New public housing project in Taipa raises concerns Infrastructure Page 5
Friday, June 3 2016 Year V Nr. 1057 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming
Return to profit on the cards for June gaming revenue, say analysts Pages 5
Property
www.macaubusinessdaily.com
Stock markets
Licence fees and procedures a burden on real estate brokers Page 4
A weakening yuan takes Mainlanders to Hong Kong securities Page 9
Communication breakdown
Chinese vice finance minister asks U.S. Fed for increased communication on rate policy Page 8
Human Resources Revisited Construction
Industry experts believe public housing construction can improve by applying international standards. An arbitration supervising body is also necessary. As are more human resources. And a better long term plan for the sector. Construction standards of 15 years ago have been described by an industry leader as “inconceivably bad”. With experienced talent still difficult, and expensive, to source. Page 2
Gaming Page 6 & 7
Hedging China
Service with a smile
Derivatives A Chinese committee is preparing to amend national rules. In order to hedge companies before credit defaults. Domestic companies have always assumed the gov’t would not countenance a default, but recent moves indicate this certainty is vanishing. Page 8
CEPA China’s State Council has loosened administrative approvals and special management measures for the city’s service suppliers to operate in the country. Now service suppliers investing in given sectors need only file documents on company establishment and regulations, foregoing a previously mandated evaluation. Page 3
Closing ranks
Residency Visitors welcome, but not to work. Labour Affairs Bureau Director Wong Chi Hong said the gov’t will soon pronounce on non-residents applying for working permits - ‘blue cards’ - when they visit the territory. Page 4 20,859.22 +98.24 (0.47%)
China Mengniu Dairy Co Ltd
+6.27%
Hong Kong & China Gas Co
+1.60%
Lenovo Group Ltd
-4.00%
Tingyi Cayman Islands
+3.64%
Hong Kong Exchanges and
+1.35%
China Mobile Ltd
-1.27%
China Merchants Holdings
-0.70%
Link REIT
-0.64%
Galaxy Entertainment Group
+2.55%
CK Hutchison Holdings Ltd
+1.35%
CITIC Ltd
-1.08%
China Resources Power
China Construction Bank
+2.20%
Belle International Holdings
+1.34%
China Unicom Hong Kong
-0.93%
China Overseas Land &
-0.21%
CLP Holdings Ltd
+1.95%
Bank of East Asia Ltd/The
+1.23%
Li & Fung Ltd
-0.75%
Cheung Kong Property
-0.20%
-0.33%
28° 32° 26° 32° 27° 30° 26° 29° 25° 28° Today
Source: Bloomberg
HK Hang Seng Index June 2, 2016
Sat
Sun
I SSN 2226-8294
Mon
TUE
Source: AccuWeather
Listening in Phone betting at casino tables was banned on May 9. But multiple VIP rooms in local casinos have players using headsets to conduct proxy betting. Operators still wish to get a piece of the estimated US$2.6 bln pie. Thus, enforcement of the ban is difficult given the vagueness of responsibilities falling on operators.
2 Business Daily Friday, June 3 2016
Macau
Construction
Uniform low quality Construction experts believe that public housing construction can only improve by applying international standards, an arbitration supervising body, more human resources and a better long term plan for public housing Nelson Moura nelson.moura@macaubusinessdaily.com
P
ublic housing construction needs better contractors and international standards, an arbitration supervising body, and a better longterm plan for public housing construction, experts told Business Daily. The comments follow a Legislative Assembly plenary session this week in which Secretary for Transport and Public Works Raimundo Rosário stated that the quality of public housing has decreased significantly in the last 15 years and that contractors should be held accountable for construction defects. “I don’t agree that the city’s construction quality is worse than that of 15 years ago. You cannot imagine how bad the construction quality was back then, when we didn’t have enough construction materials, whilst the supervision of public construction was not really that high,” the Secretary General of the Macau Construction Association, Lo Chi Hou, told Business Daily. Lo Chi Hou believes that the city has registered many improvements in construction standards but that while some are apparent - in the construction works on the integrated resorts - with regard to public works the city lacks related laws and regulations to catch up with international standards. As an example he mentions that the city doesn’t require construction workers to acquire any certificates before allowing them to work on construction sites. “ A n y w o r k e r s, w h o a r e a dish-cleaner today, could apply for construction works at the Labour Affairs Bureau tomorrow. Our Association has requested the Labour Affairs Bureau many times to have certain regulations requiring construction workers to be verified with certificates, but the Bureau claims that their responsibilities are only in giving training to these workers,” Lo told Business Daily.
Public projects in need of arbitration
The Macau Construction Association Secretary General believes that the
government lacks a long-term direction for the city’s design standards, sometimes asking contractors to follow different national standards for one single project that actually conflict with each other, while taking too long to respond to the problems that contractors find during their projects. “For example, if we are renovating a coffee shop and then we find that we forgot to install air-conditioners, we only need to ask the owners whether they want us to install air-conditioners and the owners reply and give us a budget. But for a public project, it’s another case; you ask the government whether they want air-conditioners, the representative would say he would need to ask his boss, and his boss needs to ask another boss, and the other boss asks another boss – so contractors may wait for two-years for the government’s confirmation if they want air-conditioners , which happened similarly for the Light Rail [project],” Lo Chi Hou stated, adding that “the government needs to ask the reason why most of the private projects, such as casino resorts, can be completed on time but not its own projects.” As a solution, Lo Chi Ho believes that the government should create an arbitration body for public projects to resolve disputes between the government and contractors, and implement a united standard for the industry, preferably copying the standard from that of Mainland
“I don’t agree that the city’s construction quality is worse than that of 15 years ago. You cannot imagine how bad the construction quality was back then.” Lo Chi Hou, Secretary General of the Macau Construction Association
China, to eliminate the need to retrain non-resident workers from the region in other construction standards.
Not enough local resources
For Paul Tse See Fan, President of the Macao Association of Building Contractors and Developers, Secretary Raimundo is correct in saying that the construction of public housing has worsened, as the president notes that in the past few years “Macau’s construction resources were diverted to the gaming industry,” commenting that the most experienced contractors and the most experienced workers were involved in the construction of casinos and hotels and not public or even private housing. “No less than six 5-star hotels are under construction, and they can afford to pay the highest sums compared to public housing and private housing developers,” Paul Tse See Fan told Business Daily, stating that he sees the lack of experienced contractors and labourers as one of the main reasons for the decay of public construction quality. “We are in short supply of labourers since young people in Macau don’t want to go into the construction industry because it’s physically demanding; they would prefer to work in offices or in a casino dealing cards,” notes the president. “As a result, we have construction workers who are over the age limit and that should really be retiring but because of the fact that we’re unable to hire young people we have to keep these more senior labourers and pay very high wages,” Paul Tse See Fan stated, noting his belief that allowing more non-residents to work in the city could be a solution. Macau was considered the second most expensive Asian city for construction last year, according to the Construction Costs Index, and Paul Tse See Fan believes that aside from inflation, the absence of human resources was one of the main reasons for increased costs. Secretary Lo Chi Ho noted that importing non-resident workers for construction positions could even “allow more promotion of local workers” who, as they “are old it is quite impossible for us to ask them to do frontline work,” stating that currently there were 30,000 and 40,000 non-resident construction workers, whilst local construction workers remained at around 20,000.
Inspect yourself
In the AL session Secretary Raimundo Rosário stated that currently the government only had 80 people available for construction supervision, a problem Tse sees as prevalent for building owners, public housing and
“We have construction workers who are over the age limit and who should really be retiring, but because of the fact that we are unable to hire young people we have to keep these more senior labourers and pay very high wages.” Paul Tse See Fan, President of the Macao Association of Building Contractors and Developers
private developers. “The number of supervisors is so minimal that it’s not possible for them to check everything they are supposed to, whether [or not] it’s the contractor himself checking the work of his own workers and sub contractors,” Paul Tse See Fan told Business Daily. Lo Chi Ho agrees that the city should indeed increase the number of project inspectors for the long-term development of the industry but that the problems in public projects are not due to the lack of the talent but a lack of directions and plans for the construction industry from the government. Paul Tse See Fan believes the solution could lie in stricter enforcement of already existing construction requirements and through government encouragement of public housing buildings setting up owners committees so that “there’s a legal entity within the building to look after the standard of quality of the property.” This, he notes, could help increase the value of properties, as well as improve safety issues. “The government should enact laws to input those requirements and at the same time encourage the community to abide by those laws and commence those practices of inspecting those buildings and making remedial measures,” he told Business Daily. “It’s important for the Legislative Assembly and the second standing committee to guide that legislation, which has to pass quickly, but it has been stuck with the second committee for half a year,” the President of the Macao Association of Building Contractors and Developers stated.
Business Daily Friday, June 3 2016 3
Macau CEPA
China loosens regulations for local service-trade suppliers
C
hina’s State Council has loosened its administrative approvals and special management measures for the city’s service suppliers to operate in the country, it announced on Wednesday evening.
The announcement followed the country’s agreement with the Special Administrative Region on trade in services under the framework of the Closer Economic Partnership Arrangement (CEPA), which came into force on Wednesday.
Claiming the loosening measures are ‘temporary’, the State Council said the city’s service suppliers investing in the sectors under the agreement would now need only file documents of their company establishment and regulations with the Chinese
Property rights
795 applications for intellectual property rights The Macao Economic Services (DSE) received 795 applications for intellectual property rights in the city in May, down 15.7 per cent compared to the month before, the latest official data released yesterday by the Bureau shows. On a year-on-year comparison, the number of applications filed for intellectual property rights in the Special Administrative Region fell by 15.3 per cent from some 939 applications received for the same month of 2015. During the month, most of the
applications were filed for registering trademarks in the territory, which amounted to 729, or 92 per cent of the total. The number, compared to 836 one month ago and 892 one year ago, means drops of 12.8 per cent and 18.3 per cent, respectively. Meanwhile, there were 45 applications for extending current invention patents throughout last month, which accounted for 6 per cent of the total. The total number decreased by 16.7 per cent month-on-month, but increased
by 73 per cent year-on-year. On the other hand, the economic department received nine applications registering invention patents and seven other applications for industrial designs or models in the city last month. Only two applications were filed for utility patent registration, and three for registering the name and emblem of an establishment. Accumulatively, DSE received a total of 4,898 applications for intellectual property rights for the first five months of this year, of which those registering trademarks accounted for 93.5 per cent of the total - at 4,584 - followed by applications for extension of invention patent amounting to 189 throughout the months. K.L.
authorities for record-keeping purposes rather than undergoing an evaluation, as was previously necessary. The Chinese authorities have also temporarily adjusted part of the requirements for administrative evaluations and approvals and restrictions on stake ratios as well as restrictions on merchants’ operating scope for businesses related to telecommunications, sea transportation and aviation, among others. In addition, the State Council noted that its regulations for Hong Kong and Macau suppliers to run entertainment venues in Guangdong Province have also been adjusted following the Province’s intention to further open up its service industry to the two Special Administrative Regions. The new measures will all be applied to Hong Kong service suppliers, as well, according to the announcement. Following the implementation of the new service trade agreement between Macau and the Mainland this week, the country has opened up 62 new sectors to the city’s service providers, for a total of 153 sectors. The newly opened sectors for the Special Administrative Region include veterinary services, passenger transportation, support services for the road transport network, and services for the sports sector. The CEPA agreement between the two parties, initiated in 2004, seeks to promote mutual economic prosperity and development between the two places. The latest official data from the Economic Services Bureau shows that it had granted a total of 598 certificates of ‘Macao Service Supplier’ as at the end of May for local companies to operate their business in the country under the CEPA agreement. K.L.
