Asia Pacific economies strong despite China and Japan IMF Page 10
Wednesday, May 4 2016 Year V Nr. 1035 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Trade
Local exports under CEPA agreement surge 56.2 pct m-o-m Page 4
Rent
Legislative Assembly proposes arbitration for rent disputes Page 2
www.macaubusinessdaily.com Investors
Foreigners wary of jumping into Chinese markets despite government push Pages 8 & 9
Gov’t rejecting SME loan applications Loans Government lending to local small and medium-sized enterprises and young entrepreneurs plummeted 95 pct in April. Attributable to the sharp decrease in the authorities’ approval of loan applications. Only MOP1.4 million in aid went to SMEs and startups throughout the month. Page 4
Caixin slips Manufacturing index A private gauge of Chinese manufacturing slipped in April. Underscoring pockets of weakness in an economy weighed by overcapacity and weak external demand. The manufacturing purchasing managers index from Caixin Media and Markit Economics fell to 49.4. Page 8
Unpaid workers Construction Sound familiar? Around 40 non-resident workers haven’t received wages. Windsor Arch construction site workers were promised MOP15,000 per month. Reduced to payments of RMB200 per day. Until January, when the money stopped coming. Page 2
Gaming Pages 6&7 24° 27° 24° 27° 24° 28° 24° 28° 24° 27° Today
Source: Bloomberg
HK Hang Seng Index May 3, 2016 CLP Holdings Ltd
Thu
Fri
20,676.94 -390.11 (1.85%)
+1.32%
Sands China Ltd
+0.72%
Sun Hung Kai Properties Ltd
-3.93%
Lenovo Group Ltd
-4.54%
Power Assets Holdings Ltd
+1.15%
Hengan International Group
+0.43%
China Mengniu Dairy Co Ltd
+1.06%
Want Want China Holdings
+0.17%
Hang Lung Properties Ltd
-4.39%
Cheung Kong Property
-4.79%
Hong Kong Exchanges and
-4.48%
Belle International Holdings
-5.25%
I SSN 2226-8294
Sat
Sun
Source: AccuWeather
Macau pipeline in pictures Cotai’s new integrated resorts are getting closer to their opening dates. And analysts are gauging construction progress. Fine-tuning estimates on launches for the mega‑projects. And the need to appease the mass market.
2 Business Daily Wednesday, May 4 2016
Macau Labour dispute
Legislation
Arch contractor deprives workers of agreed wages
AL sub-committee to set up arbitration body for rental conflicts
Around 40 nonresident workers seek help from DSAL in pursuing unpaid wages.
Y
et another complaint has arisen from workers at the Windsor Arch construction site as a dozen workers went to the Labour Affairs Bureau (DSAL) yesterday afternoon demanding action against the company for unpaid salaries. Around 40 non-resident construction workers haven’t received wages since the beginning of this year and, while a meeting was scheduled with the contractor to discuss the issue yesterday afternoon, around 20 workers found out that their working permits, also known as blue cards, had been terminated and the workers couldn’t even enter the SAR, according to Kong Hin Man, Office Chief of the Macao Construction Industry General Union, who is helping the workers conduct their case. “Some of them started working at the site since 2012, some joined this year. While the contracts they signed said
they would receive monthly payment of MOP15,000 or MOP16,000, they have only received RMB200 to RMB300 per day for the days they have worked. The workers received the payments in cash at their place of residence in Zhuhai up until January, when the payments stopped coming. They haven’t been paid for these four months [from January to April] for work,” said Mr. Kong.
Ongoing saga
According to the labour union, construction work still continues at the Windsor Arch site despite the labour disputes going on for months. In May of last year, a group of workers staged protests and petitioned Government Headquarters and the Chinese Liaison Office demanding compensation for overtime and rental subsidies from the contractor. “ Th e y [ th e w o r k e rs ] have been receiving unfair
200-300 RMB Amount construction workers received as daily salary for work on Windsor Arch
treatment. And it’s illegal that their wages are calculated on a daily basis, instead of the monthly payment written in their contract and through bank transfer,” the Director-general of Macau Gaming Enterprises Staff Association, Choi Kam Fu, who also helps the workers report such incidents, told reporters after the meeting with the DSAL. “Now is a time when the Foreign Labour Law is under review and the authorities need to give more importance to these kinds of issues. We want all workers to have rights, including these non-resident workers’ right to be protected properly,” he added. “The DSAL representatives said they would look into the case. ” Business Daily contacted project developer Victory Real Estate Development and contractor Great Harvest Group but received no reply by the time the story went to press. The entire Windsor Arch project, comprising 10 blocks and occupying some 18,530 square metres (199,455 square feet), was originally slated to be completed and ready for occupation in 2010. The 10 blocks, each 47 storeys tall, offer 857 units and 1,800 parking spaces.
The chairman of the third standing committee of the Legislative Assembly (AL), Cheang Chi Keong, said the committee agrees with the need to establish an arbitration body for mediating conflicts between landlords and tenants in the bill drafting a new rental regime. Following a closed-door meeting of the sub-committee yesterday the legislator told reporters that the committee had reached a consensus over the foundation of the body with three of the legislators proposing the bill, claiming that the body will shorten the time taken to resolve conflicts between landlords and tenants. “The establishment of this arbitration body aims to provide another option for the two parties to resolve their conflicts more quickly. As such, they don’t need to bring the problems to courts. Based on
our estimation, resolving these conflicts at an arbitration body may take only two or three months, compared to at least six months in courts,” the AL sub-committee head said. According to Mr. Cheang, proposers of the bill hope the new establishment will be dispatched by the Chief Executive, adding that the committee needs to know the government’s opinions on this point. The rental-regime bill, which passed its first reading last November, also proposes to enable the Chief Executive to set a cap on rent increases based on a coefficient scheme. The bill was proposed by nine legislators last June: Gabriel Tong Io Cheng, Leonel Alves, Antonio Ng Kuok Cheong, José Coutinho, Ho Ion Sang, Zheng Anting, Chan Man Kam, Kwan Tsui Hang and Song Pek Kei. K.L.
Business Daily Wednesday, May 4 2016 3
Macau Transportation
Transmac invests MOP30 mln in 25 new buses
the buses on Monday. According to Chinese language newspaper Macao Daily, 18 of the new buses will be used Local bus operator Transportes for the MT4 route that connects the Urbanos de Macau (Transmac) has invested some MOP30 million (US$3.8 city’s Bacia Norte Do Patane area of the Peninsula to the Pac On Ferry million) in the company’s 25 newly purchased buses – which are specially Terminal in Taipa starting May 7. Meanwhile, others will be used for the equipped with USB charger devices, 26A route connecting Hac Sac Beach company chairman Liu Hei Wan told and the Fai Chi Kei area. reporters at the launch ceremony of
Construction
Construction salaries fall 1.8 pct q-to-q Nelson Moura nelson.moura@macaubusinessdaily.com
T
he first quarter of 2016 saw the average daily construction worker’s wage decrease 1.8 per cent quarter-to-quarter to MOP779 (US$97.47), according to data released by the Statistics and Census Service (DSEC) yesterday. The decrease is attributed to a reduction in overtime payments for large-scale constructions in Cotai as well as representing slackening wage growth from the last quarter of 2015 when, according to DSEC data, the average daily wage increased 9.5 per cent quarter-on-quarter. However, at the time a predicted slowdown in construction expenses across Asia was focused on commercial and residential development rates having peaked,
Business Daily reported. The first quarter of 2016 saw the average daily wage for local construction workers MOP990 daily - drop 1 per cent quarter-on-quarter, while non-resident construction workers saw their wages fall 2.2 per cent to MOP653 daily compared to the previous quarter. Compared to the first quarter of 2015 the average daily wage for skilled and semiskilled workers (MOP787), non-skilled workers (MOP392), concrete formwork carpenters (MOP850) and structural iron erectors (MOP863) decreased by 1.4 per cent, 0.3 per cent, 5.9 per cent and 6.9 per cent, respectively; painters and carpenters were the only sector to see an average daily wage increase of 3.5 per cent and 1.9 per cent, respectively. Discounting the effects of inflation the wage index of
construction workers, 100.7, for the first quarter of 2016 decreased by 2.1 per cent quarter-to-quarter and local construction workers’ - 129.0 - increased by 1.3 per cent.
779 Patacas Average daily wage for construction workers
Regarding construction materials the average price of concrete has increased for nine consecutive quarters, rising 2.9 per cent quarter-to-quarter to MOP827 per cubic metre in the first quarter of 2016. The average price of spiral and rebars decreased by 0.8 per cent to MOP4,290 per tonne. Meanwhile, the price index of construction materials for residential
buildings (132.1) in the first quarter of 2016 rose slightly by 0.3 per cent. Macau was considered the second most expensive Asian city to build in at the
end of 2015, according to the International Construction Costs Index, placing the MSAR in fifth place in the global market, Business Daily reported.
Hospitality
Hoffman Ma: Hotels fully occupied during Labour Day Holiday Local hotels saw their rooms nearly fully occupied during the recent three-day Labour Day holiday, the deputy chairman of Ponte 16 operator Success Universe Group Ltd., Hoffman Ma Ho Man, told Hong Kong Chinese language newspaper Sing Tao Daily. The Ponte 16 investor attributed the good performance to a change in strategy by the city’s hoteliers in attracting guests for the holiday.
According to Mr. Ma, hoteliers previously offered promotional packages to attract guests based on advance bookings so that occupancy rates could be ensured to hit between 60 and 70 per cent before the operators gradually increased room rates closer to the holiday. The businessman believes that the upcoming openings of new casino projects in Cotai will increase tourists’ interest in visiting the city. Nevertheless, he does not think these openings will have the same effect in attracting tourists as they did last year. Ma added that the continuous slowdown of the Chinese economy is affecting Macau’s appeal for PRC citizens.
