Galaxy loses court battle for taxexemption on auxiliary services Court Page 4
Tuesday, June 14 2016 Year V Nr. 1064 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Culture
International Film Festival & Award Macau promoted in Shanghai Page 7
www.macaubusinessdaily.com
Property
Trade differences
Growth in China’s real estate investment cools slightly Page 10
China and European Union face stressed relations on mainland commercial status Page 10
MICE blues
Statistics
The number of participants and attendees at Macau’s MICE events plummeted 50.4 pct to 124,960 in the first quarter. With 191 events held, receipts amounted to MOP5.44 mln while expenditure totalled MOP6.17 mln. Page 3
Voicing demands
Society Macau Civil Servant’s Association met with CE, proposing gaming operators should provide housing to casino workers, late night shift subsidies and vocational training. Page 5
Steady May
Chinese economy China’s economy held steady, as industrial production gathered pace in May, retail sales maintained strong growth, and investment cooled with improved structure, official data showed yesterday. Value-added industrial output, one of the leading indicators for economic growth, rose 6 per cent year-on-year in May. Page 8
From private to public Government hopes new non-mandatory pension system will cover at least 100,000 Macau residents in the three years of its experimental period.
20,512.99 -529.65 (-2.52%)
Link REIT
+0.59%
China Construction Bank
-1.36%
China Mengniu Dairy Co Ltd
-5.71%
Galaxy Entertainment Group
-4.19%
Lenovo Group Ltd
+0.41%
Cathay Pacific Airways Ltd
-1.49%
China Resources Land Ltd
-4.67%
China Unicom Hong Kong
-4.18%
China Overseas Land &
-0.63%
Sands China Ltd
-1.86%
Belle International Holdings
-4.55%
Bank of East Asia Ltd/The
-4.07%
MTR Corp Ltd
-1.05%
Hong Kong Exchanges and
-1.87%
PetroChina Co Ltd
-4.42%
Hengan International Group
-3.78%
Kunlun Energy Co Ltd
-1.09%
CLP Holdings Ltd
-1.89%
Li & Fung Ltd
-4.33%
AIA Group Ltd
-3.64%
28° 32° 28° 32° 27° 31° 28° 31° 27° 31° Today
Source: Bloomberg
HK Hang Seng Index June 13, 2016
Wed
thu
I SSN 2226-8294
Fri
Sat
Source: AccuWeather
Pension Fund Page 2
2 Business Daily Tuesday, June 14 2016
Macau In Brief Construction
Aecom Asia awarded MOP198-mln Islands-hospital contract The government has awarded a MOP197.6 million (US$24.7 million) contract to Aecom Asia Company Limited, for the global construction-consulting firm to provide management and supervision services for the city’s new Islands hospital complex, according to yesterday’s Official Gazette. The contract will last for a term of four fiscal years. The company will receive some MOP32.7 million for this fiscal year, while a further MOP65.6 million, MOP60.9 million and MOP38.4 million will be paid by the government for each of the following three years. The global consultancy company has been awarded previous public service contracts, including a contract worth at least MOP18.3 million to draft the recently-released ‘Macao Tourism Industry Development Plan’. Construction
University of Macau to supervise New Prison civil works for MOP10.6 mln The University of Macau has been granted a public contract to supervise the quality of civil works for phase two of the construction of the New Prison, according to the Official Gazette published yesterday. The four-year contract, worth a total of MOP10.6 million (US$1.3 million), will be paid for from the budget of the city’s Investment Plan (PIDDA). The government will pay the university in four instalments across four fiscal years starting from this year. The dispatch was signed by the Chief Executive Fernando Chui Sai On. Sewage
Gov’t renews Wabag’s Coloane sewage plant contract for two years The government has renewed Wabag Serviços de Tratamento de Águas (Macau) Limitada’s public contract to provide operations and maintenance services for the Wastewater Treatment Plant in Coloane until 2018, the Official Gazette announced yesterday. The threeyear contract is worth a total of MOP85.1 million. The company has been providing such services to the Coloane sewage plant since 2008, when it was granted a six-year contract worth MOP45.7 million. In addition, it was awarded the same contract by the government for the 2015 and 2016 fiscal years for MOP4.7 million. Provident fund
Social Security Fund allocates MOP7,000 for 353,010 accounts The Social Security Fund (FSS) announced yesterday that a total of 353,010 residents would each have MOP7,000 (US$875) injected into their central provident fund individual accounts due to the special allocation from the Fund’s budget surplus for this year, which suggests the amount involved will total MOP2.5 billion. But FSS claimed some 126,229 individuals were deemed ineligible for such an allocation. On the other hand, the Fund said around 55,000 elderly in the city are eligible to make withdrawals from their provident fund accounts this year, with applications starting this August.
Pensions
Slow pension day Government hopes a new non-mandatory pension system will cover at least 100,000 Macau residents in the three years of its experimental period. Nelson Moura nelson.moura@macaubusinessdaily.com
T
he government expects the new non-mandatory provident fund presented last week could convince at least 100,000 residents to change from private pension employment schemes to the new system in the three years of its experimental period. When questioned as to why the new contribution scheme won’t be mandatory in its first phase, the President of the Administrative Committee of the Social Security Fund (FSS), Iong Kong Io, stated in a press conference held yesterday that due to “Macau’s current economic readjustment”, enforcing a new contribution model could “highly pressure” local SME’s struggling in the current economic climate. Last week, the Executive Council presented a new non-mandatory provident fund system, where companies and employers will be awarded fiscal benefits if they agree to contribute, in cooperation with their employees, a minimum of 10 per cent of the salary amount to an individual’s retirement fund. “The contributions made by employers for the joint fund will be considered as exploration costs, with this value doubling if the employer maintains their contributions for the three years after the law is approved,” the Head of Social Security Department, Ieong Iun Lai stated in the press conference. The FSS President reiterated that he believes the proposed fiscal benefits, together with the attractiveness a company will gain in the eyes of future employees if the company adheres to this scheme, will convince employers to adopt the proposed contribution scheme. “At the moment 40 per cent of employees in the private sector, around 110,000 workers, are in private pension plans, and we believe 100,000 workers will change from private pension plans to the new central
system,” said Iong Kong Io. The FSS also stated “the average return on private pension funds between 2009 and 2014 was around 3.88 per cent,” arguing that this is one of the factors that will convince employers to change to the new pension system.
Still no plan for part-time workers
When questioned if the proposed contribution plan will include parttime workers, the FSS President said “after the proposed system is implemented, we will try to create a specific plan for part-time employees”. The FSS stated that after some “slight changes”, the proposal was ready to be sent to the Legislative Assembly (AL), in order to discuss its possible future mandatory application and the contribution reversal after contract termination. One of the aspects proposed in the non-mandatory provident fund is the “portability” of the amount, with workers able to keep the contribution account active after their work contract is terminated. In the case of termination of a work contract, if an employee has
completed three years of contributions, they would be entitled to 30 per cent of the employer’s contribution amount, receiving an added 10 per cent for every year of work, and would be able to receive 100 per cent of the employer’s amount after a 10-year period is completed, the FSS explained.
Cash out in special cases
The proposed fund could only be liquidated after a resident reaches 65 years of age, but when questioned if that amount would be accessible in any cases before that age, the FSS President stated that “as a protection for workers after retirement, the amount won’t be able to be liquidated before that age, but if after 60 the person doesn’t want to work more, they can fill out a requirement to be evaluated by the FSS. Also, in cases of medical emergency, when a resident might really need the fund, the person will also be able to require its liquidation.” Currently, contributions to FSS are made at a 2:1 ratio, with employers and workers paying MOP30 and MOP15 monthly, with a proposed increase this year to MOP60 and MOP30 respectively. The new non-mandatory fund would complement the Provident Individual Account for permanent residents introduced in October 2012, where an Incentive Basic Fund single payment of MOP10,000 is added together with a special allocation (currently MOP7000) from the budget surplus, for withdrawal after the age of 65, according to the FSS.
Business Daily Tuesday, June 14 2016 3
Macau MICE Number of participants at local MICE events halved in Q1
Gloomy MICE A total of 191 MICE events were held in the first quarter of 2016, down by 20 year-on-year.
T
he number of participants and attendees at Macau’s MICE [Meetings, Incentives, Conventions and Exhibitions] events decreased by 50.4 per cent to 124,960 in the first three months of this year, according to information from the Statistics and Census Service (DSEC). DSEC data also indicated that a total of 191 MICE events were held in the first quarter of 2016, down by 20 year-on-year. According to the information, four of the exhibitions held in the first quarter of 2015 were scheduled to be held in the second quarter of this year, resulting in a significant decline in the number of MICE participants and attendees in the first quarter of 2016. There were 187 meetings and conferences held in the first quarter, down by 7.0 per cent year-on-year; the number of participants dropped by 28.7 per cent to 15,457. The average duration of the meetings and conferences was two days, and total floor area used was 74,876 square meters. Over the same period, four exhibitions were held, down by six year-on-year; the number of attendees declined by 52.4 per cent to 109,503. The average duration of these exhibitions was 2.8 days and total floor area used was 10,130 square meters.
Making losses
DSEC’s information indicates the four exhibitions held in the first quarter were organized by nongovernment organizations, of which two exhibitions were held for the first time in Macau and two were repeat exhibitions.
Ac c o r d i n g t o i n f o r m a t i o n collected from the organizers of the four exhibitions, receipts of these exhibitions amounted to MOP5.44 million, with 81.2 per cent coming from rental of exhibition booths, and financial support from the government or other organizations accounting for 17.2 per cent. Expenditure on the exhibitions totalled MOP6.17 million, mainly incurred by production, construction and decoration (28.4 per cent), publicity and public relations (22.3 per cent) and rental of venues (20.5 per cent). The exhibitions attracted 267 exhibitors, coming primarily
from Hong Kong (77.5 per cent); professional visitors totalled 420, of which 52.4 per cent were from Macau.
