Gov’t declines to list concession assets held by CTM Telecom Page 2
Thursday, March 9 2017 Year V Nr. 1250 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Sanctions
Politics
ZTE pleads guilty in U.S. to minimise penalty Page 8
Son of Kim Jong Nam makes first appearance following assassination Page 3
www.macaubusinessdaily.com
Gaming
Ranking
Galaxy announces wage hike of up to 5.5 pct Page 4
MSAR 8th most financially attractive for expats Page 3
‘Rising Phoenix’
Gaming
Recovering from a slump of over two years. But the gaming industry is still facing numerous threats in the short term. Adding to the overarching concern of operators about concession renewal. So concludes business intelligence supplier Gambling Compliance in its Global Gaming Outlook for 2017. Page 7
Ho’s lawyer bails out
Former Prosecutor-general Ho Chio Meng’s defence lawyer, Leong Weng Pun, has quit the graft case. Following arguments with judge Lai Kin Hong yesterday. He alleges the judges “play favourites.” But says that’s not the reason he quit.
Keeping it in the family Politics Allegiance to China. Endorsing ‘One country, two systems’. Not accepting foreign funds. All likely future prerequisites for candidates standing for the National People’s Congress election from Macau and Hong Kong. Page 5
Trading places Ho Chio Meng Trial Page 4
HK Hang Seng Index March 8, 2017
23,782.27 +101.20 (+0.43%) Worst Performers
Geely Automobile Holdings
+8.04%
China Petroleum & Chemical
+1.33%
Cathay Pacific Airways Ltd
-1.51%
CNOOC Ltd
-0.55%
China Overseas Land &
+2.73%
China Mengniu Dairy Co Ltd
+1.30%
AAC Technologies Holdings
-0.84%
PetroChina Co Ltd
-0.51%
China Shenhua Energy Co
+2.23%
MTR Corp Ltd
+1.21%
Belle International Holdings
-0.75%
Lenovo Group Ltd
-0.42%
China Unicom Hong Kong
+2.13%
Sands China Ltd
+1.20%
Swire Pacific Ltd
-0.63%
Cheung Kong Infrastructure
-0.32%
China Resources Land Ltd
+1.67%
AIA Group Ltd
Want Want China Holdings
-0.58%
Bank of East Asia Ltd/The
-0.31%
+1.12%
18° 20° 19° 22° 19° 22° 19° 22° 19° 22° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Trade Official data reveals Mainland imports surged almost 40pct last month. Higher commodity prices and strong domestic demand. All pointing to a change of model sustained by households. Page 8
2 Business Daily Thursday, March 9 2017
Macau Infrastructure
Macau Border for Delta bridge Construction Company Ltd., the slated for completion end-2017 contractor believes that the border CCCC Fourth Harbour Engineering Co., Ltd. said the construction of the Macau Border for the Hong KongZhuhai-Macau Bridge is slated for completion by the end of this year, Chinese news outlet China Times reported. A subsidiary wholly owned by the China Communications
facilities will be operational at the same time as the main section of the super bridge. Occupying 75 hectares, the Macau Border project includes an inspection building, car parks, municipal and peripheral construction plus other supporting facilities. C.U.
Telecoms
Gov’t unwilling to list concession assets
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acao Post and Telecommunications Bureau said it will not make public the detailed list of concession assets currently held by telecom operator Companhia de Telecomunicações de Macau, S.A.R.L. (CTM). In a written reply to legislator Chan Meng Kam’s enquiry, the Director of the Bureau, Lau Vai Meng, claimed there is no condition for releasing the asset information, in consideration of the fact that the release may ‘affect the operation of the commercial market’ and ‘cause network safety problems.’ In 2016, the government said it would study whether to release the list of concession assets held by CTM. The telecom operator has been managing and maintaining the city’s telecommunications network, providing rented circuit services to the other players in the market by charging a tariff based upon the company’s Midterm Review of Concession Agreement of Public Telecommunications
signed in 2009 with the government – which has been automatically renewed until 2021. In the interpellation, the directly elected legislator queried whether
the government had conducted any review prior to the automatic renewal of its contract with the operator. He also complained that the company’s exclusive control over the
assets affects competition in the local market. Meanwhile, the Bureau head said the government would strengthen its supervision of the operator’s management and maintenance of public assets. ‘Regarding the future telecom development of Macau, the government will improve current regulations and make certain arrangements for the renewal of each telecommunications contract,’ the official wrote. K.L.
Demolition
Urban renewal
Government tears down Coloane shipyards
Reconstruction not that easy
The government has demolished two shipyards in Lai Chi Vun Village in Coloane, which were deemed a threat to public safety due to their deteriorated state and high risk of collapsing, according to a press release from the Marine and Water Bureau (DSAMA) yesterday. Recently, the Water Bureau and the Land, Public Works and Transport Bureau (DSSOPT) announced their plan to demolish 11 shipyards in Coloane. Of the remaining seven shipyards considered to be in acceptable condition, four are having their owners’ renewal of exploration licence evaluated while three have been handed to the Macau Cultural Affairs Bureau (IC), which will consult the building owners in order to use the spaces as cultural projects for showcasing the shipbuilding history. The government previously told Business Daily that it had requested
the licence owners of the 11 shipyards to repair the property at least five times between 2013 and 2015, claiming no repairs had been conducted. However, several shipyard owners recently claimed that they had proposed to the authorities to renovate the shipyards for different purposes from the initial shipbuilding functions but that the requests were refused by the government. In the release, the Water Bureau said it and DSSOPT will co-ordinate in opening a public tender for a study on the planning for the sustainable development of Lai Chi Vun Village area, which will be turned into a leisure and tourist area. In fact, in 2012 both departments and the IC conducted a study that suggested a 5,000 square metre area in Lai Chi Vun Village could be revamped to revitalise the heritage of the shipbuilding industry. N.M.
The President of Macau Property Evaluation Association Leong Keng Seng says the biggest challenge of reconstructing old buildings in the city is to confirm the ownership of such buildings. Speaking on local radio programme Macao Forum yesterday, Mr. Leong suggested the government lower the limitation for reconstruction, such as decreasing the required ratio of approval from owners of a building. Having experience in assisting on two reconstruction projects, he added that the government’s required tax for reconstructions often adds pressure to project costs. Lok Wai Tak, a member of the Urban Renewal Committee, echoed the view
that the government should adjust the ratio of approvals from owners regarding the reconstructions. He also suggested the government introduce a bank loans scheme to facilitate and encourage the reconstruction of old buildings in the city. In Macau, over 4,000 buildings are over 30 years old, most of which are located in the Iao Hon District. Meanwhile, the Deputy Head of the Social Affairs Committee of União Geral das Associações dos Moradores de Macau, Sam Keng Wan, pointed out it was difficult to find the actual owners of many old buildings in Iao Hon since many residents there are tenants only. C.U.
Business Daily Thursday, March 9 2017 3
Macau Ranking
Macau eighth most financially attractive city for expats Meanwhile, the MSAR’s overall attractiveness for foreign workers is higher than that of many Chinese cities Cecilia U cecilia.u@macaubusinessdaily.com
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he Macau Special Administrative Region is ranked 8th most financially attractive city for foreign workers, according to the latest data gathered by global research company AIRINC. In terms of overall attractiveness, the city stood at 40th, ahead of other Chinese cities on the list such as Shanghai, Beijing, Guangzhou and Shenzhen, while Hong Kong ranked 27th. The ranking combines local salary levels, tax rates, living costs, and living conditions to assess the attractiveness of each location and comprises two sub-rankings – Lifestyle Rank and Financial Rank in addition to the general ranking of Overall Attractiveness. Featuring the report, the Harvard Business Review explained that the top ten cities in the ranking all offer rather high salaries, with Macau, in particular, requiring no or very low personal income tax. According to the official data released by the city’s Labour Affairs Bureau (DSAL) some 177,662 foreign workers were working in the MSAR as at the end of January this year, of which those from Mainland China
accounted for 63.5 per cent of the total. Most foreign workers in Macau were engaged in the sector of hotels and restaurants, followed by those in
the construction industry and those providing domestic services. Zurich in Switzerland, on the other hand, topped the list as the most attractive city for foreign workers in the world. The Swiss city also topped the Lifestyle Rank and occupied third place for the Financial Rank. Meanwhile, Singapore hit 14th in the Overall Attractiveness list, the highest ranking among Asian cities.
The list also shows the least attractive city for foreign workers is the capital of Papua New Guinea – Port Moresby. Meanwhile, the news outlet noted that the amount of foreign talent from the Western world and other developed cities moving to Asia is growing, due to geographical policies such as Brexit and Trump administration policies.
Politics
Video emerges of ‘son’ of assassinated Kim Jong Nam A group named Cheollima Civil Defense said they had met and relocated three family members of Jong Nam to safety; they are believed to have lived in the MSAR Park Chan-Kyong
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video of a man describing himself as the son of assassinated North Korean exile Kim Jong Nam emerged Wednesday, apparently the first time a family member has spoken about the killing. The video was uploaded to the YouTube page of a previously unknown group, Cheollima Civil Defense (CCD), which claimed to have “extracted” vulnerable members of Jong Nam’s family with the help of the Dutch, U.S. and South Korean authorities, and was keeping them under protection in an undisclosed location. South Korea’s intelligence agency confirmed the individual on the video is Kim Han Sol. His father was murdered at Malaysia’s main airport last month by two women using the banned VX nerve agent, with Pyongyang widely blamed for the assassination. “The man is indeed Kim Han Sol,” a spokesman for the National Intelligence Service told AFP. The spokesman declined to give further details, including Kim’s current whereabouts or any information about CCD. In the video, the man says in English: “My name is Kim Han Sol, from North Korea, part of the Kim family. “My father has been killed a few days ago. I’m currently with my mother and my sister. We are very grateful to...” he says, before the audio
cuts off and his mouth movements are blacked out. He shows his North Korean diplomatic passport as evidence of his identity but the page that shows his particulars is digitally covered. The 40-second video wraps up with him saying: “We hope this gets better soon.” There was no indication where or precisely when the video was made. Han Sol, 21, is believed to have graduated from Sciences Po university in Paris and had been living in exile with his parents in the Chinese territory of Macau before he disappeared with
his mother and sister following his father’s death. Because of his bloodline, Han Sol could be seen as a rival figurehead in a state ruled by his uncle Kim Jong Un and roiled by bloody purges. Malaysia has yet to formally identify the dead man as Kim Jong Nam or release the body, with police saying they are waiting for next-of-kin to come forward and provide a DNA sample.
