Thai Smile to suspend flights between Macau and Bangkok Aviation Page 4
Friday, June 17 2016 Year V Nr. 1067 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai
www.macaubusinessdaily.com
Basketball marketing
Divestiture
China’s Wanda becomes exclusive partner of FIBA Page 9
Australia’s Crown Resorts’ shares jump on break-up plan Page 7
HKEx
MSCI’s refusal to include Chinese A-shares in its index will impact strongly on Hong Kong bourse Page 8
Downward slide Public Finance
The city’s fiscal surplus amounted to MOP16.4 billion (US$2.05 billion) as at the end of May, a drop of 35.8 per cent year-on-year. The Macau government collected a total of MOP33.03 bln (US$4.13 bln) in direct taxes from gaming from January till May, down by 14.1 pct y-o-y. Direct taxes from gaming, which accounted for 82.7 pct of the government’s total revenue in the first five months of 2016, have been declining as casino gross gaming revenue has fallen for 24 consecutive months. Page 2
Cup of coffee
F&B IFT Café at the revamped Nam Vam area entertains hundreds of locals and tourists daily. The operation will eventually be handed to a private entity after a public tender. Meanwhile, the team is still trying to provide better service and on-the-job training for students Page 5
Virtually done
The opening of The 13 hotel has been pushed back to the fourth quarter of 2016. Last fiscal year, The 13 Holdings registered a net loss attributable to the owners of HK$197 mln, a six-fold jump compared to the HK$30 mln loss for the previous fiscal year.
Setting sales
The 13 Page 6
20,038.42 -429.10 (-2.10%)
Hengan International Group
+0.45%
Link REIT
-0.79%
Bank of China Ltd
-7.79%
Want Want China Holdings
-3.17%
Tingyi Cayman Islands
+0.30%
CK Hutchison Holdings Ltd
-0.85%
CNOOC Ltd
-3.60%
China Unicom Hong Kong
-3.11%
-3.50%
China Petroleum & Chemical
CITIC Ltd
0.00%
MTR Corp Ltd
-1.07%
China Shenhua Energy Co
Bank of Communications
-0.41%
China Life Insurance Co Ltd
-1.09%
China Resources Land Ltd
-3.27%
Power Assets Holdings Ltd
-3.00%
Wharf Holdings Ltd/The
-0.78%
Ping An Insurance Group Co
-1.19%
Cathay Pacific Airways Ltd
-3.20%
Galaxy Entertainment Group
-2.93%
-3.01%
28° 31° 28° 31° 27° 30° 27° 31° 27° 31° Today
Source: Bloomberg
HK Hang Seng Index June 16, 2016
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Stock markets The People’s Bank of China has slowed down the sale of U.S. Treasuries, however Chinese are still abandoning ownership of American stocks. Participation plummeted by about US$126 billion, or 38 per cent, from the end of July through to March, to US$201 billion. Page 10
2 Business Daily Friday, June 17 2016
Macau Health
Seac Pai Van building five clinics in two months
In order to improve the medical services in Seac Pai Van, the Housing Bureau has granted the Temporary Health Station in Seac Pai Van a 1,000 square foot expansion by adding five new clinics and relevant human resources, according to a press release from the Health Bureau
(SSM). The renovation of the new clinics is expected to be finished within two months to provide medical services to the local residents as soon as possible. In addition, SSM clarified that there is adequate medicine at the Temporary Health Station in Seac Pai Van, and no patients have needed to visit other health clinics to get medicine in the past six months. A.L.
Public finance
Fiscal surplus slashed by 36 pct y-o-y at May-end Tax revenue from gaming sector falls 14.1 pct.
T
he city’s fiscal surplus amounted to MOP16.4 billion (US$2.05 billion) as at the end of May, a drop of 35.8 per cent year-on-year, due to the continuous decline in the government’s gaming tax revenues, according to the latest updates of the central account by the Financial
Services Bureau (DSF). For the first five months of the year, the government raked in some MOP40 billion in revenue, down 14.3 per cent year-on-year compared to MOP46.7 billion one year ago. The plunge is due to the g o v e r n m e n t’ s d e c l i n i n g t a x revenues from the gaming sector,
which accounted for nearly 85 per cent of the total. Gaming tax revenue dropped 14.1 per cent yearon-year to MOP33 billion for the five months. Other indirect taxes received by the government also fell by 25.4 per cent year-on-year to MOP1.31 billion. In addition, total capital revenues were halved to MOP262.3 million as at the end of May, compared to MOP549.2 million one year ago. In particular, a year-on-year decrease of 94.6 per cent was registered in the sale of capital assets, which amounted to MOP23.7 million. For the whole of this fiscal year, the government expects its total revenue will reach MOP92 billion, which suggests that it has already
fulfilled 43.4 per cent of its target.
Expenditure
On the other hand, the total expenditure of the government totalled MOP23.6 billion, representing an increase of 11.6 per cent compared to MOP21.1 billion one year ago. Nevertheless, the amount that the government has spent only accounts for some 26.6 per cent of its budgeted MOP88.6 billion for the whole of this year. The majority of the expenditure, MOP22.5 billion, was used on current expenditure, while capital expenditure only accounted for some MOP1.05 billion – of which MOP1.03 billion was spent by the Investment Plan (PIDDA). K.L.
Property
Midland to stay in the red The realtor records a net loss of HK$130 mln for the first five months. Midland Holdings Ltd, the parent company of local real estate agency Midland Macau, expects it will remain in the red for the first half of the year, due to continuous declines in property sales. In a filing with the Hong Kong Stock Exchange late on Wednesday night, the Hong Kong-based property agency claimed it had recorded a net loss attributable to equity holders of some HK$130 million (US$16.2 million) for the first five months of the year. “The Group is expected to record a consolidated net loss attributable to equity holders for the six months ending 30 June 2016 as compared to [the net profit] of approximately HK$32 million for the six months ended 30 June 2015,” the company wrote. The realtor firstly dropped into the
red in 2015, registering a net loss of HK$78.3 million compared to a net profit of HK$67.3 million for 2014. Th e c o m p a n y ex p l ai n e d i n Wednesday’s filing that a year-onyear fall in the sale of residential and non-residential property in Hong Kong was the factor driving this interim net loss, in addition to “keen competition in the property agency industry, which has led to upward pressure on rental in both Hong Kong and Mainland China”. “Despite the tough business environment, the Group will continue to strive its best to improve the performance of its operations,” the company claimed. K.L.
Public Service Gov’t proposes Notary Office move
Worried tenant The government justifies the relocation as serving a wider population and saving on rent. The First Public Notary Office, now located in the Holy House of Mercy (Santa Casa da Misericordia) building,
will move to the Northern District Integrated Services Center Building by the end of this year, as proposed by the government. In a statement released this week, the Legal Affairs Bureau (DSAJ) said the current monthly rental for the First Public Notary Office is MOP1.2 million (US$150,140) and the lease will expire at the end of this year. The decision to relocate took many factors into consideration, including the proximity of the First Public Notary Office to the Second Public Notary Office, both currently located in the Central District. According to the statement, the relocation will benefit local residents living in the Northern District. The Office will also be able to expand its multi-service functions at the complex with no additional rental payments, which will save costs. The DSAJ also plans to build additional Public Notary Offices in the future when sufficient resources allow, based on population distribution and service needs in different areas of Macau. A.L.
Business Daily Friday, June 17 2016 3
Macau Retail
Apple Store to land at Galaxy next Sunday
Apple is to unveil its first local flagship store in phase two of Galaxy Macau on June 25, its official website announced. According to the website, launching activities for the first Apple Store in the territory will be held from 10 am next Sunday.
Hospitality
Operating hours of the store will be from 10am to 10pm from Sunday to Thursday, while on Friday and Saturday the store will be open between 10am and 11:59pm. Prior to the opening, the company had been recruiting staff for the store in Macau since the middle of last year, Business Daily previously reported.
Average hotel room rates decrease 15.6 pct y-o-y in May
Hotel room prices continue to fall While more hotel rooms were occupied in May than in April, when compared to 2015, hotel occupancy and average room rates both suffered declines. Nelson Moura nelson.moura@macaubusinessdaily.com
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he city’s average hotel occupancy rate increased slightly in May from April, as room rates decreased, and both indicators fell compared to the same month in 2015, according to the latest data released on Wednesday by the Macao Government Tourism Office (MGTO). May saw an occupancy rate of 81.9 per cent, with 5-star and 4-star hotels making the biggest contribution to the monthly increases: 1.3 per cent to 79 per cent; and 0.3 per cent to 85 per cent, respectively. Meanwhile, 3-star hotels saw their occupancy rates decrease 1.6 per cent to 88.8 per cent. At the same time, average room rates saw a 1.4 per cent decrease, to MOP1,270 in May, down from
MOP1,288 (US$161) in April, with all types of hotels registering a decrease in nightly room rates. On a year-to-year comparison, the general occupancy rate in Macau hotels decreased 1.2 per cent in May, while average room rates went down 15.6 per cent, from MOP1,504 in 2015, according to the data from MGTO.
Hospitality
Green hotels 23 hotels were awarded at the 2015 Macau Green Hotel Award. Annie Lao annie.lao@macaubusinessdaily.com
The Environmental Protection Bureau (DSPA) recognized 23 hotels in Macau at the 2015 Macau Green Hotel Awards, including four budget hotels presented with the new 2015 ‘Green Budget Hotel Award’ during the presentation ceremony held yesterday. The five Gold prize winners included Sands Macao, Crown Towers, Hard Rock Hotel Macau, Grand Hyatt Macau and Hotel Okura Macau. Paul Kwok, general manager of Grand Hyatt Macau told reporters that since July last year the hotel has switched to using LED lights in 90 per cent of the property, which is expected to generate savings of about MOP 1 million (US$125,117) each year. The Silver awards went to Galaxy Macau, Hotel Guia, Riviera Hotel, Hotel Royal, Mandarin Oriental Macau, Grand Emperor Hotel and Grand Lisboa Hotel. The one Bronze prize winner was New World Hotel Macau. In addition, four hotels are awarded the ‘Green Budget Hotel Award’, including East Asia Hotel, Ole London Hotel, Sun Sun Hotel and Ole Tai Sam Un Hotel. Finance Manager of Sun Sun Hotel, Tong Siu Kee revealed that the hotel had difficulties achieving energy efficiencies in the beginning, and the environment group in the hotel has been promoting environmental awareness to its employees and visitors. The hotel reduced its energy consumption by about 20 per cent in 2015 compared to the previous year. Another new award for this year
was the ‘Proactive Promoting Green Award’, presented to seven hotels. The awards were launched in 2007 with an aim to promote awareness of environmental management in Macau’s hotel industry. A total of 38 hotels have participated and received awards in all the editions of the Macau Green Hotel Award since 2007, comprising 35 per cent of all Macau hotels, and totalling over 19,000 rooms, or 60 per cent of all hotel rooms in the city.
