Galaxy nurtures new VIPs as casino rebound elusive Retail Page 7
Friday, July 15 2016 Year V Nr. 1087 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Land
Cecil Chao: No construction permit for Coloane project in sight Page 6
www.macaubusinessdaily.com
Mainland markets
SGX
Chinese regulators cracking down on stock exchange anomaly exploited by investors Page 10
Singapore Stock Exchange halts trading due to technical problems Page 16
Taxi Debate Heating Up Transportation
Taxi regulations are subject to revision. And under discussion in the Legislative Assembly yesterday. But the gov’t insists ride-sharing apps such as Uber are illegal as the law currently stands. Lots of issues. Lots of opinions. And lots of public demand. Page 2
Office romance on the wane
Real estate Local office rentals fell 20.3 pct y-o-y in H1. Realtor Jones Lang LaSalle predicts cost cutting companies and gaming corporations’ relocations of offices to their new gaming projects means more offices will be available on the market in H2. Page 3
Buyers’ market
The hotel room price index plummeted 29.27 pct y-o-y in Q2. Contributing to an overall Tourist Price Index drop of 7 pct y-o-y, DSEC data reveals. The decrease in airfares has also been cited.
Asia beckoning
Tourism price Page 2
HK Hang Seng Index July 14, 2016
21,561.06 +238.69 (+ 1.12%) Worst Performers
Sino Land Co Ltd
+2.47%
CITIC Ltd
+1.91%
Kunlun Energy Co Ltd
Belle International Holdings
-0.43%
Lenovo Group Ltd
+2.16%
Bank of East Asia Ltd/The
+1.81%
Li & Fung Ltd
-1.87%
China Shenhua Energy Co
-0.13%
Wharf Holdings Ltd/The
+2.16%
China Resources Power
+1.79%
China Mengniu Dairy Co Ltd
-1.60%
CNOOC Ltd
Hang Lung Properties Ltd
+2.00%
MTR Corp Ltd
+1.57%
Hengan International Group
Cheung Kong Property
+1.46%
Tingyi Cayman Islands
Bank of China Ltd
+1.93%
-5.48%
-1.11% -0.69%
+0.20%
Power Assets Holdings Ltd
+0.35%
China Overseas Land &
+0.58%
28° 32° 28° 32° 28° 32° 28° 31° 28° 31° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Facing volatility Post-Brexit, Asia is perfectly positioned to attract global money managers. Foreign investors think countries in the region can withstand global volatility better than before. Thanks largely to stronger capital buffers. Page 12
2 Business Daily Friday, July 15 2016
Macau Tourism
Tourist Price Index drops in Q2
Cheaper tourism The drop in Macau’s tourist price index for the second quarter was mainly due to cheaper hotel prices.
fall in hotel room rates and airfares after the Chinese New Year holiday. On the other hand, the new arrival of Summer Clothing & Footwear and the increased prices of handbags have caused the price index of Clothing & Footwear to increase by 4.74 per cent quarter-to quarter.
Annie Lao annie.lao@macaubusinessdaily.com
Average drop
T
he city’s Tourist Price Index (TPI) for the second quarter of this year decreased by 7 per cent year-on-year to 125.19, mainly due to the drop in hotel prices, which plummeted 29.27 per cent year-onyear, being an ongoing decline since the fourth quarter of 2014. Another cause for the drop is the decrease in airfares, according to the latest data released by the Statistics and Census Service (DSEC) yesterday. The price index of Transport & Communications decreased by 11.32 per cent year-on-year. However, the price index of Restaurant Services and Miscellaneous Goods increased by 1.98 per cent and 1.84 per cent, respectively. TPI reflects the price changes of goods and services purchased by visitors in Macau.
Until the second quarter of this year, the average TPI of the previous four quarters indicates a fall of 4.86 per cent compared to the previous period.
The price index of Accommodation shows a significant decrease of 18.32 per cent, while the price index of Clothing & Footwear indicates a 3.1 per cent drop. Overall, the first half year’s TPI was down by 6.83 per cent year-onyear. The most significant drop was the price index of Accommodation, down by 26.10 per cent year-on year. The price index of Transport & Communications fell by 4.35 per cent year-on-year. At the same time, the price index of Food, Alcoholic Drinks & Tobacco and Restaurant Services both went up by 2.42 per cent and 1.71 per cent year-on-year, respectively.
The categories of goods and services selected are based upon the consumption pattern of visitors in the city, including Food, Alcoholic Beverages & Tobacco; Clothing & Footwear; Accommodation; Restaurant Services; Transport & Communications; Medicine & Personal Goods; Entertainment & Cultural Activities; and Miscellaneous Goods. The TPI has been weighted mostly by Accommodation (23.06), Restaurant Services (17.47) and Clothing & Footwear (15.81), which comprise more than half of the measurement of goods and services the government calculates for the TPI.
6.83
Quarterly fall
The TPI for this quarter dropped by 8.25 per cent quarter-to-quarter. Compared to the previous quarter, the price index of Accommodation and Transport & Communications fell by 32.37 per cent and 17.13 per cent, respectively, mainly due to the
pct Tourist Price Index drops y-o-y in H1
Transportation Gov’t wants 1,600 taxi licences by the end of the year
Who owns the blame? Legislators want the proposed taxi sanctions to be clearer whether the responsibility of infractions will fall on taxi drivers or owners, if audio recording in taxis should be voluntary, and the acknowledgement of the public demands for Uber legalisation. Nelson Moura nelson.moura@macaubusinessdaily.com
Proposed taxi infraction sanctions state in cases where the driver continues driving after previous suspensions that their licence will be cancelled permanently. Legislators at yesterday’s Legislative Assembly (AL) plenary session took the government to task about taxi infractions sanctions being clearer regarding responsibility falling on the owner of the taxi licence or just the driver. For some legislators the sanctions penalise the licence owners too harshly, arguing licence owners’ investment in their licence would be jeopardised by “black sheep” drivers. “I talked with the responsible [person] for a taxi association and he said it’s hard for the employer to control the employees in cases of infraction,” legislator Chan Lek Lap stated.
For legislator Jose Chui Sai Peng the relationship between taxi owner and taxi driver is undeniable but the legislation should take into account if the “owner can control the driver” and that neither the “driver or the passengers” should be penalised. In response, Secretary for Transport and Public Works Raimundo do Rosário stated that the relationship between employer and employee would be “well studied” before sanctions were applied Other legislators like Lam Heong Sang and Ella Lei Cheng I urged the government to focus instead on sanctions and fines, exert more effort in deciding who gets the taxi driving licences, and questioning how many licences the government was planning to allow in Macau. “If we don’t prevent these infractions all these sanctions are just a post mortem,” Ella Lei Cheng I stated.
In response, Raimundo do Rosário stated that currently there are “1,400 taxis” and that the government plans to have at least “1,600 by the end of the year.” “Last year, we had a public tender for 250 licences, and this year there will be 100 for radio called taxis,” he stated. The Secretary also added that the current “560 life taxi licences” would not be cancelled.
Audio choice
DSAJ deputy director Leong Pou Ieng stated that the government was debating if a audio recording should be mandatory or dependent upon the taxi driver’s request. The Director of the Transport Bureau (DSAT), Lam Hin San, added that mandatory audio recording had “serious privacy issues that would have to be discussed.”
“If this was mandatory, the passenger doesn’t have a choice. Were studying its voluntary installation maybe with a warning in Chinese and Portuguese for passengers,” Lam Hin San stated. Legislator Chan Melinda Mei Yi questioned the government about whether a response would be forthcoming after Uber presented 3,000 letters from local citizens a n d t o u r i sts a dv o cat i n g ca rsharing service legalisation in Macau. I n r e s p o n s e, R a i m u n d o d o Rosário only said that any “car service that doesn’t follow the laws and regulations of Macau is illegal,” to which legislator Ho Ion Sang responded that “maybe the law is obsolete” and that “instead of just refusing it” the government should study the service utility.
Land
Polite refusal The president of the Legislative Assembly stated that legislator Gabriel Tong Io Cheng refused to ask the Chief Executive to authorise the debate and vote on his proposed Land Law alteration The Land Law alteration proposed by legislator Gabriel Tong Io Cheng has to be authorised by the Chief Executive to be brought before the Legislative Assembly (AL) to discuss or vote, but the legislator “refused to do so”, AL president Ho Iat Seng revealed on the sidelines of yesterday’s plenary session. Last week, Legislator Gabriel Tong submitted a draft of an “interpretative law” on the Land Law’s clauses regulating provisional land concessions that he wanted the AL to debate and vote upon. The president of AL said because of the draft’s extraordinary
nature Tong has to ask for the Chief Executive’s permission for the draft to be submitted, as mandated in the Basic Law. However, Tong refused to do so and insisted he was only asking for an interpretation of the law, according to Ho Iat Seng. Ho Iat Seng added that he has instructed the technician department to review the recordings of the meetings discussing the Land Law, including 43 meetings at sub-committee and two plenary meetings, in order to analyse the original purpose of the legislation. He anticipates the work will take months to be done. N.M.
Business Daily Friday, July 15 2016 3
Macau Real estate Office and shop rents plunge in H1
Jones Lang LaSalle: More vacant offices in H2 The possible halt of gaming operators using local offices may drive an increase in the vacancy rate of the office property market. Kam Leong kamleong@macaubusinessdaily.com
T
he city may see more offices left vacant for the rest of the year due to companies’ cost cutting policies and gaming corporations’ relocations of their offices to their new gaming projects, said Jones Lang LaSalle (Macau) Ltd. yesterday in its mid-year review and forecast. For the first half of the year, the real estate service firm saw the overall rental values of local offices fall 20.3 per cent compared to the same period of last year. Meanwhile, Grade A offices posted a year-on-year fall of 14.5 per cent in their rents. “With several major gaming facilities completed in the second half of 2016, we expect to see some gaming operators relocating their operations from the existing offices to the new projects. This may lead to a rise in office vacancy rate,” the firm’s associate director of capital markets, Alison Yip, said in a press briefing yesterday. As at the end of June, the overall office vacancy rate in the city went up slightly to eight per cent from six per cent one year ago, with office supply remaining at a low level, Ms. Yip said. According to her, the decrease in office rental values is pressured by “the weak investment sentiment and cost cutting policies adopted by some corperates” amid the economic adjustment phase, coupled with a
notable decline in demand from offshore companies and gaming-related operators. The property index of JLL Macau also shows the capital values for the overall office market in the city decreased by 25.1 per cent year-on-year during the first half, whilst that for Grade A office market was down 24.4 per cent year-on-year on average. “Currently, the market is in the tenants’ favour and they are enjoying a bigger bargaining power,” Ms. Yip said, adding “some companies may consider upgrading their office environment by committing to a bigger space at a relatively lower rental”.
Shop rents discounted
The retail property market was under pressures during the first half of the year, as well, said Oliver Tong, the firm’s associate director of retail. For the first six months, the overall rental in the city’s retail property market was slashed by 18.6 per cent year-on-year, whilst the capital values of the market plunged by 23.6 per cent year-on-year, according to the firm’s retail index. “Some landlords became more flexible in rental negotiations and were willing to offer tenants a relatively big discount in rental,” Mr. Tong indicated yesterday. But the fall in the rental values, nevertheless, had attracted at least 10 leasing transactions in major tourism areas in the period, such as Senado Square, he added.
