchanges and Clearing (HKEX) to make a play for secondary listings from Chinese firms such as Alibaba Group and Baidu Inc that have been drawn to New York due to less stringent rules on profitability and share structures.

The HKEX said the move was necessary to increase its exposure to new high-growth sectors, but the proposal is likely to stoke renewed fears over corporate governance standards following a series of scandals and shortsell attacks in the financial hub.

“The opening up of our market to secondary listings of Chinese companies is a big part of what we aim to do,” Charles Li, chief executive of HKEX told a news conference on Friday.

“There’s no reason why Hong Kong can’t become a secondary listing market for major U.S. companies.”

The proposed new board would exclusively list ‘new economy’ companies in sectors such as internet and

biotech. There would be a “pro” segment for start-ups with no financial track record open only to professional investors, and a “premium” segment for established companies accessible to all investors, the bourse said.

Both segments would allow weighted voting rights and waive rules that have prevented Chinese companies already listed in an overseas markets to pursue a secondary listing in Hong Kong.

Key Points HKEX proposes third board for ‘new economy’ companies New board to allow pre-profit companies, weighted voting rights Proposal allows HK to make play for U.S. secondary listings

Hong Kong has failed to attract a significant volume of listings from software makers, online businesses and other fast growing firms.

Tech firms’ fundraising accounted for an average 2.5 per cent of all Hong Kong IPOs since the global financial crisis compared with 13.6 per cent at the NYSE, Thomson Reuters data showed.

The Hong Kong securities regulator in 2015 rejected a HKEX proposal to introduce dual class shares to the main board, but the HKEX hopes by restricting them to a specific segment it may have more success persuading the SFC this time round.

Corporate governance fears

The proposals come, however, amid intense debate over corporate governance problems in the Hong Kong market, following a series of scandals at companies including Hanergy Thin Film and Huishan Dairy.

The HKEX on Friday attempted to address some of these concerns by tightening listing rules for its Growth Enterprise Market (GEM), or second

board, which has seen high levels of price volatility due to very concentrated shareholdings.

Bankers and corporate governance experts said the new board may still struggle to attract new economy companies while at the same time lowering corporate governance standards in the city.

“The GEM has not been a great success and we have doubts about the third board,” said Jamie Allen, secretary general of the Asian Corporate Governance Association.

“The feedback we get is that companies want to be on the main board and have a premium listing - and we remain against dual class shares as we fear this could be the thin end of the wedge,” he added.

The new board would need additional safeguards to protect investors, including greater accountability for directors and a tougher delisting regime, said Nelson Tang, partner at Hogan Lovells in a statement.

The consultation closes on Aug. 18 and the exchange hopes to finalise the new rules by 2018. Reuters

Consultations likely to stoke corporate governance fears The proposal follows the high profile loss of Alibaba’s record US$25 billion IPO to the NYSE in 2014 after the HKEX was unable to grant the company dual class shares - sparking a fierce debate over Hong Kong’s ability to attract Chinese tech listings.

Despite being home to one of the world’s largest technology companies by market value, Tencent Holdings,

Legal action

Businessman Guo sued in New York for slander, libel In April, Caixin Media Co. Ltd and its editor-in-chief, Hu Shuli, sued Guo for libel David Voreacos and Andrew Harris

Chinese real estate businessman Guo Wengui, who has feuded with China’s ruling Communist Party, faces at least three U.S. lawsuits by companies and people in China claiming he made defamatory statements tying them to corruption.

Guo, who chose in 2015 to live in exile in a lavish New York apartment, has used social media platforms like Facebook and YouTube to launch blistering attacks on many of China’s elite, accusing them of graft amid a national anti-corruption campaign.

Some of his targets are firing back in New York state court.

HNA Group Co., a Chinese conglomerate, sued Thursday, claiming Guo made defamatory and libellous statements, including that Chinese Communist party officials are undisclosed shareholders in the company.

Guo has also falsely claimed government officials and relatives used company “aircraft for purely personal reasons, including to engage in illicit sexual activity,” according to a legal notice in New York state Supreme Court. The complaint

wasn’t immediately available. HNA, Deutsche Bank AG’s largest shareholder, owns commercial real estate in the U.S. It seeks unspecified money damages.

An attorney who represents Guo on the Caixin Media and Soho China cases defended his statements.

“He stands by the veracity of the comments that he’s been making,” said attorney Duncan Levin. “The complaints against him are baseless.

As a matter of law, their complaints are simply wrong.”

Social media

Guo, who also goes by the name Miles Kwok, has a strong social media presence with more than 250,000 followers on Twitter and slickly produced videos on Facebook and YouTube that garner tens of thousands of views.

In April, Caixin Media Co. Ltd and its editor-in-chief, Hu Shuli, sued Guo for libel. Hu claimed Guo launched a barrage of defamatory claims after she published a report examining his business dealings and asserting he conspired to oust Beijing’s deputy mayor. A furious Guo responded with a campaign of public lies, according to the complaint by Caixin and Hu. Guo falsely claimed Hu had an extramarital affair, bore an illegitimate child, participated in sex games, abused drugs, extorted opponents, published false stories and defrauded companies, according to the filing.

Caixin and Hu are seeking unspecified compensatory and punitive damages. Guo has asked for the suit to be dismissed, saying in court that his statements weren’t defamatory and that translations of the comments into English may be incorrect.

A real estate development firm, Soho China Ltd., and its co-founder,

Pan Shiyi, sued for slander on June 2. Guo, they claim, falsely accused Soho and Pan of illegally colluding with government officials, manipulating information about company ownership and improperly procuring favourable zoning changes.

“The complaints against him are baseless.

As a matter of law, their complaints are simply wrong” Duncan Levin, attorney representing Guo Wengui Guo also falsely stated that Pan’s wife, the company’s chief executive officer, had an extramarital affair with the son of a high-ranking government official, according to the complaint.

The cases are Soho China v. Guo Wengui, 155066/2017; Caixin Media v.