Transportation
Uber partners with China’s Alipay Uber Technologies Inc said it signed up with online payment platform Alipay to allow Chinese travelers to request and pay for rides using the Alipay app in the over 400 cities the ride-hailing service operates in. Alipay is the online payment platform of Ant Financial Services Group, an affiliate of China’s biggest e-commerce company Alibaba Group Holding Ltd. The partnership will allow Chinese travelers to pay for their international rides in yuan using their Alipay
accounts, eliminating the need for dual currency credit cards or currency conversions, Uber said. Uber riders have been able to use Alipay to pay for their rides in mainland China since 2014, and Hong Kong, Taiwan and Macau since early 2016, Uber said. Uber is locked in a battle with Didi Kuaidi to gain market share in China. Didi Kuaidi has also taken stakes in ride-hailing apps GrabTaxi in Southeast Asia and Ola in India, where each also competes with Uber. Reuters
4 Business Daily Wednesday, May 4 2016
Macau Opinion
José I. Duarte
Barbs aside The discussion about changing the renting regime goes on at the Legislative Assembly. The debate is providing our community with that pinch of salt that is so often absent from the political arena. There’s a certain entertainment value in the dispute about who said what and when, but these disagreements are not the heart of the matter. The proposed law touches on sensitive issues we should consider carefully on several grounds, including its likely effectiveness and suitability. Let us remember that the concern at stake was – or many people think it was the outlandish rise of rents in Macau in the course of the last decade or so. These rents have made the life of many residents difficult, to say the least, and condemned many a small business to closure. Some sectors of society demanded the intervention of the government to limit owners’ ability to increase rents. We may debate if that approach is reasonable or appropriate. We may even question if it is compatible with other legal provisions or guarantees, but the intention seemed clear: to protect the weakest party in the arrangement: the tenants. For that purpose, the law, if approved in its initial form, would give the Chief Executive the responsibility of determining, every year, the maximum allowable rise in rents, bearing in mind ‘inflation’ and some vague ‘market conditions’. The proposal was, in its first reading, approved with a single abstention and no vote against - a broad consensus, we could say. In fact, that was a bad idea, which strangely no-one seems to have thought through long enough to realize. We can be sure that was not the case, but it might even be regarded as a ‘solution’ conceived by lawmakers intent on framing the Chief Executive! He would have, every year, to make a decision that was bound to be unpopular with at least one of the sides of the equation, possibly both – if it was enforceable at all. Curiously enough, a good deal of the document justifying the need for such a law deals with the way many tenants ‘cheat’ owners by not paying their dues on time and in full… And the main discussion, nowadays, appears focused upon the setting of such a high ceiling as to make it essentially meaningless. More attentive readers might even conclude that nowhere in the law does it deal with the real drivers of rent hikes. José I. Duarte is an economist and permanent contributor to this newspaper.
Loans Loans to SMEs & young start-ups fall 95 pct in April
Where’s the love? Kam Leong kamleong@macaubusinessdaily.com
T
he government’s total lending to local small and medium-sized enterprises and young entrepreneurs was slashed by 95 per cent in April due to the sharp decrease in the authorities’ approval of loan applications. According to the latest data released yesterday by the Macao Economic Services (DSE), the government’s approved loans to these two categories of applicants only amounted to some MOP1.4 million (US$175,000) in total, a drastic fall of MOP26.6 million from the MOP28 million lent in March. Of the total, MOP1.2 million was borrowed by two local firms via the SME Aid Scheme – compared to the 41 approved applicants whose loans totalled MOP16.7 million under the same scheme in March.
This SME-support scheme received 64 new applications for loans last month, while the government officially declined one other application in the same month. This SME Aid Scheme, implemented since May 2003, provides interest-free loans of up to MOP600,000 per applicant for the purchase of equipment, renovation, advertising and other uses. Businesses have up to eight years to repay the loans. This scheme loaned nearly MOP57 million to 226 small and medium-sized firms in the first four months of this year. In terms of sector, some 32.6 per cent of the total went to companies engaged in the retail industry, amounting to MOP18.6 million. Real estate companies received loans of some MOP9.4 million, which accounted for 16.4 per cent of the total. Meanwhile, the other SME support scheme hosted by the economic
department - the SME Credit Guarantee Scheme - did not approve any new loans last month.
Loans to young start-ups drop
A significant fall was also apparent in the government’s approval of loans to young start-ups via the Young Entrepreneurs Aid Scheme, which offers interest-free loans of up to MOP300,000 to local young people to start their own business. Th e s c h e m e g ra n t e d s o m e MOP200,000 to one successful applicant last month, compared to MOP9.3 million to 38 young entrepreneurs in March. For the first four months of this year, the young start-up scheme approved total loans of MOP20.8 million to 88 beneficiaries. In particular, those running retail businesses accounted for 32.6 per cent, followed by those operating hotels and F&B establishments, which amounted to MOP6.8 million and MOP4.7 million, respectively.
Trade
CEPA exports grow 56 pct in April Local exports of zero-tariff goods to Mainland China under the Closer Economic Partnership Arrangement (CEPA) surged 56.2 per cent monthon-month in April, reveals the latest official data released yesterday by
the Macao Economic Services (DSE). For the month of April the city’s total CEPA exports to the Mainland amounted to MOP11.2 million (US$1.4 million), an increase of some MOP4 million compared to the MOP7.1 million registered
in March. In addition, the export value for the month was the highest monthly recorded so far in 2016. For the first four months of the year, the country saw imports from the Special Administrative Region total MOP32.6 million. Accumulatively, the city has exported goods worth MOP699.9 million to the Mainland since the trade agreement came into effect in January 2004. Meanwhile, official data shows that the government granted four new ‘Macau Service Supplier’ certificates last month, bringing the total number of certificates granted to 598 as at the end of April. These certificates allow local firms to expand their businesses in the Mainland and enjoy zero-tariff treatment. Half of the local firms which obtained these certificates were engaged in the transport industry, including freight forwarding agencies and service companies involved in logistics, storage, warehousing and transport. Some other 25 per cent, or 147 businesses, were medical and dental firms, DSE data shows. K.L.
Business Daily Wednesday, May 4 2016 5
Macau Retail New shop location for IKEA
Fitting it all together IKEA digs in for a long stay in the SAR, moving to a Macau Tower location to improve its customer service experience. Annie Lao annie.lao@macaubusinessdaily.com
I
KEA has relocated its Merchandise Pick-up Point to the Macau Tower Convention and Entertainment Centre from its previous site in the Keck Seng Industrial Building in the Areia Preta region. One of the main reasons for the relocation has to do with car parking – their previous location in an industrial property didn’t provide easy access for customers to pick up their products from online orders or purchases transacted at Hong Kong IKEA stores. “One thing our customers told us about the old pick-up location was that it was not convenient and there were not enough parking spaces for them,” Patrik Lindvall, General Manager of IKEA Hong Kong, told Business Daily at the IKEA Pick-up Point grand opening ceremony held at the Macau Tower yesterday.
The new Pick-up Point occupies 3,000 square feet, an increase in size from the previous location. Among the new additions located in the space is a customer service counter for enquiries, returns and exchange of goods. “By introducing this brand new Pick-up Point, it is our first time to have a giant step forward to actually create a shopping experience for our customers and to bring in a pleasant and convenient experience in waiting for picking up their goods. It is not just about standing outside to pick up the goods; we want our customers also to have a chance to relax, have a chance to browse our catalogues, or they can talk to our team for any enquiries,” Mr. Lindvall said.
Customer experience first
Despite the increase in rent due to the move to the Macau Tower, IKEA decided to prioritise on enhancing its customer experience. “When comparing the old industrial place to a commercial place like Macau Tower, it surely has a different property price. However, our focus is not on maximising the money we make from our customers, but rather it is to maximise our customers’ service experience. Therefore, we believe since we invested in being in the new location there will be a long-term benefit for our local Macau customers. We are committed to staying in Macau for a long time,” Lindvall told Business Daily on the sidelines of the inaugural ceremony. According to the company, IKEA’s products have been seen in Macau in 2006, yet locals who wanted to purchase items had to do so in IKEA stores in Hong Kong. In 2012, IKEA set up the first Merchandise Pickup Point in Macau at its Areia Preta
location. As before, local customers can order their goods, without an extra charge for delivery to Macau, and retrieve them from the Pick-up Point, although a few fragile items listed in the catalogue are unavailable. There is no physical IKEA store in Macau so its customers can only purchase the company’s products
online or shop in one of the IKEA stores in Hong Kong. Purchases are later picked up from the Macau Pickup Point a number of days later. Lindvall noted that - compared to its neighbour - this is particular to the SAR: “This Pick-up Point is unique in Macau because we don’t have a Pick-up Point in Hong Kong.”
6 Business Daily Wednesday, May 4 2016
Macau VIP
Imperial Pacific’s Saipan VIP rolling chip turnover soars 69 pct to US$3.2 billion
Wynn Palace
on the Hong Kong Stock Exchange on Monday evening. The ‘temporary casino’ of the operator was officially launched last November. As at March-end, the Casino operator Imperial Pacific company owned 16 VIP gaming tables, 32 International Holdings Ltd. saw its VIP tables gaming rolling chips at its temporary mass tables and 109 slot machines and electronic table games in the property, casino on the island of Saipan surge 69 which raked in gross gaming revenues of per cent month-on-month to US$3.2 billion (HK$24.7 billion) for April compared some US$186 million for the first quarter of the year, the company announced. to US$1.8 billion in March, it announced
Source: Union Gaming
Cotai Union Gaming publishes latest Macau pipeline in pictures report
The big picture Supply continues to grow as industry revenues continue dropping and operaters shift to the low-margin mass market. Joanne Kuai* joannekuai@macaubusinessdaily.com
T
he world’s biggest gambling hub is on its way to getting even bigger. With the opening of Galaxy Phase II in May of last year, marking the socalled ‘Cotai 2.0’, this year we will see at least two more gaming operators join the new chapter. Sands China is building the US$2.7 billion The Parisian Macau project, featuring a replica Eiffel Tower when it opens later this year, which will
compete with a US$4.1 billion resort from Wynn Macau – Wynn Palace. In addition, a US$1.4 billion hotel – The 13 – is targeted to open late this year. In the latest version of Union Gaming’s report (see image) of ‘Macau pipeline in pictures’, visual construction progress updates can be seen for major gaming projects currently underway. Analyst Grant Govertsen believes that Wynn Palace is still awaiting a full quota of foreign operating labour, hence expectations for an opening date target late August. Of Sands China’s The Parisian the analyst cautions “there’s still risk to various approvals and permits in order to meet a September deadline, which is why we’re still modelling a 1Q17 [first quarter 2017] economic impact for this property. A September opening would yield upside to our forecast for Sands China.”
The market is big enough to absorb the additional supply, while an improving Chinese economy will boost risk-taking by gamblers, according to Michael Ting, a Hong Kong-based analyst at brokerage CIMB Group Holdings Ltd. Several recent Chinese indicators including manufacturing activity, retail sales, exports and industrial output have beaten estimates, buoyed by a surge in new credit to more than US$1 trillion in the first quarter.
