Business Daily #1291 May 9, 2017

South Korean youth shaking political panorama Election Page 12

Tuesday, May 9 2017 Year VI Nr. 1291 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Money

MSAR introduces facial recognition and ID card checks at ATMs for Chinese UnionPay cardholders Page 6

Banking

Credit Card turnover up 9 pct in Q1, at MOP4.8 bln Page 3

www.macaubusinessdaily.com

Politics

MSAR voters showed wider margin of support for Le Pen in French elections than in HKSAR and abroad Page 4

Wealth management

Deleveraging measures in the Mainland impacting markets Page 10

Report card Politics

Experience, inspection and encouragement. The three words the Chairman of the National People’s Congress, Zhang Dejiang, stated as the reason behind his visit. Inspect and report back is the mission, meanwhile urging the local gov’t to improve its administrative abilities to keep up with economic and societal changes and ensure the stable implementation of One Country, Two Systems under the Basic Law. Page 3 Photo courtesy of GCS

Constant movement

Goodbye Packer, goodbye my friend

Transportation The number of newly registered vehicles in the city went up 79 pct y-o-y in March, with motorcycles up 88 pct. Vehicle traffic at the Gongbei Border Gate dropped 12 pct, rising by the same amount at the Cotai crossing. Ferry terminal passenger movements were stable, while commercial flight numbers fell slightly. Container cargo by land fell 20 pct y-o-y and 48 pct in Q1, with 93 pct going through the Cotai border. Page 2

Melco Resorts & Entertainment is dropping Crown Resorts from a joint venture to invest in Japan, with chairman and CEO Lawrence Ho noting it will “allow Melco to pursue Japan alone”. A share offering and repurchase will also terminate Crown’s involvement with Melco, expected to be finalized on May 15, with Crown’s last nominee director to resign from the local operator.

Weak worldwide demand

Gaming Page 6

HK Hang Seng Index May 8, 2017

24,577.91 +101.56 (+0.41%)

Geely Automobile Holdings

Worst Performers

+4.48%

Wharf Holdings Ltd/The

CLP Holdings Ltd

+1.47%

MTR Corp Ltd

Sino Land Co Ltd

+1.38%

Link REIT

China Shenhua Energy Co

+1.35%

Industrial & Commercial

AAC Technologies Holdings

+1.31%

China Petroleum & Chemical

THE MARKETPLACE FOR THE ASIAN GAMING INDUSTRY 亞洲博彩業的年度盛會

+1.22% +1.11%

Galaxy Entertainment Group

-1.36%

CITIC Ltd

-0.54%

Sands China Ltd

-1.15%

Cathay Pacific Airways Ltd

-0.36%

-1.02%

Belle International Holdings

-0.33%

+1.08%

China Resources Power

+1.01%

China Overseas Land &

-0.91%

AIA Group Ltd

-0.27%

China Unicom Hong Kong

-0.60%

Swire Pacific Ltd

-0.27%

+1.00%

Market Trends. Quality Products. Networking. 市場趨勢、優質產品、建立聯繫 G2E Asia: Informs smart business decisions. 亞洲國際博彩娛樂展會：助您作出明智的商業決策

24° 27° 24° 28° 25° 27° 25° 28° 24° 28° Today

Source: Bloomberg

Best Performers

WED

THU

I SSN 2226-8294

MAY 16-18, 2017 | 2017年5月16-18日 THE VENETIAN MACAO | 澳門威尼斯人 A G2E EVENT G2E 系列展會

PRESENTED BY 承辦方

www.G2EAsia.com

ORGANIZED BY 主辦方

FRI

SAT

Source: AccuWeather

China’s trade Weak external demand was reflected in Chinese trade last month, customs data showed yesterday. Growth was dragged down by a decrease in demand for commodities. Trade with the United States expanded, making it the second largest trade partner after the European Union. Page 8

2 Business Daily Tuesday, May 9 2017

Macau Transport and communications

Public transportation? No thank you More new vehicles registered and helicopter rides taken during the month of March Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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he number of newly registered motor vehicles in the city in March went up 78.6 per cent year-on-year, totalling 1,665 new registered vehicles, with the registration of heavy motorcycles seeing an 88 per cent increase, or 1,034 units, according to the latest data from the Statistics and Census Service (DSEC).

However, on a quarterly and yearly comparison, the number of new motor vehicles registered decreased.

Owing to a notable decrease in registrations in January, a year-on-year drop of 5.8 per cent was seen, with 3,762 vehicles registered in the first quarter of 2017.

The total number of licensed motor vehicles in the MSAR at the end of March was 245,310, a 1.4 per cent drop year-on-year.

while vehicle traffic through the Border Gate dropped 12.2 per cent, year-on-year.

Overall, cross-border vehicle traffic in March totalled 413,413 trips, posting an annual decrease of 4.5 per cent year-on-year. During the first quarter of the year a 6.6 per cent decrease was seen, totalling nearly 1.17 million trips.

Passenger movements at the ferry terminals in both Macau and Taipa remained stable on a yearly comparison, signalling a 0.4 per cent decrease (11,561 trips) in March, and a 0.1 per cent drop in the first quarter (34,538 trips).

Fewer commercial flight movements were also observed at the Macau International Airport in the

month, with the notable exception of commercial flights to and from South Korea, up 48.2 per cent to 422 flights. Helicopter trips between the city and Mainland China as well as Hong Kong soared by 50.8 per cent year-on-year to 950 trips in March, while movements in the first quarter posted an increase of 31.5 per cent year-on-year to 3,119.

During March, commercial flights amounted to 4,448, registering a 1.5 per cent yearly decrease. Of the total flights to Macau, 1,657 or 37.2 per cent originated in Mainland China, with the month seeing a slight decrease of 1.2 per cent year-on-year.

The number of flights from Taiwan and Thailand also went down in March when compared to last year, decreasing by 27.1 per cent to 1,024, and 15.9 per cent to 467, respectively.

In the first three months of the year, commercial flight movements

Transit

Vehicle traffic through the Cotai border checkpoint rose 12.4 per cent during the month of March,

Communications

The number of Internet subscribers rose 7.2 per cent yearon-year to 370,202 at the end of March 2017.

The number of mobile phone subscribers also increased 5.1 per cent to 1,979,328. A total of

1,278,742 customers were storedvalue GSM card subscribers, accounting for 64.6 per cent of the total.

The number of fixed-line telephone subscribers decreased 5.5 per cent year-on-year to 137,078.

Traffic accidents

Whereas the number of motor vehicle registrations rose during the month of March, the number of traffic accidents fell by 9.6 per cent when compared to last year.

Casualties ensuing from a total of 1,181 traffic accidents in March

totalled 12,907, down 5.9 per cent year-on-year.

Land, sea, and air cargo

The gross weight of containerized cargo by land dropped 20.4 per cent in March 2017 when compared to last year, down to 1,523 tonnes, while for the first quarter of 2017, there was a 47.5 per cent drop year-on-year to 3,652 tonnes. The DSEC noted that 93.3 per cent or 3.409 tonnes of the cargo transited went though the Cotai border checkpoint.

The gross weight of seaborne containerized cargo also decreased 2.6 per cent year-on-year to 16,827 tonnes in March, following a drop of 9 per cent year-on-year to 43,303 tonnes in the first three months of the year. The majority of sea cargo, or 53.2 per cent, passed through the Inner Harbour.

The Macau International Airport handled 3,115 tonnes of cargo in March, corresponding to an increase of 9.8 per cent year-on-year. The quantity of cargo handled during the first three months of the year also increased 7.9 per cent to 7,732 tonnes.

In particular, outbound air cargo to Taiwan (40 per cent of the total) increased 14.5 per cent year-on-year, while inbound air cargo from Taiwan (53.1 per cent of total) was down 19.1 per cent over the same period.

amounted to 366, including two fatalities. Among the 3,578 cases recorded in the first quarter of 2017, 1,118 casualties and three deaths were recorded, corresponding to a 7.6 per cent decrease year-on-year.

Business Daily Tuesday, May 9 2017 3

Macau Politics

Experience, inspection and encouragement The Chinese official arrived yesterday and gave a speech summarised in three words Cecilia U cecilia.u@macaubusinessdaily.com

C

hairman of the National People’s Congress Zhang Dejiang arrived in the MSAR yesterday and expressed the reasons behind his visit in three words while talking to the press at the Macau International Airport - experience, inspection and encouragement.

Zhang remarked that he recognises Macau’s significant economic achievements, saying that economic growth has led to the improvement of the livelihood of MSAR citizens since the city’s return to Mainland China.

The visit, as noted by Zhang, was to inspect the city and to report back to the central government.

With several support plans and measures introduced by the central government, as well as the four wishes made by President Xi Jinping during his visit to Macau in 2014, Chairman Zhang said the visit will allow him to inspect the MSAR Government’s progress in implementing the measures and strategies.

Zhang also encouraged the MSAR society to ‘roll up your sleeves and hang in there’ as he perceived that the city’s economy is undergoing the important process of transforming.

He stressed that his visit is to affirm the support from the central government to the city.

Speaking later at a meeting held in the Government Headquarters, the Chinese official pointed out that the development of the city’s economy and society will require the MSAR Government to improve its administrative ability.

“For now, the overall of Macau is good,” commented the Chairman during the afternoon report meeting, however he indicated that the city will also face problems and challenges in the future, including more expectations of the government from the public.

The Chairman thus urged the MSAR Government to constantly improve the administration and effectiveness so as to ensure the city’s stable implementation of ‘One Country, Two Systems’ and the Basic Law. Moreover, the Chairman specifically praised the MSAR on committing itself to the National 13th Five-Year Plan, the city’s efforts to integrate the development of the Guangdong-Hong Kong-Macau Greater Bay Area and the One Belt, One Road strategy (including the national Silk Road Economic Belt and the 21st-Century Maritime Silk Road).

Mainland China is to host the Belt and Road Forum for International Co-operation from May 14 to 15 in Beijing, with at least 28 heads of state and government attending the forum.

Well prepared

Meanwhile, prior to the official’s visit, the city’s police intercepted a total of 790 people during a police action codenamed ‘Thunderbolt 17’ last Thursday.

The action consisted of raids of several gaming venues, internet cafes, karaoke venues and bars on the Macau peninsula and Taipa island, with 95 people being sent to the police station for further investigation.

A press release from the Unitary Police Service stated that random inspections will be performed in order to ‘purify the community and to do the best to maintain safety and stability’.

On the other hand, several Hong Kong politicians were also barred from entering the city, with the majority of them being considered by local immigration officers as a ‘threat to the city’s internal security’.

Given Zhang’s three-day visit, several groups and associations have voiced concerns or submitted petitions to either the MSAR Government or the Chinese Liaison Office, including legislators Ng Kuok Cheong and Au Kam San. The MSAR Government also announced the one-day closure of the Taipa-Houses today, and a Cultural Affairs Bureau reply to Business Daily’s enquiry noted that a special visit will be paid by the Chinese official to the Taipa-Houses today.

Chairman of the National People’s Congress Zhang Dejiang (R) meets with MSAR Chief Executive Fernando Chui Sai On (L)

Banking

Interpellation

Credit card city

AACM: complex legal support for Macau to become flight transfer hub

Credit card turnover in the MSAR increased 9.1 per cent year-on-year to MOP4.8 billion in the first three months of this year, with the number of personal credit cards in circulation amounting to almost 1.1 million Nelson Moura nelson.moura@macaubusinessdaily.com

The city’s credit card turnover totalled MOP4.8 billion (US$598.6 million) for the first three months of the year, representing a year-on-year increase of 9.1 per cent, according to the latest statistics released yesterday by the Monetary Authority of Macau (AMCM).

