Iao Kun rolling chip turnover halves in H1 Gaming Page 6
Thursday, July 7 2016 Year V Nr. 1081 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Banking
Novo Banco CEO says buyers interested in Macau, France units Page 3
www.macaubusinessdaily.com
Banking
Brexit
PSBA growing exposure to shaky loans pre-US$10 billion IPO Page 10
Pound down on mounting Brexit woes as Yen jumps Page 14
Air Traffic Up MIA
The local airport welcomed 540,000 passengers in June. A 19 pct jump y-o-y. Taiwan and Southeast Asian routes registered most growth. Meanwhile, global consultancy firm Mott MacDonald has been awarded a contract to design the overlay for the sole runway at Macau International Airport. Page 3
Incentive holidays
Career catalyst
Science and Technology Week has started. With student projects receiving MOP585,000 in subsidies. Financial incentives and a platform for students to showcase their talent will encourage them to pursue a career in the field, say organisers.
Labour L’Arc Macau is encouraging its casino workers to apply for unpaid leave. By offering subsidies of MOP1,250 (US$156.3) for every week of unpaid leave. ‘To enjoy family time or pursue your dreams’, according to an internal notice shared by a gaming labour activist. Page 5
Very Important Plan
Melco Bloomberg says Melco Crown is planning to add VIP gaming facilities at Studio City. The gaming operator is purportedly planning to open three VIP rooms ‘as early as this quarter’. With Macau’s Suncity Group and Tak Chun Group among the junket operators, according to the report. Page 6
Nevada treasurer blocks Mainland billionaire
Technology Page 2
HK Hang Seng Index July 6, 2016
20,495.29 -255.43 (-1.23%) Worst Performers
CLP Holdings Ltd
+1.08%
Li & Fung Ltd
-0.27%
China Shenhua Energy Co
-2.99%
Hengan International Group
Cathay Pacific Airways Ltd
+0.35%
MTR Corp Ltd
-0.38%
Sands China Ltd
-2.75%
China Mobile Ltd
-2.09%
Power Assets Holdings Ltd
+0.14%
Industrial & Commercial
-0.48%
Hang Lung Properties Ltd
-2.68%
China Resources Power
-1.96%
Hong Kong & China Gas Co
-0.14%
China Merchants Holdings
-0.48%
Belle International Holdings
-2.44%
CITIC Ltd
-1.95%
China Overseas Land &
-0.20%
Sun Hung Kai Properties Ltd
-0.56%
China Petroleum & Chemical
-2.36%
Tingyi Cayman Islands
-1.95%
28° 32° 29° 34° 28° 34° 28° 32° 28° 32°
-2.19%
Today
Source: Bloomberg
Best Performers
Fri
Sat
I SSN 2226-8294
Sun
Mon
Source: AccuWeather
Tech entrepreneur Jia Yuetung, the Mainland billionaire taking on Tesla and Apple has hit a roadblock. With Nevada’s treasurer sceptical of tycoon’s ability to finance a car plant in the state requiring government approval. At stake is US$120 million in state bonds for infrastructure improvements. Pages 8 & 9
2 Business Daily Thursday, July 7 2016
Macau Opinion
Ashley Sutherland-Winch Your best resource Employee social media advocacy is still a widely misunderstood and underused marketing strategy. With 36 million Facebook likes and 11 million Twitter followers, Starbucks has clearly mastered the art of social media. With great success, the popular company has also translated social fans into real revenue: In 2013, the company’s famous Tweet-a-Coffee Twitter campaign generated US$180,000 in direct sales in less than a month. Starbucks has an entire team of social media strategists on staff but they also utilise their own employees who do a lot of the tweeting and posting themselves. A unique employee advocacy programme actively encourages staff to share updates about the brand on their own social media accounts. Inc. Magazine states: ‘Employee advocacy results in 5x increase in web traffic and 25 per cent more leads’. In Macau, locals are always looking for great deals and special menus but if they do not follow your company’s social media or participate in an email list, more often than not they will miss out on promotion news. Imagine the potential reach if you asked your employees to share news on their personal social media accounts. For the local that doesn’t follow your company’s Facebook but does have ten friends that work in your company who follow their social media accounts, your company now has ten times the chance of learning about an upcoming promotion. It can be daunting to begin an effective employee advocacy programme but it can be achieved with great success. Placing trust in your employees can also increase buy-in and brand loyalty from within. Starting with a strong base of social media training, you can give your employees certain ground rules and suggestions on how to properly promote your brand. You can also distribute content like photos or posts which helps employees who are unsure of what they should be sharing, and understand how to promote your brand best. Creating a customised hashtag is a great way to build a key performance indicator (KPI) for easy campaign tracking. Further, telling employees exactly what to share will help send out a unified message to your target audience. Once your employee advocacy programme takes off, it will be important to recognise your most active employee advocates. Rewarding or praising these advocates will often motivate other staff to perform better. As you review your social media strategy and build relevant content, it’s time to look at your best resource - your staff.
Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Innovation Around MOP585,000 given in subsidies to local student projects during Science Week exhibition
Building a scientific future Government sees subsidies for science and technology students participating in the 2016 Science and Technology Week as essential for students to pursue careers in the tech industry. Nelson Moura nelson.moura@macaubusinessdaily.com
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hen questioned about a potential lack of future human resources in Information Technology (IT) the Vice President of the Science and Technology Council of the SAR, Jose Chui Sai Peng, told Business Daily that the main purpose of holding this yearly exhibition is “precisely to encourage more young people to follow the scientific and IT life [rather] than going into some other industry in Macau.” He made the comment on the sidelines of the opening ceremony of Science and Technology Week. In a push to promote and exhibit technological innovations to motivate local students to pursue careers in information technology (IT), the Science and Technology Council organises the annual Science and Technology Week, which this year is in collaboration with the China Science and Technology Centre and the Macau Science and Technology Fund (FDCT). The event, which debuted in 2007, runs until July 10 and takes place at the Macao Fisherman’s Wharf Convention Centre, assembling 39
teams from local universities, schools and science associations, with eight companies and universities from Mainland China. According to the organisers an estimated 120,00 visitors to the event are expected over the three-day period.
Incentives
Beneficiaries of last year’s FDCT Science Popularisation subsidy received a total of MOP585,000 (US$73,209) in subsidies from 39 local representatives. This financial support provides learning institutions with a MOP15,000 subsidy for a scientific project developed by the institution’s students. In 2015, the FDCT awarded MOP113 million for 86 scientific investigation projects, with the University of Macau the largest beneficiary - receiving 67.2 per cent of the funding. “The total population of Macau is small and we haven’t developed the business or IT sector a lot. We hope that when they finish the course these young people will go into the IT sector instead of the finance or tourism sector. Money is important but exposure is, too. By exposing them to these innovations, like VR [virtual reality] they will be interested in these fields,” Jose Chui told Business Daily. “This is all to motivate students to create useful technologies [to help develop] the economy in Macau. Maybe one day people here will be
able to gamble on some of the robot horses one of our student groups has developed,” Paulo Cheang member of the FDCT Administrative Committee, told Business Daily.
Virtual or real support?
Local Virtual Reality company Real Slim Computer Co. Ltd. was one of the only local startups attending the event, after receiving a payment of over MOP15,000 from the Macao Science Centre to develop VR technology for the event. “I don’t think there’s enough support in Macau for tech startups. The Macao Science Centre was the only institution we found willing to invest in our VR technology,” Kevin Kuok, engineer at Real Slim told Business Daily. Terry Lok, an e-commerce student from the Macau Polytechnic Institute (IPM) that helped develop an app that reveals empty spaces in parking lots, points out that the problem comes down to the usual monetary concerns. “Most students think that to develop technology in Macau you need a lot of money and they don’t think that they can find investors or make a lot of profit in the city,” Lok told Business Daily. For Kou Yuan, a system engineer at Beijing Peeny Electronic Group that developed a Formula 1 4D simulator, Science Week is a good opportunity to find companies willing to invest in the company’s product. “To build the car we produce the components all over China, but after the Macau Government invited us we decided to expose the product here,” Kou told Business Daily.
Administration
Fire Services adjusting organisational structure The Fire Services will expand to seven departments and ten divisions to handle increasing workload. Annie Lao annie.lao@macaubusinessdaily.com
After the discussion held by the Executive Council on the administrative draft of restructuring Macau’s Fire Services Bureau and its operation it recommends the Fire Services expand to seven departments and ten divisions from the current four departments and six divisions, Executive Council spokesperson Leong Heng Teng announced in yesterday’s press conference at SAR Government Headquarters. He added that the number of staff at the Fire Services Bureau would remain at 1,589 for a period of five years. The adjustment seeks to increase the capability of the Fire Services Bureau in order to manage the increased workload in the city. ”Due to the continual increase in population and
public projects over the past years, the workload for the Fire Services Bureau has increased. As a result, this adjustment is very much needed,’’ Mr. Leong explained.
According to Mr. Leong, the Fire Services will merge with the Combustibles Security Committee (CSC). The current Technology Department will be named as the Fire Prevention Department. In addition, the Facilities Inspection Unit and Design Analysis Unit will be upgraded to division level to further facilitate the modification of fire safety regulations. However, one director and two deputy directors remain. The Fire Services School will be upgraded to a departmental organisational unit.
Leong Heng Teng, spokesperson of the Executive Council
Business Daily Thursday, July 7 2016 3
Macau
Aviation
Airport passengers surge 19 pct in June
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assenger volume at the Macau International Airport (MIA) soared by 19 per cent year-on-year for June, driven by the growth of passenger numbers on flight routes connecting to Taiwan
Mott MacDonald appointed to design overlay for MIA
Global consultancy firm Mott MacDonald has been awarded a contract to design the overlay for the sole runway at the city’s airport, it announced earlier this week. According to the company, it will provide full design and quantity surveying services for the overlay project, in addition to undertaking condition surveys and preparing a tender document for construction of the project. The objective of the whole project is to improve the local runway’s strength whilst catering for increasing aircraft movements, the company claimed. “As Macau is a 24-hour airport, the improvement works will be carried out between flights during the night when traffic is
and Southeast Asian destinations, according to airport operator Macau International Airport Co. Ltd. (CAM). Last month, total passenger traffic at the local airport jumped to 540,000. In particular, passengers flying from or to Southeast Asia surged 30 per
less frequent. The runway will then need to be restored to full runway operations in time for peak daily aircraft movements, leaving only a short window for the contractor to carry out their works,” the company’s project director, Jason Wong, said. Contacted by Business Daily, local airport operator CAM declined to disclose the budget of the overlay project. “In the next state, CAM will launch another tender for construction of the runway overlay, expected to be late this year or early next year,” a spokesperson for the company said. The CAM representative added that the whole overlay project for the local runway is slated to be executed in 2017, whilst completion is expected in 2018.
