Chow Tai Fook makes US$3 bln play for Australian energy firm M&A Page 7
Friday, March 17 2017 Year V Nr. 1256 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Results
Samsonite packs up 27 pct increase in profit for 2016 Page 5
Border
Cross-border money of MOP120,000 or more must be declared Page 2
www.macaubusinessdaily.com
Monetary policy
Hong Kong follows the Fed and raises interest rates Page 10
Consigliere
A must-know: the most brilliant apps and gadgets awarded at Mobile World Congress 2017 Pages 8 & 9
Two weeks and counting Courts
Just 14 days. And over 30,000 documents to review. Oriana Pun is former Prosecutor-general Ho Chio Meng’s new defence lawyer. And is confident the case can be wrapped up before the expiration of the official maximum preventive prison period. “Anything can happen,” says Pun, pledging she will “prepare the best defence possible.” Page 3
Downgraded
$$: Found in translation
Gaming Iao Kun group shares have been downgraded. From Nasdaq Global Market to Nasdaq Capital Market. The junket operator failed to meet a 30 consecutive business day minimum bid price of US$1 per share. And has been given 180 days to fix compliance obligations. Page 7
The MSAR Gov’t is encouraging permanent residents to get multilingual. Through exchange programmes and payment plans. Subsidies for learning Portuguese, Mandarin or English and loan interest payment schemes are available. Plus roundtrip transportation, travel insurance and food allowances. Costing the gov’t a pretty penny.
Lending in lockstep
Education Page 4
HK Hang Seng Index March 16, 2017
24,288.28 +495.43 (+2.08%) Worst Performers
China Unicom Hong Kong
+5.23%
China Resources Land Ltd
+4.11%
China Shenhua Energy Co
+3.43%
Cathay Pacific Airways Ltd
-2.80%
Cheung Kong Infrastructure
+0.64%
PetroChina Co Ltd
+3.18%
Swire Pacific Ltd
-0.75%
MTR Corp Ltd
+0.72%
Sands China Ltd
+0.72%
China Life Insurance Co Ltd
+3.77%
China Petroleum & Chemical
+3.10%
CK Hutchison Holdings Ltd
CITIC Ltd
+3.64%
Bank of East Asia Ltd/The
+3.01%
Wharf Holdings Ltd/The
+0.15%
Power Assets Holdings Ltd
+0.74%
CNOOC Ltd
+3.63%
Sino Land Co Ltd
+2.91%
BOC Hong Kong Holdings
+0.47%
China Merchants Port Hold-
+0.93%
+0.00%
19° 21° 19° 20° 20° 22° 20° 23° 19° 23° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
TUE
Source: AccuWeather
Interest rates China’s central bank has raised borrowing costs. With a stable economy and factory reflation lending it scope to follow the Fed in tightening policy. The People’s Bank of China has increased the rates it charges in open-market operations and on its medium-term lending facility. Page 10
2 Business Daily Friday, March 17 2017
Macau In Brief Interest rates
AMCM raises interest rate in wake of Fed increase The Monetary Authority of Macau (AMCM) has raised its base rate of discount window to 1.25 per cent, from 1 per cent, due to the increase in the U.S. Federal Reserve funds rate increasing by 25 basis points, to 1 per cent. The rate is that covered by central banks when lending to commercial banks. ‘Although Macao’s money market rates are relatively stable at the moment, the likelihood of higher loan and deposit rates would be increased over the year if the USA continues to raise its interest rates as expected,’ notes the authority. The local currency, pataca, is linked to the Hong Kong dollar which, in turn, is linked to the U.S. dollar. ‘The SAR Government reminds residents to assess prudentially their financial positions,’ notes the Authority, ‘including the effect of rising interest rates [as an] extra burden on their mortgage payments.’ The Authority notes that it will stay in ‘close communication’ with the banking industry ‘to safeguard Macau’s financial stability.’ K.W. Forex reserves
MSAR forex reserves down 1.4 pct The preliminary estimate of the city’s foreign exchange reserves amounted to MOP154.6 billion (US$19.34 billion) as at the end of February 2017, representing a decrease of 1.4 per cent compared to the MOP156.8 billion recorded for January, according to the latest data released by the Monetary Authority of Macau (AMCM). The city’s foreign exchange reserves at the end of February represented 10 times the currency in circulation, or 89.7 per cent of Pataca M2 as at end-January this year. ‘M2’ refers to that part of the money supply that includes physical coins and currency, as well as readily liquid assets including on-demand bank deposits and money in cheque accounts as well as all time-related deposits, savings deposits and non-institutional money market funds. The trade-weighted effective exchange rate index for the pataca dropped 0.61 points month-tomonth and rose 2.58 points yearon-year to 109.0 in February 2017. The monthly decrease and yearly increase implies that the exchange rate of the pataca declined against the currencies of Macau’s major trading partners on a monthly basis but increased on an annual basis. C.U.
Crime
Controlling cash flow Mandatory declaration of valuables over MOP120,000 at border crossing enforced starting November 1
N
ew regulations mandating that any cash or other negotiable monetary instruments over MOP120,000 (US$15,000) passing through MSAR Customs authorities have be declared will be enforced starting from November 1 this year, local broadcaster TDM has reported. The announcement was made after yesterday’s meeting of the Legislative Assembly’s second permanent committee currently discussing the law proposal. The penalty for failing to declare the defined amounts is a fine between MOP1,000 to MOP500,000. According to the chairman, Kwan Tsui Hang, the members of the committee “would prefer the law was enforced as soon as possible,” however the government stated it would require half a year to “advance with preparatory works” and “create declaration forms.” “Some changes in the law proposal will be made but we can’t say when we will receive the new draft,” added the legislator. The law proposal was advanced by the government in December of last year as one of the measures to comply with the recommendations of the inter-governmental body the Financial Action Task Force (FATF)
to enhance local anti-money laundering measures in the MSAR. However, the initial proposal did not include a specific minimum mandatory amount after which a transported amount should be declared. Following yesterday’s meeting, committee members managed to include in the law proposal that the
Election
Sixth Legislative election agenda announced The election agenda for the 2017 Legislative Assembly (AL) election was released by the Electoral Commission yesterday on AL’s official website. In addition, the application form for organising the nomination committee was released yesterday by the
Electoral Commission, with the deadline for submission of the candidate lists and manifesto to the Commission being July 10. On September 26, the Electoral Commission will make last minute decisions to disqualify candidates in
E-commerce
DSE to launch more Taobao e-commerce training courses The Macao Economic Services (DSE) has announced the launch of more e-commerce training courses for local SMEs (small and medium enterprises) having received positive responses from participants of the first round held in February. The second batch of courses for beginners will be held during the second half of April (April 22, 23, 29 and 30). Co-organised by the Alibaba Entrepreneurs Fund and Macau Productivity and Technology Transfer Centre and the Macau Economic Services (DSE), the course provides professional training in e-commerce, operations and design for local SMEs. Trainees will also receive information from local specialists about Macau’s e-commerce laws, intellectual property and cross-border freight logistics. C.U.
MOP120,000 minimum recommended by FATA would be the criteria for any future minimum amount to be defined. “The government didn’t want to make this change but after [yesterday’s debate] it accepted it. The sanctioning rules should be defined in the law. This solution manages to balance all factors. We have managed to establish some criteria that was not defined by Macau but by an international institution […] There is now a legal basis to apply the law,” stated Ms. Kwan. N.M.
accordance with the revised electoral law if any person declines or is proved to refuse to pledge allegiance to the Macau Special Administrative Region or its Basic Law. According to the agenda, the campaign will take place from September 2 to 15. Commission chairman Tong Hio Fong told reporters last week that campaigning is prohibited during the period between the announcement of the confirmed list of candidates and the official commencement of the election campaign, while any activity that can divert the attention of the public to certain candidates, or those directly or indirectly inciting voters to vote for or against certain candidates would be deemed as campaigning based upon the new electoral law. After Election Day on September 17, a dispatch will be posted on October 4 via the Official Gazette to announce the results of the election. C.U.
Gaming
SJM to recruit 10,000 new employees Yesterday, Sociedade de Jogos de Macau, S.A. (SJM) inaugurated a new recruitment centre, helping to fill 10,000 job openings for the gaming operator’s new projects Hotel Jai Alai and Grand Lisboa Palace, a company release announced. According to the dispatch, the SJM Recruitment Centre opening was established to ‘specifically cater to the large number of local applicants’ the opening of the two properties will generate. SJM stated that the Hotel Jai Alai property - part of the group’s Jai Alai complex - was scheduled to open ‘soon’ with its planned Cotai property Grand Lisboa Palace ‘set to open in the first half of 2018.’ The new centre, located on the 10th
floor of the China Civil Plaza building occupies 5,000 square metres facilitating applications, interviews
and job fairs on-site. Yesterday, the group also launched a recruitment website encouraging local residents to make online applications for gaming and nongaming departments. N.M.
Business Daily Friday, March 17 2017 3
Macau Crime
Pass the parcel Having only been granted 14 days to review over 30,000 documents and four months of court trial session recordings that constitute the corruption case against former Prosecutorgeneral Ho Chio Meng, the newly appointed defence lawyer considers the case to be the most “complex” she has handled but is confident of a conclusion by August Nelson Moura nelson.moura@macaubusinessdaily.com
D
espite the complexity and difficulty of the case against former Prosecutor-general Ho Chio Meng, its newly-appointed defence lawyer, Oriana Inácio Pun, told Business Daily that she is confident the case will reach an ending by August, when the former top official’s maximum allowed preventive prison period expires. “I believe this the most complex case I’ve had so far, although I’ve taken part in other complicated cases in the past. It’s hard to say if the outcome will be positive or if there will be a good or bad result, since Mr. Ho is not accused of just one crime,” Ms. Pun told Business Daily. Last week the former Prosecutor-general’s main defence lawyer, Leong Weng Pun, presented the Court of Final Appeal with documents abandoning his position, claiming the court’s judges had treated the defence and prosecution differently. With the court having provided only five days for the former Prosecutor-general to present a replacement
or be appointed a lawyer, Ms. Pun - a lawyer since 2005 and current member of the Macau Lawyers Association Board of Directors - was presented as Ho’s new main defence lawyer.
Burning the midnight oil
Having requested the Court of Final Appeals to allow over 30 days to consult and prepare for the case, Ms. Pun was granted 14 days to consult all the case documents and the recordings of court sessions, starting from the beginning of the case, December 9 of last year. The former prosecutor is being accused of more than 1,500 crimes, with case documents comprising 36 volumes and 81 appendices with more than 30,000 pages. “It’s a lot of paperwork and I would also like to hear all the completed court trial sessions recordings […] My office has three lawyers and three interns and we’re all currently dedicated to this case […] We’ll have to be organised and prepare the best possible defence,” Ms. Pun told Business Daily. With the defence only granted a “short period,” Ms. Pun says they will have to consult the case documents
on weekends and “if there’s time” consult them during the Court of Final Appeal court sessions.
