Hong Kong mortgages risks under observation Real estate Page 10
Tuesday, May 23 2017 Year VI Nr. 1301 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Government
Legislators request faster revision of service procurement procedures for public departments Page 3
Transportation
Parking metre price increases to come into effect from June 17 Page 5
www.macaubusinessdaily.com
Banking
RCEP
Wages up 3.5 pct for employees in banking, but male employees make 24 pct more than female workers Page 4
Asian countries discuss position on Chinese-backed trade deal Page 8
Court
Five years after the Wynn-Okada spat, one of the 17 named in a report into alleged ‘improper relationships’ between Okada and Pagcor officials, is taking Wynn Macau to court. In Macau. In question is personal data protection, which had previously resulted in a MOP20,000 fine for Wynn, as it allegedly transferred the data outside the territory. Page 6
Gaming-related crime up 15 pct in Q1
Never-ending roadwork
The Commission of Audit has slammed IACM over not sufficiently supervising roadworks, resulting in combined delays of over 1,000 days on projects, and public inconvenience. IACM notes that four former supervisors are being looked into. Lack of oversight, expired work permits being re-issued and work happening in the same exact places twice in two years were all highlighted in the report.
Crime A total of 3,502 cases of crime were recorded in the first quarter, a 5.1 pct increase, says the Secretary for Security. Gaming related cases (424) and kidnapping cases (105) were up 15.2 pct and 18 pct y-o-y respectively, while loansharking cases (89) were down 16 pct. The Secretary stated the increase in the number of gaming-related kidnapping cases was due to increased efficiency of authorities in solving crimes, often on the same day as complaints were filed. Page 4
Rivalry in the skies
Audit Page 2
HK Hang Seng Index May 22, 2017
25,391.34 +216.47 (+0.86%) Worst Performers
Ping An Insurance Group Co
+4.10%
Cathay Pacific Airways Ltd
+2.30%
MTR Corp Ltd
-2.12%
Sun Hung Kai Properties Ltd
-0.52%
Geely Automobile Holdings
+3.57%
Hengan International Group
+1.26%
Cheung Kong Infrastructure
-1.05%
Hang Seng Bank Ltd
-0.49%
Galaxy Entertainment Group
+2.88%
Sands China Ltd
+1.18%
Bank of East Asia Ltd/The
-0.77%
Henderson Land Develop-
-0.30%
Tencent Holdings Ltd
+2.61%
China Merchants Port Hold-
+1.15%
Wharf Holdings Ltd/The
-0.75%
Power Assets Holdings Ltd
-0.29%
China Life Insurance Co Ltd
+2.47%
PetroChina Co Ltd
+1.14%
New World Development
-0.72%
Link REIT
-0.17%
26° 28° 23° 29° 23° 27° 24° 28° 24° 29° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Aviation industry China and Russia yesterday completed the formal registration of a joint venture to build a wide-body jet, kick-starting full-scale development of a programme aimed at competing with market leaders Boeing and Airbus. Page 16
2 Business Daily Tuesday, May 23 2017
Macau
Commission of audit
Unlimited road construction ahead The CA slammed IACM for poor supervision of numerous road construction projects, as well as the ineffective performance of the Road Construction Co-ordination Group Cecilia U cecilia.u@macaubusinessdaily.com
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he Commission of Audit (CA) has slammed both the Road Construction Co-ordination Group as well as the Civic and Municipal Affairs Bureau (IACM), pointing to ineffectiveness and lack of supervision of road construction work, leading to multiple cases of re-excavation of the same location over a two-year period. The city’s Transport Bureau (DSAT) announced last year in December that more than 1,000 road construction works were to take place in 2017. However, the CA’s report revealed that there were a total of 3,458 road construction projects during the years of 2014 and 2015, of which 3,257 were private road projects - accounting for 94.19 per cent - and 201 were public projects. ‘The recent road constructions are not happening within a short period of a specific developmental stage, but a long-term issue which affected different areas [...] constantly affecting the livelihood of local residents,” the audit department wrote in its latest report released yesterday. ‘The reckless repetition of excavations [in Macau] is absolutely unique to Macau.’ The CA also denounced both frontline staff and management teams of related public departments for brushing off their responsibilities, which resulted in the burden being born by the public. IACM director José Tavares told local broadcaster TDM that four inspectors are now being reviewed after the CA report, noting that they had already been transferred to other departments last year due to not following IACM demands regarding supervision. The director said he was “surprised” by the results and awaits the results of the investigation. The director of DSAT also told the broadcaster that “some work projects were urgent and had to be
commenced immediately. If others are not as urgent, we tried to carry them out at different periods,” noting at the time that he had not yet read the whole report.
Effective?
According to the latest report released by the CA, the co-ordination group - set up by the High Committee of Transportation in 2009 and managed by the Secretary for Transport and Public Works - was tasked with reducing the traffic issues and inconvenience created during construction periods. The report notes that the group ‘did not confirm’ whether there were cases of works happening twice in the same place over the two-year period, and ‘doesn’t have the capacity to verify and hold accountable its members in following the projects’ scheduling’. Meanwhile, the CA criticised IACM for its poor supervision of construction project approvals, including having an obscure definition for construction work happening in the same spot and incomplete information of construction projects, despite utilising GIS (Geographic Information System) for over a year – set up to help monitor progress. There were also cases of approving construction projects in locations where other construction work was still ongoing, without paying the two licencing fees, leading to reexcavation within two years. For instance, as revealed by the CA, a total of 25 construction projects happened on Rua Nova à Guia during the two-year period in question. The audit department disclosed that the co-ordination meetings, which are held once a week, would only coordinate construction projects for the upcoming month and failed to administer punitive measures that are granted by the law. IACM also failed to follow-up and ensure that construction projects had abided by the co-ordination results. ‘Many personnel and resources were being utilized for the co-ordination
mechanism but the mechanism itself failed to reach the expectations of the government and the residents,’ wrote the report.
suffered no penalties, leading the MSAR Government to incur a loss of MOP107,160 (US$13,363).
Poor supervision
In the report, the Commission urged the related public departments to prioritise minimizing the impact of road construction projects on residents. The CA suggested re-examining the permission approval system and the co-ordination meetings for shortterm improvements. For medium or long-term solutions, the report recommended the use of scientific analysis to reduce the frequency of construction projects, as well as adopting an optimal approach to shorten the days for construction. More importantly, the audit department urged the re-examination of the procedures for approving and supervising construction periods, adding that it was necessary to create a sufficient mechanism that could ensure effective reduction of construction days.
The audit department also spotchecked 36 projects which had exceeded their initially approved construction periods, with some of the projects being delayed for two days to as many as 72 days, with a total overall delay impact of 1,019 days. In compliance with the organisational structural rules of IACM, and the rules for public areas, IACM has the responsibility of overseeing the execution of construction projects, but instead, the public department ‘left them unchecked for a long period of time,’ the report states. In terms of examining extension requests during construction periods, there are no requirements to present the reasons for an extension application. There is also an absence of guidelines for determining the allowance of maximum duration length of the construction period, it notes. IACM, moreover, allowed the renewal of applications after the completion of construction, meaning that IACM forwent the control over applications for extending constructions, reports the body.
Ambiguous calculations of construction periods
The audit report, meanwhile, revealed that IACM does not have any specifications regarding official calculations for the exact construction period for every project. ‘The completeness and the accuracy of the “Inspection Record” is doubtful,’ wrote the CA, adding that such performance would not be able to encourage early completion of construction work. The audit watchdog also discovered cases in which inspectors from IACM had skipped the inspections made by superiors of the department, resulting in IACM having difficulty in resolving any cases that had passed their deadlines. Among the aforementioned selection of 36 projects, 11 had their construction approvals expire and
Audit’s suggestions
In agreement
The Transportation Superior Committee responded to the Commission by listing the works that were being carried out by the co-ordination group, while pledging to continue to improve the co-ordination mechanism, as well as the implementation of road classifications and the prevention of two major projects happening simultaneously at the same location. Meanwhile, IACM also responded and agreed to the report and the suggestions. IACM assured it ‘will improve and strengthen co-ordination’ and will ‘record consensus made during the co-ordination meeting’. The public department also vowed to improve ‘details of guidelines on approval of construction permissions, to require the submission of concrete construction plans, to ensure adequate reasons for the renewal applications and mandate that they be submitted prior to the expiration’. Regarding the performance of inspectors, IACM will strengthen the monitoring of inspectors and status of construction projects through the implementation of an e-supervision system and e-records, it told the body.
Business Daily Tuesday, May 23 2017 3
Macau Government
Speed it up Legislators believe revision of the current service procurement law is not going fast enough, while suggesting increased fines for public contract infractions Nelson Moura nelson.moura@macaubusinessdaily.com
L
egislators requested the government to speed up the revision of the current service procurement system for public departments, and suggested that sanctions for contract infractions should be increased. The statements were made in a plenary session yesterday after Legislator Mak Soi Kun requested that the Legislative Assembly (AL) ask for a debate on the revision of the current service procurement law for public departments. “The current public procurement s e rvi c e i s o v e r 30 y ea rs o l d a n d has l o n g b e e n c ri ti ci s e d for being obsolete and for seriously obstructing the society development, leading to corruption and harming public interest,” the
Legislator said yesterday. Ac t i n g a s t h e g o v e r n m e n t representative, Secretary for Economy and Finance Lionel Leong Vai Tac said all efforts would be made to increase the transparency of the current procurement service, with the government planning to initiate an internal consultation process in September, followed by a public consultation on the issue, and with the legislative process expected to be initiated in the second half of 2018. The Secretary announced previously that his department had started to publish online information pertaining to any service contract provided by his department for an amount above MOP750,000 (US$93,526) and construction contracts over MOP2.5 million. The Secretary considered these amounts would be included in the
new law proposal as the limit after which a public tender should be conducted. However, several Legislators stated that reforms of the departments that were the subjects of findings by the Commission Against Corruption (CCAC) and the Commission of Audit (CA) reports, should start immediately. Some Legislators also considered that it wasn’t the service procurement legislation that needed to be updated, but the oversight of public
departments’ practices. “When the contract values don’t reach MOP750,000 will there be a regime to oversee these services? Will there be a pre-evaluation? We all know many contracts are divided like a cake to avoid the need for public tenders,” Legislator Zheng Anting stated. Legislator Ella Lei Cheng I also suggested that sanctions for contract infractions should be increased, with an online platform being launched to divulge information on companies that don't fulfil their contract obligations.
the trial proceedings. After the seven owners protested the decision, a Collective Court of the Court of Second Instance decided to uphold the initial refusal on the same grounds. The Pearl Horizon project developer, Polytex Corporation Ltd is
currently in litigation procedures after appealing against the government decision to declare the land grant invalid and to reclaim the land plot. With 3,000 of the project units having been sold off-plan, the buyers are currently awaiting a court decision on the litigation. N.M.
