VIP revenue drops 16 pct in Q2 Gaming Page 6
Tuesday, July 19 2016 Year V Nr. 1089 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai ADB report
China on track to hit target amid weak global outlook Pages 8 & 9
www.macaubusinessdaily.com
Auto sports
Walmart strike
Suncity signs title sponsorship agreement with Macau Grand Prix Page 3
Mainland and U.S. workers collaborate on labour demands Page 16
Crime
Victims’ calls are flooding in regarding a fraud scheme that has involved a total of MOP56.5 mln (US$7.06 mln) so far, according to the police. The scheme was allegedly run by local investment company Glory Sky International Holdings Group, with 53 victims identified, two of them staff of the firm. Page 4
Tax hike hits hard
Automotive Local car dealers estimate their sales have plummeted by 50 to 70 pct since the tax on newly imported vehicles was raised last December, in order to limit the number of vehicles in town. Page 2
Without a safety net
Local traders are having difficulty getting insurance policies to cover their deals with Lusophone countries. Businessmen say wrong risk perception is to blame and are appealing for government help to launch export credit insurance regulations.
Weaker home prices
Trade Page 5
HK Hang Seng Index July 18, 2016
21,803.18 +143.93 (+0.66%) Worst Performers
Lenovo Group Ltd
+7.59%
New World Development
+2.28%
Tingyi Cayman Islands
-3.34%
Belle International Holdings
-0.65%
China Merchants Holdings
+5.90%
Sun Hung Kai Properties Ltd
+2.27%
Want Want China Holdings
-1.70%
MTR Corp Ltd
-0.36%
Sands China Ltd
+3.35%
Cathay Pacific Airways Ltd
+1.95%
China Shenhua Energy Co
-1.04%
Kunlun Energy Co Ltd
-0.34%
Sino Land Co Ltd
+2.70%
Hang Lung Properties Ltd
+1.59%
Cheung Kong Infrastructure
-0.81%
China Unicom Hong Kong
-0.25%
Bank of East Asia Ltd/The
+2.42%
AIA Group Ltd
+1.25%
China Resources Land Ltd
-0.73%
China Overseas Land &
-0.19%
28° 31° 28° 31° 27° 32° 27° 32° 27° 32° Today
Source: Bloomberg
Best Performers
Wed
Thu
I SSN 2226-8294
Fri
Sat
Source: AccuWeather
China’s official data China’s property sector continued to recover in June, but at a slower pace, with fewer cities reporting month-on-month increases in new home prices, an official survey showed yesterday. Of 70 large and medium-sized cities surveyed in June, 55 saw new home prices climb month-on-month, down from 60 the previous month, the National Bureau of Statistics said. Page 8
2 Business Daily Tuesday, July 19 2016
Macau In Brief Bank
OCBC announces merger of subsidiaries OCBC announced yesterday the merger of its two banking subsidiaries in Mainland China – OCBC Bank (China) Limited and Wing Hang Bank (China) Limited - into OCBC Wing Hang Bank (China) Limited. The bank is headquartered in Shanghai and has registered capital amounting to 5 billion yuan (US$747 million). The bank now employs 1,500 staff at 32 branches and sub-branches in 14 cities throughout China. The merger ‘empowers OCBC Bank to effectively drive its Greater China strategy across the key markets of China, Hong Kong and Macau – under one single platform and unified brand name,’ reads the release, adding that the region is one of the bank’s ‘core markets given China’s rising economic prominence’.
Automotive Distributors shifting targeted customers from casino workers to public servants
Car sales halved post-tax hike Car dealers say imports are down as sales drop by more than 50 pct. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
C
ar dealerships in the SAR have seen their sales slashed by between 50 and 70 per cent since the implementation of a tax increase on new car imports came into effect in December of last year. Estimates given by Patrick Tse Ka Ming, president of the Macau Motor’s
Association speaking to Business Daily before the implementation of the increase, anticipated a downturn of 30 per cent year-on-year, however sales in both the high-end luxury segment and the family segment have been worse than expected, with numbers being halved so far this year. “We can forecast that sales have decreased 50 per cent after the tax increment and economic trends – from 2015 up to this moment,” notes Gabriel Leong, a company representative speaking about the performance of Toyota’s products in the local market. Leong notes that the sector has seen decreases across all product ranges, with the Sedan and
Society
MOP4.5 mln budget for cleaning service research The Macau SAR Government has allocated the Environmental Protection Bureau a research budget of MOP4.5 million (US$560,000) over four years to undertake research into the quality of the city’s cleaning, rubbish collection and removal service from 2016 to 2019. The information was announced in a government dispatch signed by Chief Executive Chui Sai On and published yesterday in Macau’s Official Gazette. The research contract has been granted to Macau University of Science and Technology. In 2016, the research is budgeted for MOP875,000. The rest of the budget will be divided into three separate payments of MOP1.5 million, MOP1.5 million and MOP625,000 to be paid every year from 2017 to 2019, according to the dispatch. Working hours
Cultural Fund flexibility Employees of the Cultural Industries Fund (FIC) have been granted flexible working hours starting from August 1 of this year, according to a publication in the Official Gazette yesterday. The Secretary for Social Affairs and Culture, Alexis Tam signed off on the agreement, which was granted ‘based on necessities of service’ and does not apply to those in higher management positions. Workers are required to work 36 hours per week, with a minimum of five hours and a maximum of nine hours to be worked per day. Workers must register when entering and leaving work and absences without approval from a superior do not fall under the scheme.
SUV (sports utility vehicle) types being the most hard hit by the changes. “The most effective range [bestselling] is from MOP300,000 to MOP600,000 – [that saw] the least decrease,” notes Leong. The bill, passed unanimously by the Legislative Assembly late last year, increases the tax on newly imported vehicles to between 40 and 72 per cent, compared to the previous 30 to 55 per cent.
High-end down turn
The higher potential for vehicle sales in the low to mid price range was confirmed by an employee of BMW. The employee mentioned that the group has seen better results from their 1 series and 3 series models – specifically the 120 and 320 models, which sell for around MOP300,000 pre-tax - with taxes reaching up to MOP120,000 depending on the vehicle. A representative of the company that distributes Maserati luxury vehicles in the territory told Business Daily that their business has also suffered in the wake of the tax hike. “Our car sales have dropped by some 70 per cent compared to before,” laments the representative. “Before we used to sell some ten cars a month and now the sales have dropped to some three cars a month.” The situation looks to quickly be becoming the norm, and as sales slide, so do imports. “We expect sales will stay at the same level for the rest of the year. Now, on average we import some three to four cars for showcases per month, which are mainly Japanese cars,” notes the Maserati representative – whose company also distributes other brands - seeing a shift in trend regarding consumers. “Before our major customers were people working inside casinos, but now they are mainly public servants, who primarily purchase Japanese cars. As such, not many people are buying Maserati anymore,” he states.
Times a changing Crime
Bad taxis Almost 2,000 taxi infractions were registered by authorities in the first half of 2016. A total of 1,983 taxi infractions were registered by police authorities in the first six months of 2016, a decrease of 6.3 per cent year-on-year, according to data sent to Business Daily by the Transport Bureau (DSAT). The main infractions registered against taxi drivers by DSAT involved overcharging and refusal to carry passengers. Unresolved cases, where it has yet to be decided if a fine is applicable, increased to 299 from January to June this year, up from19 registered cases last year in the same period. Also
in the first half of this year, a total of 1,113 complaints regarding taxi services were registered, while 904 were received in the same period of 2015. The authorities also issued 809 warnings or reprimands to taxi drivers from January to June, while 862 were issued in the first half of last year. DSAT reported that MOP4,000 (US$500) was received from four cases resolved in the first half of 2016, after MOP23,000 was collected from 23 resolved cases in the same period last year. Fines imposed on taxis for the whole year of 2015 generated over MOP1 million from 1,133 cases, Business Daily reported previously. According to current legislation, fines can range between MOP1,000 and MOP25,000, with harsher payments and punishments currently being discussed by the Legislative Assembly. N.M.
Maserati is not the only company to be feeling the pressure, as Mr. Leong notes that Toyota is also working to keep up with a shifting demographic. “Most people are local, there are no more [mainland] Chinese customers," he notes. Another representative of a local car importer commented that in regards to customers: “they are locals,” and that the company is focusing on smaller-size, familyoriented vehicles in order to make a profit. “For us we do not have two door cars now, so most of them are four door, and we do not have any six-seater cars – such as big family vehicles. All we do is small cars. Most families would like to have a small car,” notes the representative. The representative notes that in regards to declining imports based on car type, the group is taking a broader approach, saying: “we are changing the number of cars we import, all the models.” Overall however, the tax increase is not the only thing to blame for the drop in sales. “Before the customers come to buy a car, they will think of the parking,” says the representative: “they will find a parking [space] first before they come and buy a car. If not, most of them come to just have a look,” he says, adding that: “there is not enough parking in Macau.” As of May this year, the city had 119,078 registered vehicles according to official data, a 1.6 per cent year-onyear increase, in line with Secretary for Economy and Finance Lionel Leong’s goal to slow the current “5.54 per cent [increase in vehicles] every year,” Business Daily reported. Also in May, 998 new vehicle registrations were recorded, a 33 per cent drop year-on-year.
Business Daily Tuesday, July 19 2016 3
Macau Sports Suncity – Title sponsor for Macau Grand Prix three years in a row
Macau Grand Prix budget remains at MOP200 mln Suncity Group has increased its title sponsorship by 42.9 per cent to MOP20 mln. Annie Lao annie.lao@macaubusinessdaily.com
T
he Suncity Group will be the title sponsor for the Macau Grand Prix this year. This will be the third consecutive year that the company has entered into a title sponsorship agreement with the organizing committee. The 63rd Macau Grand Prix, a motor-racing event held annually in Macau featuring both car and motorcycle races, will take place over four days from November 17 to 20 this year. The president of the Macau Grand Prix Organizing Committee-cumSecretary for Social Affairs and Culture, Alexis Tam Chon Weng attended the title sponsorship agreement signing ceremony for the event at Macau Tower yesterday. The city’s largest junket promoter, Suncity Group will provide sponsorship of MOP20 million (US$2.5million) to hold the event, a 42.9 per cent increase from the previous year’s MOP14 million, according to Alvin Chau, chief executive officer and director of Suncity Group, in attendance at the ceremony yesterday. The title sponsor for the event was selected through a public tender. In addition, the total expenses for the Macau Grand Prix this year are budgeted for around MOP200million, which is similar to last year’s event,
according to Pun Weng Kun, president of the Sports Bureau-cumcoordinator of the Macau Grand Prix Organizing Committee, who also attended the ceremony yesterday.
