Retail and F&B confident after a strong January Industry Page 3
Tuesday, March 21 2017 Year V Nr. 1258 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Results
Future Bright sees 97 pct y-o-y fall in losses for 2016, and files a submission to deny Hengqin land ‘idle’ Page 6
Maritime
MSAR sets up management committee for maritime areas Page 5
www.macaubusinessdaily.com
Lenders
Mainland banks to see profits squeezed as costs increase Page 8
Industry
Trump’s protectionist shadow threatens Chinese middle companies Page 10
Digital (lack of) spending Internet
Although the MSAR saw a double-digit increase in the number of Internet users that shopped online in Q4 2016, the median spending remained nearly the same. Only 75,800 Internet users said they shopped online, still a 21.7 pct y-o-y increase. Meanwhile, the Internet penetration rate of the city’s 25 to 34 year olds was 97.1 pct, as the total number of Internet users hit 499,900, a 6.2 pct increase y-o-y. Page 5
Guess who’s back
Citic Telecom profit up
Net profit for the telecom operator rose 6 pct y-o-y in 2016, hitting HK$850.1 million. However, local operator CTM’s revenue contribution to the group fell by 12.9 pct y-o-y. Despite the drop, CTM maintained its dominant internet service market share, at 98.2 pct. Overall, Citic revenue fell 7.8 pct y-o-y to HK$7.7 billion due to drops in equipment and mobile sales and traditional telecom services.
Courts A surprise return to the former Prosecutor-general’s corruption trial. Witnesses describe Ho Chio Meng as the go-to person for arranging cultural events, allegedly applying for funding through the former official. More flight and accommodation payments by the MP office were revealed, involving the neighbouring province’s anti-corruption department head and other nonMP staff. Meanwhile, family members intervened to testify for Ho. Page 4
Missile-planting discord
Telecom Page 6
HK Hang Seng Index March 20, 2017
24,501.99 +192.06 (+0.79%) Worst Performers
China Shenhua Energy Co
+16.28%
Hong Kong Exchanges &
+1.98%
Belle International Holdings
-3.32%
China Unicom Hong Kong
-0.97%
China Resources Power
+4.04%
Sands China Ltd
+1.57%
China Resources Land Ltd
-2.44%
AAC Technologies Holdings
-0.93%
China Mobile Ltd
+3.67%
Henderson Land Develop-
+1.52%
China Mengniu Dairy Co Ltd
-1.65%
Geely Automobile Holdings
-0.89%
Galaxy Entertainment Group
+2.84%
Cheung Kong Property
+1.34%
China Overseas Land &
-1.61%
Cathay Pacific Airways Ltd
-0.71%
Tencent Holdings Ltd
+2.79%
Hengan International Group
+1.27%
HSBC Holdings PLC
-1.01%
CNOOC Ltd
-0.55%
19° 24° 19° 21° 20° 22° 20° 22° 16° 22° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
China - Sth. Korea trade South Korea has taken a tentative first step against China at the World Trade Organization, complaining about its economic retaliation over the planned deployment of a U.S. missile system. China absorbs a quarter of South Korea’s overseas shipments. Page 11
2 Business Daily Tuesday, March 21 2017
Macau In Brief Public utility
New e-immigration system for vehicles The Macau SAR Government has signed a MOP26.69 million contract with internet-based solutions provider NEC Hong Kong Limited, Macau Branch, for the provision of an “Automotive Electronic Control System,” according to a dispatch published yesterday in the Official Gazette. The automotive control system relates to vehicle entries and exits through the MSAR’s borders. The total amount will be paid in three installments, with MOP12 million disbursed in the first year of 2017, MOP13.34 million in 2018, and MOP1.34 million in 2019, the last year of the contract. NEC Hong Kong Limited is a wholly-owned subsidiary of NEC Corporation, a Japanese tech company specializing in networking and electronic devices solutions. The company has been awarded several contracts for the provision of e-services in the Macau SAR, including a biometrics-based Automated Passenger Clearance System (APC System) and ID and passport scanners for the Macau Public Security Forces Bureau, and a contract from Macau Electric (CEM), S.A. for the implementation of the Rapid Ring Protection Protocol (RRPP) IT data network infrastructure. S.Z.
Immigration
Gov’t set to expand e-immigration scope MSAR residents may be able to use automated immigration clearance facilities in Germany and Singapore in the future, and vice versa
T
he city is negotiating with Germany and Singapore to bilaterally allow citizens to use automated immigration clearance systems at local border checkpoints, the Office of the Secretary for Security revealed. According to the Office’s written reply to legislator Kwan Tsui Hang’s enquiry, the security body’s discussions on the scheme with Germany
have reached a mutual consensus on the methods of execution, with details to be announced when the measures are ready for implementation, or a trial run. Meanwhile, the Office said its negotiations with Singapore are still at the evaluation stage, expecting the parties will start exploring technical issues for the scheme within this year. Currently, e-immigration systems
Ferries
Open seas Marine and Water Bureau confirms Pac On Ferry Terminal will open in May
Public safety
Curbing gas hazards For public safety reasons, the Macau SAR Government has banned the provision or sale of gas water heaters without exhaust pipes, according to a dispatch published in the Official Gazette yesterday. The measure is an effort to reduce incidences of carbon monoxide (CO) poisoning, sometimes resulting in death, that have been associated with the use of this type of device both recently and in the past. Carbon monoxide is a poisonous gas that has no smell or taste. Symptoms of mild CO poisoning include dizziness, nausea, headaches and fatigue. Exposure to high levels of CO can cause severe symptoms such as vertigo, seizures, loss of consciousness and even death. The Macau SAR Government has banned the import of gas water heaters without exhaust pipes since 2010, according to an official dispatch. S.Z.
at the city’s borders are available for MSAR identification card holders, blue-card (work-permit) holders, Chinese visitors holding card-type exit-entry permits for travelling to and from Hong Kong and Macau, as well as holders of Hong Kong identification cards, South Korean passports and Australian passports. In the interpellation, the legislator enquired as to whether the MSAR authorities would expand the scope of the automated immigration clearance system at local borders in order to improve border-crossing efficiency. The Security Office responded that it would study the issue to reach a more reciprocal agreement in the future. According to the Office, an average of 64.5 per cent of Mainland Chinese visitors used the e-immigration clearance system at local border checkpoints last year, an increase of 18.5 percentage points compared to the 46 per cent registered in 2014. The Office added that it is not appropriate at the moment to expand the scope of the e-service for Mainland Chinese visitors holding booklet-type exit-entry permits, given that the validity of these types of permits needs to be confirmed manually. Nevertheless, the authorities are expecting all booklet-type exit-entry permits from Mainland China, with a five-year validity, to be replaced by card-type ones by 2019.
The opening of the new Pac On Ferry Terminal in Taipa will take place in May of this year, according to statements by the director of the Marine and Water Bureau (DSAMA) Susana Wong, to local broadcaster TDM. According to the DSAMA director, the new ferry terminal is currently undergoing inspections and tests by the department . “We are making preparations towards this goal [opening in May]. We are having meetings with the ferry companies. They are also testing the facility’s software and hardware,” she noted. Ms. Wong also revealed that, due to the considerable size of the new terminal, DSAMA will purchase electric vehicles to better facilitate transport within the terminal for the elderly and people with disabilities. After initial estimates in 2005 that the project would cost about MOP583 million (US$72.95 million) and take up about 50,000 square metres, 12 years later the project is reaching its completion, having expanded to
200,000 square metres at an estimated cost of MOP3.8 billion. The new terminal will have 16 berths for ferries carrying 400 passengers, three multifunction berths, a helipad with five landing areas and a
car park for 1,000 vehicles. A total of 140 Customs officials will be able to handle 400,000 passengers per day. According to data provided by the Public Security Police Force (PSP), almost 8.1 million crossings were registered at the temporary ferry terminal in Taipa for the whole of 2016, with the Macau Peninsula Outer Harbour ferry terminal registering the majority of crossings by sea, with almost 15.2 million entries in the same year. N.M.
Maritime affairs
Managing territorial waters With the aim of promoting the management and development of the Macau SAR’s new territorial waters, the government has officially established the Coordinating Committee for the Management and Development of the Maritime Jurisdiction Areas. According to the dispatch published in yesterday’s Official Gazette, the Committee will be presided over by the MSAR Chief Executive Fernando Chui Sai On and will be composed of 28 members, including five
Secretaries for: Administration and Justice; Economy and Finance; Security; Social Affairs and Culture; and Land, Public Works, and Transport. Other members include directors from the Customs Service, the Tourism Office, the Marine and Water Bureau, and the Labour Affairs Bureau, as well as other advisors. The Committee has been created to monitor and evaluate the management of the areas within the maritime jurisdiction; to promote research
and coordinate the elaboration and execution of the specific and global management and development plans for those areas; and to promote the elaboration of legal texts related to the management and use of maritime areas. In addition, the group is tasked with establishing guidelines and producing the necessary instructions for the exercise of the Committee’s own capabilities. Its creation follows the establishment of 85 square kilometres of maritime area for the Macau SAR by Decree of the State Council of the People’s Republic of China (PRC) no. 665 on December 20, 2015. S.Z.
Business Daily Tuesday, March 21 2017 3
Macau Business All leather goods retailers registered yearly receipt increases in the first month of this year
Lunar New Year Bonus The percentage of food related businesses and retailers claiming to have had increases in receipts in January of this year reached the highest numbers ever collected by a survey on both sectors Nelson Moura nelson.moura@macaubusinessdaily.com
A
total of 61 per cent of surveyed Restaurants & Similar Establishments and 53.4 per cent of surveyed Retail Trade businesses said they registered yearly increases in receipts in January 2017. The results collected by the Statistic and Census Services (DSEC)
were the highest since it conducted its first Business Climate survey on both sectors in July 2016. The study involved interviews with 167 food business establishments, accounting for 53 per cent of the sector in the city, and 135 retail businesses representing 73 per cent of the sector. On a month-to-month comparison, the percentage of Restaurants & Similar Establishments and Retail Trade reporting increases in receipts went up by 27 percentage points and
Immigration
Ukraine grants visa-on-arrival for MSAR passport holders MSAR passport holders can now enter the Ukraine under a visa-on-arrival scheme, the Identification Services Bureau announced yesterday. According to a press release, holders of the city’s passports entering as tourists or for business, can obtain a single-entry visa upon their arrival at
Boryspil International Airport in the country’s capital city Kiev, as well as at the Odessa International Airport in Odessa, for a maximum stay of 15 days. Currently, holders of an MSAR passport can enter 127 countries or territories with visa-free access or visa-on-arrival, the Bureau stated.
11 percentage points respectively, from December 2016. The increases were as a result of the spike in business created by the Chinese New Year period, with both sectors expecting a slow down in business in February.