Decrease in consumption
According to official data from DSPA, from 2011 to 2015, all the participating hotels have successfully reduced their consumption of electricity and water, and leftovers from restaurants. On average, each participating hotel room has saved over 19,000 kilowatt hours, or 18 tonnes of carbon emissions - about 800 trees would have been needed to absorb such an amount of carbon dioxide emissions each year. In terms of water usage, each participating hotel room has reduced its consumption by about 240 cubic meters, equivalent to about 240,000 one-liter bottles of water. Regarding waste management, a 15 per cent reduction in waste produced has been achieved by each participating hotel room per year. Each awarded hotel collected over 5,000 tonnes of recyclable materials in 2015. In 2014, 16 participating hotels collected and processed about 402 tonnes of leftovers from their restaurants. The up-coming 2016 Macau Green Hotel Award will add another new award, the ‘Foundation Certificate’ with the objective of attracting more budget hotels to join, such as 2-star hotels and and 2 to 3-star apartments, according to director of the Environmental Protection Bureau (DSPA), Raymond Tam Wai Man. The application period for this year’s awards will be from July 1 until August 16.
The yearly decrease was mainly generated by a slump in the territory’s 5-star hotels, with a 3 per cent decrease in hotel occupancy rates and a 13.3 per cent fall in average room rates, from MOP1,899 to MOP1,648. On the other hand, occupancy rates in 3 and 4-star hotels in the region registered an increase of 2.1 per cent and 1.4 per cent, respectively, due to a significant decrease in room rates from last year. Last month also saw 4-star hotels experience a 19.8 per cent decrease in room rates yearon-year, from MOP899 to MOP721, with 3-star hotels seeing a similar
fall of 19.9 per cent, from an average MOP1,026 to MOP821.
Gloomy hoteliers
Altogether, the average occupancy rate of local hotels reached 80 per cent during the first five months of the year, down 2.2 percentage points compared to the 82.2 per cent registered during the same period last year. From January to May the average room rate was MOP1,336, a 15.5 per cent decrease from the average MOP1,581 per night for the same period one year prior. Meanwhile, 4-star hotels, registered the largest decrease in room rates, of 18.5 per cent year-on-year, down to MOP789 in the first five months, while registering the biggest occupancy rate increases, 0.7 percentage points year-on-year to 81.5 per cent. At the same time, 3-star hotels managed an increase in their occupancy rates by 0.1 per cent to 86.7, following a 0.4 per cent decrease registered in April, while room rates decreased 16.8 per cent to MOP894. However, occupancy rates at 5-star hotels declined 4 percentage points year-on-year, reaching 78.1 per cent, while room rates decreased by 13.7 per cent year-on-year to MOP1,699.
4 Business Daily Friday, June 17 2016
Macau Opinion
Banks
Pedro Cortés
JETCO signs agreement with Taiwan and Hong Kong banks
No mercy! The Government has made a decision to move the existing Public Notary Office from the most important square of Macau to the Areia Preta area. This is a no mercy decision. The Notary Office, which is currently in the premises of the Macau Holy House of Mercy, is part of the day-to-day work of lots of professionals, and is located in the area where most of the law professionals have their offices. It is also based in a historical building and, as pointed out by my dear friend, António Freitas, it is the type of public service that has the dignity to be there. Fortunately, Mr. Freitas will not allow a noodle shop to open there. Without denying the Administration the right to move its services to other locations, the decision is not a good one, as it will harm the work of the professionals that rely on it. I guess that no one who works in this field was consulted before this decision was taken. There may be some voices saying that because the Macau Holy House of Mercy is a Catholic institution, the government does not want to support it with a rental contract. I do not want to believe that. Well, I just want to express my complete disagreement with this decision, as it does not benefit anyone, except the landlord of the new Public Notary Office in Areia Preta. And I also want to express my concern about the public policies of the Justice and Administration department. As a matter of fact, I am confused why we do not have a proper headquarters for the Administration Department and a headquarters for the Justice Department. In the first location, we could have all public services relating to administration. In the second, we could have the Courts, the Public Prosecutor’s Office, the Judiciary Police, and the Police. This would create an entirely new concept that would allow those of us who work every day with these public departments, and the population of Macau more generally, to save extremely important time. For instance, our runners would save fuel going there, we could have a public car park where we could leave our cars, and we would not need to wait sometimes 10 to 15 minutes for a lift to attend court hearings in a commercial building. If my memory does not fail me, I have mentioned this in the past: we would have a better justice system as the judges and court officials would have better conditions in which to work. In conclusion, my learned friends, I have no mercy or forgiveness for decisions like the one mentioned above. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
Macau and Hong Kong clients of JETCO will now be able to withdraw money in Taiwan. Nelson Moura nelson.moura@macaubusinessdaily.com
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onsumers from Hong Kong, Macau and Taiwan w i l l h av e a c c e s s t o cross-border ATM cash withdrawal services, after Joint Electronic Teller Services Limited (JETCO) signed an agreement with Taiwan’s Financial Information Service Co. Ltd. (FISC), Bank of China (Hong Kong) Limited and Bank of Taiwan, according to a JETCO press release. “JETCO has long been proactive in seeking partnerships with leading ATM operating companies overseas to expand cross-border ATM services. Given that travellers from Taiwan are the second-largest group of visitors to Hong Kong representing over 2 million arrivals annually,
we are pleased to cooperate with FISC to develop cross-border cash withdrawal services in Hong Kong, Macau and Taiwan that will create great business benefits to banks while providing consumers with a more economical choice of withdrawing cash when they travel abroad,” JETCO Chief Executive Officer Angus Choi stated in the press release.
Money withdrawal galore
FISC provides interbank operations and ATM services in Taiwan for 50 million cardholders covering a total capital of US$123 million (MOP987 million). The Memorandum of Understanding (MoU) signed with JETCO, which operates more than 3,000 ATMs in Hong Kong, Macau and Mainland China, will create a network of cooperation, allowing Taiwan travellers to Hong Kong and
Macau, and vice versa, to withdraw money in the different territories, according to the release. Bank of China (Hong Kong) and Bank of Taiwan will work as the local settlement banks in Macau and Taiwan respectively, with the process being rolled out in two phases. The first phase, to be completed at the end of the year, will allow visitors from Taiwan to withdraw cash and make balance enquiries using their cards from banks covered by FISC such as Bank of Taiwan, Land Bank of Taiwan, Taiwan Cooperative Bank, Cathay United Bank and E.SUN Bank - and to access the new service at over 300 JETCO ATMs operated by Bank of China (Hong Kong) Limited and The Bank of East Asia, Limited. Then, with the completion of phase two at the end of 2017, JETCO member bank cardholders from Hong Kong and Macau visiting Taiwan will be able to withdraw cash and make balance enquiries at ATMs with the JETCO logo.
Aviation
Economy
Thai Smile suspends flights between Macau and Bangkok
SME support centre changes location
The Thai airline will cancel air connections between Macau and Bangkok after September.
Thai Smile will cancel its air connections between the Macau International Airport (MIA) and the Suvarnabhumi Airport in Bangkok after September, according to the airline's website. No flights from Macau to Bangkok are available on the airline website booking system after September 1. Contacted by Business Daily, a representative from the airlines confirmed the suspension of the flights are due to “commercial
reasons", but provide no further details on business performance. The airline company, a subsidiary of the Thai Airways group, started operations in Macau in 2012 with four aircraft, and had two daily flight connections operating in 2014, reducing its flights to one a day in March of 2015, and announcing one month later that it was considering the possibility of suspending the connection between the two cities due to low passenger rates. At the time, Thai Smile CEO, Woranate Laprabang, told Business Daily the company’s occupancy between the cities was at “50 per cent, failing to meet the target rate of 65 per cent to 70 per cent,” but admitted the decision to cancel its only connection with Macau could be reversed since the company’s “commercial department had recently registered some passenger rate increase.” Currently, besides domestic flights in Thailand, Thai Smile operates flights from Bangkok to Changsha in Mainland China, Siem Reap in Cambodia, Rangum in Myanmar and Penang in Malaysia. N.M.
The Department for Conventions and Exhibitions and Economic Activities Development from the Macao Economic Services (DSE) will move to a new location after June 17, according to a DSE dispatch. The department will relocate to the 3rd floor of no. 1 -3 Rua Dr. Pedro Jose Lobo, including its counters for information on support plans for Small and Medium Enterprises (SMEs), which provide information on credit plans for SMEs for specific projects and company investment, fiscal benefits, young entrepreneur support plans and online platform financial support. Some of the support plans for SMEs available at the department include a 70 per cent guarantee for bank credit solicited by entrepreneurs, with a maximum amount of MOP3.5 million (US$437,907) - excluding interest and other credit fees - and a MOP300,000 financial support for young entrepreneurs between 21 and 44 years of age, with eight-year repayment terms. N.M.
Business Daily Friday, June 17 2016 5
Macau
300 400 to
average number of customers visiting IFT Café per day
“If people don’t have options for food and beverages here, Nam Van won’t be able to attract people to stay longer” John Chan, Chief Technical Counselor from the IFT F&B department
Hospitality
Shortage of eateries creating opportunities in Nam Van
On average, about 300 to 400 customers visit the café per day, with the slowest day recording 198 customers, and the highest number of 598 visiting on the busiest day during the Dragon Boat Festival, John reveals. The most popular choices on the menu are sandwiches and juice, he says.
the IFT canteen. More staff are needed to provide customer service at the café when compared to the self-service style canteen at IFT, even though the area of the canteen is larger than IFT Café. In addition, the business hours are longer at IFT Café than at the IFT canteen. For instance, the canteen is off during the weekends and only opens from 9am to 8.30pm on weekdays. And there are breaks for the staff at the canteen after they finish serving breakfast, lunch and dinner, whereas it is a non-stop operation at the café from 11am to 10pm everyday.
HR management
Location challenge
IFT Café head says more facilities should be built to encourage locals and tourists to stay longer in Nam Van. Annie Lao annie.lao@macaubusinessdaily.com
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here is a lack of eateries in Nam Van and more establishments need to be opened to attract more people to come to the area. “If people don’t have options for food and beverages here, Nam Van won’t be able to attract people to stay longer,” John Chan Hong Fai, Chief Technical Counselor from the F&B department of the Institute for Tourism Studies (IFT) told Business Daily. John is now in charge of the operations and management of IFT Café and says some local customers who live in Nam Van come to the Café after doing exercise.
More local customers
Opened in June as part of the government’s initiative to revitalize the area, IFT Café now attracts white-collar workers and the younger generation, according to John. “We have some Mainland Chinese tourists coming as well, but most of our customers are locals,” John says. The Café is still new to locals and tourists. “Some people just found out about the Café when they came down to Nam Van for a stroll,” he adds. John has noticed that more families are coming to Nam Van during the weekends.