Stabilising or not
April gross gaming revenue fell to MOP17.34 billion (US$2.17 billion), data from the Gaming Inspection and Co-ordination Bureau (DICJ) showed on Sunday. The 9.5 per cent drop also marked the 23rd consecutive monthly decline for Macau. However, the decline was not as bad as the 11 to 16 per cent drop analysts had expected.
While the government claimed that the local economy has entered ‘a deep adjustment period’ and ‘the gaming slump has been stabilising’ some remain unconvinced. “What recovery? I haven’t seen any recovery yet,” said Hong Kong-based Paul Chan, the chief investment officer for Asia (excluding Japan) at Invesco, which oversees about US$772 billion in global assets. “Top-line revenue growth is not improving and they have moved to the mass market now, which is a low-margin business. I don’t think it is a good time for investors to go into the sector.”
Shift to mass
Macau casinos have been in a downturn since mid-2014 as China’s anti-corruption campaign and a slowing economy keeps the country’s high rollers away from the world’s largest gambling hub. Still, the industry’s mass market revenue has started to bottom out since last year with narrowing revenue declines. Operators such as Galaxy Entertainment Group Ltd., Wynn Macau Ltd. and Melco Crown Entertainment
GGR Macau’s gross gaming revenue still quadruple that of Las Vegas Strip
Down but not out The city’s gaming revenue slowdown hasn’t toppled it from its pedestal but analysts see clouds on the horizon. Nelson Moura nelson.moura@macaubusinessdaily.com
Although local monthly gross gaming revenue (GGR) growth fell 9.5 per cent month-on-month in April to MOP17.34 billion (US$2.17 billion) according to data from the Macau Gaming and Inspection Bureau (DICJ) marking the 23rd consecutive month of decline - it’s first quarter GGR still represents four times that of the Las Vegas Strip. In the first quarter of 2016 the Las Vegas Strip, the second biggest gaming market in the world, registered US$1.58 billion (MOP 12.7 million) in gross gaming revenue, a 1.6 per cent decrease year-on-year,
according to the Nevada Gaming Control Board Gaming Commission, while the MSAR registered US$7 billion (MOP 55.94 billion), a 13.3 per cent decrease year-on-year, but still representing almost four times the Las Vegas Strip’s GGR and more than double that of the entire state of Nevada’s total GGR of US$2.83 billion (MOP 22.62 billion).
Silver lining with clouds on the way
While the April results exceeded some analysts’ estimates, as reported by Business Daily, most stick firm with their annual predictions and those for next month. The Telsey Advisory group maintains that although their April prediction was 38.8 per cent higher than the registered, since the cumulative GGR in the first four months of the year was down 12.4 per cent yearon-year they maintain their forecast for an 11.5 per cent year-on-year decline for the annual Macau GGR this year. ‘Our discussions with company management teams suggest that
there is some actual improvement in mass market play offset by declines in VIP, which provides for a positive profitability mix shift. Although we concede that there are some less negative elements in market activity, we remain focused on significant growth in supply going forward and the demand necessary to support it, which at the moment is not evident,’ the research firm states. The Brokerage Sanford C. Bernstein Ltd. research group, which estimated an 11 per cent or 12 per cent GGR decrease in April, justifies the better than expected results as being helped by the long weekend of the May 1 holiday reined in by
relatively flat year-on-year mass market results and the 20 per cent drop in the VIP market year-on year. The group also predicts the improvements in transportation infrastructure and the opening of large scale integrated resorts between 2015-2018, together with rejuvenated growth created by the mass market, will help Sands China, Melco Crown, Wynn Macau and Galaxy shares overperform in 2016, while predicting that SJM Holding shares will underperform due to the group’s ‘delay in coming to Cotai (not likely prior to early 2018), significant exposure to low quality Peninsula-based satellite properties, lack of scale to focus on mass at Grand Lisboa, and corporate governance and conflicts issues,’ Bernstein stated in a report. Meanwhile, Deutsche Bank noted that the win per day in May, on average, has been up 1.3 per cent from April, estimating a 1.3 per cent sequential growth from the April win per day in May, while expecting an 11 per cent year-on-year decline in GGR for next month.
Business Daily Wednesday, May 4 2016 7
The Parisian
Macau
Source: Union Gaming
Source: Union Gaming
The 13
Source: Union Gaming
City of Dreams 5th Tower
Ltd. are strategically focusing on the more profitable mass-market segment of tourists and recreational gamblers with new resorts. Galaxy Entertainment Group Ltd. chairman Lui Che-Woo revealed earlier this year that the next two phases of the HK$86 billion (US$11 billion) Galaxy Macau project will
Source: Union Gaming
Lisboa Palace
include theme parks with “something special and high-tech” similar to the movie ‘Avatar’. The Cotai Strip in Macau is home to about a dozen casino resorts. The Macau Government has encouraged casino operators to diversify their businesses and forecasts an increase in the proportion of casinos’
Source: Union Gaming
Legend Palace
non-gaming revenue to 9 per cent by 2020 from 6.6 per cent in 2014, according to the city’s five-year development plan. However, while the mass market has shown some signs of recovery, Macau casino operators are still exposed to debt-ridden gaming promoters who lend to high-stakes
gamblers as the local government continues to tighten its regulatory hold on the industry, according to Hong Kong-based Daiwa analyst Jamie Soo. Junkets are still under significant operating pressure with at least HK$30 billion in bad debt still outstanding at conservative estimates, he wrote. *with agencies
Macau casinos in the pipeline Project
Timing
Operator
Slots
Allocated number of tables
Capacity for Tables
Rooms
Cost (US$ mln)
Galaxy Macau Phase 2
27-May-15
Galaxy Entertainment
1,000
212
500
1,250
2,500
Broadway Macau
27-May-15
Galaxy Entertainment
120
38
38
320
650
Macau Studio City
27-Oct-15
Melco Crown
1,200
250
400
2,000
3,200
St. Regis Macao
17-Dec-15
Sands China
0
0
0
400
450
Wynn Palace
Aug-16
Wynn Macau
1,300
500
1,700
4,100
Parisian
Sep-16
Sands China
2,500
450
3000
2,625
The 13
Late-2016
TBD
75
66
200
1,400
Fisherman’s Wharf
Late-2016 to 2018
SJM Holdings
N/A
350
1,173
1,000
Lisboa Palace
1Q2018
SJM Holdings
1,000
700
2,000
3,870
City of Dreams 5th Tower
1H2018
Melco Crown
0
0
800
800
3,504
14,343
23,695
35
Total future supply
9,695
Supply prior to new wave of development (31 December 2014)
13,018
5,711
27,904
74%
61%
51%
Increase from 31 December 2014
535
Source: Union Gaming, company data
SJM Group sees quarterly gaming revenues slide 22.8 pct y-o-y
SJM net profit nearly halved in Q1
Stabilisation
CEO Ambrose So Shu Fai still sees signs of stabilisation in the gaming market. Kam Leong kamleong@macaubusinessdaily.com
Local gaming operator SJM Holdings Ltd. posted a fall of 44.1 per cent year-on-year in net profit to HK$561 million (US$69.8 million) for the first quarter of this year due to the decrease in its gaming revenue, it told the Hong Kong Stock Exchange yesterday. According to the operator, its gaming revenue recorded a year-on-year decline of 22.8 per cent to HK$11 billion during the three-month period, whilst adjusted EBITDA plunged by some 32.5 per cent year-on-year to HK$838 million. In terms of sector, the company’s revenue derived from the VIP gaming segment totalled HK$5.6 billion, dropping 29.2 per cent year-on-year compared to HK$7.9 billion one year ago.
1,298 mass market tables and 2,898 slot machines.
In addition, total VIP chip sales fell 28 per cent year-on-year to HK$177.9 billion, while the VIP gaming hold percentage also decreased slightly to 3.15 per cent from 3.18 per cent one year ago. Meanwhile, the operator generated revenues of some HK$6
billion and HK$267 million from mass gaming tables and slot machines in the three months, representing year-on-year declines of 14.9 per cent and 14.3 per cent, respectively. As at the end of March SJM operated an average of 369 VIP gaming tables,
Despite the ongoing downturn in revenue and profits, CEO Ambrose So Shu Fai noted in a statement that he perceives stabilisation is becoming apparent. “Although the challenging environment in the gaming market persisted into 2016, there are signs of stabilisation, particularly in the mass market segment,” he wrote, adding that the company is confident in the completion of its new Cotai project – the Grand Lisboa Palace in 2017. Including its non-gaming business, SJM’s revenues totalled HK$11.2 billion for the three months. On the other hand, the gaming corporation saw its flagship property Grand Lisboa Hotel reach a higher occupancy rate compared to the same quarter in 2015. It claimed the property’s average occupancy rate had achieved 91.6 per cent with an average room rate of HK$1,660 per night in the quarter, compared with an average occupancy rate of 81.4 per cent with average room rates of HK$2,509 per night one year ago.
8 Business Daily Wednesday, May 4 2016
Greater China Foreign investment
Investors to remain wary of Mainland m despite QFII push They are also waiting to see whether the U.S. will raise interest rates again. Michelle Chen
C
oncerns about China’s slowing economy and fears of further weakness in its yuan currency will likely keep global investors at bay despite Beijing’s efforts to push foreign funds into its market by making them invest a minimum amount. The State Administration of Foreign Exchange (SAFE) will likely consider cutting investor quotas under the Qualified Foreign Institutional Investor (QFII) scheme if an investor does not use up 60-70 percent of the allotment within a year after it is approved, two sources have told Reuters. However, fund managers say they will not rush to increase investments just to meet this requirement as investor
“China is trying to get as much capital inflows as possible into the country so that it can offset the outflows” Iris Pang, Senior Greater China economist at Natixis
demand for Chinese assets remains weak after a market rout last year and amid continued uncertainty over the economy. SAFE is also reviewing and verifying the quotas of all existing QFIIs. The process is expected to be completed by June. “We will not increase our investment under QFII unless there’s demand from clients, even if the regulator has set a minimum level of allotment ratio,” said a fund manager at a Chinese asset management firm in Hong Kong, adding that he had yet to see an improvement in appetite for yuan assets. “The QFII quota is not as precious as it used to be since there are many new channels now to enter China, such as the interbank bond market scheme and stock connect scheme,” he said. The yuan fell 4.5 percent against the dollar in 2015 and is expected to weaken further this year. Lukewarm demand for QFII also is partly due to its lack of flexibility for years in terms of repatriating funds. “It’s difficult to keep investment above that 60-70 percent level as market conditions are not good, especially after a series of bond default cases in China,” said an executive in charge of QFII business at a Chinese brokerage. China launched the QFII scheme in 2002 as the first programme for global investors to enter its domestic market. As of April, the outstanding amount of QFII was at US$81 billion, only 10 percent higher than a year ago. Figures on how much of the total quota is utilised are not publicly released. It has become less important in recent years as Beijing’s launch of the
Private index
Caixin manufacturing PMI edges down The data came on the heels of the official PMI, which showed manufacturing activity expanded for a second month in a row in April. The latest Caixin General China Manufacturing Purchasing Managers’ Index (PMI), an indicator of manufacturing
activity, edged down to 49.4 in April, suggesting the economic recovery is yet to firm up. The private survey, conducted by financial information service provider Markit and sponsored by financial media group Caixin, produced a reading yesterday fractionally down from 49.7 in March and below the market forecast of 49.8, signalling marginal deterioration in operating conditions. A reading above 50 indicates expansion, while a reading below 50 represents contraction.
