Business Daily #1273 April 12, 2017

ANZAC Day observance in Macau Tue, 25 April 2017 │ 7:30am - 9:30am │ MGM Macau C DAY ANZA

Followed by breakfast from 8:30am

Taipa LRT expenses reach MOP9.2 bln Infrastructure Page 3

Wednesday, April 12 2017 Year VI Nr. 1273 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Probing sector

Analysts say insurance industry in China to see increasing crackdown Page 9

Auto industry

Car sales in Mainland increase in spite of end of tax cut Page 16

www.macaubusinessdaily.com

Insurance

Monetary authority meets with insurers regarding bid-rigging Page 2

Technology

Poker-playing engineers taking on AI Machine get thrashed Page 7

Losing Altitude

Aviation

Last year, Macau’s business aviation market accounted for just 78 aircraft.

From a total of 1,155 business jets throughout Asia Pacific.

And was the only Greater China player to register a decrease in its fleet.

None of the business jets were registered in the MSAR. While those based in the territory amounted to 11. Page 6

Home mortgages decrease Property A notable decrease. Newly approved residential mortgage loans by local banks plunged 25.8 pct m-o-m in February. Despite an increase in equitable mortgages of 6.9 pct m-o-m. Meanwhile, new lending for commercial real estate increased 6 pct m-o-m. Page 2

The global fast-food chain is set to open three new stores in the territory this year. So says local franchisee Golden Burger (Macau) Food Company Limited and Developmental Licensee.

Marking the 30th anniversary of the appearance of the brand in the MSAR, the company said its business has been growing each year. Thanks to “the most loyal” local citizens.

Business Page 3

HK Hang Seng Index April 11, 2017

Regulators The banking regulator in China has taken another step in strengthening the nation’s financial system. Telling lenders that they have to accomplish ‘self-inspections’ in sensitive areas. In order to limit shadow banking risks.

Page 8

24,088.46 -173.72 (-0.72%) Worst Performers

China Resources Power

+0.28%

Kunlun Energy Co Ltd

-4.53%

PetroChina Co Ltd

-1.56%

Link REIT

+0.54%

China Unicom Hong Kong

+0.19%

Lenovo Group Ltd

-2.86%

Bank of East Asia Ltd/The

-1.56%

HSBC Holdings PLC

+0.47%

New World Development

+0.10%

Galaxy Entertainment Group

-1.82%

Geely Automobile Holdings

-1.52%

Henderson Land Develop-

+0.40%

Cheung Kong Property

+0.09%

Want Want China Holdings

-1.79%

CLP Holdings Ltd

-1.52%

BOC Hong Kong Holdings

+0.32%

China Merchants Port Hold-

+0.00%

Cathay Pacific Airways Ltd

-1.61%

Swire Pacific Ltd

-1.30%

+1.97%

28° 31° 28° 31° 28° 32° 28° 32° 28° 32° Today

Source: Bloomberg

Best Performers

AAC Technologies Holdings

Out of the shadows

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

McDonald’s vows to expand footprint

2 Business Daily Wednesday, April 12 2017

Macau

Property

New housing mortgages plunge in February However, local banks approved more commercial real estate loans in the same month, as compared to January Kam Leong kamleong@macaubusinessdaily.com

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ocal banks approved residential mortgage loans of MOP2.6 billion (US$325 million) during the month of February, down 25.8 per cent month-on-month although those collateralised by completed units registered an increase of 6.9 per cent.

According to the official data of the Monetary Authority of Macau (AMMC) 96.3 per cent of the month’s

new residential lending was granted to local residents, at MOP2.5 billion, a decrease of 26.1 per cent month-on-month.

In addition, new approved home mortgages to non-residents fell 15.3 per cent month-on-month to MOP96.7 million.

Compared to the same period of 2016, total newly approved housing mortgagees increased by 14.9 per cent in the month, while those to residents went up by 20.5 per cent year-on-year.

Meanwhile, the amount of equitable

mortgages rose by 6.9 per cent monthon-month, reaching MOP173.8 million in the period. In particular, those extended to residents grew by 11.3 per cent month-on-month to MOP167.4 million, accounting for 96.3 per cent of the total.

However, compared to the same month of 2016, the amount of equitable mortgages represents a notable decrease of 75 per cent. AMCM explained the drop as being attributable to the higher comparison base of one year ago.

Commercial property loans up

New commercial real estate loans approved by local banks reached MOP2.8 billion in the second month of the year, an increase of 6 per cent month-on-month. On a year-on-year

comparison, the amount also means a growth of 5.3 per cent.

As at the end of February, the outstanding value of housing mortgages went up by 0.5 per cent month-onmonth to MOP182.4 billion. Of the total, that of residents accounted for the majority of shares at 93.8 per cent.

The outstanding value of commercial real estate loans was MOP170.3 billion at the end of the period, up 0.4 per cent from January, of which residents accounted for 90 per cent.

Meanwhile, the delinquency ratio for residential mortgage loans was 0.19 per cent, virtually unchanged from January, while that for commercial real estate loans also remained at 0.13 per cent compared to a month earlier.

Insurance

Tourism

AMCM meets with insurers regarding bid-rigging

Macau, regional partners hold tourism promotion in Indonesia

The Monetary Authority of Macau (AMCM) has met with the city’s insurance industry regarding the recent media report that local insurer Macau Insurance Company was alleged to have rigged bidding process with its competitors.

‘The Monetary Authority of Macau has not received any complaints or enquiries from any bid inviter. However, it has followed up on the report and met with the insurance industry, stressing the law regulations that the industry must obey,’ the regulator wrote in an announcement yesterday.

The monetary authority highlights in its announcement that Articles 153 to 173 of the Commercial Code ban any action preventing competition,

violating competition rules and restricting competition. It notes victims can bring such unlawful actions to the courts.

On Sunday, Chinese language Apple Daily cited a recording of MIC’s internal meeting last December, saying that the company’s CEO was requesting staff working on tenders to have ‘more under-the-table co-operation’ with other insurance companies.

The recording obtained by Apple Daily documents the CEO also mentioning ‘negotiations with other companies for reinsurance’. Incorporation of Fidelidade Macau, China Taiping Insurance (Macau) Co., Ltd. and Asia Insurance Macau were all mentioned in the recording. K.L.

Macao Government Tourism Office (MGTO) rolled out a ‘multi-destination’ tourism promotional event in Indonesia on Monday in co-operation with the tourism bodies of Hong Kong, Guangdong, Guangxi and Fujian.

According to a press release from the Office, the promotion seeks to further tap the middle-haul markets, to attract a larger multitude of high-value visitors to Macau or other destinations, as well, in one trip.

During the event, the local tourism body showcased the city’s elements as a World Centre of Tourism and Leisure to participants, in addition to creating a platform for partner tourism entities in the region to jointly promote multi-destination travel itineraries and products.

According to MGTO, the city

welcomed over 180,000 Indonesian visitors in 2016, a year-on-year surge of 11.7 per cent. Overnight-stay visitors from Indonesia stayed in the MSAR for an average of four days.

‘In light of the trend, MGTO hopes to further enhance regional tourism co-operation through the promotional event so that different destinations can share their strengths and resources,’ the Office wrote.

The body will partner with the tourism authorities and trade delegations of Guangdong, Guangxi and Fujian to participate in another ‘multi-destination’ tourism promotional event in Malaysia today.

A tourism promotion entitled ‘Experience Macao – Malaysia’ will be held today there, attended by MGTO Director Maria Helena de Senna Fernandes.

Business Daily Wednesday, April 12 2017 3

Macau Internet

Broken underwater cable could cause slow Internet until Friday

system detached for immediate repair’.

This caused the repair work to be moved up from the original April 14 start date to yesterday. The Local telecommunications operator CTM announced group notes it has ‘deployed a series of contingency that damage to a submarine cable segment could measures’ to monitor networks, as well as the ‘timely lead to ‘slow speed when accessing some overseas allocation of bandwidth resources’ – re-routing data websites’ during the period the cable is repaired. transmissions to alternative telecom networks ‘so as to According to a company press release, a fault in the cable was detected on March 27, with the administrator keep the impact on customers at its minimal’. of the cable informing the telecom company yesterday The company added it would ‘keep the public updated in a timely manner’ on the restoration progress. that ‘it is necessary to have the submarine cable

Business

McDonald’s to launch three more stores this year The local franchisee of the global fast-food chain said the company’s business has been growing since the first McDonald’s was launched in the city 30 years ago Cecilia U cecilia.u@macaubusinessdaily.com

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cDonald’s is to launch three new stores in the city this year, said its local franchisee Golden Burger (Macau) Food Company Limited and Developmental Licensee yesterday.

Speaking on the sidelines of the celebration event of McDonald’s 30th anniversary in the MSAR, the CEO of Golden Burger, Michelle Ho, said the locations of the proposed new stores have already been selected.

“The [locations of the] stores have been already confirmed but I won’t comment until the stores are opened,” said the businesswoman. “It will be a nice surprise when the stores are opened…[which are] coming soon!”

There are currently 29 McDonald’s stores in the city.

Meanwhile, the CEO declined to

disclose the business results of the company, only saying that they “haven’t seen any decline in the business for the past 10 years”, adding that “there is growth every year”.

“We continue to grow our business year-on-year especially in opening new stores so I can say that it is satisfactory,” Ms. Ho remarked.

Asked about the company’s future plans for McDonald’s Macau, the company executive said the group, from the perspective of franchisee, will continue to expand its business by increasing the number of stores in the city.

the Ferry Terminal, in addition to all major casinos.

The CEO remarked that the company’s customer base has also changed but added that “Macau local citizens are the higher frequent customers and the most loyal ones”.

Meanwhile, the founder and chairman of Golden Burger, John Ho, remarked on the sidelines of the same event that the ban on live poultry

and problematic meat imported from Brazil would not have any impact upon the business of the group.

To celebrate the 30th anniversary of the group’s first McDonald’s, an exhibition about the fast-food chain can be seen in the Macao Science Center, themed ‘McDonald’s Macau 30th Anniversary Memories Playland”.

The exhibition is open to the public for free until May 7 this year.

Changes in 30 years

Asked what the differences are between the company’s business now and then, Ms. Ho commented that the store portfolio of the group has extended from only a few stores to covering all transportation hubs such as Macau International Airport and

McDonald’s Macau celebrated the 30th anniversary of its first store in the territory yesterday.

Legislation

Infrastructure

Bill expanding fiscal info exchange passes first reading

Taipa LRT costs reach MOP9.2 bln

The proposed updates on the current law will now be sent for an Article-by-Article discussion in a sub-committee of the legislature Nelson Moura nelson.moura@macaubusinessdaily.com

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he Legislative Assembly unanimously passed the first reading of the bill expanding the city’s fiscal information exchange yesterday, while the city’s economy head stressed it is urgent to implement the proposal by 2018.

