MOP 6.00
3-tier U-turn
Publisher: Paulo A. Azevedo
Closing editor: Alex Lee
It seemed like a good idea. Property management companies graded by capital. For greater transparency. But the gov’t has had second thoughts. The three-tier grading system will be dropped. The latest version of a draft bill will ostensibly avoid controversy with the industry
Year IV
Number 901 Monday October 19, 2015
Page 5
Table-banging Briefing Temperatures are rising. The Secretary for Economy and Finance took exception to Steve Wynn’s acid remarks on the gov’t decision-making process. Made during the gaming magnate’s conference call with analysts late last week. The Secretary allegedly demanded a meeting yesterday, Sunday. To be attended by Wynn Resort’s top elements. With the purpose of explaining and reaffirming gaming table allocation policy. While reminders of the government’s legal executive powers regarding the importation of nonresident workers were thrown in for good measure Page 3
Transport and communications receipts soar Page 2
Sands China loses CFO Page 2
Gaming revenue plunged 34.4 per cent during Q3 Page 3
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Golden age Embarking upon a “visionary relationship”. Today, Chinese President Xi Jinping starts a four-day visit to the United Kingdom. The presence of the president serves to reinforce the good relations between both countries. To the extent that a golden age is unfolding, according to British Prime Minister David Cameron and China’s ambassador to Britain www.macaubusinessdaily.com
Pages 8 & 9
More public housing Six plots of land in Macau, Taipa and Cotai. To support 4,600 public housing units. The policy was clarified over the weekend by representatives of the Land, Public Works and Transport Bureau
Page 5
October 16
Name
%Day
AIA Group Ltd
+3.36
Wharf Holdings Ltd/Th
+2.92
Bank of Communicatio
+2.42
Sun Hung Kai Propertie
+2.31
China Resources Enter
+1.73
Belle International Ho
-2.33
Lenovo Group Ltd
-2.49
China Mengniu Dairy C
-2.67
China Resources Powe
-2.83
Interview
Galaxy Entertainment
-3.44
Harnessing the Net
Source: Bloomberg
Where to spend the cash? Austerity measures had not yet been announced. But the gov’t had only used 58 pct of the cash it was supposed to invest by year-end. Today, some 36.83b patacas reside in the public coffers. Awaiting worthy projects and causes to be spent on
Page 4
The Chinese economy is slowing. But travellers still prefer high-end hotel accommodation when travelling, says Rachel Lu. In an exclusive interview with Business Daily, the senior director of International Business Development of China’s most popular online travel agency explains trends and tastes. And how a search engine business has blossomed into much, much more
Pages 6&7
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2015-10-19
2015-10-20
2015-10-21
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2 | Business Daily
October 19, 2015
Macau Assembly to debate monthly parking rental The Legislative Assembly has passed a motion to debate whether the government should cancel the monthly parking rental system for public parking lots. The initiators of the motion, legislators Si Ka Lon and Song Pek Kei, have suggested inviting public works officials to attend the debate due to be scheduled by the Assembly. Some legislators have argued for scrapping this payment format as the large discrepancy between the public rental rate paid via the monthly fees and private parking payments has led to the abuse of public resources.
Transport and communications receipts soar
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ocal businesses engaged in Transport, Storage and Communications saw their receipts jump 11.4 per cent year-on-year to MOP27.8 billion (US$3.5 billion) last year, due to an increase in the number of both outbound and inbound tourists, as well as the lift in sales of communication services and products, according to official data released last week by the Statistics and Census Service (DSEC). DSEC data reveals that 2,517 establishments were
operating in the field last year, an increase of 115 compared to 2013. The Gross Value Added contribution of these companies, which measures sector contribution to the economy, totalled MOP8.98 billion, soaring 21.9 per cent year-on-year. In terms of sector, businesses related to Transport & Storage posted a year-on-year lift of 11.4 per cent in receipts to MOP19.41 billion last year, due to the continuous increase in visitor arrivals and outbound travel
of residents. The Gross Value Added of the sector amounted to MOP 5.65 billion, up 19.8 per cent year-on-year. According to DSEC, the receipts from passenger transport jumped 4.1 per cent year-on-year to MOP8.32 billion, of which those from air transport (MOP 4.26 billion), sea transport (MOP 1.95 billion) and land transport (MOP 1.82 billion) rose 0.3 per cent, 7.8p per cent and 9.7 per cent, accounting for 51.2 per cent, 23.5 per cent
Sands China CFO to step down
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he Chief Financial Officer (CFO) and Executive Vice President of Sands China, Toh Hup Hock, is to step down on April 15 of next year, the company has announced in a filing with the Hong Kong Stock Exchange. The reason given for the resignation is the decision of Toh Hup Hock ‘to pursue other business interests’. According to the filing,
there is no disagreement between the two parties. Meanwhile, the company run by Sheldon Adelson will start the process of choosing a replacement. Toh Hup Hock joined Sands China in April 2007, first serving as Senior Vice President, Finance until November 2009. At that time, he took up the responsibilities of CFO, before being appointed Executive Director in June 2010.
and 21.9 per cent of the total, respectively. Meanwhile, receipts from services, including ticketing, hotel reservation, package tours, etc., grew some 22.8 per cent to MOP7.09 billion in 2014, while 84.3 per cent of the total was generated by travel agencies, amounting to MOP5.98 billion. Receipts from cargo transport, however, posted a year-on-year drop of 10.6 per cent to MOP1.58 billion. On the other hand, the Communications sector saw
receipts rise 11.4 per cent year-on-year to MOP8.39 billion last year, while the Gross Value Added of the sector jumped 25.6 per cent year-on-year to MOP 3.33 billion. Official data indicates that most of the receipts of the sector were generated by postal & telecommunications services, and sales of goods, which increased 10.6 per cent and 10.9 per cent year-on-year to MOP3.95 billion and MOP3.75 billion, respectively. K.L.
Business Daily | 3
October 19, 2015
Macau Hot meeting The Secretary for Economy and Finance didn’t like Steve Wynn’s comments and met yesterday morning with the top elements of Wynn Macau to “explain and reaffirm” the government’s principles related to gaming tables and foreign labour
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tables. The next major resort, Melco Crown Entertainment Ltd.’s Studio City, is scheduled to open this month. “The notion that a person who spent US$2.5 billion (20 billion patacas), I’m talking about Melco now, would not know how many tables they’re going to have three weeks before they open is so preposterous that it’s worthy of comment,” Wynn said. “We are hopeful that we’ll be able to press the issue and get more clarity from the leadership of the local government.” Wynn, 73, has often used company conference calls to opine on issues such as U.S. Government policy and even U.S. gambling regulators, but his public comments about Chinese officials on Thursday were unusual for executives doing business there. High-roller play by all tourists is down as much as 50 per cent in Las Vegas, where overall revenue also fell in the quarter, according to Wynn Resorts. “I don’t know if this is the most satisfying quarterly phone call we’ve ever had, but at least it’s been the most candid,” Wynn said.
“brief” meeting requested by Secretary for Economy and Finance, Lionel Leung Vai Tak was held in the morning, a source told Business Daily. He was accompanied by Gaming Inspection and Co-ordination Bureau director Manuel Joaquim das Neves. It took half an hour to make it clear that “some matters should not be [aired] in public”, we were told. Later in the day, a press release posted by the media watchdog bureau, the cabinet of Secretary for Economy and Finance, adopted the tone but conveyed it was not pleased with the criticism widely reported in the “international media” related to the number of gaming tables and possibility of job terminations. The government is “firm and according to the law, in the policies already defined related to areas such as gaming and labour”, it said, adding the policies “will never be altered lightly”. The cabinet was said to “regret opinions related to those matters”, without, however, directly identifying Steve Wynn. “The analysis and authorisation of requests related to gaming tables and foreign labour is a legal executive power of the Macau Government”, says the note, adding that the sector should have a “clear and concise knowledge of the matter”. “The government will continue to fulfil the principle of an annual average growth of no greater than 3 per cent in the next ten years from 2013”, it stated. Related to the requests to import non-resident workers, the government says it will “continue to analyse, with the utmost rigor, in order to secure employment for resident workers and according to the principle that importation is just a complement of human resources when local workers are not sufficient”.
Bloomberg
A.L.
Mystical Macau Wynn blasts Chinese officials as Macau resort debut looms
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ynn Resorts Ltd. Chairman and Chief Executive Officer Steve Wynn has roundly criticised Chinese bureaucrats who haven’t told him how many gaming tables he’ll get for his US$4.1 billion resort scheduled to open in Macau on March 25. The uncertainty is complicating decisions about hiring and training workers and could force Macau operators to terminate employees, Wynn said in a conference call with analysts after reporting third-quarter sales that missed analysts’ estimates. “None of us are really clear on what our environment is going to be like going forward, and it makes planning and adjusting almost a mystical process,” Wynn said. Macau accounts for more than half of Wynn Resorts’ revenues. A [PRC] government crackdown on corruption, coupled with a softening Chinese economy, has prompted high-rollers to shun Macau’s casinos. Industry-wide gambling revenue in the city fell 33 per cent last month, the 16th consecutive month of decline. The first of the large U.S. casino operators to announce third-quarter
earnings, Wynn Resorts posted revenue that trailed analysts’ estimates following a large drop in gambling in Macau. Profit beat projections. The Las Vegas-based company said profit fell to 86 cents a share, excluding items, from US$1.95 a share a year ago. That still beat the 84 cent average of 15 analysts’ estimates compiled by Bloomberg. Revenue fell 27 per cent to US$996.3 million as results in Macau shrank by more than a third. Analysts had been expecting US$1.03 billion. Wynn Resorts fell 8 per cent to US$67.79 in extended trading after the results were announced. The stock is down 58 per cent over the past year, cutting the value of Wynn’s personal stake in the company by over US$1 billion. Shares of the Macau unit plunged as much as 6.6 per cent in Hong Kong trading on Friday to HK$11.12, the biggest intraday loss since September 29. The slump in Macau comes amid a wave of new casino projects, many of which had been planned to operate with 500 baccarat tables each. Galaxy Entertainment Group Ltd. opened its newest property in May with just 150
A skinny third quarter Gaming revenue plunged 34.4 per cent during the third quarter, with VIP and mass market segments shrinking a precipitous 38 per cent and 32.4 per cent, respectively
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evenue from games of fortune declined 34.4 per cent year-on-year during the third quarter of the year, according to data released by the Gaming Inspection and Co-ordination Bureau (DICJ). Between July and September
income from games of fortune was MOP54.37 billion (US$6.81 billion), while for the same period of the previous year it amounted to MOP82.86 billion. This decrease in terms of revenue was primarily driven
by the ‘new normal’ of the industry, hitting both VIP and mass market sectors. During the third quarter, VIP baccarat shrank 38 per cent year-onyear to MOP28.99 billion from MOP46.77 billion. Nevertheless, the VIP segment generated
the largest share of revenues, representing 53.3 per cent of the total income of casinos related to games of fortune. Mass market baccarat generated MOP18.76 billion, which was a decline of 32.4 per cent year-on-year from the MOP27.74 billion recorded during the third quarter of the previous year. In terms of the mass market, positive signs presented with an increase of some MOP140 million quarter-on-quarter, to MOP18.76 billion from MOP18.62 billion. From the second quarter to the third of 2014, there was, at that time, a decrease of 1.1 per cent to MOP27.74 billion from MOP28.03 billion.
