First Macau Apple Store to open in Galaxy Retail Page 2
Friday, June 24 2016 Year V Nr. 1072 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Securities
Local investment in external securities grows Page 5
www.macaubusinessdaily.com
Steel sector
Online market
Mainland complains about growing protectionism of U.S. policy Page 9
Chinese wine lovers increasingly fill their cellars through Internet shops Page 16
End of the Line for GIT LRT
The Transportation Infrastructure Office (GIT) is to be dismantled next year. The gov’t will create a public company for LRT management. With the Taipa section of the rail system operational in 2019, says Secretary for Transport and Public Works Raimundo do Rosário. The section would cost an estimated MOP11 bln, with MOP8 bln already paid, he confirmed. Page 5
Beyond Macau
Longer stay
Visitor arrivals in May dropped 2.8 pct y-o-y to 2.48 million. But overnight visitors grew to 1.16 mln from 1.2 mln a year ago. With prolonged average length of stay in the territory from 0.1 days y-o-y to 1.2 days.
Gaming Macau gaming promoter Iao Kun is expanding. Paying US$100 mln for Bloomberry’s Jeju casino. Union Gaming says the pending acquisition of the Jeju Sun marks the most “recent example of Macau-centric junkets attempting to transition from being agents to principals”. Page 3
Debt management Visitor Arrivals Page 2
20,868.34 +73.22 (0.35%)
Sands China Ltd
+1.92%
Galaxy Entertainment Group
+1.05%
Tingyi Cayman Islands
-1.87%
Lenovo Group Ltd
-0.62%
Industrial & Commercial
+1.60%
HSBC Holdings PLC
+0.99%
Li & Fung Ltd
-1.10%
CNOOC Ltd
-0.62%
AIA Group Ltd
+1.54%
CK Hutchison Holdings Ltd
+0.99%
Hong Kong & China Gas Co
-0.89%
Want Want China Holdings
-0.57%
China Merchants Holdings
+1.23%
New World Development
+0.93%
China Shenhua Energy Co
-0.87%
Tencent Holdings Ltd
-0.56%
Bank of East Asia Ltd/The
+1.20%
China Life Insurance Co Ltd
+0.83%
Belle International Holdings
-0.69%
Sino Land Co Ltd
-0.49%
27° 32° 28° 32° 28° 32° 28° 31° 28° 32° Today
Source: Bloomberg
HK Hang Seng Index June 23, 2016
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Debt doubts A Chinese planning official elaborates on Mainland debt risks. Saying as long as the country is able to keep growing reasonably the danger would not be systemic. The gov’t has also announced that ‘Zombie firms’ and companies with poor credit records will be excluded from the debt-to-equity swap programme. Page 8
2 Business Daily Friday, June 24 2016
Macau
2.48 million Tourist arrivals in Macau in May
Tourism
May’s total visitor arrivals down 2.8 pct y-o-y
Those who come stay longer Despite the city welcoming fewer visitors in May compared to one year ago, those who visited the territory stayed longer than they used to. Kam Leong kamleong@macaubusinessdaily.com
T
otal visitor arrivals in the city dropped by 2.8 per cent year-on-year to 2.48 million for May. However, the number of overnight visitors registered a year-on-year increase of 3.8 per cent, the latest official data released yesterday by the Statistics and Census Service (DSEC) reveals. Last month, the Special Administrative Region welcomed 1.2 million overnight visitors, compared to 1.16 million one year ago. The increase was driven by a 4.7 per cent growth in the number of overnight visitors
from Mainland China, who amounted to 780,408. As the number of same-day visitors declined by 8.3 per cent year-on-year to some 1.27 million in the month, the growth in the number of overnight visitors prolonged tourists’ average length of stay in the territory by 0.1 day year-on-year to 1.2 days.
Fewer Mainland tourists
But the number of Mainland tourists visiting the city posted a yearon-year decline of 3.5 per cent last month, to some 1.6 million. In particular, those travelling under the Individual Visit Scheme declined by 4.6 per cent to 718,680. Guangdong Province continued
to be the biggest source of the city’s visitors - 727,443 of the total - whilst other Mainland tourists primarily hailed from Hunan Province and Fujian Province, amounting to 70,515 and 64,950 of the total, respectively. In addition, the city saw visitors from Hong Kong, its second biggest tourist source, decrease by 4.1 per cent year-on-year to 500,973 in the month, while those from South Korea plunged 8 per cent year-on-year to 48,109. Nevertheless, those travelling from Taiwan registered a year-on-year growth of 6.5 per cent to 81,404. For long-haul visitors, the city received more Australian and Canadian tourists in May but fewer American and British tourists visited the territory at the same time.
Accumulatively down
For the first five months of the year,
total visitor arrivals were slightly down by 0.8 per cent year-on-year, amounting to some 12.4 million. Overnight visitors rose by 7.2 per cent year-on-year to 5.9 million while same-day tourists fell by 7.2 per cent year-on-year to 6.5 million. Even though the number of visitors from the Mainland and Hong Kong declined by 1.5 per cent and 3.2 per cent year-on-year to 8.2 million and 2.5 million, respectively, those from Taiwan and South Korea jumped by 10.2 per cent and 1.3 per cent yearon-year to 424,419 and 265,691, respectively. In addition, the number of longhaul visitors registered general growth in the first five months compared to the same period of last year. They were primarily from the United States, Australia, Canada and the United Kingdom, according to DSEC.
Retail
First Macau Apple Store to open in Galaxy Global tech giant Apple Inc. describes the city as ‘an incredibly important region’ for launching its latest flagship store in Greater China. Last week, the company announced that its first Apple Store in the territory will be unveiled at 10:00 am this coming Saturday in Phase II of Galaxy Macau. In a media preview tour yesterday, the company’s senior director for Retail in Asia Pacific, Denny Tuza, revealed that the two-level store is to offer over 150 different Apple products for customers to experience hands-on, which includes iPhones, iPads, Macs, Apple Watches and iPods. “I don’t need to tell you that this is an incredibly important region for Apple, and the Greater China stores are among some of our busiest in the world,” the company executive said during a press briefing. “Macau is a rich commercial and industrialised city with 600,000 residents and 32 million tourists annually. The city has a unique hybrid urban culture, representing a peculiar blend of Oriental and Western influences,” he added.
The city’s first Apple Store will be the tech giant’s 13th store it has opened in Greater China this year, taking the total number of stores in the region to 41.
According to Tuza, the local store has recruited 149 employees, who are primarily Macau locals. In addition, he claimed the team can speak nine languages/dialects, including
English, Cantonese, Mandarin, and Portuguese. “Apple Store Galaxy Macau is located in the Promenade of Galaxy Mall complex and in the neighbourhood of a few famous landmarks. We are thrilled to be part of the continued growth and development here,” the regional senior director said. K.L.
Business Daily Friday, June 24 2016 3
Macau Securities
Local investment in external securities grows A survey by the city’s monetary authority shows long-term debt securities were the most popular portfolio investment instruments for local residents. Kam Leong kamleong@macaubusinessdaily.com
L
o ca l r e si d e n t s w e r e holding MOP438.8 billionworth (US$54.9 billion) of investment in securities issued by unrelated nonresidents as at the end of last year, which represents a year-on-year increase of 10 per cent, according to a co-ordinated portfolio investment survey released yesterday by the Monetary Authority of Macau (AMCM). The authority noted that the amount
Public finance
includes investment in securities held by local individuals, the government and other legal entities but excludes the city’s foreign exchange reserves. Analysed by instruments of portfolio investment, MOP247.3 billion of the total investment were long-term debt securities as at last year-end, which jumped 8 per cent compared to the value for 2014. Meanwhile, investment in short-term debt securities surged 40.9 per cent year-on-year to MOP21.5 billion. Investment in equity securities also registered a jump of 10 per cent yearon-year to MOP170.1 billion. Of the
total, mutual funds and investment trust units amounted to MOP41.8 billion, according to AMCM. Most issued by Mainland Chinese entities in terms of geographical distribution, most of the external portfolio investments held by local residents were issued by the Asian region, accounting for 63.5 per cent of the total, followed by the North Atlantic and Caribbean, Europe and North America, which accounted for 12.2 per cent, 10.5 per cent and 10 per cent of the total, respectively. In particular, investment in securities issued by Mainland Chinese entities, including those listed on non-Mainland exchanges, accounted for 46.7 per cent of the total external portfolio investments held by local residents, amounting to MOP205.1 billion in market value, representing a
year-on-year growth of 6.4 per cent. However, the city’s investment in securities issued by Hong Kong entities registered a year-on-year fall of 20.8 per cent in market value to MOP57.9 billion, accounting for 13.2 per cent of the total. On the other hand, local residents’ portfolio investment in the North Atlantic and Caribbean increased by nearly 30 per cent year-on-year in market value to MOP53.4 billion as at the end of the year. In particular, the market value of portfolio investment in the British Virgin Islands grew 86.8 per cent year-on-year to MOP18.1 billion. Meanwhile, the market value of local investment in European securities jumped 9.4 per cent yearon-year to MOP46.2 billion, whilst that of US securities surged 81.4 per cent year-on-year to MOP41 billion, in addition to a 55.8 per cent year-on-year growth in the market value of investment in Australian securities to MOP14.1 billion as at the end of 2015.
Guangdong-Macau Co-operative Development Fund to be set up
Gov’t to invest 20 bln yln in Guangdong The office of the Secretary for Finance and Economy has announced that Macau is going to use its excess reserves to invest in the Guangdong-Macau Cooperative Development Fund, the memorandum for which was signed this week at the joint meeting of the governments of the two regions. In terms of the way to
invest, the two sides have agreed that Macau will be treated as a ‘Qualified Foreign Limited Partner (QFLP)’ to buy the shares of the Fund, while the Guangdong side will be represented by Guangdong Hengjian Investment Holdings Co., Ltd. and Guangdong Namyue Group Cp., Ltd. as a normal partner to subscript the shares of the Fund.
