New Director of central gov’t Liaison Office appointed. Politics Page 4
Wednesday, July 20 2016 Year V Nr. 1090 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Tax
Secretary signs tax agreement with Mainland authorities Page 2
Travel
Visa exemption agreement sought for four more countries Page 4
www.macaubusinessdaily.com
Attracting talent
Aussie expansion
Mainland gov’t will try to lure highly skilled overseas workers to strengthen reform drive Page 9
Alibaba to set up branch offices in Melbourne by the end of the year Page 10
Catch-22 Harbours Trade
Food and beverage importers frequently complain. Of damage and theft from the local harbours. As well as import insurance complications arising from transporting fragile, perishable items. While insurance necessitates excessive documentation. Even when rights to claim damages are signed away just to collect their goods. Page 3
Rolling revenue
Gaming Month-to-date local gross gaming revenue is around MOP9.1 bln, say analysts. Implying an average daily take of MOP550 mln over the last week, with improving expectations for the rest of July. VIP sector revenue continued to decrease in Q2. Page 7
Healthy living
Infrastructure Controversy surrounding the gov’t plan to transform a multi-storey parking lot in Taipa into public housing. Prompting the president of the Sports Bureau to explain its desire to retain sports facilities. He wishes to increase the number of facilities if the public housing project proceeds. Page 2
Make a reservation
Hotel room occupancy rose by nearly 3 percentage points in June y-o-y. With occupancy hitting 83.6 pct in the month. 3-star hotels continue to attract most clients, at 90.1 pct occupancy, costing more on average than 4-star counterparts.
Foreign friendly
Hospitality Page 5
HK Hang Seng Index July 19, 2016
21,673.20 -129.98 (-0.60%) Worst Performers
Li & Fung Ltd
+1.07%
Power Assets Holdings Ltd
+0.27%
Cathay Pacific Airways Ltd
-2.87%
Hengan International Group
-1.98%
CLP Holdings Ltd
+0.75%
China Merchants Holdings
+0.23%
China Unicom Hong Kong
-2.60%
Belle International Holdings
-1.96%
MTR Corp Ltd
+0.72%
Sino Land Co Ltd
+0.15%
Galaxy Entertainment Group
-2.44%
PetroChina Co Ltd
-1.82%
China Resources Land Ltd
+0.42%
Hong Kong & China Gas Co
+0.14%
China Mengniu Dairy Co Ltd
-2.08%
Ping An Insurance Group Co
-1.77%
AIA Group Ltd
+0.41%
New World Development
+0.12%
China Petroleum & Chemical
-2.05%
Bank of East Asia Ltd/The
-1.74%
28° 31° 28° 32° 27° 32° 27° 32° 27° 32° Today
Source: Bloomberg
Best Performers
Thu
Fri
I SSN 2226-8294
Sat
Sun
Source: AccuWeather
Investment The Chinese cabinet has announced an easier environment for foreign investment in the Mainland’s Free Trade Zones. A registration system will allow the establishment of foreign firms or JVs in the FTZs. And facilitate major M&As involving foreign companies. Page 8
2 Business Daily Wednesday, July 20 2016
Macau Infrastructure
Sports Bureau: Let’s retain facilities Joanne Kuai joannekuai@macaubusinessdaily.com
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number of controversies have arisen around the government’s plan to transform the multistorey parking lot next to the Olympic Stadium in Taipa into public housing.
Pun Weng Kun, President of the Sports Bureau, stated that they’ve already expressed to the Public Works department their hope of retaining the sports facilities in the neighbourhood. “If the usage of the land is changed in the future we have suggested that we would like to maintain the number of sports facilities and parking spots
in the area. We’ve also suggested increasing the number of these supporting facilities in accordance with the increase in population once any public housing is built,” Mr. Pun said on the sidelines of a Sports Committee Meeting held yesterday morning. The possibility of transforming the parking lot of the Macau Olympics
Complex in Taipa into 1,000 public housing units was discussed early last month by the Urban Planning Committee. H o w ev e r, th e p r o p o sa l has encountered some opposition as many residents say transportation and other supporting features may not be well enough developed in the area. The Sports Committee Meeting was presided over by Secretary for Social Affairs and Culture Alexis Tam Chon Weng. Relevant issues such as Summer activities, major sports events in Macau in the second half of the year, the improvement of sports facilities in the University of Macau, and the health condition monitoring system for local residents were discussed during the meeting.
Fraud
Glory Sky’s alleged illegal fundraising snares 82
Sports committee meeting
Tax
Better agreement The Secretary for Economy and Finance, Lionel Leong Vai Tac, met with the Deputy Administrator of the State
Administration of Taxation, Wang Qinfeng, in Beijing, according to a press release from the Secretary’s office.
Secretary Leong (right) and Deputy Administrator Qinfeng
The two parties signed a memorandum revising the Arrangement between Mainland China and the Macau Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income. There are two clauses that were revised, the first of which is to lower the taxation on aircraft and the ship leasing business to five per cent from seven per cent. The second revision is to enhance tackling tax evasion on dividends, interest, royalties and other capital gains. Lionel Leong indicated that the updates would better guarantee the fairness on taxation for residents both from the Macau SAR and Mainland China, as well as creating a better business environment and enhance transparency on taxation in order to tackle tax evasion. The Arrangement, first signed in 2003, was previously revised in 2009 and 2011. J.K.
Business
Real estate heads complaint list The Consumer Council received 832 complaints from Macau residents and tourists in the first six months of 2016, a decrease of 6 per cent compared to the same period last year. Heading the complaint list was the real estate sector, which registered 105 cases in the fist half of 2016, with a Consumer Council representative telling Business Daily that most of the complaints were related to the purchase of real estate in Mainland China Other sectors that topped the complaint list were the telecommunications equipment and supplies sector, amounting to 102 cases, and the telecommunications services sector, which saw 79 cases. Most of were related to the quality of products purchased in the territory and the service by Companhia de Telecomunicações de Macau (CTM)
as well as other communications service providers, the Consumer Council representative told Business Daily. The Consumer Council also
registered 49 cases related to public transportation and 48 cases related to food and beverages. Aside from complaints the department handled 3,300 cases in the period: requests for information totaled 2,464 while suggestions from consumers totaled 26. N.M.
The number of victims in the illegal fundraising scheme allegedly committed by local investment company Glory Sky International Holdings Group increased to 82 as of yesterday morning, involving some MOP71 million (US$8.9 million), Judiciary Police (PJ) announced yesterday. Over the weekend the illegal capital collection scheme, which began in 2014, was busted by the PJ as victims started reporting to the police after the company’s executives went missing. The security body added yesterday that the investment company had also issued bad cheques worth MOP8.84 million. Currently, at least three suspects have been targeted by the police - all company representatives or senior staff, the PJ said.
Police
PJ bag MOP380,000worth of illegal drugs Four foreigners arrested for alleged trafficking and drug abuse. Annie Lao annie.lao@macaubusinessdaily.com
Judiciary Police (PJ) busted a drug trafficker yesterday morning and arrested four people, seizing quantities of methamphetamine and cannabis valued at MOP380,000 (US$47,574) according to a report by local broadcaster TDM Chinese Radio. The PJ operation caught one Indonesian woman supplying drugs to two Filipino men in Macau on Monday afternoon. The woman was arrested while selling the drugs to one of the men and the PJ found drugs on her person and ten bags of methamphetamine and cannabis in a residential apartment located near St. Michael the Archangel Cemetery. The Filipinos admitted to purchasing the drugs from the woman, TDM reports. During the investigation, police also intercepted a Malaysian man, finding him in possession of more than 100 grams of methamphetamine. The Indonesian woman claimed that the Malaysian had provided her with the drugs, notes TDM. The case has now been transferred to the Public Prosecutor’s office, according to TDM.
Business Daily Wednesday, July 20 2016 3
Macau
“In the past coming from the ports we had wines missing or stolen, where the top of the cart is blatantly open or whole cases disappeared. We noticed that sometimes specific wines are targeted where a certain kind of wine is taken from the crate - so we think that whoever takes them has access to customs information about the goods.” Michael Keen, Director of Sales and Marketing at Fine Beverages Limited
Trade
Damaged at the dock of the bay Food and beverage importers complain of frequent damage and theft in local harbours as well as import insurance complications. Nelson Moura nelson.moura@macaubusinessdaily.com
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ocal food and beverage importers have told Business Daily that imported goods are frequently damaged or stolen when in harbour ports in Macau, with insurance problems sometimes leading to financial repercussions. Consumer goods, between January and May, totalled 37.5 million tonnes and valued at MOP17.4 billion - of which 99.8 per cent comprised food, beverages and tobacco, according to the most recent data from the Statistics and Census Services (DSEC). Most of the imported goods pass through some of the 34 docks in the Inner Harbour or through the container port in Coloane. Food and beverage products containing fragile merchandise are normally more susceptible to damage while in transport and local importers have complained to Business Daily that theft and damage occurs frequently in the Macau docks.
Missing casks
“In the past, coming from the ports we had wine missing or stolen, where the top of the cart has blatantly been opened or whole cases have disappeared. We noticed that sometimes specific wines are targeted - where a certain kind of wine is taken from the crate - so we think that whoever takes them has access to Customs information about the goods,” says Michael Keen, Director of Sales and Marketing of Fine Beverages Limited.
Keen said that the frequent incidents had led the company to begin taking photos of the merchandise at every stage of the journey - from the moment they leave France, Australia or New Zealand, to when they arrive in Hong Kong Harbour and finally in the company’s warehouse in Macau. “We had to turn to our freight forwarder and say, “Look you’re paid to take care of our goods from start to finish and take care of the insurance. Macau Harbour is very small, and each [part] has different people associated with it. We don’t necessarily have problems with the Customs, but with the harbour people, after goods are left outside in the middle of Summer destroying the wine. The customer goes to check the goods and signs the release but meanwhile the goods are under the charge of different holding companies,” Keen told Business Daily. For Keen one of the issues to resolve is security which, in his opinion, is scarce in the Inner Harbour docks. “In those buildings you can just walk in and out at any time. I can walk inside without them asking me who I am. I could take a case of something else and come straight out. The whole port system is just a big mess. I don’t know how the Bridge opening will affect the harbour but it will change how business is done here and I hope for the better,” Keen said.
To insure or not to insure
For Ana Marinho, who works for a local beverage importer, the same issues are common and in some cases getting insurance doesn’t guarantee
that the damage will be covered. “When the goods arrive the company that takes care of the shipping has an agent in Macau holding the merchandise where we have to pick up the original documents and sign them. Once, I read through all the small print in the document and basically what it said is that if any company picks up these documents and signs, in case of accident or any issue the responsibility is on us, on the importer,” said Marinho.
