MGM announces Q1 results Gaming Page 6
Friday, May 6 2016 Year V Nr. 1037 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Management
How Luis Alves took his simulated business environment global Page 2
www.macaubusinessdaily.com
Capital outflow
Payment due
The Hong Kong Gov’t is investigating how locals are helping move RMB from the Mainland Pages 8&9
A considerable amount of Chinese bond issuers will have to honour debt in May Page 8
Between A Rock And A Hard Place Infrastructure Originally slated to open in 2014. But the new prison in Coloane joins a slew of other public projects suffering interminable delays. With a subcontractor accusing the DSSOPT of deliberately delaying funds. Causing it to pursue MOP60 mln in ‘owed payment’. And resort to sit-in protests to catch the government’s attention. Page 3
Service sector lagging The number of newly incorporated companies in the SAR - plus total value of registered capital - registered a y-o-y decreases in 2016 Q1. With a quarter y-o-y rise in companies closing down.
Sluggish start Gaming Lawrence Ho concedes the beginning of the year hasn’t been “great”. While analysts Wells Fargo describe unaudited financial results for Q1 as ‘below expectations’. Although ‘cautiously upbeat’ about the outlook for the group. Page 7
Money supply rebounds
HK Hang Seng Index May 5, 2016
20,449.82 -76.01 (0.37%)
Cheung Kong Infrastructure
+2.38%
Sands China Ltd
AIA Group Ltd
+2.00%
Hengan International Group
+0.36% -1.93%
China Resources Land Ltd
-2.00%
China Mengniu Dairy Co Ltd
-2.32%
25° 29° 24° 28° 25° 28° 25° 28° 24° 28° Today
Sat
Sun
Mon
Tue
Source: AccuWeather
Business Page 5
Source: Bloomberg
Economy Resident deposits reached MOP457.2 bln. An increase of 0.1 pct in March. While private domestic loans dipped 0.8 pct in the month. On average, each local resident deposited about MOP707,000. Page 4
Less Spring in HK step Shopping figures Retail sales declined again in March. Hong Kong is facing increasing challenges ranging from rising U.S. interest rates to China’s economic slowdown. Political tensions with the Mainland aren’t helping. Page 16 I SSN 2226-8294
2 Business Daily Friday, May 6 2016
Macau Management Global challenge enables up-and-coming business teams to compete and network
Practice makes perfect Founder of the Global Management Challenge, Luis Alves Costa, explains how he started an international management competition and the benefits derived by participants. Nelson Moura nelson.moura@macaubusinessdaily.com
T
he world’s largest strategic management competition - the 33rd Global Management Challenge (GMC) attracted 150 participants from 25 countries and regions to Macau over three days, the fifth time Macau has played host to the competition. Won by the Russian team, their fourth consecutive time to receive the trophy, the local team didn’t make it to the finals this year despite winning in 2007 and securing second place in last year’s competition in Prague, Czech Republic. Luis Alves Costa, the founder of the event, never believed that a game he devised for his university class would grow to such an extent, involving teams from 33 countries worldwide. “The GMC was born when I was a teacher at Lisbon University, giving IT and Management classes, using a first-generation simulator in the 70’s - a very simple machine that only allowed you to make three decisions. My students were very excited about it and would even ask me to give classes on Saturdays and do more simulations. I started noticing that they could learn complicated ideas such as price elasticity very quickly,” the professor told Business Daily. Costa procured a more modern simulator, which allowed the inclusion of up to eight people and enabled teams to see how their decisions could affect the simulated market. With an eye to creating a national competition Luis founded a management simulator company, SDG, and contacted weekly newspaper Expresso as a media partner, which then took charge of creating a national competition leading to the first management challenge taking place in 1980. “It went so well we went to Brazil the next year, then France, England, and now we’re in 30 countries and half a million participants have already been involved in the challenge,” Costa said.
Training ground
The challenge created by Costa sees participants assume control of a simulated company, managing different aspects of a simulated business environment and making management decisions based upon a simulated company history and the world financial situation as it was in the previous five years. Teams comprise university students, executives, or mixed teams (students and executives) with the
Luis Alves Costa, founder of the GMC, speaks at the competition.
competition made up of a qualifying round and a final round to pick national winners. The first round pits all teams against each other, with only eight of the top scoring teams continuing on to the national final. The winner of the eight proceeds to the international final, representing their country.
Kick-starting management careers
The founder never realised the potential the challenge had to change the future of its participants until a Chinese team won the first international final and he witnessed the reception their university prepared. “I was just in awe at the size of the auditorium and the amount of people present. In the end, the university dean thanked me because I had no idea how good this was for the five young team participants who were now guaranteed employment at [companies like] Century21, Motorola, and Microsoft, even before finishing their Bachelor’s,” Costa told Business Daily. Since the inception of the competition China has taken home five world titles and Russia a close four - a dominance Costa explains by the work ethic participants from both countries put into the competitions and their knowledge of the benefits for their professional life after taking home a title from the GMC.
“Every country has talent, but there is inspiration and there is sweat. For example, some years ago Brazil went to the final; before these competitions we offer a friendship dinner and a party where I saw that the Brazilian team was so happy - they were partying, drinking - and I told them maybe they should go to sleep or tomorrow could be hard. They didn’t take my advice and the next day they
“Every country has talent, but there is inspiration and there is sweat.” Luis Alves Costa, Founder of the Global Management Challenge
were sleeping at the table, while the Chinese and Russians - who had gone to sleep or kept working at 10:00 pm - just took it more seriously,” Costa added, remembering that teams from China - unlike other countries whose financing is backed by companies - are composed mainly of students who pay out of their own pockets.
Every five years
When the competition was first held in Macau in 1998, Costa invited Dr.
Stanley Ho to be the jury president; surprised by the cultural mixtures the city had to offer the professor decided to hold the competition in the city every five years. “We saw that Macau had a lot of extra value for teams from other continents, so we agreed with the Macau Management Association that every five years the competition would take place in Macau, in order to make the bridge between the West and East. I think it’s good for us and good for Macau,” Costa said. The founder pushes for one of the goals of GMC to be the promotion of entrepreneurship and believes that the qualification rounds in participating countries are useful for networking and practice. “One of our big objectives is to help their [the participants’] future. We really believe the challenge can spur entrepreneurship and has made deals with foundations and companies wanting to promote entrepreneurship in Macau. We try to mix unemployed finance or engineering graduates with company CEO’s, to ease the networking and employment possibilities,” Costa told Business Daily, adding that local students are taken to another level by having to take decisions on human resources, inventory, industry and finances. The next two GMC finals will be in Qatar and Dubai, with the 2021 edition again taking place in Macau.
Business Daily Friday, May 6 2016 3
Macau Infrastructure New prison’s first phase subcontractor accuses DSSOPT of delaying payment
Hard labour The new prison in Coloane originally slated to open in 2014 joins a slew of other public projects suffering delays. Joanne Kuai joannekuai@macaubusinessdaily.com
T
he subcontractor for the first phase of the construction of the new prison being built in Ka Ho, Coloane, accused the Land, Public Works and Transport Bureau (DSSOPT) of delaying payments and is now pursuing MOP60 million (US$7.5 million) from the government in ‘owed payment’. A group of people from subcontractor Sociedade de Construção WELBOND Limitada staged a sit-in protest in front of the DSSOPT on Tuesday and petitioned the Legislative Assembly (AL) on Wednesday, seeking attention from the government and legislators for help in resolving the issue. “The design kept changing which resulted in delays in the construction and extra expenses that we have had to pay in advance. It’s unfair that we bear the expenses,” Ho Choi, Vice General Manager of the subcontractor, told Business Daily via a phone interview yesterday. The first phase of construction of the new prison was started in August 2010 and was originally slated for completion in April 2012. However, the subcontractor said that despite the group having finished their job DSSOPT only started inspection last year and took over in February of this year.
Complicated work
According to Mr. Ho, the design unit, which is also in charge of the consultancy and inspection of the first phase of the new prison, hired by the government kept changing the drawings while construction was underway, resulting in the delay of the construction work. He named one example: the new prison was to be built with thin pillars but was changed later into thicker ones due to the complexity of the geology of the region, causing the first of many additional construction works, pushing the completion date from April 2012 to mid-2013. In June 2013, the bulletproof glass purchased from the supplier, as
specified by the government, broke. Mr. Ho said that that the glass was not suitable for outdoor environments and was later changed after the DSSOPT negotiated with the supplier. However, it resulted in further delays to the project and the subcontractor had to bear the extra cost. In addition, the subcontractor claimed that they had finished the job in early 2015 but the DSSOPT ‘was delaying the progress inspection deliberately because they hadn’t sorted out the tender for the second phase.’ Meanwhile, the subcontractor had to hire people to look after the site, which caused additional expenses.
Price gap
The subcontractor said that the government has a MOP135 million authorised budget for the project and that the main contractor has received MOP120 million, with MOP15 million left unpaid since April 2014. Due to the change of design, the subcontractor has already filed for another MOP8 million extra charge billable to the DSSOPT. In addition, since the project has been delayed ‘because of the government’ the subcontractor claimed that the cost of human resources and building materials has increased by 28 per cent in the past few years compared to the original price in the contract, hence they are seeking another MOP37 million in compensation. In total, they are now seeking around MOP60 million in ‘owed payment’ from the DSSOPT. “We have talked with the main contractor about the issue, but they are a state-affiliated company and have a long-term good relationship with the government. They are reluctant to confront the government. But we, as a subcontractor, can’t suffer the losses. That’s why we’re speaking up,” said Mr. Ho. Information from the DSSOPT indicates that the design and inspection unit for the first phase is G.L. – Project Design & Consultant Co., Ltd. The main contractor is Zhen Hwa Harbour Construction Co., Ltd. Business Daily has contacted both companies seeking comment but received no reply by the time the newspaper went to print.
contract and the amount for additional expenses for extra construction work that is ongoing or has been authorised. The Bureau claimed that it has been paying the contractor in accordance with the progress of the project and has paid the main contractor around MOP128 million. ‘With regard to the rest of the payment, the Bureau will continue to urge the contractor to submit reasonable accounts and relevant documents for the whole project as soon as possible in order to settle the payment in accordance with the law,’ said the DSSOPT in a written email to Business Daily. According to the DSSOPT the first phase of the new prison has been ‘basically completed’. Due to the stringent requirements of the prison, certain aspects of the project are still under inspection.
Settling payment
Project delayed
The DSSOPT said in their reply to Business Daily’s enquiry that the granted amount of the first phase of the new prison is MOP130 million, including the cost in the original
130 Million patacas Amount budgeted for construction of first phase of new prison, according to DSSOPT
In April, the president of the AL’s Public Finance Affairs Monitoring Committee, Mak Soi Kun, after meeting with the government, revealed that the first phase of the project’s
expenditure amounted to MOP150 million (US$18.78 million), while the second phase contract - begun in March – is set to cost a further MOP1.1 billion. The whole construction of the prison is divided into four phases. The new prison was slated for completion in 2014. According to the legislator, the third phase of the project is still in the design stage, and without a defined budget yet. In February 2015, the senior advisor to Macau Prison, Lei Ka Nang, from the Correctional Services Bureau, said that the first phase of construction of the new prison was delayed due to the land on the mountain not being stable when the foundations were sunk, resulting in necessary alterations to the drawings of the second and third phases, as Business Daily reported at the time. Business Daily contacted Mr. Lei yesterday, but declined to comment on the progress of the project. It was reported previously that the current prison in Coloane is ‘overcrowded’ and causing management problems. Some legislators questioned whether the basic human rights of the prisoners have been guaranteed. The Secretary for Security, Wong Sio Chak, said in his Policy Address in December last year that he would like to know when the new prison would be completed, as the prison head has complained to him that there is a lack of space and even the employees don’t have a place to rest.