According to the retail market-focused property agent, nearly half of these transactions were supported by cosmetic retailers, followed by sportswear retailers. In addition, they include international crystal jewellery retailer Swarovski’s leasing deal for a standalone property in Senado Square, which used to house McDonald’s, for a monthly rental of some HK$1.3 million (US$162,500). “Macau’s retail landscape is expected to become more sophisticated and comprehensive upon completion of the other new major facilities such as Wynn Palace and Parisian Macao in the second half of 2016,” Mr. Tong forecasted.
Home rents dive
Meanwhile, JLL’s residential index indicated that the rental values in the local luxury home market plunged by 29 per cent year-on-year during the first half of the year.
The firm’s head of residential in Macau, Jeff Wong, explained the drop was driven by the decline in the number of blue cards granted to expatriates engaged in the professional sectors. In addition, the rental values for mass-to-medium residential property also fell by 24.6 per cent year-onyear in the period due to the increase in new housing supply in 2015, the real estate agent said. For sales market, capital values for high-end and mass-to-medium residential properties respectively decreased by 15.4 per cent and 14.7 per cent compared to the first half of 2015, according to the company’s data. “With the low unemployment rate in Macau and the new gaming facilities scheduled for completion in 2016, we expect the residential prices will remain stable at the existing level with only minor fluctuations in the second half of the year,” Mr. Wong predicted.
4 Business Daily Friday, July 15 2016
Macau Society
Assisting young people to develop The SAR Government plans to offer interestfree loans for learning foreign languages and discounted rentals for youth enterprises. Annie Lao annie.lao@macaubusinessdaily.com
Culture
T
he Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, met with the Industry and Commerce Association of Macau to exchange ideas on youth entrepreneurship and the development of cultural and creative industry in the city on Wednesday at Government Headquarters, according to a press release published by the Office of the Secretary for Social Affairs and Culture (GSASC) yesterday.
Alexis Tam said that the SAR Government is planning to provide interest-free loans to young people to learn foreign languages in order to improve their language kills and increase their competitiveness as professionals. The Industry and Commerce Association of Macau hopes the SAR Government can improve the process of procurement and put emphasis on using local enterprises for the bidding mechanism.
Th e SA R G o v e r n m e n t h a s policies in place to promote the cultural and creative industry, including prioritizing t h e p u rc h a s e o f l o c a l g o o d s and services, Alexis Tam said. In addition, he hopes the business sector can support the development of the cultural and creative industry in the city by offering discounts on property rentals and lease deals for local entrepreneurs.
Guangdong, Hong Kong and Macau Youth Cultural Tour
Delta youngsters The cultural exchange programme seeks to foster an interest in the creative industry in students. Annie Lao annie.lao@macaubusinessdaily.com
remains the same as the previous year, according to GAES.
With an aim of building a closer working relationship between Guangdong, Hong Kong and Macau in order to further develop the business, culture and human resource sectors as a whole in the Pearl River Delta region, the 2016 Guangdong, Hong Kong and Macau Youth Cultural Tour kicked off this week. The opening ceremony was held on Tuesday in Macau. This 10-day exchange programme provides a platform for university students from Guangdong, Hong Kong and Macau to further understand each other’s culture, history and economic development. Over the 10 days, participating students will visit Macau for three days, Hong Kong for two days and Guangdong for five days. The Macau SAR Tertiary Education Services Office (GAES) has allocated a budget of MOP350,000 (US$ 43,796) to cover the costs of hosting all students whilst in Macau. The budget
Various programmes
More than 100 students from various colleges and universities in Macau, Hong Kong and Guangdong have participated in the exchange programme. The total number of participants is the same as last year, according to GAES. This year’s theme is creativity, innovation and entrepreneurship. The exchange programme includes lectures, visits, tours, interviews, exchanges and team training activities. The students will visit the city’s world heritage sites, including Macau Science Centre, Macau Museum of Art, 10 Fantasia, Tap Seac Gallery and Anim’Arte Nam Van. “Each year’s event has different themes. The exchange programme e n a b l e s st u d e n t s t o f u r t h e r understand the latest development in the cultural and creative industry in the three regions. It also gives
Vong Iut Peng, functional head of the Tertiary Education Services Office
them an opportunity to broaden their horizons,” Vong Iut Peng, functional head of the Tertiary Education Services Office told reporters covering the event. “All the participating students are from different areas of their studies. The programme gives them an opportunity to explore the creative industry which can help to foster their interest in working in the creative industry later on once they have finished their degrees,” Ms. Vong said. The event is free of charge for all participant students, and is funded and organised by GAES, the Hong Kong SAR Home Affairs Department and the Department of Culture of Guangdong Province. The event first started in 2009, with this year marking the eighth edition.
Open doors
Kelly Ng Pui Man, Macau Student
Participating students hope to conduct exchanges with students from different places and backgrounds so that they can learn about their cultures. Local students see the creative industry as a door to opening up different areas for them to develop upon graduation. Kelly Ng Pui Man, one of the Macau students participating in the programme, and currently studying for a nursing degree at Macau Polytechnic Institute, said, “I find
this year’s exchange programme interesting as I can see the Macau Government supports the local creative industry such as craft markets in Nam Van.” Leonardo Poon Chok Kei, a Hong Kong student participant from Hong Kong Polytechnic University currently studying for an accounting and finance degree believes that it is not necessary to have a degree in the arts in order to be able to work in the creative industry and thinks that interest in the arts should be fostered over time. “This programme gives me the opportunity to experience what the cultural industry is like in different places. Some famous artists, filmmakers and directors from Hong Kong don’t have an arts degree but can still work and pursue a career in the creative industry,” he said. Zhong Xiao Yin, a participating student from the Guangdong Dance and Drama College studying arts management said that her first impression of Macau is all about casinos and believes that this exchange would give her a different perspective of Macau. “It is about cultural understanding as we cannot fully experience the local culture on the Internet. By joining the exchange programme, it gives me the opportunity to experience the authentic local culture in person.”
Business Daily Friday, July 15 2016 5
Macau Land DSSOPT investigation under way although without a time limit for completion
On shaky ground The Secretary of the DSSOPT assures the public that the investigation into the Iec Long land swaps is under way. Former DSSOPT Director Jaime Carion’s willful involvement is doubted, Shun Tak still stands on shaky ground until the DSSOPT investigation is concluded and Neto Valente says the report could undermine investment in the SAR. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
S
ecretary for Transport and Public Works (DSSOPT) Raimundo do Rosário says that he has not yet drawn any conclusions from the Commission Against Corruption (CCAC) report on the Iec Long Firecracker Factory and subsequent land swaps, yet the DSSOPT is investigating the case. No time limit has been set on the investigation, says the Secretary, but “within a reasonable timeframe there will be a result of the analysis.”
“What has happened recently has devastated people’s confidence. Because we live in a free-market economy in which only those who want to invest here do.” Jorge Neto Valente, President of the Macau Lawyer’s Association The comments follow in the wake of the CCAC report, which declares that the deals surrounding a series of land swaps originating from the Iec Long Firecracker Factory, located on Rua do Cunha in Taipa Village are null and void. The report details land swaps and negotiations tracing back to a 1,655 square metre private plot of land in the factory which was later leveraged in a swap for a 152,073
square metre piece of land in Taipa by Baía da Nossa Senhora da Esperança Development Company. “If I suggested to the Chief Executive that this case be sent to the CCAC it’s because I believed there was reason to do so,” the Secretary said, noting, however, that if legal consequences arise it is not within the scope of his mandate - “of the conclusions drawn, ours is only one of the entities to act” - and that “I only have to follow through with what is stated in the report.”
Responsibility
Directly elected legislator Ng Kuok Cheong, commented, “I think it’s very significant that someone within the government [can have access] to many public resources,” supporting the government’s investigation into the issue and turning it over to the public prosecutor “to examine what crime already happened here, what crime should be raised.” Issues of crime and blame for activity outside of the legal realm however, are murky. In the report, CCAC states that the local government, in regard to the company involved in the main land swap contract - Baía da Nossa Senhora da Esperança Development Company, run by local businessman and Chinese People’s Political Consultative Conference member Sio Tak Hong – “does not owe” the group or “any other companies any land grant deals or promises.” However, part of the land involved in the deal was purchased under the assumption of legal compliance. This agreement involves Shun Tak Limited and relates to a land swap for a plot currently occupied by the Mandarin Oriental Hotel and One Central Residences. Shun Tak however, like Secretary Rosário, when questioned had not yet arrived at a conclusion regarding the report, with company representatives stating they had “just learned that a report
“If I suggested to the Chief Executive that this case be sent to the CCAC it’s because I believed there was reason to do so.” Raimundo do Rosário, Secretary for Transport and Public Works
has been published” and required time to study it and request legal help. Shun Tak still holds an interest in the 80,637 square metres of land for which it, included with the Macau property where the Mandarin Oriental sits, paid MOP500 million. Developments sitting on the land granted through the nullified deal pend the results of the DSSOPT enquiry.
Quick to change
The uncertainty surrounding Shun Tak’s position, however, is not all that members of the public are worried about. President of the Lawyer’s Association Jorge Neto Valente believes that this could represent a much more significant and farreaching problem. “What has happened recently has devastated people’s confidence. Because we live in a free market economy in which only those who want to invest here do. They want to invest and do business here because it is legitimate,” said the lawyer. Valente worries that by annulling the primary contract - signed by then Director of the DSSOPT, Jaime Carion - the consequences will fall on businesses that were involved in future contracts who assumed that the initial contract leading up to theirs was legal. Lawyer Miguel de Senna Fernandes echoes Valente’s sentiment: “It’s a general principle of our judicial system, the protection of third parties who acted in good faith […] in other words, those that confided in the complete legality of the situation.”
Reasons for signing
Both Valente and Senna Fernandes
were also quick to defend the thenDirector of the DSSOPT Jaime Carion in the actions the CCAC details in their report regarding the signing of the primary document for the land swap. “I don’t know how Jaime Carion signed those documents […] I want to believe that Mr. Carion did not sign them knowingly; as the director of public works, obviously, he was confiding in the legality of this,” notes Senna Fernandes.
“I don’t know how Jaime Carion signed those documents […] I want to believe that Mr. Carion did not sign them knowingly; as the director of public works, obviously, he was confiding in the legality of this.” Miguel de Senna Fernandes, lawyer and President of the Board of the Macanese Association
“I think it must have been more complicated [than we think] because the man [Carion] is not a fool,” opines Neto Valente. “He was director of public works for many years, he was better than the Secretary who he had to put up with,” says Valente, referring to disgraced former Secretary for Transport and Public Works Ao Man Long, who is also linked to the case. “I’m convinced he [Carion] didn’t do it,” says Valente, believing only that it could have happened if “they ordered him to”. Miguel de Senna Fernandes points out the confusion at the time, 2001 when Ao Man Long – now serving a prison sentence for corruption – presided over then-Director Jaime Carion. Senna Fernandes calls the period “a little troubled”, noting that “it wasn’t known well where the truth was and where the wrongdoing was and only now is this being understood; at the time it was like that - people were naturally convinced of the legality of it.” Jaime Carion retired voluntarily from public administration two years ago having served for more than 36 years in public service. The Chief Executive has mandated that the DSSOPT follow up on the issue of the annulment of the land swaps. Meanwhile, Secretary Raimundo do Rosário assures the public that as soon as the results of the enquiry are in the Bureau will take the correct steps forward to properly handle the outcome.
