Macau Business Daily July 12, 2016

Gov’t studies undersea tunnels Infrastructure Page 3

Tuesday, July 12 2016 Year V Nr. 1084 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai

www.macaubusinessdaily.com

SMEs

Private poll

Soccer investment

Wynn Macau hosts business matching sessions in facilities category Page 6

China’s influence in global football industry seems unstoppable Page 16

Economists see Chinese economy cooling in second quarter Page 8

Narrower fall Retail

Chow Tai Fook Jewellery Group Ltd, China’s biggest jewellery retailer by market value, said declines in same store sales in China narrowed in the quarter ended June, due to better gem-set jewellery sales, but Hong Kong and Macau remained weak. Page 3

Carson Yeung will serve the rest of his six-year jail sentence after his final appeal against money laundering charges was rejected.

The former Birmingham City Football Club chairman has been on bail since August last year, but saw his case denied by the Court of Final Appeal in a unanimous verdict.

Birmingham City Page 4

HK Hang Seng Index July 11, 2016

Gaming Scientific Games’ Group Chief Executive of Gaming, Derik Mooberry speaks with Business Daily about the company’s efforts to capture the attention of the younger generation and engage with them, from their smartphones to the casino floor. Pages 6 & 7

Mainland speeds up

Auto industry Auto sales in China, the world’s biggest auto market, surged 14.6 per cent year-on-year, to 2.07 million vehicles in June, data from an industry association showed yesterday. Sales of passenger cars rose by 17.7 per cent year-on-year to 1.78 million in June, according to the China Association of Automobile Manufacturers. Page 8 20,880.50 +316.33 (+1.54%)

Worst Performers

CITIC Ltd

+2.53%

Lenovo Group Ltd

-3.42%

Want Want China Holdings

+0.59%

China Merchants Holdings

+4.12%

Sun Hung Kai Properties Ltd

+2.46%

China Unicom Hong Kong

-1.25%

Hang Seng Bank Ltd

+0.68%

China Petroleum & Chemical

+3.15%

Industrial & Commercial

+2.42%

Power Assets Holdings Ltd

+0.00%

AIA Group Ltd

+0.76%

Bank of Communications

+2.88%

China Construction Bank

+2.37%

Cheung Kong Infrastructure

+0.47%

Hong Kong Exchanges and

+0.82%

Bank of East Asia Ltd/The

+2.74%

China Shenhua Energy Co

+2.31%

CLP Holdings Ltd

+0.57%

CK Hutchison Holdings Ltd

+0.85%

+5.08%

27° 31° 28° 31° 28° 32° 28° 32° 28° 32° Today

Source: Bloomberg

Best Performers

Belle International Holdings

Betting on millennials

Wed

Thu

I SSN 2226-8294

Fri

Sat

Source: AccuWeather

Appeal denied

2 Business Daily Tuesday, July 12 2016

Macau In Brief Monetary

UePay Macau to commence operations A monetary body named Uepay Macau Sociedade Anónima has been given the green light to be established in the territory to provide online and mobile payment services, according to yesterday’s Official Gazette. A dispatch by the Chief Executive Fernando Chui Sai On stipulates that the company’s capital must be above MOP20 million (US$2.5 million), whilst its business in the city is limited to internet and mobile payments.

Contacted by Business Daily for more details on the body, the Monetary Authority of Macau said it is “not in a position to disclose information of any individual institutions”.

Health

Government approves MOP189.5 mln Health Bureau budget

Transport

DSAT strengthens inspections on public parking The Transport Bureau says increasing spot checks will help to prevent further inaccurate data regarding the availability of parking spaces being shown on public display boards.

Annie Lao annie.lao@macaubusinessdaily.com

T

he Transport Bureau (DSAT) has increased the number of inspections of public car parking lots in the city, including arranging more staff for regular inspections and increasing the number of spot checks to prevent further error displays relating to the availability of parking spaces, said Lam Hin San, director of the Transport Bureau, in reply to

legislator Kwan Tsui Hang’s enquiry.

Mr. Lam said regular work meetings with the management of the parking companies are already being held to enhance communication.

Mr. Lam admitted that the electronic displays for some of the city’s public parking lots showed inaccurate data regarding the availability of parking spaces due to the adjustment of parking fees at the entrance gates.

As a result, the Bureau has requested the management of the parking

companies to follow up on these incidents and submit an inspection report accordingly.

Now that the system has been fixed, the number of available parking spaces shown is accurate. The submitted reports have shown no errors, according to Mr. Lam. The Bureau reiterated that the management of the car park companies are subject to regulations and contracts, otherwise, penalties will be incurred.

Currently, there are 41 public parking lots in the city. The availability of parking spaces at 32 of these public parking lots can currently be viewed online. The legislator asked when this online information would be extended to the rest of the public parking lots in the city. Mr. Lam responded that this online information should be available by 2017.

The MSAR government has approved the Health Bureau’s (SSM) first supplementary budget for 2016, a total of MOP189.5 million (US$23.7 million), according to an Official Gazette release.

The supplementary budget will be added to the proposed MOP7 billion in Health Bureau expenses for 2016, according to government data.

Last year, the Health Bureau expenses totaled MOP6.1 billion, a 14 per cent increase when compared to the 2014 budget.

Education

University of Macau receives MOP83.5 mln budget The MSAR government has approved the University of Macau’s (UMAC) secondary budget of MOP83.5 million (US$10.4 million) for 2016, according to an Official Gazette dispatch.

Of this amount, MOP47.5 million will be used for industrial, workshop and laboratory supplies, while MOP36 million will be allocated to other UMAC expenses.

Previously, the government dispensed a MOP90 million first supplementary budget in March.

Of that first budget, MOP31 million was used for personnel remunerations, MOP7.9 million for transport expenses and MOP51 million for investments.

Construction

Contract signed for New Area Zone C study The Macau Laboratory of Civil Engineering (LECM) has been awarded a MOP6.1 million (US$771,447) contract for a geotechnical survey of Zone C of the city’s reclaimed areas, according to an Official Gazette dispatch.

LECM is a non-profit technical and scientific organization that advises and supports the MSAR government in civil engineering and related sciences.

The contract for the study of the 33 hectares of land plots located near the northern part of Taipa Island, will cover this year and 2017 and will be divided into two payments of MOP3 million each year.

Last year, the Secretary for Transport and Public Works, Raimundo do Rosário said that the government intended to reclaim the 11 land plots held

by Nam Van Development Company Ltd. in Zone C after these concessions expired at the end of this July, claiming the plots had been left undeveloped.

Marine traffic

Marine bureau: “Gov’t okay with local marine traffic” The SAR government is open to launching marine traffic in the city, said the director of the Marine and Water Bureau, Susana Wong Soi Man, in a reply to legislator Chan Hong’s written enquiry.

“The government is open minded on developing marine traffic within the city,” the Bureau head wrote.

However she added, “As at now, there is no operator having filed any application to the SAR government for launching a public traffic route between the Peninsula and the Islands”.

In her interpellation, the indirectly-elected legislator suggested the government should establish waterbuses in order to relieve road traffic pressure in the Special Administrative Region.

“There are piers in the areas of Inner Harbour, Doca Lam Mau, Outer Harbour, Pac On and Coloane. Nevertheless, there is no sea link connecting these areas… The authority should develop [a marine traffic model] with

high-speed vessels and set up waterbus stops in different reclamation areas,” Ms. Chan wrote.

For sea-bound tourism, the water bureau official said the government is now studying the viability of setting up a marine tourism program

between the Peninsula and Coloane.

“If the program is implemented, it will diversify local tourism products, as well as boosting the development of the city’s tourism industry,” Ms. Wong believes.

The Bureau head added that the government would also commence the study for making use of the city’s territorial waters within this year, which will include a basic survey of the marine environment and the planning for the marine areas. K.L.

Public administration

Gov’t announces central recruitment test details The government yesterday released details for its recently announced central policy for recruiting public servants, regulating that the first evaluation of candidates would be by a multiple-choice test.

Last month, the government announced that it would apply a central recruitment process to hire civil service workers, mandating that candidates would all need to be evaluated by the Public Administration and Civil Service Bureau (SAFP) on their general competencies and skills before they were passed to individual departments for further evaluation.

According to yesterday’s Official

Gazette, the general-ability test offered by the SAFP will take no longer than three hours. The syllabus, which will only be announced in each recruitment notice, will be categorized into three levels for senior officers and officers, assistant officers and technicians, respectively.

Meanwhile, another dispatch by the Chief Executive yesterday also regulated that public servants, whose positions are at grade three to grade six of assistant officers to senior officers, will need to complete a certain number of hours of training before they are eligible for promotion.

The new central-recruitment policy, which was dispatched in

the Official Gazette on June 13 this year, will come into effect on Wednesday. K.L.

Business Daily Tuesday, July 12 2016 3

Macau Infrastructure

Gov’t studies undersea tunnels

T

he government is to study the feasibility of building two undersea tunnels near the Governor Nobre de Carvalho Bridge, which may serve as the city’s fifth cross-sea passageway.

According to yesterday’s Official Gazette, the government has appointed CCCC Highway Consultants Co., to study the viability of the new cross-sea proposal, with a contract worth a total of MOP7.2 million (US$900,000).

A dispatch by Chief Executive Fernando Chui Sai On shows that the government will pay the company in five instalments – with payments of MOP3.6 million and MOP2.8 million to be made this year and the next, while instalments of MOP240,666 will be paid in each of the following three years.

At present, the city has three crosssea bridges connecting the Peninsula and Taipa.

The government also plans to build another bridge as the fourth cross-sea

passageway connecting zone A and zone E of the reclaimed areas.

In fact, CCCC Highway announced last week that the MSAR government had directly delegated the company

to design the new bridge at a cost of MOP75.2 million.

According to the contractor, the total length of the new bridge will be 3.5 kilometres, able to accommodate six lanes.

The mainland-based company also remarked that the project is meaningful for its further expansion in the local market, in addition to enhancing its international reputation. K.L.

Construction

Consulasia contracted for consultation on LRT project in Cotai The Chief Executive (CE) has established a contract with Consulasia — Consultores de Engenharia e Gestão, Limitada to cover the consulting work on the planned Light Railway Transit (LRT) line extension in Cotai at a cost of MOP1.8 million (US$225,274), according to an Official Gazette dispatch. Last year, Consulasia was awarded a MOP35 million contract to ‘revise and adjust’ the LRT depot superstructure. The contract payment will be made in two parts, with MOP1.6 million being paid this

year and MOP180,000 in 2019.

Last month, Secretary for Transport and Public Works, Raimundo do Rosário stated the priority following the completion of the Taipa LRT project is to start the connection to Barra and the connection between Rotunda do Istmo and the Seac Pai Van public housing area in Coloane. The line currently in a “study phase” - will be two kilometres long and have two stations, connecting Seac Pai Van and the planned second public hospital in Cotai.

Retail

Chow Tai Fook Q2 sales down 24 pct in SARs Chow Tai Fook Jewellery Group Ltd saw its same-store sales in Hong Kong and Macau slide by 24 per cent yearon-year for the second quarter of the year, it informed the Hong Kong Stock Exchange in a filing yesterday.

However, the retailer did not disclose any financial figures for the period in the filing.

For the three-month period, the company posted a drop of 12 per cent year-on-year in its same-store sales of gold products in the two Special Administrative Regions, which was an improvement from the year-onyear decrease of 25 per cent during the first quarter of this year.

