Anzac Day Observance in Macau Mon, 25 April 2016 │ 7:30am - 9am │ MGM Macau
ay zac D
Followed by Gunfire Breakfast from 8am
An
Prada’s Asia bet turns trendsetter into luxury’s biggest loser Retail Page 4
Thursday, April 14 2016 Year V Nr. 1022 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai
Stringent revision of taxi regulations under discussion Page 2
Consumer credit
Chinese millennials spread the use of loans to overcome wage limitations Page 10
Public Servants Dominate CCAC Crime Report
Gold prices
Top Chinese banks among 18-member group joining new yuan-denominated gold benchmark Page 16
Corruption Last year, CCAC received 793 complaints and reports. The Commission Against Corruption investigated 568 cases. Almost half were criminal in nature. The 2015 annual report indicates that most of such cases involved public servant crimes of active and passive corruption, falsification of documents, abuse of power, violation of secrecy and unjustified wealth. Page 3
Eggs in one basket
Green shoots appear
Tourism Wake-up call. Macau drops out of top 20 Asian Pacific Destination Index once Mainland Chinese and Hong Kong visitors are stripped out from a MasterCard tourism study. Serving as a timely reminder to the MSAR to develop its international market. Page 5
Trade data China’s exports staged a turnaround in March. While a decline in imports narrowed, according to Customs data. Suggesting signs of stabilization in the economy. Yuan-denominated exports surged 18.7 pct y-o-y in March, the first increase since December. Pages 8&9
Groundbreaking partnership A planned casino resort. Hong Kong-based Chow Tai Fook Enterprises Ltd. and Macau junket operator Suncity Group will soon start construction. In Vietnam’s Quang Nam Province. Gaming Page 7
HK HSI April 13, 2016 21,158.71 +654.27 (3.19%) PetroChina Co Ltd
+7.24%
CNOOC Ltd
+6.23%
Hang Lung Properties Ltd
+6.20%
China Unicom Hong Kong
+1.32%
CLP Holdings Ltd
+0.49%
Cheung Kong Infrastruc-
-0.07%
Swire Pacific Ltd
-1.84%
22° 25° 22° 24° 22° 25° 22° 26° 21° 24° Today
Fri
Sat
I SSN 2226-8294
Sun
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Source: Bloomberg
IMF forecast Macau SAR’s economy to contract 7.2 pct in 2016 Page 2
Taxis
Source: AccuWeather
Macroeconomic
www.macaubusinessdaily.com
2 Business Daily Thursday, April 14 2016
Macau In Brief Land
Plot opposite airport reclaimed One idle land plot located opposite Macau International Airport has been reclaimed by the Land, Public Works and Transport Bureau (DSSOPT) due to the expiry of its temporary lease on December 13 last year, according to a dispatch signed by the Secretary for Transport and Public Works, Raimundo do Rosário, published in Macau’s Official Gazette yesterday. It has been taken back by the government for not being developed for a contracted project within the stipulated 25 years, based on the Land Law. The land - coded ‘1d’ - occupies an area of 4,576 square metres. This land used to be part of the project to develop the airport, and was originally designed to be a garden. Subsidies
Cultural Industries Fund granted MOP1.75 mln in Q1 The Cultural Industries Fund disbursed around MOP1.75 million (US$219,372) in the first quarter of this year, according to a dispatch published in Macau’s Official Gazette yesterday. Macau Design Centre took the biggest chunk. It was granted MOP1,074,057.30 (US$ 134,458.86) for the second phase funding of a five-year development plan for Macau Design Centre. Macau Cultural Creative Integrated Services Centre was granted MOP661,812.75 for the second phase funding of a project called Cultural & Creative Business Service Platform. Vision Production Co. Ltd. was granted MOP16,556.10 of the final funding for the 2014 Macau Micro-Film Advertising Creative Competition. Appointment
CPTTM head’s tenure renewed Shuen Ka Hung has been appointed as the government’s representative for the Macau Productivity and Technology Transfer Centre (CPTTM) according to a dispatch signed by the Secretary for Economy and Finance, Lionel Leong Vai Tac, published in the government’s Official Gazette yesterday. On behalf of the SAR Government, Mr. Shuen will be taking up the position of Vice President of the board of directors at CPTTM, and as Director of the organisation. The post has been renewed for a period of two years effective April 1 2016. In addition, Mok Iun Lei has been appointed a director of the board as well as being Deputy Director at CPTTM.
Taxis
Teeth put into taxi regulations The ideas of implementing voluntary recording, increasing violation penalties and police stings have been debated - the draft of new legislation will be completed within this month. Annie Lao annie.lao@macaubusinessdaily.com
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he idea of using voluntary recording entrapping illegal-activity taxi drivers was discussed in Macau Form yesterday. Many other cities are currently using audio and video recording equipment in taxis, said Cheong Ham, director of the Legal and Legislative Manpower department of the Legal Affairs Bureau (DSAJ) during yesterday’s discussion. Privacy concerns are being taken into account so that the introduction of voluntary recording would be suitable, and the new law will stipulate the purpose of using recording data and the position of the user, as well as the storage period of the recording.
For instance, only the director of the transportation department of the Public Security Police (PSP) could use the recording, or an authorised person, in order to get information, while the taxi driver concerned and others would not be allowed to listen to the reordering.
Increased penalty
The current taxi violation penalty is low, said Wong Wai Hong, director of the PSP transportation department during the discussion yesterday. He said a lot of taxi drivers are willing to break regulations as the profits gained by breaching the law are higher after paying penalties thus taxi drivers tend to not follow the law. Long administrative procedures lower the efficiency of law enforcement. Police found that taxi drivers bar gain the taxi fare with passengers inside the vehicle making it hard to obtain evidence of illegal doing by taxi drivers. When police conceal their identity in sting operations this manner of inducement and instigation is not allowed for the obtaining of evidence and necessary training is needed as Mr. Wong explained.
Adding drop-off lines
There are not many places for taxi drivers to pick up and drop off
passengers thus adding new taxi stations is not an ideal solution to the current issue. “There are fewer solid yellow lines in the city for taxi drivers to drop off passengers,” representatives from the Macao Association of Taxis said. Mr. Cheong responded that a new taxi station had already been built in Avenida de Almeida Ribeiro but had now been relocated due to many people queuing in line and affecting road traffic and safety. “Av. de Horta e Costa has already set up traffic lights for pedestrians and cars during the peak hours but if more taxi stations were set up there it could affect the road traffic,” he said.
Drafting new law
A total of four violations accrued within 12 months by taxi drivers will result in suspension of their licence. The act of refusing to take passengers, abuse of charging fees and disturbing passengers are considered to be strict and included in the cumulative violation counts, Mr. Cheong explained. However, violations of general traf fic rules would not be considered as breaching taxi regulations, hence wouldn’t be counted in the accumu lative violation which would result in taxi licence suspension. New draft taxi regulations will be completed by the end of this month and then submitted to the Executive Council as soon as possible, according to Lo Seng Chi, head of the traffic management department of the Transport Bureau (DSAT), who hopes the new law will be introduced this year.
Report
IMF: MSAR economy to contract 7.2 pct in 2016 The International Monetary Fund (IMF) forecasts Macau SAR’s econ omy will contract 7.2 per cent in 2016 in its latest World Economic Outlook report - which forecasts the global economy will grow 3.2 per cent and 3.5 per cent for 2016 and 2017, respectively. This is 0.2 percentage points and 0.1 percentage points down from its January 2016 forecasts. The IMF report indicated that the pace of the global economic recovery this year would further slow due to increased volatility in financial markets and weakened demand
from large commodity-exporting countries. In addition, global economic growth would remain imbalanced, while the emerging market and developing economies would drive and help speed up the pace of global economic recovery. The IMF forecasts that the advanced economies will grow 1.9 per cent and 2.0 per cent, respectively, for 2016 and 2017. Meanwhile, it forecast the emerging market and developing economies will grow 4.1 per cent and 4.6 per cent, respectively. This report, for the first time, covered the forecasts of Macau SAR’s
major macroeconomic indicators, according to Macau Monetary Authority’s statement issued yesterday. The IMF forecast Macau SAR’s economy will contract 7.2 per cent for 2016 and resume a positive growth of 0.7 per cent in 2017. Furthermore, the international organisation forecast Macau SAR’s inflation will linger around 3.0 per cent, while its unemployment rate will remain at a low level of around 2.0 per cent. Regarding public finances, the IMF forecasts that the SAR Government’s integrated fiscal account will remain in surplus this year and next.
Business Daily Thursday, April 14 2016 3
Macau Corruption CCAC says majority of crimes committed by ‘public servants’
‘Working’ within the system cases interconnected with the Ao Man Long case. The sum of the sentences given, some of which are being appealed, amount to 47 years and four months of jail time, as well as MOP810,000 in fines.
Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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f the 262 criminal cases investigated by the Commission Against Corruption (CCAC) last year, the ‘majority’ were crimes committed by ‘public servants’, according to the recent annual activity report published yesterday in the Official Gazette. Compared to the previous year, when document falsification represented a high percentage of crimes, this year’s reports show that corrupt actions had spread into the sectors of ‘active and passive corruption, document falsification, abuse of power, violation of secrecy and unjustified wealth.’ Throughout 2015, CCAC received 793 complaints and reports and a total of 568 cases were investigated and concluded in the year by the Commission; 256 of these were criminal cases - which either proceeded to the Public Prosecutor’s Office or were archived. The report states that the situation of corruption by public servants ‘deserves the attention of the government, and of its public servants’, particularly given the focus of the crimes on corruption in the concession of land, goods and services by the Public
Case by case Commissioner Against Corruption, Cheong Weng Chon, presents CCAC 2015 report to Chief Executive Chui Sai On.
Administration involving situations of collusion between public servants and a number of businessmen.
