Page 1

Thu, 26 January 2017 | 6pm ­ 8 pm | Terrazza, Galaxy Macau

Cheap Chinese electric cars challenge foreign brands Electric vehicles Page 10

Friday, January 13 2017 Year V  Nr. 1213  MOP 6.00  Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro  Rating

Fitch downgrades operator Imperial Pacific Page 7

Economic model

Las Vegas’ economy keeps on track towards nongaming model Page 6


Authorities still tangled up about Iec Long Factory status Page 4 Gender gap

2016 data

Asian women see slower pace toward labour equality Page 13

6,770 people fined for smoking in banned zones Page 6

Union Difficulties Labour Rights

A labour rights workshop held at the Faculty of Sciences at the University of Macau relayed the message that freedom of labour association might prove a difficult task in the territory. Experts signalled that differences between mainland and local legislation could be an insuperable hurdle. Page 3

Uber and MSAR on different roads

Rely on the Mainland Domestic authorities expect Chinese tourists will be the main contributor to the sector this year. The Macau Government Tourism Office predicts that mainlanders might represent between 6065 per cent of total visitors in 2017, and the most recent data looks to confirm this trend.

Taxi services The online car-hailing service in the city said yesterday that negotiations with the government have not progressed far enough. Meanwhile authorities are maintaining their position against the company. However, Uber representatives remain confident about the prospects of future negotiations. Page 2

Expecting a rosy year

Private report The yearly Steve Vickers & Associates risk assessment shows that the local economy can expect a healthy 2017. The report contrasts significantly with the last edition’s grim view. Political stability and a sprouting economy are some of the positive points the report highlights. Page 2

Yuan loans rocket Tourism sector Page 5

HK Hang Seng Index January 12, 2017 

22,829.02 -106.33 (-0.46%) Worst Performers

Lenovo Group Ltd


China Merchants Port Hold-


Sands China Ltd




Want Want China Holdings


Sun Hung Kai Properties Ltd


Galaxy Entertainment Group


Wharf Holdings Ltd/The


China Resources Power


China Resources Land Ltd


Cheung Kong Property


Li & Fung Ltd


Hang Lung Properties Ltd


New World Development


BOC Hong Kong Holdings


China Unicom Hong Kong


China Overseas Land &


Industrial & Commercial


Power Assets Holdings Ltd




14°  17° 14°  17° 14°  16° 16°  18° 17°  19° Today

Source: Bloomberg

Best Performers



I SSN 2226-8294



Source: AccuWeather

Lending China’s new yuan-denominated lending surged to RMB1.04 trillion in December, data from the central bank showed yesterday. The broad M2 money supply increased 11.3 percent from a year earlier, after climbing 11.4 percent in November. The property sector had a determining influence on the data. Page 16

2    Business Daily Friday, January 13 2017

Macau Transport

Uber: ‘Constructive dialogue with gov’t not yet fulfilled’ But the company said it has been in touch with the government, and is hoping to initiate communication soon Kam Leong


ar-hailing application Uber Macau has not made any significant progress in its negotiations with the MSAR Government for its services to be regulated. “We have been in touch with the government and we hope to have some constructive dialogue with them soon,” said Trasy Lou Walsh, general manager of Uber Macau, during the company’s press briefing on its business updates yesterday. Since the application launched its operations in the MSAR in October 2015, its operational model has been deemed illegal by the authorities, as “unlicensed taxi-services”. Asked by reporters which government departments or officials the company is in negotiations with, the general manager, however, declined to disclose, because there has not been any solid progress made yet. “If I have any concrete updates, I will let you know,” she said. According to Ms. Walsh, the company currently has over 3,000 driver partners registered on the platform, and the number “has been stably increasing.” The city’s regulations state that drivers providing unlicensed taxi services will receive a fine of MOP30,000 (US$3,750) if they are caught. In fact, Uber has been covering the fines for their drivers who get caught by the police. Questioned on how much in total the company paid in fines to the authorities in the past year, the manager said she did not have the related data on hand. Last August, the Secretariat for Security said local police had prosecuted 379 cases of Uber drivers providing unlicensed taxi services since

the application’s launch in the city, adding that the company had paid over MOP10 million in penalties to the authorities. “The long-term strategy that we have is always trying to have a constructive dialogue with the government. This is something we have been doing and we have been trying very hard to do,” the company executive stressed. For 2016, while not providing the exact number of total passengers and trips hailed, the manager said the total distance that local riders travelled with the application reached some 3.3 million kilometres. In addition, local riders had taken Uber trips in 264 cities last year, with tourists from 385 cities having hailed cars via the application in the local territory.

Still confident

Despite no concrete progress from its negotiations with the government at the moment, Ms. Walsh claimed she is still confident about the prospects of the operations. “As we can see, this is a trend in the world…We have seen over 100 jurisdictions in the world embrace this ride-sharing industry and the benefits that they are able to provide to their users,” she said. “As we are developing into a more

DSAT to maintain enforcement against Uber

The Transport Bureau (DSAT) said it would maintain its current stance on combatting unlicensed taxi services in the city, according to a statement released yesterday evening by the Bureau. The government department claimed in the announcement that it had met with representatives of Uber

Trasy Lou Walsh, General Manager of Uber Macau

diversified economy with not just gaming but also non-gaming [elements]… the ride-sharing industry is one of the solutions that Macau can take and we’re confident that it will happen,” she added.

Competition no concern

Meanwhile, Ms. Walsh believes the car-hailing application will still have an advantage in the market when

Macau last October, at which time it stressed to the company that its services do not meet the city’s legal regulations. ‘The government hereby stresses again that it will not allow any operations of unlicensed taxi services in the city…in order to protect the benefits and safety of local residents and tourists,’ it wrote.

local special taxis, aka radio taxis, start running on the roads in April. “One of the benefits of our business model is [driver partners] could get online in a flexible time…Our pricing and our number of drivers depends on the demand-supply and the situations at different points of time,” she said. “We have a few business models as compared to special taxis of which the number of drivers is fixed and the number of cars on road is fixed.” On the other hand, she opined the company would still need more time to observe whether the government’s recent increase in transport fees would boost the number of users for Uber. During the press briefing, the company also announced that it would launch a new service named uberASSIST this year. The service is designed to provide assistance to seniors and people with disabilities.


Less risky and economy on the rise The SAV yearly risk assessment report says MSAR risk exposure is easing, but increasing in HKSAR Kelsey Wilhelm

The MSAR economy can look forward to a healthy year ahead, according to a preview of a Steve Vickers & Associates (SVA) yearly risk assessment. Unlike last year’s edition of the report, which warned that Macau could be a potential target of ‘spectacular attacks such as […] a casino in Macau,’ due to its ‘nexus of Chinese, American and Jewish interests in the gaming sector,’ the threats this year, according to the preview granted by the group, have been relegated to an ‘outside chance of a terrorist attack on a casino’. ‘Macau can look forward to relative political stability and a reviving economy in 2017,’ states the release, noting however that ‘Beijing’s current preoccupation with curtailing capital outflows [and] rising economic nationalism […] still pose threats,’ states the report. This compares to a more volatile atmosphere in the neighbouring SAR, which the report notes as undergoing a ‘political contest [that] shows no

sign of resolution’. In particular the group points out the ‘governmental stasis, more protests, and weakening rule of law,’ which will ‘pose moderate risks to investors,’ throughout the year. The other region falling under the One-China policy of the central

government, Taiwan, faces multi-faceted risks, on the financial front fighting ‘an ailing economy’ and on a political front facing ‘heightened tensions with China’, which the group notes will ‘test’ the government in 2017. The mainland itself is also facing risks on various fronts, with ‘a tauter international environment’ posing challenges to the country’s relations, while ‘rising economic nationalism’

also contributes to the group’s impression that ‘risks for investors could rise markedly’. Business Daily asked whether any terrorism threats had been received by the Macau Security Force, but had received no response by the time this article went to print.

Nearby challenges

Other volatile regions within Southeast Asia include the Philippines, for which SVA opines that the ‘hard ball’ political stance of President Rodrigo Duterte ‘may provoke a military coup or an attempted assassination’. The death of Thailand’s King Bhumipol raises questions that ‘may distract from challenges in the economy and from terrorism’, and in nearby Malaysia, the group notes that ‘an ongoing corruption scandal will probably not unseat Malaysia Prime Minister Najib Razak, but his survival will come at the price of a rise of nativist politics, and of eroding confidence in an ailing economy’. South Korea’s political crisis, coupled with a ‘weakening economy and the rising North Korean nuclear threat’ will pose large threats to the country in 2017. India, although currently in a ‘broadly stable political climate’ will have to face the ‘botched currency reform’ fallout and ‘rising tensions with Pakistan that heighten the threat of terrorist attacks or even conflict’.

Business Daily Friday, January 13 2017    3


Speakers at the workshop

Labour Experts consider the MSAR could be better off without specific trade union laws

Don’t ask, don’t tell Labour rights experts believe it would be hard for Macau to enforce a trade union law that allowed total freedom to unionise Nelson Moura


abour rights experts consider that even if a Trade Union Law was passed in Macau, effective freedom of labour association would be an extremely difficult endeavour due to the current policies in China. “A Trade Union Law can contain many sections and structures such as protection of the chairperson, and it would be useful, but I think that if it’s even difficult for Hong Kong, it will also be very difficult for Macau to have it,” Anita Chan, Professor at the Australian National University and expert in labour issues in China told Business Daily. The statements were made on the sidelines of a workshop on labour rights relations in the BRIC (Brazil, Russia, India and China) countries, at the Faculty of Sciences at the University of Macau (UM).

Exploring the legal void

Although Macau has a Labour Relations Act that regulates relations between employees and employers, a draft Trade Union bill was voted down for the eighth time at the Legislative Assembly (AL) in November last year. Proposed by three legislators and based on treaties by the International Labour Organisation (ILO), it sought to allow local workers to create or join organisations or unions without obtaining any approval from their employers. However, the current regulations in place in mainland China would make the project of total freedom

Anita Chan

of labour association a difficult goal, experts told Business Daily. “In Mainland China there is only one recognised trade union, which happens to be an arm of the government. Under the Maoist system, state-owned enterprises and factories would have their own union organisation in charge of workers’ affairs, which was then spread to private factories. However, generally the factory manager can appoint who the union chief is, normally someone from human resources,” stated Jonathan Unger, a professor from the Political and Social Change department at the Australian National University. In some ways, trade union laws could even further restrict freedom of labour association, by setting rules for organised strikes that required periods of prolonged consultation for authorization, that would further restrict demonstrations by workers, with Professor Unger going as far as to say that “sometimes its better to not have any laws at all”. Under the Macau Basic Law, unionising and strikes are not considered illegal, with residents being allowed to take part in labour organisations and strikes, which are currently not legislated. “In Mainland China there’s no law restricting strikes, the government just finds other reasons to detain labour activists,” stated Unger.

