Page 1

Gov’t renews Macao Slot contract for five years Gaming Page 6

Thursday, June 2 2016 Year V  Nr. 1056  MOP 6.00  Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm  Real Estate

Hsin Chong teams up with Sunny Wealth to expand property business Pages 2


Legislators push for support of disabled persons even once employed Page 3

Tax evasion

Monetary authorities of Hong Kong and Singapore request banks to clarify links with Panama Papers Page 16

Real estate

Home prices in Mainland maintain upward trend Page 9

Gaming Revenue Resilient Gaming

The city’s gross gaming revenue declined 9.6 pct y-o-y during May. With the city raking in MOP18.4 bln. The fall in revenues exceeded analysts’ estimates. Partially attributable, they claim, to ‘two fewer weekend days’ than 2015. As well as stricter regulations governing the industry, including a recent ban on phone betting. Page 6

Jacob’s ladder

Playing catch-up The city’s overall efficiency competitiveness tops that of over 200 Chinese cities. According to a CASS report. But its incremental competitiveness is another case. Of the 294 cities Shenzhen is ranked most competitive in terms of economy for 2015. Followed by Hong Kong, Shanghai, Guangzhou and Taipei.

Gaming Las Vegas Sands Corp. has settled with former Sands China CEO Steve Jacobs. Both parties ‘reached a comprehensive and confidential settlement through which Mr. Jacobs dismissed all claims in the Nevada state and federal cases against our controlling shareholder, Las Vegas Sands Corp’. Estimates of the undisclosed settlement reach US$75 million. Page 7


Aviation New draft regulations are in the air. Identifying areas for the use of drones has been completed by the Civil Aviation Authority (AACM). In consultation with the Public Security Forces Affairs Bureau. The airport plans to increase the number of plane parking slots. Although large wingspan aircraft like the Airbus A380 won’t benefit, says AACM. Page 2

Steady expansion

China’s PMI China’s manufacturing sector expansion remained steady in May. The third month of expansion in a row. The Purchasing Managers’ Index for May came in at 50.1. Like April, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing. Page 8

28°  32° 28°  32° 26°  32° 25°  28° 25°  27° Today





Source: Bloomberg

Source: AccuWeather

Competitiveness Page 5

HK Hang Seng Index June 1, 2016 

20,760.98 -54.11 (-0.26%)

China Unicom Hong Kong




Sands China Ltd


China Mobile Ltd


China Petroleum & Chemical


China Merchants Holdings


I SSN 2226-8294

2    Business Daily Thursday, June 2 2016


Fly on by


he Civil Aviation Authority (AACM) has completed a new draft for areas regulating the use of drones and hopes to launch the service soon, revealed the President of AACM, Chan Weng Hong, while attending TDM radio programme ‘Macau Forum’ yesterday, according to a report by TDM Chinese Radio. AACM has been in consultation with the Public Security Forces Affairs Bureau of Macau for the new draft regarding how to regulate the use of drones for the authority’s convenience and safety according to Mr. Chan. Restrictions on the flying area for drones is needed in order to protect residents’ privacy, and restrict the operation of drones within high-risk areas including the airport. Drone use is also expected to be implemented in rescue and measurement operations.

Airport expansion

Suggestions arose regarding the expansion of the Macau International Airport during the radio programme, with Mr. Chan commenting that the airport runway is large enough to accommodate large aircraft for taking off and landing except planes such as the Airbus A380; the large wingspan of aircraft such as the A380 and the current space between the parking area and the taxiway is currently insufficient to allow the easy passage of such aircraft, requiring a

large overhaul of facilities to enable the process. Currently, the airport provides 24 parking slots for wide-body aircraft, notes Mr. Chan, commenting that since Macau is a tourist destination most aircraft coming to the city are of the narrow body type. Chan also revealed that the airport has implemented a new plan to increase the number of parking slots available. Among other topics of debate was the operation licence for Air Macau, set to expire in four years, with Chan noting that it is still too early to plan

the opening up of the local aviation market. “It needs to strike the right balance in order to attract new airlines to join by expanding the local aviation market. We must take into consideration the risk of investment, quality of service and competition,” Mr. Chan commented.

Flight refunds

Mr. Chan also said customers of airlines coming to Macau to look to the airline companies with regard to flight delays and service charge complaints, as the AACM has no



Hsin Chong mulls expansion in city, Southeast Asia Hong Kong-listed constructor Hsin Chong Group Holdings Ltd. is teaming up with local developer Sunny Wealth Group Co. Ltd. to expand their property businesses in Macau and Southeast Asia, the company told Hong Kong Stock Exchange on Tuesday. According to the company’s filing, it entered into a memorandum of understanding (MOU) with Sunny Wealth last Friday ‘in relation to the co-operative development of projects in Macau and Southeast Asia.’ The two companies ultimately aim to increase their market shares in the construction field of the Special

power to intervene in the operation of the airline companies. The bureau head suggested passengers read the terms and conditions of the airlines carefully, noting air ticket refunds and conditions for changing flights as these belong to the commercial operations side of the airlines, before purchasing their air tickets. “Very often we’ve faced issues such as refunds and changing flights fees. These problems are considered commercial activities, therefore we don’t have the authority to intervene except if it relates to safety issues,” he remarked. A.L.

Administrative Region and Southeast Asia. They will also establish

a joint venture for their co-operative property projects or other investment

projects in the two regions after the signing of the MOU. ‘Both parties believe that this co-operation can further enhance their overall operating efficiency, improve their brand awareness and create greater commercial value for their co-operation,’ the construction entity wrote in the filing. Hsin Chong has been engaged in the industry for large-scale integrated resort projects in Macau, including contracts for multiple projects for gaming operator Sands China, including The Venetian and Sands Cotai Central as well as The Parisian. In addition, it is working on reinforced concrete works and general builders’ works for the podium of the Grand Lisboa Palace of SJM Holdings Ltd. K.L.


Leasing tax up last year Leasing taxes have increased by 27 per cent over the past three years, noted the Secretary for Economy and Finance Lionel Leong while attending the Legislative Assembly’s meeting

on Tuesday, according to Chinese language newspaper Macao Daily. Secretary Leong admitted that although there was a rise recorded in the amount of leasing tax payments,

Secretary for Economy and Finance Lionel Leong

there are still cases of misreporting or lack or reporting of leasing tax occurring. The SAR Government is now working on an adjustment to the housing tax and is to make amendments to the stamp duty to avoid the occurrence of overlapping payment of taxes as well as considering measures to help renters who’ve yet to finish their term to recoup stamp duty payments if contracts are cancelled before their term. Further studies will be undertaken by the SAR Government on the issues of housing tax adjustment, including the financial situation of Macau, the financial sustainability of the city, a healthy tax base and comparison of local and overseas taxes, etc., mainly to assess whether there is a room for housing tax adjustment. The SAR Government will act in accordance with the results of the studies on tax reform, noted the Secretary. A.L.

Newly appointed deputy director of DSAL The new deputy director of the Labour Affairs Bureau (DSAL), Chan Un Tong, has been appointed by the Secretary for Economy and Finance Lionel Leong, according to a dispatch by the Secretary’s office, published in the Official Gazette yesterday. Mr. Chan was a former deputy co-ordinator of the Human Resources Office (GRH) before taking up his new role with DSAL. The GRH was moved back under the management of DSAL on May 28, the same day as Mr. Chan’s new tenure, lasting for a period of one year. A.L.


Local business delegation in China signs 3 co-operation agreements The Macao Trade and Investment Promotion Institute (IPIM) took a delegation of 32 local businessmen to the 4th China Services Trade International Fair in Beijing (CIFTIS), signing three co-operation agreements between companies and commercial associations from the SAR and Mainland China. The fair, which ran from May 28 to June 1, focused on science and technology, tech, culture and education, finance, commerce, tourism, and healthcare. The local delegation - which included representatives from different sectors including tourism, convention planning, and finance - sought to promote the territory’s investment environment, and the ‘One platform, three centres’ policy to make the city a platform of commerce between Macau, Mainland China and Portuguese-speaking countries by creating three exchange centres between the regions for SMEs, food products, and economic co-operation. N.M.

Business Daily Thursday, June 2 2016    3

Macau Trade

Revision of Foreign Trade Law imminent Legislators sign a proposal revising the Foreign Trade Law and the easing of entry of goods destined for expos and conventions.


proposal for revising the Foreign Trade Law was signed by legislators and will be submitted for a vote in the Legislative Assembly, the president of the Third Standing Committee, Cheang

Chi Keong, stated, according to TDM radio. One of the proposed revisions includes the introduction of the ATA Carnet, an international Customs document that permits the tax-free and duty-free temporary export and import of goods for up to one year,

to replace import and export declarations, as mentioned in the Foreign Trade Law revisions proposal. The Temporary Admission of Goods (ATA Convention) introduced by the World Customs Association is followed in 85 countries, according to the Corporation for International Business, and although managed by the Macao Chamber of Commerce since 2010, it hasn’t been included in the foreign trade law until now, TDM Radio stated.

The revision also establishes that the licence deadline cannot be more than 10 days for goods designed for special treatment, while defining fines between MOP5,000 and MOP10,000 in case of deadline expiry, with the goods being held by MSAR Customs, the proposed law states. With the proposed revisions the government hopes to ease the entry of goods for short periods of time that are destined for expos and conventions, according to the broadcaster. N.M.


Equal opportunities Legislators push for more support for disabled persons and continued financial aid upon employment. The government efforts to reduce and retract financial support for employees with disabilities, once employed, is to help them survive “by their own efforts”, news agency Lusa reports. “Many legislators are aware of the [disabled employees] situation of losing their pension or subsidy when they find work. We have a life incentive plan: when they find work, we discount the amounts according to reality. We don’t immediately cut their pensions or subsidies; we decrease little by little

so that they can survive by their own efforts,”stated Social Welfare Bureau President Celeste Vong Yim Mui during a Legislative Assembly (AL) plenary session, said Lusa. The government currently offers two types of disability subsidy, provided once annually, with one MOP7,500 and a separate special disability subsidy of MOP15,000, according to information from the Social Welfare Bureau. However, problems still exist in finding work for those with disabilities even

in public administration, as noted by Legislator Chan Hong, stating that a subsidy cut wouldn’t “motivate them to find work”, while Legislator Ng Kuok Cheong proposed a system where “the cut wouldn’t be total for anyone who finds a job position,” said Lusa. In April of last year the Association for People with Disabilities in Macau criticised the proposal, saying that it would have a negative impact as many people with disabilities receive low salaries, with the government responding that the approved plan for fiscal benefits for companies who hire disabled people will still be enforced. Legislators noted that currently only 0.2 per cent of public administration employees are disabled, enquiring as to what measures will be put in place to facilitate the

hiring of disabled individuals by public administration, Lusa reported “In the public administration, the principle of equality is applied to all candidates; everything is evaluated with regard to the applicants’ capacities. If people with disabilities have the requirements they can be hired,” a representative from the Public Administration and Civil Service Bureau (SAFP) mentioned, adding that currently 73 individuals with disabilities work full-time in public administration, Lusa said.

Legislators criticised the government’s inflexibility and suggested a more “innovative” approach by the authorities, with Legislator Jose Pereira Coutinho suggesting a “fixed quota for public administration” with certain jobs reserved for people with disabilities. “If the government doesn’t provide a good example, other companies, such as gaming operators, won’t do it. It’s not enough to say that the equality principle is applied,” Legislator Coutinho stated, according to Lusa. N.M.