However the company saw a 27 per cent year-on-year decrease in same-store sales of gem-set products in the two cities, compared to a yearon-year fall of 22 per cent one quarter ago.

‘Sales performance of Hong Kong and Macau remained weak amid stagnant consumer sentiment and a decline in Mainland tourist visitations. A narrowing trend in the decline of same-store sales growth, as compared to last quarter, was

mainly attributable to some big ticket transactions of gold products during the first quarter,’ the jeweller explained.

Struggling SARs

“In view of the huge market in China, we maintain our store opening target of 50-60 stores in the current fiscal year,” managing director Kent Wong told a conference call, when asked if the group plans to scale back expansion in China.

Wong also said Chow Tai Fook would stick to its plan of closing seven to eight stores in Hong Kong, as sales in Hong Kong and Macau remain weak amid stagnant consumer sentiment and a decline in mainland tourist numbers.

Meanwhile, Chow Tai Fook’s same-store sales in Mainland China registered a year-on-year decline of 20 per cent for the three months, compared to a decrease of 25 per cent for the first quarter of this year.

The improvement is attributable to the better sales performance of gem-set jewellery in the country, the retailer claimed.

Telecommunications

CTM – pay for ‘free’ 4G in mainland and HK In a bid to extend its services to China, CTM has partnered with Chinese telecom operator China Mobile Communications Corporation (CMCC) to launch a 4G service to cross-border travellers, the company announced in a press release yesterday – the day of the service launch.

The telecom company claims it is offering ‘free mobile data usage’ for subscribers of the plan within Macau, Hong Kong and the mainland, according to its release, stating that coverage is ‘without limitation of boundaries’. However it notes that customers must be ‘latched to CSL’s network in Hong Kong or CMCC’s network in China’. Despite the claims that the data usage is free, the release states that ‘mobile data will be deducted from the usage amount included in the monthly plan’ and, once the limit is exceeded, customers will be charged MOP0.25/MB in any of the three areas.

The release claims that calls and SMS within Hong Kong are ‘free’ under the scheme, however the specifics of the deal state that local residents subscribing to the MOP198 monthly package (for those currently without a service contract) will only have access to 3GB of 4G access in the three zones, 1,200 minutes ‘free voice call’, 100 SMS in Hong Kong and Macau, 100 minutes ‘free’ China IDD airtime and 5GB of cloud storage per month.

Those under the contracts can update to the service for MOP98/ month.

The company calls the plan ‘an effective response to customers’ demands for roaming service’, choosing specific wording when stating that: ‘by leveraging its strength and professionalism, CTM is committed to fulfilling its vision of building a Digital Macau.’ K.W.

Hong Kong is struggling with mounting economic challenges and a strong currency, as the Hong Kong dollar is linked to the U.S. dollar. Meanwhile, mainland

tourists are avoiding the city amid political tensions with China and growing calls from radical activists for greater autonomy from Beijing.

Hong Kong saw its sales in jewellery, watches, clocks and valuable gifts fall 18.7 per cent in May, more than the 16.6 per cent drop in April. K.L. with Reuters

4 Business Daily Tuesday, July 12 2016

Macau Crime Former Birmingham Football Club chairman to face the rest of his six-year sentence

Carson Yeung’s appeal denied

F

ormer Birmingham International Holdings Ltd. chairman Carson Yeung Ka Sing has had his ultimate appeal to Hong Kong’s top court denied. Mr. Yeung, a part-owner of English football club Birmingham City, will face the rest of his six-year sentence for money laundering, according to news agency Lusa.

The 56-year old began his sentence in March of 2014, after being accused of and charged for money laundering to the amount of HK$721 million between 2001 and 2007.

The lower court earlier found Yeung guilty of five counts of dealing with properties believed to be proceeds of an indictable offence for laundering HK$721 million through five bank accounts at Wing Lung Bank and HSBC between 2001 and 2007, notes the South China Morning Post (SCMP). The publication notes that various parties deposited funds into the account, including a Macau casino and various securities firms, with over 400 deposits conducted, totaling over HK$97 million, made in cash.

Yeung’s grant for leave was approved based on his appeal, raising legal questions as to whether the prosecution could prove the offences from which the laundered money arose, and his state of mind when he committed the offences, SCMP says.

The origins of Carson’s fortune are not well documented, however the former chairman is known to have made a number of investments in Macau, as well as opening a hair salon in Tim Sha-Tsui in Hong Kong in 1994, Lusa notes.

The court found that the businessman had dealt with the funds deposited into the bank accounts and knew or had ‘reasonable grounds to believe’ that the funds were wholly or in part ‘proceeds of an indictable offence’, the SCMP states. Hong Kong law doesn’t require that proceeds from laundering activities be proven as such, however they wrote: ‘It seems unlikely that an innocent lottery winner would come under suspicion’, the publication notes.

Yeung acquired the Birmingham City Football Club in October of 2009, two years before he was accused of money laundering activities in June of 2011. K.W.

Health Vaccine PLAN needs reform

Medical hands wanted The President of the Macau Portuguese-language Doctors Association believes Macau’s public hospitals have a shortage of medical professionals, especially surgeons, and proposes changes to the territory’s vaccine programme.

Nelson Moura nelson.moura@macaubusinessdaily.com

Macau still has a shortage of medical professionals in public hospitals, especially in the surgery field, the President of the Macau Portuguese-language Doctors Association (AMLPM), Jorge Sales Marques says, as reported by news agency Lusa.

On the sidelines of the first of four conferences that the Portuguese Medical Association of Macau are hosting this year, Marques said he believes the lack of clinical professionals in some specialty fields in the region will be resolved in the short and medium term, and proposed changes to the local vaccination programme.

“What matters, in my opinion, is that new medical professionals have medical qualities above average, and they are doctors who can improve support and medical care here in Macau,” Marques told Lusa.

Falling short

According to Lusa, there were 1,674 health professionals in Macau at the end of 2015, 2.6 per every 1,000 residents, below the OECD [the Organisation for Economic Co-operation and Development] average of 3.2 per thousand, but above the average of countries and regions in Asia of 1.2, according to Lusa.

In May last year, the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng said the territory needed a further 2,640 health professionals in the next five years, including nearly 500 physicians.

In December, Alexis Tam said that in 2015 the government recruited 529 health professionals, including 60 doctors and 188 nurses, adding that the government intended to hire 300 more doctors and nurses.

At the time, the Secretary said that the recruitment would be done by giving priority to the Macau market, and that, according to local needs, would be extended to Mainland China, Hong Kong, Taiwan and Portugal.

“All these entities have already expressed willingness to cooperate with Macau in providing specialised human resources” for the region, Alexis Tam stated at the time.

The Secretary acknowledged that “there are insufficient human resources in public hospitals” and that due to the increase in population and visitors there is a “need to continue to employ” medical personnel.

Vaccines should be improved

The AMLPM President considers that in general, the area of pediatrics in Macau is “in good health” and proposed the Macau Health Bureau should enforce minor changes to the vaccination programme, based “on international standards”.

One of the proposals is that the vaccine for HPV - a virus that causes cervical cancer – should also cover boys and should be administered earlier, at nine years of age. At the moment, HPV vaccines in Macau are only administrated to girls, who receive the first dose at 11 years of age.

Marques also believes the pneumococcal vaccine – which prevents severe infections - should be administered in lower doses, and that the rotavirus vaccine - responsible for preventing acute gastroenteritis should become part of the vaccination plan in Macau.

As well as discussing vaccinations, the conference also featured presentations on attention deficit disorder, hyperactivity and eating disorders in children and adolescents.

Business Daily Tuesday, July 12 2016 5

Macau

Antonio Chui Yuk Lum, Vice President of Board of Directors, Macao Chamber of Commerce

SMEs

Wynn Macau business matching for local SME facility suppliers

Helps to SMEs get help from big business Local SMEs see this as an opportunity to make contact with corporate clients.

Annie Lao annie.lao@macaubusinessdaily.com

S

ome 90 local suppliers participated in Wynn Macau’s 2016 Second Quarter Local SME (Small and medium-sized enterprises) Procurement Partnership Program - Business Matching Session in Facilities Category yesterday, held in the ballroom of Wynn Macau. The local businesses met with company representatives and submitted their pricing lists. Some see this kind of event as a good opportunity to promote their products to corporate clients.

One of the suppliers, David Chan, manager of Chan Peng Kee Hardwares Co., Ltd who attended the event yesterday, said that he has previously supplied facility items to other casino operators in the city. He came to this SME business matching session to search for an opportunity to promote his business, but he did not expect to receive orders from Wynn Macau soon.

“This is just an opportunity for us to understand what the casino operators need from us, but we cannot expect too much from just attending this event to foster a quick business opportunity with them,” Mr. Chan said.

The main difficulty in doing business with the casino operators is that when selling products to them, suppliers have to go through many layers of management compared to doing business with the other local companies, where they can speak to the decision makers directly, Mr. Chan explained.

Therefore, it takes more time for local SMEs to communicate with different users from different departments in the big corporations, Mr. Chan said.

Sue Pang, administration manager of Fu Lei Fire Protection Engineering Co. Ltd. told Business Daily after

attending the business matching session that she just came to submit her company’s product information.

Ms. Pang said she previously attended the MGM Macau business matching session last month and will attend the upcoming SME business matching session held by Galaxy Entertainment.

The event was organized by the Macao Chamber of Commerce (MCC), the Secretariat for Economy and Finance, the Economic Bureau, the Macao Trade and Investment Promotion Institute (IPIM), the Macau Productivity and Technology Transfer Centre (CPTTM) and the Business Incubation Centre for Youth. It aims to support the local SMEs and young Macau entrepreneurs to promote the diversification of Macau’s economy initiated by the SAR government.

Promising results

Sands China has placed procurement orders to more than 100 local SMEs. The orders have been worth more than MOP20 million (US$2.5 million), according to Antonio Chui Yuk Lum, vice-president of MCC. He added that MGM Resorts has also procured items from more than 200 local SMEs, with contracts worth more than MOP20 million.

The procurement system run by the casino operators has changed since the launch of the local SME Procurement Partnership Program, from a traditional model of public tender procurement, to publicly listing all the pricing information of suppliers’ items to the casino operators, Mr. Chui explained.

“The casino operators now publish all the procurement items they need and have access to all the local SME suppliers’ product prices,” Mr. Chui said.

Mr. Chui revealed that Wynn Macau would soon release data to the public on how many local SMEs successfully received offers from Wynn Macau from the First Quarter Local SME

Procurement Partnership Programme for Food and Beverages held in April.

Better communication

Blupurple Interactive Media Ltd is the winner of the Procurement Platform Mobile App Design Competition, organized by Wynn Macau and the MCC. An award presentation ceremony was also held yesterday.

Steven Lei, project manager of Blupurple Interactive Media Ltd told Business Daily that the new mobile application aims to provide local SMEs a platform to have access to

information from casino operators, and increase the level of communication between local SME suppliers and casino operators. “Users can view what items the casino operators are procuring. Meanwhile, the casino operators can send messages to the suppliers about when and what products they need from them. The SMEs can simply submit their price lists to the procurement team,” Mr. Lei explained.

The application will be available to the public free of charge at the end of this year.