Leather all good
For the Retail Trade sector, all interviewed leather retailers stated that they had experienced a yearly increase in receipts in January this year, the same result as registered
in the last month of 2016. The number of retailers reporting a decrease in yearly receipts in January fell by 17.3 percentage points from December 2016, with 31.6 per cent of retailers claiming to have had decreases. Of the remaining retail businesses, a total of 77.8 per cent of interviewed supermarkets and 65 per cent of adult clothes retailers stated that their receipts had increased in January, with 60 per cent of Cosmetics & Sanitary Articles Retailers stating that their business had increased.
Chinese tastes
Within the Restaurants & Similar Establishments, 91 per cent of the Chinese restaurants interviewed had recorded a yearly increase in receipts in January, followed by 65 per cent of Western Restaurants, and 50 per cent of Japanese and Korean restaurants. The percentages of Western Restaurants, Chinese Restaurants and Japanese & Korean Restaurants reporting increased receipts in the first month of this year exceeded estimates considerably, by 45, 34 and 25 percentage points, respectively.
4 Business Daily Tuesday, March 21 2017
Macau Opinion
Pedro Cortés*
A charming lawyer At the end of last week, another Macau persona left us: Dr. Rui Afonso, with whom I had the opportunity and the privilege to work and share experiences with in the past. Dr. Afonso was a singularly charming lawyer who gave a lot to the former territory of Macau and, after 1999, to the Macau Special Administrative Region. The words that can define him best are integrity and freedom; real freedom to say whatever he considered convenient, even if what he said was not always convenient to some people. Since arriving in my office, I have heard many great and funny stories about his professional and personal life. The one that marked me significantly was about something that happened some years ago, when on a trip in Portugal, he witnessed a car accident in front of him. There were injured persons and Dr. Afonso stopped his car and went to assist the driver of the crashed car. The person was trapped in the car and with his altruistic ethos, Dr. Afonso was able to get her out of the car. Even just this might seem like an impressive act for most of us, however, when assisting the injured person, the car exploded and he was seriously burned while helping and saving the life of a fellow human being in danger. This alone reveals how this man saw life: willing to help others even if it meant putting his own self in danger. For some years, he covered his arm due to the injuries he suffered. There are not too many people who would perform such a selfless and detached act and yet, in humility, try to hide the evidence. Even during the last months of his fight with illness, the reports I received from close friends were that he was not resigned and was fighting, together with his family, against one of the worst mystery illnesses of our time. A couple of days before Dr. Afonso passed away, António Lobo Antunes, a great Portuguese writer, stated at the end of a speech, something along these lines about the fatal disease that took him from us: “it is a whore!” In the end, we all will pass away from this life to another dwelling, even if it is nowhere or non-existent. What none of us who knew him will regret, is having had the chance to meet and be inspired by Dr. Rui Afonso, just as he surely did not regret having had the opportunity to almost relinquish his own life to save the life of another. Long live his legacy. *lawyer and frequent contributor to this newspaper.
Courts
A cultured Prosecutor The ex-official was acting as a middleman between a Chinese cultural society and the MSAR Government to hold cultural events in the city Cecilia U Cecilia.u@macaubusinessdaily.com
F
ollowing a seven-minute notice to the public before beginning, the trial against former Prosecutor-general Ho Chio Meng resumed yesterday, calling as a witness a former vice-president of the Chinese Cultural Promotion Society, who stated that the group had applied for funding from the MSAR Government via the former Public Prosecutions Office (MP) head. The case, taking place in the Court of Final Instance, heard the former vice-president of the society, surnamed Liu, note that Ho was considered a consultant for the cultural group. He further explained that Ho was initially approved to be the vice-president of the cultural group by the former Chief Executive, but was denied the role by the central government. One of the presiding judges, Song Man Lei, questioned whether Ho was consistently the contact person for arranging cultural events. The witnesses replied that Ho was in a special position as the MP head, saying that it was much easier to make applications for funding to hold the events through Ho. Liu also disclosed that he had previously met another defendant in the case, Wang Xiandi, several times, when a photo of Wang was presented during the court session yesterday. He said she had been introduced to him as ‘Assistant Wang’ and had accompanied the former top official when they were attending an event in Xi’an.
According to the prosecution, Wang, who is also a defendant in the case, was allegedly hired by Ho as a consultant at the MP office.
Chinese official visited the resting room
Another witness, surnamed Xing, stated to the court that he had visited the resting room on the Hotline Building’s 16th floor twice during a visit for an event held by the MP – the same floor as the MP office. The 16th floor was also the alleged headquarters of the criminal association Ho is on trial for leading. Xing, a retired director of the Anti-Corruption and Prevention Department of the Guangdong Province People’s Office of the Public Prosecutor, noted that he had close relations with Ho through business dealings. Similar to the previous witness, Xing was the director of the Chinese Cultural Promotion Society since 2003. He revealed that he did not stay in the resting room overnight, but had gone there for lunch on one occasion. According to Xing’s testimony, Ho had introduced the president of the Society to the Director of the Macao Government Tourism Office to discuss matters. The second witness also said that he knew Wang and that she had been introduced by the former Prosecutor-general as an assistant instead of a consultant, adding that he never met her at the MP Office. Meanwhile, the prosecutors of the case brought to light payments by the MP for accommodation and meals in Beijing for Xing, other non-MP staff and Ho during two visits to the
Defence lawyer Oriana Pun: we wouldn’t have taken the case if we thought we weren’t capable
After the first session since taking over as the defence lawyer for Ho Chio Meng, lawyer Oriana Pun expressed her confidence, despite the pressure of taking over in the middle of the case’s development. Leong Weng Pun, the previous defence lawyer for the ex-official, abandoned the case earlier this month.
Supreme People’s Court. The witness noted that he was not aware that the MP had paid for the visits, saying that he simply knew that Ho had made the arrangements. He answered the prosecution, noting that one of the visits to Beijing was for the Society whilst the other was for the MP, but said that he could not recall which event was held by the MSAR Public Prosecutions Office.
Ho’s elder sister attended the hearing
Ho Tak Fun, the elder sister of Ho Chio Meng, revealed that the former official was the one who was wholly responsible for taking care of their father. She also told the Court that she and her other siblings would give money to their father for daily use, adding that their father would ask Ho Chio Meng to keep the majority of the amount for him. She did not know the reason why her father did not save the money in his own personal account, instead asking her younger brother to open another account and save the money for him. Ms. Ho also testified that a birthday banquet was held every year after her father reached his 70th birthday, saying that many relatives would attend and they would give many gifts and money to their father for his birthday. The prosecution asked Ms. Ho if her father had mentioned moving to another flat, to which she responded that matters of moving flats were only discussed between her siblings, noting that she had no idea about whether a new flat had been purchased for her father. Ms. Ho also stated she was not aware that her younger brother had bought a flat at Villa de Mer apartment building under his wife’s name, Chao Sio Fu.
When asked about her preparations so far, Ms. Pun told reporters that she and her team are currently preparing for the case and referring to the previous works simultaneously. When queried if the former MP head is now in a less favourable situation, the new lawyer said that it all depends on the evidence available, adding that the outcome would be unveiled with the Court’s final statement.
Business Daily Tuesday, March 21 2017 5
Macau Information technology
Median spending on online shopping unchanged More people shopped online in 2016 than in 2015, but the amount they spent on average was similar Kam Leong kamleong@macaubusinessdaily.com
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he city’s median spending on online shopping amounted to some MOP1,000 (US$125) for the fourth quarter of 2016, unchanged from one year ago, despite a double-digit increase in the number of Internet users that shopped, the latest survey on information technology usage in the household sector by the Statistics and Census Service (DSEC) shows. For the whole year of 2016, the number of households using the Internet amounted to 167,600, while the total number of Internet users reached 499,900, an increase 0.8 per
cent and 6.2 per cent year-on-year, respectively. The average Internet penetration rate was 81.6 per cent, while that for the population aged 25 to 34 reached 97.1 per cent. Of the total, only some 75,800 Internet users reported that they had shopped online during the year, accounting for just 15.2 per cent. Nevertheless, compared to 62,300 online shoppers one year ago, the number still represents a growth of 21.7 per cent. According to the survey, over half of these Internet users reported that they primarily bought clothing, footwear and handbags online, amounting to 57,600 users, an increase of 27.4 per cent year-on-year. In addition, those buying
electronic products and travel services online jumped by 13.9 per cent and 35.7 per cent year-on-year, amounting to 9,000 and 13,300, respectively. According to the DSEC, users’ median spending on electronic products during the last quarter of 2016 reached some MOP1,100, a drop of 2.2 per cent, while median spending on travel services amounted to some MOP5,000. In terms of purpose, the majority of Internet users, some 91.5 per cent, used the Internet for communication purposes, while those searching for information amounted to some 61.3 per cent, up by 1.1 percentage points and 1.3 percentage points year-onyear, respectively. Meanwhile, 76.6 per cent claimed that they used the Internet for online entertainment, a decrease of 0.2 percentage points from one year ago,
while only some 18.4 per cent and 7.1 per cent of Internet users claimed they had used e-banking services and online government services respectively during the year.
Fibre broadband users soar
In terms of the type of Internet services, the number of those using fibre optic broadband services surged by 115.2 per cent year-on-year to 77,900, while those using fixed broadband and mobile broadband services fell by 36.2 per cent and 0.8 per cent, amounting to 71,200 and 140,200, respectively. Meanwhile, households with computer equipment, including desktop computers, portable computers and tablets, registered an average decrease of 3.2 per cent year-on-year to 147,400, due to ‘the greater variety of functions available on mobile phones and other devices,’ said the DSEC. The number of mobile phone users reached 561,400 for the year of 2016, a slight increase of 0.3 per cent from one year ago, while the number of computer users dropped by 10.1 per cent year-on-year to 333,400.
Coffee
Public services
Starbucks on-the-go
Keep the water running
Following the launch of its mobile ordering service in Hong Kong and Macau this month, coffee giant Starbucks has plans to start home deliveries of its products, according to the South China Morning Post. Starbucks’ Executive Director for Hong Kong and Macau, Norbert Tan, stated that the group is confident it will advance with deliveries once it handles the logistics, noting that: “the drink temperatures have to be just right– you can’t deliver a frappucino that’s completely melted,” as cited by the publication. “It’s not a question of if we will do it, it’s a question of when. Delivery is a big space that we’re looking into,” Mr.
Tan told the Hong Kong newspaper. The company launched the Mobile Order & Pay mobile system on March 11, allowing customers to place mobile orders before they arrive at Starbucks stores. The service was rolled out to all 176 stores in Hong Kong and Macau, however currently in the MSAR it is only available at the Starbucks stores at Wynn Macau and Wynn Palace. According to Mr. Tan, Starbucks has 240,000 mobile app users in Hong Kong, with 60 per cent of its loyalty programme members placing orders through the app, however no data was provided on the number of users in Macau. N.M.