Catching NGO’s

“In Mainland China the law says that forming an independent trade union is illegal, which is even worse. That’s why workers in China don’t form alternative associations, they

form non-governmental organisations (NGO’s) which the official trade unions see as competitors, especially when they start talking about collective bargaining, the work of trade unions,” stated Professor Anita Chan. According to the experts, some government officials in Mainland China, especially in Guangdong, allow NGO’s and charities to perform similar functions as labour unions, such as assisting workers with legal problems. “In China there are really large NGO’s receiving money from international labour NGO’s such as Oxfam, which sometimes fund Hong Kong NGO’s to install programmes in China, in a sort of chain, layer by

layer,” stated Anita Chan. However a law passed by the National People’s Congress will enforce for the first time in Mainland China, a legal framework regulation for the funding and registration of foreign NGO's. The new law came into effect on January 1 of this year, and according to the experts, it has already led to reduced funding from foreign NGO’s to domestic NGO’s as pressure from the central government increases on labour groups. “Since 2015 there has been a series of crackdowns on all kinds of NGO’s and labour law rights groups, with eleven NGO staff members being arrested. All labour NGO’s including foreign organisations, have been feeling intense pressure, not just the threat of political suppression, but also suppression of foreign funding,” stated Professor Anita Chan

4    Business Daily Friday, January 13 2017

Macau Opinion

Pedro Cortés*

The Bastion of the Second System For many years the Macau Lawyers Association (MLA) has played its role as a public association representing the law degree holders who exercise the profession of lawyers in Macau. This is what is stated in its Statutes published in 1991. It is also stated that this body is not subject to the powers of supervision of the government of Macau, or of any public or private corporate body, being totally independent and autonomous in pursuing its scope. In the Macau Special Administrative Region, as in any Rule of Law country or region, entities such as the MLA are what we can define as bastions for the defense of the rights of the citizens and residents. When we hear MLA, we will surely associate it with Mr. Neto Valente, who, together with the various teams that have served the Association and Macau throughout the years, have been outstanding in terms of defending the rights of lawyers and, ultimately or firstly, the rights of Macau residents and non-residents. Macau can be considered a case of success in terms of the policy of “One Country, Two Systems” due to the performance of all operators of justice, with special prominence given to the judges, prosecutors, lawyers, judicial officials and all that make the engine of the judicial machine work. There are problems, of course, which sometimes are not considered as a priority by the Macau Government - first of all, the place where the Judicial Base Court has been located for years, among other matters that obstruct the clockwork. But back to the subject. With the elections that occurred in the MLA last month, we can all be assured that our rights will be defended by those who are doing their best to make the second system a reality. Lawyers may be a burden to some powers who cannot distinguish what it is to live according to the dictates of the Macau Basic Law and all other laws that are in force in Macau. Sometimes disrespected in their own right, what lawyers do makes Macau a unique place as far as the second system is concerned. As a friend of mine who is a lawyer once told me: “to be a lawyer is bad, but it is even worse not to be”. In light of all of this, my desire is that the second system will continue to be the rule and, for that to happen, the aspiration shall be to have the MLA even stronger in Macau, and I am sure that Mr. Valente, his team, all other bodies of the Association, and all lawyers (irrespective of their origin, mother language or religion) will confidently respect their profession and the people of Macau.

*lawyer and frequent contributor to this newspaper.


Iec Long way away The firecracker factory is listed for classification but the IC is still collecting information on ownership Kelsey Wilhelm


he Cultural Affairs Bureau is still in the process of ‘conducting data collection and analysis’ relating to the Iec Long Firecracker Factory, following a July mandate by the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, to submit a follow-up to the findings of a Commission Against Corruption (CCAC) report, which was released in July of last year regarding the land-swaps originating from the factory. In a statement in August, the Director of the Cultural Affairs Bureau (IC), Ung Vai Meng, noted his pleasure with the fact that the local population considered the heritage preservation of the site as important, noting that he intended to speed up the application for the site to be classified as cultural heritage. Four months later, in response to Business Daily’s enquiries, the bureau notes that the site is now ‘listed in the survey of immovable cultural heritage’. This is contrary however, to responses by the IC to CCAC enquiries before the report’s July publication, in which the corruption watchdog notes ‘the IC expressed […] the Iec Long

Firecracker Factory is not qualified to be prioritised and listed in the list of initiating evaluation process’. One of the major roadblocks to the site’s classification lies in the fact that the IC has yet to finish collecting ‘comprehensive information … regarding the ownership of the factory’, which it notes as ‘increasing the difficulties in the way of classification’. However, to speed up the process, the bureau has ‘stepped up processing the works, hoping to include the site in the Classification Procedure of the 2nd Group of Immovable Heritage in Macau,’ notes the IC’s response. So far information is not available as to when the second group of classifications are to occur.


According to the fourth article of the Protection of Cultural Heritage Law (Law no. 11/2013), the ‘MSAR protects and values the cultural heritage as an essential instrument of the fulfilment of the dignity of humanity and object of fundamental rights’. The law also notes that ‘the knowledge, study, protection, appreciation and promotion of the cultural heritage constitutes an obligation of the MSAR’. The Department of Cultural Heritage, under the IC, lists on its website

as its third responsibility ‘exercising the powers conferred on the Cultural Affairs Bureau by Law no. 11/2013’. In its response to Business Daily, the IC notes that ‘the structural renovation of the insecure building had been carried out by the Cultural Affairs Bureau,’ referring to maintenance works required, given the poor state of the buildings in the complex. This was despite check-ups and maintenance work conducted by the IC over the years that the complex was standing idle, which the CCAC report noted as having cost the IC ‘more than MOP5 million [in] restoration and remediation costs in the conservation works’. The CCAC report however, notes that ‘there is not any basis for the IC to pay on the owners’ behalf and to be reimbursed later’ noting that CCAC did not ‘see the IC’s attempt to recover the expenses from the “owners”’. In response to Business Daily, the IC notes that it has ‘no new renovation plan at the present stage’ and that the ‘Iec Long Firecracker Factory is not in the urgent and dangerous condition’. The director of the Cultural Affairs Bureau, Ung Vai Meng, announced on January 7 that he would be stepping down from the position that he has held since March 2010, effective next month, stating that he wants to go back to his previous life as an artist.


Chinese-owned Cambodian airline to expand to Macau But safety concerns remain over its MA60 aircraft Sheyla Zandonai

Cambodia Bayon Airlines Co. Ltd., a wholly-owned subsidiary of Joy Air Holdings and Aviation Industry Corporation of China (AVIC), is reportedly seeking to expand its international services to Macau, Hong Kong, Taiwan, China, South Korea and Japan, according to a statement from the company’s agency in Taiwan, reported Focus Taiwan News Channel. The airline plans to recruit pilots from the now dissolved Taiwan TransAsia Airways, which ceased operations in November 2016 on account of heavy debts and losses. Bayon was founded in 2014, with its headquarters in Phnom Penh and operational bases in Siem Reap and Sihanoukville. The latter city is home to Jack Lam’s Fortuna Casino, and

current plans are being developed to transform it into a “Casino City” with “Macau of Southeast Asia status,” The Cambodia Daily reported. Th e c o m p a n y a l s o h a s a n

international station in Ho Chi Minh City in Vietnam. Several safety issues have, however, been reported regarding Bayon’s China-built MA60 (“Modern Ark 60) aircraft, which constitute the totality of its fleet to date – the company says it will receive five A320’s and five more MA60’s by the end of 2017. According to several international media outlets, the MA60 has been banned from flying in the U.S., Europe, UK, New Zealand, Australia, and Myanmar.

Business Daily Friday, January 13 2017    5



MGTO: China to remain main tourism source market in 2017 Predictions are for the market share of mainland visitors to ‘maintain around 60-65 per cent of the total of visitors’ Kelsey Wilhelm


he Macau Government Tourism Office (MGTO) expects Mainland Chinese tourism to continue to be the driving force behind the sector in the MSAR, and consequently the main driver of the local economy, according to information provided by MGTO to Business Daily. Predictions are for the market share of mainland visitors to ‘maintain around 60-65 per cent of the total of visitors,’ for the 2017 year, notes the response to Business Daily’s enquiries. This is in line with data from November on tourist arrivals by the Statistics and Census Service (DSEC), the most recent available, which demonstrates that 66.8 per cent of the total visitor arrivals to the territory over the course of the month - 1,705,721 visitors – were from the mainland, actually a 1.2 per cent drop year-onyear. The highest point in mainland visitation was seen in August of last year, when the number of mainland visitors reached 1.97 million, still a 5.5 per cent year-on-year drop however. ‘Mainland visitors came mostly from the Guangdong province, representing 44.4 per cent of total mainland visitors,’ notes the information, singling out ‘more new direct flight services’ between the mainland and the MSAR, and ‘ground transportation networks such as the high-speed rail’ as increasing visitor accessibility to the territory. However aside from ‘just the nearby Guangdong province’, the office notes another focus - to increase accessibility of ‘Mainland China second-tier cities’ such as Tianjin, Chengdu, Wuhan and other province capitals and coastal cities.

The department points out the overall increase in use of the Individual Visa Scheme by tourists, noting that ‘despite the big drop in the Mainland China visitor arrivals on package tours, more visitors prefer to travel’ to the MSAR under the scheme, which saw a 0.6 per cent drop yearon-year for the January to November 2016 period, as compared to a 22.3 per cent drop in package tours arrivals for the same period.