As a member of the OECD Global Forum on Transparency and Exchange Information for Tax Purposes, the MSAR has agreed to implement the organisation’s Common Reporting Standard by next year.

The current bill proposes the enabling of automatic and spontaneous exchange of financial account information for tax purposes among jurisdiction members. Currently, Macau only permits fiscal information exchange by request, which was enforced in 2009.

Secretary for Economy and Finance Lionel Leong Vai Tac explained yesterday that the government’s delay in submitting the bill to the legislature was because it had to wait for neighbouring SAR Hong Kong to enforce its own regulations first.

“Hong Kong only approved similar

regulations in June, 2016, so only after that did the MSAR have a reference for [its] application,” the Secretary said.

“International standards demand strict collaboration between financial institutions. Since financial institutions in Hong Kong and the MSAR have close ties, it would have a negative impact on local financial entities if different regulations are imposed,” the official further explained.

The necessity to translate the original international requirements from English and French was also identified by the Secretary as another reason causing the delay.

The current law proposal states financial data would start being collected from July 1 of this year but the director of the Financial Services Bureau (DSF), Iong Kong Leong, explained only information covering the last five years would be collected.

Some legislators expressed concerns about how the privacy of the shared information would be maintained. But the DSF head assured the government it would follow international standards for information transfer, as required by the OECD Global Forum, guaranteeing that the city’s databases are independent and well protected.

Current costs for the Taipa section of the Light Rail Transit (LRT) and the superstructure work of the section’s depot have already reached MOP9.2 billion (US$1.2 billion) - of the estimated MOP11 billion budget - the government told the follow-up committee for land and public concession affairs of the Legislative Assembly (AL) yesterday.

According to the chairman of the committee, Ho Ion Sang, the amount was calculated by the government based upon estimates. That also suggests an increase in the costs for the projects compared to the estimated recorded costs of MOP8 billion one year ago.

Following the meeting, Secretary for Transport and Public Works Raimundo Arrais do Rosário said that the

government’s current priorities are to complete the Taipa LRT and the depot by the end of 2019, develop the route’s connection to Macau Peninsula and initiate preparation works for the Seac Pai Van line.

Secretary Rosario also said it ‘was too early’ to discuss fares for the LRT. However, Legislator Ho said committee members are concerned that the Taipa section of the LRT will incur ‘large costs’ for Macau and the government as the infrastructure will not have any other sources of revenue apart from ticket sales.

The government official also denied yesterday that the future public company responsible for the LRT metro system and its management would be set up via a partnership between the private and the public sector. N.M.

4 Business Daily Wednesday, April 12 2017

Macau Opinion

José I. Duarte* Flying visions Last week, Macau hosted a meeting with Mainland tourism authorities for talks about the development of Macau as a tourism and leisure centre. Somehow, unfortunately, the only topic that got noticeable reference was apparently not discussed in the meeting and is not mentioned in the official press release. It was a comment to the media that Macau “should study the possibility of exploring direct flights to the Portuguese-speaking countries as a way of attracting more visitors.” Possibly the suggestion gained bigger visibility because the Liaison Office representative made it. But the particular context of the statement is not clear, and that visibility may well surprise the author, who might not have intended or expected it.

That Macau should, in general terms, consider all the means it can mobilise to develop and consolidate its role as a bridge to the Portuguese-speaking world is not in doubt. Easier connections with those countries would be one of such tools. But it is doubtful that promoting direct flights should be a government priority and there is not much the local authorities can do about it.

Few, if any, of those connections are likely to be viable in commercial terms.

Connections to Lisbon, which have been on the agenda for a very long time, have proved difficult to (re-) launch. Air Portugal dropped the connec­ tion two decades ago, since when hardly a year has passed without someone raising the issue. Air Macau, in particular, never stepped forward or seemed too enthusiastic about the idea.

These are not encouraging signals. Anyway, the flights failed to materialise. The Hangzhou-Beijing-Lisbon route, if launched as promised in the Summer, will already represent a significant advance. It will reinforce the role of Lisbon as a hub for connections from Europe to Latin American countries, including Brazil, and Africa. It’s hard to see how Macau can compete there.

Alternatively, such flights could be the outcome of a political decision. But then, only the central government has the tools to make it happen.

It owns Air China, and the company has a commanding or significant position in several regional airlines, including Air Macau.

Even assuming that it would not generate substantial resistance from other interested parties, the use of state commercial assets to further the strategic aims of the central government appears to be well beyond the remit of the Macau Government. It is not clear how the idea can take off. *economist and permanent contributor to this newspaper.

Work safety

Report not adding up Hong Kong legislative members slam their city’s Labour Department report on the number of fatalities arising from the construction of the RMB60 billion Hong Kong-Zhuhai-Macau Bridge Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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ong Kong pro-democratic legislators accused their government of releasing misleading figures about the number of occupational fatalities linked to the construction of the Hong Kong-Zhuhai-Macau Bridge, Hong Kong Free Press (HKFP) reported yesterday.

A document the Labour Department has submitted to the Hong Kong Legislative Assembly details a total of five deaths and 235 injuries since the commencement of work on the bridge in 2011 until the third quarter of 2016.

Nathan Law, a Hong Kong legislator, alleged that the data the government department provided is not accurate during a Finance Committee

meeting on Friday.

In particular, he questioned the single death that the Department reported in 2014, saying the information does not match with the four deaths previously reported by media outlets.

On behalf of the department, Commissioner Carlson Chan Ka-shun explained that the numbers cover only the accidents that took place on land or on segments of the bridge defined as ‘industrial accidents’ – excluding those that occurred in the sea or in boats, which, according to him, are a matter for the Marine Department.

“You are building a bridge over the water, how can you not include accidents that occurred in the sea?” Mr. Law queried.

Meanwhile, ‘Long Hair’ Leung Kwok-hung, another Hong Kong legislator, remarked that the report is “ridiculous”.

Problematic bridge

The management of the 42-kilometre long bridge, slated to open at the end of this year at an estimated cost of RMB60 billion (MOP69.58 billion/ US$8.69 billion) to date, has been slammed for delays and repeated overspending as well as poor safety standards.

In different reports earlier this year, South China Morning Post (SCMP) claimed that at least 10 fatalities had been recorded since the launch of the project, while the number of injuries could reach 600.

As at February 10, 2017 the governments of Hong Kong, Macau and Zhuhai have shouldered RMB38 billion to finance the project, representing 42 per cent of total estimated costs.

The remaining 58 per cent, or about RMB22 billion, came from bank loans provided by the Bank of China, which will be repaid from revenue generated once the bridge is operational.

According to recent reports, the Macau SAR Government has poured RMB1.98 billion into the construction of the main section of the super bridge, although the total amount for the overrun is still under analysis.

Aviation

Veteran Breitling DC-3 en route to MSAR The city is to welcome the arrival of a vintage 77 year-old Breitling DC-3 aircraft next Monday as part of the Breitling DC-3 World Tour.

The twin-engine propeller plane which made its maiden flight in the United States in March 1940 - is to land by the Menzies hangar at Macau

International Airport.

The aircraft today is part of an aviation legend and the oldest plane to undertake a world tour. Following its maiden flight in 1940, it was delivered to American Airlines.

Hired out to the army from 1942 to 1944, it was subsequently used by various North American companies as bomber, fighter, flying hospital, paratrooper transport, and sightseeing aircraft among many other roles.

The plane was bought back in 2008 by pilot Francisco Agullo and a group of friends with Breitling’s support, and then restored. Since then, the aircraft has taken part in many aeronautical shows as well as events held by the brand.

Violations

CITIC cleared of market misconduct CITIC Limited, an investment holding company that indirectly owns Companhia de Telecomunicações de Macau (CTM) was cleared of market misconduct charges on Monday.

According to a filing of the company with the Hong Kong Stock Exchange, the Market Misconduct Tribunal (MMT) ruled in favour of CITIC, stating that no market misconduct within the meaning of the Securities and Futures Ordinance took place in the publication of the company’s circular on September 12, 2008.

The Securities and Futures

Commission (SFC) had alleged that the company and its five former directors had engaged in market

misconduct involving the disclosure of false or misleading information, according to the filing.

The proceedings were filed by SFC in September 2014 with the Court of First Instance of the High Court of Hong Kong S.Z.

Business Daily Wednesday, April 12 2017 5

Macau Tourism

Mentor across the delta World Economic Forum travel and tourism index gives examples to MSAR of who and what to follow Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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s infrastructure projects such as the Hong K o n g-Zh u hai -M aca u Bridge and further rail and highway links defined in the five-year plans of both the MSAR and the Mainland are on the cards, Macau is well positioned to benefit from the tourism and travel appeal of its closest neighbours.

According to a report by the World Economic Forum (WEF) both Hong Kong and China score within the top 20 on their Travel & Tourism Competitiveness Index for 2017, with Hong Kong placing 11th on the list and China placing 15th overall.

The index is led by three European countries - Spain, France and Germany - followed by nearby Japan, with the United Kingdom taking fifth spot in this year’s ranking.

Closely following are the United States, Australia, Italy, Canada and Switzerland, filling out the top ten spots on the list. The highest overall ranking, achieved by Spain, is a score of 5.43, with Hong Kong ranking 4.86 and China ranking 4.72. The last place on the list, at number 136, is Yemen with a score of 2.44 out of a total of 7.

Learn from a neighbour

The MSAR welcomed more incoming tourists than Hong Kong last year although it was not included in the

ranking despite the 30.95 million tourists to its shores in 2016 - according to data from the Statistics and Census Service (DSEC), as opposed to the 26.68 million visiting Hong Kong, according to the WEF report.

However, the total international tourism inbound receipts in the HKSAR overshadowed those of Macau - at US$36.15 billion (MOP289.4 billion) according to WEF data, as compared to the US$6.58 billion received in Macau, per DSEC data.

The neighbouring SAR champions this figure, not only through superior land mass and population, but by leading the index in three of the 14 categories it evaluates: ground and port infrastructure, business environment, and information and communication technology (ICT) readiness.

In addition, it is 5th on the index in terms of safety and security as well as in air transport infrastructure and comes 9th in prioritisation of travel and tourism.

Meanwhile, neighbouring China shows its strongest rankings in cultural resources and business travel, where it’s ranked 1st, and in natural resources – in which it ranks 5th. However, both transportation (air transport infrastructure at 24th and ground and port infrastructure at 44th) is lacking, while its tourist service infrastructure is ranked 92nd, sandwiched between El Salvador and Egypt.

Interestingly, the country makes more per arrival than either Macau

or Hong Kong, at US$2,005.9 as compared to Hong Kong’s US$1,354.6.

Macau’s per capita visitor spending last year was just US$212.50, according to DSEC data.

Looking around

Given that Southeast Asia on average is not as developed as the neighbouring SAR, in particular in terms of infrastructure, the MSAR’s strategic placement between the economic powerhouse and its efficient, travel-friendly hub counteracts its relative expense.