New organizing committee
This year is the first time for the Sports Bureau to run the Macau
Aviation
Air Macau to fly daily to Fukuoka in 2017 Flights from the territory to the Japanese city of Fukuoka will increase from four to five per week after October, as part of the airline’s strategy to explore Japan’s potential as a flight destination. Air Macau will increase its number of outbound and inbound flights between Macau and the Japanese city of Fukuoka from four to five flights every week from October 30 onwards. In March this year, the airline started operating four flights a week to the city on the island of Kyushu in Japan, with one outbound and one inbound flight every Monday, Tuesday, Friday and Saturday. “The destination [Fukuoka] has a lot of potential, as the sixth biggest city in Japan, and we would like to increase the destinations in the
Japan area, turning it into a mini-hub besides Macau,” Winston Ma Sze Lok, General Manager for Air Macau in Southern China told Business Daily. The Air Macau General Manager stated that even after the 2016 Kumamoto earthquake, the company has kept a “positive view” of Japan as a destination and is aiming to have daily flights from Macau to Fukuoka in the first quarter of 2017. In addition to Fukuoka, Air Macau flies to the Japanese cities of Tokyo and Osaka, and is currently the only airline company connecting the MSAR with Japan directly. N.M.
Grand Prix and hence there will be a new organizing committee for the event. The new committee is now working on the race programme in association with other organizations and departments. “This year’s event will again be combined with the city’s tourism and cultural elements. The new organizing committee is currently actively liaising with racing associations and other organizations in order to run the event successfully,” Mr. Pun said.
The Sports Bureau aims to promote the Macau Formula Three Grand Prix as an International World Cup competition in the future, and hopes for it to be recognized by other international sports organizations, according to Mr. Pun. The Macau Grand Prix has invited local and international competitors with an aim to promote the diversity of the city’s tourism industry. Last year, more than 80,000 spectators participated in the fourday event. It generated revenue of MOP53 million, of which MOP12.7 million was from ticket sales, making it the bestselling year in the history of the event, according to Alexis Tam.
4 Business Daily Tuesday, July 19 2016
Macau Fraud
Glory Sky’s illegal fund-raising over MOP56.5 mln This is the second illegal capital collection case uncovered in the city since that of Macao Group which was cracked by the local police at the beginning of June. Kam Leong kamleong@macaubusinessdaily.com
A
t four o’clock yesterday afternoon, police revealed details of the city’s latest illegal fundraising scheme, allegedly committed by local investment company Glory Sky International Holdings Group. The scheme reportedly involves a total of 53
victims and a total of MOP56.5 million (US$7.06 million). According to the Judiciary Police (PJ), the 53 victims include 48 local residents and five Mainland Chinese. Two of the victims are also staff of the investment firm. The PJ claimed that these victims started investing in the company in 2014, when the company was offering five per cent return for every 60 days. They added that there was no
Monetary
Forex reserves grow in June The foreign exchange reserves of the Special Administrative Region jumped to MOP151.3 billion (US$18.9 billion) as at the end of June, according to a preliminary estimate by the Monetary Authority of Macau (AMAC) released yesterday. Compared to MOP144.1 billion one year ago, the city’s foreign exchange reserves as at June-end represent an increase of five per cent. On a month-on-month comparison, the amount is also slightly up by 0.6 per cent from MOP150.4 billion. As at the end of last month, the foreign exchange reserves represented 12 times the currency in circulation, or 106.5 per cent of Pataca M2 at the end of May.
‘M2’ refers to that part of the m o n e y s u p p l y that i n c l u d es physical coins and currency, as well as readily liquid assets such as on-demand bank deposits and money held in cheque accounts plus all time-related deposits, savings deposits, and non-institutional money market funds. Meanwhile, the trade-weighted effective exchange rate index for the Pataca jumped 0.15 points monthon-month to 101.51 in June, and by 1.52 points year-on-year. The increases suggest the local currency appreciated against the currencies of the city’s major trading partners in general, according to the authority. K.L.
evidence to indicate that the involved firm is related to any casino, and urged more victims to come forward and report to the police. On Sunday, local online media Macau Concealers first reported that the staff of the company found that the cash and valuable assets of its office had been taken away last Thursday, while the group’s executives, including the president, financial director and operating manager, had also been missing since then. The media outlet quoted an unidentified source as saying the number of victims in the case may reach over one hundred. Neither the company’s official website nor Facebook page was reachable yesterday. However, according to information on the company’s mobile application, the firm claimed itself to be “one of the non-gaming diversified companies in the city…with businesses located in Macau, Hong Kong, Taiwan, Shanghai, Zhuhai, Japan and America, involved
in real estate, finance, law, luxury clubhouses, food and beverages”.
Macao Group fraud amount jumps to HK$110 mln
This is the second illegal fund-raising scheme uncovered in the city in the past one and a half months. At the beginning of June, the PJ uncovered an illegal capital collection scheme being run by Macao Group. Asked by Business Daily, a PJ spokesperson said yesterday that up till now, the case involves a total of HK$110.4 million, with 61 victims having reported to the police department, including two Hong Kong residents and two Mainland Chinese. The police body detained three shareholders of the company at the beginning of June, including its president Lao Meng Tong. The PJ spokesperson said yesterday that the total number of suspects involved in the case has increased to five, all of whom have been transferred to the Public Prosecutions Office.
Retail
Clothing retailer Esprit expects to break even thanks to exceptional gains Esprit Holdings Ltd said on Monday that it expected a break-even in net income for the year ended in June thanks to HK$1.34 billion (US$173 million) in exceptional gains from the sale of its Hong Kong office and a write-back in tax provisions. The exceptional gains, including HK$725 million from the office sale, are set to offset non-recurring expenses due to cost restructuring measures that have included staff reduction and closure of some unprofitable stores in Hong Kong, Macau and China, the apparel retailer said
in a filing to the Hong Kong bourse. The Europe-focused retailer has been in the midst of an ambitious revamp over the past year that has included store closures, price adjustments, new return policies, and technology and distribution improvements. In February, it posted a HK$238 million first-half net loss, hurt by a slowdown in China and a weak euro. Last month, Esprit said Britain’s vote to leave the European Union could affect consumer sentiment in its key markets in Europe. Reuters
Business Daily Tuesday, July 19 2016 5
Macau
Trade
Acquiring export insurance remains problematic for local traders Local businessmen and traders are still waiting for promised government help in setting up export credit insurance for trade with Portuguese-speaking countries. Nelson Moura nelson.moura@macaubusinessdaily.com
L
ocal companies involved in trading with Portuguesespeaking countries are still waiting for the Export Credit Insurance mechanism previously discussed by the government. In his last policy address, Chief Executive Fernando Chui Sai On announced that his administration would discuss a possible Export Credit Insurance Regulation for the Macau SAR, to promote trade and services between Mainland China and Portuguese-speaking countries using Macau as a platform, under the ‘One Belt, One Policy’. Export credit insurance is an i n s u ra n c e p o l i c y o f f e r e d b y private insurance companies and governmental export credit agencies, to business entities wanting to protect their accounts receivable from loss due to credit risks such as protracted defaults, insolvency or bankruptcy. In the first five months of the year, China exported goods worth US$10.4 billion (MOP83.0 billion), to eight Portuguese-speaking countries, a 14.6 per cent decrease year-on-year. Macau has been hailed as a connecting bridge between Mainland China and Portuguesespeaking countries, however so far no concrete plans have been made by the government to set up a mechanism to help local traders get export credit insurance.
Not that dangerous
Local businessmen and traders told Business Daily they still face issues when getting export insurance because banks and insurance companies consider some export destinations too risky, or because they don’t consider covering Macau exports to be profitable enough.
Do as thy neighbour
Some of Macau’s neighbours, such as Hong Kong and Singapore, have already established departments that help local exporters get export insurance. In 2015, the Hong Kong government assured coverage of statutory maximum liability of US$40 billion for insurance contracts of The Hong Kong Export Credit Insurance Corporation. This corporation provides trade credit insurance protection against non-payment risks arising
“It’s an issue we can improve and Macau could do it, we just need to study the best method to achieve it,” Afonso Chan, vice-president o f Cha r l est r o n g E n g i n e e r i n g Technology told Business Daily.
“This issue has been discussed and cooking for years without positive results, the reason being that in view of the limited business volumes exiting Macau, no insurer is interested in taking the cover, or the premium quoted was too extremely high to accept.” Macao Importers and Exporters Association
Charlestrong has been involved in construction projects in the African country of Mozambique, and its vice-president told Business Daily that some local businessmen have faced problems getting export insurance because banks and insurance companies have a wrong perception of the risk level when it comes to exporting to Portuguesespeaking countries, especially those in Africa. “[Export insurance] is hard to get and I think the Monetary Authority
from commercial and political events such as bankruptcy or insolvency, payment defaults, refusal to take delivery of goods, or even war, revolutions, riots or natural disasters. In the case of Singapore, the local government has also set up the Trade Credit Insurance (TCI) by International Enterprise (IE) Singapore, which enables Singapore companies to support up to 50 per cent of the minimum premium for trade insurance policies by Singaporeregistered credit insurers until a maximum amount of US$74,217.
of Macau (AMCM) could ponder to speak to banks and insurance companies and incentivise them to provide insurance, or maybe there could be a government fund. I know in Hong Kong the local government under the ‘One Belt, One Road’ created a department for helping out with trade insurance. We could study this mechanism and bring it here,” Afonso Chan told Business Daily.
Traders unite
Both the International Lusophone Markets Business Association (ACIML) and the Macau Importers and Exporters Association have told Business Daily that getting export insurance is indeed a big problem for local traders in Macau, and that the mechanism promised by the government should be created as soon as possible. “Macau should have such an insurance scheme to safeguard the interests of exporters/traders with overseas trading partners. This issue has been discussed and cooking for years without positive results,” the Macau Importers and Exporters Association told Business Daily. According to the association, the reason why export credit insurance is so hard to obtain is that “no insurer is interested in taking the cover” because they consider business volumes exiting Macau are too small to be worthwhile, and so they ask for premiums that are “extremely high to accept” for local traders. “Consolidating the insurance cover with Hong Kong and China is another option for negotiation, but due to technical problems, no compromise could be reached,” the Macau Importers and Exporters Association told Business Daily.
Whose responsibility?
For Lin Zhijun, Professor at the School of Business at the Macau University of Science and Technology (MUST), Hong Kong and Singapore are exceptions in terms of government assistance in insurance, since in most of the world export insurance is up to the private sector. However the professor thinks the MSAR government could install some “guarantees or backup for the insurance companies, so as to help diminish the risk,” and advises local traders to improve the marketing of the countries deemed too risky, so as to change the perception of those countries in the eyes of insurance companies and banks.
Malam Becker Camará, GuineaBissau Delegate at the Forum for Economic and Trade Co-operation between China and Portuguesespeaking Countries (Forum Macao) told Business Daily that he has heard local businessmen complain about the issue at the Forum Macao events, but he believes that the government is currently only discussing the possible mechanism, and maybe in November a plan will be proposed for the policy to be launched in the next years.