“It’s a catch-22 situation because we can’t go to the harbour without these documents but if I sign it I have to assume the responsibility in case of any damage. Regardless whether we have insurance.” Ana Marinho, Beverage importer
“It’s a catch-22 situation because we can’t go to the harbour without these documents but if I sign them I have to assume responsibility in case of any damage. Regardless of whether we have insurance,” Marinho lamented. Importers have to sign a Combined Transport Sea Waybill which, in the documents sent to Business Daily,
declares that the merchandise has been delivered in good condition by the carrier; however, Marinho says the goods can’t be picked up from the dock without these documents. In some cases where damage is registered time spent trying to seek remuneration for damage can end up being more expensive than the value of the goods. “In another case with another company [whom] we used to import food products [for] we went to the harbour, signed the documents, went to pick up the goods and noticed the crate was dirty with oil” said Marinho. “I didn’t touch it, took photos and called the insurance company in Portugal which put in place the insurance from Hong Kong, since Macau doesn’t have an agent. So, after seeing how the crate was on a Thursday only on Saturday did the insurance agent come from Hong Kong to check the crate, from which some goods had been stolen,” Marinho told Business Daily. For her, in most cases the importer has only two choices: pick up the damaged goods or make an insurance claim and await the result.
Up to the importer
When questioned by Business Daily about the issue, the Marine and Water Bureau (DSAMA) responded that the investigation of theft from piers is the responsibility of the Macao Customs Service. With regard to damaged goods - due to reasons including storage or transportation - incidents are categorised as civil and commercial cases. With regard to damage compensation or individuals encountering problems upon receipt of their goods DSAMA advises them to ‘resolve the disputes by means of negotiation or judicial proceedings’. Business Daily has questioned the Macao Customs Service and the management of the Coloane Port but no response had been received when this newspaper went to print.
4 Business Daily Wednesday, July 20 2016
Macau Opinion
José I. Duarte
Taxi quandaries The issue of taxi services is a sensitive one in this city. The opinion expressed by users is often less than favourable. Complaints about the service are common, be it the refusal to take customers to several areas of the city or demanding extra ‘gifts’ to provide such service. Cases of aggressive behaviour and actions amounting almost to the forced retention of customers have been reported. Macau is also, possibly, the only place in the world where taxi drivers ostensibly refuse to help customers to load and unload their luggage and, yet, do not fail to charge for the service not provided. Not unreasonably, many have asked over the years that some discipline be brought to the sector and, if needs be, that sanctions be applied to drivers who distinguish themselves negatively. This reality, however, seems to be secondary when the matter is touched upon at the Legislative Assembly. There, if we believe the media reports, at least for some the main issue is that taxi owners should be spared if and when any sanctions are applied to ill-behaved taxi drivers. In other words, they think owners should not be held or feel responsible for the behaviour of the taxi drivers operating their licences and therefore should not ‘share’ any punishment. It is not easy to see the underpinnings of the argument unless we admit a case of unbound cynicism. Assuming that is not the situation, what should we make of it? Should we assume owners do not see themselves as buying a licence to provide taxi services, which would be the natural assumption of most people? Are they just buying a right that entitles them to some kind of rent; that is, a taxi licence is no different, essentially, from a piece of real estate? Taxi drivers are therefore a kind of tenant? One owns and rents a taxi (that is, just the right to use it) like one could own and rent a flat - and, consequently, one cannot be held responsible for the actions of the ‘drivertenants’? This would be a peculiar understanding, and it is doubtful whether it could be legally supported. But the debate raises these and other interesting questions about the operations of the sector, its agents and their relationships. It would probably be appropriate and timely to bring them to the fore, in order to illuminate the debate. José I. Duarte is an economist and permanent contributor to this newspaper.
Visa
Visa exemption extended to four more countries Annie Lao annie.lao@macaubusinessdaily.com
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reliminary work on visa exemptions for Argentina and Kazakhstan has been completed and further consultation is underway with the two countries as well as with Senegal and Gambia to cement visa exemption policies for Macau passport holders and residents of the four nations. The Macau SAR Identification Bureau (DSI) hopes to sign the documents with Senegal and Gambia soon, the director of the DSI, Ao Ieong U, replied in response to an enquiry by legislator Ng Kuok Cheong on how many more countries will join the visa free policy with the MSAR.
r ec ei v es r es p o n s es f r o m th e respective countries. According to the DSI, when adding new countries for visa exemption the local government has to reach a mutual agreement with the country and factors need to be taken into consideration including: political basis, historical background and legal issues. The Bureau considers Customs management, impact on the safety of Macau residents, social order,
Considerations
The DSI director noted in his response that the Bureau is in contact with 17 countries regarding electronic visa applications and will publicly announce them once the Bureau
economic trade, cultural relations and visa policy when deciding whether to allow other countries’ residents to enter Macau on visa exemption the director noted.
Local passports
The legislator also enquired about the case of a Macau passport holder who was prevented from entering Georgia due to Customs officials in the country being unable to recognise the Macau SAR passport. The legislator suggested that the Bureau notify countries of recently concluded visa exemption agreements – such as Uruguay and Morocco - about the policy implementation in order to avoid a recurrence of the situation and ensure travel convenience for Macau passport holders overseas. The director of the DSI said that the Bureau is unaware of this incident and suggested that if a similar case occurs to Macau passport holders that they contact the local Consulate General of the People’s Republic of China or the Macau SAR Bureau immediately for assistance.
Attack
GGCT: No locals affected by German rampage A recent attack in Germany, allegedly carried out by a teenage Afghan refugee – according to the BBC - currently shows no evidence of numbering local victims, as
Politics
Wang Zhiming officially appointed head of Liaison Office in Macau Bejing has officially named Wang Zhiming the new director of the central government’s Liaison Office in Macau, according to an announcement yesterday by the Chinese State Council. Prior to taking up his current post Mr. Wang was a deputy director of the Hong Kong and Macau Affairs Office of the State Council. Meanwhile, Li Gang, who previously headed the local Liaison Office, has been appointed vice head of the Overseas Chinese Affairs Office of the Council. At the beginning of this month the deputy head of the co-ordination department of the Liaison Office in Macau, Bian Tao, told Portuguese news agency Lusa that Mr. Li had left the Office on June 30. Mr. Li took up the local Liaison Office position in early 2013.
Wine
Local sommelier wins WOSA Asia semi-finals A recent Asian sommelier competition – the Wines of South Africa Sommelier Cup – saw a Macau winner on Monday as Studio City sommelier Joe Yang won the Asian leg of the Cup. Yang, a graduate of the Institute for Tourism Studies (IFT) in Hotel Management, and a certified wine and spirit specialist, was deemed the best amongst the competition, impressing judges with his knowledge of South African wines and excellent customer service, as Drinks Business reported. Yang will participate in the Sommelier Cup finals held in Cape Winelands in September – competing against finalists from Europe, North America and Africa.
communicated by the Tourism Crisis Management Office (GGCT). The attack, involving a 17-year old armed with an axe and a knife, resulted in injuries to four people from a Hong Kong group of tourists, notes the BBC. The four victims, claims the South China Morning Post, are members of a family – a 62-year old man, his 58-year old wife, their 27-year old daughter and her boyfriend, aged 31. A son of the victims, aged 17, was not hurt, notes the publication.
GGCT notes that it is ‘paying close attention to the incident’ but that ‘until the present moment’ the crisis management office ‘has not received any request for information or assistance.’ In addition, the group notes that ‘currently there is no indication that Macau tour groups have been affected.’ The attack occurred on a train travelling to Wurzburg, in the Bavarian region of Germany.
Corporate
Hotel Okura celebrates with moon cakes
Hotel Okura, in celebration of the Mid-Autumn Festival, will launch its ‘Delivering Moments with Kindness’ line of moon cakes from August 15 to September 14 of this year in the Hotel’s lobby pavilion. The moon
cakes selection includes lotus seed paste and egg yolk choices as well as supreme Chinese ham moon cakes. The company suggests customers use the moon cakes to ‘express good wishes to families, friends and business associates’. Each box of four moon cakes costs MOP358.
Business Daily Wednesday, July 20 2016 5
Macau
Hospitality Local hotel occupancy up after consecutive drops for nearly 1.5 years
Dawn for hoteliers The city’s hotel operators saw room occupancy rise by nearly 3 percentage points in June compared to one year ago. Kam Leong kamleong@macaubusinessdaily.com
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he average occupancy rate of local hotels rebounded by 2.9 percentage points year-on-year to 83.6 per cent for June, which is the first year-on-year growth recorded after a continuous decrease of nearly one and a half years, the latest data released yesterday by Macao Government Tourism Office (MGTO) reveals. Last month, the city’s average hotel occupancy, compared to 81.3 per cent registered in May, also jumped 2.3 percentage points, driven by hotels
in the 3 to 5-star range all registering growth in occupancy for the month. The data released by the tourism office was gathered from the Macau Hotel Association that includes some 40 hotels in the 3-star to 5-star range. The previous time that the local hotel industry saw year-on-year growth in its occupancy rate, based on the same data source, was in November 2014 when an increase of 0.04 percentage points - to 93.5 per cent - was posted.
3-stars shining
According to yesterday’s data, the occupancy rate of 5-star hotels
increased by 3.4 percentage points year-on-year to 81.9 per cent in June, while that of 4-star hotels and 3-star hotels jumped by 5.7 percentage points and 7.4 percentage points to 84.9 per cent and 90.1 per cent, respectively, compared to the same month of 2015. For the first half of this year the average occupancy rate of local hotels fell by 1.4 percentage points yearon-year to 80.5 per cent, dragged down by a year-on-year drop of 2.8 percentage points in the occupancy of 5-star hotels to 78.7 per cent. However, the average occupancy rate of 4-star hotels averagely grew by 1.2 percentage points year-onyear to 81.8 per cent, while that of 3-star hotels rose by 1.3 percentage points to 87.3 per cent for the first six months of the year.
Room rates fall
In terms of room rates, the average cost for a hotel room in the Special Administrative Region amounted
to MOP1,263 (US$158.1) per night in June, a drop of 7.9 per cent year-on-year. Both 4-star hotels and 3-star hotels saw their average room rates cut by more than 10 per cent year-on-year, respectively, amounting to MOP696 and MOP790 per night, while that of 5-star hotels was down by 4.6 per cent year-on-year to MOP1,645 per night. For the first six months of the year average room rates in the territory decreased 14.3 per cent year-on-year to MOP1,325 per night on average. Meanwhile, 4-star hotels’ average prices registered the most notable decline, down 17.9 per cent yearon-year to some MOP774 per night during the six months, while room rates for 3-star hotels fell by 17 per cent year-on-year to MOP877 for one night. Meanwhile, the average room rates for 5-star hotels dropped 12.3 per cent year-on-year during the first half, to MOP1,690 per night.
6 Business Daily Wednesday, July 20 2016
Macau
Business
Petitioners pursue BEA through courts Nelson Moura nelson.moura@macaubusinessdaily.com
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n unfair prejudice petition has been presented in the Court of First Instance of the High Court of Hong Kong against The Bank of East Asia, Limited (BEA) according to a July 18 filing by the company on the Hong Kong Stock Exchange.