Banking
Novo Banco CEO sees buyers interested in Macau, France units Novo Banco SA, the lender that emerged from the breakup of Portugal’s Banco Espirito Santo SA, is in “more or less advanced” talks to sell its units in Macau, France and Cape Verde, Chief Executive Officer Eduardo Stock da Cunha said. The Macau unit will probably be sold at a better price than the others, the CEO said in an interview at the bank’s headquarters in Lisbon. “It’s normal in these regions to pay higher market multiples than those we can get in a small operation like Cape Verde or in a European unit, where most banks are valued in the market at a discount to their book value,” Stock da Cunha said. A planned sale of the Cape Verde unit was halted in February by the Bank of Portugal due to investigations related to that unit’s operation. Stock da Cunha has been trimming Novo Banco’s assets and focusing on its domestic market as the Bank
of Portugal makes another attempt to sell the lender after last year’s effort failed because offers were too low. The central bank said on Thursday it received four bids for Novo Banco. Novo Banco is also trying to divest a real estate portfolio that includes stakes in restructuring funds. Sales have reached 40 million euros (US$44 million) to 50 million euros a month lately, and the bank sold real estate assets in the first half at an average discount to net book value of less than 5 per cent, the CEO said. It aims to sell about 700 million euros of real estate assets this year. The separate division set up for disposals had 10.8 billion euros of assets at the end of last year and Novo Banco aims to reduce that to about 4.5 billion euros in 2020. “It’s something that takes its time,” Stock da Cunha said. “Rome wasn’t built in a day.” Bloomberg
cent year-on-year, while those flying with Taiwan routes also grew by 26 per cent year-on-year. However, the number of passengers travelling from or to the Mainland via the airport registered a slight decrease of 0.5 per cent year-on-year. M e a n w h i l e, t o t a l a i r c r a f t movements at the city’s airport posted a growth of 5 per cent yearon-year to 4,600 in the month. For the first half of the year, 3.25 million passengers were recorded using the local airport, which represents a year-on-year jump of 16 per cent compared to one year ago. Again, growth is attributable to flight routes to Taiwan and South Asian cities, which increased by 25 per cent and 22 per cent year-onyear, respectively. Moreover, the local airport saw passengers flying with Macau-Mainland routes climb by 3 per cent year-on-year. During the six months, over 28,000 landings and takeoffs were recorded
at the airport, an increase of 6 per cent compared to the same period of last year. ‘Passenger traffic and aircraft movements of MIA are expected to grow steadily in the second half of 2016,’ the operator wrote yesterday in a press release. Meanwhile, the operator disclosed that Russian charter airline JCS Royal flight has planned to increase its flights connecting the Special Administrative Region to Moscow to three weekly flights by the middle of this month. Currently, the carrier, having commenced its Macau-Moscow route in May, provides two charter flights between the two cities each week. The airport operator also stressed in the release that ‘in-depth market research’ indicated the coming suspension of flights to the city operated by TransAsia Airways and Thai Smile Airways ‘will not cause too much turbulence to the passenger traffic of MIA’. K.L.
4 Business Daily Thursday, July 7 2016
Macau Opinion
José I. Duarte Muzzles and puzzles The law on the protection of animals has finally been approved. It may also become, someday, a case study. The discussion and approval process was disconcerting on several counts. Possibly, the government and the legislators know more about what justified the focus on certain specific matters, why certain measures or approaches were taken. External observers - that is, most of us - are entitled to be a tad perplexed. First, we may ask ourselves what was actually under discussion. If we believe the reasonable understanding conveyed by the words, a law for the protection of animals aims at creating a legal framework to do just that: protect animals from the abuse of humans and, in particular, their owners. That also seemed the main thrust behind the law, if we believe the justification note that accompanied the first draft originally submitted to the Assembly. How a substantial part of the debate ended up on how to restrain dogs in lifts, is likely puzzling for most of us. The protection of humans from the attacks or actions of animals is a separate matter. The responsibility of owners for the actions of their pets is a reasonably established and accepted principle – and, to my knowledge, is not questioned by anyone. It is, logically and legally, an independent, distinct issue, essentially unrelated to the one of protecting animals from abusive humans. That part of the debate hinged upon how to deal with the possibility of dogs attacking women in lifts – namely, when they come from the market carrying fresh meat in their bags or are menstruating – gave the debate a slightly unreal glow. Then comes the fact that the law took so long to come to a conclusion. Why was it so difficult? One would assume the general idea is mostly uncontroversial. That is, animals in general, and especially those living in our homes, deserve to be treated with some compassion and not subject to abuse or mistreatment. Animal rights is a relatively new legislative area – although with much more history than many seem to realise – but there are broadly agreed principles on these issues, based on ethical values shared across most cultural borders. The legislative process took almost two years after its introduction to the Assembly, there are obvious omissions in the approved version, and no-one seems to be too proud of its contents. Why, in this corner of the world, the matter might become so controversial is, again, somewhat mystifying. José I. Duarte is an economist and permanent contributor to this newspaper.
Culture
Cultural and creative industry “lacking content” Advisors say the development of the cultural and creative industry should be supported by the city’s historical heritage. Annie Lao annie.lao@macaubusinessdaily.com
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acau is developing cultural tourism. Hence, more efforts should be made to research local history, said Agnes Lam Iok Fong, a member of the Cultural Industry Committee (CIC) during TDM radio programme ‘Macau Forum’ yesterday. She said better understating of the city’s unique history and culture would help the city to attract more tourists into learning about it as well. Ms. Lam stated that Macau did not put much importance on the documentation of its literature in the past. Only around the time Macau returned to China’s sovereignty has more emphasis been put on local documentation work. The accumulation of the collective memory in the city is related to the development of the cultural and creative industry thus more
documentation should be done in order to develop the industry, Ms. Lam said. Lok Chi Hou, director of Manner Production, a network creative company, pointed out during the radio programme that the most important element for the cultural and creative industry is the core story of the city, with the creation of the story content key. Ms. Lam said an evaluation system should be set up to determine whether the cultural and creative industry in the city is successful or not. She pointed out that there are already some established standards for the creative industry in the United Kingdom, South Korea and other countries. The measured factors include how much the cultural and creative industry accounts for Gross Domestic Product (GDP) and the employment rate, etc. She said that Macau is still in its first phase of developing the creative
industry as there is no basic statistical indicator set up in place yet in the city. Cora Si, the exhibitor curator of OX Warehouse, also participated in the radio programme, saying there have been more people working full-time in the cultural and creative industry in recent years, but that they are still a minority in the industry.
Education and market
Ms. Si added that education is an important factor in promoting the cultural and creative industry in Macau, and that local schools do not offer sufficient educational courses in arts to local students. She suggested combining the arts subjects as a major subject at school in which students could learn how to appreciate the arts. Mr. Lok said that better policies to facilitate the cultural and creative industry is more important than simply distributing funds. He added that simplified procedures for video shooting permit, for example,would help, as well as providing assistance to those proposing business ideas. He also stressed that nurturing the market and cultivating buyers for Macau’s cultural sector would be vital.
Live Poultry
Macau resumes sales of live poultry from Mainland The resumption in supply of live poultry has not affected the city’s eateries. Annie Lao annie.lao@macaubusinessdaily.com
Macau suspended the sale of live poultry from June 23 until yesterday. Following discussions by the Civic and Municipal Affairs Bureau (IACM) with live poultry suppliers in Mainland China, IACM decided to resume the supply of live poultry to Macau from the Mainland yesterday, according to a statement published by IACM. According to the procedures established by IACM, live poultry from the Mainland exported to Macau has to be quarantined for sampling checks in the wholesale market. As no abnormal results have been found from the check, Macau has resumed the importation of live poultry to the markets and retail shops for sale. Recently, IACM took an environmental sample test from three stalls selling live poultry in Iao Hon Market on June 22 and found that the result of the test showed H7 H7 subtypes of
avian influenza virus was positive. As a result, IACM immediately ordered the suspension of sales of live poultry in Macau.
Not much impact
The resumption of the live poultry supply has not had much of a negative impact upon the eateries in the city
as most use frozen poultry. “Most of the eateries are now using frozen chicken. Even though some of the high-end eateries are still using live poultry they will not adjust the selling price due to this, which does not affect their total profits for their business because seafood is still the most profitable source for them,” Lo Kam Kuan, vice president of the United Association of Food and Beverage Merchants of Macao, told Business Daily.
Business Daily Thursday, July 7 2016 5
Macau In Brief Politics
Macao Foundation appoints new Fiscal Council President
Labour relations
L’Arc Macau subsidises gaming workers’ unpaid leave
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’Arc Macau is encouraging its casino workers to apply for unpaid leave by offering subsidies of MOP1,250 (US$156.3) for every week of unpaid leave they take. According to the company’s internal notice released this Monday, posted online by gaming labour activist Cloee Chao, its reward programme is titled ‘Leisure – Life’ and is addressed
to the group’s casino workers. L’Arc Macau, opened in 2009, is one of the fifteen satellite (third-party managed) casinos operated under a service agreement with local gaming operator SJM Holdings Ltd. ‘The company understands that some workers may have lost much time with their families, or some were not able to fulfill their big dreams due to work. As such, the management
has decided to release this reward programme,’ the company wrote in the notice. The announcement added that the programme, which is now temporarily open for applications for July and August, may be extended if it is popular among gaming workers. ‘The company hopes every employee can actively participate in the programme so that [you] can fulfill [your] own dreams as well as increase time with [your] families,’ L’Arc wrote. K.L.
Gaming
Francis Lui: New developments unaffected by downturn The downturn of the local gaming industry will not affect Galaxy Entertainment Group’s plans to develop its Phase III and IV projects, according to its vice chairman, Francis Lui Yiu Tung. In an interview with Chinese language newspaper Macao Daily he claimed his company would develop the two new projects per the original
schedule – with the construction of Galaxy Phase III kicking off by the end of this year, with Phase IV starting next year. Declining to disclose the company’s detailed plans on the two new projects, the businessman, however, did say that 97 per cent of the two projects would be non-gaming facilities and would primarily target
Francis Lui Yiu Tung Chairman, Galaxy Entertainment Group
MICE and family guests, with total investment cost remaining at some HK$40 billion (US$5.16 billion) to HK$50 billion. Mr. Lui also expected that the number of gaming tables in an integrated resort would not be a crucial element in the market anymore. He added that his company would need to consider what products the consumers want in the coming five years. On the other hand, the company executive said Galaxy is still in discussion with Henqing authorities on the details of the company’s circa HK$20 billion leisure and sports project on the Mainland island. Remaking upon the company’s business performance for the year, Mr. Lui claimed that the Galaxy’s gaming revenues from the mass market and the VIP market have already reached half-half for the first six months, adding non-gaming revenues also posted a year-on-year growth of 60 per cent. Claiming he is still confident in the long-term development of Macau, the Galaxy vice chairman asserts that the future completion of the Hong Kong-Zhuhai-Macau Bridge will boost the local MICE industry in addition to diversifying the city’s tourist sources.
