Visitor arrivals up 4.9 pct in June Tourism Page 5
Monday, July 25 2016 Year V Nr. 1093 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
Business
Infrastructure
Loans increase
Structural reform
Shun Tak issues profit warning for first 6 months of year Page 4
Six-lane highway to connect to Hong Kong-MacauZhuhai bridge Page 5
China keeps a steady growth pace with ratio of new credit to GDP at record high Page 9
World Bank has urged Beijing to overhaul its national health system Page 10
Aviation
Siam Air ordered to suspend flights – Business Daily confirms from Macau International Airport authorities. Thailand-based airline ordered to suspend due to not meeting local airport’s financial requirements. Airport authorities and airline representatives reached consensus before close. Airline suffers closure across multiple cities and segments. Page 8
Eight years in Forum Macao taught Afonso Chan the value of the Portuguese language and how it could be a springboard for businesses between the SAR and Portuguesespeaking countries. Now working for a construction business, largely in Mozambique, Chan urges locals to learn and use Portuguese to extend their job search outside of Public Administration. Trade Pages 6 & 7
Troubled palace
Hotel Beijing Imperial Palace mandated to shut down for six months by the MGTO. The first time in SAR history that a 5-star hotel has been closed down temporarily by the gov’t. Serious administrative irregularities and failed fire safety measures led to the closure, with the hotel given six months to fix problems or face more permanent measures. MGTO Director says measures are ‘reasonable’, hotel property operator is ‘shocked’. Pages 2 & 3
Fiscal surplus down y-o-y
Public Finance The city’s fiscal surplus fell 32 pct y-o-y to MOP17.3 billion at end-June largely due to a fall in gov’t revenue, down by 13.5 pct y-o-y. However the amount generated in fiscal surplus during the first six months of the year still equals five-times the MOP3.5 million budgeted. Taxes from the gaming sector fell 13.4 pct y-o-y. Page 4
All tools in use
G20 meeting The Group of 20 economies reiterated a pledge to use all policy tools to help boost confidence and growth, while stepping up an emphasis on fiscal and structural measures rather than pumping additional money into the system. The group expressed optimism about being able to cope with the aftermath of the U.K. vote to leave the European Union. Page 10
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Learning the trade
2 Business Daily Monday, July 25 2016
Macau
The Macau Government Tourism Office and other related departments announce at a press conference that the Government is to implement provisional measures to close down the Beijing Imperial Palace Hotel for a period of six months, from 23 July.
Hotel
MGTO shuts down Imperial Palace Hotel for safety reasons
Troubled Palace For the first time in Macau’s history a five-star hotel has been closed down temporarily by the government and given six months to fix its problems. Joanne Kuai joannekuai@macaubusinessdaily.com
T
he Beijing Imperial Palace Hotel must reach the standards required by the Macau Tourism Office (MGTO) within six months or face the possibility of permanent closure. After issuing this warning at a Friday press conference, the SAR Government on Saturday carried out an operation to close down the five-star hotel in Taipa. The MGTO said that the hotel has committed serious administrative irregularities and failed to carry out essential fire safety measures. “Considering the severity of the hotel’s irregularities against fire safety and the inspection committee’s conclusion, MGTO has reason to believe that it would cause serious or irreparable damage to the public if the Office did not adopt any provisional measures,” said Maria Helena de Senna Fernandes, Director of the MGTO at Friday’s press conference. “MGTO decided to implement provisional measures to close down Beijing Imperial Palace Hotel for a period of six months.” Ms Senna Fernandes added that the hotel had, since 2014, been fined a total of MOP55,750 (US$6,979) for operational malpractices and
failures to comply with fire safety requirements. She added that this is the first time in Macau that a five-star hotel is being closed down temporarily by the government. The Beijing Imperial Palace Hotel, formerly known as the New Century Hotel, is a five-star complex that has been operating in Macau since 1992. The hotel applied for approval to be renamed as the Beijing Imperial Palace Hotel in 2013 and runs over 599 rooms up to date.
Smooth operation
Teaming up with the Public Security Police Force (PSP), Civic and Municipal Affairs Bureau (IACM) and Health Bureau (SSM), some 20 inspectors from the MGTO arrived at Beijing Imperial Palace Hotel at noon on Saturday to carry out the closure measures. The inspectors went through all the rooms and facilities of the hotel one by one, stopping at each floor and ensuring that all parties had left the premises. In addition they inspected the electrical and mechanical facilities of the hotel and made sure no hidden dangers to safety or public health were present. During the closure process, MGTO arranged for visitors and 30 hotel staff members to leave the hotel. Over Friday and Saturday, the MGTO oversaw the evacuation of
about 1,000 visitors. MGTO says that inspectors will go to the establishment to examine its situation from time to time.
‘Shocked owner’
On Saturday, Empresa Hoteleira de Macau Lda, the registered operator of the hotel property announced in a notice in Chinese language newspaper Macao Daily that it is ‘shocked by MGTO’s divisive and unforeseen order’ and ‘deeply regrets that the
Ownership saga - Amax suspended trading
Over two decades in operation, the hotel was once known as the ‘cafeteria for the rich’. It has a chequered history involving gun violence, high-level drug peddling and rumoured links to organized crime – and in recent years it’s been surrounded by an ownership quagmire and labour disputes. In May the hotel licence holder Empresa Hoteleira Macau Lda announced that it had transferred the ownership of the hotel property to a company named Victory Success Holdings Limited in October of last year. However, local businessman Ng Man Sun, also known as Kai See Wai, claimed back then that he still owns ‘the lawful legal title’ to use the property. In 2013, the city’s Court of First Instance ordered the seizure of the then New Century Hotel in lieu of an undisclosed debt owed to Hoi Cheng Nga, the head of Energy Travel Agency Ltd. One month after the court order, the hotel property was renamed Imperial Palace. Empresa Hoteleira was acquired by local businessman Ng Man Sun in 1996. Mr. Ng was also the founder of the Greek Mythology Casino, located inside the hotel property. In 2012 Mr. Ng fell out with his former girlfriend Chen Mei Huan over the ownership of the hotel and the Greek Mythology Casino. He was hospitalised after being attacked by a group of six men inside the property. Ms. Chen claimed at that time that she owned 80 per cent of the property, whilst Mr. Ng told a
office’s action would damage Macau’s image as a world tourism city’. The company said that since it took over the operation of the hotel in January 18 this year, it has been following up with leftover irregularity issues. The company claimed that the management met with the MGTO last Thursday but was never informed of the office’s intention to shut down the property. In reply Ms. Senna Fernandes told reporters at Saturday’s inspection that this decision to close the hotel “is reasonable”. She added that the decision didn’t arise suddenly and the problems at the hotel have existed for years. She claimed that the office
court in the British Virgin Islands – where the parent company of Empresa Hoteleira Peckson Ltd. is registered – that the transfer of shares to Ms. Chen in 2011 was just temporary. Currently Mr. Ng’s Hong Kong-listed company Amax International Holdings still owns some 24.8 per cent stake in Greek Mythology Entertainment, the operator of Greek Mythology Casino, according to the company’s filings with the Hong Kong Stock Exchange. The latter, described in the 2016 annual report of Amax International as an associate and the operator of the Greek Mythology casino, has refused to provide “valid financial information” to Amax International since 2012, resulting in a “lengthy legal dispute” according to the filing. Following Friday’s announcement by the government regarding the closure of Beijing Imperial Palace Hotel, Amax suspended the trading of its shares on the Hong Kong bourse with effect from 1pm that day. The MGTO head stressed that the decision to close the hotel was not related to legal disputes regarding the ownership of the hotel property. The casino, running under the gaming licence of Sociedade de Jogos de Macau S.A. (SJM), ceased operations starting at the beginning of this year for ‘renovation reasons’. SJM CEO Ambrose So Shu Fai commented earlier this year that the closure of the casino was temporary and gave the assurance that the casino would reopen as soon as possible.
Business Daily Monday, July 25 2016 3
Macau had been notifying the hotel to make changes but that no improvement had been seen to date. The MGTO Director also indicated that the persons present at the Thursday meeting were not legal representatives of the hotel, hence the Office couldn’t reveal more information aside from explaining the existing problems. Ms. Senna Fernandes noted that during the period of temporary closure if requirements are met regarding works and construction permits etc, the hotel could apply for temporary entry into the establishment to conduct the necessary works to rectify the situation. However the hotel is not allowed to be open for business operations during the period.
Various impacts
Representatives from the Travel Industry Council indicated that the sales model of the hotel is to sell package deals with rooms at low prices. The group anticipates that there are over 200,000 rooms (number of rooms multiplied by the number of nights) already sold - for an amount of over MOP100 million for the next two years and that around 30 local travel agencies may be affected. The industry representative indicated that they wouldn’t rule out the possibility of collective litigation, suggesting that the government collect the data and provide assistance. The MGTO director said travel agencies and online booking agents that have booked rooms of the Beijing Imperial Palace on behalf of clients had already been informed of the closure and were making necessary arrangements for customers. The Labour Affairs Bureau (DSAL) representative indicated that there are currently 20 full-time employees and 30 part-time staff. In addition, with regard to complaints filed by employees of the hotel, a total of
Staff of the Macau Government Tourism Office seal off the entrance of the Beijing Imperial Palace Hotel and post notices about the implementation of a six-month suspension of hotel operations.
MOP20.74 million relating to wages owed and labour disputes is still owed by the company. The MGTO set up a help desk at the Tourism Activities Centre (CAT), where staff members from the MGTO, Labour Affairs Bureau (DSAL), Social Welfare Bureau, Consumer Council and Tourism Crisis Management Office were stationed to provide information. As of Saturday the help desk attended to a total of 19 cases, of which three cases were about room reservations involving 17 rooms, while 14 cases involved hotel staff and 2 cases involved hotel membership. A total of 8 enquiries were received through the Tourism Hotline.
4 Business Daily Monday, July 25 2016
Macau Public finance
Fiscal surplus dives 32 pct The fiscal surplus that the government generated for the first half of the year has already surpassed its annual target by nearly five times the amount anticipated. Kam Leong kamleong@macaubusinessdaily.com
T
he city’s fiscal surplus plunged by 32.1 per cent year-on-year to MOP17.3 billion (US$2.2 billion) as at the end of June, due to the fall in the government’s revenue for
the period, reveals the latest update on the central account by the Financial Services Bureau (DSF) last Friday. According to the DSF data the amount generated in fiscal surplus for the first six months, despite the yearon-year drop, is nearly five times the government’s budgeted MOP3.5 billion for the whole year of 2016.