The build-up

MGTO plans to continue to promote the city’s heritage offerings with three new projects, currently or soon-tobe in Coloane: the Ka Ho houses; the shipyards and two cottages in Lei Chi Vun village - next to Coloane village; and the relocation of the Wine Museum to the island. Another relates to the polemic new Grand Prix Museum, estimated to cost MOP300 million, and former headquarters of the Wine Museum. A project announced in June of last year by Secretary for Social Affairs and Culture, Alexis Tam Chon Weng is the second project on the peninsula set for development this year – the renovation of two Portuguese-style houses into a memorial to local musician Xian Xinghai, projected for completion within two years. These projects are banking on visitors spending more time in the MSAR ‘rather than just touring around and leaving on the same day,’ notes the information, and will be reliant on six main transportation and infrastructure projects. The least visible of the six is the Guangdong Macau Passageway, which the government previously noted, in response to a written enquiry in March of last year by Legislator Chan Meng Kam, is still in the process of ‘exchanging opinions

on the designs of the project’, and that ‘the two governments [Guangdong province and Macau] will strive to complete the project in 2019’. No progress has yet been mentioned this year. The other five projects include th e ex p a n si o n o f th e M aca u International Airport, the Hong Kong-Zhuhai-Macau bridge, the new land reclamation areas, and the two grossly over-budget infrastructure projects: the Taipa portion of the Light Rapid Transit System (LRT) and the new Taipa ferry terminal. The group’s efforts, it notes, remain in line with the “Belt and Road Initiative”, with Macau set to act as a ‘major hub along the Maritime Silk Road,’ in particular through ‘“the cross border yacht sailing scheme’ between Macau and Zhongshan’. When queried as to how to stimulate tourism given the decreased purchasing power of mainland visitors due to the devaluation of the yuan,

the department noted six main areas, including: publicity (as evidenced by a recently announced single tourism campaign, called “Macao Travel Talk” to be placed on Hong Kong television group TVB’s channels, at a cost of MOP30.96 million); partnership marketing; use of high-speed rail connections to adjacent regions; cooperation with the mainland (whose tourism investment is set to reach RMB2 trillion - US$280 billion – this year, with predicted revenue to reach RMB7 trillion by 2020, according to the China State Council); enhancement of tourism service quality; and promoting smart tourism while diversifying existing tourism products. Although there is no fixed date so far for the launch of the Macao Tourism Industry Development Master Plan, expectations are for a release date by the middle of this year, with the results of the public consultation sessions having been released on Tuesday.

6    Business Daily Friday, January 13 2017

Macau Gambling / Industry

Las Vegas shows steady path from gambling to non-gambling A report from the University of Nevada, Las Vegas (UNLV) shows the slow but steady transition to a bigger chunk of non-gambling activities in the Strip’s economy Sheyla Zandonai


he Las Vegas Strip generated US$17.10 billion (MOP136.58 billion) in total revenues in 2016, according to the latest updated statistics released by the Center for Gaming Research of the University of Nevada Las Vegas (UNLV). Of the total revenues, US$5.85

billion (MOP46.77 billion) was generated exclusively from gambling activities, with non-gambling activities – comprising rooms, food, beverages, and other activities, e.g. high-ticket entertainment and retail shopping – accounting for roughly two thirds of the total revenue generated on the Las Vegas Strip last year. Gambling revenues represented 34.24 per cent of the total revenues, while hotel rooms accounted for 28.1

per cent of the total, reaching US$4.80 billion (MOP38.40 billion). The most important variation over the nearly 20-year time span covered by the UNLV’s report (1984-2016) occurred in the “other” sector, growing from a mere 6.14 per cent – the lowest share of revenues in gambling and non-gambling activities considered together in 1984 – to 14.47 per cent in 2016. As per last year, it corresponded to the doubling of revenues generated by the beverages sector, with a 7.17 per cent share of the total revenues. Meanwhile, total gross gambling revenues for Macau reached MOP223.21 billion (US$28 billion) in 2016 – down 3.3 per cent from 2015 – according to data from the

Gaming Inspection and Coordination Bureau (DICJ), a number nearly five times higher than Las Vegas Strip’s. The non-gambling related sector of economic activity also showed an increase of 31 per cent from 2007 to 2014, according to a research report from 2016 conducted by the University of Macau for the DICJ, entitled “The Interim Review of Gaming Liberalization for Games of Fortune in Macao.” The research report also stated that the “average” revenue from non-gambling activities in Macau (US$250 million/MOP2 billion) was comparable to the “average” revenue for non-gambling activities in Las Vegas (US$230 million/MOP1.83 billion). But non-gambling related activities still represent a much lower percentage of Macau’s market than Vegas’, where only 36.75 per cent of the total revenues were directly gambling-related in 2014, against 90 per cent in Macau for the same year. The revenue pattern of the Vegas industry has drastically shifted, as gambling itself has become less important to the overall revenue picture. While in 1984, gambling revenues accounted for 58.63 per cent of the total revenues generated on the Strip, only 34.24 per cent of the total revenues were directly gambling-related in 2016. By the end of the third quarter of 2016, 38 casinos were operating in the Macau SAR, according to the DICJ.

Control Law was brought into effect in January 1 of 2012, a total of 37,921 people have been fined, the result of 1.2 million inspections, stated the Health Bureau. The law has been applied gradually, focusing initially on general public spaces and providing transitional periods or provisions for special cases.

A law proposal is currently under consideration at the Legislative Assembly to prohibit any kind of smoking in casinos. The first draft was approved in the AL’s plenary session and the proposal is currently under evaluation by a sub-committee, with the debate focusing mainly on the possible impact such a regulation would have on gaming revenue.


Catching smoke A total of 6,770 people were fined for smoking in prohibited areas, of which 648 were for smoking infractions in casinos. Nelson Moura with Lusa

Casinos saw 648 people fined for smoking infractions, 80.2 per cent of whom were tourists, as a result of 505 inspections held between January and December of last year, according to data released by the Health Bureau. A total of 6,770 people were fined in 2016 for smoking in non-designated areas, after 315,014 inspections were conducted in different establishments throughout the city. In total, 6,776 violations of the Smoking Law were registered, with six violations related

to infractions on cigarette packs labels. The majority of the infractions were committed by males, making up 92.6 per cent of the total, and Macau residents at around 61 per cent. Tourists committed 34.9 per cent of infractions, and non-resident workers 4 per cent. Cyber cafes continued to be the venues registering the largest number of infractions, accounting for 17.7 per cent of the total, followed by parks and gardens with 12.9 per cent, and game arcades with 10.6 per cent. Since the Tobacco Prevention and

Corporate SJM hosts awards ceremony for dealer uniform design contest Sociedade de Jogos de Macau, S.A. (SJM) held the Awards Ceremony for the Grand Lisboa Palace Dealer Uniform Design Contest in the Grand Ballroom of Grand Lisboa on Wednesday. The contest, launched in August last year, was co-organised by Macau Productivity and Technology Transfer Center and Macao Chamber of Commerce. The contest

received a total of 43 entries. The winner was Mr. Wang Chengwu’s “Good Luck”, with the first and second runner-ups being Ms. Tam Hang I’s “Inspiration Inspires Inspiration” and Mr. Lin Hai’s “Uniform for a Golden Age”. The contest aimed to promote local designers and cultural and creative industries, providing more business opportunities to “Micro SMEs”, “Made in Macao” and “Young Entrepreneur” enterprises.

Business Daily Friday, January 13 2017    7

Gaming Gaming Imperial Pacific to issue note for its new casino-project in Saipan

Fitch downgrades Imperial Pacific to ‘CCC’ The rating agency said the casino operator was too reliant on the high-roller sector and may face credit risks from the segment at the same time Kam Leong


itch Ratings has downgraded the issuer default rating (IDR) of Hong Kong-based gaming operator Imperial Pacific International Holdings Ltd - which runs gaming businesses on the Island of Saipan – from ‘B(EXP)’ to ‘CCC’. ‘The downgrade of the final ratings reflects the company’s need to fund advances to customers and bear customers’ credit risk due to the lack of licensed junket operators in Saipan,’ Fitch said in an announcement on Wednesday. ‘So far only one junket has been licensed by the Commonwealth Casino Commission of Saipan. Thus, [the operator] has been operating its VIP business through third-party introductions and internal marketing, with [the operator] granting credit directly to VIP customers who are partly backed by guarantors,’ the announcement notes. Currently, the company is running a temporary casino on the island via a local unit, Best Sunshine International Ltd.

to issue notes of not less than US$60 million (MOP480 million) for the construction of the casino-resort project ‘Imperial Pacific Resort Hotel’ on the island. The company said in the filing that the construction costs for the project would amount to some US$50 million, prior to its soft opening. ‘The proposed notes, which will be issued by Imperial Pacific International (CNMI), LLC (Saipan), are rated two notches above [Imperial Pacific]’s IDR because they are secured by essentially all the assets of the casino and resort under construction and guaranteed by Imperial Pacific Properties (CNMI), LLC, which owns the lease of the land

on which the resort is built, and by the parent,’ Fitch notes. The operator had initially expected its permanent casino would be open by the end of this month, but has pushed the date back to the first quarter of the year. Believing the company could meet its construction deadline for the casino by this April, and for the hotel by August, the rating agency, however, notes that the operator has still not secured sufficient long-term funding for the construction of the integrated resort project. The agency’s Recovery Rating for the operator, meanwhile, remains at ‘RR2’.

Volatile VIP

According to the agency, the downgrade of the operator’s rating was due to the company’s high reliance on the VIP segment. ‘The segment is junket-driven and

subject to policy uncertainty. The Commonwealth Casino Commission of Saipan is vetting a number of junket operators before they start doing business with [Imperial Pacific]'. It noted that the sustainability of the company’s casino business model would depend on its ability to manage its VIP relationships and receivable risks. ‘The company has about one year of operating history in its temporary casino. Monthly VIP rolling chips consistently amount to more than US$1.5 billion each month. Initial performance for IPI’s temporary casino in Saipan may not be sustainable as the curiosity factor fades,’ it said. For the whole year of 2016, table games rolling turnover from the temporary casino’s unaudited VIP table games rolling totalled US$32.4 billion, according to the company’s previous announcement.

Propose note issue downgraded

In fact, Fitch announced in the same statement that it has downgraded the operator’s proposed U.S. dollar senior secured note issue to an expected ‘B-(EXP)’ rating, down from ‘BB-(EXP)’. According to a filing from Imperial Pacific with the Hong Kong Stock Exchange on Wednesday, it proposes


Success Dragon terminates one Vietnam slot club deal The company said its two partners running slot clubs in two Vietnamese five-star hotels have both encountered ‘difficulties’ in obtaining operating permits Kam Leong

Hong Kong-listed gaming services firm, Success Dragon International Holdings Ltd said it has terminated one of its two deals with two slot clubs in Vietnam for the provision of electronic gaming machine management, following both of the clubs having ‘encountered difficulties’ in obtaining business certificates from the authorities. In December 2015, the company announced that it had reached deals with the two slot clubs – respectively located in the Le Meridien Hotel in Ho Chi Minh City and One Opera Hotel in Danang – for providing investment, management and operations of the electronic gaming machines for the clubs. ‘Both Le Meridien and Opera have encountered unexpected difficulties in obtaining the requisite business certificates for operation of electronic gaming machine business,’ the locally-based company said in yesterday’s filing. The company added that Vietnam’s recent changes to regulations relating to electronic gaming machines might

also affect the enforcement of its agreements with the two operators. This refers to the new regulation announced on December 30, 2016, which mandates that slot machines must offer a pay-out rate of no less than 90 per cent, while any new payout rate must be added to the software of the machines while they are still in the factory.