Giving it her best
Mr. Ho’s former defence lawyer cited differences in treatment by presiding judges to the prosecution as one of the reasons for excusing himself from the case, claiming instances in which the defence was not allowed to present documents not included in the accusations, contrary to what was allowed the prosecution. The new defence lawyer told Business Daily that she had not had any contact with Mr. Ho before the case but that she has since conferred with the former Prosecutor-general and his former defence lawyer in order to have access to documents not included in the accusation. “I can’t predict if similar cases to what happened with the previous defence will happen with us, but
anything can happen. The only thing we can do is give it our best,” she stated.
“I can’t predict if similar cases to what happened with the previous defence will happen with us, but anything can happen” Oriana Inácio Pun, lawyer
No date for the resumption of the trial has yet been provided by the Court of Final Appeal.
4 Business Daily Friday, March 17 2017
Macau Opinion
Pedro Cortés*
By hook or by crook Recent declarations by gaming operators in Macau seem to let us conclude that they will do whatever it takes to establish a bridgehead in the potentially burgeoning casino gaming market of Japan. I have nothing against new ventures, especially in what concerns Japan, one of my favourite destinations in Asia. Nonetheless, it seems, to say the least, curious that these operators are available to be there by hook or by crook. It is, in my view, a great opportunity for the Macau Government to evaluate the gaming industry in a way that any five-year renewal of new concessions after 2020-2022 should take these declarations into consideration. Or, otherwise, are these operators only available to pay whatever it takes for a foreign investment in Japan (or wherever) with the money generated in Macau not available to spend on the land that gave them huge amounts of profit and permitted them to make such an investment? As a matter of fact, as in life, the lovers and second wives always get more than the first ones. It seems to be the case, with Macau the first wife and Japan the new lover and potential second wife. I understand the huge potential of the Japan market. I also understand that there everything will be better planned and better projected than in Macau. However, declarations such as those of, at least, three operators’ heads should be considered by the Macau Government as a window to impose more obligations upon those entities, irrespective of the game plan (if any) they have for Macau post 2020-2022. That is also, in my view, what is lacking here. The Macau Government should once and for all inform the operators what the political intentions are for the end of the concessions and linked sub-concessions, the expiry of which are fast approaching. That will enable the operators and the general public to make their own plans and understand whether it is worth continuing to invest in the jewel of their crowns (the substantive here is candid and not to be read literally or to be related to one of the operators) and make the life of the Macau people better than it is today. Unfortunately, however, plans are not something that this city is used to, so let the unplanned show unfold - by hook or by crook! *lawyer and frequent contributor to this newspaper.
Education
You speak, I speak, we speak for public subsidy GAES is ready to disburse over MOP3 million in 2017 to enable Macau residents enrolled in higher education programmes to improve Mandarin, Portuguese, and English language skills abroad. As long as they don’t go to Taiwan Sheyla Zandonai sheyla.zandonai@macaubusiness.com
T
he Tertiary Education Services Office (GAES) is ready to invest up to MOP2.1 million to cover interest on loans contracted by local students enrolled in higher education programmes to pursue foreign language training abroad, the Deputy Director of GAES, Chang Kun Hong, said in a press conference held at the office’s headquarters yesterday. The “Interest subsidy scheme for language training for undergraduate and graduate students” will be launched on March 21, 2017 and is aimed at permanent residents under 45 years of age who hold a Bachelor’s degree, have been enrolled in a local higher education institution or high school for at least three consecutive years, and who want to pursue up to 24 months of language training overseas. Portuguese, Mandarin, and English are the three languages covered by the scheme, which requires that enrolment be made in a foreign higher education institution recognised by host countries and regions as indicated in the scheme, explained Lo Lai Peng, GAES’s Functional Head for Higher Education Affairs. The duration of Mandarin courses cannot be shorter than six months, while the length of Portuguese or English courses cannot be less than nine months. Questioned by Business Daily if Taiwan also qualified as a location for learning Chinese, Mr. Chang re plied in the negative, saying that only “Mandarin” training qualifies under the scheme. Thus, only higher edu cation institutions in Mainland China are eligible. The Office did not introduce restrictions on the list of Portuguese and English speaking countries.
Money talk
GAES will subsidise annual interest fees up to a maximum of 5 per cent on loans not exceeding MOP360,000 over a maximum period of two years. In order to qualify for the interest subsidy scheme, applicants have to register in Mandarin courses which cost up to MOP5,000 per month,
while the cap for English and Portuguese courses is MOP15,000 per month. Beneficiaries of the scheme cannot re-apply, Mr. Chang clarified at the end of the press conference. The time period for the payment of interest fees, via bank transfer, will be determined according to the length of the course, up to two years. Some 70 per cent of interest costs will be paid in monthly instalments throughout the duration of the course, with the remaining 30 per cent following its completion. Loans – to cover course fees, daily expenses, and travel costs – can be contracted from the six local banks participating in the scheme: Bank of China (Macau Branch), OCBC Wing Hang, S.A., Banco Nacional Ultramarino (BNU), Macau Commercial Bank (BCM), Guang Fa Bank of China, S.A. (CGB), and Industrial and Commercial Bank of China (ICBC).
Portuguese la!
More than 80 undergraduate students from Macau will participate in a month-long Portuguese language course in Portugal this Summer, according to GAES co-ordinator Sou Chi Wai, Lusa reported earlier this week. The Summer School initiative – titled ‘To Be and to Know Portuguese’ - has already involved 320 students from local universities since it was launched in December 2012, according to data released by GAES and published by the news service. Speaking to Business Daily, GAES spokesperson Celia Ao Ieong said that the budget to send the 80 students to Portugal in 2017 will reach nearly MOP1.12 million. According to Ms. Ao, the cost of sending the 79 students selected to take part in the Summer course last year, including course fees, advertising and subsidies, “was around MOP1.24 million.” Thus, the average amount disbursed per student annually would roughly amount to MOP14,000 in 2017 and MOP15,696 in 2016, higher than the average annual spending of MOP4,410 per student said to be disbursed by GAES on the programme in the last three years as reported by Lusa. According to information published
by GAES on its website, the 80 students selected to go to Portugal this year must pay a tuition fee of MOP3,000. GAES and the Macau SAR Government, in turn, will cover costs including roundtrip transportation and travel insurance for the period of the course, the enrolment fee at the host institution, in Lisbon or Porto, as well as a MOP4,000 allowance for food and accommodation.
Target public
According to Ms. Ao, of the 79 students who went to Portugal last year, 32 attended the University of Porto, while 47 attended the University of Lisbon. Moreover, 54 of the total were enrolled in one of the following local universities when they applied for the course: University of Macau (UM), Macao Polytechnic Institute (IPM), University of Saint-Joseph (USJ), the Institute for Tourism Studies (IFT) and Kiang Wu Nursing College (KWNC). The remaining 21 were Macau residents studying in Taiwan, Mainland China, Hong Kong, Japan or the U.S. by the time of application, according to the GAES spokesperson. Ms. Ao added that the 2017 programme is still open for application, and that the selection process has not yet begun. The initiative, supported by the Portuguese Oriental Institute (IPOR), seeks to strengthen the knowledge of local higher education students in the Portuguese language and culture, and seeks to promote ‘the training of qualified bilingual persons,’ according to GAES. The language training is developed in two phases. In the first stage, IPOR offers a tuition-free 50-hour preparatory course in Macau called a ‘Basic Course in Portuguese.’ The best students qualify for pursuing the programme in Portugal for a period of four weeks. ‘GAES will select students that excel in global aspects to take part in the interview. In the interview, the top 60 students will be selected to participate in the 2nd phase of the Summer School in Portugal,’ read the guidelines published by the office. Students who qualify for the Summer School in Portugal consist of two groups: ‘Type 1’ students who have completed the basic course provided by IPOR and have succeed in the interview; ‘Type 2’ students who have passed the Portuguese Level Test, also prepared by IPOR, with ‘better integrated performance,’ becoming eligible to go to Portugal to pursue their language training.
Business Daily Friday, March 17 2017 5
Macau Results
Samsonite posts 27 pct profit increase Total profit for the year hit US$274.83 million, while net sales of the group during the year amounted to US$2.81 billion
L
uggage maker Samsonite International saw a 26.6 per cent increase in profit for 2016, according to the group’s filing with the Hong Kong Stock Exchange. Total profit for the year hit US$274.83 million, while net sales of the group during the year amounted to US$2.81 billion, a 15.5 per cent increase year-on-year, which the group notes as hitting ‘a record level.’ The group acquired business luggage company Tumi in August of last year, which the group’s chairman notes as ‘undoubtedly the year’s most significant event, and arguably the most important acquisition in our company’s 100-plus year history.’
Chairman Timothy Charles Parker notes that ‘it is encouraging that the second half of the year (2016) has been much stronger than the first half, especially in the two major markets of the U.S. and China,’ while noting that the year overall has been ‘uneven’ with regard to global growth ‘due to a mixture of political and economic uncertainty.’ Despite the challenges, Parker states that ‘we are very satisfied with the results […] I believe we have further strengthened the position of the Company in the global travel lifestyle marketplace.’ Stripping out the effect of the Tumi acquisition and a one-off from the liquidation of a pension plan in the U.S., the group saw a 11.6 per cent
increase in profit during the year. The group aggregates its Hong Kong and Macau results, which reached US$109.1 million in revenue, a 41.3 per cent increase year-on-year, while its total sales in Asia amounted to US$1.03 billion, an 8.6 per cent increase from 2015. The company’s top revenue by
country came from China, which saw a 0.4 per cent contraction yearon-year, reaching US$251.73 million. The group’s chairman notes that this year ‘may be no different’ from last year in terms of ‘political surprises’ but that ‘the world will carry on travelling, and this will drive our business forward.’ K.W.
Real estate
Land business booming Property developer Agile Group Holdings saw a 64.3 per cent increase in its profit for the 2016 year, according to the group’s filing with the Hong Kong Stock Exchange. Total profit attributable to shareholders reached RMB2.28 billion, while revenue for the group amounted to RMP46.78 billion, an 8.5 per cent year-on-year
increase. The group notes that in the year ahead it will ‘will continue to expand the property management business in order to broaden the source of income’ as well as to ‘enhance its land bank by acquiring premium land parcels in prudent manner and at reasonable price.’ The cost of sales for the
g r o u p d u ri n g th e y ea r reached RMB34.3 billion, a 6.6 per cent increase
澳門文學節 F E S T I VA L L I T E R Á R I O D E M A C A U M A C A U L I T E R A R Y F E S T I VA L
year-on-year. Th e c o m p a n y c h a i rman notes that the group
achieved ‘remarkable presales’ amounting to over RMB10 billion and RMB8 billon in Zhongshan and Guangzhou, with average sales price increasing 41.3 per cent and 35.7 per cent, respectively. During the year the group’s revenue from property investment saw a 95.5 per cent increase, while its hotel operations were ‘comparable with last year,’ noted chairman and president Cheng Zhou Lin. K.W.