Private vs. Public
That being said, crimes in the private sector continued a downward trend, and the CCAC was ‘unable to send any of the cases to the judicial bodies’. This is justified in that ‘corruption crimes in the private sector are […] semi-public and frequently private companies don’t exercise the right to report so as to not generate conflict’. In relation to a prevention and repression law for corruption in external commerce that went into effect in January of last year, CCAC had not ‘received a single report’. But in regard to cases submitted to the Ombudsman’s Office –to investigate reports against maladministration and public authorities – cases abounded. They primarily
involved public servants, management of disciplinary bodies and their execution of the law, land and public works and municipal affairs and traffic. Notably, in the case of 16 land plots whose concession expirations were not declared, CCAC discovered deficiencies on the part of the Public Administration, in particular a ‘lack of detailed understanding of the content of the legislation to be applied and the legality of the administrative acts carried out, the lack of rigorous execution of the law in their performance, the lack of transparency in the mechanisms for executing the policies and the adverse practices concerning the supervision on behalf of the population’. Throughout 2015, some 11 cases investigated by CCAC proceeded to prosecution, notably the corruption cases relating to the Legislative Assembly elections in 2013 and
Particular case studies mentioned within the report include a suspected corruption case involving the Chief of the Macau Prison (EPM) and a prison guard colluding with a prisoner in exchange for gifts including ginseng, expensive alcohol and cosmetic products, luxury hotel rooms and more in exchange for bringing prohibited items into the prison such as luxury watches, religious ornaments, brand name tennis shoes and tea, among others. The case is currently with the Public Prosecutor’s Office. Another involves two
0 Number of cases from the private sector that went to court in 2015
agents of the Public Security Force falsifying documents and bringing prohibited arms and explosives into the MSAR. A further case involves the granting of management contracts for car parks in the amount of some MOP68 million, for which it is suspected two public servants made over MOP10 million. The two are also suspected of money laundering and unjustified wealth. A further case involved an official in the Marine and Water Bureau (DSAMA) demanding bribes in the form of ferry tickets, hotel rooms, restaurant bill payment, and positions for family members in the ferry company, as well as shops within the ferry terminal reserved for businesses for his friends and colleagues. The case has been turned over to the Public Prosecutor’s Office. In a statement issued yesterday by the Secretariat for Security, Secretary Wong Sio Chak says the secretariat attaches great importance to CCAC’s report and will co-operate in relevant investigation and will accept any constructive suggestions. CCAC says in its report that it will continue its efforts to educate the population about anti-corruption awareness in schools, government institutions, private companies and local communities, among others.
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4 Business Daily Thursday, April 14 2016
Macau Opinion
Ashley Sutherland-Winch
What’s our slogan? Macau should not only be the global destination for tourists desiring world class entertainment, dining and shopping but a cultural infusion experience; and not limit itself to being just the helmsman of Asian gaming. The call to visit our city is not reaching the Western Hemisphere like it could in the future. For the past decade Western travellers desire what Macau can offer them, but they travel to Las Vegas, Monaco, and Atlantic City anyway. Macau is not on the radar outside of Asia and it should be. Tourists travel to Las Vegas from all over the globe to watch a live show on the Strip, conduct business, and visit famous restaurants and nightclubs. Interestingly, some tourists will spend an entire week in Las Vegas and barely put one coin in a slot machine. Macau can absolutely have this niche in the tourism market but the question is: ‘How do we make them come to us?’ I believe that the marketing strategies of the Macau casinos and Tourism Office have focused solely on the Asian market and historically this has made sense. Now, however; with the Macau Government and the community’s fervent desire to change the Macau brand I think our fine city is missing the boat. In 2003, the Las Vegas Tourism Board launched the iconic ‘What Happens in Vegas, Stays in Vegas’ line, the brainchild of R&R Partners who, after an extensive case study, identified that ‘the emotional bond between Las Vegas and its customers was freedom. Freedom to do things, see things, eat things, wear things, feel things. In short, the freedom to be someone we couldn’t be at home… And freedom from whatever we wanted to leave behind in our daily lives.’ Isn’t this what we want for our city? To provide tourists with an emotional connection to visit our city once, and then frequently for the rest of their lives? We want our city to be the destination for Western and Asian tourists alike, dazzling visitors with our rich culture infused with Chinese and Portuguese traditions paired with the excitement and fantasy that our gaming establishments promise. I think it’s time that we, Macau, call the world to our city through a major citywide marketing campaign that promotes all of what our city has to offer and I think we should start today. Ashley Sutherland-Winch is a Marketing and Public Relations Consultant.
Retail Prada posts bigger than expected drop in profits
SARs pull down Prada profits The luxury industry leader highlighted weakness in Hong Kong and Macau market and said it would close shops due to weaker demand. Joanne Kuai* joannekuai@macaubusinessdaily.com
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talian fashion house Prada will offset new shop openings with selective closures this year and next in an effort to shield profit margins from weaker demand. The Milanese group reported on Friday a larger than expected drop in fullyear profits. Earnings before interest and tax fell 28 per cent in the 12 months through January to 14 per cent of revenue from 20 per cent a year before. “I don’t see a real change in the market trend,” Prada Chairman Carlo Mazzi told an analyst call on Monday. “The problems of the market in terms of the world’s economic situation and of changes...in consumers, especially the new generations...are quite clear to everybody.”
Prada embarked upon a breakneck retail expansion after listing on the Hong Kong bourse in 2011. It has been hit by China’s economic slowdown and a crackdown on extravagant gift-giving in the country, where it reaps more than one fifth of its sales. Prada Chief Financial Officer (CFO) Alessandra Cozzani said in Asia Pacific the market condition remained quite uneven during the year. The market posted a significant slowdown, notably in Hong Kong and Macau, where footfall was very low. And these two markets have underperformed the other regions. “If we stripped out the impact of Hong Kong and Macau, the overall retail trend instead of being minus 5 per cent was just slightly negative. This is just to give you an idea of how big the magnitude is of the weakness of these two regions,” said the CFO at the earnings conference call earlier this week.
Rekindling growth
The 103-year old company, started as a Milan shop selling travel trunks and leather bags, has been the worst-performing major luxury
stock over the past three years, with its shares plunging 29 per cent. It has missed its earnings forecasts in 11 of the past 12 quarters and its profit margin narrowed from 27 per cent in 2012 to 14 per cent last year. Prada said it would harmonise prices so that there would be a discrepancy of only 10 per cent between regions. The differences have encouraged the growth of a grey market, fed by people buying products in Europe and selling them in Asia where prices are higher. *with agencies
“If we stripped out the impact of Hong Kong and Macau, the overall retail trend instead of being minus 5 per cent was just slightly negative” Alessandra Cozzani, Prada Chief Financial Officer
Retail
Fewer Paris tourists and DKNY shift hit LVMH’s fashion and leather Luxury industry leader LVMH said on Tuesday a poor performance in fashion and leather goods was due to lower tourist spending on big brands such as Louis Vuitton in France and the ending of some DKNY lines. LVMH’s first-quarter sales figures on Monday fell short of forecasts and sent its shares down more than 3 per cent, also dragging luxury goods peers lower. LVMH said it had stopped the DKNY Jeans and DKNY C lines, which represented lost revenue of around US$200
Key Points Shares in LVMH fall 3 pct after Monday’s Q1 sales LVMH says ending of DKNY lines also hit performance
million and the impact would be felt throughout the year. “The discontinuation of these lines has had a significant impact on growth of the (fashion and leather) division in the first quarter,” LVMH Finance Director Jean-Jacques Guiony told analysts in a conference call. He said the fashion and leather division would have had some growth had it not been for the discontinuation. After the attacks on Brussels and Paris, the luxury goods maker said there had been fewer tourists travelling to Europe “from the east,” its shorthand for Russia and Asia. Guiony said trading at Louis Vuitton in Paris was down by more than 10 per cent and he had not seen any improvement yet. LVMH, which also sells Guerlain perfume and Fendi bags, makes 9 per cent of its total sales in France.
“The negative impact we saw this quarter as a result of the decline in France will be visible in every group in the sector, even though Louis Vuitton and Hermes are more exposed to this market,” luxury goods analyst Hermine de Bentzmann at broker Raymond James said. Also on Monday, Prada said it would harmonize prices so that there would be a discrepancy of only 10 per cent between regions. Such differences have encouraged the growth of a grey market, fed by people buying products in Europe and selling them back in Asia where prices are higher. Guiony said doing the same for LVMH was not a “palatable” option as the 10 per cent range was too small to cover significant customs duties and foreign exchange differences. He said LVMH’s fashion and leather business was flat in mainland China and depressed in Hong Kong and Macao, but there were pockets of growth in Korea, Singapore, Australia and Japan. Reuters
Business Daily Thursday, April 14 2016 5
Macau Tourism International tourists only account for 10.18 pct of tourism expenditure in 2015
MasterCard Asia Pacific Destinations Index wake-up call for Macau Exclusion of visitors from China and Hong Kong takes Macau out of the top 20 Asia Pacific Destinations in terms of overnight visitors and expenditure. Nelson Moura nelson.moura@macaubusinessdaily.com
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he first MasterCard Asia Pacific Destinations Index tracking the growth of the region’s tourism doesn’t include Macau in its 20 overnight tourist arrivals and tourists’ expenditure. This absence of Macau from the index results from the MasterCard study only including international visitors, and excluding arrivals from Mainland China and Hong Kong, further underlining the Macao Special Administrative Region’s dependence upon the Chinese and Hong Kong markets. In 2015, some 14.3 million overnight visitors in Macau represented a 1.8 per cent decrease from 2014. However, Mainland Chinese comprised 64.5 per cent of overnight visitors, a 4 per cent decrease year-on-year, while Hong Kong overnight visitors totalled 3.065 million, which if excluded take the number of international overnight visitors to around 2 million, according to data from the Macao Government Tourism Office (MGTO). This break from Mainland China visitors explains the decrease in overnight visitors to the Macau market, thus even with an increase in the
number of international visitors Macau is still excluded from the Top 20 Asia Pacific Destinations in the survey who represent about 50 per cent of all International Overnight Arrivals to the 167 destinations covered. The study is the first MasterCard Asia Pacific Destinations Index - an offshoot of the annual Global Destination Cities Index - to take a more indepth focused look at these tourism trends, taking data from the national tourism boards of 22 countries and ranking167 destinations, including island resorts as well as towns and cities across the region, in terms of the total number of international overnight arrivals; cross-border spending; and the total number of nights spent in each destination. According to MasterCard Asia Pacific Destinations Index, Hong Kong ranked 7th with 8.3 million international overnight visitors, Shangai ranked 12th with 5.5 million overnight visitors, Beijing was 18th with 4 million, and Guangdong Province (excluding Guangzhou, Shenzhen & Zhuhai) ranked 19th with 3.9 million visitors.
Attracting international spenders
Macao Government Tourism Office (MGTO) Director Maria Helena de Senna Fernandes said in January that this year the goal was to attract more overnight visitors, while maintaining overall arrival figures at around 30 million, as reported by Business Daily. This goal was reflected by this year’s January and February data, which saw the number of arrivals from countries excluding China in 2016 post a 0.2 per cent increase yearon-year, from 1.573 million to 1,632
million. The number of overnight arrivals from Mainland China and Hong Kong also experienced a small lift with Mainland China posting a January and February 3.7 per cent year-on-year growth, while Hong Kong arrivals grew 13.7 year-on-year. “My observation is that it [the increase in December overnight guests] resulted from a synergy effect with the events held in the month and the tourism packages that have been put forward by the sector [of hotels and travel agencies] that have attracted many visitors from Hong Kong, Taiwan and Southeast Asia especially,” said Ms. Fernandes at the time.
