Lippo posts HK$343.97 mln loss Property Page 4
Friday, July 1 2016 Year V Nr. 1077 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Gaming
Kingston Financial’s local gaming business down 29 pct Page 7
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Chinese investors move toward safe sovereign havens amid looming private defaults Page 8
A wide range of national firms lead the global push in M&A market Page 8
Out of Africa
Platform
Chinese state companies are inviting Macau businesses to help trade with Guinea-Bissau. A Portuguesespeaking country offering myriad investment opportunities. Primarily in infrastructure, cashews and natural resources. But the African country first has to address political instability and underdevelopment issues. Page 2
Big gamble
Gaming Further delay. Casino services firm Macau Legend Development Ltd. awaits the dispatch of a circular. Confirming a major transaction involving the Savan Vegas Hotel and Entertainment Complex in Laos. Page 7
Rebound hopes
Private survey A private poll has the Mainland economy picking up in Q2. With almost every sector gaining momentum. Highlighting capital expenditure recovering from 5-year lows. The survey also points to stronger hiring and a rebound in the services sector. Page 10
Gov’t continues land grab
Case closed. Macau’s top court has rejected Transmac’s sister company’s appeal to overturn a gov’t decision to reclaim land in Pac On. Despite the land grantee claiming the benefits of the bus operator would suffer.
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Courts Page 3
2 Business Daily Friday, July 1 2016
Macau Trade
Chinese state companies use Macau businessman as bridge for business in the country
From Guinea-Bissau with love Guinea-Bissau will present plenty of investment opportunities in infrastructure and natural resources if it manages to overcome some political instability and underdevelopment issues.
“China is currently the sixth biggest commercial partner of GuineaBissau, with imports from the African country having diversified from more than just cashew nuts, to wood, fishing, honey and other natural resources,” IPIM Executive Director Gloria Ung stated in her opening speech.
“In 2011, our company started having a relationship with GuineaBissau. It’s a small country but with a lot of natural resources. We already had a big volume of business in cashews, and recently started exporting electronic parts there, and electronic security devices,” John Lo, Honorary Consul of Guinea-Bissau in Macau and President of the Excelente International Group Limited, stated during the event. “A lot of state Chinese companies are interested in investing in infrastructure, harbour construction, airport extensions, electricity, intercommunications and fibre optics. On the other hand, smaller companies are more interested in investing in the production of cashew nuts,” Sandy Chan, Executive Director of Perfeicao Companhia Limited, stated. The agricultural sector in GuineaBissau is considered fertile ground for investment due to considerable wood resources and big surface water resources but cashews are considered the most valuable of all by present businessman. Guinea-Bissau is currently the sixth biggest producer of the nut in the world, with the cashew industry representing 20 per cent of GuineaBissau’s total gross domestic product (GDP) and 85 per cent of all jobs in the country last year. According to John Lo, a tonne of cashews is “worth MOP1,350” but lack of development in production has limited the country’s ability to explore this valuable natural resource, while Sandy Chan has warned that Indian businessmen have the monopoly in the sector.
Land of plenty
A lot to build
Nelson Moura nelson.moura@macaubusinessdaily.com
T
he small Portuguesespeaking country of GuineaBissau provides plentiful business opportunities for Mainland China and Macau investors, it was stated yesterday at a business seminar organised by the Macao Trade and Investment Promotion Institute (IPIM), and the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao).
Key Points Exports from Guinea-Bissau to China totalled US$44.9 million in 2014 Cashew, rough wood and fish were Guinea-Bissau’s biggest exports Imports from China to Guinea-Bissau totalled US$16 million Portable lighting, electric motors and engine parts were Guinea-Bissau’s biggest imports
Exports from Guinea-Bissau to China totalled US$44.9 million (MOP358.8 million) in 2014, comprising mostly rough wood exports, according to the Observatory of Economic Complexity. In global terms the three biggest exports from Guinea-Bissau were cashews, rough woods and frozen fish. Imported products from China to the African nation totalled US$16 million, with portable lighting, electric motors and engine parts being the three largest imported goods. Gloria Ung also considered the country’s mineral and oil reserves as “still up for exploration and development” while the GuineaBissau fishing industry has started allowing Chinese fishing boats in its waters as a way to develop the sector. “We want to promote the opportunities of investment and business in Guinea-Bissau, and promote it as a platform for access to the West African market. It has a lot of investment opportunities in fishing, infrastructure, agriculture, tourism and mining, with good policies for the free circulation of people and goods,” the Guinea Bissau Delegate at Forum Macao, Malam Becker Camara, told Business Daily. As a member of the West African Economic and Monetary Union (UMOA) Guinea-Bissau uses the same currency as eight other members in the region, the West African CFA franc, “with its value linked to the euro and managed by the French Treasury,” Camara explained.
Cashew gold
The event saw businessman and trade representatives share their experience in business in the West African country during the seminar.
The lack of infrastructure was considered by experienced businessman as one of the country’s biggest problems, with many of its natural resources lacking proper exploration. The Guinea-Bissau Forum Macao delegate warned the country has a big deficit of infrastructure, energy distribution and drinkable water, while John Lo stated transport costs are still a “challenge”, with the fishing industry being “diverse but still underdeveloped.” However, these issues were seen as good investment opportunities by entrepreneurs present at the event, with Chinese state companies the frontrunner in that exploration. “There’re a lot of energy blackouts, with every city having its own energy supply. But many cities have solar
panels imported from China, so it’s another business opportunity. As a financial consulting company which provides assistance to Chinese businessmen, Sandy Chan has helped as an intermediary to introduce fishing techniques from Zhejiang Province to GuineaBissau, while starting investment opportunities in the construction of fishing harbours.
Chinese state companies
Afonso Chan, Vice-president, of Chalestrong Engineering Technology and Consulting Limited has already been in the country five times, and sees a lot of interest by Chinese state owned companies in developing housing and infrastructure in the country.
“Chinese state companies look for Macau businessman with Portuguesespeaking skills to help with deals in the country” Afonso Chan, Vice-president of Chalestrong Engineering Technology and Consulting Limited
“These Chinese state companies look for Macau businessmen with Portuguese-speaking skills to help
Welcoming policies
Guinea-Bissau recently implemented policies to ease investment in the country. For investments of over US$80 million in the first and second year investment businessmen are free of income tax, dropping to 90 per cent in the third year, 70 per cent in the fourth year, and 50 per cent
with deals in the country,” Chan told Business Daily, whose company has collaborated with Chinese state group Beijing New Building Material Co. Ltd. (BNBM) to sell building materials in the markets of Africa, East Timor and Macau. At the beginning of the year the Guinean Prime Minister, Carlos Correia, discussed a Chinese project to invest over US$300 million, sponsored by Fujian Shai Corp., to build a fishing complex and a luxury 5-star hotel in Prabis, 18 km southwest of the country’s capital, in addition to establishing a free trade zone in the southern Biombo region, according to MacauHub. At the same time, a contract worth US$60 million was reported to have been signed by Guinea-Bissau Telecom and telecommunications manufacturer Huawei, with a view to re-launching mobile network coverage by installing 150 signal relay stations equipped with the latest technology.
Politics rumbles
Guinea-Bissau has encountered some political troubles in recent years, with the assassination of President Vieira in 2009 and a military coup in 2012 that led to a coalition government of military and political parties. “The biggest obstacle for business in Guinea-Bissau is its stability; without political stability people won’t want to go there and know the country,” Chan stated. However, the business consultant expressed “confidence in the GuineaBissau people and in their future” with a current political stability that has “all the conditions for investment.”
in the seventh year. In addition, no Customs tax will be levied in the first three years of investment. A centre for company procedures has also been created, whereby a company can be licensed in the country within 48 hours, while being able to purchase land for agriculture and construction and perform notary registrations.
Business Daily Friday, July 1 2016 3
Macau Gaming
Labour unions in agreement with DICJ stance
Inspection and Co-ordination Bureau (DICJ) claims. According to yesterday’s announcement, the Bureau, including its Local gaming associations primarily director Paulo Matins Chan, met with 11 agree with the government’s proposed regulations banning gaming workers from local gaming labour associations yesterday gambling during their non-working hours, for their opinions on the proposal, which will be included in the future amendments perceiving it could prevent gaming staff for the city’s current law defining the from becoming problem gamblers and conditions for individuals entering casinos could boost the healthy development of the industry, a press release by the Gaming and working in casinos.
Courts Top court rejects Transmac sister’s appeal on Pac On land plot
We’re taking it back A land grantee said the benefits of its sister company Transmac would also be affected if the government is to take back its plot in Pac On in Taipa. Kam Leong kamleong@macaubusinessdaily.com
The Court of Final Appeal has turned down land grantee Chap Mei Artigos de Porcelana e de Aço Inoxidável e Outros Metais (Macau) Lda’ s appeal trying to overturn the government’s decision of taking back its previously-awarded plot of land in Pac On. Last September, the government announced the invalidity of the company’s land concession on the plot, known as V2. According to the original dispatch of the land grant in 1993, the parcel occupies 2,637 square metres in Pac On reclamation area and was designated for industrial use.
The land grantee disclosed in its appeal that bus operator Transportes Urbanos de Macau (Transmac) and local travel agency AA Turisomo Lda are its sister companies, the verdict, released on Wednesday, shows. The company’s appeal filed with the top court also includes its objection to a dispatch by the Secretary for Transport and Public Works Raimundo Rosario this February calling for the land parcel to be vacated. It rejected the argument that the government’s intention of recovering the land plot would create irreparable losses to the company, as well as to the benefits of its two sister companies.
Courts
Former DSAT staff denies corruption Former Transport Bureau official Lou Ngai Wa’s alleged corruption case was heard by the Court of First Instance yesterday. The former head of the Transport Management Department denies the accusation. Last year, the city’s graft watchdog, the Commission Against Corruption (CCAC), busted two DSAT public servants for allegedly receiving MOP16 million (US$2 million) in bribes for helping three companies secure parking lot management contracts from the government. The total contract amount involved reached MOP68 million, around 70 per cent of all public parking contract amounts in Macau.
Lou Ngai Wa denied that he received any bribery from the car park managing companies and denied that he had ever wired money to Mainland China, according to local public broadcaster TDM Chinese Radio’s report. The report says that Mr. Lou testified to the court that he was not even involved in any open tender process of the public car parks management, and neither did he intervene in the evaluation or change the scores. However, he admitted introducing people to join in illegal soccer gambling and received commission or helped friends fake financial records.
Staff of the Infrastructure Development Office open tenders for the design and construction of a multifunctional government building located in Pac On.