Gaming
Legend Palace Hotel complete in Q3 The third hotel in the Macau Fisherman’s Wharf complex, Legend Palace Hotel, is set to be completed in the third quarter of this year according to statements by co-chairman and chief executive of Macau Legend, David Chow Kam Fai to the Hong Kong Economic Journal (HKEJ) and reported by GGRAsia. Hopes are for the hotel to open within this year despite delays due to rainy weather and complications with the facade of the building, the publication notes. Chow told the HKEJ that his firm plans to have “80 to 120” gaming tables in the new hotel, a 5-star
operation, by moving tables from existing operations and applying for new tables; however, the Gaming Inspection and Co-ordination Bureau (DICJ) had yet to receive a request regarding a casino at the operation as of April, GGRAsia reports. Chow mentioned that the tables would be directed at the mass market and could feature up to 15 VIP gaming tables managed by the firm. Macau Legend is currently in the process of purchasing the Savan Vegas Hotel and Casino Complex in Laos from the Laos Government and recently disposed of its Landmark Macau operations.
David Chow Kam Fai, Co-Chairman and Chief Executive of Macau Legend
The Macao Foundation has named lawyer Vong Hin Fai has its new Fiscal Council President, according to an Official Gazette dispatch. In addition, Wu Zhiliang has been reappointed to continue his position as President of the Administrative Council of Macao Foundation. Vong Hin Fai, a lawyer and appointed member of the Legislative Assembly (AL) by Chief Executive Chui Sai On will replace legislator Chui Sai Cheong on July 11 as the Council president. The Macao Foundation Fiscal Council is in charge of examining the organisation’s budget and expenses, and other financial services demanded by the Trustee’s Council, in charge of evaluating the Foundation’s donations. N.M. Business
Security services bid for Ferry Terminal The Marine and Water Bureau (DSAMA) has opened a public tender until August 8 for security services in the Outer Harbour Ferry Terminal, according to an Official Gazette release. The tender will be open to companies registered in the MSAR or, in the case of individual businessmen, resident in Macau. DSAMA hasn’t yet set a limit for contract values proposed by the applicants, and interested companies will have to deposit a temporary guarantee of MOP320,000 (US$40,000) by cash deposit or bank credit. If chosen for the project the company or businessman will have to offer a permanent guarantee of 4 per cent of the total value of the contract payment. When questioned about the former security services contract DSAMA told Business Daily that ‘the provision of security guard services for the Outer Harbour Ferry Terminal was awarded to ‘Kun Lun Security Service & Management Ltd.’ in 2014 by means of open tender’ and that ‘the contract for the services will terminate on December 31, 2016.’ N.M. Parking
UM to charge for parking from July 17 The University of Macau (UM) will start to charge for parking in all of its car parks from July 17, the Official Gazette announced yesterday. The parking fee at the University would range from MOP3 per hour for automobiles and MOP1 per hour for motorcycles. UM said in an announcement yesterday that all vehicles not belonging to members must be removed by July 17. Nonetheless, parking fees will be waived for all UM staff members and students during a transitional period until next year. In addition, all UM members will be eligible to purchase a monthly parking permit and enjoy a 50 per cent discount on hourly parking.
6 Business Daily Thursday, July 7 2016
Macau Gaming
Melco said to plan first VIP rooms at Studio City The rooms are aimed to help offset last year’s 83 per cent drop in net income at the casino company.
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elco Crown Entertainment Ltd.’s most expensive resort is set to open its first gambling rooms targeting high spenders from mainland China, switching gears from an earlier strategy that focused on recreational gamblers as it looks to reverse two years of slumping profit. Studio City, controlled by billionaire Lawrence Ho, is planning three VIP rooms as early as this quarter, according to people familiar with the matter. Suncity Group and Tak Chun Group, which bring in bettors from mainland China and loan them money to gamble with, are among
gaming promoters that will operate these rooms, said the people, who asked not to be identified because the plans aren’t yet public. The rooms seek to help offset last year’s 83 per cent drop in net income at the casino company. Melco, which operates VIP rooms at its City of Dreams and Altira Macau casinos, in May reported first-quarter revenue that missed analysts’ estimates, and Australian billionaire James Packer’s Crown Resorts Ltd. cut its stake in Melco on the same day. The latest move underscores how casino operators in the world’s biggest gambling market are struggling to bolster revenue after a two-year slump.
In a statement, Melco said it “will not rule out the possibility of VIP component if we believe that it will result in an improved and more diversified product offering for our customers.” Mass and premium mass markets remain Studio City’s focus, it said. “It is sensible for casino operators to try every way to maximize the profit of the existing assets” as Macau’s economic environment continues to be “very challenging,” said Jamie Soo, an analyst at Daiwa Capital Markets Hong Kong Ltd. Competition will further intensify with new property openings in the coming months, he said. Nasdaq-listed Melco fell 4.7 per cent to US$12.30 in New York trading. The casino operator’s shares have fallen about 30 per cent since Studio City’s opening, double the decline in Bloomberg Intelligence’s Macau Gaming Index in the same period. Crown Resorts dropped 0.5 per cent to A$12.09 in Sydney.
Hollywood Stars
Studio City debuted on October 27 last year to much fanfare with actors Leonardo DiCaprio and Robert De Niro making an appearance. Ho, chairman of Melco and the son of Macau casino kingpin Stanley Ho, said at the time that the US$3.2 billion resort would target leisure players. Months later, Lawrence Ho said he was dissatisfied with Studio City’s performance. The project lacked
premium customers because of the absence of VIP rooms, the Macao Daily newspaper reported in May, citing Ho. A Suncity spokesman couldn’t immediately comment when reached by Bloomberg News. A representative for Tak Chun declined to comment.
Batman Ride
Melco boosted its share of the mass-market gaming segment with Studio City, rising to 16.5 per cent in the first three months of this year, from 14.2 per cent in the third quarter of 2015 before the project opened, according to CLSA’s data. Melco’s market share of VIP gambling remained flat over the period, according to the brokerage. The Hollywood-themed resort boasts a Batman ride, a figure-eight Ferris wheel, and 1,600 hotel rooms aimed at drawing families and leisure-seekers. At Studio City’s opening concert, a star-studded cast performed, including Grammy winner Mariah Carey, who walked down the red carpet with Packer. Casino tycoon Packer resigned as co-chairman of Melco and became deputy chairman after Crown cut its stake to 27 per cent from 34 per cent. Hong Kong-listed Melco International Development Ltd., of which Ho is also chairman, became the largest Melco shareholder with 37.9 per cent after that deal, according to the Macau casino operator in a May statement. Bloomberg
Junkets
Iao Kun rolling chip turnover halves in H1 Local junket operator Iao Kun Group Holding Company Ltd. saw its VIP rolling chip turnover plunge by 47 per cent year-on-year to US$2.06 billion (MOP16.5 billion) for the first half of the year, suggesting the company’s average daily turnover only amounted to some US$0.34 billion in the six months vis-a-vis US$0.65 billion one year ago. According to its latest announcement, the Nasdaq-listed operator generated some US$0.23 billion in rolling chip turnover in June alone, down 58 per cent compared to US$0.54 billion for the same month in 2015. Meanwhile, the company’s win rate for the month was 3.24 per cent. As the group’s business in the Special Administrative Region has been
decreasing, it has looked for new business outside the territory. At the end of June, Iao Kun announced that it was to acquire the Jeju Sun Hotel & Casino in South Korea from Philippine gaming operator Bloomberry Resorts Corporation for US$102 million. The junket operator said in the June announcement that the acquisition, including a non-expiring gaming licence in South Korea, was ‘the optimal way to diversify outside of Macau’. Currently, the junket operator operates five VIP rooms in Macau, located in StarWorld Hotel, Galaxy Macau, Sands Cotai Central, City of Dreams and L’Arc Macau. In addition, it operates gaming businesses in Perth and Melbourne in Australia. K.L.
Corporate
Hotel Okura Macau and Galaxy Hotel win environmental awards
Hotel Okura Macau and Galaxy Hotel™ have been respectively awarded the Gold Award and the Silver Award at the 2015 Macao Green Hotel Award held by the Environmental Protection Bureau. According to Galaxy Entertainment Group (GEG), Hotel Okura Macau and Galaxy Hotel have developed a set of energy-saving measures which includes installing
a weather monitoring station at the Grand Resort Deck and importing relevant data into the building management system for climate control and energy conservation. “In its business operations, GEG strives to protect the city’s environment with concrete action and constantly improves its environmental protection measures,” Senior Vice President of Facilities Management of Galaxy Macau, Chan Chee Pong, said.
Business Daily Thursday, July 7 2016 7
Macau Opinion
Macau’s glory days beckon with return of high rollers David Fickling
I
s China’s Gilded Age back? Three-and-a-half years after President Xi Jinping started his crackdown on corruption and lavish spending, there are signs that the belle epoque may be ready for one more round. Shares of Kweichow Moutai, the maker of US$500-a-bottle firewater, hit a record Wednesday, and an index of Shenzhen real-estate prices has almost doubled in the past 12 months. Now Melco Crown, the Macau casino operator at the forefront of Beijing’s push for a more egalitarian style of fun at its Hollywood-themed Studio City complex, is looking to introduce private gaming rooms for high rollers there, according to Daniela Wei of Bloomberg News. Melco has never entirely ruled out having such rooms at the property, but to see them actually opened would be quite a turnaround. Because of the luxury crackdown, all six Macau casino companies have been making do with less revenue from VIP gamblers, who habitually bet US$10,000 a hand on baccarat and are treated like emperors in return. Even Steve Wynn, the Las Vegas mogul who regards his resorts as positioned at the very top end of Macau’s market, saw the number of table games catering to mass-market players overtake the glitzier VIP tables in December. Studio City was never really pitched at high rollers, who tend to find that Batman rides and Tom and Jerry playgrounds cramp their style. Its struggles to get permits for even mass-market tables continued until
days before the site opened. So why private gambling rooms? One reason is desperation. Stuck on a patch of reclaimed land surrounded by yet-to-be-completed resorts, Studio City isn’t close to meeting expectations. “We’re not totally happy with our own efforts,” Chief Executive Officer Lawrence Ho told an investor call in May. Macau’s government granted the casino 250 mass-market gaming tables, compared with the minimum of 400 Ho had told investors it needed last February. While Melco Crown is still the most highly rated Macau casino stock, valued at 31 times forecast earnings over the next 12 months compared with a median of 20, beneath the surface it’s struggling to make an economic profit. Its weighted average cost of capital has risen from 8 per cent to 10.8 per cent over the past year, according to Bloomberg estimates, while its return on invested capital has slipped to 0.7 per cent. Ideally, returns ought to be higher than costs. Getting a few VIPs in might help. High-rollers tend to be surprisingly low-margin players, due to the cost of providing all that free stuff and their focus on games where the odds are most in their favor. But the vast sums they wager allow casinos to hold less cash against outsized payouts, which would help bring that cost of capital back into line. Melco may also be pushing at a door that’s a bit more open than it was in the past. Tax revenue from gambling, which typically makes up more than 80 per cent of Macau government revenues, is running this year at its lowest level
Gaming
Government grants for new gaming show The MGS Entertainment show - a major rival of the Global Gaming Expo Asia (G2E Asia) - has partnered with the local government to procure more international business partners and buyers for the November 15 to 17 event, notes Asia Gaming Brief. This partnership falls under the recent activities of the SAR to launch its ‘Qualified Buyers’ programme for the 2016 expo, providing travel and accommodation sponsorship for visitors. This programme will be launched at the upcoming expo and is part of a package of joint initiatives over the next three years. The programme will be open to registered buyers from all companies
MGS Chairman Jay Chun
and includes a MOP7,000 (US$876) grant to international visitors which can be used for travel, transport and accommodation costs. “It’s an important boost to our endeavours and cements the ever developing relationship between the SAR Government, the show and our exhibitors,” commented MGS Chairman Jay Chun, as quoted by AGB. “MGS will be using the QB (Qualified Buyers) scheme as a starting point for the show’s three year vision – we want our vast network of visitors from all sectors and locations to come to Macau, experience our vision and join us on this economic journey,” stated the chairman. The maximum grants at this year’s exhibition, notes the publication, range from MOP1,200 for buyers from Hong Kong and Guangdong, to MOP4,000 for buyers from China (excluding Guangdong) and Asia, and MOP7,000 for all buyers from regions outside of Asia. K.W.