Less satisfactory
Information from 121 interviewed exhibitors in the first quarter indicated that 98.4 per cent of their receipts came from the sale of products, while rental paid for exhibition booths accounted for 70.5 per cent of their expenditure.
50.4 pct Decrease in total number of participants and attendees at MICE events in Macau in Q1
Regarding comments about the MICE venue and services, 76.8 per cent of the interviewed exhibitors were satisfied with the venue management, up by 1.0 percentage point quarter-to-quarter. In regards to the planning and organization of the exhibitions, the proportion of interviewed exhibitors who were satisfied with the arrangements increased by 2.2 percentage points quarter-toquarter to 64.5 per cent. Meanwhile, 35.8 per cent of the exhibitors were satisfied with the promotion of the exhibition, down by 7.6 percentage points, while 28.3 per cent considered that improvements were needed, up by 11.1 percentage points. Furthermore, the proportion of interviewed exhibitors who were satisfied with the work efficiency and attitude of the venue staff decreased by 9.7 percentage points quarter-to-quarter to 68.8 per cent.
4 Business Daily Tuesday, June 14 2016
Macau Energy
Finding a gas solution The government is hopeful the supply of natural gas, suspended since January, will resume within this year. Nelson Moura nelson.moura@macaubusinessdaily.com
T
he government is hopeful gas will flow freely to Macau again, as a possible solution for the city’s exclusive natural gas supplier’s operation blockage could be in sight, according to local broadcaster TDM. The Co-ordinator of the Energy Sector Development Office (GDSE), Hoi Chi Leong, told the broadcaster that the shareholders from Sinosky Energy Holdings, the city’s exclusive natural gas importer, have decided to change the company’s ownership, which could provide a breakthrough in the recent gas halt. Sinosky, a joint venture between Macau Natural Gas Co and Mainland China’s oil giant Sinopec, was awarded a 15-year concession contract by the government in 2006. Since January the energy company suspended its supply to the city, claiming it
couldn’t cope with the huge losses, as it was selling gas cheaper in Macau than the buying price in China, TDM reported. Sinosky has posted accumulated losses of MOP213 million (US$26.6 million) in the last 10 years, with an accumulated MOP35.6 million loss in 2015. The company claims that import prices per cubic metre of natural gas amounted to MOP4.59 in 2015 on average, whilst it was selling at only MOP2.74 per cubic metre - as approved by the government - in 2008, Business Daily reported previously. Now the government is hopeful a direction change will put an end to the gas stalemate. “The shareholders have reached an agreement on transferring the shares, but until now, we have not received any official document, so we have to wait until the final document reaches the government before we can publicly announce this,”
Hoi Chi Leong told TDM, adding he believed they would receive a response soon.
Cost and effect
Hoi Chi Leong also indicated the government is currently assessing what impact the possible construction of a new natural gas processing plant for electricity production in Coloane, could have on Macau’s electricity prices. The GDSE Co-ordinator stated that construction of the energy plant, which could cost around MOP3 billion, is under evaluation in order to determine the stability of the natural gas supply and ensure that the project exploration reaches its full potential. In April, due to low international
fuel prices, local power generating costs registered a decrease, with the sole local power distributor CEM – Companhia de Electricidade de Macau lowering the second quarter Tariff Clause Adjustment (TCA) to MOP0.36 cents per kWh, Business Daily reported. CEM’s power generation capacity consists of three power stations, one located in Macau and two in Coloane, with CEM having a total installed capacity of 472 MW, according to the company’s data. CEM data also showed that in 2015, the gross energy demand was 4966 GWh, of which 753 GWh was produced by CEM and 4213 GWh was acquired from external suppliers.
Court
Galaxy loses court battle for tax-exemption on auxiliary services Last week, the city’s top court ruled that gaming operator Galaxy Entertainment Group’s payment of MOP2.57 million (US$320,488) in tourism taxes for its ‘complementary
services’ provided five years ago, is in accordance with the law. The gaming operator filed an appeal to the top court after its previous appeal against paying such taxes was
turned down by the Court of Second Instance last November. In 2011, Galaxy Entertainment refused to pay the tourism tax charged for the complementary services provided in its StarWorld Hotel on the Peninsula, interpreting that these services, of which the company was not the direct provider, should be tax-free. According to a verdict uploaded by the Court of Final Appeal last week, the top court holds the same view as the Court of Second Instance, stating that “any services provided by hotel operators in certain activity ranges should be taxed, which includes accommodation, food & beverages, as well as other auxiliary services with only telecommunications and laundry exempted”.
The ‘complementary services’ being disputed include the sales of ferry, air shuttle and flight tickets, paid parking space, transportation, rental of equipment, mail services and sale of newspapers. “[All the complementary services] are actually provided by the hotel to guests, as such they are covered by the scope of tourism tax,” the judges of the final court wrote. Galaxy Entertainment was notified by the Financial Services Bureau (DSF) to pay the tourism tax in 2011. The gaming operator filed two complaints to the Bureau director but both were rejected. The company eventually paid the tax on July 28 in 2014 as it was bringing up the cases to the local courts.
Business Daily Tuesday, June 14 2016 5
Macau
Workers
Socially conscious gaming operators Macau Civil Servant’s Association proposes gaming operators should provide housing to casino workers, late night shift subsidies and vocational courses. Nelson Moura nelson.moura@macaubusinessdaily.com
I
n a meeting yesterday with the Chief Executive (CE), the Macau Civil Servant’s Association (ATFPM) proposed a series of measures to improve workers’ conditions in the MSAR, some specific to public administration workers and others reaching all residents of the territory. In regards to the gaming industry, the ATFPM suggested gaming operators should fulfill their “social responsibility” by providing housing to casino workers, a press release from the Association stated. Other suggestions involved public consultations on the renewal of the gaming concessions and
sub-concessions; increasing the transparency of the process; better laws to prevent VIP and junket debts; the improvement of gaming workers’ benefits; and more opportunities for management-level promotions for resident workers. The ATFPM also suggested gaming operators should provide subsidies for late night work shifts, guarantee compensation for extra hours worked, and offer vocational training to help laid-off workers find new careers, the press release detailed.
Following inflation
The ATFPM proposals included an increase of 4 per cent in public administration employees’ wages to start in 2017, and an increase in the government cash handout compensation
Aviation
Aviation authority kicks off crisis management course for security agencies The Civil Aviation Authority (AACM) kicked off a five-day crisis management course on aviation security for the city’s security officers yesterday, covering crisis management procedures and other relevant knowledge and skills. The course, which is co-organized with local security firm SEMAC Security Company, is being held at the security company’s training centre at the Macau International Airport and will continue until this Friday. A total of 20 participants have enrolled in the course. They represent different local security agencies including the Unitary Police Force, the
Macao Customs Service, the Public Security Forces, the Judiciary Police and the Fire Services. According to the Authority, the training programme is targeted at middle to senior level management personnel who are responsible for airport emergencies and aviation security tasks. AACM claims such regular courses are provided to aviation safety and security personnel with the aim to enhance participants’ understanding of local regulations and international standards so that their capacity and skills in handling emergencies can be enhanced.
from MOP9,000 to MOP12,000 in order to keep up with current inflation rates. “The inflation rate in 2015 was 4.65 per cent, and even with the gaming revenue decrease we believe the current inflation will remain between 3.5 per cent and 4 per cent. In order to raise the morale of public administration employees and recover their purchasing power, the cash handout should be increased,” the ATFPM release stated. In statements to Business Daily, Jose Pereira Coutinho, President and Director of the ATFPM and a directly-elected legislator, stated that the group also proposed to the CE construction of public housing for public security forces employees
and civilians. “Since the foundation of the MSAR, not one house has been built specifically for workers. This needs to change since workers applying to the public administration are creating more pressure on the public housing awarded by the Housing Bureau,” Jose Pereira Coutinho told Business Daily. The association proposed the building of 80,000 public housing units and a quick conclusion to the construction of the New Areas, in order to provide budget housing for middle and low income residents. “It was one of our best meetings, and the CE seemed very receptive. We hope they will take heed of our proposals,” Coutinho added.
6 Business Daily Tuesday, June 14 2016
Macau
Illegal immigrants
Number of immigration recognisance forms issued plummets The police are also considering a proposal to increase the detention period for people overstaying their Macau visas from 60 to 90 days. Annie Lao annie.lao@macaubusinessdaily.com
I
n the past five months, the Public Security Police (PSP) have issued more than 200 immigration recognisance forms, which allow foreign over-stayers to temporarily remain in town. However, that figure is 60 per cent lower than during the same period a year ago. The information was released during a TDM forum held over the weekend to discuss issues regarding the child abduction case by a Vietnamese man last Monday. The
Police confirmed that the suspect has been holding a temporary permit to stay in Macau until now. During the first five months of this year, 234 temporary permits were issued. In the same period last year, 642 temporary permits were issued, indicating a 64 per cent decrease. Chio Song Un, director of the Public Relations Office at the Public Security Police (PSP) attended the Macau Forums and said that the Police issued a total of about 1,200 temporary permits last year. Mr. Chio added that the number of crimes committed by expatriates in Macau accounted for about 7.2 per
cent of overall crimes. The Public Security Police (PSP) are now consulting with other consulates regarding illegal immigrants and over-stayers in the city, in order to send them back to their home countries as soon as possible. “This can help us to confirm the information of the illegal immigrants and over-stayers with their consulates so as to prevent them from staying in Macau illegally for a long time,” Mr. Chio explained.