As the school is on break and the school canteen is closed, most of the full-time staff now working at IFT Café, including the cooks, have been pulled from the IFT canteen. The IFT students who were previously working in the canteen are now doing their on-the-job training at the new café, taking orders from customers and serving food and drinks. “After one or two months, the operations of the café should become more stable as the staff become more efficient at running it, so we won’t need that many staff and they can go back to the campus canteen,” John says. There are two training units at IFT for the institute’s hotel and culinary students to undertake their internship programs, namely the Pousada de Mong-Há hotel and IFT Educational Restaurant. John says that operationally, there are differences between IFT Café and
The location might be appealing to the customers, but it does bring some hurdles to the operations of the café. One of those challenges is logistics. Since there are not many car parking
IFT Café
Run by the Institute for Tourism Studies (IFT), IFT Café is a new Western-style eatery located at Anim’Arte Nam Van, officially opened on June 3. The café is part of the Macau SAR Government’s project to revamp the Nam Van Lake area into a new tourism and leisure center. It also showcases some selected art pieces by Fortes Pakeong Sequeira, a local contemporary artist, to provide a place with cultural and creative elements for local citizens and tourists. IFT Café is also part of the Institute’s training facilities, for IFT students to learn about food and beverage operations and service. The temporary operations of IFT Café will last for about six months.
spaces available in Nam Van, they find it hard to transport goods to the café. “Car parking is hard to find here, we need more staff to transport the goods to the café,” John explains. Furthermore, the weather can affect the business a lot. John says more shelter should be built around Nam Van for pedestrians. “Not only for the rainy weather; especially during the summer season of July and August, the sun can get so hot. People will not want to come here if they need to sweat all the way to Nam Van by walking in areas with no proper shelters,” John suggests. Nevertheless, the feedback from the customers so far has been positive. Some of the customers at the café have said that the overall service was great. However, some have commented that the taste of the food was average compared to other privately-run cafés in the city. John responds by saying that IFT Café welcomes all customer feedback and aims to keep on improving the standard of both its food and service.
A public tender will then take place after six months, for private entities to take over the café according to IFT President, Dr. Fanny Vong. “I believe after the shops are handed over to private entities, the shop concessionaires will still be able to engage IFT students, namely for internships,” notes Dr. Vong. According to the café management, IFT Café is financially supported by the Cultural Affairs Bureau (IC), the Sports Bureau (IDG) and the Macao Government Tourism Office (MGTO). The budget is part of the total MOP4 million (US$0.5 million) for the Anim’Arte Nam Van project. All the profits made from IFT Café will be attributed back to IFT.
6 Business Daily Friday, June 17 2016
Macau Hospitality The operator records a yearly loss of HK$197 mln
The 13’s unveiling postponed to Q4 The company had previously expected that its luxury hotel project would open at the end of this summer. Kam Leong kamleong@macaubusinessdaily.com
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he 13 Holdings Ltd has pushed back the opening date of its luxury hotel project The 13 in Coloane, to the fourth quarter of this year from the original expected date of this summer. “The Group has made substantial progress in development of its hotel project during the year ended 31 March 2016 and expects the hotel will be opened in the fourth quarter of 2016,” the company stated in a filing releasing its annual results to the Hong Kong Stock Exchange yesterday. Recent announcements by the company, including one this February announcing the name for the hotel project, indicated that the
hotel property was slated to open “in late summer 2016 at a cost of over US$7 million (MOP56 milllion) per room”. “Virtually all work at the moment is devoted to completing the interior finishes of the hotel,” it wrote. Nevertheless, the hotel developer and operator did not give any indication as to whether the property would include any gaming facilities.
Widened annual net loss
Last fiscal year, The 13 Holdings registered a net loss attributable to the owners of HK$197 million, a six-fold jump compared to the HK$30 million loss for the previous fiscal year. The company explained that this was due to a decrease in margins at its subsidiary PYE Group, plus the pre-opening expenses for the hotel project.
The group’s total revenues also dropped by 27 per cent year-onyear to HK$6.8 million, due to “the decrease in order book after completion of a large project in Macau”. But the Hong Kong-listed company claims that it maintains a strong financial position with total assets standing at approximately HK$12.5 billion.
“Despite the anticipated volatile market conditions, the Company feels that its niche strategy of targeting a global clientele of high net worth customers seeking a unique luxury experience is well positioned to compete in a slow market,” the operator believes. “We also expect that Macau will eventually return to long-term growth driven by the introduction of new transportation infrastructure, continued increase in hotel rooms and development of neighbouring Hengqin Island,” it added. As at the end of March, the number of staff for the hotel project had surpassed 200, including directors.
Engineering business
In the lead up to the opening of the luxury hotel project, The 13 is currently generating most of its revenues via PYE Group which is engaged in the engineering sector. The group raked in HK$9.94 billion in revenues for last year, including HK$3.15 billion for the parent company’s own hotel project. However, compared to HK$10.7 billion one year ago, the company’s revenues for last year represent a drop of 7 per cent. In addition, the subsidiary has gained HK$4.8 billion-worth of new construction contracts for this fiscal year, down by 7 per cent compared to HK$5.25 billion one year ago. The new contracts include the main contract works for Macau’s Concordia Development in Coloane, according to the filing.
Gaming
Niraku axes hospitality expansion deal The pachinko hall operator has terminated its purchase deal for Vietnamese restaurants in Hong Kong. Japanese pachinko hall operator Niraku GC Holdings, Inc. has terminated its plan to acquire Hong Kong Vietnamese-restaurant operator Nha Trang Holdings Ltd, it told the Hong Kong Stock Exchange on Wednesday after trading hours. “On 15 June 2016, the company has, after careful consideration, decided not to proceed with the acquisition on the grounds of certain condition precedents under the agreement not being satisfied,” it announced. On May 19, the Japanese company entered into a sales and purchase agreement with Costal Heritage Ltd to acquire a 66.7 per cent equity interest in Nha Trang Holdings which operates seven Vietnamese restaurants and one ‘pinot duck’ restaurant in Hong Kong. “The Company and the vendor g u a ra n t o r, [ Ra y m o n d H u y n h Wong,] are unable to reach an agreement on the service agreement appointing [Wong] as the chief
executive officer of [Nha Trang Holdings],” the filing reads. In addition, the company added that it had “become aware of certain warranties made by the vendor and the Vendor Guarantor under the Agreement being untrue, inaccurate and misleading”. According to the company’s filing on May 20, the share agreement between the parties was decided for an aggregate consideration of HK$100 million (US$12.5 million). Niraku said at that time that the acquisition “aligns with the Group’s strategy of expanding its scale of operating in the hospitality business,” having expected the deal to bring in new income, and enhance its market presence. For the fiscal year ended March 31, 2015 the pachinko hall operator recorded a plunge in its net profit of 94 per cent, down to 181 million yen (MOP13.2 million/US$1.7 million), compared to 3.03 billion yen for the previous year. K.L.
Business Daily Friday, June 17 2016 7
Macau
James Packer, controlling shareholder at Crown Resorts Ltd. Divestiture Casino titan Packer hives off Macau stake from Aussie assets
Profiting break-up Crown shares surged 13 per cent to A$12.75 in Sydney yesterday, adding about A$1.09 billion (US$803 million) to its market value.
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rown Resorts Ltd. plans to spin off its international investments, including a US$2 billion stake in Macau casino operator Melco Crown Entertainment Ltd., a move that would allow controlling shareholder James Packer to shield his Australian assets from a prolonged downturn in the Chinese gambling hub. The new entity is also set to house Crown’s development site in Las Vegas, a 20 per cent stake in Japanese restaurant Nobu and half of U.K. casino operator Aspers Group, the Melbourne-based company said Wednesday. The gaming firm has a 27 per cent stake in Nasdaq-listed Melco, where profit has plunged to a sixth of its 2013 peak amid Macau’s two-year gambling slump. “This new corporate structure, well positions Crown for the next decade as we continue to grow our business and meet the needs of the emerging Asian middle class,” Packer said in a statement. The billionaire, who has a net worth of US$3.4 billion, will remain deputy chairman of Melco. Crown shares surged 13 per cent to A$12.75 in Sydney on Thursday, adding about A$1.09 billion (US$803 million) to its market value. Melco shares rose 4.8 per cent to US$14.18 Wednesday in New York. The stock is down 16 per cent this year.
“Material undervaluation”
Chairman Robert Rankin said the split was designed to isolate Crown’s Australian casino business from the wider group, which he said investors undervalued because of a gambling downturn in Macau. Shares in Crown, which is controlled by Packer’s closely-held investment company Consolidated Press Holdings Ltd., had tumbled more than 30 percent
since January 2014 as of Wednesday. There was a “material undervaluation” in the Crown share price which didn’t reflect the quality of the assets and the Melco business had acted as a “shadow on the Australian assets” as Macau's fortunes fluctuated, Rankin said on a conference call Thursday. Investors will get access to an Asian growth story through the international business, he said. The international spin off will give greater clarity on the value of Crown’s holding in Melco, UBS Group AG analyst Matthew Ryan wrote in a report Wednesday. Crown has traded at a discount of 10 per cent to 30 per cent due to its Melco exposure, Ryan wrote.
Macau, the problem
Gambling revenue in the southern Chinese territory of Macau has been hurt by government curbs on illicit money flows and a campaign against corruption that deterred VIP players. In May, Crown sold an US$800 million stake in Melco. Melco said it is strongly supported by its largest shareholder Melco International Development Ltd. and other investors and does not anticipate any impact “in any respect, including management, strategy and operations,” according to a Wednesday statement in response to Crown’s spin off. Shareholders led by Packer will own equity in the new international entity proportionate to their Crown stakes, the company said. After the spinoff, Crown would hold gambling resorts in Melbourne, Perth and a planned luxury hotel-casino in Sydney. London casino Aspinalls and online gaming operations such as CrownBet would also be part of Crown.
The newly separated international business “will be set up as a growth asset and probably be given a reasonable-sized war chest to expand in Asia and Las Vegas,” Evan Lucas, a market strategist at IG Ltd. in Melbourne, said by phone. “The Australian assets are humming along nicely enough, but you would not describe them as a great growth story.”
6 per cent on the value of the company, he wrote. The demerger may take between six and nine months to complete while the potential IPO of the five freehold, non-gaming hotels may take longer than nine months if the necessary approvals are held up, Crown Chief Executive Officer Rowen Craigie said on the call Thursday. At the same time, Crown plans to immediately implement a policy to return all of its net income to shareholders through dividend payments, the company said.
Privatization talks
Crown’s reduction of its Melco stake in May revived speculation Packer was preparing to buy back some gaming assets in Australia. Last year he held talks with private-equity firms and pension funds about a possible buyout of Crown assets, people with knowledge of the matter said in December. Rankin said Wednesday that Crown has “great faith in the long-term development of the Macau market.” Listing a separate international business would give investors in Australia “operational leverage to an Asian growth story through a local play,” he said. Crown said as well that it will explore a potential initial public offering of 49 per cent of a property trust that would hold its Australian hotels, apart from Crown Towers Melbourne. The trust would be listed on the Australia Stock Exchange, according to the statement. Crown is working with Deutsche Bank AG, Morgan Stanley and UBS on the proposed property trust IPO, according to people with knowledge of the matter, who asked not to be identified as the information is private. A representative for Crown said she couldn’t immediately comment.