4 Business Daily Friday, June 3 2016
Macau Opinion
Pedro Cortés Thank the expats When I arrived in our city, on March 3, 2002 (it seems like yesterday) there were not too many non-Portuguese Western expats in Macau. A few in the Jockey Club, others in the Macau Electricity Company, others that were bankers, university teachers, as well as some entertainers. Even such as my good friend Jack – I realized the other day, Jack, that you have followers in your activity as my reader – in the aviation industry. Since then, the casino industry has opened up. We’ve seen thousands of Americans, Australians, Brits, Canadians, Greeks, Romanians . . . well, a United Nations of foreigners coming to our Macau. Mostly to work in the casino and entertainment industry. Without them, Macau would not be what it is today. Macau is an international city because of the work all of them have undertaken on behalf of their companies and thus for the Region. They are as much a part of this city as any other resident. Skilled people who have devoted their lives - and that of their families - to Macau. Sometimes with difficulty, especially when the authorities decline either to grant them the hallowed ‘blue card’ or Macau residency. Well, what we have today – a city of world-class entertainment venues, conferences, hotels, and universities - is due in large part to all of them. More than a few of them have kids here in Macau, kids who will forever have in their personal records that Macau was their place of birth. At a moment when the city is starting to discuss the future of the gaming industry and ancillary activities, the fact that outstanding professionals are here must be taken into consideration. They are, sometimes, disregarded. But Macau and its identity – yes, the diversity of cultures is an identity in itself – cannot dispose of these live assets, as they are part of the critical mass of the city. It is great to have friends from all over the world and even greater to share our city with them. The so-called expats, like me, gweilos, are already an important part of Macau and will have a decisive role in this city’s future. One of these days, there must be essays on the way we all live here due to this major change. When we share a table with people with such different backgrounds, all of them with a story to tell that will enrich our future and the city’s future. They have changed the face of Macau with their way of living forever so, from this laptop, I thank all of them, all of us, and do hope that Macau does the same. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
Labour Affairs
Proposal preventing visitors from obtaining blue cards ready this year
D
irector of the Labour Affairs Bureau (DSAL) Wong Chi Hong said that the government would announce within this year a proposal for preventing non-resident workers from getting their working permits (also known as blue cards) when they come to the territory as a visitor. ‘The SAR Government has started studying the issue of non-residents transiting to blue card holders from visitors. It has considered certain different proposals on the issue as well as taken policies of nearby districts as references,’ the official said in a reply to legislator Ella Lei Cheng I’s written enquiry.
But the DSAL head added that such an issue is quite complicated with each proposal considered on its own merits as well as shortcomings. ‘Owing to the wide scope [that the policy] is to cover, the SAR Government needs to gain a social consensus and to consider carefully before making a decision,’ he wrote. According to the Bureau director, a confirmed proposal will be released within this year, after the government department collects opinions from different local associations and industries. The unionist legislator slammed the city’s policy – which allows non-residents searching for jobs as visitors
when they are in the territory – as the cause of different legal violations made by non-residents, such as overstaying and working illegally in her interpellation. She added that such situations are more apparent in the domestic helpers market – which ‘annoys a number of families.’ ‘Society has strongly requested that the government supervise the administrative procedures for non-residents coming to Macau as non-resident workers more strictly. In particular, the government should ban visitors holding travel permits from obtaining blue cards,’ the directly-elected legislator urged. K.L.
Property
Licence fees and procedures a burden on real estate brokers Simplifying renewal procedures for real estate licences and reducing fees for applications needed. Real estate brokers have found that the administrative procedures for renewing licences are cumbersome and excessive licence fees cause a greater burden on their business operation, legislator Chan Meng Kam wrote in an enquiry to the government yesterday. The application procedure for licence renewal and new applications for real estate brokers is almost the same, notes the legislator. However, supporting documents such as education qualifications required when submitting a new application to the Housing Bureau before – are also required for the licence renewal process,
the legislator wrote in his interpellation questioning the necessity for re-submission of the same
documents for renewal. The legislator asked in the written enquiry whether the government could simplify administrative procedures by providing residents with more convenient services to reduce duplicate document submission for
new licence and renewal applications. The legislator also noted that brokers need to pay about MOP6,000 (US$750) once every three years to renew their licence. This same fee is applied for new registrations, with Chan Meng Kam suggesting the government reduce the fees, especially setting apart fees charged when getting a new licence compared to a renewal application. A.L.
Telecommunications
Broadband charges may go down The city’s broadband service tariff may have room for a decrease this year, the government told the follow-up committee for public administration affairs of the Legislative Assembly yesterday. The announcement came from the president of the committee, Chan Meng Kam, noting that the government did not disclose specifics on the decline in
the rate for the service fee. The AL sub-committee claimed that it would meet with different local telecommunications operators to discuss their services soon. Meanwhile, the Secretary for Transport and Public Works, Raimundo do Rosario, told reporters following his meeting with the committee that the government is responsible for the supervision of the charges of telecommunications services in order to keep them at a reasonable level.
Business Daily Friday, June 3 2016 5
Macau Construction
Customs
Concerns about public housing site in Taipa
Four newly appointed Chief Superintendents
The location of a public housing project should be reconsidered in order not to interrupt nearby recreational or public facilities.
A
public work projects located between Taipa’s Sam Yuk School and Macau Olympic Aquatic Centre, occupying some 10,500 square metres zoned for the construction of a public housing project raised concerns yesterday regarding its location and effects on surrounding facilities. The topic came up for discussion at the Urban Planning Committee meeting held yesterday to discuss the drafts and feedback on four public work projects and 11 private projects. The committee is chaired by Secretary for Transport and Public Works Raimundo Arrais do Rosário. Several committee members were concerned about the location of the public housing project – expressing concern that it could affect the nearby public facilities used by local residents. Committee member Leong Chong In argued that the land was not suitable to be used as public housing as the distance separating it from the surrounding community facilities is large. Mr. Leong suggested the government reserve it instead for recreational or other public facilities. Another committee member, Wu Chou Kit, urged the government to reconsider the affect of the construction and infrastructure on the nearby
leisure and recreational facilities, citing disturbances to its users. Manuel Iok Pui Ferreira, another committee member, also participated in the meeting yesterday, saying that the government must take into consideration the surrounding environment and the demographic situation of the location of the public housing and urged the government to supply more details on the project to the public before planning the development of pubic construction. “Some of the sports facilities are open until 11:00pm - that could affect
the people who live nearby. For instance, the strong light streaming from the Macau Stadium could affect the surrounding living area,” he explained. In addition, voting was used for the first time on the urban planning draft of construction on the Ramal dos Mouros high-rise building project. However, it was only used after no consensus was arrived at during the previous Urban Planning Committee meeting, as Raimundo pointed out after the meeting. “Each committee member can require a vote to take place. Otherwise, if none of the members requires it, voting is unnecessary, and only used when there is no majority of agreement by the members, ” Raimundo explained. A.L.
Gaming
Imperial Pacific May rolling chip turnover US$2.53 billion
GGR
Analysts confident total smoking ban won’t be enforced Even with the registered 9.6 pct decline in gross gaming revenue, analysts believe a return to growth will be evident in June and doubt a total smoking ban will be imposed. The shift from VIP to mass market and improv ed trans po rt i nfrastructure will be the catalysts behind growth rejuvenation in 2016, say analysts. The city’s 9.6 per cent decline yearon-year for the month of May in gross gaming revenue to MOP18.4 billion (US$2.3 billion) exceeded estimates by Wells Fargo and Bernstein, which estimated a drop of between 6 and 8 per cent. However, even with the registered decrease the average daily revenue (ADR) for May MOP593 million - was 3 per cent higher than the registered April ADR of
MOP578 million, according to Bernstein. Gross gaming revenue data was published on Wednesday by the Gaming Inspection and Co-ordination Bureau (DICJ). The decrease wasn’t only restricted to GGR, as the sale of watches, clocks and jewellery continues its decline, running for the ‘8th straight quarter’ since the end of 2014, with volume of retail sales decreasing by 8.7 per cent year-on-year for the month, the Bernstein report said. Nevertheless, Wells Fargo expects gaming revenue in June to see a 1 per cent to 7 per cent growth through
The Macao Customs Service appointed four new Chief Superintendents - Leong Wa Kan, Vong Vai Man, Lee Sze Ngar and Lei Iok Fai - on Wednesday. The four newly promoted officials previously acted as the Acting Head of Marine Enforcement Department, Acting Head of Checkpoint Enforcement Department, Head of Human Resources Division and Head of Intelligence Division, respectively. Their newly assumed roles include the water management and law enforcement of 85 square kilometers allocated by the central government, the Hong Kong-Zhuhai-Macau Bridge, the Hengqin area and the Macau Lotus checkpoint station, among others. Alex Vong Iao Lek, director of the Macao Customs Service, hosted the promotion ceremony at the Macao Customs Service headquarters. A.L.
the month, estimating daily revenues of ‘roughly MOP540 million to 570 million,’ while analysts’ general consensus estimate a 3.7 per cent growth year-on-year. ‘Due to improvements in transportation infrastructure and the opening of large scale integrated resorts between 2015-2018, mass will be the driver of rejuvenated growth beginning in 2016 and continuing through the rest of the decade,’ Bernstein stated in its May report.
Smoking ban not expected soon
Bernstein analysts believe there is ‘limited risk of implementing a full smoking ban in the medium term,’ as most of the members of the Legislative Assembly committee in charge of assessing a revised tobacco control bill oppose a full smoking ban in casinos.
The report states how the local government seemed to have ‘relaxed its resolute tone’ on a total smoking ban proposed last year on VIP rooms, while eliminating smoking lounges on mass gaming floors, having decided now to ‘keep an open mind on whether casinos can retain smoking lounges, including in VIP rooms,’ the report states.
Non-resident hiring blues
The analyst firm has registered difficulties by gaming operators trying to get ‘large scale foreign labour quotas approved’, mentioning difficulties by Wynn Palace to obtain Wynn’s temporary work permits (blue cards] for housekeeping staff at the developing Wynn Palace project, planned to open in early August. The increased difficulty in blue card renewal applications for management level was also referred to, as Macau’s Human Resource Office enforces a policy tightening the blue card renewal process for foreign casino managers as a way to make more managerial positions available for local workers and help promote local workers to higher positions. Currently, Macau locals account for ‘well over 80 per cent of managerial positions, 77 per cent of all workers at casino properties, and 96 per cent of casino-specific employees’, the Bernstein data reveals. N.M.