6 Business Daily Friday, July 15 2016
Macau Opinion
Pedro Cortés Viva Portugal! 1984, 32 years ago I was 9 years old and the Euro cup took place in France. After the World Cup of 1982 – the one which had Naranjito as the cool mascot – where I knew almost all players in the competition, this tournament in France had one of the best matches I can remember: semi-final, France vs. Portugal, 3-2 after extra time with a great Platini but, more than him, with a great Fernando Chalana, the Pequeno Genial, my idol at that time and one of the best Portuguese football players ever. We lost and the feeling was one of grief. Since then, we have lost in the semi-final of the Euro 2000 – hosted by Belgium and Holland – against France and, once again, in the World Cup 2006 against France in Munich. I have had the opportunity to watch matches live in all Euro or World Cups since 1998, with the exception of Portugal in 2004 and Brazil in 2014. I guess I may have something against tournaments that take place in Portuguese-speaking countries. Well, since 1984 the Portuguese have been waiting for this moment. As a matter of fact, since 1966 with the great Eusébio, Coluna, Torres, and Simões Portugal should have had an important trophy in national team competitions. And, to speak frankly and will all due respect for my French friends, having such trophy conquered in France against the host country is a supreme joy! Yes, my friends, Portugal and the Portuguese, and all who speak Portuguese are now European Champions and you will have to hear us. The celebrations we have seen in East Timor, the celebrations we have seen in Africanspeaking countries, the celebrations we have had in Macau only demonstrate that Henry the Navigator, first, and, then, all captains of the caravels, including João Gonçalves Zarco and Tristão Vaz Teixeira, who were, by chance, driven to Madeira Island – homeland of another great captain Cristiano Ronaldo – took the correct step. Of course, there were mistakes and atrocities that one must condemn but watching Timorese people, including the Resistance leader, Mr. Xanana Gusmão, at 7 o’clock in the morning cheering the Portuguese achievement, make us conclude that the Portuguese nation is higher than ever. The way the final was won, with a goal by the ugly duckling and for almost all non-Portuguese unknown Eder, in the fourth minute of the second half of extra time, shall make all of us think that there is still hope in each of us for the future. Likewise, when we see the video of a young Portuguese descendent kid comforting a crying adult French person minutes after the final whistle. Friends, with all vigor: VIVA PORTUGAL!
Pedro Cortés is a lawyer and frequent contributor to this newspaper.
Land development
Cecil Chao: no construction permit for Coloane project yet
H
ong Kong property tycoon Cecil Chao Sze Tsung said his mixed residential and hotel project located in Seac Pai Van, Coloane is still awaiting a construction permit from the MSAR Government despite his company’s land use term for the plot having only five more years to go. According to the businessman’s interview with Chinese language newspaper Macao Daily, his Hong Kong-listed company, Cheuk Nang (Holdings) Ltd., has been waiting for the permit to kick off construction for a decade. Mr. Chao told the newspaper that his company had filed the drawings for the project in 2006 but the government told him then it needed to first handle other public housing
projects and the gaming projects due to lack of human resources in the public works departments. Reckoning the authorities’ evaluation of his project for 10 years as “too long”, the billionaire claimed his company has been co-ordinating with the government for its required documents. The property tycoon also revealed that he had tried to reach the local government via phone calls and letters but received no reply, indicating the government’s slow process is affecting external investors’ confidence in Macau. As the company’s land use term for the plot expires in five years, Mr. Chao told the news outlet that it would be hard for the company to develop a big-scale project if the government continue holding back issuing related
construction permits. Commenting upon the city’s current land law disputes, the Hong Kong developer believes the MSAR Government should not recover non-developed land plots right after its temporary concession expires if the delay in development is due to the government’s delay in evaluating a project. Cheuk Nang is planning to build the ‘Golden Cotai No.1’ project on the Coloane land plot it purchased in 2005. The complex is expected to comprise five deluxe residential towers and a serviced apartment tower with a total gross floor area of 132,548 square metres in addition to a 100,000 square foot clubhouse, swimming pool and private casino, according to the company’s official website.
Expo
Mobile-gaming
MGS show buyers subsidy deadline next week
MGM Resorts launches mobile gaming platform in Vegas
The MGS Entertainment show is approaching its deadline for the Qualified Buyers programme for the 2016 expo, which provides up to MOP7,000 (US$876) in travel and accommodation sponsorship for registered buyers. Those wishing to sign up for the scheme must do so by next week, a group spokesperson told Business Daily, explaining that in previous years the group had also applied the same Qualified Buyers programme but, due to insufficient demand, it wasn’t always put forward. The organiser expects around 10,000 visitors to this year’s event, to be held November 15 to 17, and this year’s partnership with the local government brings about a new segment for the expo – the Culture Zone - introducing elements of local culture to international visitors.
Another new addition to this year’s show is the Technology and Innovation sector dedicatedto online gaming, software developers, payment gateways and other tech-related offerings.
MGM Resorts International, the parent company of local gaming operator MGM China Holdings Ltd., announced on Wednesday the launch of a mobile gaming platform offering interactive tournament games. The platform, named easyPLAY® Mobile Tournaments, allows guests at nine resorts in Las Vegas to compete with other players in different games, including MGM Grand, Mandalay Bay, The Mirage, etc. “The introduction of easyPLAY® Mobile Tournaments at our MGM Resorts properties gives our guests an exciting, new opportunity to play their favourite games while enjoying the best Las Vegas has to offer,” said Tom Mikulich, the company’s senior vice president of business development.
Corporate Gaming
No additional tax for Saipan A proposed additional 10 per cent tax on casino gaming revenue - directed at Imperial Pacific’s Best Sunshine-operated Saipan temporary casino - was deemed unnecessary by representatives of the Commonwealth Casino Commission on Saipan, as reported by Marianas Variety. The gaming commissioners on Tuesday fielded questions from lawmakers including how much gross revenue tax the group has paid since beginning operations. Best Sunshine, the subsidiary of Imperial Pacific, operates a temporary casino facility on the island of Sampan for which it holds an exclusive casino licence. The group, noted the Commission’s Executive Director Edward Deleon Guerrero, currently pays for the licence fee, a gross gaming tax, the business gross revenue tax and regulatory fees, says the publication. Guerrero told lawmakers that he was not defending Sunshine, suggesting, however, that now might not be best time to implement the tax. “Let’s give them a year after the Grand Mariana is completed,” Guerrero was quoted as saying to lawmakers, referring to the Grand Mariana Resort Hotel in Garapan set to open in early 2017. The Grand Mariana, a US$500 million property, will be the first permanent facility in the islands for the group, which saw rolling chip turnover in its temporary casino for June slide 35 per cent in July month-on-month – yet still reach US$1.66 billion (HK$12.85 billion). K.W.
FatBoy Slim at Pacha Macau tonight
The man behind Praise You - the track that stayed in the U.S. pop charts for 20 weeks back in 1999 – will be at Pacha Macau on Friday, July 15th. Sampling from a wide range of music genres to create electronic music, Norman Cook, under the stage name Fatboy
Slim, transformed into an international star when in 1998 he released the inescapable hit The Rockafeller Skank from the album You’ve Come a Long Way, Baby. The British house legend even had Christopher Walken featured in the music video of Weapon of Choice dancing throughout the video which won him 6 MTV video awards in 2001.
Business Daily Friday, July 15 2016 7
Macau
“A VIP can be either a big gambler or a big shopper” Kevin Clayton, Chief Marketing Officer at Galaxy Entertainment Group Ltd.
Retail
Galaxy launches VIP shoppers rewarding scheme
Galaxy nurtures new VIPs as casinos rebound elusive Analysts say Galaxy’s “VIP shoppers” may help it to drive traffic and boost revenue from retail, a business with one of the highest profit margins in Macau.
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s Macau’s gambling slump extends beyond a second year, the casino operator that’s benefited the most from the city’s decadelong focus on Chinese VIP gamblers is trying to lure a new breed of “very important persons” to prop up nongaming revenue. Galaxy Entertainment Group Ltd. is now rewarding big shoppers with free hotel stays and access to resort facilities, some of the perks once reserved for high-rolling gamblers. “A VIP can be either a big gambler or a big shopper,” Chief Marketing Officer Kevin Clayton said in an interview. While high-stakes gamblers remain an important source of income in Macau, the company is redefining its VIP label, he said. The move comes as Galaxy’s operating margins shrink amid an outflow of high-end customers. While VIP gamblers from China helped Macau leapfrog Las Vegas to become the world’s largest casino hub over the past decade, the segment has nosedived since 2014 as China President Xi Jinping’s crackdown on corruption scared off the high-rollers. Macau has been trying to reinvent itself to attract more tourists and recreational gamblers. Hong Kong-listed Galaxy fell as much as 0.8 per cent to HK$23.90 on Thursday, extending its decline so far this year to 2 per cent, compared with the 3 per cent drop in the city’s benchmark Hang Seng Index. Galaxy’s shares had plunged 44 per cent in 2015, in line with the Bloomberg Intelligence Macau Gaming index’s 46 per cent drop.
Retail therapy
Galaxy Macau, the Hong Kongbased operator’s flagship property that completed a major expansion in May 2015, this month started to reward customers who spend more than MOP10,000 (US$1,252) a day with shopping vouchers and free
use of the resort’s facilities. Those who spend triple that amount enjoy a complimentary night in its hotels. The promotions come as projects introduced in the past year, including Galaxy’s two new casinos and Melco Crown Entertainment Ltd.’s US$3.2 billion Studio City, failed to bring about a recovery in Macau’s gambling receipts. Melco will switch gears from its recent focus on leisure gamblers, as Studio City readies to open its first VIP gambling rooms, according to people familiar with the matter. Galaxy’s “VIP shoppers” may help it to drive traffic and boost revenue from retail, a business with one of the highest profit margins in Macau, said Bloomberg Intelligence analyst Margaret Huang. If stores in Galaxy’s properties generate more sales through the latest promotion, it will help boost the
operator’s bargaining power when rentals come up for renewal, she said. These big shoppers are likely to gamble as well, Huang said. Macau casinos are due to start a n n o u n c i n g s e c o n d- q u a r t e r earnings from later this month, and the operators are expected to show declines in gaming revenue, China visitors, and VIP patronage during the period, Huang said in a note Thursday. Sands China Ltd. will kick off the reporting period when parent Las Vegas Sands Corp. holds its investor call in late July, she wrote.
