Jack Ma urges stricter punishment for counterfeiters E-commerce Page 16
Wednesday, March 8 2017 Year V Nr. 1249 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Forex
China’s reserves grow again after 7-month decline Page 16
It is very difficult to understand why Macau would be the second most expensive city to build in Asia - only behind Hong Kong and the 5th most expensive in the world, which is more expensive than Singapore, Tokyo and Paris. Arcadis, the global consultancy firm that produces this annual report by analysing the construction costs of 13 types of building shared a possible explanation for Hong Kong: the rising costs of labour, caused by the ageing workforce and labour shortages, as this newspaper reported yesterday. The same factor could be considered for Macau. But it seems to be too little to explain too much. It is true that specific lobbies have been trying to make labour importation a political issue, lobbying for more and more restrictions. Some that advocate the increase of those restrictions while the market cannot respond to demand are naïve and populist. Others are far from letting a political agenda cross their minds. They stand to gain from the shortages. But the report, to be more accurate, should go deeper and explain why a small town that is far from imposing the same level of corporate taxes and gives more fiscal benefits than most of the main capitals in the world can be so expensive. Could it be because the government tends to pay regardless? Even if a public project changes its architectural projects and engineering and so on time and again? Or because some of those constructors involved move as fish in a pond in the political arena and no one bothers to ask? During the current Ho Chio Meng trial, what the witnesses have said that the former Prosecutor-general and other defendants were allegedly doing – overcharging the government for projects - is what some government departments do all the time, which might explain why Macau is so expensive and nobody finds it strange. The money, being everyone’s, is nobody’s in particular. Has anyone found it curious that a plane ticket bought in Macau by a government department from certain agencies can cost up to 50 per cent or more than the exact same ticket when it is bought by a common citizen? Building in Macau is more expensive than Tokyo? Clearly a front cover story. That will be forgotten until next year’s report, while business carries on as usual.
Tourism
Funding
Outbound residents to HK up in January Page 2
Sino-Luso Development Fund grants US$20 mln to Canadian Solar Page 5
Visitation
Analyst: Korean travel ban to benefit MSAR Page 7
Balancing Act Gaming
On average, gaming industry employees pulled in an extra 1.7 pct y-o-y for the last month of 2016. At MOP21,990. By contrast, wages for senior foreign management took an 8.7 pct knock. Meanwhile, the total number of workers in the sector posted a slight decrease. Page 3
‘Dangerous’ books banned
Taobao is banning the resale of foreign-published books and magazines from Friday. Citing supervision of the import of materials that may be ‘dangerous’ to the country’s social security. Macau booksellers believe the new ban may attract more Mainland Chinese to buy books in the MSAR.
A ‘friendly’ welcome
Tourism U.S. Secretary of State Rex Tillerson is purportedly visiting China. A local Sino-U.S. guru believes the American official will be “warmly received” by Beijing. Even though Uncle Sam’s Department of State has recently pointed the human rights finger at China - and Macau. Page 6
Trade curve ball
Made in China Beijing plans to use subsidies to create national champions in high-tech industries. Thus further skewing China’s business playing field. And worsening trade frictions, the EU Chamber of Commerce said in a report yesterday. Page 8
Culture Page 4
HK Hang Seng Index March 7, 2017
23,681.07 +84.79 (+0.36%) Worst Performers
Want Want China Holdings
+2.80%
China Life Insurance Co Ltd
+1.28%
AAC Technologies Holdings
-2.70%
Sino Land Co Ltd
-0.67%
China Resources Land Ltd
+2.69%
Tencent Holdings Ltd
+1.24%
China Shenhua Energy Co
-0.98%
Cheung Kong Infrastructure
-0.63%
China Overseas Land &
+1.93%
China Petroleum & Chemical
+1.18%
Hong Kong & China Gas Co
-0.80%
CLP Holdings Ltd
-0.63%
Hang Lung Properties Ltd
+1.86%
Belle International Holdings
+1.14%
Swire Pacific Ltd
-0.68%
MTR Corp Ltd
-0.60%
Cathay Pacific Airways Ltd
+1.36%
Hengan International Group
+1.08%
Link REIT
-0.67%
Hang Seng Bank Ltd
-0.57%
16° 17° 18° 19° 19° 21° 18° 22° 19° 22° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Costly as usual, no news here?
www.macaubusinessdaily.com
2 Business Daily Wednesday, March 8 2017
Macau
Travel
Unequal neighbours Visitors from the MSAR made up just 1.5 pct of HKSAR visitation in January Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
V
isitors from the MSAR to neighbouring Hong Kong saw an uptick in the month of January, with an 8.2 per cent increase in Macau ID holders entering the territory, year-on-year. Total local visitors to the neighbouring city amounted to 83,192, according to the most recent data from the Census and Statistics Department of Hong Kong. The number is a 22.2 per cent uptick
from five years ago, the earliest monthly data available, and shows the first uptick in January arrivals from the MSAR year-on-year since the 4.3 per cent year-on-year downturn in the month in 2016, when values hit their lowest since 2013. However, on a month-on-month comparison the values show a 27.8 per cent decrease in MSAR ID holders to the territory, although, given the holidays in the month, a significant fall in numbers is recurring during the period. December last year saw a historical
Intellectual rights
high in visitation by MSAR residents to the city, as numbers hit 115,218 in total during the month, the highest on record in month-by-month breakdowns. This is also a 5.8 per cent increase year-on-year for the month, and a 17.2 per cent increase from 2011, the most recent available breakdown. However, the January numbers show that Macau visitors to Hong Kong represented just 1.52 per cent of the total visitors to the HKSAR during the month, which hit 5.47 million, a 4.8 per cent year-on-year increase in total visitation to the city. The driving visitation force continued to be the Mainland, whose visitors made up 79.5 per cent of visitors
to the city in January, at 4.35 million, the highest visitation seen since July of 2015, according to the data. Visitors to the MSAR from Hong Kong, however, posted a 17.6 per cent year-on-year uptick in their numbers in January, according to data from the local Statistics and Census Bureau (DSEC) hitting 527,218 in total. The number of MSAR residents travelling to Hong Kong in January therefore equated to about 15.8 per cent of the reverse visitation. The visitation from HKSAR residents to the MSAR in January also equalled roughly half of the yearly visitation from MSAR residents to Hong Kong – in 2016, total visitation was 994,822 residents.
Development
917 applications for intellectual SARs to take backburner to Mainland development property rights in February In the month of February 917 applications were registered for intellectual property rights, an increase of 13.3 per cent month-on-month compared to 809 applications posted in the first month of this year, reveals the latest official data from the Macao Economic Services (DSE). However, the number is a drop of 9.3 per cent compared to the 1,011 applications registered in the same month of last year. Of all the intellectual property applications, 878 were filed to register trademarks in the city, which took up 95.7 per cent, representing a growth of 17 per cent month-on-month from 746 in January.
The DSE received 20 applications for the extension of invention patents in the month of February, a decrease of 22 applications month-on-month. The others include six applications for registering invention patents and 13 for the registrations of industrial design or model. There were no applications to register utility patent, name and emblem of establishment in the month. For the first two months of 2017, the Bureau received 1,726 applications for the registration of intellectual property rights, of which 1,624, or 94.1 per cent, were for trademark registrations, followed by those for extending invention patent, at 62. C.U.
The Mainland has “reserved spots” for the two SARs to capitalise on economic development in the region; however, the cities on the Pearl River Delta should avoid “street politics” and be confident in their unique offerings, according to the chairman of the National People’s Congress, Zhang Dejiang, advanced by the Hong Kong Free Press. The comments came after a closed door meeting with a 36-member delegation from the neighbouring SAR, led by Deputy Maria Tam Wai-chu. Tam, emerging from the meeting, commented that the state leader had informed them that “times have changed; now it’s time for China to shine,” noting that “it is likely that in two years Shenzhen may surpass Hong Kong,” in its development. The publication also cites that Zhang hit on three main points regarding the SARs’ behaviour: abiding by the One Country, Two Systems policy, not challenging the Basic Law, and continual upholding of the Basic Law by National People’s Congress members both current and former. “Challenging the Basic Law will lead nowhere,” the politician cited Zhang as noting. In addition, the deputy cited the state leader as commenting upon the upcoming Hong Kong Chief Executive
elections, noting that they “need to be held in a smooth manner,” reports the publication, noting that the next leader of the neighbouring SAR “must support and fit the central government’s standards.” Zhang did not name any candidate in particular.
Zhang Dejiang, Chairman of the National People’s Congress
Business Daily Wednesday, March 8 2017 3
Macau Gaming But the situation for those in senior positions is the reverse
Fewer people, higher salary The number of full-time employees in the gaming sector decreased slightly year-on-year as at the end of 2016, while the industry’s average monthly wage rose by 1.7 pct Nelson Moura nelson.moura@macaubusinessdaily.com
T
he average monthly salary of local gaming workers increased by 1.7 per cent year-on-year for the month of December 2016, reaching MOP21,990 (US$2,750), while that of dealers rose only 0.3 per cent yearon-year to MOP18,840, revea3s the latest official data released yesterday by the Statistics and Census Service (DSEC). According to DSEC, some 55,794 employees worked full time in the gaming industry as at the end of December 2016, a decrease of 423 compared to the same period of the year prior. In particular, the number of dealers in the industry fell by 2.4 per cent year-on-year to 24,039. However, the profession still contributes the largest percentage of workers to the gaming sector, accounting for 43.1 per cent of the total. A total of 662 new employees were hired by the industry in the fourth quarter of 2016, a considerable increase of 76.1 per cent. In addition, job vacancies in the sector grew by 20 per cent year-on-year to 555 in the same period, with those for clerks which include dealers - and service & sales workers accounting for nearly half of the total openings.
DSEC data excludes the numbers of junket promoters and junket associates in the territory.
