Johnny Ma: From cross-border trade to e-commerce Interview Pages 6 & 7
Monday, May 1 2017 Year VI Nr. 1286 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Results
Top Five Chinese banks’ results show margins shrinking Page 8
EU report
Authorities demand EU stop political interference Page 3
www.macaubusinessdaily.com
Land reclamation
M&A
Hong Kong taking MSAR practices as an example Page 4
Mainland firms finance their acquisitions offshore Page 9
Packages fuel the city Tourism
The latest visitor figures in the territory show a rebound led by mainland tourists flocking here on package tours. South Korean visitors are once again becoming an increasingly significant share of tourists coming to the city. Page 3
Next goal: After Golden Week
The opening of MGM’s Cotai project has been rescheduled to October. After a series of postponements, the chairman & CEO of MGM Resorts announced that Q4 was the right time to kick off the new venue, just after the national holidays.
Police and thieves... and courts Chips theft A final decision on a gaming chips theft case has ruled against a plea from the offender. The accused charged with stealing gaming table chips, but she claimed that, given that she did not leave the casino premises, the act should not constitute aggravated theft. Page 2
China above the line
MGM Cotai Page 2
HK Hang Seng Index April 28, 2017
24,615.13 -83.35 (-0.34%) Worst Performers
AAC Technologies Holdings
+5.35%
Power Assets Holdings Ltd
+0.57%
China Resources Land Ltd
-2.26%
China Unicom Hong Kong
-1.18%
BOC Hong Kong Holdings
+0.79%
Hong Kong & China Gas Co
+0.52%
Cathay Pacific Airways Ltd
-1.58%
Want Want China Holdings
-1.06%
CITIC Ltd
+0.71%
Cheung Kong Infrastructure
+0.52%
Geely Automobile Holdings
-1.50%
China Merchants Port Hold-
-0.89%
Galaxy Entertainment Group
+0.70%
Sino Land Co Ltd
+0.46%
Hong Kong Exchanges &
-1.29%
China Overseas Land &
-0.88%
Cheung Kong Property
+0.63%
Hang Seng Bank Ltd
+0.38%
AIA Group Ltd
-1.19%
Bank of Communications
-0.83%
23° 26° 23° 26° 24° 26° 23° 27° 23° 27° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
PMI Manufacturing on the mainland showed a slower pace with the PMI set at 51.2 in April, lower than the 51.8 recorded in March, according to the National Bureau of Statistics. The reading fell short of market expectations but still remained above the boom-bust line of 50. Page 8
2 Business Daily Monday, May 1 2017
Macau Politics
Zhang Dejiang to visit MSAR next Monday
Chairman of the National People’s Congress Zhang Dejiang (pictured) is to visit the MSAR between May 8 and May 10, the Government Spokesperson’s Office announced last Friday. The announcement reads that the top Chinese official will deliver an “important speech” during his visit,
in addition to inspecting the city’s developments and meeting with different representatives from the society. The three-day visit of Mr. Zhang is on the invitation of Chief Executive Fernando Chui Sai On, the Office said. Mr. Zhang is also a member of the Standing Committee of the Political Bureau of the Central Committee of the Communist Party of China.
Gaming
MGM pushes Cotai opening to Q4 The opening is now expected to happen in October, right after the National Day Golden Week Kam Leong kamleong@macaubusinessdaily.com
T
he opening of MGM Cotai may now only take place in the fourth quarter of the year, while the operator is projecting an optimistic outlook for the VIP segment. “[MGM Cotai] is going to open this year in the fourth quarter and probably…right after [the National Day] Golden Week…But it’s going to open this year for sure,” said Jim Murren, chairman & CEO of MGM Resorts – parent company of MGM China Ltd, in a conference call on the group’s first quarter results last week. In January, CEO of MGM China, Grant Bowie, told reporters that the company was targeting the launch of the new project for the third quarter of this year. The project, in fact, was initially slated for a 2016 opening date, later pushed back to the first quarter of this year, before it was further postponed to the second quarter. Asked by Nomura Instinet analyst Harry Curtis what is behind the delay, the MGM China CEO said during the call that it’s about getting the project right. “Everyone understands building anywhere in the world is complicated, and I think everyone has seen from all the other operators, it’s probably just as complicated in Macau,” Mr. Bowie claimed. “We need to be bringing something unique into the market, and that’s really the crux – the key aspect for us. And we’ve said it quarter after
quarter, it’s about getting it right.”
VIP optimism
For the first quarter, MGM China’s net revenues went up by 7 per cent year-on-year to US$502 million (MOP4.02 billion). Adjusted EBITDA increased 25 per cent year-on-year to US$143 million. Main floor table games revenue went up by 17 per cent, but VIP table games revenue recorded a decrease of 5 per cent. In the same period, the city’s gaming revenue derived from VIP baccarat rose by 16.8 per cent yearon-year to some MOP35.5 billion, according to the official data from the Gaming Inspection and Coordination Bureau. During the earnings call, Mr. Murren said the group “remains optimistic about the market’s recent uptick in VIP,” whereas Mr. Bowie also pointed out the segment is “starting to move” - despite the VIP decrease within the group’s local business. “With VIP, I’m very comfortable now that we have got in the pipeline some additional VIP operators that will be new to us coming into our property in Macau,” Mr. Bowie said. Meanwhile, the company executive said the operator is “working on the renewal [of its gaming concession] every day”. “The most important component of the renewal process for us is getting Cotai opened successfully, demonstrating our commitment to the marketplace and continuing to develop all those things we’re looking at,” Mr. Bowie said.
“But at the same time, I don’t see that there is much of an incentive for the government to move too quickly on the other side of that agenda. But
I think there is no indication that we’ve seen or heard, that suggests that there will be significant changes to existing conditions,” he added.
defined by the Court of First Appeal – up to one year and six months in prison – be converted to a fine. The TUI acknowledged on April 26 that the two decisions made by the Court of Second Appeal and challenged by the offender in the top court, do not diverge on the same point of law, but only on the ‘interpretation of facts’. The high court understands that both decisions concur that theft only takes place when the object being
stolen leaves the domain of its precedent possessor and enters the domain of the agent who is committing the infraction. Therefore, ‘subtraction only occurs when the domain of the perpetrator over the object becomes relatively stable, that is, overcoming immediate risks of reaction from the victim,’ the court filing reads. The TUI has ruled in favour of maintaining its previous decision of September 23, 2015.
Court
Theft is theft TUI rejects appeal for mandatory jurisprudence on gaming chips theft case Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The Court of Final Appeal (TUI) ruled against a plea from an offender charged with theft at a local casino. According to a filing the Macau high court published at the end of last week, the defendant claimed that the decision issued by the Court of Second Appeal on December 7, 2016, is in opposition to a previous ruling issued by the same court on November 21, 2013, regarding the question of when theft constitutes a crime and not only an attempt. The accused was charged with the theft of gaming table chips, after she tried to take them out of the casino premises and was intercepted by security agents on the spot. When taken to the security room on the property, the woman was subsequently delivered to the Judiciary Police, who conducted a search and found the chips. In the criminal proceedings at the Court of Second Appeal, the accused
claimed that, given that she had not left the casino premises, the act could not constitute aggravated theft, but only attempted theft, further requesting that the punishment initially
Business Daily Monday, May 1 2017 3
Macau Monetary
China UnionPay terminates mag-stripe transactions
From now on, all transactions with the issuer’s chip-mag-stripe compound cards will only be China UnionPay terminated the magnetic stripe function of its chip- processed via the chip function. The company expects the termination magnetic stripe compound cards will not have a significant impact in Macau and Hong Kong today, suggesting all ATMs and merchants on local cardholders, claiming that in the two SARs will stop accepting all ATMs and POS terminals of local merchants already have readers for magnetic-stripe transactions, said the company in an announcement. chip-cards.
Tourism
Package tour visitors jump as mainlanders return The month of March saw a rebounding increase in the number of Mainland Chinese travelling to the MSAR on package tours Kam Leong kamleong@macaubusinessdaily.com
S
ome 628,500 tourists travelled to the city on package tours in the month of March, a growth of 11.7 per cent year-on-year, attributable to those from Mainland China and South Korea, official data released last Friday by the Statistics and Census Services (DSEC) shows. During the month, 77.2 per cent of package tour visitors were from the mainland, amounting to some 478,600, a rebounding increase of 9.9 per cent year-on-year. In addition, those from South Korea hit 39,100, surging by 65.4 per cent year-onyear, and outpacing Taiwan to be the city’s second largest source of package tour visitors. Nevertheless, the city also saw the number of package tour visitors from Taiwan post an increase to 35,500 during the month, up by 11.2 per cent. Those from Japan and Hong Kong, meanwhile, rose by 13.7 per cent and 8.9 per cent year-on-year, amounting to 15,100 and 15,200, respectively. While there were also more visitors from South East Asia – namely Thailand and Malaysia – visiting the MSAR on package tours in the month, those from India dropped by 11.9 per cent year-on-year to some 5,000.
Accumulatively, a total of 1.71 million package tour visitors travelled to the MSAR in the first quarter of the year, of which those from Mainland China fell by 2.3 per cent year-onyear to 1.29 million, but those from South Korea surged by 45.7 per cent year-on-year to 131,900.
Outbound travel drops slightly
On the other hand, the month saw fewer local residents travelling outside the city using services of travel agencies, with the number falling
by 0.9 per cent year-on-year to 106,400. In particular, outbound travels to Hong Kong and Taiwan dropped by 21.1 per cent and 19.9 per cent yearon-year, amounting to 14,800 and 9,900. In addition, those to Japan also decreased by 3.3 per cent year-onyear to some 4,200, whereas those to Malaysia plunged by 44.3 per cent year-on-year to some 600. In fact, Mainland China was the hottest destination, attracting some 59,400 outbound travellers from the MSAR, an increase of 4.7 per cent year-on-year. Meanwhile, those travelling to Thailand under agency services surged by 59.2 per cent year-onyear to 3,800, while those to South
Korea increased by 8 per cent yearon-year to 7,700. However, outbound travel from the MSAR recorded an increase of 6.4 per cent year-on-year in the same period, totalling 333,400. Again, Mainland China attracted the majority of travellers, amounting to 188,800, up by 14.5 per cent year-on-year. In addition, those travelling to South Korea and Thailand soared by 59.7 per cent and 83.3 per cent year-on-year, hitting 27,300 and 11,200, respectively.
Hotels receive more guests
The increase in the number of package tour visitors also drove up occupancy at local hotels, which saw average occupancy rates go up by 5.2 percentage points year-on-year in the first quarter of the year to 83 per cent. A total of 3.05 million guests checked in to local hotels during the three months, up by 13.7 per cent year-on-year. In particular, five-star hotels saw their occupancy rise 5.4 percentage points year-on-year to 84.5 per cent during the three months, the highest occupancy among all hotel categories. Three-star hotels also saw their occupancy increase 5.2 percentage points year-on-year to 80.9 per cent, and four-star hotels rose 4 percentage points year-on-year to 83.5 per cent. According to the DSEC, there were 108 hotels and guesthouses operating in the MSAR as at the end of March, providing a total of 36,400 guest rooms, an increase of 13.1 per cent year-on-year.