4-19
三月 | M A R Ç O | M A R C H
OLD COURT BUILDING | MACAU
6 Business Daily Friday, March 17 2017
Macau
Debt
Infrastructure comes at a cost Report notes that local governments in provinces have no guarantee that higher-tier government will guarantee their debt if they encounter problems Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
I
nfrastructure investment financing has been ‘largely debt-financed’ by local governments, according to a report by ratings agency Fitch, pointing out that local government financing vehicles, taking on those debts, might not always get a bailout from the state. Projects such as the upcoming Hong Kong-Zhuhai-Macau Bridge and the Guangzhou-Shenzhen-Hong Kong Express Rail Link - instrumental in the central government’s plan to link the Pearl River Delta into a ‘Bay Area’ - contribute to the growing percentage of local government debt (by region) which is at 71 per cent of the total Chinese public debt, which hit 52 per cent of the Mainland’s gross domestic product in 2015, notes the report. The group points out that it ‘does not believe the overall level of public debt is a credit weakness’ to the country, given the ‘offsetting factors such as a strong external position and high savings rate.’ However, this building debt comes without a ‘blanket implicit guarantee […] although the government would possibly address some individual fiscal stress situations.’ Neighbouring Guangzhou Province Governor Ma Xingrui notes that the group plans to see GDP growth of 7 per cent year-on-year in 2017, involving a RMB540 billion investment in projects including infrastructure – in particular regarding rapid transit networks like railways. “Improving the rail systems, especially in less developed eastern, western and northern Guangdong, can help to link these areas with the Pearl River Delta and thus increase the efficiency of the whole province’s economic growth,” noted Lin Jiang, head of Sun Yat-sen University’s public finance and taxation department, as cited by the state run China Daily. ‘China’s local public sector is made up of four tiers with a strict vertical hierarchy where each level reports to the upper level,’ notes the report. ‘The provincial level has the most power and authority, with better access to banks and central authorities, followed by the municipal, county and township tiers,’ it reads.
‘Each local government entity has its own responsibilities and should be regarded as legally autonomous and there is no assumption that a higher tier implicitly guarantees a lower-tiered local government if it encounters distress,’ notes the report, pointing out the rapid growth of the country has ‘generated or reinforced deep inequalities among provinces’ – noting that those such as Guangdong ‘host the bulk of China’s advanced industries, offer richer services and enjoy higher tax bases.’
LGFVs
Local government financing vehicles (LGFV) - traditionally created through an asset injection by the local government and enhanced through bank loans, the bond market or ‘high-interest trust products’, be it in land or capital - have funded over 7,000 infrastructure projects on the Mainland over the last 20 years, notes Fitch. These vehicles are primarily used to fund ‘roads, rail and water networks, as well as urban development, including economic zones, housing and real estate’ although only ‘a small fraction of LGFV debt benefits from a guarantee by the relevant local government whereas a ‘large proportion of LGFVs debt is issued on behalf of the local government and, as such, can be considered the local government’s direct obligation.’ These are classified as ‘category 1’ debt, more present in the municipal and county level, however, making up about one-third of provincial debt, according to the data. ‘Since LGFVs are critical for local governments to achieve their economic and policy objectives, and more broadly to achieve the country’s general economic goals, LGFVs continue to increase their activities and their debt outstanding,’ notes the report. However, since China’s Ministry of Finance confirmed that ‘debt issued by LGFVs after January 2015 should not be serviced by local governments, this ‘increases risks for investors,’ notes the rating group, pointing out that ‘local governments could legitimately argue that debt raised by LGFVs with a commercial purpose, such as real estate, and without a clear policy related objective is pure private debt.’
This is contrasted by the group’s viewpoint that the governments cannot ‘simply ignore LGFVs in fiscal stresses’ given that it was raised on behalf of the governments.’ ‘Local governments have posted fiscal deficits since 2009 because the transfers they receive from the central government and their limited tax proceeds are insufficient to fund the investment components of their budgets,’ notes Fitch. ‘This means local governments must find finite
or non-sustainable resources, such as land right sales or borrowing to bridge the investment gap,’ meaning that the governments are also exposed to land sales, which financed an average 30 per cent of the local public sector revenue between 2008 and 2015. ‘Local governments promised to repay 40 per cent of debt using land sales on average,’ notes the report, so as debt mounts the potential land dwindles.
Business Daily Friday, March 17 2017 7
Macau M&A
Chow Tai Fook Enterprises makes Australian energy play for Alinta
Hong Kong and China combined are the fifth-biggest sources of foreign
investment in Australia but some approvals in the past have been complicated by national security concerns. Canberra last year rejected bids from China’s State Grid Corp and Hong Kong’s Cheung Kong Infrastructure Holdings for electricity grid Ausgrid on national interest grounds. CKI’s subsequent US$5.5 billion bid for DUET Group, which owns a power grid in the Australian state of Victoria, is still under review by the Foreign Investment Review Board (FIRB). Analysts said that while CTFE Chairman Henry Cheng was a member of the People’s Political Consultative Conference, China’s political advisory body, the Alinta deal was not expected to face regulatory problems. Alinta is a retailer of energy, not a distributor like DUET, and it already has foreign ownership. “In this particular case with Alinta I would be surprised if there were concerns,” Fitzgerald said. State-owned China Huadian Corp received regulatory approval to buy Alinta last year but it was unable to reach a deal with the company’s owners, one of the sources said. Alinta generates 1,800 megawatts of power from a group of small gas-fired power stations in Australia alongside its retail business. Reuters
September 11 of this year to regain the US$1 bid price for its ordinary shares for a minimum of ten consecutive business days in order to receive a compliance confirmation from Nasdaq. At the beginning of the month the local company announced it had completed the 51 per cent share purchase of software technology development group Guangzhou
LiNiu Network Technology Co. Ltd., a company currently developing an electronic trading platform for the Chinese agriculture industry. The move was described by the company as an attempt to diversify its business into non-gaming sectors, with the company currently only operating one VIP room in Macau at the City of Dreams of Melco Crown Entertainment Ltd. N.M.
It marks the first investment in the Australian energy sector for CTFE Jamie Freed
H
ong Kong’s Chow Tai Fook Enterprises (CTFE) on Thursday said it had agreed to purchase Australian gas and electricity retailer Alinta Energy, in a deal two sources familiar with the matter said was valued at about A$4 billion (US$3 billion/MOP24 billion). It marks the first investment in the Australian energy sector for CTFE, a sprawling privately-held conglomerate best known for retail arm Chow Tai Fook Jewellery Group. It also controls infrastructure group NWS Holdings. The family-controlled business already invests in Australian property including a joint venture with casino operator Star Entertainment group Ltd, and its foray into energy should offer steady returns, analysts said. Alinta, owned by private equity companies including TPG Capital, had been preparing for an initial public offering. Brokers had valued Alinta at an average of A$3.4 billion, making
the Chow Tai Fook Enterprises offer attractive in comparison, one of the sources said. The sources declined to be named because they were not authorised to speak publicly about the deal. CTFE and Alinta declined to disclose the transaction price. CFTE would fund the deal itself and had no plans to list Alinta or roll it into NWS, one of the sources said. Australian energy and utility assets are attractive to foreign buyers because of strong growth opportunities,
particularly power retailers as electricity prices have soared over the past five years. “A lot of these parties have huge amounts of money they want to invest in a stable country where they can get good returns,” said Matthew Fitzgerald, a partner at law firm Herbert Smith Freehills specialising in mergers and acquisitions.
Regulatory hurdles?
Business
Falling division Junket operator Iao Kun Group Holding Company Limited shares listings have been downgraded to the Nasdaq Capital Market for failure to comply with minimum bid price requirements As of March 14 junket group Iao Kun Group Holding Company Limited shares listing was transferred from the Nasdaq Global Market to Nasdaq Capital Market for failure to comply with minimum bid price requirements, a U.S. Securities and Exchange Commission (SEC) release has announced. According to the release, Nasdaq Listing Rules demand that listed securities maintain a minimum bid price of US$1.00 (MOP8) per share. Iao Kun Group failed to meet the minimum for 30 consecutive business days,
ending September 12, 2016. The group was then granted a 180day period to comply but failed to do so until March 13 of this year, and was thus downgraded to the Nasdaq Capital Market. The Nasdaq Stock Market manages different tiers of companies with different requirements for listings, with the Nasdaq Global Market comprising companies with higher market capitalisation than companies listed on the Nasdaq Capital Market. Iao Kun Group has also been granted an additional 180 days, until
Gaming
Fine
‘Melco Resorts and Entertainment’ takes a bow
Huge anti-laundering fine for Australian gambling firm
Melco Crown Entertainment Ltd. will attempt to change its name to Melco Resorts and Entertainment, according to company statements made to Business Daily. The gaming operator says the issue will be subject to shareholder approval by the end of March. “The decision was taken due to Melco International Development (Melco) having obtained the majority ownership of Melco Crown after buying part of the shares held by the firm Crown Resorts Ltd. So it wouldn’t be necessary to keep the same name,” a Melco representative told Business Daily. In February of this year Australian group Crown Resorts announced it had reduced its stake in Melco Crown to 11.2 per cent. In December 2016 the company owned by Australian businessman
James Packer had already agreed to sell 198 million shares to Melco, with the move enabling the company owned by local businessman Lawrence Ho Yau Lung to obtain a majority 51.3 per cent share in the group. N.M.
Gambling giant Tabcorp was Thursday slapped with the largest civil fine in Australian corporate history for breaching anti-money laundering and counter-terrorism financing laws. The Australian-listed firm, which has a betting shop network, online wagering business and a broadcasting and media arm built around Sky Racing, was ordered to cough up A$45 million (US$34 million/ MOP272 million). The firm was hit with the penalty after the Federal Court found Tabcorp broke the Anti-Money Laundering and Counter-Terrorism Financing Act 108 times over five years in a case brought by financial intelligence body AUSTRAC. “Failing to uphold a robust AML/ CTF programme creates opportunities for serious and organised crime and terrorist groups to conceal the movement and use of illicit funds for
attacks and crimes against Australian citizens,” said AUSTRAC chief Paul Jevtovic. “In our view, Tabcorp had a corporate culture indifferent to meaningful AML/CTF compliance and risk mitigation until we intervened.” Among the breaches were a failure to report suspicious behaviour relating to money laundering and credit card fraud in a timely manner, and not having a compliant programme to manage the risks. Tabcorp chief executive David Attenborough said the company was “focused on being the industry leader in regulatory compliance across all of our operations”. “We remain firmly committed to continuing to work co-operatively with AUSTRAC into the future,” he added. Tabcorp shares fell 0.44 per cent in afternoon trade. AFP
8 Business Daily Friday, March 17 2017
Consigliere
Global Mobile Awards
Technologies for a year
M
obile World Congress is a mandatory date for everyone who wants to be up to date in tech matters. Celebrated every year in Barcelona since 2007, the event gathers the main characters in the telco industry from all over the world. Maybe you missed the latest edition novelties released earlier this month, but now you have the chance to get the highlights of the tradeshow. Consigliere summarizes for you some of the awarded apps and gadgets.