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4    Business Daily Thursday, June 2 2016

Macau Opinion


Exports of zero-tariff goods to Mainland China down

Ashley Sutherland-Winch

CEPA exports drop 56.57 pct in May

The visa gamble

Annie Lao

With the organisational restructuring of the Labour Affairs Bureau (DSAL), which includes a new division specifically focused on the hiring of non-resident workers, the question must be asked: “If casino upper management job security becomes unstable, will the casinos be able to properly support Macau’s image revamp?” Our casinos are working quickly to create alternative activities for tourists like entertainment, activities for non-gaming age patrons, and dedicating funds to re-branding the image of gaming in Macau - all in the name of anti-corruption. Just last week lawmaker Ella Lei said in the Legislative Assembly that “there are too many non-resident workers in management positions in the gaming industry”. While consideration should always be given to local workers, discounting the longevity and experience of international workers in executive level positions within casinos will cause major issues, especially if a work visa renewal denial is sudden. The Human Resources Office of Macau told the Portuguese language Jornal Tribuna de Macau that the bureau can deny requests for renewals of non-resident casino executives’ working visas if “there are local workers that can fulfil the necessary conditions to perform managerial roles”. If this is found to be true those individuals currently working in management positions, all tasked with supporting major image campaigns, will ultimately feel insecurity grow regarding their visa renewals - regardless of their job performance. At the same time as the DSAL begins their thorough examination of international workers in upper management positions the Macao Government Tourism Office (MGTO) estimates that our number of tourists will climb to 40 million visitors in the year 2025. With increases in tourism and new casinos being added to Cotai surely there will be plenty of new jobs on the horizon to employ locals. Do we really need to threaten the security of international workers employed by global brands in the gaming sector? Shouldn’t casinos be allowed to recruit the most innovative, experienced and seasoned executives that are available in the market internationally? Any new hire should be scrutinised with priority consideration to locality but the existing employee should not be penalised due to their non-resident status if they are performing well in their jobs. Casinos should be given the task of evaluating performance and locality without fearing a sudden visa denial. Consideration must also be given to the families of non-resident workers who have bet their livelihood on moving here for work. Are we now saying that working in Macau is no longer a safe bet?

Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.


he city’s exports of zero-tariff goods to Mainland China under the Closer Economic Partnership Arrangement (CEPA) experienced a drastic drop of 56.57 per cent this May compared to the previous month, the latest official data released by the Macau Economic Services (DSE) reveals. Last month, the export value of CEPA zero-tariff goods to the Mainland amounted to MOP4.85 million (US$0.6 million), a decrease of some MOP6.3 million from the month before. Including May, the accumulated exports of goods under the agreement totalled MOP704.72 million since coming into effect in January 2004. So far this year under the agreement the accumulated export of goods has reached MOP37.41 million. In addition, in May the number of Macau Service Supplier certificates remained at 598 – unaltered from the previous month. The certificates

allow local firms to operate their businesses in the Mainland and enjoy zero-tariff treatment. According to official data, half of the issued certificates, some 298, were granted to local firms

engaged in the transport industry - such as those operating freight forwarding agencies - and businesses related to logistics, storage and warehousing. Furthermore, 147 of these certificates were given to companies providing medical and dental services, which accounted for 25 per cent of the total.

Half of the issued certificates were granted to firms in the transport industry, including freight forwarding.


Hsin Chong mulls expansion in city, Southeast Asia Hong Kong-listed constructor Hsin Chong Group Holdings Ltd. is teaming up with local developer Sunny Wealth Group Co. Ltd. to expand their property businesses in Macau and Southeast Asia, the company told Hong Kong Stock Exchange on Tuesday. According to the company’s filing, it entered into a memorandum of understanding (MOU) with Sunny Wealth last Friday ‘in relation to the co-operative development of projects in Macau and Southeast Asia.’ The two companies ultimately aim to increase their market shares in the construction field of the Special

Administrative Region and Southeast Asia. They will also establish a joint venture for their co-operative property projects or other investment

projects in the two regions after the signing of the MOU. ‘Both parties believe that this co-operation can further enhance their overall

operating efficiency, improve their brand awareness and create greater commercial value for their co-operation,’ the construction entity wrote in the filing. Hsin Chong has been engaged in the industry for large-scale integrated resort projects in Macau, including contracts for multiple projects for gaming operator Sands China, including The Venetian and Sands Cotai Central as well as The Parisian. In addition, it is working on reinforced concrete works and general builders’ works for the podium of the Grand Lisboa Palace of SJM Holdings Ltd. K.L.

Natural gas

Sinosky registers losses of MOP36 mln for 2015 The city’s exclusive natural gas importer and supplier Sinosky Energy (Holdings) Ltd. posted a loss of MOP35.6 million (US$4.45 million) for 2015, driven by to the company’s continuing imbalance between its sales price and the import cost of natural gas. According to its annual results, published yesterday in the Official Gazette, its accumulated losses widened to MOP213 million as at the end

of 2015 since its inception of service in 2006. It explained in the results that the losses were due to its approved selling prices of natural gas remaining below what it needed to pay for importation. The company claimed that the import prices per cubic metre of natural gas amounted to MOP4.59 in 2015 on average, whilst it was selling at only MOP2.74 per cubic metre - as approved by the government - in

2008. For the whole year of 2015, the natural gas importer supplied some 1.98 million cubic metres of natural gas to the Special Administrative Region, generating a turnover of some MOP5.43 million from the sale – with costs, however, reaching MOP9.45 million. Sinosky Energy, which was awarded a 15-year concession contract by the government in 2006, is a joint venture between Macau Natural Gas Co. Ltd. and China Petroleum & Chemical Corp. At the beginning of this year, the Co-ordinator of the Energy Sector Development Office, Hoi Chi Leong, claimed the government was to meet with Sinosky for negotiations regarding its natural gas supply concession and whether the stability of long-term supply could be assured. The company stated in its outlook for 2016 that it would continue striving for amendments in its concession contract with the government. K.L.

Business Daily Thursday, June 2 2016    5

Macau Competitiveness

MSAR ninth economically competitive city in China The city’s overall efficiency competitiveness tops Chinese cities ranked but its incremental competitiveness is another case.


he overall economic competitiveness of the Special Administrative Region is ranked ninth highest among 294 Chinese cities, reveals the Chinese Urban Competitiveness Report 2016 conducted by the Chinese Academy of Social Sciences (CASS). The report, the portion of which relates to the SAR, was released yesterday by CASS and the Macau University of Science and Technology (MUST), indicating that the city’s index of overall economic competitiveness reached

0.447 for 2015, which remained flat compared to that of 2014. Of the 294 Chinese cities - including Macau, Hong Kong and five Taiwanese cities - Shenzhen is ranked most competitive in terms of economy for 2015, followed by Hong Kong, Shanghai, Guangzhou and Taipei.

into a deep adjustment phase. There are fluctuations in economic growth. In addition, the average increment of GDP stays at a quite low level, affecting its performance in overall incremental competitiveness,’ the report reads.

Most efficient

On the other hand, the city’s rankings in competitiveness for a liveable environment or for a business-benefiting environment both registered declines compared to 2014, due to the

Meanwhile, the Special Administrative Region tops the index of overall efficiency competitiveness as it did for 2014. But its overall incremental competitiveness index was way behind that of most other Chinese cities, occupying 220th position. The report explained that the city’s extreme rankings in the two indexes are due to its skewed industrial structure – heavily reliant upon a single industry. ‘The dominant gaming industry has recorded significant declines as affected by different factors, whilst the city’s overall economy has entered

Less liveable, fewer commercial advantages

‘Macau must work internally to boost its industrial diversification and strengthen its external regional cooperation due to its monopolistic economic structure, weak scientific power and the lack of development in knowledgeable economy.’ Chinese Urban Competitiveness Report 2016

city’s continuing strain on capacity. Macau’s index of liveable competitiveness was 0.596 for 2015, dropping 16 positions year-on-year to 36th among the nearly 300 cities. In addition, it reached 0.398 in the index of competitiveness for a business-benefiting environment, which represents a decrease of four positions year-on-year to 32nd. ‘Macau’s capacity is being pressured due to the increasing population and the number of visitors in recent years. Housing prices are still too high for residents despite declines having been recorded. The gaming downturn and the difficulties that SMEs are facing make the city’s competitiveness decrease for a liveable and a business-benefiting environment,’ the Academy wrote in its findings.

Weak scientific power

In addition, the report noted that the city’s competitiveness in knowledge and information still has room for improvement, indicating that the government resources allocated for the two sectors are not enough. ‘Macau’s expenditure on science and technology, as well as that on education are quite low or even show declines…Based on the country’s pattern, cities with high competitiveness in these two sectors are ranked higher in position in their competitiveness of sustainability,’ the report claimed. Meanwhile, the SAR’s competitiveness in sustainability was the 5th highest among the cities for 2015. ‘Macau must work internally to boost its industrial diversification and strengthen its external regional co-operation due to its monopolistic economic structure, weak scientific power and the lack of development in knowledgeable economy,’ the report suggests. K.L.

6    Business Daily Thursday, June 2 2016

Macau Gross Gaming Revenue

Gaming revenue dips 9.6 pct in May May gross gaming revenue declined more than analysts anticipated but June is expected to show the first increase in two years.


he city’s gross gaming revenue (GGR) declined 9.6 per cent year-on-year during the month of May to MOP18.4 billion (US$2.3 billion), according to data published yesterday by the Gaming Inspection and Co-ordination Bureau (DICJ). The decrease exceeded analysts’ estimates by varying amounts - with

Bloomberg predicting an 8 per cent decrease, while investment bank Union Gaming predicted a 9.1 per cent drop. However, analyst Grant Goverson of Union Gaming considers that May gross gaming revenue, on a daily basis, showed a ‘sequential improvement of nearly 3 per cent,’ which he attributes to the early May holiday period. The firm also considers

that May GGR would have been closer to their estimated MOP18.9 billion if it wasn’t for ‘two fewer weekend days’ when compared to 2015. Analysts at Bloomberg justified the decline on the city government planning stricter rules and regulations for the industry, including raising the entry threshold for gaming promoters and the banning of phone betting early on in the month. The steeper decline in May was ‘partly due to the tightening policies on the industry, especially the recent ban on phone betting,’ Daiwa Capital Markets Hong Kong analyst

Jamie Soo stated, according to Bloomberg, adding that the limited revenue improvement of about MOP1 billion from April, despite last month’s Labor Day public holiday, supported his cautious view of Macau casino stocks.

Sunny days in June?

Union Gaming predicts that for the month of June the city’s operators will register ‘the first growth in two years’ in gross gaming revenues, with an increase of just under 1 per cent to MOP17.5 billion for the month. ‘We currently see no reason that GGR shouldn’t be

inline with the daily rate of around MOP580,000 that has been reported in recent non-holiday months. This would result in total GGR of MOP17.5 billion, and would represent the first year-onyear increase in GGR after 24 months of declines,’ note the analysts at Union Gaming. ‘Looking further ahead, we would expect July and August to see mid-single digit declines in GGR before returning to growth in September,’ the analyst firm stated. Much of the estimated increase is based on the opening of Wynn Palace and The Parisian Macao which, according to Union Gaming, have the ‘the most potential to drive incremental play to the market.’ Wynn Palace, with 1,700 hotel rooms is expected to open in late July or early August while Sands China’s 3,000-room The Parisian plans to start operations in September.

