Wells Fargo: July gaming revenue down 10 pct Gaming Page 5
Tuesday, July 26 2016 Year V Nr. 1094 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Outflows/Inflows
Chinese governmentlinked entities help capital balance by raising money offshore Page 9
MICE
2016 MFE and GMBPF to be launched on Friday Page 6
www.macaubusinessdaily.com Financing
Start-ups in China attract venture capitalists with expected baby-boom market Page 10
Negative impact
Imperial Palace Amax International Holdings’ stock was down sharply on Monday, after the Imperial Palace Hotel with which the company has close ties was ordered to suspend operations. However, Amax insists the temporary shutdown will not have a material impact on its financial standing. Page 7
Funding key obstacles
Urban Planning
Hotel Estoril’s future yet to be decided. New Macau Association has petitioned the Urban Planning Committee, urging preservation of the site and demanding more public discussion before a possible demolition. Committee members voice concern that Macau would be losing its history and originality if the hotel were to be demolished. Page 3
Private investment China’s deputy chair of the National Development Reform Commission said borrowing costs and access to funding are the key obstacles to private investment in the nation. Growth in investment by private firms, which accounts for over 60 per cent of total investment in China, fell to a record low in the first half of the year. Page 8 HK HSI July 25, 2016 21,993.44 +29.17 (+0.13%) Best Performers BOC Hong Kong Holdings
+2.20%
Sands China Ltd
+1.98%
Hengan International
+1.93%
Galaxy Entertainment
+1.86%
Tencent Holdings Ltd
+1.51%
CLP Holdings Ltd
+1.28%
New World Development
+1.13%
Cheung Kong Property
+1.01%
CITIC Ltd
+0.51%
Cathay Pacific Airways Ltd
+0.49%
Worst Performers -2.84%
China Construction Bank
-1.65%
China Mengniu Dairy Co
-0.95%
China Merchants Holdings
-0.91%
China Resources Land Ltd
-0.81%
Power Assets Holdings Ltd
-0.80%
Want Want China Hold-
-0.79%
China Overseas Land &
-0.76%
China Life Insurance Co
-0.68%
28° 32° 28° 31° 28° 31° 27° 32° 27° 33° Today
Wed
Thu
I SSN 2226-8294
Labour Page 2
-1.52%
Hang Seng Bank Ltd
Fri
Sat
Source: Bloomberg
The number of non-resident workers increased one pct y-o-y to 182,459 as at the end of June. Meanwhile, Labour Affairs Bureau director has pledged to prioritize local workers and be “more cautious” when handling applications from non-resident workers amid economic downturn”
Lenovo Group Ltd
Source: AccuWeather
Protective measure
2 Business Daily Tuesday, July 26 2016
Macau In Brief Fraud
Glory Sky fraud case now estimated at MOP110 mln The amount involved in the illegal fund-raising scheme allegedly committed by local investment company Glory Sky International Holdings Group has in-creased to nearly MOP110 million (US$13.8 million), the director of the Judiciary Police (PJ), Chau Wai Kuong, told reporters yesterday. Of the total, some MOP9.6 million was related to bad cheques. Meanwhile, a total of 126 victims have reported to the PJ to date. The PJ head claimed that the security body is still chasing after the three suspects in the case, who are all executives of the company. Last week the illegal capital collection scheme, which started running in 2014, was busted by the PJ as victims started reporting to the police after the suspects went missing. Government
Cultural Fund receives MOP175 mln boost The government has allocated a second supplementary budget for the Cultural Fund in a total value of MOP175 million (US$22 million) for the remainder of the year, according to an Official Gazette dispatch. According to a government dispatch signed by Chief Executive Fernando Chui Sai On and published yesterday, the itemised description of where the money will be allocated shows that the big-gest expense, MOP47 million, was for cultural, sport and recreational activities. An allocation of MOP24 million was dispensed for ‘building expenses and security’ and MOP14 million for unspecified expenses. So far this year, the Cultural Fund has been awarded a total of MOP195 million by the MSAR Government, according to Official Gazette dispatches. Macau’s Cultural Fund is for the financial assistance of individuals and private institutions. Education
Polytechnic gaming course approved The Secretary for Social Affairs and Culture Alexis Tam Chon Weng has approved a new curricu-lum of a gaming course provided by the School of Business at the Macao Polytechnic Institute, according to an Official Gazette dispatch. The course previously under the Social Sciences department is now named Bachelor of Business Administration in Gaming and Recreation Management. It will be taught in Chinese and English.
The course has a duration of four years and looks to educate gaming professionals by teaching subjects like Gaming Industry History and Casino Table Games.
Manpower Mainland China remains biggest source of foreign labour
Non-resident workers slightly up to 182,459 at June-end The hotel and F&B industry hired the highest number of foreign workers as at the end of last month. Kam Leong kamleong@macaubusinessdaily.com
T
he Special Administrative Region had a total of 182 , 459 n o n - r esi d e n t workers in the territory according to figures at the end of June, which represents a year-on-year increase of one per cent, or a month-on-month increase of 115 workers. The latest data was released yesterday by the Labour Affairs Bureau (DSAL). By sector, the hotel industry and food & beverages businesses hired the highest number of foreign workers with numbers reaching 47,450 and accounting for 26.3 per cent of the total. The month-on-month increase, compared with the end-June figure for 2015, jumped by 3.9 per cent and by 97 workers. Nevertheless, the number of nonresident workers in the construction field decreased by 8 per cent year-onyear to 44,757, or 10 workers monthon-month. The number accounted for 24.8 per cent of the total. According to DSAL, 1,721 of the workers in the field were directly recruited by the city’s gaming corporations. The number of domestic workers, meanwhile, totalled 23,810 as at the end of June, which grew by 5.6 per cent year-on-year, or up by 89 persons month-on-month. Other non-resident workers were primarily employed by the wholesale & retail industry (19,360), real estate and other commercial businesses
(18,124), as well as culture and entertainment (13,780), according to the data.