In the first quarter, local cash advance turnover amounted to MOP249.9 million, accounting for 5.2 per cent of total credit card turnover.

Meanwhile, credit card repayments, including interest and fees, rose 9.2 per cent yearly to MOP5.1 billion.

As of the end of March of this year, the total number of personal credit cards in circulation had grown 3.2 per cent quarter-to-quarter and almost 12 per cent yearly to almost 1.1 million. Of the total, 768,289 were cards designated in MOP, up 10.7 per cent year-on-year. In addition, the

number of Hong Kong Dollar denominated cards and Renminbi cards increased by 11 per cent and 16.5 per cent yearly, amounting to 93,005 and 231,919, respectively.

AMCM noted that the majority of Renminbi cards in circulation were dual-currency pataca and renminbi cards.

On the other hand, local banks had granted a total credit card limit of MOP26.4 billion as at the end of the quarter, up 16.1 per cent compared to the same month last year. Credit card receivables reached MOP2.3 billion, with the rollover amount accounting for 32.7 per cent, or MOP739.7 million.

Meanwhile, the delinquency ratio, which indicates the amount of credit card receivables overdue for more than three months, registered a quarter-to-quarter growth of 0.25 percentage points to 1.46 per cent as at the end of March of this year, according to the AMCM.

The city’s Civil Aviation Authority (AACM) disclosed that the legal support required to make Macau a flight transfer hub is complex, given that routes between Macau and the mainland are considered as inland routes.

Legislator Chan Meng Kam urged in his interpellation that the MSAR Government should consider introducing the “fifth freedom of the air” - the right to fly between two foreign countries on a flight originating or ending in one’s own country - for Macau to act as a transfer hub or extension point to connect between foreign flights and Mainland Chinese flights.

The AACM replied that the operations of a transfer hub in Macau would involve freedom of air of

different jurisdictions, such as the regime of ‘one country, two systems’, as well as different interests of aviation businesses from different regions.

The aviation bureau also added that many of the foreign flights to and from Macau are operated under the fifth freedom of the air act; for example the Macau International Airport offered flights in the past from Singapore to Macau and then on to the Philippines.

Meanwhile, when asked about the future plans, given that the license of Air Macau will expire in 2020, the AACM stated that the MSAR Government is carrying out research into the future development of the aviation industry and will announce further details at a later stage. C.U.

4 Business Daily Tuesday, May 9 2017

Macau

French election

In votes we trust French citizens in Macau and Hong Kong made their choice for Emmanuel Macron as President of France on Sunday. But Macau residents still show an inclination to the right side of the force Sheyla Zandonai sheyla.zandonai@macaubusiness.com

A

lthoughEmmanuelMacron, the candidate of En Marche!, the new French President-elect, was the first choice among the local French citizens voting yesterday in Macau, 40.5 per cent of the total vote cast in the city went to Marine Le Pen, the losing right-wing candidate of Le Front National, according to our calculations.

A total of 66 French citizens cast their ballots in the second round of the French presidential election in the polling station in Macau, set up at Alliance Française.

The percentage of votes cast for Le Pen in Macau, is higher than the final national vote count, with Le Pen collecting 33.9 per cent of the poll, or 10.64 million votes, while the winning candidate, Macron, collected 66.1 per cent or 20.75 million votes, according to official data.

Overall in Macau, 42 people voted for Macron and 17 for Le Pen, while seven people abstained, according to information provided by a representative of the local voting station, Eric Sautedé.

In regards to the combined ballots cast in Macau and Hong Kong,

totalling 5,256 votes, Macron received 4,771 of the votes and Le Pen 310.

The remaining were blank or invalid votes, amounting to 175, according to the information released by the French Consulate in Hong Kong.

In the end, votes cast for Le Pen in Macau and Hong Kong combined represented only 6.5 per cent of the total vote in the two SARs, that is, 34 per cent lower than the number of votes for Le Pen in Macau.

The profile of voters

Questioned about the profile of French voters in Macau and in Hong Kong, Eric Sautedé, a political scientist and assessor at the voting station in Macau, explained that the contrast between votes in the SARs were due to “differences in occupation and education.”

Speaking more specifically about the profile of voters, the political scientist explained that “from a sociological perspective, French residents in Hong Kong and Macau are almost all highly educated and you have a lot of young urban professionals.

On top of that, people living abroad tend to embrace globalization and its benefits, thus, the xenophobic and national preference take of Marine Le Pen is clearly both not acceptable or palatable.”

Talk series

President of Foreign Correspondents' Club of HK to talk fact checking and fake news on Friday The president of the Foreign Correspondents’ Club of Hong Kong, Eric Wishart, will be in the MSAR to conduct a talk entitled “News Judgement, Fact-Checking and Fake News”, at the invitation of the Macau Portuguese and English Press Association (AIPIM). The event, will take place at the Military Club on Friday at 6:30pm.

Mr. Wishart is a part-time lecturer at Hong Kong Baptist University and is a member of the global news management agency Agence FrancePresse (AFP).

AIPIM recently expressed its concern over ‘uncertainty’ regarding the news coverage of the upcoming Legislative Elections, noting in a release late last month that ‘it is crucial that the right to information and press freedom are fully respected,’ before and during the campaign process, including ‘interviews and news coverage involving candidates running in the elections’.

The group urged the Electoral Affairs Committee not to issue guidelines on coverage.

But a much higher ratio of support for Le Pen was seen in the MSAR when compared to the average of votes of French people living abroad, of which 89.31 per cent voted for Macron, according to information provided by the latter.

According to Rui Flores, Executive Programme Manager of the European Union Academic Programme in Macau, the position of voters in Macau was somewhat expected.

“The [Macau] sample, being small, is not very representative. But given that Le Pen had already received a good number of votes in the first round [here], the trend in the second round followed,” he commented.

Le Pen down

Rui Flores believes that Macron’s victory was a “very positive step” in the affirmation of core values of the European Union, since it represents a capacity to “defeat the far-right,” increasingly gaining pace in countries such as The Netherlands and Austria, he mentioned.

“Very early on, the reactions from leaders in Europe and from markets here in Asia showed that Macron’s election was very good news, and that there is a sense of general relief,” Rui explained to Business Daily.

The spokesperson for the European Union Office to Hong Kong and Macau also shared with Business Daily the statement by the President of the European Commission, J.P. Juncker, dated May 7, which follows in line with the ‘positive’ outlook ensuing from Macron’s election. In particular, one of the passages reads: “For my part, I am pleased to see that the ideas that you have defended for a strong and progressive Europe,

that protects all its citizens, are those that France will bear under your Presidency in the debate about Europe’s future.”

As for local expectations from French citizens in Macau, Sautedé believes they are expecting “youth and change, and [Macron’s] amazing capacity to win.”

The academic pointed out “the capacity to reform France when French people want it,” pointing out that still they “are always reluctant to accept to make sacrifices.”

“His program is comprehensive and touches upon all kinds of public policies,” he claims of Macron.

Blank and invalid votes

According to French media outlets, the abstention rate in this election was one of the highest in the recent history of France’s presidential elections, at 25.44 per cent – the highest was in 1969, when it hit 31.1 per cent.

To Sautedé, abstention in Hong Kong and Macau was “actually not that high, as there were less than two percentage points difference compared to the first round. Macron easily came first in the first round in [both cities]– the first time I have seen a candidate from the traditional right-wing not making it first in Hong Kong – so people were mobilised.”

Acting as one of the four members at the voting station in Macau, he further provided details on the local ballot cast.

“In Macau, there were seven [voters] that did not express their vote.

Six of them voted blank and one of them invalidated the vote, by placing two vote bulletins in the same envelope,” he said.

Business Daily Tuesday, May 9 2017 5

Macau Taxes

Local investors in real estate in Hengqin could benefit from Chinese VAT reform

Getting a piece of the tax pie Financial experts tell Business Daily that in order for Macau investors to take advantage of the ongoing Chinese government tax reforms, they should look to investments in innovative technology providers Nelson Moura nelson.moura@macaubusinessdaily.com

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ngoing Chinese tax reforms are expected to have a positive effect on MSAR residents, however local business people looking to invest in Mainland China should pay special attention to their investment focus and contract and invoice terms, financial experts tell Business Daily.

According to Wang Qing Yang, an expert on Mainland China and Macau tax policies from the Asia-Pacific Academy of Economics and Management (APAEM), recent value added tax (VAT) reforms will have an undeniably “positive” impact on Mainland China’s economy.

However the tax expert considers that in order for Macau resident investors to “assess China VAT opportunities” and “reduce VAT risks” they should focus on four main points: establishing the correct investment direction; placing emphasis on services innovation; paying attention to contract management; and building a VAT invoice management system.

“Macau investors should reduce the investment in the population intensive industries, and increase their investment in technology, service oriented industries,” explained Mr. Wang.

Since innovative service products will probably benefit from VAT exemptions or low tax incentives, local business people should also focus on designing “new service products” that could be eligible to access this “VAT bonus”, notes the expert.

“Local investors should also pay attention to contract management, especially the negotiation of price terms and invoice terms,” Mr. Wang added.

A VAT invoice management system should be created by Macau investors in order to ensure VAT compliance and to “review and revise” any existing processes that could make local companies’ projects and investments “VAT-equipped”, he notes.

The changes were part of a countrywide tax reform initiated in 2011 and are expected to be completed by the end of 2018.

In terms of the impact the VAT reforms will have on Macau residents, financial experts told Business Daily that the effects are hard to predict due to the low amount of local investment in Mainland China, but that any effect would probably be positive.

For economist Albano Martins, the changes are an attempt by the Chinese Government to boost internal consumption, and the reforms could have a “positive” effect for local residents’ businesses since they could reduce the cost for Chinese services purchased.

According to Henry Lei Chun Kwok, an Assistant Professor of Business Economics at the University of Macau (UM), Macau’s investors are able to “obtain certain benefits from this reform”, however the actual amount “is hard to estimate” due to the small scale of Macau investment in China in the service sector.

In response to Business Daily’s enquiries, the Financial Services Bureau (DSF) stated that with Mainland China and the MSAR having two separate tax jurisdictions, the tax reforms in China will ‘have no or very mild impact on the local business community’, with the department also highlighting the absence of a VAT regime in Macau.

Advantages next door

In terms of possible impacts on local real estate companies selling

properties in Mainland China, the Managing Director of Ricacorp (Macau) Properties Limited, Jane Liu, believes the largest advantage could be for local investment in real estate in Hengqin.

Ms. Liu told Business Daily that the number of Macau residents investing or selling real estate in Mainland China is not very large, and that she considers that the largest amount of local investment in real estate is made in the Hengqin area.

In a previous Business Daily report, Hong-Kong based real estate agency Centaline (Macau) Property Agency Ltd. stated, citing Zhuhai government data, that 30.22 per cent of the 5,986 transactions registered in the Chinese city of Hengqin in 2016 involved local buyers.

At the time, Centaline said strengthening policies made between the MSAR Government and the Chinese city would attract more investment from Hong Kong and Macau.

For the Ricacorp Managing Director, the advantages of the new VAT reforms could be realised after the sale phase of the real estate development projects involving local investors in Hengqin are initiated.

The Great Tax Leap Forward

The full implementation of the VAT reforms is a step conducted by the Chinese Government to establish a more concise tax system, encourage more structural economic changes and help develop a modern services industry.

The process first started in 2011 when the Chinese Ministry of Finance (MOF) initiated its pilot program to replace the Business Tax with a VAT, with Shanghai becoming the first city to implement the reforms in January of 2012.

Measures for Macau investors to take advantage of Chinese VAT reforms Establish the correct investment direction Place emphasis on services innovation Pay attention to contract management.