Attracting high-flyers

For Bloomberg, attracting high-spending Mainland Chinese tourists is the most important challenge for the gaming-oriented city, as average spending per person in the first quarter on non-gaming purchases hovered at US$220 (MOP1,760), down almost a third from 2014, while Mainland Chinese visitors still make up about two-thirds of overall visitation, even as the number last year fell for the first time since 2009. Macau’s economy shrank 13.3 per cent in the first quarter, the seventh straight contraction as gambling revenue remained weak, while Moody’s Investors Service last week downgraded the city’s debt rating, reflecting concerns it will continue to suffer volatile growth. N.M.



Five-year contract renewed for instant and sports lottery

Fujifilm distributor announces profit warning

The SAR Government has renewed its five-year contract with Macao SLOT Co. Ltd. for its instant lottery, football and basketball betting concession, according to a dispatch published in the Official Gazette yesterday. The Chief Executive granted the Secretary for Economy and Finance Lionel Leong, on behalf of the SAR, authorisation to renew the contract for the ‘Organization and Operation of Instant Lottery and Sports Lottery - Football and Basketball Betting Concession Contract’, valid until June 5, 2021. The current contract will terminate on June 5. A.L.

China-HongKong Photo Products Holdings Limited, the sole authorised distributor of Fujifilm products in Hong Kong and Macau, announced a profit warning yesterday in a filing with the Hong Kong Stock Exchange. According to the filing, the company, which has had the monopoly on Fujifilm products since 1968, notes that ‘the Group will continue to record a consolidated loss for the year.’ In addition, the filing states that ‘Shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.’ The reasons given for the profit warning and expected loss include the ‘downturn of the macro economy in the last year,’ which ‘weakened consumer sentiment on spending’ – leading to ‘the revenue and gross profit of the Group’ to be ‘decreased persistently,’ as well as the ‘impairment of goodwill and trademarks of AV Life,

Life Electric and Life Digital,’ notes the filing. Regardless, the group ‘considers that the overall financial position and operations […] remain solid’. The group’s interim report for the 2015/2016 fiscal year, published in December, posted a loss of HK$8

million for the six months finishing end-September last year, with a consolidated turnover of HK$436 million, a 16.3 per cent year-on-year drop. The filings did not provide a breakdown of the group’s local operations. K.W.

Business Daily Thursday, June 2 2016    7

Macau Online gaming

SAR could be i-Gaming frontrunner in China Gaming expert sees Macau as possible steppingstone into China for online gaming regulation and notes challenges and opportunities for investors wishing to enter the Vietnam and India gaming sector. Nelson Moura


he SAR has potential to be the frontrunner for online gaming regulation in China, a gaming consultant based in Asia told Business Daily. Albert Climent, the founder of BlueSea Consulting and an expert on both pre and post gaming regulated markets, shared his expertise on investing in the gaming sector in India and Vietnam and his view that the SAR has great potential for an online gaming sector. With regard to the recent ban on phone betting in the city’s casino by the Gaming Inspection and Co-ordination Bureau (DICJ), Climent points out the current restrictions on the growth of an i-Gaming market, but says that the liberalisation of online betting could bring long-term profits. “I think because the territory has a very defined business model based on integrated resorts, this hasn’t motivated the local government to look at online gaming regulation. However, I would advise the Macau Government to look at regulations for online gaming, since if China ever wants to regulate online gaming, it certainly should start in Macau,” Climent told Business Daily. He notes the global growth of the sector, and profitability potential, commenting that “worldwide we’re seeing more and more jurisdictions starting to regulate i-Gaming, as nobody wants to lose the possible tax money”.

liquidity and potential, calling it the “last gold rush” in the gaming sector, with an estimated US$60 billion to be tapped. “India has a huge growing middle class, mobile penetration is going through the roof, every month sees five million new Internet users, the banking system is developing and hasn’t been affected by the credit crunch, so [there are] a lot of benefits and things happening in India,” Climent avers. However, the gaming consultant states that since India is a federal country, gaming isn’t a central government decision, with each state deciding how to regulate the sector to a different extent. However, due

to gaming’s image in the country as a morally reprehensible activity, many state politicians avoid the issue in order not to lose votes. “Some places like Goa and Daman are regulating it, mainly offline gaming, but Nagaland has currently regulated online games of skill like poker,” Climent stated, as in some Indian jurisdictions gambling on skill-based activities is allowed and there are no specific laws preventing a player from betting online. In term of eSports betting, Climent cites the younger population’s love for cricket as the basis for a huge and growing market for online sporting betting, both in real and virtual cricket games.

Vietnam possibly next regulated market

“The Philippines is probably the most advanced country in Asia now in term of online gaming licences, but I’m hopeful Vietnam will be the next country to regulate online gaming,” the expert told Business Daily.

Climent sees the country as fertile ground for gaming investment opportunities, with the Vietnamese Communist Party seeking to regulate the sector and possible sports betting taxation measures being discussed - such as special income taxes of 35 per cent for casinos and 30 per cent for online betting. However, the Vietnam Government is still planning test licences before issuing any official licences. “However, any interested investor should start finding the right local partners now, as establishing good regional connections is crucial,” Climent stated. He considers both India and Vietnam’s gaming markets have special investment risks, since there might not be quick returns, with outside investors having to supply “a lot of effort and money,” while having a patient long term view and business approach. If these rules are respected, investors can expect considerable returns from these markets, the expert notes.

India: The last gold rush

With regard to potential nearby markets and not suffering from the same characteristics as the SAR Climent considers India one of most exciting markets right now in terms of


LVS settles with former Sands China CEO Las Vegas Sands Corp. has reached an undisclosed confidential agreement with former Sands China CEO Steve Jacobs after six years of litigation. Sands China Ltd. (Sands China) has stated that its controlling shareholder, Las Vegas Sands Corp. (LVS), has reached a settlement agreement with former Sands China chief executive Steven C. Jacobs, according to a Sands China filing with the Hong Kong Stock Exchange. The six-year old case started after Jacob’s contract was terminated in July 2010 which the former CEO responded to with a lawsuit against the company, claiming wrongful termination given his alleged refusal to engage in unlawful acts, including the alleged promotion of prostitution and spying on Chinese politicians in order to find potentially embarrassing information for use in obtaining favourable treatment for the casino, Business Daily reported previously. The Sands China filing informed that both parties

had ‘reached a comprehensive and confidential settlement through which Mr. Jacobs dismissed all claims in the Nevada state and federal cases against our controlling shareholder, Las Vegas Sands Corp., [Sands

China Ltd.], our subsidiary Venetian Macau Limited, Mr. Sheldon Gary Adelson and released all claims as of that date,’ while the settlement amount wasn’t disclosed. The settlement could be as high as US$75 million, according to the Wall Street Journal.

Bad blood

As reported in Sands China’s 2015 annual report, Jacobs filed an action against LVS

and Sands China in Nevada, United States, alleging a ‘breach of contract’ and claiming ‘defamation per se against LVS, Sands China and Mr. Sheldon Gary Adelson,’ founder of LVS, whilst also filing a complaint against Venetian Macau Ltd. alleging breach of contract. Jacobs accused Adelson of questionable activities including instructing the former CEO to secretly investigate senior Macau officials to find negative information to exert ‘leverage’ and thwart unwanted government regulations, accusations that

Adelson - over several days of testimony in a Las Vegas Court – denied, accusing Jacobs of fabricating the allegations, Reuters news agency reported. The case has been stuck in litigation for five years due to a dispute over whether a Las Vegas court was the proper venue for the claims against Sands China, with a Nevada District Judge ruling last year that the case could proceed in the state, following numerous conflicts over the evidence Sands had to provide to Jacobs, news agency Bloomberg reported. The announcement comes after LVS agreed to pay a US$2 million (MOP16 million) fine for alleged violations of the Nevada Gaming Control Act and Regulations of the Nevada Gaming Commission (NGC), right after agreeing to pay a US$9 million settlement to the U.S. Securities and Exchange Commission on April 7 for allegedly violating the U.S. Foreign Corrupt Practices Act (FCPA) by failing to properly authorise or document millions of dollars in payments to a consultant facilitating business activities in China and Macau, as reported by Business Daily. N.M.

8    Business Daily Thursday, June 2 2016

Greater China  Official PMI

Petrol Legislation

Factory activity expands again in May The May Purchasing Managers’ Index was unchanged from April at 50.1 Elias Glenn


hina’s manufacturing activity showed signs of steadying in May but remained weak amid soft demand at home and abroad, suggesting the world’s second-largest economy is still struggling to regain traction. A rebound in March had raised hopes that China’s economy was reviving, breathing life into global financial and commodity markets, but analysts said the soggy activity readings and weak April data suggest no quick recovery is in sight. China’s official factory activity gauge expanded for the third straight month in May, but only marginally, while a private survey showed conditions deteriorated for a 15th straight month. Both showed factories continued to cut staff. “The question was whether the March rebound was a one-month story, or whether weakening in April was the outlier. Our expectation is May and June will fall somewhere in-between.” said Zhu Haibin, chief China economist at JPMorgan. “The real estate market recovery has maintained momentum, the number of new investment projects is strong, and corporate earnings have also improved. The modest recovery will continue.” The May Purchasing Managers’ Index (PMI) was unchanged from April at 50.1, barely above the neutral 50-mark.

To be sure, higher commodity prices, a better housing market and plenty of government spending have helped the industrial sector, but questions remain as to whether the upturn will last. Chinese steel prices posted their sharpest monthly drop on record in May, while more cities are tightening mortgage requirements, fearing house prices are growing overheated. “Prices are recovering and inventories are falling. The economy is improving, but we aren’t sure it is sustainable. We think the data may decline again starting in July or August,” said economist Wang Jianhui at Capital Securities in Beijing. The official output index edged up to 52.3, indicating production remains solid despite government pledges to curb overcapacity plaguing sectors such as steel. But new orders expanded more slowly, while growth in export orders stalled. A private factory survey painted a darker picture. Faced with shrinking demand, smaller manufacturers

Key Points China’s factories steadying but weak, hopes for quick recovery fade Official China factory activity expands but only marginally Private survey shows activity shrank for 15th month New orders declined, new export orders stall Room for broad stimulus limited, focus on more targeted measuresanalysts

continued to cut payrolls at a rate similar to February’s multi-year record. The private Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) fell to 49.2 last month, below market expectations of 49.3 and April’s reading of 49.4.

Policy response

With the economy not yet on firm footing, economists expect Beijing to keep up its infrastructure building spree but are dialling back expectations for further broad policy easing by the central bank, which has cut interest rates and banks’ reserve requirements repeatedly since late 2014. Investors have been buzzing over whether China is shifting to a more cautious policy stance since a People’s Daily article in May that warned about the dangers of relying on too much debt to stimulate the economy. “The room for stimulus is very limited. The government needs to control the risk of rising debt. The government may continue with short-term liquidity injections, but will not stimulate the economy with a big increase in new loans,” said Wang. “Today’s figure rule out the possibility of imminent broad-based monetary policy easing”, ANZ analysts said in a note. A record first-quarter credit binge boosted investment and industrial output in March, but banks sharply cut April lending.

Service sector showing signs of fatigue?

