Macau Business Daily August 18, 2015

MOP 6.00

David Chow opens ecofriendly paper-printing factory in Anhui, China

Closing editor: Joanne Kuai

Page 4

Analysts say IPOs will return to China by year-end Page 8

Hong Kong Monetary Authority chief executive bets on financial stability Page 10

Year IV

Number 859 Tuesday August 18, 2015

Publisher: Paulo A. Azevedo

Aussie mogul Packer’s rising casino debt making bond market wary Page 7

Real Estate Exodus The real estate downtrend is apparent. Particularly in the office and industrial unit sectors.

Average prices and transactions shrank in Q2, official data reveals. Overall, transactions dropped 38 pct Y-o-Y, while values dropped 45.4 pct Y-o-Y to MOP28 bln Page

3

Austerity Tightrope MOP27.2 billion surplus. In the first seven months of the year. Very respectable but nearly 60 pct down Y-o-Y. Gov’t expenditure totalled MOP37.3 bln, up 27.9 pct Y-o-Y. Nevertheless, it has ‘only’ spent 42.4 pct of the MOP87.9 billion projected for 2015.

August figures will dictate if austerity is on the cards

Manning Up Manmade mismatch.

A Bloomberg survey suggests official Chinese economic data has been overoptimistic. Maintaining a wide margin for potential growth. And explaining why authorities launched stimulus measures last week

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Brought to you by

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Gaming

Smoking Gun

Tobacco retailers are suffering. Sales have plunged dramatically following the triple tax imposed last month. By 60 to 70 pct. Encouraging smokers to buy cigarettes in Zhuhai. Local retailers say only vigilant Customs and harsh smuggling penalties can relight the local market. Failing which, two-thirds of street vendors will be out of a job

www.macaubusinessdaily.com

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For Sale A Hong Kong Stock Exchange IPO. Within one year. Hong Kong Centaline Group Co-founder Shih Wing Ching acknowledges the need for funding. In response to intensifying competition from Mainland China’s online brokers

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Thriving Down Under The gamble has paid off. Gaming promoter Jimei International Entertainment expanded to Australia. And has boosted company profits to HK$53.26 mln in the first half. Besides Cambodia and Oz, the company is seeking more opportunities, ‘particularly in Asia’

Page 4

HSI - Movers August 17

Name

%Day

China Mobile Ltd

+1.46

Want Want China Hol

+1.24

CLP Holdings Ltd

+0.74

China Mengniu Dairy C

+0.60

CITIC Ltd

+0.40

Galaxy Entertainment

-1.61

CNOOC Ltd

-2.23

Bank of East Asia Ltd/T

-2.35

China Shenhua Energy

-2.48

Kunlun Energy Co Ltd

-2.50

Source: Bloomberg

I SSN 2226-8294

2015-8-18

2015-8-19

2015-8-20

27˚ 33˚

27˚ 33˚

27˚ 32˚

2 | Business Daily

August 18, 2015

Macau

Retailer: Tobacco sales shrink 70 per cent following triple tax Last month, the Legislative Assembly passed a bill tripling tobacco tax in the city in an urgent procedure. The tax was officially increased on July 14. One month after, a tobacco retailer says the industry’s overall sales have slumped by as much as 70 per cent Kam Leong

kamleong@macaubusinessdaily.com

F

ollowing the government tripling the tax on tobacco products last month, one of the city’s tobacco retailers – Hing Cheong Hong Tobacco Company Ltd. – has told Business Daily that sales of the local tobacco retail industry have dropped from 60 to 70 per cent.

Last month, the government increased the tax on each cigarette to MOP1.5 (19 US cents) whilst that for cigars or cigarillos per kilogram was raised to MOP4,236, meaning a pack of 20 cigarettes is around MOP20 more expensive compared to the original tax of MOP0.5 per cigarette.

“Our sales have plunged 60 per cent to 70 per cent following the implementation of the new tax…

Other industry retailers, as I know, have also experienced such drops in their sales,” the general manager of Hing Cheong Hong, Sunny Iao, told us in a phone interview yesterday.

Regional competition

According to Mr. Iao, the increase in local tobacco tax has driven more residents to buy cigarettes in Zhuhai.

“Many prefer buying cigarettes in Zhuhai now. Before the rise, the price gap between the two cities was only some few dollars so people didn’t care.

But now, [for those] in Macau it’s like a few tens more expensive. Even though people don’t go to Zhuhai only for the cigarettes, they will buy when they pass by those duty-free shops when they cross the border,” he said. “In addition, we have many Chinese workers crossing the border every day. It’s easy for them to buy for their colleagues in Macau”.

On the other hand, many local shops as well as individual smokers bought more cigarettes than usual when the government announced its proposed tax increase, according to Mr. Iao, indicating that this is another reason sales are down.

“Upon knowing the government’s intention of increasing tobacco tax

many shops ordered a lot more cigarettes than usual. Individual smokers also tried to buy more cigarettes. Hence, they may still be consuming the cigarettes that they bought before the new tax,” the general manager said.

Nearly 100,000 duty-not-paid cigarettes seized

In addition to the tax hike, the city’s new tobacco law also reduces the duty-free allowance for travellers entering Macau to 19 cigarettes from the original 100.

According to local Chineselanguage newspaper Macao Daily, the Macau Customs have confiscated some 97,530 duty-not-paid cigarettes, or some 3,200 cigarettes per day, since the implementation of the new law on July 14 as at August 13, involving 293 cases.

Some 56 per cent of total violations were caught at the Border Gate, with more than 40,000 cigarettes seized.

The city’s Customs also confiscated some 21,500 and 15,600 duty-notpaid cigarettes at the Outer Harbour Ferry Terminal and Pac On Ferry Terminal, respectively.

Some 65 per cent of travellers carrying duty-not-paid cigarettes were from Mainland China, followed by local residents and people from Hong Kong.

Before the rise, the price gap between the two cities was only some few dollars so people didn’t care. But now, [for those] in Macau it’s like a few tens more expensive Sunny Iao, General Manager of Hing Cheong Hong Tobacco Company Ltd.

Two-thirds of street tobacco vendors to close

The newspaper also quoted the Macau’s Trade Chamber of Tobacco Companies’ Andrew Chan Hou Lam as predicting that two-thirds of the city’s street vendors selling cigarettes may face closure if the downturn in tobacco sales continues.

The association vice head said street vendors were the group most affected by the new tax as their income is lower and they cannot rely on selling snacks or beverages like convenient stores.

Mr. Chan also perceives that the drop in the city’s tobacco sales is due to many residents, especially longterm smokers and those on a lower salary, starting to buy cigarettes in Zhuhai.

For the sales to rebound, Mr. Iao reckons that it will depend upon the enforcement of the Customs in catching violators bringing duty-notpaid cigarettes into the city.

“If the Customs strengthens its enforcement, for sure the local consumption in cigarettes will be boosted and sales will improve. But if the enforcement is rather loose the impact will continue to be big for local retailers. Frankly speaking, it’s hard for the Customs to catch everyone that brings in duty-not-paid cigarettes,” the Hing Cheong Hong general manager said.

Business Daily | 3

August 18, 2015

Macau

Downtrend apparent in office, industrial unit transactions Average price and transaction volume of offices and industrial units have posted a downward trend in the second quarter, official data indicates Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he average price of both office and industrial units in Macau in the second quarter has dropped from the peak values reached last year, while transactions of these units have also shrunk in the period, the latest official data shows.

The average transaction price of an office unit was MOP118,346 (US$15,154) per square metre by the second quarter of this year, up by a quarterly 1.9 per cent, according to the latest

information disclosed by the Statistics and Census Service yesterday. When compared to a year ago, however, the second-quarter price of an office unit has actually dropped 10.6 per cent from a peak of MOP132,380 per square metre reached in the third quarter of last year, Business Daily has calculated from the census service’s historical data.

In the second quarter, the city registered a total of 92 transactions of office units,

down from the 125 cases in the same quarter last year.

The downtrend in transaction price and reduced sales are also apparent in the industrial units sector, according to official data.

The average price of an industrial unit in Macau was MOP55,256 per square metre in the second quarter, down 2 per cent from the previous quarter and 8.5 per cent less from the peak value of MOP60,407 reached in the third quarter of last year.

There were only 18 transactions of industrial units officially recorded for the second quarter, down from 107 cases a year ago.

As fewer trades of office units were registered for the first half of this year, the value of the transactions of this property sector has plunged 31 per cent year-on-year to MOP1.33 billion. Industrial units registered an even more severe drop, with the value of transactions declining 77.7 per cent to MOP688 million

in the period, according to census service data.

For all the different types of properties here, despite a rebound recorded in transactions and value in the second quarter an annual drop still resulted for the first half of this year: the city saw 4,966 property transactions here, representing a 38 per cent year-on-year drop, whilst the value of these transactions in the period was MOP28 billion, 45.4 per cent less than a year ago.

Centaline Group mulls Hong Kong IPO Group co-founder Shih Wing Ching has acknowledged the need for funding in response to intensifying competition from online brokers

H

ong Kong real estate broker Centaline Group, which also operates in Macau, is now considering a public flotation of the firm on the Hong Kong Stock Exchange within one year, according to media reports.

Saying that he hopes to see Centaline get listed on the main board

of the Stock Exchange, the co-founder of the Centaline Group, Shih Wing Ching, told Chinese-language free newspaper am730 that he estimates that the company's market value is close to HK$10 billion (US$1.29 billion). The newspaper, which published the interview yesterday, was also founded by Mr. Shih.

With a listing on the Hong Kong Stock Exchange, based on the HK$800 million net profit achieved by the group last year Mr Shih also posited the fair P/E (priceto-earnings ratio) of the firm at 12 times.

