Business Daily #1297 May 17, 2017

AirAsia to introduce low-cost carrier to Mainland China Transportation Page 2

Wednesday, May 17 2017 Year VI Nr. 1297 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm IR

Insider: Determining factor in setting up IR is whether locals can gamble Page 5

Gaming

Experts: Commitment to IR in Japan should encapsulate country, image and future Page 6

www.macaubusinessdaily.com

Markets

Beijing to keep tightening wealth management products industry Page 8

Brand focus

Mainland industry seeks excellence in design abroad Page 10

Lost In Translation?

Gaming

Two Integrated Resorts in Japan could be enough. Maybe three, say experts.

But no rush on the Japanese side so far.

Consensus is key. But with no contenders pulling ahead yet, location and taxation will determine much. Pachinko will not be so translatable, but pachislot could. Closer to home, Hengqin could be a potential diversification outlet for the MSAR, say experts. Page 7

We are what we speak

Keeping a dying language alive.

Inspiring social criticism. And acting out a culture on stage. Local drama group Doci Papiaçam di Macau has performed in the local creole since 1993. Playwright and lawyer Miguel de Senna Fernandes and actor Sonia Palmer confide in Business Daily about keeping the tradition alive, the meaning of preserving the culture, and the inspiration for the annual performance.

Not our purview, all done

AL Not all things to all departments. The Secretary of Administration and Justice stressed that the secretariat’s field of responsibility does not encompass the supervising or inspection of the entire public body of recruitment. Regarding the contentious issue of ‘acquisition of services’ the Secretary says all cases have been resolved.

A complaint mechanism for civil servants will be set up next month. Page 3

Balancing act

Interview | Culture Page 4

HK Hang Seng Index May 16, 2017

25,335.94 -35.65 (-0.14%) Worst Performers

CITIC Ltd

+3.99%

Hang Lung Properties Ltd

+0.94%

AAC Technologies Holdings

-2.34%

Sun Hung Kai Properties Ltd

-0.69%

China Resources Power

+3.49%

Hong Kong & China Gas Co

+0.90%

Cathay Pacific Airways Ltd

-1.86%

China Construction Bank

-0.62%

+0.61%

China Petroleum & Chemical

-1.40%

CK Hutchison Holdings Ltd

+0.04%

China Resources Land Ltd

+1.19%

Hang Seng Bank Ltd

Kunlun Energy Co Ltd

+1.00%

Lenovo Group Ltd

+0.61%

Hengan International Group

-0.98%

AIA Group Ltd

+0.25%

Galaxy Entertainment Group

+0.98%

China Shenhua Energy Co

+0.54%

Wharf Holdings Ltd/The

-0.91%

Cheung Kong Property

+0.80%

24° 28° 25° 27° 24° 27° 25° 27° 26° 28° Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Economic balance Mainland records seem to be signalling the economic engine is losing steam. Nevertheless, a better state of the financial sector accounts suggests the gov’t is delicately balancing the macro environment. Page 8

2 Business Daily Wednesday, May 17 2017

Macau Investment

Positive outlook prevails

S

peaking on the sidelines of the G2E Asia at The Venetian, the Deputy Chairman of casino operator Galaxy Entertainment Group Ltd., Francis Lui Yiu Tung, remarked that it is not currently a prominent matter to discuss the city’s gaming taxes, given Macau’s

gaming industry is demonstrating positive growth, local Chinese newspaper Macao Daily reported.

Nevertheless, Lui is aware of the growing competitiveness of neighbouring regions, saying he is preparing for the future in order to maintain the property’s competitiveness.

With regard to non-gaming

development, he commented that the local government should introduce workers that are engaged in the development of innovative and entertaining industries.

Free Yacht Scheme slated for June launch

Meanwhile, the Director of the Macao Government

Tourism Office (MGTO), Maria Helena de Senna Fernandes, who also attended G2E Asia yesterday, said that the Free Yacht Scheme will be fully established in June, local broadcaster TDM Chinese Radio reported.

Given the significant increase in the number of tourists recorded during

the Labour Day holiday, the MGTO Director said the city is anticipating 5 per cent growth in the number of tourists visiting the city this year.

Regarding the discovery of Legionnaires’ disease bacteria in The Parisian Macao, Fernandes said MGTO has been in close contact with the Health Bureau for exchange of the latest information; she also hopes that the hotel operator can ensure the implementation of full precautionary actions.

When asked about the Beijing Imperial Palace Hotel owing affected parties MOP99 million (US$12.35 million), Fernandes explained that the case can only be resolved by legal approach since it involves the recovery of debts. As such, MGTO is not able to act further. C.U.

Airline Industry

AirAsia to introduce low-cost carrier to Mainland China Malaysian budget carrier AirAsia’s branch AirAsia (China) has entered a joint venture with Everbright Financial Investment Holding and Henan Government Working Group to launch a low-cost carrier in Mainland China.

The Memorandum of Understanding

was signed on Saturday and the aviation business will be based in Zhengzhou, the capital of Henan.

The agreement includes the construction of aviation infrastructure such as a dedicated low-cost carrier terminal in Zhengzhou Airport and an aviation academy to train pilots,

crew and engineers, as well as maintenance, repair and overhaul facilities to service aircraft.

“We chose Zhengzhou as our base due to its strategic location and importance as a logistics hub,” said Tony Fernandes, AirAsia Group CEO, as quoted in the press release. “With

President Xi Jinping’s vision of One Belt, One Road, Zhengzhou is set to become even more important, not least as the heart of low-cost air travel in North Asia.”

Currently, the budget carrier services 15 cities in Mainland China as well as Taiwan, Hong Kong and Macau. C.U.

Society

DSSOPT received complaints by the hundred in Q1 2017 The Land, Public Works and Transport Bureau (DSSOPT) received 646 complaints during the first three months of 2017, according to the official data released by the Bureau.

An additional 36 suggestions were received by the Bureau for a total of 682 cases recorded in the first quarter.

Of the total number of cases, 526

- or 77.13 per cent - were related to buildings, followed by 45 related to construction.

In addition, DSSOPT received cases relating to the urban environment such as air and noise pollution and city greening - totalling 35 cases.

No cases were related to transportation or transit and commercial activities. C.U.

Business Daily Wednesday, May 17 2017 3

Macau

AL

Sonia Chan: Secretariat for Administration and Justice not a supervisory body The Secretary also claimed that the government will start consultations on the evaluation system apropos official accountability by year end Cecilia U cecilia.u@macaubusinessdaily.com

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he Secretary for Administration and Justice, Sonia Chan Hoi Fan, stressed yesterday during a plenary session at the Legislative Assembly (AL) that her Secretariat’s field of responsibility does not encompass the supervising or inspection of the entire public body on recruitment.

Yesterday, the AL had a debate session proposed by legislator Leong Veng Chai regarding the recent recruitment scandal of the Cultural Affairs Bureau (IC) slammed by the city’s anti-corruption watchdog, the Commission Against Corruption (CCAC).

CCAC revealed that IC had singularly avoided launching open or central recruitment systems to hire its workers but instead did so via acquisition of services.

Secretary Chan reported that the few recruitment cases via contract

labour agreement, the hiring of workers for particular task or job, have all been resolved.

For recruitment via acquisition of services, apart from the IC cases, Secretary Chan said less than 20 such cases were discovered among departments under the five secretariats, adding that cases are gradually being resolved.

In response to the accusation made by legislator Leong Veng Chai that the Secretariat for Administration and Justice had also recruited large number of workers via acquisition of services the Secretary denied the accusation, saying that there are no contract labour agreements and that only three individuals were recruited through acquisition of service.

Aside from bodies such as the CCAC and Commission of Audit (CA) overseeing government departments, several lawmakers expressed their view that the Secretariat had the responsibility to manage departments.

“I agree CCAC is a body performing supervision and investigation,”

commented Legislator Ng Kuok Cheong. “But on the other hand, the government itself has the function of managing itself but not to always rely upon third parties to investigate and supervise as to manage.”

The pan-democratic legislator also remarked upon the coincidence between the period when reports made

by CCAC came out and the dismissal of related departments and retirement of department heads - the WiFi Go case and IC recruitment.

With regard to IC’s ‘illegal recruitment’, legislator Ho Ion Sang denounced the reason offered previously by IC about related superiors not being familiar with the law which led to the ‘illegal recruitment’, revealing that related directors of the department had, in fact, consulted the department’s legal support team on the recruitment matter.

Meanwhile, legislators questioned the system of official accountability among civil servants.

Secretary Chan disclosed that consultation of the evaluation system will commence by the end of this year.

“The evaluation system might combine the performance of departments, individuals and superiors [in order] to produce objective data to support the implementation of an official

accountability system,” said the Secretary.

Complaint mechanism

Unionist and lawmaker Ella Lei Cheng I pointed out the absence of a complete complaint mechanism for civil servants, totally depending instead on CCAC and CA. “Many of the current civil servants who are aware of issues have no reasonable complaint mechanism as to reporting these problems themselves,” said Lei. “The government has been discussing this for many years but the mechanism is still not available.”

In response, the Secretary claimed that the complaint mechanism will be established by next month.

In addition, a third party committee will be responsible to analyse and follow up on complaints lodged.

Although the advice offered by CCAC does not have the effect of punishment or penalty, Secretary Chan asserted that the watchdog’s advice is highly referenced.

“We should make the reports by CCAC or CA a piece of mirror to check if we made the same mistakes,” said the Secretary, indicating that departments should not employ legal loopholes.

4 Business Daily Wednesday, May 17 2017

Macau Intangible Cultural Heritage of Macau

Putting Patuá centre stage Having performed theatre plays in the local Patuá for 24 years, drama group Doci Papiaçam di Macau will host its new creation on May 19 and 20 as part of the 28th Macao Arts Festival. Business Daily sought to know more about the language, the group’s history and what drives its members to keep Patuá alive Nelson Moura nelson.moura@macaubusinessdaily.com

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reserving a dying language is something that takes community effort and passion for the culture - something local drama group Doci Papiaçam di Macau has been attempting since 1993.

As usual, the group will perform a play enacted by local actors and entirely in Patuá - also known as Maquista, Patois or Macanese creole - as part of the 28th Macao Arts Festival, with this year’s play ‘Sórti Na Téra Di Tufám’ (Stormy Luck) staged on May 19 and 20 at 8:00pm.