The Caixin index has remained below the neutral 50 value for more than a year. The survey found relatively weak market conditions and softer client demand had led firms to be cautious towards their production schedules, while new order books stagnated following a slight expansion in the previous month. Meanwhile, weaker foreign demand continued to weigh on orders, with new export work falling for a fifth consecutive month. Companies displayed
cautious inventory policies in April, with stocks of finished goods and inputs both falling at faster rates. “Overall, the data showed the foundation of China’s economic recovery was yet to solidify and the government still needs to pay attention to downside risks,” said He Fan, chief economist at the Caixin Insight Group. The data came on the heels of the official PMI, which showed manufacturing activity expanded for a second month in a row in April.
“In short, economic reflation is likely to continue in the second quarter” China International Capital Corporation Limited report
The official PMI came in at 50.1 last month, slightly down from March’s 50.2, according to data released by the National Bureau of Statistics and the China Federation of Logistics and Purchasing on Sunday. The official PMI samples 3,000 relatively large enterprises in China. The Caixin PMI samples 420 small and
medium-sized manufacturing enterprises and is relatively volatile due to its small sample size and the dominance of small enterprises. Bloomberg economist Tom Orlik suggested keeping small movements in the Caixin index in perspective - with a sample of 420 firm, a move of 0.3 points may reflect a change in conditions for just a handful of them. “The Caixin reading is broadly consistent with the official PMI and other early indicators for April, showing the economy isn’t falling back into a slump, but isn’t accelerating either,” Orlik wrote in a research note. Authorities have taken a slew of measures since last year to mitigate the downshift, cutting interest rates, reducing taxes and slashing overcapacity. Orlik reckons the stimulus will continue to provide tailwinds in the months ahead, but with lending rising at a rapid clip, the central bank will be in wait-and-see mode before deciding on further rate cuts. In a report released yesterday, China International Capital Corporation Limited forecast real GDP growth to pick up to 6.9 percent in the second quarter and CPI growth to remain at 2 percent. “In short, economic reflation is likely to continue in the second quarter,” the report said. Reuters
Business Daily Wednesday, May 4 2016 9
Greater China Development banking
n markets
81 Billion USD April’s outstanding amount of QFII
Renminbi QFII (RQFII), the Shanghai-Hong Kong stock market connection scheme and China interbank bond market programmes have given global investors other ways to put money into China’s markets. “China is trying to get as much capital inflows as possible into the country so that it can offset the outflows,” said Iris Pang, a senior Greater China economist at Natixis. China is still struggling to stem fund outflows due a sluggish economy, although recent data has showed some easing of outflow pressure, analysts say. Foreign investors are also waiting to see whether the U.S. will raise interest rates again and if the MSCI will include A shares into its benchmark index, Pang said. Index provider MSCI will decide in June whether to include 5 percent of the mainland A-shares’ free float-adjusted market capitalisation but still has concerns about barriers to investment in China. Reuters
In Brief
AIIB to co-finance first project with ADB in Pakistan The banks have sought to play down concerns the AIIB will compete with existing Westerndominated multilateral investment banks. China-backed Asian Infrastructure Investment Bank (AIIB) will jointly finance a major new highway in Pakistan in its first co-financed project with the Asia Development Bank (ADB), the two policy banks said. The announcement on the project, a 64-kilometre-long stretch of the M4 highway that will connect Shorkot to Khanewal in Pakistan’s Punjab province, was made as the two banks signed an agreement to jointly finance projects at an ADB meeting in Germany on Monday. This would make it one of the first projects to win backing from the newly-established AIIB, which launched in January with the support of U.S. allies including Australia and Britain - despite opposition from Washington. It is expected to lend US$10-15 billion a year for the first five or six years. “I am delighted to take a further step forward in our partnership with ADB,” AIIB’s President Jin Liqun said in a statement posted on the bank’s website. “AIIB looks forward to deepening our already strong relationship and expanding our collaboration as we seek to address the significant infrastructure financing needs in the Asia Region.” The M4 will connect with other highways to connect the cities of Faisalabad and Multan. The AIIB listed the M4 project as its first “business opportunity” on its website on April 11 with an estimated project cost of US$273 million. It said that ADB will be the lead co-financer and will
AIIB’s President Jin Liqun.
“I am delighted to take a further step forward in our partnership with ADB” Jin Liqun, AIIB President
administer the project on behalf of the other financing partners. The banks have sought to play down concerns the AIIB will compete with existing Western-dominated multilateral investment banks. The AIIB and World Bank signed a framework agreement to co-finance projects last month. China and Pakistan have forged closer ties over the past year with a plan to build an economic corridor of energy and infrastructure projects between the two countries that is worth an estimated US$46 billion. Reuters
Risk control
Banking regulator moves to contain sheet imbalance
Sichuan to tackle overcapacity China’s south-western Sichuan province has allocated 2 billion yuan (US$308.87 million) in prize money for companies that reduce their overcapacity in industries including coal and steel, state media reported yesterday. The funding will be given to local governments and Sichuanese companies that are shifting away from energy-intensive, high-polluting, unsafe industries that do not comply with government policies aimed at dealing with overcapacity, the Sichuan Daily, the official newspaper of the provincial government, reported. The central government has identified overcapacity and the closure of debt-ridden “zombie” firms as one of its main policy priorities for 2016. Short forwards & futures
PBOC’s yuan positions total US$28.9 billion in March The Chinese central bank’s short forward and futures positions on the yuan totalled US$28.9 billion at the end of March, little changed from February, the state news agency Xinhua reported. According to data released over the weekend, the People’s Bank of China also held US$1.48 billion of long positions, Xinhua said. Holdings were primarily for serving the hedging requirements of firms with dollar debt, and commercial bank operations, the central bank said. The central bank released data on its foreign exchange derivatives holdings for the first time at the end of March. e-Payment
Uber partners with Alipay Uber Technologies Inc said it signed up with online payment platform Alipay to allow Chinese travellers to request and pay for rides using the Alipay app in the over 400 cities the ride-hailing service operates in. Alipay is the online payment platform of Ant Financial Services Group, an affiliate of China’s biggest e-commerce company Alibaba Group Holding Ltd. The partnership will allow Chinese travellers to pay for their international rides in yuan using their Alipay accounts, eliminating the need for dual currency credit cards or currency conversions, Uber said.
Analysts say the new rules, issued last week, are meant to provide greater transparency. China’s banking regulator, in a move to rein-in a rapidly growing ‘shadow loans’ industry, has instructed commercial lenders to properly account for lending products that may appear on their balance sheets as lower-risk investments. Authorities are tightening scrutiny of the lenders as the growing use of complex financial structures has raised concerns that bad lending and credit risks can be concealed. The new rules forbid commercial banks from entering into repurchase agreements once a loan’s income rights have been transferred, according to a document issued by the China Banking Regulatory Commission (CBRC), a copy of which was seen by Reuters. Banks also are now required to make adequate provisions for transferred loans where the underlying loan assets remain on their balance sheets. Individual investors also are forbidden from investing in bad loans through bank-issued wealth management products. Banks and financial institutions have used the transfer of income rights from credit assets to improve their business, the CBRC document said, but “part of the credit-related transactions are non-standard and opaque” and are not properly accounted for by the banks. Analysts say the new rules, issued last week, are meant to provide greater transparency and address the rampant growth of investment receivables that
Reforms
Trade
Taiwan April exports contracting again are now accumulating on bank balance sheets, particularly among mid-tier lenders. The size of China’s ‘shadow loan’ book rose by a third to US$1.8 trillion in the first half of 2015, equivalent to 16.5 percent of all commercial loans in China, according to an analysis by UBS Investment Bank. The growing use of financial structuring, which involves structures known as Directional Asset Management Plans (DAMPs) or Trust Beneficiary Rights (TBRs), comes at a time when some mid-tier lenders, under pressure from China’s slowest economic growth in 25 years, are already delaying the recognition of bad loans.
Banks are required to set aside capital against their credit assets - the riskier the asset, the more capital must be set aside, earning them nothing. Loans typically carry a 100 percent risk weighting, but these investment products often carry a quarter of that, so banks can keep less money in reserve and lend more. Banks must also make provision of at least 2.5 percent for their loan books as a prudent estimate of potential defaults, while provisions for these products ranged between just 0.02 and 0.35 percent of the capital value at the main Chinese banks at the end of June, Moody’s Investors Service said in a note in December. Reuters
Exports are expected to have contracted for the 15th straight month in April from a year earlier due to weak demand from China and other global markets, a Reuters poll showed. Taiwan is one of Asia’s major exporters, especially of technology goods, and its export trend is a key gauge of global demand for technology gadgets worldwide. Taiwan’s consumer price index in April probably rose 1.5 percent from a year earlier, according economists surveyed. Consumer prices in March rose 2.0 percent from a year earlier.
10 Business Daily Wednesday, May 4 2016
Greater China Economic forecast
IMF warns Beijing and Tokyo on slower growth The Fund predicted growth in Asia to come in at 5.3 per cent this year and next.
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hina and Japan’s economies are expected to slow sharply over the next two years but Asian growth will remain strong as domestic demand takes up the slack from weak global trade, the IMF said yesterday. Government stimulus measures, lower commodity prices and low unemployment will help drive regional expansion, the International Monetary Fund said, and called on leaders to push on with reforms. However, in its Regional Economic Outlook for Asia and the Pacific, the Fund also warned of several external challenges, from weakness in advanced economies, weak global trade and increasingly volatile global financial markets.