“[Export insurance] is hard to get and I think the AMCM could ponder to speak to banks and insurance companies and incentivise them to provide insurance, or maybe there could be a government fund.” Afonso Chan, Vice-president of Charlestrong Engineering Technology “I think local businessmen should be more active in finding alternative solutions and grab opportunities by themselves,” Camará told Business Daily. When questioned about this issue, the AMCM told Business Daily that in order “to assist the government in this initiative, AMCM has made feasibility studies on how to set up the mechanism, taking into consideration the current situation of the Macau SAR.” “At the moment, the Government is still considering different options and has been working towards the goal that was originally set,” the AMCM told Business Daily. In a previous interview with Business Daily, José Félix Pontes, a retired member of AMCM stated the creation of a public instrument to implement trade credit insurance should be one of the priorities in supporting SME’s and diversifying the economy.
Correction In the article ‘Eyes in the Sky’ appearing in the July 11 edition of Business Daily, the sentence regarding the previous work of Crane Productions should read as “One of the projects that Crane Productions worked on was the opening of Studio City in Cotai, and it also produced the documentary about the life of English artist George Chinnery in Macau.” Business Daily apologises to the parties involved and to our readers for any inconvenience caused.
6 Business Daily Tuesday, July 19 2016
Macau Gaming
VIP revenue drops 16 pct in Q2 The proportion of gaming revenue from the VIP sector continued to decrease in the second quarter, while that from the mass market by contrast, has increased. Kam Leong kamleong@macaubusinessdaily.com
T
he city’s gross gaming revenue derived from the VIP sector amounted to MOP26.6 billion (US$3.3 billion) for the second quarter of the year, a drop of 15.7 per cent compared to one year ago, according to the latest official data released yesterday by the Gaming Inspection and Co-ordination Bureau (DICJ). Between April and June, the total gaming revenue generated from local casinos totalled MOP51.6 billion. It suggests VIP revenue occupied 52 per cent of the total, which is a decline of four percentage points compared to 56 per cent during the same quarter last year. In addition, compared to MOP30.4 billion for the first quarter of the year,
VIP revenue is down by 12.5 per cent in the past three months. Meanwhile, casino revenues from the mass market, including slot machines, amounted to MOP25 billion for the quarter, marginally down by 1.1 per cent year-on-year from MOP25.3 billion. On a quarterto-quarter comparison, the amount also fell by 3.9 per cent from MOP25.8 billion.
For the first half of the year, casino revenue from the VIP sector totalled MOP57 billion, a drop of 18 per cent year-on-year, down from MOP69.2 billion. Overall, it accounted for some 53 per cent of the total. On the other hand, revenue generated from the mass market
during the first six months accounted for 47 per cent of the total, and also dropped by three per cent year-onyear to MOP50.8 billion. As at the end of June, the number of gaming tables in the city totalled 5,998, down by 89 tables quarterto-quarter, yet up by 184 year-onyear. In addition, the number of slot machines also decreased by 591 quarter-to-quarter, or 486 year-onyear, amounting to 13,706 in total.
Sluggish revenues
The proportion of mass-market revenue however, jumped by four percentage points year-on-year to 48 per cent of the total for the quarter. For slot machines alone, the segment’s revenue dropped by 11.3 per cent year-on-year to MOP2.63 billion during the quarter. Compared to MOP2.9 billion for the first three months of the year, the amount went down by 8 per cent.
Junket
Alvin Chau considering tourism business expansion in Vietnam, Korea The junket boss is eyeing to do business in the two countries through his subsidiaries, in addition to fundraising. Kam Leong kamleong@macaubusinessdaily.com
The boss of local junket operator Suncity Group, Alvin Chau Cheok Wa, is considering expanding his tourism-related business to Vietnam
and South Korea through his other controlled-companies, in addition to arranging for possible fund-raising, a filing by Hong Kong-listed Sun Century Group Ltd. indicates. According to the announcement released last week, Sun Century Group,
Corporate
Outperforming restaurants
Melco Crown Entertainment Limited has announced that nine of its signature restaurants across Altira Macau, City of Dreams and Studio City have received the “Best of Award of Excellence 2016” from the prestigious Wine Spectator, making Melco Crown Entertainment
the hotel operator with the most Wine Spectator Restaurant Awards in Macau. This is another world-class achievement in the hospitality operations of the Company, in addition to the Michelin recognition and Forbes five-star distinctions its properties received earlier this year.
of which the junket boss holds 57.3 per cent of the issued stake, will sell its subsidiary Sun City Group Tourism Ltd to another two subsidiaries named Kingdom Rich and Jumpers Action. “In addition to the diversification to the tourism-related service business in Macau through the acquisition, the Group intends to further expand its planned tourism-related business to other countries in the Asian market such as Vietnam and South Korea,” the Hong Kong-listed company wrote. Sun City Group Tourism, incorporated in Macau in January 2014, was granted a travel agency license from the MSAR government last December. The filing indicates that 99.93 per cent of the travel company’s stake, with a nominal value of MOP1.5 million (US$187,500), is held by Mr. Chau, while the other 0.07 per cent is held by his sister Candy Chau Sui Heng. It also states that the subsidiary is now negotiating with several third-party service providers regarding certain service agreements, including the supply of ferry tickets, provision of helicopter services, as well as provision of VIP check-in services at airports. “The Group plans to provide consultancy, advisory and technical services for large scale resorts and/
or gaming and entertainment facilities in places with rapid growth in the tourism industry,” Sun Century wrote, adding “the company has been in the process of setting up subsidiaries in association with its expansion plan”. As well as operating in Macau, Mr. Chau’s junket business is also currently active overseas in the Philippines and Australia.
Fund-raising
The company also disclosed in the filing that it is contemplating possible fund-raising to repay part of its outstanding bank and other borrowings. As at the end of December 31, Sun Century had total bank and other borrowings of 2.03 billion yuan (MOP2.43 billion/US$303.8 million), of which some 1.56 billion yuan is due within this year, according to the filing. Nevertheless, it did not indicate how much the group is planning to try to raise. “The company will make further announcements in accordance with the requirements of the Listing Rules as and when appropriate,” it claimed. Sun Century Group, formerly known as Hong Long Holdings Ltd. before 2012, is primarily engaged in the development of real estate in the Mainland. Besides being a controlling shareholder, Mr. Chau is also the chairman and an executive director of the company.
Business Daily Tuesday, July 19 2016 7
gaming Solaire
Bloomberry best ever quarter ahead
Bloomberry Resorts, operator of the Solaire Resort and Casino in the Philippines, is looking forward to its best ever, quarterly gross gaming revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) in August, brokerage CLSA has announced, as reported by Asia Gaming Brief. CLSA notes that Bloomberry seems to be turning around from its 2015 woes, with
its bad debts under control and its Korean casino operation, which was generating losses for the group, being divested. The casino in question – the Jeju casino - is being sold to the Iao Kun Group for approximately US$102 million, the group announced, earning the local junket operator a license to operate an unlimited number of gaming tables, subject to regulatory approval, Business Daily reported.
Labour US$47 million in business gross revenue tax to be earmarked for collection
Saipan loses foreign workers Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
A
round 1,300 foreign workers in the Northern Mariana islands, home to Saipan, will see their legal status to stay in the area expire by October, the Saipan Tribune reports. The current situation only allows a cap of 12,999 foreign contract foreign workers per year. For this reason, United States representative Gregorio Sablan has introduced a bill to amend the commonwealth agreement of the islands with the U.S., the publication notes. The bill increases the cap on contract workers to 18,000 as well as changes the phase out deadline of immigration from 2019 to 2029. It also calls for foreign workers, the majority of which are in the construction field, to be paid the prevailing wage, which is slightly higher than the island commonwealth’s minimum.
for casino operations and if necessary would focus on the VIP operations, reports the publication.
Imperial Pacific
Additional taxes
The foreign worker cap affects over 130 casino employees of Best Sunshine International Ltd. – who will have to leave the Commonwealth this month. The company, a subsidiary of the Hong-Kong Stock Exchange listed Imperial Pacific Limited, already saw 90 of its employees leave in June. The executive director of the Commonwealth Casino Commission, Edward Deleon noted that they were trying to hire U.S. or local workers
Laos
The casino was recently the focus of Representative Villagomez, who introduced a bill proposing a 10 per cent casino gaming revenue payment on top of the current fees – which the publication notes amounts to about US$71 million per year. Edward Deleon deemed that this additional tax was not prudent until after the group opens its Grand Mariana resort operation “so we have a better idea of what type of revenue
Litigation over Savan Vegas sale continues
Sanum opposes San Marco motion to dismiss Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
In the most recent developments in the case involving the Savan Vegas Hotel and Casino in the Savannakhet Province in Laos, the casino’s former operators, Sanum Investments and Lao Holdings have filed an opposition to a motion to dismiss. The vote to dismiss was filed by San Marco Capital Partners and Kelly Gass – current operators of the casino since its seizure for alleged unpaid tax. Sanum Investments is a Macauincorporated company.
Stalled sale
San Marco was put in charge of the operation, headed by Kelly Gass, and negotiated the sale of the casino to Macau Legend in May. The sale is stalled pending ‘financial information and the valuation report’ of the complex, as announced by Macau Legend at end-June. In a release on Sunday, Sanum reiterated its reason for filing three lawsuits against Kelly Gass, San Marco Capital and the Lao Government for acting “in contravention of the terms of the investment treaty arbitration” having ‘unilaterally hired San Marco Capital Partners and Kelly Gass to operate, manage, market and sell Sanum’s valuable Lao gaming assets which include the Savan Vegas Hotel’.
The release also claims Gass had ‘failed to communicate with the plaintiffs and conduct an open bid process’ resulting in the assets being ‘sold to Macau Legend for a fraction of the estimated value’.
Risky litigation
The president of Sanum Investment, Jody Jordahl, says the handling of the sale “is insulting to any person or company trying to do business in Laos. We hope that the court recognizes this and denies this motion to dismiss”. The release further states that ‘Gass wants to compel arbitration in Laos, which is one of the most corrupt nations in the world,’ claiming that ‘plaintiffs’ witnesses are subject to death threats and threats of baseless arrest in the country’, while also noting ‘plaintiffs do not expect the party-controlled judiciary to provide an unbiased enforcement of any award in our favour’ given that the government is ‘contractually required to indemnify Defendants for any judgment obtained by Plaintiffs.’ Macau Legend, who recently entered into an agreement with the Setúbal Municipality in Portugal to develop a casino in the region, announced that they expect to announce the results of the Savan purchase at end-July.
is generated as a base,” he said. In the meantime, Speaker Ralph Demapan is calling for the government to identify as available for appropriation, over US$47 million in business gross revenue tax paid by the Saipan casino, notes the Mariana Variety.
The speaker informed the governor via letter that Best Sunshine had paid over US$23 million in business gross revenue tax for the first five months of the 2016 fiscal year, and could expect “an additional US$24 million” for the remaining seven months.
8 Business Daily Tuesday, July 19 2016
Greater China
Key Points June new home prices rise 7.3 pct y/y vs May +6.9 pct Month-on-month rise eases to 0.8 pct from 0.9 in May Shenzhen price growth slows, Shanghai unchanged Growth of property sector slowed in Q2
Real estate
Slowing home price rises add to doubts about economy Prices stalled or fell on a monthly basis in 15 cities in June.