More managers, less money
Meanwhile, the number of those in directorial and managerial positions in the industry registered the highest yearly increase in the sector during the three months,
Labour
The blue-card coupon The government said foreign labour may only get a blue card in the territory with a document issued by the authorities prior to their arrival in Macau The Labour Affairs Bureau (DSAL) is planning to issue an authorised document to non-resident workers in the field of non-professional or domestic industry prior to their arrival in the city to start their work, while they can only obtain their work permit, also known as a Blue Card, in the territory with that document. The information was announced in the Bureau’s reply to an enquiry by legislator Ella Lei Cheng I, who questioned whether the government department has proposals to resolve the issue of non-resident workers seeking work in the territory during their stay as visitors. She also criticised the Bureau’s
failure to fulfil its promise to carry out a new measure to resolve the issue by the end of last year. The current proposal would ensure foreign workers secure a job prior to their arrival, the Bureau said. It added that it would maintain close communications with other related departments such as the Public Security Police Force in order to improve the current laws in order to prevent anomalies. In 2015, the government proposed three preliminary policies in a policy debate to resolve the problem of visitors becoming non-resident workers during their stay, but no actual measure has been implemented by the authorities so far. C.U.
jumping 7.8 per cent year-on-year to 2,408. In addition, the number of management vacancies rose by 24 to 40 in the last three months of 2016. The average monthly salary of those in these senior positions, however, dropped 2.7 per cent year-on-year for the last month of 2016, to MOP50,630. While the monthly salary of local residents in those positions remained unchanged from one year ago at some MOP48,330, that of non-residents fell 8.7 per cent year-on-year to MOP75,650. In the government’s Five-Year Development Plan, the authorities said local residents are to constitute at least 85 per cent of the upper and
middle management positions in local casinos until 2020, with residents making up 81.9 per cent of the total as at the end of 2015. In August 2016, the Labour Affairs Bureau (DSAL) announced that the government was rejecting the renewal of some non-resident workers’ work permits in order to allow more local residents to take up leadership positions in integrated resorts. Business Daily contacted the DSEC, DSAL and the Gaming Inspection and Co-ordination Bureau (DICJ) for the percentage of those positions held by residents and non-residents as at the end of 2016, but the departments said a breakdown for the year is not yet available.
4 Business Daily Wednesday, March 8 2017
Macau Health
Opinion
71 casino smoking ban violations as at end-February
Some 71 persons were prosecuted for violating the smoking ban inside local casinos during 92 jointi nspections conducted by the Health Bureau and the Gaming Inspection and Co-ordination Bureau during the first two months of the year. Of the total, visitors accounted for 81.7 per cent at 58, while local residents
José I. Duarte* Hasty verdicts The recent IMF report on Macau provides an interesting summary on the state of the region’s economic affairs. It is noteworthy for what it says and omits – and also for the assumptions and expectations it implies. A detailed assessment is beyond the scope of this space. But the considerations of the eternal diversification issue, at least, deserve more attention than what has been granted to them. There are some novelties here. The topic has been with us for a long time. However, it has not always been easy to determine what the real priorities for diversification were – or even what was really meant by that word. Certainly, it implies some attempt to move away from our city’s gambling dependence. The favourite candidates were the creative industries, traditional Chinese medicine and MICE activities. To a large extent, that does not seem to be the case anymore. The report suggests something else. If we believe what the report mentions diversification means something rather different now. As this type of document is made in close consultation with the local authorities, we have to assume those lines were conveyed to the report authors. It follows three tracks: one aims at moving gambling away from VIP to the mass-market side; another seeks to increase the share of non-gambling tourism visits; and the third leads from tourism to financial services. These are not unreasonable goals, but all raise specific questions and difficulties that need to be framed better. For now, as an illustration, let us look into the first objective. For starters, to call diversi fication the re-balancing of the VIP and mass-market shares of gambling revenue is a bit of a stretch to the common understanding of the word. Whatever your activity, suppose this year your orders of one type of goods you produce fell noticeably. You sold less and your total revenue also fell. In percentage your sales of the other goods rose inevitably – it is just arithmetic. Would you claim to have ‘diversified’? Possibly not! Yet, the report claims ‘diversification has already made substantial progress with VIP gaming falling from 70 per cent to roughly 50 per cent.’ This is definitely an assertion too far. In some measure it detracts from the seriousness of the analysis conducted. And we are not even taking into consideration the fact that the division between VIP and mass-market can be – and to a certain extent always is – an accounting artifact. *economist and permanent contributor to this newspaper.
amounted to 12 or 16.9 per cent. Currently, smoking is only allowed in VIP rooms and smoking lounges in local gaming venues. Meanwhile, the total prosecuted for violating the city’s smoking ban reached 1,252 during the two months, of whom 77.4 per cent had paid their fines. According to the release, smokers were primarily caught illegally smoking in parks and leisure areas, Internet cafes and at public bus stops.
Culture
Taobao bans foreign book sales Meanwhile, local bookstores told Business Daily the new restriction would not have any notable impact upon the local market Nelson Moura nelson.moura@macaubusinessdaily.com
T
he new restrictions to be imposed by Chinese online e-commerce giant Taobao on the resale of books and magazines published overseas would not affect the city’s book sales or its readers, local bookstore representatives told Business Daily. The online shopping platform owned by the Alibaba Group announced that Taobao shopowners selling foreign-published books will be penalised from March 10 – from being prohibited to launch new products on the platform, to having their stores shut down. Meanwhile, the definition of ‘overseas’ books includes those published in Hong Kong, Macau and Taiwan. “Taobao is hugely influenced by
the Chinese Government so I’m not surprised they will do something like this,” Anson Ng, the owner of local bookstore Pin-to Livros & Musica, told Business Daily. For Mr. Ng, the new policy will mainly affect readers or bookshops in Mainland China rather than causing a dent to a small bookshop like Pin-To since it does not sell books through Taobao and focuses mainly on local customers. In fact, the Pin-To owner reckons the restrictions might even help book sales in the MSAR since they might lead Mainland Chinese to come to the city to purchase books. The opinion was echoed by a representative from Livraria Portuguesa, a local bookshop specialising in Portuguese-language editions. “Most local bookshops sell Chinese books and I don’t think many locals
or Mainland Chinese will purchase foreign books from Taobao. They will probably do it from other companies such as Amazon or from companies in Hong Kong and Taiwan,” the representative said. “Honestly, I don’t see the point of these kinds of restrictions and I believe it won’t affect Macau since residents are free to purchase books from anywhere.” In its release, Taobao announced the decision was in accordance with China’s rules regarding the import and export of print and audio-visual materials, which supervises the import of materials deemed ‘dangerous’ to the country’s social security. The notice added that the policy is based upon the principle that sellers and clients might not be aware that the books they are selling or purchasing online are ‘illegal.’ According to Chinese news agency Xinhua, China’s book retail market sales increased 12.3 per cent yearon-year in 2016, reaching over 70 billion RMB (US$10.1 billion/MOP81.1 billion) with online sales growing 30 per cent yearly.
Real estate
Agile rakes in RMB6.4 bln from pre-sales in February Guangzhou-based property developer Agile Group Holdings Ltd. gained some RMB6.41 billion (MOP7.4 billion/US$925 million) from the presales of its property projects in the Mainland for the second month of the year, which surged 86 per cent year-on-year. According to a company filing with Hong Kong Stock Exchange on Monday, it pre-sold total gross floor area of 508,000 square metres for the month, up by half from the 337,000 square metres pre-sold one year ago. In addition, the average selling price per square metre jumped to RMB12,610 compared to RMB10,251 for the same month in 2016, an increase of 23 per cent. Agile Property’s residential projects, which are primarily located in Mainland China, are popular among buyers from Macau and Hong Kong.
For the first two months of the year, the developer’s pre-sale values totalled RMB11.03 billion, soaring 73.2 per cent year-on-year, while total
pre-sold gross floor area reached 640,000 square metres, with average selling prices at RMB9,949 per square metre.
Business Daily Wednesday, March 8 2017 5
Macau Tourism
Travel Alert System in effect
The city’s Travel Alert System came into effect yesterday, imposing alerts for seven destinations. According to an announcement by the Tourism Crisis Management Office (GGCT),an alert of Level 1 has been imposed upon Belgium, France, Israel, Nepal and Tunisia, suggesting an imminent threat to personal safety and calling
for caution by residents. Meanwhile, an alert of Level 2 has been imposed upon Egypt and Turkey, which indicates the threat to personal safety is elevated and urges residents to reconsider nonessential travel. The Travel Alert System covers 77 countries or popular travel destinations of Macau residents, categorised by three different levels and identified by the numbers 1, 2, and 3.
Funding
Sino-Luso Development Fund grants US$20 mln to solar project Project to meet annual needs of 200,000 Brazilian households Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
A
US$20 million (MOP160 million) funding has been disbursed by the Fund for Development Co-operation between China and the Portuguese-speaking Countries (CPDFund) for the ‘development of eligible projects in Brazil,’ including a clean electricity project in the Brazilian city of Minas Gerais, to Canadian Solar - according to a company press release. The funding of the project - mentioned in the Fund’s description available on the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (also known as Forum Macau) - was initially for a project set to generate
200MW of electricity. According to the release by the company the project is ‘currently under construction,’ with the conclusion date expected to be ‘in the third quarter of 2017’. In addition, the project will now provide, once fully operational, 391.3 GWh per year, ‘enough to meet the annual energy needs of more than 200,000 Brazilian households and avoid 229,000 tonnes of carbon dioxide emissions.’ Canadian Solar is a Nasdaq-listed, Canadian-based, company that saw US$3.5 billion in revenues in 2015, while delivering 4.7 GW of solar modules the same year. It manufactures photovoltaic modules and is a ‘provider of solar energy solutions.’
Cementing solar
“This milestone funding from the CPDFund cements our collaboration towards the CPDFund’s investment into high-quality solar energy projects developed by Canadian Solar in Brazil and other Portuguese-speaking countries worldwide,” notes
chairman and CEO of the company- Dr. Shawn Qu. “We look forward to more opportunities to co-operate with state-owned enterprises and institutional investors in China to boost solar energy growth globally.” The CPDFund was announced in October of 2010 by then-Premier of the State Council, Wen Jiabao, at the 3rd Ministerial Conference of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking countries. The Fund was officially founded on June 26, 2013 with a ‘specialised management team’ put in place to lead it. An initial capital injection of US$125 million was put into it, with a further US$875 million to be injected in a second phase. The fund is co-managed by the China Development Bank Capital Corporation Limited (CBD Capital) and the Macau Industrial and Commercial Development Fund, with the support of the China-Africa Development Fund. Last October, at the 5th edition of
the Ministerial Conference, it was announced that the US$1 billion fund would be moving its headquarters to the MSAR; however, a timetable has yet to materialise. No responses to requests for information from the CPDFund or the China-Africa Development Fund had been received by the time this story went to print. In response to Business Daily enquiries, the Consulate General of Canada noted that, although “not involved in this particular deal, we are pleased to learn that, as the Government of Canada works to enhance our relationship with trading partners, Canadian companies are similarly increasing their global reach.” In addition, the Consulate reiterates its stance towards open global trade. “Expanding trade and investment with large, fast growing markets, including China, is a priority of the Government of Canada. That is why we have entered into exploratory discussions with the Chinese authorities to discuss a possible trade agreement. Canada’s Trade Commissioner Service remains actively engaged in supporting Canadian companies and their business development efforts internationally,” the Consulate General stated.