Guo Wengui, 652154/2017; and HNA Group v. Guo Wengui, 653281/2017, all in New York State Supreme Court (Manhattan). Bloomberg News

Business Daily Monday, June 19 2017 11

Greater China In Brief Index

Stock regulator would be happy for MSCI inclusion

Markets

Securitisation boom exposes Mainland’s slapdash deleveraging efforts The securitisation drive by the government ironically comes alongside China’s stepped-up efforts to reduce its massive debt load and excessive investment Samuel Shen and John Ruwitch

As China struggles to wean its economy off excessive debt, fledgling securitisation markets have exploded with cash-starved banks, local governments and private firms rushing to convert assets into cash.

China’s market in asset-backed securities (ABS), a financing instrument via which a wide range of assets such as loans, real estate, toll ways and scenic parks have been converted into tradable bond-like securities, surged 50 per cent in 2016 alone and now exceeds RMB1 trillion (US$147.1 billion).

But there are signs of risks building in this market, which barely took off three years ago.

Its first default struck late last year when a securitised bridge in Inner Mongolia could not collect enough tolls to pay investors.

Analysts say some securitised projects have had over-optimistic cash flow projections, and in other cases there has been an excessive concentration of risk.

Chinese media reports have added to that worry by suggesting the government may soon lower the regulatory bar for government-backed infrastructure projects to be securitised.

“Asset securitisation can help companies reduce leverage in a controllable manner and support the economy,” said Song Qinghui, a Beijing-based independent economist.

“It’s only a financial tool, but in recent years, ABS has been trumpeted to the sky in China, and the rapid growth of the business even shares some resemblance to the budding stage of the U.S. subprime crisis.”

The securitisation drive by the government ironically comes alongside China’s stepped-up efforts to reduce its massive debt load and excessive investment.

It is in part responsible for pushing banks and real estate firms to try and convert the illiquid future receivables on their balance sheets into immediate cash.

The first batch of public-private partnership (PPP) projects was securitised early this year and included two water treatment projects, a tunnel operator and a heating facility.

A second batch of projects is expected to begin trading on China’s two main stock exchanges soon, raising billions of yuan for the local governments that securitise the assets.

There could be more securitisation of such PPP projects if the government changes rules that currently bar projects that have been in operation for less than two years from being securitised.

Questionable quality

China launched ABS in a pilot scheme in 2005, but suspended the market during the 2007-08 global financial crisis, which was triggered by the collapse of shaky mortgage-backed securities in the United States.

China resumed ABS issuance in 2012, and has issued a range of policies since to promote the business, with the State Council, or China’s cabinet, identifying asset securitisation last year as a way to help Chinese companies reduce leverage.

Financial regulators believe ABS could help China’s local governments manage their massive RMB15 trillion debt. advertisement

Lin Hua, chairman of consultancy China Securitization Analytics, warns however that it is the local governments with lower ratings or those in China’s less-affluent regions, such as Guizhou, or Shandong, that would be tapping the ABS market.

Although in a typical asset securitisation structure, a special purpose vehicle is set up to insulate the issuer’s credit-worthiness from the underlying assets backing the ABS, there is also growing concern underwriters and credit rating agencies could paint an unrealistically rosy picture of the securitised assets’ future cash flows.

That was the case with the bridge in Inner Mongolia that missed payments after its toll income collapsed due to a slump in coal transportation, a far cry from the stable cash flows projected by rating agency China Lianhe Credit Rating Co.

‘China’s market in asset-backed securities surged 50 per cent in 2016 alone’ In February, Shenwan Hongyuan Securities Co was reprimanded by securities regulators for having made “inconsistent” due- diligence reports in several ABS deals that “lack adequate supportive evidence” and that failed to fully reflect the borrowers’ creditworthiness.

Zhou Hao, president of China Chengxin Securities Rating Co, said brokerages paid more attention to winning the ABS underwriting business than to collecting future cash flows.

“Brokerages have poor management in collecting future cash flows, and there are also disclosure problems.”

Bank of Tianjin issued an ABS in July 2015 that was created from loans to just 22 borrowers, with lending to Shandong Shanshui Cement Group, a struggling cement maker, accounting for 12 per cent of the underlying assets.

In another case, the China Development Bank raised RMB5 billion by issuing an ABS product backed by loans to just one borrower, state-owned steelmaker Shougang Group.

The big worry is that some underwriters and rating agencies could collude with issuers to package shoddy assets into risky, opaque and hard-to-understand bundles of products sold to an unsuspecting public.

“If assets of zombie companies are sold to investors in the form of ABS, with acquiescence from banks and regulators, that would be organized fraud,” Wang Jun, finance professor at China Europe International Business School (CEIBS) told a forum in December. Reuters

China’s securities regulator said on Friday that it hopes U.S. index provider MSCI will decide this week to include the country’s so-called A shares in its Emerging Market Index - but if not, Chinese capital market reform will not be derailed. “We would always be happy to see that A shares are included in the MSCI index, and we could welcome such a decision,” Zhang Xiaojun, China Securities Regulatory Commission (CSRC) spokesman told a news conference, according to CSRC’s official website. “Any emerging market index, including MSCI’s, would be very incomplete without China stocks.”

Liquidity

PBOC injects most funds since January China’s central bank boosted the supply of cash in the financial system to the most since January, with demand surging amid a seasonal funding squeeze. The People’s Bank of China injected a net RMB410 billion (US$60 billion) through reverse-repurchase agreements last week, data compiled by Bloomberg show.

The benchmark seven-day repurchase rate fell four basis points Friday to 2.95 per cent, according to weighted average prices. The addition of funds will help alleviate concern that an official deleveraging campaign will exacerbate a Juneend cash shortage caused by regulatory checks on banks.

Funding

Mobike gains US$600 mln in biggest financing round to date Chinese bike-sharing startup Mobike said it has raised US$600 million in a financing round led by Tencent Holdings Ltd, its biggest financing round to date as it seeks to expand aggressively. With the latest injection the firm, which has operations in around 100 Chinese cities, has raised over US$900 million since October. It has also expanded to Singapore, and recently launched a pilot service for 1,000 bikes in the UK, starting in the cities of Manchester and Salford. “We will accelerate the pace of global expansion, and our new target is to be in 200 cities by the end of this year,” said Mobike CEO Davis Wang.

Pilot reforms

Shanghai to promote staff holding stakes in firms Four companies owned by the Shanghai government will become the first to participate in a pilot ownership reform programme aimed at transferring stakes to staff members, the local government said. China is embarking on a series of sweeping ownership and management reforms aimed at making its sclerotic and debt-ridden state sector more responsive to the market. As part of the restructuring plans, the StateOwned Asset Supervision and Administration Commission (SASAC) said last year that staff in key positions, including managers and scientific researchers, would be granted stakes in government-run firms.