‘Very painful’
On its website - registered only on Saturday - CCD said that it was protecting Kim Jong Nam’s family. “Cheollima Civil Defense responded last month to an emergency request by survivors of the family of Kim Jong Nam for extraction and protection. The three family members were met quickly and relocated to
South Koreans watch a screen displaying a news report on a video of a man claiming to be Kim Han-sol, the son of late Kim Jong-nam, in Seoul, South Korea. LUSA
safety,” it said, also in English. “We have in the past addressed other urgent needs for protection,” it asserted. “This will be the first and last statement on this particular matter, and the present whereabouts of this family will not be addressed.” The group thanked countries “for the emergency humanitarian assistance afforded to us in protecting this family” including the Netherlands, China and the United States, plus an unspecified fourth government. It praised the Dutch ambassador to South Korea, Lody Embrechts, in particular “for his timely and strong response to our sudden request for assistance”, calling him “a credit to the people of the Netherlands and their long and principled stance for human rights and humanitarian norms”. Neither the Netherlands embassy in Seoul nor CCD could be reached for comment by AFP. “Cheollima” is a mythical winged horse originating in ancient Chinese myths. CCD uses South Korean transliteration for its name, while some of the Korean text on its website read as if it could have been a translation from English. Kim Sung Min, a high-profile defector who operates an anti-Pyongyang radio station, said the group appeared to be associated with activists based in the United States. South Koreans left messages of encouragement for Han Sol on YouTube, with some inviting him to defect to the South. “It must have been very painful for him when he said ‘my father has been killed’,” wrote one user. Another said: “Be safe. You’re important to us, and to our future as a divided nation.” AFP
4 Business Daily Thursday, March 9 2017
Macau Gaming
Opinion
Galaxy announces salary raise of up to 5.5 pct
salary adjustment programme that used to take place in July. Galaxy is the third gaming operator in the Gaming operator Galaxy city that has announced a salary Entertainment Group announced yesterday it would raise the monthly increment for workers, following Sands China Ltd. and MGM China, salary of eligible staff by between 2.5 per cent and 5.5 per cent, based which have proposed a raise of between 2 per cent and 6 per cent; upon their performance. In an and of between 2.5 per cent and 7 announcement, the company said per cent, respectively. the wage hike is part of its annual
Ashley Sutherland-Winch* Season of the arts Despite reports of record attendance numbers, the Macau Arts Festival budget was trimmed for 2017. In 2016, the Festival had a budget of MOP23 million (US$2.9 million) and this year they will deliver to the public with MOP4 million less. The 28th Macau Arts Festival, one of the largest cultural events in the region, will feature 25 shows and exhibitions as well as more than 100 activities. As a community, we must participate and support arts from Macau and beyond in order to continue to enrich our culture. The arts are often the first to suffer in troubled economic times but they are, in my opinion, the element that communities can grow most if properly supported. Of course, the arts are not everyone’s cup of tea but without the exposure of multiple art forms, generations suffer. The Festival that will kick off on April 28 and run until May 31 will feature a wide variety of works from Mainland China as well as international productions and local performance groups in order to offer the exhibition ‘multiple dimensions of culture’ - the declared goal of the Cultural Affairs Bureau. Themed ‘Heterotopia’ - a term confected by philosopher Michel Foucault to describe “un espace autre” or “an other space” in English heterotopia is a kind of real place that exists outside of all other space both mental and physical, semi-mythical sites the prison, the theatre, the garden and the mirror. During a press conference earlier this week ‘Heterotopia’ was explained by Leung Hio Ming, the newly appointed president of the Cultural Affairs Bureau: “Following the exploration of the multiplicity of time of [the Festival] last year, this edition takes ‘Heterotopia’ as the theme and explores the possibilities of space . . . [This is] . . . a heterogeneous space that exists in the real world, whose existence is both strange and familiar.” With Macau’s casino environment thriving and relying upon the success of tourism and gaming, we must not take culture and the arts for granted. It goes without saying that it’s important to continue to preserve culture in our community, above and beyond the over-thetop and spectacular casino entertainment. It is our duty as a community to preserve the Portuguese and Macanese cultures of Macau but also embrace the arts of our region from opera to plays to dance, all forms both traditional and more abstract. Supporting the Macau Arts Festival should to be an important objective for all of us this April. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Ho Chio Meng Trial
Ho’s defence lawyer bows out Leong Weng Pun resigned yesterday after arguing with the judges
T
he defence lawyer of former Prosecutor-general Ho Chio Meng, Leong Weng Pun, quit the ex-official’s bribery case yesterday. The lawyer filed the documents for giving up the job to the Court of Final Appeal yesterday afternoon, telling reporters that his resignation is not due to the stance of the judges or the probability of winning the case, reported local Chinese language newspaper Macao Daily. The lawyer added that Mr. Ho understood his decision despite the fact that it may be difficult for the former official to find a new lawyer at the moment. Following the resignation, the Court of Final Appeal said in an announcement yesterday evening that the hearings for the case initially scheduled for tomorrow and next Monday would be cancelled. The top court has allocated five days for the defendant to find a new lawyer, failing which it will appoint a new defence lawyer for him, reads the statement.
“Play favorites”
According to Macao Daily, the lawyer said during the morning session of
Lawyer of Ho Chio Meng, Leong Weng Pun
yesterday’s trial that he felt there were many difficulties and would not be able to continue defending the suspect following his arguments with judge Lai Kin Hong. He requested the court halt the hearing to discuss with Mr. Ho whether he could continue defending him. The lawyer remarked that the judges were “playing favourites” during the hearing while Judge Lai responded that the court would pursue criminal responsibilities of the lawyer for his words. But the lawyer later told reporters that he did not mean “what others think to mean” when he mentioned the term “play favourites,” broadcaster TDM radio reported. The court was hearing a witness from the Commission Against
Corruption, who was questioned by the lawyer why the witness can determine the shell companies involved in the case must have proposed higher prices in their quotations for contracts of the Prosecutor’s Office as compared to the Office’s own estimations. He presented a quotation from an alleged shell company in the case, which proposed the cost of a computer software purchasing contract at some MOP8,000 (US$1,000), lower than the Office’s own estimation of some MOP10,000. Presiding judge Justice Sam Hou Fai and Judge Lai pointed out that the lawyer need not present legal information to the court while the lawyer said that he was presenting all information related to the case for the judges to make a fair decision.
Legislative Elections
Electoral Commission calls media’s attention to own reports The Electoral Commission for the Legislative Assembly election said yesterday that the local press is responsible for erasing or shutting down illegal comments or discussions on their social platforms during the course of the election. Meeting local media outlet representatives yesterday on the year’s election guidelines, the chairman of the Commission, Tong Hio Fong, told
reporters after the meeting that local media are advised to avoid reports that could create promoting certain candidates. He added that campaigning is prohibited during the period between the announcement of the confirmed list of candidates and the official commencement of the election campaign, while any activity that can divert the attention of the public to certain
candidates, or those directly or indirectly leading voters to vote for or against certain candidates, would be deemed as campaigning based upon the new electoral law. But the chairman reiterated that the Commission valued both freedom of the press and speech. Asked about the challenges to monitoring online social platforms, Mr. Tong said the Commission will set up a secretariat or assign related staff to supervise the establishments, adding that tip-offs are welcomed from all parties if there is suspicion. Meanwhile, the Commission has set up an exclusive hotline and e-mail address for press enquires about this year’s legislative election. Earlier this month, the Electoral Commission met incumbent legislators for their opinions on the guidelines for the year’s election, during which occasion many members expressed their concerns about character assassination during the campaign from competitors via news reports. Legislators also expressed their concerns about how the Commission would handle false online reports or smears at that time. C.U.
Aviation
Angkor Air launches Macau-Sihanoukville route Cambodia Angkor Air commenced its flights between the MSAR and Cambodian coastal city of Sihanoukville yesterday. According to a press release by local airport operator Macau International Airport Company Ltd.,
the airline will provide two weekly charter flights between the two cities for the moment. Holding an inaugural flight ceremony yesterday, the airport operator said it hopes the new route will further enhance economic
integration and promote the cultural exchange of both cities. In addition to Angkor Air, the country’s Bassaka Air currently provides two weekly flights between Macau and the Cambodian capital of Phnom Penh. K.L.
Business Daily Thursday, March 9 2017 5
Macau
Politics
SARs candidates for NPC to bear allegiance to China New drafts on NPC election methods to be submitted to the country’s national legislature also propose banning candidates from Hong Kong and Macau from receiving foreign funds
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andidates standing for election of National People’s Congress (NPC) deputies from the Hong Kong and Macau Special Administrative Regions should bear allegiance to China and declare not receiving foreign funds in relation to the election, say drafts on election methods to be submitted to China’s national legislature. The drafts are explained to a NPC plenary session yesterday by Wang Chen, vice chairman and
general secretary of the NPC Standing Committee. A copy of Wang’s speech was made available to media before the plenary session. The NPC deputies are the component members of the highest organ of state power who exercise state power on behalf of the people. Therefore, they shall declare in the Participant’s Registration Form that they uphold the Chinese Constitution and bear allegiance to China, Wang says, citing the drafts.
The NPC deputies from Hong Kong and Macau should also declare they uphold the Basic Laws, bear allegiance to the SARs, endorse the policy of “one country, two systems”, the drafts say. According to the drafts, candidates should also declare not having received and will not receive, directly or indirectly, any form of funds in relation to the election from any foreign institution, organization or individual. This requirement is to safeguard the security of the state and prevent foreign powers from interfering in the elections, Wang says. If a candidate is found and verified to have received any foreign funds, the candidate’s election will be declared null and void, according to Wang, citing the drafts.
A supervisory mechanism over NPC deputies is also improved that if any NPC deputy violates the declaration made in the Participant’s Registration Form, the Credentials Committee shall make a report proposing the disqualification of the deputy in question to the NPC Standing Committee which shall, based on the report, confirm the disqualification, the drafts say. The number of seats on the 13th NPC allocated to Hong Kong and Macau SARs are 36 and 12 respectively, the same as the current 12th NPC. As to the electoral procedures, the drafts note that the elections should be competitive and held by secret ballot, and candidates for NPC deputies shall be elected only if they have obtained more than half of the votes cast by members of the election councils. To be eligible for candidacy, one has to be nominated by ten or more members of the election councils at the first place. The drafts are expected to be voted before the 12th NPC concludes its fifth session on March 15. Xinhua
6 Business Daily Thursday, March 9 2017
Macau Wealth
The Nine-Zero Club Joseph Lau is listed in a top 100 global rich list despite the fact that he has transferred Chinese Estates shares to his children
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ong Kong businessman Joseph Lau Luen Hung is ranked 86th wealthiest individual globally, with an estimated net worth of some US$13 billion (MOP104 billion) as featured in the Hurun Global Rich List 2017 released on Tuesday. According to the list, Mr. Lau jumped 26 places compared to the same list in 2016. However, the firm notes its wealth calculations are ‘a snapshot of January 15 this year.’ Last week, Chinese Estates announced that Mr. Lao, who is said in a filing to be in a ‘very unstable health condition,’ had distributed his interests in Chinese Estates to his eldest son, Lau Ming Wai (24.97 per cent), and to his wife, Kimbee Chan
Hoi Wan (50.02 per cent), as trustee for the couple’s minor children. Lau stepped down as chairman and CEO of Chinese Estates in 2014 after he was sentenced in Macau to five years in prison for bribery and money laundering in 2012 linked to the corruption case of former Secretary for Transport and Public Works Ao Man Long. He still faces possible extradition to Macau. Meanwhile, China had the highest number of billionaires in 2016 according to the Hurun Global Rich List 2017. Chinese billionaires pulled ahead of the U.S. for the second time, with a total of 609 and 552 billionaires, up 41 and 17, respectively. The number of billionaires in the world is 2,257.