Politics
Local and central gov’t react strongly to EU report Responses by both the local government and the central government regarding the two European Union (EU) reports – one each on Macau and Hong Kong – reject the annual reports, with the local government calling it ‘irresponsible commentary’ that ‘doesn’t conform with the facts’ as well as an ‘interference with the internal politics of China’.
The response was provided by the local government’s spokesperson via the CGS Information Broadcast System. China’s official response, given in a press conference on Thursday via the Foreign Ministry Spokesperson, Geng Shuang, stated “we require the EU to stop the wrong practice and its interference in Hong Kong and Macau affairs, and do more to develop China-EU relations instead.” The spokesperson, however, praised the “enormous success” of the One Country, Two Systems practice, also praised in the EU report, noting that through it the SARs “have maintained prosperity and stability.” However the EU report’s suggestion of an absence of universal suffrage and calls for increased political participation were met with strong comments from both the local government and the central government. ‘The political stability, the economic development, social harmony and the guarantee of Macau citizens’ rights in accordance with the law overcomes any possible condition ever before registered in the history of Macau,’ notes the response from local authorities.
In a similar tone, the response of the central government read: “The determination of the Chinese government
to adhere to “one country, two systems”, “Hong Kong people administering Hong Kong”, “Macau people administering Macau” and a high degree of autonomy is unwavering and will not change.” K.W.
4 Business Daily Monday, May 1 2017
Macau Opinion
Sheyla Zandonai*
Uniting call May 1 marks the celebration of workers’ day in several countries across the world. Drawing on a left-wing tradition in politics, from socialist and communist to anarchist ideological platforms, it was established to celebrate the struggles of the working class, somewhat against the driving mill of capitalist forces. Worker’s day harks back to one of the first organized responses to structural changes in working relations ensuing from the Industrial Revolution in eighteenth and nineteenth century England. The world was bound to never be the same after British hegemony. A new form of global capitalism, drawing mainly on the separation of craft from family, has spread its roots. In Marxist terms, this means that workers would, arguably, be irreversibly separated from their means of production, upon which remuneration would therefore depend. We have come a long way since the Industrial Revolution. Global connectedness is embedded in the ways trade and industrial production are pursued and attained, with the de-localization of manufacturing being only one of them. We have reached another stage in globalization, after the modern European states launched their overseas enterprises, and after the Italian and Flemish city-states developed incipient forms of financial capitalism – in many ways, a blueprint of current banking and stock trade practices. Physical mobility of goods and people has developed accordingly. Advancements in technology, from early boat construction to monetary exchange, communications, and logistics, have made the world a smaller and yet more complex place. As companies have sought commodities and cheap labour abroad, so too have workers started seeking employment outside their home countries. It is a common fact today that cities have an extremely diversified population stratum. Migrants from poorer, often previously colonized countries in Africa, Latin America, and Asia, are on the move. But so are workers from the so-called developed countries in Europe, North-America, or Australia, although it is more likely they are channelled to high-skilled job positions. As a fact of contemporary working relations, cultural diversity in cities such as Macau is structuring. While the Second International back in the old communist days called for uniting workers across a spectrum of countries, present day workers’ celebrations have another collective issue to tackle: millions of workers are foreigners, immigrants in search of better life opportunities outside their home base. Calls for expulsion and discrimination of late are not a uniting call proper, only deepening the divide. Whatever happened to class solidarity? *scholar and contributor to this newspaper.
Gaming
Ownership woes Victory Success Holdings Limited, the company which took over the ownership of Beijing Imperial Palace Hotel, is allegedly owned by the head of Suncity Group, Alvin Chau Cheok Wa Cecilia U cecilia.u@macaubusinessdaily.com
A
lvin Chau Cheok Wa, the boss of local junket operator Suncity Group (logo pictured), is alleged to be the owner of an offshore company - Victory Success Holdings Limited - which took over the ownership of Beijing Imperial Palace Hotel in 2015, Hong Kong-based news
outlet East Week reported. The hotel operator posted a notice in Chinese language newspaper Macao Daily a year ago regarding the transfer of ownership, stating that the transfer of the property ownership was in the form of a settlement in lieu of some MOP1.5 billion (US$187.23 million) of debt. However, East Week reported that Ng Man Sun, the founder of Greek Mythology Casino inside the hotel
property, had tried to prevent Mr. Chau from acquiring ownership of the hotel. Also known as Ng Wai or Kai See Wai, Mr. Ng is allegedly trying to re-acquire the property via a lawsuit. According to anonymous sources, as reported by the Hong Kong media, Chen Mei Huan, the former partner of Ng who had also obtained ownership of the property from Ng, borrowed MOP1.5 billion from Chau to repay her debts resulting from lawsuits in both SARs. Chau agreed to lend the money to Chen on the condition that he receive tens of millions in interest every year and the ownership of the property as collateral. The license holder of Beijing Imperial Palace Hotel, Macau Hotel Developers Ltd, announced the return of its license of the property to the authorities earlier this year. The company stated that it ‘is forced to return its current hotel license to the Macau Government Tourism Office (MGTO)’ due to the expiration of the hotel’s temporary closure period on January 22 this year, as well as the infeasibility of completing renovation works by the deadline. ‘In particular, authorities have raised concerns over ownership of the hotel’s land property,’ the company noted in the previous announcement. Earlier in July last year, the casino, which was operated by Sociedade de Jogos de Macau S.A. (SJM), was closed by MGTO for security issues.
Insurance
AIA Hong and Macau appoints new CEO AIA Hong Kong and Macau has appointed Peter Crewe as its CEO, a company release stated. Mr. Crewe will take over the functions from the current CEO, Jacky Chan, who was promoted to Regional CEO of AIA Group and will be responsible for Macau and Hong Kong operations as well as those in Singapore, Brunei, Indonesia,
the Philippines and Cambodia. Both appointments will be effective from June 1 of this month, with Mr. Chan stating in the release that he is ‘confident’ Mr. Crewe is the best fit for the AIA Group subsidiary, ‘which delivered over US$1 billion (MOP8 billion) in value of new business last year’. N.M.
Health
Live poultry sales ban from May 1 The MSAR Government announced last Friday that the import and sale of all live poultry is completely banned in the city starting from today. The measure is intended to reduce the threat of an avian influenza outbreak in the city, following the three outbreaks of avian influenza in poultry that appeared between
December 2016 and February 2017. The MSAR Government plans to provide subsidies to help affected industry participants. Th e s u b si d i es w i l l i n c l u d e compensation for the cull of contaminated poultry, with each industry participant affected receiving a daily allowance of MOP200 (US$25) for the period in which sales were suspended following the outbreaks of avian influenza. C.U.
Land reclamation
Think tank aims to follow MSAR’s land reclamation strategy for HK Citing the example of the MSAR, think tank Our Hong Kong Foundation has laid out a plan for five land reclamation sites across islands off the coast of the city - a plan which is being met by strong criticism from environmental group Green Sense, as noted by the Hong Kong Free Press. The report justifies the measure by comparing the HKSAR with Singapore and Macau, noting that “20 per cent of Singapore’s land comes from reclamation […]” and that “reclaimed land forms 60 per cent of Macau’s total land area,” while “only 6 per cent of land in Hong Kong comes from reclamation.” The plan notes that to raise average living spaces by 100 square feet per person (from 170 to 270), the city would require 9,000 hectares of new land, which it plans to build, or attach to existing islands in Cheung
Chau, Lamma Island, Po Toi, Tuen Mun and Tseung Kwan O, notes the publication. The plans include a proposal to build an artificial island ‘in the south of Cheung Chau’ for the relocation the Kwai Chung Container Terminal and additional ‘logistics operations on brown belt sites’, with the former site of the terminal to serve ‘as a
residential area’. The proposed addition to Lamma Island would include ‘low-density residential development’, while that of Po Toi ‘can be used for the relocation of prisons and other government facilities,’ notes the report, as cited by the publication. The proposal is part of the Hong Kong 2030+ development plan, which aims to have a strategy of planning for the HKSAR in a place by 2018. The environmental group Green Sense noted that by even proposing the reclamation, the think tank is ‘fanning the flames of social divisions,’ pointing out that ‘In the past, the government’s blind seizure of land has created huge pressures on Hong Kong society. Unfortunately the foundation thinks the same as the government,’ notes the group, as cited by the publication. K.W.
Business Daily Monday, May 1 2017 5
Macau Retail
Conquering space
Duty Free Americas (DFA) is in the process of renovating and expanding its store complex at The Venetian Macao, adding 130 square metres of space, according to Frontier Magazine. In statements made to the magazine, the DFA chief executive, Jerome Falic, stated that the U.S. company’s
stores are “well-geared up for Asian shoppers”, with new beauty lines to be added to The Venetian store such as exclusive Korean brands and a new Dior beauty boutique. DFA operates more than 180 stores in the U.S. and internationally, with the company having opened its first stores outside of the Americas at The Venetian in 2007. N.M.
Lottery Commission granted Imperial Pacific an extension on the gaming license for the company’s temporary casino - Best Sunshine Live - and on
the construction completion date of the new Imperial Pacific Resort, with both deadlines being changed to August 31, 2018. N.M.
Gaming
Paying up If the new gaming tax law is approved, Imperial Pacific will have to pay a 5 per cent tax on gaming revenues for its operations in Saipan
T
he governor of the Commonwealth of the Northern Mariana Islands (CNMI) said Imperial Pacific’s gaming operations in the region will be subject to a 5 per cent tax on gaming revenues if a new tax is approved by the CNMI House of Representatives, the Saipan Tribune reported. According to the report, current governor, Victor B. Hocog said the
government is looking to introduce the new tax when Imperial Pacific opens its permanent casino. Currently Imperial Pacific pays an annual license fee of US$15 million (MOP120.2 million) but no gaming taxes, and due to the construction of the new casino, the company will also have to pay a total of US$20 million to community benefits programs. Recently, the CNMI Commonwealth
Earnings
Pagcor sees 35 pct increase in net gaming taxes The Philippine Amusement and Gaming Corporation (Pagcor) made a total of MOP5.89 billion off of gaming operations during the first three months of the year, according to the regulator and gaming operator’s financial statements. The total gaming taxes and contributions during the three-month period reached MOP3.09 billion, an increase of 26.75 per cent yearon-year, while the total net income from gaming taxes and contributions amounted to some MOP3.25
billion, an increase of 34.81 per cent compared to the same period the previous year. Net income for the group reached MOP552.7 million during the period, an increase of 26.48 per cent yearon-year for the quarter. The group saw income from casino customers reach MOP2.44 billion, just 64 per cent of the MOP3.78 billion made off income from junket operations, non-casino customers and other income in 2016 Q1. Winnings off table games during
Gaming
GONGZI Jeju pre-launched on Friday In the wake of the remodelled and rebranded expansion of the former first five-star hotel in Jeju - Ramada Plaza Jeju Hotel - GONGZI Jeju had its Pre-launch Gala Ceremony last Friday.