A similar survey showed activity in China’s services sector continued to expand but at a slower pace, with the official reading dipping to 53.1 from 53.5 in April. Growth was weighed down by a slowing financial services sector. “Last year we saw strong second-quarter growth in financial services. Growth will be in the single digits for financial services this year,” said JPMorgan’s Zhu. Beijing has been counting on a strong services sector to pick up the slack as it shifts the economy away from a dependence on heavy industry and manufacturing exports. Reuters

‘May home prices were up 1.7 percent from April China Real Estate Index System data’ Real estate

Home prices climb led by second-tier cities A poll said among 288 cities surveyed, 169 showed a rise in prices China’s new home prices rose further in May, two private surveys showed yesterday, with values rising at their fastest pace in second-tier cities and reinforcing concerns that some parts of the property market are overheating. Prices of new homes in 100 biggest cities in May rose an average 10.3 percent from a year earlier, quickening from 9 percent in April, a poll by property services firm China Real Estate Index System (CREIS) showed. Against the previous month, May home prices

were up 1.7 percent from April, compared with a 1.45 percent gain in the previous month. “Growth in first-tier cities were flat from the previous month, while growth in second-tier accelerated further and their-tier contracted slightly,” CREIS said in a statement. “Looking forward, some cities still see overheating

risks in both housing and land market, so government will continue to monitor closely and introduce tightening measures.” China’s home prices posted their fastest growth in two years in April, official data showed, with gains in regional centres indicating a broader recovery in the country’s housing market

beyond the major cities. China’s eastern cities of Nanjing and Suzhou last month limited the highest bidding price developers can offer in land auctions, in an effort to control surging land costs that have been driving up home prices. A separate survey by Real Estate Information Corporation (CRIC) showed average prices in China’s 288 cities rose 8.8 percent in May compared with year-earlier levels, the tenth consecutive year-on-year rise. The prices climbed 1.6 percent from April, also accelerated from 1.5 percent in the previous month. The survey said among the 288 cities, 169 showed a rise in prices, 8 cities less than April, reflecting more efforts would be needed to ease the housing glut in smaller cities. Reuters

Beijing issues draf China is expected to add 70-90 million barrels to its strategic crude oil purchases in 2016 China is planning changes to the way it handles oil reserves by allowing private companies to build and operate some of its strategic stockpiles, while also requiring companies to maintain compulsory inventories, potentially boosting its future imports. Beyond allowing private companies to build and operate some strategic petroleum reserves (SPR), draft rules issued by the National Energy Administration (NEA) on Tuesday will also oblige companies to keep compulsory oil reserves.

“Potentially it is supportive of the oil market as it may increase imports and reduce exports of products. However, the devil is in the detail so we need a clearer picture” Oystein Berentsen, Managing Director for crude at oil trading firm Strong Petroleum in Singapore

Financial sector

Banks ramp up complia The banks are responding with more training and an overhaul of their systems Matthew Miller and Shu Zhang

China’s biggest banks are beefing up their risk management and compliance programmes, following a series of high-profile judicial investigations and regulatory probes in the United States and Europe. These legal and regulatory headaches are likely to be a drag on their aggressive overseas expansion until suitable anti money-laundering (AML) and know-your-customer (KYC) controls are in place, bankers and compliance experts say, but they are taking action. A survey by LexisNexis Risk Solutions, which provides compliance services to China’s big state-owned commercial banks and smaller financial services companies, showed that about half expect to increase their compliance budgets by 20 percent or more this year, and the rest will raise it by a lesser amount. “Chinese banks are going through a learning curve,” said Ellen Zimiles, Global Head of Investigations and Compliance at Navigant Consulting in New York. “They’re going to have to come up to standards if they’re going to have branches in the United States and Europe.” China’s top four banks, which together control US$700 billion of overseas assets, have added more than 70 branches and offices to their global network in the last three years, following Chinese businesses abroad and extending their reach in countries from the Czech Republic to Chile. Th e ex p a n s i o n h a s ex p o s e d shortcomings. Last year the U.S. Federal Reserve instructed both Bank of China Ltd (BoC) and China Construction Bank Corp (CCB) to improve their AML procedures.

Business Daily Thursday, June 2 2016    9

Greater China In Brief

ft rules for strategic oil reserves These stocks must be kept separately from commercial reserves, and the draft states that such compulsory reserves could only be used at the direction of the state council or cabinet. The government determines the size of such mandatory reserves based on oil consumption, the rules published on the NEA website said. Although no specific volumes were published and no implementation timetable given, traders said that such requirements would boost China’s oil imports further, if implemented. “Potentially it is supportive of the oil market as it may increase imports and reduce exports of products. However, the devil is in the detail so we need a clearer picture,” said Oystein Berentsen, managing director for crude at oil trading firm Strong Petroleum

in Singapore. China is the world’s second-biggest crude importer, importing 32.58 million tonnes (or around 8 million barrels per day) and challenging the United States’ for top spot. China is expected to add 70-90 million barrels to its strategic crude oil purchases in 2016 as it takes advantage of low prices, a Reuters survey has shown. By mid-2015, China had stockpiled about 190.5 million barrels under its SPR programme, or roughly one month of net crude imports. Beijing’s goal is to stockpile reserves amounting to 90 days of net imports, which is the standard for SPRs in most western countries. In the draft rules, the government defines the country’s SPRs as

including government stockpiling and companies’ compulsory stockpiling reserves. China’s stockpiling programme has so far been led largely by state-owned energy giants Sinopec and CNPC, with ChemChina recently striking a deal with privately-run CEFC China Energy to lease out tanks in the southern island province of Hainan. Approval to use strategic oil reserves must come from the state council, the draft rules stipulated. Circumstances under which the reserves may be used include during an unexpected emergency when oil supplies are either blocked or significantly reduced, or when macro-economic adjustments are needed. The strategic oil reserves include crude oil and oil products like gasoline, diesel and jet fuel. The NEA is seeking public feedback on the draft rules until June 18. Reuters


Zoomlion’s bid for Terex did not face forex hurdle China’s foreign exchange regulator said yesterday that Zoomlion Heavy Industry Science and Technology Co Ltd’s bid for U.S. crane maker Terex Corp did not have to face any foreign currency hurdle. Zoomlion said last week that it had dropped its US$3.4 billion bid for Terex after failing to agree on terms, clearing the way for a smaller deal between Terex and Finland’s Konecranes. The State Administration of Foreign Exchange said in a statement that it would continue to support firms that wish to expand overseas. Real estate

Mainlanders southbound on NZ house price boom Property prices are surging in New Zealand vacation hotspot Queenstown as tourism puts the mountainous South Island town on the radar of Chinese investors. Residential property prices in Queenstown jumped 22 percent in the year to the end of May to an average NZ$875,002 (US$593,950), according to government valuer QV yesterday. The rise was nearly twice the national average of 12.4 percent and even steeper than the booming Auckland market, where prices rose 15.4 percent to NZ$955,793. New Zealand’s house prices are among the fastest rising in the world.

ance as global push hits snags Their failings pale next to the abuses some European banks have been recently fined for by U.S. authorities, but a senior banking source said the deals BoC and CCB struck with the Fed would likely prevent them opening new branches or lines of business for at least three years. In Spain, six Industrial and Commercial Bank of China Ltd (ICBC) bankers were arrested in February, suspected of facilitating money laundering and fraud. The bank has said it implemented AML regulations and operated strictly within the law. In Italy, prosecutors are seeking a trial for BoC officials in a money laundering investigation into billions of euros allegedly smuggled back into China. BoC has denied any wrongdoing. Global Financial Integrity, a Washington-based watchdog, estimated that in the decade between 2004 and 2013 China was the world’s biggest source of illicit outflows, accounting for about 28 percent of the US$4.885 trillion in illicit funds moving from the 10 biggest source economies.

Culture clash

The banks are responding with more training and an overhaul of their compliance systems. BoC said it was implementing a threeyear plan to provide special AML training for management and staff, with the aim of producing 200 certified AML specialists. In its deal with the Federal Reserve, CCB agreed to revamp its transaction controls, oversight and reporting. ICBC said last year it had improved its AML systems and supervision of overseas institutions, measures it said “effectively prevented the anti-money laundering compliance risk and reputational risk”. Each ICBC overseas branch has an AML mechanism compliant with local regulation, a Beijing-based ICBC spokesman told Reuters. In 2015, ICBC Europe purchased an

advanced European AML monitoring system to enhance the bank’s AML mechanisms in Europe, the spokesman said. However, one foreign regulator who is responsible for overseeing Chinese lenders in an Asian geography, said the big state banks still lacked adequate risk management, experienced officers, and international staff in central compliance departments. “Chinese banks have much lower compliance standards than foreign banks,” the regulator said. Ev e n C h i n a’ s o w n b a n k i n g

Key Points Top 4 China banks add 71 offices to global network since 2012 Expansion exposes weakness in banks’ risk, compliance systems Banks subject to probes in Europe, ordered to improve in U.S. Banks up compliance budget in 2016, half by 20% or more -survey Still shortcomings in expertise, technology, culture

Fiscal crime

regulator warned lenders in April about “the complexities” of operating overseas, and asked them to increase on-site due diligence for offshore borrowers. “There’s the desire and the need to adopt these practices, they just may not have the experience,” said Tom Brown, senior vice president for LexisNexis Risk Solutions. There is also, said Brown, a tendency among Chinese banks to prefer homegrown technology, rather than include tried-and-tested third-party solutions as part of their due diligence and compliance procedures, as is common with Western banks. Perhaps the biggest challenge, however, is changing the culture at banks where compliance has long played second fiddle to new business generation. “It’s important that compliance people serve an independent role and can go head-to-head with a business person,” said Zimiles. That remains a work in progress. “The branches don’t always listen to us,” said a banker at the foreign branch credit risk department at the headquarters of a big state-owned commercial lenders. “It’s a thankless job. There’s constant conflict with the business side,” the banker said. Reuters

Oil tanker seized in tax evasion probe China seized a tanker and detained several people last month, including one employee of Swiss trading house Gunvor, as part of a probe into suspected tax evasion on imported oil, Chinese and trading industry officials said. Gunvor confirmed its employee had been detained for questioning without naming him. Gunvor said it has not been notified of a formal arrest or any charges against its employee. China has stepped up efforts to crack down on fuel smuggling, which has increased after authorities raised consumption taxes on oil products in 2014, creating price gaps between prices abroad and at home. Stock markets

BlackRock awarded US$3 billion RQFII quota BlackRock Inc., the world’s largest money manager, received 20 billion yuan (US$3 billion) of quota to invest in mainland Chinese stocks and bonds. The State Administration of Foreign Exchange awarded the extra quota to BlackRock’s Singapore unit under the Renminbi Qualified Foreign Institutional Investor program, which allows institutions to raise yuan overseas for investment onshore. This is the second biggest cap given to asset managers outside Hong Kong. Vanguard Investment Australia Ltd. was awarded 30 billion yuan. BlackRock entities now have a total US$4.91 billion of quota obtained from Chinese regulators, according to an e-mailed statement.