The petitioners request BEA to declare that two separate agreements with regard to a Japanese and Spanish bank were made ‘without due regard to the interests of shareholders’.
Alternative means
The petitioners: Elliott International, L.P. The Liverpool Limited Partnership and other companies associated with them are protesting a share
purchase deal BEA conducted with the Japanese banking and financial services company Sumitomo Mitsui Banking Corporation SMBC) last year. The purchase deal, made in March 2015, is a US$848.4 million (MOP6.7 billion) subscription agreement between BEA and SMBC for the purchase of 222.6 million BEA shares at a sale price of HK$29.
Retail
Bonjour anticipates interim net loss Cosmetic retailer Bonjour Holdings Ltd. expects that the company will fall into the red for the first half of the year due to a sales slump in its Hong Kong operation, it told Hong
Kong Stock Exchange on Monday after trading hours. ‘Based on the unaudited management accounts for the five months ended 31 May 2016 and information
currently available to the board, the group may record a net loss for the six months ended 30 June 2016,’ the company wrote in the filing. For the same period in 2015, the retailer registered a net profit of some HK$424 million (US$52.8 million). According to the company, the change is due to a one-off non-operating profit gain of HK$399 million recorded for the first half in 2015 – contributing to the positive results in that period – contrasted by decreased turnover resulting from ‘the prolongation of the sluggish consumer market in Hong Kong’. Last year, the Hong Kong-listed company actually saw its net profit nearly double year-on-year to HK$432.2 million for 2015 compared to HK$225.5 million for 2014 despite a dip in total sales of 18.2 per cent year-on-year to HK$2.29 billion, while for the same period in Macau sales fell 5.2 per cent year-on-year to HK$219.5 million. K.L.
At the time, BEA stated it intended to apply the net proceeds as ‘general working capital and for future expansion of the Bank’s business’. The petition protests that the deal was ‘passed for an improper purpose, without due regard to the interests of all shareholders of the Bank or the alleged adverse impact of SMBC Subscription on all shareholders’, adding the deal was made ‘without critical appraisal of the merits and competing arguments in respect of the same and alternative means for raising capital.’
Deal refusal
With regard to the Spanish bank CaixaBank - the petition demands that the BEA board declare that its decision to amend a Strategic Investment Agreement between the two banks and a Strategic Collaboration Agreement between BEA, the Spanish bank La Caixa and its financial services company CaixaBank on January 2016 ‘was passed for an improper purpose’ without taking shareholders’ interests into consideration. The petitioners also demanded that the bank ‘take steps forthwith’ to release a further Spanish banking entity - Criteria Caixa - from its Strategic Investment Agreement with CaixaBank as well as SMBC from its obligations in relation to its Investment Agreement with BEA and ban the bank from making ‘similar agreements in the future without leave of the court’.
Retail
Stelux turnover plunges nearly 20 pct in Q1 Kam Leong kamleong@macaubusinessdaily.com
Watch and optical retailer Stelux Holdings International Ltd. saw its turnover drop by 19.8 per cent year-on-year to HK$690.3 million (US$89.2 million) for the three months ended June 30, according to a filing with the Hong Kong Stock Exchange on Monday after trading hours. The company operates the City Chain watch retailer as well as the Optical 88 optical retailer chains, among others. During the first quarter of its fiscal year the retailer’s sales in Greater China registered a plunge of 21.3 per cent year-on-year to HK$525.4 million, whilst those in Southeast Asia dived 14.5 per cent year-on-year to HK$164.9 million. The Hong Kong-listed company explained that ‘poor sentiment continued to dampen sales at our
different business units’ resulting in the decline in quarterly turnover. In terms of segment, the retailer’s watch retail business under the City Chain brand posted a decline of 29.5 per cent year-on-year in turnover to HK$319.3 million, of which that generated by Greater China fell 33 per cent year-on-year to HK$238.2 million. Meanwhile, the optical retail business of the group under the brand Optical 88 fell 14.3 per cent year-onyear in turnover to HK$244.4 million vis-a-vis HK$285.2 million during the same quarter of last year. Nevertheless, another of the company’s optical brands, eGG, saw sales surge 30.7 per cent year-on-year in the three months, which amounted to HK$50.7 million compared to HK$38.8 million for the same retailer one year ago. In particular, sales in Greater China soared by 22.7 per cent to HK$47.6 million.
As at the end of June, Stelux was operating 336 City Chain shops, 2 14 O p t i c a l 8 8 r e t a i l o u t l e t s as well as 72 shops under the eGG brand in Greater China and Southeast Asia. For its previous fiscal year, ended March 30, the retailer recorded an
annual net loss of HK$190 million from a profit of HK$91.8 million one year earlier, with turnover derived from Hong Kong and Macau sliding 20.3 per cent year-on-year to HK$1.2 billion due to ‘the decline in Mainland Chinese tourist traffic and associated spending fall’.
Business Daily Wednesday, July 20 2016 7
Macau Gaming Bernstein: Social financing growth a strong bet
Green shoots Analysts see continued positive tracing for July. A slight sequential pick up into the Summer holiday and post Euro Cup. Joanne Kuai joannekuai@macaubusinessdaily.com
S
anford C. Bernstein Ltd. indicates that based upon their channel checks Macau gross gaming revenue month to date is around MOP9.1 billion (US$1.14 billion), implying an average daily rate of around MOP550 million over the last week, reads a note released on Monday. ‘Based on our channel checks, both VIP and mass revenue saw a slight sequential pick-up into the Summer holiday and post Euro Cup. We continue to expect improving GGR trends for the remainder of July,’ said analysts Vitaly Umansky and Clifford Kurz. They pointed out that assuming an average daily rate of MOP550 million to MOP600 million for the remainder of this month, July gross gaming revenue would be around MOP16.8 billion to MOP17.5 billion, representing a year-on-year decline of 6 per cent to 10 per cent. On a more positive note, analysts David Katz and Brian Davis of Telsey Advisory Group indicated in their Monday report that according to their industry sources based on gaming play for the first 17 days of July gross gaming revenues in Macau for the month are estimated to be tracking up approximately 1.1 per cent year-on-year.
Favourable liquidity
The People’s Bank of China (PBOC) released its monetary data for the first half of 2016 last Friday. It indicates that total social financing data (TSF) came in at RMB1.63 trillion, stronger than projections of RMB1.1 trillion. TSF is a measure that the Chinese government constructed in 2011 to figure out how much debt nonstate entities (like people and private companies) have taken on. In addition, the M1 money supply rose sharply by 24.6 per cent, up from growth of 22 per cent year-on-year seen in the first quarter of 2016, implying a more rapid rise in corporate demand deposits than time deposits. Monetary data ‘continues to point toward easing liquidity in China, which has often played an important role in VIP revenue and to some extent Premium Mass as well,’ said the Sanford Bernstein analysts. Liquidity in China’s private finance sector has been associated with nearterm credit availability in the local casino gambling market by investment analysts, while political elements such as the anti-corruption campaign are deemed as further sector risks.
Stronger mass
The proportion of gaming revenue from the VIP sector continued to decrease in the second quarter.
However, analysts say the fall might have been greater if adjusted for the smoking reclassifications. ‘After these adjustments, we estimate that in the second quarter VIP declined by around 22 per cent year-on-year to US$2.9 billion, and, more importantly, Mass table gross gaming revenue grew for the first time since the third quarter of 2014 by 6.0 per cent year-on-year to US$3.3bn…VIP as a proportion of total gross gaming revenue has declined to a record low level of around 44 per cent,’ said Umansky and Kurz. “We expect the paradigm shift from VIP to Mass to intensify as new large scale casinos are slated to open in 2016 to 2018, starting with Wynn Palace in August and Sands China’s Parisian in mid-September.” ‘We believe the mass segment accounted for around 53 per cent of aggregate market revenue in the second quarter of 2016. This compares to DICJ [Gaming Inspection and Co-ordination’s] reported mix of 48 per cent mass,’ said Deutsche Bank analysts Carlo Santarelli and Danny Valoy. Official data shows casino gross gaming revenue in Macau’s VIP segment fell 15.7 per cent yearon-year in the second quarter to MOP26.60 billion (US$3.33 billion) according to DICJ. Mass-market gross gaming revenues in the second quarter was MOP25.01 billion In the breakdown of that revenue, released on Monday by the bureau, VIP play as a proportion of all casino gross gaming revenue for the second quarter stood at 51.5 per cent, compared to the 55.5 per cent contribution made by VIP in the second quarter of 2015.
New properties
Deutsche Bank analysts indicate that while the year-on-year declines in the VIP segment have slowed stability appears within the VIP segment. It also indicates that the mass market ‘has been very consistent over the last five quarters’. ‘While the transition of the mix
has and will continue to be a benefit to margins, we believe consensus forecasts capture and likely overstate the impact, especially in light of the oncoming supply,’ noted the Deutsche Bank analysts. They noted that while visitation tends to pick up in the Summer period, the scheduled openings of new properties ‘likely creates added consternation as easier comparisons and more pronounced mass driven seasonality have elevated expectations for stronger Summer performance’. However, David Katz and Brian Davis of Telsey Advisory Group
said in their Monday note that they ‘remain focused on significant growth in supply going forward and the demand necessary to support it, which would require positive revenue growth’. While not expecting market share to change significantly ahead of the forthcoming growth in supply, as new properties open, the analysts do forecast that ‘Wynn to be a taker of share on its opening of the Palace which is formally set for August 22, while other operators’ existing properties could experience pressure in the very near term’.
Gaming
Baccarat gross gaming revenue down Gross revenue generated by Baccarat was MOP26.6 billion for the second quarter of 2016, a 12.5 per cent decrease from the previous quarter, according to the latest data released by the Gaming Inspection and Co-ordination Bureau (DICJ). Overall gross gaming revenue fell 8.5 per cent year-on-year in June, reaching MOP15.88 billion, the lowest
monthly return seen so far this year. Gross revenue from horseracing reached MOP37 million (US$ 4.6 million) in the second quarter, representing a 2.8 per cent increase quarter-on-quarter, according to DICJ data. MOP187 million was bet on the activity during the period, showing a 3.3 per cent increase from the first quarter of 2016. A.L.
8 Business Daily Wednesday, July 20 2016
Greater China TRANSFORMATION needs
Softer restrictions
Government to create office to lure overseas work talent
Beijing relaxes rul investors in free tr
While President Xi has urged a general increase in international talent exchanges, his public remarks have focused on overseas Chinese.