Raising concerns
Despite the decrease in crimes committed by over-stayers, there are fears they could still pose a threat to the security of Macau residents. “The migrant worker mechanism of Macau has loopholes. They can come here as tourists. They can look for jobs during their stay,” complained Ao Ieong Kuong Kao, president of the Macau Overseas Employment Agency Association. “Police authorities issue immigration recognisance papers, but what usually happens is that they are nowhere to be found when it’s time to report back. Sometimes, police find them via patrols or random
inspections,” a resident attending the forum said. “Some keep on renewing and extending them. It’s such a waste of time and legal resources for our police force and courts,” she added. Other participants in the forum also suggested the PSP needs to review the existing system of issuing temporary permits, and exchange information with other countries about illegal immigrants and over-stayers to handle the relevant cases. “Especially for Vietnam and the Philippines, if most of the people are expected to over-stay and commit illegal crimes, this information should be exchanged to handle the cases in the legal procedure,” the Macau Institution of People’s Alliance director Chan Tak Seng said at the forum.. Meanwhile, the Macau Legal System Research Association president Chan Wa Keong suggested that the police should strengthen the regulations of temporary permits to prevent cases of misuse and should verify the need to issue temporary permits on a regular basis. “The number of the permits issued should be published and there should be a new committee set up to verify the need for permits issued in the city,” Mr. Chan added.
Tourism
Visitors jump 10.4 pct for Dragon Boat Festival Holiday The city recorded a total of 626,996 visitor arrivals during the four-day holiday for the Dragon Boat Festival between June 9 and 12, representing a year-on-year growth of 10.4 per cent, official data released yesterday by the Public Security Police Force (PSP) reveals. During the four-day period, a total of 1.84 million border crossings were registered at the
city’s different border checkpoints, of which some 920,027 were arrivals, and the other 918,690 were departures. The busiest border check point was the Border Gate, which saw a total of 1.37 million arrivals and departures during the four days, followed by the Outer Harbour Ferry Terminal and the Lotus Bridge border.
Business Daily Tuesday, June 14 2016 7
Macau Culture Macau rides on Shanghai International Film Festival
From movies to tourism Later this year, the festival organizing committee is also going to participate in the Busan International Film Festival.
R
iding o n t h e s u cc ess o f th e 19 t h S h a n g h a i International Film Festival, the
Organizing Committee of the International Film Festival & Awards-Macau (IFFAM) hosted a cocktail reception in Shanghai to promote
the event to film industry professionals and media from different places across the globe, taking the opportunity to attract more international exhibitors and introduce w o r l d-c l a s s exc h a n g e opportunities to IFFAM, the Macau Government Tourism Office (MGTO) said in a press release issued yesterday.
Festival Director Marco Müller addresses the reception
Culture
Guangdong-HK-Macau film fair calls for submissions This year’s Guangdong–Hong Kong–Macau Film Production Investment and Trade Fair will be held in August, the Cultural Affairs Bureau announced yesterday, calling now for submissions of local film projects. The Fair, co-organised by the Guangdong Administration of Press, Publication, Radio, Film and Television and the Hong Kong Film Development Council, has been held in the city every year since 2014. A maximum of ten selected film projects will have the opportunity to meet up with investors from the two Special Administrative Regions and those from Guangdong during the fair. The adjudicating panel, composed of a group of professionals from the
film industry, will select the applicants based on four criteria, namely: creativity of the story; experience and executive capability of the applicant; experience and executive capability of the executive producer and production company; as well as budget rationality. The local cultural department said in a press release that the three-citywide fair aims to provide “an exchange platform for film producers and investors from the three regions, facilitating pairing services, investment opportunities and the development of the film projects”. Submissions for this year’s fair can be made from today until June 28. In addition to local projects, all parties from the film industry can also submit their works.
The 1st International Film Festival & Awards-Macau will be held from 8 to 13 December 2016. To publicize this film-industry gathering in Macau, the Organizing Committee hosted an IFFAM cocktail reception at The RitzCarlton Shanghai, Pudong yesterday afternoon, inviting nearly 200 participants from film companies and media agencies at home and abroad. During the reception, Festival Director Marco
Müller stated that Macau has the potential to become a new hub for exchanges in the film industry. Recognized by the International Federation of Film Producers’ Associations as a Category A international film festival, the Shanghai International Film Festival was founded in 1993 with the aim of fostering Chinese film industry development and interchanges among members of the Chinese and overseas film industry. The IFFAM Organizing Committee started promoting the inaugural Macau Festival earlier in the year, presenting the Macau Pavilion at the 20th Hong Kong International Film & TV Market (FILMART) with members of the local film and television industry in March. The Committee also hosted a media reception for the event at the 69th Cannes Film Festival in May, with a booth set up in “Marché du Film” and inviting different international film festival c o o r d i n at o rs a n d f i l m distributors for meetings. MGTO also stated that later this year, the IFFAM Organizing Committee is going to participate in the Busan International Film Festival, not only to learn from others’ experiences and gain more publicity, but also to promote cultural industries and cultural tourism, for beneficial results that will fuel the sustainable development of Macau’s tourism industry in the long run.
8 Business Daily Tuesday, June 14 2016
Greater China Reform setbacks
Investment grows at slowest pace since 2000 With the economy not yet on solid footing, other analysts agreed that more stimulus is likely in coming months. Kevin Yao
G
rowth in China’s fixed-asset investment slipped below 10 per cent for the first time since 2000 in January-May as a boost from record credit growth seemed to be already fading, putting expectations of further stimulus back on the table. The government has taken a more cautious stance on stimulus since commentary in official media last month warned of the risks of growing debt, but analysts said signs of weakness in the latest monthly data may spur
policymakers into taking additional steps to support the economy. “I see rising odds of a cut in RRR (banks’ reserve requirements) or even a policy rate cut, before the end of the second quarter,” Zhou Hao, senior Asia emerging market economist at Commerzbank said in a note after May activity data on Monday. “The government will likely launch more fiscal policies such as faster approval of infrastructure projects as downside risk to growth heightens,” said Raymond Yeung of ANZ in a note. A major worry for the authorities is the continued decline in fixed-asset
investment by private companies. Overall fixed-asset investment growth fell to 9.6 per cent in January-May from a year earlier, missing market expectations of 10.5 per cent, which would have been unchanged from Jan-April. Investment by private firms slowed to a record low, with growth cooling to 3.9 per cent from 5.2 per cent in Jan-April and double-digits last year. Private investment so far this year has been the slowest since China began publishing the data in 2012. China needs to open up its state sector further in order to arrest the steep slowdown in private investment, statistics department spokesman Sheng Laiyun told a news conference, adding that falling prices and industrial overcapacity have impacted private investment. Foreign direct investment in China,
Despite a jump in car sales, consumption softened slightly
meanwhile, declined 1 per cent yearon-year in May, the first decline since December, the commerce ministry said on Sunday. Other data on Monday were more mixed, suggesting the economy may be bottoming out and less at risk of a hard landing but is still struggling to regain traction. Factory output grew 6 per cent in May from a year earlier, the same as in April and marginally better than expected. Analysts believe industrial output has been supported by a government infrastructure spending spree and a further recovery in the property market. Investment in real estate in May also posted its first year-on-year slowdown in growth since December, though property sales by area surged more than 32 per cent. Despite a jump in car sales, consumption softened slightly. Retail sales growth, which captures both private and government purchasing, slowed to 10.0 per cent on-year. Analysts had forecast it would be unchanged from April at 10.1 per cent. Trade data last week showed a further drop in exports but the smallest decline in imports in more than a year, suggesting domestic demand was picking up. Consumer inflation cooled, but production price deflation eased markedly, reducing some of the strains on Chinese companies which are battling shrinking profit margins. Government pledges to cut excess industrial capacity and restructure bloated state-owned enterprises are a major wild card, posing risks to nearterm growth and the financial system. But most economists expect Beijing to move slowly, fearing social instability if millions are suddenly thrown out of work. Reuters
M&A legislation
State-owned companies face greater scrutiny of EU deals The development comes as the purchase of over US$200 billion of foreign assets by Chinese companies in the past 18 months. Michelle Price
Chinese state-owned companies seeking to buy European assets are going to face greater regulatory scrutiny following a landmark European Commission decision on a recent deal. In its review of a proposed joint venture between France’s EDF and stateowned China General Nuclear Power (CGN), the Commission - which has exclusive power over antitrust issues
in the European Union - ruled that CGN was not independent from China’s central administrator for state-owned enterprises, the State-owned Assets Supervision and Administration Commission (SASAC). As a result, it decided that it did have the power to decide whether the deal should be cleared. It meant that the Commission didn’t only consider CGN’s own revenue but the combined revenue of all Chinese energy state-owned enterprises when
considering whether the deal came under its jurisdiction. This approach automatically bumped CGN’s turnover above the minimum EU threshold for merger clearance, a warning shot for other Chinese stateowned enterprises (SOEs) who may be considering buying assets in Europe and were not anticipating needing to get a regulatory green light. The Commission generally only reviews a merger if each party to it has more than 250 million euros (US$281 million) in sales in the EU as well as combined global sales of more than 5 billion euros. CGN’s turnover, alone, didn’t cross that 250 million euro threshold, but the Chinese energy SOEs as a whole do breach that level. While the ruling was little noticed when the details were released in April, law firms working with Chinese companies and their targets have in the past few weeks issued warnings to their clients. They have told them the decision could force Chinese SOEs to file for EU merger clearance regardless of their size in Europe, creating an extra barrier, and at the very least delay proposed acquisitions by Chinese SOEs.
Political concerns
The development comes as the purchase of over US$200 billion of foreign assets by Chinese companies in the past 18 months - many of which are SOEs - is triggering some political concerns in Europe and the United States. Politicians in France and Germany have expressed concerns at the rapid advance of Chinese companies in Europe, with French President Francois Hollande balking at the prospect of city of Shanghai-controlled Jin Jiang gaining control of French hotels group Accor. The CGN-EDF deal was approved by the Commission in March. It is the full
analysis showing why it reviewed the transaction, which was published in April, that has made the waves. The CGN case marks the first time the Commission has said publicly that Chinese government control is so pervasive that all SOEs in a sector should be treated as a single entity.