Mainland China and Hong Kong spend most
Of the top 20 destinations by total expenditure per day, Shanghai (US$269 per day) welcomed the biggest spenders, followed by Beijing (US$262 per day), Seoul (US$258 per day), Singapore (US$255 per day) and Hong Kong (US$240 per day). According to data from the MGTO Visitor Expenditure Survey, when it comes to Macau again the exclusion of Mainland China and Hong Kong visitors, which together comprise almost 90 per cent of total tourism expenditure in the MSAR, when left out make the total of tourist spending from MOP51.1 billion (US$6.4 billion) to MOP5.2 billion (US$650 million), pale in comparison to Hong Kong’s US$6.7 billion registered in the MasterCard survey. The data shows more signs of the Macau dependence on Mainland China and Hong Kong overnight tourism expense, with overnight expenses totalling MOP44.7 billion (US$5.6 billion). Mainland China overnight visitors
spent the most amount of money in Macau in 2015, at MOP3,360 per capita, a 19,6 per cent decrease from 2014; followed by Taiwan overnight visitors at MOP2,950 per capita, with a 14,5 per cent decrease. The same data reveals that total expenses from Mainland China visitors decreased 19,8 per cent in 2015. The Director of MGTO has vowed to increase the number of visitors from Malaysia and Singapore, announced as some of the highest per capita spenders when compared to other territories in Southeast Asia, and so far data from the first two months of the year reveals a small year-on-year increase of 0.6 per cent and 0,4 per cent for Malaysia and Singapore, respectively.
Key Points The top 20 destinations of Asia Pacific represent about half of all international overnight arrivals In Greater China, Taipei (6.4 million) ranked 11th in terms of international overnight arrivals Macau welcomed a total of 2.0 million international overnight visitors in 2015, with an international overnight visitor spend of US$594 million Asia Pacific’s tourism industry is now the largest in the world by total contribution to GDP, overtaking Europe in 2015 Of the top 20 destinations by total expenditure per day, Shanghai (US$269 per day) welcomed the biggest spenders
6 Business Daily Thursday, April 14 2016
Macau Gaming
Losses widen at COD Manila
Melco Crown Entertainment has announced a sharp increase in losses for its casino resort venture in the Philippines for 2015 with net losses widening by 45 per cent to 9.14 billion pesos (US$259 million) from 6.3 billion pesos the previous year. The joint venture with James Packer opened in 2014 and was hailed as the first
foray outside Macau for Melco, which still carries high hopes for the City of Dreams Manila resort which is the second of a planned four casino resort for the Entertainment City precinct built on 120 hectares of reclaimed land. In its recent report Melco said the losses incurred in 2015 were due to an increase in operating costs and expenses from its first full year of operations.
Gaming
Fitch sees 2016 as ‘relatively stable’
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agency doesn’t expect the broader economic slowdown in China to have a material impact on visitation. By comparison, the analysis sees the Las Vegas Strip really beginning to hit its stride as the Nevada oasis continues its post-recession recovery. Despite declines in Baccarat – which is pressuring operators with large exposure to Asia, the shrinking slot floors and ‘no catalysts in sight for a more rapid replacement cycle or new casino openings past 2018’ - the agency sees the outlook for the Strip ‘looking up’ according to Alex Bumazhny, Senior Director at Fitch Ratings.
he outlook for the year 2016 is ‘relatively stable’, according to Fitch ratings agency in a report published on Tuesday. The agency sees stability in the ‘top line, but we expect to see some cannibalization from new Cotai openings,’ they conclude. The group anticipates a few challenges ahead for the year, based upon the first quarter results, noting in particular ‘softness in the VIP market, and further depreciation of the yuan may challenge Macau’s year-over-year comparisons.’ However, given the strong tourism drive so far the rating
Gaming
AIRLINES
President of Las Vegas Sands Corp. hangs up his hat
Portugal probes airline’s purchase of Brazilian firm
Michael Alan Leven has decided to leave both his post on the Las Vegas Sands Corp. (LVS) board of directors and the board of Sands China Ltd., the company announced in a filing on Tuesday. Leven is succeeded as group president and Chief Operating Officer at LVS by Rob Goldstein. In the statement, issued on the Hong Kong Stock Exchange, Sands China Ltd. said Leven ‘has decided to retire and has confirmed that he has no disagreement with the Board, and there are no matters that need to be brought to the attention of the shareholders of the Company in respect of
his retirement.’ Leven served as President and Chief Operating Officer of Las Vegas Sands between 2009 and 2014, retiring from the roles but remaining as director. In 2010, he was named acting Chief Executive of Sands China following the dismissal of Steve Jacobs, until July 2011 when CEO Edward Tracy stepped in. Leven, aged 77, remains Chairman and Chief Executive Officer of Georgia Aquarium Inc. as well as serving as the President of the Days Inn Corporation and Americana Hotels & Realty, according to Bloomberg.
Portuguese investigators continue investigation of 2007 deal involving Stanley Ho. Portugal’s Attorney General’s Office has announced that investigators have conducted searches of Air Portugal’s (TAP) premises as part of an investigation into the airline’s purchase of VEM, Associated Press (AP) reported. VEM is a Brazilian aircraft maintenance unit Macau casino magnate Stanley Ho had previously acquired. In a deal dating back to 2007, the Portuguese national airline TAP acquired 15 per cent of VEM maintenance unit belonging to a bankrupt Varig, a Brazilian airline, as reported by Business Daily from Portuguese newspaper Publico. At the time, Ho acquired 85 per cent of VEM through Geocapital, an investment company based in
Macau and focused on investments in banking, infrastructures and energy in Portuguese-speaking markets. In 2007, TAP acquired 20 per cent of Geocapital’s share in VEM, planning to get back a return in eight years. However, VEM, now re-named M&E Brazil, has accumulated significant losses. A statement by the Portuguese authorities endorses their suspicion that the deal involved corruption, money-laundering and embezzlement, among other crimes, AP reported. Last year, TAP was partially privatised with 50 per cent now owned by the Atlantic Gateway consortium, a group that also has some connections to the Macau magnate, as reported by Business Daily. N.M.
Corporate
Nanning hosts Power Industry Summit
China Southern Power Grid Corporation Limited (CSG), CLP Holdings Company Limited (CLP), China General Nuclear Power Corporation (CGNPC) and Companhia de Electricidade de Macau – CEM. S.A. (CEM) hold the annual ‘Guangdong, Hong Kong and Macau Power Industry Summit’ in rotation. The Summit was initiated by CSG in 2011,
with its 6th edition marked this year. This year’s summit will be hosted by CSG in Nanning in May. The Summit has been committed to promoting mutual co-operation of power companies in Mainland China, Hong Kong and Macau in order to establish a platform for the power industry to enhance communication, thus promoting the joint development of power companies in the three regions.
IPM students visit CTM
CTM has always been committed to promoting the popularity of information technology and stimulating IT education development by organising different activities in order to enforce the public’s understanding of the telecom industry. A group of 31 students from Macao Polytechnic Institute
(IPM) paid a visit to CTM yesterday. During the tour, CTM representatives conducted a briefing session for the students regarding CTM’s organisational structure, and IT system & facilities, and arranged a tour to the IT Data Centre, the largest in Macau’s telecom industry, thereby deepening students’ insights and broadening their horizons.
Business Daily Thursday, April 14 2016 7
Macau Vietnam Gaming First phase to be completed in Q1 of 2019
Hoi An casino breaking ground April 23 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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ietnamese officials have announced that the Nam Hoi An Casino Resort, located in the UNESCO heritage city of Hoi An, would break ground starting April 23 on the US$4 billion (MOP 31.95 billion) project’s first phase, according to research by Union Gaming. The first phase of the project is estimated to cost US$500 million and occupy 160 hectares of ground, with an estimated completion date of the first quarter of 2019, CalvinAyre reported. The casino resort is a joint venture project between Vietnamese investment banking firm VinaCapital, Macau-based SunCity Group and Hong Kong-based Chow Tai Fook Enterprises, with the jewellery operation taking the lead after acquiring VinaCapital’s majority stake in September, reported the publication. VinaCapital, however, announced on Tuesday that it would be increasing its stake in the project to a total of 32 per cent, up from its previously held 22.5 per cent, the publication states. SunCity and Chow Tai Fook stepped in to fill the void left by Genting Malaysia Berhad – previous investors
in the project until September 2012, when the group announced its sudden withdrawal from the project during site clearance work - wrote Business Daily. Work was originally set to begin on the project in mid-2015, according to a statement by VinaCapital CEO Don Lam in October of 2014. Union Gaming opines there is ‘probably no better local partner than VinaCapital’ and, given the local market, having a ‘high-powered, well-connected, local partner is critical’ – especially in the case of obtaining approval for locals to gamble. The group see the case of Ho Tram Strip resort – Vietnam’s other integrated resort, located on Vietnam’s southern tip - as ‘what
500 Million USD Estimated cost for first phase of the project
not to do’ and expect VinaCapital to ‘back-end load the development timeline and capital commitment’. This would allow the group to pay for future phases in years and to be ‘bought down’ by residential sales to reach the total US$4 billion investment, predicts Union Gaming.
Locals needed
Nam Hoi An Casino Resort will be the first integrated resort in central Vietnam with high-end gaming options; however, these are still restricted to international visitors, one of the reasons Genting pulled out, following the government’s demand of a US$4 billion threshold investment, CalvinAyre reports. Union Gaming foresees ‘the developers ultimately petition the government for a locals licence and thus try to garner an outsized ROI.’ Given the ‘easy access via airlift’ as well as being a ‘preferred vacation destination’ Union Gaming sees that with a potential future locals licence would likely capture a significant amount of domestic highend play, according to the analysts.
The research group also predicts that the local government will ultimately green-light locals gaming at up to four IRs [integrated resorts], with one locals licence in each of the North, Central, South and Southwest zones. Given Nam Hoi An’s first-mover advantage and significant commitment, Union Gaming sees the integrated resort as a shoe-in for the Central-zone licence and since the political winds have shifted the group sees this as potentially happening as early as the 2019 opening date. This doesn’t play well for the Macau VIP situation, especially considering figures such as Imperial Pacific’s US$6.1 billion in rolling chip turnover. This turnover, which if analysts assume is ‘entirely ripped out of Macau’ represents a ‘200 bps negative impact’ on Macau’s gross gaming revenues growth rate this year, say the analysts. Integrated resorts such as Nam Hoi An cause the outlook of Macau’s VIP market to be further impaired as volume seems to be gravitating towards greener pastures.