In terms of city, Beijing overtook New York as the billionaire’s capital of the world for the second time, with 94 and 86 billionaires, respectively. Hong Kong (71), Shenzhen (62), Shanghai (53), and Hangzhou (36) also made the top ten cities with
the most billionaires. In particular, Shenzhen recorded the highest number of new billionaires of 16 during the year. In its sixth edition, the Hurun Global Rich List is produced by Hurun Report Inc., a leading media group targeted at Chinese and Indian high net worth individuals. Its ranking measures the world’s biggest fortunes in U.S. dollars. S.Z.
Property
One Penha Hill developer expects yearly profit to surge Property developer Tomson Group Limited expects to post ‘a substantial increase’ of nearly 60 per cent in its
consolidated profit for the year ended December 31 2016, owing to an increase in proceeds from the sale of the
group’s properties in Macau and in Mainland China, according to a filing by the company with the Hong Kong Stock Exchange yesterday. The group reported HK$625 million (US$77.8 million) in profits for the corresponding period in 2015. For the first half of 2016, the company posted a net profit of some HK$303 million, an increase of 25.9 per cent year-on-year, citing again the increase in proceeds from development and sale of property projects in the city and those on
the Mainland. In Macau, Tomson holds a 70 per cent interest in the development of One Penha Hill, a 63-luxury residential unit condominium overlooking Nam Van. The project is the tertiary source of revenue to the group and accounted for approximately 26.07 per cent of the gross proceeds from its operations during the first half of 2016, according to the company’s interim report. The company expects to announce its annual results late this month. S.Z.
Automotive
Transportation
Luxury car distributor anticipates profit loss for 2016
MTR profit drops, property development plunges
Ferrari distribution contract to terminate end-May Luxury car importer and distributor Auto Italia Holdings Ltd. is expecting to record a profit loss for last year’s operations, ended December 31, according to a company filing with the Hong Kong Stock Exchange. The exact amount was not disclosed. The group, which imports and distributes Ferrari and Maserati vehicles to the two SARs, recorded a HK$27.8 million (US$3.58 million) profit in 2015 for its operations; however, a November announcement by the company that Ferrari would be dropping the importer effective May 27 of this year could have impacted the results. The filing by the company noted that it had ‘received an advice
from Ferrari to terminate the import and distribution rights of “Ferrari” cars in Hong Kong and Macau,’ also mentioning that it considers ‘that the cessation of the Ferrari business will not have any material adverse impact on the profitability of the Group.’ While noting that it is ‘in discussion with Ferrari for transition arrangement,’ in November of last year, the company has stayed silent on multiple enquiries from Business Daily regarding the nature of the transition and the reason behind the sudden cessation of the contract. The group’s interim report notes that a ‘decrease in overall car unit sales in Hong Kong operation’ contributed to an 11.7 per cent drop in revenue in the group’s car division year-on-year, with first half-year (2016) revenue reaching HK$401.4 million, and sales and distribution costs for the same period at HK$104.2 million. K.W.
Oversight provider for LRT project records HK$10.25 bln profit for 2016 Railway operator MTR Corporation Ltd. saw its profit slip 21 per cent year-on-year in 2016 as the group underwent an 89 per cent drop in its property development business, according to a company filing with the Hong Kong Stock Exchange. The group’s total profit for the year hit HK$10.25 billion (US$1.3 billion) during last year, as opposed to HK$12.99 billion in 2015, while its property development business plunged to HK$311 million in profit from HK$2.89 billion the previous year. Despite the company being granted a two-year contract for the provision of management and technical assistance services on the MSAR’s light rail transit (LRT) system worth MOP474.3
million, the company makes no mention of the project, or Macau, in the filing, while reporting on projects in the UK, Sweden, Australia and China. Overall revenue for the period increased by 8.4 per cent to HK$45.19 billion, with the group recording growth ‘in all business segments,’ according to the filing. “In Hong Kong many of our businesses have a degree of resilience against an economic slowdown,” notes group CEO Lincoln Leong Kwok-kuen, pointing out that “profits from Hong Kong property development were muted in 2016 and will remain so in 2017 as we will have no new developments scheduled for completion in the year.” K.W.
Business Daily Thursday, March 9 2017 7
Macau
Outlook
Rising from the ashes AML regulations, capital outflow control, ‘moralesapping arrests,’ policy shifts by the U.S. and the Mainland – all threaten the local gaming sector in the short term, with concession renewals the underlying concern Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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nti-money laundering (AML) regulations, the Mainland’s eye on capital outflow - in particular regarding UnionPay cards - and local politics remain the primary threats to the outlook of the local gaming industry this year, according to independent business intelligence supplier Gambling Compliance. The insight comes in the group’s Global Gaming Outlook for 2017, which calls Macau ‘The Rising Phoenix’ and notes that so far the MSAR has kicked off the year ‘with some relief and cautious optimism,’ largely banking on the return in revenues, evidenced in the 3.1 per cent (January) and 17.8 per cent (February) year-on-year increases in gross gaming revenue in the first two months of the year, according to information from the Gaming Inspection and Co-ordination Bureau (DICJ). ‘The VIP and mass markets are indisputably growing once more […] girding the better atmosphere is a feeling that pressure from Beijing and its security apparatus on operators and customers is easing,’ notes the report, ‘giving an essential boost of confidence to high rollers and premium mass customers.’ The main problems facing the industry, which has been excluded from the ‘disastrous crackdown on Chinese and foreign staff of Korean and Australian casino companies in China, including morale-sapping arrests,’ is the upcoming renewal or extension of the gaming contracts, expiring in two waves, 2020 (SJM and
MGM China) and 2022 (Wynn, Melco Crown, Galaxy and Sands China). So far the DICJ hasn’t opened up as to whether the renewal will take place and under what conditions, except for the 9 per cent non-gaming revenue target set for 2020 and met by the operators in 2015. However, given the two new mega-projects opened last year – Sands China’s Parisian and Wynn Macau’s Wynn Palace – and two more projects in the pipeline – MGM Cotai and SJM’s Grand Lisboa Palace – operators appear confident in their permanence. Yet, in terms of a road map for the operators to follow regarding the attempt the group describes the non-gaming diversification policy as ‘poorly defined,’ noting that it ‘acknowledges operator achievements randomly, if at all.’
Hindrances
As the new properties ramp up, the main focus is the ‘significantly under penetrated’ Mainland China market, points out the group’s Asia Editor Martin Williams, a push-pull given ‘Beijing’s shorter leash’ being ‘matched by the Macau gaming regulator’s tightening grip on junket operations and fiscal checks. These have led to the consolidation of the junket operators in the MSAR; according to DICJ information there are currently 110 junket operator groups and 15 individuals as opposed to 121 junket groups and 20 individuals last year, ‘which has seen major players Hengsheng, David and Neptune substantially reduce or erase their footprints in the market.’ Williams points out that this has been ‘largely to the benefit of unrivalled industry leader Suncity.’ While the threats from increased regulation and capital outflow control are present, those from competition in the neighbouring area are not, points out the group, noting they will ‘pose little problem for Macau in 2017, especially given the proportion of market revenue directly affected by Chinese domestic policy.’ However, ‘credit liquidity, a weaker renminbi against the dollar-pegged HK dollar and policy shifts in response to U.S. President Donald Trump’s threat of massive tariffs and other punitive actions against China’ are of larger concern. Regarding the upcoming Legislative Assembly election, Williams opines that the result will be to ‘recycle debate on the renewal or extension’ of the concessions, ‘allowing more oxygen for outlier gaming moguls such as lawmaker Chan Meng Kam and former lawmaker Daivd Chow […] to argue for expanded local concessions at the expense of American operators.’
To watch out for this year, the group points to the ‘largely blindfolded political games that U.S. operators must play with government and employees alike to protect their concessions.’
Japan
Regionally, with the recent rulings in Japan on integrated resorts drawing the eye of local operators such as MGM and Las Vegas Sands (Sands China’s parent company), the country has become a ‘must win’ for many global gaming operators,’ in particular the ‘well positioned’ United States-based gaming operators including the two previously mentioned. ‘But the race for licences also has the potential to elevate unknown bidders into the top rank of international gambling operators,’ notes the group’s Research Director Andrew Gellatly, adding that the ‘next steps in the process are as unpredictable as
last year’s legislative developments proved to be.’ Main roadblocks, including ‘missing’ public support coupled with ‘strong-worded editorials condemning the government for its decision’ on the legislation by media in Japan push foreign operators to quickly find their local partners, as a ‘strong emphasis on local ownership’ will be part of the final regulations. ‘We believe that there will be a frantic speed dating process in 2017 as foreign operators seek local partners and every party seeks to shape and influence policy making,’ notes the report. This includes corporations such as ‘Fuji TV, Mitsui Fudosan, Orix, Tokyo Tokeiba, Tokyo Gas, Mitsubishi and Sumitomo all looking to participate in the almost unprecedented introduction of a brand new and never-before regulated national industry,’ writes Gellatly. Business Daily contacted the DICJ for comment regarding the gaming outlook report but had not received a reply by the time this story went to press.
8 Business Daily Thursday, March 9 2017
Greater china Commerce
Trade deficit announced after imports surge China has not posted a trade deficit in dollar terms since February 2014
C
hina unexpectedly posted a rare trade deficit in February as imports surged far more than expected to feed a months-long construction boom, driven by commodities from iron ore and copper to crude oil and coal. Imports in yuan-denominated terms surged 44.7 per cent from a year earlier, while exports rose 4.2 per cent, official data showed yesterday. That left the country with a trade deficit of RMB60.63 billion (US$8.79 billion) for the month, the General Administration of Customs said. Customs has not yet published
dollar-denominated trade figures, on which most economists and investors base their forecasts and analysis. Apart from currency fluctuations, higher commodity prices and the timing of the long Lunar New year holidays early in the year also may have distorted the data. Most of China’s commodity imports grew strongly in volume terms from a year earlier, but dipped from January. Still, economists say the upbeat readings reinforced a growing view that economic activity in China and globally picked up in the first two months of the year. T h a t c o u l d g i v e C h i n a’ s
policymakers more confidence to press ahead with oft-delayed and painful structural reforms such as tackling a mountain of debt. 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. China’s first-quarter economic growth could accelerate to 7 per cent year-on-year, from 6.8 per cent in the last quarter, economists at OCBC wrote in a note on Monday, while adding that the pace may ease starting in spring. “We suspect that this largely reflects the boost to import values from the recent jump in commodity price inflation, but it also suggests that domestic demand remains resilient,” Julian Evans-Pritchard at Capital Economics said in a note. But he added that it was unlikely the current pace of import growth can be sustained as the impact of higher commodity prices will start to drop out of the calculations in coming months. Analysts polled by Reuters had expected February shipments from the world’s largest exporter to have risen 12.3 per cent in dollar-terms, an improvement from a 7.9 per cent rise in January. Imports had been expected to rise 20 per cent, after rising 16.7 per cent in January. Both export and import growth were seen at multi-year highs.