The Macau SAR Government is allocating a total of nearly MOP144.94 million to the Macao Water Supply Co. Ltd. (Macao Water) through the renewal of a contract for the “placement of the fourth raw water pipe to Macau (MSAR Track),” according to a dispatch published yesterday in the Official Gazette. The construction is part of a memorandum signed between the Macau SAR Government and the Zhuhai Government in 2014, which includes the project for Pinggang-Guangchang raw water supply security. The total amount will be paid in two installments, with MOP50 million being disbursed in 2017 and MOP94.95 million the following year. Established in 1935, Macao Water is currently a subsidiary of SUEZ NWS Limited – formerly known as Sino-French Holdings (Hong Kong) Limited – a joint venture between the French-based water utility Suez Environment (formerly Lyonnaise des Eaux), and the Hong Kong-based NWS Holdings Limited (formerly Chow Tai Fook Enterprises). SUEZ NWS Limited currently holds an 85 per cent equity share in Macao Water. The company was awarded the renewal of the “Extended Contract for the Concession of the Public Utility Service of Water Supplying in the Macao SAR” in 2009, valid for 20 years until July 2030. Macao Water’s preliminary results saw a 6 per cent decline in profit for
2016, amounting to some MOP65 million, due to “water demands not meeting our original target,” the group’s Executive Director, Nacky Kuan told Business Daily previously. Additionally, the completion date for the group’s planned Seac Pai Van water plant has been pushed back to end-2019, while construction is expected to begin in the second half of this year. S.Z.
6 Business Daily Tuesday, March 21 2017
Macau Telecom
Citic Telecom’s annual profit up But the company’s revenue from CTM recorded a decrease of nearly 13 per cent from one year ago Kam Leong kamleong@macaubusinessdaily.com
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itic Telecom International Holdings Ltd saw its net profit attributable to equity shareholders jump by 6 per cent year-on-year to HK$850.1 (US$106.3 million) for the whole year of 2016, but revenue generated from its local arm in the city, Companhia de Telecomunicações de Macau, S.A.R.L. (CTM), fell by 12.9 per cent year-on-year. During the reporting period, CTM’s revenue from external customers amounted to HK$4.37 billion, a drop of some HK$647.99 million compared to HK$5.02 billion for the year of 2015, according to Citic’s annual results filed with the Hong Kong Stock Exchange yesterday. The company said its mobile market share in the MSAR reached 43.5 per cent as at the end of 2016, an increase of 0.2 percentage points. However, its share of the 4G-subscriber market dropped by 8 percentage points year-on-year to 57 per cent. CTM retained its dominant position in the local Internet service market during the year, with market share reaching 98.2 per cent, despite a decrease of 1.2 percentage points, according to the filing. Citic’s total revenue fell by 7.8 per
cent year-on-year in 2016, amounting to HK$7.7 billion. The group explained the decline was due to a drop in equipment and mobile handset sales, as well as a decrease in traditional telecommunications services, such as fixed line services. The company’s mobile sales and service revenue dropped by 18.3 per cent year-on-year, to HK$2.86 billion for the year. In particular, revenue from equipment and mobile handset sales plunged by 24.9 per cent year-on-year to HK$1.69
billion, down from HK$2.25 billion one year ago. In addition, fixed line services revenue fell by 9.8 per cent year-on-year to HK$321.7 million. Meanwhile, Internet service revenue rose by 10.8 per cent year-on-year to HK$922.2 million, due to ‘higher revenue from the good uptake of fibre broadband service and increase in data centre revenue.’ The company noted the increased revenues from the two segments
‘countered the impact’ of CTM’s tariff reductions of an average of 24 per cent in Macau since 2016. The group’s revenue from enterprise solutions also climbed by 7.1 per cent year-on-year to HK$2.3 billion, up from HK$2.1 billion one year ago, of which some 35 per cent of the segment’s revenue was derived from the MSAR, the company noted. Citic has proposed a final dividend of 10.35 Hong Kong cents per share for the year.
to HK$27.4 million. The group’s Food Souvenir business, however, suffered a HK$26.1 million loss during the year, after generating just HK$50.5 million in revenue for the whole year; nonetheless, this was still a 49.3 per cent year-on-year reduction in the segment’s loss. By territory, the group saw the lion’s share of its proceeds derived from its Macau operations, which amounted to HK$715.34 million in turnover during the year, overshadowing the HK$46.34 million earned in Hong Kong during the same period, as well as the HK$91.56 million earned in the mainland. The executive director of the company is also local member of the Legislative Assembly, Chan Chak Mo. As at the end of 2016, the group was operating a total of 43 restaurants in the MSAR, an increase of seven
restaurants from 2015. It was also operating eight establishments in China as well as four in Hong Kong, a three-restaurant increase for each region. In total, the group operates 55 restaurants and four food court counters.
Results
A brighter future Future Bright sees 97 pct y-o-y reduction in losses for 2016, while filing a submission to deny that its Hengqin land plot under investigation is ‘idle’ Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Food and beverage operator Future Bright has seen a drastic reduction in its losses for the 2016-year, compared to the previous year, according to the group’s filing with the Hong Kong Stock Exchange. A 96.7 per cent year-on-year reduction in losses was recorded in the group’s 2016 fiscal year, ended December 31, amounting to HK$1.54 million (US$200,000/MOP1.59
million), as compared to the HK$45.9 million loss seen in 2015. This comes despite just a 3.5 per cent uptick in turnover for the year, reaching HK$853.23 million, as compared to the HK$824.18 registered for full-2015. By segment, the group saw its best results in its Food and Catering segment, which operates in both SARs as well as the mainland. Total revenue derived from this segment reached HK$781.6 million, with associated profit amounting
Property
The group’s six-storey commercial building, formerly housing clothing retailer Forever 21 and located next to the Ruins of St. Paul’s on the peninsula, brought in a total of HK$21.1 million during the year, according to the filing, representing a 30.4 per cent loss from the previous year. Overall the group’s property investment business saw net profit amounting to HK$10.5 million, a 68.2 per cent decrease compared to the previous year, which the group states as mainly attributable to ‘the decrease in rental income and the fair value losses from investment properties’. The current investment properties held by the company and under construction on Hengqin Island were valued at HK$267.4 million. Regarding a parcel of land under investigation by the Hengqin Island land authority for potentially being ‘idle’, the group notes that it has ‘made a submission to deny that the Group’s land on Hengqin Island has been an idle land, and the Group is still awaiting for the outcome of such submission’. The group separately notes that it has ‘started foundation works for its property development project at its Hengqin Land,’ and ‘has applied for its application for extension of different development milestones and is still waiting for the outcomes of such application’. The group notes that, relating to the ‘capital commitment, plan and work schedule’ for developing its Hengqin land, it has ‘a view to bring in an appropriate joint venture partner’
Business Daily Tuesday, March 21 2017 7
Macau Gaming
Mobile investments Gaming company Amax International Holdings Ltd looks to expand to mobile applications with a HKD27 million mobile game software purchase deal Nelson Moura nelson.moura@macaubusinessdaily.com
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asino and gaming investment company Amax International Holdings Ltd (Amax) has struck a deal to purchase a bundle of mobile game software applications for HKD27 million (US$3.4 million), according to a company release filed with the Hong Kong Stock Exchange. The deal was finalised with Sky Bliss International Limited, and settled through Amax subsidiary Digital Zone Global Limited. According to the release, the purchase involves 30 offline mobile game apps focused on areas including ‘leisure and entertainment’, ‘education and intellectual’, ‘sport’ and
‘adventures’. The group justified the purchase on the basis of ‘the growing popularity of smart phones, the future business prospect of global mobile gaming market’ and the valuation of the software itself. Following the purchase, the release of the mobile game apps will take six months, through an as-yet-named but ‘well-known’ third-party digital distribution platform. The filing stated that Amax is planning to establish a marketing and programming team, either on its own or through a third party, to encourage app downloads and updates for the service. Players of the games will be charged on a subscription basis, notes the company. ‘In view of the increasing popularity of the use of mobile devices and mobile entertainment, combining with
[Amax’s] expertise in the gaming and entertainment-related businesses, the Directors are confident that the launching of the mobile game apps could bring in additional income stream to the Group,’ noted the filing. According to the group’s most recent interim report, for the six months ended September 30 2016, its revenues increased 3.8 per cent year-on-year, reaching HK$4.11 million. Additionally it saw an 8.99 per cent year-on-year contraction of
its losses for the six-month period, hitting HK$15.19 million. Amax is chaired by local businessman Ng Man Sun, and owns a 24.8 per cent equity interest in Greek Mythology (Macau) Entertainment Group Corporation Ltd. The group runs Greek Mythology Casino, which has been closed since December of 2015, reportedly due to renovation works. The casino was operated by Sociedade de Jogos de Macau S.A. (SJM) and is located in the Beijing Imperial Palace Hotel, which was closed by the Macao Government Tourism Office (MGTO) in July of 2016 for security issues. N.M.
Gaming
SJM reportedly interested in Japan too The chief executive of Macau gaming operator SJM Holdings Ltd, Ambrose So Shu Fai, said the company is eyeing business opportunities outside the territory, including in Japan. In an interview with Hong Kong news channel Now TV, Mr. So said SJM is in the process of making initial forays to develop its business in
other Asian countries, such as Japan, South Korea and other Southeast Asian nations. Japan passed its gaming legislation in December of last year, paving the way for the development of integrated resorts in the country, however SJM’s executive director Angela Leong On Kei told Macau reporters in
Gaming
Chinese visitor junkies MSAR and South Korea’s dependency on Mainland China visitations makes their gaming markets less stable and attractive than the gaming markets in the Philippines or Japan, says Bloomberry CEO The larger local gaming market in the Philippines makes its integrated resort business less dependent on Chinese visitations when compared to Macau and South Korea, the CEO of Philippine gaming operator Bloomberry Resorts Corporation, Enrique Razon, stated in an interview with broadcaster CNBC. “We’ve a big local market unlike Macau. Around 55 per cent [of Bloomberry’s gaming revenue] comes from overseas and 45 per cent comes from locals,” said Mr. Razon. The Bloomberry CEO also added that the Philippines gaming market has seen “tremendous” growth in Chinese visitation since Philippine President Rodrigo Duterte’s administration lifted some of the country’s travel restrictions. A strong local market is also what makes the prospective Japanese gaming market “very attractive”, while South Korea’s policies blocking locals from gambling have led its market to be too dependent on Chinese visitations, which have currently “slowed
down” due to the missile deployment crisis with China, notes the CEO. This dependency is what led Bloomberry to attempt an exit from its gaming operations in the South Korean island of Jeju – through the proposed sale of the group’s Jeju Sun Hotel & Casino in 2016. However, after a 117.5 billion won (MOP814.4 million/US$101.8 million) purchase deal with MSAR junket operator Iao Kun Group fell through, due to a lack of funds, Mr. Razon considers that Bloomberry now has “no choice” but to maintain its operations in the country. N.M.