Since its previous outlook on the region in October, global markets have seen wild volatility, with worries over China’s economy and plunging oil prices hammering shares in January and February, wiping trillions off valuations. While there has been a slight recovery since March, investors remain on edge. “Asia remains the most dynamic part of the global economy but is facing severe headwinds from a still weak global recovery, slowing global trade, and the short-term impact of China’s growth transition,” the Fund said. “To strengthen its resilience to global risks and remain a source of dynamism, policymakers in the region should push ahead with structural reforms to raise productivity and create
fiscal space while supporting demand as needed.” The Fund predicted growth in Asia to come in at 5.3 percent this year and next, down from its previous forecast of 5.4 percent. China’s economy, the world’s second biggest and
“Asia remains the most dynamic part of the global economy but is facing severe headwinds from a still weak global recovery” IMF’s Regional Economic Outlook for Asia and the Pacific
a crucial driver of global growth, is tipped to expand 6.5 percent this year - the lower end of Beijing’s target - and 6.2 percent in 2017. The figures are well down from the 6.9 percent seen in 2015, which was the slowest rate in a quarter of a century, but slightly better than the IMF’s October outlook. “While Asia remains the global growth engine, the external environment is becoming much more difficult,” said Rhee Chang-Yong, director of IMF’s Asia and Pacific Department, speaking to reporters yesterday.
Japan tipped for recession
The Fund noted China’s leadership is trying to transform the country’s growth driver away from a reliance on government investment and exports to one dominated by domestic consumption. It also warned of the spillover effects of China’s slowing growth on other economies
that rely on the country to drive their own expansion, including weaker trade and commodity prices. “Overall, the region has become more sensitive to the Chinese economy,” it said. Countries with strong China trade relations had suffered the greatest repercussions from its stocks rollercoaster, Rhee told reporters. “When the China stock market moved quite significantly (last year)...the financial spillover was higher in countries with strong trade links with China,” he said. Rhee also warned that policy makers would have to balance the expansion of credit with the strain it could cause to corporates and banks. “We have to build strength during turbulent times,” he said. Japanese growth is tipped to slow, with the Fund saying exporters would be hit by the strengthening yen - which is at 18 month highs against the dollar - and slowing trade with China. It halved its growth outlook for Japan to 0.5 percent in 2016 and tipped it to shrink 0.1 percent owing to an expected consumption tax rise, while it also cited the long-running problem of an ageing population and a huge debt mountain. The lower outlook comes days after the Bank of Japan refused to ramp up its stimulus programme despite a string of weak data that have raised questions about Prime Minister Shinzo Abe’s faltering drive to kick-start growth. The report said India would grow 7.5 percent this year and next, unchanged from its previous prediction and the fastest rate among the world’s big economies, as low oil prices, government investment and a pick-up in domestic consumption offset weak exports. In South Korea, growth was forecast to rise to 2.7 percent this year and to 2.9 percent in 2017 - up from 2.6 percent in 2015 and again boosted by domestic demand. Australia’s growth is expected to remain stable at 2.5 percent in 2016 and pick up in 2017. AFP
Results
HSBC profit falls on weak trading but beats expectations Underlying revenues fell 4 percent year on year to US$13.9 billion, as the markets division’s income dropped 12 percent. HSBC reported a smaller-than-expected 14 percent drop in quarterly profit, as a surge in revenue at its commercial banking unit partly offset the weak trading business caused by the grim global market environment early in the year. The first-quarter profit of Europe’s biggest lender was also helped by favourable credit spreads movements in its debt and a drop in its operating expenses from a year-ago period, the bank said in a statement.
HSBC reported yesterday a pre-tax profit of US$6.1 billion for the first three months of this year, down from US$7.1 billion a year ago, but above the average forecast of US$4.3 billion from analysts polled by the company. Underlying revenues fell 4 percent year on year to US$13.9 billion, as the markets division’s income dropped 12 percent. Commercial banking revenue, however, rose 2 percent in the March quarter, helped by continued loan growth in UK. “Market uncertainty led to extreme levels of volatility in January and February, which affected our ability to generate revenue in our markets and wealth management businesses,” HSBC Chief Executive Stuart Gulliver said in a statement. “However, our diversified, universal-banking business model helped to cushion the impact through growth in other parts of the bank,” he said, adding the lender was confident of hitting its cost target by the end of 2017. HSBC made market share gains in debt capital markets, China M&A and syndicated lending in the first quarter, and had strong business wins on the back of its investments in Asia, Gulliver said.
Key Points Q1 pre-tax profit $6.1 billion vs. US$4.3 billion average expected by analysts Revenue from commercial banking unit rises 2 percent in Q1 CEO Gulliver confident of hitting cost target by end-2017
Gulliver has been facing challenges to restore HSBC to strong growth, after it reported flat annual pre-tax profit in 2015 amid on-going disposal costs as it shrinks its global business. With HSBC’s common equity tier 1 ratio reaching 11.9 percent in the first quarter, investors are moving from concerns over capital to focus on whether the bank can improve revenues by delivering on a strategy of expanding into China. Reuters
Business Daily Wednesday, May 4 2016 11
Asia
Monetary policy
Australia cuts interest rates to turn back global deflation tide The RBA had been reluctant to risk a debtfuelled bubble in the housing market
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ustralia’s central bank cut interest rates to an alltime low of 1.75 percent yesterday, the first easing in a year as it seeks to restrain a rising currency and insulate the economy from creeping deflation. Speculation of a possible cut flared last week when government data showed inflation had slowed far more than expected in the first quarter of the year. Underlying inflation dropped to a record low of 1.5 percent, taking it well under the RBA’s long term target band of 2 percent to 3 percent and
effectively pushing real rates higher. “Inflation has been quite low for some time and recent data were unexpectedly low,” RBA Governor Glenn Stevens said in a brief statement after the bank’s May policy meeting. “These results, together with on-going very subdued growth in
Key Points RBA cuts cash rate 25 bps to 1.75 pct, first easing in a year Cites surprisingly low inflation, subdued wages growth A$ sinks over a cent, market wagers on further move to 1.5 pct Cut comes hours before budget, with election likely on July 2
labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.” Central banks around the globe have been taking ever more exotic steps to reflate their economies, chopping rates under zero and buying trillions worth of assets. That easing abroad has in turn boosted the Australian dollar further than the RBA desired, hurting exports and tourism while pushing down import prices and, hence, inflation. Unlikely to be “one and done” All of which argued for at least one cut in rates to offset these tighter financial conditions, and markets were quick to price in the possibility of a further move. “It’s hard to see how one cut by itself is going to do much,” said
Commonwealth Bank chief economist Michael Blythe. “So you’d have to think the odds on a follow-up have also increased, very much tied in with how the inflation outlook evolves from here. August would be the most obvious timing.” While Australia is still struggling with the unwinding of a massive mining boom, economic activity has been generally favourable. Growth was a surprisingly brisk 3 percent for 2015 and unemployment recently fell to a 30-month low of 5.7 percent. The RBA had also been reluctant to risk a debt-fuelled bubble in the housing market, though it said dangers to that sector had diminished in recent months. Normally a rate cut and resulting falls in mortgage rates would be considered a political positive in Australia. Yet this cut could also raise an awkward question - if the economy was doing as well as Turnbull claimed, why would it need lower rates? Reuters
CPI
South Korea’s April inflation holds at 1.0 per cent Annual core inflation, which strips out volatile food and fuel prices, stood at 1.8 percent, versus a 1.7 percent rise in March. Christine Kim
South Korea’s annual inflation stayed at 1.0 percent for a second month in April, reflecting the effects of low global oil prices, and obscuring the economy’s on-going modest recovery. First-quarter GDP growth halved from the previous three-month period, but recent consumer and business sentiment data has shown the outlook is positive for coming months. The consumer price index rose 1.0 percent in April from a year earlier, Statistics Korea data showed yesterday, unchanged from a 1.0 percent increase in March and matching the forecast tipped in a Reuters survey. In monthly terms, the index rose 0.1 percent, also in line with the median forecast of a 0.1 percent rise in the
same poll. “This doesn’t look like a severe slowdown to me when we look at core inflation that takes away the effects of oil,” said Jeong Won-il, economist at Yuanta Securities Korea who does not see changes in interest rates this year. “Looking at the numbers I think we’ll be able to reach the central bank’s inflation target of 2 percent in the latter half of this year.” The central bank expects inflation to start gradually picking up after
June. A majority of analysts see the bank cutting interest rates again soon to give growth an upward push before inflation approaches the bank’s inflation target. Annual core inflation, which strips out volatile food and fuel prices, stood at 1.8 percent, versus a 1.7 percent rise in March. This matched a 1.8 percent gain in February this year. Reflecting low global oil prices, the index for industrial goods fell 0.6 percent on-year in April, the data showed.
The industrial goods index showed annual deflation for petroleum products such as gasoline (-9.9 percent), diesel (-15.2 percent) and LPG for cars (-11.9 percent) last month. The sub-indices also showed deflation for electricity, tap water and gas was 8.0 percent on-year, mainly due to recent city gas price cuts. Services inflation at 2.2 percent in annual terms was the lowest since November 2015. A breakdown showed fewer group tours and city gas connections had slightly dragged down the services index from 2.3 percent in March. The Bank of Korea’s base policy rate is currently at a record low of 1.50 percent. Its next rate-setting meeting is due on May 13. Reuters
Key Points April CPI +1.0 pct y/y (Reuters poll +1.0 pct) Core inflation at 1.8 pct in April, ticks up from March Industrial goods inflation weak, services inflation ticks down
12 Business Daily Wednesday, May 4 2016
Asia Remittances
As Australian banks snub remitters, digital players emerge Key Points PayPal looking to roll out Xoom into Australia soon WorldRemit expanding in Australia, New Zealand Australia’s traditional remitters shutting shop Regulators identify remittances as a high-risk sector Online remitters can track money flow easily- ABA
The entry of global digital payments players comes amid growing concern in Australia that the industry was drifting underground. Swati Pandey and Nathan Lynch
Digital money transfer companies including PayPal Holdings are rushing to grab a share of Australia’s US$35 billion remittance market, hoping to plug a vacuum left by the major domestic banks’ exit from the space last year. U.S.-listed PayPal intends to roll out its online remitting platform Xoom into Australia
soon, senior executives told Reuters, while U.K.-based WorldRemit in April said it had chosen Australia as its Asia-Pacific base. Australia is a fast-growing market for foreign money transfer operators thanks to a large migrant population with financial links to China, India, Southeast Asia, Africa, the Middle East, the Balkans and the Pacific Islands. One in
four Australians has migrated from overseas, government data shows. “This industry is belatedly moving online. Regulation and technology are driving this change,” said Ismail Ahmed, founder of WorldRemit, which is also expanding in New Zealand. The entry of global digital payments players comes amid growing concern in
Australia that the industry was drifting underground, after the major banks closed the accounts of money transfer businesses due to compliance risks. Accounting for about 80 percent of Australia’s banking activity, the country’s four major lenders felt particularly exposed to what regulators have identified as a high-risk sector for criminal activity like money laundering and terrorist financing, including transfers to militant groups like Islamic State. But the international scale and reputation of major digital players means they are better placed to manage the regulatory and law enforcement scrutiny than smaller agents who previously dominated the sector, industry players say.