During the first six months of the year the government saw its total revenue drop by 13.5 per cent year-on-year to MOP47.9 billion, as taxes received from the local gaming sector fell by 13.4 per cent year-on-year to MOP39.6 billion. For the period, the city’s total gaming revenues, including all types of gaming activities such as lotteries and horse racing, went down by 11.3 per cent year-on-year to MOP108.3 billion, according to the official data of the Gaming Inspection and Coordination Bureau.
Profit warning
Shun Tak says interim results to fall “significantly” Shipping and property conglomerate Shun Tak Holdings Ltd expects its interim results for the first half of the year to post a notable decrease, according
to its filing to Hong Kong Stock Exchange last Friday. “The unaudited interim results of the company and its subsidiaries for the six months ended 30 June 2016
are expected to decrease significantly from those of the six months ended 30 June 2015,” the group wrote. According to the company, the decline was due to the decrease in revaluation of investment properties. “Such decline in revaluation is noncash in nature. It will not have any impact on the cash flow and business operations of the group,” Shun Tak claimed. For the first six months of 2015 the Hong Kong-listed conglomerate saw its net profit dive by 65 per cent yearon-year to HK$387 million (US$48.2 million) from HK$1.1 billion. In addition the company’s total turnover for the period plummeted 43 per cent to HK$2.13 billion, compared to HK$3.73 billion in the first half of 2014. K.L.
Meanwhile, the authorities also received less revenue from indirect taxes during the six months, which is down by 26.2 per cent year-onyear to MOP1.58 billion. In addition, capital revenue, including sales of capital assets, financial assets and reimbursements, was more than halved year-on-year bringing it to MOP285.3 million. For the whole year of 2016 the government anticipated revenue amounting to MOP92 billion and, given the current data, the SAR has already reached 52 per cent of its annual target - based on the amount it received for the first six months.
Expenditure slightly up
On the other hand, total public expenditure went up by 2.3 per cent year-on-year during the first six months of 2016, amounting to MOP30.6 billion. Of the total, 94 per cent, or MOP28.9 billion, was in current expenditure, which jumped by 2.5 per cent compared with MOP28.1 billion one year ago. The government’s expenditure on investment plan (PIDAA) surged by 67.4 per cent year-on-year in the six month period - to MOP1.7 billion from MOP1.02 billion. The SAR’s expenses on other investments also soared by 41.1 per cent year-on-year to MOP25.6 million during the period. The June-end figures show that the government’s expenditure accounted for 34.5 per cent of the authorized expenses of MOP88.6 billion for the whole year. The DSF added in the account information that the amount of expenditure transferred to the city’s Social Security Fund totalled MOP8.05 billion for the first half of the year, which is slightly up by one per cent from MOP7.97 billion a year ago.
Gaming
Deceased actress had HKD950,000 debt Bonnie Lo Ming Chu ran up massive gambling debt prior to her death. Hong Kong actress and singer Bonnie Lo Ming Chu allegedly owed a gambling debt valued at HKD950,000 (USD$122,474 or MOP978,506) to Venetian Macau Ltd prior to her death at the end of May- according to Chinese-language publication Apply Daily, published on Friday.
Court filings, note the publication, state that Lo originally borrowed a total of HKD1 million worth of gambling chips from the hotel and gaming operator during the first two days of May. The debt was marked as overdue in the middle of May yet the actress was unable to pay after suffering a fatal heart attack at the end of May at age 47. As a result Venetian Macau has filed a debt collection case in court to recover HKD 950,000. A.L.
Aviation
Air Macau resumes fuel surcharge August 5 Air Macau, a local flag carrier, will resume its fuel surcharge on each flight ticket issued - at US$5 (MOP40) - starting from August 5, according to a press release issued by the company on Thursday. All flight tickets issued by Air Macau on or after that date for flights originating in the SAR and destined for Mainland China, Taiwan, Thailand, Japan, Korea and Vietnam, will see an additional new fuel surcharge added to ticket prices.
The same fuel surcharge amount will apply to adult, child and infant flight tickets. A.L.
Business Daily Monday, July 25 2016 5
Macau Tourism
Visitor arrivals up 4.9 pct in June City welcomes 2.36 mln visitors in June while overnight Mainland China visits increase by 17.2 pct. Annie Lao annie.lao@macaubusinessdaily.com
T
otal visitors to the city reached 2.36 million for the month of June, representing a 4.9 per cent increase yearon-year, according to the latest data released by the Statistic and Census Services (DSEC) on Friday. In the first half of the year the city’s overall visitor arrivals increased to 14.76 million, up by 0.1 per cent yearon-year. Despite the year-on-year
increases the data still reveals a 4.8 per cent decrease in overall visitation compared to the previous month. Overnight visitors increased by 13.9 per cent to 1.22 million in June, accounting for 52 per cent of the total visitors and the average stay of overnight visitors was 2.2 days. Despite the uptick in visit duration – the number of same-day visitors fell by 3.3 per cent to 1.13 million, with an average stay of 0.2 day, according to the DSEC data. The average length of stay for visitors to the city was 1.2 days, remaining
stable compared to previous year, DSEC shows.
Increasing non-Chinese tourists
Visitor numbers from Mainland China reached 1.5 million in June,
Construction
Bridging bridges A six-lane highway is to be built to connect to the Hong Kong-Macau-Zhuhai Bridge. Annie Lao annie.lao@macaubusinessdaily.com
A six- lane highway will be built to connect the Macau peninsula to the Hong Kong-Macau-Zhuhai Bridge as well as Zone A of the new land reclamation project. The bridge links Rotunda da Amizade/Pearl of the Orient with Zone A of the reclaimed
land – connecting to the three-city bridge. The construction for the project was opened for public tender on Friday, according to a report published by local Chinese broadcast media TDM Radio. A total of ten bids were submitted for the project, which involves a 400 meters long and 28 meters-wide
connection bridge housing a twoway highway with six lanes. Work is expected to commence in the third quarter of this year. The SAR Government is looking for an alternative supply of sand in order to resume the reclamation work on the Zone A project as soon as possible, Cheong Ka Lon, chief officer of engineering from the Infrastructure Development Office (GDI) said. However, the delay does not affect the construction of the new bridge project as it is located in the northern side of Zone A – the reclaimed land there is currently suitable for construction, Mr. Cheong explained.
indicating a 5.7 per cent increase compared with June of 2015. Travellers under the Individual Visit Scheme (IVS) increased by 3.4 per cent to 665,919 for the month while overnight Mainland Chinese visitors totalled 776,482 during the period – a 17.2 per cent increase year-on-year. The majority of tourists from Mainland China – amounting to 657,858 – originated in the Guangdong Province. The second highest came from the Hunan Province, totalling 67,254. June figures also show that visits from Korea and Taiwan showed increases of 49.5 per cent and 19.1 per cent respectively, reaching 46,957 and 95,615. However, those from Hong Kong declined to 511,692 – a drop of 2.3 per cent, according to the DSEC data. Long haul visits from Australia, the United States, the United Kingdom and Canada recorded an increase year-on-year by 6.7 per cent, 5.5 per cent, 3.3 per cent and 3 per cent respectively.
6 Business Daily Monday, July 25 2016
Macau Trade Local businessman wants younger generations to learn the potential of the Portuguese language in creating and profiting from business opportunities.
Portuguese-speaking trade After a wealth of experience gained from eight years in the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao) – which has taken him to countries where the language has a presence – local resident Afonso Chan has learned the advantages the Portuguese-language can have for a career. Now a Vice-President in local construction company Charlestrong Engineering Technology and Consulting Limited, Afonso uses that knowledge to set up investment opportunities in countries such as Mozambique and East Timor, working as an ambassador to push fellow Macau residents to use Portuguese and seize opportunities locally and abroad. Nelson Moura nelson.moura@macaubusinessdaily.com
W
hat area does your company focus on? Created in 2012, C h a r l e s t r o n g Engineering Technology was the first Macau company to make investments in Mozambique - in the real estate sector. In 2014 we signed a contract with the country’s government’s housing bureau for the second phase of construction of the
Olympic Village, a 240-apartment complex in Maputo for middle and lower-income Mozambique residents. Our company is 100 per cent from Macau, with local investment and capital, but we have a good advantage because we have Mainland China partners. Does your knowledge of the Portuguese-language give you an advantage in this business? Macau is really a platform between
China and Portuguese-speaking countries. It’s our great advantage. As a Chinese, the language is a weapon for me to develop my career in the Lusophone market. I’m Chinese but when dealing with people in Mozambique we have no differences because we speak the same language, have the same culture, drink the same wines and watch the same football matches. That makes it so much easier in a country that is on a different continent. During my time at Forum
Macao I had the chance to get to know many Portuguese-speaking countries, which opened my horizons as a Macanese [in] knowing the world. That’s why I decided to focus on this market, especially Cape Verde, Mozambique, Angola and Portugal. How is Macau bridging the gap between China and Portuguesespeaking countries? I think I’m the only Macau resident doing business in Mozambique, but I really want the future to bring more Macau residents, especially young generations, to invest in the country and do business there. The new generations have a bigger interest in Portuguese - my wife, who is Chinese, learned Portuguese for three years at IPOR and now she understands all my phone conversations! I also discovered that a lot of Portuguese friends are coming to Macau for professional reasons, which is also something positive for the city. On the other hand we have to encourage young people that learning Portuguese can be so advantageous for them, which they sometimes can’t see. The world needs Portuguese and Macau needs it for its role as a platform, otherwise it won’t be different from any other Chinese city. This is not just a job for the government, but for the residents too, since anybody from the Portuguese culture is an ambassador for the Portuguese language. Promoting the Portuguese language is, for me, an almost sacred mission in China and other countries.
