CEPA exports increased 3.3 pct in February Trade Page 2
Thursday, March 2 2017 Year V Nr. 1245 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Real estate
Poll: Mainland home prices to drop sharply in 2017 Page 8
Monetary tools
Central bank of China reduces cash injections in February Page 9
www.macaubusinessdaily.com
Telecom
Hutchison’s yearly net profit down 23 pct Page 4
Trade
Exports of unworked diamonds to HK hit HK$72.6 mln in 2016 Page 2
Junkets Fuel Gaming Rebound Gaming revenue
Macau’s total gross gaming revenue soared 17.8 pct y-o-y in February. The biggest increase since June 2014. At MOP22.99 bln, the monthly take is also the most since March 2015. Analysts believe the strong performance has been boosted by junket activities. Taking place in the last week of the month. Page 7
Before it’s too late
Hong Kong billionaire Joseph Lau Luen Hung is in a ‘very unstable health condition.’ According to a filing by Chinese Estates Holding Ltd. yesterday. The businessman has purportedly moved his stake in the company to his eldest son Lau Ming Wai and two minor children by his wife Kimbee Chan.
China reboots manufacturing PMI Official factory data shone in February. Expansion in manufacturing activities gained momentum as producers revved up output to meet an increase in new orders. Mainly bolstered by rapidly growing foreign demand. Page 10
Urban population to boom
Restructuring Page 3
HK Hang Seng Index March 1, 2017
23,776.49 +35.76 (+0.15%) Worst Performers
Galaxy Entertainment Group
+5.51%
Sun Hung Kai Properties Ltd
+1.85%
China Resources Land Ltd
-1.42%
CNOOC Ltd
-0.98%
Sands China Ltd
+3.86%
China Resources Power
+1.71%
Want Want China Holdings
-1.40%
Kunlun Energy Co Ltd
-0.89%
Bank of East Asia Ltd/The
+2.34%
BOC Hong Kong Holdings
PetroChina Co Ltd
-1.35%
China Shenhua Energy Co
-0.86%
MTR Corp Ltd
+2.07%
Hang Seng Bank Ltd
+1.13%
Li & Fung Ltd
-1.16%
China Overseas Land &
-0.84%
Wharf Holdings Ltd/The
+2.03%
AAC Technologies Holdings
+1.10%
Industrial & Commercial
China Petroleum & Chemical
-0.83%
+1.30%
-0.98%
15° 20° 17° 19° 18° 20° 19° 22° 17° 21° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Trends The global population will hit 7.4 billion this year. While over half reside in urban areas. Euromonitor International projects urban population growth within Asia will hit 29.6 pct. Page 5
2 Business Daily Thursday, March 2 2017
Macau
Luxury
Diamonds aren’t forever Unworked diamond exports to HKSAR hit HK$72.58 million in 2016 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdail.com
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s Hong Kong kicked off its International Diamond, Gem & Pearl Show on Tuesday, welcoming 1,900 exhibitors from 39 countries, the world’s diamond supply is about to peak, as noted by the Economist in the wake of the world’s highest earning diamond supplier De Beers opening up the largest new diamond mine in the world in more than a decade. The company - which coined the phrase ‘a diamond is forever’ and set the trend for spending on diamond-laden wedding rings - accounts for one third of global sales, notes the magazine, a drop from the 45 per cent market share it occupied in 2007, but continues to be the market leader in earnings. Although operating one store in the MSAR, the group is far from the only diamond provider in the city, with the local Statistics and Census Bureau (DSEC) data showing that a total of 2,648 diamonds were imported to the MSAR last year. These diamonds were classified as non-industrial, not mounted or set. The total value of the diamonds hit MOP36.33 million (US$4.5 million) during the period and weighed about 2 kilograms. Of the total amounted imported, 89.2 per cent of the diamonds originated in South Africa, home of De
Beers, where it was founded in 1888. However, the company, and the overall market, are about to face a problem given dwindling supply, which consultancy group Bain expects to peak in 2019, projecting that the supply of new diamonds will fall by 1 per cent to 2 per cent every subsequent year until 2030.
largest importer in value and quantity, the United States, which imported HK$14.23 billion into the HKSAR in 2016, amounting to 1.85 million diamonds. Diamond suppliers in the territories will need to continue to hold events such as the neighbouring city’s International Diamond, Gem & Pearl Show, prompting demand for the luxury item in ever shorter supply.
A girl’s best friend
In 2016, in the MSAR, the result had yet to be felt as the MOP34.82 million-worth of diamonds imported from South Africa (2,361 diamonds) joined MOP1.16 million-worth from India (220 diamonds), MOP199,614worth from the Seychelles (25 diamonds) and MOP55,00-worth imported from the Mainland (37 diamonds). Hong Kong also saw two-way trade in diamonds with the MSAR, with five diamonds, worth MOP101,789, making their way from the HKSAR to Macau. By far more expansive was the local territory’s re-export of the non-industrial non-mounted diamonds to the HKSAR, which reached MOP9.75 million over the course of the year, corresponding to 190 diamonds. Given different methods of classification, the data from the Census and Statistics Department of Hong Kong reveals the larger extent of the trade level of the product from the MSAR to the HKSAR, with ‘non-industrial, otherwise worked but not mounted or set’ diamonds imported last year
Appointments
Two new members for Platform development committee Chief Executive Fernando Chui Sai On has appointed Tai Kin Ip, Director of the Macao Economic Services, and Leung Hio Ming, President of the Cultural Affairs Bureau, as new members of the committee for the development of the Commercial and Trade Co-operation Service Platform between China and Portuguese-speaking Countries, according
worth MOP72.58 million, with a total of 88 diamonds imported from January to December. This is just a fraction of the HK$135.43 billion-worth of diamonds imported to the HKSAR last year, corresponding to 18.99 million diamonds during the period, the majority of which, or 11.12 million diamonds, originated in India. These diamonds were worth HK$60.26 billion, much higher than the second
to yesterday’s Official Gazette. The other nine members of the Committee, meanwhile, remain per the previous tenure, which includes representatives from the Secretariat for Administration and Justice, and from Social Affairs and Culture. The current tenure of all committee members, effective since February 25, will last one year.
Trade
CEPA exports grow 3.3 pct in February The city’s exports of zero-tariff goods to Mainland China under the Closer Economic Partnership Arrangement (CEPA) grew slightly by 3.3 per cent month-to-month last month, reaching MOP7.3 million (US$912,600) according to the most recent data from the Macao Economic Services (DSE). The small increase comes after local CEPA exports dropped by 42.5 per cent month-on-month in January from the MOP12.3 million registered during the last month of 2016. For the first two months of 2017, local exports under the CEPA programme amounted to MOP14.4 million, making the accumulative exports value MOP780.84 million since the scheme’s implementation
in January 2004. On a yearly comparison, the CEPA exports value for the month represents an increase of 26 per cent yearon-year, or nearly MOP1.5 million, as compared to the MOP5.8 million registered in the same month of the previous year. As at the end of February, a total of 616 services and agencies had received certificates under the Macau Service Supplier arrangement, of which 302 were companies providing transport services, including freight forwarding agencies, logistics, storage and warehousing. With the certificate, local companies can expand their business to the Mainland and enjoy zero-tariff treatment there. N.M.
Business Daily Thursday, March 2 2017 3
Macau Restructuring
Joseph Lau gives shares to children due to ‘unstable health’
H
ong Kong billionaire Joseph Lau Luen Hung has distributed his interests in Chinese Estates Holdings Ltd. to his children due to his ‘very unstable health condition,’ according to a company filing with the Hong Kong Stock Exchange yesterday. In the announcement, the company said the businessman’s current health drives ‘the need to implement restructuring during his lifetime.’ With the restructuring effective yesterday, his eldest son, Lau Ming Wai, now holds 24.97 per cent of the company’s total shares, while his wife, Kimbee Chan Hoi Wan, as trustee for the couple’s minor children Lau Chung Hok and Lau Sau Wan, holds 50.02 per cent. The billionaire previously indirectly held the stake of the company via a discretionary trust founded by him. L a st m o n th, th e b u si n e s sman also named his wife as the
company’s executive director. Former chairman and CEO of Chinese Estates, Mr. Lao stepped down from
his positions in 2014 after Macau’s courts convicted him of bribery and money laundering in the corruption
case of disgraced former Secretary for Transport and Public Works Ao Man Long. K.L.
Hong Kong billionaire Joseph Lau Luen Hung
Community
IACM disburses MOP11 mln in 2016 The Civic and Municipal Affairs Bureau (IACM) handed out some MOP11.1million (US$1.4 million) of subsidies to private entities during the year of 2016, of which more than half went to the Macau Federation of Trade Unions (FAOM), according to Business Daily’s calculations based on data from the Official Gazette. Last year, FAOM received some MOP6 million from the government
department, which accounted for 54.5 per cent of the total subsidies disbursed by IACM in the year. According to the dispatch, the subsidies were primarily for the expenses of the association’s sports club near the Border Gate. Havi n g g ra n t e d o n l y s o m e MOP41,478-worth of subsidies for the first quarter of 2016, IACM respectively awarded MOP4.35 million and MOP2.8 million in the following
two quarters, while total subsidies amounted to MOP3.9 million in the last quarter, of which MOP2.2 million was given to FAOM. The General Union of Neighbourhood Associations of Macao, also known as the Kai Fong, was the second largest beneficiary from the subsidies during the last quarter, receiving MOP602,261, followed by the Macau Military Club with MOP139,493. N.M.
investment earnings since 1998 had reached over MOP10 million. However, prosecutors were suspicious about the little amount taken out from the account. The former top official reiterated at the end of the hearing that he had been responsible for taking
care of his father while his siblings used to give him money for their father, too. He added that his limited amount of daily expenses was because he did not need to pay for miscellaneous bills as he stayed in a residence provided by the government.
Ho Chio Meng Trial
‘A representative of MP’ Witness assumed defendant Wong Kuok Wai was a representative of the Prosecutor’s Office Cecilia U cecilia.u@macaubusinessdaily.com
As the corruption case against the former Prosecutor-general Ho Chio Meng continued yesterday at the Court of Final Appeal, one of the 12 witnesses being heard told the judges he had previously assumed Wong Kuok Wai, a defendant in the case, was a “representative” of the Prosecutor’s Office (MP). Sam Tak Chun, owner of a company providing customised furniture and refurbishment projects via subcontracts to the Office, said he had visited Mr. Wong on the 16th floor of the Hotline Building twice and thought he was a staff member of MP. During yesterday’s hearing, prosecutors presented a memorandum from Mr. Sam’s company that was found in Wong’s residence. The memorandum reveals the expenses of the projects undertaken by Sam’s company for MP, which include those to Wong as consultation fees, accounting for some 18 per cent of the total. Asked by the prosecutors why he needed to pay Wong, the witness explained that was per Mr. Wong’s request, adding he thought that that part of the expenses was reasonable, as some MP projects such as a lawyer’s room might need professional input. The prosecutor presented a MOP16 million cheque paid by Mr. Wong to
the witness regarding a refurbishment project for the residence of Ho Chio Meng, on which a handwritten note reads that a children’s swimming pool amounted to some MOP13 million in the project cost. While the witness confirmed the cost of the swimming pool, prosecutors presented another cost quotation for the same project by a shell company involved in the case, which reads that wall works could cost in the region of MOP17 million. Prosecutors thus accused Ho of concealing the expenses of the swimming pool works by enlarging that of the wall works.