All in all, revenues from baccarat – including all segments – generated MOP47.75 billion from the total MOP54.37 billion revenue from games of fortune, representing a share of 87.8 per cent. At the end of September, the number of gaming tables stood at 5,819, while at the end of 2014 they totalled 5,711. As at the end of this year the number is expected to exceed 6,000 tables because of the opening of Studio City, Melco Crown’s new casino resort. In terms of slot machines, at the end of the third quarter the number stood at 14,213 machines versus 13,018 at the end of 2014. J.S.F.
4 | Business Daily
October 19, 2015
Macau Local passport ranked 36th best in world The Special Administrative Region’s passport, with visa-free access to 120 countries, is ranked 36th best of the 199 passports in the world, according to the Henley & Partners 2015 Visa Restrictions Index, which ranks countries based on the total number of other countries they can access visa-free entry to. Compared to last year, the ranking of the local passport dropped six places from 30th best with visa-free access to 122 countries. Meanwhile, the Portuguese passport is ranked 4th best as its holders can access 170 countries visa-free. Germany and the UK, with visa-free access to 173 countries, jointly rank first.
Billions to spend
billion, while for the same period of last year it stood at MOP7.03 billion.
The government has implemented so-called ‘austerity’ measures but up to the end of 2015 it has MOP36.83 billion to spend, or 42 per cent of total projected expenditure for the whole year
As at September, the revenue of the central account dropped 32.2 per cent year-on-year, to MOP82.05 billion from MOP121 billion, which is a decrease of approximately MOP39 billion. If on the one hand public expenditure seems to be under control by the Executive the control of revenues is trickier. With threequarters of the year gone, the government has taken in 76.9 per cent of the projected MOP106.73 billion for the whole year. This decrease in revenue has mainly resulted from the cut in income from direct taxes, which went down 33.7 per cent to MOP69.96 billion from MOP105.52 billion. This trend reflects the decrease of gaming revenues in the territory, as direct taxes from gaming alone decreased 35.5 per cent to MOP65.25 billion from MOP101.13 billion. By contrast, direct taxes from other activities increased 7.3 per cent to MOP4.71 billion from MOP4.39 billion. However, it ‘only’ accounts for 68.9 per cent of the income projected for the whole year, which is forecast to be MOP6.85 billion by the end of December.
Revenues reflecting ‘new normal’
João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he decline in gaming revenues has switched the government’s mentality to saving mode and for the first nine months of 2015 public expenditure amounted to MOP51.09 billion (US$6.40 billion). This means that only 58.1 per cent of the total expenditure projected for the whole year – MOP87.92 billion – has been used and that from October to December, the Executive has MOP36.83 billion to spend.
According to Central Account data, released by the Financial Services Bureau on Friday (DSF), from January to September public expenditure increased 25.2 per cent in comparison to the same period of 2014, when the costs of the government totalled MOP40.81 billion. For the same period, current expenditure increased 24.5 per cent to MOP47.81 billion from MOP38.39 billion. At the same time, the investment of the government increased 48.2 per cent to MOP2.55
Ng Lap Seng’s bail set at US$50 million The Macau businessman and government advisor was requested to pay US$50 million (400 million patacas) for bail with US$20 million as collateral to avoid him fleeing the country
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g Lap Seng has won the right to leave jail providing he pays US$50 million (MOP3.99 billion) and lives under house arrest and private guard in his luxury apartment in Manhattan. According to Reuters news agency, besides the amount of the bail, the Macau businessman was also required to deposit US$20 million in additional cash as collateral. Ng’s release, however, will only happen on October 19 or after because U.S. Magistrate Judge Kevin Nathaniel Fox has decided to allow time for the American Government to consider appealing. Ng Lap Seng’s lawyer told the news agency that his client is also required to pay US$35,000 a week for armed guards to watch him round the clock in the US$4 million four-bedroom apartment
situated near the United Nations headquarters.
Controversial decision
The decision to accept the bail request has led to criticism by Assistant U.S. Attorney Daniel Richenthal accusing the Macau resident of coming to America “to pay bribes and then leave”. According to news agency Bloomberg Mr. Richenthal also said that Ng Lap Seng “has every reason in the world to leave and none to stay”. Bloomberg also quotes the Assistant U.S. Attorney as saying that Ng is worth almost US$2 billion and has an annual income of US$300 million. Daniel Richenthal went as far as to say that there is a “severe risk” that Ng Lap Seng will flee the country, justifying this with the facts that the Macau resident has international connections, holds several passports and the lack of an extradition treaty between China and
billion from MOP1.72 billion. The increase in investment was mainly driven by the growth of the Investment Plan (PIDDA), which jumped 49.3 per cent to MOP2.49 billion from MOP1.67 billion. The expenditure is in line with the promise of the Chief Executive, Fernando Chui Sai On, to increase spending on social policies during his second term. According to DSF data, the amount of expenditure transferred to the Social Security Fund from January to September this year was MOP13.14
the United States. However, the U.S. Magistrate Judge said he believes the bail conditions ensure Ng will return to court. For his part, Ng Lap Seng’s lawyer, Benjamin Brafman, stressed that his client is “not running away because he wants to clear his name” and that he “should not be denied the right to bail because he is rich”. Mr. Brafman also said that Ng Lap Seng is in frail health and suffers from diabetes.
Corruption Scheme
The Macau Government advisor was arrested on September 19 for allegedly making false statements to Customs officials about why he brought $4.5 million into the United States from China. Ng Lap Seng was later charged on October 6 with four others, including John Ashe, a former U.N. ambassador from Antigua and Barbuda who was U.N. General Assembly president from 2013 to 2014, with engaging in a corruption scheme. Prosecutors said Ng, who heads Sun Kian Ip Group, paid Ashe over $500,000 through intermediaries to seek U.N. support for a U.N.sponsored conference centre in Macau. The intermediaries included Francis Lorenzo, a now-suspended deputy U.N. ambassador from the Dominican Republic who prosecutors said also received bribes from the Macau resident. Those bribes are said to include the apartment Ng will reside in pending trial, Richenthal said on Friday. Agencies
Hengqin’s ‘Creative Culture City’ start delayed to 2018
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he chairman of Hong Kong-listed developer Lai Fung Holdings Ltd., Chew Fook Aun, says the company’s first phase of the cultural-cum-commercial project in Hengqin - Creative Culture City - is expected to be completed in the first half of 2018, a timeframe pushed back from the originally slated 2017. Mr. Chew informed Hong Kong reporters at the briefing of the company’s full-year results on Thursday. Lai Fung and eSun Holdings Ltd., both part of the Hong Kong property conglomerate Lai Sun Group with responsibility for the Hengqin project, jointly announced to the Hong Kong Stock Exchange in late April
last year of their plan to cooperate with U.S. Company Major League Gaming (MLG) to build an e-sports gaming arena in the ‘V-Zone’, a video game venue that is part of the first phase of the group's 18 billion yuan Creative and Culture City project on Hengqin. Phase 1 of the project, occupying a total gross floor area at 2.8 million square feet, comprises a hotel, workshop, performance halls, ‘cultural studios’ and other ancillary facilities, according to Lai Fung’s latest filing of its results for the year ended July 31, 2015. The construction work of Phase 1 of the project is expected to commence by the end of 2015, the filing said.
Business Daily | 5
October 19, 2015
Macau AL’s 2016 budget set at MOP183.91 million The Legislative Assembly’s budget for 2016 has been increased 10.35 per cent year‑on‑year to MOP183.91 million. This decision was approved last Friday by the votes of the 29 members attending the AL session. The increase in budget was justified by the increased cost of staff, which is forecast to grow 9.21 per cent, and other expenses, which are expected to increase 10.2 per cent. These increases are related to the amounts transferred to the Provident Fund.
Property management grading system dropped from draft bill Given the controversy the original recommended grading system has caused in the property management sector the government has decided to scrap it Stephanie Lai
sw.lai@macaubusinessdaily.com
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n the latest version of a draft bill licensing the city’s property management firms, the government has chosen not to include a threetier grading system for the firms in accordance with the number of units they manage and their registered capital, the Executive Council and Housing Bureau announced on Friday. The Legislative Assembly will soon discuss Macau’s first bill licensing property management firms and their practitioners, which mandates firms must hold capital of no less than MOP250,000 (US$31,318) to obtain a licence valid for three years. Executive Council spokesman Leong Heng Teng introduced the latest version of the bill on Friday. This latest version is a departure from the original draft bill that required property management companies be licensed at one of three grades in accordance with the number of flats and their registered capital: Grade A firms managing at least 5,000 flats required capital of no less than MOP3 million; Grade B firms managing 1,201-4,999 flats required capital of at least MOP1 million whilst Grade C
firms were obliged to have MOP300,000 to manage at most 1,200 flats. “In our consultation text on the bill, we suggested a [multi-tiered] capital requirement for the licensing of the property management companies because we wanted to assure households here that they [property management companies] are really able to provide the service,” Housing Bureau director Mr. Ieong Kam Wa said,. “But many small and medium companies here cannot meet this capital requirement, so we have decided to set the threshold at [no less than] MOP250,000, which should be a reasonable level.” As for last year, some 1,061 local property management companies had capital of less than MOP300,000; while only 44 other firms operating in this business had capital of MOP300,000 to MOP1 million, with 12 others holding amounts exceeding MOP1 million, Mr Ieong said, citing official statistics. “The grading system has caused controversy in the [property management] sector because they don’t want to labelled,” Mr Ieong said of the cancellation of the grading system. “Nearly 80
to 90 per cent of the property management companies here manage fewer than 1,200 units...So, eventually we [will] cancel the grading system because the residents are not really highly concerned about the system, and this decision could be more readily accepted by the sector.” The draft bill also demands that the technical chiefs of property management firms be high school graduates. The bill includes a transition period of three years following the implementation
date of the law whereby these technical chiefs can apply to be exempted from the high school graduation requirement on condition they complete a training course organised by the Labour Affairs Bureau. On Friday, the Executive Council also introduced a bill on the horizontal property regime – in other words, the condominium regime – to minimise disputes in selfmanaged buildings. The bill spells out that any meetings concerning the
appointment of a property management committee member must be certified by the supervisory organ, the Housing Bureau. When completing a property transaction contract, homebuyers can also check at the city’s Real Estate Registry whether there are any management fees owed for the unit to be bought, information that the property management committee of the residential building can register, according to the bill.