Looking for growth
Ahmed said he was scouting for acquisitions of niche players to further expand in Australia, already WorldRemit’s second-biggest market for outbound remittances. New Zealand, with a similar migrant population to Australia’s, is World Remit’s fastest-growing country for outbound transfers.
PayPal began making significant inroads into Australia after receiving a licence to hold funds on behalf of customers, although it cannot perform traditional banking services. It can also send money to under-developed countries with poor banking and mobile penetration. “In some markets home delivery is important and in those markets we do offer home delivery, where a courier will show up, ring your doorbell and give you an envelope with cash,” said John Kunze, vice president of PayPal-owned Xoom. While customers can use their bank accounts to transfer money overseas, it can be expensive and time-consuming. Australian banks charge up to A$30 ($22.94) per transfer, compared with A$5-A$8 charged by remitters. The banks’ mobile applications are clunky compared with the simple interfaces offered by remittance newcomers like InstaRem or WorldRemit. Xoom’s Kunze said that while scale was a big advantage for PayPal, it came with a “mandate to run compliance, consumer protection and a safe business”. “So we have to keep moving the ball forward on this as we grow,” he said. Global digital players are well aware that any breach of anti-money laundering and counter-terrorism financing rules could undermine their significant investment in the sector. “Online money transfer businesses have the benefit of being able to track where money has come from and where it is going to,” Australian Bankers’ Association Chief Executive Steven Munchenberg said. “It is still important, however, that they operate within an appropriate regulatory framework.” Reuters
Results
DBS core profit rises 6 percent
Key Points Q1 net profit S$1.20 bln vs consensus S$1.017 bln Higher interest rate margins overcame decline in loans Trade loans dropped 23 pct y/y
Singapore lenders’ profits are under pressure due to slowing Asian economies. DBS Group Holdings, Singapore’s biggest lender, beat forecasts with a 6 percent rise in its core quarterly profit, but a slump in mainly China-related trade loans signalled how Chinese risks are spreading across the region. China’s efforts to boost growth have led to easier onshore rates and reduced the incentive for companies to borrow offshore. China’s economy is also slowing - its gross domestic product grew 6.7 percent in the first quarter this year from a year earlier, its slowest pace in seven years. DBS said loans for the quarter
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declined by 1 percent on constant currency basis, but trade loans, linked largely to China, plunged by 23 percent. Net profit came in at S$1.20 billion (US$895 million) in the three months ended March, versus a S$1.13 billion core profit a year earlier and compared with an average forecast
of S$1.017 billion from five analysts polled by Reuters. Last year’s overall first quarter net profit of S$1.269 billion was boosted by a one-time gain from a property disposal. Singapore lenders’ profits are under pressure due to slowing Asian economies, particularly China, and
weak commodity prices that have boosted provisions on loans to energy services firms. DBS benefited from a 16 basis point rise in net interest margin in the quarter due to higher Singapore dollar interest rates and higher wealth management income. DBS said loans from non-trade related corporates and housing grew. Smaller rival Oversea-Chinese Banking Corp, last week had warned of sluggish loan growth this year and risks from the offshore marine sector due to weak commodity prices, as it posted its smallest profit in more than a year. DBS said its specific provisions for bad loans increased by 6 percent to S$170 million which included amounts for customer exposures in Hong Kong and rest of Greater China. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; 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 Wednesday, May 4 2016 13
Asia Abenomics
Secrecy, hierarchy haunt Japan’s corporate culture Government introduced a new corporate governance code in 2015, setting rules on disclosure, shareholders’ rights and independent directors. Linda Sieg
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spate of high-profile scandals at leading Japanese companies show reforms and rhetoric aimed at improving the country’s corporate governance do not go far enough to unwind the culture of secrecy and hierarchy that plagues Japan Inc. Prime Minister Shinzo Abe won applause for introducing new corporate governance rules over the past two years in bid to attract foreign investment and shake-up Japan’s too-cosy corporate culture. But scandals including Mitsubishi Motor Corp’s admission that it used non-compliant fuel economy testing methods for decades and last year’s admission by laptop-to-nuclear conglomerate Toshiba Corp that it had inflated profits suggest much more remains to be done. Nearly five years after Michael Woodford was fired for exposing a cover-up at Olympus Corp, the British ex-CEO of the Japanese medical imaging gear maker says he’s still treated like a pariah in Japan, a view not uncommon in a corporate culture where whistle-blowers are more often disdained than admired. “It is evident to me that 80 percent or more of senior business leaders (in Japan) consider me as someone who betrayed my company,” Woodford, who now runs a business consultancy and lives in London, told Reuters in a telephone interview. “I’m seen to be a leper in Japan.” Better protection for whistle-blowers, training for board directors and stiffer penalties are among the measures experts prescribe to change an inward-looking corporate culture that values unquestioning loyalty to top bosses. “Japanese corporations still have significant problems with the secrecy of their corporate dealings and lack of transparency in their finances and operations,” said Thomas Clarke,
director of the Key University Research Centre for Corporate Governance at the University of Technology in Sydney. Abe’s policy team introduced a new corporate governance code in 2015, setting rules on disclosure, shareholders’ rights and independent directors. While not legally binding, the Tokyo bourse requires listed firms to “comply or explain” why not, and a “stewardship code” introduced the year before was supposed to encourage disgruntled investors to speak out. Experts laud the changes and say they may even be partly responsible for recent scandals coming to light. “Bad things happen at big companies. The question is, how are they dealt with,” said Jesper Koll, CEO of fund manager WisdomTree Japan. “Sweeping them under the carpet is no longer an option.”
Gaps and glimmers
Experts also warn against wholesale adoption of a U.S. model tying executive compensation to short-term investor returns. Some caution against at pointing the finger just at Japan, given scandals around the world, including Volkswagen’s cheating on emissions. “If you start looking around the world, Japan has its problems, but are they really any worse than anywhere else?” said Andrew DeWit, a professor of policy studies at Rikkyo University in Tokyo. Still, big gaps remain to be filled in Japan. “At the level of policy, it is dramatic, but the content is underwhelming,” Jamie Allen, secretary general of the Hong-Kong based Asian Corporate Governance Association, told Reuters. Requiring two outside directors Toshiba had four on its 16-member board even as the scandal brewed is insufficient if they lack they lack the authority or independence to
challenge the CEO and other inside directors. “Most outside directors won’t feel they ought to be questioning the corporate culture. They were invited to the board and they feel they ought to be polite,” said Nicholas Benes, representative director of the Board Director Training Institute of Japan. Better protection for whistle-blowers like Woodford would help. The government has a hotline for anonymous complaints but provides little protection or incentive for employees to speak out. Bolstering such protection would tell companies they have no alternative than to run a clean ship, Benes said. Glimmers of change have emerged.
Key Points Abe won plaudits for new corporate governance rules Scandals at Mitsubishi Motors, Toshiba show more action needed Whistle-blower protection, stiffer penalties sought Retail group Seven & i named an executive backed by U.S. activist investor Daniel Loeb as president of its parent company earlier this month, prompting its 83-year-old patriarch Toshifumi Suzuki to resign. Battered Sharp Corp’s recent choice of Taiwan’s Foxconn as its successful takeover suitor may also reflect the drive for better corporate governance. Still, broader and deeper change will take time, bolder reforms and education at all corporate levels, as well as among institutional investors often wary of challenging management. “It is a cultural issue - they have to give up hierarchical obedience,” said University of Technology’s Clarke. “They have to do this because if they cannot be more alert and agile as companies, they will not succeed in the modern world.” Reuters
In Brief Home loans
NAB, Westpac to cut mortgage rates National Australia Bank said yesterday that it will cut variable home loan rates by 25 basis points following the central bank’s move to lower the cash rate by a quarter point to an all-time low of 1.75 percent. The cut, effective May 16, will pull NAB’s variable home loan rate down to 5.35 percent, it said. The nation’s No.1 lender will also reduce its variable business lending rates by 25 basis points. Westpac Banking Corp followed suit, saying it would cut variable home loan and residential investment property loan rates by 25 basis points effective May 23. Private survey
Thai consumer sentiment at 7-month low Thai consumer confidence fell for a fourth straight month in April, a university survey showed yesterday, due to concern over domestic and global economic growth, drought and low commodity prices. Consumers felt the Thai economy had recovered slowly and their income had not increased, the University of the Thai Chamber of Commerce said. The Finance Ministry last week cut its 2016 economic growth forecast to 3.3 percent from 3.7 percent. Southeast Asia’s second-largest economy has struggled to expand since the army seized power in May 2014 to end street protests. Pollution
Singapore to hold regional meeting on haze The 18th Meeting of the Sub-Regional Ministerial Steering Committee (MSC) on Transboundary Haze Pollution will be held in Singapore today, and which will be chaired by Singapore’s Minister for the Environment and Water Resources Masagos Zulkifli, said Ministry of the Environment and Water Resources (MEWR) yesterday. The Ministerial-level MSC, comprising Brunei Darussalam, Indonesia, Malaysia, Singapore and Thailand, will continue to review and enhance cooperative measures to monitor, prevent and mitigate smoke haze arising from land and forest fires in the five countries. Results
ANZ posts biggest drop since 2008
Mitsubishi Motors Corp’s President Tetsuro Aikawa (R) bows at the start of a press conference regarding irregular fuel efficiency tests by the carmaker.
Australia’s No. 4 lender, ANZ Banking Group, yesterday posted its biggest half-yearly decline in cash profit since 2008 and slashed dividends for the first time in seven years on rising corporate defaults triggered by a mining downturn. The result marks the end of six years of record profits for ANZ and comes a day after Westpac Banking Corp missed earnings forecasts, confirming the negative trend for Australian banks. ANZ sold its vehicle finance business late last year and is now in the process of finding a buyer for its plant and equipment finance business.
14 Business Daily Wednesday, May 4 2016
International In Brief
Security spending
Nigeria says US$15 billion stolen in scams Nigerian Vice President Yemi Osinbajo said about US$15 billion was lost by the previous administration to fraudulent security spending scams, almost three times more than was previously estimated by the government. Osinbajo, who along with President Muhammadu Buhari defeated Goodluck Jonathan in elections last year on an anti-corruption campaign, said that the figure had only been discovered a few days ago, dwarfing the previous estimate of US$5.5 billion allegedly misappropriated from contracts to buy defence equipment to fight the Islamist militant group Boko Haram.