Periodic deposits
The court also heard a staff member of the Bank of China (BOC) named Vong Kit Ling yesterday. The former top official was a customer of Ms. Vong. Prosecutors said Ho had periodically deposited into his personal account since 2004, adding the deposits were later done by his three drivers after he assumed the post of Prosecutor-general. The amount of Ho’s deposits ranged from MOP10,000 to MOP30,000 each time, Vong said, adding that the former official had explained that the money was travel subsidies from years before. Meanwhile, the defence lawyer stated that the income of Ho and his wife from interest and insurance
4 Business Daily Thursday, March 2 2017
Macau Opinion
Profit warning
Zhuhai Holdings anticipate profit hit
Ashley Sutherland-Winch*
Shipping and property conglomerate Zhuhai Holdings Investment Group Limited expects to register a yearly decrease of 35 per cent in its net profit for the year of 2016, according to a company filing with the Hong Kong Stock Exchange on Monday evening. The group said the expected decline in annual net profit is due to ‘the loss on redemption of convertible bonds
issued by the company’ despite it having seen a 50 per cent yearly increase in revenues and a 10 per cent rise in both gross profit and profit before tax for the 2016. The company also stressed that its operation performance archived ‘a record-high’ during the year - excluding the convertible bonds redemption factor -adding its financial position remained ‘sound and healthy.’ N.M.
Smoking hot new iPhone Four days ago, Twitter began reacting - or better yet, overreacting - to a dramatic video of a smoking Apple iPhone 7 Plus. Brianna Olivas “@briannaolivas” said that her “rose gold iPhone 7 Plus exploded and began smoking” last week when her boyfriend grabbed his phone and began recording. The video, which Olivas shared on Twitter last Wednesday, showed smoke pouring out of one side of the phone and the iPhone’s case melting away. The video, which has already been viewed more than 1.26 million times, garnered a swift reaction, with more than 34,000 retweets and 1,200 replies to date. Immediately, amateur Twitter sleuths began trying to solve the mystery of what could make this occur. This wasn’t the first time that an iPhone 7 fire had been reported, but this was the first video of the incident to show up on social media. Previously, scattered reports of burning and exploding iPhone 7 devices had been reported, but none seemed to have public evidence. Before we all begin to freak out about our beloved iPhone 7 Plus devices, thinking that it could suddenly become similar to the now infamous Samsung Galaxy Note7, which was recalled after handsets began bursting into flames, there is no evidence that what Olivas experienced is tied to a wider problem. For its part as reported by Mashable, an Apple spokesperson said the company is aware of the video, remarking: “We are in touch with the customer and looking into it.” Five months have passed since its October 2016 release and although the iPhone 7 Plus ranks globally as the eighth most popular device it’s actually the number one device in Macau, representing an 18 per cent share of overall usage; according to a new report by mobile application company Apteligent. The report stated: ‘Macau is an autonomous territory of China, its gambling capital, and one of the richest regions in the world. This high concentration of wealth (in an area of fewer than 36 square kilometres) drove Apple’s newest and most expensive device to the top of the rankings.’ The official Apple store in Macau retails the iPhone 7 Plus range from MOP6,788 (US$849) to MOP8,536 for devices with memory between 32 gigabytes and 256 gigabytes, respectively. With such powerful and innovate devices, technical challenges are sure to ensue - but I hope that no-one in Macau happens to have a smoking iPhone in the near future. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Telecom
Hutchison annual profit slides 23 pct In particular, the company saw its mobile business revenues in Hong Kong and Macau tumble by more than half Sheyla Zandonai sheyla.zandonai@macaubusiness.com
H
utchison Telecommunications Hong Kong Holdings Ltd. posted a 23 per cent decline in net profit attributable to shareholders for the whole year of 2016, which amounted to HK$701 million (US$87.3 million) compared to HK$915 million one year ago, according to the company’s filing with the Hong Kong Stock Exchange. The group’s total revenue decreased by 45 per cent to HK$12.02 billion from the HK$22.04 billion in 2015 as hardware revenue plunged 69 per cent year-on-year to HK$4.4 billion while service revenue stabilised at some HK$7.64 billion compared to one year prior.
Hutchison, which provides integrated mobile telecommunication services to Macau and Hong Kong, said the plunge in hardware revenue was due to ‘lesser demand for new smartphones during the year’ – which also drove the company profit from the segment down by 76 per cent year-on-year.
Revenue in SARs nosedives
Meanwhile, the company’s mobile business in Hong Kong and Macau raked in some HK$8.33 billion in revenue, plummeting 55 per cent from HK$18.47 billion in 2015. In addition, revenue from mobile net customer services in the two SARs fell to HK$3.94 billion from HK$4.1 billion in 2015, representing a drop of 4 per cent. The group explained that the decrease was due to revenue
from the roaming service falling 13 per cent year-on-year to HK$109 million during the year. For the year ended 31 December 2016, Hutchison served nearly 200,000 more customers in Macau and Hong Kong than a year earlier, some 3.2 million customers, of whom 1.5 million were postpaid customers. The group noted that its revenue earned from external customers in Macau amounted to approximately HK$646 million for the whole year, down by nearly half from the 2015 revenue of HK$1.14 billion. In Macau, Hutchison provides 4G LTE, 3G and GSM dual-band mobile telecommunications services under the ‘3’ brand via Hutchison Telecom Macau, which was incorporated in late 2000. In December 2015, Hutchison Macau launched 4G LTE services with coverage of some 90 per cent of outdoor areas including major hotels, casinos, and business districts.
Campaign
YouTube catapults HK Express into ad stratosphere HK Express, the low-cost carrier from the neighbouring SAR, in a switch to its marketing campaign coinciding with its third anniversary, saw a 145 per cent boost in sales during the group’s campaign period. The results, as noted by Campaign Asia, far exceeded the 70 per cent target the group had set, and sales continued to see a 98 per cent increase in the four weeks following
the termination of the campaign. The campaign was based on five videos in the ‘Stay Three, Stay Free’ campaign run by the group for which its first day placement as a YouTube masthead earned it nearly 10 million impressions. “We were impressed by YouTube’s effectiveness in driving brand awareness,” noted the group’s commercial director.
The company also generated 32 per cent ad recall, a high for the group, a 67 per cent spike in searches during the campaign, and a 26 per cent increase in searches during the four weeks after the promotion, notes the publication. Last year, the group carried 2.9 million passengers, a 29.2 per cent year-on-year increase, according to a company press release. K.W.
Business Daily Thursday, March 2 2017 5
Macau
Trends
Curses and gems of mega-cities The global population is expected to reach 7.4 billion this year, with urban areas predicted to account for over half Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
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s projects such as the Hong Kong-Zhuhai-Macau bridge – linking the Pearl River Delta into a mega-city – demonstrate, the continued trend for populations is to shift to urban areas, with a predicted 55 per cent of the global population living in these areas currently, according to data by Euromonitor International. The group forecasts that the global population will hit 7.4 billion this year, of which over half, at 55.2 per cent, will be concentrated in Asia Pacific. This would be 5 percentage points higher than in 2007, the first time that the urban population numbers have overtaken those of the rural population. Urban populations are predicted to rise to 4.4 billion this year, a 24.2 per cent increase from 2007, while the growth within Asia is predicted
to reach 29.6 per cent this year.
City problems
This creates challenges, already commonly seen in the MSAR, notes the research group. ‘Overcrowding, housing shortage, lack of urban jobs, increasing pollution and associated health risks,’ were all noted as significant challenges brought about by urbanisation. Although Macau’s unemployment rate only recently increased to 2 per cent, according to data from the Statistics and Census Bureau (DSEC), the other four issues are familiar to the local population and legislators alike. DSEC data recorded 2.87 million visitors to the MSAR in January and that ‘neoplasms’ - abnormal tissue growth linked to cancer - were the leading cause of death in the territory in 2015, while public housing is one of the main components of the government’s most recently announced five-year plan.
However, not all the impact of this expansion will be negative, notes the report. ‘The transition to smaller-sized households in cities compared to rural areas will further give rise to new consumption trends and boost demand for goods and services,’ as well as ‘spur economic growth, as cities draw in diverse businesses which in turn generate investment and economic activity.’ Data from the Macao Trade and Investment Promotion Institute reveals that 3,345 newly incorporated companies joined the business framework of the MSAR between the first and third quarter of last year, while the previous year 5,023 new companies opened.
Getting older
In addition to a more urban population, the bi-product of this urbanisation is an ageing population, which will hit a median of 30.1 years for the first time this year - up from 27.9 per cent a decade ago. By the end of this year, according to the data, from 2007 the population group aged 65 and older will have risen by 31.4 per cent, whereas the youngest demographic, under-15s, will grow
only 15 per cent. ‘Population ageing hugely impacts consumer goods industries, presenting them with a plethora of opportunities to provide senior consumers with goods and services to meet their changing lifestyles, shopping and spending habits, widely varying income and wealth levels, expectations and needs,’ notes the report. This will hit areas from transportation and technology to technology and financial services, and estimates are that a baby born this year can expect to, on average, live to be 72.2 years old, with 63.7 years of these in “full health”. The average life expectancy at birth in the MSAR, according to the DSEC, rested at 83.3 years of age, as of the most recent data. However, these opportunities are mitigated by a trend in which ‘people around the world consume more calories and become increasingly sedentary,’ leading to an estimate that 9 per cent of the world population between 20 and 79 years of age will suffer from diabetes. This will ‘fuel both government and consumer spending on healthcare,’ a problem for the public sector and a potential advantage to the private sector.