Imperial Pacific International Holdings Limited, operator of a temporary casino on the island of Saipan - located in the Northern Mariana islands - has voluntarily announced unaudited results for their VIP table games rolling for May amounting to US$2.53 billion (HK19.63 billion). The company said they ‘shall announce on the second day of each month the unaudited VIP table games rolling for the previous month’. The group had previously announced last month that VIP operations had reached saturation; however, CEO Mark Brown of Best Sunshine International, operator of the casino, told Business Daily that “that was in our announcement just because the numbers were so incredible,” and called the results in the third month of this year “April’s US$3.2 billion”, while expecting average returns at “US$2 billion a month”. The island’s operation works without fixed junket operators, with the group handling its credit operations internally. The group has a 40-year monopoly on gaming in the area and hopes to open its Grand Mariana property on the island “at the end of this year,” Brown told Business Daily. K.W.
Mark Brown, CEO of Best Sunshine International, operator of the Saipan temporary casino
6 Business Daily Friday, June 3 2016
Macau
Gaming
Hidden VIP-room earpieces show Macau money laundering risks
H
idden inside the private room of a Macau casino’s exclusive gaming area, a single player sits at a baccarat table. As the cards are turned, the man, a hired hand, gives a play-by-play account via an earpiece wirelessly connected to his mobile phone. On the other end of the call, hundreds if not thousands of miles away, is the real gambler -- a player beyond the border in China. That was the scenario described by five people who work at Macau’s junket operators, which front money to high rollers and bet on their behalf using wireless headsets -- in violation of the city’s May 9 ban on using phones at betting tables. At least three gaming promoters who conduct business at independently run VIP rooms at Macau casinos operated by SJM Holdings Ltd. and Melco Crown Entertainment Ltd. told Bloomberg News they’re using headsets to evade the ban, with the proxy players sometimes using their hair to hide the devices. They asked not to be identified because the activities are illicit. A statement from Melco said its casino facilities, including VIP rooms, are complying with local regulations. SJM didn’t respond to requests for comment. SJM Executive Director Angela Leong said in a May 17 interview that Macau casinos, including SJM, have increased monitoring to prevent phone betting. Macau banned phone bets for a simple reason: money laundering.
Mainland gamblers can get credit lines from Macau junket operators, who are repaid by the players inside mainland China. The gaming credit stays outside China, away from scrutiny by the Chinese government and its currency controls -- and where it can be cashed out in Macau as gambling proceeds. While a Macau law banned phone betting in 2001, there was no enforcement as long as operators reported the bets and the identities of the gamblers to the regulator, according to legislator Jose Maria Pereira Coutinho. “There’s a situation of permeability for money laundering that the government must pay full attention to after the ban,” said Coutinho, who called the ban symbolic. “A regulation without effective implementation will create a new loophole as the industry may find a way to avoid it.”
No punishment
It’s unclear how the new ban will work. Since there’s no longer a system for reporting bettors, phone bets are now clandestine, according to the people. On top of that, the rule doesn’t come with sanctions for violators, according to the Gaming Inspection and Coordination Bureau. Junket operators say phone betting revenue -- worth an estimated US$2.6 billion (MOP20.8 billion) last year -- is crucial for their operations as they struggle with a two-year slump. Gaming revenue plummeted 36 per cent last year from its 2013 peak as high rollers stayed away from the
tables due to China’s anti-corruption drive. Not all phone bets facilitate money laundering, and some countries, including the Philippines, allow the practice. Melco, which operates the City of Dreams and Studio City casinos, said in its statement that its facilities are fully compliant. “Macau is a highly regulated market and the gaming authority has a strict regulatory regime aimed at closely monitoring the activities of licensed gaming promoters within casinos,” the company said in an e-mailed statement. “This being the case, we can assure you that all of our casino facilities are fully compliant with the local regulations.”
Regulator’s response
Lionel Leong, Macau’s Secretary for Economy and Finance, pledged on Tuesday that the government will work to “ensure strict enforcement” of the ban. “The government’s position on the ban on phone betting in casinos is unequivocal,” according to a statement by the Gaming Inspection and Coordination Bureau in response to Bloomberg News questions on violations in VIP rooms. “If irregularities that contravene the laws of Macau are found, the government will take severe measures against such activities.” Casinos operators and gaming promoters are fully aware of the ban on the use of mobile telephones at
gaming tables, according to the statement. The bureau is “also exploring possible legislative amendments to promote the industry’s healthy development by raising the thresholds for gambling promoters,” it said in the statement. Coutinho, the lawmaker, said the lack of enforcement points to a less than ideal relationship between the regulator and the US$30 billion (MOP240 billion) gaming industry. Macau is the only place in China where casinos are legal. “The government is too friendly with casino operators,” he said. “It doesn’t really punish them.” He plans to propose revising the 2001 phone betting ban to include detailed punishment for violations. “The government needs to revise the law if they have problems enforcing the regulation,” said Coutinho. “They need to block the possibilities for violations.” More staff and security guards will be hired to conduct checks and monitor activities in the VIP rooms through surveillance cameras, Paulo Martins Chan, director of the gaming bureau, said in an interview May 18. “Casinos and junkets are supportive and are complying with the ban now,” Chan, the regulator, said last month. “Just a few gamblers who were still betting by phone were persuaded to stop. Casinos can ask clients to leave if they insist on phone betting.” Under Macau’s 2001 law, casino operators are responsible for making sure junket operators obey the regulation even though the gaming promoters operate the rooms independently of the casinos. The May ban doesn’t lay out the responsibilities of casinos to enforce the ban.
Business Daily Friday, June 3 2016 7
Macau A week after the ban took effect, only 28 per cent of 1,000 casino staff members surveyed by the Macau Gaming Industry Frontline Workers’ Union said they thought casinos were “strictly executing” the ban, according to the group. There were 141 gaming promoters licensed by Macau’s gaming regulator as of earlier this year, a drop of 40 per cent from the peak in 2013. Singapore’s prohibition against phone betting, which took effect last year, calls for a fine of up to S$5,000 (US$3,600) and six months in jail for the gambler and as much as S$200,000 and up to five years in jail for those who facilitate remote gambling. Phone bets have been an avenue for wealthy Chinese to skirt China’s currency controls limiting outflows of the equivalent of US$50,000 a year amid a crackdown on corruption by President Xi Jinping. With phone betting, the gambler-cum-money-transferrer never leaves the country, making it easier to conceal his or her identity. Other countries, including the U.S. and Singapore, have also banned phone betting due to money laundering risks. Despite the 2001 law banning phone betting, junket and casino operators were allowed by the regulator in the wake of the severe acute respiratory syndrome, or SARS, epidemic in 2003 to use electronic devices at the tables, which facilitated phone betting, according to junket operators and Coutinho. Casinos previously needed to fill and send forms to the regulator on behalf of gaming promoters that identified the gambler on the other end of the phone, the junket operators said. The phone gambler was required to put down a minimum of HK$1 million (US$129,000) to HK$3 million in each gaming session, according to
the junket operators. Casinos sent the forms to the gaming regulator, which approved the use of electronic devices by the junket agent serving as a proxy at the casino for the phone gambler, they said.
Corruption crackdown
Numbers suggest that Xi’s corruption crackdown scared China’s high rollers away from the gaming tables -- and prompted them to pick up the phone instead. Last year’s US$2.6 billion in phone betting receipts was a 15 per cent gain from a year earlier even as VIP revenue at casinos dropped 40 per cent, according to Daiwa Capital Markets Hong Kong Ltd. analyst Jamie Soo. For smaller junket operators, phone betting potentially accounted for as much as 50 per cent of revenue, he said. Over the past year, the industry has faced greater scrutiny, with gaming promoters required to adhere to stricter accounting standards generally. The regulator is working on a proposal to raise capital requirements 100-fold
for new junket operators starting business. In contrast to recreational gamblers often attracted to the excitement and adrenaline rush of the bustle and noise of a casino, phone betting is a serious, high-stakes game that points to the unique trust between the overseas gambler and gaming agent. The game of choice is baccarat, where the player bets whether the value of his hand or the dealer’s is closest to nine. Since the ban, some of the junkets now assign two agents, with one playing at the table and announcing the results loudly while a partner sits near the table with an open phone line to the gambler, according to two junket operators. To be sure, the regulator is monitoring VIP rooms more strictly and pressuring casinos to help enforce the ban, the people said. Some gaming promoters have closed their operations, while others have moved their VIP businesses to the Philippines and Vietnam, where policies are more favourable for phone betting and junket
operators, they said. Some junket operators who are still engaging in phone betting report they are seeing an increase in plays at the table, most of it from gamblers in China, two of the people said. The regulator will recruit 50 new gaming inspectors, adding to the 120 it now has, according to Sanford C. Bernstein & Co. analyst Vitaly Umansky, who wrote in a May 23 note that the number of enforcement staff is “still quite low” relative to the number of Macau’s casinos and VIP rooms. While enhanced regulations on junket operations are generally good for the industry, the ban on phone betting and other tightening measures makes survival difficult for junkets, said Kwok Chi Chung, president of the Association of Gaming & Entertainment Promoters of Macau, which represents gaming operators. “The junket business has already been struggling so much,” said Kwok. “The phone betting ban makes the weak market even worse.” Bloomberg NEWS
8 Business Daily Friday, June 3 2016
Greater China
Derivatives
Beijing paves way for credit default swaps The proposed new rules include guidelines for trading credit-linked notes too, signalling intentions to offer the products in China for the first time Nathaniel Taplin and Lu Jianxin
A
Chinese financial committee has proposed new rules for hedging defaults, sources said yesterday, as Beijing aims to buttress financial markets and banks against a surge of bond defaults. China will move closer to launching credit-default swaps (CDS) for the first time under the recommendations, which were made by the financial derivative committee under the state-controlled National Association of Financial Market Institutional Investors (NAFMII), the sources said. The committee met recently to amend rules governing the rarely used credit risk mitigation (CRM) market, the only bond default hedging tool in China at
present, the sources with direct knowledge of the matter told Reuters. “The government has now made it very clear that everyone won’t be bailed out,” said Saifeng Mao, Associate Director at Fitch Ratings in Hong Kong. “This is helping prepare the market for more defaults, and allowing market forces to play a stronger role in pricing. A few months ago corporate spreads were very compressed, meaning the market didn’t really know how to price a lot of bonds, and that’s looking better now.” The proposed new rules include guidelines for trading CDS and credit-linked notes (CLN), signalling intentions to offer the products in China for the first time, the sources said. They will need approval from the executive conference of NAFMII, which is entrusted by China’s central bank to supervise issuance of corporate notes. NAFMII had no immediate comment. For years, China’s now US$7.5 trillion bond market has worked on the assumption that the government would not allow a default. Issuers were effectively guaranteed by the state. But while China has cautiously allowed some defaults since 2014, doubts
remain as to how far it will go given that many issuers are state-linked and the risk of a bond market crash - which analysts say would have a much bigger impact than China’s stock market slump last year. In April, Chinese bonds sold off sharply following a series of defaults by state-backed firms such as steelmaker Dongbei Special Steel Group Co Ltd and tough statements by the central bank on curbing support for loss-making “zombie” enterprises. A Reuters analysis of central bank data shows that firms in regions heavily exposed to legacy industries such as
“This is helping prepare the market for more defaults, and allowing market forces to play a stronger role in pricing.” Saifeng Mao, Associate Director at Fitch Ratings in Hong Kong
coal and steel showed sharply rising dependence on expensive “shadow finance” in the first quarter as traditional lenders withdrew. Chinese firms cancelled or delayed over US$15 billion of bond issuance in April.