According to the statement of the Secretary’s office, Guangdong Hengjian Investment Holdings Co., Ltd. has been established with the authority of the Guangdong Provincial Government and funded solely by the Guangdong State-owned Assets Supervision and Administration Commission. By the end of 2015, it had total assets of 241.2 billion yuan
Gaming
Iao Kun lands S. Korean gaming resort for US$102 million Hotel and casino in Jeju Island was previously owned by Bloomberry Resorts Corporation. Macau junket operator Iao Kun Group Holding Co. Ltd. has reached an agreement with Philippine company Bloomberry Resorts Corporation to buy Jeju Sun Hotel & Casino in Jeju Island, South Korea, for a total of US$102 million (MOP814.8 million). The deal was disclosed yesterday in a filing with the Philippine Stock Exchange. Brokerage Union Gaming Securities Asia Ltd. considers the property price ‘modestly higher’, with the sale considered a result of Bloomberry Resorts’ ‘difficult experience operating in South Korea’, in a note sent out after the disclosure of the deal. Analyst Grant Govertsen at Union Gaming said the purchase was part of recent attempts by Macau junket operators to “directly compete” with gaming operators, citing examples of Imperial Pacific’s temporary casino in Saipan, and Suncity Group’s construction of a US$500
million casino in central Vietnam. Union Gaming believes the recent junket moves will possibly place incremental pressure on Macau casino operator VIP margins, as they drive players out of the territory, maintaining its forecast that Macau’s VIP gross gaming revenue will decrease 16 per cent this year with a 3 per cent growth in 2017. ‘Admittedly, Iao Kun has a very small market share in Macau, approximately 1 per cent, but Suncity Group is a market leader with a share likely in excess of 25 per cent at this point in the cycle. The fact that junkets are transitioning to being principals should ultimately give them incremental leverage to extract greater economies from Macau’s casino concessionaires, under threat of taking their players to their own casinos,’ Union Gaming stated in the release. Iao Kun’s five local VIP rooms are located in the StarWorld Hotel, Galaxy Macau, Sands Cotai Central, City of Dreams and Le Royal Arc Casino, and in addition operates gaming businesses in Crown Perth Casino and Crown Melbourne Casino in Australia. N.M.
(US$36.67 billion / MOP293 billion) and net assets of 163.6 billion yuan. The Fund is said to be primarily invested in Guangdong Province ‘s key infrastructure projects and the development of Free Trade Zones (FTZ) in the province. The provisional i n v est m e n t sca l e i s o f 20 billion yuan, with an investment period of 10 years, with the funds placed in stages. ‘Both the Guangdong
a n d M aca u si d es hav e reached consensus on the security mechanism and exit mechanism of the Fund. Guangdong Hengjian Investment Holdings Company will be liable and guarantee Macau’s fiscal reserves capital and interest [will be] safe and effective,’ reads the statement. In addition, Macau will receive annual fixed investment income based upon the actual capital contribution paid.
4 Business Daily Friday, June 24 2016
Macau Opinion
Pedro Cortés
University of Macau The only rankings that I love to check are my football team’s position in the UEFA rankings. Currently, they’re the 6th best team. As a matter of fact, rankings are what they are: the result of an assessment by predefined criteria. Of course, when a certain institution is well positioned, then the representatives highlight it and tell the world – if they have good PR personnel – that they are the best in the field, even if the field in question is something without importance. This to say that the Times Higher Education put the University of Macau 10 places lower than last year (i.e.) in its rankings, Macau is now the 50th best University in Asia. Well, in my ranking, our University is the best located in Hengqin Island and probably the best if we consider Macau Peninsula, Taipa, Coloane, Cotai and the piece of land in Hengqin Island. Is this sufficient? I’m sure that all the PhDs, professors, lecturers, students and other staff would like to see the university ranked in first place. But for that, there are efforts and visions that are required to be in place. For instance, it makes no sense to me that Mainland students and other ‘foreigners’ are not considered as a priority in terms of human resources policies. Macau needs them. It is true that the fact that the university premises are somehow dislocated from the community have made a huge change in terms of integration of our students in Macau’s social life. I know people that only come to Macau once a month to take care of personal matters. Macau lacks competence in many areas and the vision of our governors should be to look ahead at what may happen in the future. As to academic skills, we should attract the best students, not only those from our Asia Pacific Region, but from all places in the world. In my limited view, partnerships with institutions like MIT, INSEAD, Harvard, et al, would be a way of having la crème de la crème of the international crop of students participating in our beloved city. Is this Utopic? I don’t think so. We are the biggest casino market in the world. We have worldclass practices in plenty of companies that operate here. Therefore, we are more than capable of having a worldclass university on our Hengqin Campus that would put Macau even more on the map. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
Gaming
Emperor Entertainment’s annual profit halved Despite yearly profit being halved, the company saw its gaming revenue from the VIP segment increase 4.5 per cent year-on-year. Kam Leong kamleong@macaubusinessdaily.com
E
mperor Entertainment Hotel Ltd. posted a yearon-year plunge of 49.2 per cent in its annual net profit, amounting to HK$256.2 million (US$31.9 million), it informed Hong Kong Stock Exchange on Wednesday after trading hours. For its fiscal year ended March 31, the hotel and gaming operator raked in total revenue of HK$1.72 billion, down 15.4 per cent year-on-year. Of the total, gaming revenue amounted to HK$1.45 billion, down 16.2 per cent year-on-year compared to HK$1.73 billion one year ago. The Hong Kong-listed company explained in the filing that the decrease in yearly net profit is due to a loss on fair value changes in investment properties, an exchange loss on offshore traded renminbi, in addition to the declined revenue due to the economic downturn. The company operates two hotel properties in Macau - namely, Grand
Emperor Hotel on the Peninsula and the Inn Hotel Macau in Taipa. The latter was formerly known as Best Western Hotel Taipa. As at the end of March, the operator’s gaming business in its Peninsula property, operating under the gaming licence of Sociedade de Jogos de Macau, S.A. (SJM), includes 67 mass gaming tables, 10 VIP tables and 188 seats for slot machines.
VIP revenues up
According to the group’s filing, its revenue derived from the VIP gaming segment rose by 4.5 per cent yearon-year to HK$527.5 million for the year, despite its total rolling amount dropping to HK$22.4 billion from HK$25.4 billion one year ago. ‘The Group managed to achieve a growth in revenue from the VIP rooms, leveraging its effective customer segmentation strategy in prioritising VIP customers,” it claimed. M ea n w h i l e, t h e c o m p a n y ’ s gaming revenue from the mass tables declined by 25.6 per
cent year-on-year to HK$888.7 million, whilst those from slot machines grew by 9.6 per cent year-on-year to HK$35.3 million for the year. The group’s hotel revenue from the two local properties totalled HK$296.5 million for the year, which represents a year-on-year decrease of 11.3 per cent.
Hotel occupancy down
As at the end of March, Grand Emperor Hotel and Inn Hotel Macau provided 307 and 287 guestrooms, respectively, whilst occupancy rates reached 89 per cent and 85 per cent, compared to 88 per cent and 93 per cent for 2014, respectively. ‘The operating environment in Macau remains challenging amid macroeconomic uncertainties, regulatory headwinds and intensified competition,’ the operator remarked in the filing. ‘The Group is cautiously optimistic about the prospects for tourism and the gaming market in Macau and continues to seek expansion opportunities in the city,’ the company added. It also recommended the payment of a final dividend of HK$0.052 per share, which would total HK$67.7 million.
Business Hong Kong market comprises 85 pct of the group’s revenue
Cafe de Coral profits drop Although the Hong Kong restaurant chain has posted revenue growth of 2.9 per cent during the fiscal year ended March 2016 its total profit decreased 11.7 per cent. Hong Kong-based restaurant chain Cafe de Coral Holdings Limited (Cafe de Coral) has registered a total profit decline during the fiscal year ended March 2016 of 11.7 per cent to US$66.7 million (MOP533 million), according to the group’s filing with the Hong Kong Stock Exchange. On the other hand, the group’s revenue registered growth of 2.9 per cent to US$975 million. The group stated it faced a ‘challenging year’ especially due to the ‘weakening economy and market conditions’ with the market in Mainland China decreasing due to ‘market conditions’, the release announced. The profit decrease come after fiscal year ended March 2015 Cafe de Coral profit increased 1 per cent to US$75.6 million; however, the group stated its ‘quick service restaurants and institutional catering businesses’ continue to operate well. Hong Kong is still the group’s main market, comprising 85 per cent of total revenue, and increasing 5 per cent to US$831 million in the finishing fiscal year.
On the other hand, Cafe de Coral Mainland China operations, supporting 110 outlets, has experienced slower growth, with revenue decreasing 5 per cent in Southern China, with no total revenue in that region revealed by the group’s statement. Due to the downturn the group has closed
several underperforming outlets in Southern China – namely, The Spaghetti House, according to the release. In the filing, Cafe de Coral chairman Sunny Lo Hoi Kwong said consumer sentiment in Hong Kong has been ‘softening’ but that the ‘downward trend in rental costs’ would open doors to the group’s expansion. Mainland China was considered by the chairman as ‘challenging’ but still the ‘growth engine’ of the group. The filing also said the group was ‘committed to maintaining a strong presence in Southern China’ and that it would resume its pace of expansion when ‘the economy begins to recover.’ N.M.
Business Daily Friday, June 24 2016 5
Macau
Infrastructure Rosário: Taipa LRT line completed in 2019
Metro costs
Government announces the Taipa LRT line and depot will cost an estimated US$1.3 billion, while GIT will be dissolved next year with the future metro line management placed in the hands of a new public company. Nelson Moura nelson.moura@macaubusinessdaily.com
T
he Light Rail Transit (LRT) Taipa section and depot superstructure will cost an estimated MOP11 billion (US$1.3 billion), with an estimated completion of 2019, Secretary for Transport and Public Works Raimundo do Rosário said after a meeting with the Committee for Land and Public Concession Affairs of the Legislative Assembly (AL). The Secretary also added that so far MOP10 billion has been spent on the overall LRT project contracts and adjudications, with MOP8 billion having been spent on the Taipa LRT segment alone. Raimundo do Rosário said the priority was to finish the Taipa LRT, which will extend 9.3 km and 11 stations, and that the government is currently considering all proposals for the construction of the depot, with a decision to be announced on July 1. “The depot won’t just serve Taipa; it will serve the future lines of Coloane and Macau, so the whole cost of the depot was input on the MOP11 billion budget,” the Secretary mentioned. The contract for the construction of the LRT depot in Taipa was signed in 2009 with a consortium comprising Mei Cheong and Top Builders, initially for a MOP555.1 million contract over four years. However, due to serious delays on the construction the contract was terminated, with an overall expenditure of the contract of MOP85 million, Business Daily reported previously.
New methods
Now the government will manage a future contract for the
depot construction using a “new methodology” based on private contracts as a model, with premium and fines for works completed on deadline or delayed, the President of the Committee for Land and Public Concession Affairs Ho Ion Song has announced. “The project will have 14 deadlines; if the contractor finishes them all, the government will award it a premium of 8 per cent of the overall cost. If it fails one deadline it doesn’t receive anything,” Ho stated. With the depot cost estimated at MOP1 billion, the premium awarded to the contractor would be MOP80 million, but no definite contract values have been established yet. The value of the delay fines has also not been decided by the committee.