12 Business Daily Monday, June 19 2017

Asia Monetary policy

Bank of Japan upgrades view on consumption The central bank has slowed its bond purchases considerably in recent months Leika Kihara and Stanley White

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he Bank of Japan (BOJ) kept monetary policy steady on Friday and upgraded its assessment of private consumption for the first time in six months, signalling its confidence in an export-driven economic recovery that is gaining momentum.

But Governor Haruhiko Kuroda reassured markets the BOJ will still lag well behind the Federal Reserve in dialling back its massive stimulus programme, with inflation far from reaching his 2 per cent target.

He also shrugged off the need to scrap the BOJ’s pledge to increase its bond holdings at 80 trillion yen (US$729 billion) per year, even though recent purchases have slowed significantly.

“There’s some distance to achieving 2 per cent inflation, so it’s inappropriate to say now specifically how we will exit our ultra-loose monetary policy, and how that could affect the BOJ’s financial health,” Kuroda told a news conference.

“We will debate an exit strategy only after 2 per cent inflation is achieved and price growth stays there stably.”

As widely expected, the BOJ maintained its pledge to guide short-term interest rates at minus 0.1 per cent and the 10-year government bond yield around zero under its yield curve control (YCC) programme.

Relishing recent bright signs in the economy, the central bank upgraded its view on private consumption

for the first time since December 2016 to say it has shown “increased resilience.”

That was a more upbeat view than the previous meeting in April, when it said spending was resilient.

The BOJ revised up its assessment of global growth and reiterated its optimistic view that Japan’s economy was heading for a moderate expansion.

“The BOJ has grown confident on the economy, although it is fully aware inflation remains low despite a tightening labour market,” said Izuru Kato, chief economist at Totan Research.

“Unless inflation accelerates unexpectedly, the BOJ will likely stand pat on policy at least until next April when Kuroda serves out his current term.”

Consumption has been a soft spot in Japan’s otherwise strengthening economy, with its weakness blamed for keeping inflation subdued by discouraging companies from raising prices.

“Stealth” tapering?

Growing signs of life in Japan’s economy have presented a fresh communication challenge for the BOJ, pushing it to be clearer with markets on how it might withdraw its stimulus - without sounding as if such an action is imminent.

Inflation remains disappointingly low, making BOJ officials wary of releasing too much detail on how the bank may exit its ultra-loose policy in the future.

Bank of Japan headquarters in Tokyo

Kuroda conceded that it was taking longer than expected to achieve his inflation target because prolonged periods of deflation have accustomed the public to acting on the assumption that inflation and wage growth won’t accelerate.

But he shrugged off calls from critics of his radical stimulus programme to abandon the BOJ’s 2 per cent inflation target or dial back monetary support.

“I know there are various discussions on the pros and cons of prolonged easing. But what’s most important is to achieve price stability and maintain it,” Kuroda said.

He also rebuffed the view the BOJ ought to slow purchases of exchange-traded funds (ETF), which it accelerated last year to fend off damage from the market disruption caused by Britain’s decision to leave the European Union.

“We don’t buy these assets to manipulate stock prices to a certain level.

We buy them to achieve our 2 per cent inflation target at the earliest date possible,” Kuroda said.

After years of heavy money printing

failed to drive up prices, the BOJ last year added YCC to its massive asset-buying programme, under which it buys government bonds and risky assets such as ETFs. While it now targets interest rates instead of the pace of money printing, the BOJ has maintained a loose pledge to increase its bond holdings at 80 trillion yen per year to appease proponents of aggressive asset purchases on its board.

But with this prodigious buying drying up market liquidity, the BOJ has slowed its bond purchases considerably in recent months.

Analysts expect the BOJ to slow its buying to around 60 trillion yen by year-end and omit the 80-trillion-yen pledge from its policy statement.

Kuroda, however, said he saw no reason to remove the pledge because the pace of bond buying could fluctuate from time to time.

“The amount we buy would be determined based on how much is necessary to guide interest rates appropriately,” he said. Reuters

Financial systems

Australian banks agree tax hit not fatal but want foreign rivals included The tax, which has bipartisan backing, applies to banks with more than A$100 billion of relevant liabilities in Australia Jamie Freed

Australia’s five biggest banks on Friday agreed a surprise US$4.6 billion tax can be absorbed without damaging the stability of the country’s financial system or pushing lenders to move overseas, but have asked that foreign rivals face the same levy.

Key Points Banks agree with regulator’s impact assessment Banks still want levy to apply to foreign banks

the same position as the foreign banks and that the levy be applied to them given the advantage their scale gives on a global basis and here in Australia,” Commonwealth Bank of Australia General Counsel Anna Lenahan told a senate committee.

The tax on bank liabilities including corporate bonds, commercial paper and certificates of deposit is forecast to raise US$4.6 billion in its first four years to help Australia return to a budget surplus by 2021. But the tax, which is not yet in effect, lacks an expiration date sought by the banks.

The tax, which has bipartisan backing, applies to banks with more than A$100 billion (US$76 billion) of relevant liabilities in Australia, capturing the country’s five largest domestic banks by assets.

Many international banks operating in Australia fall short of that threshold locally, though they exceed it globally. But Australia and New Zealand Banking Group Ltd told the committee the big five Australian banks’ overseas branches would also be taxed under the legislation.

National Australia Bank Ltd Chief Financial Officer Gary Lennon said he doubted lawmakers’ intent was to put Australian banks at a disadvantage to foreign rivals at home or anywhere else.

“It is possible that it will change the

profitability of some of our businesses,” he said of the levy. “Once you change the profitability we might be deploying less capital to those businesses or exiting that business.”

Macquarie Group Ltd Chief Executive Nicholas Moore said the tax would inevitably make the bank less competitive but that there were no plans to move the firm’s head office offshore as a result.

Westpac Banking Corp said there should be provisions to suspend the tax if bank profits were significantly affected.

HSBC and Citigroup declined to comment.

The senate committee will issue a report on the hearings on Monday.