6 Business Daily Thursday, March 2 2017
Macau
Fraud
Gusher! A Portuguese couple is being accused of using a Macau-based company to embezzle US$860,000 in taxes owed by an oil company to the East Timor Government Nelson Moura nelson.moura@macaubusinessdaily.com
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Portuguese couple who allegedly defrauded US$860,000 (MOP6.9 million) from the East Timor Government had their first hearing on Tuesday in the country’s capital of Dili. They are charged with illegal appropriation, money laundering and document falsification. According to the Public Prosecutor’s Office of East Timor, Tiago Guerra and Fong Fong Guerra allegedly embezzled taxes that the state government had levied upon an oil company by co-operating with an American consultant, Bobby Boyle,
currently under arrest in the United States. Arrested 26 months ago, the Portuguese couple was heard in court for the first time by presiding judge Jacinta Correia and assisting judges Ana Paula Jesus and Eusébio Xavier. The country’s Prosecutor’s Office believes that the three suspects collaborated to make use of a Macau company owned by the couple to illegally appropriate tax funds paid by an oil company to East Timor. According to the prosecutors, the three defendants launched a scheme to embezzle the funds obtained by Mr. Boyle in his negotiations with oil companies through Ms. Fong’s company in Macau, while the money was used by the American to later
purchase real estate in the U.S. The defendants were planning to use a series of means to “hide the origin of the illicitly appropriated amount, the way it was obtained and its fiscal destination” the prosecutors said. The prosecution also argued that Mr. Boyle had instructed the couple to transfer the funds to Olive Consultancy, their company in Macau, the “beginning of a process to appropriate the fiscal money” followed by the intentions to hide the funds by moving the money between several accounts and companies prior to their arrival at a law firm in the U.S., which allegedly served as middleman for the purchase of real estate. Remaining silent at the beginning of Tuesday’s trial, the couple responded to questions in court verifying their identity, with their defence lawyer, Álvaro Rodrigues, restating his confidence in the innocence of his clients. Initially listed as a co-defendant in the case by the country’s Prosecutor-general Angelina Saldanha, Mr. Boyle ended up being charged separately from the case. The American
national was sentenced to six years in prison and ordered to repay US$3.51 million to the East Timor Government by a U.S. court in 2015. Mr. Boyle’s sentence was also mentioned in Tuesday’s trial as the defence requested the court to enquire from the country’s government whether the embezzled funds had already been returned by American authorities. “I want to know if that amount of money has already arrived because in case it has the Public Prosecutor’s Office can’t accuse my clients of having embezzled this amount since they currently don’t have it in their possession. The money is located in the U.S,” said the lawyer. Mr. Boyle worked previously as a consultant via a co-operation agreement between the Norwegian and East Timor governments to recover taxes owed by oil companies. Later, Mr. Boyle was hired directly in July 2011 by Finance Minister Emília Pires to work as a ”judicial assistant for oil taxes” until the end of that year. The trial will continue on March 14. *with Lusa
Appeal of the city, ruling that Macau would be included under a bilateral investment treaty (BIT) made between China and Laos in 1993. This BIT affected the claims of capital investment benefit losses through unfair taxes by the Laos Government made by Sanum against the country’s body. The ruling by the court allowed Macau to be included under the ‘moving treaty frontier’ (MTF) despite Macau only reverting to China in 1999, and negated letters provided by the Laotian Government proving correspondence between Laotian
and Chinese diplomats stating that the treaty did not apply. As published on the Singapore Academy of Law website, the record of the case ruling notes that ‘we find first that the PRC (Peoples Republic of China)-Laos BIT does apply to Macau and […] that the Tribunal has subject matter jurisdiction over the claims brought by Sanum.’ “Simply put, because a treaty is binding in respect of the entire territory of a State, the MTF Rule presumptively provides for the automatic extension of a treaty to a new territory as and when it becomes part of that State,” Chief Justice Sundaresh Menon wrote, as quoted by the Straits Times. This case “marked the first time that Singapore courts have had to review an investment treaty arbitral award as well as to deal with the interpretation of a BIT to which Singapore is not a party,” noted Senior. In addition, early last month Sanum was allowed by a Federal Court of Australia judge to serve its petition to enforce a US$200 million award issued by the Singapore International Arbitration Centre against ‘two Laotian companies involved in the resort and gambling business,’ notes Law 360, regarding a separate casino the group was involved in relating to a slot machine club in Vientiane. The local business has multiple suits pending in a variety of courts relating to its operations and partnerships in Laos.
Law
Setting a precedent Law firm that defended local company Sanum Investments wins Dispute Resolution Firm of the Year Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
The firm that defended local business Sanum Investments in its case against the Laos Government has won the Dispute Resolution Firm of the Year in the Asia Legal Awards 2017 for its efforts. The firm, Singapore-based Wong Partnership, won a total of three awards this year for participation in a US$1.5 billion (MOP12 billion) liquidation of seafood company Pacific Andes – earning it part of the Finance Deal of the Year: Restructuring & Insolvency Award, as well as the Employment Firm of the Year in this year’s honours. The case which led to the group taking home the dispute resolution award originates in Sanum Investment, a locally based company which ran the Savan Vegas Hotel & Casino in the Savannakhet Province in Laos, which was seized by the Laos Government due to an alleged retroactive assessment of over US$70 million in taxes. The complex, following its seizure, was sold to local gaming operator Macau Legend, which opened its latest property in the MSAR on Tuesday.
The sale was conducted for an estimated 16.8 per cent of the price attributed to the property by its former operator.
Decisions, decisions
Wong Partnership managed to reverse a decision made by the Singapore High Court, in the Court of
Business Daily Thursday, March 2 2017 7
Macau Management
Jimei’s Executive Director quits
Junket operator Jimei International Entertainment Group Ltd. announced the resignation of its Executive Director, Ng Kuen Hon, according to a company filing with the Hong Kong Stock Exchange on Monday evening. Previously, Mr. Ng was also responsible for two Philippine gaming operations of the company’s founder, Jack Lam - the Clark Resort Travel and Amusement Corporation and at the Fontana Leisure Parks and Casino in Clark Freeport. The filing stated that the resignation is due to Mr. Ng’s ‘other
business engagements which require more of his attention and dedication.’ No replacement for Mr. Ng has been announced. Last month, Kennis Wong Kwok Leung also stepped down from his positions as the group’s Chief Executive Officer and Executive Director, citing the same reasons as Mr. Ng. In 2016, an arrest warrant was issued by Philippines authorities for the Jimei founder for allegedly bribing Bureau of Immigration officials in order to release more than 1,300 Chinese nationals who were working illegally at his operation in Clark. N.M.
Gaming
February gaming revenue jumps 17.8 pct The strong performance was boosted by junket activities in the last week of the month, say analysts Kam Leong kamleong@macaubusinessdaily.com
T
he local gaming industry remains on track for stabilisation, registering a 17.8 per cent year-on-year increase in total gross revenue for the month of February, amounting to MOP22.99 billion (US$2.87 billion), according to the official data of the Gaming Inspection and Co-ordination Bureau (DICJ). This is also the seventh consecutive month that the industry has recorded a year-on-year growth in its total revenue - and the biggest - following a slump of 26 months from June 2014 to July 2016. On a monthly basis, February’s gaming revenue went up by 19.1 per cent from January’s MOP19.3 billion. Meanwhile, accumulative gross revenue for the first two months of the year totalled MOP42.2 billion, up 10.6 per cent compared to MOP38.2
billion for the same period in 2016. Describing the performance as ‘a truly remarkable beat’ in yesterday’s research note, analysts at J.P. Morgan Securities (Asia Pacific) Ltd. estimated the revenue derived from the VIP sector had registered a significant growth of 20 per cent year-on-year in the month driven by ‘healthy tail-end demand post-[Chinese New Year] & strong volumes around Sun City’s 10-year anniversary event last week.’ They projected mass revenue had increased by some 15 per cent yearon-year as well, across both the Peninsula and Cotai plus both premium & grind-mass sectors. ‘Some players seemingly had skipped or postponed their trips for end-2016 or early-2017, as CNY holiday started earlier this year from end-Jan (vs. mid-Feb last year); this has probably created a bigger swing into CNY given pent up demand,’ the analysts, led by D.S. Kim, wrote. The firm added that the strong
Business
Sun Century signs MOU for Vietnam project consultancy Sun Century Group Ltd. – a company chaired by local junket Suncity boss Alvin Chau Cheok Wa – announced it had signed a non-binding memorandum of understanding to provide consultancy and management services to an integrated resort project to be developed in Vietnam. According to its filing earlier this week, the company, however, did not reveal details of the project to be developed or the project owner, only saying the owner is a third-party independent unconnected with the company. The company said it is planning to integrate its current hotel consultancy business by ‘providing consultancy, advisory and technical services for large scale resorts and/or gaming and entertaining facilities in places
with rapid growth in the tourism industry.’ The firm’s interim results last August indicated that the group was ‘in the process of setting up subsidiaries for the opportunities of hotels and integrated resorts in the Asian countries such as Korea, Malaysia and Vietnam.’ Last month, the company announced its intention of changing its company name to Suncity Group Holdings Ltd. Currently, the junket boss is developing a new integrated resort project in Quang Nam Province in Vietnam, teaming up with Hong Kong-based Chow Tai Fook Enterprises and Vietnam-based investment company VinaCapital. The project is slated to open in 2019. K.L.
performance is also driven by CNY being the first major Chinese holiday following the recent ‘VIP turnaround’ and new property openings - which improved junket liquidity and increased room supply, respectively. ‘Thus, the industry was able to deliver the full potential of the current demand picture, in our view,’ they wrote.
Stabilisation
Meanwhile, an analyst at Nomura in Hong Kong, Richard Huang, perceives the industry’s revenues indicate that the gambling industry is showing consistent growth, with the last week of February particularly strong. “While it is hard to call the last week’s results a trend, the industry has showed clear signs of stabilisation,” he said. An analyst with Bernstein in Hong Kong, Vitaly Umansky, said junket marketing events over the last week of February had led to a
significant increase in VIP spenders. He cautioned March could see “a slowing VIP environment” versus February. On Tuesday, gaming operator Galaxy Entertainment Group Ltd. reported a better than expected 2016 net profit and forecast double-digit gaming growth for 2017. It also said that for the first time in a decade overnight visitors to Macau this year had exceeded same-day visitor arrivals thanks to new hotel capacity. Overnight Chinese visitation has grown following the opening of multi-billion dollar casino resorts in the third quarter of 2016 by Sands China and Wynn Macau. The city’s large junket operators have reported improving revenues since the second half of 2016. These firms - which act on behalf of casino operators like MGM to bring in high-rollers - have been slammed by the corruption crackdown but broad consolidation has helped strengthen their positions. Casino executives, however, are betting more on the durability of the mass market sector due to the steady growth of leisure visitors and the government’s aim to shift away from casinos towards more family friendly activities. * with Reuters
8 Business Daily Thursday, March 2 2017
Greater china Real estate
House price growth to slow on tighter credit Prices of new homes in China surged 12.4 per cent last year Yawen Chen and Nicholas Heath
C
hina’s house price growth will slow significantly on continuing government curbs and tighter credit conditions this year, dampening land sales that hit record highs in 2016, but views diverge on whether prices will correct sharply, a Reuters poll showed. Home prices across the nation are expected to rise a median 5 per cent in the first half of the year and 2 per cent for the full year, the poll estimated. Analysts expect a lag between official tightening steps and the deceleration in price growth.
