Macau Business Daily October 1, 2015

MOP 6.00

More bang for the buck

Closing editor: Joanne Kuai

MGM Resorts Int’l is being pressed by investors to sell assets. And put its properties into a REIT to boost stock prices.

Chairman James Murren says the choices have narrowed to “less than a handful”. Conceding that “these decisions will be pretty permanent”

Year IV

Number 890 Thursday October 1, 2015

Publisher: Paulo A. Azevedo

Page 8

Real estate cooling further

Average housing prices continue cooling. Posting a y-o-y decline of 16.9 pct to MOP84,087 (US$10,510) Increasing prices in August. Meanwhile, total transactions fell 22 pct y-o-y to 443 in the month. Property agency and transactions generate profit for Midland Group Centaline (Macau) Property Agency Ltd. says shop rents in the territory registered different levels Page 4 of decrease in Q3. With west NAPE shop rents plunging 50 pct y-o-y Page

4

U.S. judge revokes bail for Ng Lap Seng’s aide

Page 11

Cash Cap

Mainland’s gold reserve increased by 16 tonnes last month

An annual cap of 100,000 renminbi on UnionPay ATM overseas cash withdrawals per card. Now confirmed by the card issuer. Analysts say the impact on the local gaming industry will be limited. As ATM withdrawals are not the major funding channels for players. Foreign card cash withdrawals have also been capped

Page 12

Japan’s factory output figures raise doubts about stimuli policy

Page 15

Page 10

Persistent Outflow

Inflexibly Flexible?

The deficit on China’s capital and financial account. To persist throughout 2015. A weak economy and the Fed’s likely rate rise are conditioning capital outflows

All a question of intent. So says a gaming labour union with regard to a local gaming operator offering employees flexi-hours. Up to as little as 24 hours a week. The fear is that the plan may not be reversible. And thus unfavourable to workers’ benefits. Meanwhile, the gov’t says September gaming revenues may plummet by up to MOP3 billion

Page 12

HSI - Movers September 30

Page 6

Tourism

www.macaubusinessdaily.com

Packages Unravelling Package tour visitors totalled 905,000 in August.

Declining 20.5 pct y-o-y. Those from Mainland China dropped 17.2 pct to 777,000. Average hotel occupancy dropped to 84.4 pct. A 7.2 pct increase delivered 30,000 hotel rooms as at end-August

Name

%Day

CNOOC Ltd

+6.59

Li & Fung Ltd

+6.49

Kunlun Energy Co Ltd

+5.73

Lenovo Group Ltd

+5.66

China Petroleum & Che

+5.13

Hang Seng Bank Ltd

-0.22

China Mobile Ltd

-0.27

Hong Kong Exchanges

-0.51

Galaxy Entertainment

-0.81

Sands China Ltd

-3.92

Source: Bloomberg

I SSN 2226-8294

Page 2

Due to the mandatory holiday on Thursday October 1, 2015 – National Day of the People’s Republic of China - Business Daily will not be published on Friday October 2, 2015.

We will be back on Monday October 4, 2015 and wish all our readers a very enjoyable holiday.

2015-10-1

2015-10-2

2015-10-3

25˚ 30˚

24˚ 30˚

24˚ 29˚

2 | Business Daily

October 1, 2015

Macau Increased border crossings predicted for Golden Week Public Security Police (PSP) anticipate that border crossings at local border checkpoints will post a year-on-year increase of 5 per cent during this National Day Golden Week starting today. The police said they would pay attention to the territory’s traffic and crowd situation during the holiday, indicating crowd controls will be applied when necessary. In addition, they said they would continue combating illegal car hire services and taxis overcharging passengers. Last year, the city’s borders recorded nearly 3 million crossings during the seven-day holiday, of which some 1.04 million constituted visitors.

August package tour visitation plunges The number of Mainland China package tourists decreased 17.2 per cent year-on-year

T

he number of visitors arriving in the SAR on package tours totalled some 905,000 in August, according to the package tours and hotel occupancy rate for that month’s data released by the Statistics and Census Service (DSEC) yesterday. Despite the fact that it represents an increase of 8 per cent vis-a-vis July, it’s still a 20.5 per cent drop compared to the same period of last year.

Mainland China package tourists are the biggest chunk, totalling 777,000 but it still represents a decrease of 17.2 per cent yearon-year; while those from Taiwan (46,000), Hong Kong (21,000), the Republic of Korea (13,000) and Japan (11,000) plunged 33.6 per cent, 25.3 per cent, 65.5 per cent and 22.5 per cent, respectively.

The latest data from DSEC also

indicates that in the first eight months of 2015, visitors on package tours totalled 6,685,000, down 5.4 per cent year-on-year. In addition, those arriving on package tours (excluding visitors joining local tours) decreased 3.6 per cent to 5,609,000.

The number of guest rooms in 5-star hotels totals 20,000, accounting for 66.6 per cent of the total supply.

The average length of stay of guests was as stable as August 2014, at 1.4 nights.

Dropping occupancy rate

Information from DSEC also indicates that outbound residents using the services of travel agencies totalled 142,000 in August 2015, down 8.6 per cent year-on-year; those travelling on package tours increased 6.5 per cent to 59,000, with the main destinations Mainland China (82.6 per cent of total), Taiwan (6.5 per cent ) and Hong Kong (3.6 per cent).

From January to August, outbound residents using the services of travel agencies totalled 1,012,000, up 0.1 per cent year-on-year.

Not surprisingly, as visitor arrivals drop and package tour visitor numbers decrease, the local hospitality industry has experienced decline.

DSEC data shows that in August the average occupancy rate of hotels and guesthouses was 84.4 per cent, down 5.6 percentage points year-on-year.

In point of fact, the number of guests checking into hotels and guesthouses reached 999,000, up 3.6 per cent year-on-year. Guests from Mainland China (652,000) and Hong Kong (156,000) increased 2.1 per

Fewer outbound residents

cent and 24.7 per cent, respectively.

The decline in occupancy rate may be explained by the increasing number of guest rooms in town.

According to DSEC, some 102 hotels and guesthouses were operating as at the end of August 2015, providing 30,000 guest rooms, up 7.2 per cent compared to the same period last year.

J.K.

4 | Business Daily

October 1, 2015

Macau

Home prices down nearly 17 pct in August In addition, the number of residential transactions fell 22 per cent year-on-year in the month Kam Leong

Shop rents plunge

kamleong@macaubusinessdaily.com

A

verage housing prices in the territory registered a year-on-year decrease of 16.9 per cent in August, while the total number of home transactions fell some 22 per cent year-on-year in the month, the latest data published by the Financial Services Bureau (DSF) yesterday reveals.

In August, the local property market saw only some 443 transactions of residential units, a decrease of 125 compared to 568 one year ago. In addition, the average cost for a home dropped to MOP84,087 (US$10,510) per square metre from MOP101,152 per square metre.

On a month-on-month comparison, however, average home prices in August only represented a drop of 0.8 per cent from MOP84,753, whilst the number of residential transactions in the month fell

in home transactions was due to the market still being affected by economic fluctuations and external factors, leading buyers to be more cautious in purchasing property.

The realtor estimated that average housing prices for the third quarter of the year amounted to some MOP79,000 per square metre, similar to that of the first quarter.

16.3 per cent month-on-month from 529.

In terms of areas, most of the home transactions in August were made on properties located on the Peninsula, accounting for 342 of the total. Average housing prices in the area recorded a drop of 7.87 per cent yearon-year to MOP82,506 per square metre, compared to MOP89,563 per square metre in August 2014.

Compared to MOP77,971 for each square metre in July of

this year, the cost for a home on the Peninsula increased 5.8 per cent.