since 2011. Government spending in the five months through May rose 12 per cent from a year earlier, while revenue fell 14 percent -- and the start of the year, when Lunar New Year drives wagers to their annual peak, ought to be the best period for the budget. The shocking prospect of the territory running a deficit is a live issue, raised by Melco’s Ho among others. If Studio City is allowed to open the rooms, it would represent just a toe
in the water. Just three VIP rooms are planned at present, people familiar with the matter told Bloomberg’s Wei -- less than 1 per cent of those run by SJM Holdings, the biggest player. Still, any turn back upmarket would suggest the shape of Macau’s casino industry is changing again. As a share of total gambling revenue, VIP baccarat has been edging upward for two quarters. The city’s glory days may yet get a fresh lease of life. Bloomberg
8 Business Daily Thursday, July 7 2016
Greater China In Brief
Environment
Academics urgeclean energy The nation is being urged by academics to step up efforts in the next couple of years to replace coal with cleaner energy to fight air pollution. China should actively develop renewable energy, nuclear power and natural gas, while at the same time curbing an increase in coal use, according to an assessment of an airpollution prevention plan conducted by 50 academics from the Chinese Academy of Engineering. As part of the effort, natural gas supplies should be increased to Beijing, Tianjin and the province of Hebei to help replace coal with the cleaner fuel in the production of power and other industrial uses, according to the statement. PRECIOUS METALS
Silver frenzy
The metal posted its biggest two-day rally in five years on Monday, with a two-year high being set in Asian trading hours. In recent days, open interest in Chinese silver futures has declined while trading volume surged. That’s a clear sign that day traders are behind much of the rally, according to Saxo Bank A/S. A weaker yuan and “strong momentum has attracted Chinese day traders to silver as the next big thing,” Ole Hansen, an analyst at Saxo Bank, said by e-mail on Tuesday. IPO
PSBC prepares US$10 billion IPO As part of plans for an up-toUS$10 billion initial public offering, Postal Savings Bank of China (PSBC) aims to transform itself from a brickand-mortar lender into a digital player, helped by its investors Ant Financial and Tencent Holdings. According to both the state-owned bank’s IPO prospectus and people familiar with its plans, PSBC plans to work with online services firm Tencent and Ant, an online payments affiliate of e-commerce giant Alibaba Group Holding, to launch a range of internet-based consumer finance services. Technology
Apple suffers new blow Apple Inc. dropped to fifth place in Chinese smartphone shipments, losing ground in its biggest overseas market in a fresh blow for the technology giant. IPhones made up 10.8 per cent of devices sold in May, down from 12 per cent a year earlier, according to Counterpoint Research. By comparison, Chinese vendor Huawei Technologies Co. increased its lead with 17.3 per cent. Chief Executive Officer Tim Cook has publicly touted the importance of China, where the company is combating a slowing domestic economy and local vendors with increasingly popular devices.
Tycoon hurdles
Mainland billionaire’s plan to beat Tesla has a Vegas problem The financing questions surrounding Jia’s foray into the U.S. electric-car market are becoming more common around the world as China Inc. embarks on an unprecedented overseas shopping spree.
J
ia Yueting has all the trappings of a successful Chinese tech entrepreneur with global ambitions. A self-made billionaire who got his start as the IT guy at his local tax bureau, Jia’s flagship internet-video company now sports a US$15 billion market capitalization and a buy rating from Goldman Sachs Group Inc. Donning hoodies and t-shirts, he boasts of plans to take on Apple Inc. in
smartphones and surpass Tesla Motors Inc. in electric cars. Jia’s Faraday Future has lured staff from Ferrari and BMW, and won the backing of Nevada’s governor to construct a US$1 billion auto plant in North Las Vegas - about 400 miles from where Tesla broke ground on a giant battery factory in 2014. Yet for all of Jia’s accomplishments, the 43-year-old tycoon has failed to win the confidence of one key man.
Dan Schwartz, Nevada’s treasurer, says he’s sceptical Jia can secure financing for the car plant, a project that needs government support for power lines, water mains and roads. Schwartz, the former CEO of a private-equity research firm in Hong Kong, wants more transparency on the funding before signing off on state bonds for US$120 million of infrastructure improvements. The crux of Schwartz’s concern is Jia’s reliance on equity-backed loans, a financing strategy that could leave Nevada taxpayers vulnerable to the whims of China’s volatile stock market. Jia has pledged 87 per cent of his holdings in Leshi Internet Information & Technology Corp. - his flagship firm - for cash that he then ploughed back into his companies, regulatory filings
Partnership
China Resources Beer to raise US$1.2 billion for SABMiller deal China Resources Beer Holdings Co. plans to raise HK$9.5 billion (US$1.2 billion) in a Hong Kong share sale to help finance the purchase of the remaining stake in a Chinese venture with SABMiller Plc, consolidating its lead in the world’s largest beer market by volume. The shares fell in Hong Kong trading. The maker of the world’s best-selling
Snow brand beer will issue about 811 million rights shares at HK$11.73 apiece, it said in a statement Wednesday. That’s 25 per cent less than the theoretical exrights price, which takes dilution into account, according to the statement. The company, which reported a 5 per cent revenue decline in the second half last year, said it sees no signs of a beer market recovery in China this year.
“Given the great growth potential and continuous consolidation opportunities in China’s beer market, China Resources Beer feels confident about the industry’s long term development.” Chen Lang, Chairman of China Resources Beer
“Given the great growth potential and continuous consolidation opportunities in China’s beer market, China Resources Beer feels confident about the industry’s long term development,” said Chairman Chen Lang in a statement. “We think this share rights issue can help the company to expand in the industry.” China Resources Beer agreed in March to buy out its venture with SABMiller for US$1.6 billion, smoothing the way for a takeover of its partner by Anheuser-Busch InBev NV. China’s beer market is one of the most competitive, with major brewers including Tsingtao Brewery Co., Beijing Yanjing Brewery Co., Anheuser-Busch InBev NV, and a myriad of smaller, regional producers, accounting for almost 30 per cent of the market.
Bigger cup
The partnership between SABMiller and China Resources, which began with two breweries in 1994, operates more than 90 operations across China, according to SABMiller’s website. Nomura and UBS Group AG advised China Resources on the venture takeover, along with Rothschild & Co., Citigroup Inc. and HSBC Holdings Plc. Beer sales in China, the world’s largest beer market by volume, are expected to rise 41 per cent in the five years through 2019 to reach 683 billion yuan (US$102 billion), research firm Euromonitor estimates. China’s beer industry output fell 5 per cent in 2015, according to Tsingtao, as economic growth also slowed. The share sale enlarges China Resources Beer’s capital by about 25 per cent and the issue will be underwritten by CRH Beer, a unit of China Resources Holdings Co. Bloomberg News
Business Daily Thursday, July 7 2016 9
Greater China
“It’s a matter of time before problems emerge” Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management
show. The stock, which was halted in Shenzhen for the first five months of 2016, has dropped 11 per cent since it resumed trading on June 3, a move that heightens Schwartz’s fear that a margin call could prevent Jia from funding the plant. “You can see where this leads,” Schwartz said in a phone interview. “His Internet company is successful, but that doesn’t generate the billions of dollars he’d need. Where’s he going to get the money?’’ The financing questions surrounding Jia’s foray into the U.S. electric-car market are becoming more common around the world as China Inc. embarks on an unprecedented overseas shopping spree. The nation’s firms, which boosted outbound direct investment
by 62 per cent in January-May from a year earlier, are branching out even as rising debt levels and weak profits at home cast doubt over their ability to secure stable funding.
Financing plans
Faraday, whose 1,000-horsepower concept car has drawn comparisons to the Batmobile, says it has the full support of Nevada’s governor and is pushing forward with the city of North Las Vegas on infrastructure planning. The 800-employee carmaker - a separate company from Leshi that’s majority-owned by Jia - has sought to address Schwartz’s concerns, but could “technically” build the plant without the state bonds, Faraday spokeswoman Stacy Morris said in an e-mailed reply to questions. Jia has invested more than US$300 million of his own money into Faraday and the firm will announce a round of outside funding within weeks, said Winston Cheng, a former Bank of America Corp. investment banker who now runs corporate finance for Jia’s companies. He said the size of the funding would be “meaningful” and come from Asian investors, while declining to provide more details. “I don’t understand why he’s trying to kill these high end jobs in the state of California and Nevada,” Cheng said in an interview, referring to Schwartz. “It baffles me.”