Bloc modernization
EU cuts euro-area inflation forecast The euro-area’s unemployment rate, which is slowly declining from record levels, is forecast to fall to 9.9 percent in 2017.
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Manufacturing unexpectedly shrank for the first time in three years in April, dealing a shock blow to the economy after growth slowed in the first quarter. Markit Economics said its factory Purchasing Managers Index dropped to 49.2 from 50.7 in March, below the key 50 level that divides expansion from contraction. Economists had forecast an increase to 51.2 from an initially reported 51, according to a Bloomberg survey. Markit also said manufacturing output is falling at a quarterly pace of about 1 percent and it estimates that about 20,000 jobs were lost in the industry over the past three months.
he European Commission told the euro area’s largest economies to reduce debt and modernize labour markets as it again slashed its inflation forecast and warned of slower-than-predicted growth across the 19-nation bloc. France, Spain and Italy, which have persistently failed to hit European Union budget targets, are still off track, the Brussels-based commission said yesterday. Gross domestic product in the currency area will increase by 1.6 percent this year and 1.8 percent in 2017 - both a full percentage point lower than the commission forecast in February. Inflation will average 0.2 percent this year, below the European Central Bank’s target. Six years since Greece received its first international bailout, the scars across the wider euro area remain unhealed. Nations have been unable to narrow deficits and scale back debt to EU-agreed limits and economic output lags behind the U.S. Even as the ECB uses a mix of low or negative interest rates in addition to 80 billion euros (US$92 billion) per month in asset purchases, inflation is expected to be less than half the 0.5 percent the commission predicted in February when it last issued forecasts, and below the ECB’s goal of just under 2 percent. It will average 1.4 percent in 2017, the commission said.
French minister
Spanish targets
PMI
U.K. manufacturing unexpectedly shrinks
TTIP talks halt most likely option A halt to trade talks between the European Union and the United States is now likely, French Trade Minister Matthias Fekl said yesterday. Negotiators have been battling to reach a deal before President Barack Obama leaves office in January but points of contention remain, ranging from food safety standards to support for small business. France has been particularly vocal about what it sees as a lack of movement on the U.S. side. “Given the approach being taken by the United States today, (a halt) is the most likely option,” Fekl said on Europe 1 radio. IPO
Philips to sell at least 25 pct of lighting arm Philips plans to sell at least 25 percent of its lighting business, the world’s largest maker of lights, on the stock market to focus on its larger medical equipment operations, it said yesterday. Chief Executive Frans van Houten said it was an “historic” decision for the Dutch company, which began as a lighting company in 1891. Analysts have valued the unit at about 5 billion euros (US$5.8 billion). Philips dropped the word “electronics” from its name in 2013, and has gradually disposed of most of the consumer products it was once known for.
growth in 2016 to 2.6 percent from the 2.8 percent it predicted in February. In March, the EU warned Spain that it needed to “take measures to ensure a timely and durable correction of the excessive deficit” and to submit a detailed plan of how it was to do so. The commission has the power to fine countries that persistently breach their deficit commitments up to 0.2 percent of GDP and send troika-style inspectors to scrutinize national officials. EU commissioners are scheduled to take a decision later this month. Italy - which has the highest mountain of debt per GDP in the euro area after Greece - is also under scrutiny.
“Decisive policy action to reform and modernize our economies is the only way to ensure strong and sustainable growth” Valdis Dombrovskis, European Commission Vice President
The commission forecasts Italy’s public debt to be 132.7 percent of GDP in 2016, representing no decline from 2015. That’s more than double the EU’s 60 percent threshold. The commission downgraded Italy’s growth forecast to 1.1 percent in 2016 from the 1.4 percent it predicted in February. Italy is also under pressure because its structural deficit - stripping away one-off payments and the effects of the business cycle - is widening, from 1 percent of GDP in 2015 to a forecast 1.7 percent in 2016. France, the euro area’s second largest economy, which the commission warned in March about its increasing public debt and worsening productivity growth, will also continue to expand more sluggishly than the bloc as a whole. The commission forecasts growth of 1.3 percent of GDP in 2016 and 1.7 percent in 2017. France’s public debt will spiral to 97 percent of GDP in 2017 from 96.4 percent in 2016 and 95.8 percent in 2015, according to yesterday’s forecast. The euro-area’s unemployment rate, which is slowly declining from record levels, is forecast to fall to 9.9 percent in 2017, from 10.3 percent in 2016 and 10.9 percent in 2015. Bloomberg News
The commission confirmed its forecast that Spain, with a caretaker government since December, will miss its deficit-reduction goal for a ninth straight year in 2016, meaning the nation could become the first to receive a financial penalty from the EU. Its deficit will be 3.9 percent of GDP in 2016 and 3.1 percent in 2017, still exceeding the EU’s 3 percent ceiling, the commission said, and wider than the 3.6 percent and 2.6 percent it forecast in February. The commission cut its forecast for Spanish GDP
Markets
Saudi Arabia to lower requirements for foreigners buying stocks The regulator will allow individual foreign investors to own not more than 10 percent of shares outstanding in a single company. Samuel Potter
Saudi Arabia’s stock exchange said it will cut the amount of assets foreigners must have under management to invest directly in the nation’s stocks, as it plans changes designed to attract more cash from overseas. Qualified foreign institutions with a minimum of 3.75 billion riyals (US$1 billion) under management will be able to acquire a license to invest in the Tadawul Stock Exchange directly, down from 18.75 billion riyals, according to a statement on the market regulator’s website. The effective date of the change will be published by the end of the first half
of 2017. In a separate statement, the exchange said it will amend its settlement cycle for share trading, bringing it in line with European markets. Saudi Arabia is seeking to open up one of the world’s most closed stock markets to more international participation. The US$411 billion Tadawul started allowing limited foreign direct investment in June last year under rules that govern which foreign entities can invest and how much of each company and the market they can own. The kingdom’s Capital Market Authority has approved plans to adopt a so-called T+2 settlement, allowing a two-day settlement period for equity trades. The bourse currently uses a T+0 system, meaning sameday settlement. Adjusting the cycle may help it get added to MSCI Inc.’s emerging-markets gauge, according to analysts.
Ownership increase
The Riyadh-based regulator will also
allow individual foreign investors to own not more than 10 percent of shares outstanding in a single company, up from 5 percent. Furthermore, it agreed to the inclusion of new foreign financial institutions, including sovereign wealth funds and university endowments. Even though qualified foreign investors can currently collectively own as much as 10 percent of the market’s total value, they hold 0.97 percent, bourse data show. Bloomberg News
‘The US$411 billion Tadawul Stock Exchange started allowing limited foreign direct investment in June last year’
Business Daily Wednesday, May 4 2016 15
Opinion Business Wires
The Korea Herald Loans extended by Korea’s central bank to local lenders to support small and medium-sized firms have climbed to a record high, the central bank said yesterday. According to the Bank of Korea (BOK), such loans to local banks came to 19.65 trillion won (US$17.27 billion) as of end-April, up 4.9 percent, or 918 billion won, from three months earlier. The April tally marks the highest level since the central bank began compiling such data in 1971. The increase follows a decision by the BOK’s monetary policy board in April 2015 to raise the upper cap on the support loans.
Straits Times Tenant demand for commercial space fell at its fastest pace since the global financial crisis in 2009, as Singapore’s economic growth continues to slow, said the Royal Institution of Chartered Surveyors (RICS) yesterday. The sharp decline in occupier demand has taken its toll on investment activity as foreign buyers increasingly look beyond Singapore for better returns, said RICS in a survey report released yesterday. According to its first quarter Global Cities Commercial Property Monitor, chartered surveyors anticipate a further drop in capital values and rents over the coming year against the weak economic outlook.
Philstar Investment pledges approved by the Board of Investments (BOI) soared 13 percent in the first quarter of the year, an unusual trend during an election year, a Trade official said. The BOI approved P61.94 billion worth of investments in the first three months of 2016, up 13 percent from the P54.62 billion recorded in the same period last year. The investment approvals were for 73 projects from various sectors. The investments are expected to create at least 12,841 in new jobs when the projects are fully operational.
Thanh Nien News Many banks have cut interest rates by 0.5-1 percentage points on loans for businesses following a call by Prime Minister Nguyen Xuan Phuc. Vietcombank, one of the country’s largest lenders, Friday reduced the maximum interest rate on medium- and long-term loans from 11 percent to 10 percent a year. The bank plans to lend businesses around VND300 billion (US$13.32 million) at low rates. The same day other big lenders such as BIDV and Vietinbank and some smaller banks like Saigon-Hanoi Commercial Bank and Techcombank promised to reduce their cap on short-term loans by 0.5 percentage points.