Solaire Casino and Resorts, one of Bloomberry’s properties in the Philippines
January that the company’s board of directors had never discussed developing the business in Japan or other regions, and instead were hoping to focus their business in the MSAR. Currently, all major gaming operators in the city have expressed their interest in bidding for a gaming license in Japan.
The company’s new Cotai project, the Grand Lisboa Palace, is only slated to open in the first half of next year - the last new opening on the Cotai Strip - however the SJM chief executive does not believe the company will lose its competitive advantage. Meanwhile, Mr. So expects the company will wrap up this year with double-digit growth in gaming revenue, with the mass market acting as the main driver.
8 Business Daily Tuesday, March 21 2017
Greater China Lenders
Profits seen under pressure for Mainland banks as costs surge The pressure on net interest margins will continue to weigh on bottom lines across the sector in 2017 Sumeet Chatterjee and Engen Tham
C
hinese lenders in 2016 likely posted their lowest interest margins since the global financial crisis, due to higher costs and fewer lucrative lending options, with the going set to get tougher as the key gauge of profitability stays under pressure. While credit growth in China has remained strong, bad debt continues to drag on performance, analysts said, ahead of annual reports from lenders starting next week. Margins have been hit hard after Beijing cut benchmark interest rates six times in 2014-2015 in a bid to revive a slowing economy.
the lowest since at least 2008 and down from 2.66 per cent a year ago, Thomson Reuters data shows. Among China’s top five lenders, Bank of China, Industrial and Commercial Bank of China and China Construction Bank are all set to see weaker margins. China’s central bank has moved to marginal tightening this year by raising short-term interest rates in what economists see as a bid to curb capital outflows, and as policymakers look to rein in uncontrolled lending. Smaller banks will see a “very sharp reduction” as liquidity tightens and they face higher funding costs with the interbank borrowing rates going
up, said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis. Banks tend to rely heavily on shortterm, interbank lending, which connect strong lenders with weaker ones, and higher rates on these loans will result in an increase in bank funding costs. “It’s getting very tough for smaller banks in China in terms of liquidity, cost of wholesale funding,” Garcia Herrero said. Total credit growth in China jumped from slightly below 10 per cent in mid-2015 to 13.5 per cent in January this year. The International Monetary Fund last year warned that the country’s credit growth was twice as fast as nominal GDP. In 2016, new bank loans totalled US$1.8 trillion - about the same size as Italy’s total economic output and surpassed the levels of China’s
Key Points Banks to post weakest interest margins since financial crisis Smaller lenders to see sharper margin drop Bad debt drags, but higher deposits to help cushion hit Banks report 2016 earnings from next week
The pressure on net interest margins - the difference between interest paid and earned - will continue to weigh on bottom lines across the sector in 2017, adding to financial sector vulnerability, analysts said. At Agricultural Bank of China, margins likely fell to 2.27 per cent in 2016,
massive credit-led stimulus during the global financial crisis, calculations based on central bank data show.
Deposit growth
Rating agency S&P sees China’s loan growth, excluding public sector debt, slowing to 11 per cent this year from an estimated 13 per cent in 2016. But the combined ratio of non-performing loans and special-mention loans - credit that may potentially turn sour - could rise to 6.5-7 per cent by end-2017, from around 6 per cent last year, as per S&P estimates. Yulia Wan, bank analyst at rating agency Moody’s, sees banks facing “short-term pressures, because to reduce leverage, firms in oversupply-hit sectors will be shut down or restructured, which typically means credit or economic losses for banks”. Chinese banks’ volume of bad loans climbed to RMB1.51 trillion at end2016, the highest since 2005. China is looking to address this with regulations, such as those aimed at bolstering oversight of opaque and shadow banking-linked financial assets, including wealth management products (WMPs). A surge in deposits following the crackdown on high-yielding WMPs and capital outflow controls could, however, ease bad debt concerns in the near to medium term, said bankers and sector analysts. “We have (seen deposits grow), because people can’t invest abroad so easily anymore. They can’t get their money out to buy insurance,” said a banker at one of the top-10 listed banks, referring to mainland Chinese buying investment-linked insurance products in Hong Kong to cut their exposure to a weaker yuan. Reuters
Monetary drive
Yellen’s shadow looms large over PBOC’s policy Decisions in Washington and Frankfurt now reverberate to Beijing in a way they haven’t previously Call it the Yellen effect. The Federal Reserve’s March 15 rate hike underscored a subtle shift at the People’s Bank of China: long reluctant to be influenced by global counterparts, it now appears to be in step with the U.S. That was displayed by the PBOC raising borrowing costs just hours after the Fed lifted interest rates last week. Observers see the objectives as supporting the yuan by keeping a lid on the interest rate differential and taming a surge in lending that’s fuelled financial risk. For all the domestic drivers, it’s hard to ignore the Fed’s policy path. Massive monetary stimulus in the U.S. and around the world since the global financial crisis means decisions in Washington and Frankfurt now reverberate to Beijing in a way they haven’t previously. “Nobody can just sit there and pretend they’re in a different world from what the European Central Bank or the Fed are doing,” Nobel laureate Michael Spence, a professor at New York University’s Stern School of Business, said in an interview in Beijing. “There’s too much money flowing around. You could invent a world in which that would be irrelevant but that’s not the world we live in, and I think that’s true of every central bank including the PBOC.” Chinese officials have said they
aren’t following the Fed Chair Janet Yellen or anyone else, and that domestic conditions are the dominant driver for tightening policy. PBOC Governor Zhou Xiaochuan said in press conference this month that monetary policy is prudent and neutral and won’t be altered because of interest rate differentials. Higher U.S. interest rates impact China by luring capital out of the country. “The interest rate differential can always motivate traders to make some short-term transactions, and money will move toward the place
with higher interest rates,” Zhou said. “But in the medium term, every country’s interest rate is determined by its domestic economic conditions, such as its economic growth, employment, people’s confidence in the economy and inflation.” The PBOC didn’t respond to a fax Friday seeing comment on its monetary policy settings. One of those domestic drivers is a housing price bubble that authorities are determined to deflate after 45 per cent of new loans last year went to mortgages, with most going to personal mortgages. Other pressures include accelerating factory gate prices and borrowing, which Bloomberg Intelligence estimates has pushed total debt to 258 per cent of economic output.
The PBOC’s increased use of reverse repurchases and Medium-term Lending Facility interest rates has had the effect of “targeted” measures to prevent property sector risks because developers with high debt loads are more sensitive to higher borrowing costs, the central bank’s newspaper Financial News said in a commentary Monday, citing unidentified analysts. Still, not all are convinced. Economists say the lightning quick response to the Fed shows they have little option but to move in lock step. Stable domestic growth and improving market sentiment gives the PBOC an opportunity to tighten through the money markets, without hurting the economy by raising benchmark rates. The policy manoeuvre also helps support the yuan and keep a lid on capital outflows.
“The Fed tightening is the catalyst for China’s raising borrowing costs in the open market” Wen Bin, analyst at Essence Securities Co. in Beijing
Fed Chair Janet Yellen
“The Fed tightening is the catalyst for China’s raising borrowing costs in the open market,” said Wen Bin, analyst at Essence Securities Co. in Beijing. “This situation will continue into the second half as long as China’s economy keeps steady.” Bloomberg News
Business Daily Tuesday, March 21 2017 9
Greater China In Brief M&A
FX head says overseas M&A like ‘a rose with thorns’
WTO meeting
Commerce official strengthens commitment to multilateral trade Vice Minister of Commerce attending WTO meeting delivers a support message to Less Developed Countries China is committed to safeguarding a multilateral trade system since the system gave enormous benefits to the Least Developed Countries (LDCs), Chinese Vice Minister of Commerce Wang Shouwen said yesterday. Speaking at the opening ceremony of the fifth China Round Table on World Trade Organization (WTO) Accession, Wang said the world is faced with anti-globalization sentiment, populism and growing protectionist forces. He added that in the context of sluggish global trade growth and inward-looking trade policies by some major players, WTO members should firmly stick to multilateralism and uphold the primacy of the WTO in trade liberalization. “As WTO members, we must continue to reiterate our strong commitment to the multilateral trading system,” he said at the ceremony which was attended by Cambodian Prime Minister Samdech Techo Hun Sen and LDCs and WTO representatives.
Wang said evidences have shown that LDCs have benefited from the multilateral trading system in their economic and trade development. “Multilateral trading system, as embodied by the WTO, plays an important role in poverty alleviation, trade growth and economic development of the LDCs,” he said. There are currently 48 LDCs on the United Nations list, 36 of which to date have become WTO members. According to Wang, since the establishment of the WTO in 1995, nine LDCs have joined the organization in accordance with Article XII of WTO Agreement. From 1995 to 2015, the export of LDC WTO members increased from US$15.2 billion to US$139.3 billion with an annual growth rate of 11.7 per cent, he said, adding that over the same period, the GDP of LDC WTO members rose from US$87.5 billion to US$655.2 billion, with an annual growth rate of 10.6 per cent. “Nonetheless, there is still a long
way to go for the LDCs to better integrate into the multilateral trading system,” he said. The LDCs represented more than one fifth of the WTO membership but only took up less than 1 per cent of global trade, he said. “As a close friend of the LDCs, China has made every effort within its capacity to support the LDCs’ development,” he said. On the trade front, China has provided duty-free treatment for 97 per cent of the tariff lines originating from 35 LDCs, he said, adding that China has been the world’s largest market for LDCs’ products over the last eight years. Meanwhile, Chinese outward investments to the LDCs are booming, expecting an increase to 12 billion dollars by 2030, he added. More importantly, China has put forward the Belt and Road Initiative and set up the Asian Infrastructure Investment Bank as well as the Silk Road Fund about three years ago. “Through these efforts, China has been providing developing countries, especially the LDCs, with new driving forces such as improved connectivity in infrastructure for their economic development,” Wang said. Xinhua
Energy
Beijing shuts last coal power plant in switch to natural gas The Huangneng plant is the fourth to be closed and replaced by gas thermal power centres between 2013 and 2017 The last large coal-fired power plant in Beijing has suspended operations, with the city’s electricity now generated by natural gas, the state news agency reported as smog enveloped the Chinese capital this weekend. The shuttering of the Huangneng Beijing Thermal Power Plant comes on the heels of China’s annual legislative sessions, where Premier Li Keqiang promised to “make our skies blue again” in his state-of-the-nation speech. According to Xinhua, Beijing has become the country’s first city to have all its power plants fuelled by natural gas, an objective laid out in 2013 in the capital’s five-year clean air action plan. The Huangneng plant is the fourth to be closed and replaced by gas thermal power centres between 2013 and 2017, cutting nearly 10 million tonnes in coal emissions annually. Xinhua reported the move the night before municipal authorities issued a blue alert for heavy air pollution on Sunday. Smog has cloaked the capital for several days and is expected to continue through the week. Since last Wednesday’ closing of the National People’s Congress,
the annual meeting of China’s rubber-stamp parliament, PM2.5 (harmful particulate) levels have remained between 200 and 330 micrograms per cubic metre -- well above the World Health Organization’s recommended maximum average exposure of 25 micrograms per cubic metre in a 24-hour period.