More protection
A CDS, typically used in developed markets, is a financial swap agreement under which the seller of the CDS will compensate the buyer in the event of a default or other credit event. The proposed new rules will permit investors in the product to include in their agreements compensation for different degrees of credit risk, such as restructuring, the sources said. A CLN is a security with an embedded credit default swap allowing the issuer to transfer a specific credit risk to credit investors, while the issuer is not obligated to repay the debt if a specified event occurs. The new rules will allow CDS and CLN to co-exist with China’s existing CRM market, which has been rarely used since it was set up in 2010 given a lack of defaults. NAFMII has been considering setting up a CDS and CLN market since December. Reuters
Monetary communication
Vice finance minister says Fed should communicate better on rates The official said China and the United States should open their markets to each other and increase policy coordination and cooperation The U.S. Federal Reserve should communicate better with China and financial markets on its interest rate decisions, China’s vice finance minister said yesterday, noting U.S. monetary policy has a major impact on the global economy. Chinese and U.S. officials will discuss how to promote economic growth in both countries and the world economy
during the annual U.S.-China Strategic and Economic Dialogue to be held June 6-7 in Beijing, Vice Finance Minister Zhu Guangyao said. “It’s up to the Federal Reserve to make ultimate monetary policy decisions, but we welcome the Fed to strengthen policy communication with China and strengthen communication with the international financial
market,” Zhu said in a forum ahead of the annual dialogue. Global market attention is currently focused on whether the Fed will raise interest rates at either its June or July policy meetings, he said. In turn, China, as the world’s second-largest economy, should also improve its communication with the outside world given the increased “spillover” effect of its policies, Zhu said. Chinese market regulators came under criticism last year after a rout in stocks and an unexpected currency devaluation raised concerns about Beijing’s ability to effectively communicate economic and market policy intentions.
“We welcome the Fed to strengthen policy communication with China and strengthen communication with the international financial market” Last week, Fed Chair Janet Yellen said the Fed should raise interest rates “in the coming months”
Zhu Guangyao, Vice Finance Minister
Zhu also said the global economy faces significant downward pressure. Last week, Fed Chair Janet Yellen said the Fed should raise interest rates “in the coming months” if the economy picks up as expected and jobs continue to be generated, bolstering the case for a rate increase in June or July. China and the United States should open their markets to each other and increase policy coordination and cooperation, Zhu said. A senior U.S. Treasury official said last month they would press their Chinese counterparts to take steps to improve China’s business and investment climate during the dialogue attended by U.S. Treasury Secretary Jack Lew. A focus on the inability of U.S. firms to invest in certain services sectors, including tourism, healthcare and logistics, comes as the Obama administration seeks to negotiate a bilateral investment treaty with China. U.S. negotiators have said they are still awaiting a new “negative list” of sectors that Beijing wants to keep off limits to foreign investors. Zhu said China was committed to pushing forward talks on the investment treaty. The U.S. Treasury will also press China to continue moving towards a market-determined exchange rate, reduce excess industrial capacity, and make reforms that boost domestic consumption, a senior Treasury official said on Wednesday. Reuters
Business Daily Friday, June 3 2016 9
Greater China HK shares
In Brief
Mainland traders can’t get enough Hong Kong stocks
M&A
Beijing says deals should not be politicised
The yuan slumped against the dollar last month by the most since August’s devaluation Kyoungwha Kim and Kana Nishizawa
China’s investors are piling into Hong Kong equities at the fastest rate in more than a year as they seek shelter against a weakening currency and a worsening economic outlook. Mainland traders bought a net 21.9 billion yuan (US$3.3 billion) of shares listed on the city’s stock exchange in May, the most since April 2015, according to data compiled by Bloomberg tracking investments via the exchange link with Shanghai. That’s taken net inflows for the year to 46.7 billion yuan. The yuan slumped against the dollar last month by the most since August’s devaluation as economic data trailed estimates and traders boosted bets for the Federal Reserve to raise borrowing costs. Chinese institutional investors, who currently hold less than 1 percent of their investments in overseas assets, are seeking more offshore opportunities amid bets the yuan will continue to fall, according to UBS Group AG. “It is not a short-term phenomenon,” Wenjie Lu, a strategist at UBS in Shanghai, said about China’s appetite for Hong Kong stocks. “The currency depreciation will probably persist for multiple years and the big picture is that Chinese investors currently have very small exposure to overseas assets.” The currency will weaken a further 1.8 percent to 6.7 through 2016 and fall to 6.95 by 2018, according to median
estimates in a Bloomberg survey of strategists. The Hong Kong dollar is pegged to the greenback. Chinese investors are increasingly targeting the biggest companies listed in the former British colony, including banks offering Hong Kong products on the mainland and HSBC Holdings Plc. Large-cap equities represented about 43 percent of the total southbound trading volume in the four months through April, up from 27 percent in 2015, according to data from Hong Kong Exchanges & Clearing Ltd. Mainland investors are also drawn by the cheaper valuations, according to Hao Hong, chief China strategist at Bocom International Holdings Co. The Hang Seng China Enterprises Index trades at 7 times projected earnings for the next 12 months, compared with 12.6 for the Shanghai Composite Index. A gauge of dual-listed shares is 34 percent more expensive on the mainland than in Hong Kong.
Worst Performer
The cross-border flows, while small relative to the record capital exodus from China in 2015, show the challenge policy makers face as they seek to stem outflows by providing attractive investment options at home. The Shanghai Composite is the world’s worst performer this year, falling 18 percent, while commodity prices on the nation’s futures markets have slumped as a boom turned sour.
“It is not a short-term phenomenon” Wenjie Lu, a strategist at UBS in Shanghai
Hong Kong equities aren’t immune to a falling Chinese currency. Because many companies listed in the city derive the bulk of their sales from the mainland, a depreciating yuan reduces the value of their profits when translated back into Hong Kong dollars. Accelerating inflows into the city from Shanghai have reduced the remaining aggregate quota to about 94 billion, down from the 250 billion yuan when the program started in November 2014. That reflects a greater appetite than global asset managers have for Shanghai equities -- with 166 billion yuan remaining of a 300 billion quota -- and is spurring speculation officials will soon increase the cap. Continued depreciation of the yuan and the anticipated expansion of the link to Shenzhen will help shore up Hong Kong’s stock market, according to UBS’s Lu. The city’s benchmark Hang Seng Index has risen for seven of the past eight days and is trading near its highest level in a month. The gauge is still down 5.2 percent this year, compared with a 0.6 percent advance by the MSCI All-Country World Index. “How much money flows from the mainland will drive the performance of the Hong Kong market,” he said. Bloomberg News
Salaries
Surprise wage jump shows government supporting consumers Employment creation this year has topped the pace policy makers target, according to a Ministry of Human Resources and Social Security official China’s wage growth accelerated last year, defying the slowest economic expansion in a quarter century, as the government pushed ahead with its strategy of boosting incomes and consumption to cut reliance on fading heavy industries. The average annual urban wage increased 10.1 percent last year to 62,029 yuan (US$9,410), according to the National Bureau of Statistics, to post the first acceleration since 2011 and exceed the 9.5 percent pace of growth in 2014. The number doesn’t cover the country’s 190 million who are self-employed or workers at some private enterprises. Policy makers have increased some minimum wages and given better raises to government employees to help cash-rich consumers spend more on everything from cinema tickets to smartphones as the economy shifts from its reliance on manufacturing and construction. Data released Wednesday showed the official manufacturing purchasing managers index stabilized last month just above the dividing line between deteriorating and improving conditions. In another sign of resilience in the labor market, as state firms cut jobs, those who remain were paid more,
while some of those who left were hired in the burgeoning private sector, the NBS data showed. That’s good news for policy makers intent on cutting excess capacity from bloated zombie enterprises. Yet rapid wages growth doesn’t look sustainable, even to Finance Minister Lou Jiwei, who said in March that salary increases that have risen faster than labor productivity in recent years is “not sustainable in the long run.” Economists forecast weakening income growth in a March survey by Bloomberg News. To date, things have held up. Employment creation this year has topped the pace policy makers target, according to a Ministry of Human Resources and Social
Security official. And demand for labor remained stable in April, with 112 vacancies for every 100 job seekers. In what’s likely a welcome decline, the ranks of state-sector workers edged down to 62.1 million last year from 63.1 million in 2014, the NBS data showed. On the other hand, salaries of those state companies employees rose 14 percent, more than the 8.8 percent increase in 2014, pacing the
‘In another sign of resilience in the labor market, as state firms cut jobs, those who remain were paid more’
across-the-board acceleration in wages growth. Faster wage growth and slower economic expansions don’t usually go together, which suggests at least some of the gains are due to other factors, according to Chen Xingdong, the chief China economist at BNP Paribas SA in Beijing. One of those: State workers used to get subsidies for workplace cafeterias or gift cards for groceries, but many employers have scrapped such perks amid the anti-corruption campaign, so have probably offset those cuts with fatter paychecks, Chen said. The wage data NBS noted is an average of salaries at state-owned, collectively-owned, those with foreign investors, and some other categories such as limited liability firms. Companies with foreign investors usually pay the highest salaries, though those numbers weren’t included in the 2015 report. Bloomberg News
Policy makers have increased some minimum wages and given better raises to government employees to help cash-rich consumers spend more
China said yesterday the purchase of German industrial robot maker Kuka by Chinese home appliance maker Midea Group Co Ltd should not be politicised as it is simply a commercial deal. Kuka is the latest and biggest German industrial technology group to be targeted by a Chinese buyer as the world’s second-largest economy makes the transition from a low-cost manufacturer into a high-tech industrial hub. German government sources have said Berlin would examine how critical Kuka’s technology is for the digitisation of industry, an economic priority for Chancellor Angela Merkel’s government. Performance index
Logistics activity stable in May
China’s logistics activity remained stable in May as the economy showed more signs of stabilizing, official data showed yesterday. The logistics performance index for May came in at 54.2 percent, unchanged from a month earlier, according to the China Federation of Logistics and Purchasing. A reading above 50 percent indicates expansion from the previous month, while a reading below indicates contraction. In breakdown, the index for new orders stood at 55 percent, recovering 1.5 percentage points from that in April and showing improvement in the real economy. Tertiary sector
Foreign service trade tops US$257 billion China’s foreign service trade amounted to US$257.02 billion during the first four months of the year, up 16.8 percent year on year, the Ministry of Commerce said yesterday. Service trade accounted for 18.9 percent of the country’s total imports and exports during the JanuaryApril period. The proportion was 3.5 percentage points higher than 2015, according to a statement on the ministry’s website. Distinct from merchandise trade, trade in services refers to the sale and delivery of intangible products such as transportation, tourism, telecommunications, construction, advertising, computing and accounting. SoftBank sale
Singapore buys Alibaba stock Singapore sovereign wealth funds bought US$1 billion of Chinese e-commerce company Alibaba Group Holding Ltd’s shares as part of an US$8.9 billion sale by Japan’s SoftBank Group Corp, Alibaba’s biggest shareholder, the company said on Wednesday. Singapore’s GIC Private, Ltd and Temasek Holdings each purchased US$500 million of Alibaba shares at US$74.00 apiece through subsidiaries, Alibaba said, offering details of the SoftBank sale announced on Tuesday. Alibaba purchased US$2 billion of its own stock at the same price, in a move which would add to earnings, Executive Vice Chairman Joe Tsai told analysts on a call.