Positive prospects
The property trust may be valued at A$1.39 billion based on a price per room of about A$600,000, UBS’s Ryan wrote. That may deliver proceeds to Crown of about A$503 million, or an increase of about
‘Chairman Robert Rankin said the split was designed to isolate Crown’s Australian casino business from the wider group, which he said investors undervalued because of a gambling downturn in Macau’ S&P Global Ratings on Thursday placed Crown Resorts’ credit rating on negative watch, while Moody’s Investors Service also put the company on review for downgrade. Both credit assessors currently rate the casino operator two levels above junk. “The rating outcome depends primarily on our assessment of the extent to which Crown’s highquality but more concentrated asset base can support its medium-term development pipeline and more aggressive payout ratio at the current rating level,” S&P said in a statement. Bloomberg
8 Business Daily Friday, June 17 2016
Greater China Stock markets
MSCI brush-off for mainland shares spells more pain for Hong Kong brokers Hong Kong’s prosperity is intrinsically linked to the mainland, its dominant trading partner. Denny Thomas, Saikat Chatterjee and Michelle Chen
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ong Kong stock brokers’ year has gone from bad to worse after index provider MSCI decided not to add mainland Chinese shares to a benchmark indexed tracked by US$1.5 trillion in global assets, dashing the hopes of a sector struggling with tumbling business. Average trading volumes on the Hong Kong stock exchange in the first five months of 2016 are down 43 per cent on a year ago, and the stock market is down 30 per cent, its worst performance since the global financial crisis. Without any external shocks to account for the weakness, analysts fear a longer-term structural decline for the city’s finance sector, which acts as a conduit for investment into the mainland, including ‘A’ shares listed in Shanghai and Shenzhen. The hoped-for inclusion of those shares in MSCI’s Emerging Markets Index, which could draw up to US$400 billion into Chinese markets, had been a glimmer of light for brokers in Hong Kong.
Indeed nearly US$8 billion had flown into various China access products in recent weeks ahead of the decision, according to UBS calculations, mostly through Hong Kong. “The MSCI decision is yet another blow to what has been a very challenging environment for banks and financial institutions in the sales and trading business,” said John Mullally, director of financial services at Robert Walters in Hong Kong. “Recruitment picks up when banks feel confident about their operating environment, and current market conditions are the worst I have seen in a while,” he said. On some days, trading across the entire Hong Kong stock market floor is lower than trading volumes for Chinese e-commerce company Alibaba Group on the New York Stock Exchange, Thomson Reuters data show. Hong Kong’s prosperity is intrinsically linked to the mainland, its dominant trading partner, where growth has slowed to a 25-year low. Its own GDP shrank for the first time in nearly two years in the first quarter of 2016, as China’s slowdown hit its neighbour’s property market and retail
industry. Weakness in the finance sector, which accounts for 17 per cent of GDP, claimed a first major victim earlier this month, when family-run Hong Kong lender Bank of East Asia Ltd closed its entire stock-broking unit, laying off 180 people. Another local firm, AMTD, laid off almost 100 employees in their wealth management division, according to local media reports.
IPO drought
Chada, co-chief investment officer at Mirae Asset Global Investments. “Bank of East Asia is just one example. You will see others trying to reduce structure, unless the volumes pick up.”
Key Points HK equities volumes in 2016 down 43 per cent, market cap down 30 per cent HK’s Bank of East Asia recently shut its stock broking unit
In addition to falling volumes, brokers who have been slow to embrace new technology are feeling the pressure of a shift towards automated trading, which cuts into fees and bypasses traditional trading staff. About 44 per cent of retail trading in Hong Kong is now online, up from just 13 per cent a decade ago, according to Greenwich Associates. There has also been a sharp fall in new listings on the local bourse. The city has seen only US$5.4 billion of initial public offerings (IPOs) this year, compared with US$13.3 billion at this time last year. “People are going to revisit their whole cost base in the next six to nine months because the revenues are settling at a much lower level, and there aren’t many IPOs either,” said Rahul
Brokers hoped MSCI decision on China shares would boost business
Chinese cities, while its subsidiary Wing Hang China has a strong presence in the Pearl river delta region in Guangdong province. China’s growing population of millionaires and billionaires is a big draw for private banks despite obstacles such as a restricted currency regime and limited availability of financial products. An onshore presence for Bank of Singapore in China would mean it would be competing against Goldman Sachs and UBS on advising wealthy clients in the local market. Bank of Singapore agreed in April
to buy Barclays’ wealth business in Singapore and Hong Kong in a deal that will push the wealth manager just behind bigger rival DBS Group Holdings , ranked by an industry survey as Asia’s sixth-biggest private bank. Shaari said he expects the integration to be completed by the end of the year and the majority of Barclays’ 88 private bankers to move to Bank of Singapore. The bank expects to manage US$70 billion to US$75 billion in assets, he said, a rise of more than 30 per cent compared to the period before the Barclays deal was announced. Reuters
MSCI decided for 3rd time in 3 years not to include China Nearly US$8 bln moved into China access products ahead of decision Some foreign banks, including Barclays plc, BNP Paribas, Goldman Sachs, Morgan Stanley, have cut a combined 100 or so research analysts and equity trading jobs in recent weeks alone, according to four sources. Others are looking beyond their home turf to keep their heads above water. “I am trying to save my job by following different Asian markets than just focusing on Hong Kong,” said one head of institutional equities at a European bank. “While that means longer hours on the desk, it means I am slightly more valuable.” As Wall Street banks and Hong Kong brokers struggle, however, mainland Chinese brokers are grabbing market share, albeit from a low base. State-backed firms such as CITIC Ltd and Haitong Securities have expanded into Hong Kong and taken prime offices, betting they can ride out the downturn with strong backing from their mainland parents. A spokeswoman for CITIC Securities International said the company has no plans to lay off staff. Quite the opposite - it said it was hiring in legal and compliance and fixed-income sectors. Reuters
Expansion plans
OCBC’s private bank unit exploring mainland onshore presence Its subsidiary Wing Hang China has a strong presence in the Pearl river delta region in Guangdong. Saeed Azhar and Marius Zaharia
The private banking unit of Singapore’s second-biggest lender OCBC is exploring launching an onshore presence in China either with a domestic partner or on its own, its CEO told the Reuters Global Wealth Management Summit yesterday. Regional and global banks have been cautious about setting up a local private banking and wealth management presence in China due to regulatory restrictions and the nation’s relatively less developed capital market. But as the world’s second-biggest economy continues to open up, the banks are reassessing their plans. Earlier this week, Standard Chartered PLC said at the Summit it will consider next year whether it should start an onshore private bank in China. “We are looking to explore partnerships, joint ventures or any other mode in which we can bring our offshore expertise to an onshore setup that already has a good client base,” said Bahren Shaari, CEO of Bank of Singapore.
“Whether we will set up our own Bank of Singapore entity is also something we are exploring,” he said. The CEO did not give a timeline for the plan. OCBC already has an onshore presence in China with branches in major
“We are looking to explore partnerships, joint ventures or any other mode in which we can bring our offshore expertise to an onshore setup that already has a good client base” Bahren Shaari, CEO of Bank of Singapore
Business Daily Friday, June 17 2016 9
Greater China Wanda’s marketing move
In Brief
Wang Jianlin scores FIBA basketball partnership Wanda is boosting its investment in athletic events, marketing and stadium construction.
Patrick Baumann (front-L), the International Basketball Federation FIBA Secretary General and International Olympic Committee (IOC) member, shakes hands with the President of the Wanda Sports Holding, Philippe Blatter (front-R)
Matthew Miller
China’s richest man Wang Jianlin has signed a partnership deal with basketball’s international governing body (FIBA), the latest move by the commercial property billionaire to expand his Dalian Wanda business empire into sports and entertainment. Wanda will be FIBA’s worldwide exclusive partner for sale and marketing of worldwide sponsorship and licensing rights for FIBA events, including four basketball World Cups and their qualifiers, according to the partnership deal. At a signing ceremony in Beijing yesterday, Wang said he hoped the deal would help raise the quality of both international and Chinese basketball “to the next level”.
Wanda is boosting its investment in athletic events, marketing and stadium construction as part of a broader effort
Key Points Deal is latest in Dalian Wanda push into global sports Wang sees sports, entertainment as core business China to host men’s basketball World Cup in 2019 to develop what it calls its “cultural industry” arm, which includes motion picture producer Legendary Entertainment and theatre operator AMC Entertainment Holdings. Film, theme parks, tourism and sports
revenue last year represented about 18 per cent of Wanda group’s 290.1 billion yuan (US$44 billion) in sales. Wang said he expects the division to grow into a core business. Sports will play a critical role. China’s government is seeking to transform the country’s sports sector into a 5 trillion-yuan business by 2025. At yesterday’s announcement, Wang said he wanted Wanda’s operations to act as a “trailblazer” for China’s national sports push. Over the last 18 months, Wanda has sealed a series of high-profile sports investments. They include a 20 per cent stake in Spanish football club Atlético de Madrid and the purchase of the organiser of Ironman Triathlon races, World Triathlon Corp. In March, Wanda became the first Chinese top level sponsor of FIFA, the world football governing body. Last year, Wanda also forked out 1.05 billion euros (US$1.18 billion) to buy Swiss sports marketing company Infront Sports & Media AG, which will spearhead the basketball alliance. The FIBA deal comes as China gears up to host the men’s basketball World Cup in 2019 for the first time. The partnership calls for the establishment of FIBA Marketing, a joint venture focused on developing national team basketball globally, and particularly in China, the two sides said. “What Wanda brings us is their network and their ability to invest in the game,” said, Patrick Baumann, FIBA Secretary General, speaking to reporters on the side-lines of the signing ceremony. Baumann declined to say exactly how much the agreement itself was worth, but said he hoped it would help raise FIBA marketing and media revenues for the four-year world cup period to over 1 billion euros within 15 years. Reuters
M&A
ASML to buy Hermes Microvision Chipmaking equipment giant ASML Holdings NV has agreed to buy Taiwanese peer Hermes Microvision Inc (HMI) for about T$100 billion (US$3.1 billion) in a deal to boost their firepower in high-tech services for semiconductor makers. The transaction, announced in a joint statement, comes as firms like Taiwan Semiconductor Manufacturing Co, the world’s largest contract chipmaker and a client of Amsterdam-listed ASML, seek to step up advanced manufacturing to meet demand from consumer electronics makers. “The combination will allow ASML and HMI to further integrate and enhance their product offering at an accelerated pace,” the companies said in their statement. Funding
Didi Chuxing raises US$7.3 billion Chinese car-hailing app Didi Chuxing Technology Co said it raised US$7.3 billion in its latest round of funding, including US$4.5 billion from new and existing investors, as it battles to fend off Uber’s march into China. In addition, China Merchants Bank has committed to become the lead arranger for a syndicated loan facility to Didi of up to US$2.5 billion, the company said. China Life also added a long-term debt investment of about US$300 million. Didi intends to use proceeds from the funding round for technology upgrades, big data research and to explore new lines of business. Going public
Broker China Securities plans IPO
M&A
Tencent nears deal to buy majority stake in Supercell The company reported a 43 per cent revenue rise in the first quarter. Tencent Holdings Ltd is nearing a deal to buy a majority stake in Finnish games maker Supercell Oy, a person familiar with the matter said, marking the latest push by China’s biggest social network and online entertainment company into the lucrative gaming industry. Tencent plans to buy the stake in Supercell from Japanese media and telecoms company SoftBank Group Corp, valuing the maker of the popular mobile game ‘Clash of Clans’ at more than US$9 billion, the person said, declining to be identified because the matter was confidential. Known for investing in game developers through partnerships and minority stakes, Tencent owns ‘League of Legends’ developer Riot Games and has a stake in Activision Blizzard Inc, the owner of the ‘Call of Duty’ franchise. Last year, it bought a 15 per cent stake in mobile game developer Glu Mobile Inc, which developed the ‘Deer Hunter’ and ‘Kim Kardashian: Hollywood’
games, for US$126 million in a move to expand in the U.S. gaming market. Online gaming has long been Tencent’s main cash cow. The company reported a 43 per cent revenue rise in the first quarter, aided by growth in its gaming and advertising businesses.