‘During the one-weekand-a-half period of the NPC, average PM2.5 levels hovered between 50 and 80’ The pollution often vanishes during prominent events like the legislative sessions and the 2008 Summer Olympics as authorities order factories to halt activity and force cars off the road. During the 2014 gathering of the Asia-Pacific Economic Cooperation in Beijing, this clear air phenomenon was dubbed “APEC blue.”
During the one-week-and-a-half period of the NPC, average PM2.5 levels hovered between 50 and 80, despite exceeding 200 micrograms per cubic metre just one day before the opening of the parliamentary sessions on March 5. In response to a reporter’s question about this disparity at his annual press conference last Wednesday, Li repeated his pledge to target coal-burning and vehicle emissions. “We may not be able to control the weather, but we can adjust our behaviour and our way of development,” he said. “Blue skies should no longer be a luxury, nor will they be.” AFP
Chinese companies investing overseas need to be careful and invest rationally, the head of China’s foreign exchange regulator was quoted as saying by the official Shanghai Securities News yesterday. “Overseas mergers and acquisitions can sometimes resemble a rose with thorns, you must be careful and you must do your due diligence,” said Pan Gongsheng, the head of the State Administration of Foreign Exchange (SAFE) who is also a vice governor of the central bank, was quoted as saying by the paper. Investment by Chinese firms in offshore properties in January tumbled 84.3 per cent from a year earlier. Energy
Power use rises in Jan.-Feb. China’s electricity consumption, an important indicator of economic activity, rose significantly in the first two months this year, suggesting economic improvement, official data showed yesterday. Power use rose 6.3 per cent year on year to 935.6 billion kilowatt hours in the Jan.- Feb. period, according to data with the National Energy Administration. In the first two months, electricity use by primary industry climbed 12 per cent from a year earlier. Power consumption by secondary industry went up 6.7 per cent, while tertiary industry saw a 7.3-per cent rise amid economic restructuring. HR
Beijing 2022 open first worldwide staff recruitment The organizing committee for the Beijing 2022 Olympic and Paralympic Winter Games opened its first worldwide staff recruitment yesterday. A total of 22 staff members will be recruited for 21 positions, including 11 staff members to be recruited worldwide for 10 positions. Positions in this recruitment involve majors in planning and construction, venue management, marketing, media, finance, law and foreign languages. The Beijing organizing committee is responsible for organizing and coordinating the preparations and staging of Beijing 2022. Currently the committee has nine internal departments, two operational centres and some 170 staff members. IT
Mainland to manage big data through standardized system Chinese authorities will strengthen the design of big data standards to better use such data. Big data can help develop the new economy and foster growth, but it is hard to fully use the data due to the low-level sharing of resources, according to the Ministry of Industry and Information Technology. The key to solving the problem is to establish industry standards and specifications, according to the ministry. The ministry will speed up the creation of a Chinese standard system and actively cooperate with international standards organizations to promote standardization, said Li Guanyu, an official with the ministry.
10 Business Daily Tuesday, March 21 2017
Greater China
Makers of clothes, toys and household goods fuel the US$462.8 billion annual flow of exports to the U.S.
SMEs
Trump’s tariff may crack a Home Depot lampshade supplier Private companies, most of which are small and medium-sized companies, generated about 45 per cent of the nation’s exports in January-February
H
igher labour costs and stricter regulations keep nudging Eric Li’s glass factory in southeast China toward insolvency, even though his lampshades are on the shelves at Home Depot. President Donald Trump’s threatened tariff on his goods may be the final shove. Three of the four furnaces at Huizhou Baizhan Glass Ltd.’s dusty plant sit dormant, and the workforce making lampshades and vases for export to the U.S. has been slashed to 150 from about 1,000 just a decade ago. Profit margins are shrinking, and Li said the company started by his Taiwanese father in 1991 is hanging by a thread. “If there’s a tariff, it’s game over for us,” said Li, 42. “We don’t have the ability to take on extra costs.” Thousands of small- and medium-sized factories in China face the same predicament, with some owners considering shutting down or selling out if Trump slaps a levy on Chinese products that he said could reach 45 per cent. These makers of clothes, toys and household goods fuel the US$462.8 billion annual flow of exports to the U.S. but aren’t cash-rich, making it harder for them to take the tariff punch or pivot their operations toward Southeast Asia. “Smaller companies tend to be focused and not diversified like big players are,” said Karel Eloot, a senior partner at McKinsey & Co. in Shanghai. “They would be the most exposed and dependent on whatever happens with U.S import duties.” Trump has accused China of unfair trade practices and currency
manipulation, and he pledged as a candidate to address both issues if elected. U.S. Commerce Secretary Wilbur Ross said in a Bloomberg Television interview on March 1 that measures will be announced “as soon as we have a proper case prepared.” The administration’s rhetoric has softened since, with one of Trump’s top economic advisers, Steve Schwarzman, saying the president will likely temper his criticisms of China.
“There’s too much at stake for both countries to engage in a trade war” Eddy Li, president of Chinese Manufacturers’ Association of Hong Kong
A tax at the top end of Trump’s campaign proposal may trigger an 87 per cent decline in Chinese exports to American consumers, Kevin Lai, the Hong Kong-based chief economist for Asia at Daiwa Capital Markets, estimated during the campaign. China could retaliate with its own tariffs on American products such as Boeing airplanes, iPhones and soybeans. U.S. businesses in China also could face tax or antitrust probes. “There’s too much at stake for both countries to engage in a trade war,” said Eddy Li, president of the
3,000-member Chinese Manufacturers’ Association of Hong Kong. “Although we are concerned about such a scenario, we also feel optimistic.”
Rising costs
Any Trump tariff likely could be absorbed by multibillion-dollar makers of iPhones and Nikes such as Hon Hai Precision Industry Co. and Yue Yuen Industrial Holdings Ltd., respectively. Yet it could swamp smaller enterprises already struggling to withstand China’s rising wages, social-insurance mandates and tighter environmental-protection laws. Private companies, most of which are small and medium-sized companies, generated about 45 per cent of the nation’s exports in January-February, according to Chinese customs data. During the past decade, the cost of manufacturing in China increased to about 85 per cent of that in the U.S., said Steve Maurer, managing director for consulting firm AlixPartners in Shanghai. As a result, Chinese goods are becoming more expensive. Producer prices in February surged 7.8 per cent, the fastest pace since 2008 and lifting the outlook for global reflation.
Hasbro supplier
Lung Cheong Group, which Hasbro Inc. confirmed is a supplier for the toy manufacturer, already moved almost all production lines to Indonesia to escape China’s higher costs, Chairman Lun Leung said. Seventy per cent of the group’s revenue comes from U.S.-based customers. “Even a 10 per cent tariff increase will make it difficult for Chinese factories to cover their costs,” Leung said. “If they stay, they just plan to sell their factories at a good price and end their businesses.” At Baizhan Glass, salaries tripled to RMB7,000 (US$1,014) a month,
and the profit margin per lampshade has halved to as low as 10 per cent from nine years ago, said Eric Li, who started working in the family business in 2001. Li sells his products to Westinghouse Lighting Corp., and they go to Home Depot Inc., he said. A representative for Home Depot said Westinghouse is a current supplier for the home improvement chain. Lowe’s Baizhan Glass has annual revenue of about RMB20 million. “They can’t expect to pass the tariff on to us,” he said.
Uncertain future
Other manufacturers in Huizhou are inching toward the cliff. (Hui Zhou) Jia Yang Industrial Co., which makes plastic exteriors of audio speakers for brands including JBL and Harman, is starting to shut down in phases, owner Bosco Chang, 34, said. Wages rose to RMB8.50 an hour from RMB3.30 during the past decade, and the number of employees concurrently declined to 80 from 500. The factory generates RMB10 million in annual revenue, half of what it made in 2008, said Chang, whose father formed the company in 1993. Ninety per cent of revenue comes from the U.S. Chang would relocate to his home Taiwan if he could, but the factory that assembles the speakers also is in Huizhou. Plus, there are potential Trump-related costs associated with other locations. Trump abandoned the Trans-Pacific Partnership, which would have lowered tariffs on exports from Taiwan and Southeast Asia, and is looking to renegotiate the North American Free Trade Agreement, meaning a likely increase in tariffs on products made in Mexico. “There is no safe place,” Chang said. “We have to go with the flow, and the flow is uncertain. So, I’m giving up.” Bloomberg News
Business Daily Tuesday, March 21 2017 11
Asia Commerce
S.Korea complains to WTO over China’s response to anti-missile system The dispute has resulted in a sharp decline in Chinese tourists in the shopping districts Christine Kim and Jane Chung
S
outh Korea’s trade minister said yesterday Seoul had complained to the World Trade Organization (WTO) about China’s retaliation against South Korean companies over the deployment of a U.S. anti-missile defence system in the South. “We have notified the WTO that China may be in violation of some trade agreements,” Trade Minister Joo Hyung-hwan told parliament in response to questions about China’s reaction to the deployment of the Terminal High Altitude Area Defence (THAAD) system in South Korea.