Real estate agencies
New online service for real estate agencies Real estate licence application and renewal can be done online starting this month. Application and renewal of real estate licences will be available online starting in May, according to a press release issued by the Housing Bureau (IH) yesterday. As of the end of April this year temporary licences for real estate agents numbered 1,199, and are valid until June 30. Temporary licences for real estate brokers totalled 3,820.
In order to facilitate application procedures for the real estate industry the Housing Bureau will start offering an online booking service early this month to reduce the waiting time of applicants for licences. The Housing Bureau suggests applicants for real estate agency and brokerage licences apply for renewal of their temporary licences as soon as possible in order to leave time to process their applications before their current licences expire in order to continue conducting their business without interruption. Currently, the online booking services for the real estate business include licence application for real estate brokerages and real estate agencies, commercial premises’ certification, licence replacement or certification, licence renewal and general matters relating to the real estate agency business. A.L.
4 Business Daily Friday, May 6 2016
Macau Opinion
Pedro Cortés
Banknotes
Exchange of monkey and rooster zodiac banknotes
Online registration to determine the number of monkey and rooster zodiac banknotes issued by local banks Bank of China and Banco Nacional Ultramarino (BNU) exchangeable per resident has concluded, according to a press release issued by
the Monetary Authority of Macao (AMCM) yesterday. Each registered Macau resident can exchange up to 30 monkey banknotes and 30 rooster banknotes from each of the two issuing banks. Thus, each registrant can exchange up to a total of 120 banknotes. The date for exchange is from May 9 until July 22.
Digital Justice As some of you may know, besides writing these columns I am also a lawyer qualified by the Macau Lawyers Association. I try to deviate from issues related to my profession, taking into consideration that you have more things to do than read about the judicial system. Well, today I will make an exception and write about an issue that should have been regulated many years ago: digital justice. The Macau Government should put in place a system that permits all actors in the justice system to practice acts through email. Yes, on May 6, 2016, we have yet to have lawyers sending an email with their work to the courts and courts sending their opinions in the same way. It is proved in many countries to be safe and Macau should not be an exception. We would save the planet and would save costs for everyone, including those who ask courts to decide their disputes. It is not hard. There are systems that can be used as an example. Portugal, for instance, which for some years has used emails and online platforms as the means to involve all parties, notified, and called upon to appear in court. One could say that this would take jobs from competent people. I vehemently disagree. This would allow people to better execute their jobs and in a prompt fashion. Others say: yeah, but Macau is so small that the papers can be delivered to courts in five to ten minutes after they’re dispatched from the offices. The Post Office will also have a means to continue to notify the intervenient parties. Those that have the fate of working with me already know that I do not like paper – except this great newspaper you are reading and all the other newspapers you read. Paper, for me, is part of the past. Well, I still read books. But having to print as many copies as the parties involved plus one, or printing paper, is part of the past - a far past in some countries but still a present in the Special Administrative Region. So, my dear Government, please help update our lives to the present and try to regulate things in such a way that we can all use the great tools that technology has given us: sparing trees, helping the environment, and doing so many other good things for all of us. Justice in Macau would celebrate greatly. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
Economy
Money supply rebounds in March Resident deposits increased 0.1 per cent in March, while private domestic loans dipped 0.8 per cent throughout the month. Annie Lao annie.lao@macaubusinessdaily.com
T
otal deposits by local residents reached MOP457.2 billion (US$57.2), up 0.1 per cent compared to the previous month, according to the latest data released by the Monetary Authority of Macao yesterday (AMCM). On average, each local resident deposited about MOP707,000. Of that, total deposits in MOP and USD dropped by 1.5 per cent and 0.7 per cent, respectively. HKD, RMB and other foreign currency deposits grew by 0.7 per cent, 1.4 per cent and 7.9 per cent, respectively. Total deposits by non-residents
decreased by 1 per cent from February to March, reaching MOP289.5 billion. Deposits by the public sector totalled MOP 148.3 billion, up 8.6 per cent. The total deposits with the banking sector reached MOP895 billion, up 1.1 per cent month-to-month. The shares of MOP, HKD, RMB and USD accounted for 20.6 per cent, 45.4 per cent, 8.1 per cent and 22.8 per cent of the total, respectively.
Loans
Total loans to the local private sector reached MOP393.8 billion, up 0.8 per cent month-to-month at the end of March. The share of total loans in MOP, HKD, RMB and USD denomination accounted for 28.4 per cent, 66 per cent, 0.5 per cent and 4.1 per cent of the total, respectively. In terms of economic sector, information technology, non-monetary financial institutions and restaurants and ‘hotels and similar’ had increased rates of 28.6 per cent, 25.3 per cent and 5.8 percent, respectively, quarter-to-quarter. However,
wholesale & retail trade and transport, warehouse & communications fell by 8.3 per cent and 3.2 per cent, respectively. Total external loans granted by local banks reached MOP368.5 billion, up 1.2 per cent, almost half of which MOP177.5 billion - was denominated in USD. Loans denominated in MOP, HKD, RMB, meanwhile, accounted for 1.7 per cent (MOP6.2 billion), 26.1 per cent (MOP 96.2 billion) and 17.8 per cent (MOP65.4 billion) of the total, respectively. The loan-to-deposit ratio for the resident sector at the end of March decreased 0.8 percentage points from the previous month to 65 per cent. The ratio for both the resident and non-resident sectors fell 0.1 percentage points to 85.2 per cent, according to AMCM. As at end-March, currency in circulation had dropped by 2.5 per cent month-on-month. Money supply (M1) increased by 2.2 per cent monthon-month and quasi-monetary liabilities fell 0.3 per cent. The sum of these two items (M2), meanwhile, increased slightly month-on-month by 0.1 per cent to MOP469.8 billion.
Law
Culture
Gabriel Tong likely next Director of UMAC Law Faculty
Macau Ricci Institute now under ICM
Following the announcement that current director John Mo will be leaving his post as director of the Faculty of Law at the University of Macau to pursue a position as the new rector of the Post-Graduate school at the university, Gabriel Tong – sub-director of the faculty – looks likely to assume the post, Radio Macau notes. “Gabriel Tong is an excellent bilingual lawyer,” president of the Lawyer’s
Association Jorge Neto Valente told TDM Radio yesterday. “He’s an intelligent man, with work under his belt and knowledge of the world. He has many qualities that help him to not be worse [than John Mo].” “Professor John Mo is an academic with an international reputation in Maritime Law. He published works before coming to Macau and is a specialist of Chinese Law,” Neto told the broadcaster.
The Macau Ricci Institute will pass to the management of the Cultural Affairs Bureau (IC) according to Radio Macau. The non-profit research institution - founded in 1999 with the purpose of improving understanding between China and the world community – has established a protocol with the IC and will operate in future from the University
of St. Joseph campus. The IC has yet to disclose the future use of the former Ricci Institute building, property of the MSAR government, between Tap Seac Square and Lou Lim Leoc Garden, the Portuguese language broadcaster reported. The Financial Services Bureau (DSF) has announced it has already informed the Institute of the government’s intentions to recover the previous Ricci Institute building, having extended the rent contract to December 31 in order to allow the Institute to find a new location. N.M.
Business Daily Friday, May 6 2016 5
Macau Donations
Gov’t donates MOP123 mln to Jinan University
News Service. The news report quoted the rector of the University, Hu Jun, as saying that the donation The SAR Government recently donated 100 million yuan (MOP123 from the SAR Government would further improve the institute’s million/US$15.4 million) to Guangzhou-based Jinan University hardware facilities and help to train more talent for the city. More through the Macao Foundation in order to fund the Chinese tertiary than 20,000 Macau students have institute’s infrastructure and other graduated from Jinan University developments, according to China since 1978, the report claimed.
Business
New companies and registered capital fall Nelson Moura nelson.moura@macaubusinessdaily.com
6.98 per cent from the same period last year.
he number of newly incorporated companies in the SAR as well as the total value of registered capital for companies in the SAR registered year-on-year decreases in the first quarter of 2016, according to the Statistics and Census Service (DSEC). However, at the end of the first quarter of 2016 the number of registered companies totalled 53,978 - an increase of
Mainland capital
T
The dispatch shows that the number of new companies registered in the first quarter of the year dropped by 338 to 1,117 while the total value of registered capital fell by 21.8 per cent to MOP123 million. The majority of capital originated locally (MOP71 million) and from Mainland China (MOP40 million) - including MOP28 million from Beijing. Capital from the nine provinces of the Pan-Pearl
River Delta Region totalled MOP8 million, of which 44.6 per cent originated from Guangdong Province. In terms of shareholder origin 761 new companies were established solely by Macau shareholders whilst 103 joint ventures were set up between shareholders from Macao and other countries or regions.
Wholesale and retail rule
Most of the newly created companies were from the Business Services sector - 338 - and Wholesale & Retail Trade - 323 - with the latter accounting for
62.5 per cent of all registered companies. The value of registered capital of companies being closed down increased by 101.8 per cent to MOP52 million, with some 196 companies undergoing dissolution - up by 24.05 per cent per cent year-on-year. Some 75.6 per cent of total companies were registered with total capital of less than MOP50,000 and total value of capital of MOP22 million (18.1 per cent of the total); meanwhile, 18 new companies were registered with capital of MOP1 million or more, with total value of capital MOP66 million.
Rent
Retail
Commission divided on rent cap
Sa Sa expects annual profit halved
Legislator Jose Pereira Coutinho, one of the nine legislators who proposed a new Rent Cap Bill last June, believes that the Chief Executive should decide the rent cap by taking into account inflation and the Consumer Price Index (CPI) in addition to being involved in the establishment of an arbitration body for mediating conflicts between landlords and tenants. “I don’t believe that the current proposal by the nine legislators’ commission will resolve the issue, so I believe that if the
Chief Executive got involved it could resolve the question well,” Coutinho told Business Daily, adding that more developments on the issue will unfold in tomorrow’s Legislative Assembly (AL) meeting. This comes after president of the Third Standing Committee and leader of the new rent cap bill commission, Cheang Chi Keong, stated that a consensus that the rent cap should be defined according to the Civil Code - which establishes that interest can be charged three times above
the legal rate - was achieved by the commission, local Portuguese language publication Hoje Macau reported. H o w e v e r, l e g i s l a t o r Song Pek Kei contradicted Cheang’s consensus statement by telling local media that although most of the commission members, such as herself, suggested at the beginning that the bill should use the Civil Code as the basis for the new rental cap they now believe that a coefficient decided by the Chief Executive would be more suitable, local media reports. “We never said the rent limit should have as its base the charging of interest three times above the legal rate, nor that 30 per cent should be the rent cap,” she clarified, according to Hoje Macau. When asked about the disagreements legislator Cheang refused to answer, stating that he would only respond to questions regarding the “rent control mechanism,” local media reports. N.M.