10 Business Daily Friday, June 3 2016
Greater China Commodities fraud
Two years after Qingdao scandal, LME bets on electronic tracking The proposed system could face cost obstacles after years of low commodity prices and since the LME operates under British law Melanie Burton
T
he London Metal Exchange is expanding its new electronic method of tracking metal in warehouses, as the system launched in April gains early traction among some western and Chinese banks, as well as warehousing and metals firms looking to cut risks. Global metals markets were rocked two years ago by a US$3 billion fraud in the Chinese port of Qingdao. A firm allegedly duplicated warehouse certificates to pledge metal as collateral for multiple bank loans, hitting companies ranging from Citic to Standard Chartered. LMEshield, which provides
electronic receipts as proof of ownership for metal stored outside the LME’s own network of registered warehouses, is adding five jurisdictions where it will operate - Brazil, Chile, India, Japan, South Africa - to a 14-country list and is also extending to coal, iron ore and ferroalloys. “We are delighted with the support we have seen for this initiative so far, and we plan to add more than 20 facilities to the network in a range of jurisdictions in the next few days,” the LME’s head of business development Matt Chamberlain said. Members of the working committee behind LMEshield include Goldman Sachs, Louis Dreyfus and fund behemoth Red Kite Capital. Warehouses run by Henry Bath and
Independent Commodity Logistics are already live, while at least another two warehouse companies are in train, industry sources said. Signs of take up will be welcome news for the LME. It has been suffering from falling trade volumes, struggling new products and large withdrawals from its warehousing network, since it was bought by Hong Kong’s exchange for US$2.2 billion four years ago. And with slowing factory growth in
Key Points LMEshield gains some tractionn among banks, warehouses Some traders worry about privacy of stocks LME faces other hurdles of cost, jurisdiction Could open way to use LMEshield in China
Qingdao port workers
China, still by far the world’s biggest consumer of metals, counterparty risk remains one of the biggest headaches for business. “It gives more transparency, control, it’s helping reduce the risk around the financing,” said Jeremy East of Standard Chartered in Hong Kong, who heads Asia metals trade. The LME saw a 9 percent on-quarter decline in the trading of metals contracts in the first quarter, and rival CME is snapping at its heels with a string of new metals product launches and its own storage expansion plans.
Route into China
As well as eventually raising revenue via daily and transaction fees, data gathered by LMEshield could offer the LME and Hong Kong exchange intelligence for new product launches. The LME is currently not permitted to register warehouses in China, but if more Chinese firms adopt it for offshore stocks the LME increases its chances of becoming an industry standard. “It’s the way to get in (to China) without really getting in,” said a trader at a Chinese merchant in Singapore. A majority stake in Henry Bath, an LME warehousing firm, with a 221 year history and an early adopter of LMEshield, was bought in January by state-owned China National Materials Storage and Transportation Corporation (CMST) to expand its global business. For banks, an unwieldy paper trail can be shifted into electronic form, with documentation standardised, soothing concerns of compliance departments. But LMEshield could face cost obstacles after years of low commodity prices and since the LME operates under British law there may be jurisdictional issues with extending it into China. Traders who count on proprietary knowledge of trade flows are also wary about their private stocks being revealed. “What it is, is a better, ordered way for keeping records, and for getting slightly more security,” said a London-based banker. Reuters
Financing trends
Biggest angel fund in mainland bets on young consumers Spending by Chinese consumers aged 35 and younger is growing at 14 percent a year Elzio Barreto
ZhenFund, China’s largest angel investment fund, is betting rising spending by young consumers in the country on everything from fitness products and healthy food to designer furniture will create good investment
opportunities amid a broader economic slowdown. The fund, which invests in early stage start-ups in the country, also sees digital entertainment, including live video streaming and virtual reality, as good growth areas, Chief Executive Anna Fang
told Reuters. Beijing-based ZhenFund raised US$300 million, including 900 million yuan (US$136.78 million), from investors earlier this year. It has invested in more than 300 companies, including online retailer LightInTheBox Holding Co Ltd, online beauty products retailer Jumei International Holding Ltd and dating service Jianyuan.com, which delisted from the Nasdaq this year.
“Younger people, new consumers in China post 1985, this new generation... they’re buying new things, they’re doing new things like fitness” Anna Fang, ZhenFund’s Chief Executive
New generation, new consumption trends
Fang’s comments show investors still see pockets of value in China amid wider concerns about funding drying up for start-ups as growth in the world’s second-largest economy cools. “The theme of consumer upgrade, upgrading your lifestyle is hot,” Fang said on the side-lines of the RISE technology conference in Hong Kong. “Younger people, new consumers in China post 1985, this new generation...they’re buying new things, they’re doing new things like fitness. The things they’re eating or the furniture they’re buying” are interesting sectors
to follow, she said. Spending by Chinese consumers aged 35 and younger is growing at 14 percent a year, double the rate of older consumers, according to research from The Boston Consulting Group and AliResearch, the research arm of Chinese e-commerce firm Alibaba Group Holding Ltd. The research says young consumers will account for 53 percent of China’s total consumption by 2020, up from 45 percent in 2015. ZhenFund, founded by Bob Xiaoping and Victor Qiang in 2011, is bullish on live video streaming similar to Twitter Inc’s Periscope app, Fang said. “This phenomenon is not just for social media, it’s really like using live broadcasting for shopping. It’s a really interesting sector that is making a lot of money. This is one innovation specifically to China that I think is quite interesting,” she said. Another area ZhenFund is looking to invest is in companies developing technology for the agriculture sector in China, Fang added. “A lot of funds are looking at the agriculture industry for many opportunities. That’s very specific to China also,” Fang added. “More like drones spreading seeds, technology to farms, leasing of equipment and farm-to-table restaurant companies.” Reuters
Business Daily Friday, June 3 2016 11
Asia Monetary policy
Bank of Japan’s Sato blasts negative rates Japan’s historic move in early February to adopt negative rates failed to boost stock prices or arrest an unwelcome rise in the yen. Leika Kihara
B
ank of Japan (BOJ) board member Takehiro Sato criticised the central bank’s negative interest rate policy as counter-productive and urged the BOJ to adopt a policy framework more suited for a longterm battle to beat deflation. He also said the BOJ should not persist in achieving its 2 percent inflation target “at all cost” as price rises unaccompanied by wage gains would cool consumption, suggesting his opposition to any further monetary expansion. Sato, a former bond market strategist who voted against the BOJ’s
January decision to adopt negative rates, said yesterday the concept of charging banks for holding excess reserves had pushed down bank stocks and had hurt household confidence. “Opinions are divided on the economic effects of the negative interest rate policy, and this is fuelling worries among the public,” Sato said in a speech to business leaders in Kushiro, northern Japan, adding that he was sceptical of the idea that negative rates would boost capital expenditure. The remarks drove down the dollar/yen, already on a shaky footing on wavering market conviction of a U.S. interest rate hike this month, as some investors trimmed bets for
near-term BOJ action. Japanese stocks suffered their biggest daily percentage drop in a month due to the hit from a strong yen. Sato’s views run counter to those of BOJ Governor Haruhiko Kuroda, who has expressed readiness to ease again to hit 2 percent inflation at the earliest date possible.
War of attrition
Japan’s historic move in early February to adopt negative rates failed to boost stock prices or arrest an unwelcome rise in the yen, drawing criticism from lawmakers for confusing, rather than calming, markets. In the first and boldest criticism made publicly by a BOJ policymaker, Sato said negative rates could hurt Japan’s banking system by hitting financial institutions’ already narrowing margins and could even cause them to reduce lending. “I believe the negative rate policy has
the effect of monetary tightening, rather than easing,” he said. “When financial institutions face a negative spread, it’s reasonable for them to shrink their balance sheet rather than expand it.” He told reporters after the meeting with business leaders that he was “clearly opposed” to deepening negative rates. Sato’s remarks underscore the resistance Kuroda may face if here were to propose expanding stimulus further. Sato reiterated his view that the BOJ should consider its 2 percent inflation target as a long-term goal with room for flexibility, rather than one with a rigid deadline. That meant the BOJ should modify its current massive asset buying programme, which was intended to be a short-term move aimed at shocking the public out of its deflationary mind-set. “The challenge now is to reform the current framework, which is intended to provide solutions in the short term, to one that is better suited for a war of attrition,” he said. For a start, the BOJ should take a more flexible approach in meeting its base money target to avoid disrupting Japan’s banking system through excessive money printing, he said. “My belief is that 2 percent inflation is too high a level to aim for given Japan’s low potential growth.” Reuters
Key Points Negative rate policy worsened public mood-Sato Sceptical of idea negative rate will boost capex Sato calls for flexible approach in price goal Sato voted against Jan negative rate decision Bank of Japan headquarters in Tokyo
Real estate
New Zealand government pushes councils to free up land The Reserve Bank of New Zealand has implemented a variety of measures to cool New Zealand’s hot housing market. New Zealand’s government said yesterday it planned to require local authorities to free up land for housing in an attempt to curb soaring property prices, which have the central bank worried. The policy would require local councils to set targets to provide enough land for new housing to match projected growth in their city or region. They would then be required to exceed that target by 20 percent over the following 10 years and 15 percent over the following 30 years to ensure oversupply. The government planned to implement the policy in October and was consulting stakeholders until
mid-July. “This policy is about a culture change to support development that connects planning decisions to economics...and recognises the national importance of housing,” housing minister Nick Smith said in a statement. New Zealand’s rate of house price
growth is second only to Qatar’s, according to the International Monetary Fund, in large part due to an influx of foreign investors and migration. Data released by government property valuer QV on Wednesday showed house prices had risen 12.4 percent in year to May. In the country’s largest city, Auckland, prices had risen 15.4 percent to an average price of NZ$955,793 (US$652,233.14). The Reserve Bank of New Zealand (RBNZ) has implemented a variety of measures to cool New Zealand’s hot housing market, including imposing curbs on lending. However, it has also reiterated that supply is a key issue. In its latest bi-annual financial stability report the RBNZ said it was closely monitoring developments to
“This policy is about a culture change to support development that connects planning decisions to economics” Nick Smith, New Zealand’s housing minister
In the country’s largest city, Auckland, prices had risen 15.4 percent
assess whether further financial policy measures would be appropriate. However, “reducing the imbalance between housing demand and supply in the Auckland region remains essential if house price appreciation is to be contained over the longer term,” it said. Amid record migration levels, investors seeking strong capital gains, and record-low interest rates, some commentators believe the government’s plan alone would not curb soaring house prices. “It will help at the margin but the issues facing the Auckland property market are pretty diverse,” said ANZ Bank Chief Economist Cameron Bagrie. “This will help, but it’s no silver bullet,” he added. Reuters
12 Business Daily Friday, June 3 2016
Asia Abenomics
Japan to roll out growth strategy Economists say the reforms do not go far enough to change Japan’s two-tier labour market Stanley White and Minami Funakoshi
J
apan’s government will set out a new growth strategy yesterday that has already disappointed many economists for lacking the bold structural reforms needed to narrow income disparity and reverse rapid population decline. Aggressive structural reforms are essential to pulling Japan out of decades of malaise, but economists say the flaws in Abe’s piecemeal approach are evident in the lack of progress after more than three years of “Abenomics”, the name give to his