Analysts were expecting China’s trade surplus to have risen to US$25.75 billion in February, versus January’s US$51.35 billion, with growing attention on its large trade surplus with the United States as new U.S. President Donald Trump ramps up his protectionist rhetoric.
“Looking ahead, we expect external demand to remain fairly strong during the coming quarters which should continue to support exports” Julian Evans-Pritchard, Capital Economics As in 2016, China did not set a target for exports in 2017, underlining the uncertain global outlook, but Premier Li said China will take steps to steady exports this year. China’s shipments to the United States rose 11.5 per cent in February in yuan terms, compared to a year earlier. It imports from the U.S. rose 41.0 per cent. Reuters
Markets
Biggest problem for Dim Sum managers is finding bonds to buy This year’s issuance of Dim Sum corporate notes has reached US$745 million Justina Lee
Dim Sum bond fund managers, armed with US$2.6 billion and little to spend it on, are struggling with a market creaking under the challenges of record maturities and slumping sales. Ben Hsueh, who oversees an offshore yuan fund at Fubon Asset Management in Taipei, says he has few investment choices at the moment. His high-yield bond fund has reduced holdings of Dim Sum notes to less than 10 percent from 50 percent in 2013, with the remainder made up of a small portion of onshore debt and 90 percent of dollar credit that it hedges back into the yuan. Hsueh’s story is an illustration of a market in crisis, with three years of yuan depreciation weakening demand for assets denominated in the currency. Foreign investors are also looking onshore to sell debt as China expands access and encourages the expansion of its so-called panda bond market for overseas issuers. “The Dim Sum market is a transitional one because foreign issuers can sell panda bonds in China and the onshore costs are lower,” said Hsueh. More than RMB180 billion (US$26.1 billion) of Dim Sum notes will come due this year, while net issuance is forecast to slump further after slipping into the negative for the first time last year. The size of offshore yuan bond funds has shrunk to a third of 2014’s US$9.5 billion, according to data from research firm Morningstar Inc., while the currency has weakened 0.9 percent in the past month in Hong Kong to trade at 6.9028 a dollar on Wednesday afternoon.
Buying more dollar credit is one solution. Stratton Street Capital LLP’s Renminbi Bond Fund, the first offshore yuan fund worldwide, has never bought a Dim Sum bond and relies only on dollar notes. “We have a very large, liquid pool of dollar bonds that we can choose from, and we’ve got almost unlimited choice, and we are hedging into renminbi,” said Andy Seaman, London-based manager of the Stratton Street fund, which beat 96 percent of its peers focused on Asia fixed income in the past five years. “The problem that international investors have is that most Dim Sum issues are too small.”
“You don’t have many choices in the offshore yuan market now” Ben Hsueh, supervisor of offshore yuan fund at Fubon Asset Management in Taipei This year’s issuance of Dim Sum corporate notes have reached US$745 million, dwarfed by US$570 billion of dollar corporate bond sales worldwide and US$124 billion of onshore Chinese debt denominated in the yuan. Tighter offshore yuan liquidity also means implied forward yields are higher, which helps to boost returns when these dollar positions are hedged back into the yuan. All 18 Dim Sum bond issuers this year have
been financial firms. In 2014, sellers ranged from Chinese developers to Renault SA and Fonterra Cooperative Group Ltd.
Borrowing costs
Adding to the challenge in Hong Kong are volatile yuan borrowing costs, with rates often moving more than 1 percentage point a day amid suspected Chinese central bank intervention to make it costlier to short the yuan. Offshore yuan bond funds have returned an average 2.7 percent over the past year, compared with 5 percent for Asia fixed-income funds, data compiled by Bloomberg show. Issuance will likely revive because there’s still re-investment demand, said Raymond Gui at Income Partners Asset Management (HK) Ltd. His Dim Sum bond fund -- launched in 2010 when access to onshore markets was far more limited -- doesn’t buy onshore securities because of its mandate. The firm has another fund
investing in domestic notes. The offshore yuan market will exist as long as China doesn’t entirely open up the onshore market, and yuan internationalization has only paused after rapid progress earlier, said James Su, managing director at Haitong Asset Management (HK) Ltd., who oversees the city’s first Dim Sum bond fund. This is not a bad time to buy Dim Sum bonds. The average yield has fallen to 4.71 percent but remains above the historical average, according to a Deutsche Bank AG index. The yield on offshore government bonds still trumps the onshore level. And the drop in new supply should support a rise in prices. “The bonds have investment value because many are maturing, default risks are low and yields are quite attractive,” said Fubon Asset’s Hsueh. “But if every bondholder thinks that, they’re not going to sell, so it’s hard to find anything to buy.” Bloomberg News
Business Daily Thursday, March 9 2017 9
Greater China In Brief NPC
Government to legislate national supervision law Chinese legislators will revise the law on administrative supervision to turn it into a national supervision law this year, according to a work report of the national legislature yesterday. The move will provide a legal guarantee for efforts to put in place a centralized, unified, authoritative and highly-efficient national supervision system, the report of the National People’s Congress (NPC) Standing Committee said. China has begun pilot reform of supervisory system in Beijing Municipality and Shanxi and Zhejiang provinces. On this basis, China aims to establish a national supervisory commission. Funding
Tencent seeks loan amid investment drive
Sanctions
ZTE pleads guilty, settles U.S. case for nearly US$900 mln The company relies on U.S. suppliers for 25 per cent to 30 per cent of its components Karen Freifeld and Sijia Jiang
Chinese telecom equipment maker ZTE Corp has agreed to plead guilty and pay nearly US$900 million in a U.S. sanctions case, drawing a line under a damaging scandal that had threatened its cut off its supply chain. While the fine was larger than ex p ect e d, ZT E, a l s o a m aj o r smartphone maker, reported robust underlying earnings for 2016 and was upbeat in estimates for the first quarter. That and the resolution of the case helped its Hong Kong-listed shares surge 6 per cent. A five-year investigation found ZTE conspired to evade U.S. embargoes by b u y i n g U. S. c o m p o n e n ts, incorporating them into ZTE equipment and illegally shipping them to Iran. In addition, it was charged in connection with 283 shipments of telecommunications equipment to North Korea. “ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran’s, they lied ... about their illegal acts,” U.S. Attorney General Jeff Sessions said in a statement. ZTE relies on U.S. suppliers for 25 per cent to 30 per cent of its components, many of which are key to its goods. It purchases about US$2.6 billion worth of components a year from U.S. firms, according to a company spokesman. Qualcomm, Microsoft and Intel are among its suppliers. “ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company,” ZTE Chief Executive Zhao Xianming said in a statement. The company agreed to a sevenyear suspended denial of export privileges, which could be activated if there are further violations, as well as three years of probation, a compliance and ethics program, and
a corporate monitor. It also agreed to an additional penalty of US$300 million that will be suspended during the seven-year term on the condition the company complies with requirements in the agreement. When asked about the ZTE case, Chinese Foreign Minister Wang Yi said relevant departments of the government would continue to pay attention as to whether Chinese firms were receiving fair treatment.
Key Points ZTE to plead guilty to evading U.S. sanctions on Iran, N.Korea Fine of almost US$900 mln bigger than expected Deal draws line under scandal that had threatened supply chain ZTE agrees to 7-year suspended denial of export privileges Preliminary earnings for 2016 and Q1 better than expected “The Chinese government consistently opposes foreign governments putting unilateral sanctions on Chinese companies. At the same time, we have always asked our companies to operate legally abroad,” he told a news conference without elaborating. Tim O’Toole, a Washington D.C.based lawyer with Miller & Chevalier specialising in sanction cases, said U.S. court documents suggest ZTE’s attempts to obstruct the investigation were the main reason for a penalty significantly higher than in similar cases. “What seems really important to U.S. regulators is whether a company or individual after the investigation starts is seen to continue to evade the sanctions and also obstruct the investigation,” he said. The investigation, spearheaded by
the U.S. Department of Commerce, followed reports by Reuters in 2012 that ZTE had signed contracts to ship millions of dollars worth of hardware and software from some of the bestknown U.S. technology companies to Iran’s largest telecoms carrier. L a s t y e a r, t h e C o m m e r c e Department released internal documents showing senior ZTE executives instructing the company to carry out a project for dodging export controls in Iran, North Korea, Syria, Sudan and Cuba. ZTE has replaced executives allegedly involved, including naming a new president. The company said yesterday it slid to a preliminary net loss of RMB2.36 billion (US$342 million) in 2016, its first loss in four years, due to the settlement. But without the fine, it would have logged RMB3.8 billion in profit, 18 per cent higher than a year earlier. That was better than expected, as was a preliminary estimate for the first-quarter net profit rising between 21 and 31 per cent, said Cindy Lam, an analyst with UOB Kay Hian in Hong Kong. The settlement includes a US$661 million penalty to Commerce; US$430 million in combined criminal fines and forfeiture; and US$101 million paid to the Treasury’s Office of Foreign Assets Control (OFAC). The action marks OFAC’s largest-ever settlement with a non-financial entity. The Commerce Department will recommend ZTE be removed from a list of entities that U.S. firms cannot supply without a license if it lives up to its deal and a court approves its agreement with the Justice Department. First placed on the list in March 2016, it has continued to do business with U.S. suppliers under a temporary general license that has been extended several times, with the latest reprieve expiring March 29. The company’s guilty pleas, which must be approved by a judge, will take place in U.S. District Court in Texas. Reuters
Chinese tech giant is in talks with banks to raise up to US$2 billion in new debt funding, Basis Point reported, citing three people familiar with the financing plans, amid a flurry of fund-raising by China’s internet giants. Tencent is looking to raise a bullet loan with a five-year maturity, Basis Point, a Thomson Reuters publication, reported. Citigroup was coordinating the financing, while at least six Chinese and foreign banks in Hong Kong planned to join. Tencent, best known for its WeChat mobile app, has been on an investment drive in a wide array of sectors such as gaming, entertainment, cloud computing and online financing as it vies with rivals Alibaba Group Holding and Baidu. Aircrafts
CDB Aviation has ordered 30 Boeing MAX 8 jets China’s CDB Aviation Lease Finance is poised to announce an order for 30 Boeing 737 MAX 8 passenger jets and is looking at placing further potential aircraft orders as it pursues international growth, industry sources said on Tuesday. Such a deal would be worth US$3.3 billion at list prices, but manufacturers typically charge about half price for actual market transactions. Dublin-based CDB Aviation, an arm of China Development Bank Corp, and Boeing Co both declined to comment on the order, which is believed to be on the plane maker’s books already as an undisclosed customer. Monetary policy
Central bank continues to drain money from market China’s central bank withdrew more money via open market operations for the tenth consecutive day yesterday. The People’s Bank of China conducted RMB30 billion (about US$4.3 billion) of reverse repos, a process by which the central bank purchases securities from banks through bidding with an agreement to sell them back in the future. The move saw a net US$20 billion drained from the market, offset by US$50 billion in maturing reverse repos yesterday. The operations included seven-day reverse repos priced to yield 2.35 per cent, 14-day contracts with a yield of 2.5 per cent, and 28-day agreements with a yield of 2.65 per cent.