Not a legislation problem
Courts
Double strike The Court of Second Instance has again refused a request by seven owners of pre-sale housing units at the Pearl Horizon project, to assist in
the on-going court litigation, a Court release yesterday stated. According to the release, the Court had previously refused the request, stating that the current appeal case was already in the final stages, and accepting the intervention request could disrupt the normal course of
4 Business Daily Tuesday, May 23 2017
Macau Opinion
Albano Martins* Who is involved in the real estate market? With interest rates on bank deposits close to zero, meaning real negative rates, residents are trying their luck in other markets with higher risk investments. However, the greater risk is only assumed by an investor if the yield on such investments is substantially higher than the interest paid by the banks. And they are in the real economy! Real estate, and gambling too, are much easier to get involved in than investing in a restaurant or business, which entails a tremendous amount of effort and a lot of complicated bureaucracy along the way. If the government really wants to diversify the economy, it has to make the entire investment process vastly easier, by eliminating the huge bureaucracy that transforms a good business opportunity into a real hell, turning a potential good business into an economic disaster. In the Macau real estate market, who, according to the statistics, buys more? Residents account for almost all kinds of acquisitions! In total, they are responsible for acquiring 98 per cent, according to 2016 figures. Some people say that residents buy only lower-priced units and are only a small part of that market. Nothing could be further from the truth. The amount acquired by residents was worth 96 per cent of the total value traded in 2016, which reached MOP71.2 billion! In housing they bought 98 per cent, in retail and office space 94 per cent, and in the car park and industrial units markets they bought 97 per cent; accounting for 97 per cent, 91 per cent and 89 per cent of the traded value, respectively! But who is selling? Residents, again. In all, they were responsible for selling 91 per cent according to the 2016 figures. Once again, some say that residents sell only lower-rated units. Wrong here too. Residents accounted for 90 per cent of the total value traded in 2016, which amounted to MOP71.2 billion! As I said earlier, this behavior is exactly the same in other segments of the market. In housing, they sold 92 per cent, in retail and office space 86 per cent, and in the car park and industrial units markets, they sold 92 per cent, accounting for 91 per cent, 87 per cent and 83 per cent of the transaction value, respectively! Conclusion: it is residents who are active in the market. The question remains: how many actual residents are investing in the real estate market? A good answer to this question will be of an extreme political importance, especially if the government wants to develop a better economic policy! * an economist and contributor to this newspaper
Crime The Secretary for Security hopes draft cyber-security law can be finished by the end of the year
Counting crimes The number of gaming related crime cases increased by 15.2 per cent year-on-year to 424 in the first three months of 2017, as the total number of crimes registered by authorities went up 5.1 per cent yearly to 3,502 cases The Secretary explained that the increase in the number of gaming-related kidnapping cases was due to the increased efficiency of authorities in solving these types of crimes, with cases solved on the same day as a complaint is filed, and with the authorities “even solving 20 cases in one day”. “Most of the cases took place inside ‘entertainment venues’, with no evidence that these cases impact the remaining Macau society,” the Secretary said, adding that the gaming sector “adjustment” didn’t have an impact on the level of local security. One of the largest yearly increases was registered in the number of counterfeit currency cases, which saw a hike of 90 per cent year-onyear to 95 cases between January and March of this year, of which the majority were related to counterfeit
casino chips, with the total value involved amounting to MOP8.8 million (US$1 million). The number of fraud related crimes also went up 28.8 per cent yearly to 219 in the first three months, of which 22 were phone scams involving a total amount of MOP24.9 million in absconded money. The number of criminal association cases also increased by 200 per cent yearly to 12 cases from January to March, however the Secretary noted a zero per cent increase rate in the city’s number of homicides had been maintained.
Cyber
but that his Office hoped the draft could be completed by the end of the year so a system to coordinate different security sectors on preventing cyber threats can be enforced. “Every hour and very minute we’re facing risks online and we need to ensure the residents’ protection (…) Water and electricity services are essential infrastructures the government needs to protect. We will only collect transfer data as a way to identify possible risks or vulnerabilities for cyber attacks,” he added.
When questioned if the new law would result in more restrictions of online freedom of expression, Secretary Wong considered the assumption “totally wrong” and stated that the planned regulations were not focused on “investigating online content” but to “prevent hacking of the local network infrastructure”. However, the Secretary said that he doesn’t consider that the “Internet has total freedom of expression”, since content posted online could be considered offensive or a threat to local security.
No relation
from the MSAR after entering if that person is deemed a security threat or has engaged in criminal activities,” he added. Several Hong Kong legislators were barred from entering the MSAR in the weeks leading up to the visit of the Chairman of the National People’s Congress, Zhang Dejiang, to the city at the beginning of the month. During the state visit, two Hong Kong pro-democracy activists were sent back by authorities after having already
entered the city. When asked if his department would reveal the number of people who were barred from entering the MSAR for security reasons in the first three months of the year, Secretary Wong said that number was “confidential”. He added that the city already followed international standards in revealing its criminal data and that his Office wouldn’t divulge the number or identity of possible security or terrorist threats to the city.
Nelson Moura nelson.moura@macaubusinessdaily.com
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he MSAR authorities registered a total of 3,502 crime cases in the first three months of this year, a 5.1 per cent increase from the same period last year, the Secretary for Security Wong Sio Chak revealed yesterday. In terms of crimes related to gaming activities, the Judiciary Police (PJ) opened files on a total of 424 cases in the first three months of this year, a 15.2 per cent year-on-year increase. Between January and March of this year, police authorities opened files on 105 kidnapping cases, up 18 per cent year-on-year, and on 89 criminal cases of loan-sharking, 16 per cent fewer than the same period last year.
A new law proposal for cyber-security will hopefully be finished this year and approved in 2018, the Secretary for Security said yesterday. The Secretary announced previously that a cyber-security law proposal, for detecting cyber threats before their occurrence and alerting the public, was sent to the Executive Council for consideration last year. Secretary Wong considered that the MSAR lacks a prevention system in this area and that drafting the legislation has been “complicated”,
Secretary Wong also addressed the recent cases of Hong Kong lawmakers being barred from entering the city, stressing that the cases were “not related to politics” and that police authorities make the decision to prohibit access to the city after evaluating any threat to the security of local residents. “In the last 10 years, every country has made its border control measures more strict. We have the right to block the access or deport someone
Labour
Banking sector paying slightly more On average, however, male employees made 23.7 per cent more money than their female counterparts Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The average earnings of full-time employees in the banking sector (bonuses excluded) rose 3.5 per cent in March 2017 to MOP26,020, according to data released by the Statistics and Census Services (DSEC) yesterday. The 28 local banks employed 6,053 people in the first quarter, signalling an increase of 53 people year-on-year, working in occupations such as managers, cashiers, and clerks. Overall, managers and directors earned MOP46,310 on average (up 4.3 per cent year-on-year), while cashiers made an average of MOP15,380 (up 0.4 per cent year-on-year). On average, non-resident employees earned more than residents, at some MOP28,350, posting a 9.4 per cent increase year-on-year, while residents made MOP25,700, an increase of 2.6
per cent from 2016. Earnings of non-resident directors and managers amounted to MOP58,450 on average, up 14.7 per cent when compared to the previous year. Earnings from residents performing the same functions increased only slightly, at 2.7 per cent year-on-year to MOP44,770.
Gender breakdown
In terms of gender distribution, the majority of bank employees were female, amounting to nearly 60 per cent of the total workforce in the sector, or 3,596 employees. The number of male employees totalled 2,457. The number of women occupying positions in management and directorships (824) was slightly higher than that of men (802). Female employees were clearly the majority in technician and associate professional positions,
amounting to 1,301 out of a total of 2,200. Those working as clerks corresponded to 1,368 out of a total of 2,030 employees. On average, however, male employees made 23.7 per cent more money than their female counterparts, with men earning MOP30,280 on average, compared to MOP23,110 in average earnings for women.
Vacancies and recruitment procedures
DSEC noted that the number of vacancies remained stable when compared to the previous year, at 245, with the majority of positions being opened for clerks, at 147. The sector also hired a total of 174 new employees during the period. The sector required that at least 64.5 per cent of the positions be filled by people with previous work experience, while 96.3 per cent of the offered positions required candidates to have tertiary level education. Knowledge of Mandarin was required in 100 per cent of the jobs on offer for technicians and associate professionals, and for 98.4 per cent of all the positions on offer. Knowledge of English was a pre-requisite in 97.1 per cent of the positions opened during the period.
Business Daily Tuesday, May 23 2017 5
Macau Transport
Parking fees go up, again
T
he changes to the parking fees announced last November will come into effect June 17, maintaining the same justification previously given that the measures will ‘increase rotation of parking spaces during peak hours’. The new changes affect heavy vehicles, motorcycles and light vehicles, increasing the price per hour in nearly all cases – doubling or tripling in most – and reducing the maximum parking time of certain metres – those of light vehicles and cars. This comes after the surprise changes implemented on January 1st, resulting in a public outcry over the locking and towing of vehicles – in some cases entire streets of cars. The information notes that the ‘progressive substitution of parking metres’ is being carried out across the city and will allow for payment with payment cards ‘alleviating the need to prepare many coins to pay the parking’. However, despite mentioning ‘peak hours’ no actions have been
announced to relax the measures during non-peak hours, and during the period of the substitution of the metres, car owners have received fines for parking in previously metred spaces, with no alternatives provided. Cars that are locked are taken to
Cotai ‘Temporary Parking Facility’ and are only collectable by the owner of the vehicle, resulting in cars being stacked on top of each other to allow enough space to accommodate all the seized vehicles (see photo). Last year, according to data from
the Public Security Police Force, over one million fines were given out for illegal parking – a 34.8 per cent increase year-on-year - before the new measures came into place. Total traffic fine payments received by the authorities for traffic infringements last year hit MOP206.9 million. That translates to an average of four fines for each of the 250,871 vehicles registered in the territory last year. According to the data, the authorities locked some 9,537 light vehicles and 1,148 motorbikes in the first eleven months of 2016, as previously reported by this newspaper. That would suggest some 867 light vehicles and 114 motorbikes were locked per month on average. The release notes that there is a total of ‘more than 11,000 metred parking spaces in Macau, 80 per cent of which are for light vehicles,’ however, despite the evident need for more parking spaces for both types of vehicles ‘the DSAT will gradually increase the number of metred parking spaces for motorcycles,’ with no mention of cars. K.W.
Public expenditure
Additional budgets allocated for 2017 The Macau SAR Government has approved the allocation of additional budgets to several local funds, commissions, and institutions for the fiscal year of 2017, totaling over MOP3.66 billion (US$457.50 million/HK$3.56 billion), according to dispatches published
yesterday in the Official Gazette. Topping the list of supplementary public allocations is the Industrial and Commercial Development Fund, whose first additional budget amounts to a total of nearly MOP3.03 billion, while the Cultural Industries Fund will
receive a total amount of MOP99.62 million. The Commission Against Corruption and the Commission of Audit will receive additional funding totaling MOP6.23 million and MOP256,215, respectively.