More than half from Mainland
Analyzed by origins, 64.8 per cent of the non-resident workers came from Mainland China, numbering 118,242. They were mainly engaged in the construction field, hotels and food & beverage units. The second largest source of
foreign workers to the city was the Philippines, which saw 25,082 of their nationals working in the local territory as at June-end. The third largest is Vietnam, with 14,609 workers working here. The majority of the Filipinos and Vietnamese workers in the city were domestic helpers. According to the end-June figures 7,887 Hong Kong residents were working in the territory. Of these, 4,068 were in the construction industry, 1,228 were in the culture and entertainment field, while others were in other fields.
64.8 pct of the non-resident workers in Macau came from Mainland China
Labour affairs Local workers are favoured amid economic downturn
DSAL: more cautious on employing foreign workers Labour Affairs Bureau (DSAL) would be more cautious when handling applications from non-resident workers due to the local economic downturn, its director Wong Chi Hong said in a reply to an enquiry from unionist legislator Kwan Tsui Hang. “As Macau’s economy is going through an adjustment phase, the Bureau is more cautious when dealing with the applications for [importing] non-resident workers, to balance
the demand and supply of the city’s human resources,” the DSAL head wrote. Ms Kwan slammed the MSAR government in her interpellation that it lacks direction in its policies on non-resident workers. She queried whether the Bureau will cap the number or the ratio of such workers in the Special Administrative Region, and whether the authorities would set up an exit mechanism for foreign workers.
“The government does not have a direction for evaluation and approval [of non-resident worker applications], which is affecting the benefits, remuneration and promotion opportunities of local workers,” continued the legislator. “In addition, with policies favouring gaming corporation and other bigscale enterprise – they have more quotas of non-resident workers – the manpower difficulty that local small and medium-sized enterprises (SMEs) are facing is hard to be resolved.” The DSAL director, however, claimed in his reply that the Bureau would deal with the human resources issues basing on the actual situation of the local labour market as well as the economic development, so that appropriate adjustments and controls on the number of nonresident workers can be made. The official added that the authority would not approve the applications of gaming corporations for getting or renewing work permits to their foreign staff at management levels if there are local residents qualified for the same positions, insisting that this policy aims to create more promotion opportunities for local employees. K.L.
Business Daily Tuesday, July 26 2016 3
Macau
“In Macau we have copies of Eiffel towers and palaces, is that how we want to attract tourists? No, we want to offer something original and the hotel is original” Manuel Iok Pui Ferreira, Urban Planning Committee Member
The 8th plenary session in 2016 of the Urban Planning Committee.
Urban Planning Hotel Estoril renovation under discussion by the Urban Planning Committee
Historic site or eyesore? New Macau Association leader considers the government is “bulldozing” any challenge to the demolition of the Hotel Estoril, as renovation is debated by the Urban Planning Committee. Nelson Moura nelson.moura@macaubusinessdaily.com
T
he government should consider the historical value of the Hotel Estoril and properly inform the public of its plans before discussing a possible demolition of the building, New Macau Association leader Scott Chiang has insisted. Before yesterday’s Urban Planning Committee meeting discussing the future of the Hotel Estoril, Chiang delivered a letter to the Committee at the Public Works and Transport Bureau (DSSOPT) opposing the demolition of the historical building at Avenida de Sidónio Pais. Chiang said: “We see a lot of unreasonable conduct in the consultation and the planning of this case.” He explained that the association was very sad to witness that “the conduct from the administration totally disregards the proper governance that public opinion should be respected, and we should have a proper consultation before the decision.”
The bulldozer
The renewal of the Hotel Estoril building, abandoned since the 1990s, and its eventual patrimonial and historical value, has been debated for a long time, with the Macau government having launched a public consultation process last year. Two previous surveys conducted by a third-party organization have shown the majority of respondents support the government rebuilding the site, with 82.7 per cent of the 818 collected opinions in favour of a renewal. The results showed most responders considered it unnecessary to keep the façade of the hotel property, and supported a plan to turn the space into a centre for cultural and recreational activities for young people. On March 15 of this year, the Cultural Affairs Bureau’s (IC) Cultural Heritage Council decided that the building would not be considered as cultural heritage. H o w ev e r th e N e w M aca u Association leader believes the government hasn’t provided the necessary information for the public. Mr.Chiang stated: “They asked the public what they want to do with the site, giving out an appearance of openness but it lacks substance.” Mr. Chiang considered the Secretary for Social Affairs and Culture Alexis Tam Chon Weng gave a “rosy picture”
of what the development could be, while “conning people” into supporting a redevelopment that is “essentially the demolition of the site”. Last year Alexis Tam claimed that most of the opinions that the government had received agreed to rebuilding the hotel for the use of the Macau Conservatory, local teenagers and residents, and that the government had not yet made a decision on retaining the façade of the hotel. According to the New Macau Association leader the Secretary was not just ignoring the public opinion, but also the opinions of professionals who saw the hotel as a
New purpose for old power plant
The Urban Planning Committee has also debated suggestions to build public housing units and social infrastructures at the Companhia de Electricidade de Macau (CEM) Power Station at the district of Areia Preta. Committee members asked for further demographic and environmental studies to be made on the impact demolishing the power station will have. Committee member Chan Tak Seng questioned if better car access would be built
historic site, comparing the Secretary to a “bulldozer” pushing aside any challenge to the government agenda. “We always talk about the balance between value and preservation but this case totally lacks balance. It’s a total demolition,” added Mr. Chiang. “The facade preservation doesn’t cause any effect to the building renovation. We hope our opinions make the committee members reconsider the demolition of the building.”
Hotel heritage
Development plans for the 6,864 square meter Hotel Estoril site, presented by the Urban Planning Committee, do not yet include an architectural plan for the building – the committee could only state that any future construction would not surpass current height limits and that nearby trees would be preserved. During the meeting, some members
in the area to solve its daily traffic congestion issues, and considered the removal of the power station’s chimney as “complicated.” In response the DSSOPT deputy director Cheong Ion Man stated that after an evaluation of the station, the government believed “1,000 housing units” could be built in the area and that “professionals” were already asked to evaluate the environmental impact of the station demolition, but that the study results were not yet available.