GIT out
The committee has also revealed that the Transportation Infrastructure Office (GIT) will be dissolved next year, with the government creating a public company responsible for the LRT metro system and its future management. The management and technical assistance services will continue under Hong Kong MTR Corporation Limited until their contract ends. In April, the government decided not to renew the 24-month contract with Hong Kong MTR, for a total of MOP470 million, after the level of supervision was considered insufficient. The Hong Kong company was considered to have provided about two to 24 workers less than what was promised in the contract, resulting in a poor level of service performance, Business Daily reported previously. Last week, Legislator Si Ka Lon submitted a written enquiry to request the government explain why on average the government will
Raimundo do Rosário, Secretary for Transport and Public Works, speaks to reporters
pay 5.8 times more than the amount paid to the previous provider. “We made this decision after the former contractor had so many problems. Hong Kong MTR is an efficient system that has already planned 1,200 line schemes, and is much more capable than the previous contractor. The company’s team is also bigger, more experienced, and speaks the same language. We also asked the Hong Kong MTR to do some consulting work and they will help in the formation of our human resources,” Ho Ion Song said after yesterday’s committee meeting.
Slowly does it
Secretary Raimundo do Rosario also stated that the priority after the Taipa LRT project is completed is to start the connection to Barra and the connection between Rotunda do Istmo and the Seac Pai Van public housing area in Coloane. The line currently in “study phase” - will have two km and two stations, connecting Seac Pai Van and the planned second public hospital in Cotai.
“Maybe in 2018 we will have the other Taipa line project but this won’t be finished before 2019 that’s for sure; and we won’t divide the projects in different sections again,” the Secretary stated, adding a decision on the Macau Peninsula line would be divulged this year.
Key Points Transportation Infrastructure Office (GIT) to be dissolved next year Government to create a public company for LRT management Taipa deport construction expected to resume in Q4 2016
The Secretary further stated that the government was in discussion with Mainland authorities regarding a proposed section of the LRT system that would connect Macau to Hengqin Island, in Zhuhai Prefecture on the Mainland.
6 Business Daily Friday, June 24 2016
Macau Land
STDM loses land dispute
In a string of government efforts reclaiming idle land, the government took back one plot last October that belonged to gaming tycoon Stanley Ho’s Sociedade de Turismo e Diversões de Macau (STDM). The STDM plot reclaimed by the government is located in Estrada de D. João Paulino on Penha Hill. The land grant contract in 1986 permitted
the company to build a 3-storey villa on the 968 square metre parcel. STDM has appealed to the Court of Second Instance (TSI), applying for a void of the Chief Executive’s dispatch. After a failed attempt at TSI, STDM appealed to the Court of Final Appeal (TUI) but was ruled against and are not entitled to any compensation, a statement issued by the court announced yesterday.
Tobacco control
Health Bureau proposes e-cigarettes ban
T
he Health Bureau has defended its proposed ban on local sales of electronic cigarettes (e-cigarettes) as part of the amendment of the tobacco control law, saying that e-cigarettes are not less harmful than traditional cigarettes, and that e-cigarettes should not be considered as an alternative to conventional tobacco products. Lei Chin Iao, director of the Health Bureau, says that the nicotine level of e-cigarettes could be higher than conventional cigarettes. Due to its innovation and variety, the e-cigarettes’ content examination requires a lot of staff and its head to supervise. The Health Bureau director says they need to talk with the Macau Economic Services who are in charge of imposing restrictions on imports to the SAR in order to regulate the market. “It’s so cheap that five e-cigarettes cost only MOP20. Children may have easy access to them. E-cigarettes also have all different kinds of refill of different flavours, like orange and banana. They can also choose
different nicotine levels. We still need to study more and discuss with the Economic Services Bureau with regard to putting restrictions on imports,” said Lei.
Last year, the Bureau made an effort to advocate that e-cigarettes should not be considered as an alternative to conventional tobacco products, issuing a statement proclaiming: ‘To ensure public health, the government has clearly suggested regulating e-cigarettes as a tobacco product as written in the delivered bill on the amendment of the tobacco control regime, and this has already gone through
the first reading in the Legislative Assembly’. The bill, which is now being reviewed by the second permanent committee of the Assembly, suggests a blanket ban on e-cigarette sales. The same bill also proposes a universal smoking ban in the city’s casinos, which some analysts have estimated would shave another 10 to 15 per cent off Macau’s already pressured VIP revenue.
Avian flu
Sales of live birds halted, poultry stalls sterilised Sales in Macau of live poultry have been halted after a test sample on Wednesday showed avian influenza virus was detected in a local market, the SAR Government has announced. The ban on sales of live poultry will last at least three days until Saturday inclusive. To protect public safety and minimise the risk of the virus spreading, the government has culled more than 9,000 birds at the wholesale market in Macau; a place where birds imported from the Mainland are kept before going to local wet markets. The action was conducted shortly after an environmental sample from a live poultry stall at the Iao Hon Market tested positive for the virus - an H7 subtype. A public health contingency system was immediately activated once the virus was detected. Measures taken included suspending until further notice imports from the farm on the Mainland suspected of being linked on this occasion to the virus plus a thorough cleaning and sterilisation of Macau’s wholesale market for poultry, and of all stalls in local wet markets offering live poultry for sale. The government informed the Mainland authorities about the case and will work closely with Mainland authorities to trace the source of the virus, said a representative of the Civic and Municipal Affairs Bureau in a press conference held on Wednesday evening. In addition, the seven people who
manage the stall where the infection was detected have been placed under medical observation at Conde S. Januário Hospital for a period of 10 days. The authorities have announced that anyone who visited the Iao Hon Market yesterday – and in particular the stall where the infection was detected – and subsequently develop symptoms such as fever and cough should contact the Health Bureau. Once it has reviewed information from the relevant authorities, the Civic and Municipal Affairs Bureau (IACM) will announce whether sales of live poultry can resume on Sunday.
Business Daily Friday, June 24 2016 7
Macau
Politics
Xi’s anti-corruption campaign reaches the SARs
Feel the heat
would be no exceptions in this anticorruption campaign,” said So via a phone interview with Business Daily yesterday.
also hit sentiment and slammed junkets, middlemen who are employed by the casinos to bring in wealthy gamblers. However, the sociologist plays down the concerns that the gaming downturn is attributable to many different reasons, including the slowing economy in the Mainland reducing the number of tourist arrivals. Nevertheless, he couldn’t deny the link, by saying, “of course there is some impact to a certain degree… even if the officials or businessmen are not corrupt they don’t want to draw attention and be investigated anyway.”
Side effects
Ongoing campaign
The 10th round of the nationwide graft inspections marks the first time the anti-graft watchdog has turned its ongoing campaign towards the agency under the State Council responsible for Hong Kong and Macau affairs.
A
l o ca l a c a d e m i c welcomes the Central Government’s latest ‘work arrangement’ of extending the unprecedented ongoing anti-corruption drive into the Communist party and central government officials in Hong Kong and Macau. China’s anti-graft watchdog said inspection teams will be sent to the Hong Kong and Macau Affairs Office, as well as the National People’s Congress agencies including the Basic Law committees for Hong Kong and Macau, among 32 ministeriallevel party and government organs, announced Wang Qishan, Secretary of the Central Commission for Discipline Inspection (CCDI), on Wednesday night according to state media Xinhua News Agency.
The anti-corruption campaign has been deemed one of the biggest reasons for Macau’s two-year streak gross gaming revenues slump. Increased scrutiny and tighter regulatory policies in Macau have
At Wednesday night’s meeting unveiling the plan, CCDI head Wang Qishan also said that inspection is one of the most effective methods of curbing corruption and pledged the inspection teams to “unify their
thoughts with the demand of central government”, “arm the brains with the spirit conveyed in President Xi Jinping’s speech”, and “resolutely safeguard the centralized and unified leadership of the party”. Wang Qishan is also a member of the seven-man Politburo Standing Committee, China’s highest decisionmaking body. He has emerged as the public face of General Secretary Xi Jingping’s anti-corruption campaign since 2013. The round of inspections that includes Hong Kong and Macau is the 10th since Xi took office in late 2012. The latest stage of Xi’s crackdown comes just weeks after a Mainland official in charge of the internal control of the State Council’s Hong Kong and Macau Affairs Office was found to have breached discipline himself by treating friends to a meal at a hotel on business expenses.
Work-deployment meeting
Local social Affairs commentator Larry So Man Yum said it’s a “correct and positive” thing to do and will “make the Chinese officials aware that they are still under supervision” even when they are in the land of “One Country, Two Systems.” “It will do good for Hong Kong and Macau’s images. It’s a signal sent out not only to the Special Administrative Regions (SARs), overseas Chinese, and further abroad, that there
Wang Qishan, Secretary of the Central Commission for Discipline Inspection (CCDI)
Corruption case
Ex-UN president charged with bribery dead, says lawyer The case involving Macau real estate developer Ng Lap Seng takes an unexpected turn. John Ashe, the former United Nations General Assembly president facing U.S. fraud charges, died Wednesday of an apparent heart attack, his lawyer said. Ashe was charged in October in a corruption probe at the organization, accused of taking US$1.3 million in bribes. Also charged in the case was Francis Lorenzo, the ambassador to the UN for the Dominican Republic, who’s accused of helping billionaire real estate developer Ng Lap Seng pay bribes to Ashe and others. A series of payments intended to win UN support for a multibillion-dollar project in Macau were made by Chinese nationals and Lorenzo to Ashe, the U.S. says. Separately, other Chinese nationals were accused of paying Ashe hundreds of thousands of dollars to open doors in his native Antigua, according to prosecutors. Ashe also
introduced a Chinese business executive to a UN counterpart from Kenya, with the goal of facilitating business
investments in Nairobi, the U.S. said. This scheme was the UN’s biggest financial corruption scandal since oilfor-food allegations that tarnished the tenure of former Secretary General Kofi Annan. According to a 21-page confidential report by the UN’s own
John Ashe, the former United Nations General Assembly president
investigators at the Office of Internal Oversight Services, a UN document was altered to aid a project backed by Ng and improper travel expenses were paid by non-governmental organizations. Ashe, the former ambassador to the UN for Antigua and Barbuda, was also accused of sharing some of the bribe money with the Caribbean nation’s prime minister as he lobbied for the Chinese interests, prosecutors said. Of the six charged in the case, two have pleaded guilty. Ashe, who’d pleaded not guilty to the charges, was awaiting trial. In a letter sent to U.S. District Judge Vernon Broderick last month, Jeremy Schneider, Ashe’s lawyer, said his client was in plea talks with prosecutors. Jim Margolin, a spokesman for Manhattan U.S. Attorney Preet Bharara, declined to comment on Ashe’s death. The case is U.S. v. Ashe, 15-cr-00706, U.S. District Court, Southern District of New York (Manhattan). Bloomberg
8 Business Daily Friday, June 24 2016
Greater China
‘China’s total debt load rose to 250 per cent of gross domestic product last year’
Bad loan
Government looking at ways to lower corporate debt A much-promised campaign to reduce industrial overcapacity could add to the dangers of more bad loans and defaults.
C
hina’s debt defaults will not pose a systemic risk as long as economic growth remains within a reasonable range, a state planning official said yesterday. The country’s overall debt risk is generally controllable, and corporate leverage ratios even have room to rise if economic growth is not stable, the official said at a briefing on issues related to China’s debt levels. The government also has room to raise debt levels, which will help lower corporate leverage, the official said.