Build a VAT invoice management system

In 2013, the policy was implemented countrywide with initial reforms encompassing transportation, postal services, telecommunication and some modern services industries.

The May 1 expansion of the reforms in 2016 was another significant step, with Xinhua stating the newly included industries represented nearly 10 million taxpayers and a tax contribution of RMB1.9 trillion or 80 per cent of all business tax revenues.

The news agency also considered that since the measures to cut taxes and administrative fees were first imposed, the tax burden of around 98 per cent of Chinese tax payers has been reduced, with RMB1.2 trillion in taxes and fees having been cut between January 2012 and February 2017.

The Chinese Government now expects to achieve RMB350 billion in tax cuts in 2017, with new measures to be implemented on July 1, such as further simplifying VATs, granting more income tax incentives to small businesses, and increasing the pretax deductions allowed for innovation-based tech companies.

However the complete reforms are expected to only come to fruition when the Chinese Government passes a VAT Act by the end of 2018.

According to Mr. Wang, the reforms will have a positive impact on the Chinese economy on a macro, meso and micro-levels.

For the tax expert the “ultimate aim of the VAT pilot program is to boost the growth of Chinese service industries as the country’s work force has been reducing since 2012”, leading to an “urgent” need for economic transition from a production based economy to a service oriented economy.

“As for specific industries, the VAT pilot program would force industry innovation, and enhance the integrity of the supply chain,” he added.

A micro-level effect noted by Mr. Wang is that Chinese financial companies will have to focus on asset management innovation, while real estate service providers will extend their service supply chains.

Possibly positive

On May 1 of last year, the Chinese Government completed its VAT reforms by replacing its previous business tax (BT) system with VATs for any services in the construction, finance, lifestyle, and real estate sectors.

The expansion meant that construction and real estate industries were subject to an 11 per cent VAT rate, with the financial and health service industries having a 6 per cent VAT rate.

According to news agency Xinhua, citing data from the National Bureau of Statistics (NBS), VAT reforms allowed a reduction of around RMB680 billion (MOP789.77 billion/US$98.49 billion) in taxes as of April 30 of this year.

Couriers

U.S. Consulate looks into courier service after agency claims unsecure passports in transit The Consulate General of the United States in Hong Kong and Macau notes that ‘if any problems’ are found in the way that outside vendors handle the delivery of passports it ‘will take steps to fix them’.

The statement comes after news

agency FactWire secretly filmed staff of courier service SF Express handling passports over three days on a route between the consulate and a delivery centre in Wan Chai, prompting the former police superintendent of the HKSAR,

Clement Lai Ka-chi, to state that there is “a very serious security loophole in the transportation arrangements”.

A spokesperson for the consulate told Business Daily: “when we contract an outside vendor for

passport delivery services, we work with the contractors to ensure proper handling of applicants’ information,” noting that the consulate and its staff “of course place a high priority on ensuring our applicants’ visa and passport integrity and security”.

6 Business Daily Tuesday, May 9 2017

Macau Termination

Melco drops Crown in Japan joint venture, terminates relationship

S

tarting May 15, Australian gaming group Crown Resorts will no longer have a stake in local gaming operator Melco Resorts & Entertainment Limited. Furthermore, ‘the joint venture arrangements for the Japan market’ between the two companies will be terminated, according to a press release from Melco yesterday.

In total, the group is putting up 165.3 million ordinary shares for offer and repurchase in order to achieve the goals, noting that ‘the offering will not have a dilutive effect on the Company’s shareholding’ and the weight of Melco International, the majority shareholder, ‘will remain at 51.2 per cent’, notes the release.

“This transaction brings to conclusion the world’s most successful global gaming partnership,” states Melco Chairman and CEO Lawrence Ho Lau Yung, referring to the group’s cooperation “in both good times and

more challenging operating environments”. The CEO thanked both James Packer and Crown Resorts “for being a great friend and partner for the past decade”. The release notes that the only remaining nominee director from Crown, Robert Rankin, will resign as a non-executive director from the company.

when our Company completed the redemption of over US$800 million worth of shares from Crown Resorts in May 2016,” notes the chairman, adding “I firmly believe that Macau remains the best gaming market in

the world and a great place to invest”.

The most recent share buyback was a US$1.2 billion repurchase in February, leading to Melco International gaining its majority owner status. K.W.

“I made the strategic decision to terminate the joint venture arrangement and allow Melco to pursue Japan alone”

Japan

The chairman of Melco points out that: “I made the strategic decision to terminate the joint venture arrangement and allow Melco to pursue Japan alone,” noting it “highlights our confidence in, and commitment to, identifying and evaluating new markets,” referring in particular to the group’s City of Dreams Manila, which Ho describes as “giving us exposure to the fastest growing gaming and entertainment market in the world”.

“I feel even more confident today of Melco’s prospects than I did a year ago

Lawrence Ho Yau Lung, chairman and CEO of Melco Resorts & Entertainment

AML

Macau introduces new ATM rules to deter Chinese money laundering Daniela Wei

Macau’s government is requiring facial recognition and identification card checks at ATMs before Chinese UnionPay cardholders can withdraw cash, a stepped-up measure to curb money laundering in the world’s largest casino hub.

Holders of China UnionPay Co. cards issued by banks in China must show mainland identification cards and have their identities verified through a facial recognition system for ATM cash withdrawals, according to a Macau government statement late Sunday. The technology will be eventually applied to all ATMs,

focusing on ones in casinos, according to the statement.

“The government spares no effort to implement anti-money laundering and anti-terrorism rules,” it said in the statement.

The move is Macau’s latest effort to strengthen anti-money laundering rules in the territory, the only place in China where gambling is legal.

Chinese authorities are seeking to halt billions of dollars worth of outflows that have pushed down the value of the currency and drained capital reserves. The ATM rules follow a ban last year that prohibits proxy betting by telephone aimed at staunching bets from gamblers in China.

Travel

Ecuadorian nationals exempt from travel visa to the MSAR Nationals from the South American country of Ecuador will be exempt from obtaining a travel visa or permit when travelling to Macau, according

to a dispatch in the Official Gazette yesterday.

The release, signed by the Chief Executive (CE) stated that the new policy for Ecuadorian nationals comes into effect immediately.

Although no official data was provided on the number of Ecuadorian nationals who visit Macau, according to data from the Statistics and Census Service (DSEC), visitors to the MSAR from North, Central and South America (excluding the U.S., Canada and Brazil) totalled 23,817 in 2016. N.M.

Vehicles

Motorcycle helmet recycling posts starting Wednesday In advance of the June 13 debut of new standards for motorcycle helmets, the Environmental Protection Bureau (DSPA) is teaming up with the Transport Bureau (DSAT) and the Civic and Municipal Affairs Bureau (IACM) to set up 23 motorcycle helmet disposal points in public places, some car parks, recycling points and shops participating in the plan.

The initiative starts this Wednesday, May 10 and will run until August 15, and aims to convert the disposed helmets into recyclable material, to

be ‘transported to the neighbouring regions for their reuse and transformation in resources’, according to a DSPA release.

The ATM rules, which didn’t come with a timeline for rollout, are not expected to curb demand significantly, JPMorgan Chase & Co. analyst DS Kim wrote in a note Monday. It’s common to see people using multiple cards to withdraw cash from Macau ATMs, with some possibly using other peoples’ accounts or cards, Kim wrote.

Still, there are other channels that players and junket operators employ

to get cash in Macau, he said.

“We can’t rule out any potential impact on “player psychology,” as some players/junkets may feel reluctant to use ATM cards given increased ID checks,” Kim wrote. “The news could and will likely remind many investors of how vulnerable the sector is to regulatory issues, and may serve as a ‘wake-up call’ to the sector’s inherent headline risks.” Bloomberg

Business Daily Tuesday, May 9 2017 7

Gaming

Solaire and City of Dreams Manila saw double digit VIP volume growth in Q1

Crackdown

As Philippines joins China to fight illegal gambling, more scrutiny of casinos likely Authorities are preparing further raids in May targeting illegal betting and online fraud originating in the Philippines and targeted at Chinese gamblers, says official Neil Jerome Morales and Farah Master

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hina and the Philippines have joined forces to tackle illegal gambling, part of Beijing’s broader campaign to curb illicit capital outflows and a pledge by Manila to weed out unscrupulous operators from the country’s booming gaming industry.

The coordinated crackdown comes amid warming ties between Chinese President Xi Jinping and his Philippine counterpart Rodrigo Duterte, who has made illegal gambling the third front in his all-out war on crime, after drugs and corruption.

In their first joint exercise, Philippine and Chinese authorities cracked a transnational cyber gambling operation in April, shutting four illegal websites run out of the Philippines, arresting 99 people and freezing more than 1,000 bank accounts, China’s Public Security Bureau said.

“We have been visited

by Chinese police to crack down on these illegal gambling operators.

They are also targeting possible fugitives who have made our country a sanctuary” Martini Cruz, chief of the Philippines National Bureau of Investigation’s cyber-crime division Martini Cruz, chief of the Philippines National Bureau of Investigation’s cyber-crime division, told Reuters authorities were preparing further raids in May targeting illegal betting and online fraud originating in the Philippines and targeted at Chinese gamblers. “We have been visited by Chinese police to crack down on these illegal gambling operators. They are also targeting possible fugitives who have made our country a sanctuary,” Cruz said.

So far, the crackdown has not targeted proxy betting, which is

permitted in licensed casinos in the Philippines and has contributed to a boom in VIP revenues. Casinos in the country raked in nearly US$3 billion in overall revenue last year.

The practice, in which a gambler outside the casino gives instructions to an agent via a live stream or online platform, allows people to bet anonymously and can allow players to escape the attention of authorities in their home countries.

Industry executives have said increased scrutiny could impact the lucrative proxy business in the Philippines particularly if it continues to ramp up ahead of the official opening of Japanese slot machine tycoon Kazuo Okada’s new US$2.4 billion casino in the capital Manila in July.

Proxy gambling

While proxy gambling is banned in Singapore and in Macau, the world’s largest gambling hub, it operates in a legal grey area in the Philippines and officials tend to tread cautiously when discussing the subject.

Andrea Domingo, the head of the Philippines gaming regulator, PAGCOR, told Reuters she was not familiar with proxy betting.

“It is allowed in the casinos. I am not very conversant about it,” she said.

Chinese law forbids citizens from gambling online and at home. The Public Security Bureau has made repeated statements since March that transnational cyber gambling is harmful to the country’s economic security, image and stability.

Yet proxy betting is growing at such a pace in the Philippines that Suncity, the top junket operator bringing in high rollers from China, told Reuters in April that 80 per cent of its business comes from proxy gambling and 20 per cent from customers traveling to casinos for live table games.

Ben Lee, managing partner of IGAMIX Management and Consulting in Macau, said the latest directives this year from China were clear warning signs.

“China warning specifically that they would crack down again on foreign casinos should be heeded by all, especially those operating in the online space,” he said.

The proxy business in the Philippines is mainly facilitated by Macau junket operators who bring high rollers into the casinos’ opulent VIP parlours, either in person or via proxies. The junkets take on the risk for casinos, settling all credit and debt for the players in Macau, Hong Kong and China via

their own internal banking networks.

In a VIP area in a Manila casino, Chinese and Korean nationals wearing earpieces shuffle from table to table after a series of bets, carrying rectangular white plastic trays containing gaming chips and smartphones.

A Macau-based executive whose company operates proxy gambling in the Philippines said there was little concern on the ground in Manila as the practice is licensed by PAGCOR. “To play the game in China is legal online, it is not happening in China,” he said, explaining that the casinos install video screening so punters can see the play. For now, proxy gambling

continues to boost the VIP coffers in the Philippines with mega casinos Solaire and City of Dreams reporting double digit VIP volume growth in the first quarter this year. The casinos do not report proxy betting figures.