H
ome price rises in China slowed in June for a second straight month, adding to fears that a constructionled rebound in the economy may not be sustainable. The property market is a key driver of the world’s second-largest economy and a robust recovery in home prices
and sales gave a stronger-thanexpected boost to activity in the first half of the year. But slowing price growth in smaller cities and cooling property investment show the bounce may already be fading, raising the risk of weaker economic growth in coming months. Home prices in China’s 70 major
cities rose 7.3 per cent in June from a year earlier, an official survey showed yesterday, accelerating from a 6.9 per cent rise in May. To be sure, some of the biggest cities showed eye-popping gains on a yearly basis, with prices in the southern boomtown of Shenzhen up 46.7 per cent and Shanghai up 27.7 per cent. Gains on a monthly basis continued to slow, however, as cities tightened policies amid fears of a housing price bubble. The monthly rise slowed slightly to 0.8 per cent in June, easing from 0.9 per cent in May, according to a Reuters calculation based on data issued by the National Bureau of Statistics (NBS). “We continue to expect the property rebound to subside and property investment growth to fall in the second half of the year,” economists at Nomura said in a note, predicting sales would
stabilise and a large glut of unsold homes would keep pressure on prices in some areas. “As such, our long-term view of a gradual (economic) slowdown remains unchanged.” Prices stalled or fell on a monthly basis in 15 cities in June, compared to 10 cities in May, with all of the weakness is smaller cities. Industrial cities Tangshan, Jinzhou and Baotou went from gains to declines month-on-month in June. First-tier cities maintained recent rapid price rises, with Shenzhen and Shanghai rising 2.0 per cent and 2.6, respectively, on a monthly basis, faster than in May. That could raise the risk of further property cooling measures in some areas.
Cracks in the foundation
The recovery in China’s property market and a government infrastructure building spree in recent months have helped shore up growth in economy, which has been weighed down by weak demand at home and abroad, cooling investment and excess industrial capacity.
ADB report
Beijing ‘on track to meet growth pro Growth in 2016 and 2017, the report notes, is led by South Asia, and India in particular, which continues to expand strongly. A new Asia Development Bank (ADB) report said yesterday China is “on track to meet earlier growth projections” of 6.5 per cent for 2016 and 6.3 per cent for 2017 despite weak global prospects and Brexit. In East Asia, growth forecasts are unchanged at 5.7 per cent in 2016 and 5.6 per cent in 2017, with China, the world’s second largest economy, on track to meet projected growth of 6.5 per cent in 2016 and 6.3 per cent in 2017, the Manila-based bank said in a statement. To support its targets, it said the Chinese government is expected to continue using fiscal and monetary stimulus measures. The statement also said that growth in Asia and the Pacific’s developing economies for 2016 and 2017 “will remain solid as firm performances from South Asia, East Asia and Southeast Asia help offset softness from the U.S. economy, and near-term market shocks from the Brexit vote.” In a supplement to its Asian Development Outlook 2016 report, released last March, ADB now forecasts 2016 growth for the developing economies at 5.6 per cent, below its previous projection of 5.7 per cent. For 2017, growth is seen unchanged at 5.7 per cent.
“Although the Brexit vote has affected developing Asia’s currency and stock markets, its impact on the real economy in the short term is expected to be small,” said Shang-Jin Wei, ADB’s chief economist. However, he added “in light of the tepid growth prospects in the major industrial economies, policy makers should remain vigilant and be prepared to respond to external shocks to ensure growth in the region remains robust.”
“Although the Brexit vote has affected developing Asia’s currency and stock markets, its impact on the real economy in the short term is expected to be small” Shang-Jin Wei, ADB’s chief economist
Business Daily Tuesday, July 19 2016 9
Greater China Central bank
In Brief
Official sees enough room to increase deficit ratio He reportedly warned that China has already fallen into a “liquidity trap”.
But there are increasing signs of fatigue in the nine-month-old property rally, raising concerns about both the economic outlook and banks’ heavy exposure to mortgage lending. Growth in investment in China’s real estate sector slowed in first half to 6.1 per cent, down from 7 per cent in Jan-May, presenting a challenge for policymakers who need the critical sector to maintain growth without creating a price bubble. For June alone, property investment was up only 3.5 per cent from a year ago, according to Reuters calculations, compared with 6.6 per cent in May. Policymakers are facing a tough balancing act. The concern is that tighter mortgage rules in the largest cities have not cooled prices enough, while fragile markets in secondary cities that are beset by oversupply likely need more stimulus to keep prices from sliding again. After the investment data on Friday, economists at ANZ said that China’s property-led recovery was over, which could pose further risks to the economy in the second half of the year. Reuters
ojections’ Growth in 2016 and 2017, the report notes, is led by South Asia, and India in particular, which continues to expand strongly, while China is on track to meet earlier growth projections. The report says South Asia is expected to be the fastest growing subregion, led by India, whose economy has shrugged off global headwinds and is on track to meet ADB’s March fiscal year 2016 (year to March 2017) projected growth target of 7.4 per cent, supported by brisk consumer spending and an uptick in the rural economy. In Pakistan, further improvements in energy supply, higher infrastructure investments, and an improved security environment will help push up growth in 2016 and 2017 the report says, while the Bangladesh economy will remain robust on the strength of its garments sector. In Southeast Asia, the report says growth forecasts for the subregion in 2016 and 2017 remain unchanged at 4.5 per cent and 4.8 per cent, with solid performances by most economies in the first half of 2016 driven by private consumption. “The exception was Vietnam where the economy came under pressure from a worsening drought that caused a contraction in the agriculture sector,” it says. It also says that continued soft commodity prices and the recession in (Russia) have further dampened the growth outlook for Central Asia, with the earlier 2016 forecast of 2.1 per cent trimmed to 1.7 per cent, and 2017 cut to 2.7 per cent from 2.8 per cent.
China has room to increase its fiscal deficit ratio to between 4 and 5 per cent to more effectively boost the economy, official media quoted a central bank official as saying. China’s current fiscal deficit target is 3 per cent of gross domestic product (GDP), up from an actual 2.4 per cent in 2015. But there is room for a slight increase, the Shanghai Securities News quoted Sheng Songcheng, director of the Survey and Statistics Department at the People’s Bank of China (PBOC), as saying at a forum on Saturday. While monetary policy is effective, it is limited and requires coordination with a proactive fiscal policy, Sheng was quoted as saying at the forum, where he also suggested that China increase its government bond issuance. Sheng also reportedly warned that China has already fallen into a “liquidity trap”, where increased money supply is being absorbed by firms that are not in turn investing the cash. Data on Friday showed that China’s economy grew 6.7 per cent from a year earlier in the second quarter, slightly faster than expected as higher government spending and a housing boom boosted industrial output and construction-related activity and services. But the numbers also fuelled concerns
that China’s growth is becoming ever more dependant on government spending and debt. First-half bank lending hit a record and government spending jumped 20 per cent in June. At the same time, growth in investment by private firms fell to a record low in the first half, as businesses retrenched in the face of the sluggish economic outlook and weak exports. There are increasing signs that Chinese companies are hoarding cash, signalling a poor growth outlook, economists at ANZ said in a note last week after June money and lending data. “The divergence between M1 and M2 growth developed further (in June), indicating corporates’ preference is to hold cash. Since the economic prospect is weak, corporates do not spend cash for investment. This is consistent with the declining trend of fixed asset investment by the private sector.” June M2 grew 11.8 per cent year-oneyear, more than markets had expected but still below the PBOC’s target of 13 per cent. M1 surged 24.6 per cent, suggesting a faster increase in corporate demand deposits than time deposits, ANZ said. Unless the private sector snaps back to life, more fiscal and monetary easing will be needed to keep China’s economy on an even keel, HSBC economists said in a note yesterday. Reuters
“Since the economic prospect is weak, corporates do not spend cash for investment.” Economists at ANZ’s note
Guideline
Beijing vows investment, financing reform China will overhaul its investment and financing system to stimulate market vitality amid the economic downturn, according to a document released yesterday by the central authorities. The government will cut red tape, improve supervision and encourage enterprises to invest, said a guideline jointly released by the Communist Party of China Central Committee and the State Council. China will enhance private investment management, reinforce public investment, diversify corporate financing channels and accelerate transforming government functions, the guideline promised. It also urged implementation of those measures. Liquidity
Central bank lends US$33.9 bln via MLF China’s central bank said it lent 227 billion yuan (US$33.9 billion) to 14 financial institutions via its medium-term lending facility (MLF) yesterday. Interest rates for the MLF loans were unchanged at 2.75 percent for threemonth loans, 2.85 percent for six-month loans and 3.0 percent for one-year loans, the People’s Bank of China (PBOC) said on its official weibo account. The central bank lent 53 billion yuan for three months, 134.5 billion yuan for six months and 39.5 billion yuan for one year. The PBOC uses the MLF and the standing lending facility as tools for managing short- and medium-term liquidity in the country’s banking system. Summit in mainland
World Bank’s Kim to meet Premier Li “The slump in revenues from hydrocarbon exports are affecting fiscal consolidation efforts in Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan, while lower remittances, p a rti c u l a r l y f r o m th e R u ssi a n Federation, continue to hurt domestic consumption in the subregion,” it says. In the Pacific, the report sees growth for 2016 is expected to moderate to 3.9 per cent in 2016 from 7.1 per cent in 2015, with the Fijian economy reeling from Cyclone Winston. “However there are some bright spots with stronger-than-expected tourism receipts aiding the Cook Islands and Samoa, while Vanuatu’s economy is being boosted by the rollout of postcyclone reconstruction work and other major infrastructure projects,” it says. The report now projects inflation for developing Asia to come in at 2.8
per cent for 2016 and 3.0 per cent for 2017 - a 0.3 percentage point rise for each year from the previous forecasts. “The rise is due largely to a recovery in oil and food prices. Oil prices rebounded from early-year lows and food prices rose nearly 9 per cent in June 2016 from the year earlier, marking the fifth consecutive month the index has risen in value,” the report says. ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB in December 2016 will mark 50 years of development partnership in the region. It is owned by 67 members-48 from the region. In 2015, ADB assistance totaled US$27.2 billion, including cofinancing of US$10.7 billion. Xinhua
World Bank President Jim Yong Kim will meet with Chinese Premier Li Keqiang and the heads of other international organizations in Beijing this week to discuss global economic issues and the country’s economic development, the lender said in statement yesterday. Kim also plans to meet with other leaders and government officials before heading to the gathering of Group of 20 finance ministers and central bank governors July 23-24 in Chengdu, the World Bank said. Kim will also visit health facilities in two provinces. The World Bank didn’t name the other officials Kim plans to meet. Vaccine
Beijing approves use of GSK vaccine Drugmaker GlaxoSmithKline Plc said yesterday the China Food and Drug Administration (CFDA) has approved its human papillomavirus (HPV) vaccine, Cervarix, for use in the country to help women fight cervical cancer. GSK’s China unit said in a statement Cervarix will be the first HPV vaccine licensed for use in the country and is expected to be launched there in early 2017. Cervical cancer is the second most common cancer in women aged between 15 to 44 years in China, with an estimated 130,000 new cases each year, it said.