‘East Asia, the most developed part of Asia, and Australia, share several strengths and have historically been the best performers in the region.

The nations in this sub-region boast strong safety and health conditions, have world-class infrastructure and are among the most ICT-ready globally, especially Hong Kong and South Korea,’ notes the report.

‘They are able to attract tourists by balancing offers on the basis of their

natural and cultural resources. Yet, these nations are some of the most expensive destinations in the region,’ points out the index.

However, competition with neighbouring countries is not out of the question, given their own priorities and desires to develop.

‘Conversely, countries in SouthEast Asia (ASEAN) offer competitive prices and take advantage of their natural resources to attract tourists.

While cultural resources are available, to date they have been less valued than natural assets. ASEAN nations are also particularly inclined to prioritise tourism in their development agenda,’ notes the report.

As integrated resort offerings spring up around the region, and already developed offerings compete with the MSAR in the Philippines and Australia, the MSAR’s push for a diversified economy, and following through on its infrastructure and ‘smart city’ promises will be key to capitalising on its neighbours’ strengths.

6 Business Daily Wednesday, April 12 2017

Macau Aviation

Seeking the updraft China continues to be the largest driver of the business jet industry regionally, with 477 aircraft last year, despite a two-plane reduction in the MSAR fleet y-o-y in 2016 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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lthough the Asia Pacific region saw a 3 per cent year-on-year increase in the business jet fleet plying its skies last year, reaching 1,155 aircraft by year-end, the MSAR contributed to the 78 aircraft which left the fleet during the year, seeing a 15.4 per cent reduction in its business jet offerings with the exit of two aircraft in 2016.

As at year-end, a total of 11 business jets were based in the MSAR, according to the Fleet Report put together by aviation sales, charter and consulting group Asian Sky. The majority of the planes still remaining in the MSAR, at 37 per cent of the total, were of the Bombardier type, the no.1 ranked business jet in the region and which China owns the largest fleet of, at 27 per cent of the total 301 business jets it has supplied regionally.

The MSAR takes up just 1 per cent of this fleet, flanked by neighbouring Japan (with five jets), South Korea (with three jets) and New Zealand (with one jet). The most popular of the Bombardier offerings in the MSAR is the Challenger 605 - the 25-foot (7.8 metre), 10-passenger plane which costs about US$27 million new as well as approximately US$3.48 million per year in expenses, as estimated by shared luxury property market publication SherpaReport.com. Currently, two of the aircraft are based out of Macau.

In addition, the group’s local offerings include a Global 6000 – a 48-foot craft that can carry up to 19 passengers and two crew members and has a list price of US$60.5 million, according to Corporate Jet Investor; as well as a Global Express, the used models of which currently cost nearly US$8 million.

The second most prevalent business jet companies in Macau are Gulfstream and Embraer, of which the MSAR houses two models each.

Hangars in the MSAR house the G550 and the G650 models (with a 46-foot cabin, one of which was once sold second-hand for US$72 million). The Embraer options comprise the Legacy 650 (costing about US$27.45 million new) and the Lineage 1000 (costing about US$49.25 million new).

In addition, local hangars house

Photo by Aivi N. Remulla

one aircraft each of three brands: Dassault, Airbus and Hawker.

Growth and slowdown

The corruption crackdown on the Mainland had a delayed impact upon the local business jet aviation industry in terms of jet sales, as between 2014 and 2015 the number of business jets in the MSAR was unchanged at 13; however, China seems to have bucked the trend, experiencing 4.2 per cent annual growth in its fleet between end-2014 and end-2015 and 4.3 per cent year-on-year growth in 2016. In total, at year-end, the country itself had 313 business jets in operation last year.

Neighbouring Hong Kong also maintained its stability, with large growth seen between 2014 and 2015, at 13.7 per cent, an increase of 15 jets, tapering to a 4.8 per cent year-onyear growth last year, with six new jets adding to the fleet. In fact, Macau was the only member of the Greater China region that saw a decrease in its fleet, as Taiwan saw a four-jet increase in its fleet in 2014-2015 and a two-jet increase year-on-year in 2016.

‘Greater China has quickly evolved since its inception in the early 1990s into the leader for business aviation in the region,’ says the report.

‘Over the last decade, increasingly large corporations and the growing number of HNWIs (high-net-worth individuals) in Greater China have come to realise the value of a business jet, significantly expanding the size of the fleet to 477 aircraft as at the end of 2016, a 4 per cent increase over 2015 and representing 41 per cent of the total Asia Pacific fleet,’ it reads.

‘While the Mainland’s anti-corruption campaign has in recent years instilled buyers with caution regarding how purchasing such an expensive asset might be perceived by peers and the government, the market’s potential remains extremely high

as it continues to produce the largest numbers of HNW and UHNWIs (ultra-high-net-worth individuals) in the region.

The development of the industry was also outlined in the 2016 Chinese State Council Report, which notes that it aims to ‘further tap consumption potential’ in concert with ‘efforts to promote industry transformation and upgrades’ as it is ‘set to build a general aviation industry that has more than 500 general aviation airports, 5,000 aircraft, and a group of competitive enterprises by the end of 2020’.

Ageing gracefully

‘Greater China’s significance in and to the region cannot be understated: as the Greater China market goes, so does Asia Pacific,’ reads the fleet report.

China and Macau both also benefit from having relatively young aircraft, according to report findings, as the average aircraft age for both is eight years.

This compares to Papua New Guinea - whose planes average 23 years of age, and Australia and the Philippines, which average 21 years and 19 years, respectively. Hong Kong’s fleet is even younger, on average, at seven years.

Still, the overall trend is a ‘dramatic overall increase in pre-owned activity,’ notes the report, pointing to 127 pre-owned aircraft transactions last year.

‘The dominance of pre-owned additions and deductions to the market in 2016, including aircraft sold out of the region and retired, can greatly be attributed to market activity in two areas, Greater China and Australia,’ notes the report.

‘The region’s largest market, Greater China, is also one of its youngest, and saw the most additions and deductions in 2016; with 34 new and 19 pre-owned additions. At the same

Photo by Aivi N. Remulla

time, 34 aircraft were removed from Greater China, with 20 sold out of Mainland China, mostly going to the U.S.,’ detail the findings.

Housing

While more aircraft change hands in the region, companies are looking where to house them, with operator Jet Aviation, which is awaiting the opening of its new maintenance, repair and operations (MRO) facility at the airport (originally scheduled for the first quarter, according to the group’s website) and set to happen ‘soon’- according to statements by John Riggir, Vice President and General Manager of Jet Aviation’s MRO and FBO facility in Singapore.

The company recently announced it was expanding to a third hangar at Singapore’s Seletar Aerospace Park, with Rigger stating the group is ‘certainly open to considering new locations in China’, as cited by Aviation Week.

Currently, Rigger notes that ‘we consider Singapore our major Asia Pacific service hub, supporting heavy maintenance and large refurbishment projects, while our facilities in Hong Kong and (soon) in Macau offer immediate maintenance services right at the doorstep of the region’s largest market’.

In addition to the need for warehousing services, companies such as Comlux – a business aviation services group – are looking to expand its China presence as it takes on more regional clients, targeting the second-hand market.

This includes a retrofit for a Boeing Business Jet aircraft managed by Hong Kong-based Sino Jet with specific features such as ‘the addition of a specially designed bed that pulls out from the cabin’s side ledge to allow more passengers to sleep,’ according to aviation publication AIN. Interestingly, despite the 11 aircraft currently being housed in and operating out of Macau, none of them are registered in the territory, with the overwhelming majority registered in the United States, at 73 per cent, and 9 per cent of them registered in the Isle of Man. The registration of the remaining 18 per cent is defined as ‘others’, according to the jet fleet report.

Results for the future might slow but will not peter out notes the report.

‘For 2017, ASG predicts growth finally flattening out at around 1 per cent as new deliveries continue to decline and pent up demand for G650s recedes. The good news is the market shouldn’t get any worse through 2017 and ASG sees a modest return to growth in 2018 when the market should also get some stimulation from new deliveries of 8Xs, G500s and G7000s,’ it concludes.

Business Daily Wednesday, April 12 2017 7

Gaming Technology

Poker-playing engineers take on AI Machine - and get thrashed Poker veteran Alan Du is piling up his losses in his matches against artificial intelligence programme ‘Lengpudashi’

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lan Du, a venture capitalist and World Series of Poker veteran, was in his fifth day of matching wits against his stone-cold opponent - and his losses were piling up.

His rival was literally inhuman.

That’s because Du went up against “Lengpudashi:” an updated version of the Libratus artificial intelligence program that achieved a major milestone by besting four of the world’s best poker pros in January. Housed within a supercomputing center near Carnegie Mellon University in Pittsburgh, its name, intended to resemble its English moniker, fittingly translates into “cold poker master.”

Du and five team members played 36,000 hands against the machine over the course of five days. On Monday, at a resort conference centre on China’s Hainan island, the final point-based score was announced: the AI won by a landslide.

Poker is a popular game among venture capitalists because “every hand you play is like a venture, trying to assess risk and ROI,” said Du, a seed investor who became the first Mainland Chinese to win a WSOP gold bracelet in Las Vegas last year.

“We held ourselves very well when

playing against this world-class opponent.”

Poker’s complex betting strategies and the element of bluffing make it particularly intriguing to AI researchers. A player also decides to bet, bluff or fold without ever seeing the opponent’s full hand a different kind of challenge than games like chess or Go, in which all the pieces are clearly visible on a playing board.

Du had tried to prevail where the pros had fallen short by employing an understanding of AI. Unlike the players in the January match-up who drew upon years of professional experience, Du’s Chinese team included engineers, computer scientists and investors, who attempted to apply their knowledge of machine intelligence and game theory to counter the machine’s moves. It wasn’t enough.

The latest AI exhibition, organized

by Sinovation Ventures and Hainan’s government, didn’t generate quite the same buzz as last year’s match-up between Google DeepMind’s AlphaGo and Korean master Lee Sedol in Seoul. Perhaps that’s because even casual observers are becoming accustomed to seeing AI software upstage humans. Google announced Monday its DeepMind AI software will take on top-ranked

Chinese player Ke Jie in a rematch of man versus machine.

Tuomas Sandholm, a professor of computer science at Carnegie Mellon, has been honing the research underlying Libratus since 2004, honing its ability to make decisions in situations with imperfect information. The point of training AI to win at games like chess, Go, and poker isn’t for the sake of games themselves, but because controlled environments help computers hone strategic decision-making. Those reasoning skills can then be applied to real-world problems such as business, finance, and cyber-security, he said.

“People have a misunderstanding of what computers and people are each good at. People think that bluffing is very human - it turns out that’s not true,” said Noam Brown, Sandholm’s PhD student and a co-developer of Libratus. “A computer can learn from experience that if it has a weak hand and it bluffs, it can make more money.”