Meanwhile, home prices in Taipa and Coloane plunged by 27.4 per cent and 28.6 per cent year-on-year during the month, respectively, according to DSF. The cost for a residential unit in Taipa declined to MOP81,391 per square metre from MOP112,060 one year ago, while home prices in Coloane dropped to MOP102,093 per square metre

from MOP142,932 year-onyear.

In terms of unit type, flats still under construction cost more than completed residential units. In the month, a completed home unit was worth MOP77,103 per square metre on average, while the per square metre market value of home properties still under construction was MOP111,800.

Realtor: Q3 home transactions down 40 pct

Property agency Centaline (Macau) Property Agency Ltd. estimates that total residential property transactions plunged 40 per cent year-on-year during the third quarter of the year, totalling some 1,000 cases.

Agency director Jacky Shek Po Tak indicated on Tuesday, in reviewing the property market for the quarter, that the plunge

Moreover, the agency’s senior regional sales director, Roy Ho Siu Hang, said shop rents in the territory have registered different levels of decrease in the third quarter.

He particularly stressed that shop rents in the west part of NAPE, near a group of casinos, had posted a year-on-year decline of nearly 50 per cent to MOP200 per square foot (MOP2,160 per square metre).

Meanwhile, shop rents in other tourism districts, such as in the central area and in Taipa, also posted year-onyear decrease of between 36 per cent and 40 per cent to MOP172 and MOP60 per square foot (MOP1,858 and MOP648 per square metre), respectively.

Nevertheless, shop rents in residential areas, such as the northern district and Avenida de Horta e Costa, remained stable, according to Mr. Ho. “In fact, the northern district was the only area seeing its shop rents increase during the quarter,” he claimed.

Increasing prices and transactions generate profit for Midland Group The warming property market in Hong Kong has generated profits of HK$32.35 million for the parent company of Midland Macau

T

he increasing prices of house transactions and the insatiable desire to buy new homes in Hong Kong have driven the net profits of real estate company Midland Holdings Limited up to HK$32.35 million (US$4.17 million) during the first six months of the year.

The results published by the parent company of Midland Macau improved from a loss of HK$35.78 million during the first six months of last year, according to the interim report.

“According to the figures from the Land Registry, the volume and value of residential property sales transactions in Hong Kong recorded a year-on-year growth of 3.8 per cent and 21.7 per cent, respectively, in the first half of the year”, the message

by Chairman Freddie Wong Kin Yip announced.

“The growth of market transaction activity has prompted the group’s revenue to increase. The new home sector remained strong and a considerable amount of the Group’s business has stemmed from this segment”, he added.

Of the total revenue of HK$2,228 million, the largest share came from residential properties, at HK$1,872 million. The commercial and industrial properties and shops segment generated HK$337 million, while others posted HK$18 million.

In terms of markets by geography, the Hong Kong and Macau markets recorded revenue of HK$1,784 million during the first half of this year, an increase from HK$1,554 million last year. During the same period, revenues in Mainland China totalled HK$380 million, up from HK$316 million.

While the profit increased during the first half, for the remainder of the year the Chairman expects the property market in Hong Kong to slow down with property prices and sales volume falling slightly in recent months. However, this may not be perceived as such a bad thing.

“The underlying demand for residential properties is so strong that even a mild consolidation in the property market may trigger potential buyers to get into the market in the final quarter if the volatility of the stock market subsides”, he said.

J.S.F.

6 | Business Daily

October 1, 2015

Macau Hainan Airlines launches Macau-Haikou route China’s Hainan Airlines officially commenced its new route connecting the Special Administrative Region with Haikou in Hainan Province on Tuesday. The airline’s new route provides three direct round-trip flights between the two cities per week - on Tuesdays, Fridays and Sundays, respectively. The flight duration per single trip takes around one hour and fifteen minutes. This is the second new route launched from the local airport this month, following the commencement of Macau-Ho Chi Ming route operated by budget airline Jetstar Pacific. The two new routes bring the city’s total number of civil aviation routes to 42.

Labour union doubts Galaxy’s new flexi-work plan The gaming operator’s new policy allows staff to work for only 24 hours per week. But a gaming union of Federation of Trade Unions reckons the plan is unfavourable to employees Kam Leong

kamleong@macaubusinessdaily.com

L

ocal gaming operator Galaxy Entertainment Group Ltd. has offered its workers the option of working flexihours for as little as 24 hours a week but gaming labour union Macau Gaming Enterprises Staff Association of the Federation of Trade Unions believes such a plan could harm the benefits of workers.

The Association met with the Labour Affairs Bureau (DSAL) director Wong Chi Hong yesterday, complaining that the new scheme, which it described as “lacking clear instructions and guidelines”, does not guarantee workers “remuneration and benefits”. “ This f lexib le work plan is unfavourable to workers’ benefits. On the intention forms [distributed to workers], one of the terms says workers cannot withdraw once their applications are approved,” the director-general of the Association, Choi Kam Fu, told Business Daily in a phone interview yesterday.

According to the intention form, Galaxy allows its

workers to apply to work for 24 hours, 32 hours or 40 hours flexibly per week.

“We understand that gaming operators may want their workers to go through the difficult times with them.

But what if the situation gets better in the future?

Workers should have the right to withdraw and the plan should only be effective for a period of time,” the union leader said.

“Although gaming workers can choose whether to ap p ly for th e p l a n according to their own will, we’re worried the gaming operator will pressure its employees. That’s why we met with the Labour Affairs Bureau, hoping they intervene in the issue,” Mr. Choi said.

The unionist also told us that gaming operators offering unpaid leave is normal in th e cu r r en t gaming downturn. “We don’t absolutely oppose the offers of unpaid leave as some workers may really need it. However, we perceive that gaming companies should give more

Leong: September gaming revenues to drop more than MOP3 bln The Secretary for Economy and Finance Lionel Leong Vai Tac told reporters yesterday that the city’s gaming revenues for September may drop further from August by between some MOP2 to MOP3 billion based on the usual pattern of the past

few years. In August, the city’s gaming industry generated a total of MOP18.6 billion.

But the Secretary said that gaming revenues for September may still be able to touch MOP16 billion according to his observations.

details of their plans,” the unionist claimed.

According to Mr. Choi, the DSAL director claimed that the Bureau would try to understand the new plan of the gaming operator, noting he agrees that Galaxy workers should have the right to withdraw their application for the scheme.

Business Daily contacted Galaxy Entertainment Group regarding this flexible work plan but there was no reply from the operator before this story went to press.

Meanwhile, the Secretary for Economy and Finance, Lionel Leong Vai Tac, commented to reporters yesterday that DSAL would communicate with the gaming operator to understand whether the plan would affect the benefits of workers.

The government official also added that he believes the local gaming industry would develop healthily while the government would continue to pay close attention to the operations of local gaming operators and junket promoters.

8 | Business Daily

October 1, 2015

Macau New contract signed with Macau Jockey Club revealed The contract to extend the right for Macau Horse Racing Co. Ltd to run the horse-betting business until 2017 in the territory was published yesterday in the Official Gazette. The contract was signed by the Director of the Finance Services Bureau (DSF), Iong Kong Leong, and involves payment from the company to the government of MOP15 million per year until 2017. Macau Horse Racing Co. Ltd. has held the monopoly for horseracing betting via the Macau Jockey Club since 1978. However, the losses of the Jockey Club have been increasing; last year, the company lost MOP51.25 million versus a loss of MOP41.4 million in 2013. The Club has failed to make an annual profit since 2005.

MGM Resorts in ‘final innings’ of strategic review, Murren Says Investor has proposed selling the company’s half interest in its CityCenter resort in Las Vegas and its 51 per cent of MGM China Holdings Ltd

M

GM Resorts International is closing in on a restructuring decision, with a real estate investment trust still one possibility, Chairman and Chief Executive Officer James Murren (pictured) said.