Th e C en ta l i n e c o - f o u n d e r described the planned listing as a move that partly responds to the competition posed by Mainland China's online agents – namely, qfang.com and china.soufun.com.

But he noted that the group had no desire to engage in a price war at the cost of discounting its brokers' commissions, or acquiring or merging with other firms.

Long-term goal

The Hong Kong real estate broker group actually considered listing more than a decade ago, although the plan was shelved, Hong Kong Standard reported on Friday.

Centaline Group chairman Sherman Lai Ming Kai told the Hong Kong English newspaper that the listing was borne out of the group's need for funding to sustain long-term competition posed by the increasing number of online agents as well as soaring rents for its branches over the past two years.

Mr. Lai also noted that the group has developed mostly by using its own money and has not been reliant upon bank loans.

Centaline Group's main competitor, Midland Holdings, which also operates branches in Macau, listed on the Hong Kong Stock Exchange 10 years ago.

Last year, Midland Holdings achieved a turnaround with a registered net profit of HK$63.98 million on the back of an appreciable increase in the primary residential sales transactions in its home market of Hong Kong.

S.L.

4 | Business Daily

August 18, 2015

Macau Brands

Trends

Gabrielle’s Lions Raquel Dias newsdesk@macaubusinessdaily.com

A

s August draws to a close, I’m reminded that so does the sign of Leo. Gabrielle Chanel, born under the sign of Leo, adopted the animal as her signature motif. After all, there’s not a better match than the king of the jungle for such a strong, determined lady.

The lion was also the symbol of one of her favourite cities, Venice. This magical city changed everything for her. It’s where she began to breathe again after the death of her beloved Boy Capel.

The lion is to be found everywhere in the Serenissima: on palace pediments and doors, in mosaics and stone statuary.

San Marco’s lion is its great protector, seated on a granite column, dominating the city and haloed with sunlight.

The lion embodies Venice’s glory and courage, and ambassadors and kings would once bow down to the lion on the pediment over the entry to the Doge’s palace.

Carpaccio and many other famous artists represented it in their paintings.

In Chanel’s new jewellery collection, the lion roars once more. Be it in the all-gold pieces or in the more refined, diamond and pearl options.

The Sous Le Signe Du Lion collection is a perfect reminder of this animal’s strength as well as that of Lady Chanel.

Our favourites are the allgold pieces, for we believe they showcase the lion’s roar best of all.

Jimei profits from agreement in Western Australia The bet on the Australian market has delivered a profit of HK$53.26 million to the company João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he new co-operation agreement of Jimei International Entertainment in Australia has boosted the profits of the company to HK$53.26 million during the first half of the year, in comparison to a loss of HK$9.28 million registered in the first six months of 2014. The information was released in a filing with the Hong Kong Stock Exchange.

‘The profit for the six months ended 30 June 2015 was mainly attributable to profit contributions from the Group’s newly established entertainment and gaming business’, the company report explained.

In February, the gaming promoter signed an agreement to operate in

Crown Perth casino in Australia; in May, it signed another contract with NagaCorp to operate in the NagaWorld casino located in Cambodia.

In this period, revenue increased 127.4 per cent to HK$112.37 million from HK$49.42 million in the previous year. However, while the operations with Australia generated revenue from external customers of HK$136.61 million, in Cambodia the company registered a loss of HK$24.25 million.

While the expansion of the group brought increased sources of revenue, it also caused an escalation of costs with salaries reaching HK$10.15

million in the first six months of 2015 from HK$4.5 million in the previous year.

For the future, the junket company is still looking for markets to expand its operations.

‘With the accomplishments made in the first half of 2015 [expansion to Australia and Cambodia], the group is committed to further expanding into the gaming industry in the fast growing gaming markets, particularly in Asia, to bring new momentum and income source’, the company explained in the report.

For this period, the directors of the board did not recommend any dividend despite increased profit.

David Chow anticipates 300 mln yuan a year from new paper-printing venture

C

o-chairman and chief executive officer of Macau Legend Development David Chow Kam Fai has invested in a hightech, environmentally friendly paper printing factory in China, hoping the new business can bring him profits of between 200 million and 300 million yuan per year.

The company that the local entrepreneur has poured money into - Anhui Geyi Bio-refineries Industrial Park Ltd. - started production on Sunday. Describing the new investment as very meaningful, Mr. Chow told reporters on the sidelines of the company’s launch ceremony that the ultimate goal is to list the new company on the Shanghai Stock Exchange, according to local Chineselanguage newspaper Macao Daily.

In fact, the Macau Legend boss invested in the company under his own name. He perceives that there are unlimited business opportunities in Mainland China, and urges the

city’s enterprises, especially small and medium sized ones, to not only eye Portuguese-speaking countries but to get out of the city.

In addition, he hopes that the Mainland authorities will be more confident in companies from the Special Administrative Region and offer more favorable conditions for Macau companies expanding their businesses in the country.

On the other hand, Mr. Chow believes his new environmentally friendly project is the best way to respond to China’s ‘One belt, One road’ policy, claiming his project can be a pilot for bringing local enterprises in line with the international market.

He also reckons that businesses involving renewable energy applications will lead the emerging industries, indicating his new business will also boost the development of its supporting industries.

K.L.

Business Daily | 5

August 18, 2015

Macau

Government generates MOP27.2 billion surplus Gaming revenues below MOP19.741 in August will herald austerity measures for Macau. However, in the first seven months there was a profit of MOP27.2 billion in the government’s accounts

T

he government notched up MOP64.5 billion in revenues during the first seven months of the year and has already collected 60.4 per cent of the money it forecast for 2015, the central account data published yesterday by the Financial Services Bureau reveals.

In spite of such results, government revenue is down 32.5 per cent yearon-year to MOP64.5 billion from MOP95.6 billion. This decrease has been mainly driven by the shrinking of direct taxes from gaming that dipped 35.7 per cent to MOP51.9 billion from MOP80.7 billion in the first seven months of last year.

In terms of the balance of the central account for the first seven months of the year, the government has generated a surplus of MOP27.2 billion, which demonstrates that results are much better than the initial MOP18.8 billion

in profit expected for the full year. That notwithstanding, in terms of comparison to the same period of 2014, the surplus is down 59.1 per cent from MOP66.4 billion.

The surplus has already surpassed the expectations of the Macau treasury, although expenditure has also been climbing at a faster pace in

comparison to previous years.

From January to July, the government spent MOP37.3 billion, an increase of 27.9 per cent year-on-year from MOP29.2 billion in 2014.

While public expenditure is increasing at a faster pace than in the past, the government is still controlling it carefully. With more than

half of the year already past the government has ‘only’ spent 42.4 per cent of the total MOP87.9 billion projected for expenditure this year.

Austerity measures on horizon

While the central account of the Macau Special Administrative Region is

very healthy, the fact that the surplus is down 59.1 per cent, direct taxes from gaming revenues have declined 35.7 per cent and public expenditure is increasing 27.9 per cent has prompted Lionel Leong, the Secretary for Economy and Finance, to prepare for the implementation of austerity measures.

The Secretary said previously that once average monthly gaming revenue is lower than MOP20 billion he will bring in austerity measures, meaning that “Summertime, and the living is easy” may no longer apply to Macau’s public administration.

Last week, the Chief Executive of Macau said in the Legislative Assembly while answering legislators’ questions that austerity measures will target public administration spending, adding that the social spending policy adopted in the second term will not be changed.

At the end of the day, austerity measures are still dependent upon gaming revenue, but if in August the industry generates less than MOP19.741 billion in revenue, then the average monthly gaming revenue will be lower than MOP20 billion and as a consequence Lionel Leong will have extra work to do.

J.S.F.

6 | Business Daily

August 18, 2015

Macau

Property agencies seek opportunities across the border

M

ore Macau property agencies are looking into the opportunities appearing north of the border, betting on the closer links between Macau and Mainland China during an adjustment period in the local real estate market.

From the perspective of Chong Siu Kin, president of the Real Estate Association of Macau, the MSAR’s property agencies are striving to seize the opportunities arising from more interaction between Macau and the Mainland.

“With the border between Macau and Zhuhai opening 24 hours now, there have been more frequent peopleto-people exchanges between the two places, paving the way for Zhuhai-Macau urban integration,” he said.

Anzac Realty forked out RMB2 million (MOP2.57 million) in June to open three

branches in Zhuhai - the first time it has ventured outside its Macau home market.

“Macau residents have invested in Mainland properties for a long time as a means of acquiring cross-border licence plates

or as holiday homes,” says Nestor Ng, president of Anzac Realty. In the past, Macau residents could get crossborder plates for their vehicles by buying Mainland homes worth over RMB1 million but the Guangdong Provincial

Government put a stop to the practice in 2012.

“We always wanted to tap the Mainland market and the recent development of Hengqin has quickened our steps to expanding [on the Mainland],” Mr. Ng said,

Minimum wage bill won’t end property management wrangling

A

bill that sets the minimum wage standard for security guards and cleaners employed by property management companies will come into force at the beginning of next year, following months of debate in and out of the Legislative Assembly. But this does not put the lid on wrangling in the sector.

Another bill to regulate the property management companies is

expected to feature in the legislature agenda next year despite opinions on the draft bill remaining divided on numerous issues from a three-tiered licensing system to whether permits should be issued to all frontline workers.

The Housing Bureau concluded a 60-day public consultation last year on the proposed property management bill, receiving more

than 350 opinions from the public and the industry whilst polling 1,001 respondents in a survey.

In an analysis report of the consultation published in June, the Housing Bureau acknowledged a multi-tiered licence scheme at company level was ‘relatively controversial’. Residents mostly agreed that companies should be divided into three categories based

noting the company would also open a branch on Hengqin in the near future.