10 Business Daily Tuesday, July 19 2016
Greater China Think tank poll
Many in Hong Kong look for the exit amid mainland tension Seventy per cent of 1,500 people surveyed said the city had become “worse” or “much worse” to live in. Sharon Shi
W
hen activists began setting fire to trash bins and hurling bricks at police during a February riot in Hong Kong, Chris Lee became more convinced his decision to leave his siblings and mother behind and move to Taiwan was the right one. Hong Kong, long known as one of the safest and most law-abiding cities in Asia, has become increasingly polarised with occasional violent protests, fuelled in part by tensions with Communist Party leaders in Beijing over the Chinese-ruled city’s democratic future. “It’s not just the politics that are messed up,” said Lee, who moved to Taiwan in March and opened a
restaurant. “It is also the people who have become irrational and fickle that drove me to leave.” Lee is not alone. Some 42 per cent of Hong Kong residents want to leave, a survey by independent think tank Civic Exchange showed in June. This compares with 20 per cent wanting to leave neighbouring Singapore. Seventy per cent of 1,500 people surveyed said Hong Kong had become “worse” or “much worse” to live in, with the biggest concerns housing, the “quality of government” and education. The number of Hong Kong people emigrating to Canada almost doubled in the first quarter of this year compared with the same period last year, and the number moving permanently to Taiwan rose 36 per cent over a similar time frame, data shows.
The most recent data from the United States is from 2014 and flat. Emigration to the UK has declined, but the minimum amount for those seeking to qualify for residency as investors there has also doubled to 2 million pounds (US$2.64 million). Australia doesn’t provide data for Hong Kong but aggregate figures for emigrants from mainland China, Hong Kong, Taiwan, Macau and Mongolia rose slightly last year.
“Started to be nervous”
The diminishing confidence in Hong Kong’s future follows the “Occupy Central” protests in late 2014 demanding Beijing grant Hong Kong full democracy. “After Occupy, (Hong Kong people) started to be nervous about the future,” said Andrew Lo, a director of Anlex Services Limited, which handles Taiwan immigration cases. Mary Chan, of immigration experts Rothe International Canada, said the immigration process typically takes
Key Points 42 per cent of HK residents looking to emigrate - survey Some residents say social tensions forcing them away Taiwan, Canada are top destinations
one to two years. “Which is why the numbers are only increasing now,” she said. The disappearances of five Hong Kong booksellers who specialized in gossipy political books about Chinese leaders, some of whom were believed to have been abducted by Chinese agents, has also eroded broader confidence in the “one country, two systems” formula under which the former British colony returned to China in 1997. One of the booksellers who returned to Hong Kong told media he may emigrate to Taiwan because he no longer feels safe in the city. “Young people were more upset about the government two years ago but the sense of dissatisfaction actually cuts across ages now,” said Professor Michael DeGolyer, who co-led the study. The Mainland Affairs Council in Taiwan, a self-ruled island China considers a breakaway province, said it expected the increase in Hong Kong immigrants to continue. “Taiwan is an open, pluralistic and liberal democracy. The people are very friendly. Housing prices and consumer prices are relatively cheap, while entrepreneurial opportunities and the similar cultures of Hong Kong and Taiwan are all factors for Hong Kong residents to consider coming to Taiwan,” it said. H o n g K o n g’ s i m m i g r a t i o n department declined to comment on the survey. The Security Bureau declined to answer questions about whether the Hong Kong government was concerned about emigration or believed it was due to political concerns. It provided its own emigration estimates based on the number of requests it had received for certificates of no criminal conviction. Those figures showed a slight increase last year but were below where they were a decade ago. Reuters
Teapots
Iran targets oil sales to mainland via Trafigura Demand from the teapots have accounted for more than half of China’s incremental crude purchases this year. Florence Tan and Chen Aizhu
An Iranian crude cargo loaded by trading house Trafigura is set to arrive in east China this week, heating up the race among oil suppliers to meet the rise in demand for imports from China’s independent refineries, trade sources said. Only last year, China’s independent oil refiners, known as teapots, were granted licenses to import crude in line with Beijing’s efforts to boost competition in a sector dominated by state-run groups. Frenzied buying by the teapots followed, drawing in rare supplies from both Saudi Arabia and Kuwait. Now, Iran is eyeing the new group of Chinese buyers, located mainly in eastern Shandong province, as it rebuilds its global market share after western sanctions were lifted in January. The National Iranian Oil Co (NIOC) sold a 2-million barrel Iranian Heavy crude cargo to Trafigura, which was loaded in late June on board supertanker Olympic Target. Trade sources with knowledge of the deal say this cargo is heading to Shandong, putting Trafigura ahead of other major trading firms in being
the first to sell Iranian oil to teapots. Trafigura, the world’s secondbiggest independent oil trader, declined to comment on this, while NIOC could not be immediately reached for comment. But sources told Reuters the sale was agreed on condition Trafigura would market the crude to Chinese teapots, which are outside NIOC’s usual Chinese clients - state refiners
Sinopec and PetroChina, and that the oil would be offloaded at Shandong. Iran, OPEC’s No.3 producer, needed to sell through a trader given logistical constraints and credit risks involved when dealing with small non-state buyers, the sources said. “No single teapot could absorb a VLCC (Very Large Crude Carrier) cargo. Without crude storage operation in China, it is hard for NIOC to sell into teapots,” said a Beijingbased trading official with knowledge of Iran’s Chinese oil sales. Saudi Aramco for instance sold its first spot cargo to a teapot from its storage in Okinawa, while Kuwait
supplied oil to privately-controlled Shandong Hongrun Petrochemicals, via state-run oil trader Sinochem Corp. NIOC’s sale via Trafigura will help Iran to also avoid demurrage costs at congested Shandong ports, the sources said. Demand from the teapots have accounted for more than half of China’s incremental crude purchases this year and have led to long lines of tankers waiting to unload at ports. The Olympic Target, carrying Iranian crude, is expected to arrive later this week, shipping data on Thomson Reuters Eikon showed. Trafigura is expected to move the cargo into storage tanks and then sell it in smaller parcels to teapots, the sources said. Reuters
Key Points Trafigura buys 2 million barrels Iranian Heavy crude from Iran The deal was on condition Trafigura will market to China teapots Saudi Arabia, Kuwait ahead of Iran in sales to teapots
Business Daily Tuesday, July 19 2016 11
Asia
Port of Singapore Trade
Singapore exports’ figures aim at more stimulus Shipments to China fell 9.9 per cent in June from a year earlier. Jongwoo Cheon
S
ingapore’s exports skidded in June as shipments to China and Europe continued to contract, suggesting the trade-reliant economy may need more stimulus to support a fragile recovery in the face of weak global demand and concerns over Brexit. The affluent city-state’s economy grew slower-than-expected in the second quarter as underlying weakness in its key financial services industry added to the pressure on output from a depressed manufacturing sector. Non-oil domestic exports (NODX) fell 2.3 per cent last month from a year earlier, the trade agency
International Enterprise Singapore said in a statement yesterday. That was slightly better than the median forecast of a 3.0 per cent fall in a Reuters poll, but partially unwound an unexpected rise in May on gold and pharmaceuticals shipments. Some economists say the government may need to boost fiscal stimulus in the event of more pressure on the economy. “With MAS’ policy complicated by the strength in the S$NEER, there is still space for subsequent off-budget fiscal measures should the economic outlook deteriorate further,” said Weiwen Ng, an economist for ANZ in Singapore. The Monetary Authority of Singapore 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, the central bank eased policy by setting the rate of appreciation of the policy band at zero per cent. But the Singapore dollar has remained strong on demand for safe-haven in emerging Asia, putting further pressure on both exports and inflation.
China, Europe hit
Exports to China, Singapore’s top overseas market, fell 9.9 per cent in June from a year earlier, compared to a 10.1 per cent decline in May. “With China’s deceleration being a structural one, the lackluster NODX performance could last for a while,” said Irvin Seah, senior economist for DBS Bank. China’s economy in April-June period expanded slightly faster but worries persist about the outlook in the world’s second-largest economy.
Sales to the European Union slumped 5.8 per cent in June onyear after a 14.0 per cent contraction in May, and there are worries Brexit could further impact sales.
Key Points June NODX -2.3 pct y/y vs -3.0 pct forecast June NODX -12.9 pct m/m sadj vs -10.3 pct forecast NODX to Europe, China fall again; U.S. NODX slow down The International Monetary Fund earlier this month cut its euro zone growth outlook for the next two years and warned that the conditions could worsen if Britain’s decision to leave the EU continues to spread turmoil in financial markets. The EU is Singapore’s second-largest NODX market. Shipments to the United States rose 5.9 per cent last month from a year earlier, but that was slower than the 9.1 per cent growth seen in May. Reuters
Prime brokerage
Fee pressure looms for underperforming hedge funds Hedge funds charge the most among asset managers, traditionally raking in 2 per cent in management fees and 20 per cent of investment gains. Klaus Wille
Investors are starting to withdraw money from mediocre Asian hedge funds that charge high fees, a trend that’s forcing changes in the economics of the business, according to the global head of prime brokerage at Nomura Holdings Inc. “Organizations and investors don’t like to pay 2-and-20 when funds are not making money,” Nomura’s Christopher Antonelli said in an interview. “The big investors are forcing that change and they will continue to do that by starting to pull money. You don’t get any more money if you don’t change.” Hedge funds charge the most among asset managers, traditionally raking in 2 per cent in management fees and 20 per cent of investment gains. They’re now seeing investors push back after many have failed to beat benchmarks amid volatile market conditions. Globally, 84 per cent of investors in hedge funds pulled money in the first half of the year, with underperformance being
the main driver of redemptions, according to a Credit Suisse Group AG study released last Tuesday. “With the new launches, we are seeing more varied fee structures and we will continue to see that,” Antonelli said.
Fewer start-ups
Against this backdrop, Antonelli sees fewer high-profile hedge fund launches in Asia. With a cyclical slowdown in major markets such as India and China, hedge funds may abstain from starting, while major firms headquartered in other parts of the world won’t set up regional offices in the region, he said. “There have not been many large funds that have started in Asia recently and I’m not sure that’s going to change anytime soon,” Antonelli said. Launches in Asia are on track for the lowest level in at least 10 years, according to data provider Eurekahedge Pte, with 18 new openings in the first half of the year, less than a quarter than the 79 funds
started in 2015. There has been no launch with assets of more than 100 million this year, the data show. That compares to seven launches surpassing that amount in 2015 and and least 14 launches in each of the previous six years. Nomura is one of Japan’s two biggest prime brokerages, and focuses on selling Asian products, Antonelli said. The 80-staff unit is based in Hong Kong and has departments
“With the new launches, we are seeing more varied fee structures and we will continue to see that” Christopher Antonelli, global head of prime brokerage at Nomura Holdings
in London and New York. Prime brokers typically provide services like lending securities for shorting, executing trades or lending money. While Antonelli said Nomura’s business is doing well because of its niche focus on smaller managers in Asia, he added that “it’s becoming more and more difficult to make money in prime brokerage. There is cost compression everywhere.” Bloomberg News
12 Business Daily Tuesday, July 19 2016
Asia
CPI
Low inflation poses economic quandary for New Zealand central bank The RBNZ has repeatedly warning that skyrocketing housing prices are a risk to the country’s financial stability.