Public Tender
Gov’t receives 15 tenders for Pac On building Reclaimed land Phase O1 located in Pac On, Taipa was opened for public tender yesterday, according to a report by local TDM Chinese Radio. This idle land is located at the conjunction of Estrada do Pac On and Rua da Felicidade, occupying an area of 4,392 square metres. It was previously reclaimed by the government to build a multi-function building. The public tender for the design and construction of the planned multi-function building has attracted 15 bids.
There will be workshop and office areas from the ground floor to the second floor of the building, according to Sam Weng Chon, director of Infrastructure Development Office (GDI). The third floor and fourth floor of the building will be utilised as a parking lot. From the fifth floor and above will be a warehouse, including an area of 2,500 square metres for storage space. The maximum period for construction is 450 days, Mr. Sam said. A.L.
The company added that it had promised to its two sister companies that the plot would be for tour-bus parking use, in the consideration that the government would approve the company’s application to change the land use terms of the plot from industrial purposes.
Not speaking for others
‘Despite the appellant admitting it belongs to the same corporation group as the abovementioned companies, the latter’s benefits cannot be maintained by the appellant,’ the court wrote. ‘Regarding the appellant’s promise to the two companies, the Court of Final Appeal does not perceive the
promise should be protected by law, despite all these companies belonging to the same corporation group,’ the verdict also reads, indicating that these three companies are still individual units in law. The top court also stated that the company had no right to use the land plot except for industrial uses, due to its application for changing the use of land plot not being approved by the local authorities. According to the 1993 dispatch, the plot was to be developed into a three-story industrial factory for manufacturing enamel products and processing other metal elements but was turned into a tour-bus park by the company.
4 Business Daily Friday, July 1 2016
Macau Opinion
Pedro Cortés
Retail Sale of local M Residences props up group
Lippo rides out rough year The group said its financial position ‘remained strong’, with ‘steady performance’. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Police behaviour The incident with a minor of 13 years old is just one more that proves we need better surveillance of our authorities. Instead of protecting the kid, in this case the police scared her. Frankly speaking, the tolerant civilization that Macau once was is in danger. The second system may be rapidly turning into a fake copy of the first system. The hierarchy members, instead of putting themselves in a defensive position, have already stated that no violation of the law existed and that the agents acted as they should. In their position, I would state: we are going to investigate and when we have conclusions we will let the public know. There are strong signals of the disrespect of the rule of law system in Macau. It is not only this case but also many others that occur on a daily basis. Unfortunately, the innocent cops carry the can for the guilty and the old Macau, its system and Basic Law seem not to be important. Once again, if the Macau authorities do not respect the Basic Law our great city will soon be a suburb of Zhuhai. Is that what we want? More than that, I do not want to believe it but we are also getting signals of intolerance for foreigners. This phenomenon extends to Hong Kong where yesterday, arriving from a trip, just after the exit gate, a bunch of immigration officials were gathered making a random passport check. As I was waiting for a friend, I observed that with a single exception, only the Africans and Arabs were stopped and had their passports checked. Well, I do not want to call it racism but an excessive zeal for specific races exists and that is not what we should expect from a city like Hong Kong, whose unique position in the world is a result of its long-time tolerant policies. The more we are intolerant, the less we will have a peaceful city. In the case of Macau, the less we respect the law - our law - the less we can expect to have a full second system, where freedoms are respected, where human beings are treated as such. Fortunately, we can still write these lines and thus not all is lost - and we may still expect a brighter future. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
D
espite revenue from the SAR representing Lippo Limited’s second highest source of external revenue after Singapore as well as its second highest revenue segment the group posted a loss of HK$343.97 million for the 2015 fiscal year, ending March 31, according to a filing on the Hong Kong Stock Exchange. This comes as a turnaround from the previous year’s recorded HK$1.023 billion in profit and on the back of higher gross profit (HK$1.652 billion) and revenue (HK$3.857 billion) recorded as compared to the previous year. The total comprehensive loss for the year ending March 31 amounted to HK$556.2 million. The group’s two largest revenue
streams for the 2015 fiscal year came from its ‘Sales of goods’ division amounting to HK$1.641 billion, a contraction from its HK$1.755 billion seen the previous year, and its ‘Sales of properties’ division, which expanded due to its sale of the ‘M Residences’ properties in Macau. This sale propped up the local segment to become the second highest performer during the year, raking in HK$1.214 billion in revenue, as compared to the HK$27.88 million seen the previous year. This topped only Singapore, which brought in HK$1.64 billion, a slight drop from the previous year’s HK$1.68 billion. Total revenue for the year was ‘mainly attributable to revenue from the property sale of the development project in Macau completed during the year,’ notes the report - detailing
a residential property in which the group held 100 per cent interest in – a 311 residential unit, 26,025 square metre development at 83 Estrada de Cacilhas presided over by sole sales agent Jones Lang LaSalle, Business Daily reported. The majority of properties were sold on a pre-sale basis, with only five remaining residential units and ‘some car parks’ remaining unsold, notes the report.
Volatile market
The group notes that ‘the global economy deteriorated in the year 2015, amid financial market volatility around the world, falling commodity prices, weak demand and gloomy economic outlook for mainland China,’ as well as noting the ‘instability in global stock markets’.
1.214 billion HK$ Revenue from local segment
Despite noting ‘a 6.9 per cent growth in gross domestic product’ recorded for 2015 - the ‘lowest in the last 25 years’ - the group states that Mainland China continues to be the leading economic performer in the region, despite its National Bureau of Statistics, reporting ‘disappointing investment and export figures’. However, the group said its financial position ‘remained strong’, with ‘steady performance’. The group’s banking business noted ‘steady performance during the year,’ disposing of a 49 per cent interest in the Macau Chinese Bank Limited – a bank licensed in Macau – in July for MOP441 million, then in October a further disposal of a 31 per cent stake for MOP279 million, leaving the group with a 20 per cent stake in the bank. Within the group’s stock operations the report notes a ‘turbulent and volatile’ stock market in Hong Kong and the Mainland, making the ‘local operating environment of corporate finance and securities broking business challenging,’ noting that the local stock market will be dependent upon Chinese and global economics development.
Construction Foundation piling drives group’s success
Tysan Holdings accrues HK$512.5 mln profit in 2015
T
ysan Holdings Limited, the group contracted for the Passenger Clearance Building of the Hong Kong-Zhuhai-Macau Bridge, has posted a HK$512.5 million (US$66 million) profit for the 2015 fiscal year ending March 31, 2016, according to a filing yesterday with the Hong Kong Stock Exchange. With revenue amounting to HK$4.06 billion vis-a-vis HK$4.84 billion in the previous year, the group divides its operations into Foundation Piling, Property Development, Property Investment and Management and Corporate activities, of which its foundation piling segment raked in over three times the revenue of its property development segment, at HK$3.76 billion and HK$1 billion, respectively. The group operates primarily in Hong Kong, Macau and Mainland China, with Hong Kong acting as it’s primary customer, earning HK$3.05 billion in segment revenue, as compared to HK$986 million in the Mainland and HK$17.6 million in Macau. The Macau segment saw a huge drop in the 2015 fiscal year from the
HK$324.7 million in revenue seen just last year. The report notes that revenue amounting to HK$1.13 billion ‘was derived from sales by the foundation piling segment to a single customer,’ and the foundation division’s net contribution increased by 22 per cent during the fiscal year ‘driven by increased construction activities and
public spending on infrastructure,’ notes the report. As of the end of the fiscal year ‘the Group did not have any net debt and recorded a cash balance of HK$949 million’ - a HK$5 million increase from the previous year. Currently the group employs 1,348 people throughout Hong Kong, Macau and Mainland China. K.W.
Business Daily Friday, July 1 2016 5
Macau Crime Former Macau resident suspected of money laundering
Stuck in East Timor The former owner of Macau consultancy firm Olive Consultancy has appeared before the East Timor Prosecutor’s Office 20 months after being detained in a money laundering investigation. Nelson Moura nelson.moura@macaubusinessdaily.com
T
he owner of a Macau consultancy business appeared before East Timor Prosecutor’s Office (MP) 20 months after being arrested in connection with a money laundering case, news agency Lusa reported. Tiago Guerra was in pre-trial detention in the East Timor capital of Dili since October 2014 suspected of laundering money through Olive Consultancy, a firm he owned while working for Portugal Telecom in Macau in the 1990s. Guerra’s wife Fong Fong, a Macau resident, was also arrested at the same time for the same court case as the couple were planning to return to Macau after many years of living in East Timor. “I’m very sad that it took 20 months until we could speak and clarify many aspects of this situation,” Guerra told Lusa following a court hearing that lasted for more than seven hours over three days. The Portuguese businessman and former Macau resident lamented that
he had only been heard regarding documents sent by his defence [lawyer] to the Prosecutor’s Office more than 15 months after they had been delivered, Lusa reported.
detention in the East Timor prison of Becora for about nine months. After Guerra was released, he and his wife were prohibited from leaving the country and ordered to present themselves to the Dili police every week.
Not so swift justice
In April, the East Timor Public Prosecutor told Lusa that the local Prosecutor’s Office had expected that after the case investigation finished between “August and October” of
this year, the case will be archived or proceed to court. East Timor Public Prosecutor Jose Ximenes told Lusa that the Office “asked for information from other countries” and had already received responses to information requests from Portugal and Macau but that “they were still waiting for other diligences to finish the case”. “We continue with our lives in limbo and hope the issue can be resolved as quickly as possible,” Guerra told Lusa.
East Timor shenanigans
Tiago Guerra was arrested after his consultancy firm worked as an intermediary for a money transfer to Bobby Boye, an American national and former East Timor government consultant. In 2011, Guerra’s firm performed an escrow service - a contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties - allowing Boye to be able to transfer US$860,000 (MOP6.8 million) from a law firm in Norway to a society account in the United States, according to Portuguese newspaper Expresso Boye was detained in the U.S. in June 2014 for stealing US$43.5 million dollars from the East Timor Government during an oil related deal, Expresso reported. After being detained for interrogation in 2014, Guerra was in pre-trial
Responsible gambling
Other side of the coin Around 50 pct of problem gamblers work in shifts, while 20 pct are dealers. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Of the 147 cases of gambling disorder registered during the past year – from January 1 to December 31– with the ‘Central Registry System of Individuals with Gambling Disorder’ over 70 per cent were male and 20 per cent were dealers, according to a 2015 report. The data was elaborated upon by the Social Welfare Bureau using an online data collection network to ‘assure individual privacy […] without identifying individuals,’ the report notes. The majority of individuals were aged between 30 and 39, with the youngest aged 16 and the oldest 82. Of the individuals suffering from the disorder the report notes that around 50 per cent work in shifts, while over 60 per cent earn a monthly salary of over MOP14,000. Despite this, only 20 per cent don’t have debts, and over 60 per cent have debts amounting to or exceeding MOP100,000. Primary games played by those requesting assistance from the disorder are Baccarat, Slot Machines and Sic Bo and are played to resolve ‘financial difficulties’, with around 40 per cent of players lacking consciousness of
the money they spend gambling, while around 30 per cent claim that, on average, they spend ‘MOP10,000 and less than MOP50,000’. Of these individuals corresponding to the classification of the Diagnostic and Statistical Manual of Mental Disorders, notes the report, some 40 per cent are primarily affected, 40 per cent suffer from a moderate degree of the disorder, while a further 10 per cent are at risk of dependency. Only 10 per cent of the individuals are only slightly affected by the disorder.