“I’m Chinese but when dealing with people in Mozambique we have no differences because we speak the same language, have the same culture, drink the same wines and watch the same football matches.” What would you say are the best business opportunities in Mozambique? Mozambique is a country with a lot of good opportunities for business - not just because its climate is good and it is indeed a beautiful country - but it is a civilised country that needs a lot of investment in infrastructure. Construction projects for my company are always the entry point to the country, since the local population has big housing demands. The country has almost 25 million inhabitants, but only 7 million have houses, so the market is huge. As quality of life there improves the population also try to improve their living conditions, especially in the capital – Maputo - or in Beira [the second largest city]. It’s a great opportunity for Macau construction companies. You also studied investment in East Timor. What would you say are the business opportunities there? The construction sector is in need of investment but there are also opportunities in the energy sector and infrastructure area. As a young country it needs almost everything
Business Daily Monday, July 25 2016 7
Macau
“Promoting the Portuguese language is, for me, an almost sacred mission in China and other countries.”
and it is closer to Macau with almost no time difference and a big Chinese community. The cultural ties with Macau are also a good reason for local businessman to do business there. How about Brazil, the biggest Portuguese-speaking market in the world? We tried to enter Brazil, but haven’t initiated our project yet. It’s a country that needs a lot of preparation before entering its market because competition is plentiful. It already has a huge Chinese and Portuguese community so it is a great market for us but to enter you need to do a lot of homework.
“A lot of local banks - when we talk about a project in Portuguesespeaking countries immediately close the door.” How about Portugal? I really love Portugal and I think most Macau residents do too. It’s a beautiful country and is now full of investment opportunities in real estate and wine. Our company also has an investment plan for Portuguese red wines and I personally love to promote Portuguese wines everywhere I go, especially in China. More and more Chinese are starting to appreciate Portuguese wine for its good quality/
Charlestrong Engineering Technology and Consulting Limited, is the only distributor of Chinese state group Beijing New Building Material Co. Ltd (BNBM) which sells building materials to the African, East Timor and Macau markets. The company’s Olympic Village project with the government started in October 2014 and will have a total investment of US$30
price ratio and we’ve tried to organise tours for Chinese investors to go to wineries in Portugal. I would also advise that the tourism sector is also a great investment opportunity in Portugal. What are the challenges for investing in African countries? I believe the language is one of the biggest obstacles. For me it is not a problem, but a team can’t be just one player - one Ronaldo - it needs to have more people with knowledge of Portuguese to be a true team and win the game. Financing is also an issue, investing in Lusophone countries has a certain amount of risk so we need good financing channels for these countries. However a lot of local banks - when we talk about a project in Portuguese-speaking countries - immediately close the door. Sometimes they don’t even want to hear what the project is. If we say Mozambique many people don’t know where it is or they just think [that] because it’s in Africa it must be poor and underdeveloped. I can understand that, from a commercial point of view, these markets are deemed too risky, but if Macau wants to be a platform we need a special mechanism to help finance these kind of projects. We need a new vision open to the world. What about private investors? I’ve contacted some local investors who want to know these countries, and I’ve taken them on trips to GuineaBissau, East Timor and Mozambique. Seeing local investors taking the step to get out of Macau and get to know these countries was very positive.
million (MOP239.7 million). In 2015, the company signed a cooperation memorandum for 35,000 sets of economic housing for the Mozambique government at the 6th International Infrastructure Investment and Construction Forum in Macau. The project will be the largest housing project in the history of Mozambique, with a total investment of US$1.7 billion.
Visits to explore the market prior to investing are very important: so that you can get to know the investment areas and the opportunities to bet on. You can’t just get onto a plane with a case of money and expect to make immediate profits in one or two months and then come back to Macau. Preparation, patience and a good team are key.
“Macau has a lot of translators or Portugueselanguage students, but for the majority the goal is to work for the government, and if they don’t achieve that goal they jump to another area of work. We need to encourage them to go to the private sector and not waste their language knowledge, since the government has limited requirement for translators.” Ha s t h e M a c a u g o v e r n m e n t supported your business attempts? Yes, it has. Especially in the area relating to Portuguese-speaking countries. The Macau Trade and Investment Promotion Institute (IPIM) has always given a lot of support and consultation. The contract we signed for the Olympic Village was signed in the 10th Meeting for Portuguese-speaking businessman in Maputo, with the
presence of IPIM and Forum Macao representatives. We also participate in the Macao International Trade & Investment Fair (MIF) and other events with government support. Do you think there should be more trade fairs and expos in Macau? I think we already have a lot, with some good results. For example the contract for public housing in Mozambique was signed at last year’s International Infrastructure Investment and Construction Forum in Macau and in this year’s Forum we signed the contract with our Mainland China construction materials supplier. There can always be more events but there are already a good number of them. What we can improve is to invite more private sector representatives from Lusophone countries to attend the events and help them in doing business matching. What is the hardest part of doing business in the SAR? Macau is still an expensive city: for human resources and rent. In my area, construction, it is not easy to find a bilingual employee. We recently signed an agreement with the Polytechnic Institute of the Portuguese city of Leiria in order to receive Portuguese students with Chinese skills to intern for six months in our company in Mozambique, with a potential contract offer at the end. Macau has a lot of translation or Portuguese-language students but for the majority their goal is to work for the government, and if they don’t achieve that goal they jump to another area of work. We need to encourage them to go to the private sector and not waste their language knowledge, since the government has limited job offers for translators. What would you change? I think changes need to be made t o r e g u l a t i o n s r e ga r d i n g th e hiring of skilled foreign workers. We’re encouraging Macau young people to work abroad and gain experience but we need to put the same effort into attracting specialised workers from other countries to work here.
8 Business Daily Monday, July 25 2016
Greater China Aviation Siam Air halts Macau-Bangkok flights per local airport request
No money, no flight The Thailand-based airline was ordered to suspend its flight due to a lack of sufficient finances to meet airport requirements - Business Daily's enquiries to the airport authority confirmed. Kam Leong kamleong@macaubusinessdaily.com
T
hailand-based budget airline Siam Air Transport Co. Ltd has halted its flights c onnectin g th e S p eci a l Administrative Region to Bangkok, Thailand, starting last Friday at the request of the local airport operator Macau International Airport Company Ltd (CAM). “Siam Air has suspended its operations from July 22, mainly because the airline cannot fulfil the financial requirements of our company,” a CAM spokesperson confirmed to the newspaper yesterday, indicating that the airline has failed to settle its fees payable to CAM. The representative added that the two parties had reached a consensus on the issue - “a period of time before the suspension” - for the airline to prepare for the halt of service, believing the carrier has already in place arrangements for affected passengers. “The airline can start operations in Macau again whenever they can solve the problem,” the spokesperson stated. The Bangkok-based airline, which
commenced flights between the city and the Don Muang airport of Bangkok last December, was providing one daily round-trip for the route before its suspension. According to its official website, the airline’s flight tickets could only be purchased through its authorised distributors or agents, while online booking was not available.
In response to a Business Daily enquiry yesterday, the president of the Macau Travel Industry Council, Andy Wu Keng Kuong, said that he is not clear about the issue, being currently outside the city.
Not only in Macau
According to its official website Siam Air still operates flights between Bangkok to the Chinese cities of Hong Kong, Zhengzhou and Guangzhou although it shows that its flights to Singapore and Changsha, in China, from Bangkok were suspended in April this year. Nevertheless, recent media reports indicated that the low-cost carrier’s
aviation services in Hong Kong and Guangzhou have been suspended since last week as well. Hong Kong’s Apple Daily reported that the airline’s flights to Hong Kong were cancelled since last Tuesday. The official website of the Airport Authority of Hong Kong, meanwhile, indicated that the Hong Kong-Bangkok route of the airline is under the status of cancellation until this Tuesday. In addition, Guangzhou news outlet Yangzheng Evening News also reported that the airline has halted its BangkokGuangzhou flights since July 17, adding that all affected passengers have been refunded. The media outlet also added that the airline’s halt of operation is due to its bankruptcy, quoting a travel agent speaking with an affected passenger. Business Daily attempted to contact the airline’s head office in Bangkok and its branch office in Hong Kong yesterday but none of the bodies could be reached before this story went to press.
Two left in city
Last month another Thailand-based airline - Thai Smile - announced the suspension of its connections between Macau and the Suvarnabhumi Airport in Bangkok from September 1 due to “commercial reasons”. Apart from Thai Smile the city has two other airlines providing MacauBangkok routes. They are local flag carrier Air Macau and low-cost carrier Air Asia, which connect the city to the Suvarnabhumi Airport and to the Don Muang Airport in the Thai capital.
Crime UnionPay cards illegal transactions totalled MOP2.97 bln in H1
Rampant card crime Losses for UnionPay International are estimated to be at MOP5.58 mln for the first six months of this year, more than double losses for the same period last year. Joanne Kuai joannekuai@macaubusinessdaily.com
The volume of illegal transactions using UnionPay International portable terminals in Macau amounted to MOP2.97 billion (US$262.44 million) for the first half of this year, according to data from the Judiciary Police (PJ) as reported by Portuguese News Agency Lusa. The amount relates to 12 investigations opened by the PJ into illegal withdrawal of money with UnionPay cards. All cases have been referred to
the Public Prosecutions Office (MP). The volume of these illegal transactions is more than double the amount for the whole year of 2015, when it totalled MOP1.22 billion or US$153 million at the exchange rate of the time. The transactions were deemed illegal as they were made in Macau through POS (point of sales) machines of UnionPay China or other POS machines provided by third parties. This made it difficult for UnionPay International to charge the right percentage share of gains since the transactions were made
2.97 Billion MOP Illegal transaction amount through UnionPay cards in Macau from January to June
outside Mainland China, as Macau is a Special Administrative Region. According to data supplied by the PJ regarding the 12 cases recorded in the first half of the year, 31 people were
Tourism No local residents involved in Munich shooting on Saturday
Travel alert issued to Munich, Germany The Tourism Crisis Management Office (GGCT) said there was no indication that Macau residents were involved in a shooting that caused nine deaths in Munich, Germany, on Saturday in the early morning. On Saturday afternoon the GGCT issued a travel alert to the German city following a shooting by an 18-year old German-Iranian that left nine dead and 27 wounded in an Olympia shopping mall located in the Bavarian state capital of Munich. The GGCT claimed that it had received no requests for assistance but had received one request for information- as the alert was raised. “GGCT alerts Macao residents who intend to travel to Germany to follow closely the situation’s development, critically assess the security risks and cautiously consider their travel plans,” the Office noted in its statement. Currently, the German city is under a state of emergency. If necessary Macau residents can call the city’s 24-hour tourism hotline at (853) 2833 3000, or the Chinese Embassy at +86 10 12308 for assistance.