Deal terminated

The company said, ‘after due and careful consideration,’ it has terminated its deal with the Opera slot club, as the operator had failed to obtain the certificate prior to the extension of time granted by the company. Meanwhile, it added that it is in the process of discussing and negotiating with the Le Meridien slot club for a new co-operation approach. ‘The Board considers that the termination has no material adverse impact on the business operation and financial position of the Group,’ the company claimed, adding that further announcements would be made if there is any further material development of the deals. The company’s original deal with the Opera slot club stipulated that it

was entitled to a monthly management fee equivalent to 4 per cent of the total gross revenue brought by the operation of One Opera Hotel, after deducting all prizes paid to the players of prize-winning games, and taxes. Since the gaming slump began affecting Macau, the company has started setting its sights on Vietnam. Apart from the two provisional deals, in May last year, the company announced it had reached an agreement with Sports and Entertainment Services Joint Stock Company to provide outsourced management services for the greyhound racing business

in the Southeast Asian country. At one stage it was also considering buying a 45 per cent interest in One Opera Hotel, but the deal was cancelled last June due to the fact that the vendor, Ngoc Nguyen, had ‘difficulty in obtaining the requisite consent for the implementation of the reorganisation,’ according to the then-announcement. For the first six months of its fiscal year ended September 30, 2016, the company posted a net loss attributable to shareholders of the company of some HK$30.5 million (US$3.8 million), narrowing by 78.3 per cent year-on-year.

8    Business Daily Friday, January 13 2017

Greater China In Brief Property

Land ministry calls for balancing supply China should decrease or even suspend residential land supply in third- or fourth-tier cities with high inventories, state media CCTV reported yesterday, citing an annual work meeting by the land ministry. China should also reasonably increase land supply in big cities where housing prices face stiff upward pressure, the Ministry of Land and Resources was quoted as saying. The ministry also pledged to speed up its study of a land supply mechanism that will help to ensure stable and healthy developments of the housing market. Auto industry

Oil industry

CNPC forecasts record demand The company predicted that net exports of diesel will surge by 55 per cent this year to 22.4 million tonnes China’s crude oil demand will grow by 3.4 per cent this year to a record of almost 12 million barrels per day (bpd), the country’s top state-owned oil producer forecast on Thursday, as refiners in the world’s second-biggest oil user ramp up output. The robust outlook for crude combined with surging vehicle sales in the world’s largest auto market boosted oil futures even as the report cautioned that demand growth for products like gasoline and diesel will slow and overcapacity will remain a significant problem. Total crude oil consumption will hit 594 million tonnes, or 11.88 million

bpd, state-owned China National Petroleum Corporation (CNPC) forecast in an annual report released by its research institute. Total refinery throughput will rise by 3.3 per cent to 557 million tonnes, or 11.2 million bpd, with refiners adding 702,000 bpd of net capacity. That will increase to 11.8 million by 2020, it said. The rising refinery demand will lift crude imports by 5.3 per cent to 396 million tonnes, or 7.95 million bpd. By 2020, it forecast imports will hit 8.2 million bpd. But, the rising refinery runs will maintain the domestic supply glut that has forced refiners to export

into a saturated Asian market in recent years. CNPC predicted that net exports of diesel will surge by 55 per cent this year to 22.4 million tonnes, or about 450,000 bpd. In addition, slowing growth in the world’s second-largest economy and the shift to renewable energy will hamper the consumption growth for oil products, the report said.

Key Points China crude demand to rise 3.4 pct y/y to record ~12 mil bpd Refinery throughput to rise 3.3 pct y/y “Energy giants will die like dinosaurs if they don’t diversify into other energy products and into clean energy,” said Liu Zhaoquan, vice president at the CNPC institute, at a briefing. Reuters

Vehicle sales climb in 2016 Vehicle sales in China jumped 13.7 percent in 2016 thanks to a tax cut on small-engine cars, accelerating from 4.7 percent growth the previous year, an industry association said yesterday. That’s the fastest annual sales growth since 2013. Sales in world’s largest auto market totalled 28 million vehicles last year, while for the month of December they rose 9.5 percent to 3.1 million, said the China Association of Automobile Manufacturers. The association predicted in November that growth would exceed 8 percent for the year. State planner

Government approved US$246.6 bln fixed-asset investment China approved 227 projects worth RMB1.704 trillion (US$246.55 billion) in 2016, the state planner said yesterday. China’s National Development and Reform Commission (NDRC) approved 23 fixed-asset projects worth RMB184.0 billion in December, NDRC spokesman Zhao Chenxi said at a regular press briefing. China will invest RMB1.2 trillion (US$173.57 billion) between 2016 and 2018 in a three-year action plan to develop information infrastructure. Financing

CCB signs debt swap deals with three SOEs China Construction Bank (CCB) has signed RMB35 billion (US$5.06 billion) worth of debt-forequity swap framework agreements with three state-owned enterprises in the central province of Henan, a newspaper linked to the local government reported yesterday. CCB, one of China’s big four lenders, has led the country’s latest round of debt-for-equity swaps, signing deals with struggling, debt-laden state firms to lower their leverage and cut financing costs following instructions from Beijing. The deals will help the firms handle cycles in their profitability and support projects among other things, the paper added.


Xiaomi targets 2017 sales of US$14.5 billion Developing artificial intelligence and internet finance will be among growth strategies for the year Sijia Jiang

China’s Xiaomi targets 2017 sales of over RMB100 billion (US$14.47 billion), Chief Executive Lei Jun said yesterday, after a year that saw the firm fall down the smartphone vendor rankings while it overhauled its business.

Key Points Xiaomi fell down smartphone rankings in 2016 Sales in India over US$1bn, making it top 3 phone vendor Smart hardware ecosystem revenue over US$2.2 bln in 2016 To open 1,000 stores in next 3 years; push into AI, finance “The worst is over,” Lei said at an annual meeting in Beijing, describing 2016 as a “make-up year”. Seven-year-old Xiaomi was briefly the world’s most valuable start-up and had hopes to be China’s equivalent of Apple Inc . But it fell out of the top five in China for smartphone vendors in 2016, after reaching No. 2 in 2015. Last year saw increased competition from compatriots Huawei Technologies Co Ltd, Oppo

and Vivo while growth in the global smartphone market stagnated. In response, privately held Xiaomi said it made adjustments to several business areas, including increasing its offline retail presence and pushing for more overseas business. Lei did not detail Xiaomi’s financial results but said the smartphone vendor ranked among the top three in India with sales of over US$1 billion, and that revenue from its smart hardware ecosystem exceeded 15 billion yuan. He also said online revenue doubled, without elaborating.

For 2017, Xiaomi plans to open 200 more Mi Home stores and a total of 1,000 stores over the next three years to strengthen its offline retail operations, since e-commerce makes up only 20 per cent of China’s overall smartphone market, Lei said. At present, Xiaomi has 54 Mi Home stores, he said. Developing artificial intelligence and internet finance will also be among 2017 growth strategies, he said. Xiaomi is the second-largest shareholder of Sichuan XW Bank, launched in December. Lei said Xiaomi has over 300 people working on loans, insurance, securities, finance and payments, as well as securing the necessary licenses. Reuters

Business Daily Friday, January 13 2017    9

Greater China Currencies

Ex-PBOC adviser says Beijing should halt yuan intervention Earlier this week, Yu Yonding said China cannot let the yuan fall more than 25 per cent.


hina’s central bank should set a “bottom line” of 25 per cent for the yuan to depreciate, stop intervening to help preserve foreign exchange reserves, Yu Yongding, a former central bank adviser, was quoted as saying by financial magazine Caixin yesterday. Yu, an influential economist at a top government think tank, the Chinese Academy of Social Sciences, has been an advocate of a freer float for the yuan, which the central bank currently allows to a fluctuate 2 per cent either side of a midpoint it sets before markets open each day. “It is a very bad policy to let the yuan depreciate gradually and slowly towards a ‘reasonable and balanced level’ through sustained interventions,” Yu, a former member of the central bank’s Monetary Policy Committee, said in remarks reported on Caixin’s website. His comments follow a bout sustained pressure from capital outflows that have resulted in the yuan losing 6.5 per cent against the dollar in 2016 - the biggest annual drop since 1994. Despite recovering about 0.5 per cent this month, the yuan was still hovering near its lowest in 8-1/2 years, trading around 6.9130 per dollar early yesterday. Intervention in onshore and

offshore markets have helped steady the currency, but Yu argued such action to stagger the yuan’s decline.

“It is a very bad policy to let the yuan depreciate gradually and slowly towards a ‘reasonable and balanced level’ through sustained interventions” Yu Yongding, a former China’s central bank adviser “Abandoning intervention in the foreign exchange market will not only avoid the unnecessary depletion of foreign exchange reserves, but also greatly reduce the need for capital controls to curb capital outflows,” Yu said, arguing that intervention only encouraged yuan-sellers. China’s reserves shrank by US$320 billion in 2016, with US$41 billion

spent in December alone, to end the year at US$3.011 trillion - near six year lows. The People’s Bank of China has repeatedly pledged to keep the yuan basically stable at a “reasonable and balanced level”, while reforming the currency regime to make the yuan more flexible. Yu’s remarks feed into a debate among Chinese economists whether the authorities should stick to the current strategy or let the yuan float. In an interview with Bloomberg News on Monday, PBOC advisor Fan Gang said the decline in China’s foreign reserves is good news in the long-run and described the yuan as being at a “turning point” after possibly being overvalued in recent years. Yu said the yuan has yet to reach its “reasonable and balanced level”, or equilibrium, with the dollar broadly stronger and confidence in China’s economy also a key factor.