Key Points
issuance, have also been tightened. Most analysts expect Beijing’s cautious policy tone and tighter credit conditions to continue to weigh on the property market this year, as Chinese leaders have pledged to stem the growth of asset bubbles and prevent financial risks in 2017. “From our sales figure in January and February, the upward momentum in the market is not contained yet. If it persists, the government will be pressured to tighten credit,” said property consultancy Centaline’s research arm. The central bank has raised interbank lending rates in recent weeks, as part of efforts to implement a “neutral and stable” monetary policy to control the amount of money in the market.
Despite a more bearish view of the property market, only three of 11 analysts polled predicted that prices would fall this year. Inventories remain low in the biggest cities and cash-rich developers who made lucrative profits last year have little incentive to lower prices on new units, analysts said. But half of those polled said some second-tier cities could be at risk of a sharp price correction. These cities include Zhengzhou, Wuxi, Hefei, Suzhou and Hangzhou, which posted double-digit price growth in 2016 except for Wuxi, which is not included in the 70 cities monitored by the National Bureau of Statistics. China’s housing market has become increasingly polarised, with prices skyrocketing in the biggest cities - Beijing, Shanghai and Shenzhen - while smaller cities are grappling with large housing
gluts. The central government has had to rely more on local governments to implement citybased housing policies to address the imbalances. Data from the Housing Ministry shows residential property inventory dropped 11 per cent in 2016, but still totalled 403 million square metres by year-end. A cooling property market would also drag property investment growth to a median 3 per cent in 2017, according to the poll. China depended heavily on the property market and record government lending to drive growth last year, as real estate investment rose 6.9 per cent in 2016, official data showed. Chinese banks extended a record RMB12.65 trillion (US$1.84 trillion) of loans in 2016, half of which were mortgage loans. Poll respondents still see Chinese home prices as expensive. On a scale of 1 to 10, where 1 is extremely cheap and 10 is extremely over-valued, the median reply was 7, lower than the 8 in the last poll, though some analysts have pointed out smaller cities are much more affordable than the biggest cities. Reuters
Home prices seen up 5 pct in H1 2017, 2 per cent for full year Property investment growth expected to slow to 3 per cent in 2017 Most respondents say developer financing tighter, land market to cool Analyst views diverge on possible price correction Prices of new homes in China surged 12.4 per cent last year, the fastest rate since 2011, prompting more than 20 cities to introduce property curbs to cool the market since October. The red-hot land market, widely regarded as one of the main reasons for a sharp rise in house prices last year, is also seen coming off the boil this year as developers’ financing channels, such as property bond
Central bank
Taiwan not manipulating currency for unfair trade advantage In 2016 the Taiwan dollar strengthened around 2.7 per cent against the U.S. dollar Liang-Sa Loh
Taiwan does not deliberately weaken its currency to give the trade-dependent economy an “unfair competitive advantage”, the central bank signalled in a report to parliament amid worries that the United States could label the island a “currency manipulator”. “(The central bank) maintains the dynamic stability of the Taiwan dollar and does not aim to seek unfair competitive advantage,” according to the report released yesterday and seen by Reuters. A central bank official told Reuters that Taiwan is keen to avoid the ire of the United States, especially over its currency policy, as President Donald Trump has openly criticised China and Japan as currency manipulators. “The central bank wants to signal to the United States that it does not manipulate Taiwan’s currency,” said the official, who spoke on the condition of anonymity. That explains why the central bank, which frequently intervenes in the local currency market, has taken to the side-lines and allowed the Taiwan dollar to strengthen around 5 per cent against its U.S. peer so far this year. Trade officials in Taiwan have said it shouldn’t be a target for trade disputes
with the United States because its goods trade surplus with its second largest trading partner has shrunk in recent years. The central bank official said “the central bank not intervening as much in the foreign exchange market” was underscored by Taiwan’s fourth quarter balance of payment surplus, which reduced to the smallest in five years. Nonetheless, policy makers are closely watching out a twice yearly U.S. Treasury report due in mid-April,
which evaluates the currency policies of its major trading partners. A formal declaration of any country as a currency manipulator could end in punitive tariffs on the offender’s goods. Taiwan central bank chief Perng Fai-nan is scheduled to take questions from lawmakers today in a regular parliamentary session and will likely make a case for keeping the local currency stable. Divergent monetary policies of economies around the world, leading to rapid international capital flows, could intensify the volatility in global financial markets, the central bank said in its report.
“If this leads to excess volatility and disorderly movements for the Taiwan dollar, and is not beneficial to the economy and financial stability, the central bank will be responsible for maintaining order in the foreign exchange market,” it said.
“The central bank will be responsible for maintaining order in the foreign exchange market” Taiwan central bank report
Central bank headquarters pictured
The Taiwan dollar’s rise so far this year has outpaced the currencies of rival export nations including Singapore and Japan, but lagged the South Korean won’s nearly 7 per cent jump. In 2016, the Taiwan dollar strengthened around 2.7 per cent against the U.S. dollar, compared to around 2 per cent declines for the Singapore dollar and Korean won. The U.S. Treasury designated Taiwan and South Korea as currency manipulators in 1988, the year that Congress enacted the currency review law. China was the last country to get the designation, in 1994. Reuters
Business Daily Thursday, March 2 2017 9
Greater China Yuan
In Brief
PBOC reduces liquidity injections The central bank lent RMB393.50 billion to financial institutions via its medium-term lending facility last month China’s central bank injected RMB413.85 billion (US$60.2 billion) via short- and medium-term liquidity tools in February, down 35 per cent from the previous month, signalling a bid to rein in rapid credit growth. That followed a 26 per cent drop in January from December.
Key Points C.bank lends RMB393.5 bln via MLF in Feb C.bank lends RMB20.35 bln via SLF in Feb
to financial institutions via its medium-term lending facility (MLF) in February, it said on its website yesterday. Of the total, the central bank lent RMB150 billion for six months and RMB243.5 billion for one year. Outstanding MLF loans totalled RMV3.761 trillion at the end of February, compared with RMB3.573 trillion at the end of January, implying a net injection of RMB188.5 billion. The central bank also extended RMB20.35 billion of loans to local financial institutions in February via its standing lending facility (SLF).
Outstanding SLF loans were at RMB14.92 billion at the end of February, compared with RMB34.51 billion at the end of January, implying a net drain of RMB19.59 billion. The PBOC uses the SLF and the medium-term lending facility as tools for managing liquidity in the banking system. China’s pledged supplementary lending (PSL) facility stood at RMB2.107 trillion at the end of February, unchanged from the end of January, the central bank said. China’s banks made RMB2.03 trillion in new local-currency loans in January, the second highest on record, due to a rush among lenders to maintain market share. New loans hit a record RMB12.65 trillion of loans in 2016, helping the economy to expand 6.7 per cent last year, roughly in the middle of the annual growth target of 6.5-7 per cent. Reuters
Urban unemployment rate stands at 4.02 pct China’s registered urban unemployment rate stood at 4.02 per cent at the end of 2016, well within the target range, official data showed yesterday. China provided new jobs to 13.14 million urban residents last year, according to Yin Weimin, minister of human resources and social security. Despite an economic slowdown, the world’s second largest economy has managed to keep stable employment in recent years by offering jobs to over 13 million urban dwellers each year. Yin reassured that the figure is accurate as a sampling survey by the National Bureau of Statistics showed similar results. Trade
Reduced cash injections signal efforts to curb credit growth
U.S. Commerce Secretary pledges to get tough with China
PBOC has moved to tighter policy bias amid surge in debt
The U.S. will pursue “tougher enforcement” of existing trade rules with China and other nations, Commerce Secretary Wilbur Ross said ahead of President Donald Trump’s speech to Congress on Tuesday night. “There’s not a lot of point making trade deals if you don’t enforce them,” Ross said in an interview with Bloomberg Television. Enforcement would apply to “everybody,” he said. Ross, who was sworn in earlier Tuesday, said during his confirmation hearing that he’d prioritize renegotiating the North American Free Trade Agreement with Mexico and Canada and level the playing field with China.
Further moves seen cautious to avoid hurting economy Under its new “prudent and neutral” policy, the People’s Bank of China (PBOC) has adopted a modest tightening bias in a bid to cool explosive growth in debt, though it is treading cautiously to avoid hurting economic growth. The central bank raised interest rates on its reverse repurchase agreements (repos) and the SLF on Feb. 3, following a rise in rates on the MLF in late January. The PBOC lent RMB393.50 billion
Investment
Foxconn to start work on US$9 billion TV display plant in Guangzhou The company will hire about 15,000 people to keep the new plant running Foxconn Technology Group will begin construction this month on a US$9 billion display plant in southern China, as billionaire founder Terry Gou makes a big bet on demand for giant-sized TV screens in healthcare and homes. Gou and the Taiwanese company are looking to capitalize on the technology and branding acquired with the purchase of Sharp Corp. last year. Foxconn, whose main listed unit is Hon Hai Precision Industry Co., is investing RMB61 billion (US$8.9 billion) in the factory in Guangzhou and plans to complete it by 2019. It will use the largest glass substrates available, and have a monthly output capacity of 90,000 ultra-high-definition panels worth about RMB92 billion annually. Those will be aimed at the healthcare, education and smart
Labour
home applications, Foxconn said in a statement yesterday. Gou is reshaping Foxconn, the main assembler of Apple Inc.’s iPhones, by installing robots throughout a juggernaut that spans China to Southeast Asia to shore up its manufacturing prowess and investing in emergent fields from virtual reality to artificial intelligence. The acquisition of Sharp gave Gou a consumer electronics brand of his own and boosted Foxconn’s ability to compete in the market for smartphone and TV screens. Sharp and Foxconn are now considering expanding production in the U.S. “Building the Guangzhou factory is in line with Terry Gou’s longterm strategy of using Sharp to sell consumer electronic products,” said David Hsieh, a senior director at IHS
Markit. “The new plant will help Sharp cement a leading role in the large-scale screen segment.” The Guangzhou factory will use large-screen liquid-crystal display technology from Sakai Display Products Corp., a venture controlled by Sharp and Foxconn. Gou originally acquired a stake in the Osaka-based unit of Sharp’s in 2012, cementing his control when Sharp itself was bought out last year. Demand for LCD TVs has plateaued and prices are falling as supply swells. But emergent demand from new sectors such as healthcare may spur a recovery in coming years. Shipments of screens larger than 65 inches will almost triple by 2020 to 28 million units, while those between 55 and 60 inches will jump 72 per cent to 65 million, according to market researcher Display Supply Chain Consultants.