Both houses of parliament will vote on the tax next week. Reuters

Macquarie says tax won’t push its headquarters offshore Banks have criticised the tax as unfair since its unveiling last month, but executives on Friday told lawmakers they agreed with the Australian Prudential Regulation Authority’s assessment that it would not threaten the financial system.

The lenders also pressed for legislation to be amended to include foreign banks, such as HSBC Holdings PLC and Citigroup Inc, to help them stay competitive in low-profit margin markets such as trade finance and bond trading.

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Business Daily Monday, June 19 2017 13

Asia Currency

In Brief

Thai central bank says impact of strong baht small The Bank of Thailand this month relaxed foreign exchange rules to make it easier to do business Orathai Sriring and Kitiphong Thaichareon

Thailand’s strong baht currency, now hovering near two-year highs against the dollar, has not hit tourism and has had only limited impact on exports, a Bank of Thailand official said on Friday.

The baht is still moving in line with Thailand’s economic fundamentals and regional currencies, assistant governor Vachira Arromdee, who leads the central bank’s financial markets operations group, told Reuters in an interview.

The central bank does not target specific levels of the baht, but is ready to act on any excessive moves in the currency, she added.

“We don’t look at (baht) levels but whether its moves are in line with economic fundamentals and regional peers.”

The economies of trading partners are more crucial to Thai exports than exchange rates, Vachira said.

“There may be some impact on

exporters’ profit margins but not much,” she said. “But GDPs of trading partners are much more important and whether our exports are competitive.”

Overall, the baht’s strength has not had any impact on tourism, as visitor numbers are still increasing, Vachira said.

Exports are worth about twothirds of Thailand’s economic output, while tourism accounts for more than 10 per cent. Still, growth in Southeast Asia’s second-largest economy has lagged regional peers in recent years.

The baht traded at 33.95 to the dollar on Friday, having appreciated by 5.5 per cent against the greenback this year, becoming Southeast Asia’s best performing currency.

Asked if the BOT was worried about being added to the U.S. trade watch list, Vachira said: “We are not the United States’ major trade partner.”

Thailand has attracted foreign fund inflows of about US$3 billion in bonds

and stocks, thanks to its economic stability with a current account surplus and low foreign debt, she said.

“We are closely monitoring shortterm fund inflows and have tools to handle them if they cause market volatility,” she said, without elaborating on what instruments would be used.

Since April, the BOT has cut the size of weekly bond issues in a bid to discourage short-term capital inflows.

The BOT this month relaxed foreign

Key Points Bank is closely monitoring short-term fund inflows -official Sees baht moves in line with econ fundamentals, regional peers Says bank not to target baht levels, but act on excessive moves exchange rules to make it easier to do business.

Thailand is treading carefully after adopting draconian capital controls in 2006 that tarnished its reputation and triggered a 15 per cent stock market plunge, but were later scrapped. Reuters

Singapore exports shrink again Singapore’s exports shrank for a second straight month in May, though electronics shipments continued to grow solidly to support an economy that wobbled in the first quarter and faces risks from deleveraging in major trading partner China.

Non-oil domestic exports from the city state dropped 1.2 per cent in May from a year earlier, data from trade agency International Enterprise Singapore showed, after declining 0.7 per cent in April for the first time in five months.

Analysts, who had expected a 3.7 per cent year-on-year decline last month, attributed the latest fall to the high base effect in the year-ago period when exports jumped a revised 14 per cent.

M&A

Japan Post to drop talks to buy Nomura Real Estate Japan Post Holdings Co will probably scrap talks to buy Nomura Real Estate Holdings Inc as the two companies struggle to agree on the terms, the Nikkei business daily reported on Saturday. The potential deal was first reported by public broadcaster NHK in midMay, pushing Nomura Real Estate’s shares up by 20 per cent. The Nikkei reported last week that Japan Post planned to slow the pace of future acquisitions, shifting away from its earlier aggressive investment strategy as it smarts from losses over its purchase of Australian logistics company Toll Holdings.

M&A

Family feud

Lee Kuan Yew’s last will made upon his ‘express instruction’, says younger son Prime minister said he was very disappointed that his siblings have chosen to publicise private family matters Lee Hsien Yang, the brother of Singapore’s prime minister, said on Saturday his father had expressly instructed the drafting of a last will directing the demolition of the family’s iconic home, the latest salvo in a public feud between the city-state’s leader and his two younger siblings.

The comments by Lee Hsien Yang, made on his Facebook account, followed those made by Prime Minister Lee Hsien Loong on Thursday that there were “serious questions” and “deeply troubling circumstances” over how the final will of their father, Lee Kuan Yew, was drawn up.

The prime minister’s office was not immediately available for comment on Saturday.

The feud between the children of Lee Kuan Yew, Singapore’s first prime minister, over the future of the family home erupted publicly last week in a flurry of accusations and denials through press releases and Facebook postings, which also touched on Lee Hsien Loong’s leadership.

Both Lee Hsien Yang and his sister Lee Wei Ling say they had lost confidence in their older brother as a leader and feared that state power would be used against them in their dispute with him.

The prime minister has denied these allegations, and said he was

Trade

very disappointed that they have chosen to publicise private family matters.

In his last will, part of which was released by Lee Hsien Yang on Thursday, Lee Kuan Yew, who ruled Singapore for three decades, said he wanted his house, a humbly furnished home near the bustling Orchard shopping district, to be demolished.

Lee Hsien Loong questioned in a six-page timeline whether Lee Kuan Yew knew a clause about the demolition, which was removed in the fifth and sixth versions of the will, was re-instated in the seventh and final

will, saying there was no evidence that he did.

The prime minister said he had recused himself from all government decisions regarding the house, and in his personal capacity, would also like to see Lee Kuan Yew’s wish honoured.

His brother Lee Hsien Yang said on Saturday Lee Kuan Yew’s final will was engrossed on the basis of Lee Kuan Yew’s “express instruction” to revert to his first will, attaching to the statement what appeared to be an email message from Lee Kuan Yew that states his plan to sign it before a solicitor.