Goldman bullish
City, county and regional government agencies are already working with Faraday on infrastructure for the plant, and the Nevada Governor’s Office of Economic Development has approved funding for worker training, the GOED said in an e-mailed response to questions from Bloomberg. Tesla - which is named, like Faraday, after a 19th
century pioneer in the field of electricity - declined to comment. Leshi, the publicly-traded centrepiece of Jia’s empire, shows few signs of financial distress. Profits increased 20 per cent in the first quarter, while its quick ratio, a gauge of the firm’s ability to meet obligations over the coming year, is in line with the median for Chinese companies as a whole, according to data compiled by Bloomberg. Leshi’s Altman Z score, a measure of bankruptcy risk, suggests trouble is unlikely. Analysts are bullish on the stock, with 9 of 11 forecasters tracked by Bloomberg giving it the equivalent of a buy rating. Goldman Sachs issued a price target of 70.22 yuan on June 22, or 35 per cent above its last close. The bank declined a request to interview its Leshi analyst. Investors are less sanguine, with Leshi shares sinking for six straight days after they resumed trading last month. At 105 times projected earnings for this year, the stock is more than twice as expensive as the median China-listed company. The firm has recorded negative cash flow for the past two quarters, data compiled by Bloomberg show.
Stock loans
“It’s a matter of time before problems emerge,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co., which oversees about US$300 million and is avoiding Leshi shares in part because of concerns over its financing strategy. The company’s high valuation reflects the appeal of “concept” stocks among Chinese individual investors, Wang said. Jia and his family have pledged about US$5 billion of Leshi shares as collateral for loans, amounting to a 35 per cent stake, according to data compiled by Bloomberg from the company’s
first-quarter report. Jia also sold 2.5 billion yuan (US$375 million) of Leshi shares in June 2015 and lent the proceeds back to Leshi to “relieve the company’s financing pressure.” He later entered into a contract with an asset management firm to exchange 100 million shares, or about 5.3 per cent of the company, for cash that he then lent to Leshi interest-free. Jia pledged to repurchase the stake after Leshi repays the money. “The company is capital strapped,” said Dai Ming, a money manager at Hengsheng Asset Management Co. in Shanghai.
State Politics
For Schwartz, Jia and Faraday Future need to explain more clearly how they plan to provide stable financing for the Nevada project. Only then would he consider supporting a state debt sale to fund the plant’s infrastructure. He said it’s his role as treasurer to bring the bond before the state’s board of finance, whose chairman is the governor, for approval. Schwartz, an elected member of the Republican party who took office in January 2015, dismissed the notion that his opposition to the Faraday project has anything to do with his political ambitions. He has clashed with the Republican governor before on budgetary issues, according to local media, amid speculation he could mount his own bid for governor. “I may/may not run for governor, but this project has nothing to do with my political future,” Schwartz said in an e-mail. “It’s strictly about whether Faraday has the money/expertise to build a US$1 billion electric car manufacturing facility in North Las Vegas. And, if they don’t, whether or not I want the Nevada taxpayer to pick up the tab.” Bloomberg News
10 Business Daily Thursday, July 7 2016
Greater China Quality control
CRRC to step up checks after Singapore returns metro trains for repair
C
hinese trainmaker CRRC Corp said on Wednesday it would step up quality checks on its products after Singapore shipped 26 of its metro trains back for repair just three years after they were delivered. Singapore’s transport operator SMRT Corp Ltd said on Tuesday it was sending the trains back after discovering cracks in the structure connecting the car body to the truck
structure underneath, the Straits Times newspaper reported. The trains, delivered in 2013, were manufactured by CRRC subsidiary CSR Qingdao Sifang Locomotive, which together with Japan’s Kawasaki Heavy Industries Ltd, won two contracts in 2009 and 2012 to supply a total of 35 trains for Singapore’s metro lines. The quality issues come as the state train maker, whose trains are used across China’s vast rail network,
aggressively ramps up its pursuit of overseas contracts. In March, CSR Sifang won a US$1.3 billion bid to build rail cars for Chicago. CSR Sifang said in an e-mailed statement to Reuters that the defects were due to the quality of the aluminium alloy material used for the metro car, but stressed they did not represent a safety risk. “We have adopted a series of measures to ensure this incident can be satisfactorily resolved,” it said. “We
will refine our requirements for suppliers and raw material suppliers, and improve quality management standards in all aspects.” A separate statement published online by the Singapore Ministry of Transport said the cracks were “superficial” and did not affect the trains’ systems, performance or passenger safety. It said the trains were still under warranty and that repairs of the trains would be completed in 2019. Reuters
“We will refine our requirements for suppliers and raw material suppliers, and improve quality management standards in all aspects.” CSR Sifang
IPO
PSBC’s clean loan book blotted by boom in risky bets But a review of 843-page prospectus reveals the bank’s growing exposure to illiquid alternative assets that could pose a risk to its balance sheet. Sumeet Chatterjee and Denny Thomas
Postal Savings Bank of China, the country’s biggest bank branch network, is advertising its strong asset quality to boost its up to US$10 billion IPO, but its offer documents also reveal an unsettling and growing exposure to risky shadow loans. The state-owned bank, which filed a preliminary IPO prospectus last week, has a reassuringly conservative profile, set up as a deposit-taking bank in 2007 on the network of the former postal savings bureau. Its bad loans at the end of March 2016 were just 0.81 per cent in a country where the sector average is officially about 2 per cent - and unofficially much worse, say analysts.
But a review of PSBC’s 843-page prospectus, issued late on Monday, reveals the bank’s growing exposure to illiquid alternative assets that could pose a risk to its balance sheet. Its investment in high-return assets such as wealth management products (WMP), trust investment plans, asset management plans and securities investment funds have risen to 12.4 per cent of total assets at end-March from just 2.7 per cent in 2013, the prospectus shows. Regulators in China are concerned that such “shadow lending” products - often financing borrowers that struggle to raise loans, such as firms with high debts and overcapacity or local government agencies - mask the scale and risks of lending in an
economy where debt has ballooned since the global financial crisis. Such investments typically have more lax provisions for recognising bad bets than traditional lending and are often structured so as not to appear on the originating bank’s balance sheet. According to analysts, large Chinese commercial banks carry about 5-6 per cent of such assets, while midsized banks tend to have higher exposure, perhaps 15-30 per cent. PSBC said in the prospectus it was exposed to credit risks arising from these investments as they are not tradable, but it also said the bank had built a “credit risk management structure” covering its entire business process. “We assign an aggregate credit limit in each financial institution and bond issuer we transact with or invest in. In addition, we set an exposure limit for each customer and make timely adjustments to reflect changes in its
“When banks don’t have much pressure in growing their assets or loan books its relatively easy for them to control the NPLs” Edmond Law, a China banking sector analyst with UOB KAY Hian
risk profile.” PSBC d ec l i n e d t o c o m m e n t beyond the details given in its prospectus.
Growth cycle
With its more than 40,000 outlets and 505 million customers - about a third of China’s population - PSBC is the last big state-backed lender to go public in the world’s second-largest economy. Its access to cheap deposits and a relatively clean loan book have attracted investors including Canadian pension fund CPPIB, global banks JPMorgan and UBS, and Singapore sovereign wealth fund Temasek Holdings. UBS and Temasek declined to comment, while CPPIB and JPMorgan did not immediately respond to requests for comment. PSBC has also expanded its own WMP offerings in recent years, with proceeds rising to 1.25 trillion yuan (US$187.42 billion) last year, more than doubling from 2013, and some of that is in turn invested in these risky alternative assets - a cycle that potentially feeds ever greater growth in these products. The bank said it was not liable for any loss suffered by investors in its WMPs. Some investors are also sceptical about the bank’s ability to grow after the IPO while keeping its bad loans down in a slowing economy. “When banks don’t have much pressure in growing their assets or loan books its relatively easy for them to control the NPLs,” said Edmond Law, a China banking sector analyst with UOB KAY Hian. “After listing if they are going to expand, if they are going to make more new loans ... that’s when the risk comes in.” Reuters
Business Daily Thursday, July 7 2016 11
Asia Economy
Asian stocks fall as growth concerns boost Yen, weighing on Topix
A
sian stocks fell, following declines in global equities, as concerns over global economic growth sapped confidence for risk assets, boosting the yen and dragging down Japanese shares. The MSCI Asia Pacific Index slipped 1.2 per cent to 128.41 as of 4:11 p.m. in Hong Kong, as equity markets from Hong Kong to South Korea slid more than 1.2 per cent. Japan’s Topix index dropped 1.8 per cent as the yen climbed 0.8 per cent to 100.89 per dollar. Bank of England chief Mark Carney warned that risks from the U.K.’s vote to leave the European Union had started to crystallize as the central bank took steps to spur lending by reducing capital requirements for banks. “Equities still exhibit a lot of risks,” Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about US$7.2 billion, said by phone. “The lack of confidence and growth will weigh on sentiment. For anyone that’s reaped the benefits of the equity bull market it’s definitely time to consider taking some profits, if you haven’t already, and move to a more defensive stance.” Asian equities are retreating after recouping declines seen in the immediate aftermath of last month’s Brexit vote amid speculation that central banks will step forward with stimulus measures. With odds of an interest-rate increase
from the Federal Reserve this year effectively wiped out since the British referendum, monthly data on U.S. payrolls due Friday may provide clues as to the direction of the Fed’s next move. Gauges of manufacturing and services on Tuesday both signalled lackluster growth for the euro area in June. U.S. factory orders fell 1 per cent in May, exceeding economist estimates, while a final reading on durable goods orders showed a 2.3 per cent decline.
Widespread
Losses were broad-based across different sectors and markets. Commodity producers and and Japanese exporters posted the largest declines as Toyota Motor Corp. sank
1.7 per cent in Tokyo and BHP Billiton Ltd. tumbled 3.8 per cent in Sydney. Hong Kong’s Hang Seng Index sank 1.2 per cent and the Hang Seng China Enterprises Index of mainland Chinese firms listed in the city lost 1.6 per cent. The Shanghai Composite Index rose, adding 0.4 per cent to close above the 3,000 level for a second day. Taiwan’s Taiex Index fell 1.6 per cent and South Korea’s Kospi index slipped 1.9 per cent. Australia’s S&P/ ASX 200 Index declined 0.6 per cent, while New Zealand’s S&P/NZX 50 Index managed to close 0.1 per cent higher, advancing for an eighth straight session. Markets in Indonesia, India, Singapore, the Philippines and Malaysia are closed Wednesday for
holidays. E-mini futures on the S&P 500 Index slipped 0.2 per cent after the underlying gauge lost 0.7 per cent. Energy and financial shares were among the biggest losers in U.S. trading Tuesday. Mazda Motor Corp. tumbled 6.1 per cent. The carmaker’s Chinese joint venture will recall 74,310 sedans to replace Takata Corp. air bags after an investigation by the country’s safety regulator. Bucking the trend was Coca-Cola Amatil Ltd. in Sydney, jumping 4.6 per cent after Morgan Stanley said the shares were cheap and advised buying the stock. U.S. crude traded below US$47 a barrel as the world’s top oil trader said prices won’t rise much further, dragging Asian energy producers lower. Bloomberg News
12 Business Daily Thursday, July 7 2016
Asia In Brief
Benchmark rigging
Former Australian Rabobank trader to face Libor rigging charges Former Rabobank trader Paul Thompson is en route to the United States to face charges for alleged manipulation of a global benchmark interest rate, Australia’s attorney general said on Wednesday. “Mr Paul Thompson, an Australian national, has been surrendered to the United States from Australia pursuant to a request for his extradition,” a spokesperson for the Attorney General Department told Reuters. Thompson was arrested last October after a global investigation into whether some bankers rigged Libor to bolster their profits. Libor is the leading benchmark for pricing financial transactions around the world.