‘Foxconn is now considering building a display-making facility for upwards of US$7 billion with Sharp in the U.S.’ Foxconn is now considering building a display-making facility for upwards of US$7 billion with Sharp in the U.S., potentially creating tens of thousands of American jobs during President Donald Trump’s first year in office. The Guangzhou facility could help allay concerns of the Chinese government, which is promoting its “Made in China 2025” program to raise the domestic content of core components and materials. Bloomberg News
Energy
Sinopec plans shale gas research base China’s Sinopec Corp has started building a base for research into shale gas near its largest commercial discovery of the fuel, an industry website reported yesterday. The company, looking to cement its position as China’s leading shale gas developer, plans to spend RMB339 million (US$49 million) building the facility near its Fuling shale project near Chongqing, according to a report. Sinopec spokesmen were not immediately available for comment. The centre will also be used to oversee the expansion of the Fuling field’s production capacity, the report said. Steel products
Beijing expresses doubts about EU tariffs China has expressed doubts about exorbitant tariffs imposed by the European Union (EU) on steel products from China, calling for an end to such unfair measures. The European Commission, the EU’s executive body, recently announced its final ruling to impose anti-dumping taxes on Chinese steel plate for a five-year period, with duties ranging between 65.1 per cent and 73.7 per cent. Wang Hejun, head of the Ministry of Commerce’s trade remedy and investigation bureau, said China has grave doubts about the ruling and is highly concerned about the EU’s protectionist tendencies regarding Chinese steel products.
10 Business Daily Thursday, March 2 2017
Greater China
Industry
Factory growth beats expectations as global demand improves New export orders grew at the fastest pace since September 2014 Elias Glenn and Yawen Chen
C
hina’s factory activity expanded faster than expected in February as domestic and export demand picked up, adding to signs that the global economy is regaining momentum even as fears grow of a surge in trade protectionism. Growth in both output and orders accelerated last month, according to official and private factory surveys yesterday, giving the government more room to focus on tackling financial risks to the economy as debt continues to rise. “This is the 7th consecutive month that China’s official manufacturing PMI stayed within expansionary territory, suggesting that industrial activity remains buoyant,” said Zhou Hao, emerging markets economist at Commerzbank AG in Singapore. Zhou said it was “very likely” that China’s central bank would raise short-term interest rates by a another 10 basis points in March -- which would mark the third such move in as many months -- as authorities grow more confident that the economy is on steadier footing. Facing growing risks from explosive growth in debt, China’s central bank has cautiously shifted its stance in recent months to a tightening bias after years of super-loose policy to stave off the risk of a hard landing for the world’s second-largest economy. Policy sources have told Reuters that China’s leaders will accept a lower economic growth target of around 6.5 per cent in 2017, and target a less
aggressive expansion of money supply, as the focus slowly shifts from growth to pushing reforms to contain debt and housing risks. China’s industrial sector has benefited from a construction boom since the middle of last year that has spurred demand and prices for building materials from cement to steel, boosting sales and profits.
Key Points China Feb factory activity continues modest expansion streak Output and order growth picking up, export demand recovering Growth in services sector slows but still robust Sustained growth may give authorities room to tackle debt risks The official Purchasing Managers’ Index (PMI) released yesterday rose to a three-month high of 51.6 in February, compared with the previous month’s 51.3, and above the 50-point mark that separates growth from contraction on a monthly basis. Analysts had expected a reading of 51.1. Output rose at a faster pace of 53.7, compared to 53.1 in January, while overall new order growth also picked up. A private survey which focuses more on small and mid-sized firms offered similarly encouraging findings. The Caixin/Markit Manufacturing
Purchasing Managers’ index (PMI) rose to 51.7, up from 51.0 in January and beating analysts’ forecasts of 50.8. New export orders grew at the fastest pace since September 2014. While the industrial sector continued to shed jobs in February, the pace eased to its slowest since March 2013. Inflationary pressures also continued to rise sharply thanks largely to higher prices for building materials such as steel reinforcing bars and copper pipes, but producers were able to pass some of the increased input costs on to consumers. For now, China’s consumer inflation remains well within the central bank’s comfort zone, but expectations of upward pressure could keep the central bank on a gradual tightening path.
Policy dilemma?
Stronger readings on export orders would build on China’s better-than-expected trade numbers in January, but worries of a rise in U.S. trade protectionism are clouding the longer-term outlook for Asia’s exporters. Still, China’s domestic demand appears solid for now, and is becoming more broad-based. A separate reading on the services sector showed growth remained robust in February, though the pace of expansion has been slowing modestly for four consecutive months. The official non-manufacturing Purchasing Managers’ Index (PMI) stood at 54.2 in February, down from 54.6 in January, and well above the 50-point mark. Capital Economics said persistently softer service sector activity may suggest domestic demand growth has peaked, increasing the risk of a
reversal in the central bank’s new tightening bias and a return to stimulus if authorities fear economic growth is faltering. “We think that domestic demand growth in China, which appears to have plateaued recently, will slow in the coming quarters as a tighter monetary and fiscal stance continues to weigh on credit growth and infrastructure investment,” Julian Evans-Pritchard, Singapore-based China economist for the consultancy, said in a research note. New construction orders - a major economic growth driver last year - expanded at a slower pace in February, possibly in response to government measures to cool red-hot property prices. But construction activity still remained robust overall. “Construction businesses remain optimistic about the outlook for their industry, indicating that the government’s tightening measures have had limited impact on developers’ sentiment so far,” economists at ANZ said in a note. “For the first time in the past few years, we see an upside risk to (China’s) growth. A strong infrastructure pipeline and better-than-expected exports bode well for the near term economic outlook,” ANZ said, saying they would not be surprised if Beijing now decides to maintain its annual growth target of 6.5-7.0 per cent. The growth target and other policy priorities are expected to be agreed at the annual session of China’s parliament starting this weekend. Improving business conditions in China are giving a welcome boost to its Asian neighbours, which have seen their economic growth flag in recent years as China slowed. Reuters
Business Daily Thursday, March 2 2017 11
Asia GDP
Australian economy extends recession-free run with solid quarterly growth Growth for the year also surprised at 2.4 per cent, up from 1.9 per cent and ahead of most of its rich world peers Wayne Cole
A
ustralia’s economy rebounded sharply last quarter as commodity exports boomed while consumers and the government lifted spending, extending the resource rich nation’s 25-year streak of uninterrupted expansion. The recovery saved the political blushes of the conservative government of Malcolm Turnbull, which is riding low in the polls and might have come unglued at news of an actual recession. “No recession, all the doomsters can go back to their caves,” said Shane Oliver, head of economics at AMP Capital. The local dollar rose a fifth of a U.S. cent after the Australian Bureau of Statistics reported gross domestic product (GDP) climbed 1.1 per cent in the fourth quarter. That handily topped forecasts of a 0.7 per cent gain and came as a huge relief after the third quarter’s shock 0.5 per cent decline. It also marked 102 quarters without recession, just one quarter short of the all-time record held by the Netherlands. “We have ended up with quite strong consumer spending, a rebound in housing, stronger business investment, stronger public demand and stronger net exports,” Oliver said.
Growth for the year also surprised at 2.4 per cent, up from 1.9 per cent and ahead of most of Australia’s rich world peers - an outcome that virtually shuts the door to any further rate cuts this year. The Reserve Bank of Australia (RBA) is counting on growth to pick up to around 3 per cent this year and next, thanks in part to surging exports of liquefied natural gas. Record-low interest rates of 1.5 per cent are supporting consumer spending and home building, but the RBA is wary of easing further for fear of stoking already-hot house prices. Figures from property consultant CoreLogic out yesterday showed prices in the major cities surged in February, taking the annual pace of gains to its highest since mid-2010.
Cash jackpot
Yet neither is there much pressure for a rise in rates given measures of inflation are near historic lows and wages are growing at a pace last seen in the recession of 1991. Indeed, real unit labour costs shrank 3.4 per cent in the quarter implying businesses were becoming more competitive. Companies were certainly rolling in cash with surging prices for iron ore and coal lifting miners’ profits by 50 per cent. That flood of money was a big boost
The Reserve Bank of Australia is counting on growth to pick up to around 3 per cent this year and next
to measures of national income and nominal growth. Real net national disposable income, a proxy for living standards in general, leapt 2.9 per cent in the quarter and 6.8 per cent for the year. Likewise, nominal GDP jumped 3.0 per cent in the quarter, the biggest gain since mid-2010, taking output for the year to A$1.7 trillion (US$1.30 trillion) in current dollars. That will be a boon for the government since it is nominal growth that drives tax revenues and it needs all the money it can get to plug a persistent budget deficit. Ratings agency S&P Global has repeatedly cautioned that it might downgrade the country’s triple A credit rating if the promised path to a surplus by 2020 were to slip again. “This should give the ratings
agencies pause for thought,” said Michael Blythe, chief economist at CBA.
Key Points Q4 GDP rises 1.1 pct q/q to beat forecasts, up 2.4 pct y/y Consumer spending, exports and govt investment all upbeat Nominal GDP jumps 3 pct q/q, biggest gain since mid-2010 Supports RBA optimism, market prices out chance of rate cuts “Higher tax revenues, rising national income and a shrinking current account deficit don’t seem to argue for a downgrade.” Reuters
Spending
Japan’s corporate capex rebounds The corporate capital spending data will be used to calculate revised gross domestic product figures due on March 8 Minami Funakoshi
Japanese business expenditure rose in the final three months of last year from the previous quarter, data showed yesterday, in a tentative sign of a pick-up in capital spending. The higher spending offers a modicum of relief to policy makers looking for signs of a sustainable economic recovery. The data comes against a backdrop of a recent run of soft indicators, including exports and factory output, underscoring the heightened uncertainty about the economic outlook. Japanese companies raised spending on plant and equipment in October-December by 3.8 per cent from the same period a year earlier, the biggest increase in three quarters, Ministry of Finance data showed. That followed a 1.3 per cent yearon-year decline in capital spending in the previous quarter. Corporate recurring profits hit a record high in the same period, with rises in coal and iron ore prices offsetting losses incurred from a strong
yen, a MOF official said. “The results reflect the broader economy’s trend of gradual economic recovery,” the official added. The corporate capital spending data will be used to calculate revised
gross domestic product figures due on March 8. A preliminary estimate showed the world’s third-largest economy grew an annualised 1.0 per cent in October-December as a weaker yen supported exports, while tepid private consumption and the risks of rising U.S. protectionism cast doubts over a sustainable recovery. “I think the chances of GDP being revised upward is high since capital
spending came out strong, said Takeshi Minami, chief economist at Norinchukin Research Institute. Many economists originally forecast that capital expenditure would gradually increase this year, but lingering concerns that U.S. President Donald Trump may adopt protectionist trade policies could cause companies to scale back investment.