10 Business Daily Thursday, March 9 2017
Greater China
Credit
Beijing tries cure by committee for corporate debt hangover Premier Li identified debt-for-equity swaps among key items in the toolkit for bringing down corporate debt Shu Zhang and Matthew Miller
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US$1.44 billion restructuring deal at an insolvent coal mining company in eastern Shandong province offers a glimpse into how China is preparing to tackle a corporate debt burden that has ballooned to US$17.9 trillion. Loss-making Feicheng Mining Group struck the deal last December with 10 banks, led by Agricultural Bank of China Ltd (AgBank), which agreed to extend the group’s loans at concessionary interest rates. Bankers say the settlement, which required 10 months and 41 rounds of negotiations to complete, only advanced after the formation of a creditors’ committee, a mechanism the China Banking Regulatory Commission (CBRC) officially endorsed last year to manage “troubled firms with a large volume of debt”. At the opening of parliament on Sunday, Premier Li Keqiang identified “bringing down the leverage of enterprises” - which the Bank for International Settlements says reached 168 per cent of GDP last year - as a key task in 2017. With bankruptcy, particularly at state-owned companies, practically taboo in China, and lenders forbidden by the CBRC from halting or recalling loans without notice, creditors’ committees are at the vanguard of this monumental exercise. By the end of last year, 12,836 committees had been set up nationwide,
examining borrowing of RMB14.85 trillion (US$2.15 trillion), equivalent to 17 per cent of total commercial bank loans, according to statistics from the CBRC last week. In central Henan province, CBRC helped form creditors’ committees at more than 1,300 companies holding 55 per cent of corporate loans in the region by last September, Henan CBRC said. China’s leaders want the restructuring to address financial risks while avoiding big employee lay-offs. “The solution for zombie firms isn’t just bankruptcy,” a Shandong-based banking official told Reuters. “The impact of bankruptcy is just too big. Just think about the thousands of workers. Social stability is key.” Stability is always uppermost in the minds of Chinese leaders, and even more so this year, ahead of the five-yearly party congress this autumn, when a new generation of senior leaders will be selected. “China is avoiding the crisis of calling in loans that can’t be repaid anyway,” said Paul Gillis, professor of accounting at Peking University’s Guanghua School of Management. “This buys time to do things in an orderly way.”
Extending loans, cutting rates
It was the Shandong provincial government that stepped in and demanded the restructuring of Feicheng Mining, the company said in a filing. Its parent company Shandong Energy Group, the province’s biggest
state-owned firm, originally proposed to get Feicheng’s 10 lenders to take a 60 per cent loss on their RMB9.95 billion (US$1.44 billion) in loans, said Wang Yanlei, vice governor of the Shandong branch of AgBank. Feicheng had been modestly successful before embarking on a debtfuelled expansion in 2009, but the plunge in coal prices in 2012 proved devastating, landing the company with five straight years of losses.
Key Points Tackling China’s corporate debt build-up a key focus in 2017 Creditors’ committees in vanguard of restructuring deals By end-2016, 12,836 committees examining US$2.15 trln in credit Debt-for-equity swaps, loan extensions key elements of deals Deals avert write-offs for banks, lay-offs for borrowers After the provincial government intervened, a creditors’ committee was established to hammer out a debt restructuring agreement. That deal created a new operating company, which took control of the firm’s good assets and half of its loans. Another 30 per cent of the loans remained at the old firm, and 20 per cent were taken on by Shandong Energy, which separately entered into a debt-for-equity swap with China Construction Bank Corp to settle RMB21 billion of its own borrowing. Feicheng’s loans were extended by eight years at a concessionary interest rate of 3 per cent, lower than
the central bank’s benchmark lending rate. Guo Shuqing, the CBRC’s chairman and former governor of Shandong, endorsed the deal last Thursday, saying it represented a “relatively satisfying” outcome, with all parties sharing in sacrifices and gains. Extending loans at reduced interest is a common tactic for China’s debt restructuring, keeping troubled firms alive while avoiding impairment charges for the banks on their doubtful debts. That helped China’s commercial banking sector report the first decline in its non-performing loan ratio in five years last quarter. “Banks are making a trade-off between top line and credit loss,” said Wei Hou, Sanford C. Bernstein senior equity analyst for China banks. By rolling over loans and cutting interest rates, banks are spreading credit costs over many years, he added. Premier Li also identified debt-for-equity swaps among key items in the toolkit for bringing down corporate debt, and the figures demonstrate their extensive use. Since October, China’s banks have undertaken nearly RMB500 billion in such swaps at more than two dozen firms, mostly state-owned coal and steel enterprises, according to analysts. That could double to more than RMB1 trillion by next year, preventing as much as RMB3.5 trillion in total loans from turning bad in the near future, according to estimates by Hou. “A lot of these loans needed to be looked at as equity in the first place,” said professor Gillis. “There was never any realistic possibility that the companies would be able to pay them back,” he added. Reuters
Business Daily Thursday, March 9 2017 11
Asia Growth
Japan GDP revised up as capex speeds up Some economists expect capital expenditure to increase further Stanley White
J
apan’s economy grew more than earlier estimated in the fourth quarter as capital expenditure grew at its fastest in almost three years, welcome news for policymakers as they begin to discuss how to wind down years of massive stimulus. The economy grew an annualised 1.2 per cent in October-December, less than the median estimate for 1.6 per cent annualised growth but more than the preliminary reading of a 1.0 per cent annualised expansion. The figure translates into quarter-on-quarter growth of 0.3 per cent, versus a preliminary reading of 0.2 per cent growth and the median estimate for 0.4 per cent growth. A stronger pace of growth will be a boon to the government as policymakers have been counting on an increase in business investment to drive future expansion and increase low productivity. However, growth is still not robust enough to generate sustained inflation that the Bank of Japan wants, and the risk of rising protectionism could discourage Japanese exporters from raising wages, seen as key to boosting consumption and economic activity at home.
“The economy will remain in recovery mode, because we are seeing the benefits of capital expenditure from manufacturers and the construction sector,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. “I am a little worried about the strength of consumer spending. I am still not sure how protectionism will materialise, but this is also a potential risk.” Private consumption registered no growth in October-December, the same as preliminary data. Sluggish household spending has kept the
country in prolonged deflation and been a key challenge for the BOJ in meeting its 2 per cent price goal via its massive bond buying programme. Households cut spending for the 11th straight month in January even as the job market tightened further, separate data showed earlier this month. Private consumption accounts for around 60 per cent of GDP.
Stronger capex
The capital expenditure component of GDP rose 2.0 per cent from the previous quarter, which was more than the forecast for 1.7 per cent growth,
and faster than the preliminary 0.9 per cent. The revised data showed capital expenditure grew at the fastest since a 2.3 per cent quarterly rise in January-March 2014. Increased investment from the real estate sector, construction companies, food processing companies and electronics makers drove gains in capex, a Cabinet Office official told Reuters. Some economists expect capital expenditure to increase further as companies will soon have to start investing in more efficient equipment to deal with a shrinking pool of workers as the population ages.
Key Points Q4 GDP revised to annualised +1.2 pct vs prelim +1.0 pct Capex revised up to show fastest growth in almost 3 years Private consumption remained flat Growth picture improves, but risks remain However, U.S. economic policy poses a risk, because companies could suddenly turn cautious on capex if U.S. President Donald Trump adopts protectionist trade policies. There are also concerns that protectionism could hurt Japan’s exports. After capital expenditure, net exports were the second-biggest driver of growth in the fourth quarter, revised data showed. However, the plus 0.2 per centage point contribution from net exports was unchanged from preliminary figures, which raises questions about the strength of external demand. Reuters
Sanctions
North Korean banks barred from Swift global messaging system Seven blacklisted banks had continued to use the network in recent years Alfred Liu and Andy Sharp
North Korean banks subject to international sanctions have recently been banned by Swift from using its global financial messaging service, according to a statement from the Belgium-based Society for Worldwide Interbank Financial Telecommunication. Swift said it had recently been informed by Belgian authorities that they would no longer provide the “necessary authorizations” for it to continue offering services to North Korean banks covered by United Nations sanctions. “As a result, Swift suspended access of UN-designated North Korean entities to the Swift financial messaging service,” the statement said. North Korea has further stoked regional tension by firing four ballistic missiles into the sea near Japan on Monday. In response, the U.S. reaffirmed its military alliance with Japan and has announced the start of the deployment of its Thaad missile-defence system in South Korea. The Wall Street Journal, which reported on the Swift move yesterday, said the ban came as UN investigators
uncovered evidence that the North Korean banks had continued to use Swift’s services despite being subjected to UN sanctions.
Blacklisted banks
Seven blacklisted North Korean banks had continued to use the Swift
network in recent years, the newspaper cited a UN report as saying. Later, four had voluntarily withdrawn, leaving three banks -- identified as Bank of East Land, Korea Daesong Bank and Korea Kwangson Banking Corp. -continuing to use Swift during 2016, according to the Wall Street Journal. The impact of the move by Swift will be blunted by Pyongyang’s limited trade and financial ties with countries other than China,
said Andrei Lankov, a North Korean expert at Kookmin University in Seoul. But trade with other countries will become even harder. “They will get around this if the Chinese are willing to allow North Koreans to move cash through China as they have done in the past,” Lankov said. “It’s a lesser blow than it would be for nearly every other country in the world, but it’s still a blow,” he added. Bloomberg News
An undated photo made available by the North Korean Central News Agency (KCNA), the state news agency of North Korea shows four projectiles during a ballistic rocket launching drill of Hwasong artillery units of the Strategic Force of the Korean People’s Army (KPA) at an undisclosed location. Lusa
12 Business Daily Thursday, March 9 2017
Asia Banks
Strongest Japan loan growth since data shows reflation at work Regional banks are leading the growth in lending, with a 3.5 per cent jump in February from a year before Gareth Allan, Shingo Kawamoto and Min Jeong Lee
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t’s shaping up to be another good year for lending in Japan, data showed yesterday, offering further evidence that -- for all its shortfalls -- the Abenomics program of reflation continues to make progress. One measure of loans outstanding jumped by 2.9 per cent in February from a year before, and has gained at least 2 per cent each month since the spring of 2013 -- a pace not seen in Bank of Japan records going back to 1992, the year Japan’s land-price bubble popped. The total outstanding loan book is now at the highest since 2001.