“The level of scrutiny is likely to intensify. This will make filing in EU merger cases trickier if you need detailed corporate information on a large number of SOEs” Alan Riley, professor at the UK-based wInstitute for Statecraft
“The CGN decision demonstrates the European Commission’s appetite to look at deals involving Chinese SOEs,” said Adrian Emch, a partner at Hogan Lovells in Beijing. “This was the first time the European Commission had said yes, SASAC is effectively the parent company of a Chinese SOE in order to assert its jurisdiction to review the deal - previously the European Commission had left that question open.” CGN did not respond to requests for comment, but said in its submission to the Commission that it operated independently. SASAC did not respond to
Business Daily Tuesday, June 14 2016 9
Greater China Currency expansion
In Brief
Yuan trade system to open branches in London, New York Britain and China have been working hard in recent years to strengthen their economic relationship. China’s state-owned currency marketplace said it was preparing to open branches in London and New York as part of efforts to promote the yuan’s global status. The China Foreign Exchange Trade System (CFETS), a subsidiary of China’s central bank, said in a statement that by expanding its network offshore, it aims to serve more overseas institutions and become a “main trading platform and pricing centre” for the yuan globally.
“CFETS is willing to provide comprehensive service and support to British institutions who participate in China’s interbank market”
on CFETS totalled 618.12 trillion yuan (US$94.24 trillion) in 2015, according to official Xinhua News Agency. The CFETS said that it would further strengthen cooperation with overseas trading platforms, and aim to eventually provide trading services 24 hours a day, seven days a week. The market platform extended its trading hours for China’s onshore yuan this year to end trading at 11:30 p.m. local time (1530 GMT) from 4:30 p.m. previously. “CFETS is willing to provide comprehensive service and support to British institutions who participate in China’s inter-bank market, and strengthen cooperation with them as Chinese companies go offshore,” Sun Jie, executive
vice president of CFETS, told an event in Shanghai. The event, focused on the topic of yuan’s internationalization, was attended by Chinese and British regulators, as well as financial institutions. Britain and China have been working hard in recent years to strengthen their economic relationship, despite strong differences due to Britain’s criticism of China’s human rights record. Chinese President Xi Jinping paid a state visit to Britain last October to seal what both call a “golden time” in relations. Xavier Rolet, CEO of the London Stock Exchange Group, told the same event on Sunday that London is now the world’s biggest offshore yuan centre after Hong Kong. LSE is working with the Shanghai Stock Exchange to launch a cross-border investment scheme to link the British and Chinese stock markets. Reuters
Fiscal revenue rises in May China’s fiscal revenue rose 7.3 percent year on year to 1.546 trillion yuan (US$234.8 billion) in May, data from the Ministry of Finance showed yesterday. The revenue growth was down from the 14.4-percent gain posted for April. The ministry expects revenue growth to be further affected by policies in the following months as downward pressure on China’s economic growth remain. The central government collected 756.9 billion yuan in fiscal revenue, down 2.2 percent year on year, while local governments saw fiscal revenue expand 18.3 percent to 789.2 billion yuan. Taiwan government
Former president Ma barred to travel to Hong Kong
Sun Jie, executive vice president of CFETS China has been gradually loosening its capital controls to allow more foreign participation in its onshore yuan market. Beijing is also fostering offshore yuan centres to promote international use of the Chinese currency. CFETS provides an electronic bidding system for the yuan against foreign currencies. It also offers cross-rate trading, as well as RMB interbank lending and bond trading. Yuan-based trading
requests for comment. In a statement, the Commission said it tests for state-owned company independence regardless of the nationality of the entity, adding: “The Commission does not lay down rules in its cases, but makes findings based on the facts of the case at that specific point in time.” Some European and U.S. policymakers have raised concerns that China’s foreign takeover drive poses national security risks, prompting the Committee on Foreign Investment in the United States to scrutinize and in some
Tax revenue
cases block more deals. At least 50 per cent of Chinese foreign purchases over the past 18 months involved companies that were either fully or partly state-owned, according to Thomson Reuters data.
Compelling evidence
One EU source with knowledge of the matter said the Commission’s decision did not set a new precedent but offered greater clarity on the regulator’s thinking on Chinese state control. “In all likelihood, this will be the basis
for such cases going forward,” said the source. Lawyers said they were now advising Chinese SOE clients to speak with the Commission even if they believe the deal does not meet the EU merger thresholds, especially if they operate in China’s energy sector. Failure to file for approval of a deal can lead to sizable fines. In 2014, for example, the regulator fined Norwegian salmon farmer Marine Harvest 20 million euros for merging with a rival without first having sought EU clearance “This certainly sets down a marker for future cases,” said Nicholas French, co-head of the China antitrust practice at law firm Freshfields. “If the SOE is in the energy sector, they would have to show some concrete evidence to the rebut the commission’s analysis.” For companies that do file for merger review, the clearance process is likely to become more onerous as Brussels seeks extra information on the control structure of an SOE that is buying assets in Europe. This may be hard to produce due to China’s strict state secrecy laws. The tougher approach could have implications for state-owned ChemChina’s US$43 billion bid for Swiss agriculture company Syngenta - China’s biggest foreign purchase ever - with lawyers saying the clearance process may take longer and require additional disclosures. “The level of scrutiny is likely to intensify. This will make filing in EU merger cases trickier if you need detailed corporate information on a large number of SOEs,” said Alan Riley, professor at the UK-based Institute for Statecraft, a think tank. “If you think about ChemChina, they may well face a huge demand for information from the commission in relation to at least other bio and agriculture SOEs and then they would have to hope there are not many overlaps.” ChemChina did not respond to requests for comment. Reuters
Taiwan’s opposition Nationalist Party slammed the island’s new government as “suppressive” for barring former president Ma Yingjeou from travelling to Hong Kong on the grounds of national security. It said barring Ma from visiting the former British colony of Hong Kong was “completely unhelpful for Taiwan’s internal political reconciliation and social harmony”. “This suppressive style of the just-sworn-in DPP government is naked to all the people,” it said. Tsai’s administration said on Sunday it had barred Ma from travelling to Hong Kong to give a speech at a media awards ceremony. M&A
China Life Insurance invests into Didi Chuxing Chinese car-hailing app Didi Chuxing said it received an investment of approximately US$600 million from China Life Insurance Co Ltd. Investment included equity of US$300 million and a long-term debt investment of US$305 million. Tech giant Apple Inc also invested US$1 billion in May in the Uber rival, a move that Apple Chief Executive Tim Cook said would help his company better understand the critical Chinese market. FDI
Foreign investment falls China’s foreign direct investment (FDI) fell 1 percent in May from a year earlier to 56.77 billion yuan, or US$8.89 billion, the Commerce Ministry said on Sunday. This is the first year-on-year decline since December, when FDI dropped 5.8 percent from the year ago month. FDI rose 3.8 percent in January-May from a year earlier to 343.55 billion yuan, or US$54.19 billion, the ministry said in a statement. Earlier data showed FDI gained 6 percent in April from a year earlier, following a rise of 7.8 percent in March.
10 Business Daily Tuesday, June 14 2016
Greater China Real estate
Growth in property investment slows In many third- and fourth- tier cities huge inventories of unsold homes continue to weigh on prices.
I
nvestment in Chinese real estate in May recorded its first year-on-year slowdown in growth since December as tightening measures in big cities and a housing glut in smaller centres took their toll. Property investment rose 6.6 per cent in May from a year earlier, according to Reuters calculations based on data from the National Bureau of Statistics (NBS) yesterday, compared
with 9.7 per cent in April. Property sales by floor area in the first five months grew 33.2 per cent, down from 36.5 per cent in January-April. For the first five months of the year, property investment grew 7 per cent, slowing from 7.2 per cent in the first four months. New construction starts in May were up 10.6 per cent from a year ago, measured by floor area, Reuters
calculations showed, slowing significantly from 25.9 per cent in April. Real estate investment directly affects about 40 other business sectors in China and is considered to be a crucial driver for the economy, which saw its slowest growth last year in a quarter of a century. A flurry of government stimulus measures have started to turn the sector around, but rapid price gains in some of the biggest cities have fanned fears of a bubble and prompted some local governments to tighten home purchase requirements. “While housing construction picked up across all tiers of cities, the extent of recovery has been much smaller
compared with the rebound in housing sales. It was mainly due to continued funding constraints faced by developers,” Wei Li, China and Asia economist at the Commonwealth Bank of Australia, said ahead of the data. China’s central bank said last week that growth momentum in property investment was likely to be sustained in the short term, but uncertainties remain in the medium term.