New Macau Association delivers letter at DSSOPT.
of the Committee seemed to reflect Mr. Chiang’s views on the building, considering the Hotel Estoril had historical and architectural value, especially its facade, and asked for further discussion on how to execute the building renewal. “The building has been a target of controversy for a long time. I have no objections to the renovation inside the hotel, but I want to at least suggest the facade is to be preserved,” urban planner Lam Iek Chit said during the meeting. Lam considered total demolition of the building as an “extremist” and “ridiculous” position and he did not understand why the Cultural Affairs Bureau (IC) previously considered that the hotel had unique western architecture elements, but later contradicted this view. “The building and its swimming pool are 1960’s minimalistic constructions. In Oslo, Norway, they have similar buildings, and after an explosion the city’s residents still decided to keep them. However in Macau people want to remove the hotel because they consider it ugly, maybe now we have different beauty standards but thinking of demolishing it completely will lead to future regret” added Lam. Echoing Lam’s views, Committee member Manuel Iok Pui Ferreira suggested the destiny of the Hotel Estoril should be further discussed with the city’s population, suggesting the building could be a new central library. “The Hotel Estoril tiles and painting have cultural importance, so why not keep it, even with a new use of the building? In Macau we have copies of Eiffel towers and palaces, is that how we want to attract tourists? No, we want to offer something original and the hotel is original” insisted Ferreira.
4 Business Daily Tuesday, July 26 2016
Macau Banking AMCM: the local banking sector is strong and holds ‘ample opportunities'
Relying on the Mainland Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he local economy has entered into a ‘period of adjustment’ according to the annual report by the Monetary Authority of Macao (AMCM). The report showed a positive viewpoint of the SAR’s financial situation – noting an expansion in the scale of the banking sector through its gross assets, loans and advances and financial investments for the year 2015.
down, leading to the emergence of a new economic normal with specific challenges being lower visitor arrivals, slackened consumer sentiment, drop in real estate prices and sustained fall in gaming receipts,’ states the AMCM Chairman Anselmo Teng Lin Seng in his message included in the report. This ‘new economic normal’ however is contrasted by a series of positive conditions for the SAR’s development – says the monetary authority – such as the increasing
implementation of policies for economic diversification and longterm development plans with the central government – including the ‘One Belt, One Road’ policy and CEPA (Closer Economic Partnership Agreement), the development of Hengqin, the ‘Framework Agreement on Cooperation between Guangdong and Macau’ (as well as a free trade zone with the same region) and the general opening of the Pearl River Delta region to trade opportunities. The authority describes these
Profit
Operating profits for the banking sector for the year grew by 16. 3 per cent year-on-year to MOP12.8 billion (US$12.8 billion) with total cash flow, excluding allowances for depreciation and provision, increasing 12.7 per cent to MOP14.9 billion. This indicates, notes the report, that the sector has ‘been able to maintain good profitability and sound financial position during the course of economic adjustment,’ an adjustment made in an environment of ‘ample opportunities for the MSAR banking sector’ but nested in a global economic and financial environment the AMCM defines as ‘complicated and volatile’. The authority urges banks to ‘stay alert and enhance their risk management and internal control systems to address relevant potential risks and challenges’.
Opportunity market
‘Influenced by external factors, the local economy in the process of adjustment continues to slow
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opportunities as ‘the unique competitive advantages’ for the local banking sector, urging those in it to ‘grasp these opportunities’ as well as ‘making contribution to the stability and development of the MSAR financial system’.
The future
Although the ‘zero-debt financial position of the MSAR Government continued to remain intact,’ for the year 2015, notes the report, while public expenditure continued to increase, growing 22.4 per cent to MOP80.5 billion last year. The monetary authority took note that the ‘fiscal surplus dwindled further to a preliminary estimate of MOP29.3 billion in 2015 from MOP90.3 billion in 2014’ – on the back of ‘the culmination of a notable drop in public revenue and hike in public expenditure’. The authority noted its reliance on external markets, stating it ‘continued to promote international and regional cooperation’ to ‘expand the development frontier for the local financial industry’ but the Chairman notes that ‘macroeconomic policies in advanced economies are still expected to be full of uncertainties’ and could turn out ‘contrary to the original expectations’. However a focus on the Chinese market is necessary due to it being ‘at an important stage of structural adjustment’, largely done through establishing ‘a close working relationship with overseas central banks and supervisory authorities for mutual assistance and exchange of supervisory information’ under memorandums of understanding. The Chairman notes his belief that the local financial industry will ‘as always, align with the administration of the MSAR, and strengthen awareness of potential crises’.
SUPPORTERS
Business Daily Tuesday, July 26 2016 5
Macau
Gaming
Positive trend spotted The mass market will continue to lead local growth for the predictable future, supported by pipeline supply in both rooms and tables, Sands China is set to be the main benefactor of the shift.
nalysts continue to reduce their estimates as July gross gaming revenue figures are calculated, however a positive trend has been spotted by Bernstein’s Vitaly Umansky and Clifford Kurz, noting that ‘second quarter also marked a turnaround for Macau-wide mass gross gaming revenue,’ stating that the mass gaming market will ‘become a key growth drive going forward’. ‘We forecast mass gross gaming revenue to return to double-digit growth in 2H16 [second half of 2016]’ due to the openings of the Wynn Palace and Parisian.
China, which saw a 2 per cent reduction in EBITDA (earnings before interest, taxation, depreciation and amortization) for 2016 and a 1 per cent reduction for 2017. The second quarter property EBITDA estimate for Sands China was also reduced 6 per cent to US$512 million due to a ‘softer than initially forecast Q2 gaming and non-gaming market performance’. The view of Bernstein’s analysts is that ‘Sands China remains the biggest beneficiary’ of the mass-market trend, estimating it to be its ‘key growth driver’ with a prediction of ‘Sands China EBITDA growing 12 per cent CAGR (compound annual growth rate) over the next three years’.
Reductions
VIP
Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
A
However, the ‘weaker results’ from negative year-on-year room rates and occupancy growth for 4 and 5 star hotels, coupled with falling visitation throughout the second quarter of the year has caused the group to reduce estimates for the year 2016, especially for groups such as Sands
Overall Umansky and Kurz note that ‘VIP will continue to experience weakness this year,’ however the ‘year-on-year decline should ease’ in the second half of the year, noting that share prices of the local casino operators ‘have already started to benefit from improving trends’.