“As the number of home transactions has fallen since last year, every businessperson has been looking for a new business direction,” says Jane Liu Zee Ka, managing director of Ricacorp (Macau) Properties Ltd, a local subsidiary of Hong Kongbased property firm Ricacorp which has an extensive branch network in Hong Kong, Macau and the Mainland. Ricacorp Macau only fetched some MOP80 million in commission revenue in 2014, down more than 10 per cent from 2013’s MOP100 million.

“It’s not enough to solely rely on Macau home projects to sustain business operations,” Ms. Liu said. While some real estate agencies might opt for opening more branches on the Mainland and tap into new markets, some choose to promote Hong Kong and overseas projects for their Macau clients, she confided.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands and online at www.magzter.com.

on ability, whilst numerous industry figures opposed the initiative, the report said.

The draft bill aims to licence property management companies at three grades in accordance with the number of flats they manage and their registered capital: Grade A firms managing at least 5,000 flats must have capital of no less than MOP3 million (US$375,000); Grade B firms managing 1,2014,999 flats must have capital of at least MOP1 million; whilst Grade C companies are obliged to have MOP300,000 to manage at most 1,200 flats.

Another notable issue raising eyebrows in the latest version of the proposed bill is the licensing mechanism at individual level. The latest proposal of the government suggests the mechanism would only apply to the technical chiefs of the property management companies rather than every practitioner in the industry, including frontline employees.

This marks a change from the previous government stance in 2008 that anyone could only work in the sector with a permit issued by the authorities.

In the concluding report of the consultation, the government explained: “[It] is an inappropriate time now to establish a licensing mechanism for [property security] guards. Without affecting the employment of the current employees in the property management sector, [the government] will strengthen their training to enhance the services quality.”

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands and online at www.magzter.com.

Business Daily | 7

August 18, 2015

Gaming

Aussie mogul Packer’s rising casino debt making bond market wary Packer stepped down as chairman of Crown Resorts Ltd last Thursday but remains co-chair of Macau-focused Meclo Crown Entertainment

A

ustralian billionaire James Packer’s casino empire borrowings are rising too fast for some bond investors’ comfort.

With Crown Resorts Ltd.’s debt pile swelling and profits down, the cost of insuring the gaming operator’s notes against non-payment climbed to the most expensive level in two years.

The deterioration of the Melbournebased company’s balance sheet could also pressure its credit ratings.

Crown’s net debt grew 47 per cent to A$2.5 billion (US$1.8 billion) in the last financial year and it may borrow more to develop its attractions in Australia and a potential new casino in Las Vegas. At the same time earnings have dropped and its Macau joint venture is producing less cash as China’s corruption crackdown puts the brakes on high rollers. Packer has also changed his own role by stepping down as chairman last week.

“They’re sailing close to the wind with some of their credit metrics,” said Scott Rundell, chief credit strategist at Commonwealth Bank of Australia in Sydney. “We reckon the ratings agencies should place them on negative outlook, although that’s not to say they will.”

Widening spread

The yield premium over the swap rate on Crown’s November 2019 Australian dollar bonds widened to as much as 179 basis points this month, the most on record based on CBA prices.

I got some comfort from their earnings presentation in that they will try to structure the project funding so that it protects their credit rating Anthony Ip, credit sector specialist at Citigroup Inc.

Crown’s credit default swaps have risen 22 basis points this year to 159 basis points as of Aug. 14, the thirdworst performance in the 25-member iTraxx Australia index, based on CMA prices. The contracts reached as high as 164 basis points on Aug. 13, the highest since August 2013.

The company is rated two steps above junk at both Moody’s Investors

Service and Standard & Poor’s. Both have a stable outlook and said there was no immediate impact on their ratings from Crown’s latest earnings announcement. Moody’s did describe the results as “credit negative.”

Net income after adjusting for one-time items and an unusual rate of winnings was A$526 million in the 12 months ended June 30, down 18 per cent from a year earlier, Crown said on Thursday. The profit received from its stake in Macau-focused Melco Crown Entertainment Ltd. slumped 45 per cent.

Increased risk

Leverage remains within the limits of the current rating at Moody’s “but represents a significant reduction in headroom and increases the risk of downward rating pressure in light of a number of major projects that Crown is undertaking,” Moody’s analyst Maurice O’Connell wrote in a report on Thursday.

Crown plans to spend more than A$1.4 billion on its facilities in Sydney, Melbourne and Perth in the next three financial years, according to the latest earnings presentation. Its Alon casino project on the Las Vegas strip is in the design stage.

Crown’s Chief Financial Officer Kenneth Barton said last week the balance sheet is in “reasonably good shape” and that the company looks “to maintain metrics that are consistent with our current rating.”

Expenditure over the coming few

years “looks to be sort of well covered by operating cash flow,” he said on a conference call with analysts.

The company has previously taken steps to protect its ratings, according to Anthony Ip, a credit sector specialist at Citigroup Inc. He cited in particular a decision to issue subordinated notes, as well as the inclusion of provisions in Crown’s most recent unsecured bond for investors to receive a higher coupon should the credit score be lowered.

Some comfort

“I got some comfort from their earnings presentation in that they will try to structure the project funding so that it protects their credit rating,” he said.

The company had about A$197 million of cash as of June 30 and total outstanding debt of A$2.66 billion, regulatory filings show.

In addition to the pressure on Macau gaming revenues from the Chinese government’s anti-corruption drive, Melco Crown faces challenges relating to issues such as gaming table allocations and smoking bans. At home, Crown is being affected by the mining slump in Western Australia at its Perth venue.

“Crown’s credit profile is certainly under pressure and we see a few cracks around the edges,” said CBA’s Rundell. “It’s not terminal, but over the near term there are more headwinds than tailwinds.”

Bloomberg

8 | Business Daily

August 18, 2015

Greater China

GDP slower than official data helps explain stimulus moves

discrepancies between regional and national numbers and inflated trade figures.

Man made

The accuracy of the nation’s data has been questioned for years

C

hina’s economy is growing more slowly than official data suggests and below potential, a Bloomberg survey indicates, helping explain why policy makers have stepped up stimulus and the move to boost exports with a weaker yuan.

The economy expanded 6.3 percent in the first half, compared to the officially reported 7 percent, according to the median estimate of 11 economists surveyed last week. For the full year, a 6.6 percent pace was the median forecast of respondents, who were asked to nominate real growth rates, not what they expect the official data to show. They estimate the economy’s potential expansion pace for this year is 7 percent.

The gap between the potential and estimated real rate of expansion highlights a cyclical slowdown that the government is trying to plug with looser monetary policy, increased fiscal support, and a weaker currency.

Bloomberg’s monthly gross domestic product tracker has pegged growth below 7 percent all year, clocking a

Back when Premier Li Keqiang was party secretary of Liaoning province, he said in 2007 that GDP figures were “man-made” and therefore unreliable

6.6 percent pace in July.

“The actions of the government and central bank so far this year do indicate a certain amount of concern over economic growth,” said Patrick Franke, an economist at German savings bank Helaba in Frankfurt. “That would be easier to understand if they were aware that

underlying/true growth was actually below, and not in line with, the 7 percent target.”

The recent flurry of measures to prop up growth in part are “extra insurance against an unwanted downshift in demand growth” he said. Signs indicating growth is lower than officially stated include

power generation and weak demand for imports, said Franke.

The survey was conducted between August 10 and 13 on the basis that respondents’ forecasts would remain anonymous.

The accuracy of the nation’s data has been questioned for years, with anomalies including

Analysts: IPOs resuming by year-end Unprecedented intervention to end a US$4 trillion selloff has helped mainland shares gain during five of the past six weeks

Back when Premier Li Keqiang was party secretary of Liaoning province, he said in 2007 that GDP figures were “man-made” and therefore unreliable, according to a diplomatic cable published

by WikiLeaks in 2010. Ongoing measures to improve the quality of economic data include a June vow by the National Bureau of Statistics to expand an employment survey that Li says he wants to be “authoritative.”

First-half growth was just 6.2 percent while further deceleration in the second half will see full-year expansion of only 5.8 percent, estimates Wang Shenshen, a senior economist covering China with Okasan Securities Co. in Tokyo.

She peg’s the nation’s growth potential higher -- at about 8.1 percent this year -but said getting close to that isn’t easy given the nation’s low investment efficiency and policy makers’ determination to deleverage the economy.

Stimulus efforts won’t be able to push growth higher and are instead intended to put a floor under the economy, she said.

“If the government wants to push up GDP they know how to do it because the potential is higher,” she said.

“But for the past two years the data has shown us that the government doesn’t want to do that.”

Bloomberg News

almost all of this year’s deals have been priced at levels below 23 times earnings. The valuation cap has led to nearly guaranteed gains once new shares start trading, spurring investors to place bids worth hundreds of billions of dollars during each round of new listings.

Valuation cap

If IPO halts remain, companies will have problems getting financing Bruce Yu, manager, Franklin Templeton SinoAm China (a shares equity fund)

C

hina will probably resume initial public offerings by yearend as a stock-market recovery gives policy makers confidence to pare back emergency support measures, according to analysts in a Bloomberg survey.

Eight of the 14 respondents said IPO approvals will begin by the end of December, while the rest predicted a resumption next year. New share sales -- viewed by many Chinese investors as guaranteed bets -- were suspended

in July on concern they would divert funds from existing equities.

While the IPO ban has helped spur a 13 percent rally in the Shanghai Composite Index from this year’s low, it’s also hindering efforts to reduce China’s reliance on debt as economic growth slows to the weakest pace since 1990. About 600 companies are waiting for regulatory approval to list shares on mainland exchanges in offerings that could raise US$75 billion, according to data compiled by Bloomberg.