“Lee Kuan Yew’s final will was simply Lee Kuan Yew’s first will of 20 Aug 2011 re-executed on his instruction,” Lee Hsien Yang said on his Facebook account. Results

Singapore’s Prime Minister Lee Hsien Loong

Tata Sons to buy Tata Steel stake in Tata Motors Tata Sons Ltd, the holding company of India’s salt-tosoftware Tata conglomerate, plans to buy out Tata Steel Ltd’s stake in Tata Motors Ltd on or after June 23, it said in a regulatory filing on Saturday. Tata Sons will buy about 83.6 million shares in Tata Motors at or around the prevailing price of the stock on the date of the planned acquisition, it said in the filing. It cited “restructuring of investment portfolio” as the reason for the planned deal.

Tata Motors shares closed at 455.75 rupees in Mumbai trading on Friday.

Legal action

U.S. acts to seize stolen assets of Malaysian fund The U.S. Justice Department has taken legal action to recover an additional half a billion dollars in assets stolen from an investment fund established by Malaysia’s prime minister, bringing the total claims to more than US$1.7 billion. The assets include a Picasso painting given to actor Leonardo DiCaprio and the rights to two Hollywood films, the department said. The filing in U.S. District Court in Los Angeles was the Justice Department’s latest step in a long-running case over an alleged conspiracy to launder money misappropriated from the 1Malaysia Development Berhad fund.

14 Business Daily Monday, June 19 2017

International In Brief Corruption

Brazil’s Temer to sue billionaire foe over graft accusations Brazilian President Michel Temer denied allegations made by a billionaire businessman in a magazine interview published on Saturday that he led a corruption scheme in which politicians squeezed high-profile executives for bribes, and vowed to sue the businessman.

In a statement, Temer’s office said he will take “all appropriate actions” against billionaire Joesley Batista, who told Época magazine that the 77-year-old politician has run a bribe-forfavors scheme at the government since 2010. Batista told Época that Temer asked for money several times in recent years as he led a group of senior politicians regularly demanding kickbacks in exchange for political favours.

M&A

Amazon to buy Whole Foods Amazon.com Inc said on Friday it would buy Whole Foods Market Inc for US$13.7 billion, in an embrace of brick-and-mortar stores that could turn the highend grocer into a mass-market merchant and upend the already struggling U.S. retail industry. Amazon used aggressive pricing to become an e-commerce retail juggernaut and has recently been experimenting with brick-and-mortar outlets.

It will take over a natural and organic grocer pioneer with 456 stores, a mecca for young, highend shoppers, that has been struggling to rein in prices and integrate technology.

Disclosure

Trump owes lenders at least US$315 million President Donald Trump had personal liabilities of at least US$315.6 million to German, U.S. and other lenders as of mid-2017, according to a federal financial disclosure form released late on Friday by the U.S. Office of Government Ethics. He had roughly US$20 million in income from his new marquee Washington hotel, which opened just down the street from the White House last September. Revenues also increased at Mar-a-Lago, the Florida resort known as the “Winter White House.” Trump reported income of at least US$594 million for 2016 and early 2017 and assets worth at least US$1.4 billion.

Marketing

McDonald’s ends Olympics sponsorship deal early McDonald’s Corp ended its 41-year-old sponsorship of the Olympic Games three years early, the International Olympic Committee said on Friday, reflecting the U.S. fast-food giant’s focus on its core business as well as rising Olympics sponsorship costs and declining TV ratings. McDonald’s deal would have run through the Tokyo Olympics in 2020, and bowing out will likely to save it hundreds of million of dollars if it had continued into the next four-year Olympics cycle and beyond. McDonald’s has been trying to hold down costs as it invests in improving food quality, restaurant service and online ordering to woo back U.S. diners.

Regulatory framework

ECB’s Villeroy says bank capital talks must be wrapped up U.S. lenders have complained that European rivals are allowed to hold less capital Leigh Thomas and Huw Jones

I

nternational bank regulators need to wrap up talks on minimum capital requirements and any rowing back on existing rules by the United States would have “grave consequences”, ECB Governing Council member Francois Villeroy de Galhau said on Friday.

“For banks, the priority is to stabilise the regulatory framework. We thus must finalise Basel III,” Villeroy said in reference to the talks by international bank supervisors.

Basel III, written by the global Basel Committee, tightens capital requirements after the 2007-09 financial crisis. The bulk of the rules are being implemented, but final elements are gridlocked.

The discussions have stumbled over a proposed “floor” which would mean capital cannot fall below 75 per cent of the “standard” approach set out by regulators and used by most lenders, while big banks use models to add up risks instead.

Speaking as the head of the French financial sector regulator, Villeroy told a conference in Paris that an output floor at that level was unacceptable and a deal was needed at a lower level but with more strict supervision of banks’ internal models.

“I read or hear negotiating advice from the banking industry and from

French banks in particular. A bit of control would not hurt, and our aim is not to defend sector interests,” Villeroy said.

“If an output floor at 75 per cent is unacceptable, it’s because this threshold and therefore the standard model would become the constraint for half of international banks,” he said.

Germany, the Netherlands and the European Union’s executive European Commission held the same view, he said.

The Basel Committee met on Wednesday and Thursday, and in a statement on Friday said it continues to make progress in reaching agreement on the output floor.

“Importantly, there is a keen desire among all Basel Committee of Banking Supervision member organisations to bring this to a conclusion as soon as possible,” the committee’s chair, Stefan Ingves, said in a statement.

Unilateral U.S.A.

The U.S. Treasury published a review of regulation on last Monday which recommended delaying two core Basel III rules already agreed.

Villeroy said the review could call into question the two rules just as the EU begins a process for implementing them.

“A unilateral deregulation would only be a lose-lose game with grave

consequences both for the stability of the global financial system and for competition between American and European banks,” Villeroy said.

When Europe comes to implementing an eventual deal on Basel III, it should pay particular attention to what’s happening in the United States, Villeroy said.

International regulatory cooperation is a “shared asset” and vital for the future, he said.

Key Points Basel stalemate over capital floor appears unresolved EU must watch how U.S. implements rules - Villeroy “The temptation to row back is very dangerous. It would increase the probability that a new financial crisis erupts. In this regard, the situation in the United States is worrying.”

In its review, the U.S. Treasury made a point of backing the proposed output floor because, it said, in some cases non-U.S. banks have significantly lower capital requirements.

U.S. lenders have complained that European rivals are allowed to hold less capital.