C
hina is setting up its first immigration office, according to people with knowledge of the plans, as President Xi Jinping seeks overseas talent to help drive the transition of an economy led by consumer spending and innovation. Public Security Minister Guo Shengkun, who doubles as a state councillor, disclosed the move earlier this year at an internal meeting about a wider overhaul of domestic security services, said the people, who asked not be identified because the plans are not public. The office would be created by merging and expanding the ministry’s border control and exit-entry administration bureaus and could be set up before the end of the year, they said. It’s the latest sign that China sees recruitment of foreign workers as a way to help shake its dependency on
manufacturing and investment and avoid the “middle-income trap” that has stalled developing economies from Asia to South America. Almost four decades after Deng Xiaoping began opening China to the world, about 600,000 foreigners live in the Communist-led country, a tiny fraction of its almost 1.4 billion population. Japan, by comparison, has 2.17 million foreigners. “China didn’t need to do that over past decades because it had double-digit growth simply by enjoying the demographic dividend,” said Wang Huiyao, president of the Centre for China and Globalization, a research centre that advises the government. “But now it needs a new dividend of foreign talent to help support economic growth.” The Ministry of Public Security didn’t respond to a faxed request for comment Monday.
Besides needing expertise, the country’s facing a long-term demographic squeeze as the population ages. The government replaced its one-child policy with a two-child limit last year after the working-age population shrank for the first time in two decades. It’s unclear exactly who the new Chinese immigration office would seek to attract. While Xi has urged a general increase in international talent exchanges, his public remarks have focused on overseas Chinese, particularly those who left the country for an education and never came back. “You are warmly welcomed if you return to China,” Xi told a meeting of the Western Returned Scholars Association in October 2013. “If you stay abroad, we support you in serving the country in various ways.” Strict visa rules, heavy pollution and weak rule of law are among the factors complicating any efforts by China to lure overseas workers. Less than half of the 2.6 million students sent abroad between 1978 and 2012 returned, the official Xinhua News Agency said at
The government would also a requirement blocking fore from taking controlling stak China will relax restrictions on foreign enterprises investing in its fledgling free trade zones (FTZs) in a bid to attract more overseas capital, the country’s cabinet said yesterday. The government will temporarily replace an unwieldy approval mechanism with a registration system that will allow the establishment of foreign firms or joint ventures in the FTZs and facilitate major mergers and acquisitions involving foreign companies, the cabinet said in a statement on its website. “The move is another step in China’s
the time of Xi’s remarks. Similarly, a study by the Centre for China and Globalization released last year found that only 7,300 foreigners had secured permanent resident status in the first decade of its availability. The government has broadened the categories of people eligible for a Chinese green card, highlighting foreigners who working in innovationfocused careers in laboratories and technology centres. The relaxed guidelines followed a meeting of Xi’s Central Leading Group for Deepening Overall Reform last September. The panel pledged to “manage foreigners’ permanent residence in a reasonable, open and pragmatic manner,” Xinhua said. While some big Chinese cities have seen a surge in foreigners in recent years, they still lag their global peers. About 0.5 per cent of Beijing’s population is foreign born, compared with at least one-third in London, New York, Sydney and Toronto, the Geneva-based International Organization for Migration reported last year. Bloomberg News
Commerce
Trade with ASEAN dips China is ASEAN’s biggest trading partner, while ASEAN is China’s third biggest. Bilateral trade between China and ASEAN (the Association of the Southeast Asian Nations) has boomed during the past 25 years, but it has declined this year because of the lacklustre global economy, a senior official said
yesterday. China-ASEAN trade rose to US$472.16 billion in 2015 from US$7.96 billion in 1991, with an annual growth rate of 18.5 per cent, Vice Commerce Minister Gao Yan said at a news conference.
During the January-May period, however, bilateral trade fell 7.1 per cent year on year to US$173.57 billion. The two sides are trying their best to “get bilateral-trade growth back on track as soon as possible”, Gao said. China is ASEAN’s biggest trading partner, while ASEAN is China’s third biggest. By the end of May, the two-way investment had exceeded US$160 billion, with ASEAN remaining a major destination for Chinese companies. When asked whether trade ties between China and the Philippines will be affected following the South China Sea arbitration award, Gao said the two countries enjoy “relatively stable” economic and trade relations, while dismissing claims that Chinese people have boycotted foreign products, especially those made in the Philippines. “China is willing to develop mutually beneficial trade and economic ties with
‘The 13th China-ASEAN Expo will be held in Nanning during September 11-14’
the Philippines in various forms,” she added. The 13th China-ASEAN Expo will be held in Nanning, capital of south China’s Guangxi Zhuang Autonomous Region, from September 11-14. The expo, co-sponsored by China and the 10 ASEAN countries, has been held for 12 consecutive years since 2004, serving as an international economic and trade event for the China-ASEAN Free Trade Area. With the theme of “Building the 21st Century Maritime Silk Road, Forging an Even-Closer China-ASEAN Community of Common Destiny,” the 13th expo will advance mutual investment between China and ASEAN in the key areas of industrial capacity cooperation and equipment manufacturing, Gao said. Seminars and forums to be held on the side-lines of the expo are expected to attract around 1,500 attendees from home and abroad. Xinhua
Business Daily Wednesday, July 20 2016 9
Greater China In Brief
les for foreign rade zones
Cabinet
Speculation on bad-debtfor-equity swaps fuelled
o temporarily scrap eign investors kes in domestic steel mills reforms to open up its domestic market and to support free trade zone development,” said Liao Qun, China chief economist at Citic Bank International in Hong Kong. “As for the timing, it will help ease the pressure of RMB depreciation and capital outflows since the adjusted measures will encourage more foreign investment in China,” Liao said. China has free trade zones in the municipalities of Shanghai and Tianjin, as well as the southern province of Guangdong and the south-eastern province of Fujian.
The government would also temporarily scrap a requirement blocking foreign investors from taking controlling stakes in domestic steel mills, and also allow overseas firms to set up solely-owned steel producers in the FTZs, the statement said. Previous rules stated that foreign steel firms choosing to invest in China would have to possess their own production
technology, while non-steel firms had to demonstrate “strong funding power and high credibility” before investing. Partly as a result of the ownership restrictions, China’s huge steel sector has attracted relatively little foreign investment. Dwindling demand growth, low profit margins and mounting losses have also made the sector less attractive. Reuters
Securities
Tourism
Shopaholic Mainlanders in U.S. become culture lovers China is the fourth largest international source of visitors to New York City after Great Britain, Canada, and Brazil. Sun Oumeng and Yuan Yue
As larger numbers of Chinese tourists are visiting United States with more individualized travel plans, more are turning their eyes to cultural and art attractions, rather than a shopping spree. “We have seen the rise of independent Chinese tourists for a while, and they have showed increasing interest in culture and arts,” Lin Xiaowen, a tour guide with the Metropolitan Museum of Art (the Met) in New York, told Xinhua in a recent interview. There used to be a time when the luxury stores on the Fifth Avenue of New York City (NYC) were frequented by Chinese consumers. But now, they have turned to the attractions other than gilt and luxury.
“The total amount of sales by Chinese shoppers has dropped by almost one third in the first quarter of 2016”
It has been reported that the Mandarin version of the Met’s guidebook sells better than any other foreign-language editions. Against the impression that Chinese tourists are mainly “shoppers”, scenic spots with civic interest or stunning scenery is taking more of their travelling routes. “The total amount of sales by Chinese shoppers has dropped by almost one third in the first quarter of 2016,” said Rich Sun, COO and Board Secretary of L&L Tour, one of the largest Chinese travel agency in New York. Chinese tourists now choose to spend more time in the spots like Washington Square, enjoying some coffee, or take a walk around famous campus, like Columbia University, New York University, etc. Some Chinese visitors take a special interest in exploring Ivy League universities, including Massachusetts Institute of Technology (MIT), Harvard University in Boston, Princeton University
Rich Sun, COO and Board Secretary of L&L Tour, one of the largest Chinese travel agency in New York.
“In recent years, the number of Chinese tourists (to the Met) is keeping rising. In 2009, it was only about 50,000 (annually), but since 2014, the number has already over 200,000,” said Lin, “So, Chinese visitors have become the largest group of foreign visitors in Met since then.” In fiscal year of 2015, the number of visitors to this iconic museum in the United States has reached 6.3 million, which has been attributed in a large part to Chinese elements and tourists. The Met is one of the world’s largest museums with over two million pieces of artwork. Responding to the sharp rise of Chinese visitors, the museum made efforts to cater to the Chinese, including audio tours and maps in Mandarin, opening a Chinese Weibo account, and even acceptance of UnionPay. “Now, the museum sets three times a week mandarin highlight tour to visitors,” Lin added.
China’s cabinet fuelled speculation that the nation is pressing ahead with badloan-to-equity swaps that would give lenders stakes in troubled companies. A brief reference in a statement on Monday to letting financial institutions hold stakes in companies in a trial indicated that the swaps are coming soon, according to China Merchants Securities Co.’s analyst Ma Kunpeng. Caixin magazine reported that the State Council was signalling the start of the program, citing an unidentified person close to the authorities. The plan was highlighted by Premier Li Keqiang in March as a tool for tackling bad loans.
in New Jersey and Yale University in Connecticut. “They are more interested in outdoor activities, such as adventures. They are more interested in the natural scenes, like the national parks. They are more interested in the secondary to tertiary cities of United States, not only New York, not only Los Angeles or Las Vegas,” Sun told Xinhua, “They want to explore more of American culture.” “And also, another trend from the Chinese tourists coming to the U.S. is that they are more interested in staying here longer to have an exploration of that local community in depth, instead of just superficial stay for one night or for a couple of days,” added Sun. 2016 marks the U.S.-China Tourism Year. Governments from both sides have launched a series of measures to boost tourism. Now, China is the fourth-largest international source of visitors to the New York City, after the Great Britain, Canada, and Brazil. The Big Apple is expecting 921,000 tourists from China 2016, up 8 per cent from the preliminary estimate in 2015, according to the prediction made by NYC & Company, New York City’s official marketing, tourism and partnership organization. Xinhua
Mainland increases its holding of U.S. treasuries China, the top buyer of U.S. Treasury securities, increased its holding in May, the latest data from the U.S. Treasury Department showed on Monday. China added US$1.2 billion of treasuries in May, boosting its treasuries holding to US$1.244 trillion. The country has cut its holding in April and March. Japan, the second largest foreign holder of U.S. treasuries, cut its holding by 9.6 billion dollars to 1.1332 trillion dollars in May. By the end of May, overall foreign holdings of U.S. Treasury securities dropped to US$6.2083 trillion from April’ s US$6.2385 trillion. Pilot reform
Prosecutors file 30 public interest lawsuits Chinese procuratorates had filed 30 public interest lawsuits to courts as of the end of June in a pilot reform, the Supreme People’s Procuratorate (SPP) said. They include 11 civil litigation cases, 18 administrative litigation cases and one with both civil and administrative litigation, the SPP said. There were 23 cases for environmental protection-related litigation, accounting for over 76 per cent of the total, the SPP added. In July 2015, the SPP began a two-year pilot program that has allowed prosecutors in 13 provincial divisions to initiate public interest litigation cases on environmental protection, preservation of state assets as well as food and drug safety. Liquidity
PBOC continues to inject money into market
Metropolitan Museum of Art of New York
The People’s Bank of China (PBOC), the country’s central bank, continued to pump money into the inter-bank market on Tuesday to provide more liquidity. The PBOC put 60 billion yuan (nearly US$9 billion) into seven-day reverse repos, a process by which central banks purchase securities from banks with an agreement to sell them back in the future. The reverse repo was priced to yield 2.25 per cent, according to a PBOC statement. Given that 30 billion yuan’s worth of repos matured yesterday, the central bank effectively injected 30 billion yuan into China’s monetary market.