6 Business Daily Tuesday, July 12 2016

Macau Gaming Gaming systems manufacturer and local market leader seeks opportunities in the SAR and abroad

The ‘Scientific’ approach Scientific Games aims to be the global market leader, through its focus on technology and a multi‑segmented approach to the gaming industry. The group leverages its creative talent, based primarily in India, applying it to the Asian and international marketplace, without leaving any demographic – especially millennials – behind. But not all ideas are made equal and sometimes the best ones come from the operators themselves.

Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

I

ncreasingly, the focus of non-gaming revenue has been on ‘millennials’ – who, according to data from Bloomberg Intelligence, only make up around seven per cent of overall visitor spending in the SAR. Though total visitor spending in the first quarter of this year, excluding gaming, amounted to MOP11.54 billion - mainly spent on shopping (43.7 per cent), accommodation (27.8 per cent) and food and beverage (20.4 per cent) - those with a keen eye on the prize haven’t given up on the demographic that also contributes a significant amount towards gaming revenue.

Scientific Games’ Group Chief Executive of Gaming Derik Mooberry spoke with Business Daily about the company’s efforts to capture the attention of the younger generation and engage with them, from their smartphones to the casino floor.

“I think it’s absolutely worth focusing on millennials, I do believe that,” notes Mooberry, adding that in

the Macau scenario there are many attractions for this demographic: “These beautiful integrated resorts that you have here – you have a tremendous opportunity to attract millennials for lots of different things […]

I think that as more of those vacation and extend stays in markets like this, you’ll see that demographic change and I think people won’t think of ‘gamers’ anymore as just being this older generation; hopefully its this younger generation as well.”

Get them young

To target this younger demographic, the company has focused its efforts on finding out how to engage with them. “You look at younger kids - in their 20s maybe even 30s – they’ll much more enjoy an electronic table or even a live table probably before sitting in front of a slot machine. So we make products that fit into that segment, that are fun and can provide an enjoyable experience for them,” notes the executive.

But the fun doesn’t have to stop at the casino floor, as the company also engages in social gaming,

Corporate

Moon Bling Bling

Making and sharing mooncakes is one of the hallmark traditions of the MidAutumn Festival. An important part of the festival signifies the completeness and unity of families. Grand Hyatt Macau has once again brought its team of talented designers and chefs together to create elegant exclusiveedition mooncake gift boxes. Highly prized, the ornate boxes have been painstakingly designed with beautiful luster beads, inspired by the beauty of

the Butterfly and Peacock which adorn the surface of the boxes. The boxes also feature LED lights, integrating the different levels of visual effects.

Inside the boxes are the mooncakes themselves. Representing the moon and moon worship, the delicious cakes come in three different but equally fantastic flavours: Chocolate fondant, Salted egg custard, and Taro with lotus paste. Moon Bling Bling gift certificates are now available at Grand Hyatt Macau.

“I think people won’t think of ‘gamers’ anymore as just being this older generation; hopefully its this younger generation as well.”

Derik Mooberry, Scientific Games’ Group Chief Executive of Gaming

which doesn’t involve money, but can eventually lead towards gambling activities.

So is there a correlation between people starting off with social gaming and progressing into gaming?

“Absolutely and I would say both ways. Social gamers that have now become casino gamers and vice-versa, people that visit casinos also like to be social gamers at home,” explains Mooberry, describing the opportunities this creates for the company. “We have found that there’s a crossover in that and that it’s a great opportunity to expose people to our products.”

The aim is consistency, notes Mooberry: “We’re going to aim to give you the same experience whether you’re at home playing it socially or at the local casino playing for real.”

Research and development

Yet not all of the ideas that the company sets out to accomplish work out as expected, notes the executive.

“We try a lot of things, a lot of them fail. And a lot of them fail before they ever get to the market […] That’s part of what being an innovator is.”

Furthermore, not all the ideas actually come from the company itself. “I often say a lot of the great ideas that actually come from our operators […] that’s how a lot of ideas ultimately come to market,” he explains. But diversity is key, and the group doesn’t concentrate on one main element, unless that element is technology.

“We have three main business units:

we have our gaming space, which I run; we have our lottery division, which is scratch tickets and those types of lottery devices; and then we have our interactive division which is online business – social gaming. And so all of those very much have a technology flavour to them.” To handle this, the company has “nearly 2,500 resources” in research and development only, and having “gotten out of the business of operating casinos” despite the fact that “there will always be live tables” to profit from, the group has its sights firmly set on Asia, as “there’s tremendous opportunities outside the United States.”

Sourcing from the sub-continent

From a sourcing and creative point of view, these opportunities lie in India.

“Literally all three of our divisions have development resources there, so a lot of the creative ideas that come from us start in India,” says Mooberry, pointing out that the group’s Asia base alternates between its Macau office, a “development studio” in mainland China and “a very large development center in India”. Why? Labour and access.

“India is a fantastic employee base for us. It is the second largest number of employees for us in any other country in the world other than the United States,” says the Scientific Games executive. And the advantage to having their labour based in Asia is that the market is at their doorstep.

“Its proximity to these Asian

“We feel we’re either the market leader or near-market leader in every segment that we participate in.”

Business Daily Tuesday, July 12 2016 7

Macau markets is a fantastic benefit for us.

It’s very easy to get our technology, resources and developers into these markets, spending time with customers, seeing what might work or not work, and we view that as a real strategic advantage.”

But what exactly makes the Asian market so good?

Cultural appeal

“Asians do have an affinity and a desire and a likeness to play – they view it as a fantastic form of entertainment,” claims Mooberry, pointing out, however, that sometimes the games designed “for Asia”, end up becoming global sensations.

“It isn’t everything we build here that goes global, but we’ve seen some unusual success of some of those games.” This, he opines, is due to the entertainment experience of the games themselves, as well as a large Asian community worldwide.

“There is a large Asian population base globally. You go to some of the major metropolitan areas of the world and you can see very large Asian bases that now call those areas home. So when we bring some of our products into those marketplaces that becomes a gravitation point for them,” explains Mooberry, noting that for Scientific Games, no door should be left unopened on the global front.

“I think as gaming gets exposure globally, the more people will find that it’s a fun experience.” And the company aims to be the leader, not just in Macau, but worldwide - in all of its divisions.

“We feel we’re either the market leader or near-market leader in every segment that we participate in [in Macau]. And for those that we’re not, obviously, that is our goal: to transform and be that. Literally that applies to us not just in Macau but globally as well […] it’s really exciting for us,” says Mooberry.

Gaming

Analysts predict 8 to 11pct decline for July casino revenues

Divided views Analysts at Wells Fargo predict a downturn in local gross gaming revenue of between eight and 10 per cent year-on-year, the group noted in a release. The group estimate is ‘based on current trends’ and assumes average daily revenue growth of around five per cent ‘to MOP540 million to MOP550 million’ the group notes, classifying it as ‘in line with average sequential growth trend from June to July’.

Wells Fargo takes note of Studio City’s plan to open VIP rooms this quarter, calling it a ‘shift in the property’s mass-focused strategy’ given its current lack of VIP tables, and restates its prediction that overall for the SAR ‘VIP and Premium Mass continue to decline year-on-year’.

Contrary to opinions at Wells Fargo,

analysts at Telsey Advisory Group see gross gaming revenue so far this month, ‘based on gaming play for the first 10 days of July’, to be tracking upwards at 8.2 per cent, placing July gaming revenue at an estimated HK$19.6 billion. The group notes these results are ‘well ahead of the previous trends which have been running at a rate of an 11 per cent decline’.

‘Within the aggregate market trends,’ notes Tesley, ‘company management teams continue to suggest that there is some actual improvement in mass play offset by declines in VIP, but not a pronounced redirection in business levels, which the data would suggest.’ The group notes however that: ‘we are not inclined to change our view on the market overall as of yet.’

A positive outlook is attributed to Wynn, due to its upcoming Wynn Palace opening. The group ranks both Wynn and MGM as ‘Outperform’, while Las Vegas Sands (LVS) is classified as ‘Market Perform’.

The analysts at Wells Fargo classify MGM as ‘Outperform’ given that the group sees ‘positive risk-reward based on a strong Las Vegas outlook, while Wynn, LVS and Melco all come under ‘Market Perform’. Opinion is divided on Wynn, as ‘the opening of Wynn Palace this summer could be a catalyst’, however the group sees ‘equal/risk reward given nearterm uncertainty’ in the local market. Both LVS and Melco were noted as likely to ‘benefit from our positive long-term view of the Macau gaming market’ however the analysts still see ‘equal/risk reward’ based on the near-term uncertainty in the market. K.W.

8 Business Daily Tuesday, July 12 2016

Greater China Economists forecast

Growth seen cooling on second quarter

a record low for the year through May, with growth cooling to 3.9 per cent from double-digits last year. Private investment so far this year has been the slowest since China began publishing the data in 2012.

Factory surveys have shown stagnation in the manufacturing sector, but an uptick in services. However, growth in the finance industry, a key part of the services sector, is expected to slow sharply in the second half, as many investors continue to shun the country’s stock markets after last year’s crash.

Monthly indicators

Some analysts believe a huge bank restructuring may be inevitable.

C

hina’s economic growth likely cooled to a fresh seven-year low of 6.6 per cent in the second quarter as the industrial sector loses steam and a boost from financial services fades, according to a Reuters poll of 61 economists.

Analysts expect the world’s second-largest economy to lose further momentum in the second half of the year, prompting the government and central bank to roll out more support measures even as they worry about

fallout from Britain’s secession from the European Union.

That could in turn signal fresh weakness for the yuan, which recently slid to 5-1/2 year lows, adding to a wall of worry for international investors.

The expected April-June growth rate compares with 6.7 per cent in JanMarch and would be the weakest since the first quarter of 2009, when it fell to 6.2 per cent during the global financial crisis. China’s economy grew 6.9 per cent in 2015, its slowest rate in more than two decades.

Policymakers have relied on record credit expansion and an infrastructure spending spree to stabilise growth, though concerns are growing that over reliance on debt and government spending threatens a “vicious cycle” of

slower growth and delayed economic reforms. Some analysts believe a huge bank restructuring may be inevitable.

An “authoritative source” in the official People’s Daily warned in May of the dangers of another massive credit-led stimulus like that during the global crisis, and economic data missed expectations in May as credit expansion started to slow.

Data in recent months have shown the government is bearing an increasing amount of the load as it struggles to put the economy on firmer footing and private investment dwindles.

Fixed-asset investment slipped below 10 per cent for the first time since 2000 in January-May as a boost from record credit growth was already fading.

Investment by private firms slowed to

Economists in the poll estimated GDP grew 1.6 per cent quarter-on-quarter, up from 1.1 per cent in the first quarter, though only 13 analysts gave sequential forecasts.

GDP data will be announced on July 15, along with monthly indicators on investment, industrial output and retail sales.

Fixed asset investment growth likely cooled further to 9.4 per cent for January-June. The 9.6 per cent pace recorded in the first five months of the year was the first time investment expanded by only single digits since 2000.

Analysts will be closely watching the portion of investment that comes from the private sector, as record low spending by private firms so far this year indicates a gloomy outlook for future business prospects.

Industrial output likely grew 5.9 per cent in June, down only slightly from May. Higher commodity prices and spending on infrastructure and property projects appear to have lent some support to the sector for now.

Retail sales growth was likely steady in June at 10 per cent. Reuters

Vehicles industry

Autos rebound takes hold with stron Analysts said the main uncertainty hanging over the market was whether the tax cut on cars with engines under 1.6 litres would expire or be extended.