A banking source said those comments from the Treasury may have soured the mood at this week’s Basel meeting. “The Europeans don’t want the United States to use Basel to punish them,” the banker said. Reuters

Monetary policy

Weak inflation erodes conviction at Fed on rate hikes Underlying inflation has been running below target for more than five years and in April slowed a second month to 1.5 per cent Ann Saphir and Lindsay Dunsmuir

When the Federal Reserve raised rates earlier last week, Fed Chair Janet Yellen expressed confidence that recent weak inflation readings were transitory. Fed officials on Friday signalled that doubts are simmering.

In an interview with Reuters on Friday, Minneapolis Federal Reserve President Neel Kashkari said he was not alone at the U.S. central bank in his view the Fed should have waited to raise interest rates until it was sure the recent drop in price pressures really is temporary.

“I wish other people were joining me in my dissents, I’ll say that,” Kashkari said in a phone interview with Reuters. “I think that there’s more sympathy for my views, but maybe people aren’t ready to take action.”

Kashkari was the lone policymaker to vote against the Fed’s decision on Wednesday to raise its benchmark lending rate by a quarter per centage point.

He also voted against the Fed’s first rate hike this year, in March, although he said that his June decision was a closer call because the labour market had clearly strengthened. But while many of his colleagues were uncomfortable with risking a surge in inflation if the Fed failed to act, Kashkari was more worried about the costs of excessively low inflation.

Dallas Federal Reserve President Robert Kaplan on Friday also signalled the decision to raise rates earlier this week was a tough one, although he in the end supported a rate hike and said he feels comfortable with that decision.

“In this job you make trade-off decisions; I think the fact that inflation of late has been more muted, for me, made me weigh those trade-offs much more carefully,” Kaplan told reporters after a meeting of the Park Cities Rotary Club in Dallas. But he said he would want to see more evidence that inflation will rise toward the Fed’s 2-per cent inflation goal before increasing rates again.

“The run of weaker core inflation readings has clearly rattled some Fed officials,” Capital Economics wrote in a note to clients earlier on Friday.

The U.S. unemployment rate fell to a 16-year low of 4.3 per cent in May, but the Fed’s preferred measure of underlying inflation has been running below target for more than five years and in April slowed a second month to 1.5 per cent.

That has led to some beginning to

question the validity of the traditional narrative of a tight labour market eventually sparking higher inflation.

At its latest meeting, the Fed scaled back its inflation forecasts for this year to 1.6 per cent but according to policymakers’ median forecasts, still sees inflation rising to 2 per cent next year. It also maintained its forecast of one more rate hike this year and three the next.

But policymakers’ inflation forecasts are more optimistic than forecasts by Fed staff, who provide economic intel to the Fed Board of Governors. The latest Fed staff forecast shows they expect inflation to still be below 2 per cent in 2019.

Still, Kashkari, who ran the Treasury’s bank bailout program during the 2007-2009 financial crisis, said the level of concern he feels now is “no comparison” to the feeling he had back then.

“If we are making a mistake, we are making a small mistake now that I think we can recover from,” Kashkari said in the interview. “I am not sounding an alarm bell like, ‘Iceberg ahead!’” Reuters

Business Daily Monday, June 19 2017 15

Opinion Business Wires

The Korea Herald South Korean companies’ earnings for the second quarter of the year are forecast to be higher than earlier expected on the back of improving business conditions, industry data showed yesterday.

According to the data compiled by industry tracker FnGuide, the combined operating income of 155 major listed firms in South Korea are estimated at 41.37 trillion won (US$36.5 billion) for the April-June period, up 5.7 per cent from the earlier projection made three months earlier. The second-quarter operation income estimate also marks a 20.3 per cent jump from the year earlier period.

The rise of the food barons Viet Nam News Investors should not expect too much from the derivatives market in the early stages despite its potential benefits, said Nguyễn Duy Hưng, chairman of Sài Gòn Securities Inc. There are many problems and risks that must be addressed and resolved in the market, Hưng said.

Regulators, members and investors must make sure the market would not break down during its beginning phase, while legal policies must be issued to protect investors, he said. The participation of both domestic and foreign investors is the most important element that would determine the future development and attractiveness of Vietnam's derivatives market, Hưng said.

Philstar Dutch financial giant ING Bank has turned more bullish on the peso this year due to the stronger than expected structural and portfolio flows. Joey Cuyegkeng, senior economist at ING Bank Manila, said the peso is seen performing better in the second half, prompting the bank to revise its foreign exchange forecast to 48.80 to US$1 instead of 49.50 this year. “We further expect a strong peso environment in second half. Volatility will remain as market reacts to developments offshore and onshore. With reasons discussed above, we expect peso at 48.80 by yearend from our previous forecast last week of 49.50,” he said.

Taipei Times The Taipei District Prosecutors’ Office applied for the detention of SinoPac Financial Holding Co chairman Ho Shouchuan and two others for suspected violations of the Securities Exchange Act. The request to detain Ho, Yuen Foong Yu land development department manager Chang Chin-pang and the wife of Sun Power Development and Construction Co’s president, Liao Yi-min, came after overnight questioning by prosecutors.

Meanwhile, SinoPac Financial chief executive officer Yu Kuo-chih was released on NT$5 million (US$164,577) bail, while Yuen Foong Yu president Chiu Hsiu-ying was released on bail of NT$2.5 million and prohibited from leaving the nation, the office said.

T

he industrial-agriculture sector has long faced criticism for practices that contribute to climate change, environmental destruction, and rural poverty. And yet the sector has taken virtually no steps to improve quality and sustainability, or to promote social justice.

This is not surprising. Although there are more than 570 million farmers and seven billion consumers worldwide, just a handful of companies control the global industrial-agriculture value chain – from field to shop counter. Given the high profits and vast political power of these companies, changes to the status quo are not in their interest.

Moreover, market concentration in the agriculture sector is on the rise, owing to increased demand for the agricultural raw materials needed in food, animal feed, and energy production. As the middle class in southern countries has grown, its members’ consumption and nutritional habits have changed, boosting global demand for processed foods – and setting off a scramble for market power among multinational agricultural, chemical, and food corporations.

The biggest players in these sectors have been buying out their smaller competitors for years.

But now they are also buying out one another, often with financing provided by investors from completely different sectors.