On the other hand, the crisis management body also said on Saturday that no local tour groups or residents had been involved in an unrelated car accident that occurred at the Erawan Shrine in Bangkok, Thailand, last Friday. The car incident, which took place at one of the most famous tourist
attractions in the Thai capital, left at least five injured. According to Thai media reports the city’s police confirmed that the incident was an accident and not a terrorist act. The GGCT noted that it had not received any requests for information or assistance relating to the crash as of Saturday afternoon, adding that it would paying close attention to the issue. K.L.
arrested, including eight from Macau, 22 from Mainland China and one from Hong Kong. Meanwhile, 22 POS machines were seized.
Mechanism in place
Illegal transactions detected in 2016 translated into losses for UnionPay International of approximately MOP5.58 million against losses of MOP2.29 million seen for the whole 2015 year, according to data provided to Lusa. “In recent years, it has been verified that some criminals work in a more active and more hidden way, as well as recruiting intermediaries (the socalled ‘boatmen’),” explained the PJ in a written reply sent to Lusa. These intermediaries, according to the PJ, “will talk to players in casinos and offer them to provide the cash withdrawal service with cheaper fees”. “Once agreeing on the service for money collection, players are taken into a parked vehicle outside the casino or to a pawnshop or jewellery store where the POS machine is installed,” explains the Judiciary. The PJ indicates that to control the situation the authorities have made regular patrols, including on public holidays, inside casinos or on adjacent sites, and maintained contact with the International UnionPay and Macau banks. In addition the PJ indicates that it has a strong communication mechanism in place with the casino security departments, as well as effective co-operation with police in Zhuhai, the neighbouring city in Mainland China.
Business Daily Monday, July 25 2016 9
Greater China
Financing
National growth pulls in more debt bucks for less bang Some of the slowdown in private sector growth is weak confidence in the business outlook, but a lack of access to affordable financing is also a factor. Elias Glenn
A
s China’s economy notches up another quarter of steady growth, the pace of credit creation grows ever more frantic for every extra unit of production, as inefficient state firms swallow an increasing share of lending. The world’s second-largest economy grew 6.7 per cent in the first half of the year, unchanged from the first quarter, testament to policymakers’ determination to regulate the pace of slowdown after 25 years of breakneck expansion. Analysts say that determination has come at the cost of a dangerous rise in debt, which is six times less effective at generating growth than a few years ago. “The amount of debt that China has taken in the last 5-7 years is unprecedented,” said Morgan Stanley’s head of emerging markets, Ruchir Sharma, at a book launch in Singapore. “No developing country in history has taken on as much debt as China has taken on a marginal basis.” While Beijing can take comfort that loose money and more deficit spending
are averting a more painful slowdown, the rapidly diminishing returns from such stimulus policies, coupled with rising defaults and non-performing loans, are creating what Sharma calls “fertile (ground) for some accident to happen”. From 2003 to 2008, when annual growth averaged more than 11 per cent, it took just one yuan of extra credit to generate one yuan of GDP growth, according to Morgan Stanley calculations. It took two for one from 2009-2010, when Beijing embarked on a massive stimulus programme to ward off the effects of the global financial crisis. The ratio had doubled again to four for one in 2015, and this year it has taken six yuan for every yuan of growth, Morgan Stanley said, twice even the level in the United States during the debt-fuelled housing bubble that triggered the global crisis. Total bond debt in China is up over 50 per cent in the past 18 months to 57 trillion yuan (US$8.5 trillion), equal to around 80 per cent of GDP, and new total social financing, the widest measure of credit provided by China’s
central bank, rose 10.9 per cent in the first half of 2016 to 9.75 trillion yuan.
“Short-termism”
China’s money supply has increased in tandem with new lending, and at 149 trillion yuan is now 73 per cent higher than in the United States, an economy about 60 per cent larger. “China is the largest money printer in the world - they have been for some time. The balance is really extreme,” says Kevin Smith, CEO of U.S.-based Crescat Capital. The reason China gets such poor returns from this pump-priming is that state firms are the main beneficiaries of extra credit, at the expense of the more efficient private sector. Some of the slowdown in private sector growth is weak confidence in the business outlook, but a lack of access to affordable financing is also a factor, the government and economists say, as banks prefer the security of stateowned borrowers. Private firms had to pay 6 percentage points more in interest for bank loans in the second quarter versus the public sector, analysts at investment bank CICC estimate. Though Beijing officially wants to rebalance the economy to the private sector and cut surplus capacity in inefficient heavy industry, that aspiration clashes with its more
immediate ambition to hit its growth targets. For now it seems the latter goal is over-riding the former. Policymakers say that while corporate debt is high, the central government has room to increase its debt ratios and raise its fiscal deficit to between 4 and 5 per cent to boost the economy. And analysts expect more monetary easing in the form of interest rate cuts, which will encourage more borrowing and more bad debts.
Key Points Efficiency of China GDP growth continues to decline Ratio of new credit to GDP growth at record high in 2016 China M2 was 73 pct higher than U.S. M2 at end of June Government willing to up debt ratios to maintain growth “We believe that China’s shorttermism will only add to its longstanding problems of excess capacity and non-performing loans,” Fathom Consulting analyst Laura Eaton wrote in a note following the release of firsthalf GDP data. Smith at Crescat Capital thinks it will lead to a twin currency and banking crisis, with a 20 per cent crash in the yuan versus the dollar. “It’s a question of when, and it looks like it’s coming pretty close,” he said. Reuters
Mainland’s market status
WTO head says accession deal must be fully applied The European Union has 59 sets of measures in place to counter dumping or subsidies on products coming from China. China’s World Trade Organization accession deal must be fully applied, the head of the trade governing body said on Friday, after the European Commission said it would adopt a new method to assess whether China’s exports are priced unfairly low. The European Union has been debating whether to grant China “market economy status” from December, which China says is its right 15 years after joining the WTO. Failure to do so could spark a trade war. The commission said last week that China was not a market economy and that it would not recognise it as such, but would adopt a new method to set duties that would abide by WTO rules. China’s Commerce Ministry said it would watch the process closely and further assess the mechanism after the proposal is more clear. The terms of China’s WTO accession protocol were not up for negotiation, WTO director-general Roberto Azevedo said at a briefing after a joint meeting with Chinese Premier Li Keqiang and the heads of the International Monetary Fund, the World Bank, and other senior global economic officials.
“The terms of the protocol apply to all WTO members equally. They may see it differently or understand that differently, but the terms of the
protocol apply,” Azevedo said, adding that the WTO had no need to make a determination on China’s market economy status. “Now the way forward, in my view, is to face the issue squarely, collaboratively, through dialogue, trying to find sustainable solutions for this and other sectors where over capacity may exist,” he said.
Because China is currently not treated as a market economy in cases of alleged dumping, EU trade investigators compare Chinese export prices to those of a third country, such as the United States, rather than to domestic prices.
“The terms of the protocol apply to all WTO members equally. They may see it differently or understand that differently, but the terms of the protocol apply” Roberto Azevedo, WTO Director-General China says this is discriminatory and would breach WTO rules based on the agreement it set when it became a member on December 11, 2001. The European Union has 59 sets of measures in place to counter dumping or subsidies on products coming from China, ranging from aluminium foil to wire rod. Of 34 on-going investigations, 22 concern China, the most notable related to different grades of steel. Reuters
10 Business Daily Monday, July 25 2016
Greater China Chengdu meeting
G20 nations warn of Brexit risk to global growth Before the meeting the International Monetary Fund downgraded its forecasts for global growth this year and next by 0.1 percentage point. Bill Savadove
B
ritain’s vote to leave the European Union heightens risks for the world economy, finance chiefs from the G20 group of leading countries said yesterday. The outcome of last month’s referendum “adds to the uncertainty in the global economy”, they said in a communiqué after a meeting in China. But they insisted that EU member countries were “well positioned to proactively address the potential economic and financial consequences” of the vote, adding: “In the future, we hope to see the UK as a close partner of the EU.” The G20 cited several other factors complicating the global economic environment, among them “geopolitical conflicts, terrorism, and refugee flows”. But participants said Brexit was
at the forefront of concerns at the meeting in Chengdu, the last before the grouping’s annual summit in the Chinese city of Hangzhou in September. Britain’s finance minister Philip Hammond told reporters the subject had come up “a great deal”. “The reality is there will be a measure of uncertainty continuing right up to the conclusion of our negotiations with the EU,” he said. Before the meeting the International Monetary Fund (IMF) downgraded its forecasts for global growth this year and next by 0.1 percentage point, to 3.1 per cent and 3.4 per cent respectively. “’Brexit’ marks the materialisation of an important downside risk to global growth,” IMF staff said in a report ahead of the meeting, adding that as it was “still very much unfolding, more negative outcomes are a distinct possibility”. Officials in Chengdu said protracted
or acrimonious talks between the EU and Britain over the departure could heighten the dangers. “It won’t mean that they’ll get there in a week or a month. It’s a process that could take longer,” a senior US Treasury official told journalists on Saturday. “The thing that would be very disruptive to confidence is if this becomes a highly confrontational process,” he said.
‘Solidarity and resolve’
Other challenges threaten: a slowdown in the Chinese economy, as well as terrorist attacks and the failed coup in Turkey. Earlier this month 84 people were killed in the French Riviera city of Nice when a Tunisian truck driver - suspected to be inspired by the Islamic State jihadist group ploughed a 19-tonne vehicle through a holiday crowd. Last week a German-Iranian gunman - believed not to be connected to the Islamic State group but “obsessed” with mass killers shot dead nine people in the German city of Munich before killing himself. “We condemn, in the strongest
G20 Finance Ministers and Central Bank Governors
possible terms, the recent terrorist attacks,” the communiqué said. “We reaffirm our solidarity and resolve in the fight against terrorism in all its forms and wherever it occurs.” But the document did not mention the attempt to depose President Recep Tayyip Erdogan or the subsequent widespread crackdown on his opponents.