Hong Kong cosmetic retailer Sa Sa International Holdings Ltd. expects its profit to experience a year-on-year decline of 50 per cent for the fiscal year ended March 31, it announced on the Hong Kong Stock Exchange Wednesday night. ‘[The decrease is] due to the worsening operating environment of the retail sector which has led to significant drops in both sales and gross profit and reduced operational efficiency as a result,’ the company explained in the filing. For the 2014-2015 fiscal year, Sa Sa posted a profit of HK$838.8 million (US$104 million), according to its previous annual report. The company’s Wednesday estimation suggests its profit for the 2015-2016 fiscal year will be cut to some HK$419.4 million. For the first half of its fiscal year the company’s
profit reached HK$153 million, down 55 per cent year-on-year compared to the HK$339.8 million registered one year ago, as well as total turnover dropping by 10.6 per cent year-on-year to HK$4.22 billion. The cosmetic retailer also revealed that its sales had remained flat in Hong Kong and Macau during the three-day Labour Day Holiday compared to one year ago, despite sales attributable to Mainland customers posting a yearon-year growth of 6 per cent due to increased transaction volume. ‘This increase was offset by the 13 per cent decline in sales to local customers, reflecting the weak local consumption sentiment and increased outbound travel of the locals during [the] long weekend due to the strength of [the] Hong Kong dollar,’ it noted in another filing on Wednesday night. K.L.
6 Business Daily Friday, May 6 2016
Macau Gaming
Patent fight of Paradise vs. SHFL over
Gaming
MGM China sees 25 pct drop in Q1 revenue
M
GM China Holdings Limited has announced total revenue for the first quarter of the year of HK$ 3.6 billion, a drop of 25 per cent year-on-year, and a 31 per cent decline from the previous quarter, according to a press release. The group also saw a 23 per cent loss in EBITDA (earnings before interest, taxes, depreciation and amortization), amounting to HK$995 million. The group attributed this to the negative effect of ‘low hold on both mass table games and in-house VIP operations’. Property EBITDA margin for the quarter grew 100 basis points, to
27.3 per cent year-on-year, while the main floor business ‘accounted for approximately 86 per cent of our EBITDA in the first quarter, a trend that has been emerging for the last eight quarters,’ the release notes. With regard to the new property, CEO and Executive Director of MGM China Grant Bowie said, “We’re excited to finally see our new resort becoming a reality,” noting that “we believe it will be very well received by the market.” This is due to the “expansion of room base” and the targeting of “quality customers who spend longer periods of time at our property.” The report notes that construction
is progressing on the Cotai property, with expectations set for completion by the end of the year. The group feels ‘confident our resort design and product offerings will provide us a unique competitive advantage in the non-gaming entertainment market’. Additionally, the report states that the group is monitoring the market, ‘encouraged by trends in the mass space’ and that the ‘mass table games theoretical win in the first quarter was the highest we have achieved in the past five quarters,’ noting that the group’s focus in the future is on player acquisition and retention of players, while ‘we also aim at increasing share of wallet’. K.W.
Gaming equipment maker Paradise Entertainment Ltd. announced yesterday that its patent fight with American gaming machine maker SHFL Entertainment Inc. is officially over following the dismissal of the main lawsuit on Tuesday. In October 2012, SHFL’s local subsidiary - SHFL Entertainment (Asia) Ltd. - filed an injunction that sought to prevent Paradise and its units from claiming a monopoly in the Macau market on a patent claimed by Paradise’s LT Game Ltd. for technology in a multi-gaming electronic table gaming product featuring a live dealer. The case was dismissed by the local Court of First Instance in 2013, whilst the Court of Second Instance rejected the American machine marker’s appeal against the lower court’s decision in 2014. ‘The main lawsuit in relation to the violation of the Macau registered Patents I/150 and I/380 was dismissed on 3 May 2016 after SHFL Macau withdrew its claim against the Respondents,’ Paradise said in yesterday’s filing with the Hong Kong Stock Exchange. It added that SHFL was ordered to pay court fees relating to the court case. In 2013, SHFL Entertainment Inc. was acquired by Bally Technologies Inc. and the two gaming machine manufacturers officially merged the following year.
Bally Technologies, which merged with SHFL Entertainment in 2013.
Gaming
Imperial Pacific: ‘Saipan VIP operations saturated’
Gaming
Iao Kun chip turnover slides 36 pct in April Junket operator Iao Kun Group Holding Company Ltd. saw its rolling chip turnover in the city plunge by 36 per cent year-on-year to US$320 million (MOP2.56 billion) in April, compared to US$500 million one year ago. The company’s latest announcement reveals that the win rate at its five VIP rooms in the Special Administrative Region averaged 3.95 per cent during last month. For the first four months of this year the junket promoter’s total rolling chip turnover was slashed by 44
per cent to US$1.52 billion or US$0.38 billion per month compared to the US$2.7 billion or US$0.68 billion per month posted during the same period of 2015. Iao Kun’s five local VIP rooms are located in the StarWorld Hotel, Galaxy Macau, Sands Cotai Central, City of Dreams and Le Royal Arc Casino. In addition, it runs gaming businesses in Crown Perth Casino and Crown Melbourne Casino in Australia. Last year, the NASDAQ-listed junket operator generated US$6.4 billion in rolling chip turnover, which dived by 61 per cent year-on-year despite the group recording a net income of US$5.1 million for the year compared to a net loss of US$60.1 million in 2014. K.L.
Hong Kong-listed casino operator Imperial Pacific International Holdings Ltd. claimed that VIP gaming operations at its Temporary Casino on the island of Saipan had already reached saturation, estimating business from the segment would stop growing before the completion of another casino resort by the company. ‘The Board anticipates that the VIP gaming operations will cease to grow and have become saturated prior to the completion of the town hotel, Grand Mariana Casino and Hotel Resort, located at Garapan, Saipan by late 2016,’ the company stated in a filing on the Hong Kong Stock Exchange Wednesday night.
The Temporary Casino of the operator was launched last November. A filing of the company in April shows its VIP table games rolling chip turnover from the property achieved US$6.1 billion (MOP48.8 billion), or US$2 billion monthly, during the first quarter of this year, which represents an increase of 30 per cent compared to the US$1.6 billion monthly earned between November and December in 2015. As at the end of March, Imperial Pacific operated a total of 16 VIP gaming tables, 32 mass tables and 109 slot machines and electronic table games in its Temporary Casino, which raked in gross gaming revenues of some
US$186 million for the first three months of the year. On Monday, the company said in another filing that VIP rolling chip turnover soared by 69 per cent month-onmonth to US$3.2 billion in April from US$1.8 billion. Imperial Pacific’s gaming concession on the island, granted by authorities there in August 2014, is under a local unit named Best Sunshine International Ltd. and carries a term of 25 years. Meanwhile, its Grand Mariana project - slated to open in the first quarter of 2017 will provide more than 200 new gaming tables and 400 slot machines in addition to accommodation and entertainment facilities. K.L.
Business Daily Friday, May 6 2016 7
Macau Gaming Altira junket debt dragging Melco Crown down
Packer jumps ship on Melco Analysts consider Melco Crown’s first quarter results below expectations. Nelson Moura nelson.moura@macaubusinessdaily.com
F
inancial services company Wells Fargo considers that Melco Crown Entertainment Limited’s (MCE) unaudited financial results for the first quarter of 2016 are ‘below expectations’. Although net revenue for the period amounted to US$1.10 billion - representing an increase of around 5 per cent from US$1.05 billion for the same period in 2015 - analysts reported MCE’s EBITDA of US$220 million was 7 per cent lower than estimated. This comes after MCE the company which operates City of Dreams in Macau and Manila, as well as its Studio City property - published a first quarter earnings report which registered a 53.5 per cent drop from US$87.11 million to US$40.50 million year-on-year. However, in a conference call, Melco International Development Limited (Melco) CEO Lawrence Ho stated that while the beginning of the year hadn’t been “great”, he believed that the mass market was stabilizing and that the May 1 holiday had created a positive year-on-year growth. “We remain resolute in our belief that Macau remains the most important and exciting gaming destination in Asia. With ongoing improvements in infrastructure, including the Hong Kong–Zhuhai–Macau Bridge, the Taipa Ferry Terminal and the Macau light rail system, together with the rapid expansion of Hengqin Island, Macau is uniquely positioned to cater to the burgeoning and increasingly consumer-focused, middle-to-upper-class in China and around the region,” Ho stated in a press release.
Altira junket debt
Wells Fargo considered MCE’s management tone ‘cautiously upbeat’, while investors expressed concern over the group’s ‘abnormal’ US$18 million bad debt reserve. This amount was justified by Melco Crown Chief Operating Officer Ted Chan, during the conference call, as attributable to a single junket operating in Altira since 2008. MCE’s report showed that Altira Macau generated negative adjusted EBITDA of US$14 million in the first quarter of 2016, justifying it as a result of lower rolling chip revenues
James Packer, Crown Resorts Executive Chairman.
- US$4.6 billion in the first quarter of 2016 versus US$7.4 billion in the first quarter of 2015 - and a higher provision for doubtful debt. “Adjusting for this incremental provision, our Macau property EBITDA would have expanded approximately 8 per cent when compared to the fourth quarter of 2015. Similarly, Macau property EBITDA margins would have expanded almost 1 per cent when compared to the fourth quarter of 2015, highlighting the strength of our mass market operations and our strong cost control focus,” Lawrence Ho stated in the conference call. The net revenue increase was mainly attributed to an increase in net revenue from Studio City and City of Dreams Manila - with a generated adjusted EBITDA of US$22.1 million and US$28.6 million, respectively, although affected by lower rolling chip revenues and mass market table gaming.
Packer jumps ship
Melco Crown Entertainment Ltd’s first quarter report was announced after Crown Asia Investment Pty. Ltd., a wholly-owned subsidiary of Crown Resorts Ltd. (Crown), the
gaming company of Australia’s third richest man James Packer, sold a US$800 million stake back to MCE, which reacquired 155 million shares for US$5.17 per share, and cutting its stake in the company to 27 per cent from 34 per cent. Packer will also resign as the co-chairman of Melco Crown to become the company’s deputy chairman, while Lawrence Ho will remain CEO and sole chairman of Melco. ‘The repurchase forms part of Crown’s ongoing capital management strategy and proceeds will be initially used to reduce Crown’s net debt position,’ stated Crown in a press release. Crown maintains a US$2.08 billion shareholding in MCE and will be entitled to have two representatives on the board of the company, while in the event that Crown’s shareholding in MCE increases such that it is equal to or greater than, or not more than 1 per cent below, that of MCE, Crown will be entitled to have three representatives on the MCE board again. This step back by Crown comes after Packer announced in 2015 to have “great faith” in the Macau market, following the opening of the US$3.2 billion Studio City casino in
October last year. However, analysts claim Packer was holding talks with private-equity firms and pension funds about a possible buyout of some Crown assets, and attributed Crown’s shares value decrease to investment in MCE and decreasing Macau VIP market revenue, Business Daily reported at the time. ‘Crown will assess its capacity to make a distribution to shareholders and, at the same time, maintain a strong balance sheet and credit profile to fund existing Australian development projects,’ Packer’s company announced this week. When asked if the share repurchase agreement was just a first in Crown Resorts selling down its stake in Melco Entertainment stake, Ho stated the deal provided “perfect timing” for the two groups as MCE was also looking at his own “capital allocation strategy”. “I think the opportunity came together quickly and it was mutual, it was by negotiation. So I don’t anticipate any changes in terms of our attitude towards the business and I wouldn’t read anything into this [potentially] leading to other transactions,” Ho stated in the conference call.