However, executives in Macau familiar with the VIP boom in the Chinese territory prior to Xi’s crackdown on corruption and tighter junket regulation cautioned against relying too strongly on the method.

“Proxy betting in the Philippines is a ripe target for China,” said a senior casino executive based in Macau who was not allowed to be named due to company policy. Reuters

8 Business Daily Tuesday, May 9 2017

Greater China Commerce

Trade growth slows in April as demand cools China’s imports and exports are expected to stabilise and improve in the near future, the Ministry of Commerce said last week Elias Glenn

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hina’s import growth slowed faster than expected in April, as inbound shipments of commodities such as iron ore and copper weakened, while export growth more than halved, in line with a general cooling in demand for electronic gadgets.

China’s April imports rose 11.9 per cent, cooling from March’s 20.3 per cent rise, official data showed yesterday, and missing analysts’ expectations for an 18 per cent rise.

Exports rose 8.0 per cent from a year earlier, slowing from a 16.4 per cent rise in the previous month and short of expectations of 10.4 per cent.

While the data shows trade remained robust at the beginning of the second quarter, analysts say the spurt in China’s economic growth seen in the first three months of the year may be as good as it gets as policymakers seek to tighten speculative investment, especially in the property sector.

“Looking ahead, we expect export growth to hold up well given the relatively bright outlook for the global economy this year,” Capital Economics China economist Julian Evans-Pritchard said in a note.

“Growth in inbound shipments will continue to face headwinds, however. In particular, policy tightening will further weigh on domestic demand in coming quarters.”

April’s numbers left the country with a trade surplus of US$38.05 billion, which compared with forecasts for US$35.50 billion, and above US$23.93 billion in March. The April trade figures are preliminary, with revised data due on May 23.

China’s imports of crude oil, iron

ore and copper all fell by volume compared with March, with the data in line with a recent survey of purchasing managers in the manufacturing sector showing April expansion was the slowest in six months.

Despite the slowdown, imports year-to-date are still up 20.8 per cent by value, compared with 8.1 per cent growth for exports over the first four months, though analysts say imports could slow further this year.

While China’s economy grew faster than expected in the first quarter, policymakers have moved to reduce financial risks in the economy and stamp out speculative activity in the property market.

Commodity imports have also been hit by falling prices, with iron ore and steel hitting multi-month lows on China’s future markets in April amid concern over rising inventories. China’s producer price inflation slowed in March for the first time in seven months, with price gains expected to continue to cool.

Exports of electronics and machinery products increased 2 per cent year-on-year in April, customs data showed, slowing from 12.3 per cent growth in March.

Friction

China’s surplus with the United States widened in April, meaning pressure from the U.S. for action on the trade imbalance is not likely to go away anytime soon.

The surplus with the U.S. was US$21.34 billion in April, up from US$17.74 billion in March and higher than the year-ago period, according to data from China’s customs bureau.

Exports to the United States, China’s largest export market, rose 11.7 per cent in April from a year earlier while imports from the U.S. rose 1.5

per cent.

China’s large trade surplus with the United States has drawn criticism from U.S. President Donald Trump.

While the U.S. Treasury Department did not label China a currency manipulator in its most recent report on currency manipulation, the Trump administration has sought other fronts in which to tackle its large trade deficit with Beijing.

Key Points Imports grow at slowest pace since Dec on weaker commodities Weaker imports in-line with weaker factory survey in April Exports miss expectations at 8.0 pct growth Trade surplus rises to highest since Jan Last month, Trump launched a trade probe against China and other exporters of cheap steel into the U.S. market.

And the U.S. Commerce Department said last Tuesday it would open

investigations into possible dumping and subsidisation of imports of tool chests and cabinets from China and Vietnam.

As Trump moves to put America’s interest first and pull out of multilateral trade agreements, China has positioned itself as a supporter of free trade.

Finance leaders of Japan, China and South Korea last week agreed to resist all forms of protectionism in a trilateral meeting, taking a stronger stand than major G20 economies against the protectionist policies advocated

by Trump.

While trade friction between China and some key trading partners remains, an overall improvement in global growth means shipments from the world’s largest exporter will likely remain strong this year.

China’s imports and exports are expected to stabilise and improve in the near future, the Ministry of Commerce said last week in its quarterly report on trends in the country’s foreign trade.

Foreign trade is expected to face a better environment in 2017 compared with the past two years, the commerce ministry report said. Reuters

SFC

HK regulator orders trading halt in Huishan Dairy shares Huishan grabbed headlines last year when it sold and leased back part of its herd Elzio Barreto

Hong Kong’s securities regulator ordered a trading halt in shares of China Huishan Dairy Holding Co Ltd, indefinitely extending a suspension that’s been in effect for more than a month as concerns grow about the company’s finances.

The unusual move by the Securities and Futures Commission (SFC) follows a warning by China’s largest integrated dairy firm last month that it was unable to operate because most of its board had quit.

Huishan’s stock has been suspended from trade at the company’s request since March 24, when it plunged 85 per cent. The firm has also missed loan payments and lost contact with a key executive in charge of its finances and cash.

Last month, Ashley Alder, head of the regulator, declined to say whether the watchdog was investigating Huishan, but he added it would continue in its efforts to probe IPO sponsor failings.

Huishan, which went public in a US$1.3 billion IPO in 2013, did not reply to a request for comment.

The SFC can issue so-called “Rule 8 directions” under Hong Kong’s listing rules “on grounds that the market is misinformed, disorderly or unfair.”

The regulator rarely exercises that power, only doing so six times since 2011, according to its annual reports.

By contrast, in the United States, the Securities and Exchange Commission ordered eight trading suspensions in the second quarter alone.

Previous SFC trading halt orders

include Hanergy Thin Film Power Group which the commission investigated after its shares mysteriously tumbled 50 per cent in a matter of minutes. Trade remains suspended, although its parent company has since paid down overdue debt.

Other examples are China High Precision Automation Group Ltd whose shares have been suspended since 2012, and sports fabric maker Hontex International Holdings which has been delisted following a probe into information provided to investors in the firm’s IPO prospectus.

Huishan grabbed headlines last

year when it sold and leased back part of its herd, but its most recent troubles have laid bare risks of excess leverage and financial engineering in unexpected quarters of corporate China.

Key Points Regulator has only requested trading halts six times since 2011 SFC has previously ordered suspensions of Hanergy, Hontex shares Huishan has missed loan payments, board members have quit On the backfoot since a December attack by U.S.-based short-seller Muddy Waters, Huishan has asked the regional Liaoning government for support and hired Deloitte Advisory last month to “analyse its financial position” after holding talks with creditor banks to ask for loans to be rolled over.

Controlling shareholder Champ Harvest, which owns 70.8 per cent of its stock and is majority held by Huishan Chairman Yang Kai, has pledged nearly all of the shares to secure loans. In the event of a default, banks could dump the shares in the market, creating a downward spiral in prices. Reuters

Business Daily Tuesday, May 9 2017 9

Greater China Bank payment

Mainland networks surge as Western lenders cut ties The U.S. regulatory crackdown may also be making it more attractive for banks to transact in the yuan rather than the U.S. dollar Michelle Price

Chinese banks have dramatically expanded their overseas payment and trade networks since the global financial crisis, exploiting a growing vacuum created by Western lenders which are retreating from higher-risk jurisdictions, new data shows.

The number of so-called “correspondent” or bank-to-bank relationships operated by Chinese banks surged more than 3,300 per cent - from 65 in 2009 to 2,246 in 2016 - according to data published

by U.S.-based payment and compliance technology company Accuity yesterday.

This contrasts with a 25 per cent drop in the number of correspondent banking relationships globally during the same period, largely caused by U.S. and European banks cutting ties with smaller bank clients in regions such as Asia and Africa.

Correspondent banking describes bank-to-bank relationships that allow individuals and companies to move money around the world, facilitating global trade.

Although Chinese correspondent banking relationships have grown from a low base and still account for a small proportion of such relationships globally, the huge jump underscores how Chinese lenders - such as ICBC and Bank of China - are fast-globalising to support Chinese companies as they push overseas.

“These contrasting trends suggest that Chinese banks recognise the opportunity to facilitate China’s international trade, possibly at the expense of EU and USA global banks who are concerned with the higher risks and costs associated with providing these correspondent banking services,” said Henry Balani, Global Head of Strategic Affairs at Accuity.

Accuity compiled the data, which is extracted from standard settlement instructions, from an average

of 29,000 banks in 238 countries or territories across the world.

Global banks are under intense regulatory pressure to guard against money laundering and terrorist financing by closely screening the source of funds they handle.

U.S. watchdogs have dished out more than US$16 billion in fines for anti-money laundering (AML) compliance failings since the end of 2009, while banks globally spent an estimated US$12 billion on AML compliance programmes last year,

according to data compiled by Hong Kong consultancy Quinlan & Associates.

This ballooning compliance bill has made it more cost-effective in many cases for big banks to simply cut off smaller banking clients in higher-risk geographies.

Correspondent banking relationships in Malaysia, which has been rocked by a money laundering scandal involving the country’s 1MBD sovereign wealth fund, for example, fell from 1595 in 2014 to 621 last year, the data shows.

The U.S. regulatory crackdown may also be making it more attractive for banks to transact in the yuan rather than the U.S. dollar because dollar transactions are subject to U.S.

regulations regardless of where they take place, Balani said.

Key Points Chinese correspondent banking relationships surge 3,355 pct U.S., EU banks cutting ties amid regulatory crackdown Malaysia correspondent banking ties fall following 1MBD scandal “The U.S. dollar dominates world trade, but there is a trend towards a decline in the use of the U.S. dollar and an increase in the use of the renmimbi,” he said. Reuters

Chinese lenders - such as ICBC and Bank of China - are fast-globalising to support Chinese companies as they push overseas

Commodities

Hong Kong’s Lee Kee says infrastructure plans bolstering zinc sentiment Head of the company said that while there were some signals of a long-heralded shortfall in metals supply, the company was still able to source materials easily Melanie Burton

Plans to boost infrastructure spending in China and the United States are bolstering market sentiment towards zinc, used to churn out everything from pipes to auto parts, the head of Hong Kong-based metals supplier Lee Kee Group said yesterday.

That could support global prices for the base metal that have eased this year after surging in 2016 in the wake of the closure of several giant mines.

“We see that the economy in the U.S. and in China is slowly picking up (supported by infrastructure spending),” said Clara Chan, CEO of the biggest importer of zinc alloy into China.

“We are still hoping that the market will improve in the coming peak season, from April-May to August-September.”

U.S. President Donald Trump came to power promising massive infrastructure spending, while China is pushing ahead with its ambitious “One Belt, One Road” project to build a modern-day Silk Road through Asia to Europe.

Lee Kee Group, a subsidiary of Lee Kee Holdings, is a major supplier to China’s die-casting industry. It also has exposure to the construction sector through its assaying business where it tests the quality of materials.

“We are still hoping that the market will improve in the coming peak season, from April-May to AugustSeptember” Clara Chan, CEO of Lee Kee Group

Chan said that Lee Kee, which set up an office in Singapore last month, was looking to boost its business in Southeast Asia and Thailand as

Chinese die-casters push to reduce costs by shifting production abroad.

“We have been servicing Southeast Asia for many years but because of this movement we want to have a stronger presence there.”

M ea n w hi l e, Cha n sai d that

while there were some signals of a long-heralded shortfall in metals supply, the company was still able to source materials easily.