Key Points China Jan-May property investment +7 pct y/y May only +6.6 pct y/y, slowest since Dec - Reuters calculations Jan-May sales +33.2 pct by floor area, May only +24.3 pct New construction growth slows from April In May alone, the area of property sold grew 24.3 per cent, Reuters calculations show, compared with 44.1 per cent in April, also the first slowdown since December. China’s new home prices rose further last month, two recent private surveys showed, with values rising at their fastest pace in second-tier cities and reinforcing concerns that some parts of the property market are overheating. Yet in many third- and fourthtier cities huge inventories of unsold homes continue to weigh on prices. Growth in inventory floor area last month was 9.9 per cent higher than a year earlier, compared to 10.7 per cent in April. Reuters
Sino-German meeting
Leaders downplay mainland market status tensions Premier Li reiterated China’s intention to open up to more foreign investment. Ben Blanchard and Andreas Rinke
China does not want a trade war with Europe, Premier Li Keqiang said yesterday at a news briefing with German Chancellor Angela Merkel, who called for more talks with Beijing on its market economy status under the World Trade Organization (WTO). Beijing sees Germany, China’s largest trading partner in the European Union, as influential in the 28-member bloc’s debate on the politically sensitive issue of its market economy status. China agreed when it signed up to the WTO in 2001 that some countries could use often advantageous third-market comparisons when determining if Chinese imports were being sold at cut prices.
up a method to defend against cheap Chinese imports has set up a looming dispute at the WTO and the prospect of broader trade friction. “China has already fulfilled its obligations on joining the WTO. What’s needed now is for the other parties to fulfil the matching obligations they had promised,” Li said. “We don’t want to fight a trade war because this will benefit nobody,” he said. Merkel, who on Sunday began her ninth trip to China since taking office, said the two sides should avoid an
emotional debate on the issue. She said during a trip to China last year Germany favoured granting China market economy status in principle but that Beijing still had work to do, including further opening its public procurement markets. European commissioners are expected to debate the issue in late June or July, at a time of heightened trade tension after global rivals accused China of dumping cheap steel exports after a slowdown in demand at home. Li said unilateral trade protection measures wouldn’t help resolve the problem and that low-end steel was not something China wanted to produce or sell and was committed to phasing it out.
Key Points Li says China doesn’t want a trade war Provision from 2001 WTO signing expires in December Anger persists over China undercutting foreign companies Merkel says Germany favours market economy status for China That provision is set to expire automatically in December but anger persists over Beijing undercutting foreign industries with its heavily subsidised goods, particularly with massive overcapacity in Chinese sectors such as steel. China is adamant that countries must abide by the deal struck 15 years ago, but reluctance in Europe to give
German Chancellor Angela Merkel (L) talks to Chinese Premier Li Keqiang (R) during a signing ceremony at the Great Hall of the People in Beijing yesterday
Merkel has stressed the need for a level playing field for foreign firms amid growing pressure from industry to confront the Chinese more forcefully. Germany is open to foreign investment and expects the same from China, she said. China has repeatedly pledged to increase market access for foreign firms and carry out market reforms in its effort to revamp its slowing economy. Foreign critics however accuse it of not following through on its reform agenda and introducing new regulations that are restricting market access even further. “The facts prove that China’s market is open. We will be even more open. We will take even more steps based on the principles of treating everyone equally, fairness and transparency,” he said. Reuters
Business Daily Tuesday, June 14 2016 11
Asia
Family picture after the deal terms were agreed
TPP approval
Singapore urges U.S. against tweaking Pacific trade pact Passage of the agreement is in doubt given the opposition of the two U.S. presidential candidates, Hillary Clinton and Donald Trump. Eric Martin and David Roman
A
ny move by Congress to amend a massive Pacific trade pact - the centrepiece of U.S. President Barack Obama’s rebalancing to Asia - would risk the deal collapsing, according to the Singapore government. “It’s in the interests of all 12 parties that once we agree on the agreement, that we should not go back and modify any part of it because that runs the risk of unravelling the entire agreement,” Minister for Trade and Industry Lim Hng Kiang said in an interview late last week in Mexico City. The U.S.-led Trans-Pacific Partnership (TPP), which does not include China, is yet to be ratified by the U.S. and countries including Japan. Lim said it was the clear position of U.S. Trade Representative
Michael Froman that the U.S. is “not intending to renegotiate any aspect of the TPP.” Still, passage of the agreement, which the World Bank estimates could raise gross domestic product by an average 1.1 per cent in member countries by 2030, is in doubt given the opposition of the two U.S. presidential candidates, Hillary Clinton and Donald Trump. That’s even as Obama’s administration has prioritized economic and strategic ties with Asia as China’s clout in the region grows.
a counterweight to China. The pact goes beyond typical trade agreements that focus mostly on reducing tariffs by highlighting stricter safeguards for patents and levelling the playing field for companies that compete with government-backed businesses.
‘Opponents of the deal include companies like Ford Motor Co, which says it should include limits to a country’s ability to manipulate its currency’
Biggest deal
Agreed to last October by Pacific-rim nations that make up about 40 per cent of the world’s economy, including Vietnam and Australia, the TPP would be the biggest U.S. trade deal since the 1994 North American Free Trade Agreement, creating an economic alliance that will serve as
Opponents of the deal include companies like Ford Motor Co, which says it should include limits to a
country’s ability to manipulate its currency, while U.S. labour groups say it would safeguard corporate profits at the expense of workers. Some U.S. lawmakers have called for it to be renegotiated. Lim said any move by Congress to modify the pact could be unacceptable for other countries that are yet to ratify it. In Japan, where legislation to ratify the TPP has been submitted to parliament, Prime Minister Shinzo Abe has made it clear that the deal will fall through if it is amended.
‘Various groups’
The TPP is scheduled to come into force two months after it has been ratified by all member countries. It could also go into effect if the U.S., Japan and at least four other countries ratify it by October 2017. “We’re in touch with our colleagues in the U.S. (trade) section,” said Lim. “The feedback given to us is that they are looking after the various groups who have given support during the passage of the fast-track authority stage and they are in regular engagement with the congressmen and the senators to address their concerns.” TPP proponents say the best chance to get the pact through Congress will be the lame duck session after the November election, before the new congressional term begins in early January. Bloomberg News
Surveying mood
Japan corporate sentiment worsens While companies forecast their capital expenditure to rise 3.8 per cent in the business year that started in April. Stanley White
Sentiment at large Japanese manufacturers worsened for the second consecutive quarter over April-June due to a rising yen, although companies did revise up their capital expenditure plans. Large manufacturers said they expect sentiment to rebound in July-September, offering encouragement to policymakers navigating weak exports and lingering concerns about the global economy. The survey results could offer some relief to the Bank of Japan, which holds a monetary policy meeting later this weak. The upgrade of capital expenditure plans should bolster the central bank’s argument that its negative interest rate policy would spur lending. “Right now the economy is in a holding pattern, but I don’t expect things to worsen from here on,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. “The benefits of negative rates have been elusive so far, but we could finally be seeing the capital
expenditure boost.” The business survey index (BSI) of sentiment at large manufacturers was minus 11.1 in April-June, compared with minus 7.9 in January-March. The BSI is compiled by the Ministry of Finance and the Economic and Social Research Institute, an arm of the Cabinet Office. The index measuring big manufacturers’ sentiment three months ahead was at plus 7.0 versus plus 7.1 previously.
initially estimated in the first quarter as capital spending fell less than was first reported, but worries remain over slow consumer spending and weak exports. The yen has gained more than 12 per cent versus the dollar since the start of the year on uncertainty over the pace of pending U.S. Federal Reserve
interest rate increases. A rising yen tends to worry Japanese companies because it reduces overseas earnings, but the sentiment survey found manufacturers believe the negative impact will be temporary. The BSI measures the percentage of firms that expect the business environment to improve from the previous quarter minus the per centage that expect it to worsen. Reuters
Key Points Big manufacturers’ Q2 sentiment index -11.1 vs -7.9 in Q1 Sentiment expected to improve in Q3 Firms see capex +3.8 pct FY2016/17 vs -6.6 pct previously Companies forecast their capital expenditure to rise 3.8 per cent in the business year that started in April, versus a 6.6 per cent decline forecast in the previous survey. Japan’s economy grew faster than
The index measuring big manufacturers’ sentiment three months ahead was at plus 7.0 versus plus 7.1 previously
12 Business Daily Tuesday, June 14 2016
Asia In Brief Manpower
Singapore’s unemployment rate remains stable Overall unemployment rate remained low and unchanged at 1.9 per cent in March 2016, said Manpower Research and Statistics Department, Ministry of Manpower (MOM) in its quarterly Labour Market Report yesterday. The report revealed that the unemployment rate for Singapore residents and citizens in March were 2.7 per cent and 2.6 per cent respectively. MOM said total employment grew by 13,000 in the first quarter of 2016, lower than the seasonal high growth of 16,100 in the preceding quarter. The report unveiled that 4,710 workers were made redundant in the first quarter of 2016. Investment
S.Korea bonds see foreign inflows for 3rd mth South Korean bonds saw inflows from foreign investors for a third straight month in May, official data released yesterday showed, while foreigners turned sellers of South Korean shares for the first time in three months. Foreigners boosted their South Korean bond holdings by 888 billion won (US$757.29 million) worth in May, according to Financial Supervisory Service (FSS) data, up from 631 billion won worth they invested in April. The FSS data showed investors in Asia and Europe continued to funnel money into South Korean paper in May from April, while treasury bonds and monetary stabilisation bonds both saw inflows last month. Official trip
Mongolian president to pay working visit to Myanmar Mongolian President Tsakhiagiin Elbegdorj will pay a working visit to Myanmar starting today, local media reported yesterday. During his three-day working visit to Myanmar, Elbegdorj will meet his Myanmar counterpart U Htin Kyaw, State Counselor Aung San Suu Kyi and government officials, a spokesman for the President’s Office U Zaw Htay said. A natural resources management- related workshop as well as a joint conference will also be held during the president’s visit, spokesman of the Foreign Ministry U Kyaw Zeya said. Elbegdorj will be the second world leader to visit Myanmar after new government took office in April. China support
Cambodia launches Maritime Silk Road Research Centre Cambodian Prime Minister Samdech Techo Hun Sen and Chinese Ambassador to Cambodia Bu Jianguo yesterday inaugurated the (21st Century) Maritime Silk Road Research Centre in Phnom Penh, aiming to further broaden Sino-Cambodian relations and cooperation. “The 21st Century Maritime Silk Road initiative, along with the Silk Road Economic Belt, is a wise initiative of the Chinese leaders in the new generation,” the prime minister said during the inauguration ceremony. To back the initiative, China has established the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund.