10    Business Daily Thursday, June 2 2016

Greater China Shares sale

SoftBank plans to sell US$7.9 bln in Alibaba stock to cut debt The deal includes a US$2 billion sale of shares to Alibaba itself Makiko Yamazaki and Narottam Medhora


oftBank Group Corp said it will sell at least US$7.9 billion of shares in Alibaba Group Holding Ltd - a move that will cut the Japanese firm’s debt amid worries about losses at its U.S. telecoms unit Sprint Corp. The transaction marks the first sale of shares in the Chinese e-commerce giant by its largest shareholder since SoftBank began investing in the company in 2000, and will reduce its stake to around 28 percent from 32.2 percent. The two companies said they would maintain a strategic

partnership. Investors have been worried about finances at the Japanese internet and telecoms company since its 2013 acquisition of a majority stake in No. 4 U.S. wireless carrier Sprint Corp which has been burning cash amid fierce competition for subscribers. Hideaki Tanaka, an analyst at Mitsubishi UFJ Morgan Stanley, said the move would be positive for SoftBank’s shares. “Although Softbank is stepping up investment in Internet firms, it is also making serious efforts to improve its financial standing,” he wrote in a note to clients. Shares in SoftBank finished flat yesterday and are down 15 percent from a year ago due to concerns about its heavy debt burden. The planned share sale will include US$5 billion to US$6 billion of stock

SoftBank to use proceeds to cut debt

will be bought by Alibaba using cash on hand and US$400 million will be bought by the Alibaba Partnership, a 34-person group made up of Ma and other Alibaba founders and executives. An additional US$500 million worth of stock is set to be sold to an unidentified sovereign wealth fund. SoftBank Chief Executive Masayoshi Son will remain a director at Alibaba, while Alibaba Executive Chairman Jack Ma will remain on the board of SoftBank. SoftBank had also entered into a lockup agreement with Alibaba under which it will not transfer any Alibaba shares held by the company for six months.

SoftBank shares have been under pressure due to losses at Sprint

Keen to cut debt

that will be sold by private placement to institutional investors by a SoftBank-controlled trust. Morgan Stanley and Deutsche Bank will manage that portion of the sale. Another US$2 billion worth of stock

Key Points

Between $5 bln and $6 bln to be sold to institutional investors Alibaba will buy $2 bln worth of stock Unidentified sovereign wealth fund also set to buy Alibaba stock

SoftBank had interest-bearing debt of 11.9 trillion yen (US$107 billion) as of end-March, including 4 trillion yen at Sprint. Its debt-equity ratio stands at 4.56, much higher than the industry median of 0.32, according to Thomson Reuters data. In addition to the Alibaba stock sales, media reports have also said SoftBank is weighing a sale of its stake in Finnish smartphone game maker Supercell to lower its debt. SoftBank is known as a canny investor in raft of internet firms, ranging from Yahoo Japan to Indian ride-sharing firm Ola. Its initial investment in Alibaba was just Us$20 million. Some analysts said the timing of SoftBank stock sale was not auspicious given that Alibaba unnerved investors last week when it reported that the U.S. Securities and Exchange Commission was investigating its accounting practices. But Stifel analyst Scott Devitt maintained a “buy” rating on Alibaba after the Softbank sale. “We do not view this as a shift in confidence from a major investor. In fact, it could remove an overhang of expectation of such an event,” he said in a note. The news also comes amid speculation that U.S. web company Yahoo Inc may be looking at a disposal of its 15 percent stake in Alibaba, along with a possible sale of its core business. An Alibaba spokeswoman declined to comment on the Yahoo-owned stake, and Yahoo did not respond to a request for comment. Reuters


Regulator inspects insurers’ investment risk controls Fitch Ratings said Chinese life insurers are increasingly investing in debtinvestment plans China’s insurance regulator has launched an inspection of insurers’ risk controls over stock, private equity and real estate investments, the official Shanghai Securities News reported yesterday, citing unnamed sources. The move comes as the country’s insurers report strong profits even as wider economic growth stutters and analysts warn of a pivot to riskier investments. According to a note circulated this week, the China Insurance Regulatory Commission (CIRC) told insurers and insurance asset management companies that they plan to inspect investments in stocks, equity and real estate, in both onshore and

offshore markets, the Shanghai Securities News said. The CIRC was not immediately available for comment. It has also taken action previously to curb riskier investments by insurers. China’s largest insurers, including Ping An Insurance and China Life Insurance saw profit growth last year of 38 percent and 8 percent, respectively, a show of strength when other financial institutions such as banks are seeing flat profit growth. The insurers have also intensified their push to acquire assets abroad, with Anbang Insurance agreeing to buy German insurer Allianz’s South Korean businesses in April and China Life and China Taiping Insurance expressing interest in acquiring ING Life Insurance Korea, according to sources. In a note yesterday, Fitch Ratings said Chinese life insurers are increasingly investing in debt-investment plans, project asset-backed plans, trust schemes and

‘The aim of the CIRC inspection is to prevent risks that may arise in the core business of insurance firms’ Shanghai Securities News

wealth management products that promise higher returns for greater risks. The aim of the CIRC inspection is to prevent risks that may arise in the core business of insurance firms, with a focus on any illegal activity, insider trading, improper related-party transactions and the misappropriation of funds, said the paper. The focus will be on elements of oversight such as the function of independent directors and compliance,

it said. Starting in June, each company will set up inspection teams which will conduct spot checks and other investigations. The CIRC will then review the reports and also conduct spot checks, the paper said. China’s insurance firms raked in 2.4 trillion yuan (US$364.18 billion) of premium income in 2015, up 20 percent from a year earlier, the industry regulator said in January. Reuters

Business Daily Thursday, June 2 2016    11

Asia Growth figures

Australian economy outpaces global peers GDP data means the RBA can focus on how inflation develops before deciding on its next move. Ian Chua


ustralia’s economic growth boomed past expectations in the first quarter with the annual pace speeding to its fastest in over three years, an upbeat result that all but assures the central bank will be on hold at its policy meeting next week. The official data yesterday showed gross domestic product (GDP) grew 1.1 percent in the three months to March, accelerating from an upwardly revised 0.7 percent and well above the median forecast of 0.8 percent. That pushed the annual growth rate to 3.1 percent - a pace not seen since late 2012 - from a downwardly revised 2.9 percent, keeping the economy well on track to meet the Reserve Bank of Australia’s (RBA) forecast of 2.5-3.5 percent by June. While the growth - driven by exports of iron ore, coal and liquefied natural gas - is good news for policymakers, questions about the sustainability of strong trade cloud the growth outlook for the rest of the year. “The gloomsters will say the data is wrong. But it is hard to argue with a mountain of evidence,” said Craig James, chief economist at CommSec. “What is happening is what is supposed to be happening - mining construction gave us extra production capacity, now that extra capacity is being put to work.” The Australian dollar shot up nearly half a U.S. cent as investors trimmed the risk of another cut in rates this year. The market is giving less than a 50-50 chance of an easing by August and is no longer fully priced for an easing this year.

Export boom

Shane Oliver, chief economist, AMP Capital Investors, said all of the growth came from trade as the third phase of the mining boom kicks in as projects start exporting. “We have had the mining investment boom that’s come to an end. Now we are seeing the boom in mining and resource-related exports, that’s what is driving this growth.” That leaves Australia’s future growth potential at the mercy of offshore demand, particularly that of China, its single biggest export market. Australia’s shipments of iron ore - the country’s top export earner - to China remained surprisingly robust in the first four months of the year, defying fears of a collapse in demand. Iron ore exports from Australia’s

Port Hedland - the world’s largest iron ore terminal and used by mining giant BHP Billiton - have been about 30 million tonnes per month on average this year, little changed from the 2015 monthly average. “Even mining companies don’t expect resources exports to continue to rise at their current pace,” Paul Dales, chief Australia & NZ economist at Capital Economics, wrote in

Key Points GDP rises 1.1 pct in Q1, 3.1 pct on year Annual growth fastest since Q3 2012 Australian dollar rallies, markets trim rate cut risk

a research note. For now though, the GDP data means the RBA can focus on how inflation develops before deciding on its next move. Last month, the RBA reduced its cash rate to a record low 1.75 percent last month due to alarmingly low inflation even though it maintained its growth forecasts. The RBA next meets on June 7. Australia hasn’t seen a recession in around 25 years and its run of growth is the envy of other rich nations including the United States, which last week reported annualised growth of 0.8 percent in the first quarter. The improving economic background should also provide a political boost to the coalition government of Malcolm Turnbull, who faces a national election next month. Reuters

The improving economic background should also provide a political boost to the coalition government of Malcolm Turnbull, who faces a national election next month


Korea’s May trade worse than expected Exports and imports fell 11.2 per cent and 14.9 per cent, respectively, in April. Christine Kim

South Korean exports fell unexpectedly in May while inflation cooled, reinforcing expectations that the central bank will cut interest rates again in coming months to shore up economic growth. South Korea is the world’s first major exporting economy to report monthly trade figures, providing an early glimpse of the strength of the global demand. Exports fell 6.0 percent year-on-year to US$39.8 billion while imports dropped 9.3 percent to US$32.7 billion, data from the Ministry of Trade, Industry and Energy showed yesterday, resulting in a US$7.1 billion trade surplus. Though the May export drop defied market expectations for a 1.6 percent rise, shipments fell at the slowest pace since November 2015, while average exports per working day stood at their highest this year at Us$1.85

billion, the trade ministry said, offering some hope that the country’s long trade slump may be slowly bottoming out. Imports were also worse than the 7.7 percent decline expected by economists, but the drop was the slowest since December 2014. “Trade seems to have hit bottom but it’s hard to say we’re on a sharp rebound. It’s better than last month, but still weaker than we expected. Any improvement will likely be gradual,” said Moon Jung-hui, an economist at KB Investment & Securities

Key Points May exports -6.0 pct y/y (Reuters poll +1.6 pct) May imports -9.3 pct y/y (Reuters poll -7.7 pct) Rates of decline ease, raise hopes of bottoming out May CPI +0.8 pct y/y (Reuters poll +0.9 pct)

in Seoul. “In light of all the data today, I see one rate cut in July.” Minutes from the Bank of Korea’s May policy meeting late on Tuesday showed central bank officials saying exports likely bottomed out in January and February as global demand improved. But the economy is still wobbly, with May inflation pulling further away from the

central bank’s 2 percent target, giving the Bank of Korea room to cut rates again if needed. Annual inflation in May cooled more than expected to a four-month low of 0.8 percent, down from a 1.0 percent increase in April, mainly due to low energy costs but also a sign of sluggish domestic demand. The central bank is already under pressure from the market and media to lower borrowing costs to aid an overhaul of the country’s giant but ailing shipping and

shipbuilding sectors. But analysts say any rate cuts will have to come soon as an expected rate hike by the U.S. Federal Reserve this summer could spur capital outflows from emerging markets and leave the BOK with less room to manoeuvre. The country’s 7-day repurchase agreement rate currently stands at a record low of 1.50 percent after the Bank of Korea cut it four times between 2014 and June last year. Reuters

12    Business Daily Thursday, June 2 2016

Asia Fiscal reform

Japan’s Prime Minister confirms delay of sales tax rise It would be the second time that Abe has delayed the increase in the sales tax to 10 percent from 8 percent Linda Sieg and Tetsushi Kajimoto


apanese Prime Minister Shinzo Abe told lawmakers yesterday that he has decided to delay a scheduled sales tax hike by two-and-a-half years, putting his plans for fiscal reforms on the back burner amid more weakness in the economy. The widely-anticipated delay will be welcomed by a majority of voters, who will cast ballots in an upper house election in July. But it is fanning doubts about Abe’s plans to curb Japan’s huge public debt and fund ballooning social welfare costs of a fast-ageing population. “I want to fulfil my responsibility

by accelerating Abenomics more and more,” Abe told a gathering of his ruling Liberal Democratic Party (LDP) yesterday. “I have decided to delay the sales tax hike to 10 percent by two and half years.” It would be the second time that Abe has delayed the increase in the sales tax to 10 percent from 8 percent, after a rise from 5 percent in April 2014 tipped the economy back into recession. Abe took office in December 2012 pledging to beat deflation and reboot the moribund economy with his “Abenomics” revival recipe, but has made little headway amid stubbornly weak domestic and export demand. “From an economic standpoint, the market is likely to view the delay as a positive surprise for domestic demand,” said Lee Jin Yang, macro research analyst for Aberdeen Asset Management in Singapore. Abe, whose term as LDP president and hence, premier, ends in September 2018 unless the LDP changes its rules, had repeatedly said he would

implement the tax rise as planned unless the economy faced a shock from a financial crisis or natural disaster. But he laid the groundwork for a delay at last week’s Group of Seven summit, insisting his G7 partners shared a “strong sense of crisis” about the global economic outlook and drawing parallels to the 2008 world financial crisis that followed the bankruptcy of Lehman Brothers. Many economists said Abe’s comparisons to the Lehman Brothers failure were far-fetched, but there is consensus that Japan’s economic data has been disappointingly weak.