Global investors are increasingly worried that Beijing’s continued efforts to stimulate economic activity and hit growth targets are driving debt up to unsustainable levels, raising risks to the country’s banking system. Top policymakers may share some of those concerns about excessive credit, though officials have repeatedly stressed in public that the risks are manageable. Last month, the official People’s Daily quoted an “authoritative person” as saying China may suffer from a financial crisis and economic recession
if the government relies too much on debt-fuelled stimulus. China’s total debt load rose to 250 per cent of gross domestic product (GDP) last year, and the IMF recently warned that the high corporate debt ratio of 145 per cent of GDP could lead to slower economic growth if not addressed. The state planning official said China will further develop capital markets to boost equity financing, which would help lower debt at companies. In order to lower debt levels, China’s ability to boost economic growth is vital, a banking regulator official said yesterday. The risk if economic growth slows is that more debt will begin showing up on banks’ balance sheets as nonperforming loans.
Banks’ bad loan ratios are rising but are still at relatively low levels, the regulatory official, adding that banks have written off 2 trillion yuan (US$304 billion) worth of bad loans in the past three years. Chinese commercial banks’ nonperforming loans (NPLs) rose to an 11-year-high of 1.4 trillion yuan, or 1.75 per cent of total bank lending, by end-March, earlier data showed. A debt-for-equity swap programme proposed earlier this year to ease company’s debt burdens and let banks convert bad loans must follow market and legal principles, the state planning official said. “Zombie firms” and companies with poor credit records will be excluded from the debt-to-equity swap programme, the official said, adding that the plan has yet to be finalised. China will also push forward reform of state firms to help lower debt levels, the state planning official said. Reuters
M&A
Buying spree prompts personal touch in private equity sales Chinese money accounted for US$11.3 billion of global private equity sales so far this year Pamela Barbaglia and Freya Berry
China’s hunger for Western companies has pushed private equity funds to change the way they do business, prompting them to ditch lengthy auctions in favour of one-on-one talks to secure higher prices and quicker deals. China’s appetite for overseas acquisitions has propelled it to the forefront of global deal-making. Outbound mergers and acquisitions (M&A) deals have totalled US$111 billion so far this year, surpassing the full-year record of US$109.5 billion set last year, according to Thomson Reuters data. “The scale of Chinese ambition has
stepped up over the past 12 months and private equity funds are keen to identify the high price payers from China,” said Eamon Brabazon, head of financial sponsors at Bank of America Merrill Lynch. Chinese money accounted for US$11.3 billion of global private equity sales so far this year, worth an overall US$96 billion. In Europe and the U.S. Chinese buyers have bought 20 private equity-backed companies since the beginning of the year, worth almost US$6 billion, the highest number on record, according to Thomson Reuters data. Recent deals include China Three Gorges’ acquisition of Blackstonebacked German offshore wind park Meerwind and Chinese investment firm Creat Group Corporation’s purchase of British biotech firm Bio Products Laboratories (BPL) from Bain Capital for 820 million pounds (US$1.21 billion). Brabazon said private equity firms
have started marketing companies just to Chinese customers six to nine months before they would normally begin a formal sales process. This practice, known as bilateral trade, allows private equity firms to sell assets in record time and avoid the high cost, execution risk and unwanted publicity of traditional auctions. A London-based healthcare banker said Creat paid an “extraordinarily high price” to clinch the BPL deal in bilateral negotiations. “The way of selling companies has changed,” said Luca Bassi, a managing director at Boston-based buyout fund Bain Capital. “Standardization is no longer an option. You need to customise your exit around a specific pool of buyers.”
Fast movers
Chinese companies are currently allocating large pools of capital for investments in Europe and the United States, said Nestor Paz-Galindo, head of sell side and financial sponsors M&A for the EMEA region at UBS. “Private equity funds are looking to tap this pool of liquidity over the next couple years as the depth and availability of this source of capital might not be the same in the future,” he said. Last month, French packaging firm SGD Pharma, backed by Oaktree, entered exclusive talks with China Jianyin Investment. Chinese aviation and shipping conglomerate HNA Group bought Swiss airline catering firm Gategroup
Holdings in April in a bilateral deal, having bought Swiss air cargo handler Swissport from PAI Partners in a similar fashion last year. Chinese buyers, previously regarded as slow and inconclusive, have proved they can move fast and are snapping up deals even when the asset in question has been earmarked for an initial public offering (IPO). SMCP, the French fashion firm behind brands Sandro, Maje and Claudie Pierlot, for example, was set to list on the Paris exchange as early as April but on March 30 its owner KKR agreed to sell the business to China’s Shandong Ruyi for 1.3 billion euros. “There has been a material change in the way that Chinese firms are behaving in private equity sale processes,” said Rob Pulford, head of financial and strategic investors group at Goldman Sachs. “They are more skilled and likely to get to the finishing line even if a business doesn’t have an obvious link with China, which was previously a prerequisite.” Western advisers regularly fly to Beijing to “educate Chinese firms” and establish a relationship with Western companies, he said. “The level of direct dialogue with Chinese buyers ahead of any process has increased significantly,” he said.
Name of the game
One-on-one negotiations often include a so-called pre-emption right allowing the bidder to submit a takeover bid before the opportunity is offered to other parties.
Business Daily Friday, June 24 2016 9
Greater China Sales decrease
In Brief
Hong Kong retailers’ malaise deepens from bling to buns Chinese consumers have gradually shifted their buying of luxury goods to other cities Hong Kong’s sharp drop in visitor arrivals from mainland China has hurt retailers’ sales from luxury watches and gems, to anti-wrinkle cream and pastries as the slowdown deepens in the world’s second-biggest economy. Net income at Sa Sa International Holdings Ltd. fell 54 per cent to HK$383.5 million in the year ended March 2016 on poorer sales to Chinese customers, and the cosmetics stores operator said Hong Kong’s retail market “will continue to face a number of challenges” amid China’s weak economy and stricter entry rules for mainland visitors. Sa Sa’s poor outlook followed that of restaurants operator Tsui Wah Holdings Ltd., which said Wednesday profit for the year ended March 2016 will drop by more than 50 per cent, also attributing it to a drop in Chinese customers. Mainland tourists, who account for about 70 per cent of visitors to Hong Kong, fell 16 per cent in 2015 and slumped a further 13 per cent in the first four
months of this year, according to the city’s tourism board. “It would continue to be tough for retailers to do business in Hong Kong this year, for both high-end and lowend brands,” said Dickie Wong, executive director of Kingston Securities Ltd. Chinese consumers have gradually shifted their buying of luxury goods to other cities, while the weakness of the yuan curbed demand for cheaper products such as food and cosmetics, Wong said.
Jewel slump
Sa Sa, which gets about 80 per cent of sales from Hong Kong and Macau, rose as much as 2.6 per cent to HK$2.78 after
it declared a special dividend. Chow Tai Fook Jewellery Group Ltd., the world’s largest publicly traded jewellery chain, earlier this month predicted market conditions in the region to remain challenging, and said it would chase Chinese tourist dollars overseas as well as negotiate for lower rents after full-year profit fell 46 per cent. The situation for retailers in Hong Kong “will still be difficult until rental costs further decline to offset sales slump,” said Kingston’s Wong. Efforts by retailers to strike deals with landlords in Hong Kong to cut rents would help limit this year’s profit declines, according to Bloomberg Intelligence. Reuters
Steel sector
Government concerned about protectionism in U.S. The Commerce Ministry said the U.S. has already imposed 161 duties for trade remedies on steel products against other countries by the end of April 2016.
This procedure, favoured by Chinese buyers, has been increasingly adopted in recent months by Western investors as well due to a shortage of investment opportunities and the urgency to deploy capital by those who recently raised new funds. “This is becoming more and more the name of the game. Private equity funds want a bespoke process which goes under the radar screen and develops at a much faster pace,” said Silvia Bassani, a Milan-based managing director at JPMorgan. “Buyers are more motivated as they feel they have better chances of success, while for sellers this is a faster and less disruptive way of doing deals,” she said. Most of U.S. private equity firm Warburg Pincus’s investments this year have been finalised as part of bilateral approaches, Warburg Managing Director Daniel Zilberman told Reuters. “Auctions are still taking place but bilateral talks offer a more efficient way to get deals done,” Zilberman said. This saves time and money for the seller who can quietly test market appetite without facing the stigma of a failed auction while bidders have a better chance to buy companies without the nerve-wrecking competition of an auction. “There’s so much capital and so much competition, we’re having to be ever more creative in terms of getting deals done and getting ourselves in pole position,” said James Brocklebank, managing partner at London-based private equity house Advent. Reuters
China’s Commerce Ministry said yesterday it was deeply concerned about protectionism in the U.S. steel sector and urged the United States to strictly abide by World Trade Organization rules. “The U.S. steel sector has been in a state of overprotection,” the ministry said in a statement on its website, adding that this overprotection has made the U.S. sector uncompetitive. Steel mills in China, the world’s biggest producer and consumer of the metal, have raised production despite the government’s efforts to cut overcapacity and beefed up exports. This has escalated trade spats between China and other steel producing nations such as Japan, India and the United States. As evidence of the excess protection in the U.S. market, the ministry noted that the U.S. has already imposed 161 duties for trade remedies on steel products against other countries by the end of April 2016. The ministry said that the difficulties facing the global steel sector have resulted from falling demand, and the growing trade protectionism from the U.S. will only intensify conflicts and
‘In May, the Commerce Department had recommended slapping Chinese steelmakers with import duties of 522 per cent on cold-rolled flat steel’
disputes without helping to solve problems. The ministry statement follows a ruling from the U.S. International Trade Commission on Wednesday that found imports of cold-rolled steel products from China are hurting U.S. producers, paving the way for hefty anti-dumping duties. In May, the Commerce Department had recommended slapping Chinese steelmakers with import duties of 522 per cent on cold-rolled flat steel, and anti-dumping duties of 71.35 per cent on Japanese producers. U.S. regulators also launched an investigation at the end of May into complaints by United States Steel Corp that Chinese competitors stole its secrets and fixed prices as the company sought to halt nearly all imports from China’s largest steel producers and trading houses. China is prioritising supply-side reform in the steel sector due to sagging prices to help overhaul its industrial sector. It has vowed to slash steel capacity by 100 million to 150 million tonnes over five years from around 1.1 billion tonnes. Reuters
Stock markets
HK gives details of first dim sum bonds in 2016 The Hong Kong Monetary Authority (HKMA) yesterday released details of the offshore yuan bonds China’s Ministry of Finance is selling in the city next week as its eighth year of issuance to bolster the dim sum market begins. The ministry plans to sell 28 billion yuan (US$4.26 billion) bonds in Hong Kong this year, matching last year’s total. The first batch, worth 14 billion yuan, will be issued on June 29. A total of 7 billion yuan with three-year tenor, 4.5 billion yuan five-year tenor, 1 billion yuan seven-year tenor, 1 billion yuan 10-year tenor and 0.5 billion yuan 20-year bonds will be offered through the Central Moneymarkets Unit, the HKMA said. Counterfeit
Alibaba wins dismissal of lawsuit Alibaba has won the dismissal of a U.S. lawsuit accusing China’s largest e-commerce company of defrauding shareholders by concealing a regulator’s warning about its ability to suppress counterfeiting on its websites. Chief Judge Colleen McMahon of the U.S. District Court in Manhattan ruled that Alibaba did not fraudulently omit its July 16, 2014 meeting with China’s powerful State Administration for Industry and Commerce from investor materials for its US$25 billion initial public offering two months later. Alibaba has long faced accusations that its online platforms are a haven for counterfeiters. M&A
State grid said in talks to buy CPFL Energia stake State Grid Corp. of China, the world’s largest utility, is in talks to buy a stake in Brazilian power distributor CPFL Energia SA, according to people with knowledge of the matter. Government-owned State Grid is in discussions to purchase some or all of Camargo Correa SA’s holding in CPFL, one of the people said. Camargo Correa owns about 23.6 percent of the company, according to CPFL’s website. Based on CPFL’s market value of about 20.8 billion reais (US$6.2 billion), the entire stake could be valued at about US$1.5 billion, not including any premium paid by the acquirer. Expansion strategy
Siasun scouting Europe for acquisitions China’s biggest maker of industrial robots, Siasun, is looking for acquisitions in Europe to expand the proportion of sales it makes abroad, its president said on Wednesday. China is the world’s largest robot market, but government support is rapidly expanding the number of robot makers, intensifying competition while growth is slowing. “We have a team in Europe. They are looking for robot companies, electronics companies, controller companies and so on. They want to buy,” Daokui Qu said in an interview at the Automatica robotics fair in Munich.