I
nflation in New Zealand continued tracking near zero in the quarter to the end of June, according to the latest consumers price index (CPI) out yesterday, fuelling speculation that the central bank will cut interest rates next month. The CPI rose 0.4 per cent in the June quarter, following a 0.2-per cent rise in the March quarter, according to the government’s Statistics New Zealand agency. “Higher petrol and housingrelated prices were countered by lower prices for meat and
domestic air fares,” consumer prices manager Matt Haigh said in a statement. In the year to the end of June, the CPI inflation rate remained stable at 0.4 per cent. Housing-related prices continued to be the main upward contributor, up 3.3 per cent in the year. “Petrol prices were 8.1 per cent lower than a year ago, despite the increase this quarter as international crude oil prices recovered from their February low. Petrol makes up around 5 per cent of the CPI basket,” said Haigh.
An economic note from the ASB Bank said the CPI inflation rate was below the expectations of the market and the Reserve Bank of New Zealand (RBNZ). Core inflation pressures appeared to remain low - a concern for the RBNZ, which aims for the midpoint of an inflation target range of 1 per cent to 3 per cent. As a result, the ASB thought the RBNZ would cut the official cash rate (OCR)- currently at 2.25 per cent next month by 25 basis points with a further cut to 1.75 forecast for later in the year. The main opposition Labour Party said the all prices excluding housing and household utilities fell by 0.5 per cent, meaning the New Zealand economy was experiencing deflation outside of property.
However, the RBNZ could not act to stimulate the economy without fuelling the country’s housing crisis, which has seen prices soar in the biggest city of Auckland, home to a third of the population. “The Reserve Bank should be acting to stimulate the economy, but that is impossible with New Zealand’s runaway housing market,” Labour Party finance spokesperson Grant Robertson said in a statement. “Inflation has now been below the 2 per cent target since the end of 2011. Clearly the current system is not working and there is an urgent need for a review of the current approach to monetary policy.” The RBNZ has repeatedly warning that skyrocketing housing prices are a risk to the country’s financial stability. Xinhua
M&A
Japan’s SoftBank to buy UK chip designer ARM Softbank will pay 17 pounds for every ARM share - a premium of more than 40 per cent to Friday’s close to reach US$32 billion. Chang-Ran Kim
SoftBank Group Corp has agreed to buy UK chip designer ARM Holdings PLC in a 24.3 billion pound (US$32.2 billion) deal, the two companies said yesterday, in an ambitious bet on mobile internet that will transform the Japanese tech group. ARM, the most valuable tech company listed in London by market value, is a major presence in mobile processing, with its processor and graphics technology used by Samsung, Huawei and Apple in their in-house designed microchips. The Cambridge-based group also stands to be central to the tech
industry’s shift to the ‘internet of things’ - a network of devices, vehicles and building sensors that collect and exchange data - a focus for SoftBank founder Masayoshi Son. Yesterday’s deal, Softbank’s largest to date, marks a departure for the Japanese group, whose tech and telecom portfolio ranges from U.S. carrier Sprint to a stake in Chinese e-commerce giant Alibaba - but does not yet include a major presence in the semiconductor industry. Under the all-cash, agreed offer, Softbank will pay 17 pounds for every ARM share - a premium of more than 40 per cent to Friday’s close, in line with earlier news reports.
Cashed up
Softbank has raised nearly 2 trillion yen (US$19 billion) in cash over the last few months through asset disposals, according to Son - including the sale of shares in China’s Alibaba, unusual for a group that has rarely exited investments. But analysts had expected it to use the cash to reduce debt or give shareholders a windfall by buying back its own shares. Yesterday’s deal comes less than a month after Son, known as “Masa”, scrapped his plans to retire, effectively pushing out his heir apparent, former Google executive Nikesh Arora. Son said then that he wanted to stay on to develop Sprint but also to complete the transformation of SoftBank into a tech investment powerhouse. He has focused on what he calls the next ‘paradigm shift’ in technology, which includes artificial intelligence and the Internet of things
Key Points Deal would be 43 pct premium to ARM shares’ last price Deal would be SoftBank’s biggest-ever acquisition ARM technology ubiquitous in smartphones, tablets ARM technology used in Apple, Samsung, Huawei products SoftBank says to keep ARM HQ, top managers, double UK staff A deal would also come just weeks after Britain voted to leave the European Union, a decision that has battered sterling and bolstered the yen. Though it has warned on the staffing impact of Brexit, ARM Holdings’ revenues are largely in dollars, and it has a diverse portfolio of technologies it licenses. Its shares have actually climbed almost 17 per cent since the vote. Under the offer yesterday, SoftBank said it was committed to keeping top managers, ARM’s headquarters and to at least double the employee headcount in Britain. SoftBank shares were not traded yesterday, a market holiday in Tokyo. 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
Business Daily is a product of De Ficção – Multimedia Projects
“This is one of the most important acquisitions we have ever made, and I expect ARM to be a key pillar of SoftBank’s growth strategy going forward,” Son said in the statement. The acquisition is also one of Japan’s largest to date, and is part of a trend of Japanese companies seeking growth abroad to compensate for a stagnant domestic economy. It would outrank even SoftBank’s own US$22 billion acquisition of a controlling stake in wireless operator Sprint in 2013 - a deal that left the Japanese group with hefty debts as the U.S. carrier’s losses mounted.
- both increasingly important for ARM as it weathers a smartphone slowdown. Earlier this year Cambridgebased ARM bought UK imaging specialist Apical, which specialises in technology to allow computers to analyse images - replicating human vision using software.
Business Daily Tuesday, July 19 2016 13
Asia Stock market
In Brief
Singapore Exchange to transfer regulatory functions The move comes just days after SGX reported its longest trading disruption. Singapore Exchange Ltd (SGX), which has come under criticism after a string of trading disruptions, announced plans to transfer its front-line regulatory functions to a separate subsidiary that will be governed by its own board of directors. “The move aims to further enhance the governance of SGX as a selfregulatory organisation by making more explicit the segregation of its regulatory functions from its commercial and operating activities,”
SGX said in a statement yesterday. The move comes just days after SGX reported its longest trading disruption, piling pressure on Chief Executive Loh Boon Chye as he tries to rejuvenate a bourse facing stiff competition in the region. Unlike other major financial markets, Singapore does not have a dedicated securities watchdog. Instead, SGX is the front-line regulator and is in turn regulated by the central bank, the Monetary
Authority of Singapore (MAS). MAS said in a statement that it has been in close discussions with SGX on enhancing the governance of the exchange’s regulatory responsibilities and that it will continue to directly regulate SGX in its roles as both a market operator and a listed company. SGX has faced growing calls from brokers and investors to relinquish its dual role as a regulator and a stock exchange operator. Loh said the transfer of the regulatory functions and SGX’s p r evi o u s m o v e t o s et u p a n independent listings committee would address potential conflicts between its commercial objectives and regulatory responsibilities. Trading in SGX shares resumed after being halted earlier before the announcement. Reuters
ICICI Pru Life
India’s biggest IPO in six years filed India’s ICICI Prudential Life Insurance Co Ltd has filed for an initial public offering of shares, which sources have said could raise about US$745 million in the biggest local IPO in six years. Top Indian private sector lender ICICI Bank, which owns nearly 68 percent of the insurer, is selling up to 181.34 million shares in the IPO - the first ever for an Indian insurance company - according to a draft prospectus released yesterday. The proceeds from the sale will go to the bank. M&A
Temasek set for deal to buy out SMRT Singapore’s state investor Temasek Holdings is set to announce plans this week to buy out the remaining nearly 46 percent of rail and taxi group SMRT Corp that it does not already own, two sources with knowledge of the matter said. The move comes after the Singapore government said last week it will buy almost S$1 billion (US$742 million) worth of metro train assets from SMRT to allow the country’s main rail operator to focus on providing reliable and well-maintained services. Temasek owns about 54.5 percent of SMRT, according to Thomsom Reuters data.
“The move aims to further enhance the governance of SGX as a selfregulatory organisation” SGX statement
State-owned asset
Ineligibility
Australia’s largest privatisation on track A regional government would remain a 49.6 per cent shareholder of the asset which would come under a 99-year lease. The privatisation of one of Australia’s largest electricity asset is likely to remain on track after authorities told bidders they would accept tenders that remain conditional on approval from foreign investment regulators. New South Wales (NSW) state has been recycling state-owned assets to pay for much needed transport infrastructure and capital works, with the 50.4 per cent sale of state owned electricity infrastructure company Ausgrid expected to fetch over A$10.3 billion (US$7,82 billion).
‘Bidders State Grid Corp of China and Cheung Kong Infrastructure Holdings Ltd both require approval from the Foreign Investment Review Board’ Final unconditional bids were mean to be received by July 25 after a delay due to the national election, however, it’s believed the NSW government has advised the two remaining bidders it would accept conditional offers by that date to keep the process on track, Fairfax Media reported yesterday. The two remaining bidders, State Grid Corp of China and Cheung Kong
Infrastructure Holdings Ltd, both require approval from the Foreign Investment Review Board (FIRB), but a protectionist senate would likely attempt to scuttle the sale. The senators who hold the balance of power against a ruling government majority all ran on fierce campaigns for stricter controls on foreign direct investment into Australia following a wave of discontent among the local populace. Fairfax Media reported the surprising moves allowing the
acceptance of conditional bids means the consideration process of the rival bids can begin behind close doors, with both federal and state governments closely involved in the negotiation process. It’s standard practice for governments to insist on bids that are firm and free from risk. The move has the added bonus of allowing the NSW state government to attract the highest dollar possible of Ausgrid which will likely become the largest - by dollar value - privatisation of a state owned asset in Australia’s history. The NSW government would remain a 49.6 per cent shareholder of the asset which would come under a 99-year lease. In a move to attract investors, however, the government deliberately structured the lease to give operational control to the final buyer, Fairfax reported. Xinhua
Vietnam disqualifies one more parliament member Vietnam’s National Election Council (NEC) convened an extraordinary meeting on Sunday to disqualify one more parliament member, reported local Tien Phong (Youth) newspaper yesterday. During the meeting chaired by the National Assembly (NA) chairwoman Nguyen Thi Kim Ngan, NEC members cast secret votes on considering the status of the 14th NA deputy Nguyen Thi Nguyet Huong. The vote casting result showed that all NEC members agreed that Huong, who was newly-elected to the 14th NA in May elections, will be dismissed from the post due to her ineligibility, according to Tien Phong. Cheaper rates
Bangladesh issues first fuel oil tender Bangladesh Petroleum Corp (BPC) has issued its first tender to buy fuel oil as part of a move away from direct-term deals with fuel products suppliers in a bid to achieve cheaper rates. BPC is seeking 160,000 tonnes of 180-centistoke high sulphur fuel oil, a tender document showed. The tender closes on July 20 and is valid till October 2. In February, BPC issued its first tender to buy oil products in 15 years when it sought more than 11 million barrels of diesel and jet fuel, winning lower rates than its term deals.