147 Individuals seek help for problem gambling in 2015
Of the 147 individuals, more than 40 per cent have gambled for around five years, while 60 per cent of the individuals do not have family members with gambling habits. Over 50 per cent have secondary school education, and 60 per cent are married. Some 80 per cent of those seeking help are holders of Macau permanent residency cards.
Corporate
New partner hotel
The circulation of Business Daily continues to grow and so does our network of partners. Crowne Plaza Macau - a member of IHG (InterContinental Hotels Group), which recently opened its doors at The Residencia Tower, near the Macau Ferry Terminal - is the latest to circulate the newspaper within the hospitality industry. For Dominique Berhouet, Crowne Plaza
General Manager, “We’re very pleased to offer a local Macau publication to our many international business and leisure travellers”. Paulo A. Azevedo, Founder and CEO of Project Asia Corp., said, “The hotel, with its sterling reputation, and being part of one of the world’s leading hotel companies, will take the circulation of our publications to yet another level. We are very excited to be chosen by Crowne Plaza.”
6 Business Daily Friday, July 1 2016
Macau Art
Wynn Palace to display HK$263.5 million artworks
released yesterday. The purchase of the Tulips and Amphora will be funded by the available cash and Wynn Macau, Ltd. has purchased the ‘Tulips’ sculpture and ‘Amphora internal resources of Wynn Macau. The Tulips sculpture was created by III’ from Wynn Design and Development, LLC, a wholly-owned artist Jeff Koons and the Amphora subsidiary of Wynn Resorts, Ltd. for by ceramist Viola Frey. The two HK$262.7 million (US$33.6 million) pieces of artwork will be displayed at Wynn Palace for visitors and and HK$0.8 million (US$103,945), guests to appreciate. respectively, according to a filing
Credit Recovery to positive growth only beyond 2018
Moody’s downgrades MSAR again Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he local economy will continue to contract, says credit rating agency Moody’s, predicting that the continual squeeze will ‘delay any recovery in growth to positive territory to beyond 2018,’ it announced in its recent annual credit analysis, which downgrades the government issuer rating to Aa3 from Aa2 and assigns a negative outlook to the rating. The drivers behind the rating agency’s poor outlook for the local economy were stated as ‘a sharp weakening in the economy, with growth remaining highly volatile,’ and ‘the limited policy response to the fall in gaming revenues,’ the report states. A further prediction that the MSAR ‘will record a fall in gaming revenues for 2016 and 2017,’ leading to ‘overall sovereign credit risk’ - placing it within the Aa3 category - completes a picture that the local economy will contract by 6.0 per cent year-onyear in 2016, amid falling gaming revenues. The rate of decline will slow to 2.5 per cent in 2017.
Long-term
Part of the concern affecting Moody’s downgrade is a ‘lack of clarity on the government’s own fiscal goals,’
specifically: ‘no medium-term trajectory for revenues or expenditures,’ with the group predicting a fiscal surplus ‘falling to 0.5 per cent of GDP [gross domestic product] in 2017 from 1.0 per cent in 2016’. Particular negative weight is placed on the government’s ‘popular cash handout scheme,’ and the group notes that ‘fiscal deficits beyond 2018 cannot be ruled out’ unless current transfers are reigned in or mass and non-gaming revenues increase. Current reserves, however, are still noted as ‘an ample buffer’ for the falling revenues and evaluate the city’s event risk as ‘Low (+)’ given that it’s ‘driven by a banking system that is large and at risk of spillover effects from exposure to Hong Kong, China and Portugal,’ further noting that ‘the domestic and geopolitical environment is benign, and ample fiscal reserves provide the government with sufficient liquidity buffers’. The city is also propped up by the pataca, which Moody’s predicts ‘will remain stronger than most other currencies – including the Chinese yuan – because it imports US monetary policy,’ the consequences of which will be increased pressure on the MSAR’s ‘export of goods and services’ and ‘policy trade offs against the
backdrop of a sharp slowdown in growth.’ While the report notes that ‘inflation has moderated because of lower global oil prices,’ the city has still seen a ‘less dramatic’ fall in inflation compared to its neighboring regions ‘due to Macau’s tight labour market and low spare production capacity’. The current situation which ‘does not have an inflation target’ is seen as ‘viable so far’ while helping to ‘maintain financial stability’ yet still has shown to be ‘more volatile relative to Aa-A rated peers,’ Moody’s report states.
Risks
Potential threats to the current credit situation are both local and external, with local risk concentrated in the housing market and minimally so in the banking sector. The agency notes that while housing prices have ‘stabilised’ prices have ‘more than doubled over the past three years,’ attributable to ‘low interest rates, limited new supply and rising household income,’ spawning the threat of
a ‘potential severe correction in the housing market’. The direct effect could be ‘lower loan collateral value and lower consumer spending levels,’ notes the agency, as average transaction prices for residential building units have fallen ’13 per cent in 2015 and a further 18.5 per cent year-on-year in the first quarter of 2016.’ The result: ‘a continued slump will likely keep prices and transaction volumes on the downtrend.’ The second and less volatile threat lies in the banks, and although: ‘the size of the banking system is large, asset quality is high,’ with ‘the three largest banks […] likely to receive high support from their Chinese parents,’ leading to a viewpoint that ‘the probability of a withdrawal of support is low, even in the event of adverse developments in operating conditions, given the political implications.’ Outside risks mainly originate from Mainland China and although the prediction is for ‘foreign direct investments to remain healthy, although at lower levels than those recorded over the last five years,’ of note is that ‘external vulnerabilities arise primarily from Macau’s strong dependence upon China,’ state the analysts.
Business Daily Friday, July 1 2016 7
Macau Gambling
Sands halts exchange of old HK$100,000 cash chips from today
chips, suspended for use since September 2012, were once circulated and used in Sands The Venetian Macao Ltd. halted the Macao Casino. The company added that the outdated cash chips could exchange of its old HK$100,000 still be redeemed for equal-value cash chips from 6:00am today, cash by 5:59 am on October 29 at according to its notice in Chinese the company’s casinos in Sands language newspaper Macao Macao, The Venetian Macao and Daily yesterday. According Sands Cotai Central. to the announcement, these
Gaming Sanum Investment says US$275 million counteroffer on the table
Savan Vegas sale further delayed Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
M
acau Legend Development Limited yesterday announced a further delay in the transaction regarding the Savan Vegas Hotel and Entertainment Complex, located in Savannakhet Province in Laos, according to a filing with the Hong Kong Stock Exchange. This comes after a June 5 announcement pushing the conclusion back to June 30. The filing states that ‘as additional time is required to finalise the information and the valuation report of the Savan Vegas Hotel and Entertainment Complex, the dispatch
date of the Circular will be postponed and the Company expects to dispatch the Circular on or before 31 July 2016.’ This delay, however, does not mark a turning point or concession in the litigation between the property’s former operator - Sanum Investments - and the Lao Government, who arranged the sale through San Marco Capital Ltd. via Kelly Gass, who negotiated the sale to Macau Legend on May 13 ‘behind closed doors’, Sanum told Business Daily.
‘Bad faith’
Sanum Investments is a wholly-owned subsidiary of Lao Holdings, through which it held an 80 per cent
stake in the Savan Vegas complex, while the Lao Government held a 20 per cent stake. Although Sanum Investment’s portion of the sale proceeds was to be deposited by the Lao Government into an account upon completion of the sale the company doubts that this will occur without legal measures. ‘Sadly, the Laos [Government] has acted in very bad faith, and has made very clear that they do not intend to give Sanum any of the sale proceeds. Thus, it is apparent that Sanum can only expect the Lao Government to live up to its agreements if it is forced to do so by legal means,’ the group told Business Daily, referring to the three legal actions currently progressing against the Lao Government
and Kelly Gass. Sanum Investments further indicates that aside from the sales valuation of the project being 16.8 per cent of the estimated value that Sanum attributes to it, with Macau Legend offering US$42 million (MOP335.64 million) for the complex, other offers could exist.
Unexpected turn
‘We are disappointed that the Government of Laos has cancelled the auction process and chosen to sell the gaming assets for less than the maximum value,’ the group notes, claiming the: ‘existence of a signed offer from another buyer to purchase Savan Vegas and the slot clubs for US$275million (MOP2.2 billion).’ The subsidiary of Lao Holdings indicates that it is open to ‘a peaceful resolution of these matters between the parties,’ while expressing doubt that this will occur and ‘because of this, and based on the Lao Government’s actions, we believe that the ongoing litigation and bilateral investment treaty tribunals will be the final adjudicators of our US$900 million (MOP7.2 billion) claim.’ The group further states: ‘How much of that money in the end will come from Laos, Macau Legend, or Ms. Gass remains to be seen.’ Sanum told Business Daily at the time of the initial sales agreement that the sale – conducted by the Laos Government via the current operator of the casino and manager of the sale, San Marco Capital Ltd. – is ‘in violation of our 2014 Settlement Agreement,’ and notes that they were not informed about the sale until ‘we were sent the Macau Legend press release by the Lao lawyers . . . at the same time they released it to the public.’ Macau Legend was unavailable for comment at the time this article went to press.
Gaming
Kingston Financial’s local gaming business down 29 pct The operator, however, believes its gaming business in the city has started to stabilise. Kam Leong kamleong@macaubusinessdaily.com
Investment holding company Kingston Financial Group Ltd. saw its gaming business in Macau slide by 29 per cent year-on-year to HK$480.8 million (US$59.9 million) for its fiscal year ended March 31, according to its filing with the Hong Kong Stock Exchange on Wednesday after trading hours. The company, which owns Casa Real Hotel and Grandview Hotel in the city, operates a gaming business in the two properties under the licence of Sociedade de Jogos de Macau, S.A. (SJM). ‘While there was a decrease in total gross revenue of Macau’s gaming industry, the performance in the segment was satisfactory and in line with the industry performance,’ the hotel and gaming operator reckons. As at the end of March, the Hong Kong-listed company operated 61 mass gaming tables, 14 VIP tables and
238 slot machines as well as 134 live baccarat machines in the two hotel properties. According to its filing, the gaming revenue it generated accounted for nearly 72 per cent of its total hotel and gaming turnover from the Special Administrative Region.