He said market expectations for the yuan to depreciate further are unlikely to have changed, though the authorities have helped the yuan’s recent recovery by making speculation against the currency prohibitively expensive, and by tightening some capital controls. The central bank should find a “good opportunity” to declare a halt to currency intervention and only resume action if the yuan weakens beyond 25 per cent, he said, without elaborating. Earlier this week, Yu said China cannot let the yuan fall more than 25 per cent. “If the yuan depreciates too much, China can step up capital controls, we have a large amount of foreign exchange reserves, and ultimately, we have a bottom line, we cannot allow the yuan to depreciate more than 25 per cent,” Yu said according to a transcript posted on Chinese news portal Hexun. Reuters

10    Business Daily Friday, January 13 2017

Greater China


National anti-Teslas: cheap models drive electric car boom Global automakers plan to quickly ramp up their plug-in offerings in the world’s biggest market Jake Spring


ore electric cars are sold in China than in the rest of the world combined, but are mainly locally-branded models that are cheaper and have a shorter range than those offered by foreign automakers such as Tesla and Nissan. The Chinese-branded electric vehicle (EV) market is propped up by huge government subsidies as part of Beijing’s policy to build global leadership in cleaner energy driving. China has spent billions of dollars on subsidies to help companies including Warren Buffett-backed BYD and BAIC Motor achieve largescale production of plug-in vehicles, which are gaining traction among urban drivers as well as taxi fleets and government agencies. Sales of battery electric and plugin hybrids increased 60 per cent in January-November, to 402,000 vehicles. By 2020, China wants 5 million plug-in cars on its roads. The domestic EVs don’t have the ‘wow’ factor of a fast, longer-range and luxury-style Tesla. They sell on price. In Shanghai last year, a two-door battery electric Chery eQ cost around RMB60,000 (US$8,655) after subsidies. Without subsidies, the eQ would cost an additional RMB100,000 or so. At this week’s Detroit auto show, General Motors showed off its latest Bolt EV, which costs around US$30,000 after a US$7,500 federal tax credit. “EV cars are very cheap (in China), you’ll only spend a little money to buy a car. If you just go to work or use an EV in the city, it’s OK ... for using within 100 kms,” said Xie Chao, who works for a chemical company

in Shanghai. Xie said he has bought three EVs since 2015 - an Anhui Jianghuai Automobile iEV4, a BAIC EV160 and a Geely Automobile Emgrand EV - one for him to use, one for his wife and one he rents out. Most Chinese electric cars come with similar specifications, so price is the deciding factor, said Dawei Zhang, CEO of EVBuy, a dealer. The eQ has been the top seller in recent months, with decent enough quality at a low price, he said. “It’s a transport tool. It’s purely for mobility rather than for showing off, having a big car for all the family, or for any technology factors,” he added. Some EV buyers in Beijing and Shanghai said they primarily bought plug-in vehicles to easily get a license plate. Half a dozen of China’s biggest cities tightly control license plates for traditional gasoline cars, but freely award plates that can only be used by plug-in vehicles. For those set on buying a plug-in, price is key. “I only considered BYD and BAIC. I definitely can’t afford the RMB300,000-RMB600,000 price of a luxury-style Tesla or Denza,” said Qu Lijian, a 31-year-old government worker in Beijing, who eventually opted for a BYD Qin pure electric car. Denza is a Chinese brand produced by a joint venture between BYD and Daimler.

Subsidy slowdown

China’s cocktail of pro-electric policies is a challenge for global automakers, as foreign manufacturers can access subsidies only via joint ventures with local partners, producing cars under new made-for-China brand names such as Denza. But those brands lack the cachet

of established foreign marques, and cost more than most local brands even after subsidies. That’s in part because Chinese automakers are more aggressive in lowering their costs regardless of quality, said an executive at a multinational auto parts firm. “The lowest price wins (the contract). That’s the process, no questions asked,” said the executive, who declined to be identified to avoid impacting future contract bidding. “And when you win, they come back and ask you for another price reduction,” the executive added, noting less stringent safety regulations in China also help keep costs lower than in the United States.

Key Points Chinese electric cars can cost just US$8,000 after subsidies China Nissan Leaf model too expensive by comparison - CEO Subsidies reduced 20 pct this year, phased out by 2020 China electric car makers have large-scale advantage - BYD The version of the Leaf that Nissan’s joint venture with Dongfeng Automobile offers in China, under the Venucia brand, “isn’t selling very well,” Nissan’s global chief Carlos Ghosn told Reuters in November. Chinese EV buyers don’t want to spend much more than US$8,000, after incentives, and the Nissan vehicle is too expensive, Ghosn said. The playing field for foreign brands in China should, though, gradually even out as subsidies are phased out by 2020. This year, subsidies have been reduced by a fifth, likely adding about RMB15,000 to the price of a Chery eQ, though official 2017 subsidies for individual models aren’t yet clear,

notes EVBuy. Local EV manufacturers have, with the help of subsidies, been able to build economies of scale, pushing down their cost per unit and allowing them to spend more on research and development, Li Yunfei, BYD’s deputy chief of branding and public relations, told Reuters. “By 2020, China will have no subsidies, but your scale has expanded, your costs have come down, and you’ll be able to hit a price that consumers can accept,” he said. While China has grabbed early-mover advantage, global automakers plan to quickly ramp up their plug-in offerings in the world’s biggest market. GM’s local joint venture, for example, promises to spend RMB26.5 billion (US$3.8 billion) on electrification and developing 10 “new energy” models by 2020. It won’t be one-way traffic. Chinese brands such as GAC Motor and BYD are looking to advance on global rivals’ home turf. GAC Motor, part of Guangzhou Automobile Group, debuted its pure electric GE3 sport utility vehicle, among other models, at the Detroit show on Monday. A spokeswoman told Reuters that the company plans to enter the United States by 2019, delaying from an initial target of 2017, without further explanation. Shenzhen-based BYD already sells its electric buses in Africa, Europe and South America and has a factory in the United States. The company is preparing “on all fronts” to enter foreign passenger car markets, Li said, without elaborating. “Because Chinese companies have this large Chinese market, when they have big enough scale and their power grows, their products improve and they increasingly understand foreign markets,” he said. “In the future, they will definitely take the world stage. The potential is huge.” Reuters

Business Daily Friday, January 13 2017    11

Asia GDP estimate

South Korea economy likely grew 2.7 pct in 2016 South Korea’s government has been in turmoil since the impeachment of President Park Geun-hye in a continuing influence-peddling scandal Daniel Bases


outh Korea’s export-led economy likely grew by 2.7 per cent in 2016, slightly above the latest government estimate, and felt little impact from the impeachment of its president, the nation’s finance minister told Reuters in an interview on Wednesday. A bigger risk to the economy, Finance Minister Yoo Il-ho said, was the “uncertainty from abroad,” including the incoming administration of U.S. President-elect Donald Trump. Yoo, on a visit to New York and Boston to meet with investors and bankers to gauge their views on South Korea - but also to gain insight into the U.S. political landscape - said the previously unreported gross domestic product revision could indicate solid growth for the first quarter of the new year. “We expected that the final revision of our estimation of last year’s growth rate was 2.6 per cent, down from 2.8 per cent. It turned out to be 2.7 per cent at the end of ‘16,” Yoo said. “Which in turn means there is a possibility that the economy in Korea is not so weak as we expected, at least in the first quarter, judging from this 0.1 per cent higher growth than we expected than the final revised value,” he said. However, he cautioned that it was too soon to decide if South Korea’s habit since 2000 of implementing a supplementary budget to bolster a weak economy was necessary.

On Dec. 28 the government slashed the 2017 economic growth estimate for Asia’s fourth-largest economy down to 2.6 per cent for 2017 from an earlier estimate of 3 per cent. Yoo first spoke through a translator and then answered questions directly in English. He said the corporate restructurings of the “so-called oversupplied industries” of shipping, shipbuilding, steel, construction and petrochemicals were on-going. “For the shipbuilding, I guess we may have tens of thousands (of lost jobs) in the process. But for the other sectors it is really hard to tell,” Yoo said. South Korea’s government has been in turmoil since the impeachment of President Park Geun-hye

in a continuing influence-peddling scandal. A constitutional court must decide soon whether to uphold the Dec. 9 decision by lawmakers. While consumer confidence has plunged to a 7-1/2 year low in the wake of the vote, Yoo believes the nation is taking the vote in stride. “We have not seen any real meaningful fluctuation or meaningful impact from inside politics yet. Maybe there is some kind of psychological factor on consumption or investment, but that doesn’t seem too big so far,” he said, noting how tightening U.S. monetary policy was likely impacting the economy more than the scandal. “In the near future, until the Constitutional Court’s decision, I don’t see a real big thing, big impact,” he said.

Wary of protectionism

Yoo met with dozens of investors, including Goldman Sachs Group Inc’s Chief Executive Lloyd Blankfein and Stephen Schwarzman, the head of investment firm Blackstone Group,

who also chairs Trump’s business advisory council. He said he wanted to get a read on how the new administration’s political manoeuvres, trade policies and tax cuts might impact South Korea. “My impression was that they found it difficult to exactly pinpoint the specific direction that the Trump administration will take in terms of the policies,” Yoo said through the translator.

“In the near future, until the Constitutional Court’s decision, I don’t see a real big thing, big impact” Yoo Il-ho, South Korea’s Finance Minister “They seem to believe that the policies are going to be different from what the candidate Trump had said and what the President Trump is going to do,” he added. Yoo said he did not expect any big changes in the free trade agreements between South Korea and the United States. Trump has said he wants to renegotiate U.S. trade deals and advocating an “America first” stance. “We should wait until Mr. Trump becomes president of the United States and he will show us his real policies in a couple of months. Then hopefully all those uncertainties will be completely gone. That would be the best scenario for us,” Yoo said.

Yoo Il-ho, South Korea’s Finance Minister


Asian tour

Japan turns to ‘fountain of youth’ as Abe seeks trade ties Prime Minister will be visiting the Philippines, Indonesia and Vietnam in the next days David Roman

Japan’s Prime Minister Shinzo Abe began a six-day tour of Asia-Pacific nations yesterday that includes the region’s youngest and fastest-growing economies, seeking to strengthen ties as growth at home lags.

“There is a lot at stake, these are countries with relatively strong growth and from the Japanese standpoint they can provide another arrow of growth” Song Seng Wun, a regional economist at CIMB Private Bank in Singapore The three Southeast Asian countries that Abe is visiting - the Philippines, Indonesia and Vietnam - have economies expanding more than 5 per cent, according to recent official data. He’ll also visit Australia, but is skipping

the more sluggish and faster- aging countries in the region, such as Singapore and Thailand. Here are three charts that show Japan’s relationship with Southeast Asia.


When it comes to trade, Japan remains a laggard relative to its main regional rival, China. In the decade through 2015, Japanese trade with the six largest economies in the Association of Southeast Asian Nations, or Asean, increased by 27 per cent, while China’s trade more than tripled. That’s due to much faster growth in China than in Japan during the period, said Timothy Condon, head of Asian research at ING Groep NV in Singapore, by e-mail. Japan’s economy grew an annualized 1.3 per cent in the third quarter from the previous three months, while China expanded 6.7 per cent in the quarter compared with a year earlier.