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8 Business Daily Thursday, April 14 2016
Greater China Commerce
Trade beats expectations as exports po Recent data and surveys of manufacturing and services activities have hinted at slight improvements in the broader economy. Xiaoyi Shao and Kevin Yao
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hina’s trade performance blew past expectations in March, with exports returning to growth for the first time in nine months, providing more evidence of stabilisation in the world’s second-largest economy. March exports rose a blistering 11.5 pct from a year earlier, customs data showed yesterday, the first increase since June and the largest rise since February 2015, although economists warned that base effects and seasonal factors played a major role in producing the number. Recent data and surveys of manufacturing and services activities have hinted of slight improvements in the broader economy, which appears to be trickling down to the country’s exporters. Imports continued to fall but less than expected, declining by 7.6 percent in dollar denominated terms, led by sharp corrections in imports of tax-free foreign goods, rentals and leasing and
imported equipment. However, import volumes of most major commodities rose. Analysts noted a surprise rise in imports from Hong Kong, which rose 116 percent from a year ago, could reflect capital flight out of yuan assets masking itself as import transactions. The imbalance left the country with a trade surplus of US$29.86 billion for the month, data from the General Administration of Customs showed, versus a forecast of US$30.85 billion. “I think the base effect was a pretty big factor, as last year’s base was low,” said Ma Xiaoping, analyst at HSBC, adding that because many export figures reported in March actually capture some February orders due to the variable dates of the lunar new year holiday every year. “I think we should focus on the better than expected imports growth rate, which means domestic demand is also
Key Points March exports +11.5 pct y/y, vs f’cast +2.5 pct March imports -7.6 pct y/y, vs f’cast -10.2 pct March trade surplus US$29.86 bln, vs f’cast US$30.85 bln March trade performance better than expected
recovering, driven by infrastructure investment and also the real estate sector recovery.” Economists polled by Reuters had expected March exports to rise 2.5 percent, after tumbling 25.4 percent in February - the worst showing since May 2009, and expected imports to fall 10.2 percent, following February’s 13.8 percent dip. “Data across other Asian economies suggest that the headwinds in the trade sector remain,” wrote Zhou Hao, economist at Commerzbank in Singapore, in a note reacting to the data. “Given the gloomy economic outlook, we believe that the overall Asian trade growth will have limited upside this year.” Premier Li Keqiang said last week that China’s economic indicators showe d si g ns of improvemen t in the first quarter but a sluggish world economy and volatile markets deprive the changes of a solid foundation. Recent factory activity surveys have fanned hopes the economy may be steadying but the government will have to keep up policy support to cope with lingering global uncertainties and the expected pain from its “supply-side” reforms. China’s producer prices fell less than expected in March while consumer inflation stabilised, a sign that strong deflationary pressures in the country’s industrial sector may be lessening. Reuters COPPER
Imports hit record
STEEL
Up 30 pct from year ago China exported 9.98 million tonnes of steel products in March, up 30 percent from a year ago, customs data showed yesterday, as Chinese steel mills have managed to ship more abroad despite rising anti-dumping measures against the country. Surging steel exports by China, which produces about half of the world’s steel output, have triggered fears by other countries that their domestic steelmakers will not be able to compete with Chinese mills. Exports hit a record 11.25 million tonnes in September. India’s Tata Steel has put its British operations up for sale, blaming the move that leaves thousands of jobs at risk on a flood of cheap Chinese supplies. Those exports are driven by a slowing economy and a supply glut at home. March steel exports were up 23 percent from February’s 8.11 million tonnes and shipments for the first quarter rose 7.9 percent to 27.83 million tonnes from a year earlier, the General Administration of Customs showed. The surge in March exports comes despite warnings from industry officials that Chinese steel exports will
fall this year from a record 112 million tonnes in 2015 as protectionist policies are enacted. Still, with fewer domestic outlets for their production because of a slowing economy and amid overcapacity in the sector, Chinese steelmakers have turned to export markets to stay in business. Chinese steel production in January and February fell 5.7 percent from a year ago, government data last month showed. However, March output has increased at a modest pace amid a seasonal improvement in demand, according to traders. This boosted iron ore imports in March. China imported 85.77 million tonnes of iron ore last month, up 6.5 percent from a year ago, customs data showed. Total imports for the first quarter rose 6.5 percent to 241.56 million tonnes on the year, according to the data. But, iron ore demand in China is still expected to slow this year as the country aims to attack overcapacity in the steel sector. China aims to cut steel-making capacity by between 100 million and 150 million tonnes in the next five years. Reuters
China’s copper arrivals hit a record in March, pushing up total imports 30.1 percent in the first quarter from last year, after price differentials between domestic and international markets favoured imports in previous months. Arrivals of anode, refined copper, copper alloys and semi-finished copper products reached 1.43 million tonnes in January to March, data from the General Administration of Customs showed yesterday. In March, imports were at a monthly record 570,000 tonnes versus the previous record 536,000 tonnes in January 2014. That rose 35.7 percent from the Lunar New Year holiday month of February and 39 percent higher from a year earlier. March imports also reflected that importers had scheduled more shipments
for expected seasonal demand in April and May, said traders. Still, high imports in the first quarter did not reflect domestic demand as the growth in world’s second-largest economy has slowed, said traders. Imports added supply pressure in the country, prompting Chinese smelters to consider raising exports. “Strong imports were because of good arbitrage ratios. Price differentials between Chinese prices and the LME favoured imports in March, as well as in the whole first quarter mostly,” said Zhou Jie, a trade manager at China International Futures (Shanghai). Credit had increased to the market in March from the previous two months, supporting importers’ buying, he added. Zhou said imports in April may stay strong, but that could be off March’s record as credit currently was not as good as last month. Refined copper stocks monitored by the Shanghai Futures Exchange hit a record on March 18, though they have
OIL
Crude imports rocket China’s crude oil imports rose nearly 22 percent on a daily basis in March from a year earlier, off a record-high in February, while imports for the first quarter grew over 13 percent from the same period in 2015, official data showed. Chinese imports have been picking up in recent months due to strong demand from independent refiners and better refining margins. Robust purchases from these so-called “teapot” plants have caused severe port congestion in eastern Shandong province, a hub for the independents. March imports stood at 32.61 million tonnes, or 7.68 million barrels per day (bpd), easing from a record rate in February of 8 million bpd, according to numbers issued yesterday by the General Administration of Chinese Customs.
For the first quarter, imports rose 13.4 percent on the year to 91.1 million tonnes, or about 7.31 million bpd. That would be an increase of nearly 800,000 bpd on average during the period. Independent refineries have been ramping up their crude processing rates and boosting fuel sales as low global oil prices provide higher margins. The jump in their crude runs has even forced many state oil firms to make rare cuts in refinery throughput. But hefty levels of imports may not last into the second quarter as inventories have swollen. “China’s crude import growth is unlikely to sustain at Q1 levels because demand is seasonally lower in Q2 and there has been some port congestion
Business Daily Thursday, April 14 2016 9
Greater China
ost first rise since June
In Brief P2P
Shenzhen police gather information on online lenders Police in Shenzhen have started collecting information from the city’s peer-to-peer (P2P) lenders, as part of a campaign to regulate China’s fast-growing but risk-fraught online financing sector, the official Securities Times reported. Shenzhen’s move came after the collapse of Ezubao, the country’s biggest online P2P lender, which is accused of defrauding 900,000 investors of more than 50 billion yuan (US$7.61 billion). As of the end of March, 1,490 P2P platforms in China had run into operational problems, and bosses at more than half of them had absconded. Commerce
Trade with N.Korea up despite sanctions
COAL
dropped since. Domestic demand for spot refined copper has improved from the past two months as factories bought more metal for the peak production season in April and May, said a trader at a state-owned smelter. The demand was still weaker than the same time previous years. Imports of raw material copper ores and concentrates jumped 34 percent from a year ago to 4 million tonnes in the first quarter. Ore imports in March stood at 1.37 million tonnes, down 6.2 percent from February. Firm domestic aluminium prices limited exports in the first quarter as the prices have risen about 20 percent since a record low in November 2015. Exports of primary aluminium, alloy and semi-finished aluminium products fell 11 percent on-year to 1.08 million tonnes in January to March. March outflows were 420,000 tonnes, up 50 percent from February 2016 and 16.7 percent higher than a year earlier. Reuters
issues which will slow buying,” said Virendra Chauhan of consultancy Energy Aspects. A senior official with Sinopec’s trading unit said on March 31 that China’s crude oil imports were expected to rise to 7.5 million bpd in 2016, likely trumping the United States as top importer. Fuel exports in March rose 25.4 percent over February to 3.75 million tonnes, as China continues to export more diesel and gasoline amid a growing supply surplus and weak domestic demand for diesel fuel from the industrial and construction sectors. Net fuel exports were 1.30 million tonnes in March. China has granted refiners additional fuel export quotas of more than 14 million tonnes, bringing the total issued so far this year to more than 35 million tonnes, a trade source said last week. Earlier yesterday, the National Development and Reform Commission said domestic consumption of key transportation fuels gained 7.2 percent on year, with diesel up nearly 3 percent, reversing a decline seen in the first two months of 2016. Reuters
Appetite for coal increases China imported 19.69 million tonnes of coal in March, up 15.6 percent on the year, the country’s customs authority said yesterday, as power plants sought to replenish stocks ahead of the peak summer consumption period. Imports in the first quarter reached 48.46 million tonnes, down 1.2 percent from the same period of last year, according to the General Administration of Customs. “Imports from March have shown a recovery, which is related to the increase in domestic prices, and I believe that the recovery will be sustained into April and May,” said Zhang Xiaojin, an analyst at Everbright Futures. Zhang said declining stockpiles, tougher domestic production controls and declining import volumes over January and February had raised the appetite of traders. China’s coal sector has been reeling as a result of slowing domestic demand and excess capacity. This has also curbed the country’s appetite for imports, which fell as much as 29.9 percent over the whole of 2015. While coal prices at the port of Qinhuangdao in Hebei province have gained 5.4 percent so far this year, they are still down nearly 20 percent from a
year ago, eroding some of the cost advantages enjoyed by foreign suppliers. Foreign suppliers have expressed concern that China could export some of its surplus coal, as it has done with steel and aluminium, but analysts said that was not likely, with Chinese coal still more expensive than coal from Australia and elsewhere. “Exports won’t rise because although domestic coal prices are relatively cheap, those on the international market are also falling,” said Wang Fei of China’s Huaan Futures. While there will be a seasonal spike in coal demand going into the peak summer power consumption season, analysts are not expecting the market to strengthen in the coming months, or for imports to rise significantly. “After one or two months, buying by power plants is likely to slow, and the price trends at that point will depend on upstream capacity cuts and whether small-scale mines will be restructured,” said Wang. The government has said it would shut 500 million tonnes of production capacity in the coming three to five years as it tries to reduce an annual capacity surplus estimated at around 2 billion tonnes. Reuters
China’s trade with North Korea rose in the first quarter in spite of tough new international sanctions this year targeting Pyongyang’s banned nuclear programme, including curbs on coal imports. Imports from the isolated country, consisting mainly of coal and clothes, rose 10.8 percent from a year earlier, customs spokesman Huang Songping said yesterday. China’s exports to North Korea in the first quarter rose 14.7 percent from a year earlier in yuan terms, Huang told a news conference. China is North Korea’s only major ally and most important trade partner. Prices
State planner sees drop in vegetable prices China’s state planner said yesterday that it expected the country’s domestic vegetable prices to drop starting mid-April. Pork prices are unlikely to see a surge for 2016, the state planner said during a news conference. Consumer prices in March rose 2.3 percent, below a forecast 2.5 percent. February’s inflation represented the fastest rise in more than a year but the increase was driven largely by sharp gains in food prices following an unexpectedly harsh winter. Money laundering case
ICBC executives released from custody in Spain A Spanish court on Tuesday ordered the release from custody of two Chinese banking executives arrested in February as part of a money laundering probe into China’s biggest bank, the Industrial and Commercial Bank of China (ICBC). The two Madrid-based ICBC executives, Liu Gang and Liu Wei, were released after the court decided there was no flight risk and dismissed concerns that they might destroy evidence, court documents said. A third ICBC employee will remain in jail. The ruling on their release does not anticipate the outcome of their case. The two men will have their passports taken away and will have to appear in court at least twice a month.