Smartphone
Samsung set to boost spending as S7 revives phone fortunes
A
fter ending a two-year smartphone slide with the Galaxy S7, Samsung Electronics Co. could be about to hike capital spending to sustain a revival across the company. At least US$5 billion (MOP more of investment is headed to the display and semiconductor businesses, according to a survey of analyst estimates, to help Samsung ride out bumps in the phone market. Such a move reflects new optimism about the company after the success of the Galaxy S7, with the shares rallying 13 per cent this year. Samsung’s rise into an electronics behemoth has been fueled by the ability to get its memory chips and displays, often the most expensive components, into devices made by others. With the South Korean
company said to be in talks to supply Apple Inc. with next-generation OLED screens and bring out its own phones with bendable screens, Samsung can use its cash pile of more than US$60 billion to extend its lead on rivals. “Samsung’s smartphone business has finally had a soft landing after a bumpy ride,” said Chung Chang Won, an analyst at Nomura Holdings Inc. in Seoul. Samsung will probably boost spending on memory and displays, which “are poised for a sudden rise as the next growth drivers.” Since the company’s last earnings report, the average target price of analysts has risen by 6.7 per cent, backing the Galaxy S7’s ability to keep winning customers. In the same period, profit estimates have risen by almost half a billion dollars.
Samsung will report preliminary second-quarter earnings Thursday, with operating income expected to rise about 7 per cent to 7.4 trillion won (US$6.4 billion), according to the average estimate. Sales are projected to increase 4.9 per cent to 50.9 trillion won. But with growth in the global smartphone market evaporating, it needs to build up its other major businesses as competitors bring out new products in an attempt to spark growth. “The mobile business is holding up well, but it’s still questionable whether this trend will be sustained over the coming quarters with more new devices in the pipeline from rivals,” said Lee Jae Yun, an analyst at Yuanta Securities Co. Bloomberg News
Synergy
LG partners with Volkswagen South Korea’s LG Electronics Inc said on Wednesday it will work with German carmaker Volkswagen AG to jointly develop a connected car platform to enable vehicles to communicate with external devices. LG, in a statement, said it and Volkswagen will work to jointly develop over “the next few years” technologies allowing drivers to control and monitor devices in their homes such as lights and security systems, as well as in-vehicle entertainment technologies and an alerting system for drivers providing “recommendations” based on real-time situations. Loans
Worst Indian loan market since 2008 Slightly more than US$8.6 billion in syndicated loans involving Indian borrowers were signed in the second quarter, a 44 per cent drop from the previous three months. That included about US$1.5 billion raised by the likes of State Bank of India, Axis Bank, HDFC Bank and Housing Development Finance and another US$1.15 billion for ONGC Videsh, the overseas arm of the state-owned energy explorer ONGC. Otherwise, apart from a clutch of borrowings by toll-road companies and some fundraising by oil refineries, there was hardly any borrowing linked to industrial activity at home. Clean energy
South Korea shuts 10 coal power plants South Korea plans to shut 10 ageing coal-fired power plants by 2025, as it ramps up efforts to curb the country’s reliance on the polluting fuel and meet its pledge taken at last year’s Paris climate summit. Seoul recently said it was targeting US$37 billion in renewable energy investment by 2020. “In response to growing concerns over fine dusts, we will lower the share of coal power by shutting down old coal-fired power plants and restricting to add new coal-fired power plants in the future,” the energy ministry said in a statement.
“Samsung’s smartphone business has finally had a soft landing after a bumpy ride.” Chung Chang Won, analyst at Nomura Holdings Inc.
Fiscal drive
India’s missing billions from tax-break millionaire farmers Finance minister has ruled out imposing income tax on farmers, most of whom struggle to even feed their families from their small plots Unni Krishnan
Stuffed animal heads adorn the walls of Kunwar Vikram Jeet Singh’s mansion on the outskirts of Delhi, and he also owns a three-bedroom apartment in a gated condominium in the city. His children go to one of India’s most exclusive private schools. Yet Singh doesn’t pay income tax because he’s a farmer. Singh is one of thousands of rich landowners who don’t need to pay taxes thanks to laws designed to help the hundreds of millions of poor farmers who scratch a living from India’s soil. The average Indian farmer has less than 2 acres (0.8 hectares) and most struggle to eat two meals a day. Singh’s family farm has 100 acres. Worse still, some people are buying agricultural land to avoid paying taxes by declaring their earnings as returns from farming, opposition lawmaker Sharad Yadav told parliament in March. Citizens declared about US$29 trillion worth of agricultural income in the year through March 2011. That’s almost 15 times the value of India’s economy. The figure was the result of a Right
to Information request by a former tax officer Vijay Sharma, who says the number is probably a computation error and should be closer to 1 per cent of GDP or US$20 billion. Several requests for clarification from the government have gone unheeded, which pushed him to approach the courts. In the nine years through March 2016, Indians declared US$21 billion as agricultural income, according to provisional data from the Revenue Department. The confusion, however, underscores the fog of uncertainty surrounding the estimates. “It’s a simple case of money laundering,” said Sharma, who served in the tax department for over four decades. Responding to Yadav, Finance Minister Arun Jaitley said authorities are investigating tax evaders that include some “prominent names” and urged the opposition not cry “political victimization” when they are prosecuted. He didn’t name names. The lost revenue is a blight in a nation where direct taxes as a share of the economy have fallen to the lowest in almost a decade, despite Prime
Minister Narendra Modi’s pledge to crack down on tax evasion. With so little revenue, the government is having to borrow a gross 6 trillion rupees (US$89 billion) to help fund the government and finance spending on roads, ports, power plants and other public projects this fiscal year. The government should start taxing large farmers to reduce that debt burden, said Parthasarathi Shome, a former finance ministry adviser. “It is a question of equity,” said Shome, who also served as the chief of tax policy at the International Monetary Fund in the 1990s. “There are top-of-line farmers who are well protected by incentives and it is high time that we start thinking of taxing them.” Jaitley has ruled out imposing income tax on farmers, most of whom struggle to even feed their families from their small plots. Almost 12,500 farm workers committed suicide in 2014, junior Agriculture Minister Mohanbhai Kundariya said in April. And taxing rich farmers is politically dangerous. Many leaders across the political spectrum come from a farming background and have considerable land holdings. So measures to help the 833 million people who live in villages in India also benefit landowners like Singh. He can buy fertilizer at reduced rates, a subsidy that costs the government
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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Business Daily Thursday, July 7 2016 13
Asia
“We need to focus on Asia first, then eventually make efforts to widen the area of operation from there.” Kunio Yokoyama, President of Japan Post
Japan Post CEO
Postal company
Japan Post mulls more deals after US$4.9 bln toll purchase Japan Post Holdings Co., which acquired Australia’s Toll Holdings Ltd. last year, will consider more takeovers and tie-ups as part of a plan to expand across Asia, the company’s unit said. Japan Post needs to strengthen its foothold in the region to serve Japanese corporations in those markets, a strategy that will help the Tokyo-based company become more international, Kunio Yokoyama, the president of unit Japan Post Co., said in a news conference Tuesday.
The AU$6.5 billion (US$4.9 billion) takeover of Toll was the biggest by a Japanese company of an Australian firm. “We need to focus on Asia first, then eventually make efforts to widen the area of operation from there,” said Yokoyama, 59, who became president of Japan Post Co. on June 28. “Mergers and acquisitions and tie-ups that would complement our businesses in Japan are possible,” he said. Japan Post’s aspiration to expand
outside home adds to the wave of consolidation among logistics, packaging and freight companies in Asia. Billionaire Chen Feng’s HNA Group Co., the Chinese conglomerate that controls the country’s fourthlargest airline, is in exclusive talks with the biggest shareholder of CWT Ltd. for a potential acquisition of shares in the Singapore-based logistics company. Last year, Kintetsu World Express Inc. bought Neptune Orient Lines Ltd.’s logistics business for 144.2 billion yen (US$1.4 billion).
“There are top-of-line farmers who are well protected by incentives and it is high time that we start thinking of taxing them.” Parthasarathi Shome, former finance ministry adviser
about $10 billion a year nationally, more than it spends on healthcare or higher education. Farmers also get cheaper electricity than factories or homes. Some states, like Punjab and Tamil Nadu, offer power virtually for free. “Most of the benefits of fertilizer subsidy and minimum support price go to farmers who have irrigation facilities and that are mostly large farmers,” said Ajay Vir Jakhar, Chairman of Bharat Krishak Samaj, a
farmer’s lobby group. “Even the way support price mechanism is designed, it benefits the larger farmer as they have larger surplus to sell.” The federal government, the single biggest buyer of food crops, purchases cereals such as rice and wheat at guaranteed prices from farmers and sells grain to the poor at subsidized rates through a chain of fair-price shops across the country. “It’s a simple case of money laundering.”
Such largesse hampers India’s fight to curb Asia’s widest budget deficit, control inflation and win faster interest rate cuts from the central bank. The combined federal and state fiscal situation is a key impediment to a rating upgrade even as Modi pledged to narrow the federal budget gap to a nine-year low of 3.5 per cent of GDP this year. Singh says he would pay tax if the government provided modern irrigation facilities to farmers and
Japan Post Co., a unit of Japan Post Holdings, runs more than 24,000 post offices across the nation. It also offers banking and insurance counter services, according to its Website. Japan Post Holdings Co., Japan Post Bank Co. and Japan Post Insurance Co. sold US$12 billion of shares in a three-pronged initial public offering November last year. Yokoyama said the company would consider tying up with Japanese regional banks to improve its postal service. “We’d like to focus on boosting the value of our postal service,” he said. Bloomberg News
ensured regular supply of electricity instead of providing cheap power at odd hours when demand from industry ebbs. “A farmer doesn’t mind paying income tax provided he gets the right amount for his produce,” said Singh, wearing Levi’s jeans and gemstone finger rings, while peacocks wandered across the lawn of his house in Hapur. The land adjoining the property, with mango orchards and sugar cane, has been farmed by his family for generations. “The only difference between me and a small farmer is that I don’t have to worry about my next meal.” In the February budget, Jaitley promised to double farmers’ incomes and proposed a laundrylist of measures—more rural roads and irrigation, better management of groundwater, more organic farming, modern wholesale markets, increased credit and improved crop insurance. Such measures also tend to benefit larger landowners more than poor farmers. States like Punjab and Haryana, where farms tend to be larger, get the lion’s share of handouts and boast modern irrigation systems for over 80 per cent of cultivated land. “The large farmers are clearly gaining,” said Shweta Saini, a consultant at the Indian Council on Research on International Economic Relations, a Delhibased think tank. For smallholders, “whatever you are producing, you are eating.” Bloomberg News
14 Business Daily Thursday, July 7 2016
International Public spending
EU may impose sanctions on Spain, Portugal over budgets Spain and Portugal are facing the prospect of sanctions by the European Commission after repeatedly failing to rein in public spending.