Key Points Q4 capex +3.8 pct yr/yr vs -1.3 pct in Q3 Seasonally-adjusted capex +3.5 pct qtr/qtr Recurring profits +16.9 pct yr/yr; sales +2.0 pct Data used to revise GDP due March 8
Minami, however, believes domestic capital spending is unlikely to be affected by Trump’s protectionism. Tuesday’s data on industrial output offered little cheer, with production unexpectedly falling in January for the first time in six months, pressured by a slowdown in shipments of cars to the U.S. Japanese policymakers hope capital spending will help drive growth in the world’s third-largest economy as it struggles to vanquish years of deflation and stagnation. Reuters
12 Business Daily Thursday, March 2 2017
Asia Global demand
South Korea’s exports post best growth in 5 years The headline February trade surplus stood at US$7.22 billion Christine Kim and Cynthia Kim
S
outh Korean exports grew at their fastest pace in five years in February in a further sign that global demand is strengthening, even as trade-reliant economies brace for a possible rise in U.S. protectionism. Both exports and imports grew more than expected, jumping 20.2 per cent and 23.3 per cent respectively, and both at the strongest pace since February 2012, data showed yesterday. The trade ministry said exports to China, South Korea’s biggest customer, surged 28.7 per cent on-year, posting the best growth since late 2010. Semiconductor exports posted their best monthly performance on record, riding on strong electronics demand. “February data shows that there is a clear export resurgence, as exports in terms of both price and volume seem to be increasing,” said Lee Sang-jae, an economist for Eugene Investment & Securities in Seoul. Shipments to the United States rose 1.7 per cent in annual terms, snapping two months of falls, on more demand for cars, oil products and heavy electric equipment. The trade surplus with the United States stood at US$1.56 billion last month, down from US$2.17 billion in February last year, the ministry said, on South Korean imports of U.S semiconductor manufacturing machinery and aircraft. South Korea has had monthly trade
surpluses with the United States since August 2011. The headline February trade surplus stood at US$7.22 billion. The rise in exports had largely been expected as the finance minister had announced the gain last week. Rising tensions Economists polled by Reuters had projected February exports would rise 14.7 per cent and imports 21.7 per cent. “Shipments to China are still growing, but we need to see if the deployment of the THAAD (Terminal High Altitude Area Defence) system has any impact going forward,” Lee said, referring to a row between South Korea and China over Seoul’s decision to host the controversial U.S. missile
defence missile system. South Korean officials have expressed their suspicions that China is indirectly retaliating against the THAAD system, but Finance Minister Yoo Il-ho has said China has not done anything yet to prompt an official complaint. Shipments to China are usually driven by intermediate goods, and most of Beijing’s actions have been focused so far on some consumer products and cultural imports from South Korea, like musical concerts. The working day average value for exports in February stood at US$1.96 billion, Reuters calculations showed, versus US$1.87 billion for January. The improvement trend for exports is expected to go on into March, the trade ministry said.
Despite the increasingly rosy data, authorities in South Korea and other Asian economies are wary of risks to exports later this year if new U.S. President Donald Trump follows through on pledges to take a more protectionist trade stance. The ministry added yesterday that increased volatility in financial markets could also pose risks to trade. In a bid to pre-emptively tackle these hurdles, South Korea said earlier this week that it plans to diversify markets and products for exports to reduce its reliance on its two biggest customers: China and the United States. Some local companies have also decided to boost investment in the United States to prevent their businesses from getting hit by any disruptive measures from Trump, who has vowed to create more jobs in the United States. Yesterday, LG Electronics Inc announced it will build a U.S. factory for home appliances in Tennessee worth US$250 million. Reuters
PM Abe adviser
Japan will tell United States to respect WTO rules Trump has spoken positively about a 20 per cent border adjustment tax being pushed by Republicans in Congress as a way to boost exports Stanley White and Izumi Nakagawa
Japan will tell the United States in their economic talks that any border tax the U.S. government imposes on imports should not break World Trade Organization (WTO) rules, an adviser to Prime Minister Shinzo Abe said yesterday. Yasutoshi Nishimura also said Japan would not rule out a bilateral trade agreement with the United States, but talks may not start soon because Washington is putting a higher priority on renegotiating the North America Free Trade Agreement. “We don’t want any border tax to violate WTO rules by becoming a tax system intended to promote exports,” Nishimura told Reuters in an interview. “Our position is WTO rules and multilateralism are important and we want to lobby for that.” Abe and U.S. President Donald Trump agreed last month to establish a new framework for economic dialogue to discuss trade and infrastructure investment. The two countries
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have not set a schedule for their talks. Trump has spoken positively about a 20 per cent border adjustment tax being pushed by Republicans in Congress as a way to boost exports, but it is still uncertain if he will fully endorse the proposal. Trump, who has lashed out at U.S.
companies for moving operations and jobs to countries such as Mexico, had previously sent mixed signals on the border adjustment tax. Some Japanese policymakers grew concerned about U.S. protectionism and a return to 1980s trade friction after Trump criticised Japanese auto imports shortly after taking office in January. Trump has since softened his rhetoric on Japan following a summit meeting with Abe where the two leaders agreed to hold the economic
dialogue. Japan’s hopes to avoid trade friction by reminding Trump that the trade relationship has changed a lot since the 1980s, Nishimura. Japanese automakers now produce a lot of cars in the United States, which dovetails with Trumps repeated pledges to create more jobs, Nishimura said. Japan is interested in using the new dialogue with the United States to talk about infrastructure investment, boosting other types of direct investment and U.S. shale gas imports, Nishimura said.
Key Points Trump wants fair trade, more U.S. jobs Japan is committed to multilateral trade framework U.S.-Japan dialogue to shape economic relationship Some economists and policymakers are worried that the United States could use the dialogue framework to criticise Japan’s currency policy and its aggressive monetary easing Nishimura expressed confidence that Japan could avoid such criticism, saying Japan needs easy monetary policy because it is still in deflation and that foreign exchange levels are determined by markets. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Thursday, March 2 2017 13
Asia Bad debt
In Brief
India’s central bank deputy targets banks’ toxic loans His proposals call for the creation of private and public institutions to buy stressed assets and restructure them Rafael Nam and Suvashree Choudhury
Former RBI Governor Raghuram Rajan (L) with current Governor Urjit Patel
conomist Viral Acharya spent nearly two decades studying banking crises around the world. Now, as a deputy governor at India’s central bank, he is turning his attention to one that may be developing at home. At issue is what to do with US$133 billion in stressed assets accumulated by banks after years of reckless lending, a problem that has bedevilled regulators and stalled loans that India needs to revive private investment. Acharya has put the issue back in the headlines. In a speech last week, the Reserve Bank of India official proposed creating “bad bank”-type institutions to buy and restructure stressed loans, along with an approach to banks and defaulters that he called “tough love.” With the government ambivalent towards the creation of “bad banks” to take on toxic debt, Acharya’s comments made markets sit up, and were seen by some economists as a signal of intent to tackle the issue. Colleagues who have worked with him believe Acharya can bring urgency to the debate about India’s banking woes, sparked when a boom in lending after 2009 backfired. “He is very professional, very, very
driven,” said K. V. Subramanian, an associate professor of finance at the Indian School of Business who has written papers with Acharya and known him for 12 years. “He is continuing Raghu’s practice of calling a spade a spade,” he added, referring to former RBI Governor Raghuram Rajan. “The banking sector is actually incredibly distressed. So, it is good to have someone who will not brush the problems under the carpet.”
deal with bad debt. And he took aim at defaulters who he said in his speech were having “somewhat of a field day” by avoiding repayments, and at bankers who were “kicking the can down the road.” Acharya calls his proposals “incentives,” but any restructuring plans refused by bankers and defaulters could be forced upon them. The RBI said it had no further comment on banks’ bad debts beyond what Acharya said in his speech.
Shadows of Japan, Italy?
Can it work?
E
Acharya entered academia after graduating from New York University in 2001 with a Ph.D. in Finance. His career took him to London Business School and back to NYU in 2008. He started at the RBI in January. Although he has been careful to note that India’s banking woes are not at crisis levels, Acharya warned that failure to act could see the country follow Japan’s financial stagnation in the 1990s or Italy’s troubles today. His proposals call for the creation of private and public institutions to buy stressed assets and restructure them, although he says he dislikes the term “bad banks” and argues his plan provides only for narrow mandates to
Acharya’s idea could be tough to implement. Fitch Ratings warned it was unlikely to work unless the government was prepared to inject some US$10.4 billion it believes the sector needs by March 2019, given banks would need to cover for haircuts. Acharya has acknowledged the need for recapitalisation, including in a 2015 paper in which he called on the government to undertake “radical” reform in the banking sector. But he has been reluctant to specify a number, acknowledging the government’s fiscal constraints. It also marks a departure to Rajan’s thinking. Acharya and Rajan have had a close relationship over the years, and collaborated on several research papers. Acharya was once mistaken for the former RBI governor, and, in recounting the anecdote, described himself as a “poor man’s Rajan”. Yet Rajan long eschewed the idea of a “bad bank” and sought instead to provide flexibility to bankers by making it easier to write down bad debt. Bankers are also opposed to a “bad bank” and are urging the RBI to allow existing programmes to work. “They should try making modifications to the existing system and not come out with a new strategy every time a new person comes on board,” said a senior banker at a state-run lender, referring to regulators.
Politics of bad loans
Tackling bad loans is fraught with political risk. The Modi government can ill afford to appear to be sparing defaulted companies at a time when it faces accusations of being too close to corporate India and not doing enough for bankrupt farmers. Taking big write-downs could also expose bank officials to investigations by police on why they issued the loans in the first place. Whether Acharya himself can navigate these politics is uncertain. Unlike Rajan, who was greeted with suspicion by some in Modi’s government because of his role as chief economic adviser to the opposition Congress government, Acharya has spent most of his career in academia. While he lacks political associations, he may also struggle to navigate New Delhi’s corridors of power. And in contrast to RBI Governor Urjit Patel’s low profile, Acharya is someone friends say is up front about his beliefs. Government officials said they were open to debate Acharya’s proposal, but were initially sceptical. “Where is the need of setting up separate institutions to deal with stressed assets when the current mechanism is making slow but steady progress?” said a senior finance ministry official, who deals with banks and the RBI on stressed assets. Reuters
Stats bureau
Indonesian inflation rate rises Annual inflation rate increased in February, mainly due to higher prices for processed and raw foods as well as healthcare, the statistics bureau said yesterday. February’s annual headline rate was 3.83 per cent, the bureau said, compared with January’s 3.49 per cent and the 3.90 per cent predicted in a Reuters poll. On a monthly basis, the consumer price index was up 0.23 per cent in February. Core inflation, which excludes administered and volatile food prices, also picked up in February, to 3.41 per cent from 3.35 per cent the previous month. Think-tank
Solid growth forecast for NZ economy New Zealand’s economy is likely to grow by more than 3 per cent on average over the next five years, driven by immigration and tourism, a leading economic think-tank forecast yesterday. Net migration -- the number of arrivals over departures -- was continuing to set new records, boosting demand across many sectors, said the New Zealand Institute of Economic Research (NZIER) in its Quarterly Predictions report. Construction and tourism were expected to remain key drivers of growth, and a recovery in global dairy prices was boosting confidence in the rural regions, said a statement from the NZIER. Corn supply
Japanese feedmakers tap emergency stockpiles Japan, the world’s top corn importer, has tapped at least 330,000 tonnes of corn from emergency stockpiles after inventories fell to critically low levels due to a delay in shipments from the United States. An official at the Ministry of Agriculture, Forestry and Fisheries said yesterday it had received and approved applications from 11 feedmakers by end-February for the use of 340,000 tonnes of grains - including a small volume of wheat from the 850,000 tonnes held in emergency stockpiles. Blizzards, avalanches and heavy rain in the northwestern United States early this year have hurt the transportation of corn, soy and wheat to ports, causing lengthy delays to grain loadings in Japan’s main corn supplier. CPI
Thai consumer prices up Thailand’s annual headline consumer prices rose less than expected in February, commerce ministry data showed yesterday, letting the central bank keep monetary policy loose to support the economy. The headline CPI index rose for an 11th straight month in February, up 1.44 per cent from a year earlier, compared with the 1.57 per cent increase forecast in a Reuters poll. In January, the index increased 1.55 per cent on the year, the fastest pace in over two years. The core inflation rate, which excludes raw food and energy prices, was 0.59 per cent in February, also below the 0.70 per cent forecast in the poll.