Gaming
DICJ: Wynn Palace table application received Gaming operator Wynn Macau Ltd has already filed its application for gaming tables and slot machines for its new Cotai project, Wynn Palace, expected to open next month, the director of Gaming Inspection and Co-ordination Bureau (DICJ) Paulo Martins Chan said on Sunday. Speaking to reporters on the sidelines of broadcaster TDM’s Macao Forum, the DICJ head claimed his bureau is currently analysing the application, perceiving it was not yet an appropriate timing to announce the details. In the middle of this month, Secretary for Economy and Finance
Lionel Leong Vai Tac said the gaming operator did not clarify the number of gaming tables and slot machines it needs in its document filed to the gaming regulator, but mentioning the number of gaming tables and slot machines that its new casino could accommodate. Wynn Palace, scheduled to open on August 22, is set up for 500 gaming tables. Meanwhile Mr. Chan claimed he is cautiously optimistic on the development of the local gaming industry in the second half of the year, hoping the decrease of gaming revenues could continue for the remaining of the year.
In spite of this the ‘gaming industry will remain volatile over the nearterm’, with a ‘secular growth story’ benefiting from improvements in infrastructure and the new openings.
Predictions worsen
Rating agency Wells Fargo expects that, contrary to previous predictions of a 6 per cent year-on-year drop in gross gaming revenue for the month of July, a 9 per cent or 10 per cent drop can be anticipated. The agency notes that average daily revenues for the month have ‘paced’ around MOP535 million for the first 17 days of the month and that the July estimate – based on average daily revenue growth around 5 per cent month-to month – rests at MOP550 million: ‘in line with the average sequential growth trend from June to July,’ note analysts Cameron McKnight, Daniel Adam and Robert Shore.
Risks
Analysts at Bernstein say that their estimates are based on a ‘belief that China’s GDP growth will continue in mid-single digits’ with a shift
towards increased consumer spending and increasing levels of individuals with sufficient income levels to visit Macau. Potential risks include ‘a deterioration of China’s economic backdrop [GDP forecast erosion, loss of stock markets indexes, decline in real estate values, a decrease in consumer confidence and a decrease in disposable income]’.
Performance
Local operator MGM saw its parent company snag an ‘Outperform’ rating from the Wells Fargo analysts, based on ‘a strong Las Vegas outlook’, whereas Wynn resorts saw its ‘Market Perform’ rating pushed by the potential ‘catalyst’ effect of the opening of Wynn Palace – earning it ‘equal/risk reward given near-term uncertainty in Macau,’ according to the analysts. Las Vegas Sands was also ranked ‘Market Perform’ by Wells Fargo and was joined by Studio City’s Melco Crown Entertainment – both classified as benefiting from the ‘positive long-term view of the Macau gaming market’ of the rating agency, while suffering from the same nearterm uncertainty as Wynn. Bernstein rated Sands China at ‘Outperform’.
6 Business Daily Tuesday, July 26 2016
Macau
MICE 2016 MFE and GMBPF to be launched on Friday
Golden gathering of business and opportunity IPIM reveals that the two events are budgeted for a total of MOP16 mln.
T
wo major business events will coincide at the Venetian, Cotai from 29 July to 31 July this year. The Macau Franchise Expo (2016 MFE) – now in its eighth year – continues to play a role as a regional franchise platform by helping brands to “Bring in” and “Go Global”. MFE is also preparing a series of activities to keep pace with current global economic trends. The second event is the Guangdong-Macau Branded Products Fair (GMBPF), jointly organised by the Macau Trade and Investment Promotion Institute (IPIM) and Department of Commerce of the Guangdong Province. IPIM reveals that the two events are budgeted for a total of MOP16 million (US$2 million), which is a similar amount to that of last year.
Global participants
2016 MFE is jointly organised by IPIM, the Brazilian Franchise Association, Association of Chain and Franchise Promotion, Taiwan, Macau
International Brand Enterprise Commercial Association, Macau Chain Stores & Franchise Association and Licensing & Franchising Association of HK. This year the exhibition space is over 1,900 square metres with nearly 220 stands. It has attracted more than 180 exhibitors participating from Brazil, East Timor, Hong Kong, Indonesia, Italy, Japan, Macau, Malaysia, Mainland China, Mozambique, Portugal, Singapore, South Korea, and Taiwan. East Timor and Mozambique are exhibiting for the first time. The expo will cover businesses within the food and beverage industry, retail, education, entertainment, finance, real estate, accessories, consulting service industries, as well as branding agencies.
Diversified activities
The “Forum on International Franchise Business Opportunities” will be held on 29 July, the first day of the expo. Themed as “New Horizon for Chain and Franchise in the Internet Era”, experts and senior executives
from several countries and regions have been invited to share the Internet development of local franchise industries and to explore how to achieve broader development under the “Internet +” thinking pattern. This forum will help business circles and youth start-ups comprehensively and correctly grasp the operating mode of “Internet +”, as well as allow them to understand how to take advantage of the opportunities to make the industry more international and open up new business opportunities. The Franchise & Chain Award Ceremony will be hosted again to encourage diversified development of local franchise industry Moreover, with the aim of promoting friendly exchanges between Macau and the international franchise industry, Macau Chain Stores & Franchise Association will again hold the 2016 Macau Franchise & Chain Award Ceremony during the event. It acknowledges the outstanding enterprises in different sectors of the franchising business and encourages the diversification of Macau’s franchise industry.
Enlarged expo area
For GMBPF, the carnival style will
encompass trade, cultural exchanges, shopping, leisure and entertainment. Exhibition floors will be extended to 9,000 square metres, with 357 exhibition booths, translating into a two-fold increase in the number of booths. Major pavilions are: Guangdong Products Exhibition and Sales Area, Macau Products Exhibition and Sales Area and Indonesian Products Exhibition and Sales Area. The Guangdong Products Exhibition and Sales Area takes on 195 exhibition booths, with 148 participating enterprises, to showcasing food, daily necessities and gifts, hotel supplies and home appliances. Participating enterprises were all carefully selected by the Department of Commerce of Guangdong Province, many of which have obtained the titles of Famous Chinese Brands, Notable Trademarks of China, Famous Brands of Guangdong Province, ensuring confidence in the quality of the products.