BEST NEW MOBILE HANDSET, TABLET OR DEVICE
Sony for Xperia XZ Premium Sony Mobile announced during the Mobile World Congress the Xperia XZ Premium. The smartphone incorporates imaging know-how embedded on Sony ‘α’ and Cyber-shot cameras to create the new Motion Eye camera system. It is also the first smartphone to feature a memory stacked Exmor RS sensor with technologies usually only found on premium compact cameras, it provides 5 x faster image scanning and data transfer. This means you can create sensational videos from your everyday moments by recording in 960 frames per second, providing Super slow motion video playback that is four times slower than other smartphones giving you more detail than has ever been possible. Plus Predictive Capture stays one step ahead and automatically starts buffering images when it detects motion even before you press the button, so you can find a moment
your eye may just have missed from a selection of up to four shots taken a second before you clicked. On top of this, the new 19MP high resolution sensor has 19 per cent larger pixels to capture more light and provides exceptional detail and sharp images even in low-light and backlit conditions. Additional improvements have been made inside Motion Eye to the Bionz for mobile processing engine meaning it detects moving objects more precisely to enable Predictive Capture. Clarity, detail and texture are also improved to give exceptional image quality thanks to the redesigned G lens with high optical clarity. Xperia XZ Premium features a 4K HDR (High Dynamic Range, 2160 x 3840) 5.5” display. It uses Sony’s Bravia TV technology to give an immersive 4K HDR viewing experience The quality of the display is enriched by Sony’s native technologies Triluminos Display for mobile,
BEST MOBILE APP FOR THE CONNECTED LIFESTYLE
Mindbody for Mindbody App The Mindbody App gives its millions of registered users around the world access to local fitness and wellness classes and appointments, right at their fingertips. From acupuncture to indoor cycling, colour highlights to massage, martial arts to yoga, Mindbody boasts a diverse, ever-increasing breadth of choices. In addition to this award, the app has also been honoured with a 2016 Webby and Webby People’s Voice Award, as well as two 2016 W3 Awards, Best in Show and Gold, recognizing creative excellence on the web.
“We are thrilled to receive this prestigious award for the Mindbody App, a tool that provides consumers with a quick and easy way to access health and wellness activities, empowering them to live happier, healthier lives,” said Rick Stollmeyer, Mindbody’s CEO and Co-founder. “By bringing together millions of consumers with tens of thousands wellness practitioners, the Mindbody App plays a pivotal role in connecting the world of wellness.” The firm is a provider of cloud-based business management software for the wellness services industry. Over 60,000 local businesses and 329,000 wellness practitioners in over 130 countries and territories use Mindbody’s integrated software and payments platform to run, market and build their businesses. These practitioners provide a variety of wellness services to millions of consumers who use the Mindbody platform to more easily evaluate, engage and transact with them.
X-Reality for mobile and Dynamic Contrast Enhancer. For the first time on mobile, you can enjoy a selection of 4K HDR content from Amazon Prime Video on Xperia XZ Premium. Stream or download select Amazon Originals series to watch whenever and wherever you want, with intensely vivid colours and breath-taking clarity. Xperia XZ Premium is powered by the Qualcomm Snapdragon 835 Mobile Platform, making it one of the very first smartphones capable of Gigabit Class LTE (up to 1Gbps). This is possible because of the integrated Snapdragon X16 LTE modem, which has the potential to transform how customers use their mobile devices by delivering fibre optic speeds on the go. File transfers are also super-charged thanks to the USB 3.1 connection which is 10 times quicker than USB 2.0 with a transfer speed of up to 5Gbps. And with the USB Type-C socket, plugging in is easy because the connector is always the right way up. It’s water resistant, dust-proof and
reinforced with Corning Gorilla Glass 5 on the front and back of the handset. Taking intelligence to the next level Xperia XZ learns how you use your phone and adapts and makes recommendations to give you our most smartest and personal experience yet. The battery is maximised with Smart Stamina which uses the Xperia learning engine to accurately estimate how long your current battery will last based on your normal usage. It even warns you if it detects you’re going to run out of power later that day and prompts you to activate Stamina mode. Battery Care and Qnovo Adaptive Charging are also included to protect battery and keep it healthy up to twice as long. Xperia Tips and Xperia Actions offer handy advice about the features you’re using and even suggests map downloads based on your location, all aimed at making life that little bit easier. Sony’s native DSEE HX technology even up-scales streamed tracks or MP3s to near high-res quality and if you connect with wireless speakers or headphones, LDAC ensures you don’t lose a drop of sound quality by transferring three times more audio data than normal Bluetooth. Working with PlayStation 4 console, you can play the latest cutting-edge games on your Xperia XZ Premium. Its advanced processing and fast memory access means gameplay is always smooth and responsive, plus the 4K screen and powerful stereo speakers make it feel like you’re actually in the game. Xperia XZ Premium will be available globally in in Luminous Chrome and Deepsea Black, from late Spring 2017. A range of supporting accessories will be available including the Quick Charger UCH12W which offers hours of battery time by plugging in for just a few minutes and Bluetooth Headset with Speaker SBH56 which enables hands free talking through the loud speaker whilst multi-tasking and has a remote camera shutter.
BEST MOBILE APP FOR VIRTUAL OR AUGMENTED REALITY
Blippar for Blippar As the corporate information says, “Blippar is the only visual discovery app for the real world powered by augmented reality and artificial intelligence. With Blippar you can unlock content by pointing your phone’s camera at any physical object or person you are curious about. Our mission is to give you more from the world you see — more information, more value and more entertainment. In just five years Blippar reached more than 65 million users and now
has 10 offices across the globe. Blippar has partner agreements with brands like TIME Inc., Unilever, Procter & Gamble, PepsiCo, Nestlé, Coca-Cola and Universal Pictures. The company offers a range of augmented reality and artificial intelligence products and APIs that can be tailored to every need, resources and budget, according to their own information. The judges awarded Blippar in recognition of its unique positioning as the only visual discovery app on the market, seeking to turn the world itself into a source of ‘more information, more value, and more entertainment’. If you are interested in learning more about what Blippar does in mobile AR technology, download the app and head to the showroom to see examples of their recent campaigns.
Business Daily Friday, March 17 2017 9
Consigliere
DISRUPTIVE DEVICE INNOVATION AWARD
Amazon for Amazon Echo The product is a hands-free speaker you control with your voice. Echo connects to the Alexa Voice Service to play music, provide information, news, sports scores, weather, and more—instantly. All you have to do is ask. Echo has seven microphones and beam forming technology so it can hear you from across the room—even while music is playing. Echo is also an expertly tuned speaker that can fill any room with 360° immersive sound. When you want to use Echo, just say the wake word “Alexa” and Echo responds instantly. If you have more than one Echo or Echo Dot, Alexa responds intelligently from the Echo you’re closest to with ESP (Echo Spatial Perception). Amazon Echo provides hands-free voice control for Amazon Music—just ask for your favourite artist or song, or request a specific genre or mood. You can also search for music by lyrics, when a song or album was released, or let Alexa pick the music for you. Listen to any song with Amazon Music Unlimited. Amazon Echo also provides hands-free voice control to Pandora, Spotify, iHeartRadio, and TuneIn. Plus, Echo is Bluetooth-enabled so you can stream other popular music services like iTunes from your phone or tablet. Echo has been fine-tuned to deliver crisp vocals with dynamic bass response. Its dual downward-firing speakers produce 360° omni-directional audio to fill any room with immersive sound. The more you use Echo, the more it adapts to your speech patterns, vocabulary, and personal preferences. And because Echo is always
connected, updates are delivered automatically. Just in the last few months Amazon added local search from Yelp, movie show times, Samsung SmartThings support, Google Calendar, Audible audiobooks, text-to-speech for Kindle eBooks, and thousands of new skills from third-party developers. Skills add even more capabilities like ordering a pizza from Domino’s, requesting a ride from Uber, opening your garage with Garageio, and more. New skills are being added all the time. You can also see ratings and reviews to learn what other customers are saying about the thousands of skills available in the Alexa App. Use Echo to switch on the lamp before getting out of bed, turn on the fan or space heater while reading in your favourite chair, or dim the lights from the couch to watch a movie—all without lifting a finger. Echo works with devices such as lights, switches, thermostats, and more from WeMo, Philips Hue, SmartThings, Insteon, Nest, ecobee, and Wink. With the free Alexa App on Fire OS, Android, iOS, and desktop browsers, you can setup and manage your Echo. You can use the Alexa App to connect services you already use like Spotify, Pandora, and Google Calendar. See what books are available to read from your Kindle and Audible libraries. View shopping and to-do lists while on the go. Control your timers and set custom tones for your alarms, and much more. The Alexa App is also where you discover and enable third-party skills.
BEST MOBILE APP FOR BUSINESS
Salesforce for Salesforce1 Salesforce1 is part of Salesforce App Cloud, a cloud-based platform that democratizes rapid development, customization and instant deployment of business apps on any mobile device, in most cases with clicks, not code. As the company says in its corporate statement, Salesforce1 is used today by over 1.1 million users in 150,000 small, medium and large businesses worldwide. Salesforce’s own CRM apps are also readily available on any mobile device via Salesforce1 and many of the 3000+ AppExchange ecosystem
BEST CONNECTED CONSUMER ELECTRONIC DEVICE
R/GA and Owlet Baby Care for Owlet The wireless Smart Sock fits snug on a baby’s foot and tracks their heart rate and oxygen levels while they sleep. The Owlet empowers you with clinically-proven technology used in hospitals around the world, pulse oximetry. There’s a reason hospitals use pulse oximetry in place of other monitoring options. So why not bring the safety of pulse oximetry home from the hospital with your baby? You might recognize pulse oximetry as the clip they put on your finger at the hospital. A small light shines through your skin and the amount of blood flow and oxygen levels are estimated based on how much light is transmitted to the sensor. The company combined this technology with the cuddly Smart Sock to give an extra set of eyes on baby while they’re asleep.
The Owlet is designed to notify if baby’s heart rate or oxygen levels fall outside of a pre-set range. Owlet is designed to notify you if your child’s heart rate dips too low, rises too high, or if their oxygen level drops below a threshold. This notification strategy was determined by a team of pulse oximetry specialists, paediatricians, neonatologists and pulmonologists. Owlet is not a medical device. If your child has an irregular heart rate or irregular oxygen levels, you should not use Owlet as your primary monitoring system. And if your phone dies, don’t worry. The Base Station acts independent of Wi-Fi and is your primary notification system, your phone is just a convenience. The Owlet Smartphone App gives a detailed look into baby’s wellbeing.
MOST INNOVATIVE MOBILE APP
Sliide Airtime Africa for Sliide partners also leverage Salesforce1 to allow business users to access their on-platform applications. Most importantly, Salesforce1 has already delivered substantial business results to companies across many industries. The app allows to have all the vital information you need right at hand; access feeds, groups, people, and files to collaborate with customers or colleagues anywhere; speed decision-making with real-time views for sales, service, marketing, and business performance: a comprehensive view of all the meetings, account details, and tasks whenever you want; find your most urgent posts and approval requests in one convenient location; finds the data in seconds; search by list and recently accessed records, or perform global queries; see where you are in the process and what’s important at each stage, with only the most urgent information at the top; etcetera. As you may see the possibilities of the app for a business are simply massive
Sliide was developed to solve a problem faced everyday by people living in emerging markets, which directly affects their ability to use their phones: the cost of mobile data is disproportionately high compared to incomes. Sliide sends news, entertainment and adverts to the lock screen of our users’ phones. They use 65 per cent of advertising revenues to buy mobile data and airtime for our users so they can spend more time online for free. We are a household name in Nigeria, launching in South
Africa imminently and currently fundraising to expand into additional markets in Africa and Asia. Sliide Airtime is a privately-held technology company with offices in Lagos and London. Its content delivery platform is changing the way people interact with their phones by subsidising their airtime. The team brings years of experience in the mobile, software, and advertising industries, along with a company-wide entrepreneurial spirit that spurs innovation and disruption, their corporate information says. Sliide believe that with services like WhatsApp, Facebook, Instagram, Twitter and Eskimi all growing in popularity in Nigeria, there is an increasing need to find new ways to help Nigerians pay for internet access, the company says. The Sliide Airtime service gives consumers the ability to earn free airtime, whilst also keeping up-to-date with all their favourite news and gist.