The casino of GONGZI Jeju covers some 40,000 square feet, with 39 gaming tables and 24 slot machines, according to the press release posted by the Korean gaming operator. The property is located on the coastline of the island, some 20 minutes from the Jeju International Airport. “GONGZI Jeju marks a major turning point for economic development and revitalization of our neighbourhood,” stated the Executive Director of the gaming operator Yang Tao, as quoted in the press release. “We promise to amaze, delight, excite and entertain with Golf Courses, Seafood, Natural Resources and Cherry Blossoms.”
the period amounted to MOP1.12 billion, while those from slot machines amounted to MOP1.31 billion. Income from electronic bingo reached
MOP906.6 million during the three months. According to the results, income from licensed casinos during the first quarter amounted to MOP1.84 billion, while those from offshore gaming operations reached MOP205.2 million. K.W.
6 Business Daily Monday, May 1 2017
Macau
Johnny Ma, one of the founders of the Sino-Portuguese E-Commerce Chamber (SPECC)
Interview
Bringing cross-border trade to the online world Having been involved in the import and export business for almost 20 years, businessman Johnny Ma was one of the founders of the Sino-Portuguese E-Commerce Chamber (SPECC) an organisation set on promoting online trading to complement Macau’s role as a connection between Portuguese-speaking countries and Mainland China. Through a partnership with the Macau Economic Services (DSE) the Executive Vice-President of SPECC will launch a ‘One-Stop’ e-commerce platform at the beginning of this month, to inform local suppliers about cross border e-commerce, while supporting them with logistics and online promotions. Nelson Moura nelson.moura@macaubusinessdaily.com
W
hat businesses and organizations were you involved with prior to the SPECC? I’m already a businessman with over 20 years of experience in the import and export field. I know that field in great detail. Before, I mainly worked in Guangdong province, but at the moment I’m based in Macau. I import many fast-moving food, skin care and cosmetic products from foreign countries to sell in China, and export Chinese products abroad. In the 1990’s I was also an authorised agent for Reebok and Nike in China. Since I first came to Macau in 2015, I’ve focused mainly on import and export through conventional means, or through e-commerce platforms such as Taobao. I also assisted the local government to bring electric buses for a trial run in Macau for two months of last year. Since the city is so small and has such a large number of tourists coming, it has high levels of pollution, so I helped introduce electric buses to assist in reducing pollution levels here. Officially, we will bring electric buses from Avass Pty Ltd to the Macau market within the next six months. What was the reason behind creating this e-commerce chamber? My partner and I decided to create the Sino-Portuguese E-Commerce Chamber in 2015 to promote the development of e-commerce in Macau. We all know how successful
e-commerce platforms have been worldwide, especially in China. Macau is quite small and its economy has mainly relied on tourism in the past few years, with the local government searching for different kinds of economic models.
“In general, Macau is the first stop for Lusophone countries to Mainland China” E-commerce should be one of the best choices for that diversification since it requires very limited physical space or budget. The city has more than enough funds to support e-commerce, and the proximity of the city to Mainland China is an advantage also. The cultural proximity with Portuguese-speaking countries is also one of the reasons we decided it should be a Sino-Luso chamber, and focus on cross-border trade of products from these countries. How would you define cross border e-commerce? It’s basically business between two or more traders on different sides of the Macau border, and with payments made through online platforms. What are the main goals of the one-stop e-commerce launched platform? We want to set up a good ‘One-Stop’
e-commerce platform in Macau to inform local businesses how to engage in that commerce. Mainly businesses such as trading companies, manufacturers and other businessmen involved in commerce of products from Lusophone countries. Local businesses will be able to set up a shop on the platform while [being provided] assistance in the logistics and a service to wire money to Mainland China. We’re looking to make it as easy as possible to embark in cross-border trading, without [business owners] getting out of their houses and offices, and without having to worry about how to deliver the traded goods or how to pick up the money from Mainland China. With the majority of Chinese consumers purchasing products on Taobao, doesn’t that company have the monopoly of e-commerce in the country? I don’t think so. The majority of businesses selling on Taobao are selling
Cross-border trade numbers
In the first three months of 2017, the value of goods imported into the MSAR reached MOP17.99 billion, a 6.5 per cent year-on-year increase, with exports from the MSAR increasing by 8.8 per cent year-onyear to MOP2.94 billion in the same period, data from the Statistics and Census Service (DSEC) revealed. The city’s exports of zero-tariff goods to Mainland China under the Closer Economic Partnership Arrangement (CEPA) in the first quarter of this year reached
products made in China, but products imported from foreign countries have to legally go through cross-border e-commerce. Would you describe the current e-payment platforms in Mainland China as safe for traders to use? I think Mainland China is the largest in the world in terms of online payments with a great diversity of payment methods at the disposal of local consumers. The largest at the moment is WeChat Pay, followed by Alipay, which I believe are very safe. How has the local government supported cross-border e-commerce? I believe the Macau Trade and Investment Promotion Institute (IPIM) has created several policies to improve e-commerce, such as a deal with Alibaba for an e-commerce training course. They also contact customer authorities in Mainland China to look to solve trading problems with the MSAR and increase shipping speed. How has the Chinese trade economy developed in recent years? From the 1990’s until around 2005, labour costs in China were very cheap, leading Chinese products to be very competitive and to an increase in the country’s exports. From 2005 until now we can notice labour costs have risen gradually, with tax costs also growing. Therefore, in the last years, manufacturers in the country have seen most of their costs rising while selling prices are almost the
MOP19.7 million, with a total of MOP786.2 million in export value since the agreement was first enacted in January of 2014. Local service providers under the arrangement are allowed to operate their businesses in the mainland with zero-tariff treatment, with the city having 616 certificate holders. Of the total, some 302 groups provide transport services, including freight forwarding agencies, logistics, storage and warehousing.
Business Daily Monday, May 1 2017 7
Macau same, so the export business in China has suffered a bit. The purchasing power of Chinese nationals has also become larger and larger, allowing them to buy more foreign products. Therefore, in the past several years, importation of consumer products has become a large business. The increased value of the RMB has also been one of the major factors affecting Chinese exports. What products are currently in highest demand by Chinese consumers? We can divide the foreign products most searched for by Chinese consumers into three kinds: high technology products, health products and high quality food products.
“Officially, we will bring electric buses from Avass Pty Ltd to the Macau market within the next six months” How do you see the possible impact of a trade ‘war’ with the United States? I don’t believe a trade war will have a large impact on the Chinese trade market, since it is already not in a good condition at the moment. It has already been affected by increased labour costs and higher taxes. What do you see as the main advantages of the MSAR for cross-border e-commerce? The first one is obviously the proximity of the city’s warehouses to Mainland China, basically the same
as the one between Hong Kong and Shenzhen. [Also] the 30 million tourists that come to the city every year, which gives us a good market to sell goods to. Through e-commerce, these tourists won’t have to carry large boxes back to Mainland China. They will be able to just buy them through our platform. How effective do you see initiatives like the Food Products Exhibition Centre at the Tap Seac Glass House? I believe it’s a good start, but more aspects have to be improved to make it work. So how do you see the market in China for Portuguese products? In the last two years, I’ve found Portuguese products are very competitive in the Chinese market. Portugal is a European Union country, which gives its products a seal of confidence and of high quality for Chinese consumers. Prices of products from Portugal are also lower than other EU countries, making it a good selling point for Chinese consumers. It’s good quality for reasonable prices, with the most popular imports from the country being food products such as wines and olive oil. The main issue is that competition for food products is really high, with so many countries being involved in this sector. Brand recognition is also a major problem for Portuguese companies. They need to do a lot of promotion in China to let the local consumers know their brands and products. I believe cross-border commerce from the MSAR is great for Portuguese companies to enter the Chinese market. How about other Portuguesespeaking countries? Well, Brazil exports a great amount of
food products to China, such as meat and sugar, together with many mineral products. However they usually deal with large Chinese companies for very large amounts, so companies from Brazil won’t necessarily use Macau companies to enter the Mainland China market. In regards to African countries, Angola has a considerable economic scale and can provide a diverse range of products like wood, oil or food, while having a large internal market for Chinese products that can pass through Macau trading companies. Why should companies from Lusophone countries go through Macau to enter the Mainland China market? A lot of products from Portuguesespeaking countries are not that popular in Mainland China. They need to be promoted in the country, while many times foreign companies don’t have the budget for advertising in the Chinese market. If they land in Macau first, then we can help them promote their products to visiting tourists, who will have a chance to try them and decide to buy them through e-commerce. If the sales order is large enough, we can send these products directly to the country.
In general, Macau is the first stop for Lusophone countries to Mainland China. Another good reason is that some products, especially food products, tend to have a very complicated process to enter the country, having to pass many obstacles. However after entering the MSAR, the process is quite easy. There’s no need to pay taxes and no need to place Chinese labels on the products, so it’s really easy to enter the market in Macau. After testing the local market, then these companies can sell the products through cross-border e-commerce and enter Mainland China. They can save both money and time. The Close Economic Partnership Arrangement (CEPA) also provides a great advantage to entering the country. What are your predictions for Macau’s e-commerce market this year? I think if the one-stop service platform runs smoothly, I’m quite sure the trade of Portuguese-speaking countries’ products to Mainland China through e-commerce in Macau will grow really fast, by almost tenfold. However at the moment that amount is very small.
8 Business Daily Monday, May 1 2017
Greater China PMI
April manufacturing growth slows faster than expected Growth in China’s services sector slowed slightly to 54.0 Sue-Lin Wong and Kevin Yao
G
rowth in China’s manufacturing sector slowed faster than expected in April, an official survey showed yesterday, as producer price inflation cooled and policymakers’ efforts to reduce financial risks in the economy weighed on demand. The National Bureau of Statistics’ official Purchasing Managers’ Index (PMI) fell to a six-month low of 51.2 in April from March’s near five-year high of 51.8. Analysts polled by Reuters had predicted a reading of 51.6, the ninth straight month above the 50-point
mark that separates growth from contraction on a monthly basis. Demand weakened across the board with the biggest decline in the input price sub-index, which fell to 51.8, its slowest expansion since June last year, from 59.3 in March. Zhou Hao, an economist at Commerzbank in Singapore, said recent sharp declines in iron ore and onshore steel prices point to some of the pressures the country’s manufacturers are facing. “We believe that this on one hand reflects that there is little improvement in underlying demand,” Zhou wrote in a note. “On the other hand, the de-leveraging effort by the Chinese authorities,
has started to work.” Chinese steel and iron ore futures tumbled to multi-month lows earlier last month as market sentiment turned bearish on demand outlook and worries mounted about a glut of steel later this year. The employment sub-index slipped to 49.2 from 50.0 in March while the raw materials inventories sub-index was unchanged at 48.3. Growth in China’s services sector slowed slightly to 54.0 in April, compared with the previous month’s reading of 55.1, which was the highest since May 2014. China’s economy grew a faster-than-expected 6.9 per cent in the first quarter, boosted by higher government infrastructure spending and the nation’s gravity-defying property boom. But growth is expected to slow as
authorities step up a battle to cool the property sector and as the central bank and banking regulator take steps to contain financial risks. The People’s Bank of China is expected to guide short-term interest rates higher, and step up its oversight of the financial sector, amid a crackdown on banks’ shadow banking businesses. Chinese leaders have pledged to shift the emphasis to addressing financial risks and asset bubbles, which analysts say pose a threat to the world’s second-largest economy if not managed properly.