Key Points Growth strategy has good ideas but needs to be bolder Policies are not enough to reverse population decline Rigid labour market, falling population stymies policy Ruling party already shifting to next month’s election
radical mix of monetary and fiscal stimulus and structural reforms. Abe’s delay of a sales tax hike due to weak consumption and the Bank of Japan’s failure to slay deflation expectations despite resorting to negative interest rates show policymakers are running out of tools to fix an economy that will face even deeper problems of low growth and high debt as the population ages. “There are many granular policies that lack concreteness, though the general direction of these policies isn’t wrong,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance. “Japan’s biggest problem is the ageing and shrinking of its population and the supply-side weakening that follows from it.” Abe shifted his economic agenda this year to focus more on the redistribution of wealth and improving access to day care, partly to prepare for an upper house election next month. Many economists said this shift was an admission that despite Abe having had more than three years in office many low-income households have
failed to benefit from his attempt to reflate a listless economy. Abe’s growth strategy will raise pay for child care workers, raise the minimum wage and improve access to elderly care, but economists say the reforms do not go far enough to change Japan’s two-tier labour market. The growth strategy will take steps to narrow the pay gap between regular and part-time employees, but critics say it is still too easy for companies to flout labour laws and suppress pay for part-time workers. Some economists also worry companies could try to lower pay for fulltime workers to narrow the pay gap, which would depress overall wage growth. The government also wants to raise the birth rate to 1.8 per woman from 1.4, which is a step in the right direction but still below 2.1 - the rate needed to simply prevent a population from shrinking. Abe’s fiscal policy has also disappointed after his decision on Wednesday to delay a sales tax hike raised doubts over how he will plug the hole left in public finances. Abe has said he will announce a “comprehensive and bold” economic
package this autumn, raising concerns he will fall back on big fiscal spending on infrastructure, which does nothing to reverse a decline in the working-age population. “The reason growth is slow, I think, has got nothing to do with fiscal policy being a little bit too tight or a little bit too loose,” said Richard Jerram, chief economist at Bank of Singapore. “The explanation for the slow growth is just the demographics, the structural rigidities.” The growth strategy will reiterate a pledge to bring the primary budget balance into surplus by fiscal 2020 to rein in public debt which is already more than double annual economic output. But the strategy is expected to be short on detail of how the government will make up for lost revenue and pay for rising welfare spending. The mention of revenue raising measures is unlikely to go down well with voters, as Abe and the parties campaign for a poll for parliament’s upper house on July 10. Instead, Abe has said the election would be a chance for voters to rule on his decision to postpone the tax increase. The tax hike delay is likely to be popular with a majority of voters, although surveys show nearly a quarter think it should have been implemented as scheduled. Reuters
Japanese Prime Minister Shinzo Abe
Going public
Thailand’s PTT studies proposal for retail business IPO PTT’s retail division may be valued between US$2 billion and US$3 billion Denny Thomas, Saeed Azhar and Khettiya Jittapong
Thailand’s biggest energy company PTT is examining a proposal to list its retail business and is expected to complete the study in the third quarter of this year, the
state-backed company’s investor relations official told Reuters yesterday. PTT has hired JPMorgan Chase & Co and Phatra Securities to advise on the potential IPO, people familiar with the matter said. The sources declined to be identified as
the information was not yet public. Kasikorn Securities, brokerage unit of Kasikornbank, has also been hired as an advisor, a Kasikorn official said. Last month, PTT invited banks to make pitches and then selected the three to work on the IPO, the people added. PTT’s retail division may be valued between US$2 billion and US$3 billion, the people
PTT plans to complete IPO study in third qtr company official PTT has almost 1,458 retail stations PTT shares extend gains to trade up 2.3 pct
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 Aivi Remulla 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 Founder & Publisher
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Key Points
said. One of the proposals being considered includes bringing in a strategic partner before the likely IPO in 2017, they added. A successful listing would rank among Thailand’s largest IPOs. BTS Group’s US$2.13 billion IPO holds the record for Thailand’s biggest. PTT, like other global energy companies hit by slumping oil prices, is trying to find new ways to fund its capital spending needs. PTT plans to invest 297 billion baht (US$8
Business Daily Friday, June 3 2016 13
Asia In Brief GDP
S.Korea revised growth better than estimates
South side of the border Financial blockade
U.S. takes more steps against North Korea’s access to financial system
South Korea’s foreign ministry yesterday welcomed the move, which it said in a statement would boost the effectiveness of existing sanctions on
the North and have a broader impact than a 2005 U.S. Treasury measure that targeted a bank in the Chinese territory of Macau. About US$24 million of North Korean funds was frozen at Macau’s Banco Delta Asia (BDA) after the U.S. Treasury accused it of helping to channel earnings from the North’s illicit activities, leading to a frantic attempt by Pyongyang to retrieve the money. The North has since developed tactics to skirt financial restrictions by resorting to informal means to transfer money, including the use of bulk cash hand-carried by officials. Adam Szubin, acting under secretary for terrorism and financial intelligence, said Washington expected other governments and financial authorities to make similar moves to prevent Pyongyang from “abusing” global financial institutions to support its development of weapons of mass destruction and ballistic missiles. “The regime is notoriously deceitful in its financial transactions in order to continue its illicit weapons programs and other destabilizing activities,” Szubin said in a statement. The Treasury was required to assess North Korea’s status as a money laundering jurisdiction under the “North Korea Sanctions and Policy Enhancement Act,” passed nearly unanimously by the U.S. Congress in February. A U.N. Security Council resolution in early March also required member states to sever correspondent banking relationships with North Korean financial institutions within 90 days. Reuters
The planned IPO would consist of the oil marketing business and PTTowned Amazon coffee shops at the petrol stations, the official said. PTT shares extended gains to trade up 2.3 percent after Reuters first reported that the company was studying doing a possible IPO, while the benchmark Thailand index was up 0.7 percent. Unlike in Western markets, where non-fuel businesses - convenience stores, fast food operations, and services such as car washing - can account for more than half of a gas
station’s profits, the majority of PTT’s profits comes from petrol sales. By spinning off the business and introducing a strategic partner, PTT is hoping it can help boost the share of non-fuel business and improve its overall profit margin. Such a deal will boost the value of the low-margin marketing business, bolster the group’s finances and free up funds for investment in exploration and production. PTT has previously raised the prospects of a retail IPO, but this is the first time it has hired banks to undertake a detailed study, underscoring the seriousness of its intent. PTT’s IPO plans comes two years after China’s oil refiner Sinopec Corp raised US$17.5 billion by selling almost 30 percent of its retail arm to 25 Chinese and foreign investors. Sinopec Retail plans to list the business at a later date. Sinopec’s marketing and distribution unit, which includes a wholesale business, has more than 30,000 petrol stations and more than 23,000 convenience stores, as well as oil-product pipelines and storage facilities. The PTT official declined to comment on hiring of the banks and the timing of the IPO. JPMorgan declined to comment. Phatra Securities did not offer an immediate comment. Reuters
South Korea’s foreign ministry yesterday welcomed the move Patricia Zengerle
The United States on Wednesday declared North Korea a “primary money laundering concern,” and moved to further block its ability to use the U.S. and world financial systems to fund its weapons programs. The U.S. Treasury Department called for a prohibition on certain U.S. financial institutions opening or maintaining correspondent accounts, which are established to receive deposits from or make payments on behalf of a foreign institution, with North Korean financial institutions. Crucially, Treasury also prohibited the use of third parties’ U.S. correspondent accounts to process transactions for North Korean financial institutions. The announcement came days after the latest failed missile launch by the isolated state. Tensions in the region have been high since January when North Korea conducted its fourth nuclear test and then followed that with a satellite launch and test launches of various missiles. Those efforts have all fuelled calls in Washington, and abroad, for a clampdown on Pyongyang. U.S. law already generally prohibited U.S. financial institutions from engaging in transactions with North Korean institutions, but Treasury’s latest actions would impose additional controls, especially the prohibitions on the use of third-country banks’ U.S. accounts to process
billion) during 2016-2020, of which 50.8 billion baht is earmarked for this year. It is also catching up with the global trend that has seen a series of oil companies selling their low-margin fuel marketing businesses.
Convenience store model
PTT has 1,458 outlets, representing 40 percent of Thailand’s petrol station market. The company has said it plans to invest 20 billion baht over the next five years to expand its gas service station network to 1,600.
transactions for North Korea. “This is meaningful,” said Victor Cha, Korea Chair at the Centre for Strategic and International Studies in Washington. “This is designating the entire country, which means essentially that any entity that is interested in interacting with U.S. financial institutions should no longer have any business with North Korea.” “Most, if not all, entities, if faced with the choice of having access to the U.S. financial system or doing business with North Korea, are going to make the obvious choice,” Cha added.
The Treasury was required to assess North Korea’s status as a money laundering jurisdiction under the “North Korea Sanctions and Policy Enhancement Act”
South Korea’s economy grew a seasonally adjusted 0.5 percent in the first quarter over the previous three months, revised central bank data showed yesterday, slightly above an earlier estimate of 0.4 percent growth. From a year earlier, Asia’s fourth-largest economy expanded by 2.8 percent in the January-March period, the Bank of Korea data showed, also marginally better than a 2.7 percent rise estimated in April by the bank. Philippine energy
New government plans review of coal projects The new Philippine administration needs to review dozens of coal-fired power projects now underway or still on the drawing board as it seeks increased use of renewable energy, the country’s incoming economic planning chief said. “We need to revisit those projects and I think we probably should not push too many coal-fired plants because they are bad especially for communities where power plants are built,” Presidentelect Rodrigo Duterte’s choice for economic planning minister, Ernesto Pernia, said. Speaking yesterday in a live interview with ABS-CBN News Channel, Pernia said: “We are supposed to gradually, in due time, move toward more renewable energy.” Nuclear deal
India, Westinghouse in ‘advanced’ talks Toshiba Corp’s Westinghouse Electric and India are in “advanced discussions” for the company to build six nuclear reactors there, the country’s ambassador to the United States said on Wednesday, ahead of India Prime Minister Narendra Modi’s planned visit to Washington next week. A deal with Westinghouse would be the first such contract reached under the 2008 U.S.-India civil nuclear accord. “There is a very detailed and advanced negotiation between Westinghouse and India,” Ambassador Arun Singh told reporters. “The issues that remain to be worked out are related to cost and financing.” Budget
Indonesia plans massive injection in state firms The Indonesian government plans to inject 53.98 trillion rupiah (US$3.94 billion) of capital into 24 state firms this year, pending approval by the parliament, according to a finance ministry document on revisions to the 2016 state budget. The document, which was uploaded yesterday, mentioned a plan for capital injections into PT Wijaya Karya. JK, PT Jasa Marga Tbk, PT Krakatau Steel Tbk and PT Pembangunan Perumahan Tbk and PT Perusahaan Listrik Negara, among others. Last year, parliament blocked a government plan for 40.43 trillion rupiah of capital injection into state firms in 2016.