Additional budgets have also been ordered for housing affairs, with the government to disburse MOP508.75 million to the Building Maintenance Renovation Fund and MOP334,951 to the Housing Credit Grants Fund. The Macao Polytechnic Institute is the only higher education institution to have made the current list, being accorded a sum of MOP19.77 million. S.Z.
6 Business Daily Tuesday, May 23 2017
Macau
Court
Pagcor official sues Wynn Macau During a public fight with their major shareholder, Kazuo Okada, Wynn Resorts commissioned a report by former FBI Director, Louis Freeh, who accused Okada of offering gifts and paying off officers of the Philippines gaming regulator, and their family members and other consultants. Now, one of them is suing the Macau gaming operator, here. The first hearing is set for June 22 Alex Lee alex.lee@macaubusinessdaily.com
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ne of the 17 people named in a report commissioned in 2011 regarding an alleged “improper relationship” between former Steve Wynn partner and casino owner in the Philippines, Kazuo Okada, and executives, officials and consultants of the country’s regulator and local run-casino Pagcor (Philippines Amusement and Gaming Corporation), is biting back, in a Macau court, with a law suit that will have its first hearing in the Court of First Instance next month. According to information obtained by Business Daily, Rogelio Yusi Bangsil Jr., an Officer in Charge of Pagcor’s Gaming Department in 2010, and his wife, Suzzanne, were named as two of 17 people, who according to the Louis J. Freeh report, received more than US$110,000 (MOP880,000) in gifts and payments, including hotel nights in Macau and Las Vegas. Louis Freeh, a director of the FBI
from 1993 to 2001, during both the Clinton and Bush administrations, conducted his investigation of Kazuo Okada when he was at his previous firm: Freeh, Sporkin & Sullivan LLP. He is now a partner at Philadelphia law firm Pepper Hamilton LLP. His work was requested by a special committee of Wynn’s board, when Steve Wynn and Okada were already clashing publicly.
Pay off report says
The report accused Okada of paying off Philippine gaming regulators, including the two former chairmen of Pagcor. Wynn Resorts blamed Okada, who also owns Aruze’s parent company, Universal Entertainment Corp., of violating the U.S. Foreign Corrupt Practices Act and company policy. Okada was awarded one of four casino licenses granted by the Philippine’s regulator in 2008 and 2009 to build and operate a Manila entertainment hub with casinos. The report on the allegations of misconduct by the Japanese mogul was seen as a manoeuvre to oust
Leaving
Scott Chiang leaves New Macau Association After two and a half years as the president of the New Macau Association (ANM), pro-democratic activist Scott Chiang is leaving the role, effective June 9, and will be ‘on leave in this transition period’. Chiang noted that his departure follows that of former president of ANM Jason Chao, however, that the departure was ‘under totally different circumstances’. The statements were
published by Chiang on his Facebook page. Chiang has been with the group for 12 years, noting that the decision was ‘an uneasy one’ adding that he is ‘convinced that my decision will clear the way for New Macau to unite and move on’. Chiang additionally stated that he hopes ‘the result of the upcoming election will benefit citizens of Macau’.
Okada as a majority shareholder of Wynn Resorts Ltd. On the same day the report was released, on February 18, 2012, Wynn Resorts redeemed 24.54 million shares of Wynn Resorts stock owned by Aruze USA Inc., owned by Okada. Aruze, with its 20 per cent share, was the largest Wynn Resorts shareholder at the time. Wynn said the payments uncovered by Freeh were evidence that Okada was “unsuitable” to serve as a director of the Las Vegas-based company. The Japanese billionaire was then forced to accept US$1.9 billion for his shares, a 30 percent discount on the market value, according to international news agencies. In March 2012, the Macau Office for Personal Data Protection fined Wynn Macau MOP20,000 (US$2,500) for two violations of the Personal Data Protection Act. The reason: leaking
private customer data to the former FBI Director. “Information can only be collected for specific and legitimate purposes and any information gathered can only be used within Macau. It can only be transferred to outside of the territory in special occasions,” which was not the case on this occasion, explained the Office. Now, Rogelio Yusi Bangsil Jr. is taking the gaming operator to court, in Macau, disputing the results of the Freeh Report sent to the U.S. Securities and Exchange Commission, which listed him and his wife as two of 17 Pagcor officials, board members, consultants and family members who stayed at Wynn Macau between June 2008 and June 2011. Business Daily attempted to get comments from Wynn Resorts and Rogelio Bangsil Jr. but neither responded to our requests by the time this story went to print.
Business Daily Tuesday, May 23 2017 7
Gaming New market
Rural Japan annoyed by casino plan seen favouring big cities Members of the government panel debating the issue have said licenses should be awarded to two to three municipalities to build out the first casino resorts in Japan Lisa Du, Yuki Hagiwara and Grace Huang
T
okyo, Osaka and Yokohama are emerging as likely candidates for casino resorts under the Japanese government’s new bidding framework, triggering criticism from smaller cities that say it undermines Prime Minister Shinzo Abe’s goal of reviving rural areas. Most global casino operators have indicated an interest in building resorts only in any of the three cities, given their relatively high population and proximity to major international airports. To be selected, operators and municipalities will have to team up and submit a concrete proposal to the government, according to guidelines published this month.
“The location that works best for our business model is the major cities so we’re talking about Tokyo, Yokohama, Osaka” George Tanasijevich, Marina Bay Sands CEO
“The guidelines have changed the power structure between operators and local governments,” Yoshinobu Nisaka, governor of Wakayama prefecture in western Japan, said at a news conference at the Japan Gaming Congress on May 11. “Where did the view that this was for local revitalization go?” Officials from Nagasaki to Hokkaido have raised their hands to host casino resorts in their cities. Some are now also criticizing the process, saying it will lead to big operators only wanting to partner with large cities. Members of the government panel debating the issue have said licenses should be awarded to two to three municipalities to build out the first casino resorts in Japan. “This morning’s newspaper made me so disappointed,” Hiroya Ebina, the mayor of Kushiro, a town in the northern prefecture of Hokkaido, said on May 11 when the new framework made headlines in Japan.
Major cities
Las Vegas Sands Corp. is eyeing the three large cities, according to the chief executive officer of its Singapore operation. “The location that works best for our business model is the major cities so we’re talking about Tokyo, Yokohama, Osaka,” Marina Bay Sands CEO George Tanasijevich said in an interview on May 11. “We need to be in a major city that’s connected to a major international airport so we can bring in the millions of people that we want to host at our property,” he said, adding a large local
business community would also be a prerequisite. Ed Bowers, executive vice president of global development for MGM Resorts International, also said a big local population would be required to justify the investment. “MGM’s business model is to build large-scale destination resorts with lots of stuff that cost a lot of money,” he said. “So it needs to be in a high density population area, and obviously the ones to be mentioned are Tokyo, Osaka and Yokohama. So we’re focused on those three.” Casino development is seen as a potential boon to the gaming industry in Japan, given the nation’s wealthy population, proximity to China and familiarity with forms of wagering such as pachinko -- a ubiquitous pinball-like game -- and horse and boat race betting. Revenue from casino resorts in Japan could eventually reach $25 billion a year, which would make it the second-biggest gambling market in the world, trailing only Macau based on 2015 numbers, according to investment bank CLSA Ltd. Such resorts will also include entertainment venues, hotels and restaurants, as well as so-called MICE space for meetings, incentives, conferences and exhibitions. Not all operators have written off the possibility of a casino in a smaller area. “We are currently exploring opportunities in both urban and regional markets,” said Steven Tight, the president of international development for Caesars Entertainment Corp.
“The Osaka site’s infrastructure requirements are extensive and will require cooperation of both private sector and government” Ed Bowers, executive vice president of global development, MGM Resorts International
Barriers remain
Partnerships between major casino operators and large municipalities are still far from certain. Tokyo Governor Yuriko Koike, who faces local elections in July, hasn’t made casinos a priority. Yokohama has officially expressed interest, though the bay city near Tokyo faces a mayoral election in July where casinos could become a focal point. In Osaka, questions have been raised over the adequacy of facilities in the proposed site.
“The Osaka site’s infrastructure requirements are extensive and will require cooperation of both private sector and government,” MGM’s Bowers said. While key details such as taxes and the level of access to casinos by Japanese nationals have yet to be decided, the latest bidding framework means operators and local governments will need to accelerate talks on any tie-ups, Morgan Stanley analyst Praveen Choudhary wrote in a note to clients. “All markets will likely have a good sense of who they want to partner with before the implementation bill is passed,” he said. Lawmakers are fleshing out the bill, which is expected to be completed
during summer in Japan before it’s debated and voted on in the extraordinary session of parliament in the fall. Any implementation law will also need to address ways to treat problem gambling in Japan, where public support for casinos is low and there is a lack of regulation to deal with addiction to activities such as pachinko. Fewer than 25 percent of Japanese people supported the legalizing of casino gambling, according to a survey conducted by the Kyodo news agency after the initial law was passed last December. “I think what’s on people’s minds right now is the issue of responsible gaming and gaming addiction,” Tanasijevich said. Bloomberg
8 Business Daily Tuesday, May 23 2017
Greater China RCEP
Disagreements surface over Beijing-backed trade deal The main focus of RCEP is reducing tariffs although not as many would be cut to zero as under the TPP agreement A. Ananthalakshmi and My Pham
D
isagreements between Asian countries over a China-backed free trade deal surfaced at talks yesterday, raising questions over a target for concluding negotiations by the end of the year. The Regional Comprehensive Economic Partnership (RCEP) would create a free trade area of more than 3.5 billion people, bringing together China, India, Japan, South Korea, Australia and New Zealand as well as Southeast Asian nations. The RCEP talks, which began in 2012, have been given new impetus by the U.S. withdrawal from the Trans-Pacific Partnership (TPP) Agreement.
But officials involved in the talks say the target to complete the discussion stage by year-end may be hard to meet given disagreements over several issues. India in particular is reluctant to give up on tariffs, they say. “They are concerned that major tariff elimination will cut revenue and their competitive position, especially against China,” said one official who did not want to be identified as the talks were private. Another official also said India’s position posed the biggest challenge in yesterday’s ministerial talks. The main focus of RCEP is reducing tariffs although not as many would be cut to zero as under the TPP agreement. Coverage of services and the digital
economy are more modest than for the other agreement and it would have no protection for labour rights or the environment. Moreover, while it might have provisions for greater freedom of movement, this is one of the potential sticking points in discussions. “We are making progress but there’s still a long way to go,” New Zealand Trade Minister Todd McClay told Reuters. “There is a renewed desire to find a way to a high quality outcome. But it’s going to take a lot of hard work to get it done by the end of the year.” Yesterday’s meeting in Hanoi followed heated discussions there at the weekend at the first gathering of trade ministers from Asia Pacific Economic Cooperation (APEC) countries since U.S. President Donald Trump’s switch to an “America First” agenda. APEC countries failed to come out with their usual joint statement after the United States rejected language on fighting protectionism which Asian
Delegates sit chatting in a meeting room at the end of the TPP11 meeting, held on the sidelines of the Asia-Pacific Economic Cooperation Meeting in Hanoi. Lusa
countries wanted to include. Members of the TPP trade deal, which does not include China, agreed on the side-lines of the meeting to pursue it despite Trump’s decision to abandon the agreement in favour of bilateral arrangements with Asian countries.