The choices have narrowed to “less than a handful,” Murren said in an interview Monday at his office at MGM’s Bellagio hotel on the Las Vegas Strip. He didn’t specify other possible steps and said the board could still do “nothing at all.” The company expects to meet a goal of deciding by year-end, if not sooner, Murren said.

“We are in the final innings here,” Murren said. “I do believe there is a value proposition that exists. The question is how do you unlock that value in a way that ensures the longterm viability of the organization?”

The company is being pressed by activist investor Land & Buildings Investment Management LLC to

sell assets, reduce spending and put its properties into a REIT to boost the stock price, as other gambling companies have done. That pressure was magnified by the June death of Kirk Kerkorian, the founder and largest stockholder of MGM Resorts, who left orders to sell his 16 percent stake in an orderly fashion.

MGM Resorts said in February it’s considering putting its casino properties into a real estate investment trust, which could boost the shares by reducing taxes. In August, Murren raised the possibility of selling the Crystals Mall in Las Vegas.

Real estate investment trusts can trade at higher valuations than traditional corporations because they don’t pay income taxes, passing their earnings directly to shareholders instead.

Casino operators Pinnacle Entertainment Inc. and Penn National Gaming Inc., which have taken the

REIT option, are among the topperforming casino stocks this year.

MGM Resorts, the largest owner of casinos on the Las Vegas Strip, fell 4.2 per cent to US$17.82 at 1:45 p.m. on Tuesday in New York. Through Monday, the shares had declined 13 per cent in 2015. Company executives have said the stock is undervalued.

Earlier this year, Stamford, Connecticut-based Land & Buildings dropped a proxy fight to put three directors on MGM Resorts’ board after failing to get enough support from shareholders.

“Land & Buildings remains committed to ensuring that MGM undertakes and properly executes initiatives to realize the company’s full potential,” Chief Investment Officer Jonathan Litt said in a September 25 letter to MGM Resorts shareholders.

Litt said the company could be worth US$33 a share, almost double the current price.

Murren said he’s been inundated with proposals from investment banks. He pointed to a stack of more than a dozen “pitch books” on his desk. The pile has been as high as three feet, he said.

Litt has proposed selling the company’s half interest in its CityCenter resort in Las Vegas and its 51 per cent of MGM China Holdings Ltd. The investor has also suggested that MGM Resorts bring partners into its new resort developments in Maryland and Massachusetts. Analysts and shareholders have also said the company could put some properties into a REIT. “We felt we needed to spend a lot of time on this,” Murren said, speaking in the glass-walled office once occupied by the Bellagio’s creator, Steve Wynn. “These decisions will be pretty permanent.”

Bloomberg

10 | Business Daily

October 1, 2015

Macau Wynn increases loan to finance new property in Cotai The subsidiary company of Wynn Macau, named Wynn Resorts (Macau) SA, has increased the size of its loan to finance the construction of Wynn Palace by US$550 million (MOP4.39 billion) to US$3.05 billion from around US$2.50 billion. According to the filing sent yesterday to the Hong Kong Stock Exchange, the new amendment bank facility is going to be used to ‘refinance Wynn Resorts Macau’s existing indebtedness, to fund the construction and development of Wynn Palace, and for general corporate purposes’. Wynn Macau is currently building the Wynn Palace in Cotai, with the new integrated resort set to have its Grand Opening on March 25 next year. The US$4.1 billion (MOP32.73 billion) resort will add 1,700 rooms to the company’s portfolio in the territory.

Credit Suisse: Impact of annual cap on UnionPay cards to be limited The annual cap on UnionPay withdrawals overseas has been officially confirmed.

The effect on the gaming industry is expected to be limited, says Credit Suisse João Santos Filipe

jsfilipe@macaubusinessdaily.com

“Cumulative overseas cash withdrawal on an annual basis for each Mainland China-issued UnionPay RMB card shall not exceed the equivalent of RMB100,000 per card per year”, he clarified.

Controls already in practice

T

he impact of the annual cap of RMB100,000 per card on UnionPay withdrawals overseas – confirmed yesterday by the Chinese State Foreign Exchange Administration (SAFE) – is expected to have limited impact on Macau’s gaming industry, according to the research note from Credit Suisse signed by analysts Kenneth Fong and Isis Wong.

“We see limited impact on daily operations as ATM

withdrawals are not the major funding channel for players. Besides, players can easily get around the rule by using multiple cards to cash the desirable amount”, the analysts explained.

As from today, UnionPay cards are subject to a cash withdrawal overseas cap of RMB10,000 per day but there isn’t any annual limit.

However, SAFE decided to apply an annual cap of RMB100,000 per card,

starting next year. This was confirmed yesterday in a press release, which clarified that the cap will also be applied to cards issued in Mainland China for foreign companies Visa and MasterCard.

However, the restrictions on overseas withdrawals came into effect earlier, and from today and until the end of the year, there is already a temporary cap of RMB50,000 per card.

“If the cumulative overseas

cash withdrawal exceeds the [RMB100,000] cap, the transaction will automatically be rejected”, Lawrence Lau, of the General Management Department of UnionPay International Hong Kong Branch told Business Daily.

Mr. Lau also explained that the cap is applied to cards, which means that a holder of two different UnionPay cards can withdraw as much as RMB200,000 per year in overseas territories.

While the Credit Suisse report mentions that the purchase and resell of goods using UnionPay cards is “a more common way to withdraw bigger sums in the territory for premium mass market players”, it also stresses that a mechanism is already in place tracking large overseas transactions.

The Credit Suisse research team for the local gaming sector believes that the control on UnionPay overseas transactions concerning Macau will not be increased in the near future because “it’s hard to distinguish real purchases versus cash out transactions”. The report also explains that “operationally, the two separate transactions - for example, purchase of items from a jewellery shop with Union Pay debit card and reselling the item to a different pawn shop for cash - are both legitimate”.

For its part, SAFE expects this policy to avoid “money-laundering risks” related to large sum overseas transactions.

“Recent monitoring found that some UnionPay card holders have made frequent withdrawals of large amounts overseas under unusual circumstances. The foreign financial regulators have been alerted to this”, SAFE said.

Business Daily | 11

October 1, 2015

Macau

U.S. judge revokes bail for Ng Lap Seng’s aide U.S. Magistrate Judge Sarah Netburn in Manhattan ordered Jeff Yin, an assistant to Ng Lap Seng, detained, calling him “a significant risk of flight”

A

U.S. judge revoked bail on Tuesday for the aide to a billionaire real estate developer, after both men were arrested for lying about why they brought US$4.5 million in cash into the United States while traveling from China.

Link by link by link they plan to move up the ladder to really charge the person they’re after Sabrina Shroff, Jeff Yin’s lawyer

Jeff Yin, an assistant to Ng Lap Seng, had been set to be released on a US$1 million bond and be placed under home confinement. But U.S. Magistrate Judge Sarah Netburn in Manhattan ordered Yin detained, calling him “a significant risk of flight.”

Netburn noted Yin failed to disclose that he had an unused Chinese passport. Investigators discovered the passport in a packed travel bag, and the judge said it appeared intended

for “if you get into a bind.”

The decision came as Sabrina Shroff, Yin’s lawyer, revealed that a woman who had been holding her client’s bag had been secretly charged before Ng, 68, and Yin, 29, were arrested on September 19.

Prosecutors say the woman, identified in court papers as “Individual-1,” was an associate of Ng and Yin. She faces sealed charges in federal court in Brooklyn, according

to Shroff, who said authorities were trying to build a bigger case.

“Link by link by link they plan to move up the ladder to really charge the person they’re after,” she said.

Shroff declined to identify the woman for reporters. The U.S. Attorney’s offices in Manhattan and Brooklyn declined comment.