Jake Spring and Meng Meng

Vehicle sales in China rose 8.1 per cent in the first half of the year, the automakers association said, well ahead of full-year predictions with the industry cautiously optimistic that positive sales momentum will continue.

Vehicle sales growth in the world’s largest auto market stalled last year as the economy slowed before rebounding strongly in October supported by a tax cut on small engine cars.

Many industry watchers questioned whether the rebound could be sustained, but analysts say sales so far this year have met or exceeded expectations.

“People are cautiously optimistic,” said Godfrey Tsang, a consultant and former vice president for Lexus China.

Sales grew 14.6 per cent in June, the China Association of Automobile Manufacturers told reporters on Monday, the highest monthly growth since December 2015.

Reflecting the strong start to the year, LMC Automotive last month raised its prediction for annual growth by 0.4 percentage points to 8 per cent in passenger vehicle sales for 2016.

But other indicators show pressure remains high on dealers. An index produced by the China Automotive Dealers Association to measure inventories sits at the highest level since November.

With fierce competition among dealers, average discounts have been up to 3 percentage points higher in the first six months compared with the same period in 2015, according to Chinese consultancy WAYS.

Tax cut expiry

Analysts said the main uncertainty hanging over the market was whether the tax cut on cars with engines under 1.6 litres would expire or be extended.

If it expires as expected on December

Business Daily Tuesday, July 12 2016 9

Greater China Sino-EU summit

Beijing to make good on investment pledge The funding will mark a deepening of economic ties, after European governments signed up to the Chineseled Asian Infrastructure Investment Bank.

Robin Emmott

China is set to make good on a promise to invest two billion euros in the European Union’s new infrastructure fund at a summit in Beijing on Wednesday, officials say, a gesture aimed partly at easing tensions over other issues.

Brussels can claim one small victory in persuading China to sink money into an EU-controlled fund over which Beijing has no direct say.

“China has a lot of liquidity and needs to invest it somewhere,” one senior EU official said, asking not to be named.

“We’ve made it quite clear this is a European fund over which China has no sway, but Chinese banks can expect to see returns on their loans.”

At the EU’s annual summit with China, China’s premier Li Keqiang will make an initial investment of about two billion euros (US$2.21 billion) in a financing vehicle linked to the European Union’s 315-billion-euro European Fund for Strategic Investments, officials familiar with the talks told Reuters.

The deal that was first discussed a year ago should be a success for European Commission President Jean-Claude

European Commission President Jean-Claude Juncker (pictured) will travel to Beijing with European Council President Donald Tusk

Juncker, who will travel to Beijing with European Council President Donald Tusk. Juncker faced scepticism in 2014 when he proposed the fund because EU governments are putting in only seed money.

While China already invests billions of euros in Europe, Beijing hopes that by putting money into a European Union-controlled infrastructure fund, it can avoid past pitfalls of operating alone in Europe and still generate strong returns as China seeks to reduce its reliance on massive exports.

The investment will also mark a deepening of Sino-EU economic ties, after European governments signed up to the Chinese-led Asian Infrastructure Investment Bank (AIIB), despite Washington’s displeasure, part of China’s so-called chequebook diplomacy to win greater influence.

EU officials hope the sum will quickly grow towards the 10 billion-euro mark, a prospect that relies on European support for China’s westward infrastructure drive - the “One Belt, One Road” initiative that involves building major energy and communications links across Central, West and South Asia to as far as Greece.

Two other EU officials said they expect the investment pledge to go ahead because Europe’s fund is backed by the EU budget and the European Investment Bank (EIB). The fund has promised to pick up the bill of any projects that go bust in the early stages, acting as a so-called first-loss guarantor.

With that backing, the bloc is relying mainly on private investors and development banks to fund selected projects

that might otherwise be considered too risky for funding by commercial lenders.

“Dating agency”

China will have no say over how the money is invested, a difficult issue that took months of negotiations to resolve following China’s decision to invest at a summit in July 2015. Chinese officials told Reuters they initially offered money on the basis that it would be spent on technology infrastructure projects involving Chinese companies in Europe such as telecoms equipment company Huawei.

However, Brussels resisted because its infrastructure fund is fully controlled by the European Commission and the EIB and is obliged to choose projects on merit.

In November 2014, an EU task force came up with a preliminary list of some 2,000 projects worth 1.3 trillion euros, although many did not meet funding criteria.

Europe is struggling with a 15 per cent fall in infrastructure spending since 2007, before the global financial crisis left governments with scant funds and under greater pressure to comply with rules to keep their budgets in check.

Projects from airports to broadband networks have difficulty obtaining funding, putting Europe’s investment needs at much more than the money available in Europe’s infrastructure fund.

EU officials hope China’s interest will be followed by other emerging market countries eager to invest in Europe. EU officials refer to the fund as a “dating agency” that matches up investors with projects while also offering good returns. Reuters

Investment

ng sales 31, consumers may rush to buy cars this year to cash in on the incentive, at the expense of next year’s sales, while extending the cut would push down fourth-quarter sales.

The association said last month it favoured making the tax cut permanent to promote fuel-efficient cars.

Association spokesman Chen Shihua said the tax cut would likely be extended if sales do not meet targets in the second half.

“Car sales would be volatile without the tax cut. Looking at H1, small engine cars have been the main driver of sales. If the government suspends this incentive, sales might drop a lot,” Chen said.

The association reaffirmed its forecast that overall vehicle sales will grow 6 per cent this year.

But with China’s real estate market rebounding, the government will be less likely to turn to car sales incentives to push up GDP growth, said James Chao, Asia-Pacific chief for IHS Automotive.

Presuming the tax cut expires, IHS predicts sales growth will fall to 1.4 per cent next year. Reuters

National pension fund readies war chest for market foray The NCSSF, which oversees 1.5 trillion yuan in reserves for China’s social security system, has returned an average 8.8 per cent a year since 2000.

Justina Lee

China’s pension funds are about to become stock investors.

The country’s local retirement savings managers, which have about 2 trillion yuan (US$300 billion) for investment, are handing over some of their cash to the National Council for Social Security Fund (NCSSF), which will oversee their investments in securities including equities. The organization will start deploying the cash in the second half, according to China International Capital Corp. and CIMB Securities.

Chinese policy makers announced the change last year in a bid to boost yields for a pension system that has long suffered low returns by limiting its investments to deposits and government bonds. For the nation’s equity markets - which are dominated by retail investors and among the world’s worst performers this year - the state fund’s presence is even more valuable than its cash, said Hao Hong, chief China strategist at Bocom International Holdings Co. The NCSSF has “such a good reputation in being a value investor that if they take the lead, the signalling effect is actually quite strong,” said Hong, who had predicted the start and peak of China’s equity boom last year. “It’s almost like Warren Buffett saying he is buying a stock.”

The NCSSF, which oversees 1.5 trillion yuan in reserves for China’s social security system, has returned an average 8.8 per cent a year since 2000, the Securities Daily reported earlier this year, citing official data. The larger pension system, on the other hand, has been locally managed and made just 2.3 per cent annually through 2014, the newspaper said.

The organization’s entry will come as Shanghai stocks begin a gradual recovery that has pared their losses for the year to 16 per cent from as much as 25 per cent. While yuan depreciation concerns are pressuring Chinese assets lower, the economy is showing some signs of stabilizing. The nation’s foreign-exchange reserves unexpectedly climbed in June in a sign of slowing outflows, while a measure of services rose.

“The fund will tend to be prudent and the progress may be very gradual - that is, it will enter the market over the next several years.”

Ben Bei, an analyst at CIMB Securities in Hong Kong The entry “will be a positive event in terms of sentiment but the actual impact won’t be drastic,” said Bei, an analyst at CIMB Securities in Hong Kong. “The fund will tend to be prudent and the progress may be very gradual - that is, it will enter the market over the next several years.”

Venturing into China’s volatile stock markets - where a crash erased US$5 trillion of value last year - isn’t without its risks for funds traditionally focused on more stable assets. Japan’s government pension fund, the world’s largest,

may have lost about US$43 billion in the second quarter, Morgan Stanley MUFG Securities Co. estimated. This adds fuel to criticism over the Government Pension Investment Fund’s decision to boost equity allocations in 2014.

Seeking returns

Low returns are a challenge for China’s pension system, which is already facing pressure from a rapidly aging population. The country’s old-age dependency ratio - a measure of those 65 or over per 100 people of working age - is set to triple to 39 by 2050. The NCSSF didn’t respond to an e-mail seeking comment.

The pension funds are more likely to buy blue-chip firms, said CIMB’s Bei, while Bocom’s Hong said they’ll probably seek out shares of state-owned enterprises with low valuations. With the market down for the year, the timing is right for entry, said Hong.

Up to 30 per cent of Chinese pension investments’ net value can be allocated to stocks, while the cap for bonds is 135 per cent. While that means the funds can theoretically inject 600 billion yuan into shares - compared with the Shanghai market’s 25.9 trillion yuan size - CICC estimates that purchases this year will be limited to about 100 billion yuan. Unlike the National Social Security Fund, pension funds can only invest domestically.

State help

Giving the NCSSF more ammunition may serve one more purpose: helping stabilize markets during the next rout.

During last year’s tumble, policy makers armed state-run investing company China Securities Finance Corp. with more than US$480 billion to try and limit declines.

“Their mandate is to make a return and make sure the fund doesn’t have a deficit,” said Hong. “But in times of crisis when they’re called upon by the state, I think it will be difficult to refuse the request.” Bloomberg News

10 Business Daily Tuesday, July 12 2016

Greater China Internet regulation

Baidu, Alibaba face profit hit from new rules on search ads Analysts say about 50 per cent of Alibaba’s revenue in the first quarter would be affected.

David Ramli and Lulu Yilun Chen

A

libaba Group Holding Ltd. and Baidu Inc. could face a hit to earnings from new regulations in China that will tax search advertising.

China’s State Administration for Industry & Commerce last week issued new rules on the classification of Internet ads. From September, paid

searches will be treated as Internet advertising for the first time and that revenue could be subject to an additional 3 per cent tax.

Such a move could force Baidu, operator of China’s most popular search engine, to cut its earnings for fiscal 2017 net income to 16.3 billion yuan (US$2.4 billion), according to analysts at Daiwa Capital Markets led by John Choi. That’s about 4 per cent below the average of estimates

compiled by Bloomberg. About 50 per cent of Alibaba’s revenue in the first quarter would be affected, suggesting a 2.4 per cent hit to earnings, he wrote.

“We would expect the market to cut its 2017-19 earnings forecasts for Baidu and Alibaba given the additional surcharge burden,” Choi said in a report.

Alibaba said that if its pay-forperformance ads were charged a 3 per cent fee, the impact of on its margins would be in the “low single digit” range as its revenue channels are becoming more diversified, according

to an e-mailed statement. Whitney Yan, a spokeswoman for Beijingbased Baidu, said in an e-mail that the company would fully implement the new regulations.

The issue was flagged in Baidu’s April 20-F filing to the Securities and Exchange Commission. At the time the company wrote that it made substantially all its revenue from online marketing services, including “pay-for-performance, or P4P, services.”