6 Business Daily Wednesday, March 8 2017
Macau
Sino-U.S. relations
No clear win-win strategy In advance of a presumed visit by U.S. Secretary of State Rex Tillerson to Asia - including China, Japan and South Korea - regional tensions are running high, with each country facing its own set of issues, while North Korea tests its regional boundaries Kelsey Wilhelm Kelsey.wilhelm@macaubusiness
U
nited States Secretary of State Rex Tillerson, as widely reported by regional media, is set to visit China, on the heels of the release of the Country Reports on Human Rights Practices in 2016 released by the U.S. Department of State, which has been strongly criticised by both the central government and that of the MSAR, and with the signing yesterday by President Trump of a new version of the travel ban, blocking ‘foreign nationals from Sudan, Syria, Iran, Somalia and Yemen’ for 90 days from entering America. Despite the multiple issues that could cause tensions during Tillerson’s stay in the Mainland, the Head of the Department of Government and Public Administration at the University of Macau, Professor Wang Jianwei, tells Business Daily that he believes the man who formerly led Exxon Mobile will receive a “friendly” welcome from Beijing. “I think that he’ll probably be warmly received. I’m sure that President Xi Jinping will meet him and all the high level Chinese officials will
probably meet him,” states Professor Wang. This would be in contrast to the meeting that took place on February 27 in Washington between Chinese State Councillor Yang Jiechi and President Trump, in which Yang “had an opportunity to say ‘hi’ to the President before he left,” according to White House spokesperson Sean Spicer. “I guess Secretary Tillerson will be met by Xi Jinping probably longer than the meeting between Yang and Trump,” notes the professor. Marking the first visit by the Secretary of State to the country, after a trip mid-February to Europe as his first official visit abroad, it sets a tone “meaning that U.S.-China relations […are…] back on a regular basis for high level exchanges,” says the department head. It could also lay the groundwork for the first face-to-face meeting between the two superpower leaders, speculated about in recent reports. “That means both sides have the desire to hold a summit at an early date, which is a good sign,” opines the professor. But in the short term, Tillerson’s visit seeks to, by necessity, revolve around “hot button issues.”
Rex Tillerson, United States Secretary of State
“As you know, North Korea just fired four new missiles and then also the DPRK (Democratic People’s Republic of Korea – a.k.a. North Korea) leader Kim Jong Un’s half brother was assassinated and the deputy minister of foreign affairs of the DPRK just visited China, so I think that there are a lot of things going on in the region,” said the academic, adding that the “South China Sea issue” will “definitely” be discussed. The assassination took place while half-brother Kim Jong-nam was waiting to board a flight to Macau.
THAAD issue
As reports from Reuters come in of dozens of Lotte stores closing down on the Mainland, soon after the company announced it would approve a land swap with the U.S. government allowing South Korea to install the U.S. Terminal High Altitude Area Defence (THAAD) system, in defence of the increased North Korean threat, China sits in a difficult place, says the professor. “I think that China is in a kind of dilemma […] China could put itself in a position that it could have very tense relations with both North Korea and South Korea, without getting enough credit from the U.S. side,” in particular given the central government’s stance on THAAD. According to Ministry of Foreign Affairs spokesperson comments on Monday, China is “firmly opposed to the deployment of THAAD by the U.S. and the ROK (Republic of Korea a.k.a. South Korea) in the ROK. We believe that the deployment disrupts the strategic balance of the region,
undermines strategic and security interests of countries in the region, including China, and does harm to the peace and stability of the Korean Peninsula.” So, while pressuring North Korea by banning the import of coal from the country, China also “would hope that the U.S. side would take the security concerns from Beijing into consideration,” notes the professor, opining that “I guess they will ask the U.S. to reconsider,” the deployment. Meanwhile, the U.S. most likely would “like to speed up the deployment of THAAD before, possibly, South Korea have a new President very soon,” he added. South Korean President Park Geun-hye has been embroiled in a corruption scandal that most recently exposed her collusion to cement appliance giant Samsung’s merger of subsidiaries, among other substantial alleged charges. Park has had her powers suspended and is facing a ruling by the Constitutional Court which will determine whether a December impeachment of the President will be upheld, according to regional media. “This new President could have a very different position on the THAAD issue,” notes the professor, pointing out that that eventuality “of course would be a better situation for China.” “This is a very complex situation,” he continued, “and all the sides involved don’t have a clear win-win strategy.” To top it all, a joint large-scale military exercise between the U.S., Japan and South Korea is scheduled to take place in the near future “which will once again cause tension on the Korean Peninsula”. The ‘Korean Peninsula’ issue will largely overshadow all others during Tillerson’s visit, opines the academic, noting that regarding the “annual ritual” that is the Human Rights Practices report, it won’t even come up, given that it won’t “be a major concern for Tillerson […] because the human rights issue is not a top priority for President Trump.” However, the stance of the President, focused more on “his domestic agenda and being busy with domestic affairs” - and with Tillerson visiting Europe and not Asia first, contrary to when Hillary Clinton became Secretary of State and President Obama visited China in 2009, his first year in office - a President Xi-President Trump visit, on either’s soil “is still very uncertain” this year, points out the professor, noting that “probably they will find a third place to meet, most likely “when there is a multilateral meeting.” Business Daily contacted the United States Embassy in Beijing and the Consulate General of the United States in Hong Kong and Macau for comment but had not received a formal response to enquiries by the time this story went to press.
Business Daily Wednesday, March 8 2017 7
Macau Visitation
Analyst: China’s travel ban on Korea to benefit MSAR
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egis Capital Corp. believes China’s recent purported travel ban on South Korea would benefit the MSAR. ‘Macau visitation could benefit from China’s March 3 announcement or warning of restrictions on travel to South Korea,’ group analyst David Bain wrote in his latest note on Monday.
Last week, the Financial Times reported that Beijing had ordered the cancellation of all group tours to South Korea after March 15, citing written instructions issued by the country’s tourism administration to travel agents. The report also quoted Ctrip, the country’s largest online travel portal, as saying that they were withdrawing
products to South Korea. ‘Mainland Chinese travellers may look to Macau and other destinations as an alternative to South Korea,’ the analyst perceives. According to the research note, South Korea accounts for some 6 per cent of China’s total outbound travel, the fourth most popular destination for Mainland Chinese, following Hong
Kong, Macau and Thailand. ‘Close to [around] 50 per cent of foreign tourists to South Korea are Chinese and around 40 per cent come by tour package,’ the analyst notes. The travel ban, which is not officially announced by the Chinese authorities, came following South Korea’s announced installations of the THAAD missile system. Beijing perceives the country is the target of the system’s far-reaching radar, while South Korea claimed the system is for protecting itself from North Korea. K.L.
Money laundering
MSAR no longer of ‘primary concern’ for money laundering Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Macau is no longer on the list of jurisdictions considered to be of ‘primary concern’ for money laundering and financial crimes, according to the recent International Narcotics Control Strategy Report (INCSR) of the Department of State of the United States. The annual report by the Department of State of Congress comprises two parts: a chapter on drug and chemical control activities, with the other on money laundering and financial crimes. In 2016, the U.S. Department of State considered Macau a ‘jurisdiction of primary concern,’ with the main sources of laundered funds, derived from local and overseas criminal activity - not ensuing from the drug trade but rather from ‘gaming-related crimes, property offences, and fraud,’ according to the official body. The U.S. authorities said in the 2016 report that the reliance of Macau’s gaming industry upon ‘the anonymity gained through the use of the junket operator in the transfer and commingling of funds, as well as the absence of currency and exchange controls, present vulnerabilities for money laundering.’ The city’s gaming industry has
experienced tumbles from mid-2014 to the most part of 2016 amid the nationwide anti-graft campaign by the Administration of Chinese President Xi Jingping. Since early 2016, local authorities have tightened Anti-Money Laundering (AML) regulations for gaming operations. On the other hand, the U.S. Department of State maintained China on the list of countries of primary concern in its 2017 report. ‘China’s geographical location, vast land area, massive population, and expanding economy have all
Results
Paradise gaming revenue jumps 13.5 pct y-o-y Paradise Co. Ltd., a foreigner-only casino operator in South Korea, recorded a 13.5 per cent increase in gaming revenue year-on-year in February 2017, according to a filing from the company with the Korea Stock Exchange. In February 2017, Paradise Co. Ltd. raked in 42.62 billion won (MOP296.78 million/US$37.10 million) in gaming revenue, down 3.4 per cent, however, as compared to 44.12 billion won in January. According to the filing, table game revenue made up nearly 40 billion won of the company’s total
casino revenue in the month, which increased by 14.7 per cent year-onyear, yet decreased by 2.7 per cent as compared to one month earlier. Gaming revenue of the company for the months of January and February totalled 86.7 billion won, a decrease of 7.7 per cent from 93.9 won one year ago. The figures reported comprise the company’s casino business division, which includes Walkerhill in Seoul, Jeju Grand in Jeju Island, Incheon Casino on the outskirts of Seoul, and Busan Casino in Busan. S.Z.
contributed to it becoming a hub for illicit drug consumption, drug and precursor chemical production and trafficking, and money laundering activities,’ the report reads.
Hong Kong was also kept on the 2017 list in addition to other Asian locations in which gaming is legal such as the Philippines, Laos, Vietnam, South Korea and Cambodia.