Consider the seed and agrochemical sector, where Bayer, the second-largest pesticide producer in the world, is in the process of acquiring Monsanto, the largest seed producer, for 66 billion euros (US$74 billion).

If the United States and the European Union approve the deal, as seems likely, just three conglomerates – BayerMonsanto, Dow-DuPont and ChemChina-Syngenta – will control over 60 per cent of the global seed and agrochemical market. “Baysanto” alone would be the proprietor of almost every genetically modified plant on the planet.

With other large mergers also being announced, the global agriculture market at the end of 2017 could look very different than it did at the beginning.

Each of the three major conglomerates will be closer to its goal of achieving domination of the seed and pesticide markets – at which point they will be able to dictate food products, prices, and quality worldwide.

The agrotechnical sector is experiencing some of the same changes as the seed sector. The five largest corporations account for 65 per cent of the market, with Deere & Company, the owner of the John Deere brand, in the lead. In 2015, Deere & Company reported US$29 billion in sales, surpassing the US$25 billion that Monsanto and Bayer made selling seeds and pesticides.

The most promising new opportunity for food corporations today lies in the digitization of agriculture. This process is still in its early stages, but it is gathering momentum, and eventually it will cover all areas of production. Soon enough, drones will take over the task of spraying pesticides; livestock will be equipped with sensors to track milk quantities, movement patterns, and feed rations; tractors will be controlled by GPS; and app-controlled sowing machines will assess soil quality to determine the optimal distance between rows and plants.

“

Christine Chemnitz Head of the Department of International Agricultural Politics at the Heinrich Böll Foundation

To maximize the benefits of these new technologies, the companies that already dominate the value chain have begun cooperating with one another.

The John Deeres and Monsanto have now joined forces. The confluence of soil and weather “big data,” new agrotechnologies, genetically modified seeds, and new developments in agrochemistry will help these companies save money, protect natural resources, and maximize crop yields worldwide.

But while this possible future bodes well for some of the world’s largest companies, it leaves the environmental and social problems associated with industrialized agriculture unsolved. Most farmers, particularly in the global South, will never be able to afford expensive digital-age machinery. The maxim “grow or go” will be replaced with “digitize or disappear.” The ETC Group, an American nongovernmental organization, has already outlined a future scenario in which the major agrotechnology corporations move upstream and absorb the seed and pesticide producers. At that point, just a few companies will determine everything that we eat.

Indeed, the same market-concentration problem applies to other links in the value chain, such as agricultural traders and supermarkets. And even though food processing is not yet consolidated on a global scale, it is still dominated at the regional level by companies such as Unilever, Danone, Mondelez, and Nestlé. These companies make money when fresh or semi-processed food is replaced by highly processed convenience foods such as frozen pizza, canned soup, and ready-made meals.

While lucrative, this business model is closely linked to obesity, diabetes, and other chronic diseases. Worse, food corporations are also profiting from the proliferation of illnesses for which they are partly responsible, by marketing “healthy” processed foods enriched with protein, vitamins, probiotics, and omega-3 fatty acids.

Meanwhile, corporations are amassing market power at the expense of those at the bottom of the value chain: farmers and workers. International Labour Organization standards guarantee all workers the right to organize, and they prohibit forced and child labour and proscribe race and gender discrimination. But labour-law violations have become the norm, because efforts to enforce ILO rules are often quashed, while trade union members are routinely threatened, fired, and even murdered.

In this hostile climate, minimum-wage, overtimepay, and workplace-safety standards are openly neglected. And women, in particular, are at a disadvantage, because they are paid less than their male counterparts and often must settle for seasonal or temporary jobs.

Today, half of the world’s 800 million starving people are small farmers and workers connected to the agricultural sector. Their lot will hardly improve if the few companies already dominating that sector become even more powerful. Project Syndicate

Corporations are amassing market power at the expense of those at the bottom of the value chain: farmers and workers

”

16 Business Daily Monday, June 19 2017

Closing Government

South Korea’s Moon appoints first female foreign minister

South Korean President Moon Jae-in (R) and newly appointed Foreign Minister Kang Kyungwha (L) walk out of a meeting after Moon presented Kang with the appointment credentials at Cheong Wa Dae in Seoul yesterday.Lusa

While parliamentary approval in South Korea is a formality, not a requirement, presidents prefer to gain lawmakers’ consensus as it helps the South Korean President Moon Jae-in appointed administration push through key agendas. Moon former United Nations policy adviser Kang Kyung-wha as foreign minister yesterday, the first pushed ahead with the appointment of Kim Sangjo as chairman of the Fair Trade Commission on female chief in the ministry’s 70-year history.

June 13, with a spokesman saying the government Kang’s appointment had been delayed because couldn’t wait for parliament’s endorsement. opposition parties declined to approve her after One of Kang’s first tasks will be to prepare for a a parliamentary hearing on June 7. The centrist People’s Party held a press briefing yesterday, and bilateral summit between U.S. President Donald said Kang doesn’t have the capacity to handle the Trump and Moon later this month, the South Korean president’s first summit since taking office mounting diplomatic and security issues on the on May 9. Bloomberg News Korean peninsula.

Investment banks

Mainland bankers flock to Hong Kong as expats retreat Chinese initial public offerings dominate the Hong Kong market Jess Macy Yu and Julie Zhu

A

flood of Chinese bankers is changing the social fabric of Hong Kong, as they rapidly expand their footprint in one of the world’s premier financial centres, even as Beijing struggles to tame the former British colony politically.

Twenty years after Hong Kong’s handover to Chinese rule, scores of mainland professionals are filling the elite financial ranks of Hong Kong, while a series of lay-offs at Western banks has led to an exodus of expatriates.

The largest increase in Mainland staff over the past decade has come in investment banks, with 80 per cent seeing an increase of at least 20 per cent, according to a 2015 Financial Services Development Council survey.

“It has a much better environment than Beijing where I used to work,” said Hong Hao, a managing director at BOCOM International, who has lived in Hong Kong for five years.

“The food is good, and the tax rate is also good.”

Tax rates in Hong Kong are around 15-17 per cent, while they can be as much as 45 per cent in mainland China.

Chinese initial public offerings (IPO) dominate the Hong Kong market, the world’s largest IPO market in 2016 when Mainland offerings represented 80 per cent of all new listings, according to Thomson Reuters data.