10 Business Daily Wednesday, July 20 2016
Greater China
Global expansion
Alibaba to target Australia as part of strategy The company plans to open up its first office in the city of Melbourne by the end of 2016.
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hinese online retailing giant, Alibaba, announced yesterday that it will open its first local office in the Australian city of Melbourne later this year, after flagging its intentions to expand outside of China. Alibaba’s global president Michael Evans said Australia was a “huge part” of the company’s long-term globalization strategy to raise its 423 million customers to two billion by 2036, as it plans to expand its presence internationally. “Australia and New Zealand are a big part of our globalization strategy. In markets which are very
important to us we want a good group of people working for us,” Evans told The Australian Financial Review yesterday. “We want to develop government and regulatory relationships; we want to grow here strongly. It’s a key part of what we are doing internationally.” Th e e-c o m m e rc e b u si n ess, reportedly worth US$200 billion, currently has eight staff in Australia. However, with plans to open up its first office in the city of Melbourne by the end of 2016, Alibaba will target Australian consumers as it plans to boost its business over the next three to five years. Alibaba products are used by
a number of Australian retailers, including Blackmores, Woolworths and Chemist Warehouse. Australia was ranked the fifth top-selling country into China during the company’s global shopping festival, Singles Day, last year. Evans said Australian businesses would be well placed to take advantage of the spending boom in south-east Asia. “We connect with about half a million consumers here. They are actually not all Chinese speaking consumers,” he said on yesterday. “We are going to engage in e-commerce going both ways, export to foreign markets, import to Australia.” Evans said most of Australia’s dealings with Alibaba cantered around milk powder.
“We are going to engage in e-commerce going both ways, export to foreign markets, import to Australia.” Michael Evans, Alibaba’s global president Th e r e a r e 1 3 0 0 A u st ra l i a n businesses selling on Alibaba’s online global platforms, and the company is confident that number will rise once it begins its expansion into Australia. Xinhua
Shares spat
Elliott adds pressure on Bank of East Asia in lawsuit The share placements have increased BEA’s number of shares by about 37 per cent since 2007. Alfred Liu and Bei Hu
Billionaire Paul Singer’s Elliott Management escalated its battle against Bank of East Asia Ltd. (BEA), asking a Hong Kong court to declare that the bank acted improperly when issuing shares that diluted minority shareholders and allegedly entrenched management control. The petition alleges “unfairly
David Li, Bank of East Asia Chairman
prejudicial conduct” by directors and “serious corporate governance failings,” the activist hedge fund said in a statement Monday. The action, which names directors including Chairman David Li, is “self serving and calculated to distract the management team” and will be vigorously opposed, Li, 77, said in a statement. The first hearing will be on
September 21, according to BEA. Elliott seeks rulings including that board resolutions connected with the lender’s placement of new shares to Japan’s Sumitomo Mitsui Banking Corp., completed in March last year, were “passed for an improper purpose.” The fund also asks the court to release Sumitomo Mitsui Banking and Criteria Caixa SA - the parent of Spain’s CaixaBank - from any undertakings that restrict them from boosting or cutting their stakes. The latest legal missive steps up the spat between Elliott and the Li
family. Elliott has called for BEA to explore a sale of itself, and voiced concerns about Li’s re-election and the board’s mandate to sell shares ahead of the April annual meeting. BEA is one of only two remaining independent banks listed in Hong Kong after three were purchased since 2013. It’s a “prime takeover target,” Elliott said in the legal filing, alleging that the defensive moves by the Li family had “increasingly reduced the ability of the independent shareholders to influence or change the management of the company or accept a takeover offer which is not recommended by the board.”
Five sales
Elliott’s opposition to the general mandate stems from five share sales by BEA since 2007 that have made friendly shareholders Sumitomo Mitsui Banking and Criteria Caixa the lender’s largest investors, insulating Li from activists’ demands. The share placements have increased BEA’s number of shares by about 37 per cent since 2007. The investors and the Li family own a combined 45 per cent of BEA’s voting shares, according to the court filing. Elliott owns about 7.1 per cent of the ordinary shares, the filing shows. Elliott or affiliated entities have held BEA shares since July 15, 2010, according to the filing, when the bank’s shares closed at HK$28.95. Singer’s Elliott, which manages more than US$28 billion in assets, has been embroiled in bitter disputes before. Earlier this year, the hedge fund prevailed against Argentina in an accord that calls for the country, which defaulted on sovereign bonds, to pay US$4.65 billion in cash to Elliott and other funds. Bloomberg News
Business Daily Wednesday, July 20 2016 11
Asia Stock markets
Nintendo’s market cap doubles since Pokemon GO launch Trading in Nintendo shares roughly accounted for a quarter of the entire trading on the Tokyo Stock Exchange’s main board. Hideyuki Sano
S
hares of Japan’s Nintendo Co soared another 14 per cent yesterday, more than doubling the firm’s market capitalisation to 4.5 trillion yen (US$42.5 billion) in just seven sessions since the mobile game Pokemon GO was launched in the United States. The phenomenal success of Pokemon GO - now available in 35 countries, the majority in Europe, and most recently in Canada has triggered massive buying in Nintendo shares, surprising even some seasoned market players. “I’ve never seen the trend of such a big company’s shares changing so quickly in such a short period of time,” said Takashi Oba, senior strategist at Okasan Securities. Nintendo shares ended yesterday up 14.4 per cent at 31,770 yen, bringing its gains to more than 100 per cent since the launch of the game on July 6. Turnover in Nintendo shares hit 703.6 billion yen, surpassing
the record for trading turnover in individual shares it set on Friday, of 476 billion yen. Trading in Nintendo shares roughly accounted for a quarter of the entire trading on the Tokyo Stock Exchange’s main board.
but hardly anyone was expecting Nintendo in this area. Suddenly Nintendo has become an AR-related stock,” said a fund manager at a Japanese asset management firm, who declined to be named as he is not allowed to discuss individual shares. The fund manager said the big gains were justifiable considering the likely boost to Nintendo’s bottom line. “Under my rough estimate,
the sales from Pokemon GO and upcoming related gadgets will boost net profits by 50 billion yen. Based on that assumption, Nintendo is traded at 30 times profits, which is not unreasonable,” he said. The popularity of Pokemon GO is producing an unexpected boom in some shares that have a scant link to the game. Shares in First Baking Co, a bakery firm with annual sales of 25 billion yen, saw its shares rise 18 per cent yesterday as the firm sells “Pokemon Bread” among other breads wrapped with characterdecorated bags. Reuters
Key Points Nintendo shares close up 14 per cent Nintendo’s market cap more than doubles in seven sessions Trading volume hits a new record in Tokyo The success of Pokemon GO, unforeseen even by its creators, has boosted hopes that Nintendo could capitalise on a line-up of popular characters ranging from Zelda to Super Mario to strengthen its new foray into augmented reality. “Virtual reality and augmented reality have been a focus of the market
Two gamers play the Pokemon Go app during a Pokemon Go walk at the Stephansplatz in Vienna
Trade agreement
Sri Lankan Premier says TPP to sink without China Beijing is pushing the Regional Comprehensive Economic Partnership, a 16-country trade deal seen as a counterweight to TPP. Rosalind Mathieson
A U.S.-led trade pact that would cover about 40 per cent of the global economy won’t be successful unless it includes China and India, Sri Lankan Prime Minister Ranil Wickremesinghe said. Speaking in an interview in Singapore, Wickremesinghe also said he doubted the 12-nation TransPacific Partnership (TPP) would pass the U.S. Congress in a so-called lameduck session after the November presidential election. That would raise the risk of the pact, opposed
by both Donald Trump and Hillary Clinton, getting stuck in Congress. Wickremesinghe said Sunday that even if TPP was ratified by all members - a list that includes Australia, Japan, Singapore and Vietnam - the deal faced failure in the long term unless China and India were involved. So far, neither country is. “China is already developing its own systems of trading and bilateral assistance” such as the Asian Infrastructure Investment Bank, said Wickremesinghe, who noted that India was the growth engine
for the world’s fastest-expanding region. “The hard fact is that any agreement in Asia must include India and China,” he said. “You can’t have it outside that, it’s not going to work.”
Competing deals
Sri Lanka, an US$82 billion island economy that sits along one of the world’s busiest shipping routes, is a member of the AIIB. China is pushing the Regional Comprehensive Economic Partnership, a 16-country trade deal that aims to unify a market of more than 3 billion people and is seen as a counterweight to TPP.
“The hard fact is that any agreement in Asia must include India and China” Ranil Wickremesinghe, Sri Lankan Prime Minister
Sri Lankan Prime Minister Ranil Wickremesinghe
The TPP has been a centrepiece of U.S. President Barack Obama’s economic and military rebalancing to Asia. The World Bank estimates the pact could raise gross domestic product by an average 1.1 per cent in member countries by 2030. The agreement goes beyond typical trade deals that mostly focus on reducing tariffs and highlights stricter safeguards for patents and a more level playing field for companies that
compete with government-backed businesses. Such rules would reduce the policy space for India and may force it to implement sweeping structural reforms, the nation’s trade minister, Nirmala Sitharaman, said in February. China has criticized the TPP as the economic component of a U.S. plan to contain it. Sri Lanka has said previously it is looking at further steps to liberalize its economy that are needed to join the TPP.
Differing views
Trump, the presumptive Republican presidential nominee, has rejected the TPP as a “rape” of America. “It’s a harsh word, but that’s what it is - rape of our country,” he said last month. Democratic candidate Clinton, who supported the TPP as Obama’s secretary of state, has since said the final deal “doesn’t meet standards” because it won’t increase wages for middle-class Americans. As anti-globalization undercurrents influence the U.S. elections, the prospect that U.S. lawmakers seek to amend the TPP has increased. Other countries, including Japan, have said they wouldn’t accept a modified pact. Wickremesinghe said his country had no special view on the U.S. elections. “But I think the two candidates have far different views on the relationship in Asia and it has to be worked out,” he said. “The U.S. has a role, but I think the U.S. has to define what that role is,” Wickremesinghe said. “It didn’t happen under the Obama administration, so a lot will depend on what happens at the next presidential election.” Reuters
12 Business Daily Wednesday, July 20 2016
Asia
Bank of Japan headquarters in Tokyo Monetary policy
Expectations mount for Japan’s central bank to ease policy More than three years of “Abenomics” have so far failed to generate a sustainable return to inflation and growth. Kaori Kaneko and Sumanta Dey
T
he Bank of Japan (BOJ) is expected to ease policy later this month, according to a majority of economists polled by Reuters, who said a combination of measures would be used in another attempt to boost anaemic inflation. If that happens, it would come just a few weeks after Prime Minister Shinzo Abe ordered a fresh round of fiscal stimulus following a sweeping election victory in the Upper House, and would underscore the deep malaise rooted in Japan’s economy. “Now with the stimulus being prepared by the government, it is about time for the BOJ to act as well in order to enhance the effect,” said Stefan Grosse, economist at Nord/LB. The yen has already weakened some 5 per cent in the past week on speculation of a combination of more monetary stimulus by the BOJ and the government’s big economic package.