Key Points China April official manufacturing PMI 51.2 (vs March 51.8) China April official services PMI 54.0 (vs March 55.1) March producer price inflation cooled for first time in 7 months Authorities tackling property, credit growth risks Services now account for more than half of China’s economy President Xi Jinping last week called for increased efforts to ward off systemic risks to help maintain financial security, the official Xinhua news agency reported. Some analysts believe China’s economic growth may have peaked in the first quarter but that it’s on track to hit a target of around 6.5 per cent this year. China’s producer price inflation cooled for the first time in seven months in March as iron ore and coal prices tumbled, while property sales growth slowed in the first quarter despite robust property investment. The private sector Caixin/Markit PMI manufacturing survey, which focuses more on small and mid-sized firms, will be published on May 2. The Caixin/Markit PMI is expected to come in at 51.0 for April, according to a Reuters poll of economists, down from 51.2 in March. Reuters
Results
For Big Five banks margins slide Some of the lenders showing a decline in their non-performing loans Shu Zhang and Engen Tham
China’s biggest listed banks posted results that showed shrinking interest margins caused first-quarter profits to be near-flat, although there was a glimmer of hope as the pace of mounting bad debts slowed at some of the lenders.
Key Points Big Five banks report slimmer interest margins in Q1 Profits near-flat Bad loan ratios improve The Big Five lenders - Industrial and Commercial Bank of China (ICBC), China Construction Bank Corp (CCB) , Agricultural Bank of China (AgBank) , Bank of China (BoC), and Bank of Communications Co (BoCom) , reported quarterly earnings on Thursday and Friday. Their net interest margins (NIMs) the difference between interest paid
and earned - slipped, as the country’s economy grows at its slowest pace in a quarter century. NIMs, a key gauge of bank profitability, continued to fall across the board in the wake of Beijing’s six successive benchmark interest rate
cuts in 2014-15. ICBC, the world’s largest lender, reported on Friday NIM of 2.12 per cent at end-March, compared to 2.16 per cent at end-December. NIM compression was also felt keenly at BoCom, which saw NIM droop to 1.57 per cent at end-March, it’s lowest since at least 2011. NIMs at BoC, AgBank and CCB also showed a similar trend and were at their lowest levels since 2011-2012. As margins shrank, profit growth at all five lenders remained near flat,
although CCB outperformed its contemporaries with a 3 per cent rise in first-quarter net profit. And the margin slide is likely to continue this year. The president of BoC said in March that increasing interest income this year will be “impossible”.
Bad debts
The news around bad debts was more cheerful, though, with some of the lenders showing a decline in their non-performing loans (NPLs) ratio. While CCB and BoCom reported unchanged bad loan ratios from the quarter before, BoC, AgBank and ICBC all reported a slight fall in theirs. The arrest of the rise in non-performing loan ratios may be a sign that the measures China’s banks have adopted to fight soured debt - from increasing their volume of write-offs to using Beijing-led debt-for-equity swaps for large struggling state-owned-enterprises - are working. But the struggle this year is not over as analysts predict added pressures from a cooling economy. “A lot of structural adjustments to the economy will put pressure (on banks),” said Richard Cao, a banks analyst at Guotai Junan Securities (HK). Reuters
Business Daily Monday, May 1 2017 9
Greater China Investment
In Brief
Funds trim equity exposure amid tighter regulation, boost bonds Managers cut their suggested equity allocations to 76.3 per cent Chinese fund managers have trimmed their suggested equity exposure for the next three months to the lowest in 6 months due to soured risk appetite amid tighter government regulations to contain speculation. China’s politburo, a top decision-making body of the ruling Communist Party, held the 40th study meeting on national financial security and stability this week, and President Xi Jinping made a rare speech on financial stability. “We think it sends an important signal to support the on-going tightening of financial regulation and enforcement,” Citi wrote in a recent note. The fund managers cut their suggested equity allocations to 76.3 per cent, according to a poll of eight China-based fund managers conducted this week, down from 79.4 per cent a month earlier. It is the third straight month that asset managers have recommended cutting equity exposure. The fund managers have, meanwhile, raised their suggested bond allocations for the coming three months to 11.3 per cent from 7.5 per cent a month ago.
They have also reduced recommended cash allocations to 12.5 per cent, from 13.1 per cent in the previous month. “The decline in the second half of April was driven more by soured sentiment, as speculative money suffered setbacks. It could take time for the market to recover,” a South China-based fund manager said. Overall, the correction in the benchmark indexes was relatively sufficient given the recent sharp decline, a Shanghai-based fund manager said, adding there could be a rebound if the market steadies. Average recommended allocations
to financial stocks were raised to 15.6 per cent from 12.5 per cent, but recommended allocations to consumer stocks were down to 27.5 per cent from 32.5 per cent, indicating blue chips with lower valuations were favoured as investors remained cautious for the moment. “For now we prefer value investing, as it would take time to restore confidence in the market,” another Shanghai-based fund manager said, referring to a long-term approach with focus on companies’ fundamentals and growth prospects. Investors shall refrain from “concept” stocks - usually small-cap and speculative plays, said the manager, adding he prefers the “One Belt, One Road” theme, cyclical stocks and financial plays. “One Belt, One Road” is a signature economic policy of Chinese President Xi Jinping, envisioning massive infrastructure spending to link China to the rest of Asia and Europe. Reuters
M&A
Buying overseas, Mainland conglomerates leverage offshore assets for financing Chinese bidders spent a record US$105 billion on assets ranging from movie studios to football clubs in 2016 Julie Zhu
Chinese conglomerates, still eager to snap up assets abroad, are rushing to raise money offshore in order to get around capital outflow curbs that have made it much tougher for Chinese bidders to complete outbound mergers and acquisitions. Acquisitive Chinese conglomerates - including Fosun International, WH Group and China Everbright that can use offshore assets to raise capital outside China say the curbs are working to their advantage by deterring potential rival bids from more domestically-focused Chinese companies that have fewer options for raising funds overseas. “Some Chinese companies have missed out on overseas opportunities due to lengthy regulatory processes at home, but if you can raise U.S. dollars and invest in dollars too, you would not be shackled by regulatory and forex issues,” said Chen Shuang, CEO of China Everbright Limited, the Hong Kong investment arm of state-owned China Everbright Group. Chinese bidders spent a record US$105 billion on assets ranging from movie studios to football clubs in 2016 but over the past six months Beijing – in a bid to prop up the flagging yuan – has cracked down on companies taking money offshore to buy non-core assets. This hasn’t stopped China’s conglomerates, who remain hungry for overseas purchases. They have been leveraging a range of overseas assets, including listed subsidiaries, privately-held affiliates and insurance cash, to raise capital from equity and bond issuance, as well as loans offshore, bankers and executives at these groups said. Chinese companies issued 93 offshore bonds worth about US$60 billion from December 1st to March 2017,
three times the amount raised over the same year-ago period, according to Thomson Reuters data - largely to fund deals, say bankers. Fosun has been among the most active companies, raising US$1.4 billion in offshore bonds since March via its British Virgin Islands entity Fortune Star Ltd. The conglomerate has said Beijing’s capital controls are a challenge, but it continues to have several means of financing overseas transactions. “We definitely have to make good use of our Hong Kong-listed platforms which could offer us a number of means for fundraising, including bonds and syndicated loans,” Chen Qiyu, co-president of Fosun said in an interview, referring to the fact the group has several Hong Kong-listed subsidiaries.
Late to the party
Likewise, Chinese tech behemoth Tencent last month inked a US$4.65 billion offshore loan in order to finance more deals, while other Chinese companies such as WH Group can draw on dollar revenues generated by overseas subsidiaries. Wan Long，chairman of WH Group, said capital restrictions were not a concern for him as nearly 60 per cent of the group’s revenues are derived from the United States following its US$4.7 billion takeover of Smithfield Food Inc in 2013. “As a global company, we are not worried. We have revenues in foreign currencies which can flow freely. But for Chinese firms which have just started to go global, it will be difficult for them.” Bankers said they had grown reluctant to deal with Chinese purchasers that do not have overseas capital. When Tencent formed a consortium to snap up European game developer Supercell for US$8.6 billion
last October, it chose several Chinese investors with ample cash overseas. They included China CITIC Bank Corp and bad debt manager China Cinda Asset Management. One person involved in the consortium said Tencent did not even consider bringing onboard Chinese investors that did not have offshore funds to hand because the deal had to move fast. Tencent didn’t respond to a Reuters request for comment. According to Sam Sun, greater China head of AGIC Capital, an Asian-European private equity firm, capital curbs could also benefit Chinese buyers with offshore money by lowering prices for assets due to less competition from domestic rivals. “Last year we saw a lot of Chinese funds and buyers going overseas and there was a concern in the market because it would inflate the price artificially,” he said. “Capital controls have made people think more rationally what they really want to acquire. That did reduce competition in a good way.” But some bankers privately warned of rising risks for increasingly-leveraged Chinese conglomerates that continue to use new assets to raise yet more finance in order to carry on their overseas shopping spree. “It’s a big risk,” said one banker of such types of deals. “If any of its (the buyers’) leveraged overseas units become shaky due to whatever reasons then it would set off a chain reaction. The financial strength of the underlying overseas assets is very critical.” Aviation-to-property group HNA Group which has been aggressively snapping up global assets, for example has pledged newly-acquired entities as collateral to help fund the next purchase, according to people who have advised on its overseas deals. Late last year, its Irish subsidiary Avolon, which it acquired in 2015, raised a US$8.5 billion loan mainly from Morgan Stanley and UBS, to help back its US$10 billion takeover of the aircraft-leasing business of New York-based CIT Group, Thomson Reuters publication IFR reported. A spokeswoman for HNA declined to comment. Reuters
PBOC
FX derivatives’ short position falls Short foreign currency positions in forwards and futures versus the yuan held by China’s central bank fell in March, the central bank said on Friday. The People’s Bank of China held US$12.094 billion of such positions with commercial banks as of the end of March, compared with US$33.8 billion a month earlier, official data showed. The figure stood at US$45.3 billion at the end of January. Friday’s data also showed that US$550 million of short foreign currency positions were due to mature in up to one month. Study
Mainland set to become world’s second-biggest wine market China is set to overtake Britain and France to become the world’s second-largest wine consumer by value behind the United States by 2020 as consumers turn to more middle-range wines, the International Wine & Spirit Research (IWSR) organisation said. In a study for wine fair Vinexpo it forecast Chinese wine consumption by value would rise by 40 per cent between 2016 and 2020 to nearly US$22 billion, still far below the United States where demand is set to grow by 12 pct over the period to US$39 billion. Corruption
Beijing jails former Baoshan Iron & Steel official A court in China on Friday jailed a former chairman of Baoshan Iron and Steel, who went on to become vice mayor of Shanghai, to 17 years for bribery and graft, a state broadcaster reported. President Xi Jinping has waged war on graft for more than four years, ensnaring top politicians, leaders of state-owned enterprises, financial regulators and senior bankers. Ai Baojun had used his positions to amass more than RMB40 million (US$5.8 million) in assets from 2000 to 2014, a court in the southern city of Zhangzhou ruled, according to China Central Television. Global expansion
Didi confirms US$5.5 billion funding China’s top ride-hailing service, Didi Chuxing, said on Friday it has raised more than US$5.5 billion to expand its business overseas and develop artificial intelligence technology. The company will invest in big-data, driving technologies and smart transport architecture, it said in a statement. Reuters reported on Thursday that Didi was set to raise between US$5 billion and US$6 billion. Sources familiar with the deal valued Didi at more than US$50 billion. Investors include Japan’s Softbank Group Corp, private equity firm Silver Lake, China Merchants Bank and Bank of Communications, the people said.