Another 4,600 housing units on 6 land plots Projects slated for development on the Peninsula and in Taipa and Cotai remain mired in red tape
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he government is planning to build 4,600 public housing units on six plots of land on the Macau Peninsula, and in Taipa and Cotai. The policy was clarified on Saturday after representatives of the Land, Public Works and Transport Bureau (DSSOPT) and Housing Bureau (IH) attended local radio show TDM Forum. According to the plans, a total of 1,000 housing units are to be built on Avenue Venceslau de Morais, on the plot where CEM’s thermal power station is situated.
The construction of these units is pending the results of the study on the environmental impact of the project. Still on the Macau Peninsula, two plots of land on Doca do Lam Mau will support 200 units. While Plot A has already been recovered by the government, the development is pending geological studies and a public tender for the design of the project. The remaining 200 homes to be constructed on the Peninsula will be situated in Iao Hon Street, on the plot of land where the Advisory
Committee for Urban Renewal has its temporary headquarters. At this stage, the government is resolving issues related to the ownership of the plot and the Urban Condition Plan (PCU). In Taipa, some 1,200 housing units will be divided into two areas. The first named will be situated to the east of the Olympic swimming pool and support 1,000 units. The construction in this area is pending reallocation of the public services operating there and on the elaboration of the PCU. The same
issues are identified for the plot of land in Taipa, which will receive 200 units. The government is also planning to build 2,000 public housing units on a plot situated to the west of Cotai. In relation to this project, work is to be done on questions related to the concessions of the land, according to the press release. In the document released during the weekend, the government did not provide information on schedule for the completion of the projects. J.S.F.
6 | Business Daily
October 19, 2015
Macau Latest Chinese travel trend: “Foreign destinations and luxury hotels” The economy in China might be slowing but its citizens, who comprise the largest visitor source of the Special Administrative Region, still favour high-end hotels, according to Rachel Lu, senior director of International Business Development of the country’s most popular online travel agent - Qunar.com. She told Business Daily during the Global Tourism Economy Forum that Japan, Korea and the U.S. became the rising favourite destinations for Mainland Chinese when these countries loosened their visa regulations for Chinese passport holders Kam Leong
kamleong@macaubusinessdaily.com
Qunar.com going from strength to strength Qunar means ‘where to go’ in Mandarin Chinese. Qunar.com, founded in 2005, is one of the biggest mobile and online platforms for Mainland Chinese to book travel-related products, such as flights, accommodations, transportation and other ticketing. In the beginning, the platform was only a travel search engine, later providing technology infrastructure for travel service providers on its mobile application and online website. In November 2013, the Chinese platform was listed on the NASDAQ Stock Market as Qunar Cayman Islands Limited, for which the market cap reached US$3.7 billion on its first day of trading. In addition to travel agencies, the company co-operates with hoteliers all over the world. In January, it formed an alliance with 22 global high-end hotel groups, including Wyndham, Club Med, Banyan Tree, Howard Johnson, and Millennium. Performance In fact, the performance of the online travel platform has also been surging. According to its filing with NASDAQ in August, it had generated a total of
What is the current travel trend for Chinese tourists in terms of hotels?
In fact, the majority of people who book travel products on our platform are mainly leisure travellers, of whom we define the majority as smart and pricecautious travellers. We observe that they’re actually tending to choose luxury hotels more and more. The anti-corruption campaign of the Chinese Government did not affect the choices of our users as they are mostly leisure travellers, who travel primarily for fun. In addition, because they earn more money than before in general, they tend to spend more in luxury hotels now. The bookings we have received for luxury hotels have been climbing.
Are they primarily family tourists or individual tourists?
Most of our users are relatively young; as I said, they are leisure travellers. At the beginning of the operation of our platform, many of our users were college students or young professionals. So, over the years many of them may already
have their own families. But they keep using our website for their needs as family travellers. Hence, the answer is I think the majority of our users are young people but at the same time we also have family tourists.
With the local tourism industry experiencing a downturn do you see fewer bookings for Macaurelated products?
I don’t have the exact numbers with me now. However, I think it’s true that many Chinese tourists have [visited] Hong Kong and Macau a few times, so they may now want something different. In addition, many countries have changed their visa policies for Chinese citizens, such as Japan and South Korea. As such, you can see more Chinese tourists prefer going to these two countries. Moreover, for long-haul, the U.S. now also offers visas to Chinese citizens [valid for] up to 10 years. Frankly speaking, things in the U.S. may even be a lot cheaper than in Hong Kong and Macau, thus we also see the trend that the numbers
The growth in the number of travel [trips] made by Chinese is even higher than the growth of GDP. Even though the GDP growth of China is slowing now, we see the Chinese outbound tourism market will continue going up
881 million yuan (US$142.1 million) in revenues for the second quarter of the year, soaring 120 per cent year-on-year, or 31.3 per cent quarter-on-quarter. The notable jump in its revenues also drove its gross profit for the period to 634.1 million yuan, representing a yearon-year increase of 115.1 per cent. According to the filing, its total estimated flight ticket volume reached 28.1 million for the second quarter, while total estimated hotel room-night volume totalled 17.8 million, jumping 46.9 per cent year-on-year and 145.2 per cent, respectively. Most of its revenues were generated by its mobile application, accounting for RMB600.1 million of the total, surging 321.7 per cent year-on-year. In addition, its revenues earned from flights and related products, and accommodation reservations registered year-on-year increases of 85 per cent and 261.8 per cent, amounting to 517 million yuan and 258.0 million yuan, respectively. The company forecasts revenues for the third quarter of this year as a year-on-year growth of 140 per cent to 145 per cent, with gross profit expected to soar 105 per cent to 110 per cent for the three months.
of Chinese tourists travelling to the U.S. or Europe are increasing rapidly. As I said, I don’t have the exact data with me showing the bookings related to Macau products on our platform are indeed decreasing but I can say Macau may not be as important as before for leisure travellers. Yet, there are still a lot of people travelling to Macau. You can see the streets are still crowded, so it seems that it is still a fun place for tourists. Especially when more resort projects open, I think people will still love to check them out.
Are online travel agencies a trend in Mainland China?
For sure they are. The whole tourism industry is growing rapidly in China due to the economy growing. When the GDP per capita reaches a certain level, travel becomes a must for most people, rather than a “maybe”. If you look at the macro data, people in China have travelled more and more in recent years. In that sense, we can assume that
Business Daily | 7
October 19, 2015
Macau the growth in the number of travel [trips] made by Chinese is even higher than the growth of GDP. Even though the GDP growth of China is slowing now, we see the Chinese outbound tourism market will continue going up. Meanwhile, within the tourism market, the online sector will certainly surge – just imagine how many people can access the Internet in China, how easy it is to look for travel products online, and how easy it is to compare prices between different providers. Online booking is so convenient that you don’t need to call a travel agent; you don’t need to show up at travel agencies. You may only need to tap your phone a couple of times then book everything you need.
In your opinion, convenience and cheap prices are the advantages of online travel agencies? Sure, of course.
Qunar.com offers quite a number of hotels with cheap room rates. Do you work with the hoteliers or with other travel agencies?
We co-operate with both. At the beginning of our business, we were only a travel search engine, which means we worked with a lot of tourist service providers and suppliers. At that time, we led our users directly to providers in order to complete their bookings. Over the years, we have found this model did not work the best for us, especially in China. Hence, in addition to providing travel search, we started to turn ourselves into an online booking agency. On top of that, for both of our search sector, and the online booking agency business, we work directly with hoteliers as well as many other travel service suppliers, so that our users can book their products directly.
Including hotel operators in Macau?
Yes, we have a team based in Hong Kong. This team also works with hotels in Hong Kong and Macau, especially high-end hotels. And I think that part of the business is still quite healthy.
Regarding the platform, what are the most popular products related to Macau?
Well, you know Macau is about gaming, which is very obvious. As such, when people come to Macau, many of them may want to bet on one or two games. But some of them come to Macau to watch shows, while others come for shopping. I think the proportion
Macau may not be as important as before for leisure travellers. Yet, there are still a lot of people travelling to Macau
of entertainment [products] is becoming bigger, after many tourists have got to know that Macau is an Asian version of Las Vegas. So they may now want to see a more cultural side of Macau, by visiting historic sites, for example.
The local government is promoting ‘multi-destination tours’ of Macau and other nearby cities, like Zhuhai and Zhongshan . . . Yes, I think this can be a good idea. When people travel to this part of the country they may first want to visit the new theme park in Hengqin – Chimelong Ocean Kingdom which is actually quite an impressive project. After that, they may want to visit Macau as the two places are so close to each other. As such, it is a good idea to sell linked packages for tourists to travel between Macau and other nearby Chinese cities on the same tour.
Does Qunar.com sell this type of package?
I cannot exactly name the packages but I’m sure there are a lot of similar packages on our platform as the products we provide are very varied. I’m sure there will be packages for our users to visit Hengqin, Zhuhai and Macau on one tour. In fact, we have a function on our mobile application that provides user information of what is around them, or special offers. For example, when they are in Hengqin, we may remind them that there is a special offer of hotel rooms in Macau so they can check it out. With our technology, we know where people are, plus their previous preferences [thus] we would bring up specific products to them. Hence, I think multipledestination tours can be a really good policy.
Qunar.com has launched a joint venture with other companies to develop high-end rural hotels in China.
Why is that?
I still believe the income of Chinese people is increasing in general. Meanwhile, as I said, when their income reaches a certain level they will only tend to travel more and more, and travel will occupy a bigger and bigger proportion of their expenditure. In fact, in my opinion, people are no longer making choices between whether they should take a trip or buy a car or a television as they now already have cars and televisions, they have all those things. Hence, many will [naturally] spend on travel instead. Meanwhile, when they travel, they would certainly search accommodation in the upper market as people want to stay in nice places on their travels. Sometimes, people may stay in a high-end hotel around their cities just for the weekend. This is the trend, so we have such a plan. We want to take advantage of this trend.
Is developing your own products, such as hotel projects, a strategy for the company to deal with the intense competition in the industry?
Well, we are still a technology company, that’s how we define ourselves. We don’t like to perceive ourselves as a company doing business in traditional ways. So I think, broadly speaking, we are a technology company. Our acquisitions are mostly of technology companies or I.T. companies inside or even outside of China. But here or there, we may have some other joint ventures, or some other initiatives that focus on different things, like the hotel business you mentioned. However, in general, it is not the major focus of our company.
Is the company planning to promote the website in Macau?