The AI didn’t learn to bluff from

mimicking successful human poker players, but from game theory. “Its strategies were computed from just the rules of the game,” not from analyzing historical data, Sandholm said.

Venture capitalist Kai-Fu Lee, founder of Sinovation and an event organizer, said the rapid acceleration of AI technology over the past five years wasn’t possible before the advent of big data analysis. His fund has invested US$120 million (MOP960 million) in AI-related companies in China – including facial recognition and loan-application start-ups - and he plans to devote a significant chunk of the money he’s currently raising to other AI ventures.

Also evident in the Hainan exhibition was the possibility of AI’s gradual democratization. Brown said the computing power on display over the competition could be had for under US$20,000.

“It’s surprisingly affordable,” he said. “Within 5 years, this could be running on smartphones.” Bloomberg News

8 Business Daily Wednesday, April 12 2017

Greater china

Banks

China tells lenders to come clean on bad loan levels Moody’s Investors Service said in December that Chinese banks are facing increasing risks

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hina’s banking regulator has told lenders to conduct “self-inspections” in areas such as using loopholes to circumvent rules, in order to boost supervision of the vast shadow banking sector, according to documents seen by Reuters.

The move is the latest by Chinese regulators to contain risk in the banking system, as more borrowers struggle to avoid defaults and levels of non-performing loans (NPLs) rise.

The China Banking Regulatory Commision (CBRC) wants to better understand the amount of leverage in the banking system and prevent lenders from hiding the true extent of soured debt, three sources told

Reuters late on Monday.

The CBRC could not be immediately reached for comment.

An attachment to a document dated March 28 that was circulated to lenders specifies subjects for self-inspections.

It says they should check whether asset management plans have been used to avoiding reporting the extent of NPLs in order to meet targets, and whether bridge financing and shortterm loans have been made to hide defaults and artificially adjust other indicators.

Wealth management products

Also to be scrutinized, according to the documents, are wealth management

products (WMP) that can be used as a way to evade lending controls and buy-back transactions which can be used to artificially adjust targets.

Key Points China regulator orders banks to “self-inspect” arbitrage Lenders told to probe any coverup of non-performing loans Banks need to check actions that manipulate regulatory targets

False transfer arbitrage should also be checked, the documents said, including the use of bills, credit, WMPs and interbank lending to falsely raise deposit levels and revenues.

Related-transaction arbitrage, such

as the use of domestic or foreign subsidiaries to avoid rules restricting lending to local government platforms, should also be checked, according to the documents.

Last year, bad loans written off and transferred out by China’s top five banks rose by 16 per cent to RMB309.6 billion (US$44.95 billion).

Moody’s Investors Service said in December that Chinese banks are facing increasing risks as a result of financial sector interconnectedness between the formal banking system and the shadow banking system, which has doubled in size the past five 5 years with its assets equal to 82 per cent of GDP at the end of June 2016.

Separately, the CBRC on Monday issued guidelines on risk control for lenders, as authorities ramp up efforts to deal with a rapid build-up in debt. Reuters

Commerce

Expanded U.S. beef sales to Mainland ‘big prize’ China halted imports of U.S. beef in 2003 after a case of mad cow disease was found in Washington state Alan Bjerga and Shruti Date Singh

President Donald Trump achieved a “big prize” during his meeting last week with Chinese President Xi Jinping by expanding U.S. beef exports to China, White House spokesman Sean Spicer said, without offering details on any tangible steps taken toward ensuring greater access.

China in September removed a ban on shipments of some U.S. beef products, opening up the trade for the first time since 2003 as the Asian nation sees a surge in imports of the meat. Still, conditions attached to the re-opening, including Chinese requirements for an acceptably traceable U.S. meat supply, have held up sales.

No concrete changes to the earlier agreement resulted from last week’s meeting, but “the plan was to put together a plan” on beef and other issues, Spicer told reporters in a White House press briefing.

China halted imports of U.S. beef in 2003 after a case of mad cow disease

was found in Washington state. The country is the world’s second-biggest beef buyer after rapid economic growth over the past decade created an expanding middle class that can afford more protein in their diets. China is already the No. 1 pork consumer.

The re-opening of China to U.S.

beef may provide new opportunities for packers including Tyson Foods Inc., the largest U.S. meat processor, and Cargill Inc., the top American ground-beef maker. Tyson declined to comment on the trade with China.

“The reports are encouraging, but there are numerous steps remaining before U.S. beef could be exported to China, and there is currently no established timetable for this to happen,” said Mike Martin, a Wichita,

Kansas-based communications director for Cargill Protein.

‘White House spokesman Sean Spicer said no concrete changes to the earlier agreement resulted from last week’s meeting, but “the plan was to put together a plan” on beef and other issues’ Surging Chinese demand had been a boon to Australian producers after a drought increased cattle slaughter and supply available for export.

The island country has recently been losing market share to Brazil, which was allowed to resume shipments to China last year. Bloomberg News

Business Daily Wednesday, April 12 2017 9

Greater China Watchdog

In Brief

Insurance industry subject to growing crackdown Analysts and market-watchers said they saw the investigation as part of a broader push by the government to crack down on risks in China’s financial sector Julie Zhu

China’s anti-graft probe into the head of the country’s insurance watchdog could lead to more intense regulatory scrutiny on the insurance industry, executives and analysts say.

A crackdown could put particular focus perceived risks that have emerged in the sector in recent years, such as high-yielding investment products and speculative acquisitions by insurers.

The Central Commission for Discipline Inspection (CCDI) said on Sunday Xiang Junbo, head of the China Insurance Regulatory Commission (CIRC) was suspected of “serious disciplinary violations” - a phrase typically used to refer to graft.

The CCDI and the CIRC did not provide any further details regarding the investigation into Xiang, who is the most senior financial regulator to be caught up in Beijing’s fight against corruption.

Analysts and market-watchers said they saw the investigation as part of a broader push by the government to crack down on risks in China’s financial sector, including excesses that had grown in the insurance sector under Xiang’s watch.

“The on-going anti-corruption campaign...doesn’t aim to only take down a few ‘big tigers’ but aims to make the Chinese financial system a clean club,” said Hong Hao, chief

strategist at BOCOM International, adding the campaign was ultimately good for the financial markets and economy.

Financial system risks have been exacerbated by some insurers taking sizable stakes in market-listed companies often funded by issuing high-yield, short-term universal life insurance and other investment products.

“China’s insurance industry has been developing too fast and aggressively since Xiang took office,” said one executive at a major Chinese insurer.

“Going forward, the CIRC would probably tighten regulations on the industry, in particular on insurers’ solvency and their universal life products. The whole industry is likely to become more traditional and conservative than before.”

One senior executive at another large Chinese insurer said the CIRC will “definitely tighten its regulations on the industry,” adding it would likely focus on the liquidity risks created by insurers’ asset and liability mismatches.

One senior source, who spoke on the condition of anonymity, told Reuters that CIRC officials were told at a meeting to support the government’s decision to investigate Xiang, to “maintain the stability of the industry” and “be on guard against risks”.

This person declined to be identified due to the sensitivity of the issue. The CIRC said in a statement on Monday it will tackle illegal activities in the insurance market and fend off financial risk.

At the time of publication, the regulator had not responded to a Reuters fax requesting comment.

Since becoming head of the insurance regulator in 2011, Xiang had overseen rapid growth of the industry spurred in part by the liberalisation of investment rules that allowed insurers to invest more of their assets at home and overseas.

China’s insurance assets have nearly doubled over the last three years, reaching RMB15.1 trillion (US$2.19 trillion) at the end of 2016, CIRC data shows.

This buying spree, often funded by the issuance of short-term products, had sparked alarm among regulators, leading the CIRC to restrict insurers selling universal life and other products.

More recent rules bar insurers from opening new subsidiaries and branches if they rely heavily on these products.

Leon Qi, Head of Greater China Financials Research at brokerage Daiwa, said China’s top leadership has become much tougher on financial regulatory officials.

Lawyers and market participants say Liu Shiyu, the head of the China Securities Regulatory Commission, has taken a more aggressive stance than his predecessor, Xiao Gang, who was removed from his post in February last year after critics accused him of mishandling the 2015 stock market crisis. Reuters

Cash crunch

LeEco likely to miss U.S. sales forecasts

Authorities to extend cyber law reach China’s top cyber authority yesterday released a draft law that would require firms exporting data to undergo an annual security assessment, in the latest of several recent safeguards against threats such as hacking and terrorism. Any business transferring data of over 1000 gigabytes or affecting over 500,000 users will be assessed on its security measures and on the potential of the data to harm national interests, showed the draft from the Cyberspace Administration of China (CAC). The law would ban the export of any economic, technological or scientific data whose transfer would pose a threat to security or public interests.

Debt

Shandong Molong raises ‘significant doubts’ on future Shandong Molong Petroleum Machinery Co Ltd said yesterday it had “significant doubts” about its ability to continue operating with its liabilities exceeding assets by RMB15.83 billion (US$2.3 billion) at the end of 2016. The petroleum equipment maker, however, said it also had sufficient funds to maintain normal production and operation, but did not say for how long. The firm said it was taking measures to reduce production costs, expand its financing channels and diversify its sources of income.

Controlling shareholder Zhang Enrong will also provide financial support, the company said in a filing to the Hong Kong bourse.

M&A

Foxconn could bid up to US$27 bln for Toshiba’s unit

On Monday, the company said it was abandoning its plan to acquire U.S. TV maker Vizio Selina Wang

Chinese technology conglomerate LeEco Inc. is sharply scaling back its U.S. ambitions.

The company -- which oversees a range of businesses in China, from streaming video to smartphones to electric cars -- missed its projections for 2016 sales in the U.S. by a wide margin and is planning to cut more than a third of its U.S. workforce, a person familiar with the matter said.

Billionaire Jia Yueting is narrowing his vision for LeEco’s global expansion amid lacklustre sales and the prospect of a cash crunch. The company entered the North American market in October with a splashy event in San Francisco, where it showed off an array of products, including ultra high-definition televisions, phones, virtual reality goggles and electric bikes. Yet LeEco generated U.S. revenue of less than US$15 million last year after that October debut, compared with an original goal of US$100 million, according to the person.

The company so far is only selling TVs, smartphones and some accessories in the U.S. The U.S. unit is also making plans to eliminate about 175 jobs, which would shrink its staff in the country to about 300 people, said the person, who asked not to be named because the financial details aren’t public.

LeEco declined to comment on the planned job cuts and revenue miss.

On Monday, the company said it

Outbound data

was abandoning its plan to acquire U.S. TV maker Vizio Inc. for US$2 billion, citing regulatory hurdles. The collapse of the deal, which was meant to give LeEco a beachhead to build its brand with American customers, sets LeEco even further back in the U.S. The two companies said they instead will collaborate on ways to bring Vizio’s products to the China market and integrate LeEco’s content into Vizio’s platform.