Among the priorities in Abenomics has been shaking up corporate governance and the property market, and that might have contributed to the pick-up in credit. Financing for mergers and property purchases have combined with the economic expansion to spur lending demand, according to a BOJ official who wasn’t authorized to speak publicly. While at first glance Japan’s economic growth has been uninspiring, averaging just 0.59 per cent in the four years since Prime Minister Shinzo Abe took office, it has showed increased stability last year. Annualized quarterly rates exceeded 1 per cent for each quarter, marking the first year without a contraction since 2005. The lending demand has given some
support to Japan’s banks, which were hammered by the introduction of negative interest rates early last year. That move by the BOJ, designed to reduce the appeal of holding cash and boost reflation, compressed lending margins. Now that the focus on the BOJ has shifted to when it might ease back on monetary stimulus, the outlook for margins as well could shift.
“We’re finally starting to see the signs of the bottom in terms of profit for the bank sector and even some improvement” Shunsuke Kobayashi, an economist at Daiwa Institute of Research in Tokyo “We’re finally starting to see the signs of the bottom in terms of profit for the bank sector and even some improvement,” said Shunsuke Kobayashi, an economist at Daiwa Institute of Research in Tokyo who characterized lending volume as “healthy.” Shares of Mitsubishi UFJ Financial Group Inc. and its peers have jumped since last year’s U.S. presidential
election on speculation that global interest rates will rise as the Trump administration boosts American growth. The Topix Banks Index on Wednesday fell 0.2 per cent at the close, in line with the broader Topix. “The next point of focus should be on when the loan growth is able to outpace the decline in interest margins,” said Nana Otsuki, executive director and chief analyst at Monex Group, a Tokyo-based online broker. “If banks are able to get there by March 2018, that’ll be a huge turning point for banking stocks,” she said.
Margin shrinkage
The average net interest margin for banks in the Topix index stood at 1.16 per cent in February, down from 1.23 per cent a year before and 1.33 per cent when Abe took office in December 2012. As has been the case for some time, regional banks are leading the growth in lending, with a 3.5 per cent jump in February from a year before. Japan’s so-called city banks increased lending by 2.1 per cent. Overall deposits continued to grow faster than loans, rising 4.4 per cent, underscoring the penchant among both domestic households and companies for cash in an economy where policy makers are still battling to end a “deflation mindset.” “Banks have had a good run and the story is getting better,” said Arthur Kwong, head of Asia Pacific equities at BNP Paribas Investment Partners in Hong Kong. “But you still need to wait and see.” Bloomberg News
Real estate
Big banks: No housing bubble in Australia The rapid price growth, at a time of anaemic pay increases, has made housing affordability a hot-button political issue Emily Cadman
Soaring home prices in Australia’s biggest cities don’t necessarily mean the country is in the grip of a housing bubble, according to the heads of the nation’s biggest banks. Testifying before a parliamentary committee, the chief executives of National Australia Bank Ltd., Westpac Banking Corp. and Commonwealth Bank of Australia all said that while they are worried about elements of the housing market, prices aren’t over-inflated. “I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify,” Westpac’s Brian Hartzer told the committee in Canberra yesterday. A bubble isn’t occurring in Sydney or Melbourne, where house prices have risen the most, he said. “There are increasing risks, but I still believe the answer is no,” National Australia Bank’s Andrew Thorburn said when asked if houses in Sydney and Melbourne are overpriced. Commonwealth Bank, the nation’s largest mortgage lender, is “lending at levels we are comfortable with” across Australia, Chief Executive Officer Ian Narev told the committee when he testified Tuesday.
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The bank chiefs were appearing in front of the committee, which was set up by the government to ward off calls for a more far-reaching inquiry into the financial industry, for the second time within six months. The banks have been under pressure from opposition parties after a series of scandals in their insurance and wealth divisions and concern they failed to pass on the full benefits of central bank interest-rate cuts to borrowers.
No calamity
Australia & New Zealand Banking Group Ltd. CEO Shayne Elliott wasn’t directly asked about his views on the housing market when he testified Tuesday, but speaking before Christmas said that while he is cautious, he isn’t anticipating “a calamity or a disaster.” Prices in Melbourne and Sydney have skyrocketed in recent years, fuelled by record-low interest rates, increased demand from overseas buyers and tax breaks for property investors. The Organization for Economic Co-operation and Development last week said the biggest threat to Australia’s economy is a hard landing in the property market. The rapid price growth, at a time of anaemic pay increases, has made
housing affordability a hot-button political issue. Victoria’s state government said March 5 it will exempt first-time buyers from paying stamp duty on properties worth less than A$600,000 (US$455,000), and plans to introduce a tax on vacant residences. Affordability problems, particularly for young people, “should be a matter of national concern,” Narev told the committee.
Job centres
Prices in Sydney and Melbourne are rising because that is where jobs are being created and “we do not have long-term infrastructure,” Thorburn said. The big four banks -- where property lending accounts for between 40 and 60 per cent of the loan book -- have been tightening mortgage and development lending criteria.
The Australian Prudential Regulation Authority Tuesday wrote to all institutions urging them to “exercise particular care to ensure that they are not unduly accepting greater risk as other lenders step back’’ from residential developments. One persistent concern has been the risk of an apartment glut developing in Melbourne and Brisbane, with overseas buyers getting caught by the clampdown on lending and the enforcement of Chinese capital controls. Hartzer told the committee he is receiving a weekly email on key development projects and settlements are proceeding, albeit slowly. There are some problems in lower quality developments, he said. “What we are seeing is a number of those foreign buyers who put the money down to buy the apartments are now having trouble settling and that is creating a bit of a glut in supply, which may or may not be what the local buyers want,” Hartzer said. Bloomberg News
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Thursday, March 9 2017 13
Asia In Brief Political scandal
President Park’s impeachment verdict on Friday
WikiLeaks
Samsung headaches increased with claims of spying TVs The attack against Samsung TVs was developed in cooperation with the U.K. intelligence agencies MI5 and BTSS Sam Kim
For a company that has been mired in negative headlines for months, just about the last thing Samsung Electronics Co. needed was news its smart TVs could be used to spy on users. According to documents released by WikiLeaks, that is exactly what the Central Intelligence Agency did with a program called “Weeping Angel.” In essence, it uses a television’s microphone, a feature designed to allow voice commands, to pick up and transmit information while the device appears to be switched off. While Samsung wasn’t the only company named in the WikiLeaks documents -- Apple Inc. and Google
also got a mention -- it’s still a problem for the South Korean giant. The maker of Galaxy smartphones has been struggling to recover from the debacle of exploding Note 7 smartphones that have cost it billions of dollars while heir apparent Jay Y. Lee is set to stand trial on charges of bribery and embezzlement in an influence-peddling scandal. The trial starts today. “This can’t be good, with some damage already done to its global profile recently,” said Hwang Jangsun, a professor who specializes in communications at Seoul’s ChungAng University. “Consumers could feel they are risking their personal security when they consider buying Samsung TVs. What matters ultimately though is whether
Samsung was aware or not and blame could shift depending on future findings.” Samsung said was aware of the WikiLeaks report and is urgently looking into the matter. “Protecting consumers’ privacy and the security of our devices is a top priority at Samsung,” the company said in an email. The company and Lee have previously denied wrongdoing in the graft case. The attack against Samsung TVs was developed in cooperation with the U.K. intelligence agencies MI5 and BTSS, turning the device into a listening bug that uses its internet connection to record and transmit information to a CIA server, WikiLeaks said in a statement. According to WikiLeaks, CIA hackers developed tools to break into Apple iPhones, phones based on Google’s Android system and Samsung smart TVs to monitor conversations and messages. The website, which specializes in disclosing government secrets, posted 8,761 documents it said came from the CIA’s Centre for Cyber Intelligence. CIA spokesman Jonathan Liu wrote in an email: “We do not comment on the authenticity or content of purported intelligence documents.” “At first glance it is probably legit or contains a lot of legitimate stuff, which means somebody managed to extract a lot of data from a classified CIA system and is willing to let the world know that,” Nicholas Weaver, a senior researcher at the International Computer Science Institute at the University of California at Berkeley, said in an email.
“Consumers could feel they are risking their personal security when they consider buying Samsung TVs” Hwang Jang-sun, a professor who specializes in communications at Seoul’s Chung-Ang University In 2015, Samsung faced a backlash when it was revealed that its webconnected TVs could transmit data to third parties when users activated its voice-recognition function. While Samsung said customers could turn the feature off at any time, the controversy resulted into claims the TVs could eavesdrop on conversations. Samsung killed off the Note 7 last year after the devices kept catching fire, even after an initial recall was supposed to have fixed the problem. The company later blamed irregularly designed batteries that led to overheating. “Anything connected to the Internet for downloads and updates is vulnerable to hacking, whether it be smart TVs or phones,” said Lee Sungjin, a professor of cyber security at South Korea’s Baekseok University. “There are various ways infection can happen, whether it’s by attacking the product itself or by infiltrating personal computers used by developers themselves.” Bloomberg News
South Korea’s Constitutional Court will rule on President Park Geun-hye’s impeachment on Friday at 11 a.m. (0200 GMT), a court spokesman said yesterday. Park was impeached by parliament in December and stripped of her powers pending the court’s ruling. If the court upholds the impeachment, a presidential election will be held in 60 days. If the court strikes down the impeachment, Park will be reinstated. The ruling will be televised live, court spokesman Bae Bo-yoon told reporters. He declined to comment on whether the judges had already reached a conclusion. Trade
U.S.-Japan meeting likely March 16 Japan’s trade minister Hiroshige Seko and his U.S. counterpart Wilbur Ross will likely meet on March 16 in Washington, Jiji news agency reported yesterday. Seko and U.S. Commerce Secretary Ross agreed by phone this week to meet as soon as possible to prepare for a planned bilateral economic dialogue, which is to be led be U.S. Vice President Mike Pence and Finance Minister Taro Aso, who also serves as deputy prime minister. Seko said on Tuesday he wanted to exchange candid views with Ross on energy, trade, investment, cyber and space. Environment
Australia launches suit against Audi The Australian consumer watchdog said yesterday it was suing the local Audi unit of Volkswagen AG for intentionally selling more than 12,000 vehicles with software which lied about levels of toxic emissions. This follows a separate suit that the watchdog, the Australian Competition and Consumer Commission (ACCC), launched against Volkswagen last September for the same alleged offence. The ACCC is seeking declarations, pecuniary penalties, corrective advertising, orders relating to the future use of findings of fact and costs. The Federal Court action adds to what is already proving to be a costly legal fallout for the German company. Commodities
India works on formula to regulate iron ore prices India is working on a formula that might act like a cap on iron ore prices, the country’s steel secretary Aruna Sharma told CNBC TV18 yesterday. “There needs to be some sharing of the profits. We are working on the end-formula, and maybe we will come up with the logic very soon,” Sharma said. The price of iron ore “should not move like the sensex” as such price fluctuations make it very difficult for an industry to work, she added. Iron ore prices rose to their highest since August 2014 last month in China.