Performed only in Patuá - with subtitles in Chinese, English and Portuguese by local amateur actors, the story revolves around local resident Bernardo who is haunted by bad luck but one day discovers he has won the Hong Kong lottery.

However, an incoming typhoon threatens to hit the two cities and block him from claiming his prize, with the lucky ticket becoming coveted by the other characters in the play.

“This group is an attempt to keep the language alive as Macanese tradition. We’re all amateur actors with other professions and we don’t speak it every day. Some of our actors had only heard Patuá but had never actually spoken it,” one of the plays actresses, Sonia Palmer, told Business Daily.

Ms. Palmer has acted in

almost all of the 24 plays performed by the group and considers herself a Patuá speaker able to understand “at least 90 per cent of the language”.

Despite their daily jobs the dozen or so actors that usually take part in the plays managed to find the time from their jobs for three months to prepare a show they see as a way to “remind people the language exists”.

Their effort is generally rewarded with full houses in their two annual shows, attracting people from diverse nationalities interested in the language or in the group.

Language of satire

The existence of the group has much to thank lawyer Miguel Senna Fernandes for who has been the playwright for all of the 24 plays performed thus far.

The son of renowned Macanese writer Henrique de Senna Fernandes, the lawyer has also managed to find time to hold down the post of President of the Macanese Association (ADM) and nurture his passion for Macanese culture and history.

“It is a passion I am dedicated to with body and soul; when you really love something you find the time,” he told Business Daily.

According to Mr. Fernandes, reviving the language involved an effort of “upgrading” and including modern expressions that did not exist in the traditional vernacular.

“I had to imagine what a

Patuá speaker in the contemporary world would say when faced with computers and the Internet. How would he say download or upload?

Every language evolves, and the whole definition of creole is about being pragmatic and adaptable,” said Mr. Fernandes.

As usual in the group’s plays, aside from the humorous aspect it includes a great amount of social and political critique on Macau society as part of the long tradition of Patuá being used for satirical theatre in the city.

“Even if the language has lost its daily use it remains a language for criticising or satirising the powers that be.

It’s the language of the mistreated and it’s part of that tradition to use popular expressions and dialects in satirical theatre,” the playwrite told Business Daily.

“When analysing the linguistic elements of Patuá we see that it tells the history of Portuguese discoveries, possessing elements from Africa, India, Malacca and later Cantonese.

It’s a spoken travel route” Miguel Senna Fernandes, lawyer and playwright Fernandes says the inspiration for this year’s story theme was the controversy surrounding a typhoon alert last year when the city’s

authorities raised a Signal 3 for Typhoon Nida despite the neighbouring regions having raised a Signal 8 alarm.

“That event inspired the story a lot - but the humour of the story doesn’t come from criticising someone or any department in particular but by the whole inevitable typhoon situation,” he says.

Luck is also one of the main themes of the play - an issue “very prevalent in Macau” with the main character being in possession of a HK$90 million lottery ticket while being unable to cash it in.

“With the ticket becoming the coveted target for other characters we delve with humour into the theme of people’s integrity and honesty,” Mr. Fernandes told Business Daily.

A spoken travel route

Patuá is generally described as a creole language, evolving from a combination of the Portuguese language with dialects from the country’s former colonies in Asia and Africa, such as Malay from Malacca and Sinhalese from Sri Lanka.

It has been spoken by the city’s Macanese community as Portuguese explorers settled in Macau in the 16th Century, which at the time was the first Western commercial outpost in China authorised by the Chinese Emperor.

“Languages don’t appear out of nowhere. The language is part of Portuguese roots brought to China during the golden age of the country’s explorations. When analysing the linguistic elements of

Patuá we see that it tells the history of Portuguese discoveries, possessing elements from Africa, India, Malacca and later Cantonese. It’s a spoken travel route,” said Mr. Fernandes.

The Patuá researcher believes the language is a branch of a common language used by Portuguese in their contacts with different ethnicities and people in the region that evolved into a real language with grammatical and syntax rules.

“The language is described as a mash-up but every language is a mash-up. It’s a cocktail of languages that passed the blender but managed to evolve and form what is Patuá,” he added.

The language is considered by the United Nations Educational, Scientific and Cultural Organization (UNESCO) Atlas of World Languages in Danger as being ‘critically endangered’ with the organisation having set the number of speakers at just 50 in 2000.

Mr. Fernandes, however, believes the number of Patuá speakers at the moment could number around 500, with the number of speakers of the traditional and “more dense” Patuá much smaller.

In 2012, Patuá theatre was considered by UNESCO as an Intangible Cultural Heritage of Macau with the lawyer saying he is preparing an application to glean Intangible Cultural Heritage of Humanity status.

“Patuá is a language phenomenon that can’t be placed in the corner,” Mr. Fernandes concluded.

Business Daily Wednesday, May 17 2017 5

Macau Opinion

José I. Duarte* OBOR reflections

IR

Integrated resorts need local gamblers But before getting to the product mix, those hoping to develop integrated resorts need to know that the authorities are on the same page Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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he determining factor in setting up a large-scale integrated resort in a region is whether its locals will be able to gamble; in the event that they can’t, companies such as MGM Resorts will focus their interest elsewhere, says the company’s Senior Vice President of Global Gaming Development, Ed Bowers.

“If you go a foreigners-only route the maximum amount of investment you can get is in lower hundreds of millions (U.S. dollars) and that would be in a good market with good access to an airport,” commented the Senior VP. On the contrary, points out Bowers, “If you allow locals to go to the casino your investment level is numbered in the billions. The more you’re able to spend on the project, the greater opportunity you have to attract from further abroad,” he stated at yesterday’s Global Gaming Expo (G2E) Asia.

The product mix, however, would be different for casinos that are also catering to locals, he points out.

“The local casino visitor is coming regularly. It’s not necessarily a one-off and exceptional event where people are prepared to pay extra for things,” he points out, noting in particular that “the range of amenities is also important […] that there are things people would normally do – so you see significant demand of bowling products, of movie theatres – and these are not typically what you’d see in the more international foreign destination casinos,” notes the Senior VP. However, before getting to the product mix those hoping to develop integrated resorts, such as MGM’s interest in Japan, need to know that the authorities are on the same page.

“Essentially with all of these gaming development projects it all starts with public policy and the governments need to have a clean and transparent view on issues around gaming in order to have clear public policy

– that policy drives the direction they want to go,” notes Bowers giving the example of Singapore noting it was a “clear, transparent process led from the top with great political leadership and it was a huge success”.

This would then be the crux of the group choosing to operate or not in the Japan market, “I don’t think that you can develop any large scale integrated resort that’s a foreigners-only casino; it just doesn’t make any sense,” said Bowers. “Frankly, MGM can’t build a casino that costs less than a billion dollars; we’ve proved that time and again”.

This allowance of locals to gamble also depends upon what the government itself hopes to get out of introducing gaming to the country, as he points out, saying, “I’m spending a lot of time in Japan at the moment”.

“I think what they’re looking for there is economic growth and a continued growth in tourism in particular. And for the 2020 Olympics,” he notes of the government’s potential viewpoint.

“Other markets seem to regenerate communities, and create investment and even jobs. I think that is maybe part of the story in Japan but it’s not the entire story,” Bowers concluded.

Gaming

Keeping it in the family Two subsidiaries of local junket operator Suncity Group Holdings Limited are seeking to increase the annual caps for a hotel accommodation and related services procurement agreement Nelson Moura nelson.moura@macaubusinessdaily.com

Two companies controlled by local gaming promoter Suncity Group Holdings Limited are seeking to increase annual caps for hotel accommodation and related services procurement agreements between them, a Hong Kong Stock Exchange release announced yesterday.

According to the filing, on February 6 of this year Sun Travel Ltd. entered into a procurement agreement for hotel accommodation and related services to be provided by Sun City Gaming Promotion for a period between March 31 and December 31 of this year.

The initial agreement included an annual cap amount for the continuing connected transaction of HK$120 million (US$15.4 million) in relation to the procurement services contemplated, an amount the group is hoping to raise to HK$420 million.

It is also planned to revise the annual caps for 2018 and 2019 to HK$570 million and HK$590 million,

respectively.

The reason for the annual cap increase, according to the release, is due to 35.6 per cent of the initial amount having already been used within the first month of the agreement.

‘Riding on the trend, it is expected that the Original Annual Cap will be exceeded before the expiry of the Initial Term,’ says the filing.

According to the release, the new

cap amounts were set taking into account factors such as the actual procurement volume of the hotel accommodation products in the whole month of April - which reached a value of approximately HK$42.7 million - and the number of guests who booked 5-star hotels via travel agencies in 2016.

The new agreement will be discussed by a committee of independent shareholders, with the Chairman of Suncity Group, Alvin Chau Cheok Wa, and his associates abstaining from voting.

As Chairman and Executive Director of Sun City Gaming Promotion, Chau owns almost 72.2 per cent of the company, with Sun Travel an indirect wholly-owned subsidiary of the Suncity Group.

The ‘One Belt, One Road’ (OBOR) initiative is undoubtedly a major undertaking, with enormous economic potential and geopolitical repercussions. The Chinese authorities are pushing hard to involve other relevant nations and, in particular, to further the infrastructure projects on which much of the success of the initiative rests. It is not our purpose here to delve into the specifics of the initiative, its conceivable transformative power, the opportunities it creates or the difficulties it may face.

But, regardless of what we might conclude from such a ‘higher-level’ discussion, it is clear that such a matter is of interest to Macau.

First, Macau is a part of China: its fortunes are tied to those of the motherland. In very general terms, the way China fits and interacts with the world will have, one way or another, meaningful effects upon the local economy and society. Secondly, the initiative can foster substantial changes in the economic architecture of Asia. That fact alone may transform both the domestic and international frames within which we operate. If such changes take place, they are likely to have a bearing on the flows that underpin the local economy.

It is reasonable to conclude, then, that we would be wise to develop a better knowledge and understanding of the initiative. One that goes beyond a general expression of support – which is evident, anything other than that would be astonishing – or vague statements on the region’s participation in the national endeavour. In other words, it would be apposite to move beyond the usual – and sometimes necessary – platitudes, and think strategically about the issue, also from the particular point of view of Macau.

However, there seems to be little consideration or awareness about the evolution of the initiative and its possible or probable impact upon this Special Administrative Region. And it is not easy, in a first approach, to gauge what specific contributions we could make for the national diplomatic effort.