8 Business Daily Wednesday, March 8 2017
Greater china In Brief Investment
Deeper trade with Philippines China and the Philippines discussed yesterday ways to deepen trade and investment relations between the two neighbouring countries. “Both sides agreed on important initiatives geared towards improving overall levels of trade and investment between the two countries,” Philippine Trade Secretary Ramon Lopez said in a press conference after a meeting with his Chinese counterpart. He said he welcomed China’s newly-appointed Ministry of Commerce Minister Zhong Shan who is in Manila on a visit. The two ministers met yesterday during the 28th Philippine-Chinese Joint Commission on Economic and Trade Cooperation. Monetary move
PBOC lends US$28.1 bln via MLF
Military spending
Finance Minister defends budget transparency China is in the midst of its biggest military overhaul since the aftermath of the Korean War
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inance Minister Xiao Jie affirmed China’s commitment to transparency in its 19.5 trillion yuan (US$2.8 trillion) budget, after excluding defence expenditures and other big items from a key fiscal report for the first time in almost four decades. Xiao told a news conference on the side-lines of the National People’s Congress yesterday the spending items were omitted because they were included in another budget document that hasn’t yet been released publicly. The recently appointed finance chief said the change was made after “suggestions we received from multiple parties” and noted
additional spending information was added elsewhere. “There is no such thing as the socalled lack of transparency problem that you’re concerned about,” Xiao said, responding to a question from Bloomberg News. “It’s just that there have been new approaches taken toward the drafting process.” China’s fiscal report -- including the world’s second-largest defence budget -- is among the most closely watched documents released during the annual legislative gathering in Beijing. The decision to omit defence spending from the one released Sunday highlighted the dearth of information about China’s military, an
China’s central bank said yesterday it lent RMB194 billion (US$28.12 billion) to 12 financial institutions via its medium-term lending facility (MLF). Interest rates on the MLF loans were unchanged at 2.95 per cent for six-month loans and 3.1 per cent for one-year loans, the People’s Bank of China (PBOC) said on its official weibo account. The central bank lent RMB88.5 billion for six months and RMB105.5 billion for one year. The PBOC uses the MLF and the standing lending facility as tools for managing shortand medium-term liquidity in the banking system. Inflation
Taiwan February CPI dips Taiwan’s consumer price index for February fell 0.04 per cent from a year earlier, largely as prices pulled back after the Lunar New Year celebrations, the government said yesterday. For JanuaryFebruary combined, consumer inflation picked up 1.09 per cent from the same period a year ago, data released by the Directorate General of Budget, Accounting and Statistics showed. The long holiday began in late January this year, but fell in February last year. To reduce that distortion, economists and investors look at combined data for the first two months of the year for a more accurate reading on economic trends. Poverty alleviation
Government to prevent duty-related crimes China will make more efforts to supervise and prevent duty-related crimes on 69 poverty alleviation projects, said a circular yesterday. “The projects cover villages that need to be relocated to another place so as to get rid of poverty,” said the circular, issued by the Supreme People’s Procuratorate, the National Development and Reform Commission, and the State Council Leading Group Office of Poverty Alleviation and Development. “Duty-related crimes should be prevented during identifying poor population, operating central and local funds, handling loans and resettlement housing construction, and bidding,” the circular said.
Xiao Jie, China’s Minister of Finance gestures to journalists as he arrives for a press conference on the sidelines of China’s National People’s Congress in Beijing yesterday. Lusa
issue that has fuelled suspicion about the country’s strategic intentions among defence officials in the U.S. and Asia. Defence spending had been disclosed in the report since 1980, when China started giving regular financial updates in the aftermath of the Cultural Revolution. Expenditures on public security and foreign affairs were also excluded from the latest report. A ministry information official said later Sunday that overall defence spending, including local expenditures, would increase 7 per cent this year to RMB1.044 trillion. That would be the slowest increase since at least 1991, tracking a general slowdown in economic growth. Outside estimates of China’s defence budget are significantly higher, with the Stockholm International Peace Research Institute putting the number at about 55 per cent above official figures. The group’s US$215 billion estimate for 2015 includes military research and development, arms imports, some military construction projects and PLA pension costs. China, which lags far behind the U.S.’s estimated US$596 billion defence expenditures in 2015, is in the midst of its biggest military overhaul since the aftermath of the Korean War. President Xi Jinping has called for cutting 300,000 personnel from the 2.3-million-member People’s Liberation Army and updating its Soviet-inspired command structure. In his remarks, Xiao also highlighted policies ensuring that the country’s fiscal deficit grows in line with the economy, saying the spending would tax reduction and other initiatives. The country’s budget deficit ratio was projected to remain at 3 per cent this year. Bloomberg News
Production & trade
EU business group slams ‘Made in China’ plan There are growing calls in the United States and Europe for equal market treatment in response to what they see as Beijing’s mercantilism Michael Martina
China’s plan to boost domestic manufacturing by 2025 is “highly problematic” and could be used to discriminate against foreign firms in favour of Chinese competitors, a top European business lobby said yesterday. Beijing’s “Made in China 2025” plan calls for a dramatic increase in domestically-made products in 10 sectors - from robotics to biopharmaceuticals - that the government hopes will accelerate an industrial upgrade as economic growth slows. Foreign business groups, however, have grown more vociferous in criticising Beijing’s lacklustre market reforms, and worry that the plan will force members to give up key technology in order to access the market or bypass them altogether. “Made in China 2025” amounts to a “large-scale import substitution plan aimed at nationalising key industries” or “severely curtailing the position of foreign business”, the European Union Chamber of Commerce in China said in a report. Chinese policies, including hundreds of billions of euros in subsidies, were already harming European business, the chamber said. “Under recently passed legislation in the new energy vehicle industry,
for example, European business is facing intense pressure to turn over advanced technology in exchange for near-term market access,” the group said. “In the field of industrial robotics, government subsidies are contributing to overcapacity in the low- and mid-tiers of China’s market; and in the information technology industry European business is seeing market access constrict further,” it said. A progressive increase in domestic parts used in such sectors to 70 per cent by 2025 is among targets set out in the plan, which aims to use subsidies, technology standards, financial policy and government-backed
investment funds to reach them. Premier Li Keqiang told China’s parliament at the opening of its annual session on Sunday that foreign and domestic companies “will enjoy the same preferential policies under the Made in China 2025 initiative”. But such pledges have done little to allay the concerns of China’s trade partners, and there are growing calls in the United States and Europe for equal market treatment in response to what they see as Beijing’s mercantilism. The office of the U.S. Trade Representative said last week it would take aggressive action with other countries, including using “all possible leverage” to give U.S. producers fair, reciprocal access to their markets. The nominee to be the next U.S. trade negotiator, veteran steel industry lawyer Robert Lighthizer, has long argued for such aggressive measures against China. Chamber president Joerg Wuttke said the report was intended to “send a wake-up call to companies and members” about what the competitive landscape would look like in 2020 and 2025, as Chinese companies benefit from a protected market at home and then look abroad. “The worry that we have is that this unbalanced competition landscape that we face in China might be replicated in our home turf,” Wuttke told reporters before the report’s release. “Are you up to it to compete against state-sponsored companies in China as well as globally?” Wuttke said. Reuters
Business Daily Wednesday, March 8 2017 9
Greater China Internationalization
Citi to include Mainland bonds in its government bond indexes Last week, China opened its forex derivative market to foreign investors Citigroup Inc said yesterday that it will include China’s onshore bonds in its emerging markets and regional indexes, marking another victory in Beijing’s efforts to woo foreign investors to its bond market to counter capital outflows. The announcement by Citi Fixed Income Indices came days after Bloomberg included China bonds in its global indexes offering, and could prompt other index publishers to follow suit. Citi did not give a specific date for
when China bonds would be added to its indexes. Citi said that it has been monitoring China’s eligibility since February 2016, when Beijing opened its interbank bond market to foreign participants, and had now decided to include China bonds in its indexes after an extensive review. “We are pleased to see regulatory changes that enable market access, allowing us to reflect and provide new investment opportunities,” Arom Pathammavong, global head of
Citi Fixed Income Indices, said in an email statement. China has redoubled efforts to lure overseas investors and bump up bond market inflows after relaxing rules on foreign investment. Last week, China opened its forex derivative market to foreign investors, giving them a way to hedge foreign exchange exposure in the country’s bond market. Encouraging capital inflows is part of efforts by Beijing to protect the yuan, which fell 6.5 per cent against the dollar last year, and staunch a slide in its foreign exchange reserves. Authorities in recent months announced a flurry of measures
that made it harder to move funds offshore. Some market watchers have argued the moves to tighten restrictions on outflows could dampen foreign investment in China, as companies fear they will have trouble repatriating their profits.
“We are pleased to see regulatory changes that enable market access, allowing us to reflect and provide new investment opportunities” Arom Pathammavong, global head of Citi Fixed Income Indices At the end of 2016, foreigners held about RMB870 billion of Chinese bonds, just 1.5 per cent of China’s RMB56.3 trillion (US$8.16 trillion) interbank bond market. JPMorgan predicted last May that Chinese government bonds could receive at least US$155 billion of investment flows should China’s market opening lead to their inclusion in various global indexes. Citi said China bonds will be included in its three government bond indexes – the Emerging Markets Government Bond Index (EMGBI), Asian Government Bond Index (AGBI), and the Asia Pacific Government Bond Index (APGBI). Reuters
Overcapacity
Hebei aims to shut last ‘zombie’ steel mills in small victory on excess The province is home to 104 mills that account for nearly a quarter of China’s total steel output China’s biggest steelmaking province, Hebei, will close its last “zombie” steel mills by the end of next year, the governor said yesterday, marking a small victory in the region’s yearslong battle to clean up its air and cut excess capacity. This year, the province will shut four “zombie” mills, or plants that have stopped production but have not closed down, and another four in 2018, Governor Zhang Qingwei said at a briefing on the side-lines of the country’s annual parliament meeting. “We need to cut down the total number of steel plants, they can’t be everywhere,” he said. The move helps solve a headache that has dogged the country as it has tried to make its bloated steel industry more efficient. China, the world’s top steelmaker, accounts for half of the world’s output, but its oversupply is four times
U.S. output levels. But Hebei, a northern province with some of the country’s smoggiest cities, still has a fight on its hands to cut its use of dirty fuels like coal and deal with the costly consequences of the restructuring: how to find new jobs or incomes for laid off workers. Hebei is home to 104 mills that account for nearly a quarter of China’s total steel output. The province has pledged to cut steel and iron making capacity by 31.17 million tonnes by 2017 and by 49.13 million tonnes by 2020. Zhang repeated that the province plans to close all steel mills in the cities of Langfang, Baoding and Zhangjiakou, which will co-host the 2022 Winter Olympics with Beijing, by the end of 2020. He also wants to cut the number of steel plants in the province and build 10 specialty steel mills by the end of 2020. Reuters
10 Business Daily Wednesday, March 8 2017
Greater China Investment
Capital controls trigger backlash as deals thwarted Three straight years of capital outflows and yuan declines spurred authorities to ramp up controls in the second half of last year
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hinese corporate chiefs are turning vocal critics of the nation’s capital controls as the pile of scrapped deals grows. While the restrictions have helped alleviate pressure on the yuan, they’ve also curbed overseas acquisitions. Executives in Beijing during the National People’s Congress bemoaned the measures, saying they’re derailing expansion abroad -- a key tenet of China’s long-term economic ambitions. “It’s almost impossible to use the yuan to invest in overseas projects,” Zhang Yichen, chairman and chief executive officer of investment firm
Citic Capital Holdings Ltd., told reporters on the side-lines of a meeting of China’s political advisory body that runs concurrent to the NPC. “To say that capital controls don’t have any impact -- it’s a lie.” Zheng Yuewen, chairman of Chinese drugmaker Creat Group Corp., said separately that “the foreign-exchange management is so strict now that it’s almost impossible to move funds out.” Zhang Li, co-chairman of Guangzhou R&F Properties Co., said that “we see a lot of good projects overseas.” But at the same time “the capital controls are very strict now” and it’s difficult to transmit funds abroad,
he said. The complaints reflect a tumble in foreign deals, with the US$19 billion of acquisitions abroad announced by Chinese companies so far this year amounting to a 74 per cent drop from a year ago, according to data compiled by Bloomberg. The blow has seen Chinese executives join their foreign counterparts in criticizing the Communist leadership’s restrictions. European companies have charged that the capital controls are disruptive -- read about that here. China’s leadership faces a balancing act in trying to stoke domestic companies’ influence on the international stage while avoiding the kind of bad investments that Japanese firms became famous for in the 1980s. The more immediate concern has been record outflows of capital that have only diminished in recent months after a steady tightening in
oversight of and limits on cross-border transactions. Three straight years of capital outflows and yuan declines spurred authorities to ramp up controls in the second half of last year. The measures have paid off -- in December, the capital account saw its first net inflows since a mini-devaluation of the yuan in August 2015 -- but the danger is that there’s been collateral damage to businesses. “The door is almost shut for funds going out,” said Zheng at Creat Group. “When there are good targets overseas, our units offshore would get involved first and then when we came back to seek approvals, some government department would ask ’why didn’t you report it first,’” he said. “But if we reported it in the first place it’d be impossible for us to proceed.”