Southeast Asian economies have been the target of Japanese investment for some time, as corporate Japan looks to tap the region’s potential and low labour costs. While the pace has declined from a peak in 2013, foreign direct investment by Japanese

companies in the six largest Asean economies has more than doubled since 2010. Abe’s visit is “all about flying the flag,” Song Seng Wun, a regional economist at CIMB Private Bank in Singapore, said by phone. “This is about telling people: even though China is making inroads, we are still one of the biggest investors. We’re still here.”


Japan’s aging and declining population has been a drag on the economy, pushing companies to seek growing

consumer markets elsewhere. In a population of 104 million in the Philippines, 31 per cent is under the age of 15, while in Indonesia, the proportion is 23 per cent. The Philippines’ favourable demographics are helping to sustain one of the fastest growing economies in Asia. “There is a lot at stake, these are countries with relatively strong growth and from the Japanese standpoint they can provide another arrow of growth,” CIMB’s Song said. “Money is coming through. Japan has been a consistent provider of investment.” Bloomberg News

12    Business Daily Friday, January 13 2017

Asia In Brief Perjury accusation

S. Korean parliament files complaint against Samsung heir South Korean National Assembly yesterday filed a complaint against Samsung’s heir apparent for perjury during the December parliamentary hearing on a scandal involving impeached President Park Geun-hye. The assembly’s special committee, which is probing the scandal separately from an independent counsel, reached an agreement to accuse Samsung Electronics Vice Chairman Lee Jae-yong of giving his false testimony at the first parliamentary hearing on Dec. 6 last year. Vice Chairman Lee was summoned earlier in the day by the independent counsel to be questioned for an alleged bribery charge. Trade

Japan’s Suga sweetens US-Japan relations view Japan’s top government spokesman said yesterday that its active trade investment in the United States was a source of “vitality” in the economic relationship between the two nations. Chief Cabinet Secretary Yoshihide Suga also told reporters Americans recognised that Japanese firms were good corporate citizens in the United States. In a news conference, U.S. President-elect Donald Trump mentioned Japan and other countries as having large trade imbalances with the United States.

Green energy

India solar prices set to drop amid competition A decline in costs is one reason developers say prices at auction will drop Anindya Upadhyay


he price paid for solar power in India at auction is set to fall below last year’s record lows for the South Asia nation, driven by plummeting panel prices, falling interest rates and competition among developers seeking a slice of the country’s renewables market. Prices could dip lower than the 4.34 rupees (6 cents) a kilowatt-hour offered in auctions held in the state of Rajasthan a year ago, according to at least one developer of solar projects in India. “This year we will see prices fall below 4 rupees a kilowatt-hour for sure and it will be viable,” said Rahul Munjal, chairman and managing director of Hero Future Energies Pvt, the clean-energy arm of Hero Group, one of India’s largest automakers. In 2016, countries from Chile to the United Arab Emirates broke records with deals to generate electricity from sunshine for less than 3 cents a kilowatt-hour, half the average global cost of coal power. With China and Japan joining the competitive-bidding bandwagon, as much as 25 gigawatts of solar capacity could be awarded through

auctions this year globally, according to Bloomberg New Energy Finance. “We feel interest rates will go down and the cost of solar panels will fall, so these will have a great effect on breaching the 4 rupees a unit-mark,” said Hero Future’s Munjal, adding that he’s looking at a 500 basis-point decline in domestic interest rates. Hero Future Energies, backed by the International Financial Corp., operates 360 megawatts of wind and solar capacity and has another 1.4 gigawatts of projects in the pipeline. The company plans to participate in some of the upcoming auctions. After falling 30 per cent last year, the price of ordinary multi-crystalline silicon modules is expected to fall another 20 per cent in 2017, according to London-based BNEF. Since 2009, solar prices are down 62 per cent, with every part of the supply chain trimming costs. “We expect these modules to sell for around US$0.32 per watt,” Jenny Chase, BNEF’s chief solar analyst, said in a research note. Pent-up demand for nearly two gigawatts of solar capacity up for auctions in India in the early part of the year will also drive prices lower, said Rahul Goswami founder of


Australian regulator to review BP-Woolworths deal Australia’s competition regulator said yesterday it will review BP Plc’s A$1.8 billion purchase of 527 petrol stations from Australia’s top grocer, Woolworths Ltd. “Once a submission is received the ACCC will commence a public review of the proposed acquisition,” the Australian Competition and Consumer Commission (ACCC) said in a statement, without adding further detail. Woolworths and BP announced the deal last month, saying it was subject to regulatory approval and that it would not be completed before January 2018.

Philippine grains traders have purchased just over 53,000 tonnes of rice from Thailand and Vietnam in recent weeks, looking to boost supply in the wake of typhoons that destroyed local crops in the last quarter of 2016, the government said yesterday. The shipments, comprising 41,464 tonnes from Thailand and 11,580 tonnes from Vietnam, were part of the 90,760 tonnes covered by import permits the state grains agency National Food Authority (NFA) issued before the end of 2016. The NFA is expected to issue more import permits for traders to bring in rice from Thailand, Vietnam, Pakistan and India over the next few weeks.

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Auction process

Greenstone, which is currently working to find an equity partner for Canadian renewable energy company SkyPower Ltd.’s 350 megawatts of capacity under construction in India, concluded deals for 80 megawatts of solar capacity on behalf of Punj Lloyd Ltd. in 2016. The investment bank also advised billionaire Kumar Mangalam Birla’s Aditya Birla Nuvo Ltd. on a tie-up with Dubai-based private equity investor The Abraaj Group to add solar power capacity in 2015. India is preparing to award 750 megawatts of solar capacity in the central Indian state of Madhya Pradesh later this month and nearly 1 gigawatt more by March, according to state-run Solar Energy Corp. of India, the government agency that conducts India’s solar auctions. India adopted auctions in 2010 and is now racing to achieve Prime Minister Narendra Modi’s solar target of 100 gigawatts of capacity by 2022, a goal that’s second only to China. Of the 25 gigawatts to be awarded through auctions, BNEF’s Chase expects 8.5 gigawatts of that to be in India. India will soon award 1 gigawatt of capacity through wind auctions for the first time in a couple of months. Bloomberg News

Floods impact Thai rubber authority expects 10 pct output loss

Benchmark TOCOM rubber futures rallied to a near four-year high yesterday Panarat Thepgumpanat and Patpicha Tanakasempipat


Philippines buys around 50,000 T of rice

Greenstone Energy Advisors, a boutique investment bank specializing in renewable energy deals in Asia’s third-largest economy. “There is going to be a huge oversubscription in the coming auctions and everyone in 2017 will be looking at ‘how do I go forward from my one gigawatt to 1.5 or 2 gigawatts,’” Goswami said in a phone interview, adding that fewer tenders in the last several months is adding to the pentup demand.

Thailand will lose around 10 per cent of its rubber output in the 2016-2017 crop year after unseasonal flooding affected the country’s main growing region, a senior industry official said yesterday. Southern Thailand has suffered downpours since Jan. 1, resulting in flash floods that have killed 36 people. Global rubber prices have spiked on concerns about the impact on output. “(Around a) 10 per cent loss is expected for overall rubber output this crop year,” Chao Songarvut, deputy governor of the Rubber Authority of Thailand, told Reuters. Thailand, the world’s biggest rubber grower and exporter, produced around 4.46 million tonnes of rubber in 2015, according to data from the Office of Agricultural Economics. The nation’s production of the commodity was already under pressure due to drought last year, the official said.

About 700,000 rais (112,000 hectares) of land planted with rubber trees have been affected by the current floods, according to data from the Rubber Authority. Benchmark TOCOM rubber futures rallied to a near four-year high yesterday, extending gains into a third day, boosted by concerns over the flooding. Local prices in Thailand were expected to rise due to the reduced

production, said Uthai Sonlucksub, president of the Natural Rubber Council of Thailand. “Traders are scrambling to find rubber for exports after they struck their deals in December, when rubber was cheaper,” Uthai told Reuters.

Key Points Southern Thailand has been hit by flash floods Has affected rubber growers, driven spike in global prices Thailand is world’s top rubber exporter Thai benchmark USS3 rubber was quoted at 81.05 baht (US$2.29) per kilogram yesterday, a significant jump from 71.04 baht (US$2.01) on Dec. 29, before the floods started, according to data kept by Reuters. Thailand’s rainy season usually ends in late November, but this year heavy rain has fallen well into what should be the dry season. Flooding regularly occurs in the May-November rainy season. Reuters

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Business Daily Friday, January 13 2017    13

Asia Labour

Asia’s progress in closing the gender gap is slow, uneven China’s gender gap has flat-lined over the past decade David Roman


he Philippines and New Zealand are leading the pack in Asia-Pacific on having the best gender equality, but the rest of the region still has some way to go to improving its status. India is struggling to improve its rates of female health, despite gains on wage equality and educational attainment, while China’s gender gap has flat-lined over the past decade largely due to a decline in the percentage of women joining the workforce, said Samantha Amerasinghe, an economist with Standard Chartered Plc, in a recent report based on earlier findings by the Switzerland-based World Economic Forum. The Philippines and New Zealand are the only Asia-Pacific countries ranked in the top 10 of the Global Gender Gap Index of 144 countries compiled by the World Economic Forum. Even so, both nations scored lower than they did a decade ago, while Singapore, India and Bangladesh were the only Asian nations

to rise in the ranks over that period. To be sure, the number of countries included in the report has risen from 115 in 2006. But some Asian declines remain significant all the same, with Sri Lanka down 87 positions, China down 36 positions, Malaysia down 34 and Japan down 32.