‘Belt and Road’
The Macau Featured Products Exhibition and Sales Area has 112 exhibition booths from participating enterprises. These products are mainly “Made in Macau’, ‘Macau Brands’, ‘Designed in Macau’, or Macau Cultural and Innovative Products, and products handled by Macau agents. To encourage the establishment of the ‘Three centres’ and the trade and economic service platform of China and Portuguese-speaking countries, there is a dedicated area for food from those countries and for sales of products and food with Portuguese characteristics. In addition, China’s ‘Belt and Road’ initiative has created greater opportunities for Macau’s economic development. This year, the Indonesia Products Exhibition and Sales Area has been added to GMBPF, to strengthen the trade and economic exchange between mainland China, Portuguese speaking countries and Macau, and the coastal areas along the ‘Belt and Road’. Forty three Indonesian exhibitors and 50 exhibition booths were invited to set up in this dedicated area to Indonesia, featuring local Indonesian food, jewellery and accessories, gifts, fashion, leather goods and handicrafts.
Business Daily Tuesday, July 26 2016 7
Macau Imperial Palace Hotel Investor insists casino could still operate regardless of shutdown
Amax: Greek Mythology Casino will be able to open its doors despite Imperial Palace closure Investor Amax’s lawyer advises that the temporary closure of the Beijing Imperial Palace Hotel would not cause the gaming venue, now under renovation, to close its business within the premises Kam Leong kamleong@macaubusinessdaily.com
H
ong Kong-listed Amax International Holdings said the temporary closure of the Beijing Imperial Palace Hotel ordered by the Macau Government Tourism Office (MGTO) would not have any financial impact on the company’s casino business at the hotel. The investment company, chaired by local businessman Ng Man Sun, holds 24.8 per cent equity interest
in Greek Mythology (Macau) Entertainment Group Corporation Ltd, which runs Greek Mythology Casino inside the hotel. “As advised by the company’s lawyer in Macau, under the law of Macau, Greek Mythology can continue to operate notwithstanding the close down of the hotel,” the company wrote in yesterday’s filing with Hong Kong Stock Exchange. “However, the temporary close down of hotel may have a negative impact on the number of visitors and its business plan,” it added.
But the hotel, running under the gaming license of Sociedade de Jogos de Macau S.A. (SJM), has ceased operations since the beginning of this year for ‘renovation reasons’. Amax opened Monday trading at 0.390 Hong Kong dollars, down 12.3 per cent, or HK$0.055, from Friday’s close. Trading of Amax shares was halted on Friday afternoon, after the price fell more than 6 per cent.
A special working committee
Last Saturday, Macao Government Tourism Office (MGTO) closed the hotel property in Taipa because of serious administrative irregularities and its failure to carry out essential fire safety measures. The filing indicated that Amax is to form a special working committee with the hotel to address and resolve
the issues of the closure to MGTO, aiming to resume the operation of the hotel property within six months. “The company could only conclude appropriate actions to be taken after communicating and clarifying with government departments in Macau to make a detailed assessment of the overall situation,” the group wrote, adding it would announce developments as appropriate. In fact, Amax has been claiming in its financial reports to the Hong Kong Stock Exchange that an associate and the operator of the Greek Mythology Casino has been refusing to provide “valid financial information” to the company since 2012. But in yesterday’s filing, the Ng-controlled company claimed “the board currently has no intention to terminate the agreements [on the casino], notwithstanding the disputes between the company and [the casino operator]”.
Ownership disputes
Mr. Ng, also known as Kai See Wai, became the license holder of the hotel Empresa Hoteleira Macau Lda in 1996 when the property was still named New Century Hotel. In 2012, the businessman fell out with his former girlfriend Chen Mei Huan over the ownership of the hotel and the casino. And since then, the ownership disputes over the hotel have continued. Following the enforced shutdown of the hotel by the government, Empresa Hoteleira has been publishing notices in Chinese-language newspaper Macao Daily that it is ‘shocked by MGTO’s divisive and unforeseen order’. The same announcement reads the company took over the operation of the hotel in January 18 this year. But in May, the company announced it had transferred the ownership of the hotel property to a company named Victory Success Holdings Limited in October of last year. Mr. Ng claimed at the time that he still owns ‘the lawful legal title’ to the property.
Investment
Look before you leap As more companies shift to Mainland listings, the Hong Kong Stock Exchange explains why investors should choose carefully the stock exchange that suits their individual goals. Kelsey Wilhelm kelsey.wilhem@macaubusinessdaily.com
The Hong Kong Stock Exchange (HKEX), where some of Macau’s largest companies are listed, is better at ‘micro level’ whereas the Mainland stock exchange excels at ‘macro’ level, according to the findings of a recent report published by the Hong Kong Stock Exchange. The publication comes on the heels of Chinese billionaire Wang Jianlin’s move to privatize the Hong Konglisted Dalian Wanda Commercial Properties and relist it in the Mainland or elsewhere for better valuation. The report notes that ‘while the valuation differentials at the macro level may exist for a considerable period of time given no significant change in the underlying factors, issuers and investors may still benefit from the opportunities offered by the Hong Kong market arising from such differentials.’ This could include better Initial Public Offering (IPO) pricing in ‘certain industries of market appetite’ which, this year up to May were Consumer Discretionary and Information Technology – which all showed, on average, higher priceearning ratios when compared with their Mainland counterparts
– the Shanghai and Shenzhen stock exchanges. In previous year’s, such as 2014, the higher price-earnings ratio was seen in Hong Kong in the Consumer Stables, Health Care, IT, Utilities and Consumer Discretionary areas, causing the HKEX to note that ‘certain industrial sectors may obtain a higher valuation in Hong Kong than in the Mainland, bearing in mind that the PE (price-earnings ratio) at offer would be rather stock-specific’.
Industry and market
The report further indicates that ‘the “traditional” financial industry tends to have a lower PE (price-earnings ratio) and new economy industries like technology and healthcare, which appeal to investors with high growth prospects, tend to have a higher PE’. The conclusion of this is that markets ‘with more weighting in new economy industries’ would have higher weighted PE levels and ‘markets with more weighting in the financial industry’ would have lower average PE levels. An example: the Nasdaq market, comprised of roughly 66 per cent in technology and healthcare sectors, is a high-PE market whereas the Hong Kong market, with over 40
per cent financial stocks, is a lowPE market. The Shanghai stock exchange as of May 31 was weighted 37 per cent in the financial sector – making it a low-PE market whereas the Shenzhen stock exchange - weighted at 10 per cent in the financial sector and 22 per cent in the information technology sector – is a high-PE market – the ‘highest PE among the indices’, according to the report’s analysis based on price and earnings data from Bloomberg.