Disrupted deals
Dalian Wanda Group Co.’s US$1 billion bid for U.S. company Dick Clark Productions Inc. was one transaction to hit a roadblock last month, when the Chinese conglomerate struggled to get the money to pay for the deal out of China, people familiar with the matter said. Similarly, Barrick Gold Corp.’s sale of a stake in an Australian mine stalled as the Chinese bidder faced delays securing financing, as well as regulatory clearance from China. It’s not clear what bearing the executives’ complaints might have on policy, in a year when President Xi Jinping is focused on consolidating his power at a Communist Party gathering this autumn. David Cui, a Bank of America Corp. strategist in Singapore, said in a research note that “we consider the likelihood of any significant change to the renminbi regime before the Party Congress fairly low” if capital outflow pressures persist. Bloomberg News
Debt
Beijing vows to strictly control local gov’t quotas China will continue a debt-swap programme for local governments to help contain debt risks China will strictly control local government debt quotas and step up checks on illegal debt guarantees, finance minister Xiao Jie said yesterday, as the country’s top officials stepped up assurances that they will keep financial risks under control. With the economy now on more solid footing, containing the risks from years of debt-fuelled stimulus and heavy spending has been a major focus at the annual meeting of China’s parliament which began on Sunday. Government debt risks are generally under control, Xiao told a news conference on the side-lines of the session. “I believe (measures taken) will be able to reasonably control outstanding
local government debt and contain debt risks,” said Xiao. China will continue a debt-swap programme for local governments to help contain debt risks, Xiao said.
The government has tightened controls in recent years on new local government debt to help ward off risks following a borrowing binge since the global financial crisis.
China capped the size of outstanding local government debt at RMB18.8 trillion (US$2.72 trillion) in 2017, up from RMB17.2 trillion in 2016, according to the annual budget report released on Sunday, excluding bonds issued under a debt swap scheme. The government will continue to improve the financing environment and push forward with the standardisation of public-private partnership (PPP) projects, Xiao said. A total of 1,351 PPP projects worth RMB2.2 trillion have been signed by the end of 2016, with the timeframe for implementing such projects becoming shorter, he added. Moody’s Investors Service said in February that misaligned incentives between China’s central and regional and local governments are an obstacle to economic reform and rebalancing, and thus a credit negative. Authorities are also struggling to clamp down on illegal borrowing by local governments, according to a report in financial magazine Caixin last month. Reuters
Business Daily Wednesday, March 8 2017 11
Asia Commerce
Asia urged to ditch U.S. and go ahead with regional trade deal At least 11 countries, including China, Japan and South Korea, will attend a March 14-15 summit in Chile on trade where the TPP will be discussed
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sian countries should pursue a Pacific trade pact even after the U.S. walked away, and its standards should be incorporated into other regional deals, according to a report authored by half a dozen former trade envoys. Donald Trump withdrew from the 12-nation Trans-Pacific Partnership in one of his first acts as U.S. president, throwing an agreement that covered 40 per cent of the global economy into disarray. That’s left the other nations scrambling on what to do: Either try and proceed without the U.S., hope Trump changes his mind (or Congress does), or prioritize a separate regional deal being championed by China. The president has attacked trade deals in general and touted an “American First” doctrine that would punish countries whose policies are deemed by the administration to be undermining U.S. jobs. But the rest of the world shouldn’t embrace Trump’s protectionism, the Asia Society Policy Institute (ASPI) report argues. “Just because the United States is less supportive of trade and globalization does not mean that the rest of the world will follow suit,” said the report authored by Wendy Cutler, a nearly three-decade veteran of the Office of the U.S. Trade Representative, and six former trade officials
from Australia, China, Japan, Korea, Indonesia, and the Philippines. “Should protectionism and isolationism prevail, the Asia-Pacific region could become less open and integrated, upsetting the regional economic and security balance,” the writers said.
Trump has not announced specific actions against countries in Asia that he has previously singled out for their trade practices, including China, South Korea and Japan. But his administration has declared the U.S. isn’t bound by decisions made at the World Trade Organization (WTO) and said America plans to defend its “national sovereignty over trade policy.” New Commerce Secretary Wilbur Ross, who has described China as the “most protectionist” major nation,
Trump’s administration has declared the U.S. isn’t bound by decisions made at the World Trade Organization (WTO)
said last week the U.S. was preparing cases against China and other nations and would pursue “tougher enforcement” of existing trade rules. The clouded future for TPP... has seen some Asian nations turn to the 16-nation Regional Comprehensive Economic Partnership, seen as a more traditional deal.
Taking the lead
The WTO and Asia-Pacific Economic Cooperation forum should take the lead communicating the benefits of free trade agreements “using concrete terms which are meaningful to the everyday interests and concerns of ordinary people,” the ASPI report said. The authors concluded that regional trade pacts are the best path for liberalizing trade, raising standards and promoting reforms. They urged negotiators to take into account the growth of the digital economy and the increasing participation in the global economy of small-to-medium sized businesses. And they called on the U.S. to reconsider its participation in TPP and welcomed proposals by some TPP signatories to go ahead regardless. Australia is pushing for a TPP without the U.S. At least 11 countries, including China, Japan and South Korea, will attend a March 14-15 summit in Chile on trade where the TPP will be discussed, according to a report by Bloomberg BNA. The ASPI report recommended RCEP nations seek a “high-quality agreement and not be tempted to adopt the lowest common denominator approach.” The latest RCEP talks concluded in Japan last week without signs of significant progress, with the next round expected in the Philippines in May. Bloomberg News
Monetary policy
Australia’s central bank sits on rates, sounds neutral A private survey of business expectations found business confidence was at an 18-month high Swati Pandey
Australia’s central bank held rates steady yesterday, a widely expected decision given policymakers recently signalled a steady outlook for much of the year ahead. The central bank kept rates at a record low of 1.5 per cent for an eighth straight month, following easings in August and May last year. All 67 economists in a Reuters poll expected a steady outcome this week. “Today’s RBA statement reveals a central bank pleased with both the improving global backdrop and the transition of the Australian economy to better growth and stronger employment,” said Scott Haslem, economist at UBS. Haslem expects the RBA to stay pat until the middle of 2018 as it balances disinflationary forces such as record low wage growth and heightened retail competition with sky-rocketing house prices. Governor Philip Lowe has repeatedly emphasised limits to monetary policy and last month said further cuts in interest rates would not be in the national interest as the danger
of a debt-fuelled boom and bust was just too severe. With the governor signalling a high bar for a move lower, interbank futures imply a mere 6 per cent chance of another cut by August. Yesterday, Lowe maintained his upbeat tone as Australia’s A$1.7 trillion (US$1.3 trillion) economy expanded 2.4 per cent in 2016 helped by a jump in commodity prices and stronger consumer spending. “Exports have risen strongly and non-mining business investment has risen over the past year,” Lowe said. “Most measures of business and consumer confidence are at, or above, average.” He also reiterated the central bank’s forecasts for a gradual pick-up in underlying inflation, which is pinned at a record low of 1.5 per cent.
Business confidence
A survey of business expectations by Dun & Bradstreet yesterday found business confidence was at an 18-month high while plans for capital investments for the second quarter of 2017 were at a two-year peak.
“The critical issue will be whether this optimism translates to a lift in actual activity,” said Stephen Koukoulas, Dun & Bradstreet economic adviser. So far, there has been little evidence of that with both businesses and households crimping on overall spending. Data out recently showed retail sales grew at a tepid pace for a third straight month while the outlook for capital expenditure remained uninspiring.
Lowe also retained his concerns about record low wage growth and a tardy labour market with jobs heavily skewed toward part-time work. He is also worried about the high levels of household debt, with the ratio of household debt to disposable income at an all-time peak around 180 per cent. “The bank is concerned that a further cut in interest rates could induce some households to borrow beyond their means. The bank is thus prioritising its concerns about household balance sheets at this point,” said NAB’s chief economist Ivan Colhoun. Reuters
12 Business Daily Wednesday, March 8 2017
Asia Protectionism
India mulls local steel requirement for infrastructure spend Officials say their plan will fall within WTO rules Neha Dasgupta
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ndia may soon mandate the use of local steel in government infrastructure projects worth billions of dollars, sources said, pitching it as a WTO-compliant protectionist measure aimed at further cutting cheap imports, mainly from China. The government expects the move to boost sales of local companies such as JSW Steel and Tata Steel, and eventually attract global steelmakers such as ArcelorMittal and POSCO to invest in the country, five steel ministry sources told Reuters. India, the world’s third largest steel consumer, has budgeted a record US$59 billion for 2017/18 for steel-intensive infrastructure projects such as ports, roads, railways and power. “The preference in procurement will enhance demand and thus production. Definitely it is ‘Make in Steel’ and thus ‘Make in India’,” Steel Minister Chaudhary Birender Singh told Reuters. “It is preference with no compromise on quality and competitive pricing. To use domestic produce is an acceptable norm.” Analysts said a similar proposal by U.S. President Donald Trump requiring the use of domestic steel to build two energy pipeline projects could violate international trade laws, but Indian officials say their plan will fall within WTO rules. A government document on the proposal, seen by Reuters, cites an article under the General Agreement on Tariffs and Trade of the World Trade Organisation, allowing an exception to “procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with
a view to use in the production of goods for commercial sale”. Abhijit Das, head of the New Delhi-based think-tank Centre for WTO Studies, said the provision had been invoked by the United States in the past and India could do the same. The protectionist move would, however, shrink foreign companies’ sales in the world’s fastest growing steel market. Japan has already threatened to take India to the WTO over some recent steel restrictions.