Hong Kong’s financial services

industry accounts for 18 per cent of the territory’s economy, compared with just 10.4 per cent in 1997 when the city returned to Chinese rule.

Expat customers fall

Evan Zhang, a 26-year-old from Guangdong province, is one of those new kids on the block in Hong Kong.

For Zhang, one of the younger hires at CITIC Securities International, the increasing outward flow of Chinese capital in recent years is an opportunity.

“With Chinese people more willing now to allocate assets overseas, and overseas investors willing to invest in China, I can play a go-between role to help them,” he said.

As top banks such as Goldman Sachs, UBS, and Bank of America trim their Asia headcount, businesses across Hong Kong have taken a direct hit.

Bo Innovation, a Michelin-star restaurant, said its Western expat customers fell roughly 10 per cent in the last 10 years, according to owner and executive chef Alvin Leung.

Mainland clients increased by about the same per centage, he added.

Western companies are also increasingly turning to more affordable

locations such as Quarry Bay, at a time when Chinese companies are boosting their presence in the prime Central district, according to Tom Gaffney, a managing director at real estate services firm CBRE. The value of a typical expat package for middle managers in Hong Kong, has fallen by two per cent in U.S. dollar terms over the past five years, while the value of their benefits has fallen five per cent over the same period, according to consultancy firm ECA International.

“I have seen an enormous change in the expat landscape and packages offered,” said Christine Davis, a manager at international relocation firm The Santa Fe Group who was an expat in Hong Kong in 1999-2001 and again since 2011.

Everything was paid for by hosting companies in the past, she said, but now expat terms had been reduced “drastically”.

Hong Kong dropped two places to 13th in the world in HSBC’s 2016 Expat Explorer Survey, which measures various aspects of expat life.

Easier to recruit

The new expat environment is making its easier to recruit talent. Several

Lusa

Brexit

Banking

Chinese brokerages, asset management firms, and a Big Four Chinese bank told Reuters in recent months they intend to expand and hire more people in Hong Kong.

“When I first joined the company 14 years ago, we could barely recruit the right people as we couldn’t offer a good salary,” said Chen Shuang, chief executive of China Everbright Ltd, the Hong Kong investment arm of state-owned China Everbright Group.

“But now, it’s much easier to recruit top talent, even those from large Wall Street banks, which was unimaginable in the past.”

Some senior Chinese bankers, such as managing directors and department heads, now earn more than their Western counterparts, which offer compensation of about $1 million a year, including base salary and cash bonus, according to executive recruiter Bernard Yeo of Bo Le Associates.

On the flip side, junior Chinese bankers are typically paid 20 to 30 per cent less than their foreign counterparts and enjoy a less generous package that excludes housing, school fees, and club memberships enjoyed by many Western expats, Yeo said.

The changing demographics of the financial industry is reflected in the local economy. Restaurants featuring provincial mainland Chinese cuisine, like Old Beijing restaurant and San Xilou, which offers spicy Sichuanese fare, are doing well, restaurant managers say. So are serviced apartment companies, English learning programs, and Audis, a popular car brand among Chinese. In contrast, Trattoria Doppio Zero, a popular Italian restaurant in the central business district, has seen over a 10-per cent drop in its customers the last three years, said manager Jeffrey Ko. Reuters

Commerce

EU negotiator comments on possible Minsheng chairman says loans New Zealand optimistic UK return before talks kick off to Anbang total only US$100 mln of free trade deal with U.S. Britain would find the European Union had changed should the nation seek to return to the bloc, Guy Verhofstadt, a Brexit negotiator for the EU, said in an interview with Welt am Sonntag before formal exit talks begin.

“It would be an EU without special requests, without discounts, without unnecessary complexity, but with more European responsibilities instead,” Verhofstadt said.

Formal negotiations between the bloc and the UK are scheduled to start today in Brussels. Negotiators aim to wrap up a deal by the end of 2018 so that it can be ratified before the UK leaves the bloc in March 2019.

Verhofstadt rejected the position of UK negotiators led

by David Davis that the cut-off point for guaranteeing the rights of EU citizens living in Britain should be March 29, 2017.

“It is good that the British government thinks about the rights of EU citizens in Great Britain,” Verhofstadt said.

“But it’s strange that British chief negotiator David Davis only wants to grant these rights to those who entered before March 29.”

The UK may agree to demands that the final date should be the day of Brexit in 2019, the Financial Times reported last week, citing unidentified government officials. Bloomberg News

China Minsheng Banking’s loans to Anbang Insurance Group amount to US$100 million, and not RMB100 billion (US$15 billion) as rumoured, bank chairman Hong Qi told shareholders, adding that the loans are secure, local media Caixin reported.

The respected business magazine is among the first to reveal the size of loans made by mid-sized bank Minsheng to Anbang.

Minsheng spokesman Li Liming told Reuters the account of the shareholders’ meeting was correct.

Anbang, one of China’s most aggressive buyers of overseas assets, said last week that Chairman Wu Xiaohui was temporarily unable to fulfil his duties due to personal reasons. People familiar with the matter said Wu had been detained by authorities earlier in June.

Anbang has said Wu’s duties would be managed by other senior executives, and that its business was operating normally. No other details have been provided by the insurer.

Anbang Group is one of Minsheng Banking’s largest private shareholders.

“It is precisely because Anbang is a major shareholder that our controls are stricter and we strictly disclose related party transactions,” Hong is reported to have said. Reuters

The United States has indicated it is open to a free trade agreement (FTA) with New Zealand, New Zealand’s trade minister said on Sunday.

Todd McClay visited Washington for high-level trade talks with the administration of U.S. President Donald Trump this week, meeting with Commerce Secretary Wilbur Ross, newly appointed U.S. Trade Representative Robert Lighthizer and other advisors to the president.

“I’ve welcomed their interest in an FTA as a demonstration of the good shape our trading relationship is in,” McClay said in a statement.

McClay said his centre right government wants free-trade agreements to cover 90 per cent of goods exported by 2030, up from just over half currently, and the U.S. will be an important part of achieving that.

Two-way trade between the two countries reached US$16 billion in 2016, making the United States New Zealand’s third-largest individual trading partner, according to New Zealand’s ministry of foreign affairs and trade. New Zealand’s US$180 billion economy depends on exports. Reuters