14 Business Daily Thursday, March 2 2017
International In Brief Stock market
UK watchdog proposes IPO research shake-up Investors in planned stock market flotations will get independent research about the company sooner under proposals made by Britain’s Financial Conduct Authority yesterday. Under existing rules, the prospectus, which gives in-depth information about the company that plans to list, is only made available late in the initial public offering process. Analysts at banks who are not involved in the IPO also have little access to the information they need to produce research to rival that from banks “connected” to the float. Under the proposed rules, the prospectus would be published before the “connected” research. Central bank
Russia resumes publishing FX intervention data The Russian central bank resumed yesterday publishing the amount of foreign currency purchases it carries out for the finance ministry. The central bank’s data showed it bought foreign currency worth 6.4 billion roubles (US$109.6 million) on the domestic market on Feb. 27. The central bank started buying an equivalent of slightly more than US$100 million a day for the finance ministry in early February but, at some point, stopped revealing the amount of interventions. In February, the central bank spent around 82 billion roubles on buying foreign currency for the country’s depleted fiscal buffers, its data showed yesterday.
GDP
U.S. economy slows despite robust consumer spending The economy grew 1.6 per cent for all of 2016, its worst performance since 2011
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he U.S. economy expanded at a slower pace in the fourth quarter, as previously reported, and appeared to remain on a moderate growth path as President Donald Trump took office with a promise to reinvigorate manufacturing and protect jobs. Gross domestic product rose at a 1.9 per cent annual rate in the fourth quarter, the Commerce Department said in its second estimate, as downward revisions to business and government investment offset robust consumer spending. The estimate matched what was published last month. Output increased at a 3.5 per cent rate in the third quarter. The economy grew 1.6 per cent for all of 2016, its worst performance since 2011, after expanding 2.6 per cent in 2015. In another report, the Commerce Department said the goods trade deficit jumped 7.6 per cent to US$69.2 billion in January. Inventories at wholesalers fell 0.1 per cent last month, while stocks at retailers increased 0.8 per cent. However, retail inventories excluding automobiles, which go into the GDP calculation, were unchanged after increasing 0.3 per cent in December. Economists said the wider goods deficit and weak inventories
posed a downside risk to first-quarter GDP growth estimates, which are currently around a 2 per cent rate. The trade deficit sliced off 1.70 per centage points from GDP growth in the fourth quarter, while inventories contributed 0.94 per centage point.
Strong domestic demand
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised sharply higher to a 3.0 per cent rate of growth in the fourth quarter. It was previously reported to have risen at a 2.5 per cent rate. That left private domestic demand increasing at a brisk 3.0 per cent rate. Some of the rise in demand was met with imports, which subtracted from GDP growth. There is scope for consumer spending to rise further against the backdrop of a tightening labour market and surging confidence among households. In a third report on Tuesday, the Conference Board said its consumer confidence index jumped 3.2 per cent to 114.8, the highest reading since July 2001. Consumers remained upbeat about the labour market amid expectations of income gains. Business investment was not as strong as initially thought in the fourth quarter. Spending on equipment increased at a 1.9 per cent rate instead of the previously estimated 3.1
Environment
EU nations thrash out deal on carbon market reform EU nations reached a compromise on long-awaited reforms to the carbon emissions market on Tuesday, moving the European Union closer to adopting key rules to deliver on its pledge to cut greenhouse gas emissions under the Paris climate accord. Eager to maintain its leadership on climate change diplomacy, EU environment ministers sought to bridge divisions over how to balance environmental ambitions with protection for energy-intensive industries in reforming the Emission Trading System (ETS). Talks on reforms have dragged on for 18 months.
Mexico said on Tuesday it would only stay in NAFTA if it suited it and rejected the imposition of any tariffs or quotas when renegotiating the trade deal U.S President Donald Trump wants to recast to benefit the United States. Trump has vowed to exit the North American Free Trade Agreement, the 1994 accord which also includes Canada, if he cannot get better terms. For its part, Mexico would not accept changes that restricted free trade, Foreign Minister Luis Videgaray said at a session of Mexico’s Senate.
Key Points Fourth-quarter GDP rises at 1.9 per cent rate Consumer spending growth revised up to 3.0 per cent pace Business, government spending revised lower Trade deficit rises in January, wholesale inventories fall The improvement has mostly been driven by rising oil prices, which have translated into a strong rebound in investment on mining exploration, wells and shafts. Spending on mining exploration, wells and shafts rose at a 23.6 per cent rate in the fourth quarter after declining at a 30.0 per cent pace in the prior period. The increase in residential construction spending was lowered to a 9.6 per cent rate from the 10.2 per cent pace reported last month. A fifth report on Tuesday showed house prices surged 5.6 per cent in December from a year ago after advancing 5.2 per cent in November. House prices are being driven by a shortage of properties for sale. Government spending increased at a 0.4 per cent rate in the fourth quarter, rather than the previously reported 1.2 per cent pace of growth. There was no contribution to growth from government investment in the last quarter. Reuters
Financial system
ECB to test banks’ resilience to interest rate shocks The central bank wants to know how much capital banks would have left if interest rates suddenly rose or dropped
Trade deal
Mexico will only stay in NAFTA if it suits it
per cent pace. Business investment contributed 0.17 per centage point to GDP growth, less than the 0.30 per centage reported last month. Business spending has been partly hobbled by lower oil prices, which have crimped demand for machinery, but an acceleration is likely. A fourth report on Tuesday from the Institute for Supply Management-Chicago showed its business index surged 7.1 points to a reading of 57.4 in February, the strongest level since January 2015. Companies in the Chicago area reported robust new order growth and production. The ISM-Chicago report mirrored other regional surveys that have offered an upbeat assessment of the manufacturing sector, which had been stuck in a rut for more than a year.
Francesco Canepa
The European Central Bank said it will test euro zone banks on their resilience to sharp changes in interest rates, simulating scenarios from sudden monetary tightening to the lending freeze that followed Lehman Brothers’ collapse. The ultra-low or negative ECB rates in place since the start of the financial crisis have eaten into banks’ margins and led them to take on more risk for smaller returns, raising concerns about how the sector might cope once policy is tightened. The ECB has said it would keep rates at current levels for a long time but euro zone inflation has been rebounding, fuelling calls for a tightening and for it to cut the pace of its 2.3 trillion euro (US$2.44 trillion)
bond-buying scheme. Under the new stress test programme announced on Tuesday, the ECB wants to know how much capital banks would have left if interest rates suddenly rose or dropped and how much they would make over three years under the different scenarios. The six simulations include a rerun of the aftermath of Lehman’s bankruptcy in 2008 -- when long-term interest rates fell below short-term ones, signalling an impending recession -- as well as a return to the higher interest rates from before the start of the euro zone crisis in 2010. The 110 largest euro zone banks in the test have until April to submit their data, which will then feed into the ECB’s annual capital demands in July.
“This stress test exercise is designed to provide the ECB with sufficient information to understand the interest rate sensitivity of a bank,” the ECB said. Rising rates make it harder for some borrowers to repay loans and tend to depress the value of government bonds, which banks own in large quantities and use as collateral.
‘The simulations include a rerun of the aftermath of Lehman’s bankruptcy in 2008’ “The banks’ overall capital demand – requirements and guidance – is not expected to change, all else being equal,” the ECB, which is the euro zone’s primary banking supervisor, said. Reuters
Business Daily Thursday, March 2 2017 15
Opinion Business Wires
The Jakarta Post In a bid to improve manpower quality and help industries with skilled manpower, the Industry Ministry has added a new system to its training program, Balai Diklat Indonesia, in major cities across the archipelago, inviting people to develop and improve on their skills for free. The new system, dubbed “3-in-1,” includes training, certification and work placement in a three-month module. It targets to train 162,000 people and send them to various industries ranging from shoes, clothing, electronics, ships to heavy machinery for the period from 2017 to 2019.
The Asahi Shimbun Around 96 billion cigarettes will be sold in Japan in 2017, a 9.6-percent drop from the previous year as health-conscious lifestyles continue to spread around the nation, Japan Tobacco Inc. (JT) has forecast. It would be the first time for cigarette sales to drop below 100 billion since JT was privatized in 1985, according to the forecast released on Feb. 6. The company said it expects the decrease in sales to push its operating profit to 560 billion yen (US$4.9 billion) in 2017, down 5.6 percent from the previous year.
The Times of India ASSOCHAM said estimates of GDP at constant price for Q3 (2016-17) is very much in line with the expectations of and estimates put forth by different institutions like the Reserve Bank of India, World Bank and others thereby showing downward movements in the economic activity of India mainly due to withdrawal of specified bank notes (SBNs). “Policymakers should take doable steps to revive fixed investments and production of capital goods which are falling continuously since the growth which is being supported by consumption demand does not have sustainable impact,” said Sandeep Jajodia, president of The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
Taipei Times Free Taiwan Party Chairman (FTP) Tsay Ting-kuei and his supporters yesterday clashed with pro-unification groups at the Chiang Kai-shek Memorial Hall’s Liberty Square in Taipei, leaving several people hurt. Tsay and his supporters were assembling for a 228 Peace Memorial Day demonstration against the memorial, demanding the removal of a Chiang Kai-shek statue that they said is an “authoritarian totem.” Pro-unification groups, including the China Unification Promotion Party (CUPP), held a counterdemonstration near the square, which led to violence later in the day. Tsay made a speech prior to the altercation.
A tax on robots?