“We should make monetary policy more forward-looking and transparent, enhance the effectiveness of fiscal policy... so as to support stronger recovery of the world economy.” Lou Jiwei, China’s finance minister
Concerns about slowing growth in China, the world’s second largest economy, have receded into the background at the G20. Beijing is embarked on a fundamental transition intended to make domestic consumption the key economic driver instead of massive public spending and cheap exports. At an earlier meeting in the Chinese commercial hub Shanghai in February, the G20 finance chiefs agreed to use “all policy tools” including monetary easing, fiscal spending and structural change to boost growth. The IMF has called on some countries, notably Germany and the United States, to increase spending on infrastructure, which has been opposed by Berlin. “The world economy is beleaguered with many serious problems,” Chinese finance minister Lou Jiwei, who hosted the meeting, said on Saturday. “We should make monetary policy more forward-looking and transparent, enhance the effectiveness of fiscal policy... so as to support stronger recovery of the world economy.” AFP
Structural changes
World Bank urges Beijing health-care reform Hospitals still rely on medicine sales for revenue, creating skewed incentives for doctors to over-prescribe. A series of structural changes to China’s current health-care system could save Asia’s largest economy up to 3 per cent of GDP, according to a study released Friday. Conducted jointly by the World Bank Group, the World Health Organization and Chinese government agencies, the report suggests China take ten years to fully implement changes, including bolstering its primary care system and allowing private sector players fair competition with the public sector. Without such measures, the World Bank projects that health expenditure in China will increase in real terms from 3.5 trillion yuan (US$529 billion) last year to 15.8 trillion yuan in 2035, and from 5.6 per cent of GDP to 9.1 per cent in the same time frame, according to the report. In recent decades, China has made efforts to improve health-care access, extending a basic public health insurance network to virtually all of its people in some form since 2009.
But public hospitals are overwhelmed by the task to treat close to 90 per cent of patients for conditions ranging from the common cold to terminal cancer. The report “makes a strong case for a new model that would both improve quality and save the economy up to 3 per cent of GDP,” Jim Yong Kim, president of the World Bank Group, said in a conference call late Thursday. “We’re confident that these reforms will help China build a strong foundation to create a healthier population, which will be an engine for job creation and sustainable economic growth in China.” Hospitals still rely on medicine sales for revenue, creating skewed incentives for doctors to overprescribe. Patients often need to wait hours for a brief consultation, and physician-patient relations can be tense. Local media frequently report cases where disappointed patients have violently attacked or even killed
their doctors. The number of Chinese above the age of 65 is expected to grow from 140 million at the moment to 230 million by 2030, according to the World Bank report. That leaves the Chinese government with the task of paying for adequate medical services for an aging population with soaring incidence of cancer, diabetes and heart disease. China needs to slow down the main cost drivers of health care, and avoid creating a “high-cost-low-value” system that is seen in some high
income countries, the 200-page summary report says. The report’s foreword is jointly signed by Kim, the World Health Organization’s Director-General Margaret Chan and three Chinese ministers in charge of finance, health and family planning, as well as human resources and social security. The ministers wield significant power over the health-care and insurance system. The report’s recommendations “will contribute positively to the formation of the 13th Five-Year Plan on health reform,” Liu Yandong, Vice Premier of the State Council of China said in a statement accompanying the report. Bloomberg News
“We’re confident that these reforms will help China build a strong foundation to create a healthier population” Jim Yong Kim, president of the World Bank Group
Business Daily Monday, July 25 2016 11
Asia Currency moves
Japan Finance Minister says watching China’s economy Aso said excess currency volatility and disorderly moves would hurt the economy. Tetsushi Kajimoto
J
apanese Finance Minister Taro Aso said on Saturday that he was closely watching China’s economy and declines in the yuan as the impact of Britain’s vote to leave the European Union dominated a gathering of the Group of 20 leading economies. Speaking to reporters after the first day of the meeting of G20 finance ministers and central bankers in the south-western Chinese city of Chengdu, Aso said he had agreed with U.S. Treasury Secretary Jack Lew on the need for structural reform in China and transparency in the yuan currency. “Lew and I agreed to two points, that China needs to implement economic structural reform, and China needs to show greater transparency for its yuan currency system,” Aso said. Aso said he had told the G20 meeting that the global economy continued a moderate recovery but downside risks to the outlook and uncertainty existed. While declines in emerging market currencies have eased, China’s yuan currency has fallen further since the Brexit vote to levels seen when China made it flexible in June 2010, Aso said.
Taro Aso, Japan’s Finance Minister (R) reacts as he almost trips on a step near Lou Jiwei (L), China’s Minister of Finance before a group photo for the G20 Finance Ministers and Central Bank Governors meeting in Chengdu
Key Points Agrees with Lew on need for China reform, yuan transparency Aso says did not raise yen issue with Lew Reiterates importance of currency, financial market stability “I said (at the G20 meeting) that we need to pay attention to the future direction of the Chinese economy, including the yuan,” he said.
Aso said excess currency volatility and disorderly moves would hurt the economy, underscoring resolve to ensure stability in currency and financial markets. The June 23 Brexit vote caused a spike in the safe-haven yen to the dollar, prompting Japanese authorities to issue verbal warning against investors pushing it up rapidly, which would threaten the export-reliant economy and its exit from deflation. “Now it has stabilised at around 106 yen. Under such circumstances, I did not make remarks on currencies” in a bilateral meeting with Lew earlier
on Saturday, Aso said. During previous talks earlier this year, Aso and Lew voiced different views on currency moves. While Aso warned that the yen was rising too rapidly, Lew maintained that foreignexchange moves were orderly, a remark taken by markets as a caution against intervention. Lew said commitments by G20 members to refrain from competitive currency devaluations have helped sustain economic confidence, according to a U.S. statement summarising discussions between the two finance chiefs. Reuters
Finance Minister
Extra spending, firmer exports to underpin S.Korea’s economy Finance Minister said that China’s economy may have achieved a soft-landing as worries about an abrupt slowdown have abated. Kevin Yao
South Korea’s economy is likely to grow about 2.8 per cent this year as it will get a boost from extra government spending and stronger exports, Finance Minister Yoo Il-ho said on Saturday. “I believe we can achieve 2.8 per cent growth rate this year, particularly after we planned to introduce the supplementary budget,” Yoo told Reuters on the side-lines of a meeting of Group of 20 finance ministers and central bankers. The Bank of Korea has revised its 2016 growth outlook down to 2.7 per cent from 2.8 per cent. The finance ministry still maintains its growth forecast of 2.8 per cent. On Friday, Yoo said that South Korea’s economic growth this year would likely benefit by 0.2 to 0.3 percentage points from the government’s proposed 11 trillion won (US$9.69 billion) supplementary budget and fiscal reinforcement stimulus plans.
The government will submit the extra spending plan to parliament next week and Yoo said he expected parliament to ratify the plan by August 12. The ministry has said the extra spending will focus on creating 68,000 new jobs to make up for severe job cuts as the struggling shipping and building industries are overhauled. Yoo said he expected South Korea’s exports to improve in the second half due to recovering global demand. “We expect from next month on, we are going to see a turnaround an increase of exports, and probably imports as well, compared to last year,” he said. South Korea’s exports fell for an 18th straight month in June, and though they declined by the slowest pace in a year, the potential impact on world growth after Britain’s divorce from the EU has analysts and policymakers urging caution over the outlook.
South Korean Finance Minister Yoo Il-ho (C), who doubles as the deputy prime minister for economic affairs, speaks during a press conference at the government complex in Seoul, South Korea, 22 July 2016.
South Korea needs to rely on both fiscal and monetary policies to ensure economic growth is on track, Yoo said. Last week, the Bank of Korea left rates unchanged after a surprise cut in June, slightly downgrading its growth and inflation forecasts and propping the door open to further easing as it monitors the government’s on-going efforts to craft a supplementary budget. He also said that China’s economy may have achieved a soft-landing as worries about an abrupt slowdown
have abated. Yoo said South Korea is in talks with some countries to expand existing currency swap agreements, but he did not give further details. Turning to the global economy, he said G20 countries must step up policy coordination to boost growth and combat the rise of protectionism - the biggest challenge for South Korea’s export-led economy. “Cooperation is more important than ever because of the trend against globalisation and the spread of protectionism,” he said. Reuters
12 Business Daily Monday, July 25 2016
Asia In Brief Cyber safety
India’s Union Bank reports breach Union Bank of India Ltd said on Friday one of the bank’s offshore accounts was breached in a cyber attack, but the money trail was traced and the movement of funds was blocked. “There is no loss caused to the bank,” the staterun bank said in a statement, adding it had informed authorities about the breach. Separately, Arun Tiwari, the bank’s chairman, told Reuters that the breach of the “nostro” account - which a bank maintains with an overseas bank in foreign currency took place in New York. M&A
LVMH arm buys slice of Seoul cosmetics firm An investment arm of French luxury goods giant LVMH said it took a minority stake in South Korea’s CLIO Cosmetics, swelling the ranks of global investors placing a bet on booming demand for Korean beauty products in major markets like China. The unit of LVMH, owner of beauty brands from Guerlain to Make Up for Ever, and CLIO said in a joint statement on Friday that L Capital Asia bought a minority stake in the Korean cosmetics firm, without saying how big a stake was involved nor how much was paid for it. Restructure
NAB in management shake-up to boost growth National Australia Bank, the country’s No.1 lender, on Friday announced a top management shake-up and restructuring to reverse declining market share in Australia and New Zealand, leading to the departure of three senior executives. After exiting struggling UK operations and selling a controlling stake in its life insurance business, CEO Andrew Thorburn is under pressure to boost growth at home where NAB has underperformed its three big rivals in recent years. Three senior executives - Michaela Healey, Gavin Slater and Renee Roberts - will leave the bank as a result of the restructuring. Ride-sharing vehicles
Philippines suspends new Uber, Grab registrations The Philippines has stopped accepting applications for new ride-sharing vehicles of Uber and Grab due to a backlog amid a government review of its policies on fare spikes, a senior official said on Friday. The Southeast Asian nation was the first country to regulate appbased car-hailing operations after coming out with rules last year. Applications have ballooned to record highs, with 29,000 pending, 23,000 of which were for Uber and the rest divided between Grab and u-Hop, she said. The Philippines is Southeast Asia’s third fastest growing market for automobiles.