The government is expected to compile the stimulus package focused on public works projects and payouts to households, and lawmakers are calling for spending of at least 10 trillion yen (US$94.50 billion). More than three years of “Abenomics” - policies that rely on aggressive monetary easing, spending and reforms - have so far failed to generate a sustainable return to inflation and growth. Japan’s core consumer price index, which includes oil products but excludes fresh food prices, fell at the fastest pace in three years in May. Economists in the poll expect consumer prices to average a 0.1 per cent decline this fiscal year, before rising 0.8 per cent in the next fiscal, far below the BOJ’s 2 per cent goal. The poll taken in the past week found 23 of 27 analysts, or about 85 per cent of the sample, predicted the BOJ will ease policy further at its July 28-29 meeting, when it is due to release its latest long-term economic and inflation forecasts. Last
month, two-thirds of respondents had a similar call for the BOJ’s July policy meeting. One economist expects a central bank easing will come at the September policy meeting, two project the BOJ will ease in October and one said it would be some time next year. Eighty per cent of economists said the central bank would ease via a combination of measures such as cutting negative interest rates deeper and increasing asset buying such as exchange-traded funds (ETF). That would take the BOJ’s minus 0.1 per cent interest rate to minus 0.2 per cent in the current quarter and boost its monetary base target to 90 trillion yen from the current 80 trillion yen, the poll showed. The BOJ’s aggressive monetary stimulus has already pushed down Japan’s sovereign bond yields to record lows and many analysts in the survey expect the benchmark 10-year JGB yield to fall as low as minus 0.350 per cent this year. But the yen, which tends to strengthen against the U.S. dollar on investor demand for safe haven assets, is expected to be crucial for the BOJ’s and government’s policies.
Analysts project Japan would step into currency markets if the dollar range shifts to 94-90 yen, although many expect it to stay above 95 yen this year. “Even though pressure on the yen’s appreciation in the wake of Brexit has subsided for now, the current foreign exchange level will lower manufacturers’ profits,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. “And I cannot deny the possibility that deflationary pressure will rise via such low corporate profits, weak capital spending and sluggish wages.”
Key Points More respondents see BOJ to ease in July than last month poll Analysts see Japan would intervene if dlr/yen at 94-90 yen The poll also found the economy will grow an annualised 0.6 per cent in the current fiscal year and 0.9 per cent next fiscal year. That compared to growth expectations of 0.7 per cent and 0.8 per cent, respectively, in last month’s survey. Th e B O J w i l l fact o r i n th e government’s planned fiscal stimulus package in producing new quarterly projections this month, which will help moderate any cuts to its inflation forecasts, sources familiar with its thinking said. Reuters
Fiscal measures
Indonesia commences new tax amnesty programme Some US$200 billion in Indonesian money is thought to be stashed in Singapore. Hidayat Setiaji and Fransiska Nangoy
The Indonesian government on Monday started the implementation of its new tax amnesty programme as it seeks to boost tax revenues by encouraging the repatriation of funds stashed abroad. “Starting today, the tax office has started operations to service those who want to participate in the amnesty,” Finance Minister Bambang Brodjonegoro told reporters at an event in Jakarta on Monday.
Finance Ministry officials held a news conference late on Monday to announce details of the programme. The government will impose a 2-5 per cent tax for assets brought back onshore by March 2017. Those assets must be kept in Indonesia for three years in funds managed by appointed banks, and can be invested in several ways, including government bonds. Repatriated funds will be allowed to be invested in instruments like government issued securities, stocks, bonds and mutual funds issued by
Key Points Tax office starts tax amnesty on Monday -finmin Appointed banks to sign agreement with govt The banks can manage the funds through asset management firms and brokerage houses listed by the government.
Coming home
Some US$200 billion in Indonesian money is thought to be stashed in
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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private companies, as well as the direct purchase of properties. Finance ministry official Robert Pakpahan said 18 banks have met the qualifications to manage funds from the tax amnesty, which is up from seven banks announced last week. However, the finance minister said banks still need to wait for an official appointment letter from the government to formalise the mandate. Bank executives last week told Reuters they expect big gains from the amnesty. Bank Negara Indonesia Tbk director Panji Irawan said it might receive up to 75 trillion rupiah (US$5.72 billion) in inflows while
Bank Mandiri Chief Executive Kartika Wirjoatmodjo said its inflows “could be huge”.
Business Daily Wednesday, July 20 2016 13
Asia Lending limits
In Brief
Central bank moves to rein in housing boom The RBNZ proposes that just 5 per cent of banks’ new lending can go to investors who have less than a 40 per cent deposit. Tracy Withers
New Zealand’s central bank is moving to quell the country’s housing boom by restricting the amount of money property investors can borrow, paving the way for another cut in interest rates. The Reserve Bank will require investors across New Zealand to have a deposit of at least 40 per cent, it said in a statement yesterday in Wellington. The new rule, which tightens an existing requirement that investors in Auckland have at least a 30 per cent deposit, will be introduced September 1, the RBNZ said. New Zealand’s dollar fell as markets bet Governor Graeme Wheeler will now be free to respond to persistently weak inflation by cutting the official cash rate to a record-low 2 per cent on August 11. He has been reticent to lower borrowing costs for fear of stoking housing demand. “The intention to put new lending restrictions in place means one potential roadblock to responding to the weak inflation environment will be reduced,” Nick Tuffley, chief economist at ASB Bank in Auckland, said in an e-mailed note. The announcement “reinforces the
likelihood of the RBNZ cutting in August, given the very tight timeline proposed for implementing the added restrictions,” he said.
Kiwi drops
There’s a 78 per cent chance of a quarter-point rate cut next month, according to swaps data compiled by Bloomberg. The odds have increased since a report Monday showed consumer prices rose 0.4 per cent in the second quarter from a year earlier less than the RBNZ forecast and the seventh straight quarter the gauge has been below the central bank’s 1-3 per cent target range. The proposed new lending rules remove the distinction between Auckland and the rest of the country, Wheeler said in the statement. Since November, the RBNZ has required most investors buying Auckland properties to have a 30 per cent deposit, but that has prompted many to look at opportunities in other centers. In the North Island city of Hamilton, house prices rocketed 29 per cent in the year through June.
‘Get on with it’
In a July 7 speech, RBNZ Deputy Governor Grant Spencer flagged
nationwide restrictions on property investors, adding he expected the bank to act by the end of the year. The following day, Prime Minister John Key urged the RBNZ to “get on with it,” saying the bank should be able to act quickly because it was familiar with how the tool works. The RBNZ proposes that just 5 per cent of banks’ new lending can go to investors who have less than a 40 per cent deposit. It also said no more than 10 per cent of new lending can go to owner-occupiers who have less than a 20 per cent deposit. That reverses a relaxation in the rules last year that allowed more low-deposit lending to borrowers outside Auckland. House price inflation accelerated for a third month in June, with prices jumping 13.5 per cent from a year earlier, according to Quotable Value New Zealand. Prices in Auckland, home to a third of New Zealand’s population, surged 16.1 per cent, and 46 per cent of sales were to investors. “A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country,” Wheeler said. “A severe fall in house prices could have major implications for the functioning of the banking system and cause longlasting damage to households and the broader economy.” The central bank is also progressing work on so-called debt-to-income ratios similar to those used in the U.K. Bloomberg News
“A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country” Graeme Wheeler, Reserve Bank of New Zealand Governor
Reserve Bank of New Zealand Governor Graeme Wheeler
Singapore and wealth managers there worry an Indonesian amnesty might lead to an outflow of assets from the city-state’s massive wealth management industry. “This will have an impact and some Indonesian money will flow out of
Singapore, but still a lot of money will remain offshore,” said a Singaporebased senior private banker, who asked not to be identified because of the sensitivity of the topic. “I have not seen tax amnesties work exceptionally well in other centres
so it is unclear how effective this one will be.” The stock market had expected the successful implementation of the bill since its passage through parliament on June 28 with the main stock index up 5 per cent and foreign investors net buying around 10 trillion rupiah (US$763.65 million) since then. Roni Bako, a tax analyst with Pelita Harapan University in Jakarta, said the expansion of the taxpayer base, which will come with the declaration of assets, is an important result of the programme. Indonesia has only around 28 million registered taxpayers, including corporations, Bako said. That compares with Indonesia’s population of 240 million. The amnesty, however, still faces possible challenges at home with legal activists last week filing a request for a judicial review of the programme in the Constitutional Court. They say it will hurt Indonesia’s anti-graft efforts and protect tax evaders. A preliminary hearing will be set 14 days after the court verifies the documents. Reuters
Inflation
S.Korea’s producer prices rise Prices in South Korea among producers supplying goods and services rose for a third straight month last month due to higher crude oil prices, central bank data showed yesterday. The producer price index (PPI), which is reflected in consumer prices with a certain time gap, stood at 99.01 in June, up 0.2 per cent from the previous month, according to the Bank of Korea. It was the third consecutive month of gain after rising 0.3 per cent in April and 0.1 per cent in May each. The upward momentum followed higher crude oil prices. Growth
World Bank cuts Vietnam forecast The World Bank yesterday cut its 2016 growth forecast for Vietnam’s economy to 6.0 per cent from 6.2 per cent seen earlier, citing the impact of severe drought on its agriculture sector and slower industrial expansion. Annual inflation is expected to pick up to an estimated 4.0 per cent, from 3.5 per cent seen earlier, it said in a report, attributing that to increased domestic demand and government adjustments in prices of services such as healthcare and schools. It expects annual inflation to accelerate to 4.5 per cent in 2017, from 3.8 per cent previously forecast. Exporters
Trusted traders to benefit from NZ-Aussie pact Trusted exporters will see their goods fast-tracked through customs processing under a new agreement between Australia and New Zealand, the two countries’ customs services announced yesterday. The Australian Department of Immigration and Border Protection and New Zealand Customs had signed a mutual recognition arrangement (MRA) to recognize the supply chain security programs of both countries. The arrangement would benefit members of the Australian Trusted Trader program and the New Zealand Customs Secure Export Scheme. New Zealand Customs comptroller Carolyn Tremain said the arrangement would provide further assurance over trans-Tasman trade for both countries. Railway
Malaysia, Singapore ink MoU on high-speed rail Malaysia and Singapore signed a memorandum of understanding (MoU) yesterday on the longanticipated high-speed rail linking the two countries. The signing was witnessed by Malaysian Prime Minister Najib Razak and his Singaporean counterpart Lee Hsien Loong, a significant milestone since the project was first announced in 2013. The signing of MoU will be followed by detailed negotiations and officials say a formal bilateral agreement is expected to be signed by the end of the year. Najib wrote on his blog on Monday that the high-speed rail will enhance people-to-people ties and improve business linkages between the two countries.