There are certainly areas where a relatively modest but meaningful contribution can be conceived, namely those that we usually associate with the so-called ‘soft-power’. Beyond that, things turn more complicated. Our main export and half of the economy are casino services, plus the services associated with them – not the easiest fit to OBOR priorities.

But the alternative cannot be just expecting the government to put forward some money so that our companies can participate in that process. *economist and permanent contributor to this newspaper.

6 Business Daily Wednesday, May 17 2017

Gaming

G2E Asia

The final frontier Industry insiders point out that the development of Integrated Resorts in Japan should be framed in terms of a commitment to the entire country, its image, and its future Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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ntegrated Resorts in Japan should not only be about the city or the location where they are bound to set foot. They should be about the whole country.

Three high profile speakers from the industry and from a regulation advising agency participating in a panel held at G2E Asia yesterday have addressed the challenges and current status of Integrated Resort’s development in Japan, claiming a successful bid should consider the country’s culture, arts, and tradition of hospitality.

According to Jeremy Walker, Vice-President of Marketing for Galaxy Entertainment Group (GEG), gaming promotion in Japan is closely connected to the promotion of tourism.

“When we talk about tourism, we are talking about national tourism, the promotion of an entire country, not only a city or a location; that is, how we are going to integrate that product, the IR, into the entire country,” he said in his opening remarks during the panel discussion.

Building on Walker’s comments, Ed Bowers, Senior Vice President Global Development of MGM Resorts International, said that the main

focus should be to “create partnerships and bases around Japan, not only in the major cities, through market-led competition, establishing programmes to showcase [the country].”

Illustrating his case, he said that “in many respects, the Olympics will set up Japan for a lot of foreign tourists.”

The third speaker, Director of Regulatory Affairs, The Agenda Group, Peter Cohen, commented that “what really differentiates the bids are the design and the add-ons.”

“Last week, during the Japan Gaming Congress (JgC), people were talking about the cultural approach [to Japan], but it doesn’t necessarily mean history and tradition. Japan has many other things [such as] technology, robotics, entertainment,” he explained.

Another question discussed by the speakers concerned the market distribution between local and foreign customers.

According to Bowers, a 70- 30 split scenario between locals and foreigners “is not only about how many

customers there will be, but about how much they spend.”

To Walker, another important element to ponder is the “vision” being set forth by the Japanese Government, which is, to him, “a vision to stimulate the economy and to bring visitors to the country.”

Tackling further the question of regulation, the GEG Marketing VP further suggested the Japanese Government frame the tax structure in such a way so as to foster the tourism industry.

“There is an opportunity in the tax structure, where the government might consider a percentage of the tax coming from IR for promoting tourism, to bring international and relevant events to cities. So, a little bit of adaptability and open-mindedness in terms of regulation will get them a long way,” he claimed.

In any case, Cohen stressed, “whatever you plan to do on IR [in Japan], you’ve got to deliver it to them, and then you can get along fine. If you don’t [deliver], you won’t get the co-operation you expect.”

Business Daily Wednesday, May 17 2017 7

Gaming

G2E Asia

All eyes on Japan and Hengqin As expected, in a panel about Asian gaming markets yesterday during G2E Asia, Japan dominated the talk. Analysts also pointed to the Philippines as a place to invest in, while highlighting that South Korea has been successful without big developers Sheyla Zandonai Reporting from the conference sheyla.zandonai@macaubusiness.com

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wo Integrated Resorts in Japan seem to be the right number. For now. A third one down the line may be an option, according to Grant Govertsen and Praveen Choudray, Managing Directors of Union Gaming and Morgan Stanley, respectively.

But the Japanese Government does not seem particularly keen to rush things at this stage.

“They don’t want to go all [out] and build too many things. Can you do a Strip in the future? Sure. But I don’t think it will be the first thing,” mooted Praveen Choudray.

Moreover, there was social pressure against the approval of the Integrated Resort Promotion Bill last December by the Diet.

“Japan is all about consensus. And getting the problem gambling bill away first is probably the way to go to get the gambling bill approved,” said Govertsen.

Speaking on a panel section entitled ‘The Analyst’s Perspective: Asian Markets Update’ on the first day of G2E Asia 2017 at The Venetian Macao, Govertsen and Choudray offered their perspectives, agreeing that overall there are no favourite contenders yet, and that it is still too early to comment upon taxation and regulation outlook.

“Until we know all the nuts and bolts of the legislation, the location, taxation, and so on, it is premature

to say anything about it,” said Govertsen.

But one bet is safe.

“We’re pretty certain that it won’t be a hundred per cent foreign ownership,” said Choudray.

Bidding corporations have acquiesced to taking smaller shares in joint ventures with local, Japanese companies, even though committing ownership structure may put pressure on the return on investment, with the casino operators courting Japan regarding pouring US$10 billion in to develop an IR. As Choudray explained, because among other things “there is inflation, and labour is expensive in Japan, if you put it all together, it’s not that difficult to get to US$10 billion.”

Govertsen added, “I think that anything could happen from now to

Hengqin bid

Speakers raised the prospect of future development of the Macau gaming market, signalling that Hengqin is one of the places to look for diversification and increasing market capacity.

Regarding the possibility of enhancing cross-border influx with the island where the University of Macau is currently located, Goversten said he is all for it.

“These things don’t happen overnight. If it could happen by the time concessions expire in 2021, I think it would be a

September or October when the bill gets down. But you don’t have such expertise in Japanese companies today to design this kind of [mega] structure. You can mention Okada Manila, but it’s just opened,” he said.

Machine versus table

“Pachinko will not necessarily be translated into gaming. But pachislot, which is very similar to the machines [in Macau], might,” said Morgan Stanley’s MD. According to him, this would be reason enough to believe that the “machine market may be big [in Japan].”

Several electronic gaming and slot machine companies exhibiting at G2E Asia 2017, which have been selling to the Macau market for several years, are indeed Japan-based.

“The Japanese are passionately doing several of these machines, but will they be able to use them in IRs? Slot machines are a big business outside Japan, but in Japan itself it hasn’t been figured out yet,” commented Choudray.

Govertsen does not exclude, however, the possibility of a mandate of 40 per cent machine floor

victor,” he said.

According to Choudray, development is already taking place there, with new buildings already erected but as yet uninhabited, with the possibility of IRs bringing further development to the area.

Moreover, it is an option for diversification, said Govertsen.

“I think non-gaming has to happen, and the reality is that the diversification we are going to see will happen at the lower level. To go back to the discussion about Hengqin Island, to really diversify Macau, you need land,” he concluded.

for IRs in Japan. “[In terms of GGR], I think that electronic gaming would be the biggest market. A 50-50 split between table and machines would not be surprising,” the Union Gaming MD suggested.

In what regards table games, a couple of observations have been made.

“Historically, there is a big VIP contingent of Japanese coming to Macau to play Baccarat, some of them having also lived in Las Vegas,” said Govertsen, while Choudray mentioned that Black Jack is also a game the Japanese tend to like.

Pachinko, still a question mark

Allowing pachinko machines or pachislots on IR premises, though, still seems to be the main question.

Despite the fact that the “big guys” from the pachinko industry seem to want to get part of the action it is unlikely that the pinball-like machines will pass the door to the gambling floor.

“There may be a bit of a crossing, which could be problematic, but I think they won’t be allowed a cross over,” said Govertsen.

In any case, the Managing Director of Union Gaming added that “the typical pachinko customer tends to be middle class and below, so there is plenty of GGR on the sidelines. When you think about the IR opportunity, it’s going to be a significant number.”

Choudray agreed that “there’s a lot of value there and, naturally, pachinko guys, such as Dynam, want to take part in IR projects.”

Moreover, and despite the fact that it falls into a different game category – labelled entertainment rather than gambling – in what concerns gamblers’ behaviour in Japan “there is no-one with more inside knowledge than the pachinko industry,” Choudray highlighted.

8 Business Daily Wednesday, May 17 2017

Greater china Strategy

Beijing likely to sacrifice some growth to reduce debt risks While consumption, on a per capita basis, is growing slower than GDP Elias Glenn

C

hina’s growth is set for its weakest patch since the global financial crisis as authorities pull back on the stimulus that helped the economy get off to an unexpectedly strong start this year, and keep funds tight to deter risky lending.

After clocking 6.9 per cent in the first quarter thanks to spending on infrastructure and a property boom that policymakers want to rein in, analysts surveyed by Reuters reckon economic growth will just about make Beijing’s target of 2017 of 6.5 per cent as it slows over the rest of the year.

Massive debt - standing at nearly 300 per cent of GDP - and serious budgetary imbalances mean Beijing can’t carry on pump priming. The brakes went on in April, when annual growth in fiscal spending dropped to 3.8 per cent from 21 per cent the first quarter.

And worries about speculative

bubbles have forced the central bank to tighten short term liquidity, while trying to keep medium term funding available for investment.

“Noticing how serious policymakers seem to be at the moment about reining in financial risks, it’s not impossible we’re going to see a significantly lower economic growth target next year,” said Louis Kuijs, an economist at Oxford Economics in Hong Kong.

Scope for further tightening in monetary policy could be limited if economic growth became uncomfortably slow.

“I don’t think we’re going to see much more additional tightening… but the risks now are on the downside,” said Julian Evans-Pritchard, an economist at Capital Economics in Singapore.

Trying to generate growth through exports by letting the yuan depreciate isn’t an option, due to concern about capital flight that saw foreign exchange reserves fall below US$3 trillion earlier this year, and

the worry that it could provoke the Trump administration into some kind of retaliation.

Policymakers want to move the economy onto a path where consumer spending becomes the main driver, but it’s not there yet.

“Consumption has been very steady and that has been a huge benefit - it has been a very nice buffer,” said Kuijs.

“But in my view, unlike in the United States where consumption by itself can drive the cycle, I would argue that in China, that is not yet really possible...because consumption is still following on to what is happening in investment and wages.”

Household spending only accounted for 37.1 per cent of China’s economy in 2015, according to World Bank data. While that is up from a low of 35.8 per cent in 2007, it is far below the 54.2 per cent average for middle income countries.

Matinee idle

And spending is looking soft, at least

by Chinese standards.

Automobile sales rose 4.6 per cent in the first four months of 2017, about three-quarters the pace of a year ago.

Movie ticket sales, flagged as a sign of China’s growing consumer class, stalled last year and have been mixed this year.