“The government definitely wants IPOs to resume soon, so it can diversify ways of financing,” said Tommy Xue, a Shanghai-based analyst at Huatai Securities Co., China’s fourth-biggest listed brokerage by revenue. “If the stock market remains strong, it won’t take too long.”

Unlike in most major stock markets, Chinese regulators control the timing and pricing of new listings.

While policy makers have pledged to loosen their grip on the process,

IPO approvals won’t resume until the Shanghai Composite rebounds to 4,500, said Yang Delong, a strategist at China Southern Fund Management Co. That level is viewed by some investors as a target for authorities after the nation’s biggest brokerages pledged not to sell their own holdings while the index is still below 4,500.

“Although the rescue measures are effective, the market is not fully stable,” Yang said.

Bond shift

Before the stock market started tumbling in June, Chinese authorities had endorsed the use of equity financing as an alternative to debt, which becomes more difficult for many companies to repay as economic growth slows. The aggregate debtto-equity ratio for companies in the Shanghai Composite rose to the highest level since 2005 in January, while the McKinsey Global Institute estimates corporate liabilities reached 125 percent of gross domestic product in 2014.

The IPO halt has prompted some Chinese companies to tap the bond market for cash instead. Evergrande Real Estate Group Ltd. issued yuan debt last month after an application to list its soccer club and entertainment group stalled.

Bloomberg News

Business Daily | 9

August 18, 2015

Greater China Supply-demand mismatch dampens steel prices Steel prices in China continued to spiral downward in July as market supply far exceeded demand, latest data from the China Iron and Steel Association (CISA) revealed yesterday. The CISA China steel price index came in at 62.73 by the end of July, down 5.94 percent from a month earlier. The index marked a drop of 31.56 percent from a year ago, as no significant improvement in the supply-demand mismatch was seen, according to the association. It attributed the weak demand to the prolonged downward pressure on the broader economy.

Railway investment to accelerate

Retreating into financial shadows to boost economic growth In terms of reviving bricks-and-mortar investment, bonds are doing much more of the work than banks

Expo with Arab states in September

Nathaniel Taplin

O

n a sweltering day in August, the towering ferris wheel and massive roller coaster of China’s Jiyanghu Ecological Park, a two-hour train ride from Shanghai, stand eerily silent.

Down a shady lane buzzing with cicadas, a security guard stands inside the near-deserted park’s administration building, its foyer featuring a reflecting pool and a twostorey-high stone relief of traditional Chinese figures in flowing robes.

“We have a large shopping and dining district here, and the amusement park here,” says an employee offering a glossy brochure and a cup of tea in an office upstairs. “But I have no idea where the financing comes from.”

The amusement park, built three years ago in the dusty port city of Zhangjiagang, is owned by the municipal government and is being funded through a channel that until recently was being phased out by Beijing: the local government financing vehicle.

China appears to be more or less slowly entering a debt‑deflation trap Liu Li-Gang, chief economist for greater China, ANZ Bank, Hong Kong

These murky vehicles, which do not appear on a local government’s balance sheet, are roaring back to life, funding new projects and, as in the case of the amusement park, refinancing old debts as Beijing tries to spur the economy.

Their return is an admission by Beijing that commercial banks alone cannot fund a badly needed revival in investment.

As well as resurrecting local government financing vehicles monthly bond issuance by LGFVs quadrupled between February and July, according to Moody’s - Beijing is pumping capital into state policy banks and allowing alternative funding sources to grow, such as Internet finance and private lenders.

Back to the future?

Some economists suspect growth is closer to 5 percent - which could explain why Beijing is trying to boost investment on a scale not seen since the global financial crisis.

To enable local governments and state policy banks to do this, Beijing is underwriting a blizzard of new bonds: 2 trillion yuan (US$313 billion) to refinance local government debts and another trillion yuan so that policy banks can fund big-city projects such as pipelines, water treatment or subway systems.

And those figures do not include the 800-900 billion yuan that Goldman Sachs estimates has been pumped by Beijing into the nation’s wobbly stock markets. Much of that has been lent by state agencies to local institutions to fund stock purchases.

Cumulative stimulus is starting to rival the 4 trillion yuan spending package unveiled during the global financial chaos of late 2008, fuelling

China has hastened efforts to build high speed rails as annual investment targets are still far from complete. Yesterday, China’s northernmost high-speed railway started operation in Heilongjiang Province.

The trip from Harbin City, the provincial capital, to Qiqihar City was reduced from three hours to 85 minutes. Last week, a railway linking Jinan City and Qingdao City in east China’s Shandong Province broke ground. Local governments will raise 80 percent of the 60 billion yuan (US$9.4 billion) investment, while all previous projects were primarily funded by the China Railway Corporation.

concerns that China’s economic miracle could end the same way Japan’s did - in high debts and deflation.

Bonds are the new black

Bank lending, sluggish in the first half of this year despite four interest-rate cuts and looser lending restrictions, has picked up in recent months, reflecting the banks’ role in funding the government’s bailout of stock markets.

But in terms of reviving bricksand-mortar investment, bonds are doing much more of the work, such as those issued on behalf of the owner of Zhangjiagang’s Jiyanghu Ecological Park.

Spread over 4.25 square km, the park already looks neglected. Beyond the entrance, there is a row of locked shops, including a shuttered gaming centre covered in anime superheroes.

The paint is peeling off some facades.

The park’s LGFV parent firm, Zhangjiagang Zhishu Development Co., plans to raise 1 billion yuan to refinance old loans, including a 120 million yuan bank loan for the park’s operating firm, which has plans for a redevelopment.

The assistant, who gave his name only as Ji, did not provide any detailed figures. The park’s operating company, a unit of the LGFV, made a loss for the first nine months of 2014.

As local governments gear back up, China’s smaller and more productive firms still struggle to secure finance.

Instead, smaller firms are resorting to non-bank finance, from crowdsourced loans raised online to private lending firms that, according to market sources, can charge up to 15-18 percent interest on a secured loan in China.

Reuters

The second China-Arab States Expo will be held in Yinchuan, capital of northwest China’s Ningxia Hui Autonomous Region, from September 10 to 13, the Ministry of Commerce (MOC) announced yesterday. The expo, themed “Spread Silk Road Spirit, Deepen China-Arab Cooperation,” will be jointly hosted by the MOC, the China Council for the Promotion of International Trade and the Ningxia regional government. The biennial event is designed as a platform for economic and financial cooperation as well as cultural and people-to-people exchanges. Jordan will be invited as the guest country of honour.

HK yet to decide on Uber case The government is yet to decide if it will prosecute staff of the car-hailing app company Uber for allegedly providing unlicensed taxi services in Hong Kong, Secretary for Justice Rimsky Yuen said yesterday. Yuen said the Justice Department is still waiting for police to gather more evidence before deciding on further legal action. All app companies are allowed to operate in Hong Kong as long as they comply with the laws of Hong Kong, Yuen added. Police arrested 10 Uber drivers and office staff last week.

Vanke H1 profit growth slows China Vanke, the country’s largest property developer by revenue, posted slower profit growth in the first half of 2015 compared with gains in the same period last year. Net profits edged up 0.77 percent year on year to 4.85 billion yuan (about US$757 million) in the first six months, said a report on the website of the Shenzhen Stock Exchange. The growth was sharply down from a 5.55-percent increase in net profits in the first half of 2014 and a 22-percent increase in net profits in the first half of 2013.

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August 18, 2015

Greater China

HKMA chief says stability key feature The Hong Kong Monetary Authority regulator warns public against the risks of excessive financial leverage of Hong Kong’s market Yan Hao

C

han Tak-lam, Chief Executive of the Hong Kong Monetary Authority (HKMA), has said that Hong Kong sees financial stability as a top priority to protect the region from financial turbulence and maintain the competitiveness of its financial sector.

The real competitiveness of Hong Kong’s financial sector is not profit-making but its conservative style and prudent operation, said Chan during an exclusive interview with Xinhua.

Chan said he believed that the recent decline of the Chinese yuan is a fluctuation inevitable in the marketization process of the formation mechanism of yuan’s exchange rate.

The Chinese central bank’s latest move is an important step for the Chinese mainland to improve its capital market openness and promote the reform of the formation mechanism of yuan’s exchange rate, according to Chan, who started to serve his current position since 2009.

The HKMA chief said he did not believe that the yuan would step into a downtrend channel.

Speaking of financial stability, Chan said Hong Kong would always face turmoil of outside financial markets, thus it is necessary to keep the banks’ capital adequacy ratio higher than those in the European and American banks to write off uncollectible accounts when necessary.

“Some people criticize the authorities for raising a requirement higher than the international standard set by the Basel III, which will lead to an ‘unfair’ competition for Hong Kong banks,” said Chan, “I don’t agree.”

The competition between banks should focus on

Chan Tak-lam, Chief Executive of the Hong Kong Monetary Authority

services and stability rather than a business model based on making more profit with a minimum capital adequacy ratio, he said.

The total assets of Hong Kong’s Exchange Fund, cornerstone of Hong Kong’s financial stability, has increased from HK$350 billion (about US$45.16 billion) in 1993 to HK$3.15 trillion by the end of 2014, a surge of nearly eight times in 20 years, according to Chan.

“The fund has a legal function to maintain Hong Kong’s financial stability and is also the hard-earned money of Hong Kong residents, so we decide that its investment strategy should be proconservative and focus on mid-and-long-term return,” Chan said.

When the global financial crisis broke out in October, 2008, it was the resources

of the Exchange Fund that the SAR government used to provide an unlimited guarantee for all deposits of the banks in Hong Kong, Chan recalled.

“The Exchange Fund is our last line of defence to maintain Hong Kong’s financial stability,” Chan said.

In his speeches and articles, Chan describes excessive leverage as “root of all evil” in financial turmoil and crisis.

“A capital market driven by many leverage trading could not last long, this is the law of economics,” Chan said.