Link by link

U.S. prosecutors say Ng, who heads Sun Kian Yip Group, has a fortune of US$1.8 billion, much of which he earned on developments in Macau. He sits on the Chinese People’s Political Consultative Conference, an adviser to the government.

He and Yin were arrested and accused of falsely claiming US$4.5 million in cash they brought into the United States from China between 2013 to 2015 was intended for buying art, antiques or real estate, or for gambling.

At a prior hearing, prosecutor Daniel Richenthal, who belongs to a public corruption unit, said Yin, after being arrested, revealed funds were used to pay people “to engage in unlawful activities.”

Shroff disputes that account.

Ng’s attorney has called the case a “misunderstanding.”

Ng’s name previously surfaced in U.S. investigations into how foreign money might have been funnelled into the Democratic National Committee before the 1996 elections.

A source has said Ng was subpoenaed in 2014 in a foreign bribery investigation, after his name surfaced in litigation involving billionaire Sheldon Adelson’s Las Vegas Sands Corp .

Reuters

12 | Business Daily

October 1, 2015

Greater China

Capital account deficit, volatile fund flows China had a current account surplus of US$148.6 billion in the first half

C

hina is likely to continue to see a deficit on its capital and financial account in the second half amid global market volatility, the foreign exchange regulator said yesterday.

Concerns over China's economic slowdown and possible interest rate rises by the U.S. Federal Reserve have fuelled a wave of capital outflows, which intensified after China's surprising yuan devaluation last month.

"Cross-border capital flows will be relatively volatile," the State Administration of Foreign Exchange (SAFE) said in a statement on its website.

Expectations of an upcoming Fed interest rate rise and currency volatility in emerging markets will continue to affect international financial stability and fuel risk aversion, the SAFE said.

"Looking at the domestic environment, the downward pressure persists in the process of economic transition, while domestic borrowing costs continue to decline," it said.

China posted a deficit of US$125.6 billion on its capital account and financial account in the first half of 2015, including US$40.6 billion in the March-June quarter.

China had a current account surplus of US$148.6 billion in the first half, including US$73 billion in the second quarter, the SAFE said in its international balance payment report.

China's current account surplus in the first half was equivalent to 3.1 percent of gross domestic product, it said.

China will keep the yuan basically stable while improving management

KEY POINTS FX regulator sees volatile capital flows amid market turmoil Expects capital account deficit, current account surplus in H2 Says to keep yuan basically stable

of its foreign exchange reserves to ensure safety, the regulator said.

China's central bank has intervened heavily to keep the yuan steady after it shocked global markets by devaluing the yuan by nearly 2 percent on August 11, running down its foreign exchange reserves by a record amount that month.

It also said that the authorities will strengthen monitoring of crossborder capital flows.

The authorities have taken some incremental steps to curb capital outflows that intensified since the country's surprising yuan devaluation last month.

Reuters

Gold reserves increased by 16 tonnes Central bank added nearly 19 tonnes of gold to its reserves in July A. Ananthalakshmi

C

hina further increased its gold holdings in August, albeit at a slower pace compared to the previous month, the central bank said yesterday, as it looks to diversify its foreign exchange reserves.

China's gold reserves stood at 54.45 million troy ounces at the end of August, up from 53.93 million in July, the People's Bank of China said.

The 520,000 ounces of additional gold amounts to 16.2 tonnes, bringing total holdings to 1,693.584 tonnes.

China added nearly 19 tonnes of gold to its reserves in July.

The slowdown in gold purchases in August came as China's foreign

exchange reserves, the world's largest, shrank by a record US$93.9 billion, reflecting Beijing's attempts to halt a slide in the yuan and stabilise financial markets.

China is the world's sixth largest official sector gold holder after the United States, Germany, the International Monetary Fund, Italy and France.

"The PBOC will increase its gold reserves continually," said Jiang Shu, chief analyst at Shandong Gold Group in Shanghai.

The central bank would continue to buy at the same pace unless there is a big drop in prices which could

Despite the increase in August, China’s gold reserves make up only 1.7 percent of its total reserves

trigger higher purchases, he said.

Despite the increase in August, China's gold reserves make up only 1.7 percent of its total reserves, according to Reuters calculations from PBOC data.

The United States, the top holder of gold with over 8,000 tonnes of bullion, has nearly 73 percent of its total foreign reserves in gold, according to the World Gold Council.

Russia, the seventh biggest holder of gold reserves, has about 13 percent of reserves in gold. It added 29.5 tonnes of gold to its reserves in August, IMF data showed earlier this month.

China had previously considered its gold holdings a state secret and did not report its holdings on a monthly basis to the International Monetary Fund as most other countries do.

It began updating its reserve figures on a monthly basis in June, in a bid to increase transparency as Beijing campaigns to include the yuan in the IMF's special drawing rights basket.

Before the June update, China had last revealed its gold holdings in April 2009.

Reuters

14 | Business Daily

October 1, 2015

Greater China CNPC sees slower than forecast gas demand China’s natural gas demand by the end of the decade is set to grow much more slowly than an official government forecast, according to the research unit of the country’s biggest state oil firm. China National Petroleum Corp (CNPC) expects natural gas demand to reach “at least 330 billion cubic meters” by 2020, said Wang Zhen, deputy director of the company’s policy research office. “The government is much more optimistic with a target of 400 billion,” he said on Wednesday at a conference in Yuzhno-Sakhalinsk on Russia’s Pacific island of Sakhalin.

Tax cuts on mall-engine cars to revive market China has decided to halve sales tax on small cars from today, boosting local auto shares, as the government tries to revive growth in the world’s largest car market.

The tax cut will run until the end of 2016 and apply to cars with 1.6-litre engines or smaller, a segment that accounts for nearly 70 percent of total sales in China.

The move, announced by cabinet late on Tuesday, sent shares of major Chinese automakers higher yesterday, with Great Wall Motor jumping 5 percent in Shanghai in early trade. Its Hong Kong stock surged more than 10 percent.

Cabinet promotes online-offline business links China’s State Council, or cabinet, has issued guidelines encouraging deeper links between online businesses and bricks-and-mortar stores, pledging to cut red tape and promote tax and financial support to make it happen. The guidelines, dated September 18 and published late on Tuesday, were cast as a way to spur consumption and economic activity. The guidelines encouraged quicker uptake of mobile Internet, big data, the Internet of Things, cloud computing, the made-in-China Beidou Navigation System, global positioning, and biological identification in authentication, direct payment and logistics.

Hong Kong now adjusting to new normal Hong Kong is looking at a new normal economic growth rate of 2-4 percent, about half the pace at which it grew in 2011, as its export-dependent economy grapples with a slowdown in China and elsewhere, Financial Secretary John Tsang told Reuters.

“We are looking at a new normal at the current level at about 2-4 percent. That is not our normal growth in the past. We’ve had double digits as well,” Tsang said in an interview yesterday. “As we get bigger... our growth rate will naturally reduce.”

Funds cut suggest equity exposure at record low Chinese fund managers have cut suggested equity exposure for the coming three months to a record low, with risk appetite dampened by yuan depreciation fears, U.S. rate hike uncertainty, and economic growth worries, a monthly Reuters poll showed. They cut their suggested equity allocations for the next three months to 65.0 percent - the lowest since June 2007 when the poll was first conducted - from 66.3 percent a month earlier, according to a poll of eight China-based fund managers conducted this week.

E-commerce giant Alibaba lowered its total value of transactions forecast. Pictured Alibaba’s IPO

Multinational execs feel chill wind But official retail sales data through August are still up more than 10 percent from a year earlier Kazunori Takada

C

hina's economy is officially growing at a brisk clip of 7 percent, but many locally based executives at multinationals say they wouldn't know it from the performance of their businesses.