Key Points Tax hike pleases voters, stokes concern about govt debt Japan’s economic data has been weak BOJ Kuroda calls on govt to maintain fiscal discipline

Corporate profits, which Abe had been counting on to fuel gains in wages, fell at the fastest pace in more than four years in January-March, which could encourage companies to cut back on future capital expenditure plans. Revised data confirmed yesterday that manufacturing activity in May contracted by the most in more than three years as new orders slumped. Government officials have said Abe has not abandoned a pledge to bring the country’s primary budget balance into the black by the fiscal year from April 2020 to rein in public debt which is already more than double annual economic output. But that target had already looked elusive, even with the government’s rosy forecast of real economic growth of 2 percent on average in coming years. “I have very strong concern about fiscal discipline,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities. “We are stepping onto a potentially dangerous path because once you start this policy it is difficult to stop, and once you do, the economy will tank.” Some economists now worry that Abe is leading the country toward a sovereign ratings downgrade, which would push up borrowing costs for Japanese companies. Bank of Japan Governor Haruhiko Kuroda said it was important the government keep its pledge to achieve a primary budget surplus by fiscal 2020, the Hokkaido Shimbun reported. Abe will also need to explain to voters how he plans to make up for the funding gap from the tax hike delay to October 2019, and keep pledges to beef up support for the elderly. The premier will likely bow to pressure from his coalition partner not to call a snap general election. Speculation had simmered that Abe would call an election for parliament’s powerful lower house as he did in 2014 after announcing the first tax hike delay, aiming to lock in his ruling bloc’s two-thirds “super majority” in the lower house and win a similar grip on the upper chamber. No lower house poll need be held until 2018. Reuters

Monetary head

Indian central bank chief wins over Modi despite broad mistrust Modi’s support would be important if the 53-year-old RBI chief is to get the big state banking sector to complete a clean-up of massive debts and force defaulters to pay up Rajesh Kumar Singh

In late 2014, the knives were out for India’s central bank governor Raghuram Rajan. Finance ministry officials were frustrated by his reluctance to cut interest rates to stimulate growth, and moves were afoot to ease him out of the job. Some were airing their reservations about Rajan’s hawkish stance in the media. Prime Minister Narendra Modi convened a meeting of senior finance ministry staff that December to hear their complaints, said a person who was present. At the end, the leader delivered a stern message: do not indulge in a public spat with the central bank. The moment marked a turning point in ties between the heads of the newly installed government and

the Reserve Bank of India (RBI). Since then, Modi and Rajan have developed a close working rapport, government officials and people close to the governor say, and that could be crucial to the US$2 trillion economy. With Modi’s patronage, it is more likely the government will reappoint Rajan, whose three-year term expires in September, should he wish to stay on, the sources said. That would allow him to try to revive India’s banking sector that has been smothered by distressed debt, which, in turn, is choking off economic recovery. “Rajan will get another term and he will accept it,” said Arvind Mayaram, India’s former finance secretary who Rajan worked with closely first as the government’s chief economic adviser and then as RBI governor. “He is well entrenched in India’s political

Modi’s support is key

Modi’s support would be important if the 53-year-old RBI chief is to get the big state banking sector to complete a clean-up of massive debts and force defaulters to pay up. Banks making provisions for bad debt are reluctant to issue new loans,

leading to criticism within the sector and complaints from smaller businesses and politicians. Patronage from above will also help shield Rajan from lingering opposition within the ruling nationalist Bharatiya Janata Party (BJP) to a man known for his straight talking and willingness to question government policy and achievements. As the personal understanding between Rajan and Modi appears to grow, some officials still resent him. The fact that Rajan was appointed by the previous Congress government did not help him win friends in Modi’s BJP, and the former University of Chicago professor has been viewed by some with suspicion as a product of the West, not India. BJP parliamentarian and economist Subramanian Swamy, one of those leading a campaign to remove Rajan, recently accused him of “wilfully and deliberately wrecking the Indian economy.” The governor’s penchant for blunt commentary raises hackles. Rajan’s appeal for tolerance late last year was perceived to be a veiled

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economy.” A top government official said the decision rests with Modi and the leader has not yet said what he wants to do. Modi recently told The Wall Street Journal that Rajan’s reappointment would come up only in September. The official, speaking anonymously because he was not authorised to discuss the matter with the press, added that the prime minister was “proud” of the RBI governor and that a campaign against Rajan would not affect Modi’s decision. The prime minister’s office and finance ministry did not respond to requests for comment. Rajan, former chief economist at the International Monetary Fund, has not disclosed his plans, and did not respond to requests for comment for this article.

Business Daily Thursday, June 2 2016    13

Asia Biz strategy

In Brief

Australia’s NAB seeks to boost small company loans Australian banks have been grappling with slowing earnings after years of record profits Swati Pandey

National Australia Bank plans to tap surging demand for corporate credit by becoming the first major bank in Australia to offer small companies unsecured loans online. Australia’s ‘big four’ banks already supply a variety of unsecured loans to small businesses, but NAB is betting that its online service will be popular due to its convenience. The move comes as NAB and rivals Commonwealth Bank, Westpac and ANZ Banking battle to offset a slowdown in home loans, which have typically been a core part of their businesses. The overall size of loans extended to businesses in Australia grew at its fastest pace in April since 2008, according to a report this week by analysts at UBS. “This (increase in corporate loans) is net positive for banks. If anything this is where the growth should be,” said Bell Potter analyst TS Lim. Australian banks have been grappling with slowing earnings after years of record profits. NAB said yesterday that its ‘QuickBiz Loan’ would launch in early June,

criticism of the government for appealing to the Hindu majority at the expense of minority communities, prompting Swamy to rebuke him for speaking like a “grandfather”. Rajan recently compared India’s fast-growing economy to a “oneeyed king in the land of the blind”. Trade Minister Nirmala Sitharaman publicly censured his comments.


The first signs of growing bonhomie between Modi and Rajan came early last year, when Modi called Rajan the “best teacher” for explaining complex economic issues to him. Days later, the governor returned the compliment, saying the teaching went both ways. The prime minister backed Rajan in the monetary policy panel’s composition and blocking moves to strip the RBI’s authority to regulate government bonds and manage public debt. Modi’s office also directed the finance ministry to pursue only those policies where there was agreement with the central bank, a former finance ministry official said. The governor frequently visits New Delhi to meet Modi, a government official with direct knowledge said. But their meetings are mostly kept away from the public gaze. Modi’s office declined a request to disclose the number and details of the meetings, saying the information relates to “economic interest of the state”. Rajan had help from junior finance minister Jayant Sinha, a college friend and one of the more

National Australia Bank headquarters in Melbourne

“This (increase in corporate loans) is net positive for banks. If anything this is where the growth should be” TS Lim, Bell Potter analyst

with customers able to apply for up to A$50,000 (US$36,400) in funding online. Annual interest will be charged at 13.85 percent, compared with nearly 5 percent for home loans and an official cash rate of 1.75 percent.

Key Points Modi’s patronage seen boosting chance of Rajan reappointment Some members of ruling party still resent RBI chief Foreign investors would welcome a second term influential economic voices in the Modi government. At the December meeting, Sinha told the attendees that the clashes were undermining the government’s credibility, the person present said. A government source said that Sinha also facilitated meetings between Rajan and Modi to broker a compromise on thorny issues such as the composition of the new monetary panel. Sinha did not respond to a request for comment.

Learning on the job

Rajan may prove a more effective governor second time around if he gets the chance, say some RBI insiders and economists. Although he fended off a market attack on the rupee early in his tenure, bankers, economists and his former colleagues said he was relatively slow to grasp how liquidity flows through the economy and how to fine tune it to meet his primary policy goal of taming inflation. Under Rajan, the RBI forced banks to source limited short-term funds from cash-for-bond auctions rather than getting unlimited funds from the central bank at a fixed rate. Banks complained the new system

Commonwealth Bank and Westpac have entered into referral tie-ups with separate online lending companies for business loans, mainly targeting small businesses. The increase in business lending in April was driven by CBA, which chalked up 29-percent growth in the space month-on-month, according to the latest regulatory data. Nearly two thirds of Australian banks balance sheets are exposed to mortgages, where growth has been consistently slowing following a series of regulatory steps to contain rocketing house prices in Sydney and Melbourne. Bank shares are among the worst performers on the benchmark S&P/ ASX index this year, down between 8.5 percent and 10 percent. The benchmark is largely unchanged. Reuters was forcing up costs and hampering the transmission of rate cuts to the real economy, said several bankers privy to the discussions with the RBI. At first, Rajan publicly dismissed their concerns as “nonsense”. It was only after 16 months of pleading by banks that he finally revamped the RBI’s liquidity management in April, the bankers said. A second stint is likely to see a more accomplished operator as the RBI tackles bank debt, tries to develop the bond market as a viable source of funding for companies and switches to a Western-style approach to decision making. A new monetary policy panel will be formed later this year to set interest rates, something Rajan favoured to make the RBI more independent and introduce transparency to the process. In a key victory for Rajan, draft legislation from the finance ministry that would have allowed the government to appoint more than half of the panel’s members was amended to split it evenly between government and RBI nominees. Rajan will get the casting vote in the case of a 3-3 split. Those who have worked with Rajan said his people skills and powers of persuasion will give him a big say on setting rates.

“Why rock the boat?”