Strategic setback
Hotel Lotte postpones IPO indefinitely after raids The company said it will continue to pursue plans to expand its duty free store business despite the withdrawal of its plans. Joyce Lee and Lee Chang-ho
S
out h K o r ea’ s Hotel Lotte Co Ltd said yesterday it is postponing its up to US$4.5 billion planned IPO indefinitely, as the wider Lotte Group reels from the impact of raids by prosecutors on group firms. The raids on Lotte Group headquarters, Hotel Lotte and other Lotte companies on Friday were part of an investigation into a possible slush fund, three people with direct knowledge of the matter have said. In addition to the derailment of an IPO billed the world’s biggest this year, the aftermath of the raids has also seen Lotte Chemical Corp, the conglomerate’s biggest listed unit, bowing out of bidding
A picture made available on 11 June 2016 shows South Korean investigators carrying out confiscated documents after raiding the Lotte Group headquarters in Seoul last Friday
business and new overseas duty free stores despite the withdrawal of its IPO plans. The raids were the second setback this month for the deal.
Last Tuesday, Hotel Lotte cut the size of the IPO and pushed back the listing from June to July, after prosecutors launched a bribery investigation into a director. Reuters
Markets’ tendency
Abenomics’ doubts drive foreigners off Japanese stocks The benchmark Nikkei share average has fallen 13 per cent this year, underperforming its global peers. Ayai Tomisawa
Foreign investors are bailing out of Japanese stocks as a wobbly economy feeds disillusionment about ‘Abenomics’, sparking bouts of volatility in a market increasingly shaken up by policy decisions of the Bank of Japan. The trouble is that long-term focused foreign funds have turned bearish on doubts that Tokyo can pull Japan out of two decades of economic stagnation, despite more than three years of massive monetary and fiscal stimulus. “There are many long-term investors who have given up on Japanese stocks as there are no structural reforms being delivered. Meanwhile, monetary policy decisions only have short-term effects,” said Michiro Naito, executive director at equity derivatives at JPMorgan who recently visited Asian investors. Net selling by foreign investors from January through May was roughly 4.5 trillion yen (US$42.07 billion) in Japanese cash equities, according to exchange data, a stark turn from net purchases of about 2.83 trillion yen in the same period last year. Not surprisingly, the benchmark Nikkei share average has fallen 13 per cent this year, underperforming its global peers. The S&P 500 index is up over 2 per cent, while the pan-European FTSEurofirst 300 has fallen 9.0 per cent. All of this has occurred amid a bleak backdrop for Japanese equities, as confidence has been sapped by worries over a sputtering economy,
anaemic inflation, weak external trade and sluggish consumption. Moreover, a rebound in the yen has fed concerns about a hit to exporters’ earnings, while anxiety over a possible credit rating downgrade after the government delayed a planned second sales tax hike has led investors to reassess Japanese risk. It’s a far cry from the optimism stirred by Prime Minister Shinzo Abe’s ascension to power in December 2012, as the Nikkei catapulted to 18-1/2-year highs in June 2015, driven by his Abenomics prescription of monetary stimulus, fiscal expansion and structural reforms. The yen is also much stronger now, with the dollar fetching 106.81 yen versus 125.85 at its peak in June last year.
Volatility spikes
Volatility has also periodically spiked, more or less coinciding with the foreign selling and especially in the wake of recent BOJ policy decisions,
Prime Minister Shinzo Abe
first on January 29 when the central bank unexpectedly announced it was adopting negative rates in its quest to beat back deflation, and then in late April when it stood pat even as many in the market expected more stimulus. A level below 25 in the Nikkei Volatility Index, also referred to as a ‘fear gauge,’ is generally indicative of relative calm. So a jump to near 50 in February and to 32 in May fed fears of more bouts of volatility, not helped by uncertainty over BOJ policy. “If you look at when the market goes up, is it going up because the fundamentals are improving? No. It’s going up because there was negative economic data and people are hoping that the BOJ will inject more money,” said Olivier d’Assier, managing director of Asia Pacific at risk management firm Axioma Inc. “Investors are caught in a binary situation now, either BOJ is going to intervene, or not,” d’Assier said. At this week’s BOJ meeting, analysts expect no change although a Reuters poll predicted another dose of stimulus will be delivered at its July review. The Fed meeting this week and risks of Brexit - Britain potentially exiting the European Union - were also expected to stoke volatility in the near term. Meanwhile, more brokerages’ views have turned bearish. In the latest fund manager survey by Bank Of America Merrill Lynch, allocations in Japanese equities in April hit the lowest since the start of ‘Abenomics’. And Morgan Stanley Securities cut its Topix target by 12.1 per cent to 1,230 from 1,400 at the end of this fiscal year. The new target is 8 per cent below the current Topix level. “Many investors don’t think Japanese stocks as a good long-term investment,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management. Reuters
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
Business Daily is a product of De Ficção – Multimedia Projects
for U.S.-based Axiall Corp as well as a slide in share prices for group firms. The scandal highlights the potential risks of investing in opaque South Korean conglomerates like Lotte, analysts said. “Legal risks have upset Lotte’s listing plans. In the eyes of foreign investors, South Korea’s corporate governance is a very uncertain issue,” said Kim Sang-jo, a professor of economics at Hansung University. Hotel Lotte said in a filing it made the decision to protect investors given recent “internal and external issues.” The company, which is the world’s third-largest duty free store operator, said it will continue to pursue plans to expand its local duty free store
Business Daily Tuesday, June 14 2016 13
Asia Restructuring industry
South Korea’s President urges reform on shipbuilders The nation’s so-called “Big Three” racked up collective losses of US$7.2 billion last year. South Korean President Park G e u n - H y e y e s t e r d a y u rg e d “bone-crushing” efforts to overhaul the nation’s ailing shipbuilders faced with mounting losses caused by slowing global demand and increased competition. The South’s mighty shipbuilders including Hyundai Heavy Industries and Daewoo Shipbuilding and Marine Engineering have dominated the global market for past decades. But a slump in oil prices and global economic slowdown sapped demand for tankers and container ships, while overcapacity, regional rivalry and the emergence of cheaper Chinese shipbuilders has squeezed profit margins. The South Korean government and creditor banks, including state-run Korea Development Bank, have urged intense restructuring efforts including mass job cuts in recent months. “If we don’t carry out a bold restructuring by downsizing the overgrown workforce... and cutting costs, the future of not only the shipbuilders but also the whole economy will be in jeopardy.” Park warned of mass job cuts and an economic slump in the country’s southern region where the shipbuilders are based. “The road for reform is painful... but, if we try to avoid it, our economy would be devastated and we would face even bigger pain in the end,” Park said, adding Seoul would offer financial assistance and job training for those who are laid off.
The nation’s so-called “Big Three” shipbuilders including Hyundai, Daewoo and Samsung Heavy Industries racked up collective losses of 8.5 trillion won (US$7.2 billion) last year. They were hailed as a major driver of the country’s export-reliant economy - Asia’s fourth-largest - before being forced since last year to shed thousands of jobs and assets to stay afloat. As exports sputtered and domestic demand slowed, South Korea’s central bank in April slashed the country’s growth outlook for this year to 2.8 per cent from the previous three per cent.
won as of late March as wages stagnated and housing prices continued to rise. The central bank also cut last week the key interest rate to a record low of 1.25 per cent, saying it was aimed at easing the impact of corporate
restructuring. Seoul and state-run creditor banks have tried to put pressure on troubled industries, including shipbuilding and shipping, to reform and blaming a lack of competitiveness for their economic woes. AFP
“The companies, along with creditor banks, should make bone-crushing efforts to revive their businesses” Park Geun-Hye, South Korean President
The economy expanded 2.6 per cent last year, the lowest since 2012, as crushing household debts prompted more South Koreans to tighten wallets. Total household debts have snowballed to reach a record 1,223 trillion
South Korean president Park Geun-Hye speaks during the Opening Ceremony of the 20th National Assembly in Seoul yesterday
Defence industry
Double-digit Asia growth drives record arms sales Analyst IHS Jane’s predicted that the global arms market would grow further in 2016 to US$69 billion. A buying spree in the Asia-Pacific region propelled double-digit growth in the global arms market last year to a record US$65 billion (57.7 billion euros), defence analysts IHS Jane’s said yesterday. Defence imports by Asia-Pacific nations soared 71 per cent in a “spend surge” between 2009 and 2016, the analysts said, helping the global arms market jump 11.3 per cent or US$6.6
billion last year. “The global defence trade market has never seen an increase as large as the one we saw between 2014 and 2015,” said Ben Moores, a senior analyst at IHS Jane’s. “2015 was a record-breaking year,” he added. It said there had been an acceleration in particular in “states bordering the South China Sea”.
An IHS Jane’s report said three of the top 10 countries with the fastest growing opportunities were in Asia-Pacific: Vietnam, Philippines, Bangladesh. South Korea rose from being the seventh biggest defence importer in the world in 2014 to fifth largest last year, purchasing arms worth US$2.2 billion. The report predicted it would rise to fourth place in 2016. Australia’s defence imports also rose from sixth to third place with US$2.3 billion, after top importer
Saudi Arabia and second-placed India which did not change positions from the previous year.