Retail
A further influence is the amount of speculation in the marketplace. The Hong Kong market in the year 2014-2015 saw ‘over 50 per cent of cash market trading’ contributed by institutional investors of which ‘over 30 percent’ were overseas - whereas it saw only 20 per cent contributed by local retail investors. This is in contrast to markets in
Mainland, where a large amount of retail investors work from ‘a speculative nature’, concentrating on “small-sized and high-risk stocks for higher potential gains’. The result of this is ‘in the Mainland market, the smaller the company size, the higher the PE ratio’ whereas in Hong Kong ‘company size is not a determinant of stock price valuation.
Advantages for HK
Advantages for those investing through the Hong Kong Stock Exchange are ‘lower priced H shares of AH stocks’, a ‘comprehensive range of investment tools’, ‘higher IPO pricing in certain industrial sectors’, ‘market appetite for stocks in new economy industries’, ‘more flexible IPO and post-listing fund-raising regime’ and an ‘international platform for a listing’ – according to the report. All of Macau’s major integrated resort and casino operators are listed on the Hong Kong Exchange.
8 Business Daily Tuesday, July 26 2016
Greater China
Planning agency
Borrowing costs have become a key obstacle to private investment An increasing reliance on state firms to support economic growth is also making investment in China less efficient.
B
orrowing c o st s a n d access to funding are the key obstacles to private investment in China, a senior official at the top economic planning agency said yesterday, after private investment growth shrank to a record low. Growth in investment by private firms, which accounts for over 60 per cent of total investment in China, fell to a new record low in the first half of the year as businesses retrench in the face of a sluggish economic outlook and weak exports. Executives at China’s private sector are now adopting a “wait and see” approach on investment, Zhang Yong, the deputy chair of the National Development Reform Commission (NDRC) told reporters in Beijing. Xu Kunlin, the head of the NDRC’s
investment office, said at the same news briefing that difficulty in obtaining financing is the most common and prominent problem that companies face now. “Loan tenors are relatively long, the cost is relatively high and if you want to roll over a loan you run into lots of problems,” said Xu. “Some companies aren’t able to smoothly roll over loans so they have no choice but to turn to other fundraising avenues where the costs are even higher and that’s when many companies run into lots of problems. So this really is a serious issue.” Zhang added that China should increase government investment, while adding that government investment should not compete with that of the private sector. Chinese banks typically prefer the security of state-owned 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. An increasing reliance on state firms to support economic growth is also making investment in China less efficient. 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. This year it has taken six yuan to produce one 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. Sheng Songcheng, director of the Survey and Statistics Department at the People’s Bank of China (PBOC), said recently that China has already fallen into a “liquidity trap” where increased money supply is being absorbed by firms that are not in turn investing the cash.
While monetary policy is effective, it is limited and requires coordination with a proactive fiscal policy. And Sheng said China has room to increase its fiscal deficit ratio to between 4 and 5 per cent to more effectively boost the economy.
“Loan tenors are relatively long, the cost is relatively high and if you want to roll over a loan you run into lots of problems” Xu Kunlin, head of the National Development Reform Commission’s investment office
China’s cabinet last week unveiled detailed measures, including widening financing channels for firms and establishing new equity funds, to support investment and economic growth. Reuters
National investors
Shadow banking products
E Fund eyes growing demand for global assets
Vanke battle peers fuel
Chinese asset managers have been accelerating their global expansion by setting up offices in Europe and the United States. Michelle Chen
Major China fund manager E Fund Management Co. Ltd says Chinese investors’ growing demand for global assets will be its main focus in Hong Kong in the new two years. “Many Chinese banks and companies have a large amount of foreign exchange in Hong Kong that needs to be invested,” Ma Jun, an executive vice president at the fund manager, told Reuters in an interview yesterday.
These investors are currently interested mainly in fixed-income products, Ma said, adding such products are expected to generate an annual return of around 5-6 per cent in yuan terms. E Fund, founded in 2001, is one of the largest asset managers in China with US$150 billion asset under management as of the end of 2015. Mainland investors have been seeking ways to move funds out of the country as the yuan falls to near
“Chinese investors’ rising demand to invest globally is inevitable because they need to diversify risks as they grow bigger” Ma Jun, executive vice president of E Fund Management
six-year lows against the dollar, with further weakening expected, and as the world’s second-largest economy loses growth momentum. Expectations of more bond defaults have also made some investors nervous about local credit markets. Investment flows from Shanghai to Hong Kong under a stock market connection scheme have risen sharply in the past few months to reach 80 per cent of the quota limit. “Chinese investors’ rising demand to invest globally is inevitable because they need to diversify risks as they grow bigger,” Ma said. Chinese asset managers have been accelerating their global expansion by setting up offices in Europe and the United States, as well as listing products there to make it easier for western investors to enter China’s domestic market. E Fund (Hong Kong), the global platform for E Fund, has a subsidiary in New York, and listed several Renminbi Qualified Foreign Institutional Investor (RQFII) ETFs and RQFII/QFII funds at six stock exchanges across the U.S., Europe and Asia Pacific. The RQFII programme allows financial institutions to use offshore yuan to buy securities in mainland China, including stocks, bonds and money market investments. Ma said the firm also plans to set up an office in Europe. It had considered opening an office in the UK, but will now need more time to assess the impact of Britain’s decision to leave the European Union, he added. Reuters