Unfamiliar market

Jia pushed into the unfamiliar U.S. market even as his umbrella company struggled to alleviate a cash shortage. Executive departures and job cuts are further fuelling concern about the future of LeEco U.S., where the company delayed payroll earlier this month. Frustration has also stemmed from employees with bosses in China who appear to have little understanding of the American market, according to current and former employees.

At the time of LeEco’s U.S. rollout, Jia said that the U.S. operations employed more than 500 people “with more being added each week.” The company had also purchased 49 acres of land in Santa Clara, California, from Yahoo! Inc. to build a campus that could house as many

as 12,000 employees. Those plans have now been scrapped, according to the person with knowledge of the company’s operations.

After rapid expansion of his tech empire, Jia admitted late last year in a letter to employees that the company was struggling to raise cash. Some suppliers said that LeEco was behind on payments and the company was stripped of some sports broadcasting rights.

The company now employs about 475 across its U.S. offices, which are based in San Jose, California. LeEco has been planning to make another round of job cuts for several months, but the timing for the reduction depends on when the company can build up enough funds to pay for employee severance packages, the person said.

At the time of its U.S. debut, analysts questioned whether LeEco could export its business model outside of China, where its brand is less wellknown. The company’s aggressive approach to international expansion sharply contrasts with that of China’s three biggest internet companies: Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. They have made slow forays in the U.S., opening modest offices in Silicon Valley and mostly focusing on investing in U.S. startups. Bloomberg News

Taiwan’s Foxconn has indicated that it may pay as much as 3 trillion yen (US$26.99 billion) for Toshiba Corp’s chip business, Bloomberg reported on Monday, citing people familiar with the matter. South Korea’s SK Hynix Inc and chipmaker Broadcom Ltd have submitted preliminary bids for the business, valued at 2 trillion yen (US$17.98 billion) or more, according to the report. Toshiba, the second-biggest NAND chip producer after South Korea’s Samsung Electronics Co Ltd, is considering selling the majority - or all - of its marquee flash-memory chip business, as it seeks to make up for a US$6.3 billion write-down from its U.S. nuclear unit Westinghouse.

Reform push

North East free trade zone starts operation Three separate areas in a free trade zone in northeast China’s Liaoning Province were inaugurated Monday, part of the measures to invigorate the old industrial base. A total of 181 companies obtained business licenses Monday in the FTZ’s Dalian, Shenyang and Yingkou areas. An additional 350 firms are planning to follow suit. “Our company will invest RMB10 billion (US$1.45 billion) in a project that will have an annual production capacity of 300,000 new energy cars,” said Zhou Guangsheng, legal representative of a clean energy automobile company based in Shenyang, the provincial capital.

10 Business Daily Wednesday, April 12 2017

Greater China Oil industry

State refiners given 1.3 mln tonnes of general trade fuel quotas These were the second batch of general trade quotas for 2017 Chen Aizhu and Meng Meng

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hina’s state oil refiners have been granted a combined 1.315 million tonnes of quotas to export refined fuel under so-called general trade terms, three sources familiar with the matter said on Monday.

These permits, mostly for diesel and gasoline, were in addition to the 3.335 million tonnes of quotas allotted to the refiners under a separate, socalled processing trade category, after Beijing agreed to grant tax incentives to exports under general trade terms.

The general-trade quotas were issued in early March with PetroChina receiving 1 million tonnes and Sinopec Corp 300,000 tonnes, said two of the three sources familiar with the companies’ quotas.

CNOOC, which holds less refining capacity, won a quota for 15,000 tonnes as an “experiment”, said the third source, who has direct knowledge of CNOOC’s trade operations.

These were the second batch of general trade quotas for 2017. In early 2017, PetroChina was the only refiner granted a quota for 600,000 tonnes, said one of the sources.

At the end of March, China also issued its second batch of quotas for 2017 under the prevailing processing, or tolling, rules, lowering the volumes by 73 per cent compared to the first round.

State refiners applied for the general trade quotas after the government agreed in late 2016 to grant tax incentives on fuel exports making the terms more attractive since it offers refiners greater flexibility in the volumes and time frames for exporting fuel, said the three sources who are familiar with the rules.

Top Asian refiner Sinopec said on Friday it exported a diesel cargo to Singapore under the general trade rules for the first time in 13 years.

PetroChina did not win any quotas

under the recent round of processing trade quotas, Reuters has reported.

The sources said PetroChina, which imports less crude than rival Sinopec, did not apply for the processing trade quotas but only asked for general trade ones since it see those terms as more attractive.

‘The generaltrade quotas were issued in early March with PetroChina receiving 1 million tonnes and Sinopec Corp 300,000 tonnes’ State oil firms normally do not comment on operational matters.

Under the processing rules, refiners are exempted from import taxes on crude oil and export taxes for oil products, but have a fixed volume and time slots to export, both under the tight scrutiny of Chinese customs, Beijing-based oil traders have said.

Under the general trade category, refiners get tax refunds after exports are completed or get a tax waiver on fuel exports, a policy that Beijing granted in 2016, the three sources said. Reuters

M&A

Mainland fund to acquire Xcerra for US$580 million Chinese suitors have faced intense scrutiny from regulators in their pursuit of U.S. chip makers Liana B. Baker and Koh Gui Qing

A unit of a large semiconductor investment fund linked to the Chinese state has agreed to buy U.S. semiconductor testing company Xcerra Corp for US$580 million in cash, the companies said on Monday.

The deal is subject to approval by the Committee on Foreign Investment in the United States (CFIUS), a government panel that reviews acquisitions by foreign entities for potential national security risks. CFIUS has cracked down on technology deals related to the semiconductor industry.

The buyer is Unic Capital Management, a subsidiary of Sino IC Capital that was founded last year, the companies said in a news release.

Sino IC Capital was established in August 2014 and has approximately RMB 138.7 billion (US$20.9 billion) in funds under management to invest in the semiconductor space.

Unic is paying US$10.25 per share in cash for Xcerra. Xcerra shares gained 7 per cent to close at US$9.63 on Monday. That was still below Unic’s offer price, indicating some market

skepticism about the deal closing.

The deal is expected to close by year-end.

Chinese suitors have faced intense scrutiny from regulators in their pursuit of U.S. chip makers, resulting in some failed deals in recent years.

According to the website of a Sino IC shareholder, China Development Bank Capital, Beijing-based Sino IC has at least eight shareholders and was created with the support of the

“leaders in the general office of the State Council and the relevant ministries.” The State Council refers to the Chinese Cabinet.

The “overall idea” of Sino IC’s investment strategy is to focus on the national development of China’s integrated circuit industry and “ease the investment bottleneck” in the sector, the website said.

Of the eight listed shareholders of Sino IC, at least seven are owned by or affiliated with the Chinese state, according to the websites of the companies and Chinese corporate filings. Xcerra declined to

comment when asked about Sino IC’s shareholders.

Massachusetts-based Xcerra designs and manufactures equipment to test semiconductors and circuit boards. It does not make semiconductors. It is able to seek other buyers for the next 35 days under terms of the merger agreement.

‘Xcerra designs and manufactures equipment to test semiconductors and circuit boards’ Xcerra was advised by Cowen and Company LLC and Latham & Watkins LLP. Sinoc IC was advised by Grant Thornton International and Wilson Sonsini Goodrich & Rosati.

Sino IC shareholders include China Development Bank Capital, a unit of China Development Bank, a stateowned Chinese development bank; and China Mobile Ltd, China’s stateowned wireless carrier. Reuters

Business Daily Wednesday, April 12 2017 11

Asia Private survey

Australian business activity jumps to decade-high The economy grew at a faster-than-expected 1.1 per cent in the fourth quarter of last year

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measure of Australian business conditions jumped in March to highs not seen since before the global financial crisis with sales, profits and employment all at levels that bode well for a pick up in economic growth in coming months.

“Even so, conditions have improved almost across the board to levels that suggest a strong economy in the near-term”

to +6 which was in line with its longrun average.

The major services sectors and wholesale reported the strongest conditions, while retail continued to suffer. Mining brightened considerably on the back of higher commodity prices.

NAB chief economist, Alan Oster, cautioned that Cyclone Debbie may have flattered the survey by limiting responses from the affected area in northern Queensland.

“Even so, conditions have improved

almost across the board to levels that suggest a strong economy in the nearterm,” said Oster. “That includes Western Australia, which has been looking better of late and suggests the worst of the mining downturn may be behind us.”

Th e ec o n o m y g r e w a faster-than-expected 1.1 per cent in the fourth quarter of last year, underpinned by strength in consumer and government spending and home building.

That improvement encouraged the Reserve Bank of Australia (RBA) to hold interest rates steady as it kept a wary eye on the risk of overheating housing markets in Sydney and

Melbourne.

The NAB survey’s measure of sales enjoyed the biggest gain in March, rising 10 points to +22, while profits rose 3 points to +13. The employment index held steady at a relatively firm +5, which implies a healthier labour market than that shown in the official jobs data.

Forward orders also added 2 points to +4, suggesting the acceleration in activity may have legs.

The survey’s measure of capacity utilisation edged up to 81.9 per cent in March and business speeding intentions rose to a firm +13, pointing to a better investment outlook.

There was still little sign of inflationary pressure in the survey, albeit wage growth was firmer in mining.

Growth in purchase costs and final product prices was tepid while retail prices actually fell 0.1 per cent at a quarterly rate, suggesting some downside risks for consumer price inflation in the first quarter. Reuters

Alan Oster, National Australia Bank chief economist National Australia Bank’s (NAB) monthly survey of more than 400 firms showed its index of business conditions climbed 6 points to +14 in March, well above the long-run average of +5.

The survey’s measure of business confidence, however, dipped a point

Election

Top Korea presidential candidate open to talks with Kim Jong Un The U.S. has ruled out talking with North Korea until it commits to giving up its nuclear weapons Russell Ward

South Korean presidential hopeful Moon Jae-in told a local newspaper that he would deal with North Korea’s nuclear ambitions through direct talks with dictator Kim Jong Un. Moon -- one of two top candidates for the May 9 election -- told the Korea Herald newspaper that South Korea must negotiate with Kim to resolve the nuclear issue. South Korea

should play a greater role since it has the most at stake, the newspaper reported him as saying.

“I feel that we should take the lead,” Moon said in the interview on Monday. “At present, we are spectators who hope for the U.S.-China talks to go well,” he said. He expressed regret that U.S. President Donald Trump and China’s Xi Jinping didn’t reach an agreement on North Korea at last week’s summit.

Tensions are rising on the Korean peninsula as the Trump administration vows to consider all options, including military force, to convince Kim to abandon his nuclear program.

The U.S. recently diverted warships to the region, prompting a rebuke from North Korea, while South Korea has warned that its northern neighbour may conduct a nuclear test in the coming days to mark symbolic dates in the country’s history.