In fact, as the website is in Chinese, people here can actually access and use it. Currently, we mostly promote our site in China. But for Chinese outside of China [Mainland], such as in Macau, Europe or in the U.S., if they go to our website or download our application there won’t be any problem for them to use it. But in the future, we’ll probably develop a multilingua interface for users; for instance, in English, or let’s say in Portuguese. I don’t know. But the plan will take [shape] a couple of years down the road.
8 | Business Daily
October 19, 2015
Greater China
President Xi lauds Britain for “visionary” Xi also underscored China’s readiness to strengthen financial cooperation with London, which aims to be an important hub for yuan trading and offshore yuan business Stephen J. Adler and Jason Subler
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hinese President Xi Jinping heaped praise on Britain for what he called a “visionary and strategic choice” to strengthen commercial ties with China, as he prepared for a state visit to the United Kingdom that’s expected to be richer in pomp and considerably warmer in tone than his recent trip to the United States. The trip comes at a time of global anxiety about China’s slowing growth. Xi himself acknowledged “concerns about the Chinese economy”, but sought to allay them in a written interview with Reuters. China itself is worried about the slowing of the broader global economy, Xi said, even while he expressed confidence that China would weather the current downturn as it reshapes its economy to be more resilient in the future. That confidence will be on display when Xi arrives in London today evening to kick off a four-day visit that is expected to cement ties between Britain and China, including through a host of business deals. “The UK has stated that it will be the Western country that is most open to China. This is a visionary and strategic choice that fully meets Britain’s own long-term interest,” Xi
said in a written response to questions from Reuters. “China looks forward to engaging with the UK in a wider range, at a higher level and in greater depth.”
Warmer welcome
Xi’s visit comes amid debate in Britain and many other Western countries over what is the best way to engage with a Communist-ruled China that has grown more influential economically and diplomatically. Xi’s visit to Britain, during which he and his wife Peng Liyuan will stay at Buckingham Palace as guests of Queen Elizabeth II, is expected to be much warmer, with Xi saying it could be the start of a “golden time” in bilateral relations. Britain was the first Western nation to join the China-led Asian Infrastructure Investment Bank (AIIB) earlier this year, leading to a stampede of other countries signing up and marking an embarrassment for Washington, which had been pressing its allies not to join. At the time, Britain said joining the AIIB at the founding stage would “create an unrivalled opportunity for the UK and Asia to invest and grow together”. British finance minister George
Osborne set the tone with a preparatory visit to China last month, when he courted Chinese investment into Britain and won praise from Chinese state media for having the “etiquette” not to press human rights issues. Still, Xi’s visit, the first state visit by a Chinese president since 2005, will not be without potentially awkward moments. Newly installed opposition leader Jeremy Corbyn intends to bring up the issue of human rights when he meets Xi, his official spokesman has said.
Xi said expressed confidence that China would weather the current downturn as it reshapes its economy
“No glass doors”
Xi called on Britain and other countries to avoid what he characterised as bias against Chinese companies, as Beijing supports firms in fields from highspeed rail to nuclear technology in their efforts to compete for contracts overseas. “Competition is necessary for a business to grow, and no one will give away a market to its rivals,” Xi said in comments provided in English. “We hope that such competition is benign and market-based. There should be no swing doors or glass doors which are placed as non-economic or nonmarket-based barriers.” One deal expected to be inked during Xi’s visit is a plan for two
state-owned Chinese utilities to invest in a 16 billion pound (US$25 billion) nuclear power project being built by French utility EDF at Hinkley Point in southwest England.
Infrastructure investment key to stabilising growth Premier Li Keqiang said on Saturday that with the global economic recovery losing steam, achieving domestic growth of around 7 per cent is “not easy”
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ncreased infrastructure investment is key to stabilising China’s economic growth, a top state advisor said yesterday, while calling on the central bank to lower the cost of financing for companies and increase overall credit. “Keeping relatively high growth of infrastructure investment is key to stabilising economic growth” since property and manufacturing investment remains weak, said Yu Bin, head of the micro economy research department at the State Council’s Development Research Centre. China needs to speed up its 172 hydropower projects, develop 800 million mu (53 million hectares) of highstandard agricultural land and increase investment in rural roads, Yu said. The Chinese government has taken several measures in recent months to accelerate construction investment, in part by attracting private financing through the increased used of publicprivate partnerships (PPP). The Ministry of Finance (MOF) in September published details for 206 proposed
PPP projects, worth a total value of 659 billion yuan (US$104 billion), including an expressway in Beijing. MOF last month also launched a 180 billion yuan fund with China’s biggest banks and financial institutions to invest in PPP projects. Yu also called for the central bank to be alert to macro-economic adjustments lowering the cost of finance for companies and allow for credit growth, while maintaining a prudent monetary policy. China has already launched a wave of measures to drive economic growth since late 2014, including cutting benchmark interest rates five times since November and lowering the reserve requirement ratio for lenders. Many economists expect the central bank to further cut interest rates and the reserve requirement ratio by yearend. Yu also said China should implement fiscal, taxation and financial policies to encourage companies to merge and restructure, and allow bankruptcies to solve the problem of over capacity. Reuters
Business Daily | 9
October 19, 2015
Greater China
openness
including in Western nations. While critics have said that Chinese government support, including cheap financing, for companies in that and other sectors could amount to unfair competition, Xi defended China’s approach. “Even under market conditions, countries support the growth of their companies in various ways, and such measures should not be all labelled as government subsidy,” Xi said. His comments were prepared by Chinese government officials, but were reviewed and approved by Xi himself, the government said. Xi also underscored China’s readiness to strengthen financial cooperation with London, which aims to be an important hub for yuan trading and offshore yuan business and is set to be the first location outside China and Hong Kong to host the issuance of Chinese central bank and finance ministry debt. “When conditions are in place, China is ready to consider strengthening the connectivity of the financial markets of the two countries,” he said.
Worries over economy
EDF Energy’s head Vincent de Rivaz has described Xi’s visit as a “timely opportunity” to seal the deal. China has ambitions to sell its own nuclear technology overseas,
Xi acknowledged that the Chinese economy’s slowing was a concern. “As an economy closely linked to international markets, China cannot stay immune to the lacklustre performance of the global economy. We do have concerns about the Chinese economy, and we are working hard to address them. We also worry about the sluggish world economy, which affects all countries, especially developing ones,” he said. Economists polled by Reuters expect growth to have slowed to 6.8 percent from a year earlier in the third quarter, the weakest pace since the first quarter of 2009 and below the
KEY POINTS First state visit by Chinese president to UK since 2005 China dubbing visit as start of a “golden” age in ties Acknowledges concerns over growth; says under control government’s target of 7 percent for the year. GDP figures are due to be published today. Xi said the monetary easing steps China had taken to date, as well as its adjustment to the exchange rate mechanism for the yuan in August, which was accompanied by a devaluation of the currency, had helped to defuse risks. “Going forward, we will deepen market-oriented financial reforms according to law to cultivate an open and transparent capital market that enjoys long-term, stable and sound development,” he said. U.S. and European businesses have complained about what they see as an increasingly restrictive environment for doing business, for example with new rules on technology sales forcing firms to choose between forgoing the market and handing potentially sensitive data to Chinese authorities. Xi said China would continue to seek to attract foreign investment, improve the rule of law to enhance the business environment, protect intellectual property rights, and promote fair competition. Reuters
BP and CNPC to unveil oil alliance BP will also seek to use the alliance to expand its operations in China Ron Bousso
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P Plc and China’s CNPC will this week unveil a strategic alliance to develop oil resources in Iraq and other regions, industry sources said on Friday, as Britain and China seek to tighten economic ties. The pact, one of several highprofile deals to be signed during a visit by Chinese President Xi Jinping to Britain, will aim to bolster cooperation between the two companies in Iraq,
FX sales hit high in September China’s central bank and commercial banks sold a record net 761.3 billion yuan (US$119.85 billion) of foreign exchange in September, data showed on Friday, as capital outflows weighed on the yuan after its surprise devaluation the previous month. The September figure surpassed the net 723.8 billion yuan sold in August, according to Reuters calculations based on central bank data. Worries over China’s economic slowdown and possible interest rate rises by the U.S. Federal Reserve have led to a wave of capital outflows that intensified after the yuan’s devaluation on Aug. 11.
Exporters downcast as orders slow, costs rise Around two-thirds of exporters at China’s largest trade fair expect the slowdown in their markets to persist for at least six months, a Reuters poll has found, with the country expected to announce its weakest economic growth in decades early next week. In the vast, booth-filled halls of the biannual Canton Fair in Guangzhou last week, a Reuters opinion poll of 103 mostly small to medium sized Chinese manufacturers found they expected orders to rise an average of 1.83 percent this year, though production costs were expected to rise 5.6 percent in the coming 12 months.
More gold to reserves in September China increased its gold holdings by nearly 1 percent in September even as total foreign exchange reserves dipped, central bank data showed on Friday. Gold reserves rose by 480,000 fine troy ounces, or 14.9 tonnes, to 54.93 million ounces, or 1,708.5 tonnes at the end of September, the People’s Bank of China said. The central bank added 16.2 tonnes in August and nearly 19 tonnes in July. An increase in the gold price in October is unlikely to have deterred the PBOC from buying more, he said.
Robot sales to almost triple by 2018 where they are developing the giant Rumaila oilfield. Rumaila, in southern Iraq, is the world’s second-largest oilfield and produced 1.34 million barrels per day in 2014, according to BP’s website. The two companies will also seek to expand into new joint ventures in other parts of the world, according to the sources. No clear production or investment targets are expected
to be included in the deal, they said. State-owned China National Petroleum Corp is Asia’s largest oil producer and parent of PetroChina Co Ltd. BP will also seek to use the alliance to expand its operations in China, which have been limited mainly to a fuel retail joint venture. Its peers Royal Dutch Shell and Total have natural gas operations with CNPC. For CNPC, the alliance could offer opportunities also to deepen operations in the North Sea and West Africa, where BP has extensive operations. Reuters
KEY POINTS Companies to announce cooperation in Iraq, other regions BP seeks deeper operations in China
Sales of robots in China are set to almost triple by 2018, defying a slowdown in the wider economy, the International Federation of Robotics said on Friday. China is trying to modernise its industrial production and has identified robotics as a major area for growth amid labour shortages and fast-rising wages. The world’s second-largest economy still has far lower robot penetration than other big industrialised economies - just 36 per 10,000 manufacturing workers versus 478 in South Korea, 315 in Japan, 292 in Germany and 164 in the United States.