Corporate
GEG holds responsible gaming workshop
Galaxy Entertainment Group (GEG) welcomed over 40 GEG team members for a training and workshop conducted by professional speakers on responsible gaming guidelines, signs of problem gambling and responsible gaming support services. A workshop led by Dr. Samuel Huang – Associate Professor of Gaming Teaching and Research Centre of Macao Polytechnic Institute - led a workshop on
‘Guidelines, gambling disorder and business conduct’ focusing on the SAR and neighbouring regions’ responsible gaming regulations and guidelines, GEG’s self-exclusion programme and its business conduct of responsible gaming to the public. The majority of team members who participated in the workshop are frontline team members dealing directly with casino patrons, with a Ms. Daniela Tam from Table Games noting that, “ It will be very helpful for me at work.”
CTM welcomes SME delegates
A delegation of about 20 members from the SME (small and medium enterprises) Association of Macau visited CTM on Wednesday in an effort by the telecommunications company to introduce business solutions and help SMEs take advantage of diversified online platforms to reduce operating expenses and explore potential business opportunities. The group was headed by Stanley Au, Chairman of the SME Association of Macau, who met
with key delegates of CTM including Declan Leong, VP of network services, Ebel Cham, VP of Commercial, and others. Cham introduced achievements of the company in promoting and developing ‘Digital Macau’, noting that CTM will commit its strength and resources through platforms such as its Cloud Service, and work to develop its e-commerce, education, transportation, enterprise operation and other business aspects to speed up the development of ‘Digital Macau’.
8 Business Daily Friday, May 6 2016
Greater China Capital outflow
Hong Kon money flo The city is the most popular outflow route, analysts say, because of its proximity to Mainland. Saikat Chatterjee
H
ong Kong is conducting a multi-pronged customs, shipping and financial sector crackdown against so-called fake trade invoicing that allows billions of dollars of capital to leave China illegally. Hong Kong’s central bank told Reuters it has beefed up its scrutiny of banks’ trade financing operations, while customs officials are doing more random checks on shipments crossing border posts and conducting raids on warehouses to ensure the authenticity of goods, senior officials working in shipping, logistics and banking said. The head of a logistics company said surprise customs inspections at Hong Kong border posts had doubled. The sources declined to be identified given the sensitivity of the issues. They said the increased efforts began this year and reflected concerns about billions of dollars in illicit cash authorities suspect are being channelled through Hong Kong following a stock market crash in China last year. “Examinations and investigations reflect one of the strongest trends we are seeing now in the financial sector,” said Urszula McCormack, a partner at law firm King & Wood Mallesons, which helped co-author a report published by The Hong Kong Association of Banks in February that highlighted shipping as a sector where fake invoicing can thrive.
LOOMING defaults
Long list of domestic high-yield issuers due to make May payments Chinese companies are facing their tightest liquidity crunch in a decade. Lu Jianxin and Pete Sweeney
A long list of high-yield bond issuers are due to make debt payments in May in the US$8 trillion market, which is pricing in increasing risks following an unprecedented number of defaults this year. Nanjing Yurun Food Co Ltd, a unit of China Yurun Food Group Ltd, and fertiliser maker Inner Mongolia Nailun Group are among recent companies that announced debt payment problems. Reuters Eikon data shows there are 28 bonds yielding more than 10 percent that have coupon payments due in May, representing around 17 billion yuan (US$2.62 billion) of capital. In June, coupon payments on another 8 billion yuan of similarly yielding bonds are due. “Company operations have become increasingly difficult, making bond issuers faced with increasing pressure to pay off their debt,” said a senior trader at a Chinese stateowned bank in Shanghai. He declined to be identified
because he is not authorised to speak with the media. An unprecedented number of more than 20 bond defaults have been confirmed so far this year as many companies feel the pinch of China’s economic slowdown. Chinese companies, with ever more cash tied up in inventories and unpaid bills, are facing their tightest liquidity crunch in a decade, according to a Reuters analysis. “With more credit events
happening, it is possible that onshore agencies will issue more downgrades and that could further reprice the credit bond market,” said Yang Chen, China rates strategist at BAML. Some analysts in China, however, suggest about 500 bonds worth around 700 billion yuan (US$108 billion) are at high risk of failing to meet due payment dates. Reflecting these concerns, the spread between AAA and
AA-rated one-year corporate bonds widened to as much as 47 basis points earlier this month, Thomson Reuters data shows. Bond stress has encouraged some flight by investors into commodities futures markets, where prices have surged this year.
Rising yields
Yields of benchmark oneyear corporate notes have jumped an average 35 basis
since late March. Benchmark five-year corporate notes have surged nearly 60 basis points since early April. Over 100 Chinese firms delayed or cancelled at least US$15 billion in onshore bond and other fixed-income issuance in April. Frances Cheung, head of rates strategy at Societe Generale in Hong Kong, said the increase in stress was spilling over into the domestic interest rate swaps market. “Basically the credit bond market is not entirely liquid and so people may be turning to swaps to hedge against default risk or simply the risk of higher yields,” Cheung said. However, at the same time many state-backed issuers have flooded the market with bonds to rollover debt and finance infrastructure at low rates, as investors reward issuers seen as having implicit policy backing to prop up growth. “The central bank (monetary policy) also looks less aggressive right now, which could trigger a little bit of deleveraging and a widening of spreads, especially for credit bonds,” said Zhou Hao, senior emerging market economist at Commerzbank in Singapore. “From the central bank’s point of view, it’s justified, because it needs to see how inflation develops, but the bond market is kind of a victim of this wait-and-see policy.” Reuters
Business Daily Friday, May 6 2016 9
Greater China
ng cracks down on illegal ows from Mainland trade “(Hong Kong) regulators are now in enforcement mode.” China has become increasingly concerned about capital outflows since the middle of last year when Chinese rushed to get money offshore for safekeeping or to invest following the stock market slump and unexpected yuan devaluation. Hong Kong is the most popular route, analysts say, because of its proximity to China. Chinese authorities have tried to staunch the outflows by tightening cross-border investment quotas, stepping up enforcement action of existing rules and restricting residents from buying financial products, such as insurance policies, offered in Hong Kong. But the trade channel had largely been left untouched given the complexity and magnitude of transactions involved. A record net US$674 billion left China last year, the International Institute of Finance estimates. A further US$175 billion left China in the first quarter. China had been a long-term net importer of dollars. While capital flows reflect legitimate business, analysts say the gap between trade figures reported by China and by Hong Kong for the same goods shows how imports and exports are being used to spirit cash offshore. In December, for example, the gap between Chinese imports from Hong Kong and Hong Kong’s exports to China - a rough indicator of capital flowing through trade - surged to a record US$1.9 billion, which many economists attributed to falsifying trade invoices. The December figures show that one dollar in every 10 of exports from Hong Kong to China may have been falsified to skirt China’s capital
controls, Thomson Reuters calculations show. By March, the gap was still a relatively large US$1.4 billion. The Hong Kong Customs and Excise Department said it was looking into the disparity between the trade figures in coordination with local and Chinese authorities. It said it would “continue to maintain vigilance over the latest trends of money laundering”. China’s General Administration for Customs didn’t respond to faxed questions. The most popular way to fake invoices involves overstating the value of imports into China or under-stating the value of exports. A Chinese company could export goods to its Hong Kong subsidiary worth US$100 each, but invoice the export at US$80 each. The Hong Kong subsidiary sells them for US$100 each and parks the profit in an offshore bank account. The goods involved often lack an obvious value, such as jewellery or electronic components, making it difficult for customs officials or banks to spot a fake transaction.
“Deter and detect”
Hong Kong’s de facto central bank, the Hong Kong Monetary Authority (HKMA), has increased the number of onsite inspections and asked banks to strengthen trade financing surveillance since the end of 2015, two bankers said. “The HKMA has over the past years taken steps to require banks to implement better systems and controls to deter and detect suspicious transactions,” Stewart McGlynn, the head of HKMA’s anti-money laundering and financial crime risk said, referring to a doubling of suspicious transactions
reported by banks to nearly 35,000 last year, compared with 2011. China launched a nationwide operation called “Nation’s Blade” in February to counter fake trade invoicing, tax evasion and smuggling. In the south-western province of Yunnan, 459 cases are being investigated involving products worth around 30 million yuan, China media reported. “Recently, there have been a lot of customs inspections with perhaps a 50 percent increase at times,” said Alex Chen, a Shenzhen-based official at a customs brokerage firm, referring to Chinese customs actions. “Lots of people are being caught under the latest operation and many have been fined as well.” Trade sources said the crackdown is also being seen in other ways. “Ever since the capital outflow problems, it has become very difficult to interact with the Chinese customs (officials),” said the head of logistics at a Hong Kong firm. “Companies on both sides of the border would take them out for wining and dining (before) ... But now they don’t want to be seen with us.” Reuters
Key Points Involves greater scrutiny of customs, shipping, banking Follows China’s concern at rise in capital outflows Hong Kong a popular route because of proximity to China Respective China, HK trade data shows big differences Analysts say gap is evidence of illegal movement of capital
Agriculture
Corn planting area to fall for first time in 13 years Some in China have been concerned about the risk that falling production could make the country increasingly dependent on imports. David Stanway
China has estimated the country’s corn planting area will fall by 1.33 million hectares this year, the first drop in 13 years, as Beijing encourages farmers to grow alternative crops to cope with massive stockpiles. China said in March that it would end its corn stockpiling programme, which had driven up domestic prices and spurred record imports of cheaper substitute products like sorghum and distillers’ grains. The scheme, under which large volumes were bought at fixed prices, was designed to support rural incomes, but it has left the state with unsustainable stockpiles that it wants to sell. “During this reform process, and as the corn market changes, we must ensure that farmers remain positive about growing, and at the same time encourage them to change to other crops in non-optimal areas,” Vice-Agriculture Minister Yu Xinrong said yesterday. China’s support for corn saw the area under cultivation hit 37 million hectares last year, up from 23 million hectares in 2001, according to U.S. Department of Agriculture data. After the government decided it would no longer buy corn at artificially
high prices, farmers in China were expected to switch to other crops, including soybeans. However, the ministry predicted in a report last month that soybean imports would reach 82.28 million tonnes in 2016, around the same as last year, even though it expects growing areas to rise by 400,000 hectares this year. While the policy shift has raised some fears on overseas markets that China would export surplus corn, some in China have been concerned about the risk that falling production could make the country increasingly dependent on imports. A recent forecast by the Ministry of Agriculture said corn output was expected to drop 4.2 percent to 215.17 million tonnes in 2016, also the first
decline in 13 years. It said production would also be hit by drought and low temperatures in growing areas in the northeast, as well as floods in the south. Though production is set to fall further to 205.67 million tonnes by the end of 2020, consumption is set hit 221.92 million tonnes, with the gap to be met by inventories rather than through imports. The agriculture ministry also said that it would work to rectify “structural contradictions” in the pork market, which has seen prices soar recently as a result of shortages. New environmental constraints have made it difficult to increase supplies, but China aims to scale up and relocate pig farms to more suitable regions. Reuters
In Brief Aero sector
Mainland plans big civil aviation investment China is ready to invest 77 billion yuan (US$11.9 billion) this year in the construction of civil aviation infrastructure, particularly airports, the country’s chief civil aviation regulator said on Wednesday. The country will begin with 11 key construction projects and 52 aviation-related upgrades, according to the Civil Aviation Administration of China (CAAC). “The general aviation sector, especially aircraft research and manufacturing, has became a hot spot of both industrial upgrading and social concern,” said Feng Zhenglin, head of the CAAC.