10 Business Daily Thursday, April 14 2016
Greater China Consumption habits
“Moonlight” generation puts tomorrow’s growth on credit The levels of consumer debt still pale in comparison with total debt in the economy. Sue-Lin Wong and Adam Jourdan
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hina’s hopes that consumer spending can become its new growth engine have taken a few dents in 2016, but a new generation of over spenders might give the economy a shot in the arm, even as they stretch their own resources to breaking point. A young, middle-class and tech-savvy cohort dubbed the ‘moonlight generation’ - because their banks accounts are light at the end of the month - are turning their backs on the cautious ways of their hard-saving parents and embracing credit. That is welcome news to Beijing policymakers, who last month urged lenders to open the taps for shoppers after economic growth slipped to its slowest pace in 25 years, retailers reported signs of stress and bloated industries prepared for a wave of redundancies. It’s also good news for Simon Loong, founder and chief executive of online lending platform WeLab, which he said has 3.2 million users in China. “The consumption behaviour of millennials is quite different; they more are looking for instant
gratification,” he said, adding that longer-term financial planning took a back seat. Policymakers are trying to deepen the level of access to credit similar to what took place in the United States 100 years ago, said China-focused investment strategist Andy Rothman, referring to a U.S. credit-driven consumption boom in the 1900s. “These things are great, but need to be done in a careful and deliberate way, because we’ve seen in the U.S. if you don’t do that then these things can be abused and create problems.” Relative to income levels, household debt has already reached nearly 60 percent, up from 35 percent in 2007, according to the Institute of International Finance. Tian Xue, 27, who works at a stateowned firm in Shanghai and considers herself part of the moonlight demographic, can see problems building up for some of her peers. “I think a lot of people end up spending more than they can really afford, just without thinking about
Key Points “Moonlight generation” embracing consumer credit China hopes consumption will become driver of growth Beijing has urged lenders to open taps for shoppers Consumer borrowing hit 20 trln yuan in Feb, tripled from 2010
it,” she said. Tian, who lives with her parents, keeps her money online in digital “wallets”, which typically have sister platforms offering credit. She said she often spends around 20-30,000 yuan (US$3,100-4,600) in a month, well above her income of around 6,000 yuan.
Lax regulation
A widening array of funding options are available to young shoppers like Tian - traditional credit cards, peerto-peer loans and credit platforms offered by e-commerce companies such as Alibaba Group Holding Ltd and JD.com Inc. “When I use (Alibaba’s) Taobao, it just pops up, telling me that I can pay with Ant Check Later,” said Pang Yu, a 25-year-old railway ticket inspector in Beijing. She uses the Alibaba-linked platform, which allows shoppers to pay for purchases the following month, along with her credit cards, to run up sometimes as much as 20,000 yuan a month in debt, more than she and her partner earn. Alibaba declined to comment for this story, while JD.com said it used big data to target consumers who have the ability to repay money quickly. The Chinese still spend and borrow only about half the levels of U.S. consumers relative to GDP, and the most recent World Bank figures show it is still the world’s third-most prolific nation of savers, but things are changing fast. Consumer borrowing hit nearly 20
trillion yuan in February, a threefold rise since 2010, and household debt relative to the economy has doubled since 2008 to nearly 40 percent. Such rapid growth in a system where regulation is lax might pose risks that credit quality will suffer. Officials have already vowed to crack down on unregulated lending into the property market, for example, which is raising household debt and the risk of a property bubble. The China Banking Regulatory Commission, which is responsible for financial regulation, did not return requests for comment on potential risks. The levels of consumer debt still pale in comparison with total debt in the economy, which hit 250 percent of GDP in 2015, dominated by government and corporate debt. Economists say China’s high savings rate - around 46 percent of GDP last year, according to the central bank governor - acts as a natural buffer to systemic shocks from consumer credit. Which is an indirect way of saying that the moonlight generation’s long-suffering parents will probably bail them out when things go wrong, as they did for 26-year-old Ms Gong, a car saleswoman in Beijing. She couldn’t pay back the 20,000 yuan she ran up on plastic last year to fund what she called “a necessary expenditure” - cosmetic surgery on her nose - so mum and dad stepped in. She has no regrets. “It was all worth it, and I look great.” Reuters
Business Daily Thursday, April 14 2016 11
Asia Overcoming commodities
Australian economy keeps growing as worst of mining drag fades The outlook is also benign with analysts predicting consumer price inflation would run at 1.9 percent this year. Wayne Cole
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ustralia’ s economy is seen weathering an unwelcome rise in the local dollar and uncertainty over China this year, while the worst fallout from a mining downturn may finally be over. The latest Reuters poll of analysts expects Australia’s A$1.6 trillion (US$1.2 trillion) of gross domestic product (GDP) to expand 2.6 percent this year, unchanged from the previous poll. Growth was forecast at a solid 2.9 percent for 2017. That would actually be a step down from last year when the economy surprised everyone by expanding at a 3 percent pace, well above previous’ forecasts of 2.3 percent. Gains in consumer spending, new home building and export volumes all played a part in the better outcome. The improving mood was clear in a closely watched survey of Australian business out this week that showed firms were enjoying the best conditions in eight years. “A jump in both business conditions and confidence provides more assurance that the Australian economy is weathering the global challenges well, and is successfully transitioning through the end of the mining boom,” said Alan Oster, chief economist at National Australia Bank. The unwinding of a oncein-a-century bonanza in mining investment has taken a chunk out of growth in recent years, while a slump
in commodity prices has eaten into export earnings, company profits, wages and tax revenues. Yet the Reserve Bank of Australia (RBA) estimates that the drag on growth from mining will peak this year and ease thereafter. Some are even more optimistic. “In our view the local economy is about three quarters of the way through the adjustment path involving the decline in mining related investment,” says Michael Workman, a senior economist at Commonwealth Bank of Australia. “Accommodative monetary and fiscal policy settings have assisted with the adjustment by boosting interest rate sensitive areas of the economy,” he added. “The lower Aussie has also lifted activity in education, tourism and accommodation.” A recent bounce in the local dollar has undone a little of that stimulus, spurring speculation the RBA might cut interest rates from an already record low of 2 percent. A potential trigger for an easing could come later in April when inflation figures for the first quarter are likely to show underlying inflation stood at the very floor of the RBA’s 2 to 3 percent target band. The outlook is also benign with analysts predicting consumer price inflation would run at 1.9 percent this year, down from 2.3 percent expected in the last poll. They also assume Australia will dodge the deflation that so bedevil Europe and Japan, with inflation seen rising to 2.4 percent over 2017. Reuters
The Reserve Bank of Australia (headquarters pictured) estimates that the drag on growth from mining will peak this year and ease thereafter.
Monetary policy
Japanese central banker sees natural easing to face risks Harada said Japan’s household spending survey has fallen more than the government’s estimates of consumption from the supply side. Stanley White and Yoshifumi Takemoto
Bank of Japan (BOJ) board member Yutaka Harada said it is ‘natural’ to ease monetary policy immediately if there are big economic risks and did not rule out cutting interest rates further into negative territory. Harada said he could not say whether or not such risks have materialised now, but the BOJ can combine its monetary policy tools in several different ways if needed. “If big risks materialise, it would be only natural to ease monetary policy right away,” Harada said after meeting business leaders in Shimonoseki, southern Japan. It is difficult to determine whether or not recent yen gains are in line with economic fundamentals, but a rising currency does weaken upward pressure on prices in Japan, he said. Harada, whose comments come amid lingering speculation the BOJ could ease policy as soon as this
month in response to recent gains in the yen, said there are delays in meeting the central bank’s 2 percent price goal. He later told reporters that his comments did not mean a delay in achieving the price target by fiscal first half in 2017. The BOJ’s next two-day policy meeting ends on April 28. Policymakers will likely debate the possibility of easing monetary policy further at this meeting, sources familiar with their thinking said.
Key Points BOJ Harada does not rule out more negative rates Some traders speculate BOJ will ease policy again soon Rising yen complicates battle with deflation pressure
If the central bank eases policy, it would more likely increase asset purchases than cut interest rates, the sources said, as financial institutions are still adjusting to a negative rate policy deployed in January. The minus rate policy now entails a charge of 0.1 percent interest on a small portion of commercial bank reserves. The BOJ’s adoption of a massive asset-buying programme in April 2013 was intended to spur inflation expectations, and in turn, encourage households and firms to spend. That has failed to materialise, forcing the central bank to turn to
negative rates to hit its 2 percent inflation target. In January the BOJ pushed back its time frame for hitting its inflation target for the fourth time, and economists say another delay is possible. Harada said Japan’s household spending survey, which is a measure of consumer spending from the demand side, has fallen more than the government’s estimates of consumption from the supply side. Data from the supply side shows consumption is falling at a more moderate pace, which may be a more accurate description of what is going on in the economy, he said. Reuters
12 Business Daily Thursday, April 14 2016
Asia Monetary moves
Korean Finance Minister sees ‘room’ to cut rate Markets were closed in South Korea yesterday as citizens vote in the National Assembly election.
S
outh Korea has room to lower borrowing costs and issue more debt if such expansionary policies are needed to help the economy meet its 3.1 percent growth target for 2016, Finance Minister Yoo Il Ho said. The country’s record-low 1.5 percent benchmark interest rate is higher than that of many other nations, Yoo told Bloomberg News in an interview in New York ahead of the next Bank of Korea policy meeting on April 19. Speaking as Koreans go to the polls to elect members of the national legislature, he also pointed to the economy’s relatively low debt-to-GDP ratio of 37.9 percent. “We have room for the two measures,” Yoo said, while declining to comment on whether a rate cut was needed to support consumption. The government would be comfortable raising the debt ratio to a 60 percent cap suggested by the Organization for Economic Co-operation and Development, he said, while calling for caution not to increase this by too much, too soon. Yoo’s comments come as falling exports and weak consumer sentiment at home cloud the outlook for Korea’s economy. The International Monetary Fund lowered its forecast for South Korea’s 2016 economic growth to 2.7 percent from 3.2 percent, citing sluggish Chinese demand for the nation’s exports. While government spending is sufficient “for now”
to meet its growth target, a further slowdown in China and continued negative interest rate policies by the European Union and Japan may require South Korea to further expand fiscal stimulus or use other policy levers, Yoo added. “It depends if the international economy, the outside environment, is not so good for us,” he said. “If it’s worse than expected, then we might rely on a supplementary budget.” Fiscal policy has continued to expand under President Park Geun Hye’s leadership. An extra budget was drafted twice in the past three years.