Hotel business
Meanwhile, the company raked in HK$190.8 million in revenues from its hotel operations during the fiscal year, down 27 per cent year-on-year. It claimed that such a performance is ‘in line with the slowdown of the economy in Macau’. According to the filing, the average occupancy rate of Casa Real on the Peninsula fell 5 percentage points year-on-year to 82 per cent for the fiscal year, whilst that for Grandview in Taipa dropped eight percentage points to 70 per cent. ‘Given the slowdown in tourist spending and China’s campaign against corruption and luxury spending, we remain conservative
as to the outlook of Macau’s hotel and tourism market,’ it said. Nevertheless, it added that the company expects ‘to see the segment performance stabilise in the coming year . . . supported by the steady demand from international and local markets’.
Surging net profit
During the fiscal year, the company registered a jump of 35 per
cent year-on-year in its net profit, amounting to HK$1.7 billion from HK$1.26 billion one year ago. The jump is driven by its main business - securities brokerage, underwriting and placement services, which soared 66 per cent year-on-year in revenue to HK$710.3 million for the year - in addition to the increased revenues from other business segments such as margin and IPO financing.
8 Business Daily Friday, July 1 2016
Greater China Shopping Inc
‘Left field’ buyers shake up global M&A Asia’s share of the global tally stands at 36 per cent. Denny Thomas
F
oreign takeover bids by littleknown Chinese companies, from real estate firms to a vacuum cleaner maker, are driving a surge in the due diligence industry as their targets and even rival suitors seek to answer the question, “Who are these guys?” Facing a slowing economy at home, Chinese businesses are hunting for non-yuan assets abroad despite little foreign buyout experience. Chinese outbound M&A activity has more than doubled in two years, hitting a record US$120 billion in total deal value so far in 2016, according to Thomson Reuters data. Presented with offers from unfamiliar Chinese firms, sellers are kicking the tyres thoroughly to check on credibility and financing. Closer inspection may or may not be reassuring. “There are question marks around some of the Chinese names,” said Bill Sims, managing director at Stroz Friedberg (Asia) Ltd, a global risk and investigations firm. “There is an issue of compliance. People want to know, where is all this money coming from? How is it being sourced? Are they going to pull out of the deals last minute?” When global private equity firm KKR & Co put high-end German coffee machine maker WMF on the sale block in January, four Chinese bidders emerged, including vacuum
cleaner maker KingClean Electric Co Ltd. New to the global M&A scene, KingClean bid about 1.67 billion euros (US$1.9 billion) for WMF and only narrowly lost out to France’s Groupe SEB, a person with direct knowledge of the sale process told Reuters. The Chinese company’s bid package was solid and well-financed, the person added. KingClean did not respond to a Reuters request for comment.
Key Points Chinese outbound M&A has more than doubled in 2 years Boom in due diligence industry as little-known firms make bids Some left field bids packaged well, matching established players Asia’s share of global M&A surges to 66 pct in H1 2016 Another “left field buyer” was real estate firm Thaihot Group, which beat out nearly two dozen bidders, including global and Asian firms, to buy the insurance unit of Dah Sing Financial Holdings, in Hong Kong’s most expensive insurance M&A deal. Thaihot paid 7 times price-to-book value to buy the business, while Chinese insurers on average trade at about 1.3 times, according to Thomson Reuters
data. The growing influence of Chinese and other Asian bidders is also visible in their increasing share of the global M&A market. In the first half of 2016, announced M&A deals involving Asia-Pacific companies fell 17.7 per cent from the same period a year earlier to US$552.9 billion. But Asia’s share of the global tally stood at 36 per cent, well up from 22 per cent in 2011, according to preliminary data from Thomson Reuters.
From property to transmissions
In early February, Chinese property developer Yinyi Real Estate Group bought Belgian auto transmission maker Punch Power for an undisclosed amount, beating a Chinese auto parts maker, despite Yinyi’s limited auto parts experience. “The due diligence industry has seen a boom in business in recent years as new and unknown bidders emerge out of China,” said Andrew Vaughan Winterbottom, a Hong Kong-based associate at global risk consultancy, The Risk Advisory Group. “Our clients are interested in identifying a bidder’s source of funds, understanding whether they have links
to the government, or are affiliated with larger state-run firms that have been investigated by Chinese anticorruption authorities.” That sense of caution was underscored in late March when China’s Anbang Insurance Group Co. and partners abruptly dropped a US$14-billion offer for Starwood Hotels & Resorts Worldwide Inc. “Given that we are seeing more untested buyers asserting themselves in the global M&A landscape, it is becoming more of a ‘seller beware’ environment,” said Mayooran Elalingam, Deutsche Bank head of Asia Pacific M&A. Seller skittishness could slow the pace of Chinese outbound M&A growth. China International Capital Corp, the country’s biggest investment bank, last month projected outbound deals to hit $150 billion this year. “So there is some hesitancy and you may see a slowdown in the near term. But overall the trend is positive and the Chinese are making a big push and eventually the sellers will get more comfortable to the Chinese way,” Sims added. One head of M&A at a Wall Street bank said, “You don’t want to underestimate the power of a new buyer just because haven’t heard that name before.” Reuters
Sentiment shift
Investors turn to sovereign debt amid company defaults Bond sale cancellations and delays are likely to continue into the third quarter, according to a survey.
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here’s about to be a flight to quality in China’s bond market. Fourteen of 22 respondents in a Bloomberg survey of investors and analysts said they are most interested in buying securities issued by the government and policy banks in the next quarter, compared with just four of 19 in a similar poll three months ago. A run of defaults is the biggest risk facing China’s bond market in the next three months, and yield premiums are poised to widen, according to the most popular responses in the survey. The change in sentiment comes amid rising pressure on local companies, with the number of bond failures almost triple that of the whole of 2015 and a record US$331 billion of debt due to be refinanced this year. The appeal of sovereign debt has risen in recent days, with the 10-year yield erasing this year’s advance after Britain’s vote to leave the European Union spurred demand for haven assets and as the central bank stepped up cash injections. “There is still plenty of money in the market, and investors need to seek safer assets,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen. “After defaults by even some highly rated companies this
year, investors are finding that only sovereign bonds can ensure safety. Credit risks will probably continue to worsen, as the economy is yet to fully stabilize.”
“Credit risks will probably continue to worsen, as the economy is yet to fully stabilize.” Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen. Bond sale cancellations and delays are likely to continue into the third quarter, according to 15 respondents in the June 24-27 survey. Fourteen said the frequency of defaults will have the biggest effect on credit premiums, followed by eight citing the government’s efforts to reduce both leverage and excessive capacity. In an indication of increased demand, a Bloomberg China sovereign index is
Business Daily Friday, July 1 2016 9
Greater China In Brief Risks control
Beijing expects outstanding foreign debt to stabilise
Stock markets
Relisting at home attracts swarm of quick-hit investors
to invest in the SPVs, then launch related funds that individuals or groups can buy into, subject to a typical minimum investment of 1 million yuan (US$150,000).
New listings in China typically rise more than 40 per cent on their first day.
Big returns
Samuel Shen and Pete Sweeney
Funds offering a mechanism to help Chinese companies cancel their overseas share listings and relist in Shanghai or Shenzhen are attracting a swarm of investors lured by huge potential gains - and apparently undeterred by the risk that regulators could spoil the party. By delisting in New York or Hong Kong to relist in China, firms can enjoy much higher valuations, a premium analysts ascribe to the difficulty of negotiating China’s regulatory framework to get a listing, which creates a shortage of stocks to meet rising local demand. “An overseas-listed Chinese company, once listed in the domestic market, will become the target of speculation and see its valuations surge, even if its business is mediocre,” said Michael Yuan, founding partner of Shanghai-based Pegasus Corporate Advisory. New listings in China typically rise more than 40 per cent on their first day, and an alternative “reverse merger”
little changed from March-end even with issuance already climbing to three-quarters of last year’s total. Net financing of corporate notes went into the negative in May for the first time ever, while companies prepared to repay 2.2 trillion yuan of debt in the second half of this year. The credit premiums of five-year AA rated corporate debt over the sovereign have fallen to 169 basis points, after touching a six-month high of 200 basis points in April, data compiled by Bloomberg show. The government yield has declined 6 basis points this month. Chinese industrial companies’ profits rose 3.7 per cent in May from a year earlier, slowing from 4.2 per cent in the previous month, an official report showed Monday.
Bond failures
Seventeen publicly-traded bonds have defaulted so far this year, compared
tactic - arranging for a locally listed shell company to buy assets from the overseas listing - also reaps big gains. Shares in Chongqing New Century Cruise (CNCC) surged sevenfold in a month after Giant Interactive Group, a Chinese online game developer that left New York through a US$3 billion privatisation, injected its assets into Shenzhen-listed CNCC. The securities regulator says five overseas-listed companies have returned to the domestic market in the last three years, and investment bank CICC says at least 39 have announced plans to go private since 2015, including Ku6 Media Co Ltd and iDreamsky Technology Ltd. Companies relisting in China are raising money to buy back their overseas listings through a complex series of funds. At the top of the chain are company founders and senior executives, who set up special purchase vehicles (SPVs) to raise money from outside investors. Asset management firms buy rights
with six in 2015, data compiled by Bloomberg show. China’s corporate debt as a percentage of gross domestic product climbed to a record 165 per cent last year, according to data compiled by Bloomberg. “Issuance by the corporate sector will slow down” in the second half of the year, analysts led by Ivan Chung, head of Greater China Credit Research and Analysis at Moody’s Investors Service, wrote in a note on Wednesday. “There is little room for corporates to increase their leverage in the next 12–24 months.” The participants in the Bloomberg survey included Bank of Nanjing Co., China Merchants Bank Co., China Guangfa Bank Co., Industrial Securities Co., Bank of Hebei Co. and Evergrowing Bank Co. Sixteen investors and analysts asked not to be named as they are not allowed to comment on the matter publicly. Bloomberg News
Shanghai-based wealth management firm Trust Wealth is selling a fund to invest in the relisting of Bona Film Group Ltd, predicting returns of 500800 per cent in three to five years, it told clients last month. It charges 2 per cent in both subscription and management fees and keeps up to 20 per cent of investors’ gains.