Key Points Deal will value Supercell at more than US$9 bln - source Tencent may announce accord as early as next week - WSJ Deal would mark SoftBank’s third asset sale in a month Tencent, which is in late-stage talks with SoftBank, is in discussions with several financial investors, including Hillhouse Capital Group, to join in the purchase as co-investors, the Wall Street Journal reported on Wednesday, citing people familiar with the matter. An agreement could be disclosed as
early as next week, the report said. Tencent and SoftBank declined to comment, while officials at Supercell were not immediately available to comment. A deal with Tencent will also mark the third major asset reshuffle by SoftBank in less than a month. The Japanese media and telecoms company announced a plan earlier this month to sell US$10 billion worth of shares in Chinese-e-commerce giant Alibaba Group Holding Ltd to cut debt, as well as a decision to sell its stake in GungHo Online Entertainment Inc back to the mobile game maker for 73 billion yen (US$691 million). SoftBank expects to book a profit of 200 billion yen to 250 billion yen (US$1.89 billion-US$2.36 billion) this financial year from the Alibaba share sale, which will reduce its stake in the Chinese firm to around 27 per cent from 32.2 per cent. SoftBank said last year it had increased its controlling stake in Supercell to 73.2 per cent, without disclosing financial details. Together with GungHo it had bought a majority stake in the mobile games maker in 2013 for about US$1.5 billion. Reuters
Brokerage China Securities plans to raise up to US$1 billion in an initial public offering in Hong Kong as soon as the end of 2016, IFR reported, citing people close to the deal. The company, partly owned by China’s top brokerage CITIC Securities Co Ltd , has sent requests for banks to pitch for a role in the IPO, with presentations set for next week, added IFR, a Thomson Reuters publication. The deal would give a much needed boost to IPO activity in Hong Kong. M&A
Midea launches 4.5 billion euros bid for Kuka Chinese home appliance maker Midea formally launched a 4.5 billion-euro (US$5.1 billion) offer for German industrial robot maker Kuka yesterday, reiterating its aim to acquire more than 30 percent of the company. Midea, which already owns 13.5 percent of Kuka, said it was offering 115.00 euros per share in an offer running from June 16 to July 15 and welcomed a diversified shareholder base with a high free float. The Chinese firm also confirmed it planned no control agreement or other agreement with Kuka.
10 Business Daily Friday, June 17 2016
Greater China Stock markets
Beijing dumping more than Treasuries U.S. stocks join fire sale. Andrea Wong and Oliver Renick
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or the past year, Chinese selling of Treasuries has vexed investors and served as a gauge of the health of the world’s second-largest economy. The People’s Bank of China, owner of the world’s biggest foreignexchange reserves, burnt through 20 per cent of its war chest since 2014, dumping about US$250 billion of U.S. government debt and using the funds to support the yuan and stem capital outflows. While China’s sales of Treasuries have slowed, its holdings of U.S. equities are now showing steep declines. The nation’s stash of American stocks sank about US$126 billion, or 38 per cent, from the end of July through March, to US$201 billion, Treasury Department data show. That far outpaces selling by investors globally in that span total foreign ownership fell just 9 per cent. Meanwhile, China’s U.S.
government-bond stockpile was relatively stable, dropping roughly US$26 billion, or just 2 per cent. “China’s U.S. portfolio doesn’t just consist of Treasuries,” said Brad Setser, a senior fellow at Council on Foreign Relations in New York. “To gauge China’s activity in the market it’s increasingly important to look beyond the Treasury market.”
Pressure signal
The liquidation of shares suggests China’s central bank was still under pressure to raise dollars and smooth the yuan’s depreciation even though Treasuries selling abated, including through suspected custodial accounts in Belgium. The equities reduction reminds investors that while China’s US$1.4 trillion trove of Treasuries dwarfs its other foreign assets, it has accumulated enough U.S. stocks to influence global markets. “Selling some of its equities is a reasonable way of raising the cash needed to finance the big drawdown in reserves,” said Setser, a former deputy assistant secretary for international economic analysis at the Treasury. The PBOC’s press office directed
questions to the State Administration of Foreign Exchange, the arm of the central bank that manages the nation’s reserves. Officials at SAFE didn’t respond to a request for comment.
Market sliver
While the amount China unloaded is a sliver of the US$23 trillion U.S. equity market, it’s significant when compared with holdings of other big investors. The largest American mutual fund, the Vanguard Total Stock Market Index Fund, oversees about US$373 billion. The Treasury doesn’t break down its data into private and official holdings. Yet China’s capital controls limit the candidates capable of amassing such a hoard of U.S. equities. Also, private Chinese ownership of foreign stocks remained stable in 2015, signalling that the selling originated from an official source, SAFE data on international investments indicate. Given that China’s private holdings of equities abroad are smaller than the nation’s U.S. holdings as reflected in the Treasury tally, “one can reasonably infer that SAFE, whose reserve assets are not included separately in the net international
investment position, holds many of the equities,” Setser said.
Turmoil buffer
Switching to selling stocks allows the PBOC to retain safer, more liquid assets such as Treasuries that it can unload easily in times of turmoil. Two rounds of declines in the yuan in the last 10 months spurred market volatility worldwide and led investors to monitor China’s reserves as a measure of how much of its war chest the country was burning through to combat capital flight.
“Selling some of its equities is a reasonable way of raising the cash needed to financethe big drawdown in reserves” Brad Setser, a senior fellow at Council on Foreign Relations in New York
Dumping equities may prove to be a savvy move, considering that the S&P 500 Index has gone 13 months without a new high on a closing basis. China, which more than doubled its holdings of U.S. stocks during the bull market that began in 2009, wouldn’t be alone among government-affiliated sellers of investments abroad. Sovereign funds from Qatar to the United Arab Emirates and Russia have been liquidating assets since crude began tumbling in 2014. “The Chinese, or other people for that matter, are taking the view that sitting in U.S. equities is presumably quite risky, and I’m not surprised they’re shifting,” said Fredrik Nerbrand, global head of asset allocation at HSBC Bank Plc in London. “This seems like more of a generation of cash more than anything else, and probably a derisking of their portfolio.” Bloomberg News
Yunnan-Vietnam commerce
Border trade booms along south-western border Easier and faster frontier crossing’s procedures foster business environment. Border trade has been booming along the Chinese border with Vietnam, after intense government support to improve customs clearing processes, officials said during the China-South Asia Expo in Kunming, capital of southwest China’s Yunnan Province. In 2015, Yunnan registered 10.5 billion yuan (US$1.6 billion) in mutual trade among its border residents in 2015, up by 32.9 per cent year on year. More than 4.7 million tons of fruit, seafood, cement, floor tiles and other commodities were traded, said Yang Ming, deputy director of clearance at Kunming Customs.
“More than 87 per cent of the customs clearance is done through our electronic system without the need to file any paper documents, which has really boosted efficiency,” he said. Hekou County, along the ChinaVietnam border, has one of the busiest ports for trade. Three years ago, border residents had to queue to file their trade documents with the customs. Now the clearing is done with zip cards and fingerprints. “Very few people were doing trade just three years ago. Filing paperwork used to take about a day, now it takes less than an hour,” said Deng Xing, a border resident in Nanxi township
in Hekou. Hekou Port now uses an electronic system, developed by the customs office, to register all import-related
“We have much more to do in cooperation in customs clearing, logistics, entry and exit of the people” Liu Jing, Yunnan’s deputy director of the provincial commerce department
details. Inspection and clearing have also become much more efficient, said Deng. Faster, smooth and convenient trade has resulted in a boom of new logistics and transport companies in Yunnan. In Dehong prefecture alone, the number of companies in foreign trade grew by 15.2 per cent year on year to reach 1,125 in 2015. The figure is more than five times the number in 2011, according to the local statistics bureau. On the other side, similar measures have also been taken to facilitate trade, said Dang Xuan Phong, chairman of LaoCai Province People’s Committee in Vietnam. “We have upgraded equipment, improved checking and inspection, and simplified administrative measures,” he said, adding “we plan to further share information with the Chinese side and enhance our trade ties.” Xinhua
Business Daily Friday, June 17 2016 11
Asia Employment
Australia jobs show economy solid A total of 17,900 net new jobs were created, slightly above the median forecast of 15,000. Ian Chua
A
ustralia’s May jobs data showed an economy in fairly good health, but external risks to growth were not lost on policy makers - a point highlighted by central bank assistant governor Christopher Kent. Reserve Bank of Australia’s (RBA) Kent said challenges facing China - Australia’s largest trading partner - pose risks as the world’s second-largest economy rebalances from one reliant on investment to consumption.