10 Business Daily Friday, June 24 2016
Greater China Semiconductor industry
Taiwan chip designers to lobby for ability to work with mainland The designers remain off-limits to mainland firms due to intellectual property and job-flight concerns. David Ramli
T
aiwan’s semiconductor companies need the option of merging with Chinese companies in order to stay competitive amid a global wave of sector consolidation, according to one of the industry’s largest players. Representatives of Taiwan’s chip companies will meet with government officials in the coming months to make a case for striking laws that restrict chip designers from Chinese investment, MediaTek Inc. Chief Financial Officer David Ku said. “It’s like trying to compete with a global 800-pound gorilla,” Ku said in a telephone interview. “I need to have the strategic flexibility, which means I can go anywhere, talk to anyone and ask for acquisitions or joint ventures with cash or shares. The way that the current Taiwan regulations restrict us, we’re basically not in the same
playground.” Chip companies spent a record US$113 billion on acquisitions last year, with Intel Corp. buying Altera Corp. for US$16.7 billion in a bid to meet demand in data-centre and Internet of Things markets. Other giants like Qualcomm Inc. and Samsung Electronics Co. have said they’re positioning themselves to reap next-decade opportunities associated with the Internet of Things, or technology that connects light bulbs, factory equipment and more to the web.
Chinese investor
MediaTek, based in northern Taiwan’s Hsinchu, is one of the world’s biggest chipmakers and one of Qualcomm’s top rivals. Its products power lowand mid-tier Chinese smartphones. If regulations don’t change, Ku said, the company would be at a severe disadvantage compared with rivals around the world, especially
Qualcomm and Irvine, Californiabased Broadcom Corp. MediaTek is a member of the Taiwan Semiconductor Industry Association, which will host public discussion forums and meet with the government to discuss the issue of opening designers to Chinese investment “probably in the next few months,” Ku said. Other association members include domestic leader Taiwan Semiconductor Manufacturing Co. and chip packager Advanced Semiconductor Engineering Inc. Former civil war foes, communist China and democratic Taiwan have been separately governed since 1949. While the top leader from each side met for a historic handshake last year, a new independence-leaning Taiwan president is testing crossstrait relations. Chip-related companies like packagers and testers are currently allowed to work with Chinese counterparts and Tsinghua Unigroup Ltd. is moving in. Tsinghua, an affiliate of the prestigious Chinese university, is furthering Beijing’s plan to cut its reliance on foreign-supplied chips
with a US$30 billion investment plan. Though Tsinghua has said it would be interested in investing in MediaTek, Taiwan designers remain off-limits to mainland firms due to intellectual property and job-flight concerns. While no merger and acquisition discussions have taken place given the current restrictions, Ku said Mediatek is open to working with the Chinese giant.
“If I don’t have that strategic flexibility when I need it, then I think it will have some impact on us” David Ku, MediaTek Chief Financial Officer “If I don’t have that strategic flexibility when I need it, then I think it will have some impact on us,” he said. “When you see most of my global competitors doing that, then you can assume we’re not talking about ten years later.” Bloomberg News
Money management
Wealthy mainlanders’ demand for asset allocation to increase fast China’s high net worth families will reach 3.88 million by 2020 and their investable financial assets will then account for 51 per cent of China’s individual wealth. More rich Chinese are expected to send their assets overseas for better investment returns as the economy continues to open up, according to a report. It is estimated that the proportion of Chinese individual assets to be allocated overseas will increase from the current 4.8 per cent to about 9.4 per cent in the next 5 years, with the Assets under Management (AuM) of overseas investment increasing to 13 trillion yuan (US$1.98 trillion), according to the 2016 China Wealth Report jointly released on Wednesday by China Industrial Bank (CIB) and The Boston Consulting Group (BCG). The proportion of personal wealth allocated to foreign assets is lower in China than in other countries. As the Chinese economy continues to open, however, the proportion will increase thanks to regulation liberalization and growing interest in overseas investment. The report revealed that, despite slowing Chinese economic growth,
the wealth of high net worth individuals (HNWIs) with investable asset over 6 million yuan is rising steadily. China’s high net worth families will reach 3.88 million by 2020 and their investable financial assets will then account for 51 per cent of China’s individual wealth. The country’s continuous economic globalization will drive the HNWIs to shift from domestic wealth allocation to global
wealth allocation. The rise of China’s HNWIs offers great opportunities for the development of private banking businesses, the report pointed out. However, there is an undersupply of private banking services. China’s private banking institutions manage less than 20 per cent of the wealth of high net worth families, which implies huge opportunities
for development, according to Chen Jinguang, CIB Vice President. Despite market volatility, Chinese HNWIs remain optimistic. About 80 per cent believe their household wealth will remain stable or rise during the economic transformation. So do 93 per cent of the ultra-highnet-worth individuals (UHNWIs) with investable assets of over 100 million yuan.
‘China’s private banking institutions manage less than 20 per cent of the wealth of high net worth families’ This shows that Chinese HNWIs remain upbeat about the prospect of the wealth of both the country and individuals, said David He, co-author of the report, BCG partner and head of BCG China’s Financial Services Institute. Xinhua
Business Daily Friday, June 24 2016 11
Asia
Investment
Asian companies founder in low-return rut as cash piles crimp growth Weak global growth has kept the lid on corporate investments. Nichola Saminather
A
sian stock investors hoping for respite from five years of falling returns may have to wait longer yet as companies are hoarding cash rather than investing due to poor global growth. The average return-on-equity across Asia ex-Japan - hovering near 14-year lows of around 10.5 per cent - will likely slip further with the risk that investors will maintain their underweight positions for the region for some time. “The underlying problem is that companies are not investing, because of lack of opportunities, uncertainty about the outlook for growth,” said Herald van der Linde, head of AsiaPacific equity strategy at HSBC in Hong Kong. Profit margins have risen to their highest since 2011, but largely due to cost-cutting and consolidation, not growth. Asia ex-Japan stocks have fallen almost 16 per cent in the past year with prices at 1.3 times book value, near their lowest since the global financial crisis. That compares with a 7 per cent drop in the MSCI World index, whose price-to-book ratio is 2.1 per cent. About 18.4 per cent of Asia exJapan companies’ total assets was
in cash and short-term investments, the highest since at least 1994, an analysis of over 600 Asia ex-Japan companies by HSBC showed. Fixed asset investment fell to 36.2 per cent of total assets, the lowest over the same period. Weak global growth has kept the lid on corporate investments. The World Bank recently cut its 2016 global growth forecast to 2.4 per cent from 2.9 per cent estimated in January, while the Asian Development Bank also reduced its emerging Asia growth forecast to 5.7 per cent from 6 per cent in December.
Key Points Asia firms’ cash assets at two-decade high on slow global growth ROEs may slip from 14-year lows, Asia risks staying underweight Consolidation under way but overcapacity may persist for years “There are certain areas where va l u a t i o n s, w h i l s t l o w , a r e simply matching the low-return environment,” said Ian Tabberer, who manages global equities for Henderson Global Investors in London, and is underweight
Asia-Pacific equities. Ironically, interest rates at multiyear lows across the region aimed at supporting growth have become part of the problem by keeping unviable businesses alive, contributing to overcapacity. While lower rates “had the initial effect of stabilising markets, they’ve moved into a period where they’re starting to harm the underlying economies,” said Mark Wills, head of State Street Global Advisors’ investment solutions group in Sydney. There has been some consolidation among Chinese railway equipment makers and retailers and Taiwanese and South Korean chip makers, but excess capacity could take years to resolve. “So you get overcapacity, lack of investment, lack of employment and lack of demand. This is a cycle you’re stuck into and this period of lower growth might well continue for some time,” said HSBC’s van der Linde.
Bulging cash reserves
Companies with bloated cash piles typically make investors nervous as they are not investing to aid growth or boost returns. Alibaba Pictures, the media arm of Chinese e-commerce company Alibaba Group, had almost 63 per cent of its assets in cash as of December 31, HSBC said. The figure was 50 per cent for Hong Kong-based Power Assets, after it sold down its stake in Hong Kong
Electric Co. last year. Both companies said in e-mailed statements that their cash reserves gave them the flexibility to pursue any opportunities that might arise, but did not comment on whether there were many opportunities in the current economic climate. Other regional companies with cash piles include Samsung Electronics, Infosys and Tata Consultancy Services, where cash and short-term investments accounted for between 30 per cent and 43 per cent of total assets as of March 31, according Thomson Reuters data. The obvious solutions to excess cash are to boost dividends or buy back shares. “If a company cannot find attractive investment opportunities, they should return that cash to shareholders,” said Matthew Vaight, global emerging markets portfolio manager at M&G Investments in London, adding that Asian companies tended to pay less dividends than companies in developed markets. Investors said that for companies to invest for future growth, things might have to get worse before they get better. “The market can’t tolerate the destruction of capital for significant periods of time,” Henderson’s Tabberer said. “That acts as a catalyst for change, leading management teams and industries to take action, such as consolidation in certain sectors, increased mergers and acquisitions. But it takes time.” Reuters
12 Business Daily Friday, June 24 2016
Asia
Malaysia’s Prime Minister Najib Razak
Anti corruption
Chief of Malaysia’s anti-graft panel to step down He asked for his contract to be terminated earlier than expected.