Key Points Big valuation gap between overseas and China bourse listing Companies raising funds to profit by relisting in China CICC says 39 companies announce plans to delist since 2015 Regulator analysing the valuation gap and impact of relisting
China expects the size of its outstanding foreign debt to stabilise, the foreign exchange regulator said yesterday. The remarks came after China reported outstanding foreign debt fell to US$1.36 trillion at the end of the first quarter, from US$1.42 trillion at the end of 2015. In an online statement, the State Administration of Foreign Exchange (SAFE) said risks associated with the repayment of foreign debt are under control. The regulator added that it will take steps to prevent risk from abnormal cross-border capital flows. Expansion
Netflix continues to look into entering mainland Netflix Inc will continue to look into the possibility of entering China, a senior company executive said yesterday, as the video streaming service seeks to grow its subscriber base outside its home of the United States. “Since China is a great opportunity, we continue to look into China,” Ted Sarandos, Netflix’s chief content officer, said at a media event in Seoul without elaborating. Netflix is trying to counter slowing growth in the U.S. with its move in January to launch in more than 130 new markets worldwide. But the streaming service remains absent in the world’s most populous country. Delisting
Private equity (PE) firm Perfect Capital is pitching to clients a fund aiming to profit from the relisting of Hong Kong-listed Dalian Wanda Commercial Property. According to the sales pitch, retail investors can make as much as 38.4 per cent a year over three years in a rising market, and 18.5 per cent in a flat market. Ten mainland-listed companies say they are also investing in such schemes, including CITIC Guoan Information Industry Co , Shandong Tyan Home Co Ltd and Hunan TV & Broadcast Intermediary Co Ltd. Some distribution networks for such products can go five layers deep, generating hefty fees for fund managers at each level, marketed via email, online platforms or instant messaging chat groups. The privatisation of Qihoo 360 Technology Co is another popular target; Chinese PE firm Aeternam Stella said it completed fundraising of nearly 700 million yuan in April. “In the backdrop of an acute shortage of quality assets, Qihoo 360’s privatization scheme attracted feverish demand. Some institutions even received subscriptions that were 20 times more than the stakes available to them,” it said. Shandong Tyan Home Co Ltd said in April it had invested nearly 700 million yuan in a Qihoo-linked fund. But such schemes are not a one-way bet, and regulators are concerned that retail investors could be in over their heads. This month the stocks regulator said it would tighten rules on restructurings by listed companies to curb speculation around shell companies, after saying in May it was analysing the impact of relistings and the valuation gap between domestic and overseas stocks. Since then, U.S.-listed Chinese video streaming website operator YY Inc has become the first to withdraw its privatisation plans, citing “unfavourable market conditions”. Reuters
Wanda shareholders to vote on August 15 China’s Dalian Wanda Commercial Properties said yesterday it will hold a shareholders meeting in Beijing on August 15, seeking approval for a plan to delist from the Hong Kong stock exchange. Parent company Dalian Wanda Group, owned by China’s richest man Wang Jianlin, is offering US$4.4 billion in cash to buy out the Hong Kong property unit, part of a plan to take it private before relisting it in Shanghai where it hopes to gain better valuations. Shares of Wanda Commercial rose 3 per cent to HK$47.5 in morning trade, but were still 10 per cent lower than the buyout offer of HK$52.8. Power STRUGGLE
China Resources opposes proposal to oust Vanke board China Vanke Co Ltd’s No. 2 shareholder China Resources Group said yesterday that it opposed plans by a bigger shareholder to oust the property developer’s board. Financial conglomerate Baoneng is seeking the removal of Vanke’s board - a move it made after Vanke announced a US$6.9 billion deal with white knight Shenzhen Metro Group that would dilute Baoneng’s stake. Shares of Vanke in Hong Kong jumped more than 5 per cent, compared to a 1.5 per cent gain in the broader market. Vanke’s shares in Shenzhen have been suspended since December 18.
10 Business Daily Friday, July 1 2016
Greater China
Private survey
Growth rebounds but may not last Hiring accelerated from the first quarter, with 37 per cent of firms increasing headcount, up slightly on-year.
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hina’s economy rebounded in the second quarter, with capital expenditures recovering from 5-year lows, a private survey showed yesterday, as higher government spending helped boost the property and construction sectors. The quarterly survey of over 3,000 firms by China Beige Book International (CBB) also showed better hiring and a strong rebound in the services sector, which if sustainable would point to progress in Beijing’s long-stated goal of rebalancing the economy. The “Beige Book” findings contrast to some degree with official data and some other private surveys which point to some steadying in certain parts of the economy but weakness elsewhere. Official data had shown a pick-up in March but readings for April and May suggested that improvement may be short-lived. Private investment growth has shrunk to a record low, putting more of the burden on statecontrolled firms to support economic growth. Economists have questioned
China’s official statistics for years and increasingly turn to private surveys such as the CBB and measures such as concrete, steel or electricity production to better gauge trends in the world’s secondlargest economy. CBB said China’s record credit expansion this year is filtering through to the construction sector, where 43 per cent of residential builders reported higher revenue growth in the second quarter, up from 33 per cent for the same period last year. C B B a l s o b e l i ev e s p r i va t e investment will start to recover in coming months. Its data showed 47 per cent of private firms reported faster growth in capital expenditures in the second quarter, up from 32 per cent in the first quarter. Hiring accelerated from the first quarter, with 37 per cent of firms increasing headcount, up slightly on-year, though most of the hiring was at very small firms. Despite the improvement, CBB CEO Leland Miller is not optimistic the positive trends in the second quarter will last, and also has concerns about
China’s willingness to go through a painful rebalancing process. “If they are able to (stop relying on debt-fuelled growth and stimulus), China’s economy will slow, but as it does the economy will rebalance and they will use stimulus to cushion the rebalancing,” Miller told Reuters in an interview.
“The problem is until we see China willing to do the hard work on overcapacity and some of the problems in the economy” Leland Miller, China Beige Book International CEO
“You’ll have a slower growing, healthier China emerge out of the other side.” Policymakers should take the stronger second quarter performance as a chance to push through economic reforms, Miller said. “The problem is until we see
China willing to do the hard work on overcapacity and some of the problems in the economy, I don’t have much confidence they can maintain these trends (we saw in the second quarter).” Miller said there have been no signs of a reduction in industrial production capacity or employment stresses in a sector expected to see millions of lost jobs over the next few years. “None of this tackling of overcapacity that they’ve been talking about is panning out in the data. If anything, it’s going in the other direction in some ways.” CBB added that the fallout from Britain’s vote last week to leave the European Union also posed “significant downside risk” to the Chinese economy, though the implications will take time to pan out. “Brexit itself will have little impact on China, but global responses to Brexit could put pressure on exportsensitive sectors and financial decision-makers, in particular.” Miller said there is no question there was an improvement in the second quarter, but that financial markets should not be looking for a return to faster growth. “There’s no chance that China has bottomed out. The idea that China has bottomed out should be stricken from the lexicon, because China is on a long-term slowdown. The question is whether they can engineer this the way they want or whether the circumstances are dictated to them.” Reuters
Privatization deal
COSCO Greece says Piraeus port sale terms changed The terms of the deal were submitted by the country’s shipping ministry to parliament for approval on Tuesday. COSCO Greece objected on Wednesday to terms submitted to parliament for the sale of Piraeus Port to China COSCO Shipping, saying they were inconsistent with those previously agreed with the Greek privatisation agency.
“The government will look into it, it will look into the objections and will probably consider making improvements” Theodoris Dritsas, Greece’s Shipping Minister
Greece sealed the sale of Piraeus Port Authority to China COSCO Shipping Corporation in April, a major step for the bailed-out country in meeting the demands of international creditors that it step up privatisations. Under the 368.5 million euro deal, COSCO will buy 51 percent of Piraeus for 280.5 million euros and the remaining 16 percent for 88 million after five years and once it completes investments of 350 million euros over
the next decade. The terms of the deal were submitted by the country’s shipping ministry to parliament for approval on Tuesday. But, COSCO Greece said in a letter to lawmakers seen by Reuters that key elements of the deal appeared to have been altered. “The content of the specific plan is a complete reverse of what was agreed between COSCO HK and TAIPED
(HRADF),” an email sent by COSCO Greece said, referring to the country’s privatisation agency. It said that ‘key terms’ on which COSCO’s offer was based, had been erased. It included an obligation by the state to approve project licensing within a specific timeframe. A lack of such guarantees, the COSCO note said, would have materially affected the amount it bid for the project, and possibly affected the submission of a bid altogether. Shipping Minister Theodoris Dritsas acknowledged that there were differences, but said the government had the right to make changes and
the ministry was willing to make improvements. “The government will look into it, it will look into the objections and will probably consider making improvements,” Dritsas told lawmakers. The port, a gateway to Asia, eastern Europe and north Africa, handled 16.8 million passengers and 3.6 million units (TEUs) of containers in 2014. COSCO has been operating one of its container terminals since 2009. Lawmakers had been expected to endorse the deal yesterday, before Prime Minister Alexis Tsipras’s state visit to China which starts on July 1. Reuters
Business Daily Friday, July 1 2016 11
Asia Industrial data
South Korea’s factory output growth speeds up Exports have been falling since January last year, with factory activity changeable but on the whole subdued. Christine Kim
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outh Korea’s industrial output in May rose at its fastest pace in three months and far outperformed expectations as car and semiconductor production boosted activity, but growth faces risks from weak investment and stubbornly poor exports. I n d u st ri a l o u t p u t i n Asi a’ s fourth-largest economy rose a seasonally adjusted 2.5 per cent in May from April, government data showed yesterday, beating a 0.3 per cent rise projected by a Reuters survey.
semiconductor production rose 9.9 per cent on-month in May while auto manufacturing was up 3.7 per cent over the same period. Capital investment showed no growth in May in monthly terms after posting a revised 3.1 per cent rise in April. On a year-on-year basis, industrial output jumped 4.3 per cent in May after a revised 2.6 per cent drop in April, also outperforming a 0.4 per
cent gain forecast in the same Reuters survey. A finance ministry official told Reuters after the data was published that forecasting future activity would be difficult because there were many temporary factors behind May’s improvement. The loss of momentum caused by weak exports prompted the central bank to cut interest rates for the first time this year to 1.25 per cent, and the government is to provide extra fiscal stimulus worth around 10 trillion won (US$8.62 billion) via a supplementary budget. Unless the Bank of Korea lowers interest rates again in July to push
harder for growth, factory activity is expected to stay volatile, said Kim. Analysts are currently divided between no change for the rest of the year and another interest rate cut. Exports have been falling since January last year, with factory activity changeable but on the whole subdued. June export data is due on Friday. Yesterday’s data showed that service-sector output rose by a seasonally adjusted 0.1 per cent in May on a monthly basis, compared to a revised 0.5 per cent gain in April. The sector gained on finance and insurance-related services and social welfare services, the data showed. Reuters
Key Points May factory output +2.5 pct m/m (Reuters poll +0.3 pct m/m) Cars, semiconductors pushed up activity in May Govt says positive numbers due to many temporary factors The data follows an upwardly revised 1.2 per cent fall in April output and marked the fastest growth since February this year. “It’s surprising semiconductors did so well. If we want to see factory growth continuing it needs to be backed by investment, but I see capex was flat,” said Kim Doo-un, economist at Hana Financial Investment. On a seasonally adjusted basis,
Assembly line at Hyundai Motor Company car factory in Ulsan
Private poll
Japan fund managers trim stock exposure Their holdings of euro zone stocks stood at 9.5 per cent in June. Japanese fund managers marginally cut exposure to stocks in their model portfolios in June, reflecting misplaced hopes shared by many global investors that Britain would vote to stay in the European Union, according to a Reuters survey. The survey of six Japan-based fund managers, conducted in the week before the June 23 British referendum, showed respondents on average wanted to allocate 41.9 per cent of their portfolios to equities, down from 42.5 per cent in May. The respondents’ exposure to UK stocks in June was 5.5 per cent, unchanged from May. Their holdings of euro zone stocks stood at 9.5 per cent in June, also unchanged from the previous month, while they shaved their exposure to North American equities to 26.7 per cent from 26.8 per cent. Holdings of Japanese stocks were kept flat at 49.0 per cent. Wrongfooted by British voters opting to quit the EU, investors have heavily sold global stocks and sterling. MSCI’s gauge of global stocks fell roughly 7 per cent in two trading days
after the plebiscite, while sterling slumped to a 31-year low and global government bond yields plummeted, many to historic lows. “The financial markets are likely to remain unstable as the possibility arises of other countries in addition
to Britain leaving the EU,” wrote Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management. “European stocks are expected to remain weighed down by worsening economic conditions, but U.S. equities could eventually recover thanks to improving corporate earnings. The possibility of intervention to arrest the yen’s appreciation, monetary easing hopes and fiscal stimulus
expectations could also help Japanese stocks solidify.” The dollar fell to 99.00 yen after the British referendum, its weakest since late 2013, before pulling back above 100.00.