By China's standards 7 percent is already the weakest annual growth in 25 years, but on the ground the slowdown in the world's secondbiggest economy is being felt more acutely in many sectors, even those driven by consumer spending, which government data says is growing around 10 percent.

"How can China's economy be growing at 7 percent?" said an executive at a Western conglomerate that does business with a wide range of Chinese and foreign firms in China.

He said his business wasn't growing that fast, and those of his clients didn't appear to be, either.

Reuters spoke to 13 executives in charge of China operations at international firms, and nine said they felt they were operating in an environment where the economy was growing between 3 and 5 percent.

The nine included those from the banking, consumer goods manufacturing, advertising, heavy machinery and commercial property sectors.

One executive at a shopping mall operator said he was seeing flat sales growth compared with a year earlier, while three in the education, healthcare and e-commerce industries said revenues were still growing in double-digits.

"It's very possible that GDP is getting boosted by factors we don't see, such as government spending on infrastructure," said an executive at a Japanese clothing wholesaler.

"If that's the case, money isn't circulating to the broader economy."

Zhou Hao, senior economist at Commerzbank AG in Singapore, said

it wasn't only businessmen struggling to see 7 percent growth.

"Many traditionally reliable indicators such as power output and rail freight have shown a serious deviation from GDP growth," he said.

"Nobody knows what's the real economic growth."

China's economy grew 7 percent in the second quarter, according to the National Bureau of Statistics, and the government expects full-year growth to be about the same.

Strong pockets

To be sure, there are pockets of the economy, such as education, healthcare and entertainment, where growth momentum remains strong.

Official retail sales data through August are still up more than 10 percent from a year earlier, though signs are emerging that consumer spending is slowing, spooked perhaps by the summer's sharp declines in the stock market.

Xie Zongyao, chief operating officer at Shanghai's Super Brand Mall, one of Shanghai's largest shopping malls, backed by Thailand's Charoen Pokphand Group, said sales had shown a slowdown over the past two months after posting double-digit growth in the first half of the year.

"Consumers are more cautious when buying high-end brands, instead opting to buy better-value products," he told Reuters.

"Performance (in the last few months of 2015) is not expected to be better than the first half, so we will come up with more solutions to drive sales."

E-commerce giant Alibaba Group Holding Ltd said earlier in the month it expected its total value of transactions - one of the most closely watched metrics for e-commerce companies to be lower than previously thought in the July-September quarter because of lower spending.

KEY POINTS China’s economy officially growing at 7 pct Most multinational execs surveyed said feels like 3-5 pct Education, health, entertainment execs say still over 10 pct Some execs struggle with HQ targets based on official data

Growth in China's auto market, the world's biggest, slowed to a standstill in August, compared with 7.7 percent growth a year earlier. If it turns negative, it would be the first fall since the market took off in the late 1990s.

The gap between official growth figures and the situation on the ground in many sectors is posing a headache for some local executives who say headquarters use GDP data to set revenue and profit targets.

A China-based executive in the heavy machinery industry said orders at his firm and affiliates were down about 50 percent from a year earlier, mainly because of the sluggish real estate market, and he had his work cut out getting that message across to head office.

"I am now increasingly sending news articles that highlight weaknesses in the economy to HQ to make them understand our situation."

Reuters

Business Daily | 15

October 1, 2015

Asia

Japanese factory output slides unexpectedly Analysts say the central bank won’t be able to stay its hand for too much longer Tetsushi Kajimoto

J

apan’s factory output unexpectedly fell for the second straight month in August, fuelling worries the economy is slipping back into recession and raising more doubts about whether the government can reignite growth and end decades of deflation.

As a slowdown in China chills global growth, hitting export-reliant Asia particularly hard, analysts say the Bank of Japan (BOJ) may be forced to offer fresh stimulus as early as next month in a bid to get the faltering economy back on track.

“In the absence of growth engines due to weakness in external and domestic demand, the possibility is growing that the economy has shrunk for a second straight quarter in JulySeptember and it may be slipping into a recession,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“Given weakening of the economy, the BOJ could ease policy again next month, even though Governor (Haruhiko) Kuroda remains bullish and the government is wary about further yen weakening boosting the cost of imports.”

The economy shrank an annualised 1.2 percent in April-June.

August factory output fell 0.5 percent month-on-month, trade ministry data showed yesterday, short of a 1.0 percent increase expected by analysts.

Not surprisingly, exporting industries led the decline.

These included generalpurpose machinery, cars and China-bound auto parts.

The Bank of Japan has been pumping billions of dollars into the economy to spark inflation towards its 2 percent goal by September 2016, and has remained adamant that prices will move up over time despite faltering external and domestic demand.

However, few - if any investors expect the target

Japanese cannot find the key to path of stable growth in the industrial sector

to be reached as a renewed drop in oil costs saw prices fall for the first time since the BOJ deployed its massive asset purchases more than 2 years ago.

‘Abenomics’ under fire

The weak indicators have rekindled doubts about Prime Minister Shinzo Abe’s ‘Abenomics’ strategy

of reviving growth through fiscal expansion, monetary stimulus and structural reforms.

Speaking in New York at a news conference on Tuesday, Abe said: “We have come to the point where a bit more effort is required,” to pull the world’s third-biggest economy out of deflation.

The outlook for businesses also looked grim, with the trade ministry cutting its assessment of industrial output, saying it is weakening.

Manufacturers surveyed by the trade ministry expect output to rise just 0.1 percent in September before bouncing 4.4 percent in October.

Separate data showed consumer spending also remained fragile, with retail sales up just 0.8 percent in August from a year earlier, slowing markedly from 1.8 percent growth in July.

The BOJ will scrutinise a batch of data - including its key tankan survey due today and household spending out Friday - at its policy review next week.

It has already pumped 180 trillion yen (US$1.50 trillion) into the economy since launching a massive stimulus programme in April 2013, and each month gobbles up government bonds equivalent to about 1 percent of Japan’s GDP. Reuters

th

8th Half Page Ad Charity Golf 2015 Business Daily outlined.indd 1

9/23/2015 10:13:29 PM

16 | Business Daily

October 1, 2015

Asia

Singapore likely to ease policy in October As industrial output shrank more than expected in July and August Masayuki Kitano

S

ingapore’s central bank will probably ease monetary policy in October due to the rising risk of a recession and downside risks to the inflation outlook, a Reuters poll showed.

Twelve of 18 analysts surveyed said their baseline expectation is for the Monetary Authority of Singapore (MAS) to ease its exchange-rate based policy in October.

The others expected no easing, though two said the MAS is likely to widen the Singapore dollar’s policy band to accommodate higher market volatility.

In a Reuters poll in mid-August, only three of 11 had predicted a policy easing in October.

Weak data since then has increased the risk that the economy would contract for the second consecutive quarter in July-September, meeting the technical definition of a recession.

Industrial output shrank more than expected in July and August, while exports fell in August as shipments to China declined.

Annual core inflation in August unexpectedly slowed, nearing a fiveyear low set in May. The all-items consumer price index has fallen from a year earlier for ten straight months.

“We expect the MAS to ease at the October policy meeting... in response to the probable recession and absence of inflationary pressures,” Hak Bin Chua, economist for Bank of America

Merrill Lynch, said in a research note.

The MAS decision, and the government’s advance estimate of third-quarter gross domestic product, are expected to be announced around mid-October.

The MAS surprised investors in January by easing policy in an off-cycle move. It then kept policy unchanged in April.

The MAS manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate (NEER).

Against the U.S. dollar alone, the Singapore dollar has fallen 7

percent so far this year in the face of persistent strength in the greenback and a weakening outlook for emerging economies.