10 Business Daily Friday, March 17 2017
Greater China Monetary move
Government lifts short-term rates for 3rd month straight The PBOC insisted the moves did not indicate a change in its monetary policy or constitute a hike in its benchmark policy rate John Ruwitch and Winni Zhou
C
hina’s central bank raised short-term interest rates yesterday in what economists said was a bid to stave off capital outflows and keep the yuan currency stable after the Federal Reserve raised U.S. rates overnight. The increase in short-term rates was China’s third in as many months, and came a day after the end of the annual session of parliament where leaders warned that tackling risks from a rapid build-up in debt would be a top policy priority this year. Hours earlier, the Fed raised its benchmark policy rate, as had been widely expected, and signalled more hikes were on the way as the U.S. economy picks up steam. “The higher U.S. rates and tightening of U.S. monetary policy could trigger further capital outflows and have some negative impact on China’s financial system,” Nomura economist Yang Zhao said. “I think they want to stabilise the currency at this time.” Some analysts had expected another such rate rise in China in coming months as authorities look to contain risks from a rapid build-up in debt. The People’s Bank of China (PBOC)
also strengthened the yuan’s daily mid-point reference rate by the most in about two months yesterday. The yuan fell 6.5 per cent against the dollar last year in the face of the rising greenback and uncertainty over China’s economy, prompting the government to clamp down on capital outflows to ease a drain on its foreign exchange reserves. The yuan has been largely stable this year as the dollar has paused, but China’s government has remained alert as many market watchers expect the dollar will eventually resume its climb. The latest move reflected the central bank’s desire to maintain relatively high yuan rates, increasing the cost of shorting the yuan, and easing depreciation pressure, Zhou Hao, emerging markets economist at Commerzbank, said in a note.
Stronger economy giving policymakers more room
After years of super-loose policy, the PBOC has cautiously moved to a modest tightening bias in recent months in a bid to cool explosive growth in debt and discourage speculative activity, though it is treading cautiously to avoid hurting growth. The economy is on more solid footing now than early last year, giving policymakers more room, in theory,
to tackle financial risks and push through reforms. PBOC Governor Zhou Xiaochuan said last Friday that China’s corporate debt levels are too high but conceded it will take time to bring them down to more manageable levels. In keeping with that cautious tone, the central bank’s increases in shortterm rates yesterday were a very modest 10 basis points, or a tenth of a per centage point, the same size as moves in January and February. The PBOC insisted the moves did not indicate a change in its monetary policy or constitute a hike in its benchmark policy rate. Flexibility in rates is favourable for deleveraging, “deflating bubbles” and risk prevention, it said. Yesterday’s move brought the rate on open market operation reverse repos for seven-day, 14-day and
28-day tenors, bringing them to 2.45 per cent, 2.60 per cent and 2.75 per cent, respectively. The rate on medium-term lending facility (MLF) loans was raised to 3.05 per cent and 3.20 per cent, respectively. The MLF is a supplementary policy tool the central bank uses to manage conditions and medium-term interest rates in the banking system and money markets. The PBOC also said it had lent RMB113.5 billion (US$16.47 billion) of six-month MLF loans and RMB189.5 billion of oneyear MLF loans to 17 financial institutions yesterday. “(The market) does not need to over-interpret the amount and price of each operation,” the central bank said. “Changes in rates are normal and do not indicate a change in direction for monetary policy.” Reuters
Business Daily Friday, March 17 2017 11
Greater China Monetary policy
In Brief
Hong Kong raises interest rates after Fed move Hong Kong tracks U.S. rate moves as its currency is pegged to the U.S. dollar Donny Kwok and Saikat Chatterjee
Hong Kong’s central bank raised its benchmark interest rate by a quarter point for the second time in three months yesterday, following a similar move by the U.S. Federal Reserve and said capital outflows will not pose challenges for the economy. While the Fed’s move was widely anticipated, economists said the future path for tightening would be more gradual, sparking a rally in risky assets from stocks to emerging market currencies. Norman Chan, the chief executive of the Hong Kong Monetary
Authority, the territory’s de facto central bank, said he was not worried about capital outflows, as they would happen naturally as U.S. interest rates rise. “In the past couple of years, US$130 billion came into the financial system and that is kept in a separate pocket we hold,” Chan told a media gathering. “We have all the money in highly liquid form, such as U.S. Treasuries, that we hold ready for those who want U.S. dollars.” Shares in sub-indexes of banking and property companies in Hong Kong jumped by more than a percentage point each in opening trades
yesterday, outperforming the broader stock market on the benign rate outlook. The Hong Kong Monetary Authority yesterday raised the base rate charged through its overnight discount window by 25 basis points to 1.25 per cent. Hong Kong tracks U.S. rate moves as its currency is pegged to the U.S. dollar. Including reinvested dividends, the broader Hong Kong stock market has outperformed a sub-index of property and finance companies since the last U.S. rate increase in December.
Key Points Rates in Hong Kong track U.S. ones, due to currency peg Banking and property shares jump on benign rate view Cbank urges banks to maintain high quality on loans HKMA’s Chan also asked banks to continue upholding their high standards in examining applications for big loans from developers earmarking funds for bidding land for development. Hong Kong’s central bank sets its base rate through a formula that is 50 basis points above the prevailing U.S. Fed Funds Target or the average of the five-day moving averages of the overnight and one-month HIBORs (Hong Kong Inter-bank Offered Rate). Reuters
TV program
Consumer day show skewers Nike shoes, Muji foods The 315 show can hit a firm’s reputation if singled out for bad corporate behaviour Jackie Cai and Adam Jourdan
China’s annual consumer rights day TV show turned its spotlight on U.S. sports brand Nike Inc for misleading advertising and Japanese brand Muji for selling food products allegedly sourced from part of Japan affected by radiation. The state-run China Central Television (CCTV) show - which can have brands and their corporate PR teams scurrying to take evasive action - said Nike had misled consumers over high-tech air cushions in some of its “Hyperdunk” basketball shoes.
Key Points Nike hit for misleading ads of basketball shoes Japan’s Muji, others stung over radiation concerns Consumer say impact likely short-lived
Similar to CBS network’s “60 Minutes” in the United States, the CCTV show - known as “315” in reference to global consumer rights day on March 15 - has previously named and shamed firms from Apple Inc to Volkswagen AG. The two-hour show - a mix of undercover reports and song-anddance - also highlighted Japanese brands including Muji, owned by Ryohin Keikaku Co, which it said sold food products in China from an area of Tokyo where high levels of radiation were detected in 2015. A Ryohin Keikaku spokesman said yesterday the firm was “not selling any food products in China from areas banned from exporting due to concerns about radioactive
contamination”. Nike said in a statement it had sold 300 pairs of Hyperdunk shoes in China last year with “an inaccurate product description stating that the shoe contained airbags”. The firm added it had apologised to consumers and offered compensation. “We will fully cooperate with the government regulators regarding their inquiries,” the company said. The Greater China region accounts for over 10 per cent of Nike’s global sales. The show also took aim at fake eye doctors for scamming patients, animal breeders for over-using medicines to make animals grow faster, and China’s Wikipedia-like Baike. com. The 315 show can hit a firm’s reputation if singled out for bad corporate behaviour. Apple was forced into a rare apology in 2013 after criticism on the show of its China after-sales service.
“Pretty much all the big corporations have their PR machines ready to jump into action because they’ve seen what happens when companies are not prepared,” said James Feldkamp, Shanghai-based CEO of independent China consumer watchdog Mingjian. While the annual programme has lost some of its bite in recent years, Wednesday’s version was harder hitting than last year’s, which criticised local food delivery apps, fake online sales and dodgy false teeth, but didn’t take aim at any major international firms. However, many in China steered clear of the show altogether, while online chatter was more muted than in previous years. Viewers who tuned in said they were underwhelmed by the show’s corporate exposés and any impact would likely be short-lived. “This year’s show was a laughing stock, there weren’t any really big cases in there,” posted one user on Sina Weibo using the name Master Tan Xi. “Why do they bother still holding it?” Reuters
Outflows
Commercial banks’ net forex sales dip Net foreign exchange sales by China’s commercial banks fell to their lowest level in six months in February, as capital outflows eased due to tighter regulatory curbs and a steadying yuan. China’s commercial banks sold a net US$10.1 billion of foreign exchange in February, down 47 per cent from January and the lowest amount since August, data from the foreign exchange regulator showed yesterday. For the January to February period, net forex sales stood at US$29.3 billion, the State Administration of Foreign Exchange said on its website. Property
HNA pays US$960 mln for land purchase in Hong Kong Chinese conglomerate HNA Group Co Ltd snapped up a plot of residential land in Hong Kong for HK$7.44 billion (US$958.12 million), the fourth such purchase in five months in the city for the acquisitive group. HNA’s unit, Hong Kong International Construction Investment Management Group Co, won the bid for a 9,482 square meter-land in the Kai Tak area, translating to a floor price of around HK$145,316 per square meter, HNA said in a statement late on Wednesday. HNA’s earlier land buys in Hong Kong have also been in the Kai Tak area. Aviation
Authorities plan to add 136 airports by 2025 China aims to build 136 new airports by 2025, government sources said on Wednesday. The facilities could become a world-class airport complex of international and regional transport hubs, according to a plan by the National Development and Reform Commission and the Civil Aviation Administration of China. China began an airport construction boom in 2008 when the government began spending on infrastructure to offset the global financial crisis. Service improved remarkably, but current airports are far from adequate and are unevenly located throughout the country. By the end of 2015, China has 207 civil airports and is expected to have around 260 by 2020. Cooperation
14 pacts signed with Saudi Arabia China and Saudi Arabia signed 14 cooperative agreements during a visit by Saudi King Salman bin Abdulaziz Al Saud, said Chinese Vice Foreign Minister Zhang Ming yesterday. Chinese President Xi Jinping and King Salman attended the signing ceremony after their talks at the Great Hall of the People in Beijing. Those agreements covered a wide range of cooperation areas, said Zhang, noting that a memorandum of understanding on production capacity and investment cooperation between the two governments worth about US$65 billion involves 35 cooperative projects. The King is paying a state visit to China from March 15 to 18 as a guest of Xi.
12 Business Daily Friday, March 17 2017
Asia TPP
Pacific trade pact countries look for ‘progressive’ way forward With the retreat of the United States, China appears to be the natural successor to lead those discussions Rosalba O’Brien and Antonio De la Jara
T
he remaining members of the Trans-Pacific Partnership (TPP) are seeking a way forward on the trade pact, they said on Wednesday, as some emphasized the need for deals to address concerns about workers’ rights and other issues. The TPP, which originally covered some 40 per cent of global gross domestic product, was effectively torpedoed in its current form when President Donald Trump withdrew the United States from the agreement in January.