“The financial markets are likely to remain unstable as the possibility arises of other countries in addition to Britain leaving the EU” Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management The respondents slightly increased their overall bond holdings to 49.7 per cent in June from 49.4 per cent in May. They upped their exposure to North American bonds to 29.9 per cent from 29.7 per cent while reducing UK debt to 3.1 per cent from 3.6 per cent. They slightly raised Japanese bond holdings to 42.9 per cent from 42.2 per cent. Reuters
12 Business Daily Friday, July 1 2016
Asia In Brief Industry data
Thai factory output rises again Thailand’s industrial output rose for a third straight month in May but the recovery remains fragile with both exports and domestic consumption sluggish. The Industry Ministry said yesterday its manufacturing production index (MPI) in May rose 2.6 per cent from a year earlier. A Reuters poll had forecast a rise of 1.85 per cent. In April, output rose a revised 0.89 per cent from a year earlier, instead of the 1.54 per cent reported a month earlier. Industrial goods accounted for nearly 79 per cent of total exports in May, which declined 4.4 per cent from a year earlier, customs data showed. Domestic economy
South Korean household debt burden grows The soundness of South Korean household finances worsened slightly in the first half of the year as debt grew faster than disposable income, the Bank of Korea said yesterday. In a twice-yearly report on financial stability, the Bank of Korea said although household debt delinquency rates were improving, increased borrowing because of low interest rates was adding pressure on households compared to the second half of last year. Previous central bank data has shown household credit stood at 1,223.7 trillion won (US$1.06 trillion) as of endMarch, up 11.4 per cent from a year earlier.
Weak data
Japan’s factory output hits 3 year-low Output fell in May due to declines in the production of chemicals, cosmetics, construction equipment and semiconductors. Stanley White
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apan’s industrial output slid in May at the fastest rate in three months to its lowest level since June 2013, highlighting concerns about falling exports and weak consumer spending. May’s 2.3 per cent fall in industrial output considerably exceeded the median estimate for a 0.1 per cent decline forecast in a Reuters poll. “The decline in industrial output is directly related to the decline in exports,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. “Another factor is the slow recovery in domestic consumer spending. The government should consider some measures to improve domestic
demand.” Japan’s government plans to announce more fiscal stimulus spending this autumn to revive Prime Minister Shinzo Abe’s economic agenda. Strengthening domestic demand has become even more urgent as gains in the yen further threaten exports. Output fell in May due to declines in the production of chemicals, cosmetics, construction equipment and semiconductors, data from the Ministry of Economy, Trade and Industry showed. Manufacturers surveyed by the ministry expect output to rise 1.7 per cent in June and increase 1.3 per cent in July. Exports fell at the fastest pace in four months in May on supply chain disruptions from an earthquake and
slow growth in emerging markets, data earlier this month showed. The Bank of Japan’s closely-watched tankan business sentiment survey due on Friday is forecast to show confidence fell to the lowest in three years in April-June, even though the poll was taken before Britain voted on June 23 to leave the European Union. Ongoing Brexit-related disruptions could further undermine output and trade.
Key Points May output -2.3 pct vs f’cast -0.1 pct Manufacturers expect output gains in June, July Consumer spending, Brexit fallout cloud outlook Separate data due on Friday is forecast to show core consumer prices fell at the fastest pace since the BOJ began its quantitative easing programme in April 2013, further vindicating the argument that efforts by the government and the BOJ to kindle inflation have failed. Reuters
Employment
Australian job vacancies fall Job vacancies in Australia slipped 1.9 per cent in the three months to May, the fist drop in almost two years and a possible sign that demand for labour might have plateaued. Data from the Australian Bureau of Statistics released yesterday showed total job vacancies dipped to 169,400 seasonally adjusted in the March-May quarter, from 172,600 in the three months to February. Vacancies were still 8.1 per cent higher than in the same period last year. Vacancies in the private sector fell 2.5 per cent in the quarter to 153,000, but were still up 6.1 per cent on the same period last year.
Strong momentum
New Zealand business confidence shines The central bank will meet August 11 and economists are currently expecting a 25 basis point rate cut to 2.0 per cent.
M&A
Japan regulator approves Canon-Toshiba deal Japan’s anti-monopoly regulator has approved Canon Inc’s acquisition of Toshiba Corp’s medical equipment unit, but issued a warning over the way they carried out the deal, which antitrust experts have called questionable. Toshiba, hurt by an accounting scandal and in a hurry to raise cash before closing its books for the business year that ended in March, structured the 665.5 billion yen (US$6.5 billion) sale in an unorthodox way so that it could book proceeds before securing approval from regulators. The Fair Trade Commission (FTC) said yesterday the acquisition method may be in violation of antitrust laws.
Up until recently dairy was the backbone of the economy
New Zealand business sentiment rose in June to a six-month high as the economy continues to show strong momentum, an ANZ Bank survey showed yesterday, but ANZ said Brexit could still force the central bank to cut its policy interest rate. The survey’s headline measure showed a net 20.2 per cent of respondents expected the economy to improve over the year ahead, compared to 11.3 per cent in the previous poll. A net 35.1 per cent of respondents expected their own businesses to grow in the next 12 months, up from 30.4 per cent last month. ANZ New Zealand Chief Economist
“Housing is booming. Little wonder construction is the front runner on almost every measure” Cameron Bagrie, ANZ New Zealand Chief Economist The agricultural sector, however, has been hard hit by tumbling global dairy prices. Up until recently dairy was the backbone of the economy, producing around 25 per cent of exports. But dairy prices have dropped sharply since scaling record highs in 2013, due to China’s economic slowdown and global oversupply. The central bank estimates that around 85 per cent of dairy farmers are currently operating at a loss. Reuters
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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Cameron Bagrie said the survey would seem to indicate there is no need for further rate cuts from New Zealand’s central bank, but “the scene has been knocked by Brexit. “The latter means a lower official cash rate is probably still likely,” Bagrie said. The central bank will meet August 11 and economists are currently expecting a 25 basis point rate cut to 2.0 per cent. The survey showed investment intentions were slightly higher, employment intentions were steady while profit expectations continued to rise. Confidence in the construction
sector, given New Zealand’s hot housing market, is the highest since March 2015 while confidence in the agriculture sector continues to lag. “Housing is booming. Little wonder construction is the front runner on almost every measure,” said Bagrie. New Zealand’s house prices are among the fastest rising in the world, according to the International Monetary Fund, in large part to an influx of foreign investors and migration.
Business Daily Friday, July 1 2016 13
Asia Salary rise
India approves pay increase for government employees Higher salaries will boost consumption by as much as 1.5 percentage points in the year through March 2017, according to PhillipCapital Ltd. Abhijit Roy Chowdhury, Vrishti Beniwal and Bibhudatta Pradhan
Prime Minister Narendra Modi’s cabinet approved an increase in salaries for federal government employees, a move that risks pressuring Asia’s widest budget deficit.
A pay-out of roughly 849 billion rupees (US$13 billion) - including arrears - will be made to 4.7 million workers and 5.2 million pensioners in the year through March 2017. This could rise to at least 1 trillion rupees if other allowances are approved, Finance Minister Arun Jaitley said in a
briefing in New Delhi on Wednesday. The federal budget accounted for only part of this amount, leading to concern the government may miss its deficit target in case of a full rollout this year. While it stands to boost demand - the key driver of the world’s fastest-growing big economy - more cash in the hands of consumers also risks spurring inflation. The move will have a “mixed bag” of effects, Jaitley said. “Government salaries have to come at a respectable level so the government can attract
the best talent, therefore inevitable consequence of this will be pressure on the budget.”
“Government salaries have to come at a respectable level so the government can attract the best talent” Arun Jaitley, India’s Finance Minister Higher salaries will boost consumption by as much as 1.5 percentage point in the year through March 2017 and contribute about 0.35 percentage point to gross domestic product, according to PhillipCapital Ltd. The savings rate is seen rising to about 30.4 per cent of GDP from about 30 per cent. However a 139 per cent jump in housing allowances, if implemented, will spur inflation, “largely ruling out scope for further rate reduction,” economist Anjali Verma wrote in a report on Wednesday. She predicts the government will cut expenditure to ensure it meets its target of narrowing the budget deficit to a nineyear-low of 3.5 per cent of GDP in the current fiscal year. India spent a net 221 billion rupees when it last raised salaries following the 2008 recommendation for a raise of as much as 40 per cent. Bloomberg News
Vote aftershock
Singapore bank suspends loans for London properties Market-watchers said property prices in Britain are expected to plummet as the pound takes a beating. Elizabeth Law
A top Singapore bank said yesterday it has suspended loans to anyone wanting to buy property in London, citing uncertainty from Britain’s vote to quit the EU and dealing a blow to investors looking to make the most of the weak pound. United Overseas Bank (UOB), one of the city-state’s three home-grown lenders, said it was monitoring the market closely to determine when the loans would resume. “We will temporarily stop receiving foreign property loan applications for London properties,” it said in a statement.