Chan said he always stands highly alert to debts.

“The process of de-leveraging is very hard. If we don’t want to ‘pawn’ our next generation, like what some advanced countries have done, we should not leave them piles of debts to deal with.”

In long term, I don’t believe the yuan will step into a continuous depreciation channel since the mainland’s economy, including exports, is promising Chan Tak-lam, chief executive, Hong Kong Monetary Authority

Beijing tightens grip on home purchases in overheated area July property price data for 70 of the biggest Chinese cities is due today

B

eijing is stepping up curbs on property market speculation after prices surged in one area of the capital, raising concerns some bigger cities may also tighten home purchase rules.

China's year-long slump in the housing market has dragged on the economy but there are fears bubbles

are forming in some big cities even as prices in smaller cities languish.

Analysts say other cities, however, are not expected to follow district, a south-eastern suburb of the capital, as prices in that area had been fuelled by expectations it would become a sub-administrative centre for local government.

Under the new rule, non-residents of Tongzhou and those who have not paid social insurance or taxes there for at least three years, are barred from buying second homes in the area, the Beijing municipal commission of housing and urban-rural development said in statement on its website late last Friday.

The HKMA chief also said that he is fully confident of the future development of Hong Kong’s financial industry.

He expressed disagreement with the view that Hong Kong will be “mainlandized” and lose competitiveness as Hong Kong and the mainland make more exchanges and cooperation.

“Some were worried that Hong Kong would lose its future as Shanghai, Beijing or Shenzhen have more direct financial businesses with the world...but I don’t agree,” he said.

He cited foreign trade growth as an example. The mainland’s total foreign trade volume was about US$470 billion in 2000 when Hong Kong achieved a total transit trade volume of US$180 billion. In 2013, the mainland’s foreign trade volume exceeded US$4 trillion while Hong Kong’s transit trade volume also increased to US$450 billion.

“The closer the mainland and Hong Kong become, the more active Hong Kong could be as a connector and more advantages Hong Kong will have to develop its economy,” Chan said.

The mainland’s financial openness will provide continuous sources for Hong Kong. For instance, Hong Kong has benefited the most from the process of the internalization of yuan, he said.

Chan sees the liberalization of mainland capital accounts, which will make cross-border capital flow much easier, as another opportunity for Hong Kong’s financial industry. “Once it is realized, Hong Kong banks will have absolute advantages and be very competitive in providing relevant services.”

Xinhua

For people without Beijing housing registration, they must have paid more than five-years worth of taxes or social insurance with three-years of that registered in Tongzhou to buy the first home in Tongzhou, it said, adding that previous restrictions would stay in place.

Previously, buyers were not required to have paid three-years of taxes in Tongzhou or be registered as residents in Tongzhou, to buy homes in the area.

Analysts say market conditions remain weak in smaller cities.

The capital city's property controls are always more stringent than other cities as residents there are barred from owning more than two homes while non-residents who have paid more than five-year's worth of taxes can buy no more than one property in the city.

Reuters

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August 18, 2015

Asia

Doubts multiply about “Abenomics” after Japan economy contracts Aides close to the PM have signalled that additional monetary easing is unwelcome Leika Kihara and Tetsushi Kajimoto

Japanese Economy Minister Akira Amari (R) said the government didn’t have any plans as yet to craft a fresh stimulus package. Pictured with Finance Minister Taro Aso (C)

J

apan's economy shrank at an annualised pace of 1.6 percent in April-June as exports slumped and consumers cut back spending, adding pressure on Prime Minister Shinzo Abe to step up his policy drive to lift the economy.

China's economic slowdown and its impact on its Asian neighbours has also heightened the chance that any rebound in growth in July-September will be modest, analysts say.

The gloomy data adds to signs that Japan's economy is at a standstill and heightens pressure on policymakers to offer additional monetary or fiscal stimulus later this year.

The contraction in gross domestic product (GDP) compared with a median market forecast of a 1.9 percent fall and followed a revised expansion of 4.5 percent in the first quarter, Cabinet Office data showed yesterday.

"If weak private consumption persists, that would be a further blow

to Abe's administration, which is facing falling support rates ahead of next year's Upper House election," said Hiromichi Shirakawa, chief Japan economist at Credit Suisse. "This could raise chances of additional fiscal stimulus."

Private consumption, which makes up roughly 60 percent of economic activity, fell 0.8 percent from the previous quarter, double the pace expected by analysts.

It was the first decline since AprilJune 2014, when a sales tax hike hit consumption, as households spent less on air conditioners, clothing and personal computers.

Overseas demand shaved 0.3 percentage point off growth as exports to Asia and the United States slumped.

Stimuli dilemma

The data looks likely to force the BOJ to cut its forecast of a 1.5 percent economic expansion for the current fiscal year when it reviews its longterm projections in October.

But the weak consumption underscores a dilemma the central bank faces that may discourage it to expand stimulus.

Economics Minister Akira Amari acknowledged that consumption may have been hit by rising food prices, as the BOJ's easing weakened the yen and pushed up import costs.

Aides close to Abe have signalled that additional monetary easing is unwelcome as further yen falls will push up food costs further and hurt consumption.

That puts the onus of the government to underpin growth despite diminishing returns. Japan's economy grew just 2 percent since Abe took office in December 2012, even as he deployed fiscal stimulus roughly equal to 3 percent of GDP. "The effect of Abenomics hasn't expired, but the policy steps haven't boosted wages enough to meet rising living costs," said Yuichiro Nagai, an economist at Barclays Capital Japan.

"There's not much the BOJ can do, so there's a higher chance the government may offer fiscal support if consumption fails to rebound in July-September," he said.

Economics minister Amari told reporters the government didn't have any plans as yet to craft a fresh stimulus package, and will instead keep pressuring companies to direct their record profits at raising wages and capital expenditure.

But weak Asian demand casts doubt on whether manufacturers can continue to reap huge profits overseas.

Singapore monetary policy caught between rock and a hard place Any easing and a consequently softer Singapore dollar would squeeze local interest rates Jongwoo Cheon

S

ingapore is caught between a rock and a hard place: easing its exchange rate-based monetary policy would strengthen its

export competitiveness after China's devaluation of its yuan but may drive out capital and raise borrowing costs in a slow economy.

Shrinking factory output, an economic contraction and months of falling consumer prices have revived speculation the Monetary

Authority of Singapore (MAS) may ease policy at its next review in October.

China's currency devaluation to prop up the world's secondlargest economy has only added to the expectations.

Yet, the MAS said last week its current monetary policy remains appropriate.

The MAS manages monetary policy by letting the Singapore dollar rise or fall against the currencies of the country's main trading partners within an undisclosed trading band. But any MAS easing and a consequently softer Singapore dollar would squeeze local interest rates as investors demand higher yields as compensation for holding a weaker currency.

The Singapore dollar has lost nearly 6 percent against the U.S. dollar this year, after a surprise MAS easing in January. With the currency's

Reuters

weakness, the three-month Singapore interbank offered rate (SIBOR) jumped to 1.02705 percent in April, its highest since December 2008.

The three-month SIBOR, used to set interest rates on mortgages, hit a four-month high of 0.93908 percent on Friday.

Higher interest rates, aside from inflicting pain on property owners, also weigh on returns from Singapore real-estate investment trusts (REITs) - the biggest in Asia outside of Japan.

OCBC Investment Research said the average borrowing cost of REITs under its coverage rose to 2.9 percent as of the end of March, up 5 basis points (bps) from the preceding three months. It said an increase of 100 bps in borrowing costs could cut average distribution per unit forecast for the fiscal year by 2.1 percent and the next fiscal year by 1.9 percent.

SIBOR will test 1.3 percent this year, and a potential central bank easing may push it to 1.5-2.0 percent, said Commonwealth Bank of Australia's Asian currency analyst Andy Ji. "Any easing will instil further depreciation expectation which leads to capital outflows and oblige the central bank to intervene.

Both lift domestic interest rates," said Ji, adding he expected the central bank to stay put in October.

Reuters

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August 18, 2015

Asia

Thai economy beats forecasts Economy grew just 0.9 percent last year, the weakest since flood-hit 2011 Orathai Sriring and Kitiphong Thaichareon

T

hailand’s economy grew slightly more than expected in the second quarter but remained sluggish, putting more pressure on the military government to boost sputtering activity as it enters its second year in power.

Southeast Asia’s second-largest economy grew 0.4 percent in AprilJune on a seasonally-adjusted basis, barely edging up from 0.3 percent in the previous quarter, the state planning agency said yesterday.

Economists polled by Reuters had predicted 0.2 percent growth.

On an annual basis, growth was 2.8 percent, the same as in the poll but lower than 3.0 percent growth in the first quarter.

“The story is the same: the economy is still quite lacklustre,” said Krystal Tan, senior Asia economist at Capital Economics in Singapore.

“We’re not very optimistic about growth in the coming quarters, there are still headwinds the economy is facing so that’ll prevent growth from becoming much stronger,” she said.

Thai Prime Minister Prayuth Chanocha last week confirmed an imminent cabinet reshuffle, adding that he would change some ministers and appoint outsiders to the posts.

Yesterday, the National Economic and Social Development Board

KEY POINTS Q2 GDP +0.4 pct q/q, vs +0.2 pct in poll Q2 GDP +2.8 pct y/y, poll saw +2.8 pct Agency cuts 2015 growth forecast to 2.7-3.2 pct from 3.0-4.0 pct (NESDB) lowered its 2015 growth forecast for a second time this year, to 2.7-3.2 percent from 3.0-4.0 percent.

Some economists believe even the new forecast may be too ambitious.

The NESDB also sharply downgraded its view on exports, and now sees shipments contracting 3.5 percent, which would mark a third consecutive year of decline. In May, it had forecast exports would rise 0.2 percent this year.