Annual retail sales growth eased to 10.7 per cent in April, and has been on gradual downtrend since 2010, when it notched over 18 per cent.

Consumption, on a per capita basis, is growing slower than GDP.

“Consumption has been very steady and that has been a huge benefit - it has been a very nice buffer” Louis Kuijs, an economist at Oxford Economics in Hong Kong

And the industrial side of the economy is also slowing.

Producer prices fell in April for the first time in seven months, trade data showed a surprising slowdown in imports, and surveys of manufacturing and service-sector activity were weaker than expected.

April data released yesterday for factory output and fixed asset investment also showed growth slowed from March.

There has been some progress on deleveraging. While new credit was a record RMB6.94 trillion (US$1.01 trillion) in the first quarter this year, as a proportion of GDP it fell to 38.4 per cent from 41.3 per cent a year earlier.

“We must push deleveraging,” said Tang Jianwei, senior economist at Bank of Communications in Shanghai. “We cannot go back to the old road if we feel pain. The economic transformation is still going on and deleveraging has just started.” Reuters

Risks

Banking regulator tightens rules on WMPs, flags more curbs The new and revised rules cover a variety of financial institutions from trust firms to banks China’s banking regulator is tightening disclosure rules on lenders’ wealth management products (WMP) as it tries to track risky lending practices in the shadow banking sector, the latest in a series of steps by Beijing aimed at defusing financial risks.

The China Banking Regulatory Commission (CBRC) said in a notice late on Monday it plans to launch 46 new or revised rules this year, part of which targets risks related to shadow banking activities.

Authorities are trying to better regulate RMB30 trillion (US$4.35 trillion) of WMPs, much of it sitting off-balance sheet in the shadow banking sector. The WMPS have been used to channel deposits into risky investments, often via many layers of asset management schemes to skirt lending and capital rules.

The CBRC will now require that banks report the underlying assets and liabilities of their WMPs, as well as all layers of investment schemes, on a weekly basis. Previously, banks were required to hand in less detailed information, and on a monthly basis.

The new rules - published by a WMP management platform under CBRC - reflect regulators’ desire to have a full picture of banks’ activities, and could slow the growth of WMPs. In March, China’s newly appointment banking regulator Guo Shuqing, vowed to strengthen supervision

of the lending sector, underscoring Beijing’s determination to fend off financial risks and push reforms this year.

Separately, CBRC unveiled a long list of rules it aims to publish this year, many of these related to risk-management.

The rules are to “ensure that (risk) does not become systemic,” CBRC said.

The new and revised rules cover

a variety of financial institutions from trust firms to banks including regulations covering bankruptcy for commercial lenders and trust management.

They will also scrutinize how banks handle debt-for-equity swaps and microfinance management, according to the statement.

‘The regulator will now require that banks report the underlying assets and liabilities of their WMPs’ The stepped up efforts to crack down on risky lending practices come as policy makers and analysts worry about systemic risks.

Chinese leaders have pledged to shift the emphasis to addressing financial risks and asset bubbles which analysts say may pose a threat to the world’s second-largest economy if not handed well. Reuters

Business Daily Wednesday, May 17 2017 9

Greater China Liquidity

Central bank injects net RMB170 billion The central bank has been curbing the injection of cheaper, short-term funds China’s central bank injected a net RMB170 billion (US$24.67 billion) into money market through open market operations on Tuesday to offset liquidity stress caused by corporate tax payment and maturing repos.

The People’s Bank of China’s (PBOC) rare explanation for its injection the largest daily net injection since January 19 - comes as authorities continue to clamp down on financial risks while ensuring the economy is not being choked of funds.

The PBOC injected RMB150 billion through seven-day reverse bond repurchase agreements and RMB40 billion through 14-day reverse repos to “offset impact from factors including tax payment and maturing open market operations”, it said in a statement published on its website.

Twenty billion yuan of reverse repos were due to mature yesterday.

After the daily operation, the central bank’s net injection for the day amounted to RMB170 billion.

The rates on the 7-day and 14-day reverse repos remained unchanged, according to the statement.

‘The PBOC provided RMB459 billion [for] the financial system via medium-term lending facility loans last Friday’ The volume-weighted average rate of the benchmark seven-day

repo traded in the interbank market, considered the best indicator of general liquidity in China jumped to more than two year highs at the beginning of this month on liquidity tightness.

The central bank has been offering longer-end liquidity repos than shorter loans recently, and has been curbing the injection of cheaper, short-term funds in continued efforts to lower leverage in the financial system.

The PBOC provided RMB459 billion into the financial system via medium-term lending facility (MLF) loans last Friday, more than compensating for the MLF loans that matured this month.

A loan of RMB230 billion of sixmonth tenure matured on May 3, while another six-month tenure RMB179.5 billion loan is due to mature yesterday.

The PBOC drained a net RMB120 billion from the money market last week. Reuters

In Brief Sino-EU

13th round of BIT negotiations starts The 13th round of ChinaEuropean Union (EU) bilateral investment treaty (BIT) negotiations began yesterday in Beijing, China’s Ministry of Commerce (MOC) announced yesterday. This round is scheduled to last five days.

Both sides will strive for positive headway, the MOC said. China-EU BIT negotiations are one of the most important trade and economic negotiations in which China is currently participating.

Auto industry

Unit of BYD to invest in Argentina Automobile manufacturer CTS Auto, a subsidiary of China’s BYD Co Ltd, plans to invest an initial US$100 million to build electric buses in Argentina, a CTS spokesman said yesterday.

A resolution allowing the company to operate in Argentina also appeared in the official gazette on Monday, as President Mauricio Macri visits China to seek investment. “Since this government started there have been a lot of changes in place,” CTS spokesman Isaac Attis said in a phone interview. “A different climate has been generated.”

Commerce

Australia and HK begin free trade agreement talks

Report

Mainland and India dominate coal ownership as some shun climate risks They say they will need coal for decades to bolster economic growth Investors in China and India increasingly dominate ownership of coal reserves amid campaigns for divestment in many rich nations to limit the risks from climate change, a study showed yesterday.

The report, by British-based research group InfluenceMap, identified thousands of shareholders in 117 listed companies producing 3 billion tonnes a year of thermal coal with 150 billion tonnes of reserves.

Key Points Major funds in Norway, California reduce coal holdings-study Some see opportunities in coal after Trump election It said that ownership of thermal coal, used in power plants, was dominated by “strategic investors in China and India (governments, individuals, power companies, special purpose companies).”

Ownership had shifted towards Asia from Europe and North America in recent years, Dylan Tanner, executive director of InfluenceMap, told Reuters.

“Coal has been pushed into a corner, stigmatized by the divestment community ... the overwhelming majority is held by strategic investors who have an interest in using the asset – the power companies or governments,” said Tanner.

Almost 200 governments pledged at a summit in Paris in 2015 to shift this century from fossil fuels towards renewable energies to curb climate change, and more than 500 major investors have pledged to limit coal investments.

China and India say they will need coal for decades to bolster economic growth even as they try to curb emissions blamed for warming the planet.

As part of the divestment in coal, Norway’s sovereign wealth fund and California’s CalPERS and CalSTRS pension funds, representing about US$1.4 trillion in assets, had sharply cut their ownership of coal since 2010, the study said.

Some investors, however, now see opportunities in coal because U.S. President Donald Trump doubts climate change is man-made and wants to promote fossil fuels from the United States as a cheap source of energy.

Even before Trump’s election, some mid-size U.S. and other asset managers “have been bulking up on coal in the last five years in anticipation of a resurgence of some of the remnants of the U.S. coal bankruptcies and growth in Asia,” the study said.

The report said that if all the coal reserves identified in the report are consumed, it would release greenhouse gases equivalent to 45 per cent of the gases needed to raise average surface temperatures above an agreed ceiling of 2 degrees Celsius above pre-industrial times. Reuters

Australia and Hong Kong began talks to secure a free trade agreement, Australia’s trade minister Steven Ciobo said yesterday, that he said would focus on securing increased access for service providers and could be firmed up within a year.

Ciobo, who met Hong Kong’s Secretary for Commerce and Economic Development Gregory So in Hong Kong, said that while tariffs on Australian goods are already set at zero, talks would focus on improving access for financial, education, travel, construction, mining, energy and transport companies.

M&A

Shougang among bidders for parking space company Indigo Chinese conglomerate firm Shougang is among firms that have submitted bids for parking space operator Indigo, French daily Les Echos said on Monday.

Shougang made an offer on Friday for France’s biggest parking space operator, the paper said, without citing a source. Indigo, which manages a parking network in more than 500 cities and 17 countries, has been put up for sale by France-based private equity fund Ardian and French bank Predica, sources told Reuters in February. The deal may top 3 billion euros.

10 Business Daily Wednesday, May 17 2017

Greater China Design

Mainland seeks to establish its own brands - with foreign designers

W

hen evaporating profit margins prompted China’s Zhejiang Willing Foreign Trading Co. to launch its own brand for yoga wear last year, it spurned home-grown talent and turned to a French freelance designer.

“Chinese designers just don’t have good taste for foreign markets,” said Zhang Tao, assistant manager at the Hangzhou-based company. “Chinese businesses have been good at manufacturing but now we have to change our mind-set. Brands are the future.”

After years of rising wages eroded its position as the world’s bargain manufacturer, China is striving to build its own brands and improve product quality and design. Those advances are crucial to maintaining the high growth needed to make the leap from middle- to high-income status -- a jump only five economies have managed, including Taiwan, Hong Kong and Singapore, according to Nobel laureate Michael Spence.

“The expertise coming out of China’s university system is still mostly in engineering and the hard sciences,” said James Laurenceson, deputy director of the Australia-China Relations Institute at the University of Technology in Sydney. “This is well-suited to the technical challenge of upgrading Chinese industry, but not to the marketing challenge of selling it. Chinese production innovation married up with foreign marketing savvy is a natural fit.”

When Zhang unveiled Willing’s new YinGo yoga clothing brand at the Canton Fair this month, he was so busy on the first day he didn’t get to eat lunch. The company targets

sales of US$5 million to US$10 million annually within two years, he said.

Zhang’s not alone in turning to overseas designers, a visit to the fair in Guangzhou showed. Dongguan Shijin Industrial Co. in the southern province of Guangdong has hired foreign designers to help build its Jordan & Judy home ware brand.

Another is Shanghai-based Oriental Recreational Products Shanghai Ltd., which uses a team of overseas designers to shape its Aqua Marina and Silver Marine brands for paddle boards.