‘The Philippines and New Zealand are the only Asia-Pacific countries ranked in the top 10 of the Global Gender Gap Index’ As in 2006, Philippines remains nearest to closing the gender gap among Asian countries, with notable gains in economic participation and opportunity and in political empowerment, said Amerasinghe, who is London-based. The Philippines has


Uniqlo owner posts biggest quarterly operating profit in 2 years At the end of the last business year, overseas stores contributed 37 per cent of the retailer’s overall revenue Thomas Wilson

Japan’s Fast Retailing Co Ltd, the owner of cheap-and-cheerful clothing chain Uniqlo, reported its biggest quarterly operating profit in two years as a cost-cutting drive and gains from a weaker yen helped offset tepid demand at home. A persistent economic malaise and a lack of wage growth have eaten away at consumer confidence in Japan, prompting retailers to offer better products for less and cut expenses. Fast Retailing has also opted to expand overseas, including China, Southeast Asia and the United States, to ride out the gloom. With Japan’s consumer prices and household spending both slumping in November for the ninth straight month, the retailer said it did not plan to raise prices, highlighting the challenges faced by the country as it strives to banish deflation. “Consumers are becoming cautious when it comes to shopping,” said Chief Financial Officer Takeshi Okazaki at an earnings briefing. “They’re highly price-conscious.” Fast Retailing’s operating profit for the three months ended Nov. 30 was

88.59 billion yen (US$774.3 million), up 16.7 per cent from a year ago and the highest since the same period in 2014. This was mostly in line with average analysts’ expectations for an operating profit of 88.84 billion yen for the quarter, Thomson Reuters data shows. The retailer’s revenue in Japan rose 3.4 per cent to 239 billion yen as cold weather in November boosted sales of winter clothing such as cashmere sweaters and outerwear. A weaker yen helped the company book a foreign exchange gain of 15.6 billion yen on foreign currency-denominated assets over the quarter. The yen averaged 13 per cent less against the dollar between September-November compared to the same period a year earlier. At the end of the last business year, overseas stores contributed 37 per cent of the retailer’s overall revenue. Fast Retailing reiterated its operating profit forecast for the year to August at a record high of 175 billion yen. That compares with an average of 177.3 billion yen predicted by 18 analysts surveyed by Thomson Reuters. Reuters

also achieved gender parity on two indicators: educational attainment and health and survival. The nation has made gains by moving women into professional and skills-based jobs as well as having more representation of females in positions of power in the government and private sector, said Amerasinghe. Overall, however, “the results from the 2016 report are disheartening,” she added. “The slow rate of progress on the economic opportunity index for women increases the urgency for women to enter higher-growth areas that require science, technology, engineering and mathematics.”

In fact, Asia is largely to blame for a global decline in the female participation rate, the percentage of working-age women who are actually part of the workforce. The rate fell between 1990 and 2014 in both India and China according to World Bank estimates, so that Asia as a whole saw a decline in this metric, even though the overall level remains high by international standards. Progress toward economic equality also remains elusive, Amerasinghe said, noting that it’s slowed to the worst level since 2008, after a peak in 2013. In Asia, no country ranks in the top-10 in the economic participation sub-category in 2016, even though both Singapore and Philippines are in the top-20. At the current rate, women will win global pay equality in 170 years, with the overall economic gender gap to be closed by 2196, according to WEF estimates. Bloomberg News

14    Business Daily Friday, January 13 2017

International In Brief UN FAO

World food prices stable in December World food prices remained stable in December from the month before as strong gains in vegetable oils and dairy largely offset falls in sugar and meat, the United Nations food agency said yesterday. The Food and Agriculture Organization’s (FAO) food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 171.8 points in December, versus 171.9 in November. Across the whole of 2016, the index fell 1.5 per cent from the previous year, representing its fifth consecutive annual decline, FAO said. M&A

Bayer had meeting with Trump over Monsanto deal German drugs and pesticides maker Bayer, which will need regulatory approval for its US$66 billion deal to buy U.S. seeds giant Monsanto, said company chief executives had a productive meeting with U.S. president-elect Donald Trump. Trump talked to Bayer Chief Executive Werner Baumann, Monsanto CEO Hugh Grant and some of their advisers in New York, his transition team said on Wednesday, part of meetings before he takes office later this month. “It was a productive meeting about the future of agriculture and the need for innovation,” a Bayer spokesman said yesterday, declining to provide more details for the moment.


World Bank tells Russia to diversify, attract investors The economy is seen growing by 1-2 per cent a year in the medium term


ussia needs to improve its investment climate, diversify its oil-dependent economy and boost productivity growth if it wants to catch up with the global economy, the World Bank said yesterday. In a report called “Pathways to Inclusive Growth” the World Bank offered Russian authorities some tips on how to overcome existing economic and financial hurdles to achieve better prospects in the future. “Although the fruits of many policy actions will only be visible in the medium and longer term, now is the time to start,” the World Bank said.

After a decade of strong oil-driven growth, Russia’s competitiveness is deteriorating. In 2016, the Russian economy shrank by 0.5-0.6 per cent after falling by 3.7 per cent in 2015. The economy is seen growing by 1-2 per cent a year in the medium term, the World Bank said. This is below a global growth of 2.7 per cent projected for 2017 and far below an average annual expansion of 7 per cent seen in Russia in the 2000s. Together with Russia’s high vulnerability to trade shocks, this raises questions about the country’s ability to retain the social and economic advances made since President Vladimir Putin came to power.

“The recent crisis exposed the vulnerability of Russia’s economy and raised questions about the sustainability of past achievements in boosting shared prosperity,” the report said. As prices for oil, one of Russia’s key exports, have fallen and the West has imposed economic and financial sanctions against Moscow over its annexation of Crimea, the Russian authorities will find it increasingly hard to find a tradeoff between social liabilities and fiscal sustainability. To move forward and spur investment activity, Russia needs better infrastructure and regulation, the World Bank said. “To attract investors, particularly in the context of economic sanctions, i n v est m e n t c o n d i t i o n s m u st improve.” Reuters

Industrial rebound

Italy output increases Italian industrial output increased more than estimated in November, signalling a possible acceleration in economic activity. Production rose 0.7 per cent from October when it increased a revised 0.1 per cent on a monthly basis, statistics agency Istat said yesterday in Rome. The median estimate in a Bloomberg survey of 20 analysts called for a 0.2 per cent gain. On an annual, work-day adjusted basis industrial output was up 3.2 per cent in November. Both executives and households grew more optimistic last month amid expectations of a better growth outlook. The manufacturing confidence index rose in December to the highest in a year. Trade

China biggest buyer of Angola exports in 2016 China remained the largest taker of Angola’s exports in the second quarter of 2016, but bought less crude oil from the country, accounting for just 35 per cent of its total exports, according to official Angolan figures. According to foreign trade statistics for the quarter published by the National Statistics Institute (INE) this month, China bought the equivalent of 432.5 billion kwanzas (€2.4 billion) in goods from Angola in the period - almost all of it oil. The total is 1 per cent down on the first quarter of 2016 and 12.1 per cent down on the second quarter of 2015.

Domestic spending

German economic growth accelerated in 2016 Household consumption benefited from a drop in the unemployment rate to the lowest level since the country’s reunification Piotr Skolimowski

German economic growth accelerated more than analysts forecast in 2016 to its fastest pace in five years as falling unemployment and record-low interest rates boosted spending. Gross domestic product rose 1.9 per cent after a gain of 1.7 per cent in 2015, the Federal Statistics Office said yesterday at a press conference in Berlin. That exceeds a 1.8 per cent median estimate in a Bloomberg survey of economists. The government had a fiscal surplus of 0.6 per cent of GDP last year. Germany, the euro area’s growth engine, is the first of the world’s biggest developed economies to provide 2016 data. Recent reports signalled momentum picked up sharply in the fourth quarter, and record employment, improving business sentiment and European Central Bank stimulus have boosted prospects for 2017, even amid risks related to national elections and Britain’s exit from the European Union. “Growth in 2016 was driven primarily by private and government consumption, with additional strength coming from construction,” Carsten

Brzeski, an economist at ING-DiBa AG in Frankfurt, said before the results were published. “It was really a domestic demand story.” Consumer spending rose 2 per cent last year and public expenditure increased 4.2 per cent, the statistics office said. Investment was up 1.7 per cent and construction gained 3.1 per cent. Exports grew 2.5 per cent, with imports 3.4 per cent higher than in 2015.

Growth drivers

Household consumption benefited from a drop in the unemployment rate to the lowest level since the country’s reunification more than a quarter of a century ago. At the same time, government spending was boosted by costs related to the provision of assistance and shelter for more than 1 million refugees that came to the country from war-torn nations including Syria and Iraq. The Bundesbank predicted in December that the economy expanded at a “significantly faster pace” than during the summer months. Economists forecast GDP increased 0.4 per cent. The statistics office will release

quarterly data on Feb. 14. In the coming months, consumer spending may come under pressure as inflation rates rise. Prices are already increasing at the fastest pace in more than three years. While more than 90 per cent of German companies currently don’t see “strong effects” on them from Brexit, general elections in fall, which will pit the ruling party of Chancellor Angela Merkel against a strengthening populist movement, are adding to uncertainty.

“It was really a domestic demand story” Carsten Brzeski, an economist at ING-DiBa AG in Frankfurt “Consumption growth may slow down a touch, because of the rise in inflation on the back of energy prices,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. Also considering uncertainty related to the elections, “the whole domestic side of the economy will be probably a bit be less dynamic, but net exports will be stronger so overall we are still going to see solid growth.” Bloomberg News

Business Daily Friday, January 13 2017    15

Opinion Business Wires

BANGKOK POST With about one year left in office, the government says it will focus on four areas: the digital economy, infrastructure development, agricultural reform and local economic development via 18 provincial clusters. Speaking at a seminar entitled “2017: Thailand’s Turning Point” held by the Economic Reporters Association, Deputy Prime Minister Somkid Jatusripitak said 2017 would be a year of execution for those four areas, which are seen as instrumental in upgrading Thailand’s competitiveness and strengthening the economy. Regarding the digital economy, the government has already earmarked 15 billion baht to develop the national broadband network and submarine cable project, he said.

People’s Bank of China headquarters in Beijing

VIET NAM NEWS Prime Minister Nguyễn Xuân Phúc has urged the Ministry of Planning and Investment (MPI) to renovate its thinking and management to better play its key role in promoting socio-economic development. Phúc said at a conference on Wednesday that renovation, although difficult, is vital, especially for the MPI, which is in charge of compiling the economic restructuring project. “More than anyone, the MPI must pioneer the process of restructuring,” Phúc said, stressing the role of the ministry as a chief economic architect.

PHILSTAR (Philippines) Economic Planning Secretary Ernesto Pernia and Budget Secretary Benjamin Diokno have warned of possible adverse consequences if Congress continues to drag its feet on approving a comprehensive tax reform package. In separate interviews during the Bangko Sentral ng Pilipinas (BSP)’s annual reception for the banking community Tuesday evening at the Metropolitan Museum at the BSP Complex along Roxas Blvd, Pernia expressed concern about a possible credit ratings downgrade by the middle of this year if Congress is still not able to pass a tax reform package proposed by the Department of Finance.