A North Korean foreign ministry spokesman on Monday called the U.S. move to deploy an aircraft carrier strike group “reckless,” according to the official Korean Central News Agency. The move shows that North Korea was justified in seeking a nuclear arsenal for defense, it said.

‘Outrageous actions’

North Korea’s leader Kim Jong Un

“We will hold the U.S. wholly accountable for the catastrophic consequences to be entailed by its outrageous actions,” the report said.

The U.S. has ruled out talking with North Korea until it commits to giving up its nuclear weapons. Joint discussions between six nations -- China, Japan, North Korea, South Korea, Russia and the U.S. -- collapsed in 2009.

Moon is the nominee for the left-leaning Democratic Party of

Korea, which has traditionally favoured a softer approach toward North Korea. His rivals in the vote to choose a successor to ousted former President Park Geun-hye have taken more hard-line stances toward Kim’s regime.

Moon has said that he would review a decision to allow the U.S. to deploy

“At present, we are spectators who hope for the U.S.-China talks to go well” Moon Jae-in, South Korean presidential candidate

a missile shield in South Korea over China’s objections. His main rival, Ahn Cheol-soo of the People’s Party, has expressed support for the deployment of the Terminal High Altitude Area Defense system, or Thaad.

In the interview, Moon said he would address Thaad first if he took power. “I will concentrate on resolving the North Korean nuclear issue, which is the root of matters surrounding Thaad,” he said. Bloomberg News

12 Business Daily Wednesday, April 12 2017

Asia Private report

Asia’s big private banks boost assets under management to record Private banks have been seeking to expand in the Asia-Pacific region Alfred Liu

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sia’s biggest private banks boosted their assets under management to a record last year, rebounding from a 2015 contraction, amid acquisitions that swelled some firms’ portfolio holdings.

Assets managed by the region’s top 20 private banks climbed by 6.1 per cent to US$1.55 trillion in 2016 from a year earlier, according to an Asian Private Banker report released yesterday. The amount contracted 4.7 per cent in 2015 as the region’s economic growth slowed and mounting regulatory pressure forced banks to

reject some clients.

The 2016 figure was bolstered by Bank of Singapore’s purchase of Barclays Plc’s wealth-management units in Singapore and Hong Kong and Union Bancaire Privee’s acquisition of Coutts International. Private banks have been seeking to expand in the Asia-Pacific region, where individual wealth surpassed that of North America for the first time in 2015, according to a report by Cap Gemini SA. Merger and acquisition “activity

and heavy hiring had a positive effect on a number of banks in terms of scale,” Asian Private Banker editor Sebastian Enberg said in an email.

Bank of Singapore’s Barclays deal lifted its managed assets by 44 per cent to US$79 billion in 2016 from a year earlier, according to Asian Private Banker. That lifted the Oversea-Chinese Banking Corp. unit’s ranking among the region’s private banks to seventh from 11th, the publication said. It’s now joined sixthranked DBS Group Holdings Ltd. as the only Asia-based banks in the top 10, the list shows.

‘Assets managed by the region’s top 20 private banks climbed by 6.1 per cent’ Union Bancaire Privee entered the top 20 for the first time -- albeit in 20th place -- after its acquisition saw the firm’s managed assets soar to US$11.8 billion from US$774 million a year earlier, Asian Private Banker said.

UBS Group AG retained the top rank with US$286.4 billion in assets, while Citigroup Inc. kept its No. 2 spot with US$218 billion of holdings. The top six positions were unchanged from 2015, according to Asian Private Banker.

Bloomberg News

Prices

India’s inflation edging up closer to RBI’s mid-term target The Reserve Bank of India surprised markets last week in raising the secondary reverse repo rate by 25 basis points to 6.00 per cent Krishna Eluri

India’s inflation is seen climbing to within touching distance of the central bank’s 4 per cent medium-term target in March, driven by higher food costs, a Reuters poll found, backing policymakers’ decision last week to move to a de facto tightening bias.

“Inflation is likely to pick up in March, backing the central bank’s stance to keep rates on hold last week”

week,” wrote Radhika Rao, economist at DBS Bank.

“In March, cereal and pulses eased but perishables were up. Adverse base effects will underpin the fuel and commodity related components, though the sharp rupee gains will help cap imported price pressures.”

Signalling its worries about inflation, the Reserve Bank of India surprised markets last week in raising the secondary reverse repo rate by 25

basis points to 6.00 per cent. It kept the key policy repo rate unchanged at 6.25 per cent.

India’s central bank raised its inflation projections for the 2017/18 fiscal year starting April, expecting the index to average 4.5 per cent in the first half and 5.0 per cent in the second, taking it above the RBI’s medium-term target.

Such an uptick in prices could force the RBI, which ended a long easing cycle in February by changing its policy stance to neutral from accommodative, to raise interest rates for the first time in over three years.

That is in contrast to a recent Reuters poll in which economists indicated

borrowing costs would more likely fall than rise.

According to that poll, any cut would come towards the end of the year, by which time there would be a clear indication of whether India had a good monsoon, crucial in a country where most of the population depends on agriculture and which will keep food inflation in check.

Wholesale price inflation is expected to have slowed last month, to 5.98 per cent from 6.55 per cent in February, according to Tuesday’s poll.

Industrial output is seen rising 1.3 per cent in February from a year ago compared to 2.7 per cent in January, the poll found. Reuters

Radhika Rao, economist at DBS Bank

Having sunk to its lowest level for at least five years in January, consumer price inflation is expected to have risen to 3.98 per cent last month from February’s 3.65 per cent, according to the median forecast of 30 economists.

The March inflation rate is due to be released at 1200 GMT on April 12.

“Inflation is likely to pick up in March, backing the central bank’s stance to keep rates on hold last

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Business Daily Wednesday, April 12 2017 13

Asia Monetary meeting

S. Korea’s central bank on hold Exports in March posted a fifth straight month of gains while inflation jumped to near five-year high South Korea’s central bank is expected to leave interest rates on hold at its meeting on Thursday as the board awaits clarity on the U.S. Treasury’s report on foreign currency practices due Friday and other external risks.

Investors will focus on the expected update of South Korea’s official growth forecasts, which may be revised up from the current 2.5 per cent for this year to reflect an upswing in exports.

All 21 economists surveyed by Reuters predicted the Bank of Korea (BOK) will leave its key policy rate at a record-low 1.25 per cent, on hold since a 25 basis point cut was implemented in June 2016.

Six of them foresaw a rate hike sometime next year as the bank’s next move, while two others said the next move would be a rate cut.

South Korean exports in March posted a fifth straight month of gains while inflation jumped to

near five-year high, signalling a rebound in both foreign and domestic demand.

Even with continued improvement in exports, changes in the central bank’s policy rate were unlikely before the South Korean presidential election set for May and the U.S. Treasury’s report on currencies due Friday, survey respondents said.

“Although exports are posting double-digit growth and inflation is above 2 per cent, (the BOK) will maintain its neutral monetary policy stance as uncertainties related to domestic demand are still high,” said Yoon Yeo-sam, a fixed-income analyst for Mirae Asset Daewoo Securities in Seoul.

“Policy options are limited anyway as (the board) will want to check the U.S. Treasury’s currency report that is driving economic anxiety, and debt rescheduling issues at Daewoo Shipbuilding,” Yoon said.

Yoon was referring to a struggling South Korean shipbuilder that could miss making imminent debt payments even though state support has already been promised under certain conditions.

China and South Korea are among a number of Asian countries nervously watching to see if the U.S. Treasury would formally declare them ‘currency manipulators’ in its report due April 14, which is Good Friday in the Christian calendar but not a U.S. Federal holiday.

Any of the United States’s major trading partners placed under ‘enhanced analysis’ could be subject to stronger surveillance by the International Monetary Fund unless they take ‘remedial’ action.

China’s sanctions against Seoul’s deployment of a powerful missile defence system and geopolitical tensions related to North Korea are other risks the central bank must consider alongside the record household debt that is undermining consumption as the BOK highlighted in a report to parliament this month. Reuters

Bank of Korea headquarters

Deflation

Japanese retailer Aeon plans big price cuts to BOJ’s dismay Other retailers are also embarking on price cuts Leika Kihara and Sam Nussey

Top Japanese retailer Aeon Co is cutting prices for over 250 items ranging from milk to daily necessities to lure cost-savvy shoppers, underscoring the difficulty facing the central bank as it tries to spur inflation and coax consumers to boost spending.

The Bank of Japan’s 2 per cent inflation target remains elusive despite more than three years of massive money printing intended to spur economic activity.

Aeon’s move adds to headaches for

BOJ policymakers, who hoped a solid economic recovery will prompt firms to raise prices and help maintain the bank’s rosy price forecasts this month.

“The BOJ’s view is that rising oil prices would help raise consumer prices this year, but these price cuts could be a headwind and might force the bank to lower its price outlook,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

“We’re still not in a situation where price increases for a wide range of products are widely accepted.”

In Brief World Bank

Philippines’ GDP growth to hit 6.9 pct The Philippines’ economy is expected to grow much faster than previously thought this year and next due to strong domestic demand and the government’s pledge to boost infrastructure spending, the World Bank said yesterday.

Growth in the Philippines this year and next year could reach 6.9 per cent, the World Bank said in its latest Philippine Economic Update report, sharply upgrading the 6.2 per cent estimate it made for both years in October.

The World Bank’s forecasts are the most bullish among multilateral agencies.

Industry

Malaysia’s factory output up Malaysia’s industrial production in February rose 4.7 per cent from a year earlier, rebounding after two months in which the pace of expansion slowed, government data showed yesterday. Factory output was up from the 3.5 per cent annual increase in January, but missed the 7.3 per cent rise forecast in a Reuters poll. February’s expansion was supported by gains in the manufacturing, electricity and mining sectors, data from the Statistics Department showed.

Manufacturing output rose 6.5 per cent from a year earlier, helped by strong growth in the food and electronic products sub-sectors, the data showed.

Australian commodities

Aeon said yesterday it will cut prices of 254 food items and daily necessities at around 400 outlets nationwide by the end of this month.

That would follow price cuts on more than 140 items in March, a sign that many retailers consider discounts as the best way to lure households into spending.

“For commoditised goods, it’s important to provide them as cheap as possible,” said Soichi Okazaki, who oversees Aeon’s retail outlets.

Faced with weak consumption, other retailers are also embarking on price cuts to the dismay of the BOJ. Seven & i Holdings Co said it will slash prices for 61 daily necessities at its 7-Eleven outlets this month.

Seiyu, a retailer under the arm of U.S. retailer Walmart , cut prices for more than 200 products from February.

Retailers aren’t alone. Some mobile phone carriers have cut bills amid stiff price competition.

“The BOJ probably believes underlying price moves are somewhat weaker than expected,” said one official familiar with the central bank’s thinking.