The Canton Fair claims to be the world’s largest trade gathering, bringing together more than 24,000 exporters and 196,000 buyers, mostly foreign. They ink deals in booths spanning exhibition space equivalent to 2,500 basketball courts. Turnover reached more than US$30 billion

during three sessions from mid-April to early May, according to its website.

With profits from manufacturing products for foreign brands squeezed by rising wage and materials costs, Dongguan Shijin’s branded products helped sales surge 50 per cent last year to about 150 million yuan, driven by a contract to supply Japanese fashion retailer Miniso, according to salesman Frank Zhou.

It launched bags and luggage brand Pisidia in 2013, and home furnishings label Creadys last year. Zhou said the company targets sales of 400 million yuan this year and wants to become China’s version of Muji, the Japanese retailer famous for minimalist products.

“We probably won’t make much money at the beginning, but when we’ve established the brands we’re looking at a profit margin of 30 per cent to 50 per cent,” he said.

Shanghai-based Oriental Recreational Products was ahead of the curve, starting its brand building 12 years ago, says salesman Jason Jin. Sales are surging 30 per cent annually for its paddle boards and MSpa inflatable hot tubs.

There may be a brighter future for home-grown designers though, says Jeffrey Towson, a professor of investment at Guanghua School of Management at Peking University.

China has invested heavily in art and design schools and that’s bearing fruit with more than a million art and design students graduating every year since 2009, Towson said.

“They don’t have the experience yet, but they have the talent,” Towson said. “Fifteen years ago nobody hired Chinese engineers. Now every Fortune 500 company builds R&D centres in China. It’s going to be the same with designers.” Bloomberg News

Pollution

Smog in northern region rises in first four months of year Hebei province accounted for six of China’s 10 smoggiest cities over the first four months of the year Air pollution in a key Chinese region surrounding Beijing worsened in the first four months of this year, despite tough new campaigns to enforce green regulations and punish offenders, official data published yesterday showed.

In the Beijing-Tianjin-Hebei region, average concentrations of small breathable particles known as PM2.5 rose nearly 20 per cent yearon-year to 85 micrograms per cubic metre from January to April, said the Ministry of Environmental Protection.

China has launched campaigns aimed at ensuring the region meets a series of politically significant 2017 air pollution targets set by the central government in 2013.

The region is under pressure to cut 2012 levels of

small particulate matter by around 25 per cent by the end of this year, with the capital Beijing aiming to keep average PM2.5 rates at below 60 micrograms per cubic metre, down from 73 micrograms in 2016.

Beijing has already promised “extraordinary measures” to ensure the target is met, but its average PM2.5 reading stood at 76 micrograms in the first four months of 2017, up 11.8 per cent from the same period of 2016.

There were improvements in April alone, with average PM2.5 readings in the region falling 5.2 per cent to 55 micrograms, while the number for Beijing was 53

micrograms, down 22.1 per cent.

But those were not enough to offset the outbreaks of near-record smog that hit the region in January, prompting dozens of cities to issue “red alerts” to curb industrial activity and thin traffic.

Chinese cities need to cut average PM2.5 readings to 35 micrograms in order to meet state standards, while the World Health Organization recommends concentrations of no more than 10 micrograms.

Hebei province accounted for six of China’s 10 smoggiest cities over the first four months of the year, with the steel city of Handan in the province’s south ranking the worst over the period.

The environment ministry said last month it would dispatch 5,600 inspectors to look into the sources of air pollution in 28 cities in and around the Beijing-Tianjin-Hebei region. Violations

have been uncovered at more than two thirds of the firms that have been inspected.

‘Hebei is under pressure to cut 2012 levels of small particulate matter by around 25 per cent by the end of this year’ Hebei, which produces more steel in a year than the whole of the European Union, admitted last week that it was still failing to implement policies aimed at curbing pollution and industrial overcapacity. Reuters

Business Daily Wednesday, May 17 2017 11

Asia Investment bank

Japan’s ruling party heavyweight signals readiness to join AIIB Japanese Prime Minister Shinzo Abe said joining AIIB could be an option if questions over the bank’s governance were resolved Leika Kihara

J

apan’s senior ruling party official has signalled Tokyo’s readiness to join the China-backed Asian Infrastructure Investment Bank (AIIB), saying it was crucial to reach a decision soon, the Nikkei newspaper reported yesterday.

Key Points Key would be how quickly Japan decides to join - Nikai Questions over AIIB’s governance must be solved - Abe Nikai meets China’s Xi - Xinhua news agency “The key would be how quickly Japan can decide to participate,” Toshihiro Nikai, secretary-general of the ruling Liberal Democratic Party, was quoted as telling reporters on Monday.

Known for his close ties to China, Nikai was in Beijing to attend a two-day summit of China’s Belt and Road initiative that concluded

Jin Liqun, head of AIIB

on Monday.

Nikai met Chinese President Xi Jinping yesterday, according to China’s state-owned Xinhua news agency, and Xi expressed hope that joint efforts would be made to ensure bilateral ties developed in the right direction.

Japanese Prime Minister Shinzo Abe said in an interview with CNBC on Monday that joining AIIB, created

at least in part as a way to fund the Belt and Road initiative, could be an option if questions over the bank’s governance were resolved.

“For now, we are still monitoring (AIIB’s) operations carefully,” he was quoted as saying.

Japan, following Washington’s lead under former U.S. President Barack Obama, did not join the AIIB, partly from concern it was a vehicle

to boost China’s regional clout and a potential rival of the Asian Development Bank, the Manila-based institution dominated by Japan and the United States.

At the summit, Xi and 29 other heads of state reaffirmed their commitment to building an open economy and ensuring free and inclusive trade under the Belt and Road initiative led by Beijing. Reuters

Investment

Singapore sovereign fund GIC pares UBS stake at a loss The fund said, however, that its investment in U.S. bank Citigroup Inc, was in the black Michael Shields and Anshuman Daga

Singapore sovereign wealth fund GIC Private Limited, which invested in UBS to support it during the 2008/09 global financial crisis, said it had cut its stake in the Swiss bank at a loss, partly because of changes in the lender’s strategy and business.

GIC, which manages more than US$100 billion globally, said it had reduced its stake to 2.7 per cent from 5.1 per cent.

People familiar with the matter told Reuters GIC placed its shares at 16.10 Swiss francs each, a discount to Monday’s close at 16.61 francs. The stock was indicated 1.9 per cent lower in pre-market activity.

Selling 93 million shares at 16.10 would raise 1.5 billion francs (US$1.51 billion). GIC’s original investment as the financial crisis erupted was worth around 11 billion francs.

“GIC made the UBS sale despite the loss because conditions have changed fundamentally since GIC invested in UBS in February 2008, as have UBS’ strategy and business,” Lim Chow Kiat, chief executive of GIC, said in a statement issued on Monday.

“It makes sense now for GIC to reduce its ownership of UBS and to redeploy these resources elsewhere,” he said.

The fund said, however, that its investment in U.S. bank Citigroup Inc, also made at the height of the global financial crisis, was in the black and that combined returns for UBS and Citi were positive in “mark-to-market terms.”

GIC measures its performance on an overall portfolio basis, based on long term rather than annual returns.

GIC is keeping its profitable investment in Citi.

“We remain a shareholder of Citibank. As with all our investments, we continue to manage our position based on our assessment of the fair value of Citigroup and other investment opportunities,” a GIC spokeswoman said in an email to Reuters yesterday.

The sovereign fund had reduced its stake in Citi to under 5 per cent in 2009 from over 9 per cent but didn’t disclose subsequent holdings.

Reuters data on Monday showed GIC was not listed as among the top 50 Citi shareholders

UBS, the world’s biggest wealth manager, said separately on Monday GIC intended to place up to 93 million existing shares in UBS Group through a sale to institutional investors.

GIC, owned by the government of Singapore, was one of the first sovereign funds to pump billions into Western banks, which were rocked by the financial crisis and suffered deep losses.

Singapore took a 9 per cent stake in UBS in 2007 via an emergency capital injection when UBS unveiled US$10 billion worth of subprime writedowns. UBS said at that time that GIC would invest 11 billion francs.

The sovereign fund converted its 11 billion franc investment in UBS

notes into shares in 2010.

Lee Kuan Yew, Singapore’s first prime minister, who ruled the citystate for three decades and was formerly the chairman of GIC, said in 2009 that the sovereign fund had invested “too early” in global banks such as Citigroup and UBS. Lee died in 2015.

UBS’s website listing of major shareholders said that Singapore as the owner of GIC had held a stake of 7.07 per cent as of December 2014.

GIC Private Limited and its associates have agreed to a 90-day lockup period for the remaining UBS shares, UBS said.

UBS Investment Bank acted as placement agent on the sale. Reuter

12 Business Daily Wednesday, May 17 2017

Asia Bank of Japan

Governor “quite sure” central bank can smoothly withdraw stimulus Many market participants expect the BOJ’s next move to be a withdrawal, not an expansion Leika Kihara

B

ank of Japan (BOJ) Governor Haruhiko Kuroda said he was “quite sure” the central bank could smoothly exit from its massive monetary stimulus when the appropriate time to do so came.

But he also said the BOJ “always” had room to expand monetary stimulus to achieve its 2 per cent inflation target, indicating that wages and prices had been slow to respond to improvements in the economy.

The remarks suggest the BOJ is in

no rush to swing monetary policy in either direction, particularly toward cutting back on stimulus with the economic recovery still fragile.

“There may be some challenging issues, but I’m quite sure the BOJ has enough tools” to manage an exit from its stimulus programme, Kuroda told a seminar hosted by the Wall Street Journal in Tokyo on Tuesday.

For whenever the BOJ decides to withdraw stimulus, Kuroda said there may be lessons to learn from how the U.S. Federal Reserve normalises its ultra-loose monetary policy.

“But the United States is the United

States, Japan is Japan. At this stage, we’re not exiting,” Kuroda added, stressing that the BOJ was nowhere near an exit from its massive stimulus programme with inflation distant from its 2 per cent target.

Under a new framework dubbed yield curve control (YCC) that was put in place last year, the BOJ caps long-term interest rates around zero per cent via aggressive asset purchases.

With inflation stubbornly stuck around zero per cent, BOJ officials have stressed that any exit from massive monetary support would be some time away.