Boost production, cut imports
India wants to nearly triple its production capacity by the next decade and acquire technology to produce higher value products including automotive steel.
Key Points India says requirement for local steel will be WTO compliant Steel at the centre of numerous global trade spats India fears reliance on Chinese imports - steel ministry paper India wants to triple local steel production over next decade “Current level of capacity utilisation of domestic steel producers is below 80 per cent,” said Sanak Mishra, secretary-general of the Indian Steel Association in New Delhi. “If demand picks up on account of increased government spending on infrastructure and government mandates the use of domestic steel in such projects, the domestic steel producers are fully capable of raising
the production level.” The proposal to use local steel, which will not be applicable to smaller projects, will be taken to Prime Minister Narendra Modi’s cabinet in a month, two of the sources said. Modi, under pressure to create millions of jobs, wants steel to contribute heavily to the government’s target of raising the share of manufacturing in the economy to 25 per cent by 2022 from 17 per cent now, according to a steel ministry document seen by Reuters. “In the absence of domestic capacity, India would have to largely rely on China for its steel requirement since it is the only country with adequate surplus capacity to meet India’s requirement,” said the document. “For a strategic product like steel which has uses in defence and infrastructure sector, this is a worrying proposition.”
Debt burdens
Most Indian steel companies are so saddled with debt, however, that large-scale expansions will be difficult, analysts say. The steel industry contributes 29 per cent of overall banking sector bad debt of around US$135 billion, according to
government data. Most companies have reported losses as prices fell after imports into India more than doubled to 13 million tonnes in 2015/16 from the levels of 2013/14. China contributed to more than a third of the imports. Following some restrictions on imports, April-to-January shipments into India fell a third to around 6 million tonnes. “The steel ministry has found an innovative way of clearing the bad debt by ensuring procurement,” said one of the sources. “When we say we will give preference to Indian steelmakers, the fence-sitters (among foreign steelmakers) will gear up to start investing in India.” Global companies including POSCO have made multiple field visits over the past few months but have not committed to any new projects in India. Steel ministry officials have also unsuccessfully courted Hyundai Steel, including offering them a strategic stake in SAIL’s money-losing units, over the past months. POSCO and Hyundai Steel declined to comment about their India investment plans. Reuters
Prices
Philippine inflation climbs to 3.3 pct in February The food index alone climbed by 4.3 per cent in February 2017 Philippine inflation surged to 3.3 per cent in February due to the increase in prices of both food and non-food items, the National Economic and Development Authority (NEDA) said yesterday. Inflation a month ago was at 2.7 per cent, compared to 0.9 per cent in February last year. Year-to-date, inflation averaged at 3 per cent. “The inflation outlook for 2017 remains within the government’s target of 2.0 to 4.0 per cent. However, risks to the inflation outlook appear to be tilted to the upside. This could drive inflation towards the higher end of the target,” said Socioeconomic Planning Secretary Ernesto M. Pernia. The Philippine Statistics Authority (PSA), an agency under NEDA, said that higher inflation in February was brought specifically by the heavily-weighted food and non-alcoholic beverages index, which advanced by 4.1 per cent. Faster annual increments were also observed in the indices of alcohol beverages and tobacco; housing,
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water, electricity, gas and other fuels; transport; and communication. The rest of the commodity groups either had slower annual increases or retained their previous month’s rates, PSA said. Inflation of the food alone index climbed by 4.3 per cent in February 2017. It was pegged at 3.6 per cent in the previous month and 1.5 per cent in the same period a year ago. NEDA said for meat products, the
country’s temporary ban on poultry imports from South Korea, Germany, France, Netherlands, the Czech Republic, and Kuwait in response to the Avian Flu outbreak may have contributed to the limited supply. Pernia cited that increase in the price of oil and depreciation of the peso were among the external risks to inflation. Another risk is the effect of the National Food Authority’s memorandum
that allowed the entry of rice imports under the minimum access volume program only from October 2016 until February 28, 2017, he said. “This will tighten the rice supply, which translates to higher food prices,” said Pernia.
“The inflation outlook for 2017 remains within the government’s target of 2.0 to 4.0 per cent. However, risks to the inflation outlook appear to be tilted to the upside” Ernesto M. Pernia, Socioeconomic Planning Secretary
Within the region, all the ASEAN-5 economies except Thailand experienced faster inflation rates in the first two months of 2017, which coincides with the rising oil prices in the international market Xinhua 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 Wednesday, March 8 2017 13
Asia Household
In Brief
IMF raises jitters over NZ’s high debt levels Almost 90 per cent of household debt is caught up in property loans Charlotte Greenfield and Tom Westbrook
T
he International Monetary Fund (IMF) warned yesterday that high levels of household debt tied up in property are a risk to New Zealand’s financial stability and backed the central bank’s lobby for new tools to deal with the red-hot housing market. New Zealand house prices, among the fastest growing in the developed world, rose 13.5 per cent in the year to February. Officials and economists are concerned that a sudden correction would wipe out household wealth and plunge the economy into recession. New Zealand household debt was over NZ$260 billion (US$182.21 billion) in 2016, at a record high of 168 per cent of household income, according to central bank statistics.
Almost 90 per cent of that is caught up in property loans. “With high household debt, you worry about the amplification of large external shocks,” Thomas Helbling, the IMF mission chief for New Zealand, told reporters in Wellington. He pointed out that the Pacific Nation’s small, open economy was especially vulnerable to global risks and that the chance of a “hard landing” in major trading partner China remained possible in next five years or so. The Reserve Bank of New Zealand (RBNZ) has been lobbying the government for months to get permission to add debt-to-income (DTI) limits to its macroprudential arsenal to combat the country’s “excessive” house price growth. The IMF called on the government to sign off on the request. Official interest rates are at a record low of 1.75 per cent, and the RBNZ has
indicated it could hold rates steady for two years or more as it grapples with stubbornly low inflation while trying not to stoke the housing market. Finance Minister Steven Joyce asked the bank in February to produce a cost-benefit analysis before he decides whether to agree to the DTI measures. The RBNZ and the IMF had said that the limits would not need to be used immediately given that house prices in Auckland had cooled in recent months. But both cautioned the tools needed to be available if the moderation proved to be temporary. In the addition, the IMF said in its report that “bank balance sheet resilience should be strengthened.” RBNZ Deputy Governor Grant Spencer flagged potential increases to bank capital requirements in a speech to the New Zealand Bankers Association in Auckland yesterday. “Higher levels of capital would improve the soundness of the financial system by reducing the likelihood of bank failures,” Spencer said. Reuters
Reserve Bank of New Zealand headquarters
Missile threat
U.S. begins Thaad deployment in Korea A day after North Korea’s latest missile test, the U.S. announced that it unloaded two mobile missile launchers in South Korea to start deployment of its Thaad missile-defense system on the peninsula. In a statement, the U.S. military said the Terminal High Altitude Area Defense (Thaad) system was aimed solely at defending South Korea against North Korean missiles. It could come online as early as next month, South Korea’s Yonhap News reported. Tensions between China and South Korea have escalated in recent weeks over the Thaad deployment. Central bank
Malaysia’s reserves at US$95.0 billion Malaysia’s central bank, Bank Negara, said yesterday that its international reserves amounted to 426.3 billion ringgit (US$95.0 billion) as of Feb. 28. The international reserves were consisted of US$87.9 billion in foreign currency reserves, US$0.8 billion in International Monetary Fund (IMF) Reserves Position, US$1.1 billion in Special Drawing Rights (SDRs), US$1.4 billion in gold and US$3.8 billion in other reserves assets. Its reserves position is sufficient to finance 8.5 months of retained imports and is 1.1 times the short-term external debt. Bank of Japan
Big yen swings cause of concern for Japan
Bird flu
Asian nations restrict U.S. poultry imports The latest moves do not affect China, which introduced a ban on imports of U.S. poultry and eggs in late 2015 Jane Chung and Tom Polansek
South Korea, Japan, Taiwan and Hong Kong have limited imports of U.S. poultry after the United States detected its first case this year of avian flu on a commercial chicken farm, South Korea’s government and a U.S. trade group said on Monday.
‘South Korea has been importing eggs from the United States as its worst-ever bird flu outbreak has tightened egg supplies’ South Korea will ban imports of U.S. poultry and eggs after a strain of H7 bird flu virus was confirmed on Sunday at a chicken farm in Tennessee, South Korea’s agriculture ministry said. Japan and Taiwan will block poultry from the state, while Hong Kong will restrict imports from the Tennessee county where the infected flock was located, said James Sumner, president of the USA Poultry & Egg Export Council, a trade group. The limits will reduce the potential
for major U.S. chicken companies, such as Tyson Foods Inc and Pilgrim’s Pride , to sell poultry overseas. The Tennessee farm infected with avian flu was contracted to sell birds to Tyson. South Korea’s import ban took effect on Monday, the agriculture ministry said in a statement. Live poultry and eggs are subject to the ban, while heat-treated chicken meat and egg products can still be imported, the statement noted. South Korea, Asia’s fourth-largest economy, has been importing eggs from the United States as its worst-ever bird flu, or avian influenza (AI), outbreak has tightened
the country’s egg supplies. So far this year South Korea has shipped in nearly 1,049 tonnes of U.S. eggs, according to ministry data, accounting for more than 98 per cent of its total egg imports as of March 3. Sumner said South Korea’s decision to prohibit shipments of U.S. shell eggs was disappointing. Its move to continue imports of certain processed egg products was “good because Korea’s got this terrible AI problem and they were definitely in need of eggs,” he said. South Korea resumed U.S. poultry imports in June last year after imposing a ban in early 2016 when bird flu cases were detected in the United States. The resumption of the U.S. import ban means South Korea can import chicken meat from Brazil, Chile, Australia, Canada, the Philippines and Thailand. Live poultry imports are limited to farm birds from New Zealand, Australia and Canada. Reuters
Bank of Japan board member Takako Masai said large swings in exchange rates can be a concern for Japan’s economy as it could hurt business sentiment, according to a text of her speech released by the central bank yesterday. The yen’s volatility seen in 2016, when it rose sharply against the dollar in the first half of the year before falling toward year-end, made it hard for Japanese firms to do business, Masai said in a speech in Zurich, Switzerland, on Monday. Masai said risks to Japan’s economy have subsided compared with the second half of last year. Philippines
PLDT forecasts first annual growth in three years The Philippines’ most valuable telecoms firm, PLDT Inc, yesterday said recurring income will likely grow in 2017 for the first time in three years. PLDT and rival Globe Telecom Inc last year raised the ire of President Rodrigo Duterte who accused them of failing to improve services. He gave them a year to reform otherwise he would open up the telecoms sector to foreign competition. PLDT, part-owned by Japan’s NTT DoCoMo Inc and Hong Kong’s First Pacific Co Ltd, said recurring core income is likely to reach 21.5 billion pesos (US$427.61 million) in 2017.