“When we look for spot materials we can certainly find spot material in the market.” Reuters

10 Business Daily Tuesday, May 9 2017

Greater China

Debt

Deleveraging damage tops US$500 billion as markets fall The number of wealth-management products issued by Chinese lenders sank 39 per cent in April from the previous month Sofia Horta e Costa

H

ow much pain can China’s leaders stomach? It’s becoming a key question for investors as the government’s stepped up campaign to rein in financial leverage ripples through markets.

The clampdown has erased at least US$453 billion from the value of Chinese stocks and bonds since mid-April, spurred US$21 billion of cancelled debt sales and compelled the People’s Bank of China to inject US$48 billion into jittery money markets. Sales of asset-management products by lenders and trust companies have plunged by more than 30 per cent, while domestic real estate transactions have slowed and metals prices have buckled.

The upheaval hasn’t reached crisis levels yet. But as the nation’s equity crash in 2015 showed, market declines in China have a habit of snowballing. As authorities juggle the conflicting goals of curbing leverage and maintaining economic growth before a Communist Party leadership reshuffle later this year, some money managers are bracing for more turbulence.

“It would take a lot for the country to move into easing mode,” said Howard Wang, the Hong Kong-based head of greater China at JPMorgan Asset Management, which oversees about US$1.8 trillion worldwide.

“They will adjust their policies if markets go down another 10 per cent or the currency cracks under pressure.

Only these very drastic swings will make them move the other way.”

China’s banking, insurance and securities regulators have all played a part in the clampdown, focusing much of their attention on the nation’s shadow banking system. The investment products produced by that system have funnelled huge sums of cash into local asset markets, but critics say they employ too much leverage, create dangerous asset-liability mismatches and reduce transparency. Shadow banking assets in China increased by 21 per cent in 2016 to the equivalent of US$9.3 trillion, or 87 per cent of gross domestic product, Moody’s Investors Service said in a report yesterday.

“What the top policy makers want is to bring lending back onto balance sheets” Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong

The tightening campaign adds to a nine-month-long effort by China’s central bank to curtail excessive borrowing by gradually raising interest rates. The nation’s key seven-day repo rate has climbed to about 3 per cent from 2.3 per cent in August, and would likely be higher if not for cash injections by the PBOC via daily open-market operations over

the past month. The rate topped 12 per cent during a brief shakeout in the shadow banking system in 2013.

Overseas money managers including Franklin Templeton Investments and Fidelity International have applauded the latest clampdown as necessary to curb a US$28 trillion debt pile that threatens China’s long-term economic stability. Yet the reception by local investors has been anything but sanguine.

The Shanghai Composite has dropped for four straight weeks to the lowest level in more than three months, even as MSCI Inc.’s gauge of global equities rallied to all-time highs.

The Bank of America Merrill Lynch China Broad Market Index of government and corporate debt has lost 0.9 per cent since the new regulations began impacting markets, while borrowing costs for the nation’s top-rated companies have climbed to the highest levels in two years.

Last week, the selloff spread to commodities. Concerns over tighter credit conditions, combined with signs of excess supplies, sent iron ore futures in Dalian down more than 8 per cent.

Traders worry that higher borrowing costs will weigh on China’s metals-hungry real estate industry.

Home sales in square meter terms dropped about 30 per cent in the final week of April from the same period a year ago, according to data for 26 major Chinese cities tracked

by CREIS, a research institute run by the country’s most popular property website.

The clampdown’s impact on shadow banking activity has been swift.

The number of wealth-management products issued by Chinese lenders sank 39 per cent in April from the previous month, while trust firms distributed 35 per cent fewer

products, according to data compilers PY Standard and Use Trust. WMPs -- popular savings vehicles that offer higher returns than deposits -- generate fees for Chinese banks while residing off their books.

“What the top policy makers want is to bring lending back onto balance sheets,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong.

Shen said that while the tightening measures are likely to weigh on economic growth, now is a good time for the government to act.

China’s expansion unexpectedly quickened to 6.9 per cent in the first quarter, giving policy makers room to tighten without jeopardizing their growth target of around 6.5 per cent this year.

“It’s a balancing act,” said Kenny Wen, a strategist at Sun Hung Kai Financial in Hong Kong. He said authorities are likely to keep their focus on the clampdown unless the Shanghai Composite falls below the 3,000 level, a 3.3 per cent decline from Friday’s close.

Investors shouldn’t assume that Chinese leaders can meet their “incompatible” objectives of maintaining an acceptable rate of economic expansion and reining in shadow banks, John-Paul Smith, a London-based emerging markets strategist at Ecstrat Ltd., wrote in an emailed report titled “The Stability Illusion” on May 3. The market reaction to tightening measures over the past month has highlighted the fragility of an economy that depends on ever-increasing amounts of debt to grow, according to Smith.

“Beijing is caught between a rock and a hard place,” he wrote. “The risk is that any serious attempt to curtail the growth of financial intermediation will be the catalyst for the economy to relapse.” Bloomberg News

Business Daily Tuesday, May 9 2017 11

Asia Budget

Australia expected to announce infrastructure spending boost The budget comes as the latest Newspoll shows the ruling Liberal Party-led coalition government trailing the opposition Swati Pandey

T

he Australian government is expected to announce a major boost to infrastructure spending and measures to address housing unaffordability as it promises to speed up a return to surplus in its annual budget today.

Australia’s persistent budget deficit has led to lingering concerns about its prized Triple-A credit rating, and Treasurer Scott Morrison plans to differentiate between “good debt” and “bad debt” in this year’s spending plan.

Broadly, Morrison is defining money borrowed to fund income-generating infrastructure, such as roads and railways as “good debt”, while money borrowed to fund basic costs of annual services the government provides as “bad debt”.

“There are some debt that you can acquire that can actually pay for itself over time when you invest it in things that boost productivity, that grow the economy, in particular that have an income stream,” Morrison said.

Morrison has already announced the government will use “good debt” to finance a second international airport in Sydney. It has also agreed to a A$2.3 billion road and rail package

and has hinted at funding an inland rail freight project linking Melbourne and Brisbane.

Not all economists are convinced by the new distinction.

“The big downside is that the differentiation does nothing on its own to wind back “bad debt” and that some of the projects may turn out to be white elephants that ultimately have to be written down in which case the debt will come back into the budget,” said AMP chief economist Shane Oliver.

Morrison projected a shortfall of around A$36.5 billion for this financial year in his mid-year economic review in December, lower than 2016/17 forecast of A$37.1 billion.

Economists expect the number to show a further improvement of about A$10 billion in the budget, largely thanks to higher prices of iron ore Australia’s top export.

Morrison has also flagged a return to a budget surplus in 2020/21, ending 12 consecutive years in the red, but it will still need to get any major reforms through a hostile Senate where it has a wafer-thin majority.

It is widely expected that so-called ‘zombie’ savings measures - those that have been blocked by opposition parties in the Senate since 2014 and estimated at A$12.4 billion over the

four years - will be removed.

The government is expected to attempt to appeal to voters with a package to address housing unaffordability, with economists speculating it will include measures such as allowing first-home buyers to save for a deposit out of pre-tax income.

Housing has become a sore political topic for the government with property prices in Australia’s two biggest cities, Sydney and Melbourne, running red hot.

But economists say such measures will help only at the margin, given the government’s reluctance to tweak a tax treatment on property massively

favoured by the wealthy known as ‘negative gearing.’

The budget comes as the latest Newspoll shows the ruling Liberal Party-led coalition government trailing the opposition Labor Party at 52 points to 48 points. The coalition has lagged Labor since July 2016.

“The middle political path the Treasurer needs to tread between the budget repair task and managing community expectations on service delivery suggests that the budget will likely contain few new major policy initiatives over what has already been announced,” Citi economist Josh Williamsom said. Reuters

Monetary policy

New Zealand seen keeping rates at record low for now Governor Graeme Wheeler highlighted that growing global protectionism was a major risk for New Zealand’s small and open trade-dependent economy Charlotte Greenfield

New Zealand’s central bank is allbut-certain to keep rates on hold at a record low of 1.75 per cent at its review on Thursday, but investors and economists will be on the lookout for any signs it may move earlier to raise rates as inflation picks up.

All 26 economists polled by Reuters expect no change to the Reserve Bank of New Zealand’s (RBNZ) official cash rate (OCR), which was lowered by 25 basis points to the current record low in November.

Nearly all predicted that the rate will be kept steady this year.

On the face of it, an economy tracking along nicely and the news in March that inflation had finally hit the RBNZ’s target mid-point for the first time in two years, should mean the central bank will be ready to hike, but the reality is more complicated. “...Thursday’s Monetary Policy Statement will address a challenge that the Reserve Bank hasn’t faced in many years: not how to return

inflation to the target, but how to keep it there,” said Westpac Bank economists in a research note.

In its last statement in March, the central bank reiterated that it would stay on hold for a “considerable” period of time, warning that the recovery in inflation could be temporary and there were growing international risks.

Zealand’s small and open trade-dependent economy.

“Once again, the RBNZ needs to walk the tightrope of being encouraged by recent developments in inflation, but not so enthusiastic the market brings forward even further its expectations of an OCR hike,” said ASB economist Daniel Snowden.

The central bank had indicated in March that rates could remain unchanged for as long as two years, with external rather than domestic factors determining the outlook. Some economists thought it might do-away with the mention of a timeframe in its next policy statement.

The central bank slashed rates seven times in the last two years, which worked to lift tepid inflation.

New Zealand’s consumer price index accelerated to a surprisingly brisk 2.2 per cent in the first quarter, the highest in five years.

But some of that gain was due to temporary factors such as higher oil prices and a tax hike on alcohol and tobacco products.

Stripping out petrol, alcohol and cigarettes put annual inflation at a more modest 1.5 per cent, though that was still comfortably within the RBNZ’s target band of one to three per cent. Reuters

Key Points All 26 economists see c.bank holding key rate at 1.75 pct Inflation has edged up to mid-point of RBNZ’s target band RBNZ decision expected on Thursday, May 11

Governor Graeme Wheeler highlighted that growing global protectionism, led by U.S. President Donald Trump, was a major risk for New

RBNZ Governor Graeme Wheeler

12 Business Daily Tuesday, May 9 2017

Asia In Brief Energy

Japan reports successful gas output test Japan’s trade ministry yesterday reported success in producing gas last week by extracting methane gas from methane hydrate deposits offshore Japan’s central coast. The tests being run at two different wells are the first since 2013, when Japan achieved the world’s first-ever extraction of gas from offshore deposits of methane hydrate, a frozen gas known as “flammable ice”. Japan’s Ministry of Economy, Trade and Industry (METI) said the methane hydrate production tests will continue for a combined four to five weeks.

Japan’s first methane hydrate tests in 2013 ended abruptly after less than a week due to problems with sand flowing into the well.

Forex

Indonesia reserves rise in April Indonesia’s foreign exchange reserves increased in April to US$123.2 billion, Bank Indonesia (BI) said yesterday. The reserves stood at US$121.8 billion at the end of March. The increase in reserves of US$1.4 billion came from “tax revenues and government oil and gas export proceeds, as well as auction of Bank Indonesia foreign exchange bills,” the central bank said in its statement.

NAB poll

Australia business activity at decade-high in April A measure of Australian business conditions jumped in April to highs not seen since 2008 with sales and employment all at levels that bode well for a pickup in economic growth in coming months.

National Australia Bank’s (NAB) monthly survey of more than 400 firms showed its index of business conditions climbed 2 points to +14 in April, well above the long-run average of +5. The survey’s measure of business confidence, also edged higher to +13 from +6 in March. NAB chief economist, Alan Oster, said business conditions were a bit stronger than expected.