But many market participants expect the BOJ’s next move to be a withdrawal, not an expansion, of

stimulus as the economy shows signs of strength, thanks to a rebound in global demand.

Some analysts worry about the sustainability of the BOJ’s stimulus programme, with the central bank having already gobbled up 40 per cent of the Japanese government bond market.

Key Points BOJ can “always” top up stimulus as needed - Kuroda Wages, prices slow to respond to improvements in the economy Kuroda says BOJ can learn from Fed’s exit strategy BOJ still has plenty of JGBs to buy - Kuroda Kuroda dismissed such concerns, saying the BOJ still has 60 per cent of the market left to buy from. “I really don’t think there is any constraint to our yield curve control,” he said.

He also shrugged off concerns that expected interest rate hikes by the Fed could disrupt global markets and cool growth.

“I’m not very concerned about the normalisation process the Fed is implementing...as it reflects the strength of the U.S. economy,” Kuroda said.

He added that the Fed’s policy would not have a direct impact on the BOJ’s monetary policy, which is focused on the domestic mandate of achieving 2 per cent inflation.

“Our inflation rate is still quite low, so our monetary policy is targeted at achieving the 2 per cent price target at the earliest possible time,” Kuroda said. Reuters

Bank of Japan Governor Haruhiko Kuroda

Tourism

Thailand’s visitor arrivals up Foreign arrivals were 2.83 million in April and about 12 million in the first four months of this year Kitiphong Thaichareon

International tourist arrivals in Thailand rose 7 per cent in April from a year earlier and the government predicted a pick up in Chinese visitors will help it achieving its target for 2017.

Foreign arrivals were 2.83 million in April and about 12 million in the first four months of this year, up 2.9 per cent from the same period a year earlier, he said.

Growth in January-April arrivals “was not exciting” because of last year’s high comparative figures,

Pongpanu said.

“But there is nothing to worry about. We believe foreign tourists are coming back, especially Chinese tourists, which have shown signs of recovering,” he said.

In the first four months of 2017, Chinese tourists, Thailand’s biggest foreign group, dropped 7.5 per cent from a year earlier to 3.19 million, improving from a 20 per cent slump in the final quarter of 2016 after a Thai crackdown on cheap Chinese tour packages.

The ministry expects at least 9 million Chinese travellers this year, up

from 8.7 million last year, Pongpanu said.

The banning of Chinese tour groups to South Korea should also boost Thai tourism but any benefit may be seen from the third quarter as it will take time for visitors to change plans, he said.

U.S. President Donald Trump’s entry ban on people from seven Muslim-majority countries also helped increase visitors from the Middle East, which rose 12 per cent in the first four months of this year from a year earlier, Pongpanu said.

Reuters

Key Points January-April arrivals up 2.9 pct y/y Govt keeps targets of about 35 million tourists this year Tourism accounts for 12 per cent of Thailand’s economic output, and has been a rare bright spot for Southeast Asia’s second-largest economy, whose growth has lagged peers in recent years.

The government was sticking by its target of about 35 million visitors this year after a record 32.6 million in 2016, Pongpanu Svetarundra, permanent-secretary of the tourism and sports ministry, told a news conference.

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Business Daily Wednesday, May 17 2017 13

Asia In Brief M&A

Toshiba and Western Digital need to get along Japan’s government said yesterday it wanted Toshiba Corp and partner Western Digital Corp to cooperate, expressing concern about an escalating dispute between the two that threatens to derail the sale of Toshiba’s chip unit. Western Digital has sought international arbitration to stop Toshiba from selling the unit without its consent, arguing that the Japanese conglomerate has violated joint venture contracts. “It’s very important for Toshiba and Western Digital to cooperate”, Trade Minister Hiroshige Seko said, but added that the ministry did not intend to intervene in the dispute.

Poll

Philippines GDP growth to stay solid on exports For the full-year, economists forecast the Philippine economy would grow 6.8 per cent The Philippine economy is expected to have maintained a robust pace of growth in the first quarter, bolstered by resilient exports and strong consumer spending and investment activity.

The economy is also being propped up by record remittances from abroad and the government’s expansionary fiscal policies at home. Southeast Asia’s fifth-largest economy is on track to remain one of the region’s fasting-growing this year.

Gross domestic product was expected to grow 1.5 per cent in the

March quarter from the previous three months, slightly slower than 1.7 per cent growth in the fourth quarter, according to the median forecast in a Reuters poll.

From a year earlier, the economy was estimated to expand 6.8 per cent in the first three months, faster than 6.6 per cent growth in the fourth quarter, driven by a rebound in exports, farm output and strong domestic demand.

Economic Planning Secretary Ernesto Pernia told Reuters in January he expected annual growth in the

first quarter period to be between 6.5-7.0 per cent, or even higher, as the government committed to ramp up infrastructure spending.

Key Points Q1 GDP seen at 1.5 pct q/q; 6.8 pct y/y Data due on Thursday, May 18 at 0200 GMT

For the full-year, economists forecast the Philippine economy would grow 6.8 per cent, within the government’s growth target of 6.5-7.5 per cent. Reuters

Cyber safety

Indian state power company’s computers hit by ransomware attack The global ransomware attack has affected several computers of a state power distribution company in the Indian state of West Bengal but the federal government computer system has largely escaped, officials said on Monday State agencies that manage government websites and build supercomputers have installed security patches issued by Microsoft Corp.

Federal Minister Ravi Shankar Prasad told reporters that there was no serious impact on India, with only isolated incidents in parts of Kerala and Andhra Pradesh states, and the government was monitoring the situation.

‘A power department official who did not want to be named said billing for around 800,000 households was affected’ However, West Bengal Power Minister Sovandev Chattopadhyay told Reuters that several billing centres of the state’s Electricity Distribution Company Ltd (WBSEDCL) had been infected by the ransomware worm.

He said the situation will be very serious if household electricity consumption data from the central server of the utility could not be retrieved beforehand.

A power department official who did not want to be named said billing for around 800,000 households was affected when the ransomware blocked access to files in the computers.

A senior official at the Federal Ministry of Electronics and Information Technology said its Computer Emergency Response Team was gathering all possible information about the ransomware.

The cyber attack, which shut car factories, hospitals, shops and schools over the weekend, has proved less

FX

S.Korea fines banks over forwards rigging South Korea’s anti-trust regulator fined Deutsche Bank AG and BNP Paribas a total of 176 million won (US$157,000) after it found that their branches had colluded during currency forwards auctions. South Korea’s Fair Trade Commission said yesterday that the two banks had made illegal profits from 2011 April through 2014 November by colluding on prices of bids so that they can take turns to win forward currency contracts from companies trying to buy currency derivatives for hedging purposes. The regulator said in a statement that Deutsche Bank’s fine was 71 million won (US$63,000) and BNP Paribas’ was 105 million won (US$94,000).

Prosecution

severe than anticipated in Asia, but industry professionals have flagged potential risks in the future.

Aruna Sundararajan, secretary of India’s Ministry of Electronics and Information Technology, told Reuters the government was constantly monitoring the situation and that a few stand-alone computers at a police department were “back in action” after being infected over the weekend.

It was not immediately clear what the police department did to secure its systems.

India’s National Informatics Centre, which builds and manages almost all government websites, and the Centre for Development of Advanced Computing, a premier research institute that has built supercomputers, have actively installed patches to immunise their Windows systems, Sundararajan said.

Her ministry has also asked chief information security officers of all organisations run by provincial governments to follow guidelines issued

by New Delhi to tackle the issue. Reuters

India’s agency raids residences of former finance minister India’s Central Bureau of Investigation (CBI) yesterday raided residences of former finance minister P. Chidambaram and his son in connection with alleged financial irregularity. The agency was conducting searches in the southern Indian city of Chennai, the capital of Tamil Nadu. The raids were being carried out in connection with clearances given to a firm and misconduct in grant of Foreign Investment Promotion Board (FIPB) approval during Chidambaram’s stint. “The CBI today conducted raids at 12 places in Chennai including the residence of former minister Chidambaram and his son Karti Chidambaram,” an official said.

Infrastructure

HCM City to invest in transport Vietnam’s Ho Chi Minh City will pour some US$2.3 billion into building roads and bridges from now to 2020, the municipal Transport Department said yesterday. According to a plan the city submitted to the Ministry of Finance and the Ministry of Planning and Investment for approval, over 52 trillion Vietnamese dong (US$2.3 billion) is earmarked for transport development.

Roads leading to the Tan Son Nhat international airport and ports will be built or expanded to diminish traffic congestion and facilitate flows of passengers and goods. Canals will be dredged and roads be upgraded to combat inundation.

14 Business Daily Wednesday, May 17 2017

International In Brief Portugal

Growth is good, but not enough - Economy Minister The Portuguese Economy Minister said yesterday that economic growth in the first quarter of 2017 had “exceeded all expectations,” and “is balanced” but it is not enough and in future it should be achieved through innovation.

“The growth of the economy has accelerated in the last three quarters. It was important to give consumers more confidence, through restitution of income, but it is equally important to give investors more confidence.

All of that led to balanced growth,” said Manuel Caldeira Cabral yesterday morning, in Matosinhos, at the 14th COTEC National Innovation Meeting.

Politics

France’s Macron picks PM from the right Newly inaugurated French President Emmanuel Macron appointed a conservative prime minister on Monday in a move to broaden his political appeal and weaken his opponents before parliamentary elections in June. Edouard Philippe, 46, a lawmaker and mayor of the port city of Le Havre, is from the moderate wing of the main centre-right party, The Republicans, and will provide a counterweight to former Socialist members of parliament who have joined Macron’s cause. Macron wants to smash the left-right divide which has dominated France for decades.

Index

MSCI upgrades Pakistan and adds 57 securities Index provider MSCI on Monday announced changes to its indexes as a result of its semi-annual market reclassification, including reclassifying Pakistan as an emerging market from frontier market status and the addition of 57 securities and removal of 28 securities from its All-Country World Index. The three largest additions to the MSCI ACWI index by market capitalization are Spain’s Gamesa Corporacion Tecnologica SA , Denmark’s H. Lundbeck A/S and the United States’ Athene Holding Ltd. The MSCI Pakistan Index was upgraded from frontier market to its emerging market classification as part of the review.