14 Business Daily Wednesday, March 8 2017
International In Brief BES scandal
Portuguese central bank responds to TV accusations The governor of the Bank of Portugal, Carlos Costa, sent a letter on Monday to the parliamentary finance commission to clarify his position regarding the BES scandal, a commission MP told Lusa. The news was reported by the electronic edition of the Expresso weekly paper, where Carlos Costa wants to “recall the truth” following last week’s documentary on Portuguese TV channel SIC, about the BES [Banco Espírito Santo] scandal, focussing on the actions of the central bank during the second half of 2013, while the supervisor was led by Carlos Costa. Ships payment
Sonangol could drag Daewoo into maelstrom Angolan oil company Sonangol has promised that the two survey ships it ordered from South Korea, worth €1.1 billion, are going to enter service shortly. Once they have “concluded a new business model”, meaning once they have figured out how to pay for them. The two ships were ordered from South Korea’s second largest ship builders: Daewoo Shipbuilding and Marine Engineering, but Angola has been dragging its heels over the payments. As the ships cannot be delivered until they are paid for, the entire South Korean shipyard’s future is at risk if Sonangol welches on its deal.
OECD
Economic nationalism, volatility threatens modest recovery Updating its last forecasts for major economies, the OECD estimated the U.S. economy would grow 2.4 per cent this year Leigh Thomas
A
modest recovery underway in the global economy is at risk from economic nationalism and diverging central bank policies, the OECD said yesterday as it forecast only a slight pick-up in growth. The Paris-based Organisation for Economic Cooperation and Development estimated global economic growth would run at 3.3 per cent this year before reaching 3.6 per cent in 2018, unchanged from its last estimates in November. OECD chief economist Catherine Mann said that higher interest rates in the United States could unleash damaging volatility on financial markets for some borrowers while potentially pushing the dollar higher. “The economic nationalism is a much bigger wildcard because we don’t know how the language translates into policy at this point,” Mann told Reuters as the OECD updated its outlook for major economies. U.S. President Donald Trump’s campaign promises last year to put “America first” in trade, and his calls for tariffs on imports from China and Mexico, caused consternation among the United States’ major
trade partners. Though Washington was not alone in using nationalistic rhetoric, Mann said the OECD had estimated that a 10 per cent increase in U.S. import costs would percolate through the economy and ultimately lift export costs by 15 per cent.
Volatile times
The OECD said that with only a modest recovery in view in most countries, financial markets were becoming disconnected from economic reality as consumer spending and business investment remained weak. With the U.S. Federal Reserve widely expected to steadily hike interest rates for some time, the OECD said that exchange rate swings could be expected. That could put at risk emerging market borrowers who binged on cheap dollar loans in recent years, especially in countries with excessive levels of private sector debt, like China. Updating its last forecasts for major economies, the OECD estimated the U.S. economy would grow 2.4 per cent this year as domestic demand firms, up from 2.3 per cent in its last forecasts from November. U.S. growth was seen reaching 2.8
per cent in 2018, down from a November estimate of 3.0 per cent, as higher government spending helped offset the impact of rising interest rates and a stronger dollar. With monetary policy relaxed and some fiscal policy easing in the euro zone, growth was seen steady this and next year at 1.6 per cent, with the 2017 forecast unchanged and the 2018 forecast trimmed from 1.7 per cent in November.
Key Points Central bank policy divergence to fuel currency swings OECD research shows import barriers raise export costs Financial markets disconnected from economics fundamentals As rising inflation hits British consumers and businesses put investment on hold over Brexit, British growth was seen slowing from 1.6 per cent this year to 1.0 per cent in 2018. The OECD had forecast 2017 growth of 1.2 per cent in November and its 2018 forecast was unchanged. In Japan, fiscal easing was seen underpinning growth of 1.2 per cent though the rate was seen falling back to 0.8 per cent in 2018. In November, the OECD had forecast growth of 1.0 per cent this year and its estimate for 2018 was unchanged. Reuters
Headquarters
New central bank building to start going up shortly Cape Verde’s central bank (BCV) said on Monday that work on its new headquarters in the country’s capital, Cape Verde, would begin “shortly. The building, designed by world-acclaimed Portuguese architect Siza Vieira, is expected to cost a rather meagre €16 million, which is really not that impressive for a central bank. But it is impressive for a small country that has been seen as a beacon of good governance in Africa for many years. The first stone of the building was put in place way back in the year 2000 by the late President of the country Mascarenhas Monteiro. Prices
UK food inflation doubles in a month British food inflation has doubled since last month, with the price of staples including butter, tea, lamb and fish all rising, industry data showed yesterday, adding to evidence that the impact of last year’s Brexit vote is pushing up shoppers’ bills. Market researcher Kantar Worldpanel said grocery inflation was 1.4 per cent for the 12 weeks to Feb. 26, up from 0.7 per cent in the 12 weeks to Jan. 29. Food prices have been rising in Britain since the 12 weeks to Jan 1, bringing to an end a more than two-year period when prices fell.
Official data
Falling industrial orders shade German picture of health January’s fall in domestic demand for German industrial firms’ products was much sharper than for foreign orders Tom Barfield
Industrial orders in Germany plunged 7.4 per cent in January, preliminary official data showed yesterday, troubling a largely bright picture of recovery in Europe’s largest economy. New orders -- a closely watched indicator of future economic performance -- had increased 5.2 per cent in December, adjusting for price, seasonal and calendar effects, federal statistics office Destatis confirmed. Analysts surveyed by Factset had predicted a much smaller fall in January of 2.5 per cent. “Today’s disappointing data is a good reminder that German industry is having more problems returning to full speed than buoyant sentiment indicators have been suggesting,” said economist Carsten Brzeski of ING Diba bank. January’s drop in new orders was the largest since 2009, he noted, following on from months of “almost unprecedented” fluctuations in the
indicator since last summer. But the government said there was no cause for alarm. “The strong increase in orders in the final quarter of 2016 makes a weak start to the new year manageable,” the federal economy ministry in Berlin commented in a statement. Comparing December plus January to October plus November showed a fall of just 0.4 per cent in orders, the civil servants pointed out. Berlin also highlighted strong confidence surveys among industrial firms, suggesting a pick-up in business in the coming months. “Given the very positive sentiment indicators to date, this is probably an outlier,” agreed analyst Ralph Solveen of Commerzbank. “The trend in industrial production should still point upwards in the coming months.” Both the economy ministry and Commerzbank pointed out that much of the drop was down to large contracts -- a volatile item
that can see large swings from month to month. Excluding large orders, January’s data showed a smaller fall of 2.9 per cent. Heightened uncertainty has weighed on business since June 2016, when Britain voted to quit the EU, and been sustained by Donald Trump capturing the White House on a protectionist platform, as well as upcoming elections in the Netherlands, France, and Germany in which anti-globalisation parties stand to make strides. With deep economic connections to both Britain and the United States, Germany stands to lose out if new barriers to trade spring up in the English Channel or the Atlantic. For now, January’s fall in domestic demand for German industrial firms’ products was much sharper than for foreign orders, at 10.5 per cent compared with 4.9 per cent. Orders from the eurozone contracted faster than those from countries outside the single currency area. The biggest fall came for capital goods makers, who saw 9.9 per cent fewer orders, while producer goods firms lost 4.0 per cent and consumer goods 2.0 per cent. AFP
Business Daily Wednesday, March 8 2017 15
Opinion
Direction of U.S. debt Lisa Abramowicz Bloomberg Gadfly
Addicted to dollars
H
edge funds and other rapidfire traders are often thought as the smart money. They filter the highest-speed data feeds through the most sophisticated algorithms. They include the best of the best traders on Wall Street. They manage money for the richest individuals and organizations. So it’s alarming that they’re now moving in the opposite direction of longer-term investors with respect to benchmark U.S. borrowing costs. Futures traders have been building an unprecedented volume of wagers against the value of 10-year Treasuries, while longerterm asset managers have been expanding their bullish bets to the highest levels in more than a year. The divergence has expanded to the widest since 2012, as Edward Bolingbroke of Bloomberg News noted Monday, citing Commodity Futures Trading Commission data. This indicates a growing dichotomy: O n e, p l e n t y o f investors still see value in Treasuries, which are paying the highest yields in years relative to benchmark rates in other developed countries. And two, there’s growing fear that this time really is different, and the market is unprepared for a drastic selloff in a nearly US$14 trillion debt market. Some big investment firms may be offsetting their longer term Treasury purchases with shorter-term hedges, so the data may be overstating the divide. But anecdotal evidence supports the idea that investors are profoundly splintering over their views on U.S. rates in the year to come. So the question is, who’s right -- the bulls or the bears? It appears that large asset managers have the upper hand in this debate, at least when looking at other recent times when these two groups have diverged meaningfully. Last year, for example, longer-term bond investors generally bet against 10-year Treasuries in the three months through Oct. 11, a period in which the debt lost about 2 per cent. Or check out the positioning at the end of 2014; big asset managers were on the whole bullish on the U.S. government debt while the more-speculative traders were bearish. The big investors were right, with the notes gaining about 3 per cent in the three months ended Dec. 31, 2014. Many respected bond investors have expressed concern that bonds are on the precipice of a massive downfall after a threedecade boom. But trading activity suggests there’s a solid core of bond buyers who still see plenty of value in benchmark Treasuries, and this cohort has a tendency to be more right than wrong. Bloomberg View
‘Anecdotal evidence supports the idea that investors are profoundly splintering over their views on U.S. rates in the year to come’
S
ince the end of World War II, the United States’ share in world GDP has fallen from nearly 30 per cent to about 18 per cent. Other advanced economies have also experienced sustained declines in their respective slices of the global pie. But you wouldn’t know it from looking at the international monetary system. Over the same period, China’s share of world GDP almost quadrupled, to around 16 per cent (just behind the U.S.), and emerging markets now account for about 60 per cent of global output, up from about 40 per cent in the immediate post-war years. Given that advanced-economies’ growth prospects remain subdued, these trends are likely to continue – even with the evident slowing in China and other emerging markets. And yet global finance has not mirrored this shift in balance from the advanced to the emerging. The post-war Bretton Woods arrangements institutionalized the role of the U.S. dollar as the main reserve currency, and until the 1970s, about two-thirds of global GDP was anchored to the greenback. The remainder was largely split between the British pound and the Soviet ruble. In a recent study that I undertook with Ethan Ilzetzki and Kenneth Rogoff, we document that the U.S. dollar has retained its dominant position as the world’s reserve currency – and by a significant margin. Over 60 per cent of all countries (accounting for more than 70 per cent of world GDP) use the U.S. dollar as their anchor currency. Other metrics, which include the proportion of trade invoiced in dollars and the share of U.S. assets (notably Treasuries) in central banks’ foreign exchange reserves, suggest a similar degree of “dollar dominance.” The euro is a distant second. From the early 1980s until the introduction of the euro in 1999, the Deutsche Mark’s (DM) influence expanded first in Western Europe and later in Eastern Europe. But the rise of the euro, which consolidated the DM and French franc (Africa) zones, appears to have stalled. By some measures (given the shrinking share of Europe in world output), its global importance has declined. No other major established international currencies currently compete for global leadership. The divergence between the trends for production and finance, shown in the figure, emerges as a relatively smaller U.S. economy supplies reserve assets in step with rising global demand for them (primarily from emerging markets). This divergence is not entirely new. With recovery from WWII underway in Europe and global trade expanding, demand for reserves grew rapidly in the 1950s and remained high into the early 1970s. At that time, the U.S. dollar was backed by gold. Given that the world’s gold supplies were not increasing as fast as global demand for reserves, the gap was filled by U.S. (paper) debt.