South Korea’s Finance Minister Yoo Il Ho.
“It depends if the international economy, the outside environment, is not so good for us” Yoo Il Ho, South Korea’s Finance Minister
This year, the government allocated more spending to the first quarter under a record spending plan. The “mini expansionary policies” introduced in February, such as partial tax cuts and front-loading of the government budget, have had a positive effect, as shown by the rise in automotive sales volume and the up-tick in the Kospi stock index in Seoul, Yoo said.
The Bank of Korea has a bleaker view of the economy’s prospects, with Governor Lee Ju Yeol recently saying that growth is likely to fall below 3 percent this year.
FX markets
The won has st re ngthe n e d a b o u t 8 p e rc e n t
against the dollar since the beginning of March, coming back from a 5.2 percent drop in the prior two months. While it’s too early to say that the won has stabilized, Korea’s foreign exchange market is “working fairly well” with the currency
becoming less volatile than it had been in February and March, Yoo said. He added that the ministry continues to monitor the markets and will take a “flexible approach” to existing restrictions on currency-forward positions for banks. Bloomberg News
Tech business
Vietnam’s young talent pulls foreign funds to booming start up scene Most of Vietnam’s startups are in e-commerce, a sector where sales grew around 35 percent last year to US$4 billion. Mai Nguyen
Vietnam’s tech start-ups are emerging as a force to be reckoned with as foreign private equity funds bet the country’s talented young brains will yield more successes like the international hit game Flappy Bird. Just last month, financial powerhouses Goldman Sachs and Standard Chartered PLC raised their investment in the operator of e-wallet MoMo by US$28 million, while Silicon Valley-based venture capitalist 500 Startups announced a US$10 million
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Vietnam-focused fund. One of 500 Startups’ shoestring investments is in automated marketing service Beeketing, founded by college drop-out Truong Manh Quan, 26, who estimates revenue this year of US$2 million predominantly from customers in the United States. “We thought we’ll invest in something like 10 to 20 companies over a 12-month period,” said 500 Startups partner Eddie Thai. “But it quickly became clear, there’s a lot more good companies to invest in.” The start-up boom is the latest chapter of Vietnam’s growing presence in the global tech industry. In the three years since Hanoi-based .GEARS released Flappy Bird, Vietnam emerged from relative obscurity to become the Southeast Asian production hub of South Korean giant Samsung Electronics Co Ltd. Meanwhile, global tech firms that have long had factories in Vietnam such as LG Electronics Inc, Panasonic Corp, and Toshiba Corp - have also been expanding into research and development. Part of Vietnam’s appeal is a cheaper workforce than in China, as well as membership of the Trans-Pacific Partnership trade bloc and free trade deals with the European Union, plus incentives aimed at luring investment away from neighbours.
Of particular interest to venture capitalists, however, is Vietnam’s tech-savvy population with a median age of just 30. “Vietnam has the highest-performing computer science students I’ve ever encountered,” said Neil Fraser, a software engineer at Alphabet Inc’s Google, who visited local schools. The Organisation for Economic Co-operation and Development ranks Vietnamese 15-year-olds above peers in the U.S., Australia and Britain in science and maths. “The exercises I watched them solve ... would be considered challenging problems for a Google hiring interview,” Fraser said.
E-commerce
Data covering Vietnamese start-ups is scarce, but Singapore-based startup community Tech in Asia - itself a start-up with investors including Japan’s SoftBank Group Corp - reckons there are about 1,500 in operation. That number, relative to population, represents a higher concentration than the 2,100 in Indonesia, 2,300 in China and 7,500 in India. Start-ups in Vietnam, like Indonesia, thrive with little government support beyond legal advice and US$10,000 cash under a scheme dubbed Vietnam Silicon Valley. In contrast, China announced a $6.5
billion fund mainly for tech and green energy start-ups last year, while India pledged US$1.5 billion in January. “I plan to grow this company for five years then sell it,” said Beeketing’s Quan. “Then I may become an angel investor myself.” Most of Vietnam’s start-ups are in e-commerce, a sector where sales grew around 35 percent last year to US$4 billion, and whose 2.7 percent contribution to overall retail sales indicates ample room for growth. Supporting e-commerce are tech-related logistics start-ups such as Giaohangnhanh which helped reduce overall logistics costs in Vietnam to a fifth of gross domestic product last year from a fourth just one year earlier. Other start-ups include the operator of food-finder app Lozi that received a combined seven-figure investment from DesignOne Japan Inc and Singapore’s Golden Gate Ventures. Tran Minh Son, one of four Lozi founders, quit university in Pennsylvania to concentrate on the app. “It was like cutting my legs off so I’ve no way back,” he said. “My parents complained quite a lot. They said, ‘You’re not my son - move out’.” Lozi, launched in 2012, now boasts 600,000 registered users and 4 million unique visits each month. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Michael Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Bami Lio; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Francisco Cordeiro Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily. com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Thursday, April 14 2016 13
Asia Banks
As foreign banks speed up expansion in Australia, regulators edgy Some industry players said the presence of foreign players will benefit the loan market as a whole.
Major Chinese banks lending in Australia include Bank of China, Industrial and Commercial Bank of China (ICBC) and China Construction Bank. China Merchants Bank and the other lenders did not respond to requests for comment.
Sharon Klyne and Swati Pandey
Boom-bust cycle
C
hina’s banks are muscling into Australia by financing fast-growing Chinese property and corporate investments Down Under, invoking a warning from the Australian regulator that rapid expansion by foreign lenders is a potential systemic threat. Total loans by Chinese banks that operate in Australia grew by more than 36 percent in the year to end-February compared with a 9 percent growth in loans overall, according to the latest Australian government data. And more Chinese lenders are looking to set up shop in the US$1.2 trillion Australian economy that is dominated by four major domestic banks. China Merchants Bank is finalising plans to open its first branch in the country this year, sources told Reuters. But the speedy growth of foreign banks, spearheaded by Chinese lenders, is worrying Reserve Bank of Australia (RBA) Governor Glenn Stevens. In March he cited the risk of overheated markets and consequent loan losses to the domestic banking system from foreign lenders’ unbridled growth, and also criticised them for being fair-weather friends in the past. Foreign lenders’ expansion and the associated risks could be a significant theme in the central bank’s half-yearly report on financial stability due later this month, analysts said. Some said RBA may even eventually introduce regulation if the trend of foreign lenders’ strong growth continues. “I don’t think regulators would go as far as macroprudential regulatory adjustments...in the short term. If current growth rates continue it’s always possible,” said Martin Smith, head of markets analysis at business
But the speedy growth of foreign banks is worrying Reserve Bank of Australia (RBA) Governor Glenn Stevens.
banking research firm East & Partners. For Chinese lenders, Australia has emerged as a bright spot, especially as profit growth at home has fallen to a decade-low. In the US$75 billion syndicated-loan market, which funds commercial property and corporate transactions, Chinese banks more than doubled their share in 2015 to 7.1 percent of this market, data from Thomson Reuters Loan Pricing Corp showed. They are also bulking up in the residential property and consumer loans businesses. Chinese investment in Australia is surging. China beat the United States for the second straight year to become the top investor in Australia in 2014/15 by value of all approvals, mainly driven by property, according to latest government data. China’s industrial investment also feeds its hunger to secure global supply chains. “Our primary client base is Chinese, we are following the movements of our China clients,” a Sydney-based loans banker at a top Chinese bank told Reuters of the push into Australia. The banker declined to be identified as he was not authorised to speak to the media.
RBA’s Stevens fears that the rapid growth in lending, especially to property developers, would create oversupply in the market and a boom-bust cycle could eventually lead to large loan losses for all banks. That would spill over to an economy already grappling with a severe commodity downturn. “One is duty bound to observe that there is a history of foreign players expanding aggressively in the upswing only to have to retreat quickly when more difficult times come,” Stevens said in a speech last month. He did not single out China, but its banks are the fastest growing among foreign lenders in Australia. For the main domestic banks Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp - the growth at the Asian lenders comes as another challenge as they seek to improve shareholder returns and profits amid slowing revenue growth and stricter regulatory capital rules. Stevens did welcome the stiffer competition in lending, as the dominance of the big banks had risen after European and U.S. lenders retreated following the global financial crisis. RBS , Barclays and the arm of General Electric are among lenders that have pulled back from Australia in recent years. The big four domestic banks together account for nearly half the total share of Australia’s syndicated loans and over 80 percent of US$1.75 trillion overall loans. Some industry players said the presence of foreign players will benefit the loan market as a whole. “The fact that there are more players willing to participate in deals is good news,” said John Corrin, ANZ’s head of loan syndications in Hong Kong, as more players mean greater liquidity in the market. Reuters
Restructure
JPMorgan cuts 5 pct of Asia wealth management jobs The job cuts would affect the bank’s Singapore and Hong Kong offices. Saeed Azhar and Sumeet Chatterjee
JPMorgan Chase & Co has cut 30 jobs, or 5 percent of its headcount, at its Asia wealth management business, a source with direct knowledge of the matter said, as the U.S. bank sharpens its focus on tapping wealthier clients. The job cuts would affect the bank’s Singapore and Hong Kong offices, the source said, declining to be identified because they were not authorised to speak publicly on the subject. JPMorgan said in a statement that Edwin Lim, market manager for North Asia high-net worth clients, had left the firm. A spokeswoman declined to comment further on job cuts. The cuts highlight a decision by the bank to refocus on upper-end Asian clients with US$10 million in investable surplus, known as ultra-high net worth individuals, up from a
US$5-million threshold earlier, the source said. In March last year, JPMorgan said it had decided to position its Asia wealth management unit as one private bank serving both the rich and the super rich, aligning its business model with other regions. With 4.7 million individuals with US$1 million in liquid financial assets, Asia-Pacific is the largest and fastest growing wealth region, according to Cap Gemini and RBC. But some Western banks have recently retreated from the wealth management business in Asia due to rising costs, regulatory risks and competition. British lender Barclays earlier this month agreed to sell its wealth and investment management business in Hong Kong and Singapore to Oversea-Chinese Banking Corp (OCBC). “At J.P. Morgan, we constantly
review our coverage to ensure that clients are aligned with the advisors who are best suited to meet their needs,” the JPMorgan spokeswoman said in the statement. “Our integrated team approach to service our clients will remain unchanged and fully covered,” the statement said, adding the bank remained open to hiring more in the region to grow its wealth management business. JPMorgan’s shift in strategy for its wealth management unit began a few months ago and saw the departure of several private bankers who were targeting the high-net worth segment, typically with about US$5 million liquidity, private banking sources said. Peter Flavel, the former JPMorgan chief executive of private wealth management at Asia Pacific, joined Royal Bank of Scotland Group PLC’s Coutts & Co and Adam & Co. in February. Reuters
In Brief Westpac poll
Australian consumer mood darkens in April A measure of Australian consumer sentiment fell for a second month in April amid concerns about the economy and family finances, perhaps linked to media speculation about what cutbacks might be in a looming government budget. The survey of 1,200 people by the Melbourne Institute and Westpac Bank showed its index of consumer sentiment dropped 4 percent in April, from March. That left the index 1.1 percent down on April last year at 95.1, meaning pessimists outnumbered optimists. The Liberal National government of Malcolm Turnbull releases the 2016/17 budget on May 3. Negative interest
IMF warns of limits to rate cuts in Japan The Bank of Japan still has tools to further expand monetary stimulus but must bear in mind that there are limits to how far it can deepen negative interest rates, a senior International Monetary Fund official said. Mitsuhiro Furusawa, the IMF’s deputy managing director, said he did not see recent yen rises as deviating sharply from the fund’s existing assessment that yen moves were “broadly in line with fundamentals.” The BOJ stunned markets in January by deciding to add negative interest rates to its massive asset-buying programme in a fresh attempt to achieve its 2 percent inflation target. Housing
Singapore’s rental prices decline in March Rental prices for public housing units and non-landed private housing units both fell in March from the previous month, the Singapore Real Estate Exchange said yesterday. Rentals for homes built by private developers dipped by 1 percent month on month in March. However, the rental volume for private units increased significantly by 35.5 percent, with an estimated 4,331 units rented in March, higher than the 3,197 units in February, SRX said. Meanwhile, the rental prices for public housing flats built by the Housing and Development Board dipped by 0.1 percent in March. Tourism
Heat waves to hit Thailand during festival Thai weather forecaster has warned that weather temperature will be over 40 degrees during water-splashing Songkran festival, which began yesterday, when large number of visitors across the world are expected to visit Thailand. According to a statement posted by Thai Meteorological Department, the weather in the Thai capital Bangkok would be hot to very hot with haze during the day throughout the festival, as the maximum temperature may climb to near 40 degrees Celsius. Other parts of Thailand are also very hot as the forecast said the maximum temperature in most areas of Thailand are 40 degrees or even above.