Appointment

Ex-army general named Philippine environment minister Philippine President Rodrigo Duterte has appointed former army general and ambassador Roy Cimatu as the new environment minister, the country’s agriculture minister said on his Facebook account yesterday. “Let us put an end to all speculations,” Duterte said as he announced the appointment of Cimatu, according to a Facebook post

by Agriculture Secretary Emmanuel Pinol, that shows a photo of Cimatu with Duterte and other cabinet officials. Cimatu will take over from Regina Lopez whose appointment was rejected by the Commission on Appointments last week.

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Election

South Korea’s frustrated younger voters demand change The mounting economic and social frustrations were underlying drivers of the giant anti-corruption protests last year Hwang Sunghee

T

hirty years after South Korea became a democracy, voters born in the period go to the polls today frustrated over their prospects and demanding change as growth slows and job prospects fade.

The decades-long “Miracle on the Han” -- named after the river that flows through Seoul -- propelled the country from a war-ravaged ruin to Asia’s fourth-largest economy and the ranks of the OECD. But its younger voters complain bitterly that times have changed dramatically from their parents’ generation, when hard work paid off with wealth and success regardless of social origin.

Unemployment among youth -defined as those under 30 -- has risen for five consecutive years to hit an all-time high of 9.8 per cent in 2016, more than double the overall average.

South Korea is a notoriously performance-driven country, where the pressure to get into a prestigious university is so intense that most children begin after-hours studies at cramming centres while at primary school.

But for those in their 20s and 30s, attending the best educational institutions no longer guarantees a decent job, with companies reluctant to hire in the face of slowing growth, now below three per cent a year.

According to reports, the giant conglomerates that dominate the economy such as Samsung, SK and Hyundai receive hundreds of thousands of applications a year for just a few thousand positions.

A Korea Economic Research Institute poll of the country’s 500 largest companies last month showed nearly a quarter of respondents planned to reduce new hires or not recruit at all in the first half of the year.

With their entry into the workforce indefinitely delayed, college graduates spend years filling out job forms.

Even more distressing is a sense of

despair that the lack of opportunities compared with the past, and far more competition, means they will never improve their position in a country with a rigid class structure.

“I think the biggest problem is inequality,” said Park Hye-Shin, a 27-year-old student at Hankook University of Foreign Studies.

“You can’t climb the social ladder no matter how hard you try. Even if you attend the best university, every step you take in life is contest after contest.”

Spoon theory

The stinging sense of social unfairness is epitomised by the popular so-called spoon theory -- a spin-off from the English idiom of someone rich being “born with a silver spoon in their mouth”.

Befitting a highly stratified society, there are three levels in the South Korean version -- wealthy “gold spoons” born to rich families, “silver spoons” who enjoy the support of comfortably-off parents, and “dirt spoons” from low-income families with no hope of social advancement.

“The problem is that none of the candidates has laid out a clear solution to their problems” Hahn Kyu-Sup, a communications professor at Seoul National University The mounting economic and social frustrations were underlying drivers of the giant anti-corruption protests last year, when millions of South Koreans took to the streets to demand president Park Geun-Hye’s removal.

She was sacked by the country’s top court in March, triggering Tuesday’s vote, and now those in their 20s and 30s -- who made up the largest slice of the demonstrators -- want their votes to bring about tangible change.

“The presidential election was brought on by the people so it is more meaningful,” said I Gyeong-Eun, a 22-year-old student at Hanyang University.

“Voting is essential but it doesn’t stop there. It will only be the beginning.”

Under-30s normally have the lowest voter turnout of any South Korean age group, but Gallup Korea survey show an astonishing 93 per cent saying they will “definitely vote”.

No solution

“Youths were at the core” of the anti-Park protests, said Koo JeongWoo, a sociology professor at Sungkyunkwan University, and had “an underlying yearning for change in society’s unjust systems”.

Frontrunner Moon Jae-In of the centre-left Democratic Party, who holds an overwhelming lead in opinion polls, has promised a “people-centred economy” and vowed to create 810,000 new jobs, mostly in the public sector, with about a third allotted to younger applicants.

His rival Ahn Cheol-Soo has promised to hand out monthly subsidies of around 500,000 won (US$440) to young employees at small- and medium-sized companies in an effort to match the wages of larger firms.

But some are sceptical that the election will provide any remedies to the underlying issues.

“The problem is that none of the candidates has laid out a clear solution to their problems,” said Hahn Kyu-Sup, a communications professor at Seoul National University.

Student I Gyeong-Eun has organised debates at her school to dissect the candidates’ pledges in an effort to determine who best serves their interests -- without success.

“It seems the candidates are more focused on bringing each other down,” she said. “I get the feeling that policies on youth haven’t been discussed in depth.”

Days before the vote she had still not decided who to back. AFP

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Business Daily Tuesday, May 9 2017 13

Asia Monetary drive

Under Patel, Indian cenbank zooms in on 4 pct inflation target Consumer inflation stood at 3.81 per cent in March Suvashree Choudhury

Under governor Urjit Patel, India’s central bank will target inflation of 4 per cent, three officials familiar with its thinking said, adopting a narrower reading of its mandate than markets in a bid to stamp out rampant price rises of the past.

The differing interpretations of amendments to last year’s Reserve Bank of India (RBI) Act reflect sometimes strained relations between the market and the central bank, and are proving a test for Patel some eight months into his tenure.

The amendments were part of landmark changes to India’s monetary policy pushed by Patel, then deputy governor, and his predecessor as governor, Raghuram Rajan, and require the RBI “to contain inflation within the specified target level” of 4 per cent, but within a tolerated band of 2-6 per cent.

Markets have interpreted that as the range of 2-6 per cent, arguing that pursuing a specific 4 per cent target takes away the flexibility needed in an economy that must grow by at least 8 per cent a year to allow for full employment.

But the RBI is determined to chase the 4 per cent figure, the officials said, as Patel and the other five members of his monetary policy committee (MPC) seek to defend the RBI’s credibility on inflation.

“Markets should read the Act

RBI governor Urjit Patel (R) with former governor Raghuram Rajan

carefully and think as if they are a member of the MPC, and then think: how would they conduct policy?” said one of the officials.

“The Act clearly says 4 per cent is the target and the 2-6 per cent band has been given only to absorb temporary or one-time shocks.”

All three officials spoke on condition of anonymity, because they were not authorised to speak to the press on sensitive policy issues.

The RBI did not give official comment.

Such a stance could open the prospect of earlier interest rate hikes than expected by markets, should prices start to move higher unexpectedly and remain there for some time.

The officials stressed, however, that the RBI was also mindful of growth, in line with an Act that tasks the MPC with “maintaining price stability, while keeping in mind the objective of growth.”

Consumer inflation stood at 3.81 per cent in March, but

weaker-than-expected monsoon rains and planned hikes to government employee salaries could easily see the 4 per cent target under threat.

But any move to hike the repo rate of 6.25 per cent would need to be balanced by concerns among market participants that the economy is weaker than the 7.0 per cent growth in the October-December quarter, as India’s move last year to ban higher-valued bank notes continues to reverberate.

“So far as the 4 per cent target goes, the MPC has to decide how to go ahead in a calibrated way, balancing out the costs associated with that stance,” said the second of the three officials.

RBI versus markets

The pursuit of the 4 per cent target will likely continue to remain a source of disagreement between the RBI and some market players, even as investors begin to adjust to a more hawkish monetary policy.

A Reuters poll last month showed only seven out of 38 economists expected a rate cut this year, down from 21 out of 36 earlier.

However, Indranil Sengupta, economist and co-head of India Research at Bank of America Merrill Lynch, said inflation was “a long, long way” from becoming an issue since the economy has yet to accelerate meaningfully.

“In our opinion there is a case for a 25 bps rate cut in August,” he said.

The differing views reflect how markets are still adjusting to the changes to the monetary policy framework over the past two years in a country with a history of volatile and double-digit inflation.

Patel started his tenure by cutting rates in October, priming investors to believe he would soften his focus on inflation, only to then stun investors by changing the monetary policy stance to “neutral” from “accommodative” in February and adopting a much more hawkish tone.

Since then, the 10-year benchmark government bond yield has risen about 50 basis points.

The officials defended the actions as consistent with the RBI’s views on the trajectory of inflation, which hit as low as 3.17 per cent in January.

But it has since accelerated, and becoming too tolerant could dent the bank’s credibility, the officials argued.

“If people start doubting RBI’s credibility in controlling inflation, then producers will start raising prices, which in turn will push up inflation expectations. It is very important to keep inflation expectations well anchored,” said the second official.

Reuters

Consumption

Australia’s retail slugout adds to worry over weak inflation Clothing and home ware prices have fallen due to cut-throat competition among major retailers Swati Pandey

A fierce price war among retailers is threatening to keep a lid on improving inflation in Australia, compounding the problems of policymakers struggling to support still-weak domestic demand.

An uptick in consumer inflation has lowered the chance of another rate cut this year, but competition from global retailers such as Amazon. com Inc is set to keep prices under pressure - good news for shoppers but worrying for the central bank.

The country’s biggest retailers are suffering from a long spell of deflation that is unlikely to subside soon.

Amazon and German supermarket chain Kaufland want to fortify their global presence Down Under and will join recent entrants such as H&M, Uniqlo and Aldi.

The Reserve Bank of Australia (RBA) said on Friday that “heightened competitive pressures” in the retail sector were among key factors keeping inflation subdued.

“The arrival of further new foreign retailers will be an important influence on final retail prices over the next few years,” the RBA said in its quarterly statement on monetary policy in which it expects underlying inflation may only fully return to its 2-3 per cent target band by mid-2019.

Worried about deflation risks, the RBA slashed rates twice last year to a record low 1.50 per cent. It is widely expected to hold rates until mid2018 but subdued consumer prices could become a trigger for a move lower, and push the Australian dollar weaker.

“While consumers will benefit from lower prices, on-going weakness in retail inflation is a key factor weighing on the broader inflation outlook,” said ANZ economist Jo Masters.

There was some relief headline consumer prices rose in the first quarter, taking the annual pace to its fastest since 2014 at 2.1 per cent.

But five of 11 sectors - about 30 per cent of the CPI basket - saw price falls. Prices for women’s clothing, for example, were at their cheapest on record.

A study by Capital Economics shows price increase in what it classifies as ‘luxuries’ - clothing, alcohol and recreation - halved to 0.6 per cent from 1.2 since the start of last year. Inflation in ‘essentials’ - food, electricity and insurance - accelerated to 3.4 per cent from 1 per cent.

“In other words, it now costs much more to live, but not much more to have fun,” said economist Paul Dales, adding that this situation was hitting household spending on discretionary

items. “It implies that consumption growth will be a little bit weaker.”

Clothing and home ware prices have fallen due to cut-throat competition among major retailers, which only intensified with the arrival of foreign chains to Australia.

While there are few details on how Amazon will position itself, the retail giant’s expected entry this year will worsen the pain of a retail industry that has been largely insulated by a housing boom and pick-up in global growth, analysts said.

Jefferies expects Amazon to capture between A$3 billion to A$8 billion (US$2.25-US$6 billion) of sales in Australia - about 30 per cent of current online retail sales.

Who moved my cheese?

Amazon will “eat all our breakfasts, lunches and dinners”, said Wesfarmers group managing director, Richard Goyder last year, although he has since softened his stance.

“I’m less worried about Amazon in food,” he said, after the company’s quarterly sales results last month which showed its Coles supermarket chain has suffered 24 consecutive

quarters of price deflation. “There are plenty of disrupters and plenty of competition around at the moment.”

Gerry Harvey, founder of Australia’s top electronics and home wares retailer Harvey Norman, has vowed to “match or beat” Amazon’s aggressive pricing.