Stylish brands
Macau’s gaming industry needs to adjust by boosting its revenue share from recreational players in order to develop the city in a sustainable way, Paulo Chan, head of the Gaming Inspection and Coordination Bureau, the government regulator, said Wednesday. The city plans to increase the proportion of casinos’ non-gaming revenue to nine per cent by 2020 from 6.6 per cent in 2014, according to the city’s five-year development plan. Resorts in Macau need to refine
the collection of retail brands in their malls to get the right mix, said Clayton, who used to work for Galaxy competitor Sands China Ltd. and Australia-based gaming company Tabcorp Holdings Ltd. In addition to top luxury stores for high-spending clients, stylish brands similar to that by British designer Alexander McQueen will be introduced in Galaxy’s properties to capture the “significant growth” of middle-class Chinese shoppers, he said.
‘One-night stay’
Capturing the fancy of China’s middle-class will be an uphill struggle, as Chinese consumers can now spend on an expanding buffet of options, including leisure trips to neighboring Japan and a new Disney resort on their doorsteps. Shanghai Disneyland, which opened June 16, is a concern for Macau as it could result in fewer visits by the Chinese due to overlapping customers, according to a Morgan Stanley research note this month. “With gambling and retail, Macau is a one-night stay destination. It needs to provide more entertainment,” said Jacques Penhirin, partner and head of Greater China of management consultancy Oliver Wyman on Wednesday. “We need big concerts, big shows and conventions.” Bloomberg
8 Business Daily Friday, July 15 2016
Greater China Market outlook
Taiwan chip giant TSMC cuts global smartphone outlook The company stuck to its forecast for revenue and operating profit to grow between 5 per cent and 10 per cent in 2016. J.R. Wu
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aiwan S e m i c o n d u c t o r Manufacturing Co (TSMC), the world’s largest contract chipmaker and an Apple Inc supplier, cut its estimate for 2016 global smartphone shipments for
the second time this year as slowing demand for high-end handsets gnaws away at a major driver of tech sector growth. The lowered smartphone growth forecast came as TSMC, an industry bellwether, said it would raise capital spending this year in a bet on
next-generation chips, comforted by hopes for a traditional third-quarter pickup as customers stock up on chips for new launches in time for the yearend holiday season. “We estimate smartphone unit growth rate will be about 6 per cent” this year, said TSMC’s co-Chief Executive Officer Mark Liu, speaking at a briefing as it issued its third-quarter outlook. In April, TSMC had already cut its growth estimate to 7 per cent from an original 8 per cent forecast issued at the start of the year.
Key Points Trims 2016 global smartphone view for 2nd time this year Demand still seen good from China, Android device makers Sees global smartphone shipments up 6 pct vs 7 pct prev Sees Q3 rev at T$254 bln -T$257 bln; Q2 rev T$221.81 bln 2016 capex revised up to range of US$9.5 bln-US$10.5 bln
Liu maintained his view that lowand mid-range smartphones will continue to drive growth, while highend smartphone demand will not grow as strongly as in the past. The outlook for the smartphone industry is key for TSMC - supplying chips for use in smartphones drives just over half its revenue. Revenue for July-September is expected to reach between T$254 billion (US$7.93 billion) and T$257 billion, up from the second quarter’s T$221.81 billion, TSMC said. Executives said they were seeing demand from China, due to government subsidies there to stimulate consumption, and from the low- to mid-end smartphone market, as well as demand from Android-based users, the rival to Apple’s iPhone ecosystem. Still, TSMC stuck to its forecast for revenue and operating profit to grow between 5 per cent and 10 per cent in 2016. TSMC also revised its capital expenditure for the year upwards by US$500 million to a range between US$9.5 billion and US$10.5 billion, which TSMC Chief Financial Officer Lora Ho said had to do with capacity for next year needed for its advanced technology wafer-making. The company earlier said net income in the April-June period totalled T$72.51 billion, down 8.7 per cent from the same quarter a year earlier, but up nearly 12 per cent from the first quarter. That beat analysts’ average estimate of T$67.98 billion, according to Thomson Reuters Eikon. Reuters
M&A
Wanda shows interest in Viacom’s Paramount If the two parties did agree to a deal, it would likely become the next flashpoint in the long-running battle for control of Sumner Redstone’s US$40 billion media empire. Liana B. Baker and Jessica Toonkel
Chinese real estate and entertainment conglomerate Dalian Wanda Group has held talks with Viacom Inc about acquiring a minority stake in its Paramount Pictures unit, according to two people familiar with the situation. Wanda’s interest adds new urgency to deliberations over Paramount’s future, which has become the flashpoint of a bitter row between Viacom Chief Executive Philippe Dauman and the company’s controlling shareholder Sumner Redstone. Wanda, which bought production company Legendary Entertainment in January, has been trying to expand its U.S. movie business. Redstone has so far opposed the
sale, which is not possible without his consent. Other parties besides Wanda have also expressed an interest in Paramount, and there is no certainty any deal will be reached, the people said this week. The sources asked not to be identified because the matter is not public. Viacom declined to comment, while Wanda did not immediately respond to a request for comment. Earlier this year, Wanda invested in Paramount’s “Teenage Mutant Ninja Turtles” sequel. If the two parties did agree to a deal, it would likely become the next flashpoint in the long-running battle for control of Sumner Redstone’s US$40 billion media empire. The Paramount deal has been
championed by Viacom Chief Executive Philippe Dauman, who is seeking to sell a 49 per cent stake in the movie studio but opposed by 93-year-old Redstone, who owns 80 per cent of Viacom and CBS Corp. It is not clear that Redstone and his daughter Shari Redstone would agree to a deal if one was struck. Shari Redstone spokeswoman Nancy Sterling and Sumner Redstone spokesman Mike Lawrence declined
‘Viacom Chief Executive Philippe Dauman is seeking to sell a 49 per cent stake in the movie studio’ to comment. Redstone, supported by his daughter, is waging a two-pronged legal battle with Dauman and other Viacom directors, which originated with a disagreement over the proposed sale of a stake in Paramount. In May, Redstone removed Dauman and another Viacom board member, George Abrams, from the sevenperson Sumner M Redstone National
Amusements Inc Trust, which will determine the fate of Redstone’s holdings, and hence the future of Viacom and CBS, after Redstone dies or is incapacitated. Paramount has special resonance for Redstone, who fought long and hard to acquire the movie studio from Barry Diller in 1994. Redstone’s move to throw Dauman and Abrams off his trust is the subject of a court case in Massachusetts. In June, Redstone moved to take Dauman and four other directors off the board of Viacom, through his privately held movie theater company National Amusements Inc, which holds 80 per cent of voting shares of Viacom as well as CBS. A court in Delaware is considering whether that move was legal. Dauman is contesting both actions, arguing that Redstone is not mentally competent to make decisions. Throughout the legal face-off, Dauman has said Viacom has been working on the Paramount stake sale, even after National Amusements changed its bylaws to require unanimous approval from Viacom’s board for any deal related to Paramount. At the time, National Amusements said it was “not opposed to a transaction that would unlock value at Paramount.” Dauman has said the divestiture would unlock value of US$10 or more per Viacom share and that he would use the proceeds from a sale to pay off debt and for strategic development, particularly overseas. Reuters
Melrose gate of Paramount Pictures studios
Business Daily Friday, July 15 2016 9
Greater China Power fight
In Brief
Vanke top shareholder Baoneng in spotlight after financing move Much remains uncertain about how the battle for Vanke will play out. Clare Jim and Donny Kwok
China Vanke Co Ltd said its top shareholder, financial conglomerate Baoneng, has pledged some of its stake to brokers in return for funds - a disclosure that has fuelled concerns about Baoneng’s financing and its potential to launch a hostile takeover bid. In a rare high-profile corporate power struggle for a mainland Chinese company, Baoneng began building up its stake of 25 per cent last year. Fearing a hostile bid, Vanke has announced a US$6.9 billion deal with Shenzhen Metro Group, which would dilute the holdings of Baoneng and No. 2 shareholder China Resources. Vanke said late on Wednesday that it had been informed by Baoneng that the conglomerate had pledged a combined 8.4 per cent of the company’s shares to China Galaxy Securities Co Ltd and Penghua Asset Management. “This further fans worries about how Baoneng is getting its funds and who is behind the funds,” said Alvin Cheung, associate director at Prudential Brokerage Ltd in Hong Kong. “It shows
that Baoneng’s not so cash-rich.” He added that it was rare for a company to pledge shares when the company has borrowed money to finance its acquisitions. Baoneng did not respond to requests for comment. The share pledges made by Baoneng unit, Shenzhen Jushenghua, were made in stages, with the first taking place last October and the latest just this week. Baoneng also holds shares in Vanke through a separate unit, Foresea Life Insurance. There have been no disclosures about Foresea having pledged Vanke shares.
Much remains uncertain about how the battle for Vanke, a firm with US$28 billion in annual revenue, will play out. China Resources has opposed the Shenzhen Metro deal but did not side with Baoneng in its efforts to oust Vanke’s board. An independent director at Vanke, Hua Sheng, posted on his blog on Wednesday that Baoneng had pledged shares in Jushenghua to China Resources last year to buy Vanke’s stock, reiterating his accusations that Baoneng and China Resources, which owns 15 per cent of Vanke, are acting in concert. Both Baoneng and China Resources have said that they are not acting in concert in replies to queries from the Shenzhen bourse. China Resources did not respond to Reuters requests for comment yesterday. Reuters
Alvin Cheung, associate director at Prudential Brokerage Ltd in Hong Kong
M&A
Foreign ownership of farmland and rural businesses is a sensitive issue. Jonathan Barrett and Colin Packham
A China-led consortium seeking to buy Australia’s S. Kidman & Co will hold off on a fresh bid for the country’s largest agricultural land owner amid concerns it could be derailed by a more protectionist new government, two sources with direct knowledge of the matter said. Australia rejected a A$371 million (US$282 million) bid by the group - headed by Hunan Dakang Pasture Farming Co Ltd (Dakang) with a minority 20 per cent Australian interest - in April, concluding the offer for Kidman and its agricultural land, about the same size as Ireland, was not in the national interest. Dakang had been expected to revise its bid shortly after Australia’s July 2 national election, boosting the local component. However, the new-look coalition government has even more foreign investment sceptics than the previous one, with the rural-centric Nationals party increasing its numbers in the ruling centre-right coalition. Although Kidman and Dakang are eager to complete the sale, three people familiar with the process said any deal may prove insufficient to win over key Australian government figures and a rising tide of anti-foreign investment.
“I think we are in for a period of protectionism government,” a source familiar with the negotiations said. “Things have been parked until the government has settled in and we try to get some sort of understanding of their sentiment towards foreign investment and in particular levels of comfort around thresholds of offshore involvement.” Foreign ownership of farmland and rural businesses is a sensitive issue due to concerns that cashed-up overseas companies can out-bid smaller local players for key assets. Local ownership of agriculture is also seen as crucial for Australia to cash in on global food demand and keeping tax revenues onshore. Kidman refused to comment on the sale. Ernst and Young’s South Australia managing partner Don Manifold, who is handling the sale for the Kidman shareholders, said the process was still going. “Kidman is for sale and we are talking with interested parties,” Manifold said. Foreign investment in agribusiness valued at more than A$55 million is screened by Australia’s Foreign Investment Review Board where a bid is subjected to a national interest test. This includes considering the impact on local employment and tax revenue.