Asia-Pacific trade. With the retreat of the United States, China appears to be the natural successor to lead those discussions, but an emphasis on getting a progressive deal that wins buy-in from sceptical citizens could see nations in the Americas forging a different path. “We are talking about free trade of a very high quality, with protection for investors, the environment, and labour rights,” Mexican foreign minister Luis Videgaray told reporters after the meeting. “That is the primary criteria with which any negotiation that takes place will comply.” Consensus was growing that
trade deals need to consider issues like the environment and labour rights, Canada’s trade minister Francois-Philippe Champagne said on the side-lines. “Around the table, the word ‘progressive’ appears more and more... it is becoming part of what people would consider as a base in order to progress,” he said. Critics of the TPP have said it does not do enough to protect jobs, and U.S. presidential candidates across the political spectrum promised to scrap it if elected. But the proposed Regional Comprehensive Economic Partnership (RCEP), promoted by China, contains far less than the TPP in terms of provisions for protecting workers and the environment. China reiterated its wish to promote
regional economic integration, but did not comment on the differences between the pacts. Another way forward may be via Latin America’s Pacific Alliance trade bloc. Its four nations said on Tuesday they would seek to expand by allowing associate membership as a precursor to trade talks. New Zealand said in a statement on Wednesday that it expected to be one of the first to begin negotiations. Trade officials from ex-TPP countries are now set to come up with a menu of options for ministers before they meet in May at an Asia-Pacific Economic Cooperation (APEC) gathering in Vietnam. Ministers wanted to continue with the “substance of the accord,” Chile’s foreign minister Heraldo Munoz said. Reuters
“We are talking about free trade of a very high quality, with protection for investors, the environment, and labour rights” Luis Videgaray, Mexican foreign minister
The 12 members met for the first time since then on Wednesday, assembled by Chile alongside China, South Korea, and Colombia, to try to thrash out a way forward on
Chilean Foreign Minister Heraldo Muñoz (C) poses for an official photo with the Foreign Minister of the Pacific Alliance, the Ministers of Commerce and representative of the TPP in Viña del Mar, Chile. Lusa
Monetary meeting
Bank of Japan keeps policy steady The central bank maintained its cautiously optimistic assessment that the economy continues to recover moderately as a trend The Bank of Japan (BOJ) kept monetary policy steady yesterday in the wake of the U.S. Federal Reserve’s second interest rate hike in three months, underscoring the diverging policy paths of major global central banks. Economists had expected no change in the BOJ’s policy settings as rising global protectionist sentiment and an expected series of U.S. rate hikes overshadow budding signs of recovery in the trade-reliant Japanese economy. “We think the BOJ will raise the 10-year government bond yield target between July and September,” said Yuichiro Nagai, an economist at Barclays Securities. As expected, the BOJ maintained yesterday its short-term interest rate target of minus 0.1 and a pledge to guide the 10-year government bond yield at around zero per cent via aggressive asset purchases. It also kept intact a loose pledge to maintain the pace of its annual increase in Japanese government bond (JGBs) holdings, which is 80 trillion yen (US$706 billion). “Very few people expect inflation to reach 2 per cent. In addition, I see
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no change to inflation expectations,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. “In these circumstances, raising the 10-year yield target cannot be considered. Even if the BOJ wanted to move, I don’t think it could.” Japan’s long-stagnant economy has shown signs of life in recent months, with exports and factory
output benefitting from a recovery in global demand. Core consumer prices rose for the first time in over a year in January and many analysts expect inflation to accelerate toward 1 per cent later this year, due largely to a rebound in energy costs and rising import prices from a weak yen. That has led to a dramatic shift in market expectations with a majority of analysts polled by Reuters predicting the BOJ’s next move would be to start scaling back its ultra-easy policy. Some analysts say the BOJ may be forced to raise its yield target to
avoid ramping up bond purchases if Japanese long-term interest rates track global bond yield rises, which are being driven by expectations of higher U.S. interest rates. The BOJ hopes to dispel such speculation and stress it won’t raise its yield target unless the economy strengthens enough to accelerate inflation stably toward 2 per cent, say sources
“It’s possible consumer inflation may hit 1 per cent as early as August, and the BOJ might adjust the yield target around that time as the economy recovers as a trend” Yuichiro Nagai, an economist at Barclays Securities
Bank of Japan headquarters
familiar with its thinking. A rising global tide of protectionism is adding to concerns for Japanese policymakers, given the economy’s heavy reliance on exports and free trade. Reuters
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Business Daily Friday, March 17 2017 13
Asia In Brief Job market
Australia’s unemployment rate rises
Mortgages
Australia’s NAB hikes home loan rate, may hurt economy Home prices in major cities jumped 11.7 per cent in the year through February Swati Pandey
National Australia Bank became the first of the country’s Big Four lenders to raise mortgage rates yesterday, a move that in part will be welcomed by regulators desperate to cool runaway real estate prices. NAB, Australia’s No.4 lender by market value, raised interest rates on residential investment loans by 25 basis points to 5.80 per cent to clamp down on the “strong growth” in the segment, it said in a statement. But it also raised owner-occupier loans by 7 basis points to 5.32 per cent, a move that analysts said could draw flak from consumers and politicians.
Earlier this week, a senior central banker signalled regulators were ready to impose tighter lending restrictions to ward off risks in a housing market that has seen prices grow at their fastest since 2010. Home prices in major cities jumped 11.7 per cent in the year through February, while in Sydney they have shot up 18.4 per cent. While authorities should welcome moves to dampen speculation in property, high loan rates for home occupiers could risk hurting the broader economy at a time when it still needs support. “The major surprise was the increase in owner occupier rates, coming at a time when consumer
spending is relatively weak,” said Shane Oliver, head of investment strategy at AMP Capital. Oliver said there was a danger that higher home loan rates for owner occupiers could weaken the economy to a point that the central bank is forced, reluctantly, to cut the policy rate already at a record low. “If we see a few more of these out of cycle rate hikes it could contribute to another rate cut by the RBA.” The Reserve Bank of Australia (RBA) kept its policy rate at 1.50 per cent for an eighth straight month in March and has signalled a steady outlook for the year ahead. RBA governor Philip Lowe recently spoke about the danger of a debtfuelled boom and bust, adding further interest rate cuts would not be in the national interest. But an increase in official cash rates is also undesirable as the economy still needs support with the jobless rate at a 13-month peak and wage growth at its weakest in nearly two decades. For banks, rising cost of borrowing, stiff lending competition and onerous regulations mean they are forced to push interest rates higher to protect their profitability. “Banks are trying to get it across to politicians and the public that higher regulatory requirements come at a cost and banks are going to use their repricing powers to limit their damage,” said Morningstar analyst David Ellis.
Hot property market
The value of home loans rose 1.5 per cent in January to stand 11 per cent up annually, latest data showed. Growth was largely driven by a 4.2 per cent jump in the value of loans to investors in January alone, with the annual pace surging 27.5 per cent. It is this boom in investment home lending that regulators want to contain.
Key Points NAB raises home investor loans by 25 bps to 5.8 pct Move follows strong growth in investor lending segment Owner occupier rates up by 7 bps to 5.32 pct Already, the major banks share of new mortgages written has sunk to 65.25 per cent from a peak of 72.2 per cent in August. “If the major banks lose market share at this high end of the cycle they are actually doing themselves a favour. So if and when the housing cycle turns down they won’t be stuck with a lot of these more risky home loans,” Ellis added. On Wednesday, Commonwealth Bank of Australia, the nation’s largest mortgage provider, and its subsidiary Bankwest said they will raise interest rates and toughen lending conditions for investment property buyers. Westpac and ANZ declined to comment on the future course of rate action, while CBA could not immediately be reached. Reuters
The joblessness rate in Australia has increased to 5.9 per cent, according to official figures released yesterday. The Australian Bureau of Statistics data indicated a 0.2 per cent rise in unemployment, which was widely expected among analysts to remain stable. Kate Hickie, economist at Capital Economics, told Xinhua the rise in the unemployment rate shows there is plenty of “slack” in the labour market. Across the board, 6,400 jobs were lost in February, with parttime employment numbers down by 33,500, but full-time employment was on the increase with 27,100 jobs created over the past month. Monetary policy
Thai c.bank says current rate still accommodative Thailand’s policy interest rate at 1.50 per cent remains accommodative for the economic recovery, a deputy central bank governor said yesterday, suggesting no policy change is expected at its meeting later this month. Thailand faces no risk of a low-inflation trap as headline inflation has returned to the central bank’s target range of 1-4 per cent, Deputy Bank of Thailand Governor Mathee Supapongse told reporters. The central bank has left its benchmark rate unchanged near record lows since a cut in April 2015. It next reviews monetary policy on March 29 Energy
Australia floats hydro upgrade to help plug power gap The Australian government said yesterday it may spend up to A$2 billion (US$1.5 billion) to expand a huge hydro power scheme to help solve an energy crisis, although the main owners of the dam have yet to be consulted. The idea was floated by Prime Minister Malcolm Turnbull, the latest in a flurry of announcements over the past week as the country looks to plug a gap in power and gas supplies that has already led to blackouts and outages across the eastern half of the country. Official trip
Duterte to visit Myanmar, Thailand next week Philippine President Rodrigo Duterte will pay an official visit to Myanmar and Thailand on March 19 to 22, a government spokesman announced yesterday. Foreign Assistant Secretary Charles Jose told a news conference at the presidential palace that Duterte will visit Myanmar on March 19 to 20, and Thailand on March 20 to 22. “These visits are part of (Duterte’s) introductory visits to countries in Southeast Asia,” Jose said, adding that the two countries are the only remaining countries that Duterte has not visited in the region since he took office in June last year.
14 Business Daily Friday, March 17 2017
International In Brief Monetary policy
Swiss keep negative rates on hold The Swiss National Bank (SNB) highlighted continued global political uncertainty yesterday as it stuck to its ultra-loose monetary policy designed to stem demand for the safe-haven Swiss franc. The central bank is braced for the outcome of European elections this year which could trigger an upsurge in demand for the franc should nationalists perform well. In its quarterly policy assessment the SNB said the global economy remained subject to considerable risks. It kept its target range for three-month Swiss franc Libor at -1.25 per cent to -0.25 per cent and the rate it charges on sight deposits at -0.75 per cent. German finmin
G20 to sidestep trade issue due to discord with U.S. The protectionist stance of the new U.S. administration could complicate G20 talks this week and force policymakers to leave out the disputed trade issue, German Finance Minister Wolfgang Schaeuble said. Speaking to Reuters ahead of the G20 gathering of finance ministers and central bankers in the German town of Baden-Baden today and Saturday, Schaeuble said it was still unclear if the G20 would keep joint language supporting free trade and open markets. “There are differing views on this subject,” Schaeuble said, pointing to protectionist comments by U.S. President Donald Trump and other senior government officials. Anti-trust tribunal
S. Africa plans hearing on banks in FX collusion case South Africa’s Competition Tribunal will hold a hearing in July where banks accused of colluding to rig the rand currency will make their submissions, the anti-trust body said yesterday. The Competition Commission said last month it had found traders at more than a dozen local and foreign banks colluded to coordinate dealing in the South African and U.S. currencies. The tribunal, an anti-trust oversight body, said the commission has until the end of March to supplement its complaint against Bank of America Merrill Lynch and seventeen other institutions, among them South African banks Standard Bank, Barclays Africa Group and Investec. Portugal
New tourism strategy seeks to double sector turnover A new tourism strategy for Portugal aims to double the sector’s turnover by 2027, to €26 billion, according to a presentation made on Wednesday at a trade fair in Lisbon that was attended by the economy minister, Manuel Caldeira Cabral, and the secretary of state for tourism, Ana Mendes Godinho. Last year the sector had a turnover of €12.7 billion, according to official figures. Other targets enshrined in the strategy include an increase in the number of overnight stays to 80 million by 2027, from 53.5 million last year.