Australian retailers are being forced to change their business models but four major firms going into voluntary administration in the first two months of the year highlights the deepening crisis.

Key Points Retail price war may halt modest pick-up in inflation Households seen cutting back on discretionary spending Amazon’s entry set to worsen retailers’ woes, keep prices down Foreign retailers enticed by high margins in Australia Not surprisingly, the sector has been shedding jobs, with more workers lost in the year to November 2016 than any other industry.

“Foreign retailers are attracted by relatively high margins in Australia and will continue to enter the market as long as that additional margin is on offer,” said Masters of ANZ. So far, only 16 per cent of the world’s top 250 retailers have a physical presence in Australia, according to Deloitte.

Average five-year operating margin for Harvey Norman was 18.7 per cent, and for Wesfarmers 7.6 per cent, according to Thomson Reuters data.

That compares with 6.1 per cent for Amazon and 5.3 per cent for Best Buy. Reuters

14 Business Daily Tuesday, May 9 2017

International In Brief OPEC

Russia backs Saudi Proposal to extend oil Russia said it supports a suggestion from Saudi Arabia that OPEC and its allies extend their oil output cuts into next year, doubling down on an effort to eliminate a supply surplus and boost prices. “We are discussing a number of scenarios and believe extension for a longer period will help speed up market rebalancing” the Russian Energy Ministry said in a statement yesterday.

“Russia expresses its full solidarity with the efforts of our partners aimed at rebalancing the global oil market and believes that joint efforts to date have been very effective.”

Monetary policy

Board member says ECB should adjust guidance The European Central Bank is close to replacing its negative view on whether the euro zone economy will reach growth targets with a neutral one, and should adjust its policy guidance accordingly, board member Yves Mersch said yesterday.

As growth picks up and labour markets tighten, inflation should also rebound, eventually leading to a discussion about normalising monetary policy, Mersch said in Tokyo. Nevertheless, there should be no deviation from the super-easy policy stance the bank has already agreed on, he added.

Funding

Top Turkey banker frets over capital getting more scarce Capital to fund the expansion of Turkish banks is scarce and getting more costly, according to the chairman of Turkey’s biggest publicly traded lender by assets. “Capital erosion is the most important issue in the Turkish banking industry, because capital has become the most important limited resource,” Turkiye Is Bankasi AS’s Ersin Ozince said in an interview with Bloomberg on Thursday in Istanbul. “Even the best banks are looking for subordinated debt,” showing investors are reluctant to inject capital as returns on less risky investments rise.

Expansion

Biggest Congo bank plans home-market drive Rawbank Sarl, the Democratic Republic of Congo’s biggest lender, plans to extend its branch network into all 26 provinces from 12 over the next three years before expanding regionally and eventually listing its shares. “Our first priority is to cover the Congo and then look to expand into the neighbouring countries with a listing on a stock market,” Chief Executive Officer Thiery Taeymans said in an interview in the capital, Kinshasa. It is considering bordering Republic of Congo as its first potential destination, he said. While Rawbank has branches in about 26 towns, it still has no presence in vast parts of the country.

Brexit

Paris to redouble efforts to attract banks after Macron win The new president is promising to overhaul the labour market and simplify the French tax and pension systems, while paring back regulations he says hamper innovation Anjuli Davies and Maya Nikolaeva

E

mmanuel Macron’s victory in the French presidential election and his plans to swiftly implement structural reforms is a boon for Paris in its efforts to attract banks and other financial service companies seeking to move operations out of Britain, the head of lobbying group Paris Europlace said yesterday.

Britain’s decision to leave the European Union has opened up fierce competition among financial centres elsewhere in the bloc, including Paris, Frankfurt, Dublin and Luxembourg, to attract banks and other financial companies seeking to secure continued access to the single market once Britain leaves.

Hitherto bankers have been sceptical that France can attract much of the UK financial industry, with high labour costs and a frequently changing tax system seen as major deterrents.

“Macron’s win is a sign that France is on the road to implement more structural reforms that are needed,” Arnaud de Bresson, chief executive of Paris Europlace, told Reuters, estimating that Paris could attract 20,000 workers from Britain.

“Macron will personally make it his mission to convince the international banks as well as investors of the benefits of Paris,” he added.

The new president is promising to overhaul the labour market and simplify the French tax and pension systems, while paring back regulations he says hamper innovation.

But there is a lot of uncertainty about the likely pace of reforms, which could take months or even years to implement.

“Macron’s victory will spur a redoubling in the sales pitch for Paris. They are going to go all out,” a banking source at an international bank said.

A delegation from Paris Europlace, together with Christian Noyer, the former French central bank governor, will travel to the United States on May 22 and May 23 to try to persuade the financial industry there to choose Paris as their European base.

Europlace had already held about 100 meetings with large international banks as well as asset management, investment, insurance and fintech companies in London, New York, Shanghai and Tokyo, it said in March.

“Lots of banks have been waiting for the results of the election before

Key Points Macron plans to implement structural reforms within 100 days Financial lobby estimates 20,000 jobs could move to Paris French delegation will travel to the U.S. on May 22 making a decision on relocation plans and Macron’s election will give a boost for the choice of Paris,” said de Bresson.

He added French regulators were offering fast-track solutions to banks and asset management firms seeking

the required licences and that Macron has pledged to implement labour law reforms within his first 100 days in office.

Ugly fight

Nearly a year on from the Brexit vote, most banks and asset managers have already started to implement their contingency plans, including deciding on a European City from which to base their EU operations.

The five largest U.S. investment banks are set to move hundreds of key staff within two years from London to Frankfurt, the city’s chief lobbyist told Reuters on May 5.

So far, only HSBC, Europe’s biggest bank, has said it could move some of its operations to Paris where it has a subsidiary that holds most of the licences needed by an investment bank thanks to its purchase of CCF in 2000.

Before the vote on Sunday, Valerie Pecresse, the head of the wider Paris region, said on Twitter that London-based firms were effectively waiting for a Macron victory to pull the trigger on relocation plans to Paris.

“If Marine Le Pen is elected 30 London-based companies ready to relocate to the Paris region have told us they would give up their plans.”

Paris has a network of international law firms and asset managers and the city is also home to the European markets authority, ESMA. “This is a fight that will get ugly, with Macron trying to attract as much business as possible away from the UK ... Macron is going to lower corporate taxes, create incentives to invest in equities, and reduce red tape. This will make Paris a magnet to wrest business away from London,” said Octavio Marenzi, CEO of Opimas, a capital markets management consultancy. Reuters

Banks in The City (pictured) could see Paris with better eyes after Macron’s victory

Made in Germany

German industry orders rise for second month in a row Economy is expected to grow 1.5 per cent this year Joseph Nasr

High demand from abroad boosted German industrial orders in March, data showed yesterday, a secondin-a-row rise analysts saw as a sign the sector is overcoming past volatility and will contribute to growth in coming months.

Contracts for “Made in Germany” goods were up by 1 per cent on the month, the Economy Ministry said, the first time since November 2015 that new orders increased for two months in a row.

“Combined with buoyant confidence indicators today’s new orders data suggest that industrial production could finally gather some momentum,” ING Diba economist Carsten Brzeski said in a note to clients.

“There is increasing evidence that contrary to previous cycles industrial production could be the lagging factor of the current positive economic expansion,” he added.

The March figure was on a par with the Reuters consensus forecast and followed an upwardly revised rise of 3.5 per cent in February. In January

orders fell by 6.8 per cent.

A breakdown of the March data showed domestic demand fell by 3.8 per cent and foreign orders were up by 4.8 per cent, with bookings from euro zone countries rising by 6.8 per cent.

The euro zone has been revived by the European Central Bank’s expansive monetary policy, and that recovery is good news for German exporters.

Key Points Analysts say rise is sign of end of volatility Industry groups welcome Macron’s victory in France Euro zone recovery driving industry revival “Demand for exports is becoming buoyant, supported above all by a positive development in the euro zone,” said Sophia Krietenbrink of the DIHK Chambers of Commerce.

Highlighting the importance of the euro zone to Germany, German

business associations and economists yesterday welcomed the election of pro-European Union politician Emmanuel Macron as president in France, Germany’s second most important trading partner after China.

“There is a big relief in the engineering industry that the pro-European camp has prevailed in France,” said Carl Martin Welcker, president of the VDMA engineering association.

“With Macron, Germany has won a partner to advance necessary reforms together in the EU.” The BDI industry association also welcomed Macron’s victory over far-right candidate Marine Le Pen, who had threatened to pull France out of the EU. Germany wants France and other euro zone economies to implement painful reforms that would make them more competitive. Euro zone peers want Germany to boost investments, which would reduce it big current account surplus.

The German economy is expected to grow 1.5 per cent this year. Quarterly growth is expected to nearly double to 0.7 per cent in the first quarter from 0.4 per cent in the final three months of last year.

Preliminary first quarter growth data is due on Friday. Reuters

Business Daily Tuesday, May 9 2017 15

Opinion Business Wires

Bangkok Post Does it make sense to impose a new tax on cross-border e-commerce transactions in Thailand to tackle profit shifting and tax avoidance by multinational firms?

The government, for obvious reasons, certainly thinks so. Industry experts, however, may need some convincing.

Thailand is making inroads into new tax rules with the government seeking what it terms a specialised tax on e-commerce operators with a presence either inside or outside of the country. The move is intended to increase tax collection efficiency, particularly for fast-growing cross-border e-commerce transactions for which merchants are not required to pay valued-added tax to the Thai government.

French presidential election candidate for the ‘En Marche!’ (Onwards!) political movement, Emmanuel Macron, delivers a speech after winning the second round of the French presidential elections at the Carrousel du Louvre in Paris on Sunday. Lusa

The Asahi Shimbun Most foreign tourists to the Kansai region stay overnight in Osaka Prefecture even after visiting other cities and areas in western Japan, analysis of IC rail and bus pass data has shown. The survey revealed that sightseers from overseas’ major destinations are Osaka’s Minami district and Kyoto. According to the findings, 70 per cent of visitors from outside Japan stay overnight in Osaka Prefecture after touring Kobe or Nara. The Kansai Economic Federation and the transport ministry’s Kinki District Transport Bureau, which conducted the analysis, said they will develop measures to urge more tourists to travel to areas other than Osaka and Kyoto.

Inquirer.net The new Philippine Stock Exchange chief plans to introduce new hedging mechanisms to the stock market and contribute to efforts to create real estate investment trusts (REITs) as part of efforts to deepen the local capital market.

In a press briefing on Saturday after the PSE’s stockholders meeting, newly installed PSE president Ramon Monzon said among the new products in the pipeline would be to refine and finalize the rules on short-selling as well as to launch structured warrants within the year. Short-selling allows investors to sell stocks they did not own yet by borrowing the underlying securities. This practice is already allowed under the Securities Regulation Code (SRC).

The Phnom Penh Post The (Cambodian) Ministry of Mines and Energy has publicly announced that companies can bid for four mining exploration permits in both Kratie and Kampot provinces, marking the first time since the ministry was formed in 2013 to issue fresh licences for private companies to investigate mineral resource potential. The areas up for grabs comprise a total of 553 square kilometres, with three sites in Kratie and one in Kampot. Meng Saktheara, secretary of state at the Ministry of Mines and Energy, said exploration permits had previously been issued for the four areas but were revoked from their holders more than a year ago due to lack of activity.

What Macron can do for free markets

O

nce the initial market relief plays out -- that, even during an unprecedented “anti-establishment” wave in both Europe and the U.S., French voters rejected a far right president in Marine Le Pen of the National Front -- interest will shift to how relative newcomer Emmanuel Macron will manage to govern in a country accustomed to mainstream politics. And it is not just about his prospects for reinvigorating the French economy and, working closely with Germany, spearheading a modernization of Europe.