“We would be obligated to examine the content of our P4P customers’ listings on our websites, which could be excessively burdensome such that we may have to stop posting certain categories of listings on our websites or otherwise cease our P4P services for certain categories of customers,” it said at the time. Bloomberg News

“We would expect the market to cut its 2017-19 earnings forecasts for Baidu and Alibaba given the additional surcharge burden” Daiwa Capital Markets’s analysts

U.S. markets

Education stocks soaring with investors souring on others Chinese consumer spending on education is expected to increase 7.4 per cent to US$91 billion this year, according to Euromonitor International.

Elena Popina

MSCI Inc.’s inclusion of U.S.-listed Chinese Internet giants in its benchmark indexes last year had analysts predicting a rally for the stocks as investors added those shares to their portfolios to reflect the changes.

Instead, ten out of 14 U.S.-listed Chinese stocks added to MSCI’s indexes have plunged. Only two companies, both focused on education, bucked the trend with significant gains.

Chinese equities in Shanghai have struggled to recover since a US$5 trillion rout in domestic shares last year brought an end to the country’s longest-ever bull market. A gauge of Chinese stocks in U.S. trading followed suit, losing 13 per cent in 2016 as of Friday, compared with 2015’s 16 per cent gain.

TAL Education Group Inc. and New Oriental Education & Technology Group Inc. have soared more than 40 per cent since the MSCI added them to its indexes at the close of business on November 30 and are among the best of the country’s U.S.-listed performers so far this year. Chinese consumer spending on education is expected to increase 7.4 per cent to US$91 billion this year, according to Euromonitor International, a market research firm.

“Chinese place a very high emphasis on education and TAL Education and New Oriental Technology are benefiting from U.S. investors learning this as well,” said Brendan Ahern, chief investment officer at KraneShares, by phone from New York. “The e-commerce companies have been unjustifiably punished by U.S. investors amid rising concern that the economic growth is slowing,”

said Ahern, whose company oversees China-focused ETFs. JD.com Inc. to Baidu Inc. have lost a quarter of their market capitalization since late November as sentiment on Chinese equities soured amid concern that economic growth is slowing.

TAL Education, a Beijing-based tutoring service, has risen 33 per cent this year to hover near an alltime high as revenue growth beat forecasts in seven of the past eight quarters. Beijing-based New Oriental Education has almost doubled in the past 12 months as the company’s improvements in its after-school tutoring business and a push into

online learning after being one of 2014’s biggest losers among Chinese stocks in U.S. trading.

These and other Chinese companies still face headwinds because U.S. investor sentiment on China keeps deteriorating as the economy expands at the slowest pace in 25 years and bond defaults escalate, according to Ankur Patel, chief investment officer at R-Squared Macro Management LLC. “Investors that were flocking into China last year are not turning to the market in 2016,” Patel said by phone.

“If sentiment continues to sour, we might see a deteriorating stock performance across different sectors.”

Analysts are predicting that the rallies in TAL Education and New Oriental Education will soon run out of steam. Median target prices imply a 4.3 per cent appreciation for New Oriental Education and a 0.8 advance for TAL Education in the next 12 months, data compiled

by Bloomberg show. Forecasts for Alibaba and Baidu see each gaining at least 22 per cent.

“Both education and consumer spending are high priority in China, but consumer companies are being punished amid concern over growth deceleration, and education stocks have been rewarded,” Henry Guo, a New York-based analyst at M Science, said by phone. “This doesn’t meant that investors think a consumer story in China is over. We might see investors flocking to some of China’s biggest online names as the sentiment on China turns around.” Bloomberg News

Business Daily Tuesday, July 12 2016 11

Asia exit the European union has clouded Japan’s economic outlook, pushing up the safe-haven yen and chilling sentiment among Japanese exporters.

“Machinery orders are likely to weaken ahead rather than recover.

The ill-effects of a rising yen in the wake of Brexit are expected to emerge from now on,” said Koya Miyamae, senior economist at SMBC Nikko Securities. “There are few factors that would make us optimistic about the outlook for machinery orders and capital spending.”

Key Points May core orders -1.4 pct m/m vs forecast +2.6 pct Core orders -11.7 pct yr/yr vs forecast -8.7 pct Rising yen threatens to derail Abenomics ‘virtuous cycle’ Brexit may cause Japan Inc to be more wary of capex Industry daya

Japan machinery orders shows investment losing steam Compared to the previous month, orders from manufacturers fell 6.4 per cent.

Tetsushi Kajimoto

J

apan’s machinery orders fell unexpectedly in May as a strong yen and weak demand eroded corporate profits and spending plans, a sign the economy is struggling to attract the investment it needs to sustain growth.

Cabinet office data published yesterday showed a 1.4 per cent fall in core orders, a highly volatile data

series regarded as an indicator of capital spending in the coming six to nine months, and fell well short of economists’ forecast of a 2.6 per cent gain in Reuters poll.

In a statement accompanying the data, the Cabinet Office said machinery orders are “stalling”, a downgrade from April’s assessment that said orders were showing signs of “pickup”.

Weak capital expenditure adds

pressure to Prime Minister Shinzo Abe to do more to rev up growth. He is expected to compile an economic stimulus package later this year after his ruling bloc won a landslide victory in yesterday’s upper house election.

Core orders, which exclude those of ships and electricity, stood at 785 billion yen (US$7.79 billion), the lowest level since June 2014.

Abe has been counting on capital expenditure to help generate a virtuous growth cycle of higher wages and increased household income and consumption to drive growth.

Britain’s shock vote last month to

Orders from overseas, which are not included in core orders, dropped 14.8 per cent in May from the previous month, down for a second straight month and reflecting falling orders for industrial machinery, trucks and other vehicles, officials said.

Policymakers are in a bind, with companies hesitant to boost investment as they struggle with a weak economy and a strong currency, while the Bank of Japan’s adoption of negative rates failed to convince companies to invest more.

Compared to the previous month, orders from manufacturers fell 6.4 per cent weighed on by industries such as information and communications and production equipment machinery, while those from the services sector dropped 0.3 per cent, the data showed. Reuters

Oil industry

Regional refiners cut output to fight oversupply However, two consecutive quarters of lower refinery runs may point to a rebound in Asian demand for crude towards year-end.

Florence Tan and Seng Li Peng

Oil refiners in Asia are processing less crude as they grapple with margins that plunged to five-year lows after the region was flooded with supply of refined products and as slowing economic growth hits demand for fuels.

Asian refiners typically increase utilisation rates from July after carrying out regular maintenance in the second quarter, building stocks of fuels such as diesel and gasoline to meet demand that peaks in summer.

But this year, several Asian refiners are maintaining or reducing crude throughput in July and August after refineries around the region in the first quarter binged on the cheapest crude in over a decade, swamping Asia with excess fuel, industry sources and analysts said.

“Falling refining margins are prompting refiners to consider economical run cuts,” said Sri Paravaikkarasu, a senior consultant at energy analysts FGE.

“This will help to clear some surplus in the second half of 2016.”

A near doubling in oil prices from January has also pressured margins, or the amount of profit a refinery makes on processing crude.

Less demand for crude from Asian refineries in combination with factors such as a gradual recovery in U.S. shale production could drag on any continued recovery in benchmark oil prices.

“The ... ripple effect into crude demand is not helpful for oil balances and prices,” Morgan Stanley analysts said in a note yesterday.

Singapore Refining Company, a joint venture between PetroChina and Chevron Corp, is expected to operate at about 80 per cent of capacity from June to August, down from close to 90 per cent in May, said sources with knowledge of the matter.

South Korea’s largest refiner SK Energy is also cutting crude throughput in July and August, while run rates at South Korea’s No.2 refiner GS Caltex were 10 per centage points lower in the second quarter than the first three months this year, sources said. The companies declined to comment.

Key Points Refiners struggling with sharp fall in processing margins Asia swamped with refined fuel after crude price plunge Several refiners to cut production in Q3 GS Caltex’s July run rates are unchanged from the second quarter, the sources added.

Meanwhile, Hyundai Oilbank and Taiwan’s Formosa Petrochemical Corp are trimming output in July due to maintenance.

However, two consecutive quarters of lower refinery runs may point to a rebound in Asian demand for crude towards year-end, with appetite for jet fuel, also used for heating, typically peaking in winter.

“Fuel inventories and crude prices are starting to come off in third quarter and we’re going into maintenance season again,” said a trader with a North Asian refinery. “Q4 will be better than Q3.” Reuters

12 Business Daily Tuesday, July 12 2016

Asia In Brief Stimuli effect

S.Korea finmin says budget boosted GDP South Korea’s Finance Minister Yoo Il-ho said yesterday in parliament that budget frontloading likely lent a 0.2 percentage point boost to GDP growth for this year. Yoo’s comment was made in response to a question on the effectiveness of budget frontloading. The government had planned to frontload roughly 60 percent of the annual spending budget in the first half of the year to spur growth.

Sovereign bonds

Sri Lanka could raise up to US$1.5 bln Sri Lanka’s dual-tranche sovereign bonds could raise up to US$1.5 billion, three sources close to the deal told Reuters yesterday, as book building began. The dual tranche 5.5-year and 10-year offering was launched early yesterday. “The target volume is up to US$1.5 billion,” a source who has knowledge of the deal told Reuters. Two other sources confirmed the size of the deal. Finance Minister Ravi Karunanayake told Reuters the government saw an opportunity in the capital market through dual-tranche bonds.

Asian sovereign bonds have rallied this year as investors looked for yields in a low rate environment.

Going public

Line prices IPO at top of the range Japanese messaging app firm Line Corp priced its initial public offering at the top of its marketed range, putting it on track to raise as much as US$1.3 billion and reflecting robust appetite for the world’s biggest tech listing this year. Line set the IPO price at 3,300 yen per share, compared with its book-building range of 2,9003,300 yen, a filing with Japan’s finance ministry showed yesterday. It had initially set the range at 2,700-3,200 yen but bumped it up last week amid buoyant demand. Line, owned

by South Korea’s Naver Corp, is set for a dual New York and Tokyo listing this week.

Moody’s warns

Budget deadlock negative for Australia Moody’s Investors Service yesterday said any political deadlock in dealing with Australia’s budget deficit could be negative for the country’s top credit rating. “Indications that under a coalition government with a split senate, little agreement can be reached on fiscal consolidation and macroeconomic policy measures would be credit negative,” Moody’s said in a statement.

“Conversely, evidence that measures that would effectively reduce Australia’s budget deficit and point to a stabilisation in government debt would support Australia’s credit profile.”

While the coalition government of Prime Minister Malcolm Turnbull looks to have won a federal election, it will not hold a majority in the Senate.

“The government will have to decide whether it is worth expending political capital on an agreement (TPP) that may never come into force” Tobias Harris, a Washington-based analyst with Teneo Intelligence Japanese Prime Minister and the ruling Liberal Democratic Party (LDP) President Shinzo Abe reacts as he arrives at the LDP headquarters in Tokyo, Japan, 10 July 2016.

Japan’s election

Abe faces many challenges after win Prime Minister will reshuffle his cabinet in early August, Kyodo news reported yesterday.

J

apanese Prime Minister Shinzo Abe’s convincing win in Sunday’s election has put him on course to scrape the two-thirds majority needed to press ahead with his long-held ambition of revising the country’s pacifist constitution.

He also vowed to take “bold” action on the economy.