Mood poll

German investor confidence creeps up in May Confidence among German investors inched up in May, a regular survey showed yesterday, buoyed by optimism for the future of the eurozone following Emmanuel Macron’s election to the French presidency. The ZEW economic institute’s headline index measuring economic expectations for the coming months added 1.1 points to reach 20.6, in a marked slowdown a 6.7-point leap in April. Analysts surveyed by data company Factset had predicted slightly faster growth in confidence, to 21.6 points. The institute’s separate index measuring expectations for the 19-nation single currency area leapt 8.8 points, to 35.1.

Legislation

EU court deals blow to quick trade deals A ruling gives power on trade issues back to national politicians Alex Pigman

E

U trade deals must endure a potentially bruising process of ratification by all member states, the European Union’s highest court ruled yesterday, with possible consequences for Brexit.

Britain hopes to win a fast-track trade deal with Europe after it negotiates its divorce from the EU but the decision by the European Court of Justice could cripple that plan.

In a closely watched decision, the EU court said that any trade deal that includes a non-court dispute settlement system would require ratification by the EU’s 38 national and regional authorities.

The ruling gives power on trade issues back to national politicians at a time when opposition to globalisation in the west is on the rise.

U.S. President Donald Trump won his election last year on a fiercely protectionist agenda and killed off a blockbuster trade deal with Asia within just days in office.

“It follows that the free trade agreement can, as it stands, only be concluded by the EU and the Member States jointly,” the court said in a

statement.

The decision applied to an EU-Singapore treaty signed in 2013, but will stand as key jurisprudence for future trade deals including any deal with Britain.

Non-government arbitration systems are a core part of international trade deals and have drawn fierce opposition by activists who see them as being under the influence of corporate interests.

“Involving national parliaments in the ratification of free trade agreements will increase the democratic scrutiny and give citizens a stronger voice” Paul de Clerck, of Friends of the Earth Europe

Last year the tiny region of Wallonia almost killed off a huge EU-Canada trade deal after years of talks, because of its opposition to this system.

That tussle highlighted the dangers

of a marathon ratification process that involves high-tension votes in national or regional parliaments.

The European Commission, which handles trade negotiations for the EU, saw the Singapore deal as a new standard that reflected bigger powers won by Brussels.

In the commission’s big plans, the Singapore deal would have only required the green light of the European Council, which groups officials and ministers from the EU’s 28 governments, and the European Parliament.

‘A stronger voice’

“Involving national parliaments in the ratification of free trade agreements will increase the democratic scrutiny and give citizens a stronger voice,” said Paul de Clerck, of Friends of the Earth Europe.

“We call on parliamentarians to reject all deals that include unfair VIP rights for foreign investors,” he said.

British Prime Minister Theresa May has insisted that Britain could negotiate its departure from the European Union and a new trading arrangement within two years.

May’s blueprint for an EU trade deal includes setting up the arbitration systems that would fall under the scope of the court’s decision.

The EU-Canada accord took seven years to negotiate and has only begun the long approval process by national parliaments. AFP

Brexit

Britain’s inflation drives higher ahead of election Much of the rise in April was due to the late timing of the Easter holiday which pushed up air fares British inflation hit its highest level since September 2013 last month, building on its sharp rise since the vote to leave the European Union and tightening the squeeze on living costs for households ahead of a national election on June 8.

Consumer prices rose in April by an annual 2.7 per cent, the Office for National Statistics said yesterday, and economists said inflation would climb further as the fall in the value of the pound since the Brexit vote pushes up the cost of imports.

Economists taking part in a Reuters poll had predicted a rise of 2.6 per cent.

Much of the rise in April was due to the late timing of the Easter holiday which pushed up air fares. But the combination of sterling’s fall and higher oil prices are pushing up inflation across the board for consumers and businesses.

Last week Bank of England Governor Mark Carney warned this year would be challenging for consumers, saying that wages are about to fall in real, inflation-adjusted terms.

The head of Britain’s biggest trade union group said Tuesday’s inflation data meant living standards should be front and centre of the election campaign.

“The last thing Britain needs is another real wage slump. But rising prices are hammering pay packets,” Trades Union Congress General Secretary Frances O’Grady said.

Prime Minister Theresa May is widely expected to defeat the

opposition Labour Party which is calling for an end to strict limits on public sector pay growth and higher minimum wage.

Despite the inflation rise, however, the economy is far from overheating -- meaning that all but one of the BoE’s eight policymakers voted last week to keep interest rates on hold.

Airfares swing in Easter

The latest inflation figures were boosted most of all by rising airfares during the Easter holidays which last year took place in March. Rising clothing prices, higher car tax and electricity also pushed up consumer prices.

One-off effects aside, some see more inflation ahead.

Many economists say the impact of the fall in sterling on consumer prices will be felt more strongly in the coming months, and the central bank expects inflation to peak at nearly 3 per cent by the end of this year.

Capital Economics said it expected inflation to exceed 3 per cent before the end of the year but saw little sign

of domestic inflation pressures becoming entrenched.

Excluding oil prices and other volatile components such as food, core consumer price inflation rose to 2.4 per cent, the strongest rate since March 2013 and above economists’ expectations for it to rise to 2.2 per cent.

Services prices - which the BoE uses as a guide to domestic inflation pressures - rose by 3.0 per cent, the biggest jump since September 2013, pushed up by the higher air fares.

Factory output prices - a guide to future consumer price pressures increased 3.6 per cent, unchanged from the previous month and above forecasts of a 3.4 per cent annual increase in the Reuters poll.

Prices paid by factories for materials and energy rose at the weakest annual pace since November, up 16.6 per cent.

The ONS said house prices in March rose at their weakest rate since October 2013, up 4.1 per cent on the year. Prices in London alone grew 1.5 per cent, the weakest since March 2012. Reuters

Business Daily Wednesday, May 17 2017 15

Opinion

Cyberattacks are certain; cybersecurity business is not

Germany will lose if Macron fails

Shira Ovide a Bloomberg Gadfly columnist

I

t’s now clear that cyberattacks are a fact of life for corporations and governments. What’s less clear are the winners and losers among companies focused on stopping the digital break-ins.

News about the WannaCry digital extortion attack that crippled hundreds of thousands computers worldwide caused predictable stock market euphoria on Monday. As tends to happen when there is a highly public cyberattack, share prices of cybersecurity technology specialists such as Palo Alto Networks, Proofpoint and Fortinet climbed.

Many prominent digital attacks -- such as those on Target, J.P. Morgan Chase and Sony’s movie studio -- lift hopes of ringing cash registers at tech companies that make money from companies’ fear they’ll be the next victim. But even as computer a t t a c ks b e c o m e m o r e p r eva l e n t and damaging, they haven’t been a per cent universal triumph expected annual for the cybersecurity spending growth industry. on cybersecurity tech It is true that c o r p o r a t e executives, boards of directors and governments are taking digital threats seriously. Research firm IDC expects spending on information-technology security to increase 8.7 per cent each year through 2020 to nearly US$105 billion, nearly three times the forecasted growth rate of all corporate and government technology spending. In a recent Morgan Stanley survey of big company information technology executives, digital security software was cited as the top 2017 spending priority by the second-highest number of respondents, trailing cloud computing technology.

But there are no sure bets in the cyber world. Securing companies from computer intrusions is growing more competitive.

A glut of options from old-guard tech companies such as Cisco and from moneyrich Silicon Valley start-ups is making it harder for all cybersecurity technology to stand out to prospective customers. The industry didn’t do itself any favours, either. It has grown difficult to tell which companies are selling effective security safeguards and which ones are overpromising.

As a result, valuations of many onetime cybersecurity highfliers have come back from the stratosphere as investors started to rethink their indiscriminate bets. The First Trust Nasdaq cybersecurity ETF, composed of companies such as Cisco, Palo Alto Networks and Check Point Software, has underperformed the S&P 500 stock index.

The security ETF has risen 11 per cent since its inception two years ago while the S&P 500 has climbed 15 per cent over the same period.

It’s understandable for fretful companies to hunt for technology silver bullets to protect themselves from digital bad guys.

But companies’ fear of hackers doesn’t erase the insecurity for the cybersecurity business. Reuters

8.7

W

hen Emmanuel Macron won the French presidential election, many Germans breathed a loud sigh of relief.

A pro-European centrist had soundly defeated a far-right populist, the National Front’s Marine Le Pen. But if the nationalist threat to Europe is truly to be contained, Germany will have to work with Macron to address the economic challenges that have driven so many voters to reject the European Union.

This will not be easy. In fact, within a couple of days of the election, core planks of Macron’s economic platform were already under attack in Germany. For starters, his proposed reforms of eurozone governance have been met with substantial criticism.

Macron’s campaign manifesto embraced the idea of more eurozone federalism, characterized by a shared budget for eurozone public goods, administered by a eurozone economics and finance minister and accountable to a eurozone parliament.

It also called for greater coordination of tax regimes and border controls, stronger protection of the integrity of the internal market, and, in view of the rising threat of protectionism in the United States, a “made in Europe” procurement policy.

An attempt at re-opening the debate about Eurobonds, or the partial mutualisation of eurozone public-sector liabilities, was viewed as a pie-inthe-sky suggestion, mostly just a distraction. And, incidentally, it appears nowhere in Macron’s platform. Far more disturbing to German pundits and policymakers is Macron’s desire for Germany to make use of its fiscal capacity to boost domestic demand, thereby reducing its massive current-account surplus.

These are not new ideas: the European Commission, the International Monetary Fund, Macron’s predecessors, and economists throughout Europe have advanced them often. And, just as predictably, Germany’s government has roundly rejected them, relying on reasoning that, like its counter-arguments, is well rehearsed.

For the most part, German economists and officials believe that economic policy should focus almost exclusively on the supply side, diagnosing and addressing structural problems. And German officials also regularly suggest that their economy is already performing at close to its supplydetermined limits.

In fact, far from viewing the current-account surplus as a policy problem, the German government sees it as a reflection of the underlying competitiveness of German firms. It is the benign upshot of responsible labour unions, which allow for appropriate firm-level wage flexibility.

The accumulation of foreign assets is a logical corollary of these surpluses, not to mention an imperative for an aging society. Indeed, German policymakers view as essential a reduction of Germany’s debt-to-GDP ratio toward the 60 per cent ceiling set by European rules. When, if not in good times, does one have the chance to save?

This stance does not align particularly smoothly with Macron’s economic program. While Macron’s program includes significant proposals for addressing supply-side issues with the French economy, it also favours output stabilization and, more important, increased spending in areas like public infrastructure, digitization, and clean energy to boost potential growth.