“2015 was a recordbreaking year” Ben Moores, a senior analyst at IHS Jane’s IHS Jane’s predicted that the global arms market would grow further in 2016 to US$69 billion, pointing in particular to India’s inability to manufacture the quality of defence equipment it needs to replace ageing stock. “Large numbers of India’s fighters and submarines need to be replaced and, given the country’s high economic growth rate, it should be in a strong financial position to acquire them in the coming decades,” IHS Jane’s director Paul Burton said. On the exporting side, IHS Jane’s found that Germany rose from being the world’s fifth biggest arms exporter to third biggest in 2015 with sales of US$4.8 billion. France slid from third to fourth place (US$4.8 billion) and Britain from fourth to fifth (US$3.9 billion). The top arms exporters are still the United States and Russia. AFP
14 Business Daily Tuesday, June 14 2016
International In Brief Energy sector
Putin could sketch deal in Juncker talks Jean-Claude Juncker and Vladimir Putin may offer clues about the way forward for a controversial project to expand Russia’s gas interconnections with Europe this week. The European Commission president meets the Russian leader at a conference in St. Petersburg and may discuss ways a Gazprom PJSC-led consortium could be allowed to double the capacity of the Nord Stream pipeline which carries Russian natural gas to Germany. The project has divided EU governments concerned about the bloc’s dependence on Russian gas and Putin’s meddling in Ukraine. M&A
Symantec to buy Blue Coat Symantec Corp. is preparing to acquire Blue Coat Systems Inc. for US$4.65 billion in cash, a deal that will beef up its cyberdefense technology and fill its vacant chief executive officer position. Blue Coat CEO Greg Clark will take the helm of the combined company and join its board after the deal closes in the third quarter, both companies said in a statement. The transaction should help Symantec realize another US$150 million in annual net cost savings, on top of an expected US$400 million yearly expense reduction it had previously announced, they said.
Private study
Sovereign investors cut bonds seeking returns in frontiers, property Returns are expected to undershoot again in 2016 by 1.3 percentage points. Claire Milhench
S
overeign investors have cut their exposure to global bonds, preferring higher-yielding alternatives such as real estate, and are also adding to frontier market holdings, a study by asset manager Invesco showed yesterday. Sovereign investors, a category that includes everything from state pension funds to domestic development funds and future generation funds, are falling short of their return targets due to volatile stock markets and near-zero or even negative interest rates in many Western markets. The Invesco study, which covers 77 sovereign investors and reserve managers representing US$8.96 trillion of assets, found that the average annual return of 4.1 per cent had undershot investors’ original target of 5.9 per cent last year. Returns are expected to undershoot again in 2016 by 1.3 percentage points. “It’s been a difficult environment over the last 12 months with market volatility, and some of them
are funded from commodities, and there’s been volatility there too,” said Alex Millar, head of EMEA sovereigns, Middle East and Africa institutional sales at Invesco. The disappointing performance is prompting sovereign investors to rotate out of listed equity and bond markets into more illiquid assets. Global fixed income allocations for the average sovereign investor portfolio fell to 16 per cent in 2015, down from 20 per cent in 2014 and from 25 per cent in 2012. Meanwhile, the average exposure to real estate, infrastructure and private equity rose to 13.8 per cent, up from 9.2 per cent in 2014. Real estate is the fastest growing sector in this segment, as it is easier to access. More than 62 per cent remain underweight infrastructure relative to their target allocation, whilst 52 per cent are underweight private equity. “Most sovereigns have found it difficult to deploy assets in these areas,” Invesco noted. As a result, fewer sovereign investors now expect to increase their actual allocations to
Pay dispute
SAS, EasyJet pilots join strikes Swedish pilots flying for SAS AB, the owner of Scandinavian Airlines, extended a walkout in a pay dispute to a fourth day, joining cockpit crews at Air France-KLM Group in hitting travel the opening weekend of the Euro 2016 soccer tournament. SAS cancelled 230 domestic Swedish and European flights yesterday, bringing the total to 649 since Friday, as 400 members of the SPF union continue walkouts in a two-monthold conflict about salary and working hours, the carrier said in a statement. Flights operated by Danish and Norwegian pilots, partner airlines and longhaul services will operate, the airline said. Fund loses
Goldman exploited Libya relationship Goldman Sachs Group Inc. took advantage of the “naive and unsophisticated” Libyan Investment Authority to influence officials to place trades that caused the fund to lose about US$1.2 billion, lawyers for the fund said at the start of a highly anticipated trial in London. One Goldman partner said the LIA was “very unsophisticated” in a 2008 e-mail disclosed for the trial that started yesterday.
private equity and infrastructure. “The practicalities of accessing infrastructure are challenging,” said Millar, highlighting issues such as sourcing deals and winning bids. He added that on average it took three-and-a-half years from making the decision to invest in infrastructure to actually getting it done, compared with two years in real estate. Sovereign investors showed a growing interest in frontier markets, with allocations to emerging Asia standing at 2.3 per cent in 2015, up from 1.6 per cent in 2014. The allocation to Africa grew to 0.9 per cent from 0.6 per cent, despite problems in markets such as Nigeria.
Key Points More interest in frontier markets such as emerging Asia Real estate growing strongly at expense of fixed income Overall confidence resilient, net inflows prevailing But sovereign investors became less willing to overlook political and regulatory concerns in Brazil, Russia and China in order to hit target allocations, Invesco said. From year-end 2014 to 2015 the average asset allocation to Russia and central Europe fell to 1.5 per cent from 1.9 per cent, whilst China fell to 1.7 per cent from 2.2 per cent. However, beyond a few switched or consolidated mandates, sovereigns do not appear to have withdrawn existing assets from any emerging market, Invesco said. “They are quite strategic, they won’t flip their portfolios around tactically year-on-year ... but we are seeing some fine tuning,” Millar said. The study also found that investor confidence remained relatively high, with the average sovereign investor withdrawing or cancelling only 3 per cent of assets. This is Invesco’s fourth annual survey of global sovereign asset management, which covers 66 per cent of sovereign assets and 25 per cent of foreign reserves. Reuters
Gender gap
Financial boardrooms 30 years away from 30 per cent female representation Female executives in financial services are 20 to 30 per cent more likely to leave their employers than their peers in other industries. Anjuli Davies
It will take 30 years at the current pace of change for women to attain just 30 per cent of the seats on executive committees in the financial services industry globally, an Oliver Wyman report said yesterday. Globally women account for only one-fifth of boards and 16 per cent of executive committees in financial services, the management consultancy said. Thirty per cent is the level at which research suggests a minority’s voice can be heard and a separate initiative called The 30 Percent Club campaigns for a similar global target for company boards. “The industry is far from where it should be on gender balance,” “The low representation of women on executive committees
in particular is a problem,” said Ted Moynihan, managing partner of Financial Services, Oliver Wyman. “An organization’s key business and strategic decisions are made by its Executive Committee and they are also highly visible, both internally and externally, making them effective as role models and sponsors - and driving business success.”
Key Points Women account for one-fifth of financial services boards Make up 16 per cent of executive committees 50 per cent of HR heads, 8 per cent of CEOs are women Mid-career conflict acute
The global financial services industry has long been seen as male-dominated. Female executives in financial services are 20 to 30 per cent more likely to leave their employers than their peers in other industries, citing inflexible working hours, inequalities in promotion and pay, and unconscious bias, the report found. There are also marked differences in the executive jobs awarded to women, who take largely HR, marketing and compliance roles. Only 8 per cent of CEOs are women whilst 50 per cent of HR heads are women, according to the report. In banking and insurance, women make up only 14 per cent of executive committees compared to 22 per cent and 18 per cent in the public sector and asset management sectors respectively. The report analysed 381 financial services organisations in 32 countries and surveyed 850 financial services professionals. Reuters
Business Daily Tuesday, June 14 2016 15
Opinion Business Wires
The New Zealand Herald Prime Minister John Key (pictured) says he “potentially” supports income-related restrictions on mortgage lending. Mr Key said increasing supply was still the main issue to dampen the “overheated” Auckland property market, but the Reserve Bank had some options to address the demand side. Investors account for about 46 per cent of property transactions in Auckland. Mr Key - who again resisted labelling the Auckland housing situation a “crisis” - said the Government had introduced the “bright line” test to target investors, but the Reserve Bank could take further action.
One Chinese city has figured out the future
Viet Nam News Deputy Prime Minister Trịnh Đình Dũng has called on China to create more favourable conditions for the transportation and import of Vietnamese goods, especially agro-forestry-fisheries products, in order to improve bilateral trade balance. The official made the remarks at a meeting with Chinese Vice Premier Wang Yang in Yunnan Province’s Kunming city on Sunday as part of his trip to China to attend the fourth China-South Asia Expo and the 24th Kunming Import and Export Commodities Fair. He suggested the two countries enhance their coordination in border management and encourage partnerships between their localities.
The Phnom Penh Post Angkor Wat temple, Cambodia’s prime tourist attraction, experienced nearly stagnant growth for the first five months of this year, according to data released by Angkor Institution. The archaeological park generated almost US$28 million in ticket sales at 1.27 per cent growth compared to the same period last year. Visitor arrivals increased by only 0.25 per cent compared to the same time last year, admitting 972,753 people. A spokesperson for the Apsara Authority, responsible for protecting the archaeological site, said that despite seemingly low growth, the tourism sector was satisfied with the large amount of visitors.
Jakarta Globe Indonesia collected less than a third of its tax collection target in the first five months this year as low commodity prices, which hurt the country’s exports, persisted amid surging demand for tax restitution from taxpayers. Tax revenue excluding customs and excise - reached Rp 364 trillion (US$27 billion) by the end of May, or 3 per cent lower than Rp 377 trillion accumulated in the same period a year earlier. The government is seeking to cut its collection target to Rp 1,343 trillion in tax this year, from an initial target of Rp 1,360 trillion.