14 Business Daily Tuesday, July 19 2016
International In Brief Bundesbank
German economy to grow strongly in Q3 The German economy, Europe’s biggest, will continue to expand strongly in the third quarter, despite potential risks from the British vote to quit the European Union, the German central bank or Bundesbank said yesterday. After growth slowed in the second quarter of 2016, “the underlying economic trend remains very strong and a sharp increase in overall economic output can be expected in the summer quarter,” the Bundesbank wrote in its latest monthly report. In the period from July to September, the main driving factors behind recovery “remain intact,” the report said. Post-Brexit
British Jews ask for Portuguese nationality About de 300 British Jews who are descendants of Portuguese Sephardim have requested Portuguese nationality since the victory of the Brexit, compared with just five requests in 2015, the Israeli community in Oporto told Efe news agency yesterday. Since 2015, Portuguese legislation has allowed the decedents of Sephardic Jews who lived in Portugal to ask for Portuguese nationality. The Spanish news agency Efe said that the possibility of the UK leaving Europe is making many Sephardic Jews try to maintain their rights in the European Union (EU).
Increasing loans
U.S. banks happily gobble mortgage business Rates have dropped to lows not seen since 2013 after the U.S. Federal Reserve dashed expectations for near-term rate hikes. David Henry
J
ust as mortgage bankers were preparing for the end of a historic boom driven by low interest rates, borrowers have begun knocking at their doors again. In earnings reports last week, JPMorgan Chase & Co, Wells Fargo & Co and Citigroup Inc said they originated US$94 billion worth of new mortgages during the second quarter in their core mortgage operations, an increase of US$23 billion, or 31 percent, over the first quarter. The reason for the sudden burst of business? Mortgage rates have dropped to lows not seen since 2013 after the U.S. Federal Reserve dashed expectations for near-term rate hikes. That has led existing borrowers to try and lock in better rates. New borrowers, meanwhile, have been enticed by low borrowing costs and low down-payment offers. With mortgage rates near historic lows, and volumes still strong in the early days of the third quarter, banks predict the trend will continue, providing a bright spot in a low-rate environment hammering their wider results. JPMorgan has added more than
1,000 employees this year to handle the swell in mortgage business, said Mike Weinbach, its chief executive of mortgage banking. He believes U.S. lenders will make about US$1.8 trillion of mortgage loans this year, 40 percent more than he had expected at the start of the year. “We thought the refinance market was going to shrink sharply,” Weinbach said in an interview. “We’ve seen a market that has been much bigger than expected.” All this may be cold comfort to big U.S. lenders that desperately need rates to rise for broader profits to improve. Though low rates bring in new mortgage business and deliver fees from refinancing, banks are hard pressed to generate substantial income when rates fall too low. Adding to the pressure on margins, US banks’ cost of funding has also risen. The difference between what banks pay for U.S. dollars and the Federal Reserve’s expected policy interest rates on Friday hit its widest since August 2012. At some point, there is little room left between what it costs banks to obtain funds and what they can earn from lending and investing. Rates on short- and long-term debt - known
as the yield curve - have come closer together, leaving banks with razor thin margins almost regardless of the type of funding or loans they pursue. “The headwinds from a flatter yield curve and a lower-for-longer rate environment creates challenges for all financial institutions,” said John Shrewsberry, chief financial officer of Wells Fargo, which is the No. 1 U.S. mortgage lender. Wells, JPMorgan and Citigroup each talked about low rates as the main hurdle to producing better results. Their second-quarter profits fell 3.5 percent, 1 percent and 14 percent from a year earlier, respectively. The U.S. Federal Reserve set its interest rate target to nearly zero as the markets and economy were spiralling into crisis in 2008. The Fed kept rates there until December, it raised its target by 0.25 percentage points, causing optimism on Wall Street that rates would continue to rise gradually through 2016. Those hopes have since dimmed. Concerns about market volatility and apparent weakness in the U.S. economy earlier this year, combined with Britain’s vote in June to exit the European Union have made it much less likely the Fed will raise rates further in the near-term. “While the rate situation is challenging, there are a few silver linings in the clouds,” one of them being mortgages, said KBW analyst Fred Cannon. AFP
UK monetary policy
BoE member warns about rate cuts effects The Bank of England has to be very careful not to cut interest rates in a way that inadvertently ends up tightening monetary policy, rate-setter Martin Weale said yesterday. BoE Monetary Policy Committee member Weale also repeated his view that quantitative easing had been effective in the past, but might be less effective now that interest rates are so low. He said the Bank of England was “exploring” the question of how low interest rates can go, but cited Switzerland as an example of where very low interest rates led to unforeseen consequences, with mortgage rates rising. Shipping industry
Oversupply to persist despite scrapping plans A record number of around 150 container vessels are expected to be scrapped in 2016 but it will not be enough for an industry battling over capacity, low demand and falling rates, consultancy firm Drewry said. In 2015, demolitions were less than half of the expected 2016 level but it will not be a real relief for the struggling container shipping industry. “This will only make a dent into the over-capacity built during the 2010-15 period,” Drewry wrote in a note. Some owners have pulled ships only 15 years old because freight rates have been on loss-making levels.
“We’ve seen a market that has been much bigger than expected.” Mike Weinbach, JPMorgan chief executive of mortgage banking
Increasing prices
Nigerian official inflation rises to near decade record The International Monetary Fund has said Nigeria’s economy could contract for the first time in more than two decades this year. Inflation surged to 16.5 per cent in Nigeria last month - its highest level in more than decade - as prices of imported food and energy jumped after the government stopped propping up the currency, the National Bureau of Statistics said yesterday. The rate rose from 15.6 per cent in May, the fifth increase in as many months, the NBS said in an emailed statement. The new rate is the highest since October 2005, according to the central bank. The highest increases were seen in electricity prices, kerosene, furniture and furnishings, road passenger transport, as well as fuels and lubricants, the statistics agency said. Food prices rose 15.3 per cent yearon-year in June, compared with 14.9 per cent in May.
Yvonne Mhango, an economist at Renaissance Capital, told Bloomberg she expected inflation to rise further in the coming months. “We see inflation averaging in the mid 20 per cent by year-end, mainly because of the foreign exchange rates,” she was quoted as saying. Nigerians are struggling with spiralling cost of living after a 67 per cent hike in the price of petrol in April and last month’s scrapping of the peg of the naira exchange rate at 197/199 to the dollar. The naira now trades at around 360 to the dollar on the black market. The official rate is at about 280 to the dollar. Nigeria, one of Africa’s main oil producers, normally gets 70 per cent of its revenue from oil sales.
But the global fall in crude prices since mid-2014 has left the government cash-strapped and even unable to pay wages. Public sector workers in most of the country’s 36 states are on strike because of unpaid salaries, with some owed six months’ back pay.
“We see inflation averaging in the mid 20 per cent by year-end, mainly because of the foreign exchange rates” Yvonne Mhango, an economist at Renaissance Capital The International Monetary Fund has said Nigeria’s economy could contract for the first time in more than two decades this year as a fall in oil revenue and electricity shortages weigh on output. AFP
Business Daily Tuesday, July 19 2016 15
Opinion Business Wires
Bangkok Post Thailand is revving up free trade talks with Britain after the latter’s decision to leave the European Union makes it easier for it to pursue international trade talks. Deputy Commerce Minister Suvit Maesincee, who led Thai trade delegations to Britain on July 11-14, said Thailand and Britain have agreed in principle to step up talks to stimulate mutual trade and investment. The countries also agreed to set up the Thai-UK Business Leadership Council led by giant firms of the two countries including Thailand’s PTT Plc and Britain’s Rolls-Royce.
The Japan News The failed coup attempt in Turkey has shaken Japanese companies conducting global business activities. The incident has not only affected companies with operations mainly in Turkey and those in the travel business, it has also exposed limitations to the safety measures that Japanese companies have implemented in response to terrorist attacks around the world. Japan and Turkey have favourable economic relations. According to the Foreign Ministry, about 140 Japanaffiliated companies have operations in Turkey while about 2,200 Japanese were staying in the country as of October 2015. Manufacturers and trading houses have established bases in Turkey.
How much longer can Bangalore’s tech giants hide?
W
The Times Of India The entire world is looking towards India for investment due to the present conducive atmosphere in the country, Union Minister Venkaiah Naidu said on Sunday. India is the bright spot with its economy growing at 7.4 per cent to 7.6 per cent, even as the global economy remained static and China’s growth rate stood at 6.9 per cent, he said inaugurating a mobile app for Coir industry at the 4th Edition of India International Coir Fair. This success cannot be attributed to BJP or Prime Minister Narendra Modi alone but thousands of others who were behind them in changing the policy directions,... he added.
The Phnom Penh Post More Cambodians than ever are turning to microfinance for money to cover their small business endeavours or pay expenses, and, increasingly, they are looking to protect their families from the burden of these debts in the event of death or disability. Credit life insurance is a concept that dates back centuries but is still new to the Cambodian market. The primary purpose of the insurance product is to ensure that the outstanding debt of a borrower is extinguished if he or she dies, though most policies also provide financial support to the borrower in the case of incapacity.