“We are at the stage where it has become important for all of us to show political willingness to move RCEP discussions forward” Ramon Lopez, Philippines trade minister The RCEP and TPP trade deals are not mutually exclusive and some countries would be members of both. But the U.S. withdrawal has put major doubts over the future of the TPP agreement. RCEP, on the other hand, benefits from the backing of China, whose regional dominance has gained greater momentum with the policy shift in the United States and its own Belt and Road initiative to extend its global influence. China has increasingly positioned itself as a global free trade champion. “We are at the stage where it has become important for all of us to show political willingness to move RCEP discussions forward especially in light of the trend in some parts of the world where the threat of protectionism is really considerable,” Philippines trade minister Ramon Lopez said. Reuters
Strategy
LeEco founder cedes control of listed unit amid cash crunch The restructuring comes several months after the group received a much-needed US$2.2 billion investment from property developer Sunac Sijia Jiang and Jake Spring
The founder of LeEco, a Chinese Netflix-to-Tesla-like conglomerate, has stepped down as the CEO of the group’s main listed unit, as the company begins to streamline and cut debt after rapid expansion led to a cash crunch. Jia Yueting, who will remain as chairman and CEO of LeEco, envisions the group maintaining its separate unlisted automotive unit but rolling all other areas of business into Leshi Internet Information & Technology Corp Beijing, according to a transcript of his remarks to journalists on Sunday. The firm has also trimmed loans by nearly half from a peak of RMB10 billion (US$1.45 billion), Jia said. Shenzhen-listed Leshi said in a stock exchange filing that Liang Jun, a long-time Lenovo Group Ltd executive who joined Leshi in 2012, will replace Jia as chief executive officer. Leshi’s finance chief Yang Linjie, who resigned for personal reasons, will also be replaced by Zhang Wei. The restructuring comes several months after the group received a
much-needed US$2.2 billion investment from property developer Sunac China Holdings Ltd. Sunac said the management change is not an attempt to take more control of Leshi, considered one of LeEco’s healthiest assets. But it marks a push to bolster the streaming business’ operations.
“There is no such thing as a fight for control,” said Liu Shuqing, a S u n ac-a p p o i n t e d di r ect o r o n the board of Leshi, according to the transcript of Leshi’s Sunday briefing. In a letter to all LeEco staff seen by Reuters, Jia called the two appointments as Leshi’s “most important milestone since its IPO in 2010”, and said they were aimed at improving the listed company’s performance. Jia said in the letter his personal focus over the past two years on LeEco’s non-listed businesses,
which include consumer electronics and cars, had dragged down Leshi’s development. “I had expressed my apologies and gratitude to investors at the end of last year and promised to refocus on our listed businesses,” Jia said in the letter. “After we introduced the second-largest and strategic shareholder (Sunac), we formally initiated a major restructuring of Leshi.”
Key Points Leshi announces CEO, CFO change Jia to remain unit’s chairman, says will focus on group’s listed entities Strategic shareholder Sunac says reshuffle not fight for control Jia, who is continuing as chairman of Leshi, said he will “focus on the governance, strategic planning and core product innovation” of LeEco’s listed units. LeEco began with a Netflix-like video streaming service and expanded into an array of products and services. The group has been fighting a cash crunch since last year that Jia said was the result of that aggressive growth. Reuters
Business Daily Tuesday, May 23 2017 9
Greater China M&A
In Brief
HNA said in talks to buy stake in Hong Kong’s Value Partners Earlier this year, the conglomerate said it set up a new unit in the city called HNA Innovation Finance Group Jonathan Browning, Prudence Ho and Sandra Tsui
Chinese conglomerate HNA Group Co. is in talks to purchase a stake in Hong Kong fund house Value Partners Group Ltd., according to people familiar with the matter, in what would be at least its fourth investment in an asset manager in half a year. HNA is in discussions to buy at least part of Chairman Cheah Cheng Hye’s holding in Value Partners, which he helped found in 1993, the people said. It may then seek to increase its stake further, according to one of the people, who asked not to be identified because the information is private. A transaction could value the company, one of Asia’s largest independent asset managers by market capitalization, at more than US$2 billion, another person said. The parties aim to reach a deal within the next few weeks, according to the people. No final agreements have been signed, and there’s no certainty
the talks will result in a transaction, the people said. Value Partners, which has expressed ambitions of becoming the Asian equivalent of Fidelity Investments, had about US$15 billion of assets under management at the end of April, according to an exchange filing last week. Representatives for HNA and Value Partners declined to comment. Cheah didn’t immediately reply to emailed queries, and a call to his office wasn’t answered.
Former journalist
HNA agreed to buy 25 per cent of Old Mutual Plc’s U.S. asset management arm in March as the acquisitive aviation-to-hotels group pushes forward with a buying spree across the financial services industry. It reached a deal in January for a US$200 million stake in Skybridge Capital, the U.S. fund-of-hedge funds firm founded by Anthony Scaramucci, and purchased control of Austrian asset manager C-Quadrat Investment AG this month.
“Value Partners has a strong brand presence in Hong Kong,” Linus Yip, chief strategist at First Shanghai Securities Ltd., said by phone yesterday. “It would be a good fit for HNA as it seeks to build up a global network.” Cheah started out as a journalist before working in market research in the 1980s. He and his family have about a 28 per cent interest in Value Partners, according to Hong Kong exchange filings. Shares of the company have climbed 17 per cent this year through Friday, outperforming the 14 per cent gain in the city’s benchmark Hang Seng Index.
“It would be a good fit for HNA as it seeks to build up a global network” Linus Yip, The Searchers HNA has been expanding its presence in Hong Kong, spending about HK$27 billion (US$3.5 billion) in recent months on four government land sites in the former Kai Tak airport area. Earlier this year, the conglomerate said it set up a new unit in the city called HNA Innovation Finance Group, which will focus on bulk commodity trading, investments and consumer finance products. The Chinese group, led by 63-yearold billionaire Chen Feng, has struck deals from Australia to Switzerland in the past two years as HNA expands its empire beyond aviation and hotels. HNA increased its stake in Deutsche Bank AG to almost 10 per cent earlier this month, becoming the top shareholder in Europe’s largest investment bank. It’s also invested in Swiss duty-free operator Dufry AG and Singapore logistics provider CWT Ltd. Bloomberg News
Strategy
Cathay Pacific makes biggest job cuts in 20 years The cuts represent 25 per cent of management staff and 18 per cent of non-managerial positions at its Hong Kong head office Jamie Freed and Brenda Goh
Cathay Pacific Airways Ltd said yesterday it was cutting 600 jobs, its biggest headcount reduction in almost two decades, as it seeks to return to profitability in an industry battered by falling ticket prices. In addition to cheaper tickets - the result of low fuel prices that led airlines to increase capacity - premium Asian carriers like Cathay and Singapore Airlines Ltd have had to contend with competition from mainland Chinese airlines that are expanding international routes aggressively. The job cuts are the first step in a three-year reorganisation plan announced this year by Hong Kong’s flagship carrier. It posted an annual loss last year, its first since 2008, and is expected to be in the red again this year. Singapore Airlines, which made a loss in its latest quarter, has also announced a strategic review. “We have had to make tough but necessary decisions for the future of our business and our customers,” new Cathay Pacific Chief Executive Rupert Hogg said in a statement. The cuts represent 25 per cent of management staff and 18 per cent of non-managerial positions at its Hong Kong head office. The company had some 33,700 employees globally as of March.
Singapore-based UOB Kay Hian analyst K. Ajith said these were the largest job cuts at Cathay since the 1998 Asian financial crisis and should save it at least HK$500 million (US$64 million) annually, or around 6 per cent of total staff costs, adding that the airline should also consider reducing routes flown. “It’s not just Cathay that has to do it but other carriers as well,” he said. “We have to see global capacity additions come down and airlines would have to mothball aircraft, instead of trying to still utilise and cover some of the costs associated with that.” In addition to job cuts, the airline has said it will consider shifting more routes to its short-haul arm, Cathay Dragon. The appointment of Hogg, who was promoted from chief operating
officer to chief executive this month, underscores the urgent restructuring task facing the airline amid aggressive expansions by rivals, analysts have said. China’s Hainan Airlines yesterday said it would spend US$4.2 billion on new planes as it expanded its fleet to take advantage of strong demand from Chinese travellers.
Key Points Staff cuts to made at Hong Kong headquarters
Money-laundering
Taiwan drops case against Mega Fin Taiwanese prosecutors said yesterday they will not indict Mega Financial Holding Co Ltd for violating anti-money laundering rules, after allegations were brought against it by U.S. authorities. Prosecutors said that while Mega Financial, one of Taiwan’s five-biggest financial firms, may have violated U.S. rules out of ignorance, there was no evidence of intentional wrongdoing. The probe sparked criticism about the effectiveness of the island’s financial regulator and led to the resignation of the Financial Supervisory Commission’s chairman. Trade
Beijing tells U.S. representative stronger cooperation needed China’s commerce minister Zhong Shan told new United States Trade Representative Robert Lighthizer the two sides should strengthen cooperation and manage disputes in trade, according to a statement on the website of China’s Ministry of Commerce yesterday. The two met on Sunday on the sidelines of the Asia-Pacific Economic Cooperation (APEC) forum. Lighthizer said in the meeting with Zhong Shan that trade wars are not in the interest of either country, according to the statement from China’s commerce ministry. Aviation
Hainan Airlines to buy planes, issue bonds China’s Hainan Airlines Holding said it plans to spend RMB28.9 billion (US$4.2 billion) on new planes, as it expands its fleet to take advantage of strong demand from Chinese travellers. The introduction of 19 planes into its fleet is expected to increase total annual revenue by RMB5.14 billion, Hainan Airlines said in a Saturday filing to the Shanghai stock exchange, adding that it will raise some of the funds through a RMB15 billion issue of convertible bonds. It did not specify what plane type it plans to purchase.
First step of three-year restructuring programme No frontline staff, pilots or cabin crew to be affected Commodities
Cathay Pacific said no frontline employees, cabin crew or pilots would be affected by the job cuts announced yesterday because the airline was still growing, but staff in those positions would be asked to deliver productivity improvements. Reuters
Pollution crackdown lifts steel inputs zinc, nickel Shanghai zinc and nickel surged yesterday on the back of a sustained crackdown in China’s polluting steel industry, which fuelled worries about steel supply and lifted the prices of its raw materials. Both metals were jolted out of a downtrend that last week saw them touch their lowest for the year amid concerns about a slowdown in China’s metals demand. The rally in steel prices also caught short-holders by surprise and forced them to cover their positions.