10 Business Daily Monday, May 1 2017
Greater China
President Xi Jinping has called for an all-out effort to tighten supervision, promote transparency, and identify “hidden trouble”
Crackdown
Beijing targets debt risks, but does it mean business? The government’s control over banks, foreign exchange and capital flows allows it to browbeat institutions and channel funding to address problems Dan Martin
C
hina has launched perhaps its most concerted push yet to clean up a toxic brew of unregulated and risky lending increasingly viewed as a threat to global financial stability, but do authorities really mean business this time? Analysts don’t think so. China’s addiction to debt-fuelled growth powers the steady economic expansion that the ruling Communist Party craves, and it won’t go cold turkey, they said. “These things come in waves. It’s like ‘well, this time we mean it.’ But to be blunt, I would fully expect them to essentially retreat,” said Beijing University economics professor Christopher Balding. “At the end of the day, economic growth is the priority.” Fears are mounting that China is flirting with a potential disaster worse than the U.S. subprime collapse and subsequent 2008 financial crisis, and Japan’s 1990s asset-bubble meltdown and resulting “lost decade.” The numbers are staggering. Mood y ’ s I nv est o r’ s S e rvic e estimated in October that China’s “shadow banking” sector -- offbalance-sheet lending that evades official risk supervision -- totalled US$8.5 trillion, or nearly 80 per cent of its GDP. It surged by an additional US$297 billion in the first quarter of 2017, according to a Bloomberg analysis.
A p o o r l y r e g u l a t e d a s s e tmanagement industry that has funnelled cash into risky investments tripled in size in just three years to reach US$3.8 trillion last year, according to various estimates. China had overall debt liabilities equal to 264 per cent of GDP in 2016, Bloomberg Intelligence said, yet lending is chugging ahead despite fears of a bubble in the crucial housing sector.
‘Absurd level’
The situation has reached “a level of absurdity in China that the planet has never seen,” said Anne StevensonYang, research director at J Capital in Beijing. Without aggressive action, “the top one per cent will be multi-billionaires and the rest of the country will be squatting in empty buildings by trash fires and foraging for food”. The IMF warned last month that Chinese debt crisis could “imperil global financial stability”. China has vowed to clean house. New banking regulator Guo Shuqing, installed in March, has issued what official Xinhua news agency called a “regulatory windstorm” of directives this month. They include measures to strengthen institutional transparency and chronically weak internal controls, tighten balance sheets, halt risky lending, and dispose of bad loans. Big fines have been meted out and corporate figures arrested.
Official heads have rolled too, including the country’s insurance regulator Xiang Junbo, whose tenure coincided with a surge in speculative investments by Chinese insurers. He was sacked this month and faces a likely corruption investigation. President Xi Jinping upped the ante Tuesday, calling for an all-out effort to tighten supervision, promote transparency, and identify “hidden trouble,” Xinhua said. The crackdown has rattled Chinese stocks, with Shanghai’s key index sliding nearly five per cent since April 11, surrendering all of its gains for the year.
“Once economic growth starts to dip below expectations or goes down, regulators will ease up again” Chen Zhiwu, a Yale University finance professor Beijing probably felt it was safe to act now due to unexpectedly strong first-quarter economic growth, analysts said, but it faces a precarious balancing act. The Communist Party holds its twice-a-decade congress later this year, a politically sensitive event during which the leadership avoids aggressive actions that could imperil all-important economic growth. Longer-term, China needs steady growth as it transitions from an
investment- and export-fuelled economic model to one based on domestic consumption. “Once economic growth starts to dip below expectations or goes down, regulators will ease up again,” said Chen Zhiwu, a Yale University finance professor.
Clock is ticking
Michael Every, Rabobank’s head of Asia-Pacific financial markets research, said China is “having (its) cake and eating it.” “China wants markets. And it wants stable markets. And it wants less borrowing. And it needs more and more borrowing to grow at the rate it deems necessary. Something has to give,” he said. China remains well-equipped to manage shocks. The government’s control over banks, foreign exchange and capital flows allows it to browbeat institutions and channel funding to address problems. It is believed to be considering merging banking, securities and insurance supervision into a new “super regulator” to plug oversight cracks. But, perversely, its clampdown could be worsening things, driving more money into back-alley deals to avoid the new strictures, say experts who point to the first-quarter surge in “shadow banking”. The clock is ticking, said Michael Pettis, former head of emerging markets at Bear Sterns. “At this rate it will take them 10 to 15 years to get to a reasonable level and they clearly don’t have 10 to 15 years,” Pettis recently told Bloomberg Television. “They may have three years, perhaps four at most, in terms of the debt.” AFP
Business Daily Monday, May 1 2017 11
Asia Commodities
Asia faces tight noodle wheat supply India has bought close to 5 million tonnes of wheat since June Naveen Thukral
A
sian flour millers are facing tight supplies of a variety of Australian wheat which is used for making mainly noodles as farmers hold back stocks amid near decade-low prices. Buyers are having difficulty in getting shipments of Australian Standard White (ASW) wheat for the coming months, which could force millers to seek alternative supplies, traders and millers said.
Key Points Supply of Australian wheat to make noodles tightens Farmers hold back stocks with prices at decade lows Wheat mills may seek U.S. cargoes if delays prolonged Asia is the world’s biggest and fastest growing wheat market, fuelled by rising consumption of noodles, flat breads and bakery products. China and India each consume roughly 100 million tonnes a year and Indonesia has emerged as the world’s second largest wheat importer behind Egypt, buying more than 10 million tonnes in the year to June 2016, up 35 per cent on a year earlier. “Farmers are not willing to sell as they feel prices are really low,” said
one Singapore-based trader. “There is no shortage of ASW, there was bumper production.” ASW wheat was being sold at a 10-year low level of about US$190 a tonne, free on board, in January and February. The market has since recovered to trade around US$200 a tonne but prices are still below the US$220-US$240 a tonne average of recent years, traders said. The world is awash with wheat, with the U.S. Department of Agriculture forecasting global inventories at a record 252.26 million tonnes at the end of the crop year in June. Australia produced a record 35.13 million tonnes of wheat in the 2016/17 season - about 18 per cent more than
the previous record of 29.6 million tonnes set in 2011/12. “I think it is just a temporary problem of farmers not selling,” said a procurement manager at one Southeast Asia-based flour miller. “There is additional demand as well, India has been buying Australian wheat.” India has bought close to 5 million tonnes of wheat since June, the most in a decade, to meet a supply shortfall after two years of lower production. Even for Australian farmers who want to sell, big volumes of wheat and other grains being sent by truck and rail across the country after a bumper season are creating backlogs. “There is an issue of getting grains
to the ports from farms,” said Ole Houe, analyst with brokerage IKON Commodities in Sydney. “There’s not much problem at the ports themselves.” Asian mills prefer using ASW for noodles, where texture and mouthfeel can be affected by factors like protein content. Wheat importers also have the option to blend grains from other origins, traders said. “They can replace ASW with other origins and also blend varieties of wheat from the Black Sea region,” said Singapore trader. “But most millers will wait even if there is some temporary delay. They prefer Australian wheat.” Reuters
Official data
S.Korea industrial output growth rebounds A Statistics Korea official said uncertainties still remain in the economy but the upward trend for growth has become clearer Christine Kim and Cynthia Kim
South Korea’s industrial output in March rebounded from the previous month, though it was softer than forecast, as exports of cars, smartphones and other electronics continued to rise on improving global demand. Industrial output rose 1.0 per cent in March from February on a seasonally adjusted basis, official data showed on Friday, slightly less than the 2.0 per cent rise expected by economists in a Reuters survey. The February production index was revised slightly up to a 3.3 per cent fall from a 3.4 per cent decline reported earlier, still marking the worst drop since late 2008. A breakdown showed car production and electronic parts output rose 5.4 per cent and 5.0 per cent onmonth, respectively. A so-called global “super-cycle” in memory chips and electronics in general has been a particular boon to Asian economies geared toward hi-tech exports.
“Today’s data is signalling the economy is emerging from sluggishness we’ve seen over the past four or five years,” said An Ki-tae, an economist at NH Investment & Securities.
“We’re seeing factory operation rates and exports rise while inventories fall -- these are all signs of a recovery.” Asia’s fourth-largest economy grew a stronger-than-expected 0.9 per cent in the first quarter, accelerating from a 0.5 per cent expansion in the final three months of last year and the fastest pace since last spring, data showed earlier this week. In an encouraging sign that the recovery is becoming more balanced and broad based, first-quarter growth was fuelled not only by exports but a pickup in investment and private consumption, though the service sector remained weak as a diplomatic spat with China saw Chinese tourist numbers fall. In March, the average factory operation rate accelerated to 72.6 per cent, from 71.0 per cent in February. A Statistics Korea official said uncertainties still remain in the economy but the upward trend for growth has become clearer with Friday’s data. On a year-on-year basis, industrial output rose 3.0 per cent in March after a revised 6.7 per cent jump in February, but lagged the 3.7 per cent gain forecast in the Reuters survey. Fallout from the spat with China,
while evident, did not appear to be as significant as earlier feared. But the official noted retail sales were flat on-month and rose 1.6 per cent from a year earlier in March. Service-sector output rose by a seasonally adjusted 0.4 per cent in March on-month after a revised 0.2 per cent rise in February, a threemonth high. An, the economist, expected the impact from China’s actions would be limited as China needs to import intermediate goods from South Korea to make finished products for exports.