institutional reforms that would help to sustain growth over the longer term and assist with the rebalancing of demand from investment to consumption,” he said. Yet, Kent was quick to add that the Chinese authorities “will no doubt respond if the economy experiences shocks that might otherwise lead to a so called ‘hard landing’ for the economy as a Ówhole.” The assistant governor stayed away from commenting directly on
Australia’s monetary policy setting, but his views on China were a sobering reminder of the external risks facing the domestic economy even though jobs data showed resilience in the labour market. Yesterday’s report from the Australian Bureau of Statistics showed Australia’s unemployment rate held steady at a three-year low of 5.7 per cent in May for a third month running - offering no trigger for resuming easing next month. The RBA left the cash rate unchanged at a record low 1.75 per cent earlier this month as widely expected, following a surprise cut in May on
persistently low inflation. A total of 17,900 net new jobs were created, slightly above the median forecast of 15,000, though all of them were in part-time employment, highlighting a soft underbelly in the report. “The structural changes in the labour force over the past few years mean the new jobs are mainly in the services sectors like health, retail, tourism and education. About 60 per cent of them are part-time or casual,” said Michael Workman, senior economist at Commonwealth Bank. “The next major inflation reading on 27 July is expected, in our view, to provide the RBA with sufficient evidence to justify another rate cut in August,” Workman said. Reuters
Key Points RBA Assistant Governor Kent talks about China risks Jobs data in line with expectations, little market reaction
Speaking on “The Economic Transition in China” at a business lunch in Brisbane, Kent said China’s economic growth is likely to experience a “gradual moderation” over the next few years, though there are a number of risks to be mindful of. “There appear to be increasing tensions between the goals of shoring up short-term growth and pursuing
Capital outflow
South Korea to ease banks’ forex forward rule The risk of banks’ short-term foreign exchange debt or forwards trading surging on the policy change was low, the authorities said. South Korea said yesterday it will ease one of the key capital controls implemented after the 2008-2009 global financial crisis as concerns grow over possible capital outflows in the face of higher interest rates in the U.S. The cap on the foreign currency forward positions that local banks can hold will be raised to 40 per cent from the current 30 per cent starting July, a joint statement from the finance ministry and regulatory agencies said yesterday. For foreign banks, the same ceiling
will be raised to 200 per cent from the current 150 per cent. This will be the first easing in the rule since it was first implemented in 2010. The last time the capital control rule was tightened was in January 2013. “We’ve seen a weakening in capital inflows since the second half of last year due to monetary policy tightening in the U.S.,” the statement said. “Going forward, we see the possibility of capital outflows increasing on political and economic
risks like the Brexit referendum, the U.S. presidential election and rate hikes there.” The statement said the current system faced limits should another global crisis emerge and banks run into low liquidity. The announcement came just hours after the U.S. Federal Reserve kept interest rates unchanged and signalled it still planned to raise rates twice in 2016.
“Going forward, we see the possibility of capital outflows increasing on political and economic risks like the Brexit referendum, the U.S. presidential election and rate hikes there.” South Korean regulatory agencies’ statement
The risk of banks’ short-term foreign exchange debt or forwards trading surging on the policy change was low, the authorities said, as the currency derivative holdings for local banks stood at 5.8 per cent of their capital and 58.6 per cent for foreign banks at end-April. The statement also confirmed a Reuters report that South Korea will require local banks to hold 60 per cent of their foreign currency exposure in liquid assets starting next year, when banks will be required to observe the foreign currency liquidity coverage ratio (LCR), a Basel III regulation aimed at promoting resilience against liquidity risk. The ratio requires banks to hold high-quality assets that can readily be converted into cash within 30 days. The LCR will not be applied to foreign banks operating in South Korea or to banks with foreign exchange debt of less than 5 per cent of their total debt, and that debt is less than US$500 million. The LCR will be hiked by 10 percentage points each year until it reaches 80 per cent in 2019. A smaller ratio will be applied to some state-run banks like the Industrial Bank of Korea next year as an exception, the statement said. The joint statement was issued by Ministry of Finance, the Bank of Korea, the Financial Services Commission and the Financial Supervisory Service. Reuters
12 Business Daily Friday, June 17 2016
Asia In Brief RBA official
China economic transition poses risks to Australia China’s economic growth is likely to experience a “gradual moderation” over the next few years, though there are a number of risks to be mindful of, an Australian central banker said yesterday. Speaking on “The Economic Transition in China” at a business lunch in Brisbane, Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent said Beijing has so far relied on more, rather than less, accommodative monetary and fiscal settings to support its slowing economy. China is Australia’s single biggest export market. Profit shifting
Singapore to join G20 plan against tax avoidance Singapore said yesterday it will take part in a G20 plan to prevent tax avoidance and artificial shifting of profits by global corporations. The Group of 20 endorsed in February a project by the Organisation for Economic Co-operation and Development aiming to ensure profits are taxed where the real economic activities are performed and where the value is created. Singapore has come under scrutiny in recent years as giants such as Apple and Google have used the low-tax city-state as a hub for their Asia businesses. Bangladesh theft
U.S. attorney probes cyber heist The U.S. attorney’s office in Manhattan has opened an investigation of the cyber heist of US$81 million from Bangladesh Bank’s account at the Federal Reserve Bank of New York, a law enforcement source said. Preet Bharara, the U.S. attorney for the Southern District of New York, is investigating the February crime, in which criminals used the SWIFT fund-transfer network to steal money from Bangladesh’s central bank. Bharara’s office declined to comment. The source spoke on condition of anonymity because he is not authorized to speak publicly. Strategic plans
CIMB Thai Bank looks beyond loans CIMB Thai Bank is targeting 20 per cent growth this year in fees from underwriting bonds, merger advice and investment products, in a strategic shift towards noninterest income as appetite for credit in Thailand wanes, its CEO said. Thailand’s economy is underperforming regional peers as consumers and small firms pay off debts accrued under a populist government toppled by the military in 2014. Growth is forecast at just over 3 per cent for 2016, up from 2.8 per cent in 2015. “The economy will continue to be quite sluggish,” CIMB Thai Chief Executive Subhak Siwaraksa told Reuters in an interview yesterday.
Bank of Japan Governor Haruhiko Kuroda attends a news conference following a two-day monetary policy meeting
Monetary policy
Bank of Japan holds off on easing despite weak inflation It also left unchanged a controversial 0.1 per cent negative interest rate. Leika Kihara and Stanley White
T
he Bank of Japan (BOJ) refrained from offering additional monetary stimulus yesterday despite anaemic inflation and weak global growth, sending the yen spiking to a two-year high that clouds an already darkening outlook for the economy. While the decision came as no big surprise, it emboldened yen bulls who were already selling the dollar after the Federal Reserve held off on raising interest rates on Wednesday and grew more cautious about prospects for U.S. growth.
Key Points BOJ maintains base money target, -0.1 per cent negative rate Yen hits 22-month high, stocks slump on BOJ decision Recent yen gains may hurt Japan inflation-Kuroda Adds BOJ ready to ease if yen gains hurt growth BOJ has tools available if Brexit jolts markets BOJ Governor Haruhiko Kuroda joined a chorus of jawboning by Japanese policymakers aimed at dissuading investors from pushing up the yen too much, stressing his readiness to ease policy again if excessive yen gains threaten prospects for achieving the bank’s ambitious 2 per cent inflation target. He also said the BOJ is in close contact with other central banks,
No help from Fed
A Reuters poll last week showed economists see a much higher chance of the BOJ easing at its meeting on July 28-29, when it issues fresh quarterly growth and inflation forecasts, assuming that global markets remain stable. “If the British referendum pushes the yen above 100 to the dollar, the BOJ would ease further given damage it would cause to exporters’ profits,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. Analysts at ANZ wrote in a research note that the BOJ could announce an increase in asset purchases by up to 20 trillion yen and a further deepening of negative rates in July. The BOJ is in a bind. Despite nearly three years of aggressive money printing, inflation has ground to a halt. In addition, receding expectations of a near-term U.S. rate hike have dashed the BOJ’s hopes of getting help from Fed policy to keep sharp yen rises at bay. While Kuroda argues he has plenty of ammunition to ease further, some BOJ officials have openly voiced doubts on what more the central bank can deliver and whether it would be any more successful than earlier stimulus efforts. 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 N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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including the Bank of England, on contingency plans to soothe financial markets should Britain vote to leave the European Union at next week’s referendum. With polls showing the “Leave” camp pushing ahead, few had expected the BOJ to risk easing policy before the June 23 vote. “If events like a Brexit vote disrupt dollar procurement of Japanese or any other countries’ banks, we have ample tools available to deal with it,” Kuroda told a news conference. The BOJ maintained its massive asset buying programme at its twoday rate review that ended yesterday, pledging to increase base money at an annual pace of 80 trillion yen (US$753 billion). It also left unchanged a controversial 0.1 per cent negative interest rate applied to some of the excess reserves financial institutions park with the central bank. “There is nothing in recent economic indicators that would lead the BOJ to change its economic outlook now,” said Norio Miyagawa, senior economist at Mizuho Securities. “However, the rising yen will place more downward pressure on consumer prices, so I expect the BOJ to ease in July, using all three dimensions of its current policy framework,” referring to the options of buying more bonds, taking on more risk by topping up other asset purchases and deepening negative rates. A Brexit may push up the yen further as investors buy the currency as a safe haven. That adds to headaches for Japanese policymakers, who fret of the hit to exports already suffering from soft global demand.
A strong yen also weighs on inflation by pushing down import costs. Core consumer prices fell for the second straight month in April as weak consumption discouraged firms from raising prices, stoking fears Japan was reverting to deflation. “Yen rises, as we’re seeing now, could have undesirable effects on Japan’s economy and future inflation,” Kuroda said, issuing his strongest warning to date of the damage recent yen gains could have on the economy.
Business Daily Friday, June 17 2016 13
Asia Outflow risk
India central bank governor faces ghosts of rupee’s past Rajan will need to manage outflows carefully at an especially tricky time for global markets with U.S. rate hikes expected. Neha Dasgupta
The looming expiration of an emergency liquidity measure introduced during India’s 2013 currency crisis comes at a risky time for the rupee, with about US$20 billion in deposits expected to leave the country as global investment appetite worsens. Analysts warn the rupee - already Asia’s worst performing currency against the U.S. dollar this year continues to look vulnerable ahead of September, when dollar term deposits that India raised from citizens abroad in 2013 start to mature. The outflows, though widely anticipated by both markets and policymakers, will present a nearterm currency challenge for Reserve Bank of India (RBI) Governor Raghuram Rajan, whose position is also up for renewal in September. “It’s a well anticipated event and the flows are largely known. Still, investors will be watching this carefully to see how the Reserve Bank handles the liquidity situation,” said Luke Spajic, head of portfolio management emerging Asia at PIMCO. Rajan announced the initiative to shore up foreign reserves soon after taking over the RBI in September 2013, when fears of U.S. Federal Reserve rate hikes punished vulnerable emerging markets such as India. Under the programme, banks were
incentivised to offer dollar deposits to Indian citizens abroad - through instruments known as foreign currency non-resident bank deposits - in a scramble to boost liquidity and regain the confidence of foreign investors.