Among those economists who expect easing, views are split on whether the MAS will reduce the slope of the band, lower the midpoint, or do both.

Some expect the MAS to shift from a stance of allowing a “modest and gradual” appreciation of the Singapore dollar NEER policy band to a neutral stance.

Singapore’s monetary policy is focused on the exchange rate, instead of interest rates, due to the tradedependent nature of its economy.

Reuters

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Michael Armstrong, Stephanie Lai, Óscar Guijarro, Kam Leong, Joanne Kuai GROUP SENIOR ANALYST José I. Duarte Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia Assistant to the publisher Lu Yang | lu.yang@projectasiacorp.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

Business Daily is a product of De Ficção – Multimedia Projects Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 editor editor@macaubusinessdaily.com newsroom newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com

Business Daily | 17

October 1, 2015

Asia Little progress on TPP talks A New Zealand trade official said that the Trans Pacific Partnership talks had made no progress on key areas such as dairy and automobiles and that officials were waiting for trade ministers to take the negotiations forward, media reported yesterday. “There’s still some work to do in automobiles, biologics and IP, and around dairy obviously in New Zealand’s case,” agricultural trade envoy Mike Petersen told Radio New Zealand. “We need ministers to make the hard calls on those areas, and we’re hopeful they can do so over the next couple of days.”

Asia Pacific ECM deals tumble Deals in Asia ex-Japan equity capital markets (ECM) tumbled in the third quarter as investors shunned new listings and other types of share offerings after the rout in Chinese stock markets, Thomson Reuters data showed. Proceeds from equity deals in the region’s stock exchanges sank 57 percent quarter-on-quarter to US$42.2 billion, according to the preliminary data released yesterday. The volume of initial public offerings during the quarter fell to its lowest since March 2013 as Chinese regulators put on hold the approval of new listings, the data showed.

India talks tough on black money in hunt for hidden billions The country is one of the most cash-intensive societies in the world, corruption is endemic, and strict tax laws encourage people to keep money off the official books

Thai rate cut was likely to have minimal impact

Emily Ford

P

rime Minister Narendra Modi took power last year pledging to crack down on the “menace” of so-called black money -- vast piles of wealth kept secret from the tax authorities -- with a battalion of new measures.

A three-month window ending yesterday allowed tax evaders to declare their stash and pay a softer penalty, with immunity from prosecution, or risk up to ten years in jail if they get caught.

“The era of tax havens has come to an end. It is no longer safe to keep your assets overseas illegally,” Finance Minister Arun Jaitley said in May, shortly after the Black Money Act was passed.

On the campaign trail two years ago, Modi claimed 1.5 million rupees (US$23,000) could be given to every citizen if illegal funds were brought back from overseas.

But the challenge of cajoling back into the economy the US$439.59 billion that fled India illicitly from 2003-2012, according to estimates

The era of tax havens has come to an end.

It is no longer safe to keep your assets overseas illegally Arun Jaitley, India’s Finance Minister

from the Global Financial Integrity group in Washington, is dizzying.

India is one of the most cash-intensive societies in the world, corruption is endemic, and strict tax laws encourage people to keep money off the official books.

The wealthy channel money to tax havens such as Switzerland or Singapore, convert it into jewellery, antiques, paintings or property, or send a relative abroad for half the year to avoid tax.

“The intention is clearly to target Indian citizens who have stashed wealth overseas and want to come clean,” Sonu Iyer, partner for India tax services at EY (Ernst & Young) said of the declaration window.

“It is a warning before the government brings in a very harsh law.”

Tough talk

The Black Money Act is the latest in a widening crackdown by India’s government, which has set up a team of regulators and ex-judges to identify illicit account holders and repatriate hidden funds.

It has started bringing in biometric identity cards tied to bank accounts and last year handed a secret list of 627 people suspected of concealing money abroad over to the Supreme Court.

The tough stance comes as the global net tightens on tax evaders, with new information-sharing accords between countries and even secretive Switzerland releasing the names of suspect account holders in May. “Those days when people could hide things abroad and think they will never be found out are largely behind us,” V. Anandarajan, Joint Secretary of the Central Board of Direct Taxes, told a forum last week.

On the domestic front, targets for investigation include temples and ashrams, where lavish donations can be a

front for money laundering, and cricket betting.

The property sector too is awash with black money, with analysts saying cash is a component in most transactions.

“Realty is one area where black money is huge. Politicians, investors, entrepreneurs park money, then cash it out later,” Pankaj Kapoor, managing director at Liases Foras, a real estate research firm in Mumbai, told AFP. But the Black Money Act and another new law that seeks to stop properties being acquired in another person’s name have spooked buyers, with sales already taking a hit, Kapoor said.

‘No witch hunts’

Opinions on the law range from punitive to draconian, with business body Assocham lambasting it in August for spreading “confusion, fear and panic” among investors.

The government says it does not seek to name and shame and that its purpose is simply to force shadowy assets back into the mainstream.

“We have said no witch hunts, no fishing inquiries. We are going to take what is declared at face value,” tax official Anandarajan said.

But the crackdown has triggered reports of mass anxiety among India’s rich, who fear difficult questions may follow if they come forward.

Only a handful of people are said to have declared assets so far, although authorities say they have received 65 billion rupees and expect most to arrive in the final week.

Anil Kumar, a former High Court judge, told a forum in Delhi that the promise of immunity may not be enough to allay fears of retribution.

“There is still ambiguity in the minds of the people, whether this will exonerate them from prosecution,” he said.

AFP

Thailand’s central bank decided to hold interest rates this month as further easing was likely to have had a marginal impact on the economy while contributing to financial stability risks, minutes from its last meeting showed yesterday. The central bank’s monetary policy committee (MPC) unanimously voted to keep the one-day repurchase rate unchanged at 1.50 percent for a third straight meeting on September 16, just above the record low of 1.25 percent.

The MPC surprisingly cut the rate in March and April to try to boost Southeast Asia’s second-largest economy.

Toshiba obtains new 2-year line from banks Japan’s Toshiba Corp has secured a fresh, two-year commitment line from its main banks worth 400 billion yen (US$3.3 billion), which nearly doubles the amount available, as it seeks a stable source of funds in the wake of a debilitating accounting scandal. The laptops-to-nuclear power conglomerate said the new safety net would help prepare for any unexpected downturn in the market. The Tokyo Stock Exchange this month placed Toshiba on a watch-list, imposing a 91.2 million yen fine for the accounting debacle.

NZ accepts WTO border agreement New Zealand has formally accepted a World Trade Organization (WTO) agreement designed to facilitate trade through simplifying Customs and border processes, Trade Minister Tim Groser said yesterday. Implementation of the Trade Facilitation Agreement (TFA) would provide concrete benefits to New Zealand businesses over time, minimizing costs associated with getting products across borders and into the marketplace, Groser said in a statement. In particular, New Zealand’s agricultural exporters would benefit from a provision to provide for the release of perishable goods within the shortest possible time.

18 | Business Daily

October 1, 2015

International France announces 2016 budget France unveiled a budget for next year yesterday that promised a modest improvement in its finances and offered households tax cuts that set the stage for presidential elections in 2017. Finance Minister Michel Sapin said that total spending would fall next year to 55.1 percent of economic output from an estimated 55.8 percent this year.

That remains among the highest ratios among developed countries. A series of planned tax cuts for households and companies that symbolise the Socialist government’s conversion to supply-side economics will reduce the total tax burden only slightly.

WTO cuts trade forecasts

The World Trade Organization cut its forecasts for global goods trade yesterday after quarterly growth turned negative, with trade shrinking by an average of 0.7 percent in the first two quarters of this year. The WTO sees world trade growth of 2.8 percent this year and 3.9 percent in 2016, revised down from the forecasts it made in April of 3.3 percent and 4.0 percent, respectively. Risks, including a potential U.S. interest rate rise and further slowing in developing economies, are “firmly on the downside”, the WTO said in a statement.