Corn-based ethanol revived amid record high stocks China, the world’s second-largest corn consumer, is set to resume building new corn-based ethanol plants after a nearly decade-long ban, in a move that could help absorb the country’s record stocks, industry sources said. Beijing barred corn-based ethanol in late 2006 on concerns over food security at a time of rising domestic corn prices. China has since shifted to using sorghum, cassava and other non-grains to make ethanol, but expansion has been limited by a shortage of non-grain feed stocks.
10 | Business Daily
October 19, 2015
Greater China
Beijing promotes low-paid college grads to start-up CEOs The aim is to help shift China’s factory-based economy towards knowledge-driven services, and address unemployment among Chinese college students Pete Sweeney
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uitting her job as receptionist, joining rock bands and chancing her tattoo-sleeved arm at small business ventures would once have branded college graduate Ding Jia as a rebel in China. Now she can claim state endorsement as a “creative”. “I haven’t had a formal job in years,” said Ding, 31, sitting in her tiny coffee and cocktails bar on a trendy Shanghai street. She has no regrets, but no illusions either. “Entrepreneurship can be a really hard experience,” she said. “Profits can be so thin.” In the week she spoke to Reuters, she and dozens of nearby businesses were forced to close temporarily by city officials on a regular sortie to enforce regulations. While most parents might warn their children off high-risk, lowreward self-employment, preferring jobs in government or state-owned enterprises, Ding says her Shanghai nurse mother and cab driver father were supportive. That attitude finds an echo in high places; recent graduates who start
Job search maze leads an increasing amount of students to aspire to self employment
their own businesses are being hailed in state media as a new creative class that will build China’s Silicon Valley. “Creatives show the vitality of entrepreneurship and innovation among the people, and such creativity will serve as a lasting engine of China’s economic growth,” Premier Li Keqiang said in January. “I will stoke the fire of innovation with more wood.”
In addition to warm words, many are receiving training, subsidies, free office space and other support from district governments and universities. Optimists hope the next Jack Ma or Mark Zuckerberg will emerge from this pool, but sceptics say the policy is setting up inexperienced kids for failure.
The aim is to help shift China’s factory-based economy towards knowledge-driven services, and address unemployment among Chinese college students. Most private employers have little use for fresh graduates from crowded domestic universities, who consequently can earn less than skilled factory and construction workers. A Peking University study found that entry-level salaries in Shanghai averaged just 3,241 yuan (US$511) a month - a pittance in a city with one of world’s 10 most expensive property markets. Chinese surveys show 20-30 percent of college students now aspire to entrepreneurship or selfemployment, and Cui Ernan, labour analyst at Gavekal Dragonomics, said official data suggests they are following through. Though undergraduate numbers swelled to record highs last year, the number seeking work in the formal job market appeared to shrink.
Entrepreneurs by quota
Cynics say pushing student entrepreneurship is mostly about
Alibaba offers to buy all of ‘mainland’s YouTube’ Youku Tudou said the all-cash offer already had the support of its chairman and chief executive, Victor Koo Abhirup Roy and John Ruwitch
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libaba Group Holding Ltd offered to pay US$3.5 billion to become the sole owner of Youku Tudou Inc, known as China’s YouTube, in a move that would give the e-commerce giant access to more than half a billion online video users. The offer, a vote of confidence in China’s
economy from Alibaba Chairman Jack Ma, makes Youku Tudou the latest in a string of U.S.-listed Chinese companies being taken private by big shareholders. “Alibaba needs traffic. Online or mobile video is the number one place for that,” said Tian Hou, an analyst
at TH Capital in New York. Alibaba first bought into Youku Tudou in mid-2014, acquiring a stake of about 18 percent as part of a push into online video. Alibaba’s offer for Youku Tudou values the 82 percent of the company it does not own at US$4.6 billion. But it will end up paying
The offer is a vote of confidence in China’s economy from Alibaba Chairman Jack Ma
US$3.5 billion, taking into account the US$1.1 billion of cash on Youku Tudou’s books, Alibaba’s chief financial officer, Maggie Wu, said on a call on Friday.
Threat to Netflix?
Though Youku has never turned a profit, its more than 500 million monthly users provide an enormous platform for Alibaba’s ambitions to sell online film and television and poses a potential threat to Netflix Inc’s plans for China. Alibaba’s move comes as Netflix is looking to expand aggressively overseas as opportunities to grow become scarcer in its home market. Youku Tudou’s subscription service already offers Hollywood and Chinesemade movies. “For Netflix, I think people already thought that China was going to be a challenge,” Atlantic Equities analyst James Cordwell said. “This just serves as a helpful reminder.”
Alibaba’s offer comes at a 30 percent premium to Youku Tudou’s closing price on Thursday, valuing the company at about US$5.2 billion, based on 194.47 million shares outstanding as of June 30. Youku Tudou is one of about 30 U.S.-listed Chinese companies to have received an offer to go private this year, according to Hong Kong research firm MCM Partners, many in the belief that higher valuations are available back home. In the biggest proposed deal, a consortium offered to buy security software maker Qihoo 360 Technology Co Ltd for about US$10 billion in June. Youku Tudou’s New York-listed stock was up 22 percent at US$24.95, below the offer price of US$26.60 per American Depositary Share. Alibaba, shares of which were up 0.2 percent at US$71.91, said it would fund the offer with cash on hand. Reuters
Business Daily | 11
October 19, 2015
Greater China KEY POINTS Undergrads struggling to find good jobs, decent wages Surveys show 20-30 pct of students aspire to self-employment Government, universities backing new business incubators Many inexperienced grads ill-prepared for success - analysts Critics say govt should clear barriers to private business
helping officials meet targets while heading off political unrest among disaffected students, the demographic behind the 1989 Tiananmen Square protests. A busy entrepreneur, on the other hand, counts as both employed and as a new business registration. Parker Liu, currently COO of a mobile technology start-up in Beijing, began launching new companies before he graduated. He said district officials regularly scoured entrepreneurship events seeking start-ups to subsidise, often on the understanding that the company would register in their district. Liu said he had received small subsidies from district governments
and helped introduce officials to other start-ups, but was doubtful about the benefits. “The real problem is the money doesn’t come with education ... These government officers, they didn’t know much about entrepreneurs or start-ups, but they know a lot about political evaluations. They have a quota.” Liu said the support also encouraged too many into sectors with low barriers to entry, such as e-commerce, mobile games, and college prep schools. “In terms of helping the job market, this sort of thing is of marginal benefit,” said Geoffrey Crothall, communications director at China Labour Bulletin. “They are going to price themselves into the ground, and so the wages they can afford to pay their staff are going to be very low as well.” While official data is scant, failure rates appear unsurprisingly high. “They have very poor management skills,” said Cui of Dragonomics. “Most of the businesses run by college students I observe, only a few of them succeeded.”
Dream community
The University Students Venture Park in northern Shanghai was designed as an incubator for college students considering a start-up. The lobby is decked out in a sunny palette and garnished with inspiring slogans about creativity; outside a large sign reads “Dream Community”. Some have turned their dreams into a modicum of success. The free rent, accounting services and internet access helped Jiang Gongbao launch his Long Ai marketing company, which has lasted long enough to hire a few employees. Jiang said he understands the
risks, but regards them learning opportunities. “Failure is not a bad thing, as the process to start up a business is always meaningful,” he said. The incubator’s deputy general manager, Zhu Jiang, roots for his tenants, but he’s no evangelist. “I do not encourage all students to start up business. Being a successful entrepreneur requires some characteristics that not everybody can possess.” Many venture capitalists doubt the incubators do much good, since Chinese bureaucrats with little or no experience running private firms lack the skills to pick successful business plans. “I think it’s really misguided,” said Gary Rieschel, founder of Qiming Ventures, which has invested in numerous successful Chinese startups including Alibaba. “A university is a terrible place to learn how to start a company,” said William Bao Bean, another China venture capitalist with a long history of investing in Chinese tech startups. What is needed, critics say, is a dismantling of the policy barriers that make life tough for the private sector, such as weak legal protection for new ideas, restricted access to capital, and labyrinthine regulations that enable corrupt officials to prey on small enterprises. “Some countries make mistakes by trying to pick favourites and pick preferred technologies,” said Robert Zoellick, former World Bank chief, in an interview with Reuters in Shanghai. “Creating a level playing field is the start. You need to have an effective rule of law and property rights. I think China is struggling with that.” Reuters
UK official sees sound case for yuan to join IMF basket Despite bankers and economists in London saying problems remained with the depth of liquidity of yuan markets, chiefly relating to the lack of an easily accessible market in Chinese government bonds
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hina’s yuan has a solid case for being judged a reserve currency by the IMF in a decision due early next month, according to a senior civil servant dealing with the development of Britain’s financial links with China. The comments by Treasury director Katharine Braddick follow signs China is making quiet progress on creating the market infrastructure needed to make the yuan, or renminbi (RMB), fully convertible. Braddick chairs the London Hong Kong RMB Forum and is Britain’s member of the EU’s Financial Services Committee. Convertibility is the central condition for inclusion in the basket of currencies used to value the International Monetary Fund’s Special Drawing Rights, a virtual currency that defines the value of IMF reserves and its emergency pay-outs to members. Asked on the side-lines of a banking seminar on China if Britain supported the yuan’s admission, Braddick said: “I personally think there is a sound evidence base, but the IMF will need to look at it in considerably more detail.
“The yuan is clearly trading, it will be an investment currency, it is here to stay,” she added. Britain and other members of the Group of 20 leading economies are jostling for position as financial partners for China. When the SDR issue came up around the IMF’s spring meetings, U.S. Treasury Secretary Jack Lew said the yuan was not yet ready for inclusion,
but last month he voiced an openness to “a positive review”, as long as China carried out promised reforms. Most stressed that the decision on the SDR, which a number said they expected the IMF to announce on November 4, was a potential turning point for the development of the yuan and opening up of China’s capital markets.
IBM allows Beijing to review its source code International Business Machines Corp said on Friday it allows certain countries to review, under strict control, portions of the U.S. technology company’s product source code to detect any security flaws in its software. China is among those countries, a person familiar with the company’s policy there said. The reviews must be done using an IBM security application and the company “does not let people take the code out of the room,” the source said on condition of anonymity due to the sensitivity of the matter.
Chinalco plans shutdown of biggest aluminium smelter Aluminum Corp of China (Chinalco), the country’s top producer of the metal, plans to shut down its biggest smelter - accounting for about an eighth of its total capacity - due to low prices, an industry body said. The shutdown reflects mounting pressure on even state-owned companies in the face of slower economic growth and a planned restructure of state-owned enterprises, although it is not expected to have much impact on a forecast domestic output surplus this year.
Mainland firms want to build California high-speed train A team of Chinese firms, along with the Export-Import Bank of China, wants to build and finance a large part of California’s proposed high-speed rail project. The firms expressed their interest last month in a document sent to the California HighSpeed Rail Authority. The authority asked private companies from around the globe to help shape the state’s strategy to launch the first stage of its train line, considered the most ambitious infrastructure project in the United States. Led by China Railway International, the Chinese team proposed it could provide big elements of the project, including design expertise, construction, equipment procurement, and rolling stock.