Here’s a look at what’s on Abe’s plate over the coming months:

Constitutional scrap

With his coalition having a twothirds majority in the lower house, Abe will come under pressure from conservative backers to push ahead with constitutional revision. But any attempt to alter the pacifist Article 9 would meet foot-dragging from his main coalition partner, the Buddhist-backed Komeito party, and then face uncertainty in a national referendum. It also could exacerbate tensions with China.

Katsuhiko Nakamura, executive director of Tokyo think tank Asian Forum Japan, pointed out that not all members of the LDP are on the same page on constitutional change. “I don’t think there’s any chance he will move to change Article 9 straight away. He must consider his priorities for the two years he has left of his tenure, and this won’t be a simple matter.”

Abe, whose LDP tenure ends in 2018, said after the polls closed Sunday that he didn’t see the upper house election victory as a mandate

Cabinet shake-up

Abe will reshuffle his cabinet in early August, Kyodo news reported yesterday. One potential source of discord among senior LDP lawmakers eager for the spotlight could be the fact that Finance Minister Taro Aso, Chief Cabinet Secretary Yoshihide Suga and Foreign Minister Fumio Kishida have held their positions since Abe took office in December 2012.

Kishida and Shigeru Ishiba, the minister for regional revival, are seen as potential successors to Abe and may be replaced in the cabinet changes.

While Okinawa Minister Aiko Shimajiri and Justice Minister Mitsuhide Iwaki lost their seats in Sunday’s election, they needn’t be replaced immediately, since there is no requirement for ministers to be lawmakers.

Fiscal stimulus

As his coalition was sealing a majority on Sunday night, Abe repeated a pledge to stimulate a struggling economy, saying he wants “the swift formulation of comprehensive, bold economic measures.” While he declined to comment on the amount of

Trade deal

Abe also will have to make a decision on whether to push ahead with ratifying the Trans-Pacific Partnership - a U.S.-led regional trade pact - in a parliamentary session scheduled for autumn.

“Given the bleak outlook for ratification by the United States - and the fact that opposition to TPP may have contributed to opposition victories in several agriculture-intensive prefectures - the government will have to decide whether it is worth expending political capital on an agreement that may never come into force,” Tobias Harris, a Washington-based analyst with Teneo Intelligence, said in an e-mail. Bloomberg News

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to change the constitution, adding that he wanted to discuss potential revisions with other parties, including the main opposition Democratic Party. The constitution hasn’t been modified since it was enacted in 1947.

such a stimulus package, one of his advisers recently called for 20 trillion yen (US$199 billion) to be spent in the current fiscal year.

Abe said yesterday he would order the compilation of a stimulus package today.

The big win for Abe also eases pressure on the Bank of Japan to expand its record monetary easing program, Takahiro Sekido, Japan strategist at Bank of Tokyo-Mitsubishi UFJ, wrote in a note after the election. Abe and his advisers can take time to think about a “big economic stimulus package,” rather than look to monetary easing, Tokyo-based Sekido said.

Robert Feldman, chief economist at Morgan Stanley MUFG Securities Co. in Tokyo, wrote that the election results provide Abe with a “sweet spot” to focus on concrete measures to reform the economy.

Business Daily Tuesday, July 12 2016 13

Asia Energy sector

Indonesia’s top diesel buyer says biofuel rule unworkable Less-than-expected growth in bio consumption

by Indonesia’s largest diesel buyer could weigh on palm prices.

Wilda Asmarini and Bernadette Christina Munthe

Indonesian state power firm PLN says it cannot comply with government rules on burning diesel with a bio content of at least 30 per cent as it would damage generators, potentially curbing demand for biofuel ingredient palm oil in the world’s top producer of that commodity.

Under regulations released in 2015, Jakarta mandated that the power industry should from this year use so-called B30 biodiesel, hoping to reduce its crude oil import bill, cut greenhouse gas emissions and stoke local appetite for palm oil.

Less-than-expected growth in bio consumption by Indonesia’s largest diesel buyer could weigh on palm prices as more supplies are diverted to the global market.

“It’s risky if we use B30 (because) machinery can shut down,” Chairani Rachmatullah, head of PLN’s fuel and gas procurement division, told Reuters in an interview late last month.

“Eventually the machinery gets clogged with residue like slagging causing blockages, and then it breaks down,” she said, adding that diesel with a bio content of 20 per cent would be “safer”.

The official in charge of government biofuel policy said the biodiesel rule should be no problem for PLN, and that his office would investigate the issue and could apply sanctions. He did not specify what measures the

ministry could take.

“If there’s no problem for vehicles, logically there should be no problem for power,” said New and Renewable Energy Director Rida Mulyana.

“I definitely don’t want to pull back from this mandatory regulation.”

Indonesia’s automotive industry association has said high biodiesel concentrations can lead to engines overheating and greater fuel consumption.

Indonesia’s efforts to diversify energy sources have faced criticism from power station developers.

biodiesel than PLN. According to Paulus Tjakrawan, chairman of the Indonesian Biofuel Producers Association, without strict supervision domestic palm methyl ester (PME) consumption will fall well below half the government target of 6.93 million kilolitres this year.

Palm oil is used to churn out PME, a popular ingredient for biodiesel.

While PLN still expects its PME

consumption to more than double to 500,000 kl this year, growth will be less than it would have been if the utility was willing to push ahead with using B30 fuel.

Chairani added that the company expected its total diesel and marine fuel oil demand to shrink 15 per cent to 5 million kl in 2016 and by a further 20 per cent in 2017, as more coal and gas power comes online. Reuters

Key Points Utility PLN says cannot use diesel with 30-pct bio content Says would clog generators Could curb demand for biofuel ingredient palm oil Govt official says using the fuel should not be a problem Diesel contributes around 5 per cent of Indonesia’s energy mix for electricity generation, and is the fuel of choice for smaller generators in many outer islands in eastern Indonesia.

A reduction of utilities’ biodiesel intake is one of many factors affecting palm oil prices, said Indonesian Palm Oil Association (GAPKI) executive director Fadhil Hasan, adding that transportation users consume more

A reduction of utilities’ biodiesel intake is one of many factors affecting palm oil prices

IPO

AirAsia eyes HK listing as it expands in North Asia Firm’s CEO has signalled he aims to make AirAsia a low-cost giant.

Tim Hepher and Siva Govindasamy

AirAsia is studying a dual listing in Hong Kong, part of plans to become a pan-Asian low-cost airline player as it also moves towards setting up a joint venture in China, people familiar with the matter said on Sunday.

The Malaysia-based group is simultaneously looking for more aircraft to meet strong demand in North Asia and elsewhere, the people said on the eve of Britain’s Farnborough Airshow.

Asia’s largest low-cost airline group, which already has affiliates across Southeast Asia, aims to form the venture with the backing of a Chinese state-owned enterprise (SOE) to help capture traffic from fast-growing secondary and tertiary cities.

Co-founder and Chief Executive Tony Fernandes referred to the potential dual listing without naming a location and hinted at a potential

new aircraft order in remarks posted on his Twitter account on Sunday.

“Looking at more ancillary (revenues), more capacity and dual listing,” he said.

The airline group is talking to Chinese banks and potential shareholders including China Everbright Bank, one source said.

Expansion into the world’s fastest growing aviation market comes as China edges towards overtaking mature Western air travel markets despite recent slowing economic growth.

It also comes as AirAsia rebounds from recent turbulence due to lower oil prices and as Fernandes and his partner put in additional investment and take greater control of the business.

The share price fell sharply in 2015 amid negative reports about its finances, but has rallied sharply since then.

A Hong Kong listing could help to raise the company’s profile, coming on the heels of the flotation there of aviation lessor BOC Aviation, and allow it to raise new capital.

Reporting a near six-fold jump in quarterly profit in May, Fernandes said demand from Chinese travellers had recovered.

The airline also sees broad demand in markets like Korea and Japan and has said it is bullish on India after the country recently eased regulations on the growth of young airlines.

‘Another Dubai’

Fernandes has signalled he aims to make AirAsia a low-cost giant with one-stop connections mainly from its Malaysian base.

“It is a huge business opportunity: (to) use low-cost to build another Dubai,” a person involved in the plans said, referring to the leading Middle East transport hub.

In mid-June, former senior AirAsia executive Kathleen Tan, seen as one of Fernandes’ most trusted

Key Points Budget carrier studying dual Hong Kong listing - sources AirAsia group eyes possible JV in China to target rising cities Sees ample growth in N.Asia, elsewhere despite economy fears In talks on further Airbus jets orders ahead of UK air show

executives, rejoined the carrier to head its North Asia operations. This included responsibility for building the airline’s market and brand in China, Hong Kong, Macau, Japan, South Korea and Taiwan.

China contributes nearly 40 per cent of the group’s revenues, but Fernandes said when appointing Tan that there “is still a lot to do in North Asia, ... an important longhaul market”.

After a false start, the AirAsia Japan joint venture is expected to begin operations in the second half of this year.

The company’s longer-term goal is to have a joint venture in either Hong Kong or China, said a second source familiar with the company’s thinking. AirAsia has been adding more point-to-point services from Malaysia and Thailand to North Asia.

The goal, added this source, is to use AirAsia’s short-haul and longhaul units to connect passengers from North Asia to Southeast Asia and Australia.

AirAsia operates over 220 flights daily to and from Kuala Lumpur, connecting to over 100 destinations in 24 countries.

It has, however, been involved in a spat with Malaysia Airports, operator of Kuala Lumpur International Airport, over the design of a new budget terminal that began operations in 2014. The AirAsia group says it accounts for 97 per cent of operations at the terminal.

The low-cost goliath - already one of Airbus’s biggest customers - was a launch customer in 2014 for the revamped A330neo and could buy more Airbus planes as early as this week’s Farnborough Airshow, sources familiar with the matter said.

People familiar with the situation said the two companies were in discussions about aircraft orders on the eve of the show. Both companies declined to comment. Reuters

14 Business Daily Tuesday, July 12 2016

International In Brief Rating

Moody’s downgrades again Mozambique debt Rating agency Moody’s has downgraded Mozambique’s government debt from junk rating Caa1 to real junk rating Caa3, but junk is junk.

The agency has basically been saying not to touch Mozambique’s government debt with a barge pole and now they are advising a much longer barge pole. This comes after the country’s government acknowledged that they had shoved some US$1.4 billion in borrowings under the thread-bear carpet, which ruffled the IMF’s feathers ever so what, so Washington took the latest tranche of its loan to the country off the table and kind of took their ball and went home.

Business conditions

Dubai private sector grows slightly The private sector in the sheikhdom of Dubai, the business and trade hub of the United Arab Emirates, pointed to a “sustained recovery in growth momentum” in June, said the UAE’s biggest bank, Emirates NBD, yesterday. The Emirates NBD Dubai Economic Tracker, a composite indicator which measures the pulse of the private sector in the emirate of Dubai, with 2.5 million inhabitants, climbed in June to 54.6, up slightly from 54.5 in May. The lender said the uptick was driven by the improving business conditions in the travel and tourism, and wholesale and retail sectors.

Profits evolution

U.S. banks’ wealth management seen stalling Faced with market volatility and uncertainty, investors have amassed their largest cash pile since 2001.

Elizabeth Dilts

B

ig U.S. banks looking to wealth management to shore up their profits may have to wait for another year according to analysts, who expect market volatility to keep the business subdued throughout 2016.

For years, wealth management has been banks’ crown jewel - a source of high margins and growth in an increasingly challenging regulatory and market environment. But lately that jewel has been losing its lustre.