German unemployment unexpectedly rises German unemployment unexpectedly rose in September in a sign that Europe’s largest economy is not immune to risks from slowing growth in emerging markets. Joblessness increased a seasonally adjusted 2,000 to 2.795 million, the Federal Labour Agency in Nuremberg said yesterday. Economists had predicted a drop of 5,000. The unemployment rate remained unchanged at 6.4 percent, the lowest level since German reunification. China shook financial markets last month when it devalued its currency to shore up weaker growth. The slowdown there and in other emerging nations is a challenge for Germany’s trade-focused business model.

U.K. economy regains recession losses BOE policy makers have previously highlighted the size of the current-account deficit, which widened to a record 5.1 percent in 2014, as a potential risk to the economy Fergal O'Brien

A

key gauge of wealth in Britain has risen above its prerecession peak and workers are seeing their compensation grow at the fastest pace in eight years.

New data from the statistics office shows that gross domestic product per head in the second quarter was 0.6 percent above its level in early 2008. The economy grew 0.7 percent in the period, the Office for National Statistics said, unrevised from a previous estimate, with net trade driving the expansion.

Compensation of employees rose 4.7 percent in the three months from a year earlier, the biggest annual increase since 2007. That was led by increases in salaries and social benefits, as well as a decline in taxes.

With inflation near a record low, real disposable income jumped 2 percent on the quarter, the most in three years.

The figures reinforce the view that Britain’s economy, which has grown for 10 straight quarters, is continuing to strengthen. While inflation is below the Bank of England’s 2 percent target, the momentum has prompted Governor Mark Carney to say that the time to take monetary policy off its emergency setting and begin raising interest rates is approaching.

Bigger economy The data from the ONS, published in London yesterday, also showed that the economy was 5.9 percent bigger in the second quarter than the previous peak. That’s revised up from 5.2 percent. Revisions to historical data show that GDP per head regained its 2008 peak in the first quarter.

There was further good news in the balance of payments report, which showed the current-account deficit narrowed in the second quarter to 16.8 billion pounds (US$25.5 billion) from 24 billion pounds in the three months through March. That equates to 3.6 percent of GDP, the smallest in two years.

The momentum has prompted central bank Governor Mark Carney (pictured) to say that the time to take monetary policy off its emergency setting and begin raising interest rates is approaching

The improvement was driven by trade, with the deficit in goods and services narrowing to 0.7 percent of output, the least since 1998

The improvement was driven by trade, with the deficit in goods and services narrowing to 0.7 percent of output, the least since 1998.

BOE policy makers have previously

highlighted the size of the currentaccount deficit, which widened to a record 5.1 percent in 2014, as a potential risk to the economy.

Economists in a Bloomberg survey forecast U.K. economic growth of 2.6 percent this year and 2.4 percent in 2016. They also expect the first BOE rate hike about the second quarter of next year, with concern about the health of China’s economy and the global recovery is helping to keeping U.K. interest rates at a record-low 0.5 percent for now. The BOE will announce its next rate decision in just over a week.

In the second quarter, growth in U.K. business investment was revised down to 1.6 percent from 2.9 percent, the ONS said. Compared with a year earlier, it increased 3.1 percent. A 1.9 percent jump in exports made net trade the biggest driver of growth in the latest quarter, contributing 1.4 percentage points.

Bloomberg News

Business Daily | 19

October 1, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Fed losing market power: taking, not making prices James Saft

Reuters columnist

TAIPEI TIMES Consumer confidence dropped slightly this month, weakening for the fifth straight month, as people feel less optimistic about the job market’s prospects amid an economic slowdown, a monthly survey by National Central University showed yesterday. The consumer confidence index dropped to 85.32, down 0.83 points from last month’s 86.15, as all component indicators softened with the exception of the inflationary gauge, the survey showed. Index scores above the 100-point mark indicate optimism, while values below that threshold signify pessimism. The sub-index on the job market recorded the biggest decline of 2.55 points this month to 113.2.

PHILSTAR With only three months left in the year, the economic growth target will no longer be changed even as the Aquino administration conceded that hitting just the low end of the goal would be difficult to achieve. When asked if there is a plan to revise this year’s seven- to eight-percent growth target, Budget Secretary said: “I don’t think so. Not anymore. What for?” Growth slowed to 5.3 percent in the first semester even after accelerating to 5.6 percent in the April to June period.

Economic expansion during the first quarter was at five percent.

THE KOREA HERALD South Korean financial firms are the most vulnerable to an economic slowdown in China, with their exposure to the world’s second-largest economy being the highest in the world, market data showed yesterday. Local banks and non-bank institutions’ outstanding loans to China reached US$24.5 billion as of end-March, accounting for 17.5 percent of their total overseas lending of US$140 billion, according to the data. In terms of total loans extended, Britain had the largest exposure to China, worth $181 billion, followed by the United States with US$87.8 billion and Japan with US$75.5 billion.

VIETNAM NEWS Fruit and vegetable exports are expected to reach US$2 billion this year as more and more countries have opened their door to Vietnamese fruits and vegetables. Earnings from fruit and vegetable exports have increased strongly in recent years, from US$460 million in 2010 to US$1.47 billion last year, according to the Viet Nam Fruit and Vegetable Association. The figure topped nearly US$1.3 billion in the first nine months of the year. Last year, more than 1.6 million tonnes of fruits and vegetables were exported, of which dragon fruit accounted for more than 997,000 tonnes.

T

he Federal Reserve appears to be reacting to events outside its control rather than setting the agenda in financial markets.

The Fed’s decision to delay raising interest rates at its September meeting, tied in part to concerns over China, unsettled investors, leading some to conclude that not only was the world’s most powerful rate setter hard to predict but that it was far less able to counter changes in market sentiment.

In past years the Fed, whatever its other struggles in balancing employment and inflation, has been a reliable power, dampening down anxiety when markets become jumpy.

That reputation, won by its heroic efforts during and after the 2008 financial crisis, was predicated on the faith of investors that, though economies are messy and don’t always respond directly to policy, markets on the other hand will more or less do the Fed’s bidding.

That was probably always naive, though as it proved time and again to be a profitable strategy, the axiom among market participants was “don’t fight the Fed”.

By acknowledging that it is being steered by opaque and often bizarre events in China, the central bank tipped the weakness of its own hand.

“We reckon that the Fed has lost control of risk sentiment,” analysts at bank Societe

Generale led by Vincent Chaigneau wrote in a note to clients.

“Indeed, we argue that risk sentiment now has a strong impact on Fed expectations, but the Fed itself has a limited impact on risk.”

If true, and market prices appear to bear it out, this will mark not only a significant change in global markets, but one which is, by definition, self perpetuating.

Credit, at the bank or in the stock exchange, is no more than belief. Once investors stop believing the Fed can inspire optimism, the tendency will be towards pessimism. As the rest of the world is a lot scarier and harder to predict than the U.S. central bank, the implication may be higher risk premia and lower market prices.

Societe Generale notes that previous stress in the market has been self-correcting, in part due to expectations that the Fed would keep policy more generous for longer. That helped to support asset prices when stress ensued, and also short-circuited that stress.

It’s different this time Yet the Fed’s decision to leave interest rates unchanged on September 17 led to a selloff in global stock markets.

Similarly, when Fed chair Janet Yellen sounded more ready to raise rates last week there was only a very temporary respite for financial markets. So while it was upsetting to learn that

As the rest of the world is a lot scarier and harder to predict than the U.S. central bank, the implication may be higher risk premia and lower market prices

they wouldn’t, we didn’t feel much better when they said they probably would after all.