Schemes such as the AMPs a regulatory oversight or trans operate, are difficult to turn Sumeet Chatterjee
The takeover tussle embroiling top Chinese developer China Vanke has unveiled how local banks are increasingly exposed to highly volatile domestic stock markets through risky shadow lending products that mask their worsening asset quality. In their hunt for higher investment returns in a slowing economy and to offset the impact of rising bad loans, Chinese banks are putting their depositors’ money into so-called asset management plans (AMPs), products set up for the purpose of lending to companies and backed by shares as collateral. Baoneng Group, which is attempting a hostile takeover of Vanke, used 26 billion yuan (US$3.9 billion) of such instruments from about half a dozen banks - including traditionally cautious China Construction Bank Corp (CCB) - to partly finance buying 25 per cent of the property developer. CCB declined to comment. While there is no official data on banks’ overall exposure to shares through shadow lending channels, JPMorgan estimated that AMP funds stood at 32 trillion yuan at the end of March, double a year earlier. Although not illegal, banks growing use of such shadow-lending techniques, which often make use of opaque instruments known in China as wealth
Business Daily Tuesday, July 26 2016 9
Greater China Capital balance
In Brief
State firms help offset outflows with overseas debt The rise in dollar-debt issuance by state-owned enterprises is set to continue in the third quarter. China’s national team is getting bigger. After stepping into the currency and equity markets repeatedly over the past year to stem declines, governmentlinked entities are now spurring capital inflows by raising money offshore and bringing it home. Sales of dollar bonds by some of China’s biggest state-run firms rose to a record US$18.7 billion in the April-June period, about 80 per cent higher than the average of the previous four quarters. In comparison, overall issuance by Chinese companies shrank 11 per cent as a weakening yuan drove up the cost of servicing overseas debt. This comes after China’s top economic planning agency said last month that it has allowed 21 companies - including the nation’s biggest banks - to sell foreign-currency debt without having to first seek approval. The government encourages the companies to bring the proceeds onshore to convert into the yuan, the National Development and Reform Commission said. “This reflects policy efforts to counterbalance capital outflow p r ess u r es, ” sai d Ha r ri s o n H u ,
Singapore-based chief Greater China economist at Royal Bank of Scotland Group Plc. “Asking large companies to raise more foreign debt could help anchor sentiment and expectations of other companies. This could help prevent panic capital outflows.” Chinese authorities have a long history of encouraging state-owned enterprises to act in policy makers’ interests rather than their own. Government-run banks financed an infrastructure building boom to spur economic growth during the global financial crisis eight years ago, saddling themselves with a pile of bad loans in the aftermath. When Chinese stocks suffered a US$5 trillion crash last year, SOEs stepped in to support the market, only to watch share prices fall to new lows at the start of 2016. In the currency market, the People’s Bank of China has gone to great lengths to discourage outflows and depreciation bets. It ordered lenders to stop sending money overseas and drove offshore yuan overnight borrowing costs to an implausible 66.8 per cent in January. Last week, after the
“However, taking a look at the amount, it’s still a drop in the bucket. The actual impact could be limited.” Zhou Hao, an economist at Commerzbank AG in Singapore
lling from risky lending
and WMPs, with little sparency in the way they into cash in a downturn. management products (WMPs), could be sacrificing proper risk management in the pursuit of profit. “The whole nature of WMPs and AMPs is that it’s a murky area. There is a degree of regulatory arbitrage there and it’s clearly a way for (the banks) to get around the prudential rules,” said Jack Yuan, associate director at Fitch Ratings. “It’s concerning that the scale of this sort of activity is widening, and there is no effective regulation around this.” In almost all cases, shadow lending is kept off the banks’ balance sheets, making it difficult to gauge the true extent of the banks’ exposure to this form of fund raising or lending - which is of particular concern as Chinese commercial banks’ loan defaults are at their highest since the global financial crisis in 2009. More broadly, debt levels in the country are mounting, with the overall level of private, corporate and government debt reaching 250 per cent of the country’s economic output last year. People familiar with the matter said the banks involved in the Baoneng AMPs have been promised a return of as high as 7.5 per cent, compared with China’s 10-year treasury bond yield of 2.8 per cent.
Contagion risks
Most of the AMPs that invest in shares have some risk-control provisions in
the contract that triggers liquidation of the stocks if they fall below a preagreed threshold, industry analysts said. However, what makes it risky for the banks is that in most cases they don’t have a clear understanding of the financial health and existing leverage of the borrower company behind the AMPs. The China Banking Regulatory Commission did not immediately respond to a request for comment. Earlier this month, the regulator urged banks to elevate risk management to a “more prominent” place and take measures to rein in the rapid rise of non-performing loans. Some banks also float their own AMPs, raising money from retail investors lured by the prospects of high yields. The funds generated through these AMPs are then used to invest
yuan weakened past 6.7 per dollar, the PBOC set reference rates stronger than that level even as the dollar advanced. The currency eventually broke a sixweek run of losses to close 0.12 per cent stronger. The yuan’s 3 per cent decline in the second quarter, the most on record, triggered an increase in the amount of cash leaving the country, according to analysis by Goldman Sachs Group Inc. The U.S. bank estimates US$49 billion of foreign-exchange outflows in June, compared with US$25 billion in May.