Jewellery
Gold output edges up in Q1 China’s gold output in the first quarter (Q1) of 2016 edged up due to higher prices in the global gold market, according to latest industry figures. The country produced 111.56 tonnes of gold in the first three months, up 0.78 percent year on year, the China Gold Association said Wednesday on its website. International gold prices have rebounded slightly following the easing moves of major currencies and stabilizing commodity prices, the association said. China consumed 318.28 tonnes of gold in the first quarter, down 3.91 percent compared with the same period last year. Foreign agreement
Further co-operation with Laos China and Laos on Wednesday pledged to further enhance bilateral cooperation and parliamentary exchanges. The pledge was made during separate meetings between Chinese Premier Li Keqiang and top legislator Zhang Dejiang with visiting Laotian President Bounnhang Vorachit at the Great Hall of the People. Hailing the current development of China-Laos relations, Li said China was ready to enhance political mutual trust, promote the implementation of bilateral cooperation programs, and strengthen exchanges and experience sharing on development. Oil sector
Mainland firm wins contract for oil refinery in Cambodia China National Petroleum Corporation (CNPC) Northeast Refining & Chemical Engineering Company on Wednesday secured an engineering, procurement and construction (EPC) contract from a Cambodian conglomerate to construct a US$620 million oil refinery in its first phase. The EPC contract was inked here between Li Limin, chairman of CNPC Northeast Refining & Chemical Engineering Company, and Hann Khieng, managing director of Cambodian Petrochemical Company, under the presence of Cambodian Minister of Mines and Energy Suy Sem.
10 Business Daily Friday, May 6 2016
Greater China prices in the area around Guangfuli are now closing on US$12,000 per metre. As Shanghai property prices accelerate - they rose 25 percent in March from a year earlier - the conflict over Guangfuli has intensified. The residents said the developer has offered to swap their homes for new apartments in the distant Jiading district, but the catch is that they would have to pay. Luo said he was asked to fork out 1.18 million yuan (US$182,380) for two apartments for him and his brother; he wanted four apartments and balked at the price tag. “Where are we going to find 1.18 million yuan? I’m retired and my brother is laid off,” he said. The local authority, the Putuo district government, said in response to faxed questions that it wanted to demolish the neighbourhood and “make residents’ lives better” by relocating them. The developer, Xinhu Zhongbao, did not answer repeated calls requesting comment.
Where are you going? Real estate
Stubborn Shanghai residents hold a line drawn in rubble The local authority said it wanted to “make residents’ lives better” by relocating them. Pete Sweeney
I
n a corner of Shanghai, surrounded by a cement wall, lies one of the world’s most valuable fields of debris and garbage. O n p a p e r, t h e G u a n g f u l i
neighbourhood is a real estate investor’s dream: a plot in the middle of one of the world’s most expensive and fast-rising property markets. But the reality is more like a developer’s nightmare, thanks to hundreds of people living there who have refused to budge from their ramshackle homes for nearly 16 years as the local authority sought to clear the land for new construction. The stalemate highlights a fundamental and unresolved problem in China’s half-liberalised property regime: who owns the land? Even as the fields around Guangfuli have bloomed million-dollar condominium towers, the residents live a scrappy existence. The plot is ramshackle and looks bombed out. Residents grow vegetables in Styrofoam boxes wedged between rubble and refuse. They freeze in the winter and boil in the summer as many windows lack glass and the walls are perforated with holes. Most houses have the Chinese character for “tear down” spray painted on them by demolition teams, although the paint has faded as the standoff between the residents and
Default
National solar equipment firm warns may miss bond payment Bond defaults have been accelerating in China over the past year and a half. A Chinese solar equipment firm, Baoding Tianwei Yingli New Energy Resources Co Ltd, said it may be miss payment on a 1.4 billion yuan (US$215.2 million) five-year note maturing on May 12. The unlisted firm, a subsidiary of New York-listed Yingli Green Energy Holdings Co Ltd, cited consecutive losses as the reason for the potential default. It issued the warning in a statement posted on China’s interbank bond market operator’s website late on Wednesday. Prices for solar power equipment have fallen rapidly in recent years, causing financial problems for several manufacturers. China’s first public bond default in 2014 was by Chaori Solar. Bond defaults have been accelerating in China over the past year and a half, with around 20 firms running into repayment trouble in 2016. Defaults have been concentrated in industries with overcapacity such as steel and cement, but firms in a wide range of sectors have now defaulted as the economy has slowed. Onshore bond yields rose rapidly
in April as investors eyed mounting defaults amid less aggressive moves by the central bank to stimulate the economy following better than expected economic data. Chinese firms delayed or cancelled more than US$15 billion of new bond issuance in April. Nonetheless, bond and money market yields have retreated somewhat in recent days following large cash injections by the central bank. Last week, the People’s Bank of China injected 267 billion yuan into 18 financial institutions through threeand six-month medium-term lending facility (MLF) loans. The MLF is a supplementary policy tool the central bank uses to direct liquidity conditions and medium-term interest rates in the banking system and money markets. Reuters’ AA+ rated medium term note index was up nine basis points on Thursday, but otherwise broader money and bond markets showed limited reaction to the news. Tianwei Yingli New Energy has been in financial trouble for some time and the note in question was rated C as of October 2015 by Shanghai Brilliance Long-term Issue Credit Rating. Reuters
the developer dragged on. Long-time resident Luo Baocheng lives with his brother and family in a small three-story apartment building, which he said he inherited from his mother. Luo said the property developer, Xinhu Zhongbao, refuses to pay the 4.2 million yuan (US$649,150) he says the house is worth.
‘A stalemate highlights a fundamental and unresolved problem in China’s halfliberalised property regime: who owns the land?’ “They told me, I don’t have a property right certificate,” he said. “I’ve lived here 32 years, does that or does that not mean it’s my property?” Local real estate agents say average
As a rule, the average Chinese person’s wealth is held in the form of cash and real estate. But real estate wealth in China rests on a tenuous definition of ownership, particularly so when it comes to the old houses granted to people by their work units in the days before a property market existed as such. When China implemented property rights, these people were allowed to continue using the houses they lived in, with the caveat that the local government could relocate them later, with some sort of compensation. But widespread dissatisfaction with the compensation offered by local governments led to protests by residents and engendered the “nail house” phenomenon: residents who refuse to accept the buyout offer and stay put, boarding up their homes to fend off attempts to remove them. The result has often been architectural absurdities: small houses standing in the midst of freeways, pedestrian malls, perched on concrete islands in the middle of pits excavated for underground parking lots. But time, the great bulldozer, has seen most “nail house” residents in China bought out, pushed out, or, given that many are elderly, carried out. Reuters
Business Daily Friday, May 6 2016 11
Asia Results
Australian banks signal end of era of dividend growth The “Big Four” banks are rethinking strategies to boost productivity and lower costs. Swati Pandey
A
ustralia’s major lenders this week signalled they are ready to forego some of the highest dividends in the banking world after seven years of rising pay-outs, putting investors like the US$1.5 trillion pension industry on notice of lower returns in future. In a dire week of bank results, Westpac Banking Corp left its dividend unchanged after growing it since 2009, ANZ Banking Group cut dividends for the first time in seven years and National Australia Bank kept its dividend steady for the second straight half. Three of the four major lenders also decided to pass on Tuesday’s 25 basis point cut in official interest rates in full, squeezing margins which are already near record lows due to tougher capital requirements and stifling competition. The rate cut more than reverses hikes by each of the major banks including Commonwealth Bank of Australian since late last year, and spells the end of an era of ever-rising yields for bank investors. “We are certainly more cautious with respect to dividend sustainability for Australian banks and have been more comfortable shifting exposure
to sectors such as REITs and utilities,” said Singapore-based Sat Duhra, who manages Henderson’s Asia dividend income fund. “We assess the risks to the sector has being higher than 12 months ago the capital issue is ‘when’ rather than ‘if’, dividends are not expected to be sustainable during this process and the housing market has continued into bubble territory.” To be sure, Australian banks offer dividend yields of 5.5-7 percent, well ahead of international peers like U.S. retail lender Wells Fargo at 3 percent and British bank Lloyds’ 3.4 percent. But the cost of funding is going up
and something has to give, ANZ CEO Shayne Elliott warned on Tuesday. “So either the shareholders just accept a lower return or banks work really hard on productivity and reconfiguring their business,” he told reporters. Some of that reconfiguring is likely to include boosting accountability and pulling back from aggressive practices that have resulted in a series of reputationally damaging scandals. On top of their balance-sheet worries, bank executives are fighting calls for a high-powered judicial inquiry into industry misconduct ahead of a general election expected on July 2.
The big short?
Key Points Australian bank dividend yields still among world’s highest Banks facing slowing revenue growth, narrowing margins Westpac, NAB left dividends unchanged, ANZ slashed Short positions in banks near record levels on housing risks
The “Big Four” banks, which cruised through the global financial crisis on the back of a solid mortgage market and the commodities boom, are rethinking strategies to boost productivity and lower costs. ANZ is shifting its strategic focus away from low-returning businesses in Asia. Others are deploying less capital in institutional lending, where competition from foreign lenders is intense, and pushing further into
housing. They are also cutting costs and staff. But some investors are not convinced. Bank shares have taken a beating this year, down 5-12 percent, and hedge funds are taking unprecedented short positions due to concerns about inflated house prices. Bank executives counter that their asset quality is sound. The major banks’ Tier 1 capital buffers, at 11.8 percent to 14.3 percent, are commensurate with global peers and rising. “When you’ve got an economy in transition like the Australian economy is you’re going to face some stressed accounts,” NAB CEO Andrew Thorburn said on Thursday after the bank posted a 7.4 percent rise in bad debt charges from Sept-end, reflecting an industry-wide trend. Pension fund UniSuper, with A$52 billion (US$38.77 billion) in funds under management, is one investor that is prepared to ride out the banks’ troubles. It notes that Australian households, on average, have assets well in excess of debt and, if unemployment remains steady, borrowings can be serviced even if property prices stumble. Reuters
Singapore market
Temasek unit backs start-up diamond exchange Trading hours are from 2:30 p.m. to 6:30 p.m., with broker members in Singapore, Hong Kong, London and Dubai. Jasmine Ng
Singapore state investment company Temasek Holdings Pte is throwing its weight behind a diamond exchange that began trading in the city-state yesterday, backing the project through venture-capital unit Vertex Venture Holdings. Investors can trade single stones as well as so-called baskets of investment-grade diamonds electronically for physical settlement, the Singapore Diamond Investment Exchange said in a statement.
At first, the bourse aims to support spot trading, with plans for derivatives and exchange-traded products. The move signals a shift away from a centuries-old system where diamonds are largely traded manually and bilaterally in marketplace-style bourses, according to the exchange. Investors with little access to pricing information in the past will now have a benchmark price to value diamonds as an asset, it said, adding that Vertex Venture is among the backers.