Federal spending
Trump would slash research in cut to health budget The budget will end some training programs for nurses and health professionals
P
resident Donald Trump is proposing big cuts in federal spending on biomedical research and the elimination of subsidies that help poor people heat their homes as part of a budget that would reduce discretionary spending at the Department of Health and Human Services (HHS) by 23 per cent. The cuts are sure to provoke an outcry from Democrats and Republicans who have long backed a robust budget for the National Institutes of Health, as well as from research universities, advocates for cancer patients, victims of heart disease and other conditions, and lawmakers from northern states dependent on the Low Income Home Energy Assistance Program. The administration is requesting US$65.1 billion for HHS for the 2018 fiscal year, according to a document, down from US$84.6 billion in 2016. The budget is a request made by the administration, and spending levels are ultimately set by Congress.
Mandatory spending
Trump’s budget proposal doesn’t touch on major issues like changes to the Affordable Care Act or tax-reform plans. The summary doesn’t mention giving the Medicare program for the elderly the authority to negotiate drug prices, which Obama had unsuccessfully proposed in past budgets. Trump has said that drugmakers should have to bid for government
business, although he hasn’t elaborated. The document doesn’t include the vast majority of spending by the health department, which is mandatory outlays for Medicare and the Medicaid program for the poor.
‘A document from the Trump administration titled “America First: A Budget Blueprint to Make America Great Again” shows administration’s priorities’ The document from the Trump administration titled “America First: A Budget Blueprint to Make America Great Again,” is a broad statement of the administration’s priorities. Overall, it bolsters funding for the military by US$54 billion, as Trump has promised, while cutting the same amount from other departments. Among the biggest changes is a US$5.8 billion cut to funding for the health institutes, to US$25.9 billion, compared with fiscal 2017. It’s not clear where all the money
would come from, and the budget cites “consolidations and structural changes” as well as cutting administrative costs and a “rebalance” of government funding for research.
Research funding
The administration also proposes eliminating the Fogarty International Center, and moving the Agency for Healthcare Research and Quality under the NIH. The Fogarty centre, NIH’s global health research arm, was created more than 40 years ago and was appropriated about US$70 million in fiscal 2016. It funds about 400 research and training projects involving more than 100 universities that work on projects such as polio eradication and the effects of climate change and disease outbreaks around the world, according to its website. Fogarty scientists are responsible for modelling infectious disease outbreaks, such as the Ebola virus epidemic that began in 2013 and killed more than 11,000 people in Africa. The centre’s work helps control the spread of pathogens and provides data to guide the development of bioterrorism countermeasures. The other big reduction comes from funding for programs at the Office of Community Services that aid low-income people. The budget proposes saving US$4.2 billion from 2017 levels by ending the Low Income Home Energy Assistance Program and the Community Services Block Grant, which provides funds to fight poverty in states and communities. Bloomberg News
Crisis
Anti-austerity protests break out across Brazil Leftist opposition organizations say President is punishing ordinary Brazilians already suffering the worst recession in the country’s history Demonstrators occupied Brazil’s finance ministry, flooded the centre of Sao Paulo and went on strike in a string of cities on Wednesday to protest reforms to the cash-strapped country’s pension system. The biggest demonstration took place in the financial powerhouse Sao Paulo, where thousands of people filled a section of the main avenue. Addressing a cheering crowd organizers said numbered up to 80,000 people, the fiery former leftist president Luiz Inacio Lula da Silva said the government wants to “end the achievements of the working class over the past years.” “The people will only stop when they choose a government democratically,” he said, alluding to the impeachment of his chosen successor Dilma Rousseff last year, which installed the current centre-right President Michel Temer in office. Lula leads the polls ahead of elections next year. In Sao Paulo, a strike by metro and bus workers in Sao Paulo earlier had paralyzed the morning rush hour. During a dramatic protest in the capital Brasilia, hundreds of activists burst into the finance ministry before the start of the workday, occupying the building until late afternoon. Police said they vandalized the ministry and broke windows. Staff at public schools in Rio de Janeiro also went on strike, trash collectors stopped work in Curitiba and the metro was shut down in Belo Horizonte, according to the news portal G1. Rio’s protest ended in turmoil when
some demonstrators clashed with the police, who threw tear gas and stun grenades, Globo TV reported. The unrest in more than 20 cities marked the most serious challenge in the streets so far to Temer’s attempts to tame the budget and restore an economy mired in two straight years of recession.
Question of rights
A provision to set the retirement age at 65 is central to the pension reform -- a shock to a country where many are able to draw pensions at 54. That reform is needed to prevent the pension system’s “collapse,” the hugely unpopular Temer said in an address on Wednesday. “No one will have their rights taken away,” he said, describing the reforms as “saving the benefits of today’s retirees and of the young who will retire tomorrow.” Arguing that the country will be driven to bankruptcy if austerity measures are not taken, Temer has already steered a 20-year budget
freeze through Congress. He got one piece of good news Wednesday when financial ratings agency Moody’s upgraded its outlook for Brazil from “negative” to “stable.” However, leftist opposition organizations say Temer is punishing ordinary Brazilians already suffering the worst recession in the country’s history, with unemployment at a record 12.6 per cent -- around 13 million jobless.
Corruption probes
Temer’s credibility among Brazilians is being hurt further by a ballooning graft scandal over embezzlement from the state oil company Petrobras. The scandal entered new territory on Tuesday, when the prosecutor general requested the Supreme Court for the authority to investigate scores of politicians. They reportedly include five ministers as well as the presidents of both houses of Congress. Temer has said he will not fire ministers unless they are actually charged with crimes. However, earlier phases in the scandal have already claimed several ministers, raising questions over Temer’s ability to keep a congressional coalition together for the all-important vote on pension reform. APF
People walk past posters calling for a strike in Sao Paulo, Brazil, 15 March 2017. Lusa
Business Daily Friday, March 17 2017 15
Opinion Fed delivers a hike and a subtle message Mohamed A. El-Erian a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council
T
he Federal Reserve did more than increase its benchmark interest rates by a quarter-point, only the third hike in more than 10 years -- it also took an important step forward in a gradual policy transition. Hoping for what I have labelled earlier a “beautiful normalization” of rates, the central bank is moving beyond strict data-dependency and becoming more comfortable about leading markets rather than following them. In the process of becoming more strategic and less tactical, the Fed will, and should, shine more of the spotlight on others with responsibility for economic policy. This includes U.S. policymaking entities charged with fiscal, trade, labour market and regulatory issues, as well as other systemically important central banks, particularly the European Central Bank and the Bank of Japan. While we need to wait for the release of the Federal Open Market Committee minutes in a few weeks, the rationale for Wednesday rate hike and the policy shift is apparent in the statement issued at the end of the two-day meeting. This was reinforced by the comments at Fed Chair Janet Yellen’s press conference that followed the rate increase; and it is one that speaks to both domestic and international factors influencing the economic outlook and the balance of risks. With the economy continuing to expand at a moderate pace, the Fed highlighted the improvement in business sentiment and welcomed the further strengthening of the labour market. Meanwhile, Fed policy makers took comfort in the rise in inflation toward the central bank’s 2 per cent longer-term target. These domestic factors seem to be accompanied by lowered concerns about potential headwinds to the U.S. economy associated with developments abroad. With that, the Fed’s expected path for future rate hikes -reflected in what is known as the “dot plot,” which denotes individual FOMC members’ projections -- reaffirmed forward g u i da n c e f o r t w o more hikes this year and three in 2018. The central bankers also delayed detailed consideration of any change in management of its balance sheet, indicating it will continue to hold a large inventory of bonds and assetbacked securities. All this was largely anticipated by recent market commentary, which had scrambled to adjust to the expectation that the rate increase was increasingly likely at this month’s FOMC meeting. Just over two weeks ago, when facing implied market probabilities of only a 30 per cent chance for a March hike, officials worked in a seemingly coordinated fashion to more than triple that expectation; they did so in an impressively quick and orderly fashion. While not yet reflected in its economic projections and the associated path for future rates, the Fed is monitoring progress in translating President Trump’s trifecta of progrowth plans (tax reform, deregulation and infrastructure investment) into durable policies. Should the administration and Congress deliver, the Fed would first shift the balance of risks to become more hawkish and then accelerate the timing of its rate increases. The Fed has been the only game in town for far too long. Fortunately, it now sees a window for an orderly policy normalization. But this isn’t a path that it can navigate well alone. The central bank -- along with both the U.S. economy and the global economy as a whole -- needs other policy making entities to step up and use the tools better suited for the tasks at hand. Bloomberg View
‘Fed’s expected path for future rate hikes reaffirmed forward guidance for two more hikes this year and three in 2018’
Trump’s imaginary enemy
L
ast month, China commemorated the 20th anniversary of the death of Deng Xiaoping, the chief architect of the economic reform and opening up that catapulted the country to the top rungs of the global economic ladder. The anniversary comes at a time when economic openness is under threat, as the United States is now being led by a president who believes that the way to “make America great again” is to close it off from the world. In particular, Donald Trump’s administration is posturing for a stricter approach to China, which he claims has been “raping” the US with its trade policies, including by keeping the renminbi’s value artificially low. Whatever concrete steps Trump takes, it seems clear that US policy will be economically tougher on China in the coming years, potentially even triggering a trade war. But, as a closer look at China’s financial policy stance shows, China is not America’s foe. Just a few months ago, China was confronted with the urgent challenge of preventing the continued depreciation of the renminbi and cooling down an overheating real-estate market. This would be no easy feat, not least because the authorities’ efforts to stem the renminbi’s decline were rapidly shrinking China’s foreign-exchange reserves. The situation was so grim that some international investors and economists suggested that the government would have to give up on managing housing prices and focus, instead, on propping up the exchange rate, as Japan, Russia, and South Asian economies had done. China, they argued, could not allow its hard-earned foreign-exchange reserves to slip away. But, after partly decoupling the renminbi from the dollar in August 2015, the People’s Bank of China (PBOC) tried hard not to intervene to boost the renminbi’s value. As China’s economic growth continued to decline and America’s continued to recover, the renminbi’s exchange rate continued to fall. Some observers might have wondered whether the PBOC purposely allowed the depreciation to boost China’s trade competitiveness in advance of a potential victory by Trump in the US election – a result that many assumed would weaken the US dollar. Perhaps it did. But it did not actively devalue the renminbi. When Trump’s election as US president defied expectations and made the already-strong dollar rise further, depreciation pressure on the renminbi intensified. By the end of last year, the renminbi had depreciated by around 15 per cent against the dollar from the summer of 2015, and rapidly rising expectations of further depreciation were driving more investors to take their capital out of China. The PBOC had to take stronger action to contain the renminbi’s decline. To stabilize exchange-rate expectations, it imposed tighter restrictions on short-term capital outflows. At the same time, it took its previous efforts to decouple the renminbi from the dollar – a shift from a fixed medianprice system to a market-based exchange-rate package – a step further, adding 11 currencies to the renminbi’s reference currency basket. With that, China’s exchange-rate storm subsided, and a two-way fluctuation range for the renminbi-dollar exchange rate was established, an important step toward a market-based exchange rate regime. The PBOC took these steps before Trump’s January inauguration. Given Trump’s accusations of currency manipulation by China, that was good timing, regardless of the fact that the PBOC’s intervention was aimed at strengthening, not