HSBC boss says economy fears overdone Volatility in China’s markets is inevitable as it implements reforms and its economy is unlikely to have a “hard landing,” HSBC Chief Executive Stuart Gulliver said on Friday. “The fears for China’s economy are overplayed. I do not believe China will have a hard landing,” Gulliver said in a speech on the country in London. “The last few months have obviously been difficult... (But) the fluctuations and stock market volatility have little or no bearing on the long-term trends around China,” he said. He said HSBC still expected China’s economy to grow by about 7 percent this year.
Reuters
30 mln annual auto production capacity by 2020 China will aim to have the capacity to make 30 million autos a year by 2020, according to an industry association, a figure that is lower than analysts’ estimates of its current annual production capacity. The capacity target was in an advance copy of a speech that Vice-Secretary Shi Jianhua of the China Association of Automobile Manufacturers (CAAM) is due to make on Friday, predicting what targets the Communist Party will set out for the auto industry when it meets later this month to decide the country’s economic blueprint for 2016 to 2020.
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October 19, 2015
Asia
Malaysian opposition seeks no‑confidence vote against Najib Najib is seeking to please both investors and Malaysians when he presents the budget on October 23
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alaysia’s opposition escalated pressure on Prime Minister Najib Razak over a multimillion-dollar funding scandal, seeking a noconfidence vote against him as parliament resumes after a four-month hiatus. While the motion faces obstacles even getting heard, let alone voted on, the opposition is looking to gain momentum from the vocal criticism of former premier Mahathir Mohamad, who has called on Najib to step aside. Najib retains the support of many divisional heads in his ruling party and in the budget is expected to increase hand-outs to the poor, many of them rural Malays, a core support base. Even so there are signs of discontent, including from former deputy premier Muhyiddin Yassin, whom Najib fired in July. People’s Justice Party lawmaker Hee Loy Sian said he filed the no-confidence motion over Najib’s failure
to address claims he received funds linked to debt-ridden state investment company 1Malaysia Development Bhd. in his bank accounts. Najib has denied any wrongdoing, and he and investigators have both said the funds were political donations from the Middle East. “Najib has tarnished the country’s image in the world and caused investors to lose faith in the government,” Hee wrote in the motion that was posted on the parliament website on Saturday. “Malaysians do not believe in this prime minister.”
Ringgit weakness
Southeast Asia’s third-largest economy has faced more than three months of upheaval over the imbroglio. Foreign investors pulled US$4.6 billion from stocks and bonds last quarter and sent the currency to a 17-year low. While the ringgit has since recovered alongside emerging market currencies, it’s still
down about 16 percent this year, the worst performer in Asia. The motion has been listed as the fourth-last item of 28 for today when parliament reconvenes, making it “clearly designed to fail,” said Wong Chen, a lawmaker from the People’s Justice Party. Priority is usually given to government matters in parliamentary motions.
Government lawmakers
The opposition needs the support of 25 Barisan Nasional (BN) MPs in order to pass a no-confidence vote. However, the opposition alliance has itself been wracked by infighting for months over issues including one party’s push for Islamic criminal law in a state it governs. It remains divided after former leader Anwar Ibrahim was jailed for sodomy, a charge he denies. The no-confidence vote will be for “BN MPs to rebel if they would want
Malaysia’s Prime Minister Najib Razak
any move against Najib to result in a new BN/UMNO majority government,” said Wong, referring to Najib’s United Malays National Organisation. “They will want the cake and eat it too, which then makes the mathematics of getting a rebellion much tougher.”
The motion could come up when lawmakers debate Najib’s budget presentation and the ratification of the Trans-Pacific Partnership trade agreement, said Wan Saiful Wan Jan, head of the Institute for Democracy and Economic Affairs. Bloomberg News
Japanese PM presses firms to lift capital spending In the two years ended March 2015 capital expenditure grew just 5 trillion yen Tetsushi Kajimoto
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rime Minister Shinzo Abe’s government on Friday urged Japanese firms to help revive the flagging economy by using their hefty cash piles to boost capital expenditures. The request was made during the first round of talks between cabinet ministers and business leaders on expanding business investments, in a show of government pressure on companies to lift investment needed to generate a virtuous growth cycle. The move follows Abe’s intervention in labourmanagement talks to press firms to raise wages, at a
time his “Abenomics” recipe of aggressive monetary stimulus, spending and growth strategies is seen losing momentum. “Corporate profits have risen to a record high but investment growth has not been enough,” Abe told the meeting. “Now is the time for companies to aggressively invest in facilities, technology and talent. The industry circles today showed a positive stance to expand investment.” Sadayuki Sakakibara, chairman of Japan’s biggest business lobby Keidanren, demanded the government
lower the effective corporate tax rate - among the developed world’s highest to below 30 percent as soon as possible to spark business investment. The government cut the corporate tax rate to 32.11 percent in the current fiscal year from last year’s 34.62 percent, and plans to reduce it to 31.33 percent next fiscal year.
Clearly weak spending
After the session, Economics Minister Akira Amari said it was wrong to think Japanese demand would not grow due to the country’s dwindling population.
“It’s clear that domestic capital spending is weak, while companies are hoarding cash and savings,” he told reporters. “I want to push companies’ back to fill this gap.” The amount of cash Japanese companies have amassed has increased since Abe took office in December 2012. Ministry of Finance data showed corporate internal reserves stood at 350 trillion yen (US$2.94 trillion) in the fiscal year ended March 2015, compared with 300 trillion yen two years earlier. In the two years ended March 2015, capital
expenditures grew just 5 trillion yen, to 40 trillion yen. Amari also said the government had not yet started formally debating an extra budget for this fiscal year, including steps such as cash pay-outs to lowincome groups to stimulate consumption. The Bank of Japan’s key tankan survey showed big firms maintained their bullish capital expenditure plans for this fiscal year, although core machinery orders, a leading indicator of capital expenditure, have fallen in the past three months. Reuters
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Business Daily | 13
October 19, 2015
Asia
Singapore September exports up on electronics Sales to the United States fell 9.3 percent in September after growing 8.8 percent in August Jongwoo Cheon and Rujun Shen
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ingapore’s exports unexpectedly rose in September as sales of electronics products expanded, but reduced shipments to major markets such as the United States and China indicated sluggish global demand was limiting growth. Non-oil domestic exports (NODX) edged up 0.3 percent in September from a year earlier, trade agency International Enterprise Singapore said in a statement on Friday. That compared with a 3.8 percent contraction forecast in a Reuters poll. In August, non-oil domestic exports slumped 8.4 percent on year reflecting a steep decline in sales to China and Europe. Singapore’s non-oil exports tend to be volatile because a significant portion comprises pharmaceuticals and oil rigs that can vary sharply from month to month. Exports on the month advanced 2.8 percent in September on a seasonally adjusted basis, compared to a 0.8 percent rise predicted in the survey and a 4.6 percent fall in August. Domestic exports of electronics
grew 5.7 percent in September from a year earlier after falling 2.7 percent in the previous month. Overseas sales of telecommunications equipment jumped 76.8 percent in September. “It’s encouraging that we are seeing some pickup in electronics exports,” said Selena Ling, an economist at Oversea-Chinese Banking Corp. “Now NODX is coming in a little higher than the market expected, so maybe this is a turnaround story, but we’ll wait and see.” Singapore’s electronics sector has been underperforming neighbours such as South Korea and Taiwan due to fierce competition and Singapore’s lack of popular high-tech products such as smartphones. Despite September’s rebound in overall exports, analysts doubted if the city-state could maintain such momentum, given the sluggish global economy. Non-oil domestic exports to China - Singapore’s largest export market slumped 12.9 percent in September from a year earlier, more than a 8.2 percent slide in August.
KEY POINTS
Sept NODX +2.8 pct m/m sadj vs +0.8 pct forecast NODX to U.S., China, Europe down
Sales to the United States fell 9.3 percent in September after growing 8.8 percent in August. Shipments to Europe eased 2.1 percent after a 9.0 percent contraction. Singapore’s central bank eased monetary policy for the second time this year on Wednesday and warned of risks to growth after its economy narrowly avoided a recession in the third quarter. Reuters
Ratings agency Standard & Poor’s warned on Friday of potential defaults by Indonesian firms after mobile phone retailer PT Trikomsel Oke Tbk prepared to meet lenders to restructure around US$155 million of debt. Trikomsel said earlier this week it may restructure S$215 million in outstanding bonds, which S&P said would be the first of its kind in Singapore’s bond market since the global financial crisis. In a report, S&P said other companies are also facing “much eroded balance sheets at a time of slower growth (which) could trigger additional defaults or proactive debt restructuring over the next 12-18 months”.
Cambodian police arrest Chinese for telephone scam Cambodian police have raided a guesthouse in Tboung Khmum province, northeast of Phnom Penh, and arrested 72 Chinese nationals who were allegedly involved in a telephone scam, the National Police’s website reported on Saturday. “Seventy-two Chinese nationals, including 19 females, were arrested on suspicion of telephone fraud during the raid on Friday afternoon,” Tboung Khmum provincial police chief Gen. Mao Pov was quoted by the website as saying. A number of telephones and laptops, which were used by the scammers to threaten and extort money from people in China, were also seized as evidence.
Manufacturers, conscious of the inventory overhang, have reined in production as they de-stock Patturaja Murugaboopathy
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Indian oil-to-retail conglomerate Reliance Industries posted a stronger-than-expected quarterly profit, boosted by record refining margins, and confirmed plans to launch a keenly awaited 4G telecommunication service by “around December”. Reliance, controlled by India’s richest man and the country’s second-largest company by value, said on Friday consolidated net profit rose 12.5 percent, even though plunging crude prices dragged revenue down by more than a third. Higher profits came largely from gross refining margins, which rose to US$10.60 per barrel, the highest in seven years and up from US$8.30 in the same quarter a year earlier.