10 Business Daily Tuesday, May 23 2017
Greater China
Real estate
Ghost of ‘97 stalks Hong Kong economy infected by housing debt Between 2003 and 2015 inflation-adjusted prices for apartments multiplied almost four times Alfred Liu, Moxy Ying and Enda Curran
I
n 1997, the Asian financial crisis touched off a six-year property bust in Hong Kong that shaved more than two-thirds off prices and saddled the city with a stagnant economy and deflation. As Hong Kong gets ready to celebrate the 20th anniversary of its handover to China, which happened just as Asia’s crisis began to unfold, that pain seems all but forgotten. Prices are at all-time highs. Mortgage borrowing is booming. Developers are bidding up the cost of land to records. People young and old are lining up to buy newly built apartments. In short, the kind of fervour that preceded the last bust is back. That’s got experts fretting about the potential fallout should the city of about 7.4 million people experience another crash. By several measures, Hong Kong looks more vulnerable this time around. On Friday, the de facto central bank announced new measures to contain risks -- its second action in a week. “When things move to the downside here, they move big time,” said Peter Churchouse, author of a financial newsletter bearing his name and a veteran analyst of Hong Kong’s property sector. “A lot of people here view the property market as almost an extension of the stock market and treat it as such.” As central banks flooded the world economy with cheap money over the past decade, property markets in cities from Sydney to Stockholm skyrocketed. Perhaps nowhere was this more pronounced than in Hong Kong, where demand from Mainland buyers contributed to the boom. Hong Kong is particularly exposed because of a huge accumulation of household wealth in property and the fact that banking is one of the main pillars of the local economy, said Xia Le, chief economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. A property crash could drag down banks and lead to a “full-fledged financial crisis,” Xia said. Between 2003 and 2015, inflation-adjusted prices for apartments multiplied almost four times, according to a study by Peter Richmond and Bertrand M. Roehner, published last month in the Evolutionary and Institutional Economics Review. Prices
have kept rising, climbing 15 per cent since the beginning of 2016. And because wages have been relatively stagnant, it now takes a household 18 years of median income to buy a home, more than anywhere else in the world, data from Demographia shows. That compares with just over 12 years in Sydney, eight-and-a-half years in London and under six years for the wider New York metropolitan area. Hong Kong bears have been proven wrong time and again in recent years as the city shook off crises, epidemics, an aging population and China’s slowdown. Thanks to its status as a gateway to the world’s second-biggest economy with Western-style legal protections, it has attracted a steady stream of Mainland buyers. How and when the boom ends is anyone’s guess, but the stakes are increasing for a government that’s repeatedly failed to tame home prices. Obvious risks include a sharp financial or economic crisis in China that ripples through Hong Kong’s increasingly Mainland-linked economy. One measure in particular gives market watchers pause. The value of outstanding mortgages jumped by more than a third in the five years through December and now amounts to 47 per cent of gross domestic product, more than 10 percentage points higher than in early 1997.
Aggressive developers
As developers take on debt to fund expensive land purchases and increasingly compete with banks in providing mortgages, the risks are spreading through the economy, sparking concern at the Hong Kong Monetary Authority. On May 12, the HKMA tightened rules governing bank lending for developments after expressing worry about banks’ exposure to the real estate sector. That announcement came just as developers waged a bidding war for a commercial plot of land in the Central business district, pushing the price to a record US$3 billion. A week later, the HKMA followed up with curbs on second-home mortgages as well as borrowers whose income is derived mainly from overseas. “For most people, buying a property is not only one of the most important decisions in life, it is also a financial transaction entailing significant
leverage through borrowing,” the HKMA’s Chief Executive Norman Chan said at a briefing Friday. “Prospective buyers must be mindful of their ability to cope with the potential risk that may arise from possible changes in the property cycle as well as mortgage interest rates.”
‘Concentration risk’
Mortgages are increasingly concentrated among buyers aged 25 to 40, according to Raymond Yeung, chief economist of Greater China at Australia & New Zealand Banking Group Ltd. That means young professionals who are building families are extra sensitive to interest rates, threatening to exacerbate the wealth gap in one of the world’s most unequal societies. An increase in mortgage rates could quickly sap consumers’ spending power.
“There’s concentration risk among the first-time home buyers who are in general younger than the rest” Ryan Lam, head of research at Shanghai Commercial Bank “There’s concentration risk among the first-time home buyers who are in general younger than the rest,” said Ryan Lam, head of research at Shanghai Commercial Bank Ltd. “Once the interest rates move, they will suffer.” Because Hong Kong’s currency is pegged to the U.S. dollar, the economic fate of those households -- and that of the wider property market -- will be determined 8,000 miles away at the Federal Reserve in Washington. Chair Janet Yellen has already begun tightening and is expected to raise rates again at least once this year, possibly as early as June. Hong Kong’s de facto central bank will have no choice but to follow.
Turning to parents
Many looking to enter the property ladder are taking additional mortgages from developers, who unlike banks aren’t bound by loan-to-value rules. They’re also turning to their
parents for help. Terry Wong, 32, tapped his mom and dad’s savings to help finance a 20 per cent down payment for a HK$5 million (US$643,000) apartment in March after he got married. Wong, whose new home in the bustling Kowloon district measures just 390 square feet, financed the rest from a bank and the Hong Kong Mortgage Corp. Ltd. “Hey, I needed a place to live,” Wong said. “With my parents’ money, I could be more financially flexible in the future.” At Sun Hung Kai Properties Ltd.’s Eight Regency project in Hong Kong’s New Territories, apartments quickly sold out in the first batch on offer in April. About 40 per cent of Midland Realty’s clients who bought flats at the development were under 30, and almost a third of them relied on funds from their parents to make down payments, said Sammy Po, the property agent’s residential chief executive.
Bears converge
The government’s failure to cool the market means the city’s economic health is getting more intertwined with real estate. Soaring prices means more wealth is tied up in property, and citizens are less inclined to amass other types of savings, said Lam of Shanghai Commercial Bank. If things turn sour, prices could drop 10 per cent to 20 per cent “in a short period of time,” according to Lam. He’s not alone: Morgan Stanley predicts home values will enter a multi-year decline, starting with 5 per cent this year. JPMorgan Chase & Co.’s Cusson Leung has said prices are economically “ unsustainable” and warned that households are exposed should the market turn. And if things really head south, a crash would hammer government revenues, household wealth and consumer confidence and could trigger deflation as the economy heads into a downward spiral, said BBVA’s Xia. The bearish view has precedent. Britain handed Hong Kong back to China in 1997 with an economy growing by 7.5 per cent a year, unemployment of 2.4 per cent and healthy inflation. By 2002, deflation had gripped the city, unemployment had tripled and growth plunged. As Michael Every, head of financial markets research for Asia-Pacific at Rabobank International in Hong Kong says, “Hong Kong’s economy is the housing market, sadly.” Bloomberg News
Business Daily Tuesday, May 23 2017 11
Asia Diplomacy
Philippine minister starts damage control after Duterte’s China war remark China has yet to respond to Duterte revealing contents of a meeting
T
alks last week between leaders of China and the Philippines were frank and friendly, with no threats or bullying, Manila’s foreign minister said yesterday, after his president said he was warned of war if he drills for oil in the South China Sea. Foreign Secretary Alan Peter Cayetano would not disclose more details of the Beijing meeting between President Rodrigo Duterte and China counterpart Xi Jinping, but said they had the kind of relationship in which they could openly discuss preventing maritime conflict.
“It was more the threat of conflict will always be there if we don’t have dialogue” Alan Peter Cayetano, Philippine Foreign Secretary
The notoriously outspoken Duterte said during a televised speech on Friday that Xi warned him there would be war if he tried to explore for oil in a stretch of the sea that both countries claim.. “The conversation was very frank. There was mutual respect, there
was mutual trust,” Cayetano told reporters. “The context was not threatening each other, that we will go to war. The context is how do we stabilise the region and how do we prevent conflict.” The maverick Duterte has faced criticism at home for refusing to push China to comply with an award last year by the Permanent Court of Arbitration in The Hague, which ruled largely in favour of the Philippines. It also said the Philippines had a sovereign right to access offshore oil and gas fields in its Exclusive Economic Zone (EEZ), including the Reed Bank. Vietnam, Malaysia, Brunei and Taiwan also have claims to sovereignty in the South China Sea, a vital conduit for trade and a hotbed of territorial squabbling that has stoked nationalist fervour in some countries. “I will not contradict the president’s words. I am just telling you...my interpretation: there was no bullying or pushing around, it was not a threat,” Cayetano added. “It was more the threat of conflict will always be there if we don’t have dialogue.” A Philippine Supreme Court judge on Saturday urged the government to file another international arbitration case over the alleged Chinese threat, and also lodge a complaint with the United Nations. Supreme Court Associate Justice Antonio Carpio said failure to do that would mean Duterte would be
Philippine President Rodrigo Duterte
“selling us out” and forfeiting sovereignty to secure Chinese loans and investments needed for his ambitious US$180 billion infrastructure programme.
Presidential Spokesman Ernesto Abella yesterday said the Philippines was “very clear that we are not giving up our claim of sovereignty and sovereign rights.” Reuters
with the United States, however, could take some pressure off Japan as it makes it more difficult for Trump to justify criticising Japan for its trade practices. Japan’s economy grew in the first quarter at the fastest rate in a year to mark the longest period of expansion in a decade, thanks to solid exports and a helpful boost from private consumption. In terms of volume, exports rose
4.1 per cent in April from a year ago, the third consecutive month of gains, another sign of overseas demand picking up. Exports to China rose 14.8 per cent on-year in April, the sixth straight month of gains, boosted by shipments of optical equipment, auto parts and steel.