Policy review
Bank of Japan to cut 2017 price forecast only slightly Data due out hours before the meeting will keep the central bank under pressure to ease. Leika Kihara
T
he Bank of Japan (BOJ) will likely cut next fiscal year’s inflation forecast only slightly and largely maintain its upbeat view for 2018 at a policy review this week, sources said, an outlook which could allow it to argue there is no need for imminent monetary easing. Hyped-up speculation of radical BOJ policy action has whipsawed financial markets in recent weeks, but easing may now be too close to call. While falling import costs from a strong yen and weak consumption will weigh on inflation, such risks will be tempered by a boost to growth from an anticipated fiscal stimulus package and a delay in next year’s sales tax hike, sources familiar with the bank’s thinking said. Prime Minister Shinzo Abe has said the government will announce a large spending package by the end of this month. “The boost from an expansionary fiscal policy suggests any downgrade to the BOJ’s inflation forecast won’t be too big,” said one of the sources. “The positive impact (of the government’s stimulus package) will be biggest in fiscal 2017,” another source said on condition of anonymity due to the sensitivity of the matter. The BOJ now expects core consumer inflation to hit 1.7 per cent in the next
Key Points BOJ to only trim FY2017 CPI f’cast to around 1.5 pct-sources No big change to upbeat FY2018 CPI f’cast-sources Whether BOJ will ease next week remains close call Many BOJ officials wary of using policy tools now underwrites government debt by accepting perpetual bonds. Kuroda has also reiterated, however, that the BOJ is ready to act if risks threaten achievement of its price target. Data due out hours before the meeting will keep the BOJ under pressure to ease. The core consumer price index is likely to fall 0.4 per cent in June from a year earlier to mark the fourth straight month of declines, a Reuters poll showed. Reuters
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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fiscal year beginning in April 2017, far above private forecasts of 0.8 per cent. In a quarterly review of its projections to be conducted at a policy meeting on July 29, the ninemember board is likely to cut the forecast to around 1.5 per cent, the sources said. It is seen roughly maintaining the 1.9 per cent inflation forecast for fiscal 2018, which would back its view that Japan is on track to achieve its price target, they said. “The concern of markets for Japan is that these (measures) are going to fall shy. Until Abe comes down with a fiscal package there’s a worry that they’re going to undershoot and the combination of these stories is what’s helping the yen,” said a dealer with one large international bank in London. It is uncertain whether the BOJ can avoid pushing back again the deadline for hitting its inflation target, which is now set at “around fiscal 2017,” the sources said. While many policymakers are wary of using their dwindling policy options now, they may pull the trigger if they feel the delay could hurt already weak inflation expectations, they said. There is near-consensus in the market that the BOJ will sharply cut its inflation forecasts and ease next week to show its determination in
hitting the goal. But investors betting the BOJ will ease next week could be riding for a fall, as the yen’s recent weakening and the planned fiscal spending package take some pressure off the bank to step up its massive stimulus programme. The yen hovered above six-week lows on Friday after BOJ Governor Haruhiko Kuroda repeated his longheld view that he saw no need to deploy “helicopter money,” a policy under which the central bank
Business Daily Monday, July 25 2016 13
Asia India stocks rally
IPOs seen reaching record by regulator The time between the closing of the offer and trading debut will be reduced from the present seven days to three-to-four days within a year, regulator head said. Santanu Chakraborty and David Merritt
India’s market regulator is forecasting initial public offerings to reach a record in the year ending March, as improved corporate governance standards and an equities rally attracts investors. Twenty one first-time sales raised 49.4 billion rupees (US$735 million) in the quarter ended June, more than in any comparable period since 2010, data compiled by Bloomberg show. Eighteen offerings seeking 61 billion rupees have been approved by the regulator, according to New Delhibased Prime Database. “My feeling is this fiscal year is perhaps going to be a record, going by the number of draft prospectus filed,” U. K. Sinha, chairman of the Securities & Exchange Board of India said in an interview at his office in Mumbai. An improving economy and the regulator’s focus on raising disclosure norms has benefited the IPO market, he said. Forty seven companies have raised US$1.5 billion since January 1, more than double the number in the comparable period in 2015, data compiled by Bloomberg show. ICICI Prudential Life Insurance Co. plans to raise of as much as 60 billion rupees in what may be the nation’s biggest first-time share sale in six years, people familiar with the matter said in June. The S&P BSE Sensex reached
an 11-month high last week as global funds snap up equities at the quickest pace since November 2014. “The IPO market has come back to life lately but surely in comparison with the secondary market revival we have seen in the past two years,’’ Jagannadham Thunuguntla, head of research at Karvy Stock Broking Ltd., said by phone. “The quality of recent
IPOs has been good and pricing has been sensible, which shows up in strong subscription numbers.”
Strong demand
Quess Corp.’s sale earlier this month attracted bids for 145 times the shares on offer, making the offering the most oversubscribed IPO in the past nine years, the staffing company said in a statement. Mahanagar Gas Ltd., which supplies natural gas to homes, cab and buses in Mumbai, received demand for 64.5 times the shares offered. “June quarter has seen good capital raising, especially in mid-sized companies, and the next quarter
will be better,” Chitra Ramkrishna, chief executive officer of the National Stock Exchange of India Ltd., said in an interview in Mumbai. “Firms have been realistic about pricing and the improvement in the overall market sentiment has helped.” Steps taken by the regulator to streamline the IPO process and make merchant bankers more accountable have “cleaned up the system,” Sebi’s Sinha said. The time between the closing of the offer and trading debut will be reduced to three-to-four days from seven at present within a year to reach global standards, he said. “More than two-thirds of the issues that came since 2013 are trading above the issue price, while earlier those numbers were just the opposite,” he said. Reuters
“My feeling is this fiscal year is perhaps going to be a record, going by the number of draft prospectus filed” U. K. Sinha, chairman of the Securities & Exchange Board of India
Intellectual property
Samsung Elec sues Huawei in China for patent infringement Samsung hits back at Huawei in escalating patents battle. Se Young Lee and Donny Kwok
Tech giant Samsung Electronics Co Ltd said on Friday it sued Huawei Technologies Co Ltd for patent infringements through multiple courts in China, escalating a legal conflict between the smartphone rivals. The suits mark the latest salvo in a fight between the world’s No. 1 and No. 3 smartphone makers, who compete fiercely across the world in an industry that researcher IHS says is worth US$332 billion this year. The South Korean firm sued Huawei in a Beijing court about two weeks ago for allegedly infringing six of its patents, a spokeswoman said. She did not elaborate on the types of patents or the other Chinese courts involved. “Despite our best efforts to resolve this matter amicably, it has regrettably become necessary to take legal action in order to defend our intellectual
property,” Samsung told Reuters in a statement. An intellectual property court in Beijing said on its official Weixin account that Samsung sued Huawei and a department store in Beijing and has claimed 161 million yuan (US$24.14 million) in damages.
Key Points Samsung claims Huawei infringed on six patents Huawei sued Samsung in May for patent infringement Firms not motivated by money, will eventually settle -analyst Samsung asked the two defendants to stop production and sales of products the South Korean firm says infringes on its patents, including Huawei’s Mate 8 and Honor smartphones, the court said. Shenzhen-based Huawei Technologies - also one of the world’s largest telecom equipment manufacturers - said in a statement it had not received a “formal complaint” but would defend itself as necessary.
“In the absence of a negotiated settlement, litigation is often an efficient way to resolve” intellectual property rights disputes, it said. Huawei sued Samsung in the United States and China in May, accusing its rival of infringement on patents for fourth-generation (4G) cellular communications technology, operating systems and user interface software. Chinese technology companies have often been on the receiving end of such lawsuits, so Huawei’s U.S. litigation marked something of a reversal of roles reflecting its growing clout in the global telecommunications and smartphone markets. CIMB analyst Lee Do-hoon said neither company was likely to be
motivated by monetary compensation from the legal battle. Huawei could be angling to boost its reputation by taking on the top smartphone player, he said, while Samsung’s suit might be a manoeuvre to force Huawei to settle its claims as soon as possible. “If you look at the patent battle with Apple and Samsung ... it ultimately created a lot of benefits for Samsung in a kind of an advertisement,” he said. “Huawei might also be trying to create some noise marketing for itself,” he said, adding he expected the two firms to eventually reach a deal such as a cross-licensing agreement. Huawei became the first Chinese handset vendor to ship more than 100 million smartphones in a year in 2015 when a 44 per cent jump in its shipments defied a market slowdown. Reuters
14 Business Daily Monday, July 25 2016
International In Brief Finance minister
Canada economy to rebound this year Canada’s economy should rebound “over the course of the year” from the impact of a wildfire in its energy heartland, Finance Minister Bill Morneau said on Saturday on the sidelines of a G20 meeting in Chengdu, China. The fire in the province of Alberta is estimated to have cut daily oil production by more than 1 million barrels and the Bank of Canada estimates it will shave 1.25 percentage points off economic growth in the second quarter. “We were approximately right in our expectations in our budget,” he said of Canada’s fiscal plan introduced in March, which promised growth spurred by government spending. NYSE
SEC speeds up listing process for some ETFs The U.S. Securities and Exchange Commission on Friday approved listing standards for some exchange-traded funds, paving the way for issuers to bring funds to the market in weeks instead of months. Many actively managed funds will now be able to list new ETF products without a separate filing with the SEC, effective immediately, the New York Stock Exchange said in a statement. Bats Global Markets Inc, which emerged as one of the fastest-growing trading venues for ETFs last year, and the NYSE received the approvals on Friday.
Real estate
Priced out by tourists: the Airbnb effect in Lisbon’s historic centre Portugal levies less tax on income derived on rent from tourists than it does on that from longer term tenants.
A
lfama, one of the oldest and most picturesque a r e a s o f L i sb o n , i s becoming a victim of its own charm. Short-term lets to tourists are driving up rents and driving out old residents. Local mayor Miguel Coelho echoed the concerns of many in Alfama. “Real estate speculation in Lisbon’s historic centre, which is particularly evident in Alfama, is causing a lot of stress,” he said. “House prices and rents are exorbitant and people are having to think about other options,” he added. The mayors of three of Lisbon’s central districts have called on the government to intervene urgently. They attributed spiralling prices to an “excessive proliferation” of shortterm rentals.