It is also about a bigger and more consequential issue: the extent to which endogenous political disruptions are opening the way for better economic governance in the West rather than just setting the stage for a bigger eventual political shock.

Preliminary results from France confirm what markets were expecting: a decisive loss for Le Pen. With the markets’ near certainty now becoming certainty, this is likely to give a further boost to risk sentiment in the short-run. However, the resulting rise in stocks, the appreciation of the Euro, and the fall in the France-Germany government bond spreads will likely be tempered by what has already been priced following Macron’s first round win and the opinion polls forecasting Sunday’s vote.

Meanwhile, the European Central Bank and the Swiss National Bank will be putting their contingency plans back on the shelf, with the ECB also preparing for greater pressure to ease off the monetary policy accelerator.

Beyond the immediate reactions, much will depend on the consequences of an establishment shakeup that speaks to considerable dissatisfaction among younger citizens. Remember, over half of them voted in the first round for fringe candidates: Le Pen of the extreme right and Jean-Luc Melenchon on the far left.

Like her father’s loss to Jacques Chirac in 2002, Le Pen was unable to convert her relatively good first round showing into sufficient country-wide support in the second round of the presidential elections. Instead, she lost to a combination of genuine support for Macron and the coming together of voters insisting that France should not be led by someone from the National Front.

This highlights the challenges facing Macron who, just a few months ago, was a long shot in a crowded presidential field. He inherits a divided nation that, yes, resisted extreme politics yet remains highly dissatisfied with a system that has staggered through too many years of low growth, high youth unemployment, and glaring inequalities.

Now that Macron has been elected, markets will be gradually shifting their focus to his ability to

“

Mohamed A. El-Erian chief economic adviser at Allianz SE and chairman of the President’s Global Development Council

overcome gridlock both at home and in Europe.

Ahead of parliamentary elections in June, his choice of prime minister will signal how he intends to “cohabitate” as he tries to reinvigorate France within what he hopes will be a stronger and more coherent growth-oriented Europe. He must both cooperate with and shape a National Assembly whose long-standing mainstream parties just suffered a humiliating defeat at the polls.

It is a challenge that, in many ways, is similar to that facing two other G7 leaders who came to their countries’ highest office on the back of the antiestablishment wave -- President Donald Trump of the U.S. and Prime Minister Theresa May of Britain.

All three leaders agree that the economy can -- and should -- benefit from low corporate tax rates and a slimmed-down government. They also agree that regionalization and globalization -- as well as the evolution of national identity -- need to pay greater attention to both real and perceived economic losers, even if they constitute a minority relative to the beneficiaries.

More generally, the Macron-MayTrump outcomes speak to an historic internal disruption to the functioning of traditional politics in the advanced world. And it is part of the larger erosion of trust, credibility, and effectiveness of the establishment, and not just in the public sector.

The jury is still out as to whether these three leaders will be able to lead mainstream-dominated parliaments in unleashing productivity, economic growth, and more inclusive market-based economies.

Much will depend on the reaction of establishment forces that remain in control of significant parts of the public and private sectors.

Rather than a decisive blow to anti-establishment wave, as some are claiming, Macron’s victory is a stop along a journey whose destination is still in question.

If the internal political disruption France and other Western countries are experiencing delivers higher and more inclusive growth, it will mark a revitalization of liberal democracies in a promarket fashion. If it fails, it is just a matter of time before France will be dealing with a more mainstream National Front, more inward antiestablishment forces, and greater sympathy for the view that the Eurozone is about the past and not the future. And that is an outcome that markets would find destabilizing. Bloomberg View

The MacronMay-Trump outcomes speak to an historic internal disruption to the functioning of traditional politics in the advanced world

”

16 Business Daily Tuesday, May 9 2017

Closing Markets

China brokerages urged to underwrite more local gov't debt

securitisation (ABS) products could also get some policy support, they added.

China’s Shanghai Stock Exchange has urged brokerages Brokerages are reluctant to underwrite local bonds due to low interest rates and unattractive fees, the sources to underwrite more local government bonds and plans to unveil incentives to boost debt issuance, two sources said.

Currently, local governments bonds are mainly issued told Reuters.

The exchange recently met brokerages and encouraged and traded on the interbank bond market and the their underwriting of local government bonds, according Shanghai Stock Exchange.

The Shanghai Stock Exchange has not commented. to the sources with direct knowledge of the meeting.

China has capped the size of outstanding local The exchange plans to take steps to expand the scope government debt at RMB18.8 trillion (US$2.72 trillion) in of local debt investors and improve debt market 2017, up from RMB17.2 trillion in 2016, excluding bonds liquidity, the sources said. issued under a debt swap scheme. Reuters Underwriting corporate bonds and asset-backed

Made in North Korea

As tougher sanctions loom, more local goods in stores Visitors say locally made consumer goods are becoming increasingly sophisticated and QR or matrix barcodes can been found on a wide range of products

F

rom carrot-flavoured toothpaste and charcoal facemasks to motorcycles and solar panels, visitors to North Korea say they are seeing more and more locally made products in the isolated country’s shops and supermarkets, replacing mostly Chinese imports.

As the Trump administration considers tougher economic sanctions to push the isolated country towards dismantling its weapons programmes, North Korea is pursuing a dual strategy of developing both its military and economy.

The majority of consumer products in North Korea still come from China. But under leader Kim Jong Un, there’s been an attempt to sell more domestically made goods, to avoid any outflow of currency and to reinforce the national ideology of juche, or self-reliance, visiting businessmen say.

There is no available data to show how much is being produced domestically. Export data from countries like China and Malaysia, which sell consumer goods to North

Korea, may not be an accurate reflection.

China’s commerce ministry declined to comment when asked whether China’s exports to North Korea were decreasing due to an increase in locally-made products.

Visitors say that with the impetus from the top, large North Korean companies like military-controlled Air Koryo, the operator of the national airline, and the Naegohyang conglomerate have diversified into manufacturing consumer goods including cigarettes and sports clothing.

North Korea is one of the most insular countries in the world and visits by foreigners are highly regulated.

A Reuters team that was in the capital Pyongyang last month was allowed to go to a grocery store, accompanied by government minders, where shelves were filled with locally made drinks, biscuits and other basic food items. Other visitors have seen locally made canned goods, coffee, liquor, toothpaste, cosmetics, soap, bicycles and other goods on sale in the city.

“As new factories open, the

Trade

branding, packaging and ingredients of our food products have improved,” said shop assistant Rhee Kyongsook, 33.

Kim Chul-ung, a 39-year old physical education teacher visiting the store, said: “I can taste real fruit in the drinks that are made in North Korea, compared to drinks from other countries.”

Visitors say locally made consumer goods are becoming increasingly sophisticated and QR or matrix barcodes can been found on a wide range of products from make-up to soft drinks.

Market vendors are also becoming more competitive, offering samples of their food to shoppers, something they didn’t do five years ago.

“Around 2013, Kim Jong Un started talking about the need for import substitution,”

said Andray Abrahamian of Choson Exchange, a Singapore-based group that trains North Koreans in business skills.

“There was clearly recognition that too many products were being imported from China, not just highend consumer goods but also lower-end ones like food.”

“My Homeland”

Air Koryo’s range of products now includes cigarettes, fizzy drinks, taxis and petrol stations.

“Naegohyang”, or “My Homeland”, began as a Pyongyang-based tobacco factory, but has expanded in recent years to produce playing cards, electronic goods and sports clothing.

The company even sponsors a women’s football team of the same name.

Forex

The North Korean companies were not available for comment and do not publish revenue or profit statements. It was not possible to identify any joint venture partners.

Traders and retail experts said the North Korean market was attractive, thanks to a growing class of “donju”, or “masters of money,” who generate wealth in a grey market economy that is being increasingly recognised and controlled by the state.

Still reliant

Nevertheless, North Korea is still heavily reliant on trade with China and the vast majority of raw materials to make consumer products still come from or through China.

For example, while domestically-made instant coffee is becoming increasingly common, the sugar used in it would likely come from China or another country that produces sugar and pass into North Korea via China, says Abrahamian.

“We’re seeing a rise in domestically-made products, including motorcycles, solar panels and food, but the business relationships on which these products depend on are still Chinese.”

Because of the reliance on China, it is likely these “Made in North Korea” companies will suffer if stiffer economic sanctions are imposed on the country.

Diplomats said this week Washington was negotiating with China on a possible stronger UN Security Council response - such as new sanctions - to North Korea’s missile launches. Reuters

Results

Taiwan’s imports jump, signalling China’s current account JD.com revenue surges as new users more gains for exports surplus in reasonable range drawn in by wider offerings Taiwan’s exports in April grew for the seventh straight month, as expected, but a sharp rise in imports raises the prospect of stronger shipments ahead for the trade-reliant economy.

Exports rose 9.4 per cent from a year earlier, slowing from a 13.2 per cent gain in March, and was broadly in line with the 9.9 per cent increase forecast in a Reuters poll.

Imports jumped 23.5 per cent, faster than 16.85 per cent forecast in the poll, bolstered by agricultural raw materials, including crude oil, finance ministry data showed yesterday.

“The surge in imports reflects optimism in exports by factories,” said Beatrice Tsai, an official with Taiwan’s finance ministry.

The jump in imports narrowed Taiwan’s trade surplus to US$2.78 billion, its smallest since November 2015.

Shipments to major markets slowed, but remained solid in April.

Exports to China and the United States, both key markets, in April rose a respective 10.3 per cent and 7.6 per cent from a year earlier, although both declined from their March pace, the data showed.

Exports of its main technology-related goods also showed strong double-digit on-year per cent gains in April, the data showed. Reuters

China’s current account surplus remained in a reasonable range in the first quarter, the country’s foreign exchange regulator said yesterday.

The current account surplus stood at US$19 billion in the first quarter, with the goods trade surplus standing at US$81.7 billion while the service trade posting a deficit of US$60.1 billion, the State Administration of Foreign Exchange (SAFE) said in a statement.

The capital and financial account recorded a deficit of US$19 billion in the first quarter, with a deficit of US$100 million for the capital account.

The non-reserve financial account deficit narrowed markedly to stand at US$21.5 billion, down 87 per cent year on year, as outbound direct investment fell by 64 per cent year on year to reach US$20.9 billion.

China’s reserve assets including foreign reserves fell by US$2.6 billion in the first three months, narrowing the drop by about 100 per cent compared with the previous quarter.

The country’s international balance of payment is basically balanced thanks to steady structural reforms and stable economy, the statement added. Xinhua

JD.com Inc, China’s second-largest e-commerce firm, said first-quarter revenue grew 41 per cent from a year earlier, benefiting from a rapid expansion into goods like household supplies and food that has brought in new users.

Diversifying into data, cloud and artificial intelligence services amid fierce competition, the company also swung to a profit from a loss in the quarter.

“Margins benefited from our rapidly growing scale across all of our product categories,” JD’s Chief Financial Officer Sidney Huang said in a statement.

Quarterly revenue came in at RMB76.2 billion (US$11 billion), compared with an average estimate of RMB73.5 billion from 14 analysts surveyed

by Thomson Reuters. Active customer accounts increased by 40 per cent to 237 million in the year ended March.

Net profit was RMB355.7 million for the quarter, compared with a loss of RMB867.3 million for the same period a year earlier.

It also said it expects the spinoff of its financial arm to be completed in the second quarter.

JD made a net profit of RMB0.17 per American Depository Share in the first quarter, compared with a loss of RMB0.66 a year earlier. Reuters