14 Business Daily Thursday, April 14 2016
International In Brief Bank of England sur vey
UK banks plan to boost lending to households A Bank of England survey underscored the consumer-led nature of Britain’s economic growth yesterday, showing that banks planned to ramp up mortgage lending while business lending was expected to rise by the smallest margin in four years. The quarterly survey showed lenders expected to keep the availability of credit to businesses broadly static over the next three months, but lending for mortgages and other consumer borrowing would rise at its fastest rate in 18 months. Some of the weak growth expected in business lending might reflect the preference of large businesses for raising money on bond markets rather than from banks. OECD
Gurria urges G7 to coordinate fiscal spending boost OECD Secretary-General Angel Gurria pressed yesterday for the Group of Seven rich countries to coordinate a a fiscal spending boost to bolster global growth. He told Japan’s Prime Minister Shinzo Abe that the fiscal spending did not need to be large, but should focus on infrastructure, education and policies that improve productivity, Gurria said after a meeting with Abe. The Japanese leader seemed to react favourably to his suggestions for more fiscal spending, Gurria said, but it would take more discussions with other officials to set the G7 agenda. Economic programme
World Bank set to provide Egypt loan The World Bank will provide the first US$1 billion tranche of a US$3 billion loan to Egypt after parliament approves the government’s economic programme, World Bank vice president Hafez Ghanem said at a news conference late Tuesday. Parliament is expected to pass the program in April. Egypt has been negotiating billions of dollars in aid from various lenders to help revive an economy battered by political upheaval since the 2011 revolt and ease a dollar shortage that has crippled import activity and hampered recovery. Bailout fund
Italy’s economy minister says EU won’t block bank fund There is no risk that European authorities will block a bank fund set up by Italian financial institutions to shore up weaker lenders, Italy’s Economy Minister Pier Carlo Padoan told financial newspaper Il Sole 24 Ore yesterday. In a separate interview, Bank of Italy Director General Salvatore Rossi said the vehicle did not increase systemic risk for Italian banks. On Monday, Italy’s UniCredit and Intesa Sanpaolo, state lender CDP and others agreed to create a fund with a war chest of up to 6 billion euros (US$6.8 billion) that would help buy shares in upcoming stock issues at distressed lenders.
French Finance Minister Michel Sapin.
Public sector
France to seek extra spending cuts The country’s public finances watchdog said that the government underestimated the size of the structural deficit.
F
rance yesterday said it would reduce public spending further to offset lower-than-expected tax revenues but stuck to forecasts for growth of 1.5 percent this year and next despite more pessimistic estimates by international organisations. To meet its deficit reduction targets, Paris will seek 3.8 billion euros (US$4.33 billion) of extra spending cuts this year and 5 billion euros in 2017 on top of those planned in this year’s budget bill, the finance ministry said. The additional spending cuts, which the government said would come from the state and social security budgets in 2016 as well as lower interest rates, became necessary after sharply lower inflation reduced sales tax receipts. In a deficit reduction programme which euro zone members send to the European Commission, the ministry
said it was cutting its inflation target to just 0.1 percent for 2016, down from the 1.0 percent it had foreseen in the 2016 budget bill voted last year. The extra spending cuts mean France kept its public deficit targets unchanged at 3.3 percent of gross domestic product this year and 2.7 percent in 2017. France cut its public deficit more than expected last year, to 3.5 percent, after having won a two-year reprieve from its euro zone peers to bring the shortfall below the EU cap of 3 percent of economic output.
“We won’t change it (growth estimate) according to the mood of the day, 1.5 percent is our anchor, it’s this anchor we maintain today” Michel Sapin, French Finance Minister
The country’s public finances watchdog, an independent body set up by the current government, said yesterday, however, that the government underestimated the size of the structural deficit and, therefore, of the efforts needed to balance France’s budget position over the coming years. Asked about the watchdog’s opinion, Finance Minister Michel Sapin told a news conference every institution had a different definition of the structural deficit and that the government was focusing on its nominal deficit target. On Tuesday, the International Monetary Fund cut its global growth forecast for the fourth time in a year and said it now expected France’s economy to grow by 1.1 percent in 2016 and 1.3 percent in 2017. Sapin said the government’s growth estimate had also been criticised last year as too optimistic at the time but was eventually exceeded. “We won’t change it according to the mood of the day, 1.5 percent is our anchor, it’s this anchor we maintain today,” Sapin said. The watchdog said the 2016 growth forecast was at the top of the range of economists’ estimates but still within reach. Reuters
Peabody Energy
World’s top private coal miner files for bankruptcy Producers accounting for about 45 percent of U.S. coal output have filed for bankruptcy in the current industry downturn. Tracy Rucinski and Tom Hals
Peabody Energy Corp, the world’s largest privately owned coal producer, filed for U.S. bankruptcy protection yesterday in the wake of a sharp fall in coal prices that left it unable to service a recent debt-fuelled expansion into Australia. The company listed both assets and liabilities in the range of US$10 billion to US$50 billion, according to a court filing. The case is in the U.S. Bankruptcy Court for the Eastern District of Missouri, St. Louis, case number 16-42529. Peabody’s Chapter 11 bankruptcy filing ranks among the largest in the commodities sector since energy
and metals prices began to fall in the middle of 2014 as once fast-growing markets such as China and Brazil began to slow. “This was a difficult decision, but it is the right path forward for Peabody,” Chief Executive Officer Glenn Kellow said in a statement. Peabody has secured US$800 million in debtor-in-possession financing from both secured and unsecured creditors, including a US$500 million term loan, US$200 million bonding accommodation facility and a letter of credit worth US$100 million, the company said in release. Peabody’s debt troubles date back to its US$5.1 billion leveraged buyout of Australia’s Macarthur in 2011, a coveted asset at the time meant to position it as a supplier of metallurgical coal for Asian steel mills. But as demand for metallurgical coal fell, particularly in China, Peabody’s financial woes intensified. It made a US$700 million write-down on its Australian metallurgical coal assets last year. At home, the miner was hit by the U.S. shale boom of the past few years
that has made natural gas competitive with thermal coal, as well as by new environmental regulations by the Obama presidency that raised operational costs. With coal-fired power generation struggling to compete on price with shale gas and new laws restricting investment in the sector, the U.S. coal industry went into an existential crisis. Producers accounting for about 45 percent of U.S. coal output have filed for bankruptcy in the current industry downturn, based on 2014 government figures. While coal use has also stalled globally, largely because of China’s economic slowdown and its efforts to protect domestic miners and rein in rampant pollution, most analysts expect consumption of the fuel to remain stable or rise in the future. Some 500 coal-fired power stations are currently under construction, 80 percent of which are in the Asia-Pacific region, where emerging markets as well as developed economies such as Japan and South Korea are still seeing consumption grow. Reuters
Business Daily Thursday, April 14 2016 15
Opinion Business Wires
Inquirer.net The next administration should institutionalize reforms at a faster pace to build on the gains made by President Aquino thus far, achievements that have made the country’s economic growth prospects in the next three years among the best in the region, according to the World Bank. But in light of the recent money-laundering scandal that saw the entry of US$81 million in stolen money from Bangladesh’s central bank into the domestic financial system, World Bank economists said it was also high time to tighten the country’s anti-money-laundering rules and ease the bank secrecy law.
The Times of India India has offered UAE stakes in petrochemical plants and refinery projects as it seeks to boost energy ties with the cash-rich Gulf nation. Oil minister Dharmendra Pradhan, who is currently on a two-day visit to the UAE, promised “fair, transparent and attractive” policy regime for investing in oil and gas sector in India through “appropriate policy, regulatory and fiscal interventions”. Addressing industry captains in Dubai, he showcased investment opportunities for UAE, which had in August last year committed to invest US$75 billion in India.
New Zealand Herald The tax changes unveiled by John Key (pictured)yesterday include plans to provide Inland Revenue with new powers to share information about tax debts with credit rating agencies. David Snell, EY executive director tax, said the changes provided further illustration that the “the tide is going out for tax secrecy, with the government seeing Inland Revenue information as a significant asset to be exploited.” The provisions will be used for just “the most serious cases of non-compliance” according to the Government issues paper released yesterday.
The Age Fortescue Metals Group has hinted it may beat its iron ore export target after escaping the cyclone season without major interruption. Fortescue had originally promised to export about 165 million tonnes of iron ore from Port Hedland in the 2016 financial year, and the company said there was “potential upside” to that guidance depending on weather impacts over the final three months of the financial year. The company shipped about 84 million tonnes in the first half of the financial year, putting it ahead of the pace required to meet its target.