New York Federal Reserve President William Dudley, who usually has quite a good touch with markets, illustrated the issue well when on Monday this week he said that if the economy keeps to its current trajectory there is a strong case for hiking before the end of 2015.

Stock markets sold off strongly on Monday, with the S&P 500

index losing 2.5 percent, but it did not appear to be because people suddenly became convinced that the Fed would indeed raise interest rates.

Fed funds futures, derivatives which allow betting on policy rate changes, fell on Monday and now predict only a 37 percent chance of an increase by year’s end.

The market, therefore, is not listening to what the Fed is saying but drawing its own conclusions based on what is happening elsewhere. Dudley and Yellen may wish to appear that they are on course, and in control, but that is now increasingly hard to square with past policy decisions.

Far more likely that the stock market sold off not because it fears a Fed hike but because it sees a growing threat to global economic growth from China.

Chinese industrial company profits fell by 8.8 percent in August compared to a year ago, the most since records began in 2011, as demand dropped and prices fell, data showed on Monday. That news in turn helped to fuel another 2.0 percent fall in the price of oil, adding to unease on global markets.

China is the price maker and the Fed, facing diminished power is more of a price taker, more acted upon than acting, and less powerful than we’ve believed.

Perhaps its policies are achieving diminishing results. That will take some getting used to.

Reuters

20 | Business Daily

October 1, 2015

Closing Singapore’s population grows at slowest in a decade

PBOC lowers mortgage down payment requirement

Population rose 1.2 percent over the past year, the slowest in more than a decade, as it tried to reduce numbers of foreign workers, while long-standing efforts to encourage citizens to have more children bore some fruit. The total population stood at 5.54 million as of June 2015, according to data released yesterday, including 3.38 million citizens.

The citizen population continued to age, with 13.1 percent 65 or older, compared with 12.4 percent last year, due to slowing fertility rates and increasing life expectancy. Singapore has for years tried to get its citizens to have more children, with little success but births in 2014 rose 7 percent.

China’s central bank and banking regulator said yesterday they would be lowering the minimum down payment requirement for first-time home buyers in many cities to 25 percent from 30 percent, in an effort to support the residential property market. The People’s Bank of China and the China Banking Regulatory Commission said that the lower down payment requirement would apply in all cities not currently subject to restrictions on home purchases. The main cities that have such restrictions are Beijing, Shanghai, Guangzhou and Shenzhen. The statement on the central bank’s website did not say specifically when it would take effect.

Euro zone inflation turns negative ECB President Mario Draghi stressed last week that the ECB was ready to act and had much flexibility regarding the scale

European Central Bank President Mario Draghi

E

uro zone inflation turned negative again in September as oil prices tumbled, raising pressure on the European Central Bank to beef up its asset purchases to kick start anaemic price growth.

Prices fell by 0.1 percent on an annual basis, the first time inflation has dipped below zero since March, missing analyst expectations for a

zero reading after August’s 0.1 percent increase.

The ECB is buying 60 billion euros (US$67.37 billion) of assets each month to boost prices but has said it may have to increase or extend the quantitative easing scheme as inflation could fall short of its target of almost 2 percent even in 2017.

Long term inflation expectations have fallen

Chinese banks help launch partnership fund

B

to their lowest level since February, before the ECB’s asset purchases started, as China’s economic slowdown, the commodity rout and paltry euro zone lending growth reinforce pessimistic predictions.

Even Finnish central bank chief Erkki Liikanen, normally considered an inflation hawk, has warned that euro zone growth is at

risk from the slowdown in emerging markets and that inflation could fall short of already modest expectations.

ECB President Mario Draghi, though striking a balanced tone, stressed last week that the ECB was ready to act and had much flexibility regarding the scale, composition and duration of its asset purchases.

Although many of the factors dragging on inflation are outside the bank’s control, such as the plunge in oil prices, some economists argue that any easing of the ECB’s commitment to meeting its target damages the bank’s credibility.

Inflation has run below target for two years now and may not head back towards 2 percent for another two years.

Not just yet

Noises from the 25-member ECB governing council, a distinctly heterogeneous body, have not encouraged hopes it will make anything but cosmetic changes when policymakers next meet on October 22 in Malta.

It may argue for more time to assess the inflation and growth outlook, perhaps until

the U.S. Federal Reserve finally commits to its first rate hike in almost a decade and the ECB staff presents new economic forecasts in December.

Excluding volatile energy prices, inflation is running at 1 percent, a more respectable figure, while services inflation is at 1.3 percent.

Repeating his view that asset buys should only be used in an emergency, he also warned that abundant cheap credit -- a side-effect of ultra loose monetary policy -- is keeping unviable companies alive, posing risks to competitiveness.

Central bankers have also argued that there are limits to how much monetary policy can achieve and that trying to push up inflation while the global commodity index has dropped by a third in 15 months overburdens monetary policy.

The ECB cannot fight China’s slowdown while the euro zone’s sizable current account surplus, also largely outside the central bank’s control, is underpinning the euro’s value versus other currencies, which itself dampens inflation.

Reuters

Switzerland tops competitiveness ranking

HK to increase minimum wage for foreign domestic helpers

S

T

iggest banks, including Industrial & Commercial Bank of China, have joined other financial firms in a 180 billion yuan (US$28 billion) fund to invest in public-private partnership (PPP) projects.

The Ministry of Finance (MOF) launched the fund jointly with banks and other major conglomerates and institutions, the ministry said yesterday in a statement on its website.

Ten institutions, including China Construction Bank Corp. and Bank of China, joined the group, which also includes China Life Insurance (Group), CITIC Group and the National Council for Social Security Fund.

The Chinese government, which is looking to support a slowing economy, wants to accelerate construction investment by attracting private financing through the increased use of publicprivate partnerships.

The MOF published details for 206 proposed PPP projects, worth a total value of 658.9 billion yuan, including an expressway in Beijing. In May, the National Development and Reform Commission released a list of 1,043 projects that it said were open to PPP financing.

witzerland topped the World Economic Forum’s competitiveness ranking for a seventh consecutive year, with Singapore and the U.S. second and third.

“Nurturing innovation and talent” has kept those three nations on top, according to a report on 140 countries published Wednesday by the Geneva-based WEF. “In many countries, too few people have access to high-quality education and training, and labour markets are not flexible enough.”

Many emerging markets have failed to improve their competitiveness since the global financial crisis, according to the forum, which cut Brazil’s ranking by 18 places to 75th and has Turkey dropping six to 51st. While India rebounded to 55th after five years of decline, China’s failure to improve on its 28th spot shows the challenges it faces in “transitioning its economy,” the WEF said.

The appreciation of the Swiss franc since the removal in January of a cap against the euro, near-zero inflation and negative interest rates pose risks for Switzerland, the WEF said.

Reuters

Bloomberg News

he Hong Kong Special Administrative Region (HKSAR) government announced yesterday that the Minimum Allowable Wage (MAW) for foreign domestic helpers (FDHs) in Hong Kong will be increased by 2.4 percent, from HK$4,110 to HK$4,210 (about US$543.22) per month.

The move came together with the increase of food allowance from not less than HK$964 to HK$995. Under the Standard Employment Contract for hiring FDHs, employers are required to provide FDHs with food free of charge, or pay them a food allowance. The new levels of the MAW and food allowance will apply to all FDH contracts signed on or after October 1.

The government reviews the MAW for FDHs regularly, a government spokesman said, “in accordance with the established practice, we have carefully considered Hong Kong’s general economic and labour market situations over the last year, as reflected through a basket of economic indicators.”

The government’s statistics shows that as at December 2014, there were 330,650 FDHs in Hong Kong, 3.01 percent up from 2013. A large majority of them came from the Philippines and Indonesia.

Xinhua