Commerce
Japan April exports rise again Trade surplus with U.S. narrows Minami Funakoshi
Japan’s exports rose in April to mark their fifth straight month of gains, as shipments of semiconductors and steel expanded, signalling that more robust overseas demand could underpin a steady economic recovery. Exports rose 7.5 per cent in April from a year ago, below the median estimate of 7.8 per cent annual growth, finance ministry data showed yesterday. It followed a 12.0 per cent rise in March. The data also showed Japan’s trade surplus with the United States narrowed. Exports to the United States increased 2.6 per cent in April from a year ago, gaining for the third straight month due to larger shipments of cars and auto parts. But Japan’s trade surplus with the United States fell 4.2 per cent in April from a year ago to 586.7 billion yen (US$5.27 billion). Japan’s exports are expected to continue rising as global economic growth gains momentum, but concerns about U.S. President Donald Trump’s pledges to adopt
protectionist trade policies cloud the outlook for export-reliant Japan. “Japan’s exports will continue growing, and imports will probably also rise as domestic production picks up,” said Norio Miyagawa, senior economist at Mizuho Securities. The drop in Japan’s trade surplus
Key Points April exports +7.5 pct yr/yr vs f’cast +7.8 pct Imports +15.1 pct yr/yr vs f’cast +14.8 pct Trade surplus with U.S. narrows Trump’s trade protectionism clouds outlook Japan’s exports to Asia rose 12.2 per cent on-year in April, also posting the sixth straight month of gains on increased shipments of semiconductors. Imports surged 15.1 per cent versus the median estimate for a 14.8 per cent increase, rising for the fourth straight month on rising energy costs. The overall trade balance came to a surplus of 481.7 billion yen (US$4.33 billion), versus the median estimate for a 521 billion yen surplus. Reuters
12 Business Daily Tuesday, May 23 2017
Asia Taxes
Australia’s ‘Big Four’ banks launch fresh attack on new tax The tax will apply to Australia’s five biggest banks from July 1 Swati Pandey and Cecile Lefort
A
ustralia’s four biggest lenders yesterday launched a strongly worded attack on the government’s new levy on big banks, estimating nearly A$1 billion (US$745 million) in additional annual costs between them. Banks have opposed the tax announced in the federal budget on May 8, with Commonwealth Bank of Australia (CBA), Westpac Banking Corp, National Australia Bank Ltd (NAB) and Australia and New Zealand Banking Group Ltd (ANZ) now putting a number on costs they say will be borne by customers and shareholders. On an annualised basis, the 0.06 per cent levy on deposits would cost about A$220 million after tax for CBA, versus A$260 million per year estimated by Westpac, A$245 million by NAB and A$240 million by ANZ, the banks said in separate statements on Monday. CBA said it had expressed serious concerns that the levy was a poorly designed policy which would impact not just the banks, but its customers and shareholders. Westpac said the tax was “inefficient,” while NAB said the tax could not be absorbed
and could affect profitability. ANZ said the tax could affect its ability to maintain dividend payments at current levels. Treasurer Scott Morrison did not immediately respond to a request for comment. On May 14 he told reporters the tax “reflects the way major banks are treated all around the world” and said it would level the playing field for small lenders who did not benefit from implicit government guarantees. “We think this is absolutely something that the banks should absorb, must absorb or, frankly, they’re
treating their customers like mugs,” he said. The tax will apply to Australia’s five biggest banks from July 1. The government said it would deliver A$6.2 billion over the next four years as part of revenue-raising measures designed to bring the federal budget into surplus by 2020-2021.
Funding strategies
Australia’s so-called Big Four banks are very well capitalised and extremely profitable. Westpac posted record first-half cash profit of A$4 billion on May 8.
The tax will also apply to Macquarie Group Ltd, Australia’s biggest investment bank. Industry players and analysts say the tax could encourage banks to change their funding strategy such as beefing up securitisation as a way to minimise the overall cost. Pooled or securitised debt can be taken off bank balance sheets and funded in the capital market. With about A$180 billion of combined annual funding, the top four Australian banks and Macquarie securitise only a fraction of their debt - between zero and 10 per cent. Reuters
Forecast
New Zealand set to unveil budget surplus as government woos voters The ruling National party is touting its careful management of New Zealand’s NZ$250 billion economy ahead of elections on Sept. 23 Charlotte Greenfield
New Zealand is set to unveil a better-than-expected budget surplus on Thursday and will target any spare cash on infrastructure and housing as the centre-right government tries to woo voters ahead of national elections this year. The South Pacific island nation has enjoyed the highest GDP growth in the developed world in recent years, and that has helped boost the corporate tax intake and strengthen the government’s balance sheet. For the latest fiscal year ending June 30 the government is expected to forecast a budget surplus much higher than the NZ$473 million (US$327.51 million) projected by the Treasury in December’s half-year update. Indeed, government figures showed a NZ$1.5 billion surplus in the nine months to March, well above the NZ$147 million forecast in December, partly as some reconstruction-related spending from November’s severe earthquake was yet to take place. “Overall, a fairly positive story for the government in terms of its books,” said Christina Leung, economist at think tank the New Zealand Institute of Economic Research. “We are going into an election year so no doubt there will be some pre-election sweeteners going into
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there, but overall a pretty prudent program, we would expect,” she added. The ruling National party is touting its careful management of New Zealand’s NZ$250 billion economy ahead of elections on Sept. 23 as it fights for a fourth term against the centre-left Labour party. A recovery from last year’s sharp drop in global prices for New Zealand’s main export earner, dairy, and booming tourism has led to unemployment hovering around eightyear lows of 4.8 per cent and GDP growth at 2.7 per cent. However, despite a strong economy
that remains the envy of developed country peers, fast-rising housing costs have pressured the government to do more for first-time buyers who have been priced out of the market. Record immigration, which has fuelled rises in housing prices, is also putting a strain on infrastructure. Industry estimates put New Zealand’s housing prices roughly 50 per cent above the previous peak in 2007. While recent polls show the National party comfortably ahead of Labour, the high house costs have started to test the government’s support. The opposition Labour party has vowed to build 100,000 homes in ten years, as house prices rise more than 10 per cent per year and net migration continues to break records, with more New Zealanders also likely to return or stay home. The government has already said
it would funnel NZ$11 billion into infrastructure over four years and build 34,000 new houses in Auckland over the next decade.
“We are going into an election year so no doubt there will be some pre-election sweeteners going into there, but overall a pretty prudent program, we would expect” Christina Leung, economist at think tank the New Zealand Institute of Economic Research
Finance Minister Steven Joyce had also flagged that reducing the country’s net debt was a priority. Net debt was expected to be 24.3 per cent of GDP in the 2017 financial year, with the government aiming to cut it to around 20 per cent by 2020. “It’s important we start to save now for our next rainy day. The most important protection against future shocks is to run a strong and vibrant economy,” he said in a speech in May. Reuters Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Tuesday, May 23 2017 13
Asia Diplomacy
In Brief
S.Korea’s presidential advisor calls for contact channel with DPRK
Rating
S&P cuts ratings of 23 Australian small lenders
He said attempts should be made for a working-level dialogue in a gradual manner South Korea’s top presidential security advisor yesterday called for the need to restore contact channels with the Democratic People’s Republic of Korea (DPRK). Chung Eui-yong, who was appointed Sunday by President Moon Jae-in to lead the National Security Office of the presidential Blue House, paid a courtesy call to chiefs of the main opposition parties to ask for a parliamentary cooperation in security issues. After meeting with Roh Hoe-chan, floor leader of the minor progressive Justice Party, Chung told reporters that the communication channels and the hotline in the truce village of Panmunjom between South Korea and the DPRK should be resumed rapidly, though any official dialogue with the DPRK cannot be resumed at the current stage.
Chung said attempts should be made for a working-level dialogue with the DPRK in a gradual manner, noting that inter-Korean exchanges, including personnel, cultural, social and sports exchanges, can be made within the limits of undamaging the sanctions on the DPRK. However, he said the South Korean government would try to take a cautious approach, stressing the importance of international cooperation with neighbouring countries and not to make them misunderstand. Regarding the U.S. Terminal High Altitude Area Defence (THAAD) missile defence system, Chung said a task force team would be formed under the National Security Office to review the overall procedure of the deployment as it was a politically sensitive issue. When meeting with the whip of
Chung Eui-yong, head of National Security Office, said the South Korean government would try to take a cautious approach
the centrist People’s Party, Chung said his office will closely cooperate with the National Assembly in resolving the THAAD issue, adding that the procedural problems with the installation should be resolved through the parliament. Xinhua
Tax reform
A ‘tax revolution’ set to sweep India’s US$2 trillion economy The sweeping reform will gradually reshape India’s business landscape Iain Marlow
Prime Minister Narendra Modi’s government is set to dramatically reshape Asia’s third-largest economy with the biggest tax reform since independence in 1947. After finding common ground among India’s 29 states, the finance ministry on Friday released detailed rates for the incoming goods and services tax, slotting more than 1,200 items -- from sugar to steel pipes and motorcycles -- into five tax brackets between zero and 28 per cent. With that done, India is almost ready to implement a tax code that unifies more than a dozen separate levies, effectively creating a single market with a population greater than the U.S., Europe, Brazil, Mexico and Japan combined. “It is a tax revolution, in many ways, because the indirect tax structure in India was hopelessly chaotic,” said Raghbendra Jha, head of the economics department at Australian National University. “It’s mind boggling, the sheer magnitude of the reform taking place.” The sweeping tax reform will gradually reshape India’s business landscape, make the world’s fastest-growing major economy an easier place to do business and is likely to raise government revenues by widening the tax net in the country’s largely informal US$2 trillion economy. That means India could spend more on desperately needed infrastructure and training programs for a workforce that is growing by 1 million people each month, laying the groundwork for longer-term growth. With tax experts praising the rates as moderate and generally
lower-than-expected, it seems possible Modi might be able to roll out this reform without a politically damaging rise in inflation. However some economists and analysts see a July 1st deadline as unrealistic, raising the possibility that less than 10 months after demonetization, India’s economy could again be upturned as businesses struggle to comply with the new tax code.
Chaotic implementation
Business groups, fearing a chaotic implementation, have lobbied the government for a September 1 roll out. They argue that companies -particularly small-and-mediumsized enterprises that contribute more than 30 per cent of India’s GDP -- need more time as they struggle to become tax compliant in the new system. “To expect that the rates are out on the 18th, 19th of May, and everyone will be able to plug in and run with it by July 1 is very far fetched,” said Dinesh Kanabar, the Mumbai-based CEO of Dhruva Advisors LLP and former deputy CEO of KPMG India. Still, lower-than-expected rates mean that there may be little or only mild inflation, less than in other countries that have implemented a GST, he added. There “was an expectation that the government would jack up the rates from the effective rates, which could lead to a huge amount of inflation,” Kanabar said. “What we see today is very different. The rates are moderate. And in most cases, the rates are consistent or lower.” The tax reform, however, is far from perfect as it should only have had one rate, Jha said. Instead, there are four
divergent rates and multiple exemptions. Air conditioners, refrigerators and makeup will be taxed at 28 per cent, for example, while toothpaste lands at 18 per cent and fruit juice at 12 per cent. Plane tickets attract a 5 per cent GST rate, but business class tickets will be taxed at 12 per cent, finance secretary Hasmukh Adia said. Staples such as food grains, fresh vegetables and milk are not taxed at all, while Finance Minister Arun Jaitley said education and health services will continue to be exempted.