“We may expect volatility in the coming days because it’s the first time in the world that a commodity exchange opens for diamonds,” Alain Vandenborre, executive chairman and founder of the SDiX, said in a phone interview. “In a few weeks, the price will stabilize and we will reach a benchmark price. It will be a consensus in the market.” Other early investors include Jim Rogers, chairman of Rogers Holdings, and Hsieh Fu Hua, chairman of United Overseas Bank Ltd., a former head of Singapore Exchange Ltd. and a former president of Temasek. Trading hours are from 2:30 p.m. to 6:30 p.m., with broker members in Singapore, Hong Kong, London
and Dubai. Vertex has a 19 percent stake, according to Vandenborre. “By providing the first ever transparent and open price-discovery mechanism
for diamonds, the exchange unlocks a major opportunity for investors to trade diamonds as an asset class,” Vandenborre said in the statement. The bourse is “entirely independent of the diamond industry, and fully regulation-ready.” Bloomberg News
12 Business Daily Friday, May 6 2016
Asia
Indian Prime Minister Narendra Modi’s clipped image during latest elections event. Rebooting reforms
Once Asia’s rising stars, Modi and Jokowi seek new momentum The next few months provide crucial tests for both leaders. Rajhkumar K Shaaw and Chris Brummitt
Two years back, they were the most promising leaders in Asia, set to revamp a pair of perennial underperformers that account for a fifth of the world’s population. Now Indian Prime Minister Narendra Modi and Indonesia President Joko Widodo, known as Jokowi, are seeking to revive momentum for reform plans that got derailed in the wake of watershed election victories. For investors, while Modi has been the better bet so far, it’s hard to see who has the better chance at success. “Both impress in different ways - and disappoint,” Hugh Young, managing director for Asia at Aberdeen Asset Management Plc., which has US$428 billion in assets. “One man is rarely the solution to a country’s problems.” Higher incomes in both India and Indonesia would provide a much-needed boost to global demand as growth slows across the developed world. While India’s expansion is the fastest among major economies and Indonesian growth is back near 5 percent, both nations have years of hard work ahead to match China’s gains in purchasing power over the past few decades. Modi and Jokowi share several similarities. Both came from humble beginnings, Modi as a tea seller and Jokowi as a furniture exporter. Both were party outsiders who rose to power on the back of personal charisma, evident in Modi’s rousing off-the-cuff speeches and Jokowi’s regular strolls through working-class neighbourhoods. And both were welcomed by investors, with their election wins spurring currency and stock gains.
Business Daily is a product of De Ficção – Multimedia Projects
Upon taking office, that magnetism could only carry them so far. Modi, 65, had the bigger mandate after winning a majority in India’s lower house of parliament for the first time in 30 years. Immediately following the landslide win, Modi said “the era of divisive politics is over.” He has seen some success, particularly with a shift toward market-based energy pricing, auctions for coal mines and telecom licenses, and an inflation target implemented under the guidance of central bank Governor Raghuram Rajan.
“Both impress in different ways and disappoint” Hugh Young, Managing director for Asia at Aberdeen Asset Management Plc
Yet he’s struggled to end India’s political gridlock. The opposition-controlled upper house has repeatedly blocked a goods-and-services tax that would create a single market in India for the first time. Modi has also backed off on proposals to make it easier to acquire land, simplify labour rules and scrap a retrospective tax on companies. “Modi’s lack of ability to push through real reforms after having a very real political mandate suggests his lack of gravitas,” said Nikhil Bhatnagar, New York-based senior vice president for Asian equities at Auerbach Grayson & Co., a brokerage specializing in global trading. In contrast to Modi, Jokowi faced
immediate resistance after taking office from within his party, coalition and bureaucracy. Despite passing one of Indonesia’s biggest reforms in decades - the elimination of gasoline subsidies - Jokowi also made policy U-turns on a toll road tax and foreign workers as growth slowed to a six-year low. As of late, however, the 54-year-old Indonesian leader has started to find his footing. Inflation is slowing and infrastructure projects are moving after a massive increase in public spending. Still, slower-than-expected economic growth in the first three months of the year shows the challenges ahead. “The situation has improved for Indonesia over the past six months,” Hans Goetti, the Dubai-based chief strategist for the Middle East and Asia for Banque Internationale à Luxembourg, which has US$40 billion under management, said by phone. “Indonesia looks attractive in the near term, while India is a long-term growth story.”
India outperforms
Since the beginning of 2014 - the year both Modi and Jokowi took office - India’s stocks, currency and bonds have outperformed those in Indonesia. India’s benchmark S&P BSE Sensex Index has gained 10.8 percent in U.S. dollar terms, compared with 3.9 percent for the Jakarta Composite Index. The rupee has lost 7.1 percent against the dollar, compared with 8 percent for the rupiah. India’s bonds have also done better, with the yield on the 10-year sovereign note falling 138 basis points compared with a 68 basis-point fall for Indonesia.
Politics, however, is only part of the explanation. One of the biggest variables is commodity prices. As a net importer, India benefits more from oil’s slide than Indonesia, where commodities account for two-thirds of exports. “India has certain natural advantages which are playing out right now,” Manishi Raychaudhuri, Asia Equity Strategist at BNP Paribas Securities (Asia) Ltd., said in an interview. One key difference between India and Indonesia is structural. In Indonesia, an authoritarian regime until Suharto fell in 1998, the president retains a large influence on policy measures despite efforts to decentralize power. In India, the powers of the prime minister are limited both by parliament and state leaders. While the federal government can give tax incentives to industries and environmental permits for specific investment projects, states have sway over other essentials like electricity and water supply. The next few months provide crucial tests for both leaders. Jokowi is looking to pass a tax amnesty bill to lure back overseas funds, a measure that could help raise enough revenue to finance his infrastructure ambitions. Besides the stalled national sales tax, Modi wants to pass a new bankruptcy law, clean up bad debts at state-run banks and attract foreign investment into manufacturing. “If there is any personal impact, between the two of them - and assuming both are equally effective you’ll see the impact more obviously from Jokowi,” said Johnny Heng, Asia ex-Japan chief investment officer at Nomura Wealth Management. “In India, it’s such a democratic place that whoever you put inside, the effect is kind of washed out.” Bloomberg News
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 Friday, May 6 2016 13
Asia Reserve Bank
Australian central bank veteran Philip Lowe named as new governor Financial markets consider Lowe a safe pair of hands.
R
eserve Bank of Australia (RBA) Deputy Governor Philip Lowe will take the helm of the central bank in September when current Governor Glenn Stevens retires, Treasurer Scott Morrison said yesterday. The announcement comes just days before Prime Minister Malcolm Turnbull is expected to officially call for a July 2 election. Turnbull has indicated he will likely do so this weekend. Lowe, 54, has been at the central bank for 36 years and has been deputy governor for four years. His ascension to the top job was widely expected.
Financial markets consider Lowe a safe pair of hands as the Australian economy weathers the end of a once-in-a-century boom in mining investment and shifts to more service-led forms of growth. “He was endorsed by Stevens and it will allow continuity at the central bank, so the appointment is not much of a surprise,” said Janu Chan, senior economist at St George Bank. “It’s an extremely challenging time. He’ll be in an environment where interest rates have never been lower before. And there is still that pressure on central banks to do more even though there are limitations to what they can do,” Chan said. Earlier this week, the RBA cut interest rates to an all-time low of 1.75 percent citing unexpectedly low inflation.
Lowe’s seven-year term as central bank chief starts on Sept. 18, when Stevens, 58, steps down. In 2013, the incumbent had his appointment as governor extended for three years. Morrison, in a statement, congratulated Lowe and thanked Stevens “for his valuable leadership of the RBA over the past ten years”. “International developments required Mr Stevens to steward the RBA through a challenging decade for the Australian economy, which included the global financial crisis, the passing of a once in a generation terms of trade boom, and the rise and fall of an unprecedented mining investment boom,” the treasurer said. Morrison said the appointment of a new deputy governor will be considered in the second half of the year. Reuters
In Brief Minister comments
Modi’s foreign visits boost Indian FDI inflows The Indian government has claimed that Prime Minister Narendra Modi’s overseas tours have led to higher foreign direct investment inflows. “As a result of these (visits), the foreign direct investment (FDI) inflows have witnessed a 40 percent increase in 2015 (up to December) over the corresponding period in 2014,” Indian Commerce and Industry Minister Nirmala Sitharaman informed the Parliament Wednesday. “Moreover, India’s overall trade in goods with these countries has risen by 2.3 percent from 2013-14 to 2014-15,” she added. Government reform
Myanmar to debate addition of one more ministry Myanmar’s Union Parliament yesterday agreed to debate for the addition of the Ministry of the Office of State Counsellor Aung San Suu Kyi to the government set-up, parliament sources said. The addition of the new ministry was proposed by President U Htin Kyaw. Man Win Khaing Than, speaker of the Union Parliament set next Tuesday for the debate. Myanmar’s new government, led by President U Htin Kyaw, has reformed the ministries with 21 run by 18 ministers, reducing the total number of ministries in the previous government. Politics
Bangladesh Jamaat calls strike after verdict Elections
Malaysia’s scandal-hit Najib seeks big win in Borneo state polls Najib has been facing calls to step down over allegations of graft and billions of dollars in misappropriated funds at his pet project 1MDB. Joseph Sipalan
Malaysia’s prime minister is going all out to secure a resounding victory in Sarawak when the country’s largest state goes to the polls this Saturday, seeking to put a year of turmoil at government investment fund 1MDB behind him. Politicians and pundits expect the ruling Barisan Nasional (BN) coalition to comfortably win the state election, but analysts say Prime Minister Najib Razak wants a landslide victory to show he still has the confidence of the people after the 1Malaysia Development Berhad (1MDB) financial scandal rocked the country. On the campaign trail in Borneo, Najib has made big money pledges and taken his entourage to remote villages as he canvasses support. “This is a good example of our continued high commitment to Sarawak,” he told a media conference in Kuching, after holding a cabinet meeting in the state’s capital and approving 3.5 billion ringgit (US$878 million) in projects and investment for the state.
Sarawakians have rallied behind Najib’s ally, Chief Minister Adenan Satem. Adenan has brokered greater autonomy for the resource-rich state and dealt with long standing issues such as recognition of native land rights since taking over the reins in 2014. Najib will likely project a convincing win for Adenan as a personal victory. “It is an important election for Najib...a moral booster for BN and Najib if Adenan wins big, even though the election cannot be used as barometer for BN’s popularity nationwide,” said Arnold Puyok, a political analyst at University of Malaysia Sarawak. Najib has been facing calls to step down over allegations of graft and billions of dollars in misappropriated funds at his pet project 1MDB. Critics say Najib was a beneficiary of 1MDB’s funds, after about US$681 million was deposited in his bank account before a 2013 election. Najib and 1MDB have dismissed those claims but some political heavyweights in United Malays National Organisation (UMNO) have publicly questioned whether Najib can lead the party to victory in the 2018 general elections. Najib has dismissed the allegations and consolidated power by sacking dissenters within UMNO, which has ruled Malaysia since 1957, and using a controversial sedition law against other critics.
Unfair advantage
The South China Sea divides Sarawak from the Malaysian peninsula and insulates it from goings-on there. The mostly rural population of 2.6 million struggles with lack of access to basic amenities and poor roads in the mountainous and densely forested interior.