The biggest U.S. wealth managers have been reporting slower profit growth and slipping margins in recent quarters as confusion about markets’ direction sapped demand for their services in favour of safe assets, such as cash.

Now, as banks kick off secondquarter reporting this week, analysts expect more weakness this year, citing uncertainty related to Britain’s June 23 decision to leave the European Union, U.S. elections and the Federal Reserve’s policy.

On Friday, Barclays analysts cut second-quarter earnings estimates for Morgan Stanley based partially on an expectation of “below trend growth” in wealth management.

They also expect lower revenues at wealth units of Bank of America Corp and Wells Fargo & Co. “Banks promised investors wealth

management (returns), and the business has just been meh,” said Ryan Caldwell, chief investment officer of Chiron Investment Management LLC in Kansas City, which invests in bank stocks.

Profit margins at the wealth management arms of UBS and Morgan Stanley fell 16 percentage points and 1 point respectively in the first quarter over the same quarter last year. Wells Fargo Advisors’ net income fell 14 per cent last quarter over the previous year, according to financial reports.

“The market instability from Brexit will definitely put pressure on (wealth management) goals” Stephen Biggar, head of financial services equity research at Argus.

Barclays projects that Morgan Stanley’s margins will stay at around 21 per cent in the second quarter.

U n t i l c o n d i t i o n s i m p r o v e, “investors are going to be wondering

CPI

Egypt’s urban consumer inflation jumps Egypt’s urban consumer inflation jumped for a third straight month in June as consumer demand spiked during Ramadan, official data showed on Sunday. Food demand normally surges during the Muslim holy month because of heavy consumption following the dawn-to-dusk fasting period. Ramadan this year began on June 6 and ended on July 5. Urban consumer inflation accelerated to 14 percent in June from 12.3 percent in May, the statistics agency said. Core inflation, which excludes items such as fruit and vegetables because their prices fluctuate widely, rose to 12.37 percent year on year in June.

Growth

Italian industrial production falls Italian industrial production fell in May, creating further difficulties for Prime Minister Matteo Renzi’s plans to put the economy on a stable footing. Output decreased 0.6 percent from April, when it rose a revised 0.4 percent, national statistics office Istat said in Rome yesterday. The median estimate of 16 analysts surveyed by Bloomberg News called for growth of 0.1 percent in May. On an annual, work day-adjusted basis industrial production also fell 0.6 percent. The International Monetary Fund estimates that the Italian economy will expand 1.1 percent this year, trailing most other euro-area nations.

Profit margins at the wealth management arms of UBS and Morgan Stanley fell 16 percentage points and 1 point respectively in the first quarter over the same quarter last year

how banks are going to drive returns,” Caldwell added.

Faced with market volatility and uncertainty, investors have amassed their largest cash pile since 2001 and equity holdings are at a four-year low, according to a Bank of America Merrill Lynch study released in mid-June. That trend hurts wealth managers’ ability to generate fee income from managing clients’ assets.

The weakened wealth business leaves banks scrambling to generate profits as they have to contend with low interest rates, weak loan demand, poor trading conditions, a dearth of investment banking activity and escalating regulatory costs.

Banks have long touted wealth management as a remedy - a source of a steady stream of fees from a growing pool of assets.

Top executives have also promised investors fat margins from the business, betting that wealth clients will come to them for other financial services, like loans.

“We decided it was very important to add ballast to our institution to give us protection during a period of downside,” Morgan Stanley CEO James Gorman said in June. “Wealth and asset management business is now almost exactly 50 per cent of our firm revenues.”

Gorman has promised the wealth business will bring pre-tax profit margins of 25 per cent by next year.

Last quarter, however, Morgan Stanley struggled to reach a 21 per cent margin and analysts doubt such lofty goals are within reach anytime soon.

Compliance costs are another concern. The Labour Department estimates that a rule it issued in April will cost the wealth management industry between US$10 and US$31 billion in technology, legal counsel, training and new sales policy fees over the first decade.

That comes on top of routine compliance expenses, including fines issued by the Financial Industry Regulatory Authority or the U.S. Securities and Exchange Commission, which have been cracking down on risky behaviour. Reuters

Budgetary deficit

French minister says Portugal ‘does not deserve’ EU penalties Spain and Portugal have been under the EU’s excessive deficit procedure since 2009.

French Finance Minister Michel Sapin said yesterday that Portugal does not deserve European Union penalties for government budgetary overruns.

“Portugal has made enormous efforts in the past years. It does not deserve excessive discipline,” said Sapin in Paris, speaking on his way to a meeting of European finance ministers.

The ministers are meeting in Brussels and are mulling possible sanctions against Spain and Portugal for running up excessive deficits but Sapin insisted formal action was unwarranted.

“Certainly the (European) Commission is within its rights and perhaps even its duty when it points out that Portugal has not respected its commitments” to stay within EU deficit guidelines, Sapin said.

But he noted that Lisbon had been battling “extremely violent” economic headwinds in recent years marked by austerity and added Portugal’s deficit problem stemmed in part from a state bailout of Banif bank last December.

The commission last Thursday

officially declared Spain and Portugal in violation of EU public spending rules, the first step towards what would be unprecedented penalties against members of the bloc.

“Certainly the (European) Commission is within its rights and perhaps even its duty when it points out that Portugal has not respected its commitments” Michel Sapin, French Finance Minister

The commission, the EU’s executive arm, set the countdown to possible sanctions despite fears that austerity

orthodoxy by Brussels will further stoke anti-EU populism in the wake of the Brexit vote and a weak economic recovery.

Many EU powers, led by Germany, have long hoped for the commission to crack down on public over spenders, even amid the fallout of the British vote to quit the bloc.

The commission could impose fines of up to 0.2 per cent of gross domestic product on eurozone countries that repeatedly ignore the rules - but has to date fought shy of doing so.

Portuguese Prime Minister Antonio Costa warned last week that Brussels would only embolden euroscepticism if Brussels applies sanctions.

Spain and Portugal have been under the EU’s excessive deficit procedure since 2009 because of recurrent fiscal holes following the global financial crisis.

Spain last year reported a deficit of 5.1 per cent of gross domestic product (GDP), way off the target of 4.2 per cent set by the commission and the normal 3.0 per cent limit.

Bailed out Portugal, long considered a star reformer, sharply cut its budget deficit from close to 10 per cent of GDP in 2010 to 4.4 per cent last year, but that still overshoots targets and the bloc’s limit. AFP

Business Daily Tuesday, July 12 2016 15

Opinion Business Wires

The Jakarta Post Indonesia’s oil and gas and heyday may have come to an end, with noncommodity sectors taking over as the engine of growth over the next ten years, according to a recent study by Fitch Group’s BMI Research. “Growth in Indonesia will be far less commoditycentric than over the past decade, as the mining and oil and gas sectors will stagnate,” BMI Research said in its latest report, entitled Ten Emerging Markets of the Future. Indonesia is included in the top-10 list, along with the Philippines, Vietnam, Myanmar, Pakistan, Bangladesh, Egypt, Ethiopia, Kenya and Nigeria.

Ministers and their delegation members attend the opening session of the G20 Trade Ministers Meeting in Shanghai last weekend marking another step towards September’s summit

Realizing the potential of China’s G20 presidency

The Straits Times Singapore has unveiled its latest plan to tackle climate change and meet its targets under the Paris climate change agreement, with measures including a new heat stress information system to help the public better plan outdoor activities. The system, which could be similar to current health advisories for haze, will be ready by the year end.

The plan was outlined in two booklets, jointly titled Climate Action Plan, announced yesterday by President Tony Tan Keng Yam at the opening ceremony of the World Cities Summit, Singapore International Water Week and CleanEnviro Summit Singapore at Marina Bay Sands.

The Star Backed by capacity expansion and better margins growth that would lead to stronger earnings, the plastics and packaging industry (in Malaysia) could pique investors’ interests in coming months, according to Kenanga Research. While a sector re-rating was due, the research house in reiterating an “overweight” call, said the industry would fare well for investors due to the favourable foreign exchange rates and low raw material prices. Shares of Scientex Bhd and SLP Resources Bhd advanced on Friday after Kenanga raised the plastics and packaging sector to “overweight”, from neutral.

Bangkok Post Siam Commercial Bank (SCB) is making strides in its transformation programme, designed to strengthen the bank’s business potential and competitive edge, after slow initial progress. “It is necessary to make a serious push to achieve the first phase of SCB Transformation, scheduled to be completed at the end of this year,” said Arthid Nanthawithaya, president and chief executive. The country’s third-largest lender by assets kicked off SCB Transformation running through 2020 in April last year to sharpen its competitiveness in the face of rapid change in the global business environment following the rise of financial technology.

I

n the run-up to this September’s G20 summit in Hangzhou, China, there has been much talk about strengthening global macroeconomic cooperation and reforming the international monetary system. While this is far from the first time these topics have come up – in 2011, for example, France pushed for monetary reform, but was waylaid by the eurozone crisis – the time may be ripe for genuine progress.

Today’s global economy is plagued by uncertainty.

Inconsistent data have lately raised questions about the strength of the United States’ economy. When it comes to Japan, the data are even more erratic.

The European Union faces not only a still-weak recovery, but also the possibility of losing the United Kingdom as a member.

The emerging world, meanwhile, is experiencing a sharp economic slowdown. China, in particular, poses a significant risk, with many fearing that its downturn will be more severe than initially anticipated. This has spurred many to move their capital out of the country, generating strong downward pressure on the renminbi.

This highlights another source of uncertainty today: exchange rates. From the euro’s decline in 2014-2015 to the US dollar’s decline after the Federal Reserve signalled a postponement of its rate increases to the British pound’s recent drop, spurred by uncertainty surrounding the recent referendum on EU membership, major currencies have been all over the map in recent years. Some have even mooted suspicions of competitive devaluation.

At a time when a policy change in one country reverberates throughout the global economy, stronger cooperation could be vital to enhancing overall stability. And, indeed, to some extent, world leaders have already recognized this imperative.

Since the global financial crisis erupted in 2008, many initiatives aimed at boosting macroeconomic cooperation have been undertaken. For example, the G20 launched the Mutual Assessment Process, whereby member countries are evaluated on the basis of agreed indicators. The International Monetary Fund’s surveillance of macroeconomic policies has also been enhanced, with the implementation of a new set of multilateral surveillance tools that focus on major economies.

These reforms, it has been said, make for the most elaborate system of multilateral macroeconomic cooperation in history.

And yet the G20 still finds it extremely difficult to fulfil its objective, agreed in 2009, to “act together to generate strong, sustainable, and balanced global growth.” Among the most notable obstacles has been the inability to compel some surplus economies to pursue growth-stimulating policies, which would compensate for the recessionary effects of adjustment in the deficit countries.

This failure is perhaps most pronounced within the eurozone, where Germany and the Netherlands

“

José Antonio Ocampo was Minister of Finance of Colombia and United Nations Under-Secretary-General for Economic and Social Affairs

have failed to reduce their surpluses, even as the deficit economies have undergone massive adjustments. As a result, the eurozone has gone from having an overall deficit in 2008 to being a major surplus region – a shock that has subtracted about 1 per cent from global demand.

Macroeconomic cooperation clearly must be made more effective. But, as recent exchangerate volatility has shown, even that will not be enough to stabilize the global economy. Monetary reform is also needed.