14 Business Daily Thursday, March 9 2017
International In Brief Current account data
IMF warns global imbalances could disrupt markets The way a few large countries run big current account deficits and others have large surpluses poses a risk to the global economy and could disrupt financial markets, a senior International Monetary Fund official said yesterday. Cooperation among countries with such deficits and those with surpluses is required to address such imbalances, IMF Deputy Managing Director Mitsuhiro Furusawa said. “We have witnessed sustained periods of imbalances. While they have narrowed since the (global financial) crisis, they remain above desirable levels,” he told an IMF-hosted seminar in Tokyo on the international monetary system in Asia. Holiday choice
Study finds security tops tourist concerns Security is holidaymakers’ main consideration when choosing a destination, a research report released yesterday by Bournemouth University and travel search site Travelzoo said. “Since Tunisia happened, safety and security has moved higher and higher up the agenda,” Travelzoo’s European President Richard Singer told Reuters. A British coroner last week criticised the security arrangements of a Tunisian hotel where 38 tourists were killed by a militant in 2015. The study said it had found that “97 per cent of all respondents have personal safety at the forefront of their minds when choosing a holiday destination.”
Summit
G20 draft no longer rejects protectionism The draft also no longer contains the sentence “refrain from competitive devaluations”
T
he world’s financial leaders may no longer explicitly reject protectionism or competitive currency devaluations, a draft communiqué of their meeting next week showed, promising only to keep an “open and fair international trading system”. Finance ministers and central bank heads from the Group of 20 major developed and developing economies will meet on March 17-18 in the German town of Baden Baden to discuss the world economy. It will be the first meeting of G20 finance ministers attended by representatives of the administration of U.S. President Donald Trump, who has more protectionist policy views on trade. The draft communiqué seen by Reuters, which may change before March 18, appears to accommodate the new U.S. position. The draft, dated March 1, drops the phrase adopted by G20 finance ministers last year to “resist all forms of protectionism”. A warning against protectionism has appeared in G20 communiqués for more than
a decade. “The lack of any reference to protectionism in the draft is strange,” said one official close to the preparations for the meeting. “Maybe it is a minimum that everybody could agree on.”
Key Points Draft lacks phrase calling to resist protectionism FX language shortened, says reaffirms past commitment Japan says see no change to G20 agreement on FX Asian G20 members worry of protectionism rhetoric The draft also no longer contains the sentence, used in previous statements, that the G20 should “refrain from competitive devaluations” and should not “target our exchange rates for competitive purposes.” Instead, it says: “We will maintain an open and fair international trading
system” and “We reaffirm our previous exchange rate commitments.” G20 communiqués last year began including a phrase that was part of Group of 7 language for years: “Excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will consult closely on exchange markets.” This sentence is now also missing from the draft. Japanese policymakers would not confirm if the language on currencies will change but said any modification won’t mark a departure from the G20’s stance on exchange rates. Japan, as well as some other Asian G20 members, fret more about Washington’s protectionist rhetoric and its impact on the G20 debate. G20 countries “are fighting a rearguard action to deflect the protectionist approach” of the Trump administration, said Eswar Prasad, the former head of the International Monetary Fund’s China department who is now a trade and economics professor at Cornell University. “The G20 is clearly struggling to find a way to stick to its previous policy statements on these issues in the face of hostility from the new U.S. government,” Prasad added. Reuters
Angola
Government considers refining oil abroad Angola’s government is studying the possibility of sending its crude oil out of the country to be refined and then bring the refined products back into the country for consumption, according to an official document Lusa saw on Tuesday. The document, signed by Angola’s oil minister, José Maria Botelho de Vasconcelos, foresees hiring a consulting company to draw up a “technical and economic viability study about processing Angolan oil in a refinery outside the country “. Angola is Africa’s largest oil producer, pumping out 1.6 million barrels a day, but the country’s refining capability is not enough and is limited to the Luanda refinery. Monetary policy
Turkish central bank signals further tightening if necessary The Turkish Central Bank will closely monitor pricing behaviour and could implement further monetary tightening if necessary, Central Bank Governor Murat Cetinkaya said yesterday. In a speech at a business conference in the western city of Denizli, Cetinkaya also said inflation, which hit double digits in February, was expected to trend downward by the middle of the year with the support of a tight monetary stance. “Heightened global uncertainty necessitates a cautious monetary policy stance. Accordingly, pricing behaviour will be closely monitored and further monetary tightening will be implemented if necessary,” Cetinkaya said.
Brazilian President Michel Temer speaks during an official government ceremony at the Palace of Planalto in Brasilia, Brazil, on Tuesday. Lusa
Recession
Brazil seeks investment with infrastructure concessions Data showed acceleration in economic downturn in the final quarter of 2016 Leonardo Goy
Brazil’s President Michel Temer launched an infrastructure concessions program on Tuesday to raise 45 billion reais (US$14.43 billion) in investment for building and operating roads, port terminals, railways and power transmission lines. The program is a key part of his strategy to restore business confidence and pull Brazil’s economy from its worst-ever recession after a sharp drop in commodity prices and a decade of profligate rule by the leftist Workers Party. “There will be 45 billion reais in new investment in the energy, transport and sanitation sectors which will lead to the creation of 200,000 new direct and indirect jobs,” Temer said. Inaugurating a meeting of the Investment Partnership Program (PPI), which will oversee concession tenders, Temer said 55 new projects would be opened to the private sector. “We are leaving behind a deep recession and entering a phase of prosperity where private investment will be decisive,” said the president, who has said his top priority is curbing unemployment running above 12 per cent.
Data on Tuesday showed a surprise acceleration in Brazil’s economic downturn in the final quarter of 2016, raising pressure on Temer and the central bank to promote growth. The infrastructure program will kick off on March 16 with auctions to run the airports of Porto Alegre, Florianopolis, Salvador and Fortaleza, which are expected to draw much investor interest. Wellington Moreira Franco, the minister in charge of the PPI, said the government would offer 35 concessions in energy transmission. The PPI plan includes concessions to operate new terminals in the ports of Santana, Itaqui and Paranagua, and the extension of contracts in Vila do Conde, Niteroi and Santos, Brazil’s largest port. The plan offers early renovation of five railway concessions in return for new investment commitments. With its budget squeezed by recession, Temer is betting an increase in private investment can revive the economy despite political turbulence from a sweeping anti-corruption investigation. Rights to operate three highways will be auctioned before current
licenses expire and will go to bidders who offer the biggest investment and the lowest toll rates, Transport Minister Maurício Quintella said. The current concessionaires, whose contracts run through 2021, will be allowed to participate in the auctions, he said.
“There will be 45 billion reais in new investment in the energy, transport and sanitation sectors which will lead to the creation of 200,000 new direct and indirect jobs” Michel Temer, Brazil’s President The three highways are the Via Dutra, between Sao Paulo and Rio de Janeiro, and the Concer and CRT motorways that link Rio to Juíz de Fora and Teresopolis. Reuters
Business Daily Thursday, March 9 2017 15
Opinion Business Wires
Jakarta Globe Malaysia will produce about 900,000 metric ton of biodiesel in 2017, up about 80 percent from half a million metric ton last year, while Indonesian output will rise to 3.5 million metric tons this year from 3 million metric tons in 2016, an industry expert said on Tuesday. “These are the forecasts based on the current pricing of crude palm oil and oil prices,” said U.R. Unnithan, president of the Malaysian Biodiesel Association on the sidelines of a palm oil industry conference in Kuala Lumpur. Benchmark palm oil prices are up nearly 3 percent so far this month.
Rewriting the monetary-policy script
Inquirer.net Philippines’ dollar reserves declined month-on-month to US$81.132 billion in February amid a weaker peso, Bangko Sentral ng Pilipinas (BSP) data released Tuesday showed. The gross international reserves level last month was lower than January’s US$81.376 billion, although still higher than end-2016’s US$80.692 billion. In a statement, BSP Governor Amando M. Tetangco Jr. attributed the monthon-month drop mainly to “outflows arising from the BSP’s foreign exchange operations and the payments made by the government for its maturing foreign exchange obligations.” The peso has fallen to the 50:US$1 level, the lowest in more than 10 years, since mid-February.
The Phnom Penh Post Text messages, in which a broker at an unlicensed derivatives trading firm purportedly informs one of Prime Minister Hun Sen’s daughters that her trading account had been “topped up” with over half a million US dollars, were leaked on Tuesday. The texts raised questions about the government’s resolve in clamping down on unregulated derivatives brokerages, which cater largely to the country’s wealthy elite. The Securities and Exchange Commission of Cambodia (SECC) has made slow progress in reining in unlicensed operations since issuing its first derivatives trading licence nearly a year ago. To date, only six licences have been issued.
The Star The impending collaboration between national (Malaysian) car company, Proton, and a foreign strategic partner will not only maximise the manufacturing capacity at both its Shah Alam and Tanjung Malim plants but also allow the company to compete effectively, regionally and globally. The partnership will also enable Proton to compete with car manufacturers like Honda, Toyota and others. Dr Irwan Shah Zainal Abidin, Director of the Asian Research Institute of Banking and Finance, said Proton had no other choice but to undertake a management paradigm shift as the country’s limited population of 30 million did not offer the manufacturer economies of scale to compete internationally.