Rajan continues to be lionised by foreign investors whose funds are needed to keep the Indian economy motoring ahead. That was key in convincing Modi to defend him, while two off-cycle interest rate cuts in January and March last year also acted as a balm, a senior minister in the federal cabinet said. The country has been ravaged by drought in the last two years and not enough jobs are being created to accommodate its rapidly expanding workforce, but India is the world’s fastest growing major economy and inflation is half what it was in 2013. “The combination of Modi, (Finance Minister Arun) Jaitley and Rajan are delivering on the macro front,” said Gita Gopinath, an economics professor at Harvard University who knows Rajan well. “I really don’t see any reason to rock the boat.” Reuters

Prices evolution

Indonesia’s May inflation eases Indonesia’s annual inflation rate eased in May to 3.33 percent, the lowest since December 2009, the statistics bureau said yesterday. That compares with the median forecast of 3.29 percent in a Reuters poll, and 3.60 percent in April. Core inflation rate, which strips out administered and volatile food prices, was 3.41 percent in May, the same pace as in April. The poll had expected May core inflation of 3.43 percent. On a monthly basis, the consumer price index (CPI) rose 0.24 percent. Going public

Streaming player Guvera plans IPO Australian music streamer Guvera Ltd, which competes with Apple Inc, Spotify Ltd and Pandora Media Inc, said it plans to raise up to A$80 million (US$58.05 million) in a listing to bankroll an ambitious expansion in developing markets. In a listing prospectus lodged yesterday, the company with operations from India to Russia said it aims to sell 80 million shares for A$1 each to fund growth in emerging markets. The company added that post listing, it will have a market capitalisation of A$1.3 billion, based on the number of shares to be kept by existing shareholders. Inflation

Thai May consumer prices rise again Thailand’s annual headline consumer prices rose for a second straight month in May, mainly driven by higher food prices due to drought, the Commerce Ministry said yesterday. The headline CPI index increased 0.46 percent in May from a year earlier after rising 0.07 percent in April, its first annual gain in 15 months. A Reuters poll forecast a rise of 0.19 percent in May. The core inflation rate, which strips out raw food and energy prices, was 0.78 percent in May, compared with 0.81 percent seen in the poll and 0.78 percent in April. Results forecast

Lawson sees overseas business turning profitable Japanese convenience store chain operator Lawson Inc expects its overseas business to turn profitable in the next business year, led by growth in China, where it entered 20 years ago but has been struggling so far. Sadanobu Takemasu, who became president and chief operating officer yesterday, also said in an interview with Reuters the company would accelerate overseas store openings this business year. The bulk of the expansion would come in and around Shanghai, where he expects the number of stores to double to 1,000 over the next three years.

14    Business Daily Thursday, June 2 2016

International In Brief PMI

Euro-area manufacturing near stagnation Manufacturing in the 19-nation euro area barely grew in May, damping confidence in the strength of the region’s economic recovery, according to Markit Economics. A Purchasing Managers Index slipped to 51.5 from 51.7, the London-based company said yesterday. The reading is in line with a May 23 estimate and just above the 50 threshold that divides expansion from contraction. The euro area’s economic health will be under review on Thursday when European Central Bank officials gather in Vienna to set monetary policy. Oil industry

Nigerian emerges as frontrunner for OPEC boss A Nigerian oil technocrat has emerged as frontrunner to take the top job at OPEC, with members seeing Mohammed Barkindo as what would be a rare compromise candidate to lead the group amid rising tensions between Saudi Arabia and Iran. Barkindo has been a key face of the Nigerian oil industry for the past decade, during which various governments tried and effectively failed to reform national oil company NNPC. Today, Nigeria has alongside Venezuela become one of the main victims of oil’s price collapse.


Governments must boost spending to escape “low-growth trap” With OECD countries growing on average at half their estimated potential, it would take 70 years to double living standards Leigh Thomas


nsnared in a “low-growth trap”, the world economy will meander along at its slowest pace since the financial crisis for a second year in a row in 2016, the OECD forecast yesterday, urging governments to boost spending. With businesses wary of investing and consumers cautious about spending, the global economy will grow only 3.0 percent this year, the Organisation for Economic Cooperation and Development estimated. That would be no better than last year, which was already the worst since 2009, although growth would pick up modestly to 3.3 percent next year, the OECD forecast in its biannual Economic Outlook. Growth at those levels deprives youths of job opportunities and

means old people will not get the healthcare and pension benefits they expect, OECD Chief Economist Catherine Mann told Reuters. “We are breaking promises to young people and old people. Therefore policymakers have to act to break us out of the low growth trap,” Mann said in an interview. With OECD countries growing on

Key Points OECD sees global growth of 3.0 pct, lowest since crisis Benefit-risk balance of loose monetary policy seen tipping U.S. outlook for 2016 trimmed to 1.8 percent UK growth view cut to 1.7 pct on Brexit risks

Cyber crime

Russian service arrests hackers who defrauded banks Russia’s FSB security service said yesterday it had helped arrest members of what it said was an organised criminal group of hackers who stole 1.7 billion roubles (US$25.42 million) from the accounts of Russian financial institutions. In a joint operation with the interior ministry backed by armed units of the National Guard, the FSB said in a statement it had helped detain about 50 individuals, 18 of whom were put behind bars in Moscow pending the outcome of the case. A further three individuals were ordered not to leave the country. Real estate

U.K. house-price growth stable U.K. housing activity may cool in the coming months after a tax change boosted the market in the first quarter, though the underlying momentum is one of continued price gains, Nationwide Building Society said. The average price of a home rose 0.2 percent to 204,368 pounds (US$296,000) in May, matching the pace in April, the lender said yesterday. From a year earlier, values rose 4.7 percent, down from 4.9 percent in April. A rush of investors trying to beat a tax change in April put a temporary skew on the housing market, and Nationwide said it’s difficult to gauge underlying strength through the volatility.

average at half their estimated potential, it would take 70 years to double living standards, twice the rate of two decades ago. Mann warned against counting on central banks alone to lead the return to higher growth rates, with the benefit-to-risk balance of their exceptionally loose monetary policies tipping to the latter. Therefore, governments should not hesitate to plough money into growth-boosting initiatives like education and infrastructure, financing higher spending thanks to rock-bottom interest rates in many countries. “The low interest rate environment created by the central banks opens up fiscal space to governments and we are saying that you should use it,” Mann said. For a table of the OECD updated forecasts:

Brexit risks

Though the OECD did not lower its global growth forecast from the last time it updated its estimates in February, it said the U.S. outlook had dimmed. It cut U.S. growth for this year to 1.8 percent from its previous forecast of 2.0 percent with weak foreign demand and a dearth of investment in the oil and mining sector weighing. The OECD reiterated a warning that Britain would suffer a sharp slowdown in growth if voters opted in a referendum this month to leave the European Union. In light of the political uncertainty surrounding the vote, OECD cut its forecast for 2016 British growth to 1.7 percent from 2.1 percent previously, assuming voters opted to stay in the EU. But a vote to leave could shear half a percentage point off British growth annually in the following years, the OECD estimated. Brexit aside, the outlook for the euro area had improved, with the OECD raising its growth estimate to 1.6 percent this year from 1.4 percent in February on an improved outlook for the French and German economies. Reuters

Growth figures

Swiss economy slows at start of year Private consumption grew 0.7 percent in the first quarter compared with the fourth Catherine Bosley

Switzerland’s economy unexpectedly lost pace at the start of the year, as government consumption contracted. Gross domestic product increased just 0.1 percent in the first quarter from the previous three months, when it expanded 0.4 percent, the State Secretariat for Economic Affairs in Bern said yesterday. That reading compares with a forecast of 0.3 percent growth in a Bloomberg survey of economists. “GDP was underpinned by consumption expenditure from private households and investments in construction and equipment but curbed slightly by government consumption,” the SECO said in a statement. “On the production side, the picture was mixed: whilst financial services and the hotel and catering industry saw a decline, value added in manufacturing, construction and the health-care sector increased.” The economy has been fighting to regain its footing a year after the Swiss National Bank abolished its cap on the franc. With the strong currency undermining exports and expansion, demand has been underpinned by domestic consumption. Surveys had suggested momentum was building at the beginning of 2016.

The franc has depreciated 1.5 percent against the euro this year and has traded weaker than 1.10 for almost a month.

Export growth

Private consumption grew 0.7 percent in the first quarter compared with the fourth, the SECO data showed. Government expenditure decreased by 0.8 percent and exports of goods rose by 2.1 percent. A healthier euro area, where the economy expanded at its fastest pace in a year in the first quarter, is likely to help Switzerland down the road. The 19-country region is its top destination for exports. Yet a slowdown in China, with whom the Swiss have negotiated a trade agreement, could throw a spanner in the works.

Swissmem, which represents machine, electrical and metals companies, attributed a small rise in new orders in the first quarter - snapping five periods of declines - to better demand from abroad and called a slight increase in exports to the European Union “striking.” Still, a decision by Britain on June 23 to leave the EU could reverse any uplift stemming from better European demand. It could also cause another surge in the franc, which is popular among investors at times of market stress. If needed the SNB, which meets for its quarterly policy assessment a week before the Brexit vote, could again cut its deposit rate, already at a record low of minus 0.75 percent, according to economists surveyed by Bloomberg. The central bank expects output to expand between 1 percent and 1.5 percent this year, an improvement to the rise of just 0.9 percent in 2015. Bloomberg News

The central bank expects output to expand between 1 percent and 1.5 percent this year

Business Daily Thursday, June 2 2016    15

Opinion Business Wires

Viet Nam News No exceptions should be allowed in the fight against smuggling, trade fraud and counterfeit goods, Deputy Prime Minister Trương Hòa Bình said yesterday. The deputy prime minister, while working with National Steering Committee 389 for Anti-Smuggling, Counterfeit Goods and Trade Fraud, of which he is also the head, pledged to take more resolute actions to strictly punish all violators, including Government officials who directly take part in or protect others engaged in smuggling, trade fraud and counterfeit goods. Speaking at the working session, Bình said no areas should be off limits in the fight.

The Korea Herald The population of Seoul fell under 10 million for the first time in nearly three decades, government data showed yesterday, apparently due to soaring housing prices in the country’s capital. Seoul’s population came to 9,995,784 as of the end of May, down 7,195 from a month earlier, according to the data released by the Ministry of the Interior. It has not dropped below the 10-million mark since the capital became a mega city in 1988. The number has been decreasing for 15 consecutive months since March last year, according to data. During the cited period, the population shrank by 109,422.

The limits of oil’s rebound


Taipei Times Echoing the Chinese Nationalist Party (KMT) caucus’ boycott of the legislature on Tuesday, hundreds of protesters gathered outside the Legislative Yuan in Taipei to accuse the Democratic Progressive Party (DPP) of flip-flopping on the import of US pork products with ractopamine residue and “bowing down” to Japan on fishermen’s rights, and calling for Premier Lin Chuan’s resignation. The crowd tried to break into the Legislative Yuan compound at about 10am and clashed with police at the gate on Qingdao E Road. The protesters demanded that police open the gate.