Thailand’s economy grew just 0.9 percent last year, the weakest since flood-hit 2011.

Economists hope that the return of tourists after the coup and a pick-up in government spending will drive better growth in the second half of the year.

But that won’t turn around the economy if the key engines of exports and consumption are not firing and big public infrastructure projects are stalled.

Exports, worth about twothirds of the economy, shrank 5.5 percent in April-June from a year earlier while factory output slipped 7.6 percent. But foreign tourist numbers jumped 37.6 percent yearon-year.

Private consumption rose 1.5 percent in the second quarter yearon-year, slowing from a 2.4 percent rise in the first quarter, weighed by record household debt and as weaker commodity prices cut into farmers’ purchasing power.

Exports contracted but tourism jumped – agency

The government still hopes exports will improve later this year, helped by the weaker baht which has depreciated about 6.9 percent against the dollar this year.

After two surprise rate cuts, the central bank has left its policy rate steady at 1.50 percent, letting the falling baht aid exports and economic recovery.

It next reviews policy on September 16, and most economists expect no policy change.

Sri Lankans vote for new president Voting ended at 4:00 pm yesterday, with the final count due today Shihar Aneez and Douglas Busvine

S

ri Lankans went to the polls yesterday to elect a new parliament in what amounts to a referendum on ex-president Mahinda Rajapaksa’s comeback bid, with the reformist alliance that swept him from power seeking a stronger mandate.

The nationalist strongman has set his sights on becoming premier of a government led by his Sri Lanka Freedom Party (SLFP). But the former ally who beat him at the polls in January, President Maithripala Sirisena, now leads the party and he rules that out.

The tangled personal rivalry has overshadowed campaigning on the Indian Ocean island of 20 million people, which has

a history of political feuding that has often spilled over into violence and even the assassination of its leaders.

Sirisena, in a cross-party alliance with a government led by the United National Party (UNP), has sought to break with that troubled past by passing reforms to weaken his own presidency and make the government more open and accountable.

Some voters in Colombo said they were casting their ballots for reconciliation and good governance, showing sympathy for the UNP of Prime Minister Ranil Wickremesinghe.

“I came to vote to have just and fair governance ... for people to live like humans,” lawyer

Rushdi Halid told Reuters.

Minority Tamils and Muslims have rallied behind the UNP-led alliance, which pundits say has the best chance of forming the largest bloc in the 225-seat parliament and advancing reforms that have stalled because it lacks a majority.

Wickremesinghe said he was very confident of beating Rajapaksa. “He has lost already,” he told reporters after voting. “I haven’t got to worry any more about Mahinda Rajapaksa - in a free and fair election we can hold him.”

National hero?

Rajapaksa also exuded confidence after voting in his

home district in his southern power base: “We will win, that is certain. My message is to remain calm and peacefully enjoy the victory.”

The burly 69-year-old is revered as a war hero by many of Sri Lanka’s Sinhala speaking Buddhist majority for crushing a 26-year Tamil uprising in 2009. Opponents accuse him of running a corrupt, brutal and dynastic regime - charges he denies.

At stake for the wider world is whether Sri Lanka sticks to its pro-Western course or turns back towards China. Under Rajapaksa, Beijing pumped billions of dollars into making the island part of a new “Maritime Silk Route”.

Reuters

“We need development, to live without fear of war, a country without bomb explosions,” said Shanthi Bandara, a 52-year-old Colombo housewife who backed Rajapaksa.

Voting was slow in the Tamil-speaking north, where memories of the civil war are fresh and issues like restitution of land occupied by the military remain unresolved.

It’s personal

Sirisena quit Rajapaksa’s government last year to run against him, pulling off a stunning victory in presidential elections on January 8.

Yet he has moved only belatedly to assert his control over the SLFP and to block the path to the premiership of his erstwhile ally and party rival.

In a widely leaked letter, he accused Rajapaksa of holding the party “hostage” and ruled out naming him prime minister. Sirisena, 63, has also used his power as party leader to purge Rajapaksa loyalists from key posts before the election.

Reuters

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August 18, 2015

Asia Japan Post’s US$11 billion triple listing expected November 4

Myanmar green energy summit kicks off

The Finance Ministry, which owns the company, aims to retain a one-third stake once all three tranches of the sale are complete

J

apan Post Holdings is expected to list shares in its holding company and bank and insurance units on November 4, several people close to the deal said on Friday, in Japan’s biggest sale of state-owned enterprises in nearly three decades.

The government aims to sell at least 1.3 trillion yen (US$11 billion) worth of shares, the sources said, in the first tranche of a three-part sale aiming to raise around 4 trillion yen over the coming four to six years to fund reconstruction from Japan’s 2011 earthquake and tsunami disaster.

The mammoth IPO, a decade in the making, reflects Prime Minister Shinzo Abe’s push to invigorate the nation’s big public financial institutions and help lift the world’s third-biggest economy out of two decades of deflation and tepid growth.

The proportion of the offering reserved for domestic investors was boosted to 80 percent from the roughly 50-50 split initially envisaged between foreign and domestic sales, a Finance Ministry official said, after Abe pushed for greater participation by domestic investors.

The sale also helps the government exploit a doubling in Tokyo stock prices since Abe took office in December 2012 as it seeks revenue and struggles with the industrialised

S. Korean president says economy on recovery path world’s biggest public debt burden.

Companies raised US$11.4 billion in IPOs in Japan’s stock market last year, Thomson Reuters data show, up 17 percent from 2013 and 55 percent more than the average of the previous five years. That slowed to US$2.4 billion in the first half of this year but the Japan Post listing, as well as expected IPOs from Osakabased Universal Studios Japan and messaging app creator Line Corp are set to boost the total significantly.

Mammoth IPO

The first round of share sales would be Japan’s biggest privatisation since the 2.4 trillion yen listing of Nippon Telegraph and Telephone Corp in 1987.

Singapore closer to tweaking policy after yuan drop Monetary policy is focused on the exchange rate rather than interest rates due to the trade-dependent nature of its economy Masayuki Kitano and Jongwoo Cheon

S

ingapore’s central bank may have more reason to consider adjusting monetary policy settings after China’s surprise devaluation triggered a fall in the Singapore dollar, a Reuters poll showed.

Six of 11 analysts in the survey, conducted between Tuesday and Friday, said yuan devaluation could add to the case for the Monetary Authority of Singapore (MAS) to tweak its policy settings.

To be sure, none of the 11 shifted

The 2nd series of the Myanmar Green Energy Summit kicked off in Yangon yesterday aimed at exchanging ideas with the industry experts while being updated on the latest policies, regulations and developments of Myanmar’s green energy industry. Organized by the Confexhub Sdn. Bhd of Malaysia and supported by the Union of Myanmar Federation of Chambers of Commerce and Industry, the two-day summit 2015 was attended by international green and renewable energy industry players, potential investors and experts from over 25 countries.

their views toward monetary easing based solely on the August 11 yuan devaluation.

The three analysts who expect MAS policy easing in coming months as their base case all held such views even before China’s surprise action, which fanned concerns about the health of the world’s second-largest economy.

Hirofumi Suzuki, an economist for Sumitomo Mitsui Banking Corp, had previously expected the MAS to ease in October.

Despite the looming flood of fresh supply, market participants believe the launch will on balance be positive for the market by encouraging more people to buy stocks.

Japan Post, which runs the nation’s mail-delivery service, applied to the Tokyo Stock Exchange in June to list the parent as well as Japan Post Bank Co and Japan Post Insurance Co. Approval from the bourse is expected on Sept. 10, said the sources, who asked not to be named as the information is not public.

The group’s consolidated net asset value was 15.3 trillion yen at the end of March.

Reuters

The yuan devaluation, however, “will reinforce incentives for the MAS to ease its monetary policy in an inter-meeting period,” he said, adding that such easing may even happen this month.

The Singapore dollar closely tracks the yuan because traders think the yuan is included in the undisclosed, trade-weighted currency basket used by the MAS to manage monetary policy.

Some analysts say the Singapore dollar’s nominal effective exchange rate (NEER) probably fell to around the bottom of the policy band during the week.

Analysts at Morgan Stanley said yuan devaluation poses risks for MAS policy, adding that a case could be made for lowering the mid-point of the policy band.

The MAS eased policy in January in an off-cycle policy decision.

Its next scheduled review is in October.

Another uncertainty is whether spill over effects from a weaker yuan will add to disinflationary pressures in Singapore. Core inflation in June was 0.2 percent year-on-year, having hit a five-year low of 0.1 percent in May. Reuters

South Korean President Park Geun-hye said yesterday the domestic economy was returning to a modest recovery path after the shocks of the deadly Middle East Respiratory Syndrome (MERS), but expressed concerns about China’s devaluation of the yuan. Park told a cabinet meeting that the government must take “active” countermeasures if needed to prevent the yuan’s devaluation from triggering instability in the local economy.

Aurizon hikes dividend pay-out Australia’s top coal hauler raised its dividend pay-out well above expectations after reporting a 15 percent rise in profit yesterday, with growth opportunities limited by a slump in coal and iron ore markets. Aurizon’s shares jumped as much as 4.3 percent on the announcement, and are up more than 13 percent this year. Underlying net profit rose to A$604 million (US$445 million) for the year to June, in line with analysts’ forecasts for a net profit of A$602 million, according to Thomson Reuters I/B/E/S, underpinned by cost cuts.

Bangladesh tenders to import wheat State grains buyer issued an international tender to import 50,000 tonnes of better quality wheat, a procurement official said yesterday, in a bid to replenish reserves. The move came after imports of inferior quality wheat from Brazil in recent months, prompting the state buyer to seek better quality grain, the official said, adding more cargoes might be rejected if they do not meet quality standards. Earlier this month, Bangladesh rejected a 52,500-tonne cargo of French wheat as the grain did not match tender specifications.