alk into a coffee shop in the southern Indian city of Bengaluru (formerly and more commonly known as Bangalore) and you’re likely to find it full of young people drawing up business plans or meeting with funders. You’d be forgiven for thinking the city - once a leafy and cool retirees’ paradise, now a gridlocked concrete jungle - and the information technology industry that propelled it to worldwide fame are thriving. The picture isn’t quite so cloudless, however. For one thing, the pipeline of venture capital that’s recently super-charged the city’s app economy is drying up. More worryingly, the pillars of its IT industry are looking increasingly shaky. Companies such as Infosys, Wipro and Tata Consultancy Services (TCS) grew into global behemoths precisely because they sprung up in Bengaluru - far from the watchful eye of Delhibased bureaucrats. The tech industry fell into a regulatory blind-spot, unhampered by red tape and the labour laws that strangled other sectors. As one Indian minister noted over a decade ago, Indians do well “in IT and beauty contests, the two areas that the government has stayed out of.” States like the one Bengaluru is in continue to exempt IT companies from especially suffocating regulations. These firms offered businesses around the world an efficient, low-cost way to outsource their in-house IT work. Building and maintaining enterprise-specific IT infrastructure for overseas clients provided a steady stream of income. India could beat the competition for this work because of its large pool of trained, low-cost engineers. Once wildly successful, this model has now begun to run into a whole host of problems. First, slowing growth in the West means that many companies have cut down on the discretionary spending that once went into outsourcing contracts. Second, more restrictive visa laws in the West are making it tougher for Indian companies to get qualified engineers into their clients’ offices. Third, that pool of Indian engineers isn’t inexhaustible. Salaries have begun to rise, threatening a business model based on generating relatively little revenue per employee. As far back as 2013, the Economist quoted one IT executive as saying that, for IBM, “the total cost of its employees in India used to be about 80 per cent less than in America; now the gap is 30-40 per cent and narrowing fast.” Fourth and most importantly, the technological landscape is shifting dramatically. Companies could once draw clear distinctions between the core of their business and extraneous IT work that could be outsourced. Now, with the shift to digital services and cloud computing, more and more companies view IT as integral to the transformation of their overall business. They’re looking for
“
Mihir Sharma a Bloomberg View columnist
higher-value services and more innovation than Indian IT companies have traditionally provided. Infosys’s struggles with its core consulting revenue led to it declaring disappointing results last Friday. Bengaluru’s flagship companies are hardly unaware of this. Infosys has begun training its employees and board in “design thinking” - a buzzword for prototype-driven innovation - hoping this will help prepare them for a future in which they have to serve as all-around advisers for clients seeking to make their businesses fully digital. TCS says its revenue from such work is growing at 10 per cent annually. The problem is that these kind of projects don’t require masses of low-priced engineers. TCS is hiring fewer people and laying off some. A wave of job cutbacks could attract the baleful glare of the state. In a hangover from India’s socialist past, the government has traditionally been overprotective of workers in the formal sector. While the roughly 3 million people who work in the IT industry are a tiny drop in India’s billion-plus population, they account for a huge chunk of the organized labour market -- almost a quarter of the formal work force. How will politicians and b u r e a u c ra t s r e a c t t o I T champions radically changing their operations, perhaps shrinking or even trying to move offshore? When some Indian airlines, as part of a necessary restructuring, tried to trim bloated bits of their work force a few years ago, the government pressured them into retreating. It’s reasonable to fear that similar meddling might be in store for Indian IT. That would be a deeply unwise move. India needs to create millions of new jobs, not just protect existing ones. And as Prime Minister Narendra Modi has recognized with his “Make in India” push, the only way to do that is to create a vibrant manufacturing sector. That’s only going to become more difficult as automation displaces workers in factories around the world. Competent and globally recognized, Indian IT companies give India a rare edge in this manufacturing revolution. Companies like TCS and TechMahindra are, in fact, part of groups that see themselves as manufacturers first. Allowing Indian IT companies to innovate their way to a new business model is essential not just to ensure that the industry survives, but that India’s manufacturing sector develops a forward-looking, digital component. Trying to save a few jobs now could cost the country many more down the road. Bloomberg View
How will politicians and bureaucrats react to IT champions radically changing their operations, perhaps shrinking or even trying to move offshore?
”
16 Business Daily Tuesday, July 19 2016
Closing Workers link
U.S. and Chinese labour groups collaborated before China Wal-Mart strikes China Labour Bulletin, a Hong Kong-based labour rights groups, tracked 6,901 strikes in China from January 2011 until now. Nandita Bose
O
UR Walmart, the American worker group, has taken the unusual step of collaborating with a group of Chinese WalMart workers trying to fight work schedule changes and low wages. OUR Walmart and the Wal-Mart Chinese Workers Association (WCWA) discussed strategy for recent strikes in China on a Skype call last month using a translator, both groups told Reuters. “They asked for our support,” said Cantare Davunt, OUR WalMart’s leader from Minnesota, who participated in the Skype call. The U.S. organization is keen to maintain the relationship with the WCWA and believes such partnerships can boost the clout of the retailer’s global workforce. “We can use this to collectively press Wal-Mart on issues,” said Dan Schlademan, co-director of OUR Walmart. Wal-Mart declined to comment on the collaboration among worker groups in both countries, though the company did address the scheduling dispute in China. OUR Wal-Mart - which last year split from the United Food & Commercial Workers International Union (UFCW) over strategic direction - says it has the support of more than 100,000 Wal-Mart workers. The retailer employs 1.5 million workers in the U.S. and 2.3 million worldwide. The U.S. and China groups are discussing joint strategies to address challenges that workers in both countries face, including work schedule changes, Schlademan said. Such international collaborations are rare, especially in China, said Nelson Lichtenstein, director of the Centre for the Study of Work, Labour and Democracy at the University of California in Santa Barbara. “Large American unions have supported labour movements in a few parts of the world over the years but not in China, so this is out of the ordinary,” he said. Many U.S. workers and union
a dv o cat es hav e t ra di ti o n a l l y viewed workers in other nations as competition for jobs, labour experts said. The only legal labour organization in China is the state-backed All-China Federation of Trade Unions (AFCTU), which is widely considered an arm of the ruling Communist Party. Most strikes, including those at Wal-Mart, have happened without AFCTU involvement. Neither OUR Walmart nor Chinese workers’ groups have much leverage to force changes at the behemoth retailer. The U.S. group has no collective bargaining rights, and it offers workers free, voluntary memberships. OUR Wal-Mart cites a recent success in helping to push Wal-Mart last year to raise the minimum wage US$10-an-hour. But that change came amid a nationwide push by some major cities, politicians and labour unions for broad minimum wage hikes.
Fight over ‘flexible’ scheduling
There are hundreds of strikes around China every year. China Labour Bulletin, a Hong Kong-based labour rights groups, tracked 6,901 strikes in China from January 2011 until now, 349 of which were at foreign-owned companies. Such was the case when workers organized strikes in July at four stores in Nanchang, Chengdu and Harbin, involving about up to 60 employees at each location, said Zhang Liya, a WalMart employee from the southern city of Shenzhen who set up and manages the WCWA’s online chat groups. The strikes came in response to Wal-Mart’s introduction of a new work hours scheduling system for Chinese employees that they WCWA worried would cut overtime payments for employees. Under the new system, store managers are permitted to allocate workers any number of hours per day, as long as each worker’s total adds up to 174 hours per month. Workers scheduled for more than 8 hours per day or 40 hours per week would not be paid overtime, at timeand-a-half rates, as long as they are
“Large American unions have supported labour movements in a few parts of the world over the years but not in China, so this is out of the ordinary” Nelson Lichtenstein, director of the Centre for the Study of Work, Labour and Democracy at the University of California in Santa Barbara
given fewer hours in the rest of the month, according to OUR Wal-Mart. Wa l -M a rt s p o k es w o m a n J o Newbould Warner said workers can choose not to participate in the new scheduling system, which said is part of broad changes that also include subsidized meals at work and the launch of a retail university that would provide training to store managers and frontline workers. “Associates who prefer not to work a flexible schedule can retain their original shifts, and those who elect to be part of the flexible working schedule will have the opportunity to work more or less shifts depending on their preference,” Warner said. Last week, Warner had told Reuters that the Chinese system is unique to that market. However, Wal-Mart plans to launch a new, but different, working hours system in the U.S. later this year. The strikes ended in the first week of July when Wal-Mart store managers told striking workers they would have to consider their issues and respond within a week, two workers who had been on strike at different stores said. The workers, speaking on condition of anonymity, said that the company
did not respond to their issues before that deadline passed. Workers decided not to go back on strike, they said, because many doubted the job action would provoke any change from Wal-Mart, the workers said.
Strike strategy talks
On June 20, the Chinese and American teams talked by Skype through a translator provided by the WCWA, OUR Wal-Mart’s Davunt and the WCWA told Reuters. For nearly an hour, they discussed how to engage management in discussions, along and successful strike strategies that American workers in other industries have employed. They also agreed to support each other’s actions, have follow-up calls and link via social media. The two groups have posted pictures of workers in both countries holding placards with solidarity messages on Facebook, Davunt said. OUR Walmart plans to talk again to the WCWA after the strikes and the two groups want to meet in person, said Schlademan. “With these kind of relationships, getting face-to-face is always an important part of it,” Schlademan said. Reuters
Baker & McKenzie report
Market regulator
M&A
Chinese cross-border M&A robust in Q2
Hong Kong to survey brokerages Mainland consortium on dark pool compliance buys Opera browser
Chinese bidders continued to drive the value of cross-border mergers and acquisitions (M&A) in the second quarter of 2016, according to a report released by law firm Baker & McKenzie yesterday. China saw 97 outbound deals in Q2 with a total worth of US$40.7 billion - 23 per cent and 132 per cent higher than the same period in 2015, according to Baker & McKenzie’s Cross-Border M&A Index report for Q2 2016. The Chinese investment was primarily in technology and industrials, accounting for US$17 billion and US$4.8 billion respectively, the report said. “I suspect that Chinese outbound M&A will be a driving factor for M&A in the year ahead and be a key part of global transactional activity,” said Michael DeFranco, chair of Baker & McKenzie’s Global M&A Practice. Globally, Brexit and political uncertainty in the United States are among the factors dampening deal makers’ confidence. The total value of cross-border megadeals - those above US$5 billion in value - fell significantly in the first half of the year, the report showed. Xinhua
Financial market regulator is querying brokerages and banks about their compliance with dark pool rules, according to people who have seen the questionnaire. The Securities and Futures Commission sent about 70 questions that aim to ensure the required procedures for trading, order facilitation and monitoring in dark pools are being followed, said the people, who declined to be identified because the survey isn’t public. The regulator called the survey a “check point” and gave two weeks to bankers and brokers to respond, the people said. The deadline is today. The survey comes seven months after Hong Kong banned individual investors from using dark pools and forced them to place all the trades at Hong Kong Exchanges and Clearing Ltd., the city’s only stock exchange. While dark pool trading may help investors who wish to hide their strategy as offers are kept secret until the trades have taken place, the lack of transparency has fuelled criticism that it’s more difficult to tell if all users are being treated fairly. Dark pools accounted for about 1.6 per cent of the Hong Kong securities market turnover in June, according to HKEx data. Bloomberg news
A Chinese consortium has bought the Opera internet browser for US$600 million, its Norwegian developer said yesterday, after a public share offer for the company failed. The consortium led by Golden Brick Silk Road will purchase the mobile and desktop versions of the internet browser, plus performance and privacy apps and a stake in a Chinese joint venture, but not the advertising, games and television units, said Opera Software in a statement to the Oslo stock exchange. The transaction was announced simultaneously with the failure of the US$1.2 billion public offer to take over the entire company. It gave no reason for the failure, but in a statement to the Oslo stock exchange last week Opera Software said the outcome of the offer was uncertain as it had not yet received regulatory approvals by the deadline of July 15. “It wasn’t that the approvals weren’t given, just that it didn’t happen before the deadline,” chief executive Lars Boilesen was quoted as saying in the daily Dagens Naeringsliv. Golden Brick Silk Road fund is a Chinese consortium which includes Beijing Kunlun Tech which is specialised in mobile games and cybersecurity specialist Qihoo 360. AFP