“
Zhang Jun Professor of Economics and Director of the China Center for Economic Studies at Fudan University
weakening, the renminbi. Enduring restrictions on short-term capital outflows, however, could still become a target, though such criticism, too, would be unwarranted. China’s regulation of cross-border capital flows has long been a contentious subject. A few years ago, most economists recommended that China liberalize the capital account, thereby eliminating a key institutional barrier to the establishment of Shanghai as an international financial centre and of the renminbi as an international reserve currency. But, according to respected economists like Justin Yifu Lin and Yu Yongding, the full liberalization of China’s capital account would be highly risky for China. They also point out that there is little evidence backing claims that free cross-border capital flows are necessary for continued economic development. As recent experience shows, China’s use of adjustable quotas for qualified foreign and domestic institutional investors to manage short-term crossborder capital flows remains a valuable tactic for protecting its exchange rate and foreign-exchange reserves. As a country with considerable savings and an underdeveloped financial market, China knows that it must be careful. To be sure, when China’s economic situation has called for it, the authorities have taken steps to reduce restrictions on capital flows. Some 20 years ago, China began to allow – even encourage – currentaccount liberalization, in order to attract inflows of foreign direct investment into its manufacturing sector and boost exports and economic growth. But it was not until 2008 that Chinese policymakers – seeking to offset the upward pressure that high capital inflows were placing on the renminbi – allowed local enterprises to invest abroad. And even then, such investments could be made only in specific circumstances. Similarly, in 2013, China established a pilot freetrade zone in Shanghai, to explore approaches to facilitating short-term capital flows and to quiet demands for financial liberalization from the US and the International Monetary Fund. But, in order to mitigate possible financial risks, China continued to develop its regulatory framework for capital-account convertibility. China also initiated in 2013 its “one belt, one road” initiative, a massive undertaking that will establish the physical and institutional structure for closer trade and investment relations with countries in the Asia-Pacific region and beyond, thereby accelerating the internationalization of the renminbi. At that time, overseas investments and acquisitions by Chinese enterprises were being strongly encouraged, in order to provide an outlet – something like the US Marshall Plan for the reconstruction of post-war Europe – for the excess capital and production capacity that had emerged following the 2008 global financial crisis. Deng used to tell Chinese officials that, when faced with new challenges, one should “stay calm, hold one’s ground, and respond.” So far, that is what China has done, pursuing cautious financial liberalization according to its own needs and logic. Whatever Trump says, that does not make China an enemy of America. Project Syndicate
China’s regulation of crossborder capital flows has long been a contentious subject
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16 Business Daily Friday, March 17 2017
Closing HR
Baidu fires head of group-buying arm citing ethics violations
Baidu declined to make Zeng available for comment and said he’d already left the company. Messages sent by Bloomberg News to his LinkedIn account weren’t immediately answered. Baidu Inc. has fired Zeng Liang, head of its Nuomi groupBaidu didn’t go into specifics on Zeng’s activities except buying division, citing violations of the search company’s to say they involved his profiting from under-the-table ethics. transactions with representatives that deal with its major Senior Vice President Xiang Hailong will become head clients. The violations took place when he was in charge of of Nuomi, a loss-making business that sells discounted key accounts, the company said. Groupon-like products and services, after Zeng’s contract Zeng’s dismissal comes as President Qi Lu overhauls was terminated, Baidu said in an emailed statement the company’s sprawling businesses, including folding yesterday. autonomous car operations into its own division. The Zeng had admitted committing the violations and compensated the company for any losses as a result, Beijing- company is revamping Nuomi to further pool resources and strengthen customer service, it said. Bloomberg News based Baidu said.
Stock markets
Hunting unicorns, Singapore Exchange turns to dual share system The Hong Kong bourse proposed weighted voting rights in 2015 but failed to get regulatory support Anshuman Daga
S
ingapore’s plans to become the first Asian bourse to allow dual class share listings is catching the attention of tech entrepreneurs and could help turn a staid market into a buzzing tech hub, as the city-state looks to rebrand its image. Singapore Exchange’s boldest move in years is designed to make it the go-to-place for potential IPOs for Southeast Asian start-ups, such as ride-hailing services Grab and GOJEK, and online retailers Tokopedia and India’s Flipkart. Such a change, if approved, would support the Southeast Asian financial hub, which is battling the impact of cooling global trade, a downturn in its key offshore support services sector, and a spate of delistings. Singapore could by the end of this year implement a split share system that allows entrepreneurs to retain control even with minority stakes, by giving some shares more weight. “It’s a game changer,” said Vinnie Lauria, a founding partner at Golden Gate Ventures, a Southeast Asian venture capital firm which has invested in over 30 companies across more than seven Asian countries. “These companies want to have the voting power and the controlling shares within a small group of people who have been really involved since the beginning.” Dual class share listings (DCS), which are allowed on the New York Stock Exchange and Nasdaq, give extra voting power to protect
executives from shareholders obsessed with short-term gains. The structure has been embraced by companies such as Facebook, LinkedIn, and high-valued tech start-ups known as unicorns. Bankers and lawyers say the changes would put Singapore on the Asian tech industry’s short-list, especially given that local exchanges typically offer richer valuations to regional firms when compared to U.S. exchanges. Patrick Grove, co-founder and CEO of Southeast Asian internet firm Catcha Group, has been favouring a U.S. IPO but said he would “strongly consider” SGX if it launched the dual share system. “We’ve been impressed with what SGX has done to become a more favourable financial tech hub in the region,” said Grove, who has taken five companies from start-up to IPO in
Relocation
Australia and Malaysia. He declined to give details of the planned IPO. The share structure got attention in Singapore in 2012 when Manchester United jilted the city state over efforts by the Glazer family to retain control through an IPO using this system.
Trail blazers
In Asia, such share structures are almost unheard of, although technically possible in particular cases in Tokyo and Sydney. The Hong Kong bourse proposed weighted voting rights in 2015 but failed to get regulatory support. SGX, a global centre for business trusts and real estate investment trusts, is seeing an opportunity to fill the void and broaden its appeal to tech and other new economy companies. This chimes in with the city-state’s moves to provide funding and lighttouch regulation, as it seeks to reinvent itself as a fintech and disruption hub. A key Singapore advisory panel last
Cross-strait relations
month recommended the new share system with appropriate safeguards to widen public financing options. SGX is closing in on a public consultation that is open till mid-April. Based on feedback, it will then launch a second consultation. If regulators give this a green light, the new rules could be in place as early as end-2017. Chew Sutat, SGX’s head of equities and fixed income, said that any actual implementation will depend on responses received in the consultations. The new system could inject some much-needed vitality to an exchange that has seen a decline in turnover, and fewer company listings due to low valuations and insufficient liquidity. Fund raising via IPOs at SGX, where about 40 per cent of its over 700 listed companies originate outside the country, slumped to its lowest in 17 years to just US$335 million in 2015 before rebounding last year. “It’s a step in the right direction. But it still boils down to liquidity and valuation,” said Chua Kee Lock, CEO of Temasek’s Vertex Venture Holdings, adding that the next step would be to attract tech investors who trade in public stocks to Singapore. One of the main challenges SGX faces is opposition from corporate governance campaigners such as Aberdeen Asset Management, who say weighted voting rights side-line ordinary shareholders. “Whether these companies ultimately list here will come down to a multitude of factors,” said Stefanie Yuen Thio, joint managing director at law firm TSMP. “But not allowing DCS effectively closes the door to such listings, which would be a disaster for the SGX.” Reuters
Central bank
Beijing earmarks new poverty- Taiwan plans military relief relocation funds spending surge
Russia readying first yuandenominated OFZ bonds
The National Development and Reform Commission (NDRC), the top economic planner, announced yesterday that it had allocated RMB18.9 billion (about US$2.74 billion) in relocation funds as part of its poverty reduction drive. It was the first batch of such funds to be earmarked by the central government this year. The money will go toward accommodation projects for 2.43 million people who will be relocated from under developed regions to more developed areas, said the NDRC. The NDRC urged efforts to guarantee the efficient use of the funds. China has vowed to lift all of its poor out of poverty by 2020, and alleviating poverty through relocation is one part of the strategy. Last year alone, 2.49 million people living in poverty were relocated, meeting the target for the year. Governments at all levels rolled out relocation projects spanning housing and infrastructure when exploring supportive industries for the relocated people. According to a government work report delivered at the annual parliamentary session earlier this month, China aims to reduce the number of rural residents living in poverty by more than 10 million in 2017, including 3.4 million to be relocated from inhospitable areas. Xinhua
Russia has created the necessary market infrastructure for the issuance of its first yuan-denominated OFZ bonds, the deputy governor of the Central Bank of Russia told Reuters in Beijing yesterday. The tenor of the bond has not been announced nor has the timing, Dmitry Skobelkin said in an interview ahead of the opening of the central bank’s representative office in Beijing yesterday. The timing of the issue will be decided by the Ministry of Finance, he said. A yuan clearing centre will open in Moscow on March 22, Skobelkin added. Currency swap agreements between the two countries have been in place since 2014, he said, and so far 815 billion roubles and RMB150 billion have been utilized. “We’ve tested it and utilize it from time to time,” said Skobelkin. In September Chinese bank ICBC was appointed a clearing bank for settling yuan transactions in Russia. Russia is planning to raise the equivalent of US$1 billion by issuing its first-ever OFZ bonds in Russia denominated in Chinese yuan, which is “a priority project” for Russia. Reuters
Taiwan plans to raise military spending by about 50 per cent next year as President Tsai Ing-wen attempts to offset China’s growing might and support the local defence industry. Military expenditures are targeted to rise to 3 per cent of gross domestic product next year, up from about 2 per cent this year, Minister of National Defense Feng Shih-kuan said yesterday while presenting a report outlining Tsai’s first major security review since becoming president. Taiwan plans to develop indigenous ships, airplanes, weapons and unmanned aerial vehicles, he told lawmakers in Taipei. The report cited China’s capacity to blockade Taiwan or invade its outer islands as a main reason to increase this year’s NT$356 billion (US$11.6 billion) budget. Tensions between the long-time rivals have been simmering since Taiwanese voters swept Tsai’s pro-independence Democratic Progressive Party into power last year, raising concern locally about China’s recent military-modernization drive. Authorities in Beijing have expressed increasing frustration with Tsai’s refusal to endorse their “One China” negotiating framework, under which both sides agree they belong to the same country even if they differ on what that means. Bloomberg News