Bangkok Post Deputy Prime Minister Somkid Jatusripitak clarified Thailand’s stance on the Trans Pacific Partnership (TPP) Tuesday, saying the country is ready to join the regional trade bloc as soon as it is open for new membership. Speaking before a gathering of business leaders in Japan, Mr Somkid said Thailand will seek support from member countries including Japan. Thailand will hold public hearings to gather feedback from all stakeholders - a process which is expected to take about a year. Public hearings were previously used to sound out people’s opinions before the country signed free trade agreements with other countries.

or the first time since last October, the price of a barrel of oil has broken through US$50. So it seems a good time to update the analysis I presented in January 2015. Back then, I argued that US$50 or thereabouts would turn out to be a long-term ceiling for the oil price. At the time, with crude prices still above US$60, almost everyone believed that US$50 would be the rock-bottom floor. After all, futures markets predicted prices of US$75 or higher; the Saudi and Russian governments needed US$100 to balance their budgets; and any price much below US$50 was considered unsustainable, because it would put the US shale-oil industry out of business. As it happened, the price of Brent crude did fluctuate between US$50 and US$70 in the first half of last year, before plunging decisively below US$50 in early August, when it became obvious that the lifting of sanctions against Iran would unleash a massive increase in global supply. Since then, US$50 has indeed proved to be a ceiling for the oil price. But now that this level has been exceeded, will it again become a floor? That seems to be what many investors are expecting. Hedge funds and other “non-commercial” speculators have increased their long positions to an all-time high of 555,000 of the main oil contracts traded on the New York futures market, compared to the previous record of 548,000 contracts, set just before the oil price peaked at US$120 in June 2014. The return of speculative enthusiasm is usually a reliable sign that the next big price move will probably be down. More important, the fundamental arguments are more compelling than ever that US$50 or thereabouts will continue to be a price ceiling, rather than a floor. The case begins, as it did in January 2015, by observing that the oil market is no longer controlled by the monopoly power of OPEC (or the Saudi government and OPEC). Because of new sources of supply, advances in energy technology, and environmental constraints, oil is now operating under a regime of competitive pricing, like other commodities do. This is what happened for two decades from 1985 to 2004, and, as the chart below shows, trading in the spot market during the past 18 months has been consistent with this idea. So has trading in the futures market: oil for delivery in 2020 has fallen to US$56, from US$75 a year ago. If this competitive regime continues, the price of oil will no longer be determined by the needs and desires of oil-producing governments. Saudi Arabia or Russia may want, or even “need,” an oil price of US$70 or US$80 to balance their budgets. But oil producers’ need for a certain price does not mean that they can achieve it, any more than iron-ore or copper producers can achieve whatever price they “need” to keep paying the dividends their shareholders expect or want. Similarly, the fact that many debt-burdened shale producers will go bankrupt if the oil price stays

Anatole Kaletsky Chief Economist and Co-Chairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy.

below US$50 is no reason to expect a rebound. These companies will simply lose their oil properties to banks or competitors with stronger finances. The new owners will then start to pump oil again from the same acreage, provided prices are above the marginal cost of production, which will now exclude any interest payments on loans that are written off. A clear illustration of the “regime change” that has taken place in the oil market is the current rebound in prices to around the US$50 level (the likely ceiling of the new trading range). The steepest part of this increase occurred after April 17, when OPEC failed to agree on a new price target and persuade the Saudi, Russian, and Iranian governments to coordinate the output cuts that would be required to achieve any such target. Now that all of the main oil producers are unequivocally committed to maximizing production, regardless of the impact prices, oil will continue to trade just like any other commodity (for example, iron ore) that is in oversupply in a competitive market. Prices will be determined as described in any standard economics textbook: by the marginal costs of the last supplier whose production is needed to meet global demand. When oil demand is fairly strong, as it is now and tends to be in early summer, the price will be set by the marginal production costs in US shale basins and Canadian tar sands. When demand is weak, as it often is in autumn and winter, the market-clearing price will be set by marginal producers of cheap but less accessible oil in Asia and Africa, such as Kazakhstan, eastern Siberia, and Nigeria. From now on, the costs faced by these marginal producers will set the top and bottom of oil’s trading range. Low-cost producers in Saudi Arabia, Iraq, Iran, and Russia will continue to pump as much as their physical infrastructure can transport as long as the price is higher than US$25 or so. The price needed to elicit enough production from US shale and Canadian tar sands to meet strong demand may be US$50, US$55, or even US$60, but it is unlikely to be much higher than that. Unpredictable shifts in supply and demand will, of course, cause fluctuations within this trading range, which past experience suggests could be quite large. In the 20-year period of competitive pricing from 1985 to 2004, the oil price frequently doubled or halved in the course of a few months. So the near-doubling of oil prices since mid-January’s US$28 low is not surprising. But now that the US$50 ceiling is being tested, we can expect the next major move in the trading range to be downward. Project Syndicate

The return of speculative enthusiasm is usually a reliable sign that the next big price move will probably be down

16    Business Daily Thursday, June 2 2016

Closing Restructuring

Hyundai Heavy wins creditor approval for overhaul

Heavy Industries, make up the “Big Three” South Korean shipbuilders who have, until recently, enjoyed a decade of almost uncontested global dominance. But a prolonged South Korea’s Hyundai Heavy Industries has received the slump in oil prices and the global economic slowdown green light for a near 3.0 billion restructuring programme including asset sales and job cuts - to keep the world’s largest sapped demand for tankers and container ships, while overcapacity, regional rivalry and competition from cheaper shipbuilder afloat. A spokesman for KEB Hana Bank, one of Chinese shipbuilders squeezed profit margins. The three the company’s chief creditors, confirmed Wednesday that it firms racked up a collective loss of 8.5 trillion won (US$7.4 had approved the 3.5 trillion won (US$2.94 billion) plan, to billion) last year. Daewoo Marine and Samsung Heavy have be implemented over the next three years. Hyundai Heavy, also submitted self-restructuring plans to creditors. AFP along with Daewoo Marine and Shipbuilding, and Samsung

Tax evasion scandal

Asian regulators ask banks to reveal Panama Papers’ links HKMA said in a statement that it regularly collects information from banks on various issues or risks relating to anti-money laundering Sumeet Chatterjee and Lisa Jucca


egulators in Hong Kong and Singapore have asked banks doing business there to disclose if they have dealings with entities and individuals named in the leaked ‘Panama Papers’, which contained details on thousands of shell firms, people familiar with the requests said. The leaked documents from Panama law firm Mossack Fonseca, which contained information on 214,000 offshore companies, revealed that Hong Kong was the most active centre in the world for the creation of shell firms, which have many legitimate purposes but can also be used to hide assets and avoid taxes. According to two sources familiar with the situation, the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) sent letters to the banks in April. The two central banks did not set a firm deadline for a reply, the sources said. One source, who had seen the letter sent to Hong Kong banks, said the request asked about their dealings with a list of between 16 and 18 names. The sources did not disclose which banks were written to nor the names on the lists. Bankers operating in Hong Kong have told Reuters that the Panama Papers have triggered a massive compliance exercise there, with banks carefully combing through their accounts to ensure there are no problems.

HKMA said in a statement that it regularly collects information from banks on various issues or risks relating to anti-money laundering or counter-financing of terrorism, but it could not discuss details of its dealings. MAS did not offer fresh comment but referred to its statement on May 10 that said it was reviewing the latest batch of information released on the Panama Papers. “If there is evidence of wrongdoing by any individual or entity in Singapore, we will not hesitate to take firm supervisory and enforcement action,” they said then. Reuters contacted several large banks operating under MAS and HKMA jurisdiction, but they declined to comment when asked if they had received letters. According to the two sources,

HKMA and MAS were trying to ascertain whether banks operating in their jurisdictions carried out due diligence and checked the source of funding when dealing with clients named in the Panama Papers, they said. One source said some banks in Singapore had already responded to the MAS request. The leak has put tax avoidance at the top of the global agenda by showing the extent to which tax havens have been used by politicians and

Key Points HKMA, MAS ask banks to reveal dealings with Panama Papers’ names Letters sent to banks in April sources Some Singapore banks have already responded - sources Move comes as Asia tightens money-laundering scrutiny

The Hong Kong Monetary Authority and the Monetary Authority of Singapore (headquarters’ entrance pictured) sent letters to the banks in April

Tactic funding

Expansion strategy

businesspeople around the world. Besides Hong Kong, Singapore and China were among the busiest office for Mossack Fonseca, which worked with more than 2,200 banks, law firms, corporate secretaries and other middlemen in the territory. A portion of the leaked data released by the International Consortium of Investigative Journalists showed 51,295 offshore entities and 25,982 individuals linked to Hong Kong, and 4,188 entities and 33,290 individuals linked to China. Some of the individuals in China routed their money through Hong Kong. Mossack Fonseca’s list of clients includes senior political figures such as Chinese President Xi Jinping’s brother-in-law. Appearing on the list is not evidence of any wrongdoing. None has made any comment. The requests by HKMA and MAS follow a series of measures taken by regulators in different parts of the world to crack down on irregularities by financial firms and undisclosed offshore wealth. New York state’s financial regulator last month told 13 foreign banks doing business there to hand over details about their dealings with a law firm in Panama that helped set up thousands of shell companies. Many global private banks have put Asia at the centre of their growth strategy, hiring thousands of people and tapping new customer segments in a region expected soon to boast more billionaires than the United States. Hong Kong and Singapore are two of the biggest centres for offshore wealth management in the region, which with 4.7 million individuals owning US$1 million or more in liquid assets is the largest and fastest growing wealth region. In a sign of regulatory crackdown against breaches of anti-money laundering rules, Singapore last week moved to shut Swiss bank BSI’s operations there over its dealings with scandal-hit Malaysian fund 1MDB. Reuters

China’s banks

Apple plans to sell US$1 bln Xiaomi buys Microsoft Regulator moves to contain of 30-yr bonds in Taiwan patents to spur global forays off-balance sheet risk Apple Inc plans to issue bonds in Taiwan for the first time with the aim of raising US$1 billion, sources familiar with the matter said, joining a queue of big global names that have sold billions of dollars on the island’s busy debt market. Liquidity in the Taiwanese bond market is flush, with long-term buyers of debt, primarily life insurance firms, seeking creditworthy names and chasing higher yields. Blue-chip multinationals regularly issue dollar bonds of such size on the island, home to Apple’s supply chain. In December, U.S. chipmaker Intel Corp sold US$915 million of 30-year bonds with yields of 4.7 percent. A month later, global brewer Anheuser Busch InBev SA issued a US$1.47 billion bond of the same maturity at 4.915 percent, according to data from the Taipei Exchange, the island’s overthe-counter market. Cash-rich and yield-hungry investors in Taiwan have made the island a haven for debt financing. These investors tend to hold through maturity, letting issuers lock in cheap pricing. The planned offering is likely to help Apple secure solid partnership with its Taiwanese suppliers, analysts said. Reuters

Xiaomi Corp. bought nearly 1,500 technology patents from Microsoft Corp. in a deal that may smooth potential legal tangles over intellectual property as it pushes beyond China. The patents cover a range of wireless communications, video, cloud and multimedia technologies, spokeswoman Kaylene Hong said. The acquisition came as part of a broader agreement announced yesterday with the U.S. software giant, under which Microsoft Office and Skype will come pre-installed on the Chinese smartphone maker devices. Xiaomi, which vies with Huawei Technologies Co. for the title of China’s biggest mobile brand, has begun selling phones in emerging markets, but its lack of a wide-ranging mobile patents portfolio has been perceived as a stumbling block to expansion into regions such as Europe or the U.S. The company’s push into India, currently its biggest overseas market, was met with a lawsuit from Ericsson AB. Xiaomi had been one of China’s most exciting startup stories, earning a valuation of US$45 billion by marketing cut-rate but reliable devices directly to consumers online and offering then-innovative social media and customization features. It now needs to sell into overseas markets with Chinese smartphone growth grinding to a halt. Bloomberg News

Three provincial branches of China’s banking regulator have told commercial banks to check their off-balance sheet risk in a move to contain the burgeoning “shadow loans” industry, four direct sources told Reuters yesterday. This is the latest in a series of steps taken by the China Banking Regulatory Commission (CBRC) to reduce off-balance sheet risks, which includes a prohibition introduced in May against investing in bad loans through bank-issued wealth management products. The Shanghai, Guangdong and Hainan branches of the CBRC asked banks in their respective jurisdictions to look into new off-balance sheet business and assets, the sources said. It was not known if the provincial directives were limited to these regions or part of a wider national directive to lenders. The CBRC was not immediately available for comment. The Shanghai bureau asked banks to assess the proportion of their off-balance sheet credit business related to guarantees and derivatives, among other things, one source said. In February, the CBRC issued a notice asking banks to rein in a series of risks, one of which asked lenders to check on off-balance sheet credit businesses. Reuters

Macau Business Daily June 2, 2016  

Macau Business Daily digital version

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