STRAITS TIMES A former branch manager of the now closed Falcon Private Bank in Singapore became the first foreigner to be sentenced to prison (in Singapore) over the 1Malaysia Development Berhad (1MDB) scandal. Swiss national Jens Sturzenegger, 42, was sentenced to 28 weeks in jail and fined S$128,000 yesterday after he pleaded guilty to six of 16 counts, including consenting in the bank’s failure to comply with Singapore’s anti-money laundering rules. The remaining 10 charges were taken into consideration. Sturzenegger showed no emotion in the dock as the sentence was passed.

China’s shrinking reserves approach danger zone


he irony of the yuan rally that took bears by surprise last week was that the surge came just days before China announced that its foreign currency reserves shrank by US$41 billion in December. The stockpile is now US$3 trillion, a decline of more than US$1 trillion since its peak in 2014. Authorities have been drawing upon the huge war chest to temper the yuan’s depreciation as capital flowed out of the county amid an economic slowdown and worries over debt levels. Despite an annual drop of US$320 billion, the amount China has at its disposal remains significant by just about any measure. Yet it would be appropriate for investors to start wondering whether the margin of safety is becoming perilously thin. They should also ask at what point the People’s Bank of China would no longer be able to afford to support the currency, which would lead to a much more substantial decline than anyone anticipates. The situation appears manageable - for now. At the current rate of depletion, it might take 12 to 18 months before the alarm starts ringing. The reserves, which may be somewhat understated but also comprise illiquid instruments, are about three times the size of China’s short-term debt, and account for almost 18 months of imports. According to the International Monetary Fund, China’s reserves are “adequate’’ as long as the nation retains capital controls. So it’s no surprise that China has been tightening capital controls to get a grip on the vicious circle involving reserve depletion, capital outflows and depreciation of the renminbi, especially against the U.S. dollar. For investors watching Chinese financial markets, four things stand out. Because China runs a current account surplus of about US$250 billion a year, and capital is flowing out at the rate of US$550 billion to US$650 billion, the reserves can’t keep falling without incident. Focus should be on the rate of decline and whether absolute levels drift further below US$3 trillion. This situation isn’t going to end. Although authorities are tightening controls over capital movements incrementally, as well as over the property market and banks, they are also allowing domestic lending to run amok. If China wants

George Magnus an associate at Oxford University’s China Centre

to limit capital outflows, and keep the renminbi tied to a basket of currencies, it needs to accept monetary policy constraints that ensure that central-bank and financial-system assets maintain a stable relationship with currency reserves. Rapid credit creation and falling reserves lowered the reserve cover of the broadest measure of money supply - known as M2 - to an all-time low of 13.6 per cent at the end of 2016. It should have been closer to 20 per cent to 25 per cent. Without a willingness to clamp down on money and liquidity creation, capital will continue t o ha e m o r rhag e o v e rs eas, periodically causing domestic liquidity and interest rates to tighten The main impediment to a reserve and currency debacle is, for the moment, the recent application of much tighter capital controls on top of the restrictions already imposed on fake invoicing, insurance deals with Hong Kong and money smuggling. Such controls aren’t what investors expected when China announced its desire to transform the renminbi into a global reserve currency to rival the dollar and the euro. These measures also don’t quite fit the One Belt, One Road trade-and-infrastructure initiative, which depends on sustained and significant outflows of both finance and equity capital. 4. China’s deep-seated problems with credit policies, capital outflows and the renminbi may only get worse if the policies of President Donald J. Trump and the Federal Reserve combine to push bond yields higher. Then there’s the potential tension over whether the Trump administration will follow through on threats to label China a currency manipulator, and what that may mean for trade relations. While there will be various times to bet against China assets this year, it’s doubtful that these four factors will be the agents of a major denouement. For that, you have to look inside China, where the “big short”’ probably lies beyond the crucial, 19th Communist Party Congress later this year. Bloomberg View

According to the International Monetary Fund, China’s reserves are ‘adequate’ as long as the nation retains capital controls.

16    Business Daily Friday, January 13 2017

Closing PwC report

China outbound M&A soars in value in 2016

end of 2015. There were 51 outbound transactions valued at over US$1 billion, more than double the Mergers and acquisitions (M&A) enjoyed another previous year’s record. record year in China in 2016, with outbound M&A “The growth in large outbound deals is offset to some extent by a decline in domestic and soaring 246 per cent by value to US$221 billion, more than the previous four years combined, said inbound strategic M&A,” said Leon Qian, PwC accounting firm PricewaterhouseCoopers (PwC). China Transaction Services Northern China According to a PwC report released yesterday, the Leader. overall value of deals in China’s M&A market rose “Domestic and inbound deals valued at over US$1 billion almost halved from 68 in 2015 to 36 in 11 per cent to US$770 billion, and deal volumes jumped 21 per cent to 11,409 transactions last year. 2016. But this is partly because domestic strategic buyers were looking overseas more for their In value terms, China’s outbound M&A grew acquisition targets,” he said. Xinhua nearly 3.5 times the previous record set at the


Mainland banks extend record RMB12.65 trillion in new loans in 2016 National corporate debt has soared to 169 per cent of GDP


hinese banks extended a record RMB12.56 trillion (US$1.82 trillion) of loans in 2016 as the government encouraged more creditfuelled stimulus to meet its economic growth target, despite worries about the risks from an explosive jump in debt. China’s top leaders pledged after a key meeting last month to stem the growth of asset bubbles in 2017 and place greater importance on the prevention of financial risk, while keeping a “prudent and neutral” monetary policy. But in December alone, Chinese banks extended RMB1.04 trillion in net new yuan loans, far more than expected and lifting the yearly total well above the previous all-time high set in 2015. Analysts polled by Reuters had expected December new lending would fall to RMB700 billion from November’s RMB794.6 billion. New bank loans last year surpassed the levels of China’s massive creditled stimulus during the global financial crisis in 2009, according to Reuters calculations based on central bank data. The total was some 8 per cent above the previous all-time high of RMB11.72 trillion in 2015. Lending continued to be driven heavily by robust mortgage growth

despite a slew of measures rolled out by local governments late in 2016 to cool sizzling housing prices and contain property bubbles. Household loans accounted for 50 per cent of total new yuan loans in 2016, while corporate loans accounted for 48 per cent. Medium-to-long-term loans accounted for 78 per cent of total new loans, while short-term loans accounted for 11 per cent. Broad M2 money supply (M2) grew 11.3 per cent from a year earlier, central bank data showed yesterday, missing forecasts. Outstanding yuan loans ticked up by 13.5 per cent by month-end on an annual basis. Outstanding loans had been expected to rise 13.1 per cent while

Going public

money supply was seen up 11.5 per cent. China’s total social financing (TSF), a broad measures of credit and liquidity of the economy, slid to RMB1.63 trillion in December from RMB1.74 trillion in November. But for the full year, TSF also hit a record of RMB17.8 trillion. TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales. The surge in aggregate financing suggested that off-balance sheet financing and possibly shadow banking activity continued to pick up in December, despite Beijing’s effort to contain risks.

Tackling challenges

China’s economy expanded by a steady 6.7 per cent in the third quarter and looks almost certain to hit the official full-year 2016 target of 6.57 per cent, fuelled by ample credit, higher government spending and a red-hot property market. But corporate debt burdens continue to grow, increasing risks to the economy and the financial system as policymakers look to push structural reforms and encourage deleveraging. China’s overall debt has jumped to more than 250 per cent of GDP from 150 per cent at the end of 2006, the kind of surge that in other countries has resulted in a financial bust or sharp economic slowdown, analysts say. The chief of China’s state planning agency vowed on Tuesday to contain high company leverage ratios, saying it will not allow debt of non-financial firms to rise beyond current levels and will step up efforts to encourage companies to restructure their debts. China’s corporate debt has soared to 169 per cent of GDP. China is set to release fourthquarter and full-year GDP data on Jan. 20. Reuters


Bank of Jiujiang said to prepare Xi urges judicial, law enforcement Taiwan’s TSMC chief praises US$500 million IPO in Hong Kong organs to better deal with risks Trump’s US jobs goal Bank of Jiujiang Co., a lender in eastern China’s Jiangxi province, plans to seek about US$500 million in a Hong Kong initial public offering, according to people with knowledge of the matter. Bank of Jiujiang, based in a city on the southern banks of the Yangtze River, has started reaching out to investment banks about the potential listing, the people said. It aims to list in the second half of 2017, according to the people, who asked not to be identified as the information is private. The lender follows other regional banks, including Guangzhou Rural Commercial Bank Co. and Jilin Jiutai Rural Commercial Bank Corp., in seeking a Hong Kong listing to boost its profile and raise funds for expansion. Financial institutions completed US$18.2 billion of first-time share sales in the city last year, accounting for 72 per cent of fundraising from new listings in 2016, data compiled by Bloomberg show. Details could change, and there’s no certainty the deliberations will lead to a share sale, one of the people said. Multiple calls to Bank of Jiujiang’s general line and its board of director’s office went unanswered. An e-mail sent to a general inquiry address listed in the company’s annual report was returned as undeliverable. Bloomberg News

President Xi Jinping has urged all judicial and law enforcement agencies to improve their capabilities by innovating mechanisms and methods to better guard against and handle risks and challenges. Xi, also general secretary of the Communist Party of China (CPC) Central Committee and chairman of the Central Military Commission, made the remarks in an instruction presented to a central conference on political and legal work held in Beijing yesterday. Xi hailed the agencies’ contributions to national security and social stability, and the role they have played in social and economic development. The president stressed that 2017 would be an important year for the Party and the state, and asked judicial and law enforcement agencies to make the protection of national political security, especially the security of the regime and system, their top priority. Xi instructed the agencies to improve their prediction and early warning systems to ensure a safe and stable social environment for the 19th National Congress of the CPC, which is scheduled for the second half of this year. Xinhua

The chief of Taiwan’s TSMC, the world’s largest contract chipmaker and a major Apple Inc supplier, yesterday praised the goal of U.S. President-elect Donald Trump to create more jobs in the United States. “Mr. Trump has said many times he wants to create jobs in the United States, we highly applaud that,” Taiwan Semiconductor Manufacturing Co Ltd Chairman Morris Chang told an investor conference. Chang said TSMC has created hundreds of thousands of jobs in the United States over the last two to three decades, particularly in chip design - the so-called fabless industry, which sprouted from TSMC’s business model of making chips on a contract basis for other companies. Chang expected TSMC would continue to create jobs in the United States, where it derives about 65 per cent of its revenue, but downplayed the idea of building a foundry there. “I do not rule it out but I see a lot of sacrifices that we and our customers will have to make if we do that,” Chang said, pointing to the ease of re-deploying engineers across its factories in Taiwan, particularly during emergencies. Reuters

Business Daily #1213 January 13, 2017  

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