Key Points March output +1.0 pct m/m s/adj (Reuters poll +2.0 pct) Cars, smartphones drove production - stats agency Economy seen emerging from sluggishness - analyst Market players will be looking to April export numbers due on May 1 for further clues on Chinese and global demand. The trade ministry said this week that April exports will surge around 20 per cent from a year-earlier, and sharply raised its outlook for fullyear 2017 export growth to 6-7 per cent. Reuters
12 Business Daily Monday, May 1 2017
Asia Employment
Singapore jobless rate hits seven year high One concern is that the softening in labour market conditions may be weighing on household spending
S
ingapore’s overall jobless rate hit a seven-year high in the first quarter, while employment saw the biggest fall in nearly 14 years, underscoring weakness in sectors of the city-state’s domestic economy. The unemployment rate rose to 2.3
per cent in the first quarter from 2.2 per cent in the quarter before, hitting a level last seen in the fourth quarter of 2009, preliminary data from the Ministry of Manpower showed on Friday. Total employment fell by 8,500, the biggest quarterly contraction since
the second quarter of 2003, when employment shrank by 26,000. “Historically, we see this kind of (total employment) figures only when we had been in a recession, so these numbers are a bit concerning,” said Vaninder Singh, an economist for NatWest Markets. One concern is that the softening in labour market conditions may be weighing on household spending, a point that Singapore’s central bank
touched upon in its half-yearly assessment of macro economic conditions released on Thursday. “Consumers in Singapore are generally cutting back on discretionary expenditure, possibly because of softer labour demand. Underlying demand-driven price pressures will, therefore, likely be subdued for some time, until the labour market strengthens,” the MAS said. In the fourth quarter of last year, private consumption expenditure had contracted nearly 2.3 per cent from a year earlier, the first year-on-year decline since the second quarter of 2009, even as gross domestic product grew 2.9 per cent from a year earlier.
Key Points Singapore Q1 unemployment rate rose to 2.3 per cent, 7-yr high Total employment fell 8,500, biggest quarterly contraction in almost 14 years
“We have this very sharp dichotomy at the moment. Your external sectors are doing okay but the domestic sectors have not been doing very well and within that, if you look at even within the external sectors, only certain clusters within the manufacturing sector have done well and these sectors have been shedding jobs,” Singh said. “It doesn’t paint a strong or robust growth”. Reuters
President tour
Celebration and protest as Indonesian leader visits Hong Kong There are more than 300,000 domestic helpers in Hong Kong, mostly from the Philippines and Indonesia Elaine Yu
Indonesia’s President Joko Widodo was greeted by a mixture of celebration and protest in Hong Kong yesterday with calls to improve working conditions for the city’s army of foreign maids. There are around 170,000 Indonesians living in Hong Kong, many of them employed as domestic helpers, and concern over exploitation is growing after a string of abuse cases. In a rock concert atmosphere Widodo was greeted by exuberant music and dance shows, including some performances by helpers themselves, at the city’s Asia World Expo yesterday. The more than 5,000-strong crowd were mainly women working as maids who said they were excited to see the leader -- but also called on him to help them. “I hope the president can make our workplace safe,” one domestic helper named Miasih told AFP, saying her employer breaches her contract by making her work in two apartments. “It’s the attitude -- she doesn’t have a lot of respect for me,” she added. Some protesters gathered outside and others marched to the Indonesian consulate, calling for better migrant rights. Widodo, who is on a two-day visit
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that will include meeting the city’s business leaders, did not address the issue in his speech to the helpers, which instead praised Indonesia’s economy, infrastructure and diversity. “Don’t let small things cause friction, clashes, division,” he said. Demonstrators criticised him for failing to address working conditions. “We are already isolated because
of the way we work and where we are, but the government, even when they’re in front of us, does not think our voices are important,” said former domestic worker Eni Lestari, now chairwoman of the International Migrants Alliance. She said activists had been unable to submit petitions or meet with Widodo. There are more than 300,000 domestic helpers in Hong Kong, mostly from the Philippines and Indonesia. Their plight made world headlines in 2014 with the case of Indonesian
Indonesian President Joko Widodo (R), shakes hands with an Indonesia migrant worker representative after taking a selfie during an event at AsiaWorld Expo in Hong Kong yesterday. Lusa
helper Erwiana Sulistyaningsih, who was beaten and starved by her employer Law Wan-tung. Law was jailed in February 2015 for six years. However, activists say even that case has not led to concrete longterm changes. A report last year by the Justice Centre found that one in six foreign maids in Hong Kong fell into the “forced labour” category.
‘Demonstrators criticised him for failing to address working conditions’ It defined forced labour as employment for which the worker had not been recruited freely, was not doing the job freely, or could not walk away from work. Rights groups say unscrupulous employment agencies put helpers into debt and withhold their passports, and local restrictions such as requiring them to live with their employers make it difficult to control hours or escape abuse. Last September hundreds of maids marched through Hong Kong after several helpers fell to their deaths as they tried to clean tower block windows. AFP
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Business Daily Monday, May 1 2017 13
Asia In Brief Brexit
Japan’s Abe cautions against regulation cliff edge Japan’s Shinzo Abe called on Prime Minister Theresa May to ensure a smooth transition for business as the United Kingdom leaves the European Union, to avoid a cliff edge where rules and regulations for firms change overnight. A day after talks with May at her country residence at Chequers outside London, the leader of the world’s third largest economy made clear his concerns over Brexit while also underlining his long-term commitment to the United Kingdom. Japanese companies including carmaker Nissan and conglomerate Hitachi have invested more than 40 billion pounds (US$52 billion) in the United Kingdom.
Commerce
Trump vows to fix or scrap South Korea trade deal Comments stunned South Korean financial markets Stephen J. Adler, Jeff Mason and Steve Holland
U.S. President Donald Trump told Reuters last week he will either renegotiate or terminate what he called a “horrible” free trade deal with South Korea and said Seoul should pay for a U.S. anti-missile system that he priced at US$1 billion. In an interview with Reuters, Trump called the five-year-old trade pact with South Korea “unacceptable” and said it would be targeted for renegotiation after his administration completes a revamp of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. He blamed the U.S.-Korean trade deal, known as KORUS, on his 2016 Democratic presidential election opponent, Hillary Clinton, who as secretary of state promoted the final version of the trade pact before its approval by Congress in 2011. “It is unacceptable, it is a horrible deal made by Hillary,” the Republican Trump said. “It’s a horrible deal, and we are going to renegotiate that deal or terminate it.” Asked when he would announce his intention to renegotiate the deal, Trump said: “Very soon. I’m announcing it now.” Trump’s comments stunned South Korean financial markets, sending Seoul stocks and the won currency
into reverse even as the country’s economic outlook has started to brighten. South Korea’s foreign ministry said Seoul would continue to explain to the Trump administration the benefits of the free trade deal. Washington had not officially filed a request to Seoul to renegotiate the agreement, it said. “Our government will keep monitoring the situation and continue our efforts to explain to the United States the mutually reciprocal outcome of the South Korea-U.S. FTA, while preparing for countermeasures,” the ministry said. With global demand improving, exports of goods such as cars and electronics have been leading a recovery in South Korea and a number of other trade-reliant Asian economies such as Japan and Taiwan, boosting their manufacturing sectors.
Key Points Calls 5-year-old trade pact “unacceptable” Comments pull South Korean won, stocks lower Trump says Seoul’s been told to pay for THAAD South Korea defense ministry: No change in THAAD agreement “Talk and actual policy are different,” a high-ranking official at South Korea’s finance ministry, who declined to be identified as he is not authorized to speak to the media,
told Reuters. KORUS was initially negotiated by the Republican administration of President George W. Bush in 2007, but that version was scrapped and renegotiated by President Barack Obama’s Democratic administration three years later. The U.S. goods trade deficit with South Korea has more than doubled since KORUS took effect in March 2012, from US$13.2 billion in 2011 to US$27.7 billion in 2016, according to U.S. Census Bureau data.
THAAD payment
Trump said the Terminal High-Altitude Area Defense (THAAD) missile system now being deployed in South Korea to defend against a potential missile attack from North Korea would cost about US$1 billion and questioned why the United States was paying for it. “I informed South Korea it would be appropriate if they paid. It’s a billion-dollar system,” Trump said. “It’s phenomenal, shoots missiles right out of the sky.” Asked about the remarks, South Korea’s defence ministry said in a statement there was no change to the existing agreement that Seoul provides land for the deployment while Washington shoulders the cost of installing and operating the system. Moon Jae-in, the South Korean presidential frontrunner, said the new government should given the choice to decide whether to agree to the deployment. “I’ll decide after sufficient public consensus and parliamentary approval,” he said at a televised presidential debate ahead of the May 9 election. His top foreign policy adviser earlier told Reuters that Trump’s suggestion would be an “impossible option” because the U.S. military operates the system. The U.S. military started the deployment of THAAD in early March, despite strong opposition from China, which worries the system’s powerful radar can be used to spy into its territory. Lockheed Martin Corp is the prime contractor for the THAAD system. A former U.S. State Department official estimated the cost of the system at about US$1.2 billion but said the United States would not want to sell THAAD to Seoul. “We want to retain THAAD in our arsenal, consistent with all other U.S. weapons systems deployed on the Korean peninsula. We own them. We retain them. We have the right to redeploy them,” the official said, speaking on condition of anonymity. Reuters
Tax
Google gets Australian tax office demand to pay more Alphabet Inc’s Google said it will challenge amended tax assessments issued by the Australian Taxation Office (ATO), which is trying to claw back billions of dollars from multinational corporations citing unpaid taxes. The ATO has increased scrutiny over how much tax multinationals operating in Australia pay. In December, it said it was pursuing seven global businesses over A$2 billion (US$1.50 billion) in unpaid tax. While the ATO has not named the businesses it is pursuing, Google’s Australia unit said in accounts filed with the Australian Securities and Investments Commission that it will “lodge an objection” to the tax demand from the ATO. Energy
Japan oil sales fall to lowest in over 40 years Japan’s oil sales last month were 15.9 million kilolitres (3.23 million barrels per day), down 3.7 per cent from a year earlier, the Ministry of Economy, Trade and Industry said on Friday, the lowest March volume in more than four decades. Oil demand in the world’s third-biggest economy has been declining for more than a decade, reflecting a falling population and a shift to more efficient vehicles and equipment. Japan’s crude oil imports in March fell 10 per cent from a year earlier to 3.2 million barrels per day (15.79 million kilolitres), the data showed. Results
Fuel costs tip Indonesian airline Garuda into first-quarter loss Higher fuel costs tipped Indonesian state-controlled airline PT Garuda Indonesia Tbk into a first-quarter net loss of US$98.5 million, its chief executive said on Friday. Garuda, which this month appointed former banker Pahala Mansury as CEO to revive its fortunes, had reported a net profit of US$1.02 million in the same period last year. Apart from greater fuel expenses, the airline also faced tough competition, Mansury said. “Our passenger yield declined even though we carried more passengers,” he told reporters.