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he head of Malaysia’s antigraft body will step down on August 1, the agency sai d y est e r da y , m o r e than two years before the scheduled end of a term that included an investigation of Prime Minister Najib Razak. The revelations of the investigation, first reported by the Wall Street Journal last year, have shaken investors in Southeast Asia’s third-biggest economy and dented confidence in Najib’s ruling coalition. Abu Kassim Mohamed, the chief commissioner of the Malaysian
Anti-Corruption Commission (MACC), asked for his contract to be terminated earlier than expected, the agency said in a statement. “There was no pressure from any parties towards the decision made by Abu Kassim to shorten his contract,” it said, dismissing speculation in domestic media that pressure from the prime minister’s office might have prompted the resignation. The prime minister’s office did not immediately respond to a request from Reuters seeking comment. Under Abu Kassim, who took on his role in the beginning of 2010, the anti-graft body began investigations into allegations of graft and financial mismanagement at state fund 1Malaysia Development Berhad (1MDB) and the transfer of 2.6 billion ringgit (US$647.09 million) to Najib’s bank accounts.
Malaysia’s attorney-general cleared Najib of any criminal offences or corruption in January. Najib has denied any wrongdoing and said he did not take any money for personal
Key Points Steps down more than two years before contract ends Agency rules out any pressure from any parties Resignation follows offer of role in Austria, agency says gain. Abu Kassim’s contract was to have run until December 4, 2018, the antigraft body said, adding that the request to cut short his tenure
followed an offer to be a visiting expert at the International AntiCorruption Academy in Austria. “The request was made after I got the opportunity to improve Malaysia and MACC’s name and international standing,” Abu Kassim told reporters, adding that he would stay in the civil service until mandatory retirement in 2020. A second vacancy is coming up as his deputy, Shukri Abdull, will retire on October 3, Abu Kassim added, in a video of the news conference released by the agency. Najib was widely criticised last year after the government replaced Attorney General Abdul Gani Patail, who had led investigations into 1MDB, with Mohamed Apandi Ali. It cited Patail’s failing health for the change ahead of his retirement. Reuters
Bank of Japan
Central banker calls for review of negative rates A former market economist, Kiuchi has been the sole opponent of the Bank of Japan’s massive asset-buying programme and has called for it to be tapered. Leika Kihara
Dissenting Bank of Japan board member Takahide Kiuchi said the central bank should review its negative interest rate policy, give itself more time to hit its 2 per cent inflation target, and warned that the demerits of its massive monetary stimulus were outweighing the benefits. A prolonged period of ultra-low interest rates, brought about by the BOJ’s huge asset purchases, and the adoption of negative rates had destabilised the bond market and damaged the central bank’s credibility, Kiuchi said yesterday. “The additional (positive) effects of quantitative and qualitative easing (QQE) have been diminishing,” Kiuchi told business leaders in the western coastal city of Kanazawa. “On the other hand, numerous side effects of QQE seem to be increasing steadily,” he said. Kiuchi’s views are not shared by the majority on the BOJ’s nine-member board, but his doubts over Governor Haruhiko Kuroda’s radical stimulus policies are gradually gaining support among lawmakers and policymakers, including some at the bank.
The BOJ’s policies are aimed at ending two decades of deflation and stagnant growth, but nearly three years of aggressive money printing has failed to accelerate inflation, which fell for the second straight month in April as external headwinds discouraged firms from raising wages and keep households from spending. The BOJ surprised markets in January by adding negative rates to its asset-buying programme in a fresh bid to accelerate inflation, but Kiuchi, who voted against the decision, said
Key Points BOJ needs more flexible policy framework -Kiuchi Adds merits of stimulus outweighing demerits Negative rate policy destabilising bond market it had impaired the credibility of the bank’s monetary policy by reducing the predictability of its actions. The move has also failed to address an unwelcome rise in the yen, while Japanese shares have weakened, drawing criticism that the BOJ had 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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succeeded only in confusing rather than calming markets. By persisting with its pledge of achieving 2 per cent inflation at the earliest possible date, Kiuchi said the BOJ was creating “overly heightened market expectations” of additional easing. “The BOJ shouldn’t aim at achieving its 2 per cent inflation target with
monetary policy alone in the short term,” he said. “Rather, it should reset the timeframe for achieving the target to a medium- and long-term one, and conduct monetary policy in a flexible manner.” A former market economist, Kiuchi has been the sole opponent of the BOJ’s massive asset-buying programme and has called for it to be tapered. He also voted against the BOJ’s decision in January to adopt negative interest rates. Reuters
Business Daily Friday, June 24 2016 13
Asia Fiscal drive
In Brief
Indonesia considers onshore financial centre after tax amnesty Only 27 million people of the 250 million population are registered taxpayers and around a million people filed tax reports. Indonesia is considering forming a special region that will serve as an onshore financial centre in which domestic firms can create shell companies without having to go to tax haven countries, its finance minister said late on Wednesday. Southeast Asia’s largest economy is in the early stages of overhauling its tax system. It has announced many plans that the government hopes will get more people to pay taxes and empower the tax authority, including a proposed tax amnesty. Currently, only 27 million people of the 250 million population are registered taxpayers and around a million people filed tax reports. Finance Minister Bambang Brodjonegoro told reporters that after the tax amnesty programme ends, the region under consideration will allow Indonesian firms investing abroad to get lower tax rates and easier rules to open a financial company that would serve them as a special purpose vehicle (SPV). The country’s tax office has found at least 2,000 SPVs set up by Indonesians and 6,000 saving accounts in many tax haven countries, Brodjonegoro had said previously.
“We want our companies with offshore business to have their headquarters here, not in tax havens in other parts of the world, like Panama or Mauritius,” he said, adding that the low tax rates would
not apply to firms with onshore business. The government has proposed to parliament to offer tax amnesty starting from July until the end of the year and has projected 165 trillion rupiah (US$12.44 billion) of additional income from the programme. Under the scheme, the government will offer low rates for taxpayers who declare untaxed assets at home and abroad in order to broaden the country’s tax base. Brodjonegoro said parliament was close to reaching a decision on a bill backing the amnesty plan and may vote upon the bill before it goes into recess next week. Reuters
“We want our companies with offshore business to have their headquarters here, not in tax havens in other parts of the world, like Panama or Mauritius” Bambang Brodjonegoro, Finance Minister
Indonesia’s Finance Minister Bambang Brodjonegoro
Condensate market
Australia in sweet spot to meet Asian demand for ultra-light oil The nation has the inside track on selling to Asia, especially with some Middle East producers building their own splitters. Florence Tan and Seng Li Peng
Australia is in pole position to capture a bigger piece of the growing Asian condensate market, with producers pumping new supplies of the ultra-light oil as natural gas output soars to feed the nation’s mega LNG projects. An Australian wave of liquefied natural gas supply has helped pull Asian LNG prices down by 75 percent since 2014, so selling more lucrative condensate to Asian buyers could give a lifeline to less profitable projects. Australia’s Ichthys LNG export project, for instance, operated by Japan’s Inpex Corp, could produce more than 100,000 barrels per day (bpd) of condensate when it starts up next year.
Key Points Chevron, Inpex to add 140,000 bpd of Australian condensate Australia, U.S. vie for global natural gas, condensate consumers Australian condensate to help reduce Asian naphtha squeeze “The fact that the project is liquid-rich is one of the reasons that this project is economically in good standing,” an Inpex spokesman said, adding that the company has started marketing its condensate, primarily to customers in Asia. Condensate is a light oil produced in association with natural gas, and its consumption is rising across Asia as new refineries or splitters come online to meet strong demand for it to be used to make the chemical feedstock naphtha.
Besides Inpex, Chevron Corp plans to produce 38,000 bpd of condensate once it ramps up its Gorgon LNG project on Barrow Island off the northwest coast of Western Australia. Chevron declined to comment for this article. The circle of condensate suppliers is small, though, and Australia has the inside track on selling to Asia, especially with some Middle East producers building their own splitters. “The outlook is quite pessimistic (for buyers) as sweet condensate supplies are very limited,” said an Asian oil buyer who declined to be named due to company policy. Qatar, a traditional exporter to Asia, plans to divert a third of its output to its own splitter by January. Rival producer Iran could fill some of that shortfall, and it has stepped up exports to South Korea following the lifting of sanctions against Tehran, hitting a record in June. Quality issues with Iran’s condensate, however, limit its attraction to buyers. The outlook on its supplies is also murky on delays in the start-up of its splitter projects and a ramp-up of production from its South Pars field. Premiums for Qatari condensate loading in February hit a record, but have since fallen back on weak naphtha margins. The rise in condensate use as splitters start up from September could drive premiums higher again, traders said.
Cutting Asia naphtha shortfall
Asia’s petrochemical makers are net short of naphtha, although that deficit is expected to fall as much as 5.5 percent next year to 5.2 million to 5.3 million tonnes a month, according to Premasish Das, director for Asia and Middle East downstream oil markets at energy consultancy IHS.
The drop will come as condensate splitters that were planned a few years back to capture growth in petrochemical markets come online in Asia to feed adjacent paraxylene units. Combined condensate supplies from Ichthys and Gorgon of almost 140,000 bpd will initially meet a rise in Asian splitter capacity of 160,000 bpd in Taiwan and South Korea between late 2016 and early 2017. Two more splitters, one in Singapore and one China, are also set to restart following unplanned outages, and at some point will add back another 190,000 bpd in condensate demand, tightening the market for the light oil. That means Asian naphtha buyers will take up less of a current global surplus, further undermining profit margins for the light oil product. Benchmark Singapore naphtha refinery margins from refining a barrel of Brent crude, have already tumbled more than 60 percent since the beginning of the year to around US$54 per tonne on June 21. Reuters
Inflation
Singapore’s CPI falls for 19th month Singapore’s consumer price index in May fell again by 1.6 per cent, the 19th straight month of decline, according to the latest data released by Singapore’s Ministry of Trade and Industry (MTI) and Monetary Authority of Singapore (MAS) yesterday. The consumer price index (CPI) came in at minus 1.6 per cent in May on a year-on-year basis, compared with minus 0.5 per cent in April, mainly on account of base effects associated with the timing of the disbursement of Service & Conservancy Charges (S&CC), said MTI and MAS in the joint media release. Central bank
S.Korea needs structural reforms South Korea must press ahead with on-going structural reforms, backed by monetary and fiscal policies to stabilise the economy in order to overcome external risks, the central bank’s monetary policy board said yesterday. The comments from the Bank of Korea board come amid market speculation that the government will announce a supplementary budget as early as next week to boost economic activity. Policy board member Hahm Joonho said uncertainties over the U.S. and Chinese economies raised concerns that South Korea’s export focused economy could slow too fast unless appropriate actions were taken. Accounting scandal
Japan’s public pension fund sues Toshiba Japan’s public pension fund said it sued Toshiba Corp for 964 million yen (US$9.2 million) through an asset manager for losses stemming from the technology and industrial conglomerate’s US$1.3 billion accounting scandal last year. A Government Pension Investment Fund (GPIF) official confirmed a Wall Street Journal report yesterday which said a lawsuit by Japan Trustee Services Bank against Toshiba, filed on May 6 and previously reported by other media, had been on its behalf. A hearing is set for June 21, the official said. M&A
Telstra buys into mining technology sector Australia’s No. 1 telecommunications firm Telstra Corp Ltd has bought a mining technology company for an undisclosed sum, looking to tap the resource sector’s appetite for costcutting in the face of slumping commodity prices. Markets for everything from oil to iron ore have collapsed from record highs a few years ago due to swelling supply and a slowing economy in major consumer China, prompting mining companies to adopt new technologies which automate processes and boost production. The decision by Australia’s seventhlargest company to invest in resources automation will likely spur new interest in the sector.