H
ow long will major central banks blindly rely on rigid rules to control inflation and stimulate growth? Given the clear benefits of nimble monetary policy, central bankers need to open their eyes to the possibilities that flexibility affords. The rule of thumb for monetary policymakers has long been that if inflation is below official target ranges, short-term interest rates should be set at a level that spurs spending and investment. This approach has meant that once interest rates reach or approach zero, central banks have little choice but to activate large asset-purchase programs that are supposed to stimulate demand. When circumstances call for it, policymakers default to the predetermined scripts of neo-Keynesian economic models. But in too many cases, those scripts have led us astray, because they assume that monetary policy has a measurable and foreseeable impact on demand and inflation. There is plenty of reason to question this assumption. For starters, households have not responded to ultra-low interest rates by saving less and spending more. If savings no longer yield a return, people can’t afford big-ticket items or pay for retirement down the road. Likewise, companies today are faced with so much uncertainty and so many risks that ever-lower costs of capital have not enticed them to invest more. It’s easy to see why, despite the data, predetermined formulas are attractive to monetary policymakers. The prevailing wisdom holds that in order to return the inflation rate to a preferred level, any slack in the economy must be eliminated. This requires pushing interest rates as low as possible, and when these policies have run their course (such as when rates dip toward the negative), unconventional instruments like “quantitative easing” must be deployed to revive growth and inflation. The paradigm has become so universally accepted – and the model simulations underpinning central banks’ decisions have become so complex – that few are willing to question it. For individual central banks or economists, to do so would be sacrilege. Central banks do not completely deny the economic costs that these policies imply: exuberance in financial markets, financing gaps in funded pension systems, and deeper wealth inequality, to name just a few. But these costs are deemed an acceptable price to pay to reach the clearly defined inflation level. Yet the policies pursued in recent years have given no room for the intangibles – unstable political environments, geopolitical tremors, or rising risks on financial markets – that can send models off course. As the 2008 financial crisis illustrated, the normal distribution of risk was useless for predictions. Keynes never tired of arguing that monetary policy becomes ineffective if uncertainty is sufficient to destabilize the expectations of consumers and investors. Unfortunately, many central banks
“
Michael Heise Chief Economist of Allianz SE and the author of Emerging From the Euro Debt Crisis: Making the Single Currency Work
have forgotten this. The Bank of Japan, the Bank of England, and the European Central Bank all hone to rather rigid policy rules. If expansionary policies fail to have the desired effect of lifting inflation to the predefined level of around 2 per cent, they do not question their models; they simply increase the policy dosage – which is just what markets expect. For now, the US Federal Reserve has the most flexible toolkit among the major central banks. In addition to inflationary pressure, the Fed’s monetary policy must also take into account employment statistics, growth data, and the stability of financial markets. But even the Fed’s flexibility is under siege. Republican lawmakers are discussing how to bind the Fed to more scripted policy rules to manage inflation (using a formula known as the Taylor rule, which predetermines changes in the federal funds rate in relation to inflation and an output gap). Needless to say, such a move would be a mistake. Central banks (not to mention lawmakers), with their strong attachment to neo-Keynesian theory, are ignoring a major lesson from decades of monetary-policy experimentation: the impact of monetary policy cannot be predicted with a high degree of certainty or accuracy. But the belief that it can is essential to the credibility of the now-standard inflation targets. If central banks keep missing these rather narrow marks (“below, but close to 2 per cent”), they end up in an expectations trap, whereby markets expect them to dispense ever higher doses of monetary medicine in a frantic attempt to reach their target. Clearly, such monetary policies create soaring costs and risks for the economy. And central banks themselves are coming dangerously close to looking like fiscal agents, which could undermine their legitimacy. A new and more realistic monetary paradigm would discard overly rigid rules that embody the fallacy that monetary policy is always effective. It would give central banks more room to incorporate the risks and costs of monetary policies. With such a paradigm, central banks could move away from negative interest rates and large-scale asset purchases. They would define their inflation targets more flexibly, to avoid being forced into action whenever “uncertainties” such as declining oil prices or required wage adjustments cause inflation to move above or below 2 per cent. Perhaps most important, a new paradigm would acknowledge the limits of central banks’ power and foresight. That would remove an alibi that governments too often hide behind to avoid introducing the structural reforms that really matter for long-term growth. Project Syndicate
Keynes never tired of arguing that monetary policy becomes ineffective if uncertainty is sufficient to destabilize the expectations of consumers and investors
”
16 Business Daily Thursday, March 9 2017
Closing Legislation
Draft general provisions bring China closer to civil code According to the legislation plan, the code will be enacted in 2020
N
ational lawmakers yesterday started to deliberate draft general provisions of civil law, which, if adopted, will bring the country one step closer to a long-absent civil code. With the draft submitted to the on-going annual session of the National People’s Congress (NPC), China’s top legislature, the country is nearing the end of its crucial first step toward a civil code: laying down basic principles. Last year, the draft went through three readings at the bi-monthly sessions of the NPC Standing Committee. It is rare for a draft law not to be passed after three readings. After the adoption of the general provisions, lawmakers will step up work on compiling individual books on property, contract and marriage, among others, which will be integrated into a unified code. According to the legislation plan, the code will be enacted in 2020. Compiling a civil code, dubbed as “an encyclopaedia on social life” which regulates personal and property relations, will help “better protect the people’s immediate interests, improve state governance, maintain market order, ensure trading security, and promote the sound development of socialist market economy,” Li Jianguo, vice chairman of the NPC Standing Committee, said while explaining the draft yesterday at an NPC plenary meeting.
to property protection and the guardianship system. Existing provisions in the General Principles have been revised and new ones added in line with new conditions in social and economic activities. The draft establishes a “green” principle, stipulating that in their civil activities, civil subjects must be aware of the need to save resources and protect the environment. This reflects the country’s new development concepts and the fact that China is a populous country that has to strike a balance between people and the environment for a long time to come, Li said.
“Legislative efforts are needed to ensure civil subjects better fulfil their obligations in environmental protection,” said national lawmaker and jurist Wu Qing. Foetuses that require protection for the succession of estates and reception of donations shall be deemed as having the capacity for civil law rights, according to the draft. “This is a step forward. Rights of a life without capacity for conduct still need protecting,” said Shen Guoming, deputy head of the China Society of Jurisprudence. The draft lowers the statutory age limit of minors with limited capacity for civil conduct from 10 to six years, for the purpose of attaching
Adapting to new era
The draft, based on the General Principles of Civil Law adopted in 1986, deals with a variety of issues, ranging from ecological conservation
A picture taken with a fisheye lens shows a general view of the opening of the fifth Session of the 12th National People’s Congress (NPC) at the Great Hall of the People in Beijing on Sunday. Lusa
more attention to minors’ own discretion. The draft also highlights the protection of online virtual assets and data, as incidents of personal information leakage have increased in recent years. In addition, the draft adds provisions on rural economic collectives and villagers’ committees, among others, to help them better participate in civil life, and protect the members’ legitimate rights and interests. “Each and every provision embodies the will of the people,” said national lawmaker Sun Xianzhong, deputy head of the China Civil Law Society, who has spent years pushing for a civil code of China.
Time ripe for civil code
The road towards a civil code, a dream for generations of Chinese, has been bumpy. For millennia, civil rights and civil code were virtually unheard of for Chinese living under imperial autocracy. It was until late Qing Dynasty that the concept of civil code was first put forward, followed by a failed attempt by the Qing government to introduce a code. Since the People’s Republic of China was founded in 1949, the central authority has strived to build a modern country under the rule of law, of which a civil code is an integral part. In 1954, 1962, 1979 and 2001, China made separate attempts to draft a civil law, only to halt due to political turmoil and other reasons. For example, the second attempt was interrupted by the chaotic Cultural Revolution (1966-1976), a dark decade in which human rights were trampled and laws could hardly protect anyone. In 1986, the General Principles of Civil Law was enacted, establishing basic principles for protecting civil rights and
interests, and regulating civil relations. A draft civil law was submitted to the top legislature for the first reading in December 2002, but then shelved for its complexity and difference of opinions over it. Nonetheless, the General Principles and other separate civil laws promulgated over the past decades, including the Property Law, the Tort Liability Law and Inheritance Law, have laid good groundwork for a civil code. In October 2014, the Communist Party of China decided at a key meeting to compile a civil code. It is people’s congresses that translate the Party’s resolutions into the will of the state through legislative procedures. The legislative task has since been treated as a necessary move to perfect the country’s socialist legal system with Chinese characteristics, and significant in modernizing state governance. In March 2015, the drafting of the general provisions started, marking the beginning of China’s journey to a civil code of its own. According to the top legislature, China’s civil code will be born out of the country’s realities, target problems in China, address Chinese people’s concerns and needs, as well as embody Chinese culture, traditions and values. One cardinal principle for compiling the civil code is weaving socialist core values, including equality, justice and amicability, into the whole process. In this spirit, for example, the draft stipulates that a person shall not bear civil responsibilities if he acts voluntarily to help another in emergency and inflicts losses on the one being helped, a move to encourage helping others in danger and protect those who do. Xinhua
Fraud office
Report
Environment
Britain owes EU 2 bn euros over China import scam
Chinese confident of annual income rises
Eight fossil fuel majors seen polluting as much as the U.S.
Britain owes the European Union budget two billion euros after turning a blind eye to a major scam by Chinese importers, the EU’s fraud office said yesterday. “We recommended that the European Commission recovers the money from the United Kingdom,” the EU’s anti-fraud office OLAF said in an email to AFP. OLAF accuses Britain of ignoring rampant use of fake invoices and customs claims by Chinese importers which cost 1.99 billion euros (US$2.1 billion) in lost customs duties to the EU. The claim comes at a sensitive time in EU-Britain relations, just before London is to embark on Brexit negotiations in which the UK’s exit bill -- estimated at 60 billion euros -- has already sparked sharp exchanges. An investigation by OLAF showed that between 2013 and 2016, fraudsters evaded customs duties by using false invoices and incorrect customs value declarations on imports into the UK. OLAF said that “despite repeated efforts and in contrast to the actions taken by several other member states to fight against these fraudsters,” the scam in Britain continued to grow. The office said that the scheme also cost other EU countries 3.2 billion euros in lost national value-added-tax revenue. AFP
More than 50 per cent of people are optimistic about their incomes increasing in 2017, with rural people expressing more confidence than their urban counterparts, according to a recent survey report. About 55 per cent respondents in rural areas believe that their annual income will rise in 2017, compared to 53.4 per cent people in urban areas, according to the report released by the China Central Television, which surveyed 570,000 people. China has implemented favourable policies to help reduce the rural-urban income gap. In 2016, China lifted 12.4 million people out of poverty. The report said people in ten provincial-level regions were most confident of increased annual income: Qinghai, Tibet, Hainan, Jilin, Ningxia, Anhui, Shandong, Shaanxi, Guizhou and Chongqing, all regions where a large number of poverty alleviation projects are located. People with annual family revenues below RMB10,000 (US$1,449) tended to focus on relocating projects, vocational education and small loans as a way of escaping poverty. In first-tier cities, education and entertainment were the top choices for people to spend money, according to the report. Xinhua
Eight of the world’s largest oil companies are responsible for as much of the climate-damaging pollution spewed into the atmosphere as the entire U.S., according to a study by a London-based researcher. Saudi Aramco, Exxon Mobil Corp., OAO Gazprom, the National Iranian Oil Co., BP Plc and Royal Dutch Shell Plc were among the eight companies whose fuel was responsible for a third of emissions from oil and gas, according to the non-profit group CDP. The companies released a fifth of all greenhouse gases outside of farming and forestry since 1988, the year most governments acknowledged manmade climate change as a risk. The findings suggest policymakers may be better off focusing on the practices of companies instead of national environmental policies. The study’s release coincides with preparations by U.S. President Donald Trump to slash environmental regulations and possibly withdraw from the landmark Paris Agreement, which promises to limit global warming to below 2 degrees Celsius (3.6 degrees Fahrenheit) compared to pre-industrial levels. CDP analysed 50 oil and gas companies, gauging their direct emissions and pollution from the use of their products dating back to 1854. Bloomberg News