Newcrest takes Telfer gold mine off table Newcrest Mining said it has called off the proposed sale of its Telfer gold mine in Australia, and will instead invest to extend the mine’s operations as it seeks to maintain the company’s overall gold output this year. Newcrest, which posted a net profit of A$546 million (US$403 million) for the year to June 30 after a A$2.2 billion loss a year ago due to write-downs at its Papua New Guinea operations, said there had been considerable interest in Telfer. However, chief executive Sandeep Biswas said a combination of lower labour costs and a weakening Australian dollar had worked in favour of retaining the mine, which was once it’s flagship operation.

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August 18, 2015

International European dividends grow Dividends got a lift in the second quarter amid an improving earnings outlook and post-crisis clean-ups in the financial sector, a report by Henderson Global Investors showed yesterday. Stripping out the impact of the stronger U.S. dollar, which dented growth rates tracked by Henderson’s dollar-denominated global dividend index, shareholder pay-outs from top companies in Europe, excluding Britain, grew 8.6 percent in the second quarter. This was a slower rate of growth than in the first quarter but ahead of that seen in the last quarter of 2014.

Polish President faces banks on Swiss franc loans President Andrzej Duda said banks should bear the responsibility for solving the issue of Swiss franc mortgages because they made huge profits on them, but a solution must not destabilise the banking sector. Poland is one of the last countries in eastern Europe to tackle a foreign currency mortgages problem, described by central bank chief Marek Belka in June as “a ticking bomb”. More than half a million Poles held a combined 144 billion zlotys (US$38.3 billion) in Swiss franc debt as of the end of March, accounting for about 40 percent of all Polish mortgage lending.

Israel’s economy slows to near standstill

Qatar launches major labour reform for migrant workers The reform is being overseen by the labour ministry David Harding

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atar today officially launches one of its most “significant” labour reforms to guarantee migrant workers’ wages, but rights groups are concerned over implementation of the new regulations.

The Wage Protection System (WPS) aims to ensure that migrant labourers, many working on 2022 World Cup-related projects, will finally receive their pay on time.

Under the new system, workers will be paid either twice a month or monthly, and the wages electronically transferred direct to their bank accounts.

Failure to pay salaries on time, especially for blue collar workers, has been one of the biggest complaints voiced by rights groups against companies in the energy-rich Gulf state.

A 2013 academic study, “Portrait of Low-Income Migrants in Contemporary Qatar,” found that around a fifth of migrant workers were “sometimes, rarely or never” paid on time.

On August 18, a six-month grace period for businesses to ready for the electronic payment system expires.

From that date, companies which fail to pay staff on time could face fines of up to 6,000 Qatari riyals (US$1,650), be banned from recruiting new staff, and bosses potentially sent to jail.

Inspection teams will monitor the new system and identify any firms not complying with the regulations.

The WPS is being overseen by the labour ministry, which has previously pointed to its introduction as proof of Qatar’s commitment to labour reform.

In May, the ministry cited the WPS as an example of the “significant changes” being introduced in response to furious criticism of its labour practices since the controversial decision to allow Qatar to host football’s biggest tournament.

New beginning?

Amnesty International, which has previously criticised Qatar for its

Israeli consumers took a break from spending in the second quarter, resulting in an annualised growth rate for the economy of just 0.3 percent of gross domestic product (GDP), data showed yesterday, far weaker than expected so far in 2015. GDP in the second quarter had been forecast to grow by an annualised 2.7 percent, according to a Reuters poll of analysts. With exports and investment struggling for more than a year and government spending limited by the lack of a 2015 state budget, Israel’s economy had only been held up by strong consumer buying.

Soybeans down on good U.S. crop weather Chicago soybean futures fell again yesterday with forecasts of crop-friendly rain in the U.S. Midwest adding pressure to prices hit by sharp falls last week following forecasts of a bumper U.S. harvest.

“Soybeans are under pressure today because of forecasts of rainfall in the U.S. Midwest which would benefit crops,” said Frank Rijkers, agrifood economist at ABN AMRO Bank. “Corn is seeing some strength in positioning ahead of the weekly crop reports from the U.S. Department of Agriculture (USDA) later on Monday.”

Wheat was drifting in and out of positive territory ahead of the USDA report.

Merkel sees IMF joining Greek bailout German Chancellor Angela Merkel said she’s confident the International Monetary Fund will join Greece’s third bailout and signalled willingness to consider debt relief to help make it happen. Merkel’s first public comments since euro-area finance ministers backed the 86 billion-euro (US$96 billion) aid package were partly aimed at her party’s lawmakers, who want the chancellor to ensure an IMF contribution to the latest Greek rescue. IMF Managing Director Christine Lagarde made it clear she will back the fund’s participation starting in October if conditions including eased terms on previous Greek aid loans are met.

Panorama of Doha, financial centre of Qatar

“slow” pace of reform, said the introduction of the WPS was “welcome”.

“It’s a positive step in principle,” said Amnesty’s Gulf migrant rights researcher, Mustafa Qadri.

However, Amnesty still has concerns about what will actually happen in practice following the deadline today.

It has called on Doha not to make any last-minute concessions to business or extend the grace period and also to ensure the WPS will be rigorously enforced.

“The government now has a benchmark it can apply to business.

The government should effectively enforce this law,” added Qadri.

“We shouldn’t see August 18 as a deadline but a new beginning for Qatar.”

Doha has said it backs “effective and sustainable change” and says the WPS, like Qatar’s promise of accommodation improvements for 250,000 workers, demonstrates a commitment to this end.

But reform of the WPS only adds to the calls for change elsewhere, specifically the biggest reform of all, scrapping of the controversial “kafala” system, which limits the movement of foreign workers.

Qadri called “kafala” the “elephant in the room” and said the changes being introduced on August 18 should open the door to further reforms.

He referred specifically to the ending of the controversial kafala system which has been likened by some critics to modern-day slavery.

Qatar has pledged by the end of 2015 to abolish the system under which employers retain the passports of workers, who are not allowed to change jobs.

AFP

German growth seen strong in second half They will benefit from big real income increases at home, the German central bank said in a monthly economic report

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rowth will remain strong in the second half of the year on rising consumption and growing exports but the global outlook is clouded by the increasing risk of a big economic slowdown in China, the Bundesbank said yesterday.

The upbeat outlook comes after Germany, Europe’s biggest economy, reported solid but unspectacular growth figures on Friday, which showed GDP expanding by 0.4 percent in the second quarter, shy of forecasts for 0.5 percent.

The quarter also ended on a mixed note with falling output and exports but strong investments and unusually strong industrial orders, highlighting some of Europe’s growth challenges after protracted downturn.

Germany will benefit from big real income increases at home, the euro zone’s recovery, the weaker euro and accelerating growth in the United States and Britain, two key trading partners, the German central bank said in a monthly economic report.

The Bundesbank also sounded an upbeat tone on Greece, arguing

that the economy would gradually improve, benefiting from the bailout, tourism income and investments financed by European structural funds.

Normalised bank operations will also help the Greek economy while the previous wage and fiscal adjustments should also make an impact.

German lawmakers are due to vote on Wednesday on the 86-billion-euro bailout deal. German approval is not in doubt because of the support of parties like the Social Democrats and Greens.

However, a rebellion by a large number of her conservative allies would be a blow for Chancellor Angela Merkel, who remains highly popular after 10 years in office.

The Bundesbank was more cautious on China, which devalued its currency last week, raising fears that its outlook is worse than earlier expected with growth at its slowest in a quarter of a century.

“The risks of a stronger economic slowdown remains high,” the Bundesbank said.

Reuters

Business Daily | 15

August 18, 2015

Opinion Business

wires

Oil’s new normal

Leading reports from Asia’s best business newspapers

Mohamed A. El-Erian

Chief Economic Adviser at Allianz and a member of its International Executive Committee, is Chairman of US President Barack Obama’s Global Development Council

THE PHNOM PENH POST Local tech start-ups discussed a possible reduction in the Ministry of Commerce’s business registration fees at a meeting on Saturday, to ease the initial financial burden on their businesses, given the difficulty in raising funds in Cambodia’s nascent tech market. The meeting, organised by Impact Hub, a global network of entrepreneurs, investors and students, discussed easing the cost of starting a business and introducing policies to enable young entrepreneurs, as well the development of the highspeed Internet in the Kingdom and locally-developed apps.

THE KOREA HERALD The fuel surcharge that international flight passengers have to pay is expected to be lowered to zero in South Korea for the first time in six years next month as global oil prices continue to drop, industry sources said yesterday. The surcharge system allows air carriers to adjust the extra fees for international and domestic routes each month in tandem with changes in the average price of fuel traded via Singapore’s spot market.

The surcharge is not levied if the average fuel price falls below US$1.5 per gallon.

VIETNAM NEWS State-owned economic groups are continuing to restructure their member companies, even as they surpass their set business plan targets for the first half of the year.

The Viet Nam National Coal and Mineral Industries Group (Vinacomin) and the Viet Nam National Chemical Group (Vinachem) reported that they have completed equitisation and divestment from operations outside their key business fields. Electricity of Viet Nam (EVN) Deputy General Director Ngo Son Hai said the group has withdrawn investments from real estate and financial companies, and completed preparations for the equitisation of Power Generation Corporation 3.

THE TIMES OF INDIA With global crude prices on the slide, oil producers with off take handicaps are conjuring up novel methods to extract higher price from each barrel they pump. Cairn India has taken a leaf out of Shell’s Indonesia operations to seek government nod for overseas swap arrangement for its Barmer crude, which it says would improve earnings of all stakeholders, including the government. Cairn wants to sell Barmer crude in overseas market and bring back equivalent quantities of oil more suited to state-run refineries.