E
uropean Union officials have concluded that neither Spain nor Portugal government took effective action to adhere to EU budget-deficit rules, according to one person familiar with the discussions. An announcement may be made on Thursday, the person said. The commission, the EU’s executive arm, will adopt the “necessary” measures very soon, EU Economic Affairs Commissioner Pierre Moscovici told reporters in Strasbourg Tuesday. “These rules are intelligent and demand to be applied in an intelligent way,’’ he said. Market News International, which reported the commission action earlier, said that Moscovici and EU Commission Vice President Valdis Dombrovskis would announce the decision on Thursday and recommend that sanctions be applied. “It’s a difficult decision for the Commission,” said Vincenzo Scarpetta, a policy analyst at the Open Europe research group in London. “It’s got to strike a balance between ensuring rules are seen as credible and enforced without creating political turbulence and hurting growth. Not fining Spain would not go down well in countries like Germany, but usually politics end up trumping
rules.”
‘Total ppposition’
“The government’s position is of total opposition to sanctions,” Finance Minister Mario Centeno told a parliamentary commission in Lisbon on Wednesday. The ministry earlier
reiterated that it remains committed to its targets. A spokeswoman for the Spanish Economy Ministry in Madrid declined to comment, while a spokeswoman for the Commission referred to Moscovici’s earlier statement. After missing last year’s deficit-reduction goal by almost one percentage point, officials in Madrid secured an extra year from the commission to bring down the deficit below 3 per cent. Acting Economy Minister Luis De Guindos said in May that
the deficit should come in at 3.6 per cent of output before falling to 2.9 per cent next year. Asked about a potential sanction, De Guindos said then that while the commission has the “legal right” to fine the nation under EU budget rules, he was convinced that officials in Brussels wouldn’t go ahead with sanctions and Spain would ultimately avoid a fine. The commission had been due to announce a decision in mid-May, but postponed its announcement. Moscovici told reporters at the time that it was “not the right moment economically or politically” to punish Spain, which was about to hold its second election in six months. Bloomberg
Pierre Moscovici, EU Economic Affairs Commissioner
Brexit POUND SINKS TO FRESH 31-YEAR LOW
Pound down on mounting Brexit woes as Yen jumps The pound has tumbled to three-decade lows amid mounting evidence the Brexit vote is hurting confidence in Britain’s economy. The pound sank to a fresh 31-year low as the fallout from Britain’s vote to leave the European Union continued to reverberate through financial markets. The U.K. currency fell beyond US$1.28 -- four cents below its weakest point the day after the nation’s June 23 referendum. The yen climbed at least 1 per cent against all 16 of its major counterparts as investors sought havens from the turmoil that’s also weighing on global stocks. The pound has tumbled to threedecade lows for the past two days amid mounting evidence the Brexit vote is hurting confidence in
Britain’s economy. M&G Investments suspended a 4.4 billion-pound (US$5.7 billion) real-estate fund Tuesday, following on the heels of Aviva Investors and Standard Life Investments after a flurry of redemption requests. With the real estate tremors and fund suspensions echoing the start of the 2007 financial crisis, concern is building that a failure to control the aftershocks of the referendum will propel the nation into a recession. “One-and-a-half weeks after the referendum, we’re starting to see negative things starting to crystallize in the economy in the U.K.,” said Richard Falkenhall, a strategist at
SEB AB in Stockholm. “Considering the pace we’ve seen over the last couple of days, we could probably easily see US$1.25 in cable before things settle.”
Pound index
The pound fell 0.6 per cent to US$1.2941 as of 10:30 a.m. in London, after reaching US$1.2798, the lowest since 1985. Cable is a term for this sterling-dollar rate. The Bloomberg British Pound Index, which measures the U.K. currency against major peers, has tumbled 13 per cent since the referendum, and dropped to the lowest since the data started in 2004. The yen gained 1.2 per cent to 100.49 per dollar, and touched 100.40, its strongest level since the day the U.K. referendum results were announced. The euro fell 0.2 per cent to US$1.1053, adding to Tuesday’s 0.7 per cent slide.
The pound has been the biggest loser from Britain’s decision to leave the EU, and almost all the analysts who’ve changed their forecasts since the referendum are expecting the currency to remain weak. Of the 43 new predictions in a Bloomberg survey, all but five are for sterling to end the year at or below Us$1.30, with the most bearish -- Julius Baer Group Ltd. -- foreseeing a drop to US$1.16. While a weaker currency is a boon for exporters, which may cushion some of the economic pain of Brexit, sterling’s continued slide is a signal of waning confidence in the U.K. since the referendum.
‘Sharp hit’
“I am expecting quite a sharp reduction in investment spending, a sharp hit to the commercial property market, probably a check to consumer spending, all of which could push us toward zero, or below, growth,” John Gieve, a former deputy governor of the Bank of England and veteran of the last crisis, said Tuesday in a Bloomberg Television interview. The yen, which briefly advanced beyond 100 per dollar in the immediate aftermath of the U.K. vote, is being used as a refuge from Brexit’s widening impact -- which may make it harder for Japan to meet its economic targets. Prime Minister Shinzo Abe said June 28 that the government will carefully watch currency movements, and that he’d asked Bank of Japan Governor Haruhiko Kuroda to co-operate with the Group-of-Seven nations to secure market liquidity. “The yen strengthened in anticipation of further declines in Japanese stocks,” said Toshiya Yamauchi at Ueda Harlow Ltd., a margin-trading services provider in Tokyo. “Risks to further upside in the yen are growing and it may test the 100 level to see how the authorities respond.” Bloomberg
Business Daily Thursday, July 7 2016 15
Opinion Business Wires
Times of India Underlining that India’s 7.5 per cent growth rate may be “overstated”, the US has said the Narendra Modi government has been “slow” to match its rhetoric in economic reforms even as it appreciated measures taken by it in areas like bureaucracy and easing FDI restrictions. Highly appreciative of the series of economic reforms, in particular streamlining bureaucratic decisionmaking and raising FDI limits in certain sectors, the US state department in a report said on Tuesday that the Modi government has been slow to propose other economic reforms that would match its rhetoric. “Ostensibly, India is one of the fastest growing countries in the world, but this depressed investor sentiment suggests the approximately 7.5 per cent growth rate may be overstated,” said the report produced by the Bureau of Economic and Business Affairs of the state department.
The Jakarta Post The rupiah may weaken in the coming months as global conditions continue to weigh on the currency, a new report by BMI Research concludes. According to the research, the rupiah may weaken in the spot terms against the US dollar to around 13,600 by the end of this year, weaker than the 13,500 in average exchange rate targeted by the government for 2016. BMI Research, a unit of Fitch Group, attributes the possible depreciation to global conditions, especially the yuan depreciation. Domestic factors also pose a challenge, with Bank Indonesia (BI) expected to maintain its dovish stance.
The Bangkok Post In a clear sign of the country’s economic woes, Japanese carmaker Toyota Motor Thailand has launched a voluntary redundancy programme, aiming to shed 800 workers. According to Phuphal Samata, president of Toyota Thailand Workers’ Union, the programme has been offered to contract workers, who account for 40 per cent of the 16,477 employees at Toyota’s manufacturing facility in Thailand. Those seeking redundancy are allowed to register for the scheme until July 9. They will get compensation in accordance with the labour law, a 16day bonus and a 30-day extra payment. However, according to Mr Phuphal, Toyota pledged to re-employ those employees in their same positions within a year.
The Star Bank Negara Malaysia’s international reserves totalled RM390.4 billion or US$97.2 billion as at June 30, 2016. The central bank said early this week that the reserves were 1.2 times the short term external debt. “The decline in reserves level in US dollar terms as at June 30, 2016 was mainly due to the quarterly adjustment for foreign exchange revaluation changes,” it said. As at June 15, the reserves were RM383.2 billion or US$97.4 billion. “The reserves position (as at June 30) is sufficient to finance 8.1 months of retained imports and is 1.2 times the short-term external debt,” it said.
Globalization’s political fault lines
T
he United Kingdom’s narrow vote to leave the European Union had specific British causes. And yet it is also the proverbial canary in the coalmine, signalling a broad populist/nationalist backlash – at least in advanced economies – against globalization, free trade, offshoring, labour migration, market-oriented policies, supranational authorities, and even technological change. All of these trends reduce wages and employment for low-skill workers in labour-scarce and capital-rich advanced economies, and raise them in labour-abundant emerging economies. Consumers in advanced economies benefit from the reduction in prices of traded goods; but low and even some medium-skill workers lose income as their equilibrium wages fall and their jobs are threatened. In the “Brexit” vote, the fault lines were clear: rich versus poor, gainers versus losers from trade/globalization, skilled versus unskilled, educated versus less educated, young versus old, urban versus rural, and diverse versus more homogenous communities. The same fault lines are appearing in other advanced economies, including the United States and continental Europe. With their more flexible economies and labour markets, the US and the UK have recovered more strongly than continental Europe in terms of GDP and employment since the 2008 global financial crisis. Job creation has been robust, with the unemployment rate falling below 5 per cent, even if real wages are not growing much. Yet in the US, Donald Trump has become the hero of angry workers threatened by trade, migration, and technological change. In the UK, the Brexit vote was heavily influenced by fear that immigrants from lowwage EU countries (the proverbial “Polish plumber”) were taking citizens’ jobs and public services. In continental Europe and the eurozone, however, economic conditions are much worse. The average unemployment rate hovers above 10 per cent (and much higher in the eurozone periphery – more than 20 per cent in Greece and Spain) with youth unemployment over 30 per cent. In most of these countries, job creation is anaemic, real wages are falling, and dual labour markets mean that formal-sector, unionized workers have good wages and benefits, while younger workers have precarious jobs that pay lower wages, provide no employment security, and offer low or no benefits. Politically, the strains of globalization are twofold. First, establishment parties of the right and the left, which for more than a generation have supported free trade and globalization, are being challenged by populist, nativist/nationalist anti-establishment parties. Second, establishment parties are being disrupted – if not destroyed – from within, as champions of antiglobalization emerge and challenge the mainstream orthodoxy. Establishment parties were once controlled by globalization’s beneficiaries: capital owners; skilled, educated, and digitally savvy workers; urban and cosmopolitan elites; and unionized white- and bluecollar employees. But they also included workers – both blue- and white-collar – who were among the losers from globalization, but who nonetheless remained loyal, either because they were socially and religiously conservative, or because centre-left parties were formally supporters of unions, workers’ rights, and entitlement programs. After the 2008 financial crisis, globalization’s losers started to organize and find anti-establishment champions on both the left and the right. On the left, the losers in the UK and the US, especially young people, found champions in traditional centre-left parties: Jeremy Corbyn in the UK’s Labour Party, and Bernie Sanders in America’s Democratic Party. The deepest fault lines emerged among centre-right
“
Nouriel Roubini Chairman of Roubini Macro Associates and Professor of Economics at Stern School of Business, NYU.