14 Business Daily Monday, May 1 2017
International In Brief Trade
Trump to order a study on abuses of agreements President Donald Trump signed an executive order on Saturday seeking to identify any problems caused by the nation’s existing trade agreements, including an examination of U.S. involvement in the World Trade Organization, a top trade official said. Commerce Secretary Wilbur Ross said his department would work to issue a report in 180 days outlining challenges with these trade deals and possible solutions. Ross singled out the World Trade Organization as an entity that may need to make some changes, although he cautioned that the administration had not made any decisions yet. Takeovers
British PM sets out plans to protect pensions British Prime Minister Theresa May pledged to protect workers against irresponsible practices over pensions yesterday, promising new regulations on how schemes are handled during corporate takeovers. May’s Conservative party will give regulators power to examine takeover proposals that threaten the solvency of a company pension scheme, and the regulator could be empowered to block takeovers if it is not satisfied with the arrangements. May set out the policy ahead of an election June 8. So far her pitch to voters has been based around trusting her to deliver Brexit, with parties yet to publish detailed policy plans. Oil industry
Iran gets positive output cut signals Iran’s Oil Minister said on Saturday OPEC and nonOPEC countries had given positive signals for an extension of output cuts, which Tehran would also back. The Organization of the Petroleum Exporting Countries (OPEC) meets in May to discuss oil supply policy. Oil prices fell last week though they closed higher on Friday on growing hope that OPEC might agree to extend production cuts long enough to reduce a global crude glut. “During these last days we received a positive signal from OPEC members and non-OPEC contributors in this agreement for cutting the production for extending this agreement for the second half of 2017,” minister said. Environment
EPA says website undergoing makeover to match Trump views The website of the U.S. Environmental Protection Agency, EPA.gov, is getting a makeover to reflect the views of President Donald Trump and EPA Administrator Scott Pruitt, the agency said on Friday. “As EPA renews its commitment to human health and clean air, land and water, our website needs to reflect the views of the leadership of the agency,” it said. Trump, a climate change doubter, campaigned on a pledge to boost the U.S. oil and gas drilling and coal mining industries by slashing regulation.
Official figures
U.S. Q1 growth weakest in three years as consumer spending falters Economists are sceptical that fiscal stimulus, if it materializes, will fire up the economy
T
he U.S. economy grew at its weakest pace in three years in the first quarter as consumer spending almost stalled, but a surge in business investment and wage growth suggested activity would regain momentum as the year progresses. The soft patch at the start of the year is bad news for the Trump administration’s ambitions to significantly boost growth. Gross domestic product increased at a 0.7 per cent annual rate also as the government further cut defence spending and businesses spent less on inventories, the Commerce Department said on Friday in its advance estimate. That was the weakest performance since the first quarter of 2014. The pedestrian first-quarter growth pace is, however, not a true picture of the economy’s health. Wage growth in the first quarter was the fastest in 10 years as the labour market nears full employment and business investment on equipment was the strongest
since the third quarter of 2015. Also underscoring the economy’s underlying strength, consumer and business confidence are near multi-year highs. First-quarter GDP tends to underperform because of difficulties with the calculation of data that the government has acknowledged and is working to rectify.
Wage growth accelerating
Economists are sceptical that fiscal stimulus, if it materializes, will fire up the economy given weak productivity and labor shortages in some areas. They see growth just above 2 per cent this year. Growth in consumer spending, which accounts for more than twothirds of U.S. economic activity, braked to a 0.3 per cent rate, the slowest pace since the fourth quarter of 2009. That followed the fourth quarter’s robust 3.5 per cent growth rate. A mild winter undercut demand for heating and utilities production. Higher inflation, with the personal
US President Donald J. Trump speaks at the Pennsylvania Farm Show Complex in Harrisburg, Pennsylvania, USA, 29 April 2017. The rally marked the president’s 100th day in office. Lusa
consumption expenditures price index averaging 2.4 per cent - the highest since the second quarter of 2011 - was also a drag. Spending also took a hit from government delays issuing income tax refunds to combat fraud. In a separate report on Friday, the Labour Department said private sector wages jumped 0.9 per cent in the first quarter, the largest increase in a 10 years, after rising 0.5 per cent in the fourth quarter. With wage growth, business investment and inflation firming, economists believe Federal Reserve officials will look past the weak first-quarter GDP when they meet next week. Fed Chair Janet Yellen has previously described quarterly GDP as “noisy.” The U.S. central bank lifted its overnight interest rate by a quarter of a percentage point in March and has forecast two more hikes this year. It is not expected to raise interest rates on Wednesday. Businesses accumulated inventories at a rate of US$10.3 billion in the last quarter, down from US$49.6 billion in the October-December period. Inventories subtracted 0.93 percentage point from GDP growth. Government spending on defence declined at a 4.0 per cent pace, the biggest fall since the fourth quarter of 2014 and second quarterly drop. Business spending on equipment accelerated at a 9.1 per cent rate in the first quarter thanks to rising oil prices. Spending on mining exploration, wells and shafts surged at a record 449 per cent rate. That led to spending on non-residential structures rebounding at a 22.1 per cent pace, the fastest in three years. Investment in home building increased for a second quarter while rising exports narrowed the trade deficit. Reuters
Meeting
Off target in 2016, global elite regroup at Milken conference Most conference goers pay at least US$12,500 if they are not from event sponsors Lawrence Delevingne
Titans of U.S. industry and Wall Street gather in Beverly Hills to discuss how to navigate - and profit from - hot topics such as U.S. tax reform, the upcoming French election and Chinese economic growth. U.S. President Donald Trump’s first 100 days and the next 1,000, as well as the outlook for liberal democracy in Europe in the wake of Brexit are also set for debate at the Milken Institute Global Conference. The event aims to convene “the best minds in the world to tackle the most stubborn challenges,” but political and market surprises over the past year serve as a reminder that predictions made by its roster of elite speakers are far from certain. Most attendees expected Hillary Clinton to beat Trump, as Carlyle Group LP co-founder David Rubenstein noted during a panel discussion in May 2016. And many did not predict a UK vote to leave the European Union. Former UK Prime Minister Tony Blair said in an interview at the event last year that voters were likely to do “do the sensible thing and stay.” Jill Posnick, the Milken Institute’s executive director of communications, said it is natural that some calls will be off. “We solicit multiple points of view
and promote a free flow of ideas designed to solve world challenges, rather than making predictions about where the markets are going,” she said.
See and be seen
The four-day meeting this year at the Beverly Hilton hotel will once again mix big investment industry names such as billionaires Jamie Dimon, Stephen Schwarzman, Leon Black and Kenneth Griffin with political, business and entertainment celebrities, including U.S. Treasury Secretary Steven Mnuchin, former U.S. Vice President Joe Biden, Cisco Systems Inc Executive Chairman John Chambers and basketball great Kareem Abdul-Jabbar. Total attendance is estimated to be the most ever: some 4,000 are registered, up from 3,500 last year. Most conference goers pay at least US$12,500 if they are not from event sponsors such as Guggenheim Partners LLC, Goldman Sachs Group Inc and Two Sigma Investments LP. Some repeat attendees told Reuters they come less for the investment advice and more for the chance to network, sell product and learn about far-flung topics. “It’s about connections and to be seen,” said a staffer at a large money management firm who asked not to be named. “Are there a large number
of people actually taking notes and implementing them? No.” Last year, few money managers at Milken encouraged generic investment in U.S. stocks, instead recommending relatively conservative or idiosyncratic bets such as private loans or even holding cash. The S&P 500 Index total return over the last 12 months was around 16.5 per cent.
“We solicit multiple points of view and promote a free flow of ideas designed to solve world challenges, rather than making predictions about where the markets are going” Jill Posnick, the Milken Institute’s executive director of communications
Slowing growth in China was also a source of fear. Hedge fund manager Kyle Bass, for example, warned of a potential 30 per cent or 40 per cent loss on Chinese investments, especially the financial sector. Bass called the situation “precarious,” highlighting the point with a photo of an ignited bomb fuse. Reuters
Business Daily Monday, May 1 2017 15
Opinion Business Wires
Viet Nam News Two major credit rating agencies, Moody’s and Standard & Poor’s (S&P), on Friday affirmed Việt Nam’s sovereign rating, citing the country’s strong foreign direct investment (FDI) inflows, macroeconomic and external stability and modest external debt burden. Moody’s affirmed the Government of Việt Nam’s B1 issuer and senior unsecured debt ratings, while it raised the outlook to positive from stable. Moody’s B1 rating, four steps below investment grade, is considered relatively stable, with a moderate chance of default. The company also raised its assessment of Việt Nam’s local-currency bond to Baa3 from Ba1, while the foreign currency bond remained at Ba2.
Learning from China’s industrial strategy
The Times of India Fresh from the successful merger of five associates with SBI, the government is looking to consolidate more public banks going forward, with an aim to create only a few lenders of global size and scale. The finance ministry, according to an official, “will soon undertake a broad study on further consolidation and look at various options for merger among the remaining 21 public sector banks”. There are factors like regional balance, geographical reach, financial burden and smooth human resource transition that have to be looked into while taking a merger decision, the official said.
The Korea Herald Starting in July, the maximum parental leave subsidy for a second child will rise to 2 million won (US$1,753) a month for the first three months, the Welfare Ministry said yesterday. In November 2014, the government started to provide a 1.5 million won monthly financial incentive when a second parent takes parental leave to care for their second child. The move was an effort to encourage more fathers to participate in child care and help couples to have a second child.
Philstar S&P Global Ratings has retained the investment grade rating of the Philippines on the back of the country’s robust external position. The debt watcher affirmed its ‘BBB’ – a notch above investment grade – rating on a stable outlook on the Philippines. “The ratings on the Philippines reflect our assessment of its strong external position, which features ample foreign exchange reserves and low and declining external debt,” S&P said. S&P said the strength is balanced by the Philippines’ lowermiddle income economy and emerging policy-making settings.