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il prices have been heading south again, with a barrel of US crude recently falling below US$42 – the lowest level since March 2009, the nadir of the global financial crisis. And, while last year’s sharp price drop was heavily influenced by two large supply shocks, the current decline also has an important demand dimension.

At the same time, oil markets are discovering what it is like to operate under the regime of a new swing producer: the United States. As a result, the price formation process is much clumsier nowadays, with considerably longer adjustment lags.

The dynamics of the energy markets changed notably as shale-oil production came onstream at a market-moving scale in 2013-2014. With this new source meeting more of world energy demand, particularly in the US, energy users were no longer as dependent on OPEC and other oil producers. In the process, they also became less vulnerable to geopolitical concerns.

Adding to the supplyside changes was Saudi Arabia’s subsequent historic announcement that it would no longer lead OPEC in playing the role of swing producer. It would no longer lower production when prices fell sharply, and increase output in response to large price surges.

That decision was both understandable and rational.

Playing the role of swing producer was coming at a growing cost to both current and future generations of Saudi citizens. Non-traditional

suppliers had increased their market influence, non-OPEC producers continued to plan high output, and some OPEC members failed to adhere to their production ceilings. Given all this, Saudi Arabia could no longer be expected to incur the growing short- and long-term cost of being the stabilizing market force that it had been for decades.

Such fundamental changes in the supply side of the market naturally drove oil prices lower – a lot lower. Prices plummeted by more than half in a period of just a few months last year, catching many oil traders and analysts by surprise.

Oil prices stabilized after a somewhat temporary overshoot, trading increasingly robustly for a while on the back of two conventional market reactions. First, the large price drop caused massive supply destruction, as some energy producers, from both the traditional and non-traditional sectors, became unprofitable.

Second, as consumers reacted to lower energy costs, demand adjusted only gradually.

But a new factor soon disturbed this relative stability, pushing oil prices even lower: Evidence that the global economy was weakening, and that much of the weakening was occurring in relatively energy-intensive countries such as China and Brazil, as well as Russia (itself an energy producer).

Today, indicators of this global slowdown are to be found everywhere – from underwhelming retail and trade data to unanticipated policy responses, including China’s surprise currency

Oil markets are discovering what it is like to operate under the regime of a new swing producer: the United States

devaluation (which coincides with its leaders’ commitment to a long-term shift toward a more market-based exchangerate regime).

The impact is not limited to economic performance and financial-market movements.

Slower global growth is also amplifying political pressures and, in some countries, adding to social strains – both of which tend to constrain policy responses.

It is hard to see the global oil market’s current configuration of supply and demand rapidly changing any time soon. As for the new swing producer,

the US has a much slower (and leakier) reaction function relative to that of Saudi Arabia and OPEC. Over the next few months, the US will indeed alter its supply and demand conditions in a way that puts a floor under oil prices and enables a gradual recovery in the market. But, unlike the previous swing producer, this will result from traditional market forces, not policy decisions.

Indeed, we should expect an even sharper reduction in US energy output as persistently low prices increase the pressure on domestic producers. From the shutdown of additional rigs to the curtailment of new investment in exploiting shale resources, the US will likely experience a fall in its absolute energy production, as well as in its share of world output.

But, while demand will increase, this will not have much of an immediate effect on oil prices.

Yes, US consumers will be tempted to buy more trucks and bigger cars, drive more miles, and fly to more places. But the creation of this demand will be very gradual, especially given all the leakages in the transmission of lower energy-input costs to consumer fuel prices.

At the end of the day, no swing producer controls the fate of today’s oil prices.

A sustained price recovery requires a healthier global economy that combines faster inclusive growth and greater financial stability. And this will not occur quickly, especially given the policy shortcomings in both advanced and emerging countries.

Project Syndicate

16 | Business Daily

August 18, 2015

Closing Central bank strengthens yuan rate against dollar by 0.01%

Regulator urges finance firms to support Tianjin disaster relief

China’s central bank yesterday raised the value of the yuan against the US dollar by just 0.01 per‑ cent, the national foreign exchange market said, after a devaluation last week rocked markets. The daily reference rate was set at 6.3969 yuan to the dollar, slightly stronger than Friday’s 6.3975, the China Foreign Exchange Trade System said. The yuan closed at 6.3946 yesterday, stronger than the daily fix but weakening 0.05 percent from Friday’s close of 6.3912. Currency is only allowed to fluctuate by two percent on either side of the reference rate.

China securities regulator yesterday urged financial institutions to support disaster relief efforts in the north-eastern city of Tianjin (burst zone pictured), and said insurance companies would set up a 24-hour service to handle related claims. The Tianjin branch of the China Development Bank would provide affect‑ ed businesses and individuals with emergency loans, according to a notice posted on the China Securities Regulatory Commission. Credit Suisse analysts, cit‑ ing initial estimates from local media, said that the incident could generate total insurance losses of US$1 to US%1.5 billion.

Malaysian central bank governor says Asia must be ready for RMB Zeti Akhtar Aziz said the rise of the RMB as an international currency would facilitate trade, investment and financial activities

A

sia must be ready for the increased internationalization of Chinese currency Renminbi (RMB), Zeti Akhtar Aziz, governor of Bank Negara Malaysia (BNM), Malaysia ‘s central bank, said yesterday.

“The increasing role of the RMB in the global financial system from a trade currency to an investment currency and now its potential role as a global reserve currency will have significant global implications,” the Malaysian central bank chief told a forum.

Zeti said the Chinese economy is transitioning to a more sustainable path after decades of rapid growth, and the moderation in the Chinese economy has been in part, policy-driven, through conscious reforms to restructure the economy to become more balanced and domestic demand-centric.

“The recent one-off adjustment of the RMB reflects a conscious effort by China to align the RMB to a marketdriven mechanism as a part of a crucial reform to allow the RMB to reflect financial

The recent oneoff adjustment of the RMB reflects a conscious effort by China to align the RMB to a marketdriven mechanism Zeti Akhtar Aziz, governor, Bank Negara Malaysia

Zeti Akhtar Aziz, governor of Bank Negara Malaysia

market developments and economic fundamentals,” she said, adding that the long-term growth prospects for China remain intact despite some short-term challenges, which will support the transition of the RMB as an international reserve currency.

Investment firm supports tax cut in China

Zeti said reflecting its expanding role in the global economy and the international financial system, the RMB will assume greater strategic importance in facilitating the development of new investment and financial

linkages through strategic initiative such as the Belt and Road initiative, the Asian Infrastructure Investment Bank and the New Development Bank.

She said the rise of the RMB as an international currency would facilitate trade, investment and financial activities that are commensurate with the continued growing importance of China in the global landscape, and reinforce the trend towards greater regional financial and economic integration.

Zeti said the RMB can also be a source of stability for the global monetary system, as the increasing use and recognition of the RMB as an international reserve asset will strengthen the foundations of current global monetary system that is currently reliant on too few major currencies.

The internalization of the RMB will also present tremendous opportunities for the private sector and financial investors, she added.

Xinhua

Japan sees ‘enormous’ potential Audit uncovers misuse impact from yuan devaluation of affordable housing funds

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C

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part from monetary easing moves, there is room for China to achieve faster and more balanced growth by cutting the private sector’s tax burden, China International Capital Corporation (CICC) said yesterday.

The tax burden for companies remains high, and personal income tax received continues to accelerate at a much faster pace than the growth rate of personal income or nominal GDP, according to the latest report by CICC. “The high tax burden on China’s corporate sector hampers investment and innovation. A high tax burden is one of the important reasons the corporate sector is reluctant to invest,” it said. A combination of the heavy macro tax burden, government preference for saving, and the dominance of indirect taxes have all led to an excessively high corporate tax burden, discouraging investment and R&D, with the corporate sector taxed 47.4 percent of pre-tax income, it noted.

There is much room for the government to reduce the private sector tax burden through more efficient deployment of its savings and assets of state-owned enterprises (SOEs), said the CICC.

hina’s currency devaluation may have an enormous impact if it isn’t managed well, according to Yasutoshi Nishimura, Japan’s deputy economy minister.

“If China does not manage this well, when something happens it would have an enormous impact,” Nishimura said in an interview yesterday at his Tokyo office. “We expect them to manage it appropriately.”

The devaluation weakened the currencies of some Asian countries that compete with China for exports, sending developing-nation stocks in a bear market. The yen, which has fallen about 45 percent against the dollar since Japanese Prime Minister Shinzo Abe came to power in December 2012, has so far withstood the slide in the yuan.

China is taking appropriate short-term measures to support slowing growth, Nishimura said, adding that Japan wants China to stay on course for a free flotation of the currency and structural reforms over the longer term.

Nishimura said there had been a fall in exports of electronic parts and machine tools to China and a substantial drop in lending by Japanese financial institutions in China.

hina’s state auditor said yesterday it has uncovered widespread irregularities in the country’s affordable housing programme in 2014, including the misuse of 9.4 billion yuan (US$1.47 billion) of funds. The problems were uncovered after auditing 182 projects, local government financing vehicles, housing and finance departments, the National Audit Office said in a report on its website.

The funds were misappropriated to pay salaries, office expenses, bank loans and invest in wealth management products, it said.

Some firms illegally obtained 485 million yuan of government subsidies and bank loans for the affordable housing scheme by fabricating documents, the auditor said. The funds were used to build dormitories and offices.

The auditor also found that 20,600 home owners did not qualify for affordable housing as they used fake documents in their applications.

China’s central and local governments allocated 560.2 billion yuan for the affordable housing programme in 2014, including 198.4 billion yuan from the central government, the report said.

Xinhua

Bloomberg News

Reuters