the complaint could not be categorised as legal action but was rather a request for the WTO to look into whether China was upholding trade agreements fairly. In Beijing, Chinese Foreign Ministry spokeswoman Hua Chunying did not comment directly on the WTO complaint. “We support normal business and other exchanges between China and South Korea,” Hua told a daily news briefing. “But everyone knows this needs a corresponding basis in public opinion.” South Korea and the United States say the sole purpose of the
THAAD system is to guard against missile launches from North Korea but China has been infuriated by its deployment, saying that its powerful radar could penetrate into its territory. Beijing also says THAAD will do nothing to ease tensions on the Korean peninsula. China is South Korea’s largest trading partner and the dispute over THAAD has resulted in a sharp decline in Chinese tourists in the South’s shopping districts. Chinese authorities have also closed nearly two dozen retail stores of South Korea’s Lotte Group amid the diplomatic standoff. Beijing denies the restrictions are linked to the THAAD deployment, but the South Korean government
has offered cheap loans and extended deadlines on existing debt to help businesses that have been affected and has pushed to diversify trade markets. Lawmakers ramped up their criticism of what they say has been the government’s lack of an aggressive response to China’s actions, which also include a freeze on South Korean television dramas, as well as music and product boycotts. Seoul’s options, however, look limited. Efforts to hold direct discussions between the finance ministers of China and South Korea at a Group of 20 meeting in Germany at the weekend fell through after Beijing declined Seoul’s request to meet, citing scheduling reasons. Reuters
Key Points S.Korean minister says China appears to violate trade deals China is South Korea’s largest trading partner Tension grows over deployment of anti-missile system Joo said the issue was raised with the WTO’s Council for Trade in Services on Friday after China imposed restrictions on South Korean companies in the tourism and distribution sectors. A trade ministry official, who asked not to be identified because of the sensitivity of the matter, said
Environment
Indonesia plans to sue Thailand’s PTTEP oil spill The Indonesian government and state prosecutors are in the process of compiling evidence Agustinus Beo Da Costa
Indonesia is preparing to sue a unit of Thailand’s PTT Exploration and Production (PTTEP) over alleged environmental damage from the Montara oil spill in 2009, the country’s Coordinating Maritime Affairs Ministry said. The move follows earlier attempts at negotiation that stalled in 2012, and a separate class action suit filed by a group of about 15,000 Indonesian seaweed farmers seeking more than A$200 million (US$154 million) from PTTEP Australasia to cover damages from the spill. A total of about 30,000 barrels of oil were estimated to have spewed into the Timor Sea over 74 days after an explosion at PTTEP’s Montara drilling rig off Australia’s northwest coast in 2009. “This relates to Indonesian sovereignty and poor communities whose lives depend on the maritime sector, so we must fight this in a more planned way,” Basilio Dias Araujo, Indonesia’s assistant deputy minister for safety and security, said in a statement published on the ministry’s
website. The Indonesian government and state prosecutors are in the process of compiling evidence and have invited around 50 expert witnesses to support the case, the statement said. “The Indonesian government has asked PTTEP for compensation through non-litigation channels, but the negotiation process became deadlocked in 2012, so no agreements were reached,” Araujo added. The slick from Montara reached Indonesian waters, and was Australia’s worst offshore drilling accident. An Australian government inquiry blamed the spill on systemic
shortcomings at the Thai oil giant. A Bangkok-based spokeswoman for PTTEP, the exploration flagship of top Thai energy company PTT Pcl, said she could not immediately comment on the matter. “No oil from the Montara incident reached the Australian and Indonesian mainlands,” PTTEP Australasia said on its website, citing independent scientific studies, and “there has been little or no detectable impact from the spill on any marine eco-system or species in the Timor Sea.” “There were no lasting negative impacts on the region’s biodiversity” from the spill, it said. PTTEP was fined A$510,000 (US$394,000) by a Darwin court in 2011 after pleading guilty to four charges relating to workplace health
and safety and failure to maintain good oilfield practice. That outcome “concluded all government legal matters in relation to the Montara incident,” the company said.
“The Indonesian government has asked PTTEP for compensation through non-litigation channels, but the negotiation process became deadlocked in 2012, so no agreements were reached” Basilio Dias Araujo, Indonesia’s assistant deputy minister for safety and security The Indonesian seaweed farmers from Nusa Tenggara Timur province began their action last August and the next hearing is scheduled to take place in May, according to their legal team. Reuters
12 Business Daily Tuesday, March 21 2017
Asia Currencies
Malaysian PM Najib says c.bank will keep supporting ringgit He also said it will introduce “liberalisation” moves from time to time to develop the foreign exchange and bond markets
M
alaysian Prime Minister Najib Razak said yesterday the central bank will keep acting to support the ringgit and that moves already taken to stem its decline have stabilised the currency.
the ringgit, including allowing exporters to retain only up to 25 per cent of export proceeds in a foreign currency. “Although it has been only two months since the announcement of these measures, there are signs showing encouraging results,” Najib said
in reply to a question in parliament. “The most important is that the ringgit has shown significant stability since these measures became operational,” he said. The prime minister said Malaysia’s international reserves “will continue to be used to stop volatility in the currency market”. Malaysia’s gross international reserves were US$95.0 billion as of Feb. 28, unchanged from Feb. 15, according to the central bank.
Najib also said BNM will introduce “liberalisation” moves from time to time to develop the foreign exchange and bond markets, and enable businesses to manage currency exposure. He did not give any details. In 2016, the ringgit weakened about 4.3 per cent against the dollar. On Jan. 4, the currency hit a 19-year low of 4.4980 to the dollar. But so far this year, it has strengthened 1.2 per cent and yesterday was trading around 4.4290 to the dollar. Reuters
Key Points Najib says c.bank’s steps to stem currency declines effective Sees ‘liberalisation’ moves to develop forex, bond markets Bank Negara Malaysia (BNM) has taken several steps since late last year to support the ringgit, including asking for a written commitment from foreign banks to cease trading the currency on the offshore non-deliverable forwards market. In December, the central bank announced measures to boost liquidity and encourage more domestic trade of
Expansion
Armed with US$11 billion, Thai oil giants hunt for investments Oil’s crash made deals difficult to close last year because it was hard to agree on long-term values Supunnabul Suwannakij and Dan Murtaugh
will last just five years at its current production rate.
The Asian energy companies sitting on the largest horde of cash outside China are ready to put it to use. Thailand’s PTT Exploration & Production Pcl and its parent company have nearly US$11 billion combined in cash and marketable securities, such as bonds and other short-term investments. The explorer is ready to spend from its portion on projects and exploration acreage to rescue declining oil and gas reserves, according to Chief Executive Officer Somporn Vongvuthipornchai. PTT E&P is eyeing early-life producing assets or projects that are already sanctioned and ready for development, Somporn said in an interview in Bangkok. It’s also looking to work with its parent, PTT Pcl, to invest in liquefied natural gas plants, which would help feed the country’s growing demand. “We’ll have to rely on mergers and acquisitions to maintain our growth,” said Somporn. “We’re looking at opportunities in the few hundred million to US$1 billion range.” There was no such hunger when Somporn took the reins of the upstream company in October 2015. Oil prices had already fallen from the US$100 a barrel range into the US$60s, and he watched as over his first six months they cratered below US$30 to hit the lowest in more than a decade. He kept the company focused on weathering the downturn by cutting costs and investments. Meanwhile, proved reserves have fallen from the equivalent of 1.1 billion barrels of oil in 2009 to 695 million last year. That
Short life
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“They have a relatively short reserves life and it’s pretty clear they’re going to have to acquire to grow as a company,” said Neil Beveridge, an analyst with Sanford C. Bernstein in Hong Kong, who has a neutral rating on the company. “Domestic oil and gas production is going to decline over the coming years, so that puts more emphasis on companies like PTT E&P to go overseas and build supply.” Oil’s crash made deals difficult to close last year because it was hard to agree on long-term values. While the market will remain volatile, Somporn said there is enough of a consensus now for buyers and sellers to find common ground. PTT E&P is using a US$50 oil price forecast this year for its investment decisions. “It’s a good time to grow while we have this cash with us,” he said.
The E&P company has US$4 billion in cash and marketable securities, which parent PTT accounts in its US$10.9 billion. Only China’s big three oil firms, led by PetroChina Co.’s US$18 billion pile, have more than that among listed energy companies in Asia, according to data compiled by Bloomberg.
LNG growth
Most of the company’s wells are in Thailand and Myanmar, where Somporn is looking first for new supply. Divestitures by oil majors seeking to maintain dividends in a lower revenue environment provide opportunities to find assets, he said. LNG is another avenue for growth. Parent-company PTT is looking to expand gas imports to meet growing domestic demand fuelled by economic expansion, while domestic production is declining and pipeline imports from Myanmar may be redirected to China. “There is an opportunity for us to participate more on the LNG value chain,” Wuttikorn Stithit, PTT’s executive vice president for natural gas supply and trading, said in
Petrochemical storage facilities in Thailand
a separate interview. “It’s kind of a natural hedge, because when the price of LNG is high, from the projects we would have some value.” PTT last week announced a higher-than-expected 2016 dividend of 16 baht (US$46 cents) per share, signalling an increased focus on capital allocation, according to Mayank Maheshwari, an analyst at Morgan Stanley in Singapore. The company’s balance sheet can sustain 20 per cent higher dividends in the medium term, Maheshwari said in a note. Somporn said geography doesn’t play as much of a limiting role for LNG projects. He would prefer a project where the export facilities and production fields are combined, as opposed to projects such as those on the U.S. Gulf Coast, where firms buy already produced gas and then pay to have it liquefied for export.
Mozambique
PTT E&P owns an 8.5 per cent stake in Anadarko Petroleum Corp.’s proposed Mozambique LNG project. Somporn said the companies are finalizing legal requirements with the government, firming up gas contracts with buyers and beginning to discuss financing for the project. He said he hopes to make a final investment decision on the project by the end of this year. The company also has exploration acreage 700 kilometres offshore Australia that could contain 4 trillion cubic feet of natural gas. The company has shifted its focus from developing a floating production platform for the project to working with existing onshore liquefaction plants, Somporn said. “Thailand would be hungry for LNG,” he said. “Our Gulf of Thailand gas fields are getting mature, while demand is rising and rising.” Bloomberg News
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Business Daily Tuesday, March 21 2017 13
Asia In Brief Tax legislation
India cabinet approves draft GST bills
Housing
Soaring house prices lock Australia’s homeless out
India’s cabinet has approved four bills to implement a planned Goods and Services Tax (GST) bills, a government official said yesterday, paving the way for Prime Minister Narendra Modi to implement the landmark tax reform from July. The four bills are likely to be taken up by the parliament this week, and a separate state GST bill in state assemblies later, the official also said, requesting anonymity ahead of a planned news briefing. The GST Council, comprising federal and state finance ministers, has already cleared all five draft laws - the Central GST, Integrated GST, state GST, Union territory GST and rules on compensating states for revenue losses. EU biodiesel
More than 100,000 people were reported homeless in the 2011 national census Homelessness is on the rise in Australia, experts warn, with a growing number of people failing to benefit from the nation’s stellar economy as it readies to mark a record 26 years without a recession. The unprecedented economic expansion -- fuelled by a massive mining investment boom -- has boosted house prices and lined the pockets of many citizens. But it has also led to the country’s biggest cities, Sydney and Melbourne, being ranked second and 10th on a list of the world’s least affordable
housing. The soaring prices have placed further pressure on those already struggling to afford a roof over their heads, with a public outcry on housing affordability sparking action by federal and state governments to fund more social and inexpensive residential projects. “Australia is a wealthy country and so it shouldn’t have the levels of homelessness that it does have,” Homelessness New South Wales (NSW) chief Katherine McKernan told AFP.
“If you compare it to London and New York, the numbers of people seeking homelessness support are comparatively higher. We think that homelessness is increasing in Sydney and Melbourne due to the lack of affordable housing.” Australia’s agency for health and welfare statistics AIHW said demand for homelessness services reached a record high of 279,000 people in 2015-16, led by those affected by domestic and family violence, a 33 per cent jump from 2011-12 when the data was first collected. More than 100,000 people were reported homeless in the 2011 national census, with welfare groups expecting the most recent survey held last year to show an increase. Rough sleepers are more visible in cities, with Melbourne’s Herald Sun describing a homeless camp outside a major train station during the Australian Open tennis Grand Slam in January as a “grand slum”.