S&P warns of defaults in Indonesia
Sept NODX +0.3 pct y/y vs -3.8 pct forecast
S.Korean manufacturing wilts in inventory overhang
he inventory overhang weighing on South Korean manufacturers has eased slightly as key electronics and auto exports see some signs of recovery, but inventories are still hovering near seven-year highs as overseas demand - particularly from China - remains soft. The ratio of manufacturers’ inventories to shipments slipped to 1.28 in August from 1.29 in July, the latest data from Statistics Korea shows. Inventories might have eased further in September, with electronics
Refining records boost Reliance profits
Japan exports seen modestly higher and auto industries posting a small year-on-year export growth for the first 20 days of September. Prospects remain uncertain though, with China on an uneven growth path while Europe has yet to regain momentum, economists say. Manufacturing activity has contracted for seven consecutive months, the Nikkei/Markit purchasing managers’ index (PMI) for September shows. As production lines slow, expansion plans will likely be shelved or postponed. Capital expenditure in the manufacturing sector may
fall about 36 percent in the next 12 months, according to Thomson Reuters StarMine. The impact on employment is so far muted. Manufacturing accounts for a relatively small proportion of the South Korean labour market. The services sector, which is responsible for almost two-thirds of the economy, has performed well in comparison, aided by recent interest rate cuts and higher consumer spending. For one or two quarters, the services sector should be able to offset some of the slack in manufacturing, said Ma Tieying, economist with DBS Bank in Singapore. Over the longer term, however, the services sector will be unable to compensate for the slowdown in manufacturing, economists say. Services are strongly influenced by the performance of big exporters such as Samsung Electronics, Hyundai Motor and Hyundai Heavy Industries through their spending on hiring, wages, investment and share dividends. On Thursday, the central bank cut its economic growth forecast for 2015 and 2016. Reuters
Japan’s exports were expected to rise only modestly in September, a Reuters poll found, a sign that stagnant Asian demand may be hampering Japan’s hesitant economic recovery. The trade data due on Wednesday could provide a strong clue to whether the economy will avoid recession after it shrank in April-June. Exports were seen increasing 3.4 percent last month from a year earlier, the poll of 22 analysts found, after a 3.1 percent increase in August and a 7.6 percent gain in July.
Retail giants restrict travel to Bangladesh Business executives from global clothing giants H&M, Inditex and Gap have cancelled trips to Dhaka this month after the killings of two foreigners, industry sources said, causing anxiety for Bangladesh’s US$25 billion garment export sector. Bangladeshi suppliers to the world’s top brands said they didn’t expect the disruptions to hurt their orders for the year-end Christmas season. But the attacks, claimed by the Islamic State, increase the pressure on an industry which faces competition from other low-wage countries and is trying to repair its safety image after several fatal accidents.
14 | Business Daily
October 19, 2015
International Mexico government plans pension system overhaul Mexico’s government is preparing a proposal to overhaul the nation’s pension system in April, newspaper Reforma said, citing Senator Fernando Mayans, the president of the chamber’s Social Security commission. Mayans said Finance Minister Luis Videgaray met with senators to plan the reforms, which will consider the impact on individual pension accounts from changes in demographics, the structure of salaries, economic growth and unemployment, Reforma reported. The government will spend 618 billion pesos (US$37.6 billion) on pensions in 2016, about one-sixth of federal spending, and in 2017 pension spending will exceed investment, Reforma reported.
Weak inflation puts ECB in tight spot at Malta meeting A number of top ECB policymakers, including Draghi himself, have recently insisted it is too early to judge whether further action is needed Simon Morgan
Apple ordered to pay US$234 mln
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A U.S. jury on Friday ordered Apple Inc to pay the University of Wisconsin-Madison’s patent licensing arm more than US$234 million in damages for incorporating its microchip technology into some of the company’s iPhones and iPads without permission. The amount was less than the US$400 million the Wisconsin Alumni Research Foundation (WARF) was claiming in damages after the jury on Tuesday said Apple infringed its patent for improving the performance of computer processors. Apple said it would appeal the verdict, but declined to comment further.
VW made several devices to cheat emissions tests Volkswagen made several versions of its “defeat device” software to rig diesel emissions tests, three people familiar with the matter told Reuters, potentially suggesting a complex deception by the German carmaker. During seven years of self-confessed cheating, Volkswagen altered its illegal software for four engine types, said the sources, who include a VW manager with knowledge of the matter and a U.S. official close to an investigation into the company. Some industry experts and analysts said several versions of the defeat device raised the possibility that a range of employees were involved.
Russian hackers breached Dow Jones for trading Russian hackers had infiltrated Dow Jones & Co to steal information to trade on before it was made public, and the breach was “far more serious than a lower-grade intrusion” disclosed by the company, Bloomberg reported, citing sources. The Federal Bureau of Investigation, Secret Service and the Securities and Exchange Commission are leading an investigation, which began at least a year ago, Bloomberg reported. Dow Jones disclosed a breach of its systems that put payment card and contact information of about 3,500 individuals at risk.
alling prices in the eurozone are turning up the heat on the European Central Bank to prevent the single currency area from slipping into a dangerous downward spiral of deflation. But many ECB watchers say they do not expect the guardian of the euro to take any action just yet when its decision-making governing council convenes in Malta this coming week. Consumer prices in the eurozone slipped by 0.1 percent in September, according to data published by Eurostat. That “heaps pressure on the ECB to step up its stimulative action at its meeting” on Thursday, said IHS Global Insight analyst Howard Archer. With area-wide interest rates currently at what ECB chief Mario Draghi (pictured) perceives to be their lower end, any additional easing action would likely take the form of an extension of the central bank’s bond purchase programme, known as quantitative easing or QE, the expert said.
“But it looks most likely that the ECB will hold fire on more QE, as a number of governing council members appear to be in ‘wait and see’ mood,” Archer said. A number of top ECB policymakers, including Draghi himself, have recently insisted it is too early to judge whether further action is needed. Also by December the ECB will have compiled its own new staff forecasts, which could well bolster the case for more stimulus. “Recent comments from governing council members suggest that the ECB may not be ready to increase its policy support when it meets” in Malta, said Jennifer McKeown of Capital Economics. But Draghi would likely reiterate concerns about the inflation outlook and risks from emerging markets, stressing again that the ECB was ready to do more if needed. QE is an ambitious scheme, launched in March, to buy more than one trillion euros (US$1.1 trillion) worth of public sector bonds to pump
liquidity into the system at a rate of 60 billion euros per month until September 2016. While falling prices might appear to be good for consumers, they can be poisonous to the economy, because they may persuade consumers to delay purchases in the hope of lower prices, in turn prompting companies to hold off investment and hiring. The ECB calculates that inflation rates of close to but just under 2.0 percent are conducive to healthy economic growth.
Ready to act
Draghi has repeatedly said that the ECB would be ready to take further stimulative action if necessary. And analysts believe that such action could take the form of an extension of the QE programme beyond September 2016 or an acceleration or increase in the total amount of bonds purchased. But executive board member Benoit Coeure recently said it was too early to speculate about such a move, pointing out that only a third of the current QE programme had been executed so far. And with the beneficial effects of a range of other policy measures -unprecedented amounts of liquidity and historically low interest rates -still only gradually making themselves felt, it was “premature to discuss” a new QE programme, Coeure said. Nevertheless, “it is certainly our duty to be prepared to cope with all kinds of contingencies,” he added. AFP
U.S. consumer sentiment rebounds While industrial production rose at an annual rate of 1.8 percent in the third quarter
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.S. consumer sentiment rebounded strongly in early October, suggesting that the economic recovery remained on track despite headwinds from a strong dollar and weak global demand that have weighed on the industrial sector, particularly manufacturing. The snapback in sentiment reported underscored robust domestic demand and offered hope that consumer spending would remain solid enough to support economic growth, which has slowed significantly in recent months. The University of Michigan said its consumer sentiment index rose to 92.1 in early October from a reading of 87.2 September. The survey’s current conditions sub-index shot up to 106.7 this month from 101.2 in September. The index at current levels has historically been consistent with roughly a 4 percent annualized rate of consumer spending growth, according to economists.
The rise in sentiment, which likely reflected cheaper gasoline prices, suggested limited impact from recent stock market volatility. Consumers were the most optimistic about their personal financial expectations since 2007. Their views toward purchases of long-lasting manufactured goods were equally bullish. Consumer spending accounts for more than two-thirds of U.S. economic activity and has been the bright spot in the economy as the industrial sector wobbles under the onslaught of slowing global growth and the resurgent dollar, which have eroded demand for U.S. manufactured goods.
Weak industrial production
In a separate report, the Federal Reserve said industrial output slipped 0.2 percent on renewed weakness in oil and gas drilling after dipping 0.1 percent in August.
Manufacturing output fell 0.1 percent in September even though robust demand for automobiles lifted motor vehicle and parts production by 0.2 percent. Manufacturing output dropped by 0.4 percent in August. For the third quarter, manufacturing output increased at a rate of 2.5 percent. There were declines in the production of computer and electronic products, as well as electronic equipment, appliances and components. Primary metals and machinery output increased. Mining production fell 2.0 percent as oil and gas well drilling tumbled 4.0 percent after increasing for two straight months. Utilities production increased 1.3 percent in September. With output declining, industrial capacity use fell to 77.5 percent from 77.8 percent in August. Reuters
Business Daily | 15
October 19, 2015
Opinion Business
wires
Leading reports from Asia’s best business newspapers
Wynn Resorts, Wal-Mart: One coin in the world economy James Saft
Reuters columnist
THE STRAITS TIMES The TPP (Trans-Pacific Partnership), when in place, will almost definitely have a major impact on Hong Kong as a premier regional hub of commerce and finance. The fact China is not a member of the pact has led some economic analysts to warn that Hong Kong’s role as the “super-connector”, as the government loves to say, could diminish. In an article published in Shanghai Securities News last Saturday, People’s Bank of China chief economist Ma Jun predicted that the TPP would shave off an estimated 2.2 per cent from the mainland’s GDP.
THE KOREA HERALD Loan guarantees among affiliates of South Korea’s major conglomerates surged about 2.8-fold in 2015 from the previous year, the country’s corporate watchdog said Sunday. According to the Fair Trade Commission, loan guarantees made among the affiliates of the nation’s 61 conglomerates came to a little over 2.04 trillion won (US$1.8 billion) as of April 1, compared with just 738.8 billion won tallied a year earlier. The jump is attributed to the addition of one business group to the government’s watch list of conglomerates that are restricted from making equity investments or offering loan guarantees to one another.
TAIPEI TIMES Against a backdrop of chants from supporters of Deputy Legislative Speaker Hung Hsiu-chu outside, the Chinese Nationalist Party’s (KMT) extempore congress voted by a wide margin in favour of a motion to rescind Hung’s nomination as the party’s presidential candidate. The motion was passed by a landslide vote of 812 to 79 at the congress at the National Sun Yat-sen Memorial Hall in Taipei in the afternoon, putting an end to Hung’s candidacy, which had been dogged by rumours about the KMT leadership’s plan to replace her since the beginning.
PHILSTAR The Philippines is joining a global move to boost consumer protection against scams. The Department of Trade and Industry said the Philippines has joined 33 other countries that are part of the International Consumer Protection and Enforcement Network (ICPEN) in unveiling an improved version of the econsumer.gov website to help law enforcement authorities gather and share cross border consumer complaints that can be used to investigate and take action against international scams. ICPEN is an international network of consumer protection authorities that aims to protect consumers’ economic interests around the world by sharing information.