“What’s different this time is that Brexit is unprecedented. It’s only the UK that’s affected” Donald Han, managing director of Chesterton Singapore, a consultancy specialising in UK property
“As the aftermath of the UK referendum is still unfolding and given the uncertainties, we need to ensure our customers are cautious with their London property investments,” it added. “We are monitoring the market environment closely and will assess regularly to determine when we will re-instate our London property loan offering.”
UOB has the biggest share of loans for the London property market among Singapore’s three banks, an industry source said. Financial markets were plunged into turmoil following last week’s Brexit vote and while they have enjoyed a recovery over the past few days, analysts warn there could be repercussions well beyond Britain and Europe. Market-watchers said property prices in Britain are expected to plummet as the pound takes a beating, and foreign investors, especially those from Asia, are already poised for a buying spree. But Donald Han, managing director of Chesterton Singapore, a consultancy specialising in UK property, said banks are just exercising caution
given the uncertainties. “London property prices are some of the most resilient in the world because even during the global financial crisis it only dipped by 10 to 15 per cent,” he told AFP. “What’s different this time is that Brexit is unprecedented. It’s only the UK that’s affected, not the rest of the world as was seen during the previous financial crisis so understandably the banks are being cautious.”
Forex risks
Singapore’s biggest bank DBS said it would continue to provide financing for property purchases in London but gave customers the option of borrowing in Singapore dollars or pounds. “For customers interested in buying properties in London, we would advise them to assess the situation carefully before committing to their purchases as there could be potential foreign exchange and sovereign
risks,” said Tok Geok Peng, executive director of secured lending at DBS. “With foreign exchange risks, even if the value of the overseas property rises, any gains will be eroded if the country’s currency depreciates against the (Singapore dollar). This is in addition to the risks associated with any government policy changes,” Tok added. Asian investors have long sought out both commercial and residential UK property off the back of potential for capital growth and a resilient economy. London house prices are some of the most expensive in the world and have been on the rise over the past six years. But international consultancy KPMG has forecast house prices could fall five per cent nationwide - and even more in the capital - following Friday’s surprise decision to separate from the EU after four decades. Another consultancy, Jones Lang LaSalle, said prices could fall 10 per cent over the next two years. AFP
14 Business Daily Friday, July 1 2016
International In Brief Tourism
Lisbon visitors tax still under negotiation The city chambers said yesterday it was holding talks with the government to find a way to change the tourist tax of one euro for every arrival at the airport and port, but added that it had not found a solution yet. Speaking because of the first months of the tourist tax on domestic and foreign tourist stays in hotels or couch surfing on the Portuguese capital, the city chambers said that “one solution may involve the government pacing specific laws”. The municipal tourist tax was approved in 2014 and was expected to collect one euro a night up to a maximum of seven euros and one euro for every arrival by sea or air to the city. Fiscal shortfall
Record deficit highlights Brazil’s budget challenge Brazil posted on Wednesday its largest ever primary budget deficit for the month of May, highlighting the challenges the government faces to close a massive fiscal shortfall amid the worst recession for decades. The primary deficit of 18.125 billion reais (US$5.57 billion) in May topped market expectations for a gap of 17.3 billion reais. It followed a surplus of 10.182 billion reais in April. The primary balance, which excludes debt payments, is a key gauge of a country’s capacity to repay its borrowing. The overall deficit, which includes interest costs, rose to 60.623 billion reais in May. Consumer mood
UK confidence tumbles after vote Confidence among British consumers fell sharply in the days after the country decided to leave the European Union, according to a survey published yesterday which gave a first glimpse of how the shock referendum result has affected households. The YouGov/ CEBR Consumer Confidence Index, which measures people’s economic sentiment on a daily basis, slumped to its lowest level since May 2013, when Britain’s economy was just starting to emerge from its post-financial crisis sluggishness. Scott Corfe, a director at the Centre for Economics and Business Research, said households were “highly spooked” by the referendum outcome. Monetary policy
Russia may take pause in key rate cuts Russian central bank may take a pause in key rate cuts as it needs to be sure that no any scenarios will result in missing its inflation target, chairwoman Elvira Nabiullina told Vedomosti newspaper in an interview yesterday. “We may take a pause as we should be confident that no any developments in the situation may lead to us seriously deviating from our target: 4 per cent by end-2017,” she told the newspaper. She added that in a short term, the central bank saw no possibility of increasing its gold and foreign exchange reserves.
Currencies
Pound at risk of falling in reserve-currency ranks The pound accounted for about US$332 billion of known foreign-exchange reserves at the end of 2015.
T
he pound is at risk of fading from the top ranks of central-bank asset holdings following Britain’s decision to leave the European
Union. The world’s foremost reserve currency a century ago, sterling has been overtaken by the dollar and the euro, mirroring the U.K.’s waning influence in the global economy. Now its 5 per cent share of foreign-exchange reserves is in danger of shrinking further because of Brexit, compounded by forces including China’s push to bolster the international role of the yuan. Diminishing use of sterlingdenominated assets would vindicate the warnings of those who called for Britain to stay in the EU and potentially put upward pressure on U.K. borrowing costs. S&P Global Ratings, which stripped the U.K. this week of its last remaining top rating, sees Brexit affecting the pound’s role as a reserve currency. Sterling has dropped more than 9 per cent since the June 23 vote sent the nation into a political crisis. “If Brexit results in dilution of the U.K.’s financial prowess, a prolonged period of political uncertainty and greater budget uncertainty, the
pound will lose its lustre as a reserve currency,” said Jane Foley, a senior currency strategist at Rabobank International in London. The pound accounted for about US$332 billion of known foreignexchange reserves at the end of 2015, behind the U.S. dollar’s US$4.36 trillion and the euro’s US$1.35 trillion, according to the International Monetary Fund. It’s just ahead of the yen at US$278 billion.
Yuan’s fans
The IMF in November agreed to include the yuan in its basket of reserve currencies, giving a longsought international stamp of approval for the world’s biggest economy. Among the currency’s fans is Singapore, which said it plans to include yuan-denominated assets in its foreign reserves starting this month. Even before the Brexit vote sent the pound tumbling to the lowest since the 1980s, Indonesia’s central bank had already been cutting its holdings of sterling among its US$104 billion in foreign-exchange assets. ING Groep NV and Morgan Stanley are among those who say there may be some reduction of sterling assets in central banks’ reserves after Brexit,
though it could take time and the magnitude may be small.
Allocation decisions
“Some central banks could conclude that the risk around the U.K. is now so large that they would now prefer to have a lower allocation to the pound, but that decision has to be actively made,” said Brad Setser, a former U.S. Treasury official who’s now a senior fellow at the Council on Foreign Relations. However, if countries decide they want to maintain their allocations of reserves, they may actually need to buy more sterling assets given the currency’s drop, Setser said. The Canadian and Australian dollars stand to benefit from the shift away from the pound, judging from trends in place since the global financial crisis began in 2007, Frank Gill, S&P senior director for European sovereign ratings in London, said in an e-mailed response to questions. “It’ll definitely be a two-to-threeyear process,” said Viraj Patel, currency strategist at ING in London. Central banks will “probably stick to their normal weightings and make some longer-term decisions once the U.K.’s status has been clarified.” Ultimately, the decision will b e u p t o c e n t ra l ba n ks, a n d Thailand’s, for one, isn’t ready to give up on the pound as part of its $180 billion in foreign-exchange holdings. Bloomberg News
“A more multi-polar world with China in the picture is a challenge for smaller reserve currencies like the pound, yen and the Swiss franc” Stephen Gallo, London-based head of European currency strategy at BMO Capital Markets
Inflation pick up
U.S. consumer spending rises again When adjusted for inflation, consumer spending rose 0.3 per cent after gaining 0.8 per cent in April. U.S. consumer spending rose for a second straight month in May on increased demand for automobiles and other goods, but there are fears Britain’s vote to leave the European Union could hurt confidence and prompt households to cut back on consumption. The Commerce Department said on Wednesday consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 per cent last month, pointing to an acceleration in economic growth in the second quarter. Consumer spending in April was revised up to show it advancing 1.1 per cent instead of the previously reported 1.0 per cent jump. Last month’s increase in consumer spending was in line with economists’ expectations. Economists are forecasting that Brexit will subtract an average of
two-tenths of a percentage point from U.S. growth over the next six quarters. When adjusted for inflation, consumer spending rose 0.3 per cent after gaining 0.8 per cent in April. That could prompt economists to raise their forecasts for second-quarter consumer spending and economic growth.
‘Wages and salaries gained 0.2 per cent’ Consumer spending rose at a 1.5 per cent annual rate in the first quarter, holding down gross domestic product growth to a 1.1 per cent pace. The Atlanta Federal Reserve is currently
estimating second-quarter GDP rising at a 2.6 per cent rate. Despite the steady gains in consumer spending last month, inflation remained benign. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.2 per cent last month after a similar gain in April. In the 12 months through May the core PCE increased 1.6 per cent after rising by the same margin in April. The core PCE is the Federal Reserve’s preferred inflation measure and is running below the U.S. central bank’s 2 per cent target. Last month, consumer spending was boosted by a 0.3 per cent jump in purchases of long-lasting manufactured goods such as automobiles. Spending on services increased 0.4 per cent. Personal income rose 0.2 per cent after advancing 0.5 per cent in April. Wages and salaries gained 0.2 per cent. Savings slipped to US$730.6 billion last month from US$753.7 billion in April. Reuters
Business Daily Friday, July 1 2016 15
Opinion Business Wires
PHILSTAR The government posted a budget surplus in April due to annual tax payments during the review period, the Bureau of the Treasury reported yesterday. The surplus amounted to P55 billion in April, five per cent higher than last year’s level. This trimmed the budget gap for the first four months to P69.8 billion. “Consistently solid fiscal performance has put the country on the firmest fiscal footing in history,” Finance Secretary Cesar Purisima said in a statement. Revenues reached P246.6 billion in April, up 18 per cent which was the fastest since May last year’s 40-per cent increase.
THANH NIEN NEWS Vietnam can send workers for construction and fishing jobs in Thailand from September this year, heard a conference held in Bangkok this week. Officials from the Thai Ministry of Labour said at the meeting that Vietnam can start sending the workers after Thai agencies discuss in detail next month labour demand, benefits for workers, labour export fee and working regulations. Vietnamese workers would receive the same protection as locals, they said at the meeting, co-organized by the Thailand’s Department of Employment and the International Organization for Migration.
Financial district in London
Brexit’s blow to globalization
T THE NEW ZEALAND HERALD The Government wants to lower the threshold on online purchases which qualify for GST (Goods and Services Tax) from mid-2018, but says more work is needed and there will be no change without public consultation. Currently, online purchases don’t qualify for GST and tariff duty unless the total tax owed is NZ$60 or more - meaning a purchase price of about NZ$400. But goods such as clothes, accessories, and shoes attract both duty and GST, meaning charges may be payable when the purchase price exceeds NZ$225, according to the New Zealand Customs Service.