‘Australia’s agency for health and welfare statistics AIHW said demand for homelessness services reached a record high of 279,000 people in 2015-16’ In downtown Sydney, Lanz Priestley has set up a “safe space” for the homeless, offering 24/7 access to free food just metres from the Reserve Bank of Australia, shiny office towers and the NSW state parliament. “People have the basic human right to feel safe,” Priestley said. “I think the support services (in Sydney) aren’t even in the library when it comes to rough-sleeper safety.” Among those resting on piles of bedding spread across colourful crates is 20-year-old Nina Wilson, who helps Priestley run the Martin Place site. “I am now in transitional housing as I’m nearly six months pregnant and this is sort of my way of giving back because I know what it’s like to be homeless... I can’t just watch these guys have nothing,” Wilson said. Salvatore Magenta, 64, said he has been living on the streets since 2000 as he grapples with growing health problems. “I slept in a car for about 15 years, I didn’t let no one know what I was doing with my life,” Magenta said. “I will need housing soon, or someone will find me dead on the streets.” AFP
Indonesia plans to file WTO complaint over duties Indonesia plans to file a World Trade Organization (WTO) complaint this month against European Union anti-dumping duties on biodiesel exports from the Southeast Asian country, trade officials said. Indonesia said in a statement the EU duties on biodiesel were inconsistent with the WTO’s Anti-Dumping Agreement and disputed the calculations that they were based on. In November 2013, the EU set duties of 8.8 per cent to 20.5 per cent for Indonesian producers and between 22 per cent and 25.7 per cent for Argentine producers, to apply for five years in both cases. M&A
Vodafone, Idea Cellular to create new Indian market leader Britain’s Vodafone Group and Idea Cellular agreed yesterday to merge their Indian operations to create the country’s biggest telecoms business in a bid to contest a brutal price war sparked by new rival Reliance. The combined Vodafone-Idea group would have almost 400 million customers, or 35 per cent market share, with an implied enterprise value of 828 billion rupees (US$12.66 billion) for Vodafone and 722 billion rupees for Idea. “The combined entity will become the leading challenger with the scale to compete more effectively,” Idea said in the statement. Driving test
Vietnamese capital to pilot automated street parking An automated car parking technology will be piloted on two streets in Vietnam’s capital Hanoi in the second quarter of 2017. Specifically, the new technology for car parking management will be implemented on downtown Ly Thuong Kiet and Tran Hung Dao streets, reported Vietnam’s state-run news agency VNA yesterday. Under the project, surveillance cameras will be installed at the parking lots, recording the number of vehicles, their parking duration and the number of parking slots available. The information will be relayed to a data processing centre.
14 Business Daily Tuesday, March 21 2017
International In Brief Poland
Isolation at EU summit weakens support for ruling party Poland’s ruling Law & Justice party lost popularity and the ratings for the main opposition group jumped after the government was isolated at this month’s European Union summit. Law & Justice is backed by 29 per cent of Poles, according to a March 16-17 survey by polling company IBRiS and published by Rzeczpospolita yesterday, a five percentage point decline from a month earlier. The Civic Platform’s support surged 10 points to 27 per cent. The slide comes after Poland was outvoted 27 to 1 to re-elect Donald Tusk for a second term as European Council president. Commerce stance
Merkel: We want open markets, free trade Chancellor Angela Merkel reiterated on Sunday that Germany was strongly in favour of free trade and open markets, at a time when the United States is becoming increasingly protectionist. “We do want open markets, fair trade, we certainly don’t want any barriers but at a time of an ‘Internet of things’ we want to link our societies with one another and let them deal fairly with one another, and that is what free trade is all about,” Merkel said at the CeBIT technology fair in Hanover.
Global growth
These economies are seen improving dramatically this year The U.S. is in line for a respectable growth boost this year to 2.3 per cent Andre Tartar and Catarina Saraiva
E
xpect more good news than bad when it comes to global growth this year, led by recoveries in several of Latin America’s largest economies, a pickup in the U.S., and continued robustness from China and India. The expectation is that 62 economies are slated for an improvement compared with last year, while 33 will see a deterioration, according to an analysis of the latest Bloomberg consensus outlook. Near the top of the list are Argentina and Brazil, both set to shift from contraction to expansion, along with energy exporters Nigeria and Russia thanks to a rebound in the price of oil from a 13-year low in January 2016. While Venezuela actually came in first place for the biggest economic improvement — 7.5 percentage points from 2016 to 2017 — it’s still facing a deep economic crisis, with high inflation and shortages of food and other basics. Instead look to Brazil as the real
poster child of 2017, where growth has picked up as the country recovers from its worst recession in a century. Marred by its biggest bribery scandal in history, which saw the impeachment of a president, Brazil is now benefiting from rising commodity prices as President Michel Temer tries to shore up the country’s finances and boost private-sector activity. A similar dynamic is at play in Argentina, where growth is set to accelerate by over 5 percentage points this year, but likely be offset by high inflation. Some countries have less to celebrate. In Iceland, growth is forecast to fall to 4 per cent in 2017 from 7.1 per cent last year, along with protest-prone Romania, unemployment-ridden Spain, and one of President Donald Trump’s frequent targets, Mexico. The U.S. is in line for a respectable growth boost this year to 2.3 per cent, while emerging market giants China and India will remain the envies of the world — growing by 6.5 per cent or more each — even as they’re both expected to slow marginally
compared to 2016. The projected speed of growth in South Africa may be slightly misleading, as there are few signs of underlying strength in the economy and more a reflection of just how bad 2016 was for the country, which was dealing with a historic drought and widespread labour strikes.
‘Europe’s largest economies should brace for easing of their already lacklustre growth in 2017’ Europe’s largest economies, meanwhile, should brace for easing of their already lacklustre growth, including the U.K., which is set to kick off Brexit negotiations with the European Union. The standout growth star on the continent is France, whose 2017 elections will be watched closely as a pivotal moment for the EU and the euro-area. Bloomberg News
Budget
Egypt to assume exchange rate of 16 pounds/dollar Egyptian Finance Minister Amr El Garhy said on Sunday that the 2017-18 government budget would assume an exchange rate of 16 Egyptian pounds per dollar. The rate he cited would represent a strengthening of the pound, which is currently at 18.12 to the dollar. Speaking to local television channel CBC, Garhy also said foreigners had purchased treasury bills and bonds worth US$3.5 billion since Egypt floated the pound in November, and it was aiming for a total of US$10 billion in foreign investment in treasuries by the end of 2017. Management
Uber president Jeff Jones quits, deepening turmoil Ride services company Uber Technologies Inc has been thrust deeper into turmoil with the departure of company president Jeff Jones, a marketing expert hired to help soften its often abrasive image. Jones quit less than seven months after joining the San Francisco company, an Uber spokesman said on Sunday. In a statement to Reuters, Jones said he could not continue as president of a business with which he was incompatible. “I joined Uber because of its mission, and the challenge to build global capabilities that would help the company mature and thrive long term,” Jones said.
Financing
World Bank announces US$57 bln for Africa The new financing from the International Development Association will target 448 projects that are already underway in sub-Saharan Africa Th e W o r l d Ba n k o n S u n d a y announced US$57 billion in financing for sub-Saharan Africa over the next three fiscal years. Of that total, US$45 billion will come from the International Development Association, the World Bank fund that provides grants and interestfree loans for the world’s poorest countries. The package will also feature an estimated US$8 billion in private sector investments from the International Finance Corporation, a private-sector branch of World Bank, and US$4 billion will come
from the International Bank for Reconstruction and Development, the bank’s unit for middle-income nations, World Bank president Jim Yong Kim said in a statement.
“This represents an unprecedented opportunity to change the development trajectory of the countries in the region” Jim Yong Kim, World Bank president
Germany, which hosted a meeting of the G20 countries Friday and Saturday, said that a partnership called “Compact with Africa”
would be a priority of its presidency this year of that club of powerful nations. Of all the countries in Africa, only South Africa is a G20 member. “This represents an unprecedented opportunity to change the development trajectory of the countries in the region,” Kim said. “With this commitment, we will work with our clients to substantially expand programs in education, basic health services, clean water and sanitation, agriculture, business climate, infrastructure and institutional reform,” he added. Kim left for Rwanda and Tanzania on Sunday in a show of World Bank support for the entire region. The new financing from the I n t e r n ati o n a l D ev e l o p m e n t Association will target 448 projects that are already underway in subSaharan Africa. The region accounts for more than half of the countries eligible for this kind of financing from the IDA, the bank said. AFP
Business Daily Tuesday, March 21 2017 15
Opinion
India home migraine fix may also be bank hangover cure Andy Mukherjee a Bloomberg Gadfly columnist
The return of industrial strategy
I
ndia’s war against cash has been giving a splitting headache to the country’s real estate market, a popular conduit for tax evasion. But before demonetization could crash home prices, New Delhi has come up with a migraine pill for builders. Private-sector workers and their employers currently contribute to a state-mandated employee provident fund every month. Only three years’ worth of wages can be withdrawn to invest in housing, and just once. Now, those limits are being scrapped. This will bring India’s pension fund very close in spirit to Singapore’s Central Provident Fund, which since the 1980s has played a crucial role in the city-state’s housing market. Of the 20 per cent per cent minimum initial Pension savings equity required for a that can be withdrawn Singapore mortgage, for new homes as much as 15 per cent can come from CPF savings, which can also be used to pay monthly instalments to banks. Research has shown that a 1 per cent increase in the CPF contributes 1.6 percentage points to house price inflation. By comparison, a 1 per cent rise in the island’s foreigner population adds only 0.56 percentage point. Anything that supports home prices over the longer term will be sweet music to Indian developers. Shares of DLF Ltd. and Prestige Estates Projects Ltd. were among the worst hit after Prime Minister Narendra Modi outlawed 86 per cent of the country’s currency stock on Nov. 8 and threatened to crack down on illicit wealth owners who hold properties in other people’s names. The BSE Realty Index has only recently recovered from its 20 per cent tumble. Currently, India’s employees’ provident fund covers only 40 million people. Expect this number to swell as more of the one-billionplus population leaves agriculture and small business to work at larger firms. Channelling a bigger chunk of a growing retirementsavings pool into property could expose home prices to bubbles, which would tend to burst during periods of mass unemployment. It’s a manageable risk, though. Keeping provident fund nest eggs -- including the amounts used in housing -- out of personal bankruptcies would protect retirement savings during a housing market bust. Reeling under a wave of soured corporate debt that’s tainted almost a sixth of their total loan book, India’s state-run banks should also embrace the opportunity to have more retail assets on their balance sheets. They should be relieved, too, if a revival in housing demand boosts builders’ ability to service their debts. It’s early days, but developers’ migraine pill could end up being a hangover cure for India’s undercapitalized banking system.