“

Hans-Helmut Kotz Program Director of the SAFE Policy Centre at the Goethe University in Frankfurt, is a visiting professor of economics and a resident fellow at the Center for European Studies at Harvard University

Despite Macron’s decisive victory, he faces an uphill battle implementing his economic agenda.

Even if the National Assembly, to be elected in June, endorses his reform program, street-level resistance will be no less fierce than it has been over the last few years.

Germany, however, has good reason to support Macron’s supply- and demand-side reforms. After all, France and Germany are deeply interdependent, meaning that Germany has a stake in Macron’s fate.

While it is true that the German government cannot (fortunately) fine-tune wages, it could, out of sheer self-interest, provide for its future by investing more in its human and social capital – including schools, from kindergartens to universities, and infrastructure like roads, bridges, and bandwidth.

This approach would reduce the private user cost of capital, thereby making private investment more attractive. It would also create domestic real assets, reducing Germany’s exposure to foreign credit risk. A lower current-account surplus implies a more sustainable net-financial-liability position for Germany’s partners.

If Germany and Macron don’t find common ground, the costs to both will be massive.

No malicious external actor is imposing populism on Europe; it has emerged organically, fueled by real and widespread grievances.

While those grievances are not exclusively economic, the geography of populism does fit that of the EU’s economic malaise: too many Europeans have been losing out for too long. So, if Macron fails to deliver on his promises, a Euroskeptic like Le Pen could well win France’s next election.

To avoid this outcome, Macron must be firmer than his predecessors in pursuing difficult but ultimately beneficial policies. He might take a page from former German Chancellor Gerhard Schröder’s playbook. In 2003, Schröder prioritized reforms over rigorous obedience to the EU’s Stability and Growth Pact. Additional fiscal leeway was needed to smooth the economy’s adjustment to the bold labour-market reforms that he was introducing.

The decision to prioritize reforms over obstinate rule-following proved to be a good one.

Now is Macron’s Schröderian moment. He, too, appears to have opted for reasoned pragmatism over the blind implementation of rigid rules (which cannot make sense under any circumstances).

Fortunately, policy principles are not written in stone, not even in Germany. Recall that the German government adamantly rejected the eurozone banking union and the European Stability Mechanism, both of which were ultimately launched (though some say it was too little, too late).

Europe is experiencing a seismic shift, with its political system being undermined from within (and becoming vulnerable to Russian pressure from without). Fear of the “other” and perceptions of trade as a zero-sum game are taking hold. These circumstances call for bold and committed action, not only by France, but also by Germany, which, ultimately, has the most to lose. Project Syndicate

Despite Macron’s decisive victory, he faces an uphill battle implementing his economic agenda

”

16 Business Daily Wednesday, May 17 2017

Closing Markets

Hong Kong, Mainland approve “Bond Connect” scheme

the Hong Kong and Shanghai stock markets in 2014, but the authorities have provided few details on the Hong Kong and Chinese regulators mechanics or the timeline. said yesterday they had formally The Hong Kong Monetary Authority, approved a long-awaited scheme to Hong Kong’s bond market regulator, connect China’s US$8 trillion bond and the People’s Bank of China market with overseas investors, in another milestone in the opening up of said trading will initially commence “Northbound” only, meaning only China’s capital markets. foreign and Hong Kong investors will Plans for a “Bond Connect” be able to trade Chinese bonds initially. programme have been in the works The regulators said the launch date of since Beijing launched a scheme the scheme will be unveiled later. Reuters allowing two-way trading between

Monetary policy

On a mission: Taiwan central bank chief’s bid to escape U.S. currency glare is calculated, Taiwan sources said. The Treasury sees the income as evidence of intervention.

Under the central bank’s tight management, the Taiwan dollar fell 14 per cent against the U.S. dollar between early 2011 and 2016 Liang-Sa Loh and J.R. Wu

A

s he counts down his final months at the helm of Taiwan’s central bank, Governor Perng Fai-nan has made it his mission to get Taiwan off the U.S. government’s list of possible currency manipulators by turning on its head a decades-old policy of keeping the currency weak.

The change is bearing some fruit, but Perng is in a race against time to completely remove Taiwan from the U.S. government’s list of countries being monitored for currency manipulation before he leaves office early next year.

While the U.S. Treasury has recognised Taiwan’s efforts to reduce currency intervention to suppress the strength of the Taiwan dollar, it wants to make sure the change is longer lasting before taking the island off of its watch list.

Others on the U.S. watch list include China and Germany.

Under U.S. rules, economies with a hefty trade surplus with the United States, a current account surplus exceeding 3 per cent of their GDP and which use heavy intervention would be labelled currency manipulators and could be subject to punitive measures.

The criteria, introduced in 2016, gave Taiwan’s central bank a roadmap to follow. Its trade surplus with the United States was below the U.S.’ threshold, while its current account surplus as a small, trade-reliant economy, was well above the threshold at 13 per cent of GDP. So the central bank’s best hope to get off the watch list was to ease up on intervention, central bank officials said.

Now, the United States sees Taiwan heading in the right direction, the head of the central bank’s foreign exchange department suggested.

“This time Taiwan only fulfilled one criteria,” said Harry Yen, referring to the U.S. Treasury’s latest twice-yearly currency manipulator report in April.

Dramatic turn

The change in currency policy marked a dramatic turn for a trading island that punches way above its economic weight.

For nearly two decades, Perng’s management of the exchange rate had been seen at home as a pillar of support for exporters, which fuel more than half the economy and are vital to many global technology supply chains.

Over the years, Perng was a regular in the central bank’s

Unknown factor

Taiwan’s central bank headquarters

trading room, barking orders to directly manage the currency, central bank officials said. A fish tank was installed in the trading room, filled with cichlids that are known for being nimble and fast – something the central bank dealers wanted to emulate in currency markets.

“If changes in the market are very big, Perng will take command when he is in the trading room,” said a central bank official, who declined to be identified because of the sensitivity of the issue.

Neither Perng nor his office wanted to comment for this story.

Under the central bank’s tight management, the Taiwan dollar fell 14 per cent against the U.S. dollar between early 2011 and 2016.

But since Perng changed policy, the Taiwan dollar has risen sharply. It is up 7 per cent against the dollar this year alone, sitting alongside the Korean won as Asia’s strongest major currency.

The shift was rewarded by the U.S. Treasury, which said in its October 2016 report that the Taiwan central bank had cut back on its “intervention at the end of the trading day, which many market participants had viewed as a preference for currency depreciation.”

By April 2017, Treasury officials said Taiwan’s intervention had fallen below red-line levels, so it no longer met the intervention criterion, but they kept it on their watch list because they were not convinced the change was long lasting.

Taiwan can only be removed from the watch list when it meets only one criterion for two consecutive Treasury reports.

The U.S. Treasury said Taiwan needs a “durable, not one-off” improvement to get off the watch list. Another potential delay could be a disagreement over how income on the island’s $438 billion in currency reserves

The change in currency policy has not come without its downside.

The world’s largest contract chipmaker Taiwan Semiconductor Manufacturing Co said last month that its first-quarter revenue fell short by T$6 billion (US$200 million) due to the local dollar’s strength.

It said it expected the Taiwan dollar to keep rising, which in turn could hit its revenue because most of it is denominated in U.S. dollars.

There is also an unknown factor Taiwan may have to contend with in trying to avoid the currency manipulator label – an unpredictable U.S. president.

Although Donald Trump has toned down his rhetoric since entering office in January, central bank officials fear Trump might push for a different way to declare big exporters a currency manipulator.

“For example, if the U.S. economy doesn’t do well and America’s trade deficit doesn’t improve, the rumblings will get louder and to resolve domestic issues Trump could ‘change the status quo’ and Taiwan could stay on the monitoring list,” another central bank official said.

“This report is written by the United States, so it is not something Perng Fai-nan can control.” Reuters

Strategic investment

Ransomware

Summit

Chinese state firms establish investment fund

North Korea link emerges in global cyberattacks

Xi suggests aligning B&R initiative with European investment plan

China Aerospace Science and Technology Corporation (CASC) has formed a fund of RMB150 billion yuan (US$21.8 billion) with a group of centrally administered state-owned enterprises (SOEs) to invest in emerging strategic industries.

The fund, with an initial pledge of RMB113.9 billion, will target the 3D printing, aerospace, biological medicine, clean energy, high-speed rail, IT, nuclear energy, power grid, quantum communication, robotics, and shipping industries, among others.

The investment fund was established to improve the SOEs’ innovative ability to make breakthroughs in core technology, boost emerging industries and foster new driving forces for growth, and increase cooperation between the SOEs, said CASC chairman Lei Fanpei at the fund’s establishment ceremony.

The sponsors include rolling-stock maker CRRC, Industrial and Commercial Bank of China, Postal Saving Bank of China, Shanghai Pudong Development Bank and Beijing municipal government. Xinhua

Security researchers investigating the massive cyberattack campaign that sparked havoc in computer systems worldwide have reported signs of a possible North Korean link, with one expert warning yesterday that there could be more to come.

After days of disruptions affecting networks worldwide, a top U.S. official said the number of computers affected had reached 300,000, but that infection rates had slowed.

In the first clues of the origin of the massive ransomware attacks, Google researcher Neel Mehta posted computer code that showed similarities between the “WannaCry” malware and a vast hacking effort widely attributed to Pyongyang.

The code used in the latest attack shared many similarities with past hacks blamed on the North, including the targeting of Sony Pictures, said Simon Choi, director of Seoul internet security firm Hauri. Israeli-based security firm Intezer Labs said it agreed with the North Korea attribution. AFP

Chinese President Xi Jinping yesterday suggested aligning the Belt and Road Initiative with the European Investment Plan in order to inject new momentum into China-EU ties.

Xi made the remarks when meeting with Italian Prime Minister Paolo Gentiloni after the two-day Belt and Road Forum for International Cooperation ended on Monday in Beijing.

Noting that China and Italy both boast ancient civilizations, Xi said the two countries have been connected by the historic Silk Road.

He commended the frequent visits by leaders from both sides and close exchanges between officials at all levels, saying China is willing to work with Italy to further advance bilateral ties.

Both China and Italy are key members of the international community, Xi said. He urged the two countries to maintain the current momentum in high-level exchanges, as well as close contact between governments, legislative bodies, political parties and between regional authorities. Xinhua