“
Carmen Reinhart Professor of the International Financial System at Harvard University’s Kennedy School of Government
Over time, fulfilling the global demand for reserves caused a steady rise in the ratio of “paper dollar” reserves to gold reserves, which was incompatible with maintaining the official dollar/gold parity. The incompatibility of the national goal (maintaining the parity) and America’s international role as sole provider of the reserve currency was the essence of the dilemma that the Belgian economist Robert Triffin foresaw (as early as 1960) as a risk to the Bretton Woods system. Two devaluations, relative to gold, in December 1971 and February 1973, were not enough to correct the “overvaluation” of the U.S. dollar. The Bretton Woods system came to an end in March 1973, when the dollar and other major currencies were allowed to float and the dollar depreciated further. Now as then, the U.S. could meet the rest of the world’s appetite for dollars by issuing more dollar debt. This would require the U.S. to run sustained currentaccount deficits, mirrored in fiscal deficits. Of course, while the link to gold is passé, any domestic fiscal objective to curb U.S. debt growth would be at odds with the international role as sole provider of the reserve currency. One way or another, China will figure prominently in the resolution of this modern “Triffin dilemma.” One possibility is that the inevitable reduction of U.S. current-account deficits (whenever that comes) may result from sustained dollar depreciation (as in the 1970s), implying a capital loss for China and other major holders of U.S. Treasuries. Alternatively, China could eventually become a new supplier of reserve assets. In this scenario, the supply of the reserve asset would align with the world’s fast-growing regions. This connection could be direct, if the renminbi acquires reserve-currency status; or indirect, if the International Monetary Fund’s unit of account, special drawing rights, becomes a favoured asset of reserve managers, as the renminbi is now in the SDR currency basket. Reserve status for the SDR is a long-held IMF ambition, though the idea has never gotten much traction. But there is a third possibility: global demand for U.S. reserve assets may subside. While China’s ongoing capital flight is fuelling an immediate and substantial decline in demand for U.S. Treasuries, a more sustainable scenario would entail China’s transition to a managed floating exchange-rate regime with a deeper domestic financial market – and less emphasis on maintaining a credible war chest of foreign reserves. Project Syndicate
Global finance has not mirrored this shift in balance from the advanced to the emerging
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16 Business Daily Wednesday, March 8 2017
Closing GDP
Euro-Area growth boosted by domestic demand
Domestic spending drove euro-area growth in the fourth quarter of 2016, with trade damping output. Gross domestic product rose 0.4 per cent, matching earlier estimates and the rate of expansion in the previous quarter. Household consumption added 0.2 per cent point to growth, while government spending and investment contributed 0.1 point each, the European Union’s statistics office said yesterday. Recent economic data have highlighted the
strength of the euro-area recovery, with a gauge of investor confidence jumping to the highest level since before the global financial crisis. Together with an inflation rate that has quadrupled to 2 per cent in just four months, that’s put pressure on European Central Bank policy makers to map out an exit from unconventional stimulus. Imports outpaced exports in the fourth quarter, with net trade subtracting 0.1 percentage point from GDP, according to the report. Household and government consumption rose 0.4 per cent each, and investment was up 0.6 per cent. Bloomberg News
Fake brands
Alibaba’s Jack Ma wants serious jail time for counterfeiters Winning the trust of foreign brands is key to realizing Ma’s ambitions of global expansion Lulu Yilun Chen
B
illionaire A l i b a ba-founder Jack Ma wants China’s top lawmakers to come down harder on fake goods -- the very same plea voiced by global brands that have accused the e-commerce service of harbouring knock-offs. The Alibaba Group Holding Ltd. chairman appealed to the National People’s Congress convening in Beijing this week to penalize
counterfeiters as harshly as drunk drivers. In an open letter published on his Weibo account yesterday, Ma said enforcement had been too lax and the authorities should raise maximum prison sentences and other penalties to deter illegal profiteers. The unusual public entreaty follows persistent criticism that Ma and his company haven’t done enough to swat copycats. In a major embarrassment, Alibaba was again labelled a “notorious market” last year by the U.S. Office of the Trade
Representative -- just four years after escaping the label. It’s a list that includes torrent website Pirate Bay and flea markets from Brazil to Nigeria. “We need to fight counterfeits the same way we fight drunk driving,” Ma wrote in his letter. “No one company can do it alone. The existing laws are lagging, failing to impose actual threats on the behaviour of counterfeiters and leave far too much room for cheating.” Winning the trust of foreign brands is key to realizing Ma’s ambitions of global expansion. But Alibaba still fends off accusations about its unwillingness or inability to eradicate fakes from its platforms, the subject
“There is a lot of bark around stopping counterfeits, but no bite” Jack Ma, Alibaba’s founder
Jack Ma, Alibaba's founder
of a lawsuit filed in 2015 by Kering SA. The Chinese e-commerce giant has countered by saying it’s doing all it can to take down fakes. It removed 380 million product listings and closed about 180,000 stores on its Taobao platform in the 12 months to August, the company said in a letter to the USTR. In this week’s missive, Ma says there’s been plenty of rhetoric but little decisive action from authorities on combating fake goods, which he compared with the hazardous smog infamous for enveloping Beijing and other Chinese cities. Knock-offs remain rampant throughout the country as a result, he said. He even compared ridding China of fakes to fighting the famed Battle on Shangganling Mountain, where Chinese forces were said to have beaten back the U.S. and South Korean military during the Korean War. “Alibaba’s shifting the burden to lawmakers, and it might help drive some changes in China’s criminal legal system,” said Cao Lei, director of the China E-Commerce Research Centre in Hangzhou. “They hope to use a few cases to kill a chicken to scare the monkeys.” Out of date laws -- such as ones dismissing criminal responsibility for manufacturers who produce goods worth less than RMB50,000 (US$7,200) -- render Alibaba’s own efforts to curb counterfeits futile, Ma argued. Fewer than 10 per cent of the leads the company has provided to authorities led to a successful criminal prosecution, he added. “There is a lot of bark around stopping counterfeits, but no bite,” Ma said. “This reality only encourages more people to produce and sell fake goods.” Bloomberg News
Trade
Forex
Olympics
Taiwan exports surge at fastest pace in 6 years
China reserves rebound
Tokyo 2020 seen having US$284 bn economic impact
Taiwan’s exports jumped at their fastest pace in six years in February, as a low base from a year ago helped to fuel solid gains for the first two months of 2017, spotlighting demand for the island’s technology gadgets. Momentum, however, slowed as the value of February exports dipped from January, signalling a chance that a strong local currency and possible trade protectionism from the United States could still hurt the export-reliant economy. Exports in February surged 27.7 per cent from a year earlier, their fastest annual pace since February 2011. A Reuters poll had predicted a 16.8 per cent rise. The value of February exports was US$22.66 billion, compared with January’s $23.74 billion, finance ministry data showed yesterday. Taiwan’s trade surplus for the first two months of this year with the United States was US$137 million, less than one-fifth of the US$756 million surplus in the same period in 2016. Total exports rose a milder 16.2 per cent for the January-February period from a year earlier, with their performance swinging from a contraction in the same two months of 2016 when the island’s economy was emerging from a technical recession. Reuters
China’s foreign exchange reserves unexpectedly rose for the first time in eight months in February, rebounding above US$3 trillion as a regulatory crackdown and a steadying yuan helped staunch capital outflows. The rebound in reserves could ease fears in global markets that China will engineer another sharp one-off devaluation of the yuan, which would run the risk of inflaming trade tensions with the new U.S. administration under President Donald Trump. Reserves rose US$6.92 billion during February to total US$3.005 trillion, their first increase since June 2016, central bank data showed. That compared with a drop of US$12.3 billion in January, when reserves fell to US$2.998 trillion. Economists polled by Reuters had expected forex reserves to drop by US$25 billion in February. The State Administration of Foreign Exchange, the foreign exchange regulator, said in a statement that China’s foreign exchange reserves are likely to stabilise gradually as pressures on capital outflows ease. It burned through nearly US$320 billion of reserves last year but the yuan still fell 6.5 per cent against the dollar. Reuters
The 2020 Tokyo Olympics are expected to give an overall 32.3 trillion yen (US$284 billion) boost to the Japanese economy, according to the Tokyo city government. Euphoria surrounded the award of the Games to Tokyo in 2013 but scandals and cost overruns have overshadowed the hosting of the event. The original design for a new stadium was scrapped to curb soaring costs and there were allegations of bribery to secure the winning bid. Former Olympic host cities have frequently suffered an economic hangover after the event as venues become white elephants and maintenance costs mount. But if done right, economic benefits can accrue. The British government said in 2013, a year after the 2012 London Games, that it expected a positive economic impact of 41 billion pounds (US$50.2 billion) up to 2020. During the period from 2013, when the Games were awarded, to 2030, Tokyo Metropolitan Government expects total Olympic-related economic benefits of about 5.2 trillion yen (US$46 billion), citing its own research. AFP