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ig fish Chinese gamblers afraid of a corruption crackdown and poorly paid Wal-Mart workers in the United States might seem to have little in common. But in the global economy, they are in some ways two sides of the same coin, and to understand that is to understand more than why the two disparate groups were blamed for horrendous earnings at two very different companies: Wal-Mart and Wynn Resorts. The globalization of the past 25 years has been kind to both companies, as cheap labour from China became integrated in the global economy, creating, among many phenomena, great new wealth in China and a buyer’s market for labour in the United States. Now we may be seeing the early stages of a partial reversal of some of those trends, as China seeks a new economic model and politics and economics in the United States are giving wage earners more bargaining power. Wal-Mart’s stock is down more than 12 percent since it said on Wednesday that earnings would fall 6-12 percent this year, a decline it blamed in part on higher wage bills. The retailer said in April it was bumping hourly pay up to at least US$9 for all U.S. employees, with another dollar-per-hour hike to come in February. Overall, WalMart says it will spend US$1.2 billion to US$1.5 billion on higher wages and training next year. Wynn Resorts has a very different species of problem:
China seeks a new economic model and politics and economics in the United States are giving wage earners more bargaining power
too few Chinese high-rollers willing to be seen betting fortunes on the flip of a card. Not only are more gamblers now in fear of a crackdown on corruption underway in China, but President Xi Jinping’s efforts are creating a hostile environment for casinos in formerly wide-open Macau. “In my 45 years of experience, I’ve never seen anything like this before,” Wynn CEO Steve Wynn said on Thursday, describing the difficulty of what he called an “almost mystical” planning process on the Chinese-administered island. Wynn Resorts said profits fell more than a dollar per share to just 86 cents, driven by a 38
percent fall in Macau revenue and a near halving of the VIP junket business that brings rich gamblers to the tables from the Chinese mainland. Wynn shares, down more than 50 percent thus far this year, fell sharply in Asian trading before recovering somewhat the following day in U.S. hours.
Business models Gambling in Macau, to be sure, is particularly vulnerable to a number of trends in China. Not only is an economic slowdown hitting the cash flow of those who gamble, but the corruption crackdown has taken particular aim at the industry. So-called junkets, short trips to Macau, are seen both as a symbol of corruption and a means for officials and others to launder cash or simply to evade Chinese capital controls. Still both businesses - WalMart and Wynn Resorts - had business models that were part beneficiaries of and partly predicated on long-running global trends. As China rose, integrating its huge and underutilized labor force into the global economy, its share of world trade rose from less than 3 percent in 1990 to 12 percent today. Great wealth was created, both in China and the rest of the world. Macau, gambling and Wynn all were beneficiaries of occupying an intermediate space between tightly controlled capital and the rest of the world. Gamblers had good reason not just to want to live a little, but to want to get a bit offshore.
On the other side of the world, Wal-Mart did well out of selling goods, many of them made in China, cheaply to a middle- and lower-income clientele whose incomes were being whittled away in real terms as U.S. manufacturing jobs went offshore. Those U.S. workers were both keen to find a bargain and, lacking betterpaid options, willing to work for comparatively little. China now is at or past a demographic tipping point, with little excess labor to absorb. The plan instead: to move toward a more domestically focused, consumer-based economy. That change ultimately may be successful, but in the meantime China sees the need to crack down on arrangements and practices, like the junkets, that it previously tolerated. Wal-Mart, conversely, finds itself also affected by the same megatrend of an aging China. Not only has U.S. unemployment fallen, potentially giving workers more negotiating power, but after decades of falling real wages, the U.S. political debate has changed, with more pressure for higher minimum wages. In other words, as surplus labor supply dries up in China and elsewhere, largely for demographic reasons, business models everywhere will come under pressure. Lower margins are likely for labour-intensive U.S. companies, and the pie will be divided differently, with different winners and losers in China. Reuters
16 | Business Daily
October 19, 2015
Closing Chinese public companies expect rising 3Q profits
Myanmar to revoke forex service licences
More than half of China’s listed companies have published preliminary financial results for the first nine months of the year, with the majority of them expecting better profits. So far, 1,702 of China’s 2,800 companies listed in Shanghai and Shenzhen have announced preliminary financial estimates for the Jan-Sept. period. More than 58 percent said their profits increased in the last nine months. Among the top ten gainers, seven were in the manufacturing sector, according to market information provider Eastmoney. Companies in the steel, electric equipment, agriculture, entertainment and chemical sectors recorded the best performance.
The Central Bank of Myanmar will revoke foreign exchange accepter and holder licences starting today in a bid to control fluctuation in exchange rate, said an announcement of the bank pub lished yesterday. Such licence holders are set to return their licences to the bank by November 30. The businesses and associations covered by the announcement include hotels, travel agencies, restaurants, duty-free shops, airlines, hospitals, foreign forwarders, communication businesses and business companies. The central bank said the use of dollar currency in local trading and services had caused instability of the exchange rate.
Iran deal milestone starts the clock on oil sanctions relief The deal has been described as a victory of diplomacy over the potential use of force
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orld powers and Iran set the clock ticking yesterday on a landmark accord placing limits on the Islamic Republic’s nuclear work in return for access to oil and financial markets. The formal adoption of the deal means that all sides will have to begin delivering on the pledges they made three months ago. For Iran, that requires mothballing thousands of centrifuges, eliminating 95 percent of its enriched-uranium stockpile and retrofitting a reactor. The U.S. and Europe will make preparations to lift sanctions, which will occur on “implementation day,” once the Iranian measures are in place. One of the first steps will be a statement of intention by China, Iran and the U.S. to work together modernizing Iran’s heavy-water reactor at Arak so it can’t produce plutonium that could be used in a nuclear weapon, according to U.S. officials who briefed reporters on condition of anonymity to discuss details of the deal’s implementation.
Obama’s memo
President Barack Obama has to direct his administration to prepare for meeting U.S. commitments under the agreement, the officials said, and Secretary of State John Kerry will
the nation has curtailed its nuclear work, diplomats said last month. Once the restrictions are removed, relief is expected to fuel economic growth by lowering barriers to Iran’s oil exports and ending the isolation of its banks.
Iranian oil
Iran has said it will offer about 50 energy projects to investors and plans to boost output by about 2 million barrels a day once the deal is in place
start work on waivers of sanctions that were imposed by law and are related to the nuclear program. Today, all of the parties involved in the accord will meet in Vienna to set up sub-groups required under the agreement to discuss technical issues, sanctions relief and how to manage Iran’s commitments on restricting its nuclear program, the officials said. More than two years of negotiations culminated in an agreement of more
EDF hopes for UK nuclear deal with China in coming days
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than 100 pages that was signed on July 14 in Vienna. The accord survived fierce opposition in the U.S. Congress, where a Republican bid to scuttle the deal failed, and among hard-line members of Iran’s parliament. The agreement hasn’t diffused tensions between Iran and the West. Sanctions against Iran probably will be lifted within the first three months of 2016, after the International Atomic Energy Agency has confirmed
Iran has said it will offer about 50 energy projects to investors and plans to boost output by about 2 million barrels a day once the deal is in place. The Persian Gulf nation, with the world’s fourth-largest oil reserves, pumped 2.8 million barrels a day last month, according to data compiled by Bloomberg. One nation, Japan, plans to triple its imports of Iranian crude once sanctions are lifted, the Iranian Oil Ministry’s Shana news agency said on Saturday, citing Seyed Mohsen Ghamsari, director of international affairs at National Iranian Oil Co. Japan will increase purchases to 350,000 barrels a day from 110,000 barrels, the agency said. The U.S. waivers will result in the lifting of sanctions that now restrict or penalize non-U.S. companies for engaging in various economic activities, including buying Iranian oil and dealing with many Iranian banks, the U.S. officials said.
Differing financial regulations could help China’s poorer regions
Sub-Saharan Africa debt issuance down a third
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DF hopes to announce a deal with Chinese investors to build a nuclear plant at Hinkley Point, Britain, in the coming days, the French utility’s chief executive said yesterday. Jean-Bernard Levy said EDF was in final negotiations with its Chinese partners, but added he did not want to anticipate what would happen on Tuesday and Wednesday during a visit of Chinese President Xi Jinping to Britain. “If all goes well, we will be able to announce major news in coming days; the first nuclear newbuild in Europe since the Fukushima accident,” Levy said on television station iTELE. Levy defended the 92 pound per megawatthour power price that the British government will guarantee for 35 years. “Britain is not giving guarantees to do us a favour, but because Hinkley Point will provide power 24 hours a day for 60 years. Security of supply has a value,” he said. The 16 billion pound (US$25 billion) project to build two Areva-designed EPR reactors was announced in October 2013, but financial problems at Areva and long delays at two EPR reactors under construction in France and Finland have delayed the British project.
hina could tailor its financial regulations to help boost poorer regions, as part of efforts to raise 70 million people out of poverty, a senior central bank official said. The government could use differing reserve requirement ratios, re-lending, re-discount and differing regulations, to encourage financial institutions to increase support for poor areas, Pan Gongsheng, vice governor of the People’s Bank of China, said. Pan’s remarks, which were made Friday at a poverty reduction forum jointly held by the central bank and the State Council, were carried in a statement published by the central bank on Sunday. Internet finance, industry investment funds, venture capital and private equity should also be directed towards poverty elimination efforts, Pan said. China’s President Xi Jinping told the forum that the government wants to lift the country’s 70 million people out of poverty by 2020, according to state television. That averages a rate of a million people a month. “To bridge the development gap between urban and rural areas is a difficult challenge for us. To build a moderately prosperous society in an all-around way is the goal of all Chinese people. None of them can be left behind,” Xi said.
Reuters
Reuters
Bloomberg News
ebt issuance in sub-Saharan Africa fell by nearly a third to US$10.3 billion in the first nine months of the year, data from Thomson Reuters showed yesterday, as sinking currencies and faltering economies forced borrowers to take a breather. Taking advantage of historically low yields and strong investor appetite, Africans have borrowed heavily in international markets in recent years with debt sales reaching record highs in 2014. But with the prospect of a hike in U.S. interest rates, slowing economies at home and a gloomy outlook for commodity prices, African states and companies have been more reluctant to tap capital markets this year. South Africa, the continent’s most advanced economy, was the biggest issuing country, accounting for almost half of the activity, followed by the Ivory Coast with 25 percent, Thomson Reuters’ quarterly analysis showed. The value of merger and acquisitions (M&A) targeting sub-Saharan African firms has risen 12 percent so far this year to US$23.4 billion, the data also showed. African companies are attracting increasing investor attention due to the spending power of the rising middle class and expansion of the continent’s natural resources sector. Reuters