Europe, leave the 500-euro banknote alone
T
he European Central Bank is looking at how it might go about phasing out the 500-euro banknote, the second largest paper store of value in the world after the Swiss 1,000-franc bill. Germany’s Bundesbank too is open to the idea. Yet it’s hard to see whom the elimination of the purple banknote would benefit, despite its dubious reputation. The 500-euro (US$570) bill is something of a libertarian symbol. In a pre-bitcoin world of staterun currencies, it represented one of the best opportunities for a private citizen to fly beneath government radars. It weighs 1.12 grams, so a million euros comes up to just two kilograms - a compact, light package to guarantee independence. A million U.S. dollars in US$100 bills is a 10-kilo bag. What people have done with this embodiment of financial freedom is another question. According to Doris Schneeberger, head of the ECB’s currency management division, “there is no correlation between the use of cash and the black or grey economy” - but that seems untrue. I have calculated the correlation using ECB data on the share of cash transactions in European countries and a recent paper on the size of Europe’s shadow economies by Friedrich Schneider, the continent’s preeminent authority on the subject. It’s a staggering 0.72 - as strong a correlation as can be observed for any real-world phenomena. In Bulgaria, for example, 95 percent of payments are in cash, and the shadow economy reaches 30.6 percent of gross domestic product, the highest level in the European Union. Large-denomination euro bills are used for illicit or tax-cheating payments in these non-euro countries, too. Yet this is not just a “new” Europe phenomenon. Across the 19 countries that use the euro, the correlation between cash transactions and the estimated size of the shadow economy is 0.74 - marginally stronger than for the EU as a whole. Economist Kenneth Rogoff pointed out in 2014 that the euro zone had enough cash to cover 10 percent of its gross domestic product, with about one-third of the value held in 500-euro notes, while the U.S., which doesn’t have such a large-denomination bill, only had 7 percent. “Currency should be becoming technologically obsolete,” Rogoff wrote. “However, in no small part due to its association with the underground economy, it is not.” There are no data on how various denomination bills are used in illicit transactions; it just seems logical that 500s are more convenient for drug and arms dealers. That makes the purple banknote unpopular with regulators (Giovanni Kessler, head of the EU’s anti-fraud office, called for its abolition in January), and with politicians (French Finance Minister Michel Sapin said in February it is used “more to conceal than to purchase”). The ECB also claims the notes’ popularity with consumers has been flat in recent years, unlike that of the ubiquitous 50-euro bill. That doesn’t, however, mean the 500-euro bill is unpopular. The more than 600 million bills in circulation as of February 2016 made up 28 percent
Leonid Bershidsky Bloomberg View columnist.
of the total amount of cash euros out there; only the 50-euro notes - 8.2 billion of them - accounted for a larger share, at 39 percent. Phasing out a bill in which so much value is kept is no trivial task. Assuming the notes’ holders want to keep their savings in cash, printing smaller-denominated bills to exchange for the 500s will cost half a billion euros, the Frankfurter Allgemeine Zeitung has calculated. To extent that savers move out of cash, because it becomes inconvenient, the ECB will end up losing seigniorage - the profit from the difference between the notes’ face value and production cost, which was abnormally high for the 500s. People who used 500-euro bills before may switch to commodities such as gold. The gains from scrapping the biggest-denomination bill are less obvious. The shadow economy would be highly unlikely to shrink - it’s just that large transactions would involve bigger packages of smaller bills. Only the total elimination of cash would force criminals to rethink their payment systems and logistical models. Yet nobody is planning that just yet. The timing for the planned withdrawal of the 500s is ominous, too. These are the days of negative interest rates. One of the few reasons banks are reluctant to pass them on to depositors is that they might flee to cash. Making that harder and riskier - who wants to keep bags of cash around the house, rather than a small stack of notes? - is not quite fair to law-abiding citizens trying to avoid paying interest on their own savings. The Swiss National Bank has announced it won’t touch the 1,000-franc (US$1,048) bill, which accounts for more than 60 percent of the total Swiss cash value. The bank knows they are used as a store of value, and it has noted a rise in demand for them since rates have turned negative. That’s the only fair approach in a world where central banks and governments are messing with the time value of money to the extent that they’re doing now. I have argued before for the total abolition of cash in favour of the free, officially recognized and sanctioned circulation of cryptocurrencies such as bitcoin. These currencies, though they are relatively hard to trace, still leave an electronic trail and are harder to launder clandestinely. At the same time, they provide people with a way to keep their savings outside government control, an important opportunity for free citizens. Until the parallel existence of state-issued electronic money and decentralized currencies - also in electronic form - becomes the norm, taking bills of any denomination out of circulation is an exercise as futile as it is costly. Bloomberg View
“Only the total elimination of cash would force criminals to rethink their payment systems and logistical models. Yet nobody is planning that just yet.”
16 Business Daily Thursday, April 14 2016
Closing M&A
Alibaba invests US$1.25 billion in Mainland food-delivery firm
Chinese online food-delivery service company Ele.me has raised US$1.25 billion from Alibaba Group Holding and its Internet finance arm Ant Financial, Ele.me and Alibaba said in separate statements yesterday. Alibaba has invested US$900 million while Ant Financial has invested US$350 million, Ele.me said in a statement on its official Weibo microblog. Alibaba confirmed the investment in an emailed statement to Reuters. The investments will help bolster Ele.
me’s position in a fiercely competitive online food delivery market, where it faces deep-pocketed rivals including Baidu Inc, Meituan-Dianping and Alibaba’s own platform Koubei. Neither Ele.me nor Alibaba gave further details on the deal or said what stakes Alibaba and Ant Financial would receive. Leading business weekly Caixin reported in December that Alibaba had agreed to invest US$1.25 billion in the fooddelivery firm for a 27.7 percent stake. Ele.me, which roughly translates as ‘Hungry Now?’, is part of a trend in China for what is known as online-to-offline (O2O) services. Reuters
M&A
Big four China’s banks, StanChart, ANZ to join yuan gold benchmark The benchmark price, to be quoted in yuan per gram, will be set twice a day based on a few minutes of trading in each session. A. Ananthalakshmi
T
op Chinese banks, alongside Standard Chartered and ANZ, will be among 18 members to join a new yuan-denominated gold benchmark that signals
China’s biggest step towards becoming a price-setter for the metal. As the world’s top producer, importer and consumer of gold, China has baulked at having to depend on a dollar price in international transactions, and believes its market weight should entitle it to set the price of gold. The yuan gold fix, to be launched on April 19, is not expected to pose an immediate threat to the gold pricing dominance of London and New York, but it could ultimately give Asia more power, particularly if the Chinese currency becomes
fully convertible. The Chinese benchmark price will be derived from a 1 kg-contract to be traded by the 18 members on the Shanghai Gold Exchange (SGE), which will act as the central counterparty. The price-setting process will include China’s big four state-owned banks, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank, the SGE said in a statement on its website. Bank of Communications, Shanghai Pudong Development Bank, China Minsheng Banking Corp , Industrial
Bank Co, Ping An Bank and Shanghai Bank will also participate. Bank of China (Hong Kong), retailers Chow Tai Fook and Lao Feng Xiang, Swiss trading house MKS, Chinese miners China National Gold Group and Shandong Gold Group will also be members, SGE said. The benchmark price, to be quoted in yuan per gram, will be set twice a day based on a few minutes of trading in each session. The spot benchmark in London, quoted in dollars per ounce, is set via a twice-daily auction on an electronic platform with 12
participants after starting off with six. The London fix, which was previously set via a teleconference among banks, was replaced by electronic auctions after a shake-up in benchmark setting following a scandal over rigging of the Libor interest rate broke in 2012. Support from foreign banks will be crucial for the international use of the yuan benchmark, but China had struggled to get them to sign up due to sensitivity around benchmarks amid scrutiny by regulators.
‘The Chinese benchmark price will be derived from a 1 kgcontract to be traded by the 18 members on the Shanghai Gold Exchange’ Reuters reported in January that China had warned foreign banks it could curb their operations in the domestic market if they refuse to participate in the benchmark-setting process. Standard Chartered and ANZ, the two foreign banks participating in the fix, have gold import licences in China. HSBC also has an import licence but was not named by SGE as one of the participating banks. Reuters
Liquidity
Private poll
Panama Papers
PBOC seen averting cash shortage
Chinese economic growth to slow
Global tax powers gather in Paris over scandal
China’s central bank will probably roll over medium-term loans to avoid a shortage of cash as maturing contracts, tax payments and bank reserve requirements drain more than 1 trillion yuan (US$155 billion) from the financial system this month, according to a survey of traders and analysts. The People’s Bank of China will extend the maturities of some of 551 billion yuan of loans provided via the Medium-term Lending Facility (MLF) due next week, according to all 14 respondents in the April 8-11 poll, while four said the monetary authority may also reduce the ratio of deposits that lenders have to hold in reserve. The PBOC offered MLF yesterday at rates unchanged from its last sale on February 19, people with knowledge of the matter said. The PBOC has increased its hold on interbank liquidity, raising the frequency of its open-market operations and restricting the one-week interbank borrowing cost to between 2.25 percent and 2.5 percent over the past five months to indicate to investors where it wants interest rates to be. Apart from the MLFs, liquidity will be affected also by more than 400 billion yuan of corporate taxes, as well as 200 billion yuan of reserve requirements deposited earlier with the central bank. Bloomberg News
China’s economy is expected to slow to 6.5 percent this year, the weakest growth since 1990 and down from 6.9 pct in 2015, maintaining pressure on Beijing to offer more policy support, a Reuters poll showed. The slowdown in the world’s second biggest economy is seen keeping policymakers focused on boosting activity, as markets and investors globally remain wary about the government’s ability to manage the transition from manufacturing-driven growth to one reliant on services and consumption. These fears have been fed by last year’s summer meltdown in China’s stock market, a bungled rescue attempt by authorities and an unexpected devaluation of the yuan in August. The median forecast in a Reuters survey of 65 analysts is for 6.5 percent growth in 2016 - the weakest in a quarter of a century - and 6.3 percent in 2017, dragged down by depressed demand at home and abroad, industrial overcapacity, and faltering investment. The survey’s highest GDP forecast was 6.9 percent for this year and the lowest was 5.9 percent. Analysts also expect annual inflation to average 1.9 percent in 2016, before rising a touch to 2 percent in 2017. Reuters
Tax powers from the world’s richest nations opened a meeting in Paris yesterday to jointly probe murky offshore dealings revealed in the huge ‘Panama Papers’ data leak. The leak of 11.5 million confidential offshore financial documents from Panamanian law office Mossack Fonseca offered tax authorities an unprecedented trove of data to delve into alleged wrongdoing. The tax haven investigative network is an initiative of OECD. The tax officials gathered behind closed doors in Paris just hours after Panamanian organised crime police raided the headquarters of Mossack Fonseca, which says its confidential documents were stolen in a computer hack. The world’s business, political and even sports elite have been thrown onto the defensive by the findings, published April 3, of a year-long probe by a consortium of investigative journalists, which examined leaked documents covering almost 40 years from around 214,000 offshore entities. Although not illegal in themselves, offshore financial transactions may be used to hide assets from tax authorities, launder the proceeds of criminal activities or conceal misappropriated or politically inconvenient wealth. AFP