Authorities target urban jobless rate China will aim to keep its urban registered unemployment rate below 5 per cent between 2016 and 2020, under a plan released on Thursday by the Ministry of Human Resources and Social Security. It said the country will aim to create job opportunities for more than 50 million people in cities during the period. China’s urban registered unemployment rate stood at 4.05 per cent at the end of June. Energy
Electricity consumption picks up
“It shows that Baoneng’s not so cash-rich”
Bid for giant Australian farm holding on ice
Employment
While a final decision rests with Treasurer Scott Morrison, prominent members of the coalition, including Deputy Prime Minister Barnaby Joyce, have long opposed an escalation in foreign investment in agricultural assets. A source close to Joyce said there was no definitive threshold for Australian participation, but a Dakang deal with 49 per cent local ownership stood a better chance of winning favour. The Kidman business includes 10 cattle stations with an average herd of 185,000, covering more than 100,000 square kilometres, or 1.3 per cent of Australia’s total land area. Morrison rejected the consortium’s bid to buy nine Kidman cattle properties in April, in the lead-up to the federal election, the second foreign-based offer for Kidman refused by the government. The rejection came even after the bidders included locally owned Australian Rural Capital Ltd (ARC) as a 20 per cent minority stakeholder and carved out an area bordering sensitive military testing grounds. Other interested parties include wealthy Australian business people, a source familiar with the sale process said, without giving details, while crowdfunder DomaCom and local consultants Lloyds Business Brokers have put together an ambitious joint offer. Lloyds Victoria director Chris Butchers said the broker could raise A$160 million to purchase the cattle operations, while Domacom was still raising the anticipated A$210 million it required to buy the land. Reuters
‘Foreign investment in agribusiness valued at more than A$55 million is screened by Australia’s Foreign Investment Review Board’
China’s electricity use rose 2.7 per cent year on year in the first half of 2016, official data showed yesterday. Electricity consumption totalled 2.8 trillion kilowatt hours in the first six months, according to data from the National Development and Reform Commission. Electricity use in the service sector and agricultural sector rose 9.2 per cent and 7.7 per cent, respectively, in the January-June period, while the industrial sector saw an increase of 0.5 per cent. In June alone, electricity consumption increased 2.6 per cent year on year to 492.5 billion kilowatt hours, the commission said. Sanctions
U.S. Republicans urge penalties for ZTE More than a dozen U.S. Republican lawmakers on Wednesday urged the Obama administration to impose penalties on the Chinese telecommunications equipment maker ZTE Corp for alleged violations of Iran export controls. In a letter to three Cabinet secretaries, 14 House of Representatives Republicans led by Robert Pittenger of North Carolina said the Chinese technology giant has “blatantly worked to evade American sanctions and export control laws” to sell products to Iran that could be used to oppress dissidents. ZTE officials were not immediately available for comment. Culture drive
Free Mandarin courses for Cambodian tourism officials The Confucius Institute of the Royal Academy of Cambodia yesterday signed to provide free-of-charge Chinese-language training for Cambodian tourism officials and tour guides, officials said. The agreement was inked here between Chea Munyrith, director of the Confucius Institute of the Royal Academy of Cambodia, and Chhay Khunlong, deputy director of the Tourism Ministry’s tourism department, under the presence of Tourism Minister Thong Khon. The free training aimed to improve Chinese proficiency for Cambodian tourism officials and tour guides as more and more Chinese tourists and businessmen had come to Cambodia, said Munyrith.
10 Business Daily Friday, July 15 2016
Greater China
Stock markets
The trade that regulators want to stop Gains from betting on China’s smallest companies have been remarkably consistent, suffering just two down years over the past decade.
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n e o f Chi n a’ s m o st unusual, and lucrative, investment strategies is coming under fire as policy makers crack down on a stock-market anomaly that they helped create. The strategy’s simplicity - and effectiveness in exploiting the unintended consequences of state meddling in markets - has for years made it irresistible to China’s individual investors, even as it elicited scorn from disciples of fundamental analysis. Executing the trade is easy: just buy into companies with the smallest market values, regardless of their business prospects, and hold on in the hope they’ll turn into targets of reverse mergers. Such deals - when a private firm purchases a public “shell” to take over its listing - have proliferated in China as the regulator made it difficult for companies to gain approval for initial public offerings. The result has been stellar performance by stocks with little to offer aside from their spot on a Chinese exchange. An investor who bought stakes in the nation’s 10 smallest listed companies at the beginning of the year, sold them after 12 months and repeated the process would have taken home an annualized return of 57 per cent in the 10 years through the start of 2016, or more than three times that of China’s CSI 300 Index. In the past two years, about two thirds of the smallest firms have announced merger plans, according to data compiled by Bloomberg. More recently, though, the strategy has faltered. The smallest stocks have dropped an average 1.2 per cent this year as China’s securities regulator rolled out measures to curb reverse mergers under the guidance of a new chairman. Whether this marks the trade’s demise depends on how quickly the China Securities Regulatory
Commission (CSRC) follows through on its reform pledges, according to Zhang Haidong of Jinkuang Investment Management. The recent crackdown is unlikely to have a lasting impact on its own, but if policy makers adopt an IPO system where market participants - rather than the government - determine the size and timing of deals, demand for reverse mergers will plunge, he said. “The phenomenon means our stock market is way behind the developed markets,” said Zhang, the chief strategist at Jinkuang in Shanghai. “The CSRC needs to let all companies qualified for going public list on the exchange freely without restriction. Only by doing so will the value of shell companies decrease.”
“In the short term, the crackdown will lead to a significant decline in values of shell companies” Qiu Dongrong, money manager at HSBC Jintrust Fund Management
While Chinese policy makers have always had oversight over the pace of IPOs, they’ve been especially wary of new listings in recent years, fearing that an oversupply of new shares would depress valuations in the US$6.3 trillion market. The waiting list for IPO approvals exceeds 800, more than China’s total listings over the last five years, according to the CSRC website and data compiled by Bloomberg. Companies keen to go public have turned to reverse mergers as an alternative path to gaining the
fundraising and liquidity advantages of an exchange listing. Unsurprisingly, public companies with the lowest market values are often the most cost-effective targets for such deals. Six of this year’s 10 smallest companies have announced or revived merger plans since January 1, the same proportion as in 2015, data compiled by Bloomberg show.
Consistent gains
Shenzhen CAU Technology Co., which ranked among the smallest companies in seven of the last 10 years, has long been a subject of reverse merger speculation. While the firm denied it had such a plan as recently as August 2014, this year it announced a restructuring that involved buying pharmaceutical assets while divesting real estate holdings. The shares surged 461 per cent in the three years through December. Gains from betting on China’s smallest companies have been remarkably consistent, suffering just two down years over the past decade. They came in 2008, during the global financial crisis, and in 2011, when regulators pursued a shortlived crackdown on reverse mergers. Th e st rat eg y ’ s 57 p e r c e n t annualized return over the 10 years through the start of 2016 - which excludes suspended shares and those on the nation’s ChiNext board, where reverse mergers are banned - compares with the 8.4 per cent annualized advance in shares of billionaire Warren Buffett’s Berkshire Hathaway Inc. and 30 per cent for Amazon.com Inc., one of the U.S. stock market’s best performers over the past decade. Some of the gains in China might be explained by a “small-firm effect,” the idea that companies with lower market values tend to outperform over the long run, said Hao Hong, chief strategist at Bocom International Holdings Co. in Hong Kong.
New rules
Even with that tailwind, though, there are risks. One of the biggest is that a reverse merger - often called a “major restructuring” in exchange
filings - may never materialize, even after it’s been announced. Among the six companies that disclosed reverse merger plans from this year’s 10 smallest stocks, none have completed the transactions so far, and only one of last year’s batch has finalized its deal. Gansu Huangtai Wine-Marketing Industry Co. announced a major restructuring in February, only to terminate the plan in March. While shares reached a four-year high in May, they’ve since dropped 33 per cent amid media reports that regulators tightened rules on reverse mergers and news that the company is being probed for disclosure-related violations. A call to the office of Gansu Huangtai’s board secretary went unanswered.
IPO reform
Policy makers are revising major restructuring rules to curb speculation linked to reverse mergers, CSRC spokesman Deng Ge said at a briefing in Beijing last month. Authorities have already tightened regulations on cross-sector deals after companies in slow-growth industries rushed to offer their shells to firms in socalled new economy sectors such as Internet finance, Caixin reported on May 11. The regulator is also weighing restrictions, including a cap on valuation multiples, for reverse mergers involving companies previously listed overseas, people with knowledge of the matter said in May. “In the short term, the crackdown will lead to a significant decline in values of shell companies,” said Qiu Dongrong, who helps oversee about US$2 billion as a money manager at HSBC Jintrust Fund Management Co. in Shanghai. “But on a longer horizon, it can be interpreted as positive news, as the tightening is aimed at restoring the market’s normal fund-raising functions.” The easiest way for authorities to curb the popularity of reverse mergers would be to loosen the state’s grip on the IPO process. While China is planning a new registrationbased system that restrains the government’s ability to control the pace of share sales, CSRC Chairman Liu Shiyu said in March that policy makers need more time to prepare the rules. “It’s insane that the worst companies often get wooed” for reverse mergers, said Bocom’s Hong. “Hopefully this will change.” Bloomberg News
Business Daily Friday, July 15 2016 11
Asia GDP
Singapore growth shows economy still under stress The ample signs of a faltering economy have already prompted some economists to tip an easing in October. Jongwoo Cheon
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ingapore’s economy grew slower-than-expected in the second quarter on softer manufacturing and construction, keeping pressure on the central bank to further ease policy in the face of sluggish global demand and concerns over Brexit.
Key Points Q2 GDP +0.8 pct q/q annualised vs +0.9 pct forecast
Manufacturers remained under stress, with the sector growing 0.3 per cent in the second quarter from the previous three months, well off an 18.4 per cent expansion in the first quarter. “The sequential slowdown of the economy, especially in the manufacturing sector, means that the MAS must choose between a weaker currency or lower interest rates,” said Trinh Nguyen, senior emerging Asia economist for Natixis in Hong Kong, referring to the Monetary Authority of Singapore.
Nguyen expects further monetary policy easing in October through a re-centering of the S$NEER policy band lower. The MAS manages policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners based on its nominal effective exchange rate (NEER). In April, in an effort to weather a slowdown in Singapore’s biggest export market China and falling consumer prices, the central bank unexpectedly eased policy by setting the rate of appreciation of the policy band at zero per cent. The Singapore dollar has st r e n g t h e n e d o n s a f e-h av e n d e m a n d i n e m e rgi n g Asi a, exacerbating both deflationary pressures and faltering exports
Q2 GDP +2.2 pct y/y vs +2.2 pct forecast Manufacturing, construction growth slows down Services sector bounces, but remains sluggish Th e t ra d e- r e l i a n t ec o n o m y expanded 0.8 per cent in the AprilJune period from the previous three months on an annualised and seasonally adjusted basis, the Ministry of Trade and Industry said yesterday. That compared with a 0.9 per cent rise forecast in a Reuters poll and 0.2 per cent growth in the first quarter, suggesting only a modest bounce that could unravel on the Brexit fallout.