“If the yuan starts to falls sharply or oil starts falling sharply, emerging markets will be under the hammer” Anindya Banerjee, associate vice president for currency derivatives at Kotak Securities
The RBI then exchanged those dollars for rupees at lucrative rates for bankers. With about US$28 billion in deposits maturing in September through to November, the RBI must provide dollars to the banks so they can pay back those depositors. Rajan said last week he expected US$20 billion in outflows in September to November, more than three times the outflow
Statistics New Zealand said construction activity rose 4.0 per cent q/q
GDP
Migration, construction, drive New Zealand growth Quarterly figures would give the bank further reason to pause on lowering interest rates. Charlotte Greenfield
New Zealand posted faster than expected growth in the first quarter as high migration boosted spending throughout the economy. Gross domestic product rose a seasonally adjusted 0.7 per cent in the first quarter versus the prior quarter and 2.8 per cent on the year, Statistics New Zealand said yesterday. Economists polled by Reuters expected 0.5 per cent on the quarter and 2.6 per cent on the year. Statistics New Zealand said construction activity rose 4.0 per cent q/q, the strongest quarterly growth since March 2014. High net migration contributed to broad-based growth, supplemented by strong earnings from tourism, offsetting a 3.5 per cent decline in goods exports, which were hit by falling dairy (-8.9 per cent) and meat product (-13 per cent) shipments. “Very strong population effects are coming through many industries, particularly the service sector...We’re also seeing the flow-on effects in the
likes of house construction,” said Doug Steel, economist at BNZ. Quarterly GDP growth, which was higher slightly higher than the 0.6 per cent forecast by the Reserve Bank of New Zealand, would give the bank further reason to pause on lowering interest rates when it meets in August, analysts said.
Key Points New Zealand’s economy expanded 0.7 per cent qtr-on-qtr in Q1 Construction, services drive GDP growth They noted, however, that other factors such as low inflation were likely to come into play. New Zealand’s central bank held its benchmark policy rate at a record-low 2.25 per cent last week and signalled its reluctance to ease further in the face of a hot housing market. Reuters
volumes typically seen over a threemonth period. Rajan will need to manage those outflows carefully at an especially tricky time for global markets with U.S. rate hikes expected and worries about China and crude prices lingering. A vote by Britain to leave the European Union in next week’s referendum would add to these worries. Rajan is talking down the risks, saying he is ready to deal with any rupee volatility in September. Since last October, the RBI has met with banks to assess their respective currency positions, according to bankers who attended those meetings. The RBI is also steadily building
its dollar war chest, with foreign exchange reserves hitting a record high of US$363.5 billion as of early June, enough to cover about 12 months of imports, compared with US$274.8 billion in early September 2013, when it covered only six to seven months. While stronger economic fundamentals mean few analysts expect the type of volatility India saw in 2013, policymakers still have some tricky markets to navigate. “The impact may be contingent upon the global backdrop. If there is major risk aversion during that time, yes the impact can be accentuated,” said Anindya Banerjee, associate vice president for currency derivatives at Kotak Securities. Reuters
14 Business Daily Friday, June 17 2016
International In Brief
Central bank
Russian vows to meet inflation target Russia’s central bank is determined to meet its inflation target and will have to keep interest rates high unless the government cuts its budget deficit, Governor Elvira Nabiullina said at the St Petersburg International Economic Forum yesterday. The central bank last week cut its main policy rate for the first time in almost a year, but is at pains to show it isn’t going soft on its goal of reducing inflation to 4 percent by the end of 2017. “Inflation at 4 percent isn’t stubbornness - it’s a necessity for our economy,” Nabiullina said. Panama Papers
IT worker at Mossack Fonseca detained A computer technician at the Geneva office of the law firm at the centre of the Panama Papers leak was detained several days ago on suspicion of recently removing large amounts of data, Swiss newspaper Le Temps reported. A spokesman for the Geneva prosecutor’s office confirmed to Reuters that it had opened an investigation following a criminal complaint by the law firm, Mossack Fonseca, but declined to comment further. The firm, which specialises in setting up offshore companies, has denied wrongdoing and said it was the victim of a data hack.
Commodities supply
EU reaches outline deal to stem flow of conflict minerals The agreement is not binding on imports of finished products that may contain the minerals. Barbara Lewis
T
he European Union agreed an outline deal late on Wednesday on a law to clean up the commodities supply chain to stem the use of gold and other metals from conflict zones. Human rights campaigners said the agreement was progress after months of argument but did not go far enough. Industrial users of the commodities in question said the compromise deal had struck the right balance. EU importers will have to check the origin of the relevant raw materials to see if they come from any conflict zone, but the agreement is not binding on imports of finished products that may contain the minerals. Members of the European Parliament and European Commission officials who brokered the deal said it would improve the lives of those living in conflict zones and marked a shift in the focus of trade law to supply chains. “We need to step up to our responsibilities and finally break the vicious cycle between the trade in minerals and the financing of conflict,” EU Trade Commissioner Cecilia Malmstrom told reporters yesterday. “It (the deal) opens the door for
new momentum in trade policy,” said Bernd Lange, a German Social Democratic politician who took a lead role in the talks. The EU rules will cover conflict minerals from anywhere in the world, meaning they go further in geographic scope than U.S. DoddFrank legislation finalised in 2012, but they are only binding on imports of raw materials, not finished products. The U.S. law insists on the scrutiny of imports of gold, tantalum, tin and tungsten from Democratic Republic of Congo and nine neighbouring countries as raw materials, and when used in products such as mobile phones, electrical goods and cars. The European Automobile Manufacturers’ Association (ACEA), which represents firms such as Volkswagen, Peugeot and Ford, said it supported transparency in minerals trade, but it was right to focus on the raw materials, not finished products, known as the downstream. “Compliance obligations for downstream companies should be avoided as they are extremely burdensome and costly in case of highly complex supply chains,” ACEA said in a statement. In an open letter this week, a group of 130 non-governmental organisations urged the European
Union to use its leverage as the world’s largest trading block and a significant destination for minerals that fund conflicts. It called for mandatory checks by “all companies bringing these minerals into the EU, in whatever form”. The outline deal is based on guidelines for responsible supply chains established by the Organisation for Economic Cooperation and Development (OECD).
Key Points Industry says deal right to focus on upstream Rights campaigners say missed opportunity U.S. law narrower in geography, but deeper reach Law needs further work on technical implementation Tyler Gillard, an OECD legal adviser, said it was, “an important step towards ensuring business avoids contributing to conflict”. The preliminary agreement will now require months of technical work before it can be implemented as EU law. Two years after it is completed, the law will be followed by a review to decide whether it needs to be widened in scope. Reuters
New data agency
Argentina’s May inflation at 4.2 per cent Argentine consumer prices boomed 4.2 percent higher in May, the government’s newly revamped statistics agency said on Wednesday, outpacing market expectations and underscoring the need to tame the inflation ravaging Latin America’s No. 3 economy. The market had expected a 3.8 percent increase in consumer prices, according to a Reuters poll of analysts, which alone would have put Argentina on course for one of the world’s highest yearly inflation rates. It was the first official inflation reading since President Mauricio Macri took office in December.
Monetary decision
Fed keeps interest rates unchanged Yellen said the U.S. economy appeared to have gained momentum since April, but that the labour market had lost some steam.
Tender process
Saudi Arabia seeking to buy hard wheat Saudi Arabia’s main state grain agency, the Saudi Grains Organization (SAGO) said yesterday it was seeking to buy 300,000 tonnes of hard wheat in a tender. The wheat should contain 12.5 percent protein and will be for shipment from September 1-30, SAGO said in a statement. The deadline for offers is Friday, it said. Of the total, 180,000 tonnes will be for shipment to the port of Jeddah and 120,000 tonnes to the port of Dammam. Saudi Arabia has become a major importer of hard and soft wheat since abandoning plans for self-sufficiency in 2008.
The U.S. Federal Reserve kept interest rates unchanged on Wednesday and signalled it still planned to raise rates twice in 2016, though it said slower economic growth would crimp the pace of monetary policy tightening in future years. Thecentralbank’sdecisiontostickwith its 2016 rate path, however, appeared shakier, with six of its 17 policymakers projecting just one increase this year. Only one Fed policymaker had done so when economic forecasts were last issued in March. A sharp slowdown in U.S. hiring in May had fuelled doubts about the strength of the labour market going into the Fed’s two-day policy meeting. Fed Chair Janet Yellen acknowledged the need to see clear signs of economic strength before lifting rates. “We do need to make sure that there’s sufficient momentum,”
Yellen told a news conference. The Fed also said the economy would grow only 2 percent this year and in 2017, 0.1 percentage point lower than previously forecast for each year.
Key Points Fed still sees two rate increases in 2016 Cuts economic growth and rate outlook for 2017 and 2018 Yellen says longer-term rate outlook cloudy It also cut its longer-term view of the appropriate federal funds rate, its benchmark lending rate, by a quarter point to 3 percent and indicated it would be less aggressive in raising rates after the end of this year.
Yellen was not clear on whether a rate increase could come at the next policy meeting in late July or whether the central bank would wait for a slew of firmer data as it headed into its September meeting. “I’m not comfortable to say it’s in the next meeting or two, but it could be,” Yellen said. “It’s not impossible that by July, for example, we would see data that led us to believe that we are in a perfectly fine course.” She acknowledged Britain’s possible exit from the European Union was one of the factors in the latest rate decision, saying the June 23 referendum would have “consequences for economic and financial conditions in global financial markets.” The rate decision was unanimous, with Kansas City Fed President Esther George, considered among the policymakers most eager to raise rates, voting with her colleagues on the Federal Open Market Committee (FOMC). George dissented at the prior two meetings. The Fed’s benchmark overnight lending rate remains in a range of 0.25 percent to 0.50 percent. Reuters
Business Daily Friday, June 17 2016 15
Opinion Business Wires
The Times of India The draft law on goods and service tax to bring e-commerce companies under its purview is giving e-tailers such as Flipkart and Amazon India the jitters. A major pain point for the e-commerce companies, which follow a marketplace model, is a clause relating to tax collection at source. According to senior executives at e-commerce companies, this clause will hurt the sellers who operate on thin margins to offer products at lower rates. They will either have to pass the tax burden onto the consumer or take a cut in their earnings.
US Federal Reserve Chair Janet Yellen speaks at a press conference after announcing that the Federal Reserve plans to leave interest rates unchanged
“Not impossible” Fed whistling in the dark
Bangkok Post The government plans to make another move to curb loan sharks by offering borrowers 50 billion baht in new soft loans to refinance non-formal debts. The soft loans will be provided through the Bank for Agriculture and Agricultural Cooperatives (BAAC) and Government Savings Bank (GSB) with 1% interest per month, said BAAC president Luck Wajananawat. “The BAAC and GSB were assigned by the government to use this tool to tackle the loan shark problem,” Mr Luck said. “Each bank received a budget of 25 billion baht to lend to low-income borrowers.”
Thanh Nien News Japanese retail giant Aeon has revealed an ambitious plan for Vietnam, where the retail market is forecast to grow nearly 12 per cent a year to around US$179 billion in 2020. Under the plan announced at a press conference on Tuesday, 20 megastores of the chain Aeon Mall in be opened in Vietnam, local media reported. Since its arrival in 2014, the retailer has opened three megastores into Vietnam and the fourth is scheduled to be opened in Ho Chi Minh City this July. Aeon also plans to have 100 supermarkets around the country through mergers and acquisitions, media said.