‘Fewer than 1 per cent pay income tax’ Political win
For Modi and his Bharatiya Janata Party, the release of detailed GST rates is a big political win. It’s the relatively calm culmination of months of political wrangling with state governments all trying to shape the country’s new tax code in their own favor. “The process of agreeing the GST rates for individual items has been remarkably smooth considering that the overall GST negotiations for India has been a tortuous political process among national and state legislatures that has taken a decade,” said Rajiv Biswas, IHS Markit’s Asia-Pacific chief economist
Tax base
Importantly for India, a country in which fewer than 1 per cent pay income tax, the GST will broaden its tax base, according to University of Melbourne economist Nathan Taylor. “It will have profoundly positive implications for the economy,” Taylor said. Jha, the ANU professor, said India’s enhanced tax revenues should be used to boost spending on health and education, which is significantly lower as a percentage of GDP than many other countries. “The paucity of tax revenue has been a plague for India,” Jha said. “You have a population that is young, that is waiting to be trained and educated, and you don’t have the resources to attend to them. Any increase in tax compliance, in government revenues, can’t come too soon.” Bloomberg News
Standard & Poor’s yesterday cut its ratings of 23 Australian small lenders, including Bank of Queensland and Bendigo and Adelaide Bank, due to the growing risk of a sharp correction in property prices. The agency, however, kept its ratings and negative outlook of the country’s five top banks on expectations the Australian government would support them if needed. The Australian government has taken steps in recent months to cool the redhot property market amid concerns that speculation in housing could ultimately hurt consumers, banks and the economy. M&A
Samsung Elec says will continue looking for opportunities Tech giant Samsung Electronics Co Ltd will continue looking for acquisition opportunities, a company executive said yesterday, as the firm seeks to build software and services to further differentiate its products. “We are going to be bullish on finding companies that fit our strategy,” Peter Koo, a senior vice president for Samsung’s mobile division, said during an investor event in Hong Kong. He did not elaborate on specific targets or technologies that Samsung is looking to acquire. The world’s top maker of memory chips, smartphones and televisions has grown more aggressive in acquiring companies in recent years. Import
Philippines to issue tender for 250,000T rice The Philippines, one of the world’s top rice buyers, will issue a tender to import 250,000 tonnes of the grain next month, to boost low stockpiles before the lean harvest season and to offset potential crop damage during the typhoon season. The tender is open to private traders in major exporters Thailand and Vietnam as well as other countries including top supplier India and Pakistan, the National Food Authority, the state grains buyer, said yesterday. Expectations of fresh rice demand from some of the world’s top importers such as the Philippines and Bangladesh have pushed up prices in Thailand and Vietnam. Reshuffle
Sri Lanka president switches foreign, finance ministers Sri Lankan President Maithripala Sirisena switched the foreign and finance ministers in a major cabinet reshuffle yesterday. Managala Samaraweera, who has been foreign minister since January 2015, was appointed as finance and media minister. He swaps roles with Ravi Karunanayake, who takes over at external affairs, Sirisena’s spokesman Dharmasri Ekanayake told Reuters.
14 Business Daily Tuesday, May 23 2017
International In Brief Probe
Airbus hires outside monitors amid fraud investigations Airbus has appointed an independent panel including two former ministers to examine its anti-corruption practices after Britain and France launched fraud and bribery investigations into the sale of jetliners. Europe’s largest aerospace group said yesterday the three advisers, who include former German finance minister Theo Waigel and former French European affairs minister Noelle Lenoir, will report to Chief Executive Tom Enders and the board. Airbus is in the midst of an upheaval after acknowledging discrepancies in past applications for British financial support to sell passenger jets. Deutsche Boerse
CEO seeks end to insider trading probe Deutsche Boerse Chief Executive Carsten Kengeter’s defence team is negotiating with prosecutors to drop an insider trading investigation against him, German daily Handelsblatt reported yesterday. In return, the German stock exchange operator may face a fine of up to 10 million euros (US$11.2 million) for delaying the announcement of its plans to merge with the London Stock Exchange, the report said. Such a deal could still take several weeks, said Handelsblatt, which cited multiple unnamed sources. A spokesman for Deutsche Boerse declined to comment.
Report
Africa’s growth seen benefiting from rebound in commodity prices Africa has been worryingly dependent on commodities to power economic growth
A
frica will see a lift-off in economic growth this year and next on the back of a rebound in global commodity prices, an annual report predicted yesterday. The African Economic Outlook, co-authored by the African Development Bank, the OECD and the United Nations Development Programme, expects the continent’s economy to grow by 3.4 per cent in 2017 and 4.3 per cent in 2018, up from an estimated 2.2 per cent last year. The report was released as the African Development Bank began its annual meeting, this year being hosted by India in the capital of Prime Minister Narendra Modi’s home state of Gujarat. Modi invited African leaders to a summit in 2015 and has sought to promote ‘south-south’ economic ties with a continent that has a large Indian diaspora but has seen far larger
inward investment from China. The report said that a decline in commodity prices starting in mid2014 had a devastating impact on several commodity-exporting African economies. Nigeria, for example, which has the biggest share in Africa’s GDP, slipped into recession. Africa has been worryingly dependent on commodities to power economic growth. The fall in raw materials prices inflicted a significant shock on sub-Saharan Africa as fuels, ore and metals account for more than 60 per cent of the region’s exports. However, commodities have staged a comeback since late last year, buoyed by an improvement in the world economic outlook together with the return of risk appetite among global investors. If the rise in commodity prices is sustained, the report said, it would trim the continent’s current account deficit to 5 per cent of GDP this year
from 6.5 per cent in 2016. Africa is expected to witness a marginal improvement in external inflows that are estimated to inch up to US$179.7 billion in 2017 from US$177.7 billion a year ago.
‘The continent is expected to witness a marginal improvement in external inflows that are estimated to inch up to US$179.7 billion in 2017’ The report urged the countries in the region to diversify their exports to reduce their exposure to commodity-price shocks and take measures to boost trade within Africa. Reuters
Lawsuit
Carlyle battles insurers over oil losses U.S. private equity firm Carlyle Group is suing a group of its insurers over US$400 million worth of oil it claims it lost when Morocco’s sole refinery went bankrupt two years ago, court documents show. Carlyle claims in a suit filed in the United States District Court for the Southern District of New York that insurance underwriters led by Mitsui Sumitomo Insurance Underwriting (now known as MS Amlin) have reneged on their obligations when refusing to cover the losses, according to documents on the court’s website. Investors
RBS investor case adjourned for last-minute settlement talks Royal Bank of Scotland (RBS) pursued last-minute settlement talks with a group of investors yesterday to avoid a potentially embarrassing trial over allegations the lender misled them about a 2008 capital increase. A successful settlement would save former RBS Chief Executive Fred Goodwin from facing scrutiny in the courts over his decision-making and leadership at the time the lender almost collapsed. RBS has doubled its offer to the remaining claimants as it seeks to settle the case, two people close to the matter told Reuters yesterday.
Power generation
Swiss voters embrace shift to renewable energy The Swiss initiative mirrors efforts elsewhere in Europe to reduce dependence on nuclear power Michael Shields and John Miller
Swiss voters backed the government’s plan to provide billions of dollars in subsidies for renewable energy, ban new nuclear plants and help bail out struggling utilities in a binding referendum on Sunday. Provisional final figures showed support at 58.2 per cent under the Swiss system of direct democracy, which gives voters final say on major policy issues. The Swiss initiative mirrors efforts elsewhere in Europe to reduce dependence on nuclear power, partly sparked by Japan’s Fukushima disaster in 2011. Germany aims to phase out nuclear power by 2022, while Austria banned it decades ago. “The results shows the population wants a new energy policy and does not want any new nuclear plants,” Energy Minister Doris Leuthard said, adding the law would boost domestic renewable energy, cut fossil fuel use and reduce reliance on foreign supplies. “The law leads our country into a modern energy future,” she told a news conference, adding some parts of the law would take effect in early 2018. Debate on the “Energy Strategy 2050” law had focused on what
customers and taxpayers will pay for the measures and whether a fourfold rise in solar and wind power by 2035, as envisaged in the law, can deliver reliable supplies. Leuthard has said the package would cost the average family 40 francs more a year, based on a higher grid surcharge to fund renewable subsidies. Critics said a family of four would pay 3,200 Swiss francs (US$3,290) in extra annual costs, while more intermittent wind and solar energy would mean a greater reliance on imported electricity. Switzerland was a net power importer in 2016.
Green future
Most parties and environmentalists hailed the result. “The voting public has ... paved the way for a future that builds on sustainability, renewable energies and energy efficiency. Today’s decision is good for the climate, the environment, our jobs, the Swiss economy and the whole population,” the Social Democrats said. The electrical and mechanical engineering sector, which opposed the law, said it was important to see how it is implemented. “The problem of long-term security
of electricity supplies must be resolved. It is also important for companies that the costs and the regulatory burden not swell,” it said. Under the law, 480 million francs will be raised annually from electricity users to fund investment in wind, solar and hydro power. An additional 450 million francs will be set aside from an existing fossil fuels tax to help cut energy use in buildings by 43 per cent by 2035 compared with 2000 levels. Solar and wind now account for less than five per cent of Switzerland’s energy output, compared with 60 per cent for hydro and 35 per cent for nuclear. Under the new law, power from solar, wind, biomass and geothermal sources would rise to at least 11,400 gigawatt hours (GWh) by 2035 from 2,831 GWh now. The law will ban building new nuclear plants. Switzerland has five plants, with the first slated to close in 2019. Voters have not set a firm deadline for the rest, allowing them to run as long as they meet safety standards. The law also helps utilities that now rely on hydropower, and whose costs exceed Europe’s wholesale prices. Alpiq, BKW, AXPO and other utilities would share a 120 million franc annual subsidy to help close the gap between production costs and market prices. Other funds would help build new dams or refurbish old ones. Reuters
Business Daily Tuesday, May 23 2017 15
Opinion Business Wires
Inquirer.net The Bangko Sentral ng Pilipinas (BSP, headquarters pictured) would unlikely cut banks’ reserve requirement in the near term with inflation expected to peak by August, Deputy Governor Diwa C. Guinigundo said yesterday. “Part of the reason for putting up the IRC (interest rate corridor) is to help reduce the reserve requirement. All things being equal, yes, we will do it. But today, what are the facts? The inflation rate is now doing 3.4 per cent and 3 per cent for 2017 and 2018, respectively. In fact, by August of this year, we expect inflation to be about 3.73.8 per cent,” Guinigundo said.
Jakarta Globe The (Indonesian) Ministry of Tourism has expressed appreciation of the cooperation between the Ministry of Transportation and state-owned airport operator AP II on the development of digital technology to improve passenger services. AP II is developing the Indonesia Airports smartphone application with assistance from the Transportation Ministry to improve customer experience and push for greater operational efficiency. Tourism Minister Arief Yahya said in a statement issued by his ministry on Sunday that among all modes of transportation, air transportation saw the highest growth in passenger numbers.
The Phnom Penh Post Prime Minister Hun Sen inaugurated a new trade centre in the Chinese province of Shaanxi yesterday to boost economic ties with Cambodia, according to state news agency AKP. Cambodia exported around US$53 million in goods to the province in 2016, up from US$42 million in 2015. Figures show that investors from Shaanxi invested US$1.33 million in the Kingdom in 2015, while 10,000 tourists from the province flew to Cambodia during the same period. Last November, Cambodia launched another trade centre in the province of Zhejiang, while work is underway to open three more centres in the cities of Beijing, Shanghai and Guangzhou.
The Star The recent inflow of funds into Malaysia is expected to set the ringgit on an uptrend against the U.S. dollar this year. Affin Hwang Asset Management Bhd managing director Teng Chee Wai said he was bullish over the ringgit’s performance with the country’s improving economic fundamentals and as Bank Negara’s reserves continue to rise. “It will take a while for the ringgit to touch between 4.20 and 4.25. With our trade surplus contributing to the local unit’s appreciation, investor confidence at some point will return and make it more sustainable,” he added.