- a development that is doubly worrying given fallout on global growth from Britain’s shock vote to leave the European Union. The services sector, which has underpinned Singapore’s growth in recent years as manufactures have struggled, expanded 0.5 per cent on-quarter, bouncing from a 4.8 per cent contraction in the first quarter. But growth in the sector “remains sluggish,” DBS analysts said, noting that the crucial financial services were still wrestling with risk-aversion.
Brexit woes
The ample signs of a faltering economy - vacant floors in some central shopping malls and labour shortages - have already prompted some economists to tip an easing in October. On Wednesday, the Brexit worries prompted Malaysia’s central bank to unexpectedly cut interest rates for the first time in seven years, and others are expected to follow, including the Bank of England later in the day. “What will cause the MAS to think twice... is that Brexit risks are not reflected in these numbers,” said Vishnu Varathan, senior economist for Mizuho Bank in Singapore. Singapore expects the economy to grow 1-3 per cent this year, though economists have trimmed their projections to 1.8 per cent, a central bank survey showed. “We expect economic growth and core inflationary pressures in Singapore to slow in the second half of this year,” said Roy Teo, senior FX strategist for ABN AMRO in a note to clients. “Hence there is a case for the MAS to lower the centre of the policy band later this year in October.” Reuters
Employment
Australia posts a welcome jump in full-time jobs Unemployment has been lower than expected for much of this year yet has created little in the way of wage inflation Wayne Cole
Australian employment rose only modestly in June while the unemployment rate ticked up to 5.8 per cent, yet a sharp jump in full-time jobs was welcomed by investors who nudged the local dollar higher. Yesterday’s data from the Australian Bureau of Statistics showed 7,900 net new jobs were created in June, after a 19,200 gain the month before. Full-time employment impressed with an increase of 38,400 as such positions tend to pay much better than temporary work. Median forecasts had been for a rise of 10,000 jobs, though there had been a risk a statistical quirk in the survey would produce a sizeable fall in the month. The unemployment rate edged up a tick to 5.8 per cent from 5.7 per cent, but remains considerably lower than policy makers had forecasted at the start of the year. Investors pushed the local dollar up a quarter of a U.S. cent to US$0.7628 after the data, though the figures were
not considered so strong as to lessen the chance of a cut in interest rates in coming months. The Reserve Bank of Australia (RBA) has kept rates at a record low of 1.75 per cent since cutting in May, but has signalled it was watching coming data to decide if policy needed to be eased further.
Key Points Employment +7,900 in June, just under forecasts of +10,000 Full-time jobs jump 34,800 Jobless rate edges up a tick to 5.8 pct, as expected A$ gains as market focuses on full-time revival Crucial will be the consumer price index (CPI) for the second quarter due late in July, where another low reading would greatly add to the case for a move in August. “We know that inflation is so low
and wage growth is so weak that if we get another quite weak CPI, then that would be the trigger for another rate cut,” said Gareth Aird, a senior economist at Commonwealth Bank.
Businesses upbeat on hiring
Analysts consider the jobless rate a better barometer of trends in the labour market when compared to the volatile employment series. Unemployment has been lower than expected for much of this year yet has created little in the way of
wage inflation, suggesting there is still plenty of slack in the labour force. Leading indicators of labour demand, including vacancies and business surveys, point to continued growth in employment ahead. A closely-watched National Australia Bank survey of businesses out this week showed its index of employment jumped to a five-year peak in June, consistent with healthy annual jobs growth of around 2 per cent. “This outcome hints at an annual job creation rate of around 212,000 in coming months, which would be more than sufficient to lower the unemployment rate further,” said NAB chief economist Alan Oster. Reuters
12 Business Daily Friday, July 15 2016
Asia In Brief SGX
Singapore securities trading disrupted Trading in Singapore’s securities market was disrupted yesterday in the fourth interruption on the exchange in the past two years, frustrating investors and risking reputational damage for one of the world’s top financial centres. The Singapore Exchange Ltd said securities trading was suspended just before midday local time due to duplicate trade confirmation messages being generated. The exchange then scrambled to fix the problem but couldn’t get trading back on track in the afternoon, twice having to delay planned resumptions. Taxes
India relaxes gold jewellery excise duty rules India on Wednesday relaxed the rules for its tax on gold jewellery sales that was introduced earlier this year in an attempt to address concerns raised by the industry, the government said in a statement. Jewellers in the world’s second biggest gold consumer went on strike for six weeks after the government imposed 1 per cent excise duty on gold jewellery from March onwards. To address jewellers concerns the government formed a committee and accepted its recommendation. According to the new rules, jewellers with turnover up to 150 million rupees (US$2.2 million) a year will be exempt from the excise duty. Investment
NAB creates Australia’s largest pension fund National Australia Bank (NAB) said yesterday it had merged five of its pension funds into one, creating Australia’s largest retail superannuation fund, with about A$70 billion (US$53 billion) under management. The move comes as Australia’s conservative government looks to boost competition among funds in the world’s fifth largest pension market, valued at US$1.5 trillion. NAB’s push follows an agreement with Japan’s Nippon Life to set up a life insurance business separate from NAB’s superannuation and investments business. South Korea
Hyundai’s union approves strike action Hyundai Motor’s unionised workers in South Korea voted to go on strike for a fifth year in a row after wage talks broke down, adding to the automaker’s troubles as it battles a sales slowdown. A prolonged strike could hurt sales of high-demand cars such as the Tucson sport utility vehicle as the company heads for an expected 10th consecutive drop in quarterly profit in the AprilJune period, weighed by an emerging market slowdown, analysts said. Hyundai Motor, the world’s fifth-biggest carmaker together with affiliate Kia Motors, posted a 0.9 per cent fall in sales in the first half.
Brexit aftermath
Asian local currency debt takes safe-haven appeal Investors say regional economies are now far better positioned to withstand global volatility than before, thanks to strengthened capital buffers. Saikat Chatterjee and Jongwoo Cheon
T
he prospect of central bank policy easing in Asia is luring global money managers into the region’s localcurrency bonds as the Brexit aftermath drives investors to seek debt-assets away from developed economies. Despite safe haven flight to dollars following Britain’s shock June 23 vote to leave the European Union, investors remain bullish towards Asia’s longer-dated bonds thanks to relatively higher rates in local currency markets. “As investors are faced with an ever increasing pool of negative yielding bonds, attention shifts to markets that may still offer some value,” said Brad Gibson, a portfolio manager for fixed income at Allianz Bernstein. Data from central banks and governments showed foreigners resumed buying bonds in Indonesia and Malaysia in June after they sold in May while investments in Thailand also picked up. However, they remained net sellers in India and turned sellers in South Korea, after three straight months of net buying. A simple average of ten-year bond yields of China, India, Indonesia and Thailand prints at a chunky 4.85 per cent compared with a measly 0.19 per cent in the U.S, Germany, Japan and the eurozone, according to Reuters calculations. While that yield gap has broadly favoured emerging markets, it has
Safe-haven emerging markets
Historically vulnerable to falling interest rates and local currencies during major risk events, say Asian economies are now far better positioned to withstand global volatility than before, thanks to strengthened capital buffers. More recently, implied volatility, or expected price swings of currencies as measured by option positioning, has retreated from January highs across most Asian markets. Some of the biggest drops have taken place in the Indonesian rupiah where implied one-year volatility has fallen about three percentage points to 11 per cent from October. Over the past five years, a J.P. Morgan index of local currency bonds has handed investors a return on investment of about 12 per cent, below its dollar-denominated counterpart, which has returned 34 per cent, according to Datastream. But with Asian interest rates now enjoying more room to fall than developed market rates, there is scope for local currency debt to outperform. Foreign investors increased their holdings of Indonesian government debt by 22 trillion rupiah (US$1.7 billion) in June, official data showed, their biggest purchases since June 2015. In China, where the currency fell to
Key Points Asian market rates have more room to fall Foreigners net buyers of Indonesian, Malaysian bonds in June Longer-dated debt sought over shorter-dated debt “Short-term interest rates are too low and it’s hard to find appeal for investments,” said Shin Dong-su, a fixed-income analyst at Eugene Investment & Securities in Seoul. In other markets, like India, authorities are using renewed demand from investors to add longerdated bonds to their portfolios to issue longer-dated debt. “One of the few places where you can get high good positive returns on bonds with relative less currency depreciation is India,” said the head of a primary dealership in Mumbai. Reuters
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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widened further in recent months as developed market central banks pursued extremely accommodative policies.
a five-and-a-half year low this week, an auction of government bonds across maturities in Hong Kong saw subscription levels at record levels. Still, money managers are not uniformly gung-ho about buying local currency debt with investors rotating holdings out of shorter maturity debt as the Brexit repercussions mean currency volatility may play a greater role in total returns than declining interest rates do. Short-term notes with maturities of less than one year saw outflows of 5.2 trillion won (US$4.5 billion) in June, according to data from Korea’s Financial Supervisory Services while foreign investors bought a combined 368.4 billion won worth of bonds in the first seven days of July.
Business Daily Friday, July 15 2016 13
Asia Monetary policy
Bank of Korea keeps interest rates on hold The governor said inflation was expected to rise above 2 per cent next year. Christine Kim
South Korea’s central bank left rates unchanged as expected yesterday, slightly downgrading its growth and inflation forecasts and propping the door open to further easing as it monitors the government’s ongoing efforts to craft a supplementary budget. Interest rates were kept at 1.25 per cent after a surprise rate cut in June, as correctly forecast by 28 out of 29
Key Points
flagging growth is being prepared for implementation later in the year. Governor Lee Ju-yeol told a news conference growth forecasts could change depending on how quickly the extra budget was ratified, noting few details of the supplementary budget have been released since the government announced its decision to formulate one. “The governor is in wait-and-see mode. We see a September rate cut because the BOK wants to show it is data-dependent. We feel the BOK will respond to downside risks which still outweigh the upside,” said Peter Park, fixed-income analyst at NH Investment & Securities. Analysts who see a second rate cut believe the government’s supplementary budget plan totalling around 10 trillion won (US$8.78
billion), is not adequate to jump start the stalling economy. Also, if the extra budget is only ratified much later in the year, most of its effects would not be felt until next year, analysts say. Details of the extra budget are due to be announced next week. Park added that GDP growth this year was likely to miss the BOK’s forecast because of an underpowered supplementary budget and other downside risks. “Right now the BOK is unable to see what direction trade with China may take after the THAAD deployment and the outcome of Brexit. If these two things turn bad then 2.7 per cent will no longer be achievable,” he said, referring to South Korea’s recent decision to deploy a U.S. THAAD anti-missile defence unit at home. There have been concerns that the THAAD unit, aimed at curbing North Korea’s missile threats, could fray economic relations with China, South Korea’s biggest trade partner.