The BOJ now projects core consumer inflation to hit 1.5 per cent in the current fiscal year that ends in March 2018, and accelerate to 1.7 per cent in fiscal 2018.

The central bank will review its economic and price projections at its policy meeting on April 26-27.

Japan has been mired in deflation for nearly two decades as households sit on a pile of cash on uncertainty over the outlook.

The BOJ has deployed massive monetary stimulus since 2013 in hopes of changing the public’s perception that deflation will persist, with little success.

Core consumer prices rose 0.2 per cent in February from a year earlier.

But a separate consumer price index that excludes the effect of volatile fresh food and energy costs rose just 0.1 per cent in February, suggesting that weak consumption was preventing companies from raising prices of non-energy items. Reuters

First coking coal supplies reach port after cyclone The first coal train from an Australian mining area devastated by a cyclone reached port in northern Queensland state yesterday, with seaborne exports planned to resume the next day, a shipping agent told Reuters. Global coking coal supplies have been drastically disrupted by storm damage to train lines between mines in the Bowen Basin, the world’s largest export region for coking coal, and ports.

Just before 8 a.m. local time (2200 GMT) the first coal train arrived at Gladstone port, said John Parks, shipping agent for Aqua Bonanza, the first vessel scheduled to load there.

Steel

Indian body recommends anti-dumping duties An Indian government body has recommended imposing duties on some steel products imported from China, Japan and Russia, reinforcing New Delhi’s tough stance despite complaints from some of the targeted countries. The Directorate General of Anti-Dumping and Allied Duties (DGAD) suggested imposing definitive anti-dumping duties on cold-rolled and hot-rolled flat steel products, according to circulars released on Monday. The government usually accepts DGAD’s recommendations. “It is noted that dumped imports from the subject countries have adversely impacted the performance of the domestic industry,” one of the circulars said.

14 Business Daily Wednesday, April 12 2017

International In Brief Economic model

Algeria sees energy dependency unsustainable Algeria released details of its “new model of growth” on Monday to cope with a sharp fall in oil prices, recognising that its vast system of government subsidies is unsustainable and must be overhauled. The document outlining the new model frankly admitted the country’s reliance on energy, which accounts for 60 per cent of its budget, and put forward an ambitious programme for developing its non-oil sector through 2030.

Subsidies are a sensitive issue since the state helps pay for everything from basic food items to housing. The system amounts to some 20 per cent of GDP, according to some estimates.

Currency

Nigeria eases SMEs access to FX Nigeria’s central bank is offering small and medium-size enterprises (SMEs) up to $20,000 per quarter, in an effort to prop up businesses whose access to foreign currencies has been overshadowed by larger companies, it said on Monday. Nigeria is battling a currency crisis brought on by low oil prices, which has tipped its economy into recession, hammered its dollar reserves and created chronic dollar shortages, frustrating businesses and individuals.

The central bank now plans to sell shorter-dated dollar forwards to inject liquidity into the official market and try to support the naira, traders said on Monday.

Prices

Brazil’s Temer bets on low-inflation legacy While he reversed interventionist policies, the President struggled to revive an economy that has contracted nearly 8 per cent since 2015 Alonso Soto

B

razil’s President Michel Temer wants low inflation to be the legacy of his presidency and aims to cut the official target despite pressure from allies to prioritize growth ahead of elections next year, two close aides told Reuters.

With his government marked by a corruption scandal and an arduous recession, Temer believes his best opportunity to leave a lasting mark is by tackling inflation, said the aides, who asked not to be identified because they are not authorized to speak publicly.

At 4.5 per cent with a band of 1.5 percentage points either side, Brazil’s inflation target is one of the highest among major economies. Latin America peers Mexico and Chile have a 3 per cent target.

Brazil has overshot its target during the last seven years, with the rate reaching double digits in 2015. Yet, with the recession weighing on demand, inflation fell to 4.76 per cent in February, its lowest level since 2010.

The target from 2019 onwards is up for revision in June and Temer said in a statement on Monday that his economic team will consider a change.

Opponents of a lower target fear it would risk curbing the central bank’s ability to cut rates to stimulate the economy, as that might push inflation above the new goal.

However, Temer’s economic team believes a reduction of at least 25 basis points could help the administration gain credibility without undermining the recovery.

High unemployment and contracting output have dragged inflation expectations below target for the first time in years, but officials say the trend must continue before making a decision in June.

‘High unemployment and contracting output have dragged inflation expectations below target for the first time in years’ “If conditions allow it, the president will change the target,” said one aide.

“The legacy of a new economic matrix is very important for the president.”

Markets jumped after Temer took office last year, following the impeachment of leftist President Dilma Rousseff. While Temer reversed her interventionist policies, he struggled to revive an economy that has contracted nearly 8 per cent since 2015.

Political uncertainty, fuelled by allegations Temer’s top aides are

involved in the corruption scandal, has weighed on the economy. Temer is on trial over charges of illegal campaign funding.

Twenty out of 25 economists polled

by Reuters last week believe a cut is imminent. Most expect a symbolic move to 4.25 per cent, but some called for a reduction to as low as 3.5 per cent.

The finance ministry and central bank declined to comment.

Pension is key

At the heart of Temer’s economic plan is a reform to cut ballooning pension spending, which faces stiff resistance in Congress. Temer aides said approval of the reform is a factor in deciding whether to cut the target.

Central bank chief Ilan Goldfajn, an MIT graduate who helped improve the country’s inflation-targeting regime set up in 1999, is a strong advocate of a reduction.

Even before becoming central bank governor last year, Goldfajn called for a gradual reduction to 3 per cent. He has since privately defended a cut in meetings with other members of the economic team, who were sceptical.

Finance Minister Henrique Meirelles initially believed a lower target could jeopardize a stronger recovery.

The economy is expected to grow just 0.5 per cent this year before picking up speed to 2.5 per cent in 2018, according to weekly central bank poll of economists.

The inflation slowdown and the creation of a new long-term rate for state-development bank BNDES pegged to market rates has eased Meirelles doubts, a member of the team said.

A decrease in subsidized loans would improve the impact of monetary policy, making it more effective in stimulating growth.

“The decision is not final yet, but resistance to the idea has eased,” said the official. Reuters

Tech companies

Macron says would step up security demands French presidential candidate and frontrunner Emmanuel Macron said on Monday he would step up efforts to get technology firms such as Google or Facebook to share encrypted content from messaging services with authorities.

Governments around the world are increasingly looking at how they can lean on major U.S. tech companies in their efforts to prevent militant attacks and beef up security, including by asking them to do more to stop hate speech and extremist activities online. That has sparked a debate over users’ privacy, however.

Central bank

Ecuador economy contracted 1.5 per cent last year Ecuador’s economy shrank for the first time in a decade last year, falling 1.5 per cent due to lower oil prices, a strong dollar that hurts the dollarized export-oriented country, and a severe earthquake, the central bank said on Monday. Outgoing President Rafael Correa said over the weekend the OPEC nation’s economy grew 1.5 per cent year-on-year in the last quarter of 2016, allowing it to emerge from an economic recession. Ecuador’s economy grew a modest 0.2 per cent in 2015. The central bank projects it could grow 1.42 per cent this year.

Brazil’s President Michel Temer

Monetary stance

Fed’s Yellen aims to let ‘healthy’ U.S. economy coast along Most Fed officials expect the central bank to raise rates at least two more times this year Jonathan Spicer and Ann Saphir

The Federal Reserve’s plans to raise U.S. interest rates gradually are aimed at sustaining full employment and near-2-per cent inflation without letting the economy overheat, Fed Chair Janet Yellen said on Monday.

“I think we have a healthy economy now,” Yellen said at an event at the University of Michigan’s Ford School of Public Policy in Ann Arbor.

Unemployment, at 4.5 per cent, is now a little bit below the jobless rate that most Fed officials think signals full employment, and inflation is “reasonably close” to the Fed’s 2-per cent goal, she said. With the economy

expected to continue to grow at a moderate pace, she said, the Fed is now shifting its focus.

“Whereas before we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could, now allowing the economy to kind of coast and remain on an even keel -- to give it some gas but not so much that we are pressing down hard on the accelerator -- that’s a better stance of monetary policy,” she said. “We want to be ahead of the curve and not behind it.”

In the U.S. Treasury bond market, yields were little changed after Yellen’s remarks.

The Fed raised rates in March for

only the third time since the Great Recession, and most Fed officials expect the central bank to raise rates at least two more times this year.

Yellen’s comments largely echoed what she has said since then, and did not offer any new colour on the timing of the rate hikes, or of the Fed’s eventual reduction of its US$4.5 trillion balance sheet.

“We want to be ahead of the curve and not behind it” Janet Yellen, Fed Chair “We think a gradual path of increases in short-term interest rates can get us to where we need to be, but we don’t want to wait too long to have that happen,” she said. Reuters

Business Daily Wednesday, April 12 2017 15

Opinion

Can’t touch this.

Hong Kong developers dance to own tune

US President Donald J. Trump walks on the south Lawn after arriving at the White House in Washington on Sunday. Lusa

Crouching Donald, Paper Tiger

Nisha Gopalan a Bloomberg Gadfly columnist

H

ong Kong’s de facto central bank is trying to manage the world’s least affordable property market by taking banks to task for their easy lending practices. That won’t work.

Real-estate prices in the city have soared to records despite numerous government curbs. None, including a particularly painful rise in stamp duty for foreigners and people who aren’t first-time home buyers, have had much of an impact. Secondary sales volumes have decreased, but new dwellings are snapped up instantly, with purchasers getting around higher levies by buying several apartments in one go, and developers also lending a hand with generous incentives and discounts.

Last year, Sun Hung Kai Properties Ltd. announced a mortgage offer at one of its projects worth as much as 120 per cent of a home’s value. Some developers, such as Li Ka-shing’s Cheung Kong Property Holdings Ltd., own finance units that can help top up bank mortgages and circumnavigate loan-tovalue ceilings.

Real-estate agencies, like Midland Realty and Centaline Property Agency Ltd., also have their own finance arms and have been offering zero down-payment plans to existing home owners. People who take up such offers often find themselves leveraged to the hilt. Interest rates of “prime minus 1” -- if you take HSBC Holdings Plc’s 5 per cent prime rate as a guide -- equate to a charge of 4 per cent, versus the usual bank rate of 1.3 per cent over one-month Hibor, which is currently 0.42 per cent.

There’s little the Hong Kong Monetary Authority (HKMA) can do. Finance companies are regulated by the Money Lender Ordinance, which is enforced by the Commissioner of Police. And in freewheeling Hong Kong, real estate developers aren’t regulated at all.

To top it off, the city’s biggest developers are sitting on large cash piles, having, according to Bloomberg Intelligence analyst Patrick Wong, learned their lesson during the Asian financial crisis. Firms from the mainland do rely on high leverage, and take advantage of Hong Kong banks’ low interest costs to make land purchases in the city, but it will be three to four years before apartments are built on those sites.