‘Threatened identity’
Coelho said that while tourism was a boon to the local economy, “when it becomes excessive it’s a real threat to the district’s identity”. This is especially so in Alfama, a pretty maze of narrow streets leading up from the Tagus estuary that is one of Lisbon’s biggest tourist attractions. “Every day we see estate agents going door to door to find people
willing to leave,” said Ana Gago, a 28-year-old geography student who is conducting a survey of people moving out of the district because of the rising costs. Airbnb, the world’s leader in shortterm private rentals, says bookings in Lisbon using its service doubled in 2015, to 433,000 visitors. The traditional hotel sector saw bookings by foreign tourists rise by a more modest 7.5 per cent. In Lisbon, which is among Airbnb’s top 10 global destinations, those renting space via the company are not just “hosts” offering a spare room to “guests”: over a quarter of owners place more than one advertisement on the site, and 73 per cent have whole apartments available.
Population flight
Cities like Berlin and San Fransisco have taken steps to prevent landlords abandoning residential leases in favour of short holiday lets, and have kept rents in check as a result. Conversely, Portugal, hit hard by a financial crisis in 2011, levies less tax on income derived on rent from tourists than it does on that from longer term tenants. The idea was to attract foreign investment and boost the real estate
sector, and the policy has contributed to the renovation of many dilapidated buildings. But it risks accelerating Lisbon’s population flight: half a million people now live in the city, against 800,000 in the early 1980s. “It’s good to renovate, but the problem is all the work is aimed at tourists. People who live here would like their children to stay in the district, but that has become impossible,” said Maria de Lurdes Pinheiro, who heads the Alfama Heritage and Population Association.
‘Airbnb hosts in the city earned 43 million euros in rent from tourists last year, according to the company’ Long-term rental housing stock in Portugal has shrunk by a third over the past five years. In Lisbon, rents rose by an average of 7.6 per cent between 2014 and 2015. Airbnb hosts in the city earned 43 million euros in rent from tourists last year, according to the company, which added that the visitors spent a further 225 million euros during their stay. AFP
GMO
EU approves Monsanto, Bayer modified soybeans The European Commission on Friday approved imports of Monsanto’s Roundup Ready 2 Xtend genetically modified soybean variety, after months of delays that had derailed the U.S. seed giant’s product launch this spring. The decision now clears the way for widespread planting next season and removes a hurdle for North American farmers and grain traders, who have to keep close track of unapproved biotech traits that can disrupt trade. Top importer China approved the soybeans earlier this year GDP
Turkey’s economy to miss growth targets Turkey will miss government’s economic growth forecasts this year and next following the failed coup that has hammered the lira and put renewed pressure on the tourism sector, according to economists in a Reuters poll. The survey of 41 economists based in and outside Turkey, taken this week, predicted the economy would grow 3.5 per cent this year and next, below the government’s respective forecasts of 4.5 and 5.0 per cent. Turkish GDP grew a stronger-thanexpected 4 per cent in 2015 and 4.8 per cent in the first quarter of 2016.
Panorama of Alfama, Lisbon
PMI
Euro zone business growing at weakest rate since start of 2015 Giving a mixed outlook for next month, services firms increased headcount at the fastest rate since early 2008. Euro zone business growth was at its slowest since the start of 2015 this month as stronger performances in the two big economies of Germany and France offset weakness in smaller countries, a survey showed on Friday. While the survey result was not as weak as predicted in a Reuters poll, the slight loss of momentum may be of concern to policymakers at the European Central Bank who have been trying to stimulate faster growth. Markit’s flash composite Purchasing Managers’ Index (PMI), seen as a good growth indicator, dipped to 52.9 from June’s 53.1, the lowest reading since January 2015. However, a Reuters poll had predicted a steeper fall to 52.5. A reading above 50 indicates growth. “Headline PMIs picked up for Germany and France but the overall (euro zone) one fell and the rest of the region combined saw the weakest rise
in activity since December 2012,” said Chris Williamson, chief economist at Markit. “There is a strong indication that Italy and Spain saw a deterioration in growth rates.” German private sector growth hit its highest level so far this year while French business activity held up better than expected despite attacks. “It’s a pretty pleasant surprise that the fall (in the euro zone PMI) was so muted. It suggests that Brexit is unlikely to trigger the substantial slowdown that many people are predicting,” said Ben May at Oxford Economics. Shockwaves from the vote did not pass Britain by, however, with a corresponding survey there registering the biggest drop in its 20-year history to suggest the economy is shrinking at its fastest rate since the financial crisis. After the ECB kept policy unchanged on Thursday, its President Mario Draghi said the central bank was prepared to take more action to lift inflation and economic growth if necessary. Inflation was just 0.1 per cent in June, nowhere near the ECB’s target ceiling, but the composite output price PMI rose to 49.6 from 49.1, its
highest reading in nine months. A PMI covering the euro zone’s dominant service industry beat expectations for a fall to 52.3 from 52.8 by only nudging down to 52.7, still an 18-month low. The factory PMI suffered a sharper fall, coming in at 51.9 versus June’s 52.8, close to expectations for 52.0. An index measuring output, which feeds into the composite PMI, fell to 53.6 from 53.9.
Key Points July flash euro zone composite PMI 52.9 Companies still cutting prices, but only just PMIs point to Q3 GDP growth of 0.3 pct - Markit Dire British PMI suggests Brexit weighing heavily Giving a mixed outlook for next month, services firms increased headcount at the fastest rate since early 2008 but new order growth for manufactured goods slowed dramatically. Still, if maintained at this level, the composite PMI points to thirdquarter economic growth of 0.3 per cent, Markit said, in-line with a Reuters poll published on Wednesday but a sharp slowdown from the 0.6 per cent growth seen at the start of the year. Reuters
Business Daily Monday, July 25 2016 15
Opinion Business Wires
The Korea Herald The portion of stocks traded on the main bourse through mobile devices has hovered above 30 per cent this year, data showed yesterday, with the figure anticipated to continue to grow sharply down the road. According to the data compiled by the Korea Exchange, the main bourse operator, the amount of daily transactions made through mobile trading systems came to 124 million shares this year through Thursday, taking up 30.9 per cent of the combined volume. The latest figure on the main bourse marks a sharp contrast from 2009, when only 2.4 per cent of the trading volume on the main bourse was attributable to mobile devices.
The global economy’s hesitation blues Taipei Times The Executive Yuan announced it would create an information and communication security department, which is to be launched on August 1, to show the government’s determination to boost information security. The planned department is to perform similar functions as the previous administration’s Information Security Office. Cabinet spokesman Tung Chen-yuan said that the new department would expand on the previous office’s role, while its security level would be raised from Grade 3 to Grade 2 and the Institute for Information Industry would report directly to the new department without having to go through the Ministry of Science and Technology.
The Times of India Warning black money holders of stringent action, including imprisonment after September 30, Prime Minister Narendra Modi on Saturday said those with undisclosed wealth, most of which is parked in jewellery and real estate, should come clean to sleep peacefully. At a function jewellers organised to felicitate him, Modi said he is aware of people going to bullion merchants with “cartload” of money and a message has to be delivered to them to come clean using the one-time compliance window closing on September 30.
Philstar The Philippine Competition Commission (PCC) scored the first victory in its on-going battle with local telecommunication giants PLDT and Globe Telecom. The country’s antitrust authority announced late Friday the Court of Appeals denied Globe’s application for temporary restraining order and preliminary injunction against PCC’s review of its transaction with PLDT and San Miguel Corp. (SMC). The P70billion transaction covered the purchase of the entire equity interest in SMC’s Vega Telecom Inc., New Century Telecoms Inc. and eTelco Inc., with PLDT and Globe getting 50 per cent each.