14 Business Daily Wednesday, July 20 2016
International In Brief In the mood
German investor morale plummets The mood among German analysts and investors plunged in July due to uncertainty created by the Brexit vote, a survey showed yesterday in the first major indication of how Europe’s largest economy could fare after the surprise referendum result. Mannheim-based ZEW said its monthly survey showed a drop in its economic sentiment index to -6.8 points in July from 19.2 the previous month. That fell far short of the Reuters consensus forecast for a reading of 9.0. A separate gauge of current conditions tumbled to 49.8 points from 54.5 in June. Innovation drive
World Bank confirms Romer as chief economist The World Bank on Monday confirmed New York University economics professor Paul Romer as its next chief economist, bringing in a prominent voice advocating for investment in human capital and innovation. Romer, 60, will replace Kaushik Basu, a former Indian government economics adviser who is retiring. Romer will take up the position in September and is tasked with keeping the World Bank Group at the forefront of international development knowledge. Romer is a proponent of “endogenous growth theory,” which holds that investments in human capital, innovation and knowledge are significant contributors to economic growth. Ratings
Moody’s places Turkey’s debt on review Moody’s Investors Service placed Turkey’s Baa3 issuer and bond ratings on review for downgrade, citing the need to assess the medium-term impact of the failed military coup on the country’s economic growth, policymaking institutions and external buffers. Moody’s said the failed coup has the potential to significantly affect Turkey’s growth trajectory negatively. The rating agency lowered Turkey’s growth forecast to 3 per cent. Central bank President
Argentine economy likely shrank
Argentina’s economy likely contracted 0.9 per cent in the second quarter from the same period in 2015 and 0.3 per cent from the first quarter, central bank President Federico Sturzenegger said on Monday. The economy had defied expectations for a recession in the first quarter by growing 0.5 per cent year-on-year, according to national statistics agency Indec. Sturzenegger added that the central bank still expects consumer price rises to slow to 1.5 per cent per month in the fourth quarter and for annual inflation to cool to its goal of 17 per cent in 2017.
Legislation
EU watchdog backs ‘passport’ for U.S. hedge funds They also gave the green light to hedge funds from Canada, Guernsey, Japan, Cayman Islands, Jersey, Australia, and Switzerland. Huw Jones
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edge funds from the United States, Singapore and Hong Kong should be allowed to market themselves in the European Union, the bloc’s financial watchdog said yesterday. The long-delayed recommendation from the European Securities and Markets Authority (ESMA) to the EU’s executive European Commission for endorsement is a taste of what Britain’s financial services sector might face after it leaves the bloc. A new EU law requires ESMA to say for the first time if rules for hedge funds and other alternative investments such as private equity in non-EU countries are as strict as those in the 28-country bloc. A positive view means that asset managers based outside the EU get a “passport” to continue offering services to investors across Europe, replacing a system of countryby-country private placement authorisation.
“With respect to the competition and market disruption criteria, ESMA considers there is no significant obstacle for funds marketed by managers to professional investors which do not involve any public offering,” ESMA said of the United States. “However, ESMA considers that in the case of funds marketed by managers to professional investors which do involve a public offering, a potential extension of the AIFMD (alternative investment fund managers directive) passport to the U.S. risks an un-level playing field between EU and non-EU AIFMs.” ESMA recommended the EU took action to “mitigate this risk”. Britain, which voted last month to leave the EU, has one of the world’s biggest hedge fund centres and
would have to undergo the same “equivalence” process unless the UK is able to keep its “passporting” access to the single market like at present. The EU watchdog had already deemed Jersey, Guernsey and Switzerland as being “equivalent”, but the Commission said it would wait for ESMA to approve more countries before endorsing these decisions. It said that for Bermuda and the Cayman Islands it could not give a definitive recommendation regarding investor protection and effectiveness of enforcement. “For the Isle of Man, ESMA finds that the absence of an AIFMD-like regime makes it difficult to assess whether the investor protection criterion is met,” it added. Granting passports starts a threeyear countdown to the expiry of the national authorisation regime, raising issues of timing if some countries obtain passports well before others. Reuters
‘Granting passports starts a three-year countdown to the expiry of the national authorisation regime’ ESMA also gave the green light to hedge funds from Canada, Guernsey, Japan, Cayman Islands, Jersey, Australia, and Switzerland, with provisos for some of them. In a preliminary finding, ESMA had not been able to recommend equivalence for the United States, the world’s biggest hedge fund centre, because of competition concerns. Equivalence will allow the much bigger U.S. mutual funds sector as well as hedge funds to operate across the EU, ESMA had said.
ECB survey
Eurozone bank sector improves Quarterly bank lending survey showed banks are easing credit standards for loans to companies. Europe’s financial sector is showing further signs of mending and banks are increasingly competing for custom by easing credit standards, a key European Central Bank survey showed yesterday. The ECB said its quarterly bank lending survey (BLS) showed banks are easing credit standards for loans to companies, an encouraging sign, since the chronic weakness of credit activity in the euro area has previously been blamed for the absence of any noticeable recovery in the 19 countries that share the single currency. “Euro area banks reported a further net easing of credit standards on loans to enterprises in the second quarter of 2016. This was slightly more pronounced than banks had expected in the previous survey round,” the ECB wrote.
“Competitive pressure remained the main factor driving this easing. In addition, credit standards on loans to households for house purchase eased marginally following a net tightening in the previous quarter,” it said. At the same time, demand for loans is also increasing, the ECB found. “Net demand for loans continued to increase across all loan categories. The main contributing factors for net demand for loans to enterprises in the second quarter of 2016 were merger and acquisition activities, inventories and working capital, the general level of interest rates, and debt refinancing,” the ECB said. “Net demand for housing loans was driven by the low general level of interest rates, continued favourable housing market prospects, and consumer confidence.”
The eurozone central bank has previously complained that its ultra-easy monetary policy had not been feeding through into the real economy, because banks are not passing the money on in loans, particularly to the small and midsized enterprises (SMEs) which are the region’s economic backbone.
“Net demand for loans continued to increase across all loan categories.” European Central Bank statement
In an attempt to address this, the ECB stepped up its controversial programme of sovereign bond purchases, known as quantitative easing or QE, in March and also made ultra-cheap loans available to banks on condition they lend it on to the real economy. AFP
Business Daily Wednesday, July 20 2016 15
Opinion Business Wires
The Korea Herald South Korea and Mongolia are to push for a trade agreement. According to Seoul’s presidential office, South Korean President Park Geun-hye and Mongolian President Tsakhiagiin Elbegdorj agreed on the issue during their meeting on July 17. Seoul said that the two countries agreed to launch a feasibility study on forming an economic partnership agreement saying that the development was tantamount to the two nations working on a free trade agreement. The two nations will complete the preparations for the study within the year, and launch the study later this year or early next year.
Taipei Times Shares in Taiwan on Monday closed above the 9,000-point mark, the first time in almost a year the weighted index ended above that level, with foreign institutional investors holding a large chunk of long-position contracts in the futures market, dealers said. Apple concept stocks continued to move ahead, led by smartphone camera lens maker Largan Precision Co, while rotational interest focused on select old-economy stocks and certain financial issues, which pushed up the boarder market even higher at the close, the dealers said. The weighted index on the Taiwan Stock Exchange closed up 58.36 points, or 0.65 per cent.
The Star AmBank Group’s chief executive officer Datuk Sulaiman Mohd Tahir said the recent move by bank Negara (Malaysian central bank, pictured) to cut interest rates could help boost demand for loans. “The interest rate cut can help us, as repayments will be lower. It could also help stave off a further decline in demand for loans that we have seen,” he said on Monday. He said that while deposits will be challenging due to this cut that the bank also saw opportunities in other alternatives for deposits such as bonds and unit trusts.
Jakarta Globe In an exclusive interview with the Jakarta Globe, New Zealand Prime Minister John Key said the country wants to make inroads into the energy sector in Indonesia — specifically geothermal energy — as well as into its aviation and film markets. “New Zealand has a lot of expertise in geothermal energy and Indonesia is very rich in geothermal resources,” Key said on Monday. The PM said developing geothermal energy is much more environmentally sustainable than building more coal-fired power plants to boost Indonesia’s power grid. Key praised President Joko “Jokowi” Widodo’s work for the work he has done so far.
Unburdening the Facebook generation
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nce again, young people have gotten the short end of the political stick. The outcome of the United Kingdom’s Brexit referendum is but another reminder of a yawning generational divide that cuts across political affiliation, income levels, and race. Almost 75 per cent of UK voters aged 18-24 voted to “Remain” in the European Union, only to have “Leave” imposed on them by older voters. And this is just one of several ways in which millennials’ economic future, and that of their children, is being determined by others. I am in my late fifties, and I worry that our generation in the advanced world will be remembered – to our shame and chagrin – as the one that lost the economic plot. In the run-up to the 2008 global financial crisis, we feasted on leverage, feeling increasingly entitled to use credit to live beyond our means and to assume too much speculative financial risk. We stopped investing in genuine engines of growth, letting our infrastructure decay, our education system lag, and our worker training and retooling programs erode. We allowed the budget to be taken hostage by special interests, which has resulted in a fragmentation of the tax system that, no surprise, has imparted yet another unfair anti-growth bias to the economic system. And we witnessed a dramatic worsening in inequality, not just of income and wealth, but also of opportunity. The 2008 crisis should have been our economic wake-up call. It wasn’t. Rather than using the crisis to catalyse change, we essentially rolled over and went back to doing more of the same. Specifically, we simply exchanged private factories of credit and leverage for public ones. We swapped an overleveraged banking system for experimental liquidity injections by hyperactive monetary authorities. In the process, we overburdened central banks, risking their c r e di bi l i t y a n d p o l i ti ca l autonomy, as well as future financial stability. Emerging from the crisis, we shifted private liabilities from banks’ balance sheets to taxpayers, including future ones, yet we failed to fix fully the bailed-out financial sector. We let inequality worsen, and stood by as too many young people in Europe languished in joblessness, risking a scary transition from unemployment to unemployability. In short, we didn’t do nearly enough to reinvigorate the engines of sustainable inclusive growth, thereby also weakening potential output and threatening future economic performance. And we are compounding these serial miscarriages with a grand failure to act on longer-term sustainability, particularly when it comes to the planet and social cohesion. Poor economics has naturally spilled over into messy politics, as growing segments of the population have lost trust in the political establishment, business elites, and expert opinion. The resulting political fragmentation, including the rise of fringe and anti-establishment movements, has made it even harder to devise more appropriate economic-policy responses.