C
hina’s Xi Jinping recently declared that he wants China to rank as one of the world’s most innovative countries by 2020 and to top the list by mid-century. Going by past practice, this probably means a lot more money being poured into dodgy start-ups and ill-conceived high-tech schemes. There’s a better model to be found, however, one that’s surprisingly close to home: the southern boomtown of Shenzhen. The city’s Nanshan district, home to a huge HighTech Industrial Park, is now China’s richest, with a higher per capita GDP than even capitalist Hong Kong, just across the border. Indeed, Shenzhen’s rapid success could well be more remarkable than the latter’s: Little more than a fishing village in 1979, when Deng Xiaoping decided to launch China’s reforms in a special-economic zone there, Shenzhen has since grown into a megacity of more than 11 million people with a GDP five times Macau’s. At an average of US$727 per square foot, real estate prices are higher than anywhere in the U.S.; the city will soon be home to the world’s fourth-largest skyscraper. It’s little wonder that in 1992, when support for his reform agenda was flagging, Deng returned to the city to remind Chinese of the virtues of entrepreneurship and private enterprise. Today some 8,000 tech companies have set up shop in the city, including Internet giant Tencent and telecommunications company Huawei Technologies, as well as the world’s largest drone maker; the US$3 trillion Shenzhen exchange is devoted to high-growth tech start-ups. Beijing Genomics International, a public-private partnership, provides rapid DNA data downloadable anywhere in the world via Amazon cloud services. Lighting company LEDSFilm is manufacturing the smallest and brightest studio and entertainment lights in the world. Not every city in China can become Silicon Valley, of course. And Shenzhen had a particularly good base upon which to build, given that the surrounding Pearl River Delta is home to the thousands of nimble manufacturers that assemble most of the world’s consumer appliances. But the city itself has gotten some key fundamentals right. First and foremost, it’s a true melting pot. To a far greater extent than other Chinese megacities, Shenzhen has eased the path for migrant workers to become full citizens: Anyone who buys an apartment is entitled to full residency rights. Ambitious risk-takers from around the country flock to the city to make their fortunes, unencumbered by history.
“
Christopher Balding a Bloomberg View columnist
to liberalize the “hukou” system of household registration. That condemns low-skilled migrants to black-market status in areas like education and restricts the flow of labour to where it can most effectively help businesses grow. If China’s cities want to develop ambitious, hard-working and entrepreneurial work forces, they need to do better at welcoming newcomers who embody those traits. Second, Shenzhen has created the most business-friendly environment in China. It’s relatively easy to set up a company and to transfer funds overseas. The World Bank generously estimates it takes more than 31 days and 11 different procedures to start a business in China. Officials in Shenzhen’s Qianhai Enterprise Zone boast they can register a foreign-invested firm in eight days. Thriving venture capital and private equity firms now fill the city, which helps foster risk-taking. Given its lack of natural resources, Shenzhen has focused instead on freeing people to innovate: Together the government and local companies invested more than US$3 billion in R&D last year, nearly 6 per cent of GDP; the nationwide average is only 2.3 per cent. All across the city, posters declare that “innovation [is] encouraged and failure tolerated.” City officials actively promote more open financial markets, so that entrepreneurs have an easier time tapping funding. Most importantly, rather than heeding government diktats about what and how much companies should produce, the city’s thriving private-sector competes fiercely to develop products that can survive in a cutthroat market. Elsewhere in China, the government still coddles state-owned incumbents despite their excessive indebtedness, poor record at creating new jobs and overall inefficiency. Finally, in order to thrive, new businesses need a solid regulatory structure that consistently enforces clear rules. Many local lawyers are licensed in both Shenzhen and Hong Kong, making cross-border agreements easier. A local free-trade zone now offers Hong Kong legal adjudication for companies fearful of more capricious mainland courts and regulators. Deng’s reforms in 1979 were rooted in a single thought: They empowered individuals and promoted entrepreneurialism, rather than reinforcing the state-dominated status quo. If China truly wants to build a 21st-century economy - a must, given its shrinking population and rising labour costs - it’s going to have to do the same. Shenzhen is proof the formula works. Bloomberg View
Shenzhen has created the most businessfriendly environment in China
QuickTake China’s market meddling
By contrast, Beijing remains the preserve of party elites, while Shanghai is notorious for shunning outsiders. In both cities, bureaucratic infighting and middle-class resistance continue to hamper efforts
”
16 Business Daily Tuesday, June 14 2016
Closing Civilian aircraft industry
Airbus finalises deal to build helicopter plant in Qingdao
Airbus Helicopters, the world’s largest supplier of commercial helicopters, finalised an agreement yesterday to build an assembly line in China as part of a deal to sell 100 H135 helicopters to a local consortium. The helicopter sale is worth 700 million euros (US$788 mln) at catalogue prices, but the value of the deal rises to 1 billion euros when support and initial industrial investment are included, an Airbus
Helicopters spokesman said. The factory will be located in the Sino-German Ecopark in the coastal city of Qingdao, and is expected to start operations in 2018 with a capacity of 36 units a year, the company said. The deal, first outlined last October, was signed during a visit to China by German Chancellor Angela Merkel. China is opening up its low-level airspace to civilian aircraft, and the global aviation industry is laying the groundwork for a boom beyond private business jets with the purchase of helicopters that is likely to include fleets of air ambulances. Reuters
Expansion strategy
Bank of China Intl commodity unit plans to boost Chinese, European business Having launched an oil index product last year, BOCI plans to expand its index and structured products business for institutional and private wealth clients in China. Melanie Burton
B
ank of China International (BOCI) plans to boost its commodity business by tapping a latent investor base in China and broadening its drive into Europe. The investment banking arm of state-backed Bank of China, the country’s No.4 lender by assets, became the first Chinese member of the London Metal Exchange in 2012, pushing into commodities near the height of a demand boom.
ourselves as an international player, not from China or Hong Kong. Commodities is a global business, and with a global platform we will tap into those local players.” BOCI set up the unit in 2010 to serve its Chinese customers with an energy hedging business in Hong Kong, before opening in London, New York, Singapore and Shanghai’s
free trade zone, focusing on energy, as well as base and precious metals. At the time, however, market participants said it was slow to build on momentum. Having launched an oil index product last year, BOCI plans to expand its index and structured products business for institutional and private wealth clients in China, from its own private banking base in Hong Kong, and through its parent’s customers on the mainland. Further afield, BOCI is looking to expand its financing business for commodity clients, in repurchase agreements and for off take and
prepayments. In Europe, it will also rely on Bank of China’s branches for introductions to new clients. “These next two years, we will start aggressively expanding our European clients,” Fan said yesterday, adding that a mix of Chinese and Europeans on his London team should increase business with firms in the continent, such as in hedging for automakers. Fan moved back to Hong Kong this year after five years in London. Within Asia, BOCI is readying its business for the internationalisation of the yuan, which Fan sees in the next 2-3 years. Reuters
Key Points BOCI to tap China private wealth, institutional investors Also plans to expand hedging business in Europe To focus on base, precious metals, as well as energy Readying cross border business for yuan internationalisation “Hopefully for the next five years, we’ll get into the next stage (in our commodity business) which is to expand our products and our service capability so we can become a key player in the landscape,” said Arthur Fan, managing director of BOCI’s global commodities arm. “Supporting Chinese clients, that is where we have an edge. We regard
In Europe it will rely on Bank of China’s branches for introductions to new clients
Monetary authority
New bank
M&A
Regulator OKs Singapore to set up anti-money laundering department Xiaomi-backed private lender
HK’s Wharf Holdings seeks buyers for telecoms unit
The Monetary Authority of Singapore (MAS) will set up dedicated department to combat money-laundering and strengthen its enforcement capabilities, the central bank said yesterday. Singapore last month ordered the closure of Swiss bank BSI’s operations in the city-state, while Switzerland began criminal proceedings against the private bank, in the biggest international crackdown on financial entities dealing with a scandal-hit Malaysian government fund. MAS said it will form a dedicated anti-money laundering department that will conduct functions that used to be carried out by different departments in the central bank. “Like all major international financial and business centres, Singapore’s financial sector faces the risk of being used as a conduit for money laundering and terrorist financing activities,” the central bank said in a statement. “While MAS has in place a robust regime to protect the integrity of Singapore’s financial system, the increasing complexities of transnational flows necessitates heightened supervisory focus on combatting money laundering and other illicit financing activities,” the MAS said. Reuters
Hong Kong tycoon Peter Woo’s Wharf Holdings Ltd plans to sell its telecoms business in a deal that could be worth more than US$1 billion, people familiar with the matter said, and has asked more than a dozen potential suitors, including both giant Chinese insurers and Western buyout firms, to submit bids. KKR & Co, CVC Capital and TPG Capital Management are among the companies invited to submit bids, the people told Reuters. First-round bids are due by end-June, they said. Insurers Anbang Insurance Group and Ping An Insurance Group, as well as acquisitive technology conglomerate Tsinghua Unigroup, are among the other suitors invited to bid, one of the people said. Wharf Holdings, which owns some of Hong Kong’s marquee properties including the Times Square and Harbour City shopping malls, said last year it was undertaking a strategic review of its communications, media and entertainment division. That division includes a privately owned telecoms business called Wharf T&T - Hong Kong’s second-largest business fixed-line operator, according to the company’s website - and publicly traded I-cable Communications Ltd. Reuters
A new private lender backed by eight Chinese firms including smartphone maker Xiaomi has been approved by China’s banking regulator, the smartphone maker confirmed yesterday. The bank, to be headquartered in Chengdu, capital of southwest China’s Sichuan Province, has a registered capital of 3 billion yuan (around US$456 million), and counts New Hope Group, a Xiaomi subsidiary called Yinmi, and Sichuan-based convenience store operator Hongqi as its biggest stakeholders, with 30, 29.5 and 15 per cent stakes in the bank. The new lender is evidence of further inroads by Chinese Internet firms into the country’s state-dominated financial sector. The country’s banking regulator has sought to extend financial services to a broader range of companies and individuals that are previously under-served by the country’s established, state-backed lenders. The bank will extend financial services to young people and small companies, according to a press release by Xiaomi. Chinese Internet giants Tencent and Alibaba have also launched their own lender WeBank and MYbank, respectively, last year, offering online-based financial services such as wealth management products and loans. Xinhua