E
conomic slowdowns can often be characterized as periods of hesitation. Consumers hesitate to buy a new house or car, thinking that the old house or car will do just fine for a while longer. Managers hesitate to expand their workforce, buy a new office building, or build a new factory, waiting for news that will make them stop worrying about committing to new ideas. Viewed from this perspective, how worried should we be about the effects of hesitation today? Hesitation is often like procrastination. One may have vague doubts and feel a need to mull things over; meanwhile, other issues intrude on thought and no decision is taken. Ask people why they procrastinate, and you probably won’t get a crisp answer. So how does such behaviour become sufficiently widespread to bring about an economic slump? In fact, the reasons for postponing activities that would stimulate the economy may be difficult to discern. One thinks first of feedback from others who are hesitating. Income effects and crowd psychology may amplify individual vacillation. But there must have been some initial factor that started the feedback cycle – some underlying source of hesitation. Loss of economic “confidence” is one possible cause. Published confidence indices, available since the 1950s, are based on polls that ask consumers or businesspeople about their perceptions of business activity and expectations of future income and employment. “Uncertainty” about economic policy is another possible source of hesitation. If businesspeople don’t know what regulations, taxes, or worse, nationalizations, will be coming, they may dither. The idea is an old one, expressed during the Great Depression of the 1930s; but it was not measured well, at least until recently. In a 2015 working paper, the economists Scott R. Baker, Nicholas Bloom, and Steven J. Davis constructed Economic Policy Uncertainty (EPU) indices for a dozen countries using digital news archives. The indices (covering Canada, China, France, Germany, India, Italy, Japan, Russia, South Korea, Spain, the United Kingdom, and the United States) were created by counting the number of newspaper articles in each country and each month that had the trifecta of terms “economy” (E), policy” (P) and “uncertainty” (U). The index each month was the total number of articles with those three words, divided by the total number of articles in the targeted newspapers each month. Native speakers in each country were consulted on the appropriate translations of the three words. The indices spanned decades, and in two countries, the US and the UK, went all the way back to 1900. The US index correlates with implied equity-price volatility in the options markets (VIX). They found that their EPU index foreshadows
“
Robert J. Shiller a 2013 Nobel laureate in economics and Professor of Economics at Yale University
economic contractions in the 12 countries, and that for the two countries with long-term indices, the EPU values were high during the Great Depression. But do contractions cause uncertainty, they ask, or does uncertainty cause contractions? Given that we know that people are highly reactive to each other, the causality most likely runs both ways, in a feedback loop. The deeper and more interesting question concerns what initiates this uncertainty. To answer it requires impressionistic characterizations of the extant stories and ideas that might influence public thinking – or avoidance of thinking – about the economy. As for the Great Depression, one wonders if the high degree of EPU was linked to social trends after the excesses of the 1920s, fuelling fear of Communism and, in the United States, of the New Deal. One wonders if fear of fascist regimes, and of a coming war, prolonged the depression after Hitler came to power in 1933. The attention devoted to Johannes Steele’s 1934 book The Second World War, which predicted that eponymous event, indicates that fear of war must have been talked about enough to underpin some hesitation. To people who lived through World War I, the thought of a sequel must have seemed nightmarish. Of course, whether the Great Depression was really prolonged by these stories or ideas cannot be proved. How do we know which stories were affecting people’s thinking? On the other hand, we can be fairly certain that some of these stories really do affect perceived economic uncertainty. Psychologists have shown that people display an “affect heuristic,” or a tendency to tag memories with emotions and to let those emotions affect decision-making, even when the decision is unrelated to what caused the emotions. A mismatch of emotions can cause executive dysfunction, a failure to act, hesitation. Some kinds of stories circulating today – related to growing nationalism or fear of challenges by immigrants to traditional cultural values – might underpin greater hesitation. The Brexit vote in the United Kingdom last month has been viewed worldwide with extraordinary alarm as a signal of political instability. The rising incidence of terrorism has added a vivid emotional edge to such developments. Will these fears fuel enough economic hesitation to bring on another worldwide recession? Any answer at this time would be impressionistic and imprecise. Given the importance of the consequences, however, we should not shrink from considering how such fears are affecting economic decision-making. Project Syndicate
Psychologists have shown that people display an “affect heuristic,” or a tendency to tag memories with emotions and to let those emotions affect decision-making
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16 Business Daily Monday, July 25 2016
Closing Petrol industry
Nation’s crude oil output drops
China’s crude oil output dropped 4.8 per cent year on year to 100.45 million tonnes in H1, according to the National Development and Reform Commission (NDRC). The drop came as China’s oil companies plan to reduce output due to low crude prices. Sinopec, the largest refiner, plans to cut production by 7.5 per cent this year, while PetroChina, the largest producer, aims to reduce output by 4.8 per cent. From January to June, China refined 256
million tonnes of crude oil, up 8.9 per cent year on year. Output of refined oil products rose 7.1 per cent to 159 million tonnes, while consumption of refined products rose 4.4 per cent to 141 million tonnes. In the same period, natural gas output rose 2.9 per cent to 67.5 billion cubic meters, while imports surged 21.2 per cent to 35.6 billion cubic meters. Consumption of natural gas rose 9.8 per cent year on year to 99.5 billion cubic meters, according to the NDRC. Xinhua
Luxury brands
Bottom line: brands chase mainland’s high-end lingerie market For now, the market is highly fragmented, with none of the leading firms having more than around a 3 per cent share. Farah Master
H
igh-end lingerie sales are outpacing China’s g e n e ra l l y d o w n b eat l u x u r y m a r k e t, a n d heating up competition between international brands and local rivals looking to go upmarket. U.S. brand Victoria’s Secret will open its first store, and companies including Italy’s ultra-luxury La Perla and Germany’s Triumph are adding stores and moving beyond China’s mega-cities to tap a lingerie market that has more than doubled in five years to US$18 billion, according to Mintel Group. Chinese consumer tastes are maturing, women are more confident about buying for themselves and President Xi Jinping’s drive against conspicuous consumption is likely diverting spending from flashy branded bags and accessories to sports and ath-leisure wear and the more discreet lingerie. “Luxury is ... not about buying to show off, it’s about buying items that make you feel good,” says Chiara Scaglia, La Perla’s Asia chief. China’s women’s underwear market is expected to have a retail value of US$25 billion by next year double that of the United States - and will grow to US$33 billion by 2020, according to Euromonitor. Chinese firms such as Beijing
Aimer, Maniform and Ordifen are also chasing that money, targeting higher-end customers and raising their quality. “That means foreign brands will have to out-compete local brands not just on quality, but also innovation,” said Matthew Crabbe, director at Mintel. For now, the market is highly fragmented, with none of the leading firms having more than around a 3 per cent share. International brands see China as a priority to help bolster overall sales given a fairly bleak global outlook. La Perla, which sells bras priced around 2,000 yuan (US$300), has eight stores in China and plans additional outlets in Chengdu and Chongqing within the year. It also aims to open a men’s store in Beijing. “The perception of the lingerie sector has changed,” Scaglia told Reuters. “At the beginning many people we spoke to were confused as to why anybody should spend over US$1,000 on panties for something nobody sees.”
Expanding footprint
Victoria’s Secret will open a 1,860 square meter flagship store in Shanghai this year, taking over a prime downtown location that used to house a Louis Vuitton store. “I think it will announce our arrival in China in a very significant way, and should be the beginning of an
Anti-Dumping Tariffs
enormous business for us,” said Martin Waters, L Brands International President. Triumph, which already has 1,000 China stores, plans to open in five new cities this year and up to 11 cities next year. Cosmo Lady, a Chinese firm that has focused on the mass market, selling bras from 50 yuan (US$7.50), last year bought Ordifen to increase its presence in the luxury market. “We would like to gradually step into the high-end market,” said Peter Lam, Cosmo Lady’s assistant chief financial officer. Gao Qiannan, a 22-year-old Shandong student who says she spends upwards of 1,500 yuan a year on lingerie, doesn’t think there’s a big difference between Chinese and foreign brands.
Key Points China’s women’s underwear market set to double U.S. next yr International brands expanding; competition increasing Local firms looking to go upmarket, improve quality, style “If I can buy a domestic brand, I will, but if I particularly like the international brand’s style, I’ll get that,” she said. The international brands say they don’t offer products specifically for the Chinese market, though La Perla notes that some colours - red and baby pink - sell far better in Asia than in Europe or the United States.
Central bank
The Italian brand has also used Chinese supermodel Liu Wen in its campaigns. Japanese and South Korean brands are also growing in popularity in China. Yin Huijuan, 23, who spends 800 yuan ($120) on lingerie every three months, said she prefers Japanese brands such as Wacoal and Narue. “I feel foreign brands’ style is more detailed and diversified, these are areas where domestic brands fall short,” she said.
Consumer caution, online competition
Even in the lingerie market, though, there are bumps. Cosmo Lady, which has 8,600 outlets including Ordifen’s 550 China stores, saw robust growth in its mass market sales last year, but has warned about its profits for the first half of this year, citing China’s slowing economic growth, consumer caution and competing online sales. Hong Kong-listed Embry Holdings, which owns the Embry Form lingerie brand, said its group retail sales slipped by nearly a fifth in AprilJune on tougher competition and the economy. Despite those bumps, the lingerie sector retains a strong appeal, said Eugene Mak, an analyst at China Merchant Securities in Hong Kong, and firms like Cosmo Lady are still outperforming other apparel retailers. He predicts the market will hit a consolidation phase at some time. “It’s a very young market, but in the near-term it’s going to be messy,” he said. Reuters
ASEAN
Government slaps EU, Japan, Mainland working hard Southeast Asian ministers start S. Korea with steel duties to stabilize yuan against basket regional meetings in Laos China said yesterday it has started imposing anti-dumping tariffs on certain steel imports from the European Union, Japan and South Korea, as Beijing itself comes under fire for similar trade practices. Duties on the materials, used in power transformers and electric motors, will range from around 37 to as high as 46.3 per cent, the commerce ministry said on its website. The measures are intended to prevent the sale of the product at below cost, a practice known as dumping, it added. The world’s second largest economy, which makes more than half the world’s steel, finds itself under attack by EU countries for allegedly flooding world markets with steel and aluminium in violation of international trade agreements. On Friday Premier Li Keqiang told a group of visiting leaders from the World Bank, International Monetary Fund and other organisations that China “will not engage in a trade war or currency war”. Nevertheless, the EU sees itself under attack. Earlier this month in Beijing, EU Commission head Jean-Claude Juncker pledged to defend the group’s steel industry against China using “all the means at our disposal”. AFP
China expanded efforts to steady the currency markets, with the central bank adding verbal support to the exchange rate after a week that saw it slip past a key level against the dollar. The People’s Bank of China will work hard to keep the yuan stable against a basket of currencies, Deputy Governor Chen Yulu said at a conference in Beijing yesterday, adding that the authority will improve the policy framework for the yuan’s offshore market and cross-border services. Chen’s comments come after the PBOC fuelled speculation that it was defending a level of 6.7 per dollar by strengthening its daily reference rate even as a gauge of the greenback rose. This spurred speculation that the central bank isn’t sticking to its stated policy of following the direction of the market, which would have resulted in weaker fixings. The signs of intervention come amid increasing pressure on the currency, with Goldman Sachs Group Inc. saying that the yuan’s declines affected sentiment and resulted in a significant pickup in outflows in June. The threat of capital flight unsettling financial markets is complicating China’s strategy of steadily weakening the yuan to combat a drop in exports as it looks to support growth in the world’s second-largest economy. Bloomberg News
The Association of Southeast Asian Nations (ASEAN) promised to continue efforts to advance peace, stability and development in the region as their foreign ministers gathered in Vientiane for regional meetings yesterday. Foreign ministers from the 10-member bloc for the 49th ASEAN Foreign Ministers Meeting (AMM) were welcomed by Lao Prime Minister Thongloun Sisoulith, who called for “frank and constructive discussions” between member states and partners, “contributing to the maintenance and promotion of peace, stability and prosperity in the region and the world.” Thongloun identified a range of traditional and non-traditional security challenges including extremism and terrorism, natural disasters and climate change, refugee issues and human trafficking as well as economic developments including the recent “Brexit” as requiring close attention of the ministers. Chaired by Lao Foreign Minister Saleumxay Kommasith, the AMM comes following talks between the region’s senior officials and diplomats in Vientiane since Thursday as representatives seek progress on regional and international issues of common concern and interest. Xinhua