The federal opposition have accused Najib of “hijacking” the Sarawak polls, which are largely fought on local issues. Many of their leaders were barred entry to Sarawak, which maintains autonomy over immigration rights. Nurul Izzah, the daughter of jailed former deputy prime minister Anwar Ibrahim and a member of his People’s Justice Party (PKR), said she was denied entry in Miri. She said the ban on many national opposition leaders has left them severely outmatched. “They are forced to face the likes of the prime minister and the deputy prime minister dispensing cash like there’s no tomorrow whilst their only ‘semenanjung’ (peninsula) counter force is held up by the immigration,” said Nurul. Federal Communications Minister Salleh Said Keruak said the national government’s spending plans were only meeting their responsibilities to work with the state government. In Miri, some 800 km from the state capital, opposition leaders are hopeful voters will see through Najib’s spending pledges. “It is to our disadvantage. Their huge machinery is very strong,” said Alan Ling, state legislator of the opposition Democratic Action Party (DAP) from Piasau in Miri. And while Sarawak’s urban voters have become more critical of the government, the rural vote base - which will decide the outcome of more than two-thirds of the 82 seats being contested - remain largely oblivious to the political intrigues of the capital. “I just listen to these people talk, but I don’t know anything about 1MDB...I don’t know who I’ll vote for,” 61-year-old security guard Sabai Bajik, a native Iban, said at an opposition rally. Reuters
Bangladesh’s largest Islamist party has called a two-day national strike after the country’s apex court yesterday morning upheld its previous verdict on its chief Motiur Rahman Nizami, rejecting his plea for reviewing death penalty for crimes against humanity during the country’s war of independence in 1971. Shortly after the Appellate Division bench of Bangladesh Supreme Court (SC) dismissed the final review petition of the Bangladesh Jamaat-e-Islami party’s Ameer (president) Nizami who is now behind the bar, the party called the 48-hour nationwide hartal for May 8 and 9. Digital crime
NZ to join international cyber security network New Zealand will join an international network of agencies fighting cyber crime and cyber attacks on businesses and infrastructure, the government announced yesterday. Prime Minister John Key said the government was investing 22.2 million NZ dollars (US$15.31 million) to establish a national Computer Emergency Response Team (CERT) to defend businesses and infrastructure against cyber-attacks. “Our increasing reliance on networked devices and new technology is matched by the growing problem of cyber security threats,” Key said in a published speech to the country’s first Cyber Security Summit of business leaders.
14 Business Daily Friday, May 6 2016
International In Brief TTIP
Merkel says working for deal this year German Chancellor Angela Merkel said on Wednesday she would do everything she could to complete this year a sweeping free trade deal that is being negotiated between the European Union and the United States. Merkel said that during talks with Japanese Prime Minister Shinzo Abe on Wednesday she had “made clear that we will do everything possible to negotiate the transatlantic agreement this year”. Supporters say the proposed Transatlantic Trade and Investment Partnership (TTIP) would deliver more than US$100 billion of economic gains on both sides of the Atlantic. North America leaders
Obama, Trudeau, Peña Nieto to meet June 29 U.S. President Barack Obama, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto will meet in Ottawa for a North American leaders’ Summit on June 29, the White House said on Wednesday. The “Three Amigos” summit, with two key U.S. trading partners, comes as Obama grapples with a wave of anti-free-trade sentiment that has stalled ratification of the Trans-Pacific Partnership (TPP), a sweeping 12-nation pact that includes Canada and Mexico. Obama hopes the U.S. Congress will ratify the deal before he leaves office on January 20. M&A
U.S. exchange plans London bourse counter bid The New York Stock Exchange’s owner has shelved plans to make a counterbid for London Stock Exchange that could have derailed the British firm’s planned merger with Deutsche Boerse. Intercontinental Exchange Inc’s CEO Jeffrey Sprecher accused the LSE of failing to respond to the U.S. group’s approaches despite several attempts to arrange meetings. As a consequence, ICE did not have enough information to make a formal offer, he told reporters on Wednesday. The LSE disputed this account. It responded with a statement that it had provided ICE with information and access to management.
Strong figures
U.S. services sector data buoys economic outlook Services industry activity was last month floating thanks to a 3.2 percentage point surge in new orders.
T
he U.S. services sector expanded in April as new orders and employment accelerated, bolstering views that economic growth would rebound after almost stalling in the first quarter. The growth outlook was, however, dimmed by another report on Wednesday showing private employers hired the fewest number of workers in three years in April. Economists say strong services industry activity together with a rebound in automobile sales in April reported on Tuesday, underscore the economy’s firm fundamentals that could keep the Federal Reserve on track to raise interest rates twice this year. The Institute for Supply Management said its nonmanufacturing index rose 1.2 percentage points to a reading of 55.7 in April, with the majority of industries expressing optimism about the business climate and the economy. A gauge of services sector employment rose to 53.0 last month from a reading of 50.3 in March. Construction firms reported “severe” shortages of unskilled labour. The rise in services sector employment last month eclipsed the slightly weak ADP National Employment Report, which showed private payrolls increased 156,000 last month, the smallest gain since April 2013, after rising 194,000 in March. The step-down in private sector hiring is at odds with other labour market indicators, such as first-time applications for unemployment benefits, which are near four-decade lows. The Conference Board’s consumer confidence survey last week also painted an upbeat picture of the jobs market. The services industry data and the ADP report, which is jointly developed with Moody’s Analytics, came ahead of the government’s more comprehensive employment report for April scheduled for release today.
The Conference Board’s consumer confidence survey last week also painted an upbeat picture of the jobs market.
According to a Reuters survey of economists, nonfarm payrolls likely increased by 202,000 jobs in April after rising 215,000 in March. The unemployment rate is forecast holding steady at 5.0 percent. The labour market has so far weathered the sluggish economy, which has been slammed by weak exports as a result of the lingering effects of the dollar’s rally last year and tepid global demand. Growth has also been eroded by relentless aggressive spending cuts in the energy sector in the aftermath of last year’s plunge in oil prices, as well as efforts by businesses to reduce an inventory overhang. The government reported last week that the economy slowed to an annual growth pace of 0.5 percent in the first quarter after expanding at a 1.4 percent rate in the fourth quarter. But economists expect the soft first-quarter GDP growth would be revised to at least a 0.9 percent pace later this month after a third report from the Commerce Department showed a strong increase in factory orders in March. The dollar rose against a basket of currencies, rebounding from a more than 15-month low touched on Tuesday. Prices for U.S. government debt rose slightly, while U.S. stocks fell. In another report, the Commerce Department said the trade deficit fell 13.9 percent to US$40.4 billion in March, the smallest since February 2015, as imports of goods plunged to a more than five-year low.
Weak imports potentially signal slackening domestic demand, but could also be related to the on-going inventory drawdown. Lower oil prices and increased domestic energy production are also helping to keep the import bill in check. Imports of goods tumbled 4.3 percent to US$175.3 billion, the smallest since December 2010. Imports were held down by industrial supplies and materials, which fell to a near 12-year low. Petroleum imports were the lowest since September 2002, even as oil prices rose to an average US$27.68 per barrel. Exports of goods also fell last month, slipping 1.6 percent to US$116.8 billion. Exports of food were the lowest since September 2010. Industrial supplies and materials exports fell to a six-year low, while consumer goods exports were the lowest since March 2013. But there are signs that some of the export drag is starting to fade. The Institute for Supply Management reported on Monday that a gauge of export orders received by U.S. manufacturers rose in April for a second straight month, reaching its highest level since November 2014. In a fifth report, the Labour Department said productivity, which measures hourly output per worker, declined at a 1.0 percent rate in the first quarter after shrinking at a 1.7 percent pace in the fourth quarter. Weak productivity helps explain the divergence between lacklustre economic growth and the fairly robust labour market. Reuters
Slower economy
Brexit uncertainty drags U.K. to near stagnation Markit’s composite PMI fell to the lowest in more than three years last month.
Infrastructure
Chile needs US$151 billion investment Chile should invest US$151 billion in infrastructure projects over the next 10 years to make up for deficits in public works and boost its economy, a report by a local industry group said on Wednesday. These investments are “key for the development and competitiveness of the country ... and it is precisely because of its immense importance that we need infrastructure to be developed as a long-term policy of the state,” said Jorge Mas, president of the CChC construction industry group. Chile’s infrastructure, often tested by earthquakes, is widely considered to be among the best in Latin America.
Jill Ward
U.K. companies are feeling the strain from the upcoming European Union referendum, with a gauge of services falling to its lowest level in more than three years in April. Markit Economics said its services Purchasing Managers Index dropped to 52.3 from 53.7. While that’s above the 50 level that divides expansion from contraction, it’s the weakest since February 2013 and below the 53.5 median forecast of economists. The slump follows bigger-than-expected declines in Markit’s manufacturing and construction surveys earlier this week. The reports indicate growth of just 0.1 percent in April, down from 0.4 percent in the first quarter. The Bank of England has already said the build-up to the June 23 vote is weighing on confidence and investment, and warned the impact could
be more severe if the U.K. votes to leave the bloc in a so-called Brexit. Markit’s composite PMI fell to the lowest in more than three years last month.
Holding back
“Uncertainty about the EU referendum caused customers to hold back on purchases, exacerbating already-weak demand,” said Chris Williamson, chief economist at Markit in London. “The deterioration in April pushes the surveys into territory which has in the past seen the BOE start to worry about the need to revive growth.” BOE officials have said they will interpret economic data around the referendum will caution. They will announce their next interest-rate decision and publish new forecasts on May 12. Some services companies said clients delayed new contracts because
of the forthcoming referendum, according to Markit. Employment growth slowed in April and the outlook for activity was at its joint-weakest level in over three years, it said. Bloomberg News
“The deterioration in April pushes the surveys into territory which has in the past seen the BOE start to worry about the need to revive growth” Chris Williamson, Chief economist at Markit in London
Business Daily Friday, May 6 2016 15
Opinion
Imagining a New Bretton Woods
Business Wires
Bangkok Post Some 60 million magnetic-stripe ATM and debit cards issued by local commercial banks and circulating in the market will be upgraded to chip-embedded cards by the end of 2019, says a senior central bank official. An estimated 90% of ATMs nationwide will support chip-embedded cards by May 16, but the machines still support magnetic-stripe cards for those who hold only that type, said Tongurai Limpiti, a deputy governor of the Bank of Thailand. Thailand will emerge as the third county in Asean to have mandatory chip-embedded ATM and debit cards following Malaysia in 2004 and Singapore in 2010.
Vietnam News Foreign direct investment (FDI) capital poured into industrial zones (IZs) has rapidly increased recently, bringing large profits for infrastructure development companies. According to the Management Board of HCM City Export Processing and Industrial Zone Authority (Hepza), from the beginning of this year, export processing and IZs have received a large volume of FDI capital. Of the total US$128 million poured into export processing and IZs in the first two months, FDIs accounted for US$80 million and the remainder came from domestic companies.
The Japan News Visiting Prime Minister Shinzo Abe (pictured) agreed with European Union leaders at a meeting to step up negotiations on a Japan-EU economic partnership pact so as to strike a broad agreement as early as possible this year. During the talks, held at the EU headquarters in Brussels, Abe also agreed with European Council President Donald Tusk and European Commission President JeanClaude Juncker to pursue an early conclusion of a bilateral strategic partnership agreement. At the meeting and a subsequent joint press conference, the Japanese prime minister urged the Group of Seven advanced countries to boost fiscal spending to underpin the global economy.
The Jakarta Post Indonesia and Saudi Arabia have agreed to double their bilateral trade value by 2020 as the two countries believe they have a lot of potential for expansion. Trade Ministry expert for trade services Arlinda Imbang Jaya said the total trade between Indonesia and Saudi Arabia amounted to US$8.5 billion in 2015. Indonesian exports to Saudi Arabia amounted to US$3.35 billion in 2015, while imports were worth US$5.14 billion. “The figures are yet to reflect the potential of both countries,” she said while receiving a Saudi business delegation at her office in Jakarta on Wednesday.