90
Bloomberg Gadfly
I
ndustrial policy is making a comeback in many advanced economies. Dismissed out of hand in the go-go 1980s as a contributor to the previous decade’s stagnation, it is increasingly viewed as a means to stem working-class voters’ defection to right-wing populist parties. But developing a modern and effective industrial strategy will be no easy feat. The European Union has been trying to define a consistent framework for addressing the topic since 2014, when it published an analysis of industrial policy’s advantages and disadvantages. The United Kingdom is further along, having released in January a green paper on building an industrial strategy. U.S. President Donald Trump has also focused on industrial policy, though his version would presumably entail substantial state intervention and protectionist measures. Trump’s regressive vision, despite remaining short on details, already seems defective. But Europe’s approaches to industrial strategy show some promise, not least because they are likely to eschew the broad interventions of the past that emphasized “picking winners.” In the United Kingdom, for example, the government expects to focus instead on “targeted interventions” designed to create positive incentives, correct market failures, and address social, geographical, and sectoral imbalances. Clearly, political leaders have learned some important lessons from history. But serious problems remain. Europe’s governments seem to think that they can implement ad hoc policies that strengthen their “invisible hand” today, and that those policies will somehow end up fitting neatly into a coherent framework. That seems optimistic, at best. The UK’s new plan does not even pinpoint the strategy’s main objective. Is it to buttress GDP growth when the UK is no longer part of the European single market and customs union? Or is it to boost the British economy’s potential output (that is, to increase long-term trend growth)? The government’s plan mentions both objectives, but says little about how they will be balanced. UK leaders must recognize that, where the strategy is aimed at strengthening post-Brexit growth, it will probably have to be set in the context of higher tariffs vis-à-vis the EU, which would remain Britain’s main market. Such a strategy would also have to take into account the global competitiveness of British industry, and complement the country’s new independent trade policy. At the same time, the British government must not get so caught up in preserving short-term growth and employment amid Brexit that it loses sight of the need to boost long-term growth potential. Worryingly, however, the proposed strategy may over-emphasize ring-fencing the government’s own involvement in the economy. While governments are right to shy away from picking winners, they must remain active in other
“
Paola Subacchi Research Director of International Economics at Chatham House
ways. Specifically, they must analyse which sectors and industries are more likely to contribute to long-term growth, and help to enable their success – potentially even in ways that imply real financial risks. For example, governments should consider large infrastructure investments that have positive externalities – say, shorter commuting times, with their economic and social benefits – and that may be too large or too risky for the private sector. This is particularly relevant where the government has access to a wider range of information than the private sector, strengthening its ability to optimize its investments. Another component that is missing from current discussion of industrial policy in Europe is a clear timeline. The reality is that a strategy developed today could take a generation to deliver results (think education reform). So an effective industrial strategy must establish not only an overall timeframe, but also important milestones along the way. In the UK’s case, those milestones should include shorter-term goals and outcomes associated with the Brexit process. After all, an effective modern industrial strategy requires a careful accounting of the assets and resources, including human capital, that the economy will need in the coming years. For the UK, such an accounting cannot be decoupled from Brexit. In particular, UK leaders must identify which resources are tied to Europe’s single market, how they can be replaced, and how long that process will take. The final critical element of an effective industrial strategy is the institutional framework on which it depends. The UK government acknowledges the importance of creating the right institutions to address regional disparities. But institutions must go beyond linking up sectors and regions to ensure transparency and accountability, especially in the relationship between the private and public sectors. With that in mind, British leaders should reflect on which of the necessary institutions are already in place and which need upgrading. It is important to resist the urge simply to shut down weak or inefficient institutions, and to consider, instead, how they can be reformed and strengthened. Major changes are coming to the British and European economies. Leaders must act now to define a comprehensive strategic vision that will enable them to cope with the challenges ahead. That vision must be bold and ambitious. Above all, it must be shared. At a time of intensifying polarization, that may well be the hardest part.
Developing a modern and effective industrial strategy will be no easy feat
”
Project Syndicate
16 Business Daily Tuesday, March 21 2017
Closing Aviation
Mainland sees robust air passenger growth
rose 17.4 per cent year on year to 38.96 million in January, while those made on international routes surged 19.1 per cent to China’s civil aviation sector posted strong passenger growth despite a decline in cargo 4.97 million. In January, air cargo and mail freight topped transportation in January this year, official 565,000 tonnes in January, decreasing 3.8 data showed yesterday. per cent year on year, affected by waning Air passenger trips in January increased domestic cargo and mail business. 17.6 per cent year on year to 43.9 Domestic air cargo and mail freight declined million, according to the Civil Aviation 5.6 per cent in January year on year to Administration of China. 409,000 tonnes, while international cargo The pace was faster than the 11.8-per cent growth registered for the whole year of 2016. and mail freight increased 0.9 per cent in January to 156,000 tonnes. Xinhua Passenger trips made on domestic routes
Trade
Taiwan export orders soar as global electronics demand lights up Orders from Taiwan’s major markets all accelerated at a doubledigit pace Jess Macy Yu and J.R. Wu
T
aiwan’s export orders grew at their fastest pace in six-and-a-half years in February on strong global demand for electronics that’s bolstering makers of memory chips, flat panels and smartphones. The stronger-than-expected performance and a seventh straight month of gains in orders for the trade-reliant economy reinforce expectations Taiwan’s central bank will leave its key policy rate unchanged when it meets on Thursday. Other Asian exporters such as China and South Korea have also seen marked improvement in shipments so far this year as global demand improves, though the size of Taiwan’s jump may be exaggerated by comparisons with weak trade figures through much of last year, analysts said. “For tech, the outlook for the first half should be fine, but the second half has higher uncertainty,” said Claire Huang, an economist with Societe Generale in Hong Kong, adding that prospects for China’s economy later this year are not clear. Annual headline export order growth “could go down because the February surge is a result of the base effect,” she said. Orders surged 22 per cent in February from a year earlier, its strongest pace since August 2010, when they
expanded 23.3 per cent, and were well above growth of 15.8 per cent forecast in a Reuters poll. Export orders are a leading indicator of actual shipments 2-3 months ahead and a gauge of demand for Asia’s high-tech gadgets. The value of export orders in March is expected to rise to around US$37.5 billion-US$38.5 billion, from February’s US$33.75 billion, economics ministry official L.J. Lin told reporters yesterday. January orders totalled US$36 billion.
Holiday distortion
The jump comes off a weak base as export orders were stuck in a
16-month stretch of contraction that didn’t end until August last year. Still, January and February performance as a whole was still strong - up 12.7 per cent from a year earlier. Analysts prefer to look at combined January and February data due to distortions from the timing of the long Lunar New Year holiday. This year, it began in late January while last year’s start was in February. Many Taiwan-owned factories are based in China and would have been closed for days. Orders from Taiwan’s major markets all accelerated at a double-digit pace. Orders from the United States,
where Apple Inc is a major customer for many Taiwanese technology component makers, jumped 21.1 per cent in February from a year earlier, and rose 11.9 per cent for the first two months of the year. From China, the island’s biggest trading partner, orders soared 40.5 per cent last month and they were up 20.5 per cent in January-February.
Key Points Feb orders +22 pct y/y vs +15.8 pct forecast in Reuters poll Growth pace in Feb y/y orders fastest in 6-1/2 years January-February orders +12.7 pct y/y Orders for tech goods, orders from major markets robust Strong data reinforces expectations of no rate change Thursday Orders for technology parts, including those used in electronic, information and telecommunications goods, also rose by double-digits. Hopes are building that the 10th anniversary edition of the iPhone, expected to be launched later this year, will generate orders for components from Taiwanese tech companies who make much of the guts of Apple’s popular smartphone. More memory capacity, dual-lenses for its cameras and bigger-sized panels will be needed for the new phone, according to a recent research report by the Taiwan Institute of Economic Research, a think-tank. Reuters
U.S. loans
Working paper
Corruption
Regulators said to weigh appraisal change
China central bank should improve communication
S.Korea’s Lotte family owners go on trial for graft
As President Donald Trump seeks to knock down government constraints on business loans, U.S. bank regulators have tentatively agreed to ease an appraisal requirement that could help commercial real estate borrowers, said people familiar with talks among the agencies. Regulators have decided the threshold for requiring appraisals on commercial property should be increased to US$400,000 from US$250,000, according to two people who asked that they not be identified because the discussions aren’t public. The threshold for residential real restate would remain at US$250,000, they said. The change could cut costs for small-business borrowers at a time when Trump has put a particular focus on helping that sector. At the same time, appraisers would be hurt because their licensed services would no longer be needed on commercial real estate loans for less than US$400,000 -- often including small businesses, warehouses, rental housing and farms. The move stems from an on-going internal review of rules at the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. under a program known as the Economic Growth and Regulatory Paperwork Reduction Act. Bloomberg News
China’s central bank should clarify its new shortterm policy rate and the target rate level as soon possible, according to a central bank working paper, as authorities in the world’s second-largest economy slowly shift to a tightening bias. These actions will help to stabilise expectations about the “interest rate corridor” framework, the paper published on the PBOC website yesterday said. The PBOC has raised primary money market interest rates in small increments several times since late January, most recently last week, while trying to reassure markets with hints that it is in no rush to hike benchmark lending and deposit rates soon. While the tightening ties in with one of the government’s top priorities this year - containing the risks from a mountain of debt - market watchers are also wondering if the central bank is keen to tailor policy more precisely to better support the yuan currency rate and reduce pressure from capital outflows. The working paper, authored by the head of the People’s Bank of China’s (PBOC) research bureau Xu Zhong, said the central bank has a lot of room to improve its communication with financial markets. Reuters
Four members of the family who control South Korea’s troubled retail giant Lotte, including its 93-year-old founder, went on trial yesterday for embezzlement, tax evasion and fraud. The proceedings against company chairman Shin Dong-Bin, 61, his brother, sister and father -- plus the patriarch’s mistress nearly 40 years his junior -- come as the South’s fifth-biggest conglomerate endures a barrage of condemnation from China. The company provided land to Seoul to host a U.S. missile defence system, infuriating Beijing, and nearly 90 per cent of its Chinese Lotte Mart stores have since been forced to close by either authorities or angry demonstrations. The trial is the latest blow to the reputations of the family-controlled conglomerates, or “chaebols”, that powered South Korea’s economic growth in past decades. More recently they have increasingly become the focus of public anger over inequality and corruption, as in the scandal that saw president Park Geun-Hye removed from office earlier this month. Lotte chairman Shin is accused of costing the firm 175 billion won (US$155 million) through a series of tax evasions, financial scams and irregularities. AFP