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Mohamed A. El-Erian Chairman of US President Barack Obama’s Global Development Council
To add insult to injury, we are now permitting a regulatory backlash against technological innovations that disrupt entrenched and inefficient industries, and that provide people with greater control over their lives and wellbeing. Growing restrictions on companies such as Airbnb and Uber hit the young particularly hard, both as producers and as consumers. If we do not change course soon, subsequent generations will confront self-reinforcing economic, financial, and political tendencies that burden them with too little growth, too much debt, artificially inflated asset prices, and alarming levels of inequality and partisan political polarization. Fortunately, we are aware of the mounting problem, worried about its consequences, and have a good sense of how to bring about the much-needed pivot. Given the role of technological innovation, much of which is youth-led, even a small reorientation of policies could have a meaningful and rapid impact on the economy. Through a more comprehensive policy approach, we could turn a vicious cycle of economic stagnation, social immobility, and market volatility into a virtuous cycle of inclusive growth, genuine financial stability, and greater political coherence. What is needed, in particular, is simultaneous progress on pro-growth structural reforms, better demand management, addressing pockets of excessive indebtedness, and improving regional and global policy frameworks. While highly desirable, such changes will materialize only if greater constructive pressure is placed on politicians. Simply put, few politicians will champion changes that promise longer-term benefits but often come with shortterm disruptions. And the older voters who back them will resist any meaningful erosion of their entitlements – even turning, when they perceive a threat to their interests, to populist politicians and dangerously simplistic solutions such as Brexit. Sadly, young people have been overly complacent when it comes to political participation, notably on matters that directly affect their wellbeing and that of their children. Yes, almost three-quarters of young voters backed the UK’s “Remain” campaign. But only a third of them turned out. In contrast, the participation rate for those over 65 was more than 80 per cent. Undoubtedly, the absence of young people at the polls left the decision in the hands of older people, whose preferences and motivations differ, even if innocently. Millennials have impressively gained a greater say in how they communicate, travel, source and disseminate information, pool their resources, interact with businesses, and much else. Now they must seek a greater say in electing their political representatives and in holding them accountable. If they don’t, my generation will – mostly inadvertently – continue to borrow excessively from their future. Project Syndicate
Poor economics has naturally spilled over into messy politics, as growing segments of the population have lost trust in the political establishment, business elites, and expert opinion.
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16 Business Daily Wednesday, July 20 2016
Closing SMI survey
Mainland’s economy growing, but at only half of official estimates
51.6 in June, but was a high for 2016. As with purchasing manager indexes, A survey of Chinese sales managers indicates readings above 50 indicate an expansion on that the economy is growing but at only about a monthly basis, while readings below signal contraction. half the rate of official estimates, a private July activity is slightly above the average of survey showed yesterday. the last six months, World Economics said, China’s economy has bottomed out and with the consumer services sector performing continues to grow at a low but stable pace, better than manufacturing and heavy industry. but a major pickup in growth is unlikely this China on Friday reported second-quarter year, according to the latest China Sales growth of 6.7 per cent year-on-year, slightly Manager Index (SMI) published by World stronger than expected and in line with the Economics yesterday. pace of expansion in the first quarter. Reuters The SMI rose only slightly to 51.7 in July from
Shaming tactics
China uses public billboards to expose runaway debtors A decree expands upon 2013 Chinese Supreme Court rules that say dishonest debtors’ details can be published in newspapers, on the radio, television and the internet. Engen Tham
A
bove throngs of busy commuters at a Shanghai rai l w a y stati o n , f o u r large billboards - some sa n d w i ch e d b et w e e n screens flashing train times - were lit up with the name of the head of a midsized industrial products maker. But he was not promoting his company or its goods. The Shanghai Railway Transportation Court put his name in lights earlier this month because his company failed to pay a 2.9 million yuan (US$432,945) debt. A separate court in the eastern Zhejiang province issued a freezing order over his company’s assets two years ago for money owed to China Construction Bank. As growth slows, struggling borrowers are finding it harder to repay their loans, pushing China banks’ official soured debt above US$299 billion at the end of May, though analysts say they estimate the true level is much higher. To fight this rising tide, Chinese courts have ramped up their use of shaming tactics, underlining the failure of other methods of making debtors pay. Zhou Qiang, president of China’s Supreme People’s Court, declared in March that debt avoidance was a major problem and he said the court would give those who tried to avoid judgments against them “nowhere to hide,” according to a newspaper produced by the court, China’s highest. It would do that by collecting information on
absconding debtors, holding press conferences to gain publicity, and restricting access to credit among other methods, he said. For 10 days ending last Friday, the names, ID numbers, addresses, case numbers and amounts owed by 20 people, either individual debtors or the heads of companies, were flashed across screens at the two main Shanghai railway stations at 10 minute intervals. In some cases there were also photos of the miscreants. The debtors displayed on the board sometimes owe modest amounts, with one shamed for failing to pay just 1,984.1 yuan.
‘More than 3.4 million dishonest debtors have had their information released to the public’ “It is an important initiative to deter dishonest debtors”, said the Shanghai Railway Transport Court in a press release sent to Reuters. Some of the people featured have changed their phone numbers, addresses and disappeared, said the release, adding that the public can call in with clues
to help the authorities track down the runaway debtors. Normal methods of enforcement in China include the freezing and forced sale of assets, among other measures. They are not working. “There are too many cases, too few judges, each judge has to handle lots of cases in a year,” said Wu Zhendong, a financial services lawyer from King & Wood Mallesons, explaining why enforcing debt judgments are so tough. A decree issued by the State Administration for Industry and Commerce at the end of last year set out the circumstances under which a company can be publicly shamed. The decree expands upon 2013 Chinese Supreme Court rules that say dishonest debtors’ details can be published in newspapers, on the radio, television and the internet. Lack of public response While courts outside China’s financial hub have adopted this tactic before, the judiciary in Shanghai has only this year taken to shaming with gusto. It doesn’t always resonate with the public. In May, Shanghai Putuo People’s Court plastered the details of 76 debtors on electric billboards on the outside of five popular shopping malls, said a spokesman at the court. However, it received no public response, such as tips about the whereabouts of the debtors, he said. Neither Shanghai court offered a reward for information on a missing debtor. More than 3.4 million dishonest debtors have had their information released to the public, according to an announcement in the Supreme People’s Court’s paper, adding that 10 per cent of those shamed “satisfied their obligations.”
Public shaming is not novel in China and was used as a way to punish criminal behaviour in ancient times, according to Wu Yanhong, a professor of history in Zhejiang University. Offenders would have different weights of wooden clamps placed around their necks to publicize the crime and warn off others, said Wu. When Mao Zedong declared a class war, known as the Cultural Revolution, in 1966-76, guards held “struggle sessions” in which people accused of capitalist thoughts were verbally and physically abused in public. The posting of personal information does not necessarily contravene the right to privacy, said Wu. “The premise of having the right of privacy is to fulfil your corresponding obligations,” he added. No holidays, no decorating To combat debtors who refuse to pay, Chinese courts are also increasingly using a 2014 law which allows judges to prohibit a person who avoids paying a debt from going on vacation, sending their children to private school, doing expensive renovations and flying or taking the train, lawyers said. Around 782,000 dishonest debtors have been prohibited from taking the train, while 3.9 million have been banned from flying since the law came into effect, according to an announcement in the supreme court paper. Often passengers have to provide an ID card or passport number to buy a rail or airline ticket in China. “I’ve been sued, the court wants me to repay, but I have no money. The government says I can’t get on a high-speed rail, I can’t get on a plane,” said a debtor with the surname Zhang who did not want to disclose his full name because of the sensitivity of the issue. Zhang claims he cannot repay because he has been defrauded by a third-party. “My father is 80 years old, but I can’t go back to visit him for Chinese New Year because I’ll be caught,” he said. Reuters
Hunter hunted
BRICS bank
Bail verdict
Man caught chasing Pokemon on Indonesian military base
New Development Bank EU court says bank rescues completes first green bond sale need not hit investors
A Frenchman caught trespassing on a military base in Indonesia has confessed he was playing the wildly popular smartphone game Pokemon Go when he accidently strayed off course, police said. 27-year-old Romain Pierre was trying to catch virtual “pocket monsters” during an evening run when he wandered onto the high-security compound, West Java police spokesman Yusri Yunus told AFP. “He said he was hunting for Pokemons,” Yunus said, referring to the digital creatures that gamers capture and train for online battles. The Frenchman, on business in the port city of Cirebon, tried to run away when confronted, Yunus added. He was detained for several hours for questioning before being released in the early hours of yesterday. A local military spokesman urged the public to be vigilant, suggesting Pokemon Go could be used as a front for criminal activity. “It’s possible there could be many strangers trying to enter private property to commit crimes, but then pretend to be hunting Pokemons,” Mokhamad Desy Ariyanto told AFP. AFP
The New Development Bank (NAB), an infrastructure-focused lender established by the BRICS emerging nations last year, has completed the sale of its first worldwide bond in China’s interbank bond market. It was also the first yuan-denominated green bond sold in mainland China by a multinational financial institution. The five-year, 3 billion yuan (US$447.87 million) bond was priced at 3.07 per cent yesterday, with the total order book amounting to around 9 billion yuan. “Demand for the bond was quite strong as investors are interested in this new asset class. Also, it is the first bond from this issuer,” said the a debt capital market banker at a European bank. Bank of China is the lead underwriter. Other underwriters include China Development Bank, China Construction Bank, Industrial and Commercial Bank of China, HSBC and Standard Chartered. China’s Xinhua News Agency quoted NDB vice president and chief financial officer Leslie Maasdorp as saying that the bank planned to issue another 10 billion yuan in green bonds in China in the next six months. Reuters
The European Union’s top court ruled yesterday that junior creditors and investors need not necessarily suffer losses before a bank is rescued, a judgment that may work in Italy’s favour as it seeks to bail out its banks. The ruling, which follows action by disgruntled investors whose savings were wiped out by a bank rescue in Slovenia, is crucial in understanding how new EU rules to impose such losses are rolled out across the region. The so-called bail-in regime, adopted after the financial crash, forces losses on private investors before banks can be rescued by the state - in order to spare the taxpayer. While the judges in Luxembourg made clear that imposing such losses was legally sound, they appeared not to require that this happen automatically. This is important for Rome, which wants to rescue its banks while protecting investors, big and small, from any fallout. The final say, however, will be with the EU’s executive, the European Commission. The Commission signalled that the ruling left it with plenty of scope to impose the onerous bail-in rules. Reuters