World should think twice before abolishing cash
E
ven now, after the chaos caused by India’s decision last November to eliminate nearly 90 per cent of its banknotes, few people would argue with the policy’s underlying assumption: Going cashless is, if handled well, a good thing. Yet the fact is, most arguments in favour of demonetization don’t stand up to scrutiny. And those that do should raise other concerns. Proponents of moving beyond paper money cite several rationales. They say it’ll make life harder for tax cheats, terrorists and other criminals, and speed up the flow of funds, thus reducing costs and enhancing economic efficiency. Some even suggest that it will improve hygiene, by eliminating crumpled and germ-infested bills. These arguments aren’t terribly convincing. To start, banning cash is inherently discriminatory. It doesn’t distinguish between legitimate and illegitimate uses of paper money, assuming that anyone holding large amounts of cash must be guilty of something. This disadvantages the clear majority of the population in order to punish a minority. More importantly, abolishing cash isn’t likely to solve the problems it’s meant to address. Criminals and terrorists will simply seek out alternative methods of transferring funds, even if they happen to be more expensive. Unless taken unawares, tax cheats can easily convert their illicit hoardings into gold, foreign currency or property. Even in India, where Modi’s decision came out of the blue, most of the outstanding currency was redeposited into bank accounts without providing the predicted increase in tax collections. Surely, though, moving to virtual cash will boost innovation and efficiency? Fintech firms, sensing a gold rush, have indeed proposed innovative digital payment solutions. But there’s no clear-cut evidence that electronic payments are especially efficient or cost-effective. European studies have found that cash incurred the lowest cost per transaction in most countries, followed by debit-card transactions. This shouldn’t be surprising, given economies of scale and high usage of existing systems. In the U.S., cash is still used for a bit more than 40 per cent of consumer transactions by volume, around half that by value. In emerging markets, and for small-value transactions generally, the numbers are even higher. Meanwhile, the digitalpayments sector remains fragmented and requires large infrastructure investments, often duplicating existing systems. The real arguments in favour of cashlessness aren’t as often discussed. Demonetization, for example, would provide central banks with a powerful new tool. Currently, negative rates can be circumvented by investors physically withdrawing cash and holding it to avoid the effective tax on savings.
“
Satyajit Das Bloomberg View columnist
That helps explain why large cash holdings are particularly prevalent in Japan and Switzerland -- two countries not generally associated with criminals or terrorists, but which do feature negative interest rates. In a future economic or financial crisis, this socalled zero-lower-bound constraint could restrict the effectiveness of monetary policy. The only way to overcome the hurdle may be to eliminate cash, as the Bank of England’s chief economist Andrew Haldane argued in 2015. Demonetization could help governments in other ways as well. Behavioural studies show that consumers spend more when using a credit card than when using cash. Eliminating cash could thus in theory be used to boost consumption. On the other hand, forcing citizens to do all their spending digitally would also provide states with unprecedented levels of personal information. The anonymity of cash is useful to everyone, not just tax cheats and criminals. The costs to abolishing cash aren’t insignificant either. Central banks would lose seigniorage revenue, or the difference between the minimal cost of creating currency and the investment return on government bonds. This would reduce their loss-absorption capacity and impact a source of revenue, affecting public finances. Cash use remains high in emerging markets, and among the poor and older people globally. As quickly became clear in India, demonetization can thus worsen social and financial exclusion. The costs of converting citizens to digital payments can quickly add up. An exclusively digital or electronic payment system also increases security and operational risks. The risks of online fraud or cyber-theft, as well as disruptions to operations due to technology failures, are significant. The intrusion of the state on this scale is an explosive social or political issue rather than an arcane economic matter. In his speech advocating cashlessness, Haldane accepted that public support was uncertain. Citizens may not easily surrender their anonymity and privacy. Where the elimination of cash is linked to negative rates, they may resist what’s effectively a tax on savers. Nations that truly want to go cashless need to confront these questions truthfully and openly, rather than hiding behind more politically palatable arguments. Simply imposing such a radical change on citizens would only further erode trust in governments. That’s a cost they’re ill-equipped to pay. Bloomberg View
There’s no clear-cut evidence that electronic payments are especially efficient or costeffective
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16 Business Daily Tuesday, May 23 2017
Closing Governance
Mainland to boost government transparency at grassroots
platforms to assist accessing government files. Besides government websites and Chinese central government has launched information offices, the project will make a project to improve transparency in local better use of traditional media, such as government affairs. The project covers 100 counties and districts bulletin boards. within 15 provincial regions, including Beijing, At the end of a year, governments will report their experiences to the State Council, Guangdong and Guizhou according to the General Office of the State Council yesterday. which will draw up national standards on the disclosure of grassroots government Improved transparency is crucial to efficiency and service-oriented governance, information. China has over 2,800 counties and countysaid the plan. level districts. Xinhua Pilot counties must build better public
Aviation industry
China, Russia launch long-haul challenge to Boeing, Airbus China is expected to become the world’s largest aviation market within several years Dan Martin
C
hina and Russia yesterday launched an ambitious project to jointly develop a long-haul jet to challenge Boeing and Airbus, just two weeks after the successful test flight of the first made-in-China large passenger plane.
“The establishment of the jointventure company symbolises the important progress made in the ChinaRussia long-range wide-body passenger aircraft project”
first unveiled last June when visiting Russian President Vladimir Putin met China’s Xi Jinping in Beijing, and Chinese state media have previously quoted officials saying the project could be worth between US$13 billion and US$20 billion. “ Th e e st ab l i sh m e n t o f t h e joint-venture company symbolises the important progress made in the China-Russia long-range wide-body passenger aircraft project,” COMAC chairman Jin Zhuanglong said in a statement. “We will cooperate sincerely with UAC, unite as one, and strive to make the .... project a model of Sino-Russian cooperation.” China had already logged a key milestone in the country’s ambitious journey to compete with the world’s leading aircraft makers in early May with the test flight in Shanghai of COMAC’s narrow-body C919 jet. The 168-seat C919, built for shorter regional routes, represents
nearly a decade of effort in a government-mandated drive to reduce dependence on European consortium Airbus and US aerospace giant Boeing. Airbus and Boeing dominate China’s market for passenger jets, which is growing in leaps and bounds as travel demand by Chinese consumers skyrockets. Aviation analysts, while acknowledging the C919 as a technical milestone for China, have warned that it faces a tough task challenging against Boeing and Airbus, with their deep market penetration and long history of performance.
Chinese travel takes off
But with the China-Russia jet, which Chinese media reports say will be called the 929, Beijing will have the benefit of working with UAC, parent of passenger-jet manufacturer Sukhoi and other established Russian aviation brands. COMAC’s statement said the aircraft will be able to seat 280 passengers and have a range of 12,000 kilometres. That would put it in direct
competition with Boeing’s 787 and the Airbus A350. China’s state-run Global Times newspaper late last year quoted UAC president Yury Slyusar as saying the project would be worth between US$13 billion and US$20 billion, with each side contributing half. In Monday’s joint statement, Slyusar said the project is “testimony to China and Russia’s determination to engage in long-term cooperation”. COMAC said last year the planned jet could take its first flight in seven years, with deliveries beginning three years after that. Previous Chinese aerospace projects have suffered lengthy delays. China is expected to become the world’s largest aviation market within several years, and President Xi has stressed the importance of Chinese-made jets handling much of that growing traffic. Airbus has estimated China will need nearly 6,000 new planes worth US$945 billion in the next two decades, with Boeing’s forecast even more optimistic at more than US$1 trillion. AFP
Jin Zhuanglong, COMAC chairman
State-run Chinese manufacturer Commercial Aircraft Corporation of China (COMAC) and Russia’s United Aircraft Corporation (UAC) said they formally established the previously announced joint venture in Shanghai yesterday. Plans for the wide-body jet were
Markets
Investment
Deficit
LSE raises estimate for loss Beijing encourages insurance EU says euro zone of London clearing to US$100 Billion funds to invest in major projects fiscal stance improves Banks and investors will end up US$100 billion worse off if the European Union forcibly repatriates the clearing of euro-denominated derivatives after Brexit, according to London Stock Exchange Group Plc’s Chief Executive Officer Xavier Rolet. Writing in the London-based Times yesterday, Rolet said the EU “should not meddle with a safe, transparent system” that underpins global markets. The CEO has the ear of Prime Minister Theresa May as she navigates Brexit negotiations with the EU, and Rolet has been advising 10 Downing Street, the office for prime ministers, for years. The US$100 billion estimate is the increased cost of trading for banks that use off-exchange interest-rate contracts. Rolet had previously touted an estimate of US$77 billion in additional costs for banks from any decision by EU regulators to strip the business from London. The LSE CEO has a track record of making dire warnings about the fragmentation of clearing. In September, Rolet said that at least 100,000 jobs would be at risk if clearing left the U.K., then raised that figure to 232,000. The LSE is the majority owner of LCH, the world’s biggest clearinghouse. Bloomberg News
China’s top insurance regulator said yesterday insurance funds are expected to invest in major projects that will play a significant role in boosting the economy. These projects will be given easier access to debt investment by insurance funds if the borrowers have a high credit rating, according to a circular from the China Insurance Regulatory Commission (CIRC). Such projects are mainly in the areas of water conservancy, energy, transportation, high-tech and advanced manufacturing, with large scale investment and controllable risks, the CIRC said. For insurance funds to make debt investment in major projects under the Belt and Road Initiative, procedures will be simplified The CIRC pledged to do more to channel insurance funds into the real economy. As of the end of March, a total of RMB4 trillion (US$580 billion) of insurance funds had gone into infrastructure construction and other projects aimed at improving the quality of people’s lives, according to CIRC figures. Authorities have stepped up the regulation of insurance funds after some insurers used leveraged money to buy shares in listed companies, triggering market volatility, late last year. Xinhua
Euro zone countries have improved their fiscal stance, a sign of the bloc’s growing financial stability, but France and Spain remain above deficit limits set by EU rules and Italy still faces “urgent” challenges, the EU Commission said yesterday. The assessment came in a regular report that the EU executive publishes every spring to recommend economic reforms to the 28 EU member states and take disciplinary measures against those with unbalanced fiscal positions. The 19-country euro zone has lowered its total budget deficit to 1.5 per cent of the bloc’s gross domestic product (GDP) in 2016. The gap is to fall further this year and next, well below the 3 per cent of GDP required by EU rules. The EU as a whole had an aggregate deficit of 1.7 per cent last year, which is also set to decrease. Because of improving public finances in Portugal and Croatia, the Commission said it wanted to end a disciplinary budget procedure against them. The Commission’s view will have to be backed by EU finance ministers later this year. But the economic recovery and improvements in budget positions were “uneven,” Economics Commissioner Pierre Moscovici said. Reuters