14 Business Daily Friday, June 24 2016
International In Brief M&A
RBS receives bids for Greek shipping business The Royal Bank of Scotland has received bids for its Greek ship finance business, banking and financial sources familiar with the matter said, following a leap in bad shipping debts at the lender over the past few months. They told Reuters that the operation was worth about US$3 billion although sources in the shipping business said that problems with lending to the industry, much of which is in a deep downturn, would affect the value of what could be recouped via a sale. Credit Suisse and China Merchants were among the suitors bidding, the sources said. Monetary policy
Norway’s central bank keeps rates on hold Norway’s central bank left its key interest rate unchanged yesterday, in line with forecasts, but repeated it may cut later this year to fight an economic downturn triggered by low oil prices. The future rate path was raised slightly, however the bank also repeated it could potentially reduce the cost of borrowing to negative levels. “Should the Norwegian economy be exposed to new major shocks, the Executive Board will not exclude the possibility that the key policy rate may turn negative,” Norges Bank governor Oeystein Olsen said in a statement.
Going public
To IPO or not to IPO: 2016 to remain tepid as investors stay away This year 39 companies have gone public so far, down more than 60 per cent from the same period last year. Sweta Singh and Ankur Banerjee
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ast fall, Jessica Mah, the founder and chief executive of San Francisco-based inDinero, was deluged with calls from investors wanting to know when the accounting software maker would go public. The conversation has changed dramatically since. “My investors are now pushing for not wanting to go public anytime soon,” said Mah, who started inDinero six years ago when she was 19. The change in inDinero’s investor sentiment reflects the uncertainty prevalent in the U.S. IPO market. This year 39 companies have gone public so far, down more than 60 per cent from the same period last year, according to data from Renaissance Capital, a manager of IPO-focused ETFs. The pace of the market is unlikely to pick up, as declining valuations - a quarter of the IPOs this year are trading below their offer price dampen investor appetite, and easy availability of private capital keeps companies satiated. “Investors are more valuation
sensitive today than they were in 2015,” said Benjamin Howe, cofounder and CEO of AGC Partners, a Boston-based boutique investment bank. The Renaissance IPO Index, a float-weighted index of U.S. IPO performance, has had negative returns of 7.2 per cent so far this year, compared with positive returns of 2.2 per cent for the S&P 500 index. Howe said the IPO market has been “horrendous and I don’t see that changing anytime soon.” There are also other factors for investors to consider: Britain’s impending vote on its European Union membership, the upcoming U.S. presidential elections and the timing of an interest rate hike by the Federal Reserve.
Tech tonic
Investors have also been skittish about the usually sought-after technology stocks, keeping at bay the so-called unicorns, or start-ups valued at more than US$1 billion. SecureWorks Corp, Dell Inc’s cyber security unit, was one of the two tech companies to go public this year. The stock fizzled in its April debut and
French parliament scraps planned extra tax on palm oil
Management
Caixabank confidence in BPI team The chairman of Spanish bank CaixaBank has said that they intend to keep the BPI management team if they take over the bank, showing confidence in Fernando Ulrich. The CaixaBank takeover bid for BPI was announced in April after the Spanish bank failed to reach an agreement with fellow shareholder Santoro (owned by the Angolan president’s daughter and second largest shareholder with 18.58% of the capital) about a solution for the bank’s exposure to Angolan risk as it owns Banco Fomento de Angola.
‘The Renaissance IPO Index has had negative returns of 7.2 per cent so far this year’ The Nasdaq Biotechnology Index has fallen nearly 25 per cent this year and is on track for its worst halfyearly performance since 2002. Of the 23 healthcare companies that have gone public this year, eight are trading at a discount to their offer price. “When the stocks are not exceeding average S&P returns or trading below their IPO price, that causes people to back away from the market,” said Richard Truesdall, co-head of global capital markets at law firm Davis Polk & Wardwell. “There is enough uncertainty and clouds in the horizon that is causing people to be cautious.” Reuters
“The appreciation of the dollar in the last 12 months is probably attributable to the level of uncertainty that there is around”
Trade
France’s National Assembly has scrapped plans for an additional tax on palm oil, which had caused outcry among major producers, after the government put forward an alternative proposal that would include other vegetable oils used in food. Indonesia and Malaysia, the world’s two largest producers, had said the plan, which was aimed at encouraging the sector to reduce the environmental damage palm oil plantations can cause, was discriminatory and broke international trade rules. The Malaysian Palm Oil Council representing local producers, which had also claimed the tax would put thousands of small farmers out of work, welcomed the decision.
currently is flat with its IPO price. The debut of communications software provider Twilio Inc yesterday will help test the waters for other tech companies and unicorns in the coming months. However, several IPO experts say even if Twilio has a stellar debut, that would unlikely rub off on the rest of the market. Biotechnology companies - the biggest boost to the IPO market in terms of volumes last year - have also underperformed, plagued by increased scrutiny over drug pricing practices.
Christine Lagarde, IMF Managing Director
IMF Managing Director Christine Lagarde
State of economy
IMF sees United States in “good shape” The Fund identified four key challenges to U.S. growth David Lawder
The International Monetary Fund said on Wednesday the U.S. economy was “overall in good shape,” with growth set to regain momentum despite an overvalued dollar, but it warned that too many Americans were dropping out of the workforce or living in poverty. The IMF expects U.S. economic growth of 2.2 per cent in 2016, a downgrade from 2.4 per cent it forecast in April. But the Fund maintained its outlook for growth to recover to 2.5 per cent in 2017, with inflation rising slowly toward the Federal Reserve’s goal of two per cent, it said in a statement at the conclusion of its annual review of U.S. economic policies. The statement showed the Fund now views the dollar as overvalued
by 10 per cent to 20 per cent, based on real effective exchange rates against a broad range of global currencies. IMF Managing Director Christine Lagarde told a news conference that was not the result of currency manipulation by U.S. trading partners to gain export market share, but of global uncertainty causing a rush into dollar assets. “The appreciation of the dollar in the last 12 months is probably attributable to the level of uncertainty that there is around, as well as to variations of commodity prices that often have a direct impact on the valuation of the dollar relative to other currencies,” she said. She also cautioned against “abrupt” interest rate hikes by the Federal Reserve, saying that the Fund believed the U.S. central bank should make stability its highest priority, with gradual, well-communicated hikes. She said any Fed move should be data-driven and “be supportive of the economy and that it not be such that a reversal be required.”
The IMF identified four key challenges to U.S. growth: declining labour force participation as the population ages, declining productivity growth, an increasingly polarized society with income gains concentrated among the wealthiest Americans, and too many people living in poverty. The IMF cited U.S. census data showing 46.7 million people, or 15 per cent of Americans now live below the poverty line, including 1 in 3 households headed by women. It urged U.S. policymakers to take steps to increase labor force participation, including improving childcare and other family-friendly benefits to draw more women into the workforce, pursuing immigration reforms and reworking the disability insurance program to allow for recipients to do part-time work. It also called for the United States to raise the federal minimum wage while at the same time providing a more generous earned-income tax credit, and improving early childhood education. Reuters
Business Daily Friday, June 24 2016 15
Opinion Business Wires
Taipei Times The nation’s unemployment rate stood at 3.84 per cent last month, a drop of 0.02 percentage points from April, as fewer people lost their jobs due to businesses downsizing or closing, and more than muting the gain in the number of people who quit their jobs, the DirectorateGeneral of Budget, Accounting and Statistics (DGBAS) said yesterday. The data marked a 0.22 percentage point increase from a year earlier due to economic weakness, with the DGBAS expecting the jobless rate to climb over the summer with the arrival of new graduates and part-time employees seeking work.
The Star A significant number of parties are scurrying to submit their applications to run peer-to-peer (P2P) lending platforms (in Malaysia), the latest in financial technology (fintech) initiatives being carried out by the Securities Commission (SC). Industry sources said these include some large corporates, financial institutions, tycoons and technology entrepreneurs. Sources said there could be as many as 100 parties applying for a licence to run the platform. Submissions have been open from May 2 and will close on July 2.The P2P is the second initiative by the SC in the fintech space after equity crowdfunding.
New Zealand Herald Concern over the amount of tax paid by multinational companies has the government mulling a tax transparency register which would name and shame aggressive tax avoiders. Such a policy is currently in force in Australia and was part of a package, including a clampdown on diverted profits popularly known as a “Google tax”, following an outcry across the Tasman over tax avoidance by large companies. Tori Sullivan, a director of professional services firm EY, told the Herald she was unsure of how far along the proposal was from being implemented, but in a speech earlier this month Revenue Minister Michael Woodhouse said the measure was under consideration.
Bangkok Post Zalora (Thailand) Ltd, a leading fashionfocused e-commerce site, aims to become Thailand’s largest fashion retailer with a cross-channel business model after merging with Central Group’s online company COL. Ali A. Fancy, chief executive of Zalora Thailand, said the company will take six to 12 months to complete the transformation after Central acquired it in May. It is now being merged with COL. Central and Zalora have their own strengths and plan to pool their synergies to build a so-called “omnichannel” fashion platform for both offline and online activities that can suit any customer’s shopping behaviour.
The Fund that cried wolf?