A role reversal for Myanmar and Thailand
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arely do next-door neighbours move as rapidly in opposite political directions as Thailand and Myanmar have in recent years. After more than a half-century of military dictatorship, Myanmar has restored democratic rule, and now has a civilian-led government led by the former political prisoner Aung San Suu Kyi and her National League for Democracy (NLD). Thailand, by contrast, has twice reverted from popular rule to military dictatorship in the past decade, owing to coups in 2006 and 2014. What accounts for these neighbours’ reversal of political fortune? Myanmar initiated its shift toward democracy in 2003, when the country’s military dictatorship unveiled a seven-step roadmap. At first, the plan was ridiculed as another empty promise from the country’s brutish military junta. And, indeed, the generals locked up dissidents, shot protesting monks, and kept Suu Kyi and other NLD leaders under house arrest for another six years. It is clear, however, that the regime’s leaders saw the writing on the wall. They knew that they could not continue to sustain their power through violence and oppression, as that would ultimately cause their regime to collapse under the weight of international sanctions and isolation. What they did not anticipate was the speed at which economic and political liberalization would gain momentum. Almost as soon as genuine economic and political reforms were launched in 2011, the costs of rolling back the effort became unthinkably high for Myanmar’s military. In the 2015 general election, the NLD scored a landslide victory. With Suu Kyi banned from the presidency for having family members who are foreign nationals, she has carved out an unprecedented role as “state counsellor” to oversee government matters. President Htin Kyaw is Suu Kyi’s close adviser. The military retains its constitutionally guaranteed 25% share of the legislature (where a 75% majority is required to amend the constitution) and its control of the ministries for home affairs, defence, and borders. But, so far, the generals have kept their word and allowed Suu Kyi and the NLD a free hand. The onus now is on Suu Kyi to do what is needed to keep the army in its barracks. This means treading carefully as she seeks a semblance of justice for past military misdeeds and tackles endemic corruption. If she vigorously attacks vested interests, the civil-military accommodation could unravel. In other words, Suu Kyi will have to accept the same lesson the generals did: The best way to retain power is often to compromise. Thailand’s leaders could stand to learn it as well. For more than a decade, Thailand has been paralyzed by the standoff between exiled former Prime Minister Thaksin Shinawatra’s populist party machine and his royalist-conservative adversaries. Undermining the old political order, centred on the military, the monarchy, and the bureaucracy, Thaksin’s forces have used democratization to great success, winning every election since 2001. But Thaksin’s business interests left him vulnerable to allegations of corruption and abuse of power. In September 2006, months of anti-Thaksin street protests culminated in a military coup. The generals subsequently worked hard to limit Thaksin’s electoral power. They drafted a new constitution making the senate a half-appointed body and shifting more authority to the judiciary. They dissolved his party and banned its politicians. And Thaksin himself was forced into exile, as criminal charges were filed against him. Yet Thaksin’s forces, mobilizing the rural poor, won yet again, triggering more yellow-shirt demonstrations. Only when a constitutional court decision disbanded the apparent reincarnation of Thaksin’s party in 2008 did the opposition seize power. And they soon lost it again, after Thaksin’s youngest sister, Yingluck Shinawatra, won the 2011 election. But Thaksin wanted it all, and ended up with nothing. In October 2013, the Yingluck government introduced an amnesty bill that would lift all criminal charges against him and overturn a conviction, enabling him to return home. More street protests led to yet another military putsch the following May.
“
Thitinan Pongsudhirak Professor of International Relations and Director of the Institute of Security and International Studies, Faculty of Political Science, Chulalongkorn University, Bangkok.
In September 2006, months of anti-Thaksin street protests culminated in a military coup.
Since then, Thailand’s generals, led by General Prayut Chan-ocha, have taken no chances, ruling directly and appointing only a handful of technocrats to their government. A chilling reincarnation of past military dictatorships, the so-called National Council for Peace and Order (NCPO) has drafted an interim constitution that gives Prayut absolute power. Prayut has installed a rubber-stamp legislature, a “pro-reform” assembly, a constitution-drafting committee, and a cabinet led by none other than himself. Several hundred dissidents have been detained at military barracks for up to a week at a time. Human rights advocates have been intimidated, and journalists are routinely harassed. The NCPO now is preparing to hold a referendum in August on its draft constitution, which, if approved, would mean elections in 2017. But the draft includes a military-appointed 250-member senate, which would serve for a five-year “transitional period” and have considerable power to limit the actions of elected officials. The draft also stipulates that the prime minister does not have to be an elected representative, thereby opening the door for a military appointee. Unsurprisingly, civil society and political parties have come out against the blatantly undemocratic charter. Even those who encouraged the military intervention, believing that it was needed to restore law and order or to maintain stability during the looming royal succession, are having second thoughts. With Thailand’s generals hunkering down for long-term rule – and brooking no dissent on the matter – the road ahead for the country is certain to be tumultuous. What Thailand needs is the kind of compromise and accommodation achieved in Myanmar. Only when all sides recognize that no one can win it all will bargaining and negotiation replace polarization and political crisis. It took Myanmar’s military regime almost five decades to reach that point. One hopes that Thailand will get there much faster. Project Syndicate
Only when all sides recognize that no one can win it all will bargaining and negotiation replace polarization and political crisis
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16 Business Daily Wednesday, May 4 2016
Closing Health advertising
Probe into cancer-cure ad casts chill over Baidu’s business Medical ads account for 20 to 25 percent of Baidu’s search revenue.
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Chinese government investigation into Baidu Inc.’s search business following the death of a cancer-stricken college student threatens one of its largest sources of advertising revenue. Health and Internet regulators launched a probe into the Chinese online giant’s practices after computer science major Wei Zexi sought out a controversial treatment advertised among search results. But the procedure failed and the 21-year-old penned online posts blaming Baidu before his death, triggering an online furore in a country that’s seen its share of health-related scandals over the years. The company has said it will cooperate with regulators and work to root out false information on the Internet. Concerted scrutiny may prompt Baidu to pull back from health-care ads, one of its biggest sources of income, said Kirk Boodry, an analyst from New Street Research. “That’s the economic segment
where they get most of their revenues so anything that happens in that segment is material to the company,” he said. This could include Baidu voluntarily rejecting ads from certain providers, he added. “The fact that the government has stepped in to take a look at the issue indicates to us that there could be some near term impact.” Medical ads account for 20 to 25 percent of Baidu’s search revenue though that includes everything from pharmaceuticals to medical devices, estimates Karen Chan, an analyst with Jefferies Hong Kong Ltd. The cyber-administration summoned Baidu Chairman Robin Li for a meeting on Monday, Sina news reported, citing staff it did not identify. The scrutiny comes at a critical time for Baidu, which is hunting for new sources of profit as consumers move away from desktop computers where it dominates in China. Any move that harms its business could also reduce its ability to invest in technologies like self-driving cars and on-demand services. In 2014, Liang Jianyong, then party secretary of Putian, told China National Radio that private hospital companies from the city spent close to 10 billion yuan (US$1.5 billion) advertising on Baidu. That compares
with Baidu’s total revenue in 2013 and 2014 of 32 billion yuan and 49 billion yuan, respectively, according to data compiled by Bloomberg. Wei’s case was the latest in a series of incidents that has put Baidu’s health-care advertisements in the crosshairs of Chinese regulators and Internet users. It saw another backlash this year when users on its online forum complained that the company had sold the rights to operate disease-specific forums, where patients share experiences, to private hospitals that used them to attract patients. The company agreed to end the business practice
“Even if people change topics in a few days, this negative image of Baidu’s brand will still persist in many people’s minds” Li Yang, Assistant Professor of Marketing from Cheung Kong Graduate School of Business
after users protested. Back in 2008, the company removed paid search listings of unlicensed medical and pharmaceutical companies, which sent the company’s stock tumbling 25 percent. In the latest flare-up, the Internet search giant is accused of placing ads for a controversial medical practice from a Beijing-area hospital into its results. Wei suffered a rare form of cancer called synovial sarcoma. After receiving radiation and chemotherapy, according to the South China Morning Post, he used Baidu to search for alternative treatments and opted for a form of immunotherapy at the hospital based on recommended results. The treatment, which employs cells generated by the patient’s immune system, and cost Wei’s family about 200,000 yuan, the newspaper reported. The student died last month. “This seriously damages the brand and I don’t think Baidu is doing well in terms of PR protection because they didn’t respond in a fast and proper way,” said Li Yang, an assistant Professor of Marketing from Cheung Kong Graduate School of Business. “Even if people change topics in a few days, this negative image of Baidu’s brand will still persist in many people’s minds.” China’s health-care system is crowded with thousands of clinics and medical businesses, making it harder for regulators to police. Baidu said on its Weibo account that the hospital Wei used was top-tier and had provided the search engine with proper certification. It understands the sensitivity of health-care ads and applies extra vigilance, Tracy Hu, a spokeswoman for Baidu, said in an e-mailed statement. “We have proactively cleaned up the customer base, efforts which include rigorous standards of certification, careful screening of potentially misleading ads,” she said. In response to heightened public attention to Wei’s case, national and military health authorities have launched an investigation into the hospital, which is affiliated to China’s armed police force, the National Health and Family Planning Commission said in a statement published on its website yesterday. Phone calls to the hospital, called the Second Hospital of the Beijing Armed Police Corps, went unanswered. Bloomberg News
Fostering measures
M&A
Australia unveils election budget for ‘extraordinary times’
Chinese-led group pulls bid TPP without U.S. will leave for Australian cattle empire “vacuum” in Asia-Pacific
Australia’s government yesterday unveiled an election-focused budget to shore up economic growth amid a rocky transition from dependence on mining, doling out tax cuts for individuals and businesses. Treasurer Scott Morrison and Prime Minister Malcolm Turnbull were delivering their first budget. The treasurer said two key revenue-generating measures - a crackdown on tax avoidance by multinational firms and an increase in cigarette excise - would raise A$3.9 billion and A$4.7 billion respectively over the next four years. But with an eye on national polls expected in July, he said the new revenue would not be banked by the ruling Liberal-National coalition if it stayed in office, but used to fund tax cuts for companies and individuals. Corporate tax rates would be slashed over the next decade, with small businesses the first to benefit from the lower rates, while the middle tax bracket for individuals was raised. Some A$2 billion would be invested in water infrastructure projects and A$3.4 billion allocated for urban rail projects, Morrison added. AFP
A Chinese-led consortium has withdrawn its US$281.5 million bid for Australia’s vast Kidman cattle empire after the government indicated the deal was not in the national interest, the seller said yesterday. Australia’s biggest private landholder S. Kidman and Co. had selected the bid by Chinese-owned Dakang Australia Holdings and ASX-listed Australian Rural Capital (ARC) as the preferred buyer for most of its stations, with Dakang to take an 80 percent interest and ARC 20 percent. But in a preliminary decision last week Treasurer Scott Morrison said the offer, worth more than A$370 million (US$281.5 million), was “contrary to the national interest” given the proposed size of the Chinese acquisition. He gave the consortium until yesterday to respond, but Kidman’s managing director Greg Campbell said such a tight timeframe meant terminating the bid had been the only option. Kidman, which is currently 34 percent foreign owned, would also be seeking clarity from the Australian government about the level of foreign investment it deemed acceptable, he said. AFP
New Zealand PM
If the United States fails to ratify the 12-nation Trans-Pacific Partnership (TPP) trade deal, others nations will seek to “fill the vacuum” in the Asia-Pacific region, New Zealand Prime Minister John Key said yesterday. “The Asia-Pacific will be the major driver of global economic growth for the foreseeable future,” Key said in a published speech to the New Zealand Institute of International Affairs. “It’s part of the reason why President (Barack) Obama is so focused on getting TPP over the line in the U.S. - which we remain optimistic he will be able to do,” said Key. “For the U.S. the TPP is about taking advantage of economic growth as well as maintaining leadership in the region,” he said. “Everyone wants the U.S. there, but if they’re not, the region won’t stand still others will look to fill the vacuum. “In my opinion, though, U.S. leadership remains strong and it remains in its best interest to join TPP.” The New Zealand government had pushed hard for the TPP, which fitted into its wider program of building ties across Asia and the Pacific. Xinhua