For now, the developers that dominate sales of finished apartments and the finance firms topping up people’s mortgages have little standing in their way. This doesn’t look like a war the HKMA can win. Bloomberg Gadfly

‘Some developers, ... , own finance units that can help top up bank mortgages and circumnavigate loan-to-value ceilings’

D

onald Trump’s comments about China during the U.S. presidential campaign didn’t exactly bolster high hopes for Sino-American relations once he was elected.

Trump denounced China for “taking our jobs,” and “[stealing] hundreds of billions of dollars in our intellectual property.” He repeatedly accused China of manipulating its currency. The low point came last May, when Trump warned his followers that, “We can’t continue to allow China to rape our country. That’s what they’re doing. It’s the greatest theft in the history of the world.”

Given such inflammatory rhetoric, many people understandably felt considerable trepidation in the run-up to Trump’s summit with Chinese President Xi Jinping at Trump’s Mar-a-Lago estate.

It wasn’t hard to imagine a refused handshake or the presentation of a bill for payment, like the one Trump reportedly gave visiting German Chancellor Angela Merkel (a report denied by the White House).

Instead, Trump treated Xi with considerable deference. One explanation is that he was preoccupied by the impending U.S. missile strike on Syria.

Another is that it is easier to command Trump’s respect when you have an aircraft carrier, 3,000 military planes, and 1.6 million ground troops.

But the best explanation is surely that the U.S. depends too heavily on China, economically and politically, for even a president as diplomatically reckless as Trump to spark a conflict.

Economically, the U.S. and China are too closely interlinked through global supply chains to be able to cut ties. U.S. companies not only compete with Chinese imports; they also rely heavily on them. Retailers like Target and Walmart rely on Chinese imports to stock their shelves. Electronics companies like Apple rely on workers in China to assemble their products. And the idea that the U.S. could easily source the same inputs from other countries is fanciful. Put simply, while Trump has repeatedly observed that China sells more to the U.S. than the U.S. sells to China, starting a trade war in an effort to correct this supposed imbalance would still cost American business very dearly.

And if there is one constituency that Trump listens to consistently, it is business. Aggressive U.S. trade sanctions against China would send equity prices plunging, alarming a U.S. president who measures his economic policy success by the level of the stock market. The 1930 Smoot-Hawley Tariff didn’t cause the Great Crash, much less the Great Depression. But that tariff and the foreign retaliation it elicited sent the stock market down still further, which was hardly helpful.

Politically, too, the U.S. cannot afford serious conflict with China, given the growing crisis on the Korean Peninsula, which North Korean provocations and Trump’s incautious reaction

“

Barry Eichengreen a professor at the University of California, Berkeley, and the University of Cambridge

have brought to the fore. Posturing aside, Trump will be forced to recognize that military force is not an option. A surgical strike against North Korea’s nuclear facilities would most likely not succeed, while a massive attack would provoke devastating retaliation against South Korea.

The only feasible strategy is tighter sanctions and political pressure to bring North Korea to the negotiating table. And the only party capable of tightening sanctions and applying effective political pressure is China, whose goodwill the U.S. now regards as essential.

Trump’s about-face on China is of a piece with his “recalibration” on repealing Obamacare, reforming the tax code, organizing a large-scale i n f rast r u ct u r e-i n v est m e n t initiative, and renegotiating the North American Free Trade Agreement (NAFTA). In each case, his glib campaign slogans have run up against the hard reality of actually making policy.

In all of these areas, Trump is learning that he is hemmed in by the same constraints that led Barack Obama’s administration to make the choices it did. As with Obama, the agent of change is turning out to be an agent of continuity.

The U.S. has some legitimate economic grievances against China – for example, over its treatment of American intellectual property and U.S. beef and grain exports. But the appropriate venue for adjudicating such disputes is the World Trade Organization. That is where Trump’s administration, like Obama’s, is likely to end up.

The Trump administration could yet label China a currency manipulator, rebuking it for keeping its exchange rate artificially low. It could do so either now or later in the year. But that accusation would be contrary to the facts: the renminbi is now fairly valued, and China has actually been intervening to support the exchange rate, not weaken it further.

Inside the Washington, DC beltway, however, facts are no longer what they once were. Singling out China for manipulation might still appeal to a president who values symbolism as much as Trump does.

But little of consequence would follow. The U.S. depends too much on Chinese cooperation to risk overly antagonizing China’s leaders. Labelling China a currency manipulator would be the economic-policy equivalent of launching 59 cruise missiles at an isolated air base in Syria.

It would be much sound and fury, signifying nothing. Project Syndicate

Aggressive U.S. trade sanctions against China would send equity prices plunging, alarming a U.S. president who measures his economic policy success by the level of the stock market

”

16 Business Daily Wednesday, April 12 2017

Closing Opening economy

Chinese customs to support new free trade zones

based customs services, seek integrated customs clearance and build “single windows” for foreign trade procedures, according to the China’s national customs authority yesterday statement. that it had unveiled a slew of measures in support of seven new free trade zones (FTZs) Chinese customs will also tap the role of new types of foreign trade in sustaining growth and that opened this month. restructuring, including cultural trade, crossTo bolster the development of FTZs in the provinces of Liaoning, Zhejiang, Henan, Hubei, border e-commerce and service outsourcing.

The country will also create a law-based Sichuan and Shaanxi as well as Chongqing business environment and safeguard fair municipality, the country will find new trade order, such as protecting intellectual ways to facilitate foreign trade, the General Administration of Customs said in a statement. property rights according to law, the statement said. Xinhua Customs authorities will promote Internet-

Auto industry

China car sales strongest since 2014 Vehicle sales rose 4 per cent year-on-year in March to 2.5 million vehicles Lusha Zhang and Jake Spring

C

hina auto sales grew 7 per cent in the first quarter, China’s automakers’ association said yesterday, with the strongest January-March period since 2014 setting up the world’s largest auto market for a better-than-expected year.

Many in the industry had feared that sales would be weak in the first three months after the government rolled back a tax cut on small engine cars on Jan. 1, contributing to expectations for a slowdown in 2017 sales.

year-on-year in March to 2.5 million vehicles, CAAM told reporters in Beijing.

The purchase tax for cars with engines of 1.6 litre capacity or below climbed to 7.5 per cent this year from 5 per cent in 2016 after the government stepped in to stimulate slumping sales. The tax will rise to the normal 10 per cent rate next year.

“We’ve always planned for the fact that (in) the first quarter there would be payback from the pull forward of sales into the fourth quarter (before the incentive was reduced),” Mark Fields, chief executive of Ford Motor Co, told reporters in Shanghai on Saturday ahead of the CAAM figures.

“We expect the second, third and fourth quarter to show improvement.”

Ford predicts that China’s overall auto sales will be flat or down slightly this year, Fields said. The U.S.

automaker is due to report its March China sales on Wednesday.

U.S. rival General Motors Co reported last week that its China sales in the first quarter fell 5.2 per cent yearon-year, with the automaker citing the impact of the tax cut reduction.

Automakers with a steady stream of new models, particularly in the hot-selling sport-utility vehicle (SUV) segment like Japan’s Honda Motor Co, continue to lead the market. Honda reported its sales grew 16.6 per cent in the first quarter. Reuters

Key Points Mar sales +4 pct; Jan-Mar ytd +7 pct Outpacing auto association’s 5 pct forecast for year Industry had feared weak Q1 sales on tax cut rollback But first-quarter growth outpaced the China Association of Automobile Manufacturers’ (CAAM) prediction in January that auto sales would grow 5 per cent in 2017, and the market is expected to improve further as the year progresses.

“Our current attitude should be cautiously optimistic, as in reality we still feel there is pressure,” said Xu Haidong, a CAAM spokesman, explaining why it was not adjusting the 5 per cent forecast.

“This is because of policy changes, as well as related economic trends and other reasons.”

Vehicle sales rose 4 per cent

Markets

Beijing presentation

Spirits

Mainland sees strong IPOs in first quarter of 2017

New leader of Hong Kong says Global wine production no room for independence falls in 2016

The performance of China’s A-share IPO market was strong in the first quarter of 2017, according to a report by international accounting firm KPMG yesterday.

A total of 134 IPOs worth a combined RMB70 billion (about US$10 billion) were recorded, the highest Q1 figures since 2014, the report said.

Within that total, the Shanghai Stock Exchange recorded 65 IPOs with a combined RMB42 billion raised, up from nine new listings and RMB5.1 billion raised over the same period last year.

The Shenzhen Stock Exchange, on the other hand, saw IPO volumes hit RMB28 billion from 69 IPOs, both of which were four times higher than the first quarter of 2016. Shanghai and Shenzhen were ranked second and third globally in terms of total IPO proceeds raised.

The Chinese mainland stock markets grew steadily on the back of a stabilizing economy and improved market sentiment, providing a favourable environment for new listings, according to the report.

In Hong Kong, the IPO market was active in terms of the number of new listings, particularly with respect to Growth Enterprise Market listings. Xinhua

Hong Kong leader-elect Carrie Lam said yesterday there is no room for moves towards independence in the former British colony which she said needs the support of the central government in Beijing to boost economic development over the next five years.

“On the issue of Hong Kong independence, in line with what the premier has said, there is no future and no room,” Lam told reporters in Beijing after Premier Li Keqiang presented her with a letter of appointment as chief executive, paving the way for her to take office on July 1.

“In the next five years, in particular in economic development, there are many areas in which we need support from the central government,” added Lam, who also met President Xi Jinping.

Lam has said unifying society and healing political divisions would be among her most urgent tasks. Making housing more affordable in one of the world’s most expensive property markets is also among her top priorities.

The next few months will be critical for incumbent leader Leung Chun-ying and Lam, with Xi expected to visit on July 1 to celebrate the 20th anniversary of Hong Kong’s handover from British to Chinese rule, with protests expected. Reuters

World wine output dropped in 2016, with volumes in France and Argentina seeing the largest declines, an international wine body said yesterday.

Bad weather in many regions was behind the 3.2 per cent fall in global production to 267 million hectolitres (mhl) from 276 million in 2015, the International Organisation of Vine and Wine (OIV) said at a news conference in Paris.

France, the world’s second-biggest wine producer after Italy, lost 3.5 mhl in output volume and Argentina, the world’s number nine, 3.9 mhl.

In percentage terms, the biggest losers were Brazil, where production fell 55 per cent, and Hungary, where it dropped by 38 per cent.

Latin American production was hurt by the El Niño weather phenomenon and excessive humidity, OIV director general Jean-Marie Aurand said.

Meanwhile, drought cut South Africa’s production by six per cent.

The word’s total wine-growing surface remained stable at 7.5 million hectares, the OIV said.

China added to the total size of its vineyards, while wine-growing surfaces declined in Turkey and Portugal. AFP