Such reform must include a reconsideration of the US dollar’s outsize role in shaping the international monetary system. In an increasingly multipolar world, would it not be more appropriate to build a multicurrency system and make greater use of the only global currency that has ever been created: the IMF’s Special Drawing Rights (SDRs)?

Establishing the SDR as the leading global reserve currency would have farreaching benefits. It would allow all countries – not just major economic powers – to enjoy “seigniorage,” or the profits brought by money creation. Moreover, as the IMF economist Jacques Polak suggested long ago, the IMF could finance its programs by creating SDRs, eliminating the cumbersome negotiations required to secure credits or raise member quotas.

And SDRs could support development; for example, they could be allocated in a larger proportion to developing countries, which have greater demand for foreign-exchange reserves.

China’s G20 leadership could be the impetus the group needs to initiate this shift. Zhou Xiaochuan, Governor of the People’s Bank of China, was among the first to question the dollar’s role, some seven years ago, and China has been working steadily to internationalize the renminbi. That effort reached a milestone in 2015, when the IMF Board agreed to add the renminbi to the basket of currencies that determines the SDR’s value.

Beyond the push to use SDRs more actively in IMF programs, governments could issue SDRdenominated bonds. Moreover, private banks could increase their use of this monetary unit, just as some European banks used the so-called European Currency Unit, helping to pave the way for the euro.

The G20’s China summit represents an important opportunity to improve macroeconomic cooperation and launch major reforms of the global monetary system. For the sake of balanced growth in developed and developing countries alike, it must not be squandered. Project Syndicate

In an increasingly multipolar world, would it not be more appropriate to build a multicurrency system and make greater use of the only global currency that has ever been created: the IMF’s Special Drawing Rights?

”

16 Business Daily Tuesday, July 12 2016

Closing Football investment

Mainland billions flood soccer Chinese Super League clubs outspent those from any other country this past winter, spending a combined US$280 million for European soccer stars.

Tariq Panja, Rachel Chang and Jonathan Browning

H

ulk had quite the welcome to China. Shortly after his plane landed at Shanghai’s Pudong International Airport, hundreds of chanting fans mobbed the Brazilian soccer star as he pushed his way through the crowd on June 29. Hulk, who recently inked a record-breaking deal with Shanghai SIPG, is just the most recent soccer star to sign up.

Long a soccer backwater, China has gone on a buying spree unprecedented in the history of the game. Chinese money, of course, has been flowing into all sorts of sectors: technology, health care, retailing, you name it. And now it’s soccer, a move that follows Middle Eastern and Russian investments into the game.

What differentiates China is the speed and scale of the country’s newfound appetite for all things soccer.

Chinese companies have invested US$1.7 billion in sports assets - the vast majority soccer-related - since the beginning of 2015, according to Bloomberg data. As recently as five years ago, that number was zero.

“It’s insane,” said Brazil-based sports lawyer Marcos Motta, who’s worked on several deals. “I have never seen anything like this before.”

Richest men

Led by some of the country’s richest men, including Dalian Wanda Group Co. founder Wang Jianlin and Alibaba Group Holding Ltd.’s Jack Ma, Chinese businesses are at the table for almost every soccer asset up for sale.

In recent months, a dizzying array of deals have roiled the industry - from signing soccer players and coaches to Chinese investments in storied clubs and buyouts of sports-media businesses.

Next year the Milan derby, one of European soccer’s most-prestigious games, will feature two teams recently purchased by the Chinese, assuming both deals conclude without a snag. Nanjing-based Suning Holding Group Co. in June paid 270 million euros (US$298 million) for a 70 per cent stake in 18-time Italian champion Inter Milan, while a separate consortium is nearing an agreement

to acquire 80 per cent of AC Milan, a seven-time European champion, from former Italian Prime Minister Silvio Berlusconi.

“There will be more acquisitions and of very famous teams,” said Feng Tao, chief executive officer of Shankai Sports, a Beijing-based consultant that has advised on deals, including Wanda’s US$1.2 billion purchase of Swiss-based sports-marketing company Infront Sports & Media AG.

Imported talent

Most striking of all, though, has been the sudden rush by teams to pay huge sums on importing talent. Chinese Super League clubs outspent those from any other country this past winter, spending a combined US$280 million for European soccer stars. And Shanghai SIPG, a team owned by the Shanghai International Port Group, just broke the Chinese record again with its trade to acquire Givanildo Vieira de Sousa, popularly known as Hulk, for US$61 million. Paving the way have been agreements with soccer’s top agents. Alibaba’s sports unit has a partnership with Cristiano Ronaldo’s manager Jorge Mendes.

The dollars doled out to China-bound players and coaches are infinitely greater than they could command elsewhere, according to Motta. It’s common for top players to get 7 million or 8 million euros, more than five times what they would get in Europe, he said. Motta is working on a deal that will pay one player 13 million euros per year, he added and that’s after taxes.

Audacious goal

Chinese President Xi Jinping, an avid soccer fan, is fuelling the spending spree. He’s eager for China to improve its global soccer standing: The national team is ranked 81st, just after

Jordan and before Bolivia. And he covets hosting a World Cup - and winning it by 2050. That’s providing the green light for Chinese businesses, eager to please the government, to open their wallets.

Coinciding with Xi’s zeal for the game is an effort on the part of the government to promote sports and exercise to the new urban working class, recently transplanted from farms. A national plan announced last year contains the audacious goal of spurring an industry worth 5 trillion-yuan (US$747 billion) by 2025, when 50,000 schools are expected to offer specialized soccer training.

The Chinese are spreading out all over Europe with open check books.

On a visit to the U.K. in October 2015, Xi, accompanied by Prime Minister David Cameron, visited Manchester City, the English soccer team owned by the Abu Dhabi royal family. He posed for a selfie with Cameron and City’s star Argentine striker, Sergio Aguero. Two months later City Football Group, which owns the team, announced a US$400 million investment from China Media Capital for a 13 per cent stake.

FIFA deal

That same month, a unit of Alibaba paid an undisclosed amount, believed to be in the tens of millions of dollars, to become title sponsor of soccer governing body FIFA’s annual Club World Cup. In March, Wanda signed a US$150 million agreement to become FIFA’s first Chinese sponsor. The two companies are the only new sponsors to engage with FIFA since the U.S. Department of Justice unveiled an industry-rocking indictment that accused several senior FIFA officials of “rampant corruption” dating back more than two decades.

Wanda has also bought a minority stake in Atlético de Madrid, last season’s Champions League finalist.

That deal was followed by a slew of Chinese companies investing in European clubs to buy soccer expertise China doesn’t have and to help

develop young players. Buyers are popping up in every corner of the country’s business elite, from the owner of a monosodium glutamate company buying England’s Aston Villa to a consortium led by hotel entrepreneur Chien Lee taking control of France’s OGC Nice.

Nice Hotel

For Nice co-owner Lee, the club’s training academy, which has nurtured players including French national team captain Hugo Lloris, is a model to export to the mainland.

“I see this as a big opportunity. Our plan is to bring the Nice academy to China, to open a training centre in China.”

Soccer investors such as Lee and Guangdong province-based toy car-maker Rastar Group, which controls Spanish club RCD Espanyol, say they see opportunities to profit from their country-men’s growing interest in the sport, and their increasing willingness to spend on overseas travel.

“Our goal is not just to promote OGC Nice, but to promote the whole city of Nice to China,” said Lee, who co-founded hotels investor Plateno Group Ltd. He said he has been scouting locations for a hotel in the French city.

Rastar has started organizing tours to Espanyol’s facilities in Barcelona for Chinese children and soccer fans since buying a controlling stake in the team in November, and the weakening of the euro following the Brexit vote will further sweeten the deal, its board secretary Yang Nong said in an interview.

European backlash

Still, Chinese investors risk facing a backlash for overreaching in Europe.

Portuguese soccer fans cried foul earlier this year when Chinese LED light manufacturer Ledman Optoelectronic Co. made sponsorship of a soccer division there contingent on top teams fielding Chinese players.

Ledman backed off its demands.

The buying spree isn’t limited to players and teams. A bidding war ended with a unit of China Media Capital paying US$1.3 billion for a five-year contract to broadcast China’s national league game. That’s about 13 times the amount the contract was worth in 2015.

“It’s a very unique moment,” said Adolfo Bara, marketing director of Spain’s top league, which has attracted significant Chinese investment recently. “There’s so much money in China.” Bloomberg News

Aircraft industry

Trade

Delivery service

Xiamen Airlines to expand its Boeing fleet

South Korea’s exports post double-digit fall

Indian post offices start selling Ganges water

Boeing Co. signed a memorandum of understanding to sell 30 aircraft to China’s Xiamen Airlines in a deal worth US$3.39 billion at list prices.

The order is for 737 Max 200 planes to the Xiamen, China-based carrier. The airline, which is already a 737 Max customer, sees the Max 200 as a fit for its low-cost subsidiaries, including Jiangxi Airlines and Hebei Airlines, according to a statement issued at the Farnborough Airshow yesterday.

The purchase will help Xiamen Airlines, a subsidiary of state-backed China Southern Airlines Co., broaden its fleet to 200 airplanes by the end of the decade as it looks to expand regionally with the new 737 Max. Xiamen Airlines currently operates an all-Boeing fleet of more than 140 airplanes including six 787 Dreamliners, 130 Next-Generation 737s and four 757s, according to the statement.

The finalization of the agreement requires approval from the boards of Xiamen Airlines and China Southern, as well as the Chinese government, according to the statement.

The planned plane purchase is part of a US$10 billion order announced in December for China Southern and Xiamen Air. Bloomberg News

Exports, which account for about half of the export-driven economy, posted a double-digit decline for the first 10 days of July, boosting worries about the delayed recovery, customs data showed yesterday.

During the July 1-10 period, the exports tumbled 21.6 per cent from the same period of last year at US$10.35 billion, according to the Korea Customs Service (KCS). The country’s exports kept the longest monthly reduction for 18 months through June.

The June exports inched down 2.7 per cent, but the July shipments posted a double-digit fall, boosting worries about the economy’s growth engine.

Adding to the concerns, Seoul and Washington decided last Friday to deploy the U.S. missile defence system, called the Terminal High Altitude Area Defence (THAAD), in South Korea’s soil by the end of next year.

Cheong Seong-Chang, a senior researcher at the private Sejong Institute, said that the THAAD decision would cause a drop in Chinese tourists visiting South Korea, a cooling in the popularity of the socalled Korean Wave and the possible boycotting of South Korean products in China. Xinhua

Indian government has initiated a service to sell water from Ganges from its post offices across the country, officials said yesterday.

Water from Ganges River is considered to be holy

by Hindus.

The service was launched by India’s federal ministers Ravi Shankar Prasad and Manoj Sinha on Sunday at Patna city, the capital of eastern Indian state of Bihar.

“Now holy Gangajal (Ganga water) from Gangotri and Rishikesh will be available at all the post offices at nominal prices,” Prasad said. “With this Indian Post will also deliver Gangajal to people’s doorstep.”

The water from Ganges will be sold in packaged bottles and the plan to sell it was mooted on May 30 this year.

Officials said people can also place their orders online and get the water delivered at their doorsteps.

Many Hindus believe that water from Ganges has the power to wash away sins of humans.

Though revered by Indian Hindus, the Ganges during its course is slowly poisoned with industrial wastes and pollution from the population that reside along its banks. Xinhua