W
h il e t h e world watc h e s anxiously for signs of U.S. President Donald Trump’s next move vis-à-vis China, Chinese leaders remain focused on the next stage of their country’s ongoing economic transformation. What they do should interest everyone – especially U.S. policymakers. China’s industrialization process, like that of other successful East Asian economies, has combined profit-led investment, active industrial policy, and export discipline. But that approach has its limits, exemplified in the numerous developing countries that have attempted to climb the same development ladder, only to become stuck on the middle rungs or even to fall back, owing to what Harvard University economist Dani Rodrik has called “premature deindustrialization.” China hopes to avoid this fate, with the help of “China Manufacturing 2025” (CM2025), a roadmap released by Premier Li Keqiang in 2015 to guide the country’s industrial modernization. The strategy focuses on developing advanced manufacturing sectors, but also considers how producer services, services-oriented manufacturing, and green technologies can complement that process. As part of CM2025, policy and financial support will be provided to spur technological breakthroughs in ten key areas, including next-generation information technology; high-end computercontrolled machine tools and robotics; space and aviation equipment; alternative-energy vehicles; and bio-medicine and high-performance medical devices. CM2025 has sometimes been portrayed as a return to old-school top-down mercantilist practices and import-substitution policies. But that reading overlooks China’s active experimentation with industrial and financial policies. In fact, that experimentation may hold valuable lessons for policy evaluation and innovation elsewhere. Not only are many developing countries now devising their own strategies for industrial upgrading and diversification; some developed economies, including the United States, are currently seeking to revive their manufacturing bases. Start with industrial policy. According to China’s strategy, by 2025, the country should have a set of internationally competitive multinational firms that have made progress in upgrading their positions in global value chains. Moreover, by that date, key Chinese industries should adopt international efficiency standards related to energy and material consumption and pollution. By 2035, China expects its economy to be fully industrialized. These broad objectives are underpinned by an array of specific domestic (and international) targets for market share in key areas. For example, production of integrated circuits should rise to 75 per cent of domestic demand in 2030, compared to 41 per cent in 2015. One of CM2025’s less-noticed components, financial-policy guidance, is also one of its more innovative. In order to reduce the cost of capital for manufacturing firms, the strategy calls for the creation of new financing channels, while instructing China’s development-finance institutions to increase their support for particular ends. Specifically, the Export-Import Bank of China should strengthen services for manufacturing firms to invest overseas, while the China Development Bank (CDB) should increase loans to manufacturing firms, with a view to “guiding” financing from
“
Richard Kozul-Wright Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development
Daniel Poon an Economic Affairs Officer at the United Nations Conference on Trade and Development
other institutions, such as venture-capital and private-equity funds. This approach, China hopes, can drive progress toward its objectives for upgrading and reform, by creating a set of purpose-built financing vehicles – so-called government guidance funds (GGFs) – that are responsible for allocating public investment funds. As a report by McKinsey & Company puts it, this “more market-based investment approach” is a “bold experiment designed to improve the likelihood of success.” Exemplifying this approach, China’s state-backed Tsinghua Unigroup recently secured RMB150 billion (US$21.8 billion) in new financing to support upgrading in the country’s semiconductor industry. Of that financing, RMB100 billion came from the CDB and RMB50 billion came from the National Integrated Circuit Industry Investment Fund. A national-level GGF created in 2014. The role of GGFs will only grow. In 2015, 297 GGFs were created with slightly more than RMB1.5 trillion of available capital – a fivefold increase from 2014. Municipal-level GGFs were the most numerous; but provinciallevel GGFs led the way in terms of funding. Last year, two more national-level GGFs were created: a $30 billion state venture capital investment fund and a $50 billion state structural adjustment fund. In both cases, the main shareholder is a holding company owned by the State-owned Assets Supervision and Administration Commission. In January, China’s Silk Road Fund – along with other Chinese investors, as well as investors from Singapore and Japan – founded the $800 million Hou’an Innovation Fund, to invest in technology start-ups in areas like the Internet of Things, autonomous vehicles, cloud computing, Big Data, and artificial intelligence. Much remains to be seen about CM2025 and the use of these various new investment vehicles. But China appears poised to boost investment significantly in a range of new and advanced technologies in strategic sectors, while retaining equity stakes as they are developed and commercialized. If it succeeds, it will have laid the institutional foundations for new sources of growth. And, as the benefits of innovation are diffused throughout the economy, China will move closer to its goal: becoming a high-income country. China’s experiments with industrial and financial policies may end up providing emerging economies with valuable insight into how to avoid the middleincome trap. But, for a U.S. concerned with its eroding manufacturing base, the lesson is already apparent. As Brad DeLong and Stephen S. Cohen have outlined, the U.S. should act now to revive its pragmatic industrial-policy tradition, put finance back to work for the real economy, and invest in new activities that can reinvigorate a struggling middle class. Project Syndicate
China’s experiments with industrial and financial policies may end up providing emerging economies with valuable insight into how to avoid the middleincome trap
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16 Business Daily Monday, May 1 2017
Closing Demonstration
Five rallies planned for Labour Day
petitions to the Government Headquarters. Some three associations and six local The police said certain rallies residents have applied to hold Labour conducted on route were revised by Day parades today, according to the the police. Meanwhile, owners of units at the Public Security Police Force (PSP). Pearl Horizon development will also A total of five rallies will take place march on the street today, but the on the streets, as one association rally was not announced by the PSP. cancelled its petition last Friday. There were a total of 10 rallies in the Rallies will begin separately from city on Labour Day last year, with Iao Hon Park, Amigos do Jardim some 580 participants joining the Triângulo and Amizad e Bridge, protests. C.U. with organisers planning to submit
Urban development
The global growth hotspots of the future are here The urban areas experiencing the biggest increase in population will probably be in Africa Catherine Bosley
I
f you want to be at the epicentre of global growth in the next few decades, you could do worse than relocate to somewhere like Kigali, Foshan, or Belo Horizonte. That’s because many cities that today are still comparative backwaters on a global level will become major contributors to economic performance thanks to fast population growth, according to a new report by HSBC economist James Pomeroy. While wealthier countries are more urbanized today, the proportion of urban to rural dwellers in emerging markets is expected to climb to 63 per cent in 2050 from 50 per cent now, according to the study, which draws on research by McKinsey and the United Nations. By 2050 some 5 billion people – more than half the world’s population – will live in emerging market cities, and account for more than half of global gross domestic product growth. “The rise of medium-sized cities in emerging markets, both in terms of their size and wealth, will mean that investors need to focus more on emerging markets and the policy decisions that are being made there,” Pomeroy says. “These cities will start to play a bigger and bigger role in the world economy and understanding what is going on there will be even
more important.”That means policy makers will have to balance the upsides of urbanization – economies of scale, better productivity and infrastructure, chance encounters that lead to new ideas, better productivity and infrastructure – with the potential downsides, in the shape of increased crime, pollution and perpetually snarled traffic. If that doesn’t happen, these ill effects could sap economic potential, Pomeroy says. Indeed, China is focusing its hopes for better cities on the construction of Xiongan New Area, intended to be
a model of urban development two hours from the capital Beijing. Chinese President Xi Jinping’s aim is to turn what now is a sleepy town into a hub for innovative companies and a release-valve for the over-stretched capital. Yet the urban areas experiencing the biggest increase in population will probably be in Africa. Kigali, Rwanda’s capital, is expected to see its population of 1.3 million double in the next 15 years. To help prepare for that the city has developed a master-plan for transportation, and housing, with the aim of being a slum-free city. Unplanned growth is a common effect of rapid urbanization, as cities like Dhaka, Karachi and Lagos can
attest to. Even so, they’ll be among the world’s 10 most populous cities, according to the study. By 2030, 81 of the world’s 100 most populous cities will be in emerging markets.
“The rise of mediumsized cities in emerging markets, both in terms of their size and wealth, will mean that investors need to focus more on emerging markets and the policy decisions that are being made there” James Pomeroy, HSBC economist The flip side is that in developed markets, where populations are ageing, the share of people living in cities may already have peaked. “Cities that western investors may not have heard of,” Pomeroy says, “may contribute more to global GDP growth than Geneva, Berlin or Milan.” Bloomberg News
Corruption
Asean
Brexit
FIFA scandal spreads as Asia official admits taking bribes
China scores tacit victory May promises at Southeast Asian conclave no increase in VAT
The first Asian soccer official to be convicted in the FIFA corruption scandal, a member of a committee that oversaw ethics compliance, told a U.S. judge he accepted about US$1 million in bribes, including US$100,000 from the former president of the Asian Football Confederation. Guam Football Association President Richard Lai, a U.S. citizen who’s also on the Asian confederation’s executive board, implicated that group’s ex-president, Mohamed Bin Hammam, and two other Asian soccer officials during his guilty plea Thursday, according to records in federal court in Brooklyn, New York. Lai said rival factions within the sport’s governance bodies were trying to win his influence in the election for FIFA president and that he accepted illegal payments from both sides. Suspended Friday by the football organization’s ethics committee, Lai could face decades in prison after admitting to two counts of wire fraud. While Lai didn’t name Hammam in court, he said he accepted US$100,000 “from the head of Asian Football Conference at the time,” whom he said was later “banned for life from football.” Hammam, a Qatari, was president of the conference from 2002 until he resigned in 2011 and was subsequently banned for life. Bloomberg News
China won approval from Southeast Asian leaders on Saturday at a summit which has previously criticized Beijing over its actions in disputed maritime territory. The meeting of Association of Southeast Asian Nations (Asean) in Manila ended with a statement noting “the improving cooperation between Asean and China” in the South China Sea. The leaders also welcomed “progress to complete a framework of the Code of Conduct in the South China Sea” by the middle of this year, and recognized “the long-term benefits” of peace, stability and sustainable development in the region. Speaking after the meeting, Philippines President and current Asean chairman Rodrigo Duterte said China’s recent actions in the South China Sea were not discussed at the leaders’ meeting on Saturday, describing any talks on the issue as “useless.” “The biggest victor in diplomacy in this summit is China,” Lauro Baja, former Philippine foreign affairs undersecretary, said on Saturday. Before the summit, Duterte told reporters that arguments between the Philippines and China over disputed maritime territory were not an issue for Asean. Bloomberg News
U.K. Prime Minister Theresa May pledged there will be no increase in Value Added Tax after the June 8 general election, but suggested she will ditch her Conservative Party’s promise not to raise other taxes when it publishes its program for government. Asked if she will stick to a pledge not to raise income tax, VAT or national insurance -- made by her predecessor David Cameron before he was elected in 2015 -- May said she will not make “specific proposals” before the vote. Chancellor of the Exchequer Philip Hammond said on April 21 that he had been “constrained” by Cameron’s promise. “We have no plans to increase the level of tax but I’m also very clear we don’t want to make specific proposals on taxes unless I’m absolutely sure that I can deliver on those,” May told BBCTV’s “ Andrew Marr Show” yesterday. “It would be my intention as a Conservative prime minister and a Conservative government to reduce taxes on working families.” In a later interview yesterday, with ITV’s Robert Peston, she backed down from her position on specific proposals, saying she will not increase VAT, a sales tax. Bloomberg News