THE PHNOM PENH POST A delegation of Cambodian investment officials and prominent private sector businessmen held a seminar in Seoul in an effort to drum up more Korean investment in Cambodia’s growing agro-industrial sector. The Cambodian delegates, which included representatives of the Cambodian Investment Board and the Cambodian Chamber of Commerce, briefed more than 80 Korean investors in attendance on the Kingdom’s investment climate and discussed potential opportunities for new investments. South Korea ranks second after China in terms of total FDI in Cambodia, with significant investments in the Kingdom’s property, banking and agricultural sectors.
he U nited K ingdom ’ s B rexit referendum has shaken equity and financial markets around the world. As in prior episodes of contagious financial turmoil, the victory of the “Leave” vote sent skittish global investors toward the usual safe havens. US Treasury bonds rose, and the dollar, Swiss franc, and yen appreciated, most markedly against sterling. When it became clear that the “Remain” camp had lost, the pound’s slide seemed to be on track to match the historic 14 per cent depreciation of the 1967 sterling crisis. But the rollercoaster outcomes that we’re now seeing in global capital markets are not unique to the Brexit episode. What is unique, and particularly far-reaching, is the precedent Brexit sets for other countries (or regions) to “exit” from their respective political and economic arrangements – whether it is Scotland and Northern Ireland in the UK, or Catalonia in Spain. The borders of existing nation-states could be redrawn, or fenced off entirely if disgruntled member states submit to internal nationalist impulses and give up on the multi-decade experiment in European unification. (And, as Donald Trump’s presidential campaign in the United States shows, this impulse extends beyond Europe.) With its systemic negative effects on finance, trade, and labour mobility, Brexit marks a major setback for globalization. The fallout from Brexit probably won’t spread as quickly as in outright financial crises, such as the 2008 financial meltdown or the 1997 and 1998 Asian episodes. But the aftereffects also won’t subside anytime soon. The UK’s trade, finance, and immigration arrangements are far too complex and entrenched to be renegotiated quickly. In the meantime, many cross-border transactions in goods, services, and financial assets are likely to be placed on hold. Even if there are no other “exit” moments elsewhere in Europe, a protracted period of uncertainty in global capital markets seems likely. It’s worth recalling that globalization did not begin with the current generation. The latter part of the nineteenth century, despite its technological limitations, was an era of rising global trade. Major waves of immigration radically diversified the demographic makeup of the US and other parts of North and South America. London was host to a rapidly growing global financial industry, as it had been since the time Britain emerged victorious from the Napoleonic Wars. World War I ended this earlier wave of globalization; and, even with the return to peace, the world never really recovered. The economic depression of the
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Carmen Reinhart Professor of the International Financial System at Harvard University’s Kennedy School of Government.
1920s in Britain, and of the 1930s in the rest of the world, ushered in a global wave of protectionist, inward-looking policies and beggar-thy-neighbour competitive devaluations. The last nail had been hammered into the coffin of globalization even before the outbreak of World War II. While not the original or singular cause of the worldwide slump, there is widespread agreement among economists and historians that policymakers at the time made a bad situation significantly worse. After WWII, global integration finally began anew, first in trade and then, since the 1980s, in finance. During this time, London’s financial centre awoke from its long slumber and helped the UK become one of the pillars of a new, deeply integrated international political economy. Prior to the 2008-2009 global financial crisis, most indicators of global trade and finance had reached new peaks, and European unification contributed significantly this. But, with the onset of the crisis, cross-border finance in Europe shrank as highly leveraged eurozone economies began to lose access to international capital markets, and concerns about private and public insolvency took centre stage. The financial crisis resulted in the steepest synchronous drop in world trade since the Great Depression of the 1930s. And global trade still has not recovered its earlier trajectory: since 2008, export volumes have risen at only about half the average annual rate of the pre-crisis period (3.1 per cent). Europe itself has experienced an even sharper slowdown. The global financial crisis dealt a significant blow to globalization, especially in terms of trade and finance. Now Brexit has dealt another blow, adding labour mobility to the list. Financial markets do not handle uncertainty well. With the world already facing anaemic growth and low levels of investment, any adequate damagecontrol plan must include prompt resolution of the new rules of the game for Britain and its relationship with the EU. Any delay will cause further frustration and increase the odds of retaliatory policies from EU members. The last thing anyone needs is a tit-for-tat process of political divorce that only serves to deepen the global economy’s alreadywidening fault lines. Project Syndicate
The global financial crisis dealt a significant blow to globalization, especially in terms of trade and finance. Now Brexit has dealt another blow, adding labour mobility to the list.
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16 Business Daily Friday, July 1 2016
Closing Monetary policy
Taiwan cuts key rate to fight contraction
Taiwan is battling three consecutive quarters of economic contraction and global demand for its goods has fallen Taiwan’s central bank lowered its every month since February 2015. benchmark interest rate in a widely expected decision as the export-dependent Central banks around the world have economy’s growth prospects remain under offered fresh funds to financial systems and intervened in currency markets to offset pressure. panic generated by the U.K.’s vote to exit At its quarterly board meeting yesterday, the European Union. the Central Bank of the Republic of China Taiwan’s CBC said June 24 trade could be (Taiwan) cut the benchmark rate to 1.375 per cent from 1.5 per cent. Twenty four of 27 affected “in the long run” if the EU economy is hurt by Brexit, but that the island would economists had seen a cut of at least 12.5 see limited fallout from the events. Bloomberg News basis points this quarter.
Consumption decrease
Hong Kong retail sales fall confirms tourists staying away Sales of jewellery, watches, clocks and valuable gifts in May fell 18.7 per cent in value terms. Donny Kwok and Twinnie Siu
H
ong Kong’s retail sales fell for the 15th successive month in May, as a drop in mainland tourists and weak local consumption hit spending, triggering concerns about a deeper slump. “Retail sales declined in most segments. While the chance of seeing a turnaround is unlikely, we have
to watch closely the jobless rate - a rise in unemployment may point to a further slowdown in the economy,” said Paul Tang, chief economist at Bank of East Asia. Tang expects high single-digit percentage declines in retail sales in the next few months. Retail sales in May slid 8.4 per cent from a year earlier to HK$35.7 billion (US$4.60 billion) in value terms, deeper than a 7.5 per cent slump in
April. In volume terms, May sales dropped 9 per cent, government data showed yesterday. “Retail sales stayed weak in May... This was due partly to the drag from the slowdown in inbound tourism and partly to the more cautious local consumer sentiment amid the subpar economic conditions,” the government said in a statement. Hong Kong tourist arrivals in May fell 6.4 per cent from a year earlier to 4.45 million, after sliding 2.1 per cent in April. Mainland visitors, who account for 74.6 per cent of the total, fell 8.3 per cent to 3.32 million in May.
Hong Kong is struggling with mounting economic challenges and a strong currency, as the Hong Kong dollar is linked to the U.S. dollar. Meanwhile, mainland tourists are avoiding the city amid political tensions with China and growing calls from radical activists for greater autonomy from Beijing.
Key Points May sales of jewellery, watches down 18.7 pct y/y May tourists fall 6.4 pct y/y, mainland visitors down 8.3 pct “The near-term outlook for retail sales is still subject to a large degree of uncertainty, depending on the performance of inbound tourism as well as the extent to which local consumption sentiment will be affected by the increased external headwinds and heightened financial market volatility,” the government said. Sales of jewellery, watches, clocks and valuable gifts in May fell 18.7 per cent in value terms, a 21th consecutive month of decline. Department store sales slid 5.9 per cent on year, while wearing apparel fell 5.7 per cent. A string of retailers from jewellery firms to cosmetics have reported weaker sales. Chow Tai Fook Jewellery and cosmetics retailer Sa Sa International have seen their yearly profit drop by half from the previous year, forcing the companies to scale back expansion and shift their focus to local customers. Reuters
Prices’ trend
Securities regulator
First speech
Eurozone inflation exits negative territory
Beijing to detail launch Duterte takes oath of foreign hedge fund products as Philippine president
Inflation left negative territory in June, the Eurostat statistics agency said yesterday in a first estimate. Consumer prices rose a slight 0.1 per cent after slipping 0.1 per cent in May, the EU agency said. This was higher than the zero per cent forecast by analysts surveyed by data provider Factset and offered good news to the European Central Bank that has been struggling to boost prices in the eurozone. Energy prices again brought consumer prices lower, dropping by 6.5 per cent, but this was less than the negative 8.5 per cent a month earlier. The European Central Bank has embarked on an unprecedented stimulus programme in a desperate battle to kick-start sluggish growth and inflation in the eurozone. Slow eurozone growth has seen inflation slide in and out of negative territory, threatening a dangerous downward spiral of falling prices and wages. The ECB aims to get inflation back to two per cent or just below, a level it deems healthy for growth. The Frankfurt-based central bank this month took the controversial step of buying corporate bonds, its latest weapon in the fight against deflation that also includes negative interest rates for banks. AFP
China will detail rules to allow foreign hedge fund managers to launch products in the country, the nation’s securities regulator said yesterday, as authorities step up efforts to further liberalise and deepen the domestic capital markets. The China Securities Regulatory Commision (CSRC) has allowed the Asset Management Association of China (AMAC) to specify details regarding registration and qualification issues, the regulator said on its website. The move will help diversify the pool of investors, bring in new asset management talent and deepen deregulation of the capital markets, CSRC said. Some foreign asset managers, including the world’s largest hedge fund, Bridgewater Associates, have already set up units in China. But they cannot launch funds there without registering with China’s fund association. CSRC said the rules will apply to secondary market as well as to private equity products. The latest move joins a concerted effort by Beijing over the past couple of years to liberalise China’s highly regulated capital markets, though recent interventions in the currency and stock markets have raised questions about the government’s commitment to reforms. Reuters
Rodrigo Duterte took his oath of office as the Philippines’ 16th president yesterday, vowing to deliver on his promise to wage war against rampant crimes and corruption, and restore faith of the Filipinos in government. “I am here. Why? Because I am ready to start my work for the nation,” Duterte, 71, said in his first speech as presidentofthiscountryofmorethan100millionpeople. “No leader, however, strong, can succeed at anything of national importance or significance unless he has the support and cooperation of the people he is tasked to lead and sworn to serve.” “Erosion of faith and trust in government - that is the real problem that confronts us,” he said. Indeed, he said “ours is a problem that dampens the human spirit.” Duterte assured his critics that he will respect and uphold the rule of law. “I know that there those who do not approve of my methods of fighting criminality, the sale and use of illegal drugs and corruption. They say that my methods are unorthodox and verge on the illegal,” said the former Davao City mayor. “I know what is legal and what is not. My adherence to due process and the rule of law is uncompromising,” he said. Xinhua