14 Business Daily Friday, June 3 2016
International In Brief Industry data
Rise in U.S. manufacturing masks weakness U.S. manufacturing grew for a third straight month in May, but factories appeared to be taking in fewer deliveries from their suppliers, which could hamper production in the months ahead. Other data on Wednesday showed automobile sales rising last month from April, extending the recent flow of relatively strong data that suggested economic growth was regaining speed in the second quarter. The Institute for Supply Management (ISM) said its index of national factory activity rose half a percentage point to a reading of 51.3 last month. Financing
IMF team in Angola for loan talks A team from the International Monetary Fund is visiting Angola to negotiate a loan facility after lower oil prices hammered the finances of Africa’s second largest crude exporter, the Ministry of Finance said on Wednesday. The ministry said the IMF team will be in Angola from June 1 to June 14 and would discuss options on how to diversify the economy and reduce the dependence on the oil sector. Angola said in April that it would begin loan negotiations with the IMF on a three-year loan facility. Watchdog
EU to take deeper look at blockchain The European Union’s markets watchdog will study blockchain in more depth after an initial analysis showed it was too early to say whether the technology poses any threat to financial markets. Blockchain or distributed ledger technology currently underpins the virtual currency bitcoin. Blockchain’s proponents say it has the potential to “disrupt” financial markets by making payments and the settling of securities transactions, in particular, far cheaper. The European Securities and Markets Authority said yesterday it had looked at whether blockchain could meet technical, governance, legal and regulatory requirements to keep securities markets safe.
Producers meeting
OPEC happy with oil market, kingpin Saudi says Despite animosity between Saudi Arabia and Iran any agreement to cut output is highly unlikely. Juliette Rabat and Alvaro Villalobos
S
audi Arabia expressed confidence yesterday that oil prices will keep recovering, cementing expectations that a divided OPEC will decide to keep crude gushing at its meeting in Vienna. “Everybody is very satisfied with the market. The market is rebalancing as we speak,” said Khaled al-Falih, newly appointed by the kingdom’s powerful and dynamic new crown prince. “Demand is extremely healthy and robust. Non-OPEC supply is declining. Prices will respond to the rebalancing of the market,” Falih told reporters. Traditionally the Organization of the Petroleum Exporting Countries, which pumps around a third of the world’s oil, has cut production to boost falling prices. But in the most recent drop, which has seen oil tumble from over US$100 in 2014 to close to US$25 in January, OPEC - driven by kingpin Saudi Arabia - has changed tack. Experts say the group has kept the
‘Experts say the group has kept the oil flowing in order to squeeze competitors, particularly US shale oil producers’
oil flowing in order to squeeze competitors - particularly US shale oil producers - and retain market share. It has taken some time - straining even Saudi Arabia’s finances, to say nothing of on-the-brink OPEC member Venezuela - but the tactic now appears to be working. Non-OPEC output is falling sharply and prices last week briefly rose above US$50 for the first time in six months, although they have softened slightly since. Animosity between Saudi Arabia and Iran - bitter regional OPEC rivals engaged in proxy conflicts in Syria and Yemen - means that any agreement to cut output is highly unlikely in any case. Since Iran’s 2015 nuclear deal entered into force in January and sanctions were lifted, Tehran has aggressively ramped up output, and is unwilling to stop now. “A doubling of exports of Iranian oil has had no negative impact on the market and has been absorbed well,” Iranian Oil Minister Bijan Zanganeh said Wednesday. Arriving in Vienna later, Zanganeh said a production cap for OPEC would be of “no benefit” to Tehran.
‘Don’t care about prices’
Iran stayed away from a disastrous meeting in Doha on April 17 between OPEC and non-OPEC members including Russia that failed to agree a possible coordinated output freeze. Saudi Arabia meanwhile is undergoing change with the powerful young Deputy Crown Prince Mohammed bin Salman seeking to revamp the country’s economy to reduce dependence on oil.
His “2030 Vision” includes a partial floatation of national oil giant Aramco and creating a gargantuan sovereign wealth fund. This week it pumped US$3.5 billion into Uber. After the Doha debacle, the 30-year-old prince replaced veteran oil minister Ali al-Naimi with Falih, whose comments Thursday made clear that the country is loathe to cut OPEC output. “The market is doing quite well by itself. We will be very gentle in our approach and make sure we don’t shock the market,” Fatih said. This conflict between the Saudis and the Iranians could re-emerge if oil prices dip again, however, for example on the back of a stronger US dollar. This worries poorer OPEC members, not least Venezuela, racked by severe food shortages and inflation projected to hit 700 percent in 2016. Venezuela’s oil minister said in Vienna that the recent recovery has been driven by one-off factors like wildfires in Canada and a strike in Kuwait. “When those circumstances are removed, what is going to happen?,” Eulogio del Pino said. This is unlikely to sway the Saudis, however. “We don’t care about oil prices - US$30 or US$70, they are all the same to us,” Prince Salman said in an interview with Bloomberg published in April. One thing which could perhaps smooth the waters would be the appointment Thursday of a new OPEC secretary general to replace Libyan Abdalla El-Badri. Candidates reportedly include Ali Rodriguez Araque of Venezuela, Nigeria’s Mohammed Barkindo and Mahendra Siregar of Indonesia. AFP
A general view prior to the start of the 169th meeting of the Organisation of Petroleum Exporting Countries (OPEC) in Vienna yesterday
IATA forecast
Airlines to make bigger 2016 profit than expected
Tax evasion
Mexico brokerages seek more time on probe Mexican brokerages are pushing back against a massive government data request that aims to uncover possible tax evasion, a document showed, after the “Panama Papers” cast a spotlight on how the world’s rich and famous hide their wealth. Last month, Reuters reported that Mexico’s tax authority, SAT, had asked regulators to make banks and brokerages provide a list of clients that made transactions or investments in over 100 jurisdictions, from Anguilla to the United Kingdom. Mexico’s banking authority gave banks and brokerages 15 working days to meet the request, which was made on April 25.
Overall, yields, how much an airline makes per passenger per mile carried will drop 7 percent this year. Victoria Bryan and Tim Hepher
Global airlines should make more money than previously expected this year, the International Air Transport Association (IATA) said yesterday, helped by low oil prices and work by airlines to fill planes and drive ancillary revenues. IATA said it forecast net profit of US$39.4 billion for the industry this year, against a previous US$36.3 billion estimate, with more than half generated by North American carriers. That would be the fifth straight year of improving profits and give a net
profit margin of 5.6 percent, while the industry’s return on capital is also expected to exceed the cost of capital for only the second time, a boost for investors. IATA head Tony Tyler said airlines had improved profits by becoming better at filling planes and driving extra revenues. Meanwhile, fuel is expected to represent just under 20 percent of expenses this year, down from a 33 percent high in 2012-2013. “Lower oil prices are certainly helping, though tempered by hedging and exchange rates. In fact, we are probably nearing the peak of the positive stimulus from lower prices,” Tyler said at the association’s annual meeting in Dublin. However, the picture was mixed across the globe, with Latin American economies have hurt by the fall in oil prices and the region’s carriers seeing hardly any decline of fuel costs due to slumping exchange rates, Tyler
added. Overall, yields, how much an airline makes per passenger per mile carried will drop 7 percent this year, but unit costs will fall faster, by 7.7 percent, IATA forecast. Tyler said profits were becoming more normal but there was still room for improvement. “It will, however, take a longer run of profits before balance sheets are returned to full health,” he added. Reuters
Key Points Global airline net profits seen at US$39.4 bln in 2016 Net profit margin seen at 5.6 pct Industry return to exceed cost of capital in 2016 Fuel to account for less than 20 pct of costs this year
Business Daily Friday, June 3 2016 15
Opinion Business Wires
The Times of India Highlighting India as the world’s fastest growing major economy despite an unsupportive global environment, Finance Minister Arun Jaitley said on Wednesday that good monsoon, GST passage and higher spending will accelerate the upward curve in the coming years. Progrowth policies have helped GDP grow at faster-than- expected 7.9 per cent in the January-March quarter, and 7.6 per cent for the entire 2015-16 fiscal, Jaitley said, asserting that these are not “stray figures” and an analysis of the pattern shows inherent strength in the Indian economy.
The ECB’s illusory independence
A The Japan News Free messaging app provider Line Corp. is expected to be listed on the Tokyo Stock Exchange as early as July, informed sources said Wednesday. The Tokyobased company is likely to be listed on the TSE’s first section. Line also aims for stock listing in the United States around the same time, the sources said. On the TSE, it is expected to have a market capitalization of some ¥600 billion. Through the initial public offering of shares, the firm hopes to procure several hundred billion yen, improve its public confidence and accelerate the overseas business expansion, the sources said.
commitment to the independence of central banks is a vital part of the creed that “serious” policymakers are expected to uphold (privatization, labour-market “flexibility,” and so on). But what are central banks meant to be independent of? The answer seems obvious: governments. In this sense, the European Central Bank is the quintessentially independent central bank: No single government stands behind it, and it is expressly prohibited from standing behind any of the national governments whose central bank it is. And yet the ECB is the least independent central bank in the developed world. The key difficulty is the ECB’s “no bailout” clause – the ban on aiding an insolvent member-state government. Because commercial banks are an essential source of funding for member governments, the ECB is forced to refuse liquidity to banks domiciled in insolvent members. Thus, the ECB is founded on rules that prevent it from serving as lender of last resort. The Achilles heel of this arrangement is the lack of insolvency procedures for euro members. When, for example, Greece became insolvent in 2010, the German and French governments denied its government the right to default on debt held by German and French banks. Greece’s first “bailout” was used to make French and German banks whole. But doing so deepened Greece’s insolvency. It was at this point that the ECB’s lack of independence was fully exposed. Since 2010, the Greek government has been relying on a sequence of loans that it can never repay to maintain a façade of solvency. A truly independent ECB, adhering to its own rules, should have refused to accept as collateral all debt liabilities guaranteed by the Greek state – government bonds, treasury bills, and the more than €50 billion (US$56 billion) of IOUs that Greece’s banks have issued to remain afloat. Of course, such a refusal would close down Greek banks and lead immediately to Greece’s exit from the eurozone, because the government would be forced to issue its own liquidity. The only alternative would be a meaningful debt restructuring to end Greece’s insolvency. Alas, Europe’s political establishment, unwilling to adopt either option, has chosen to extend Greece’s insolvency – which it pretends has been resolved through new loan tranches. The ECB’s on-going acquiescence in the extend-and-pretend charade demanded by Greece’s creditors has demolished its claim to be independent. To keep Greece’s banks open, and accept their government-guaranteed collateral, the ECB is obliged to grant Greek debt an exemption from its no-insolvency rule. And, to keep the noose firmly around Greece’s neck, Germany insists that this exemption is conditional on its approval – or, in euro-speak, that the Eurogroup of eurozone finance ministers confirms that “Greece’s fiscal consolidation and reform program are on track.” So, in effect, it is politicians that tell the ECB when to cut off liquidity to an entire banking system. While the ECB can claim independence vis-à-vis insolvent, peripheral governments, it is entirely at the mercy of the governments of Europe’s creditor countries. To illustrate the ECB’s conundrum, it is worthwhile revisiting the creditors’ treatment of the Greek government elected in January 2015. By December 2014, it had become clear that the previous government was on its last legs and that
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The Jakarta Post Pertamina has highlighted the importance of merging state-owned company Perusahaan Gas Negara (PGN) and the state-owned energy giant’s subsidiary, Pertamina Gas (Pertagas), claiming that doing so may save at least US$1.6 billion in investment. The merger is part of the government’s plan to establish a holding company for state-owned energy firms. Pertamina and PGN established a joint team in January 2016 with the main task of analysing the fields of synergy in the gas business. According to the plan, Pertamina will act as the holding company, while PGN the subsidiary.