Finance Minister Yoo Il-ho has said China is likely to keep politics and the economy apart. Troubles with China could lead to further weakening of South Korea’s exports which have been falling since January last year. At his news conference Lee attributed South Korea’s weakened exports to offshore factors, pointing specifically to changes in China’s economic structure in addition to sluggish global demand. Meanwhile at a news conference to explain why inflation has strayed so far and for so long from the central bank’s 2 per cent inflation target, Lee said it was mainly due to the fall in global raw material prices and a delayed economic recovery at home. The governor said inflation was expected to rise above 2 per cent next year as oil prices started working as an upside factor after keeping inflation subdued for the rest of this year. Reuters
Base rate at 1.25 pct (Reuters poll 1.25 pct) Rate cut expected in coming months -analysts 2016 GDP revised to 2.7 pct from 2.8 pct BOK monitors supplementary budget process Low inflation largely due to raw material prices-gov
analysts surveyed by Reuters. The bank now sees this year’s growth at 2.7 per cent, barely changed from 2.8 per cent. Inflation this year is now seen at 1.1 per cent, ticking down from 1.2 per cent forecast earlier. A supplementary budget to boost
Governor of the Bank of Korea (BOK) Lee Ju-yeol (C) holds a press conference after a monthly policy meeting at the central bank in downtown Seoul yesterday. LUSA
Stimuli
Japan’s government adviser opposed to “helicopter money” Prime minister is set to announce an economic stimulus package to spur growth with lawmakers calling for spending of at least 10 trillion. Kaori Kaneko
Japan should not resort to “helicopter money,” which would see the central bank directly underwriting public debt because that could stoke runaway inflation, a key adviser to Prime Minister Shinzo Abe said yesterday. But Koichi Hamada, an emeritus professor of economics at Yale University, said deploying fiscal and monetary stimulus measures simultaneously as a “one-off” approach could be effective in reviving the economy. Some investors speculate that Japan might decide to provide “helicopter money” - a term coined by American economist Milton Friedman and which gained popularity after former Federal Reserve Chairman Ben Bernanke cited it in a speech in 2002, when talking about how central banks might finance government budgets directly as a way to fight deflation. Hamada said he was opposed to the idea of institutionalising “helicopter money” in Japan, or revising the law so that the BOJ can directly underwrite government debt instead of buying them from the market. “There’s a chance Japan will lose control of inflation,” Hamada told Reuters in a phone interview. “To establish a system in Japan that allows the government to print as much money as it wants would lead to serious consequences in the future,” he said. Market speculation that Japan may
resort to helicopter money heightened after Bernanke met Abe on Tuesday. But Hamada, who was present at the meeting, said Bernanke made no mention of helicopter money. Abe is set to announce an economic stimulus package to spur growth with lawmakers calling for spending of at least 10 trillion yen (US$95.6 billion).
The Bank of Japan will hold a rate review on July 28-29 and debate whether risks, such as weak consumption and sliding inflation, have heightened enough to warrant additional monetary stimulus. Hamada said that while the Bank of Japan has already deployed aggressive policies including negative interest rates, there may be room to do more to maximise the effect of fiscal stimulus. “If it is just once or twice, I think it is acceptable to adopt fiscal and monetary stimulus steps simultaneously, so that they mutually
reinforce each other,” he said. Hamada said it was difficult for Japan to conduct currency intervention to arrest excessive yen rises, and that using monetary policy was the more “orthodox” way to address unwelcome yen appreciation. He also defended the premier’s “Abenomics” stimulus policies aimed at eradicating deflation, saying that the media was fanning excessive pessimism over the country’s growth prospects and making Japanese companies and investors wary of investing. Reuters
“To establish a system in Japan that allows the government to print as much money as it wants would lead to serious consequences in the future” Koichi Hamada, a key adviser to Prime Minister Shinzo Abe
Japanese Prime Minister and the ruling Liberal Democratic Party (LDP) President Shinzo Abe prepares to speak for a press conference at the LDP headquarters in Tokyo last Monday. Abe’s Liberal Democratic Party and its coalition partner Komeito gained a resounding victory in the Upper House election on 10 July.
14 Business Daily Friday, July 15 2016
International In Brief Vote impact
British consumer confidence slumps British consumer confidence fell sharply following the country’s vote to leave the European Union, one for the first indicators to capture the post-referendum mood showed yesterday. The Thomson Reuters/ Ipsos Primary Consumer Sentiment Index fell to 49.4 in July from last month’s 51.2. Britons voted to leave the European Union on June 23, a shock outcome that sent sterling to a 31-year low and sent many investors across the globe in search of safe havens. Polling for the index began the day after the vote. Portugal
Review of white elephant airport demanded The Portuguese Communist party said yesterday there should be an “urgent” revision of the strategic plan for Beja airport to make the most of the infrastructure so as to develop the Alentejo region of the country, which has a lot of Communist voters. The party also wants the government to invest in a medium/long-term development strategy in Alentejo of an aeronautic cluster, linking Beja airport with existing and future companies, “in an integrated view of the development of industry and services to boost public infrastructure in the region”.
Private report
UBS retains positions as world’s biggest private bank Switzerland’s second biggest bank Credit Suisse fell further behind Morgan Stanley in the ranking. Brenna Hughes Neghaiwi
U
BS kept its ranking as the world’s biggest private bank last year, a study by wealth management r es ea rch e r Sc o r p i o Partnership showed yesterday. With US$1,737.5 billion of assets under management, UBS retained its highly-prized first place in 2015, staying nearly US$300 billion ahead Bank of America Merrill Lynch which replaced Morgan Stanley in second place. UBS, Switzerland’s biggest bank, saw a 1 per cent fall in managed assets in 2015, while BofA Merrill Lynch’s managed assets dropped 2 per cent
and Morgan Stanley’s fell 2.8 per cent. Facing a slowdown in emerging markets, heightened volatility and hesitant clients, assets under management fell 1 per cent in the overall industry, the private banking benchmark study showed. Net new money, a volatile but important indicator of future earnings in wealth management, fell 6.9 per cent overall. For the 25 largest industry players, the drop in assets under management was steeper, even though they were able to increase net new money by a third. “Ultimately, the market leaders have focused aggressively on improving their cost-effectiveness
Results
“Ultimately, the market leaders have focused aggressively on improving their costeffectiveness in their operating models in order to weather the storm as best as possible”
JP Morgan quarterly net profit falls marginally JPMorgan Chase & Co, the biggest U.S. bank by assets, reported a 1.4 per cent fall in quarterly profit as its businesses continued to deal with razor-thin margins amid universally low interest rates. The bank’s net income fell to US$6.20 billion in the second quarter ended June 30, from US$6.29 billion a year earlier, but earnings per share rose to US$1.55 from US$1.54. Analysts on average had expected earnings of US$1.43 per share, according to Thomson Reuters I/B/E/S. It was not immediately clear if the reported figures were comparable. Antitrust regulators
EU open third front against Google
EU regulators brought a third antitrust charge against Alphabet Inc’s Google yesterday, accusing it of blocking rivals in the lucrative online search advertising market. The European Commission also reinforced its existing charge against the world’s most popular Internet search engine that its search results favour Google’s own shopping service over that of rivals. “Google has come up with many innovative products that have made a difference to our lives. But that doesn’t give Google the right to deny other companies the chance to compete and innovate,” European Competition Commissioner Margrethe Vestager told a news conference in Brussels.
in their operating models in order to weather the storm as best as possible,” Scorpio Managing Partner Sebastian Dovey said. Switzerland’s second biggest bank Credit Suisse fell further behind Morgan Stanley in the ranking with a 7.2 per cent fall in its managed assets to US$687.3 billion, the benchmark showed. With less than half of Morgan Stanley’s managed assets, Credit Suisse would need to add US$750 billion to break into the top three in private banking, an area Chief Executive Tidjane Thiam hopes will its main money maker in the coming years. Under Thiam, Credit Suisse has shifted resources away from investment banking and into wealth management in an effort to cut costs and boost earnings while taking on less risk. Reuters
Sebastian Dovey, Scorpio Managing Partner
Regulation
EU Commission proposes looser rules for venture capital Only funds with assets under management up to 500 million euros could operate across the EU. The European Commission proposed yesterday measures to boost the size of the EU market for venture capital in a bid to diversify access to capital for smaller companies in Europe. Venture capital funds invest in riskier, emerging firms that are usually shunned by banks and other more conservative investors. The industry is seen as important to foster innovation but remains a small player in Europe with a market of 5 billion euros (US$5.55 billion), five times smaller than in the United States. Small and medium companies in Europe receive 75 percent of their funding from banks, and have recently struggled to get capital as the banking sector faced higher capital
requirements. In an attempt to expand the venture capital market, the Commission, the EU executive arm, has proposed to allow larger funds to invest in riskier start-ups without facing higher requirements. So far, only funds with assets under management up to 500 million euros could operate across the EU with the lower legal requirements granted to European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF). This threshold will be abolished. The Commission also proposed to expand the assets in which venture capital funds can invest, to include smaller firms. Red tape and fees for
venture capital managers will also be lowered. The fund industry supported the Commission proposal. EU states and the European Parliament will have to approve the proposals before they can take effect.
‘Brussels is also planning to use the EU budget to create a venture capital fund of funds’ Brussels is also planning to use the EU budget to create a venture capital fund of funds with a size of at least 500 million euros which could attract major investors. The average size of European venture capital funds is 60 million euros, half the size of the US. The public contribution to the possible fund of funds is still to be defined. Reuters
Business Daily Friday, July 15 2016 15
Opinion Business Wires
The Asahi Shimbun Nintendo Co. hopes Pokemon Go’s global surge will help the Kyoto-based firm escape from years of stagnant corporate performances. The excitement surrounding the new smartphone app has pushed up Nintendo’s stock price by about 1.6 times over four trading days. Before the app was made available in Australia and New Zealand on July 6, Japan time, and the United States on July 7, Nintendo’s stock was trading at around 14,000 yen (US$134). But the closing price July 12 was 22,840 yen. Ironically, one reason for Nintendo’s poor recent performances was its sluggish entry into the smartphone game market.
What’s the problem with protectionism? The Times of India India expects to raise Rs 17.06 billion (US$254.16 million) through stake sale in the state-run builder National Buildings Construction Corp Ltd., the telecoms minister said. The cabinet has approved the sale of 15 per cent stake in NBCC, Ravi Shankar Prasad told reporters on Wednesday. The government wants to raise Rs 565 billion (US$8.42 billion) through stake sales in state-owned companies in the 2016/17 financial year. That is 19 per cent lower than last fiscal year’s target, which the government failed to meet.
Bangkok Post The draft of the law governing the development of the Eastern Economic Corridor (EEC) is expected to be submitted for cabinet approval next month. Industry permanent secretary Somchai Hanhiran said the committee spearheading the promotion of the EEC would conclude the draft next week. The Industry Ministry estimated that the EEC may attract up to 550 billion baht in investment to the eastern region over the next five years following its launch this year. It has been designated for development as a high-tech industry cluster, with an eye towards becoming Asean’s leading economic zone for industrial, infrastructure and urban development.