parties. These parties – the Republicans in the US, the Tories in the UK, and centre-right parties across continental Europe – confronted an internal revolt against their own leaders. The rise of Donald Trump – anti-trade, anti-migration, anti-Muslim, and nativist – is a reflection of an uncomfortable fact for the Republican establishment: the party’s median voter is closer to those who have lost from globalization. A similar revolt took place in the UK’s Conservative Party, with globalization’s losers coalescing around the party’s “Leave” campaign or shifting allegiance to the populist anti-EU UK Independence Party. In continental Europe, where multi-party parliamentary systems are prevalent, political fragmentation and disintegration are even more severe than in the UK and the US. On the EU’s periphery, anti-establishment parties tend to be on the left: Syriza in Greece, Italy’s Five Star Movement, Spain’s Podemos, leftist parties in Portugal. In the EU core, such parties tend to be on the right: Alternative for Germany, France’s National Front, and similar far-right parties in Austria, the Netherlands, Denmark, Finland, Sweden, and elsewhere. But, despite the growing number, organization, and mobilization of globalization’s losers, globalization itself is not necessarily doomed. For starters, it continues to yield net benefits for advanced and emerging markets alike, which is why the losers still tend to be a minority in most advanced economies, while those who benefit from globalization are a large – if at times silent – majority. In fact, even the “losers” benefit from the lower prices of goods and services brought about by globalization and technological innovation. This also why populist and antiestablishment parties are still a political minority. Even Syriza, once in power, backpedalled and had to accept austerity, as an EU exit would have been much costlier. And Spain’s recent general election, held three days after the Brexit referendum, suggests that, despite high unemployment, austerity, and painful structural reforms, moderate, pro-European forces remain a majority. Even in the US, Trump’s appeal is limited, owing to the demographic narrowness of his electoral base. Whether he can win the presidential election in November is highly doubtful. This is also why pro-European centre-right and centreleft coalitions remain in power in most of the EU. The risk that anti-EU parties may come to power in Italy, France, and the Netherlands – among others – is rising, but still remains a distant possibility. Finally, economic theory suggests that globalization can be made to benefit all as long as the winners compensate the losers. This can take the form of direct compensation or greater provision of free or semi-free public goods (for example, education, retraining, health care, unemployment benefits, and portable pensions). For workers to accept more labour mobility and flexibility as creative destruction eliminates some jobs and creates others, appropriate schemes are needed to replace income lost as a result of transitional unemployment. In the continental EU, establishment parties remain in power partly because their countries maintain extensive social welfare systems. The backlash against globalization is real and growing. But it can be contained and managed through policies that compensate workers for its collateral damage and costs. Only by enacting such policies will globalization’s losers begin to think that they may eventually join the ranks of its winners. Project Syndicate
Economic theory suggests that globalization can be made to benefit all as long as the winners compensate the losers
”
16 Business Daily Thursday, July 7 2016
Closing Clearing houses
EU finance chief wants system to wind Clearing houses such as Eurex Clearing and LCH.Clearnet, are third-party organisations that down troubled clearing houses The European Union should set up a mechanism to wind down troubled clearing houses, the new head of financial services at the European Commission said on Wednesday, setting out his priorities for the coming months. EU rules agreed after the 2007-08 financial crisis have increased the share of the US$700 trillion derivatives market that is channelled through clearers, in an effort to make safer the financial instruments that were blamed for the crisis.
ensure derivatives trades are completed even if one counterparty to the deal goes bust. As a consequence of the new rules, clearing houses, or central counterparties, are set to grow significantly, thus posing risks to financial stability if they collapse. “Now that we have required more clearing of derivatives to be done through central counterparties, we need a system to resolve them if something goes wrong,” Valdis Dombrovskis told European lawmakers. Reuters
Iraq war
Blair led Britain into Iraq war based on flawed intelligence - inquiry A British inquiry into the Iraq war strongly criticised former Prime Minister Tony Blair and his government on Wednesday, saying they had led the country into war based on flawed intelligence that should have been challenged.
T
he long-awaited inquiry report also said Britain had joined the U.S.-led invasion of Iraq in 2003 without exhausting peaceful options, that the legal basis for military action was not satisfactory, and that the planning was wholly inadequate. Published seven years after the inquiry was set up, the report runs to 2.6 million words - about three times the length of the Bible - and includes details of exchanges Blair had with then U.S. President George W. Bush over the invasion. “It is now clear that policy on Iraq was made on the basis of flawed intelligence and assessments. They were not challenged and they should have been,” the head of the inquiry, John Chilcot said in presenting its findings. Iraq remains in chaos to this day. Islamic State controls large areas of the country and 250 people died on Saturday in Baghdad’s worst car bombing since the U.S.led coalition toppled dictator Saddam Hussein. The inquiry rejected Blair’s view that Iraq’s post-invasion
problems could not have been known in advance.
Learning the lesson
The inquiry’s purpose was for the British government to learn lessons from the invasion and occupation that followed, in which 179 British soldiers died. O p p o n e n ts o f B l ai r’ s decision to join the war will pore over the report for its judgment on how the Labour leader, who quit in 2007, justified the military action. At the time, he said intelligence showed that Saddam had weapons of mass destruction but after the invasion none was found. “I was lied to. The media, the press, the families, parliament, everybody was lied to,” Reg Keys, whose son was among the British fatalities and who stood as a candidate for parliament against Blair in the 2005 e l e c t i o n , t o l d R e u t e rs TV ahead of the report’s publication. Blair has always rejected any suggestions he acted dishonestly. He was expected to give his reaction to the report later on Wednesday. The inquiry looked at the
Trade
reasons for the invasion, the war itself and the aftermath - and has taken longer to complete than the British military involvement itself. Public hearings, including two appearances by Blair, ended in 2011 but since then the writing of the report has been dogged by rows over the release of secret government files and the contacts between London and Washington. It includes details of notes from Blair to Bush and quotes from more than 130 records of their conversations.
However, he said he feared the report might be watered down as those facing criticism have been allowed to respond prior to publication. In an interview with CNN last October, Blair apologised that the pre-war intelligence had been wrong and for mistakes in planning, but not for getting rid of Saddam.
He also accepted the war had played a role in the rise of Islamic State but it was far from the only factor. “I’ve said many times over these past years, I’ll wait for the report and then I will make my views known and express myself fully and properly,” Blair told Sky News on Sunday. Reuters
Distortion
Critics believe Blair, who sent 45,000 British troops for the invasion, gave Bush an unconditional promise that Britain would join military action and that he then distorted intelligence to back this up and put pressure on government lawyers to give the invasion legal approval. Keys noted that Chilcot had said the inquiry would not play the blame game. “But I certainly hope it points the finger of accountability in the direction of the former prime minister who was the key player with all of this deceit,” Keys said.
Tony Blair, former Prime Minister of the U.K.
Transport
Finance
U.S. offers duty-free for travel Aston Martin to build new hypercar goods made in Cambodia to beat the world’s fastest
Ireland welcomes bankers post-Brexit
The United States has granted duty-free access for travel goods which are made in Cambodia, both sides announced on Wednesday. Under the new changes to the U.S. Generalized System of Preferences (GSP), Cambodia and other Least Developed Beneficiary Developing Countries producing travel goods such as luggage, backpacks, handbags and wallets will be able to export those products to the United States duty free, said the U.S. Embassy saidn in a statement. U.S. Ambassador William Heidt told a joint press conference that the duty-free offer has the potential to open up an entirely new market for Cambodian exporters and to create thousands of jobs for Cambodians. “We encourage Cambodian manufacturers to take advantage of this new opportunity, which would help to diversify Cambodia’s economic base, spur economic growth, and alleviate poverty,” he said. Cambodian Minister of Commerce Pan Sorasak said the offer would be a good opportunity for Cambodia to further promote the development of textile industry. “Previously, we paid the tariffs of between 4.5 per cent and 20 per cent for travel goods exporting to the U.S., but from now on, we can export those items to the U.S. without paying the tariffs,” he said. Xinhua
Ireland will step up efforts to woo overseas finance and technology companies, in the wake of the U.K.’s decision to exit the European Union. IDA Ireland, the state agency charged with winning investment, will unleash an advertising drive in Europe and the U.S. in coming weeks, Martin Shanahan, the organization’s chief executive officer, told reporters in Dublin on Wednesday. The campaign won’t explicitly refer to Brexit, but will underline Ireland’s advantages, Shanahan said, adding the country can handle increased investment. “An influx of city bankers would be a nice issue to be dealing with,” Shanahan said. “We will fight Ireland’s corner as hard as we can.” Before the vote, the IDA had pitched Ireland to companies including Standard Chartered Plc as they prepared contingency plans for a potential Brexit vote. The agency contacted clients within hours of the result, Shanahan said, adding it had seen heightened levels of activity since the vote. The IDA will step up client visits immediately, he said, with fund management companies among its targets. More than 1,200 foreign companies, including State Street Corp., Apple Inc and Citigroup Inc operate in Ireland already. “Similarities between Ireland and the U.K. and attributes such as being English speaking, a common law system and geographic proximity means that Ireland will be the first choice for many companies that require a base within the EU,” Shanahan said. Shanahan declined to say how much would be spent on the advertising campaign.
Aston Martin Lagonda is teaming up with Red Bull Racing to build what may become the world’s fastest production car. Codenamed AM-RB 001, between 99 and 150 vehicles are set to be produced, including 25 track-only versions. Few specifications have been announced, but the latest model will be expected to compete alongside recent offerings from Bugatti and Ferrari for the attention of the super-rich. How fast it can go, and what it will cost, weren’t disclosed. The partnership with Red Bull Racing comes after the carmaker said in February that the company would team up with LeEco of China to break into the electric car market, and plans to build a new 90-acre vehicle assembly facility in St Athan, Wales. The brand is pushing to double sales and restore profitability by 2018. “I knew Red Bull Racing had the ability to handle the pure performance aspects, but Aston Martin’s experience of making beautiful, fast and comfortable GT cars is of great benefit to the project,” Red Bull Racing’s chief technical officer, Adrian Newey, said in a Tuesday statement. Production will take place at Aston Martin’s Gaydon facility in the U.K., the birthplace of the company’s original hypercar, the One-77. Bloomberg News