The Star Despite April’s weak loan growth, Affin Hwang Capital is increasingly becoming positive on the banking sector, as it believes its outlook will gradually improve in the second half of this year, given Malaysia’s sound domestic economy. “We note that the overall sector valuations for banks in 2016 remain quite attractive at a 1.17 times price-to-book value (P/BV) versus the three-year average of 1.5 times. At the same time, a potential turnaround in the global economy and a recovery in assets, commodity prices and the ringgit should bring back confidence to the economy,” said Affin Hwang.
Yanis Varoufakis a former finance minister of Greece, is Professor of Economics at the University of Athens.
the leftist Syriza party was on its way to power. The governor of Greece’s central bank, an arm of the ECB, “predicted” that markets were facing a liquidity squeeze, implying that a Syriza victory would render the banking system unsafe – a statement that would be inane were it not calculated to start a bank run. By the time I became Finance Minister that February, after Syriza’s electoral victory, the bank run was in full swing and stocks were in free fall. The reason, of course, was the common knowledge that Germany, vehemently opposed to our government, was about to switch off the green light required by the ECB to maintain the exemptions allowing it to accept Greek collateral. To stabilize the situation, I flew to London to address financiers with a message of moderation and sensible policies regarding both reforms and debt restructuring. The following morning, the stock exchange rebounded 13%, bank shares rose by more than 20%, and the bank run ceased. On that day, the ECB, pressured by Germany, rescinded an important part of its exemption, thereby cutting off Greek banks’ direct access to the ECB and diverting them to pricier financing from Greece’s central bank (socalled emergency liquidity assistance). Unsurprisingly, stock prices plummeted and the bank run returned with a vengeance, bleeding €45 billion of deposits out of the system over the next few months. Meanwhile, Germany and other creditors began to push Greece to accept new austerity measures as the price of reversing the “ECB’s” decision. This was not the ECB’s only politically driven intervention. Equally aggressive was its decision to curtail Greek banks’ spending on government treasuries, by instructing them to refuse debt rollovers. This diminished my ministry’s capacity to repay the International Monetary Fund, which was insisting on drastic pension cuts and on the removal of the last protections for Greek workers. For five months, as the ECB’s noose tightened, we resisted German and IMF demands for further austerity. Finally, the complete cessation of all liquidity to Greece’s banks in June 2015 forced their closure. This was followed by the final push to divide our government and force the prime minister to capitulate – as he did, accepting the latest extend-and-pretend loan of €85 billion. Almost a year later, Greece’s creditors were pushing for even greater austerity in exchange for more loan tranches. At this point, Greece’s central-bank governor (who had triggered the original bank run in December 2014) publicly alleged that our government’s stance until June 2015 caused the loss of €45 billion worth of deposits, the ensuing bank closures, and the new extend-and-pretend loans. The bully was blaming the victim, and the ECB was openly embracing its role as enforcer for its political masters: the creditors. The eurozone’s current design makes ECB independence impossible. Worse, the pretence of independence serves as a fig leaf for interventions that are not only politically driven, but that are also utterly inconsistent with the principles of liberal democracy. Project Syndicate
The eurozone’s current design makes ECB independence impossible
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16 Business Daily Friday, June 3 2016
Closing Air quality report
China way off pollution target in 2015
Only 73 of 338 Chinese cities subject to air quality monitoring met the national standard for clean air in 2015, according to the Ministry of Environmental Protection. It made the revelation yesterday in its annual Environment Condition Communique. Environmental authorities observed precipitation in 480 cities and detected acid rain in 22.5 percent of them last year, according to the communiqué. They also conducted tests at 338 cities’ drinking water
sources, and found the water in nearly 3 percent of them was unfit for drinking. There were also some improvements in 2015. For example, the number of deaths in floods dropped 76 percent from the previous year, while the number of residents affected by floods and the area affected by floods declined 46 percent and 45 percent respectively. Forest coverage has reached 21.6 percent in China, with its total forested area ranking fifth in the world, according to the communiqué. Xinhua
Smartphone market
Huawei draws from Apple playbook to plot iPhone overtake Huawei’s devices unit had 73 percent sales growth last year to US$20 billion. Marie Mawad
A
s Apple Inc. reels from reporting its first revenue drop in 51 quarters due in part to falling iPhone sales, the chief of Chinese rival Huawei Technologies Co. sees revenue at his devices division growing 50 percent this year to US$30 billion. To achieve that, he’s pulling tips right out of Apple’s playbook by making a push on apps. “Apple’s unique advantage has been its ecosystem - we can learn from Apple to gather developers around us to build applications for our phones,” Ping, who is currently CEO as part of a regular rotation at the helm of the company, said in an interview in Brussels, where he’s due to speak at a conference yesterday. “We have our chances,” he said about the company’s ambition to grab the top spot in the smartphone industry. While growth from selling devices - smartphones but also smartwatches and tablets - is slowing at Huawei along with the rest of the handset market, Chief Executive Officer Guo Ping thinks he can sway Apple and Samsung Electronics Co. users to become the world’s biggest phone vendor. “How long it takes us to be number one will depend on how long it takes to convince you to switch from the iPhone to the Huawei P9,” Ping said via a translator. “Apple has been slower at achieving new technological breakthrough. That leaves room for Huawei to get the next breakthrough.” Huawei’s devices unit had 73 percent sales growth last year to US$20 billion, and the privately-owned
group, which sells network equipment like routers in a separate unit competing with the likes of Ericsson AB and Cisco Systems Inc., had total revenue of about US$61 billion in 2015. Ping said the company wants to differentiate to build up its brand, and part of that means it spent US$9.2 billion on research and development last year. The Shenzen, China-based company launched a US$1 billion plan last year to support software developers and encourage them to make more applications specific to its platform, a tweaked version of Google’s Android dubbed Emotion UI.
Overtaking Samsung
20 percent of global smartphone shipments in the second-quarter of 2015, according to the latest data by researcher IDC, compared to 14 percent for Apple and about 9 percent for Huawei. The research group lowered its predictions for global smartphone shipments this week and said it expects them to grow about 3 percent in 2016, slower than the 10.5 percent recorded the year before and 28 percent in 2014. A boom in demand for smartphones and other electronic devices propelled Apple’s annual revenue by US$227 billion over 13 years until the company reported a slide in second-quarter sales last month, of 13 percent to $50.6 billion, as fewer people upgraded to the latest iPhone. It predicted another decline in the current period, casting a shadow over prospects for its biggest revenue
generator. Still, Huawei faces an uphill battle. While its P9 model smartphone has been praised for its hardware, including a dual-lens camera, the Emotion UI has been criticized in online reviews for being “ heavy”, pre-loading apps that duplicate Google’s own, as well as straying too far off the original Android operating system.
Legal disputes
Huawei last week said it’s suing Samsung over technology fundamental to how mobile networks operate, and demanding royalties. “We have no intention to reignite patent wars in the tech industry,” Ping said. “But we’ll do what’s necessary to protect our intellectual property including legal means.” While Huawei is going down the same route as Apple in seeking to get others to develop apps for its ecosystem, the company won’t invest in a single application the way its U.S. rival invested US$1 billion in China’s Uber rival car-hailing service Didi Chuxing, Ping said. Bloomberg News
To go for the crown of the world’s most popular phone-maker, Huawei would also have to overtake Samsung, currently in the number one spot for global smartphone shipments. The Korean conglomerate’s latest release, the Galaxy S7, helped it withstand the global smartphone slowdown in the latest quarter. Samsung had market share of about
“How long it takes us to be number one will depend on how long it takes to convince you to switch from the iPhone to the Huawei P9” Guo Ping, Huawei’s Chief Executive Officer
Guo Ping, Huawei’s Chief Executive Officer
Infected cows
Stockpile auction
Commerce
Japan suspends Australian cattle imports
China sells about 4 pct of available rice
Myanmar targets US$31 bln trade in 2016-17
Japan has temporarily suspended live cattle imports from Australia after “some” cows were found to have a gastrointestinal disease, the agriculture ministry said yesterday. The infected animals arrived in Japan by air and tested positive for Johne’s disease, also known as paratuberculosis, while in quarantine, a ministry official said. Tokyo imposed a temporary ban on May 27, he added, but would not disclose the exact number of cattle affected. Japan imports some 10,000 live cattle from Australia annually for consumption while about 400 additional animals are used to breed milk cows. The infection causes diarrhoea, rapid weight loss and can sharply reduce milk production, the official said, adding that there was no risk to humans. “We are asking Australia to investigate the matter and find the cause of the infections so it can take preventative measures,” he told AFP. A spokesperson for Australia’s agriculture ministry said “the department is investigating, to confirm that cattle were prepared according to the importing country requirements”. AFP
China yesterday sold nearly 108,000 tonnes of rice in its latest auction of state reserves, around 4 percent of the total amount of grain available, the National Grain Trade Centre said. A total of 104,851 tonnes of japonica rice, produced between 2013 and 2015, were sold at an average price of 3,168 yuan (US$482) per tonne, the centre said in an online statement. That was 6.9 percent of the total amount of japonica up for auction. China also sold 2,831 tonnes of mid-to-late season indica, produced in 2014, at an average price of 2,810 yuan per tonne. The volume was sold entirely in the eastern province of Anhui. A total of 1.5 million tonnes of mid-to-late season indica from 6 provinces was available for auction, according to the centre. China set minimum purchase prices for rice in 2016 at up to 3,100 yuan per tonne, the National Development and Reform Commission announced in February. The price for early season indica rice was set at 2,660 yuan per tonne, mid to late season rice at 2,760 yuan per tonne and japonica rice at 3,100 yuan per tonne. China is due on Friday to auction a further 403,200 tonnes of rice, and 3.42 million tonnes of corn, the centre said yesterday. Reuters
Myanmar expects the country’s trade value to reach US$31 billion in this fiscal year 201617, according to the Ministry of Commerce yesterday. An official of the ministry said that the ministry is trying to boost the potential export items to reach the expected trade value. Moreover, the ministry is negotiating with other countries to look for new trade partners. The country’s trade value reached about US$27 billion in the previous fiscal year 2015-16, down by about US$2 billion from 2014-15. At present, betel nut, sesame, cotton and sugar are designated as the potential export items. Sugar topped the export items with about 1 million tons being exported since August 2015. The trade deficit for the fiscal year 2015-16 showed US$5.4 billion while that of the fiscal year 20142015 was US$4.04 billion. Myanmar’s export value stood by over US$11.04 billion in the fiscal year 2015-2016. Myanmar’s newly appointed Minister for Commerce Than Myint said that new government targets to boost the country’s export volume three times higher within five years. Xinhua