Viet Nam News While the local stock market was waiting for the listing of major Stateowned enterprises (SOEs) that were to go public, the Ministry of Finance reported that the pace of equitisation in the first half of 2016 had not reached its target. Authorised agencies approved the equitisation plans of 39 SOEs with a total value of VNĐ27.06 trillion (US$1.2 billion), in the first six months of this year. State stakes accounted for VNĐ21.63 trillion of the total, according to a report on SOE equitization in the 2011-2015 period.
O
ne thing is now certain about the upcoming presidential election in the United States: the next president will not be a committed free trader. The presumptive Democratic nominee, Hillary Clinton, is at best a lukewarm supporter of freer trade, and of the TransPacific Partnership in particular. Her Republican counterpart, Donald Trump, is downright hostile to trade deals that would throw open US markets. Breaking with modern Republican tradition, Trump envisages a 35 per cent tariff on imported cars and parts produced by Ford plants in Mexico and a 45 per cent tariff on imports from China. Economists are all but unanimous in arguing that the macroeconomic effects of Trump’s plan would be disastrous. Repudiation of free and open trade would devastate confidence and depress investment. Other countries would retaliate by imposing tariffs of their own, flattening US exports. The consequences would resemble those of the Smoot-Hawley Tariff, enacted by the US Congress in 1930 and signed by an earlier, disgraced Republican president, Herbert Hoover – a measure that exacerbated the Great Depression. But just because economists agree doesn’t mean they’re right. When the economy is in a liquidity trap – when demand is deficient, prices are stagnant or falling, and interest rates approach zero – normal macroeconomic logic goes out the window. That conclusion applies to the macroeconomic effects of tariff protection in general, and to the Smoot-Hawley Tariff in particular. This is a point I demonstrated in an academic paper written – I hesitate to admit – fully 30 years ago. Consider the following thought experiment. President Trump signs a bill slapping a tariff on imports from China. This shifts US spending toward goods produced by domestic firms. It puts upward pressure on US prices, which is helpful when there is a risk of deflation. But then President Xi Jinping retaliates with a Chinese tariff, which shifts demand away from US goods. From the standpoint of American consumers, the only effect is that imports from China (now subject to tax) and their US-produced substitutes are both more costly than before. Under normal circumstances, this would be an undesirable outcome. But when deflation looms, upward pressure on prices is just what the doctor ordered. Higher prices encourage firms to raise production and households to increase their spending. They also reduce the burden of debts. And because inflation is still too low, owing to depressed macroeconomic conditions, there is no need for the Fed to raise interest rates and offset any inflationary effects of the increase in spending. To prevent this thought experiment from being misconstrued, I want to be clear: there are other, better ways of raising prices and stimulating economic activity in liquidity-trap conditions.
“
Barry Eichengreen a professor at the University of California, Berkeley, and the University of Cambridge.
The obvious alternative to import tariffs is plainvanilla fiscal policy – tax cuts and increases in public spending. Still, the point about tariffs is important. Just as tariff protection is not a macroeconomic problem in deflationary, liquidity-trap-like conditions, freer trade, the economist’s familiar nostrum, is not a solution. Those seeking a cure for the current malaise of “secular stagnation” – slow growth and sub-2 per cent inflation – shouldn’t claim too much for the beneficial macroeconomic effects of trade agreements. And they shouldn’t invoke the old saw that Smoot-Hawley caused the Great Depression, because it didn’t. False claims, even when made in pursuit of good causes, do no one any good. But Smoot-Hawley did have a variety of other damaging c o n s e q u e n c es . Fi rst, i t disrupted the operation of the international financial system. Free trade and free international capital flows go together. Countries that borrow abroad must export in order to service their debts. Smoot-Hawley and foreign retaliation made exporting more difficult. The result was widespread defaults on foreign debts, financial distress, and the collapse of international capital flows. Second, trade wars fanned geopolitical tensions. The French Chamber of Deputies was outraged by American taxation of French specialty exports and urged an economic war against the US. The UK taxed imports from the US while giving special preferences to its Commonwealth and Empire, angering Hoover and his successor, Franklin Delano Roosevelt. Canadian Prime Minister Mackenzie King warned of an outbreak of “border warfare,” diplomacyspeak for deteriorating political relations. Efforts to stabilize the international monetary system and end the global slump were set back by these diplomatic conflicts. Worse, US, British, French, and Canadian leaders were at one another’s throats at a time when they should have been working together to advance other common goals. After all, economic policy aside, there was an even greater threat in the 1930s, namely the rise of Hitler and German remilitarization. Unilateral resort to trade restrictions, by making diplomatic cooperation more difficult, complicated efforts to mobilize a coalition of the willing to contain the Nazi threat. Tariff protection may not be bad macroeconomic policy in a liquidity trap. But this doesn’t make it good foreign policy – for Trump or anyone else. Project Syndicate
Just as tariff protection is not a macroeconomic problem in deflationary, liquidity-traplike conditions, freer trade, the economist’s familiar nostrum, is not a solution
”
16 Business Daily Friday, July 15 2016
Closing Investment
Beijing greenlights 96 fixed-asset projects
press conference. China’s fixed-asset investment grew 9.6 per cent year on year in the first five China’s top economic planner approved months, 0.9 percentage points lower than 96 fixed-asset investment projects with that recorded in the first four months of total investment reaching 461.6 billion 2016, according to data released by the yuan (US$71 billion) in the first six months of 2016, an official said yesterday. National Bureau of Statistics (NBS). In June alone, the National Development The investment structure was improved with more money spent on high-tech and Reform Commission (NDRC) approved 23 projects involving 151.1 billion and service sectors, while less money went into industries with high energy yuan, which cover transportation, high technology and water conservation, said consumption or excessive capacity, according to the NBS. Xinhua NDRC spokesperson Zhao Chenxin at a
Technical troubles
Singapore’s securities market halted The SGX was hit by technical troubles in the past, including in August last year, when trading on the derivatives market was temporarily suspended. Aradhana Aravindan
T
rading in Singapore’s securities market was halted yesterday in the fourth major interruption on the exchange in the past two years, frustrating investors and piling pressure on CEO Loh Boon Chye who completed his first year at the bourse on the same day. The Singapore Exchange Ltd said securities trading was suspended just before midday local time due to duplicate trade confirmation messages being generated.
stock crash in 2013. While Singapore is the leading venue in Asia for foreign exchange trading and has seen strong growth as a derivatives centre, the average value of shares traded on its stock exchange each day is less than that of Thailand’s bourse and trails far behind rivals in Hong Kong and Tokyo. The Monetary Authority of Singapore (MAS), which regulates the SGX, said it was monitoring
yest e rda y’s ha l t c losely an d understands that the exchange is currently working with affected members to rectify the issue. The bourse’s derivatives market operated as normal during yesterday, but the disruption to securities market trading proved frustrating to dealers especially given the recent technical glitches. “This kind of outage has happened far too frequently in between the last two years and this has implications (for) the confidence level of traders,” Bernard Aw, a market strategist at IG Asia Pte Ltd. “It will probably trigger a reaction from the regulator.”
The SGX was hit by technical troubles in the past, including in August last year, when trading on the derivatives market was temporarily suspended. The exchange suffered two disruptions in 2014, caused by a software error and a power failure - leading to a rebuke by the MAS, Singapore’s central bank, which ordered the SGX to improve its technology risk management. As part of its efforts to boost revenue streams, the SGX is in exclusive talks to buy London’s Baltic Exchange, which has been at the heart of the global shipping industry for centuries. Reuters
Key Points Trading in securities market halted at 11:38 a.m. SGX says market not re-opened yesterday MAS says monitoring the situation closely The exchange then scrambled to fix the problem but couldn’t get trading back on track in the afternoon, twice having to delay planned resumptions. “SGX informs that the market will not resume trading at 1600 hours and will not re-open today,” it said in the latest statement after the second failed attempt to restart trading. The latest interruption adds to challenges faced by Chief Executive Loh Boon Chye, as the SGX battles lacklustre securities trading volumes and tries to improve scrutiny on trading activities following a penny
Industry
Official voice
Forex
New Zealand manufacturing Mainland’s capacity continues to grow reduction takes effect
Taiwan regulators tighten oversight on derivatives
New Zealand’s manufacturing sector continued its long run of growth last month despite concerns over the high value of the New Zealand dollar, according to the latest performance of manufacturing index (PMI) out yesterday. The BNZ-Business New Zealand PMI for June was 57.7 on a scale where above 50 indicates expansion and below 50 contraction. The reading was 0.5 points higher than May and continued a run of growth in almost all months since October 2012. “While we are obviously encouraged by June’s (post-Brexit) PMI we are also conscious of the soaring currency. Good economic news comes with a price in FX markets,” BNZ senior economist Craig Ebert said in a statement. Business New Zealand executive director for manufacturing Catherine Beard said the fundamental components of the survey continued to hold up well. “Both production (60.8) and new orders (61.6) remained above the 60-point range, while employment (53.5) experienced its fourth consecutive rise in activity levels,” Beard said in the statement. A combination of seasonal factors, expanding markets and construction projects helped keep the positive trend going, she said. Xinhua
Taiwan’s central bank said yesterday it will require complex, high-risk forex derivative instruments to go through regulatory approval before allowing banks to sell such products to consumers. The move comes after local banks earlier this year were hurt by customer defaults on yuan derivatives. Under draft revisions issued on the website of Taiwan’s central bank yesterday, “new types of complex, high-risk forex derivative financial products” will need regulatory approval before they can be sold. Currently, some financial products can be sold by banks to their customers without much regulatory oversight. Earlier this year, yuan-related derivatives called target redemption forwards (TRF), which allow investors to bet on the direction of the yuan, fell into the red when China unexpectedly allowed the yuan to depreciate. TRFs pay the holder a monthly income so long as the yuan remains above a trigger price against the dollar. If the yuan falls, the investor has to pay out. TRFs had been seen as a sure bet to a steady income as the value of the yuan rose steadily against the dollar. Reuters
Financial conditions of steel and coal companies have improved thanks to government-led capacity reduction measures, an official said yesterday. Crude steel production fell 1.4 per cent year on year in the first five months of 2016 and coal production of large miners dropped 8.4 per cent, said Zhao Chenxin, spokesperson for the National Development and Reform Commission (NDRC) at a news briefing. As a result, the composite steel price index increased by 11 points in the first half of 2016 to 67.83 points at the beginning of July. The price of a popular coal product rose by 30 yuan (about US$4.5) in the first six months to 400 yuan per tonne, Zhao added. China’s producer price index (PPI), an indicator of industrial product prices, slid 2.6 per cent year on year in June, compared with a 2.8-per cent decrease in May. Despite consecutive improvements in the last six months, PPI had remained in negative territory for 52 months as China’s economic slowdown and industrial overcapacity weighed on prices. China aims to cut around 45 million tonnes of crude steel capacity and more than 250 million tonnes of coal capacity in 2016. Xinhua