New Zealand Herald The Government has vetoed a Labour Party bill which would have extended paid parental leave from 18 weeks to 26 weeks. Finance Minister Bill English confirmed this afternoon that he had exercised the financial veto - the first time he has used it to sink an entire piece of legislation. Labour MP Sue Moroney’s bill had broad support in Parliament and was expected to pass into law this month. But Mr English said it was unaffordable. “Treasury estimates the cost of this legislation amounts to NZ$278 million over the next four years, a significant extra - unbudgeted - cost,” he said.
A
s it must, the Federal Reserve is whistling in the dark, maintaining a brave front over its willingness, some day, to raise interest rates while events and markets both move against it. The risk is that even as the U.S. central bank dovishly capitulates towards market expectations, confidence about how it will react diminishes as gaps between its forecasts and promises and its delivery grow. That might explain why Fed dovishness was met, this time, with a falling stock market. The Fed kept rates at between 0.25 and 0.50 per cent on Wednesday, extending at least until next month a long pause since its first hike of this up cycle in December. Fed projections of where interest rates will go, as embodied in the “dot plot”, moved down for the longer term but remained at 0.90 per cent at year’s end. Yet futures traders also downgraded their expectations for later this year. Asked about a rate hike in July, an outcome to which markets assign a 7 per cent chance, Fed Chair Janet Yellen’s tone became almost pleading. “No meeting is out in terms of a possible rate increase. But we really need to look at the data and I can’t pre-specify a timetable so I’m not comfortable to say it’s in the next meeting or two but it could be,” she said at the postannouncement press conference. “It could be. It’s not impossible. It’s not impossible that by July for example we would see data that led us to believe that we are on a perfectly fine course, and that data was an aberration and that other concerns would have passed.” So, Janet, are you saying it’s not impossible? It really could be? Yet the data she was presumably referring to as an “aberration” - last month’s poor U.S. employment figures - is only an outlier when you look strictly at that particular data series. Yellen is quite correct that this month’s jobs figures may reverse course, but there is no lack of other indicators which show she and her colleagues have plenty to worry about. Data this week showed total capacity utilization falling to 74.9 per cent in May from 75.3 per cent in April. Economists at Deutsche Bank pointed out that the last two times capacity utilization was close to 75 per cent, both demand and inflation were weak.
“
James Saft a Reuters columnist
high compared to sales and inflation is very low? The Fed kept up its brave face in discussing longerterm inflation expectations, acknowledging that market-based measures fell but maintaining that “most” survey-derived barometers of inflation expectations changed little. Third, the statement expressed slightly more concern about developments in inflation expectations, noting that marketbased measures “declined” (instead of “remained low”), and that only “most” survey-based measures were little changed “on balance” over recent months. Perhaps, but five-year inflation expectations as measured by the University of Michigan are now as low as they’ve been in that consumer survey’s 37-year history. One unnamed FOMC member broke ranks to say they expect it to be appropriate to hike once this year and then not again in 2017 or 2018. “This is consistent with our view that a further softening in labour markets could signal a significant shift in Fed policy. This is not our baseline assumption, but we raise the point to say that Fed policy feels bi-modal as labour market data have historically sent a strong signal about expansions and contractions,” Michael Gapen and Rob Martin of Barclays wrote in a note to clients. If that happens, the Fed and financial markets will have a problem. It is ominous that Fed dovishness is no longer inspiring much enthusiasm for risk assets. This may reflect a loss in confidence in the central bank’s ability to stimulate demand if needed. We already have a downturn in corporate profits, corporate investment and capacity utilization, and perhaps an emerging downturn in employment, all at very, very low interest rates and after only one solitary increase. If the economy is not great with rates at 25 to 50 basis points it is hard to see it getting much of a boost from zero, and we all now understand how problematic negative rates can be. Using more QE for a garden-variety downturn would also raise unpleasant questions about the state of the economy. Whistling and hoping may not be much of a strategy but for now they are all the Fed, and we, may have. Reuters
It is ominous that Fed dovishness is no longer inspiring much enthusiasm for risk assets. This may reflect a loss in confidence in the central bank’s ability to stimulate demand if needed.
Low low low expectations
The sort of poor pricing power associated with low capacity utilization perhaps explains the disappointing corporate capital expenditure figures. Why invest when demand is weak, inventories are
”
16 Business Daily Friday, June 17 2016
Closing
Abusive conditions
High-interest loans on campus fuel concerns Some ads even claim to lend money as long as the borrower takes a nude picture.
I
t is said that a picture is worth a thousand words. For some college students in China it can be worth a high-interest loan totalling thousands of yuan. Nanfang Metropolis Daily on Monday carried a report that revealed some college students had used nude pictures as collateral to borrow money from certain platforms. The loans were accompanied by weekly interest rates as high as 30 per cent and extra “commission fees” charged by the platforms. If the borrowers missed any repayments, the lenders would threaten to send the nude pictures, many of which included the borrowers’ ID cards, to their parents, according to the newspaper. Platforms on campuses and mobile apps offering high-interest loans typically lure students with claims such as “no collateral,” “no guarantee” and “loan granted on the day of application,” according to an investigation by Xinhua reporters. “The process is simple, borrow up to 100,000 yuan (US$15,170),” one ad claimed. One of the victims told the newspaper that a lender had threatened to leak her naked pictures. “Fortunately, my family paid the money,” she said on condition of
anonymity. “The interest is very high,” she said. “If you wanted to borrow 1,000 yuan, the weekly interest is 300 yuan, which means you have to owe 1,300 yuan within a week.” She added that the lender also charged a 200 yuan “commission fee.” It is illegal to promote unauthorized loans on campus, according to a circular issued in April by the Ministry of Education. Financial experts say an incomplete supervision system and college students’ lack of financial abilities allow the illegal businesses to pop up.
Loans and “nudity iou”
Xinhua reporters visited some colleges in China to find out about the high-interest campus loans. On the buses of Jiangbei University Town in Harbin City, capital of northeast China’s Heilongjiang Province, adverts read: “Loans: simple procedure, no collateral.” Xinhua contacted one of the “loan managers,” surnamed Yang, to inquire about a loan, and the manager said only a student card, ID card and a bank card were needed. Of course, the borrower should leave the phone numbers of his or her classmates and teachers.
Such a simple procedure has resulted in many university students borrowing without their parents knowledge. “If I want to buy a mobile phone, worth say 5,000 yuan, I can borrow from them. It is very convenient,” said Zheng Shuang, a freshman at Harbin Huade University. “In fact, many of my classmates have borrowed money from lenders, too.”
“There are no strict laws and regulations on campus loans currently, making management difficult” Huang Xiaowu, a professor with Zhongnan University of Economics and Law Some ads even claim to lend money as long as the borrower takes a nude picture, Xinhua found. But behind the ads are exorbitant interest rates. In March, a college student in Henan’s Zhengzhou City jumped to his death after defaulting on a 1 million yuan loan. Another student in the central province of Hubei
borrowed 30,000 yuan in October last year, but owed more than 700,000 yuan after just two months. Industry insiders say the phenomenon has to do with attitudes toward consumption. “College students’ concept of consumption is changing these days, with many living beyond their means,” said Fu Jian, a lawyer with Yulong Lawyers’ Firm in the central Henan Province. “Most college students depend on their parents financially, which is why they turn to these high-interest loans.” Fu said that college students’ risk awareness is still low, making them susceptible to such traps. Another reason is the low threshold for establishing lending platforms in China, with some masquerading as e-commerce companies while secretly engaging in lending. “A lack of supervision is also to blame,” said Huang Xiaowu, a professor with Zhongnan University of Economics and Law. “There are no strict laws and regulations on campus loans currently, making management difficult.” Fu Jian said the government should issue more specific laws and regulations targeting campus loans, and relative departments should better supervise the sector. “College students should realize that naked photos cannot be collateral, and if anyone leaks the photos, they should report to police,” said Huang Xiaowu. They should also be aware of the risks associated with excessive consumption, said psychologist Yang Yongchao. “Colleges should make sure their students are more financially aware, through courses or training,” he said. Xinhua
Paper money
Ecology finance
Central bank
ECB to launch new 50-euro banknote
China Exim Bank Indonesia surprises boosts credit for green growth with another rate cut
The European Central Bank said yesterday it plans to issue a new 50-euro banknote early next year, as it gradually replaces all of its different notes currently in use. “The ECB and the national central banks of the euro area will unveil the new ‘Europa’ series 50-euro banknote to the public on July 5. The new note is planned to be brought into circulation in spring 2017,” the central bank said in a statement. All of the different denominations of the new banknotes contain a portrait of Europa, a figure from Greek mythology. The ECB already replaced the five-euro note in May 2013, the 10-euro note in September 2014 and the 20-euro note in November 2015. “The 50-euro banknote is the most widely used of all euro banknote denominations. More than eight billion banknotes in circulation are 50-euro banknotes, representing about 45 per cent of the total,” the statement said. The 100- and 200-euro banknotes will also eventually be replaced, but the ECB recently decided to withdraw the 500-euro banknote from circulation amid fears the bills are favoured by criminals for money laundering and even terrorist financing. AFP
The Export-Import Bank of China (China Exim Bank) offered stronger credit support last year for the development of green economy amid China’s drive to promote ecological progress and curb pollution. Outstanding loans extended by China Exim Bank for energy saving and environment-friendly projects amounted to 76.602 billion yuan (US$11.69 billion) by the end of 2015, up 44.75 per cent year on year, said Feng Chunping, a senior official from China Exim Bank, during a press conference. The government-backed policy bank has financed several hundred renewable energy projects including wind power, solar energy and energysaving projects in the steel and chemical industries to help enterprises improve energy efficiency, said Feng. Outlined as one key task in the plan for the next five years, green finance is now part of China’s national strategy. Green finance uses institutional and policy arrangements to encourage more investment in energy-saving and environmentally friendly projects via financial products and services such as green loans, bonds, stocks, private equity, insurance and carbon emissions trading. Xinhua
Indonesia’s central bank yesterday surprised financial markets by cutting its main benchmark rates as policymakers seek to revive Southeast Asia’s largest economy. Bank Indonesia (BI) cut both of its current and future benchmark rates by 25 basis points (bpds) to 6.50 per cent and 5.25 per cent, respectively. The central bank will fully shift to the new benchmark starting August 19. BI’s two-day policy meeting ended just hours after the U.S. Federal Reserve decided to keep its own benchmark interest rate unchanged. Out of 19 analysts surveyed by Reuters, 13 had expected BI to hold the benchmark rate yesterday and six forecast a 25 basis points cut. Indonesia’s central bank started an easing cycle early this year with three rate cuts totalling 75 basis points to try to prop up economic growth. The central bank has also reduced banks’ reserve requirement ratio to effectively inject money into the financial system. Indonesia’s annual economic growth rate in the first quarter was a disappointing 4.9 per cent. Reuters