I
f you ask Google to find the text of the International Monetary Fund’s Global Financial Stability Report for April 2006, it helpfully asks whether you are really looking for the April 2016 version. I am sure the IMF would never seek to manipulate a search engine, but I imagine that the Fund’s public affairs officials are happy if as few people as possible can access the 2006 version. It was not one of the IMF’s most prescient publications. Issued just as the first doubts about the subprime mortgage market in the United States were emerging, it presented a rosy view of the present and the future. The authors did address whether global imbalances, derivatives, and subprime mortgages posed a threat to financial stability. But they liked what they saw. In the mortgage market, the IMF saw prospects of a soft landing. It believed that global imbalances would unwind gradually. And it paid tribute to the ability of US markets and financial firms to create innovative instruments to “attract and sustain high levels of capital inflows.” Indeed, US markets were described as “deep, flexible, sophisticated, and by and large well-regulated.” But the most remarkable misjudgement appears in the discussion of credit risk transfer. The IMF concluded that “a wider dispersion of credit risk has derisked the financial sector.” As a result, “banks should become more resilient and financially stable,” the consequences of which “should be seen in fewer bank failures and more consistent credit provision.” We have entered an era in which “commercial banks may be less vulnerable to credit or economic shocks.” This was not, shall we say, the IMF’s finest hour. It brings to mind John Kenneth Galbraith’s famous quip that economic forecasters were put on Earth to make astrologers look good. So maybe we should take the IMF’s more recent reports, which are full of dark warnings, with a grain of salt. It would not be surprising if, even a decade on, the Fund continues to be influenced by its failure to warn in good time that a global financial crisis – the worst in nearly 80 years – was a material risk. And, indeed, there are signs that the IMF now sees trouble everywhere it looks. But, though the Fund’s economists may be at risk of forecasting ten of the next three crises, it would be unwise to dismiss their concerns entirely on the basis of past errors. (That has been the trivializing response of “Brexit” campaigners to warnings by the European Union, the IMF, and the OECD, that withdrawal from the EU would cause severe damage to the British economy.) The Fund makes some strong points, but others appear much less well founded. The IMF’s strongest arguments concern China and European banks. It is surely true that the build-up of debt in China calls for close monitoring, and that corporate deleveraging, which is urgently required, “should be accompanied by a strengthening
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Howard Davies Chairman of the Royal Bank of Scotland.
of banks and social safety nets, especially for displaced workers in overcapacity sectors.” There is no reason why that cannot be achieved – the overall balance sheet of China, Inc. remains strong – but the domestic distributional consequences will require careful management. The second big challenge that the IMF identifies – excess capacity in the eurozone banking system, and the related problem of non-performing loans – is also, in principle, solvable. The European Central Bank is well aware of the risk from weaker banks; but, with the eurozone economy heavily reliant on bank credit, addressing it is not straightforward. And continued massive ECB intervention in the bond markets can only postpone the day of reckoning, not avert it. But the third problem detected by the IMF may not be a problem at all. The Fund argues that the life insurance industry could be a future source of systemic risk, and should therefore be subject to macroprudential stress testing, or counter-cyclical capital buffers, on the model used for banks. The first recommendation is curious: IMF staff seem unaware that a stress-testing regime for insurers has already been put in place in some jurisdictions, notably the United Kingdom. Indeed, there are stress tests, and socalled reverse stress tests, whereby insurers are required to describe what would need to occur to make them fail. And of course insurers did – almost universally – pass a real-world stress test in the form of the financial crisis. The one big failure, AIG, occurred because of problems in its non-insurance business. Likewise, the IMF’s makes no compelling case for a macroprudential countercyclical approach to insurance capital. The Fund’s own analysis does not demonstrate that insurers behave in a pro-cyclical way. On the contrary, there is some evidence that they acted counter-cyclically in the crisis. Even the IMF concludes that “the evidence is not unequivocal.” That is a thin basis on which to propose a new set of capital requirements, which would be “built up during upswings of the financial cycle and run down during periods of financial stress.” Why such tinkering is appropriate on the asset side of the balance sheet, while liabilities remain unchanged, is not explained. Perhaps it would be better if the IMF’s 2006 report could be put beyond reach, behind a firewall or somewhere on the dark web, in an unindexed museum of forecasting disasters. Then the IMF could again take a balanced view, rather than issuing so many false alarms that it is ignored when a real fire starts. Project Syndicate
Though the Fund’s economists may be at risk of forecasting ten of the next three crises, it would be unwise to dismiss their concerns entirely on the basis of past errors
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16 Business Daily Friday, June 24 2016
Closing Wine trade
Virtual vintners have legs in mainland, toppling traditional importers Logistics firms, small importers and wine makers are tapping the online market to prune costs and reach more directly to China’s vast market. Adam Jourdan and Byron Kaye
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u Zhendong sees himself as something of a wine buff. The 25-year-old lawyer from China’s western city of Chengdu is a member of his local wine club, likes to drink Chateauneuf-du-Pape - and now, like many of his peers, buys most of his wine online. Wu reflects a major shift in China’s US$14.2 billion wine market, where increasingly price-savvy shoppers are driving a boom in online trade, upending the fast-growing market that has long been dominated by large-scale importers. China’s wine market, hit hard by Beijing’s crackdown on ostentatious spending and corruption in 2012, is starting to show signs of revival but lavish spending by China’s wealthy elite has been replaced by more prudent consumption. “The rich and famous don’t want to be seen consuming and they don’t want to buy here, they want to buy in Hong Kong or elsewhere,” Bruno Baudry, chief executive of China’s
largest traditional wine importer ASC Fine Wines, told Reuters. Suntory Group-owned ASC is increasing its sales online and recently strengthened a tie-up with e-commerce giant Alibaba Group Holding Ltd, said Baudry. “We are not an e-commerce company... but it’s an important vector of growth.” Still ASC, which grew fast as Chinese buyers boomed in the early 2000s, has taken a hit: sales were down 9 per cent last year even as the imported wine market rose by around a third. Baudry hopes the firm’s new strategies will help it grow sales 3 per cent this year, still slower than the wider market. “The market is recovering but it has changed tremendously,” said Guillaume Deglise, chief executive of wine trade fair Vinexpo, adding thinner margins meant larger firms with big overheads were having to trim down their costs. “The market used to be driven by the big boys. These guys are now struggling.”
Price driven market
As Chinese economic growth slows
and more cost-conscious consumers opt for cheaper wines, big traditional importers are having to re-think strategies to take on nimbler local rivals. Logistics firms, small importers and wine makers are also tapping the online market to prune costs and reach more directly to China’s vast market, long seen as a goldmine for vineyards from Bordeaux to the Barossa. “Big companies are struggling because low-cost, smaller firms have the advantage, especially with the market completely driven by price,” said Johnny Yang, Shanghai-based head of small importer Wines Direct. Lawyer Wu, for example, said he now bought around 80 per cent of his wine online - including from specialist platform Wineyun.com because of lower prices and a wider selection than local physical stores. The market’s rapid change is part of a wider boom in e-commerce in China, where a mix of tech-savvy shoppers and a surge of e-commerce investment from taxi hailing to fastfood has created an explosive online market. Major online players like JD.com Inc and Alibaba’s Tmall have also got into the market, selling a combined 45 million bottles of wine last year. That’s hit the likes of ASC, which has seen sales of luxury French
“Grand Cru Classe” wines halve since 2012 and a major client, Australian winery Treasury Wine Estates Ltd, opt to pull its entire business from July to work more directly with Chinese wholesalers and online channels.
Key Points Recovery in China wine market driven by online, logistics firms Traditional wine importers under pressure, rethink strategy Australian wine makers tap smaller traders, online sales China wine market worth around US$14.2 bln - IWSR report Treasury declined to comment for this story. “Most of (last year’s) growth was driven by lower-end wine imported by smaller Chinese companies and logistics firms and then sold online,” said Tommy Keeling, analyst at alcohol market research firm IWSR.
Hunter Valley
In Australia’s Hunter Valley, boutique wine makers like Bill Sneddon are creating another challenge to big importers. With a crackdown on tax incentives at home, Sneddon and others are looking to export more to China via small traders and the web. “We’re all hanging our hat on China and we all rely on growth coming out of the Chinese market,” Sneddon, chief winemaker at Allandale Winery, told Reuters. Allandale produces around 25,000 cases of wine a year and China has now overtaken the United States and the United Kingdom as its major export market, Sneddon added. Printhie Wines, another Australian winery, is working with a partner on online sales in China, a channel it said that was getting “bigger and bigger”. These channels will help tap consumers like Mr. Shen, 61, a university professor in eastern Hangzhou, who used to buy wine at local supermarkets but has in the last few years embraced the online craze. He now uses JD.com and Tencent Holding Ltd’s social media platform WeChat. “I can now pay at the press of a button with things like WeChat Pay. It’s just so easy,” he said. Reuters
Close allies
Stock markets
Monetary policy
Putin confident in RussiaChina co-operation
HKEx, Thomson Reuters Philippine central bank launch series of RMB indexes keeps rate steady
Russia and China are “close allies” with their ties running at a very high level and bilateral cooperation expanding steadily, Russian President Vladimir Putin told Xinhua. “We see each other as close allies, so of course we always listen to each other, by this I mean we keep in mind each other’s interests,” he said in an hour-long exclusive interview with Xinhua President Cai Mingzhao ahead of his Saturday state visit to China. Although Russia and China cannot always reach consensus on difficult issues quickly, they can make them - however difficult they are - serve the common purpose of promoting bilateral cooperation, so they are always able to find solutions, added the Russian president. Speaking of the current decline in bilateral trade value, Putin said it is merely a temporary downtick resulting from the current market prices of certain commodities and differences in exchange rates against the backdrop of global economic woes. The most important task in Russia-China trade now is diversification, particularly boosting bilateral cooperation in high-tech areas, he said, noting that the two sides have taken concrete measures to improve their trade structure. Xinhua
The Hong Kong Exchanges and Clearing L i m i t e d ( H K E x ) a n d Th o m s o n R e u t e r s yesterday launched a series of renminbi indexes which measure the intraday performance of the yuan against a basket of currencies. The index series provides market participants with benchmarks that reflect the development of the yuan’s effective exchange rate against other major currencies and is designed to be transparent and tradable. The primary index measures the performance of the offshore yuan (CNH) against a basket of 14 key currencies, including the U.S. dollar (22.82 per cent), euro (18.93 per cent) and Japanese yen (12.79 per cent). The weight of each currency is determined by calculating the volume of trade between its issuer and mainland China, in accordance with publicly available data from UN Comtrade and the Hong Kong Census and Statistics Department. All indexes are calculated hourly using WM/ Reuters rates, a leading foreign exchange reference for indexes and financial contracts worldwide. Reuters
The Philippine central bank kept its benchmark interest rate steady yesterday, as expected, and said it was prepared to act to contain any market volatility that might stem from Britain’s vote on whether to exit the European Union. The policy-making Monetary Board held the main rate at 3.0 per cent, the level set by the central bank after it established an interest rate corridor (IRC) on June 3, on rosier prospects for growth this year as President-elect Rodrigo Duterte has pledged to ramp up infrastructure spending. “Higher fiscal spending is expected to further boost domestic demand,” said Deputy Governor Nestor Espenilla, officer-in-charge at the Bangko Sentral ng Pilipinas. The BSP lowered its forecast for average inflation in 2016 to 2.0 per cent from 2.1 per cent, due to manageable wage increases. It kept the 2017 forecast at 3.1 per cent. The central bank also projected 2018 inflation at 2.6 per cent. All estimates are inside its targets of 2-4 per cent for 2016-2018. Before the interest rate corridor was l a u n ch e d, th e k e y o v e r n i ght b o r r o w i n g rate was 4.0 per cent. Reuters