T
he financial meltdown of 2008 prompted calls for a global financial system that curtails trade imbalances, moderates speculative capital flows, and prevents systemic contagion. That, of course, was the goal of the original Bretton Woods system. But such a system today would be both untenable and undesirable. So, what might an alternative look like? The 1944 Bretton Woods conference featured a clash of two men and their visions: Harry Dexter White, President Franklin Roosevelt’s representative, and John Maynard Keynes, representing a fading British Empire. Unsurprisingly, White’s scheme, founded on the United States’ post-war trade surplus, which it deployed to dollarize Europe and Japan in exchange for their acquiescence to full monetary-policy discretion for the US, prevailed. And the new post-war system provided the foundation for capitalism’s finest hour – until America lost its surplus and White’s arrangement collapsed. The question asked periodically during much of the last decade is straightforward: Would Keynes’s discarded plan be more appropriate for our post-2008 multipolar world? Zhou Xiaochuan, the governor of China’s central bank, suggested so in early 2009, lamenting that Bretton Woods had not embraced Keynes’s proposal. Two years later, Dominique Strauss Kahn, then-Managing Director of the International Monetary Fund, was asked what he thought the IMF’s post-2008 role ought to be. He replied: “Keynes, 60 years ago, already foresaw what was needed; but it was too early. Now is the time to do it. And I think we are ready to do it!” Within weeks, however, Strauss Kahn fell from grace, without ever explaining what he meant by “it.” But it is not too hard to sketch out what “it” might be. Above all, the new system would reflect Keynes’s view that global stability is undermined by capitalism’s innate tendency to drive a wedge between surplus and deficit economies. The surpluses and deficits grow larger during the upturn, and the burden of adjustment falls disproportionately on debtors during the downturn, leading to a debt-deflationary process that takes root in the deficit regions before dampening demand everywhere. To counter this tendency, Keynes advocated replacing any system in which “the process of adjustment is compulsory for the debtor and voluntary for the creditor” with one in which the force of adjustment falls symmetrically upon debtors and creditors. Keynes’ solution was an international clearing union (ICU) to which all major economies would subscribe. While keeping their own currencies and central banks, members would agree to denominate all payments in a common accounting unit, which Keynes named the “bancor,” and to clear all international payments through the ICU. Initially, each member state’s reserve account with the ICU would be credited with a sum of bancors proportionate to its relative share of world trade. Thereafter, each would be credited with extra bancors in proportion to its net exports. Once established, the ICU would tax persistent surpluses and deficits symmetrically, to annul the negative feedback mechanism between unbalanced capital flows, volatility, inadequate global aggregate demand, and unnecessary unemployment distributed unevenly around the world. Keynes’s proposal was not without problems. It envisaged fixed currencies, which would require limited overdraft facilities for countries in chronic deficit and would entail constant haggling between finance ministers about re-setting exchange and interest rates. And rigid financial controls, which lend bureaucrats inordinate discretionary power over capital transfers, amount to a fatal flaw. But there is no reason why an ICU cannot be designed with variable exchange rates and simple, automated rules which minimize politicians’ and bureaucrats’ discretionary power, while preserving the benefits of Keynes’s original idea for keeping global imbalances in check. A new ICU, or NICU, would be as Keynes had
“
Yanis Varoufakis Former finance minister of Greece, is Professor of Economics at the University of Athens.
envisaged it. But, in place of the abstract bancor, it would feature a common digital currency – say, Kosmos – to be issued and regulated by the IMF. The Fund would administer Kosmos on the basis of a transparent digital distributed ledger and an algorithm that would adjust total supply in a pre-agreed manner to the volume of world trade, allowing for an automatic countercyclical component that boosts global supply at times of a general slowdown. Foreign-exchange markets would function as they do now, and the exchange rate between Kosmos and various currencies would vary in the same way that the IMF’s Special Drawing Rights do vis-à-vis the dollar, euro, yen, pound, and renminbi. The difference, of course, would be that, under NICU, member states would allow all payments to one another to pass through their central bank’s NICU Kosmos account. To exploit the scheme’s full potential for keeping imbalances in check, two stabilizing transfers would be introduced. First, a trade-imbalance levy would be charged annually to each central bank’s Kosmos account in proportion to its current-account deficit or surplus and paid into a common NICU fund. Second, private financial institutions pay a fee into the same NICU fund in proportion to any surge of capital flows out of a country, reminiscent of the price hike that companies like Uber impose during peak traffic. The trade-imbalance levy is intended to motivate surplus countries’ governments to boost domestic spending and investment while systematically reducing deficit countries’ international spending power. Foreign-exchange markets will factor this in, adjusting exchange rates faster in response to current-account imbalances and cancelling out much of the capital flows which today support chronically unbalanced trade. Likewise, the “surge” charge will automatically penalize speculative, herd-like capital inflows or outflows, without increasing bureaucrats’ discretionary power or introducing inflexible capital controls. Suddenly, the world will have acquired, without the need for subscribed capital, a global sovereign wealth fund. This would enable the transition to a low-carbon energy system to be financed on a global scale and in a manner that stabilizes the global economy through investments in research and development dedicated to green energy and sustainable technologies. Keynes was ahead of his time: His proposal necessitated digital technologies and foreign-currency markets that did not exist in the 1940s. But we have them today, along with institutional experience with international clearing systems. We also have a desperate need for the global green transition fund that a Keynesian Bretton Woods would automatically create. All that we lack is the political process, indeed a Roosevelt, to convene the players and catalyse change. Project Syndicate
The tradeimbalance levy is intended to motivate surplus countries’ governments to boost domestic spending and investment while systematically reducing deficit countries’ international spending power
”
Keynes was ahead of his time: His proposal necessitated digital technologies and foreigncurrency markets that did not exist in the 1940s.
16 Business Daily Friday, May 6 2016
Closing Business trends
China’s service sector growth slows in April
April saw a modest rise in Chinese service sector activity, with the pace of expansion easing slightly from March, survey results showed yesterday. The Caixin China General Services PMI (Purchasing Managers’ Index), produced by financial information service provider Markit and sponsored by Caixin Media, came in at 51.8 in April, down from 52.2 in March. A reading above 50 indicates expansion, while a reading below 50 represents contraction. In contrast
to the trend for business activity, April data signalled stronger growth in new business. The latest expansion of new order books was the fastest seen in three months. Relatively muted growth in business activity led firms to remain cautiously optimistic towards business outlook, with the level of positive sentiment unchanged from March’s three-month low. The Caixin China General Services PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 companies. Xinhua
Weaker shopping
Hong Kong retail sales fall for 13th straight month Tourist arrivals, which dropped 20.5 percent in February, slid 4.3 percent from a year ago Donny Kwok
H
ong Kong retail sales fell for the 13th successive month in March, as a fall in visitors and weak local consumption deepened the pain for retailers in Asia’s shopping hub. Retail sales in March slid 9.8 percent from a year earlier to HK$34.7 billion ($4.5 billion) in value terms, less than a 20.6 percent slump in February - its worst since 1999. In volume terms, March sales dropped 8.8 percent, government data showed yesterday. “The slowdown in inbound tourism continued to pose a severe drag, and the uncertain economic outlook and asset market consolidation had conceivably also hurt local consumption sentiment,” the government said in a statement. For the first quarter of 2016, total retail sales value fell 12.5 percent from a year earlier, and was down 11.3 percent in volume terms. Hong Kong is confronting mounting economic challenges from the prospect of rising U.S. interest rates, which pressures capital
outflows, and from China’s economic slowdown. Recent political tensions with China and growing calls from radical activists for greater autonomy from Beijing, have compounded the strains on retail and tourism businesses as mainland Chinese tourists stay away. “Looking ahead, the near-term outlook for retail sales will continue to depend on the performance of inbound tourism,” the government added.
Hong Kong tourist arrivals, which dropped 20.5 percent in February, slid 4.3 percent from a year ago to 4.21 million in March. Mainland visitors, which accounted for 72 percent of the total, fell 6.9 percent to 3.02 million. March sales of jewellery, watches, clocks and valuable gifts fell 20.3 percent in value terms, a 19th consecutive month of decline. Department store sales slid 5.4 percent on year, against a 12.3 percent drop the previous month. Wearing
apparel fell 11 percent while medicines and cosmetics increased 1.5 percent. A string of retailers from fashion to jewellery firms have posted grim performance figures hit by declining mainland tourists and weak consumer sentiment. Casual wear chain Giordano International Ltd’s sales fell 10 percent on year in value terms for the January-March quarter, while China’s top jewellery retailer Chow Tai Fook Jewellery Group posted a 26 percent fall in its Hong Kong same-store sales for the quarter ended in March. MasterCard’s MasterCard Advisors said its retail sales in Hong Kong contracted 11.7 percent in the first quarter from a year earlier on a fall in Chinese tourists spending. Reuters
Key Points Weak tourism, shrinking asset markets hurt consumption March sales of jewellery, watches down 20.3 pct y/y March tourists fall 4.3 pct y/y, mainland visitors down 6.9 pct
Monetary Bill
Index
Telecoms
Reform of how India sets currency policy closer
Mainland’s weighting slashed Beijing awards 4th telecom in new JP Morgan ranking license to state-owned firm
India moved closer to changing how interest rates are set and monetary policy conducted as the lower house of parliament yesterday approved legislation giving the central bank a mandate to target inflation. The Finance Bill, passed by a voice vote, will next go to the upper house, which is widely expected to pass it. The bill, which mainly contains tax proposals, seeks to set up a monetary policy panel that will set interest rates through a majority vote, a practice followed by major central banks globally. At present, the Reserve Bank of India (RBI) governor is the sole authority to decide monetary policy. However, he gets assistance from a panel that does not have any voting powers and is purely advisory in nature. Finance Minister Arun Jaitley told lawmakers the planned seven-member policy panel will include three representatives from the government and three from the central bank apart from the RBI chief, who could cast a deciding vote. The inflation target of the RBI would be reviewed once every five years, Jaitley said. Reuters
U.S. investment bank JPMorgan has launched a new Asia ex-Japan credit index designed to reduce concentration risk by limiting the amount outstanding that can be included in its benchmark from each of the eligible countries. The ceiling set at twice the average of the index, would mean that the weight of China, the largest contributor to the benchmark, would be cut to 20.5 percent in the JACI Diversified from 40.2 percent in the existing JACI. “The issuance trends since 2012 has disproportionately increased the weight of China in the existing JACI index leading to large concentration risks in the benchmark,” said a JPMorgan spokesman referring to the index which is tracked by managers controlling US$35 billion to US$45 billion in assets. The Philippines on the other hand would see its weightage rise to 12.03 percent from 7.21 percent in the old index. Sovereign issuers would comprise a higher proportion of the new index at 20 percent versus 14 percent in the old benchmark, while the property sector, a large source of bond supplies in recent years, would see its contribution drop to 9.36 percent from 12.61 percent. Reuters
China granted a telecom services license to stateowned China Broadcasting Network Company, the country’s Ministry of Industry and Information Technology (MIIT) said yesterday, creating a fourth player in a market long dominated by three big companies. The basic telecom services license allows the broadcaster to provide nationwide Internet data and telecommunication services, the MIIT wrote in a short statement on its website, without elaboration. The move makes China Broadcasting Network (CBN) the country’s fourth telecom service operator after China Mobile, China Unicom Hong Kong Ltd and China Telecom. Analysts, however, see little impact to China’s three major telecom operators in the near term due to China’s limited growth potential for handset supply and China Broadcasting Network’s capital constraints. The three companies’ shares closed broadly in line with Hong Kong’s stock market on Thursday. “We do not think CBN will become a major threat to existing telecom operators in the near term, unless CBN can resolve its own financial bottlenecks and complete the process of national television and broadcasting network consolidation,” Nomura analyst Leping Huang wrote in a research note. Reuters