K
en makes a decent living operating a large harvester on behalf of farmer Luke. Ken’s salary generates income tax and social security payments that help finance government programs for less fortunate members of his community. Alas, Luke is about to replace Ken with Nexus, a robot that can operate the harvester longer, more safely, in any weather, and without lunch breaks, holidays, or sick pay. Bill Gates thinks that, to ease the inequality and offset the social costs implied by automation’s displacement effects, either Nexus should pay income tax, or Luke should pay a hefty tax for replacing Ken with a robot. And this “robot tax” should be used to finance something like a universal basic income (UBI). Gates’s proposal, one of many variants on the UBI theme, allows us to glimpse fascinating aspects of capitalism and human nature that rich societies have neglected for too long. The whole point of automation is that, unlike Ken, Nexus will never negotiate a labour contract with Luke. Indeed, it will receive no income. The only way to simulate an income tax on behalf of Nexus is to use Ken’s last annual income as a reference salary and extract from Luke’s revenues income tax and social security charges equivalent to what Ken paid. There are three problems with this approach. For starters, whereas Ken’s income would have changed over time had he not been fired, the reference salary cannot change, except arbitrarily and in a manner setting the tax authorities against business. The tax office and Luke would end up clashing over impossible estimates of the extent to which Ken’s salary would have risen, or fallen, had he still been employed. Second, the advent of robotoperated machines that have never been operated by humans means there will be no prior human income to act as a reference salary for calculating the taxes these robots must pay. Finally, it is hard philosophically to justify forcing Luke to pay “income” tax for Nexus but not for the harvester that Nexus operates. After all, they are both machines, and the harvester has displaced far more human labour than Nexus has. The only defensible justification for treating them differently is that Nexus has greater autonomy. But to what extent is Nexus genuinely autonomous in a manner that the harvester is not? However advanced Nexus might be, it can be thought of as autonomous if and only if it develops consciousness, whether spontaneously or with the help of its makers. Only if Nexus (like the Nexus-6 replicants in the 1982 film Blade Runner) achieves that leap will “he” have earned the “right” to be thought of as distinct from the harvester he operates. But then humanity will have spawned a new species and a new civil rights movement (which I would gladly join) demanding freedom for Nexus and equal rights with Ken – including a living wage, minimum benefits, and enfranchisement. Assuming that robots cannot be made to pay income tax without creating new potential for conflict between the tax authorities and business (accompanied by tax arbitrage and corruption), what about taxing Nexus at the point of sale to Luke? That would of course be possible: the state would collect a lump-sum tax from Luke the
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Yanis Varoufakis a former finance minister of Greece, is Professor of Economics at the University of Athens
moment he replaces Ken with Nexus. Gates supports this second-best alternative to making robots “pay” income tax. He thinks that slowing down automation and creating tax disincentives to counter technology’s displacement effect is, overall, a sensible policy. But a lump-sum tax on robots would merely lead robot producers to bundle artificial intelligence within other machinery. Nexus will increasingly be incorporated within the harvester, making it impossible to tax the robotic element separately from the dumb parts that do the harvesting. Either the robot sales tax should be dropped or it should be generalized into a capital goods sales tax. But imagine the uproar against a tax on all capital goods: Woe betide those who would diminish domestic productivity and competitiveness! Ever since the emergence of industrial capitalism, we have been terrible at differentiating between property and capital, and thus between wealth, rent, and profits. This is why a wealth tax is so difficult to design. The conceptual problem of differentiating between Nexus and the harvester “he” operates would make it impossible to agree on how a robot tax should work. But why make life under capitalism more complicated than it already is? There is an alternative to a robot tax that is easy to implement and simple to justify: a universal basic dividend (UBD), financed from the returns on all capital. Imagine that a fixed portion of new equity issues (IPOs) goes into a public trust that, in turn, generates an income stream from which a UBD is paid. Effectively, society becomes a shareholder in every corporation, and the dividends are distributed evenly to all citizens. To the extent that automation improves productivity and corporate profitability, the whole of society would begin to share the benefits. No new tax, no complications in the tax code, and no effect on the existing funding of the welfare state. Indeed, as higher profits and their automatic redistribution via the UBD boosted incomes, more funds would become available for the welfare state. Coupled with stronger labour rights and a decent living wage, the ideal of shared prosperity would receive a new lease on life. The first two industrial revolutions were built on machines produced by great inventors in glorified barns and bought by cunning entrepreneurs who demanded property rights over the income stream “their” machines generated. Today’s technological revolution is marked by the increasing socialization of the production of capital. A practical response would be to socialize the property rights over the large income streams capital is now generating. In short, forget about taxing either Nexus or Luke. Instead, place a portion of Luke’s equity in the farm in a public trust, which then provides a universal payment to everyone. In addition, we must legislate to improve the wages and conditions of every human still in employment, while our taxes provide Ken unemployment benefits, a guaranteed paid job in his community, or retraining. Project Syndicate
There is an alternative to a robot tax that is easy to implement and simple to justify: a universal basic dividend, financed from the returns on all capital
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16 Business Daily Thursday, March 2 2017
Closing Congress speech
Trump pledges US$1 trillion to rebuild infrastructure
trillion investment in the infrastructure of the United States -- financed through both public and private capital -- creating millions of new jobs,” Trump said. US President Donald Trump pledged Tuesday He gave no details on how the money would be to bring one trillion dollars in public and private spent. investment to rebuild what he called America’s Trump said the United States had spent six trillion crumbling infrastructure. Trump made the promise in a high-stakes speech to dollars in the Middle East -- he did not say on what or over what time period -- while US infrastructure a joint session of Congress, moving to make good deteriorated. on one of his main campaign pledges -- rebuilding “With this six trillion dollars we could have rebuilt our America’s roads, bridges, airports and other public country -- twice. And maybe even three times if we structures. “To launch our national rebuilding, I will be asking the had people who had the ability to negotiate,” Trump Congress to approve legislation that produces a US$1 said. AFP
Singapore PM
U.S. pull-out from Pacific trade deal hurts confidence Lee urged Washington to “focus” on its relationship with China for the benefit of the region
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he United States’ pull-out from the Trans Pacific Partnership hurt confidence in American policies, Singapore’s Prime Minister Lee Hsien Loong said, urging Washington to “focus” on its relationship with China. In an interview with the BBC broadcast yesterday, Lee said Singapore was disappointed with President Donald Trump’s decision to fulfil a campaign pledge and withdraw the United States from the long-negotiated 12-country trade deal. Singapore placed great strategic importance on the TPP as the wealthy city-state views U.S. involvement in the region as key to its economic growth and security. The deal was
a pillar of former President Barack Obama’s pivot to Asia. “I think this has put a dent in the degree to which people can be confident of America’s policies,” Lee said. “But it has happened and we have to live with it.” Singapore was ready to sign a “12 minus one” pact without the United States, Lee added, although he was not sure that was on the cards, since other countries, and Japan in particular, had made concessions in exchange for U.S. givebacks. With U.S. concessions off the table, “the political balance and economic balance has shifted,” Lee said. Lee urged Washington to “focus” on its relationship with China for the benefit of the region.
“If America-China relations become very difficult, our position becomes tougher, because then we will be coerced to choose between being friends with America and friends with China ... and that’s a real worry,” Lee said. “Right now we’re friends with both, not that we don’t have issues with either, but we’re generally friends with both, and the relationships are in good working order,” he added. “Unless you focus on this relationship, both the win-win aspects as well as the areas where you’re in contention, it can go wrong.” Singapore has enhanced long-standing security ties with Washington in recent years, and now hosts revolving deployments of vessels and P-8 surveillance planes that regional military sources say routinely target Chinese submarines.
While Singapore is not a formal U.S. alliance partner, regional diplomats say it has become Washington’s most important military relationship in Southeast Asia, more so since Philippine President Rodrigo Duterte’s election win last year.
“If America-China relations become very difficult, our position becomes tougher, because then we will be coerced to choose between being friends with America and friends with China” Lee Hsien Loong, Singapore’s Prime Minister The issue of nine armoured cars seized by Hong Kong customs in November and released in January was a “delicate” matter for both China and Singapore, Lee added. The vehicles were impounded on their way home from military exercises in Taiwan, which Beijing sees as a breakaway province, and the incident fuelled diplomatic tension. But both sides “handled it carefully” and the outcome was “satisfactory,” Lee said. Reuters
Employment
Health measures
Environment
China plans to cut 500,000 jobs Shanghai expands this year in polluting sectors public smoking ban
Duterte signs Paris pact on climate change
Government will further trim its bloated smokestack industries this year and support other sectors in services or internet-related businesses to create new jobs. The country plans to eliminate another 500,000 jobs in industries with excess capacity, Minister of Human Resources Yin Weimin said at a briefing yesterday in Beijing. That’s part of an effort to trim 1.8 million employees in steel and coal over a few years. About 726,000 jobs were cut from those industries last year, Yin said. China has vowed to tackle inefficiency and pollution in industries with excess capacity, aiming to do so without stirring social unrest from mass layoffs. The central government has allocated RMB100 billion (US$14.5 billion) to subsidize the transfer of displaced workers, with more than RMB30 billion spent last year, according to Yin. “Settling displaced employees is the top priority in cutting overcapacity,” Yin told reporters, adding that typical ways to relocate workers include early retirement, retraining for new positions and encouraging them to start their own businesses. “We’re going to make sure the process goes in a steady and orderly manner this year,” Yin said. Bloomberg News
Philippines President Rodrigo Duterte has signed the Paris Agreement on Climate Change restricting greenhouse gas emissions, putting the deal one step closer to ratification in the country, a senator said yesterday. The agreement, which came into force on Nov. 4, aims to transform the world’s fossil-fuel-driven economy within decades and slow the pace of a global temperature increase to “well below” 2 degrees. Manila has committed to reduce its emissions by 70 per cent by 2030, but it will need technical and financial support to achieve it. “We are a step away from full ratification and it is my commitment to actively shepherd the Senate’s immediate concurrence,” said Senator Loren Legarda, after receiving the Instrument of Ratification for the Paris Agreement from the presidential palace. The ratification is expected to be well supported in the Senate, which is dominated by Duterte’s allies, and would allow Manila access to the Green Climate Fund, which aims to channel billions of dollars to help poor nations tackle global warming. Duterte’s signature comes more than 10 months after the agreement was signed by more than a hundred countries at the United Nations headquarters in New York. Reuters
Shanghai widened its ban on public smoking yesterday as China’s biggest city steps up efforts to stub out the massive health threat despite conflicts of interest with the state-owned tobacco industry. Nearly a quarter of adults in the commercial hub of 24 million people are smokers, according to the state-run People’s Daily newspaper, citing data from the Chinese Association of Tobacco Control. Shanghai has had a limited ban on public smoking since 2010, but the regulation covered only certain spaces such as schools and libraries. The new rule expands the restrictions to all public indoor areas and some outdoor ones. In June 2015 Beijing municipality adopted the toughest anti-smoking legislation in the country, banning smoking in offices, restaurants, hotels and hospitals. The southern city of Shenzhen introduced similar rules in 2014. China has long said it plans to ban smoking nationwide. In November, government health spokesman Mao Qunan indicated measures would be rolled out across the country by the end of last year. AFP