More sales
The rise in dollar-debt issuance by state-owned enterprises is set to continue in the third quarter. China Development Bank Corp. was scheduled to hold investor meetings for dollar bond issuance over the weekend in Hong Kong and Singapore, according to a person familiar with the matter. Bank of China Ltd. issued Asia’s largest dollar-denominated green debt earlier this month as part of a three-currency offering equivalent to US$3.03 billion. Sinopec Group Overseas Development Co., a unit of China Petrochemical Corp., issued US$700 million of 10-year bonds in May at a coupon of 3.5 per cent. The NDRC didn’t immediately reply to a fax sent July 21 seeking comment. At least three calls each to Bank of China, China Development Bank and China Petrochemical went unanswered. The June 7 NDRC statement on overseas debt sales said the government encourages parent companies, rather than their overseas units, to bring home proceeds of bond sales abroad. In a separate announcement, it said that it encourages local companies in China’s four free-trade zones - rather than their overseas units - to issue bonds. In this case, too, they should repatriate the funds to China. “What’s in the policy makers’ mind may be to boost capital inflows,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “However, taking a look at the amount, it’s still a drop in the bucket. The actual impact could be limited.” Bloomberg News
in shares, real estate and other assets, analysts said. Chinese banks also sell WMPs to clients, one of the biggest sources of shadow banking activities, and in some cases those funds are also used to invest in shares directly or through AMPs, they said. Schemes such as the AMPs and WMPs, with little regulatory oversight or transparency in the way they operate, are difficult to turn into cash in a downturn since they lack a secondary market and can in turn be highly leveraged. So if investment bets through these schemes go bad, it would not only add to the investing banks’ bad loans but also create contagion risks for banks that finance that investment, analysts said. “As the scale of these entire products becomes larger and larger, it would be harder and harder for the banks to manage the risks it can trigger,” said an industry tracker, who declined to be named. Reuters
Flood hit
Authorities earmark relief funds Hebei The Chinese central government yesterday allocated 250 million yuan (US$37.4 million) to disaster relief efforts in the floodhit province of Hebei. The money, which was processed jointly by the civil affairs and finance ministries, will be used to help people through emergency relocation, transitional settlement, reconstruction of damaged houses and for those who have lost loved ones in the disaster, according to the Ministry of Civil Affairs. Heavy rainfall lashed Hebei from July 18 to 20, causing flash floods in mountains and serious waterlogging in some cities. Reserve currency
International organization to issue SDR in mainland An international development organisation is preparing to issue the first debt instrument denominated in special drawing rights (SDRs) in China’s interbank market, online financial magazine Caixin reported, citing a central bank official. The currency basket determining the value of SDRs, a synthetic reserve currency administered by the International Monetary Fund, will be expanded to include the yuan beginning in October, according to a long-awaited decision by the IMF last November. The international development organization could issue the bonds as soon as late August, Caixin reported on Sunday. GDP
Think tank lowers forecast for Taiwan The Taiwan Institute of Economic Research (TIER), one of the leading think tanks on the island, yesterday cut its forecast for Taiwan’s 2016 gross domestic product (GDP) growth to 0.77 per cent. The reading is down 0.5 per cent from TIER’s forecast of 1.27 per cent made in April. It also marked its third downward revision this year. TIER said the cut was due to the island’s weakness in actual exports and export orders. Latest figures showed Taiwan’s export orders saw a yearon-year drop of 2.4 per cent in June, the 15th consecutive month of contraction. Securities investment
Former Hillhouse Capital partner plans own fund David Ma, a former partner of Yale University endowmentbacked Hillhouse Capital Management, plans to start his own Hong Kong-based fund that will invest in public and private equity, said a person with knowledge of the matter. Ma’s Composite Capital Management (HK) won regulatory approval in midJune, according to information posted on the website of Hong Kong’s Securities and Futures Commission. The fund will start investment in the next few months, said the person who asked not to be identified as the information is private. The fund will be able to make bullish and bearish bets on companies, like a hedge fund.
10 Business Daily Tuesday, July 26 2016
Greater China After one-child policy
Mainland’s start-ups lure venture capitalists betting on a baby boom Start-ups focused on maternal health and childcare drew about US$57 million.
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enture capitalists are now betting that the Chinese Communist Party’s decision to repeal its decades-old one-child policy will create more demand for digital services like those used by Yang. The policy change announced last year has piqued investor interest and led to 10 fundraising rounds in the first half for start-ups in the maternity and paediatric market, according to VC Beat Research, which tracks internet health-related investment and fundraising. “Luckily with the relaxation of the one-child policy last year investors did become more enthusiastic in pursuing us,” said Liang Liang, chief executive officer for Shenzhen Easyhin Technology Co., the company that developed Mami Zhidao, an app that provides online consultations with paediatricians. His firm raised 100 million yuan (US$15 million) in March, from investors including Soft Bank China Capital and Morningside Ventures. Chinese consumers are avid users of digital apps for everything from banking to health care, and that demand has spawned a vast industry. China has 450 million mobile devices for which 7,350 Chinese companies have developed over 33,000 mobile apps, according to a report from China Internet Watch, a website that tracks online statistics in the country. Use of health and fitness apps grew by nearly 130 per cent in the past year, the second-fastest growing category after photography apps, according to the report, which cited researcher Flurry Analytics.
children is likely to add three million new-borns each year. Still, a baby boom isn’t guaranteed. Many families find it too costly to have more than one child, and the government has proved to be overly optimistic before: the number of new-borns in China fell by 320,000 last year even though the government had begun
a partial relaxation of the one-child policy in 2013. Chinese companies focused on digital healthcare, ranging from e-pharmacies to online apps for new mothers, raised a record US$1.5 billion in the first half of this year, more than double from a year earlier, according to VC Beat’s report. Start-ups focused on maternal health and childcare drew about US$57 million, the sub-sector with the most rounds of fund raising, according to the report.
‘Chinese government has said that allowing all families to have two children is likely to add three million new-borns each year’
Too costly
The Chinese government has said that allowing all families to have two
Instead of pursuing all kinds of customers, recent start-ups “have been providing more targeted services or products,” said Mo Renying, an analyst at VC Beat. Among the start-ups that have drawn money this year: an app that offers lecture notes by paediatricians on topics from child psychology to building sleep habits. Another that focuses on helping couples navigate the in-vitro fertilization process, and even one digital service that sells a specialized washer for nursing bottles. Some of China’s biggest conglomerates have built their own internet health subsidiaries, such as Ping An Insurance Group Co.’s mobile health app Ping An Good Doctor, which raised US$500 million in series-A funds in May with a US$3 billion valuation. But as the market matures, Chinese entrepreneurs are targeting a more specific clientèle. Mami Zhidao’s Liang said his online start-up plans to open four paediatric brick-and-mortar clinics this year, with the first starting operation in southern Shenzhen. He says his clinic chain will be one of the first to specialize in treating children, with more middle-income families willing to pay higher prices to get quality services and avoid long lines at public hospitals. Liang acknowledges the challenges of entering the private hospital industry - mainly a lack of qualified physicians and regulatory red tape. The biggest risk is policy uncertainties, such as getting licences for clinics, Liang said. Still, the venture capital market appears to have hopes that the digital outfits will succeed. Connecting online traffic to offline services and health care are the two hottest commodities in the market right now whose “valuations are by far higher than the old economy,” Ping An Good Doctor said in e-mailed comments. Bloomberg News
Results
Huawei will ramp up R&D as first-half sales quicken The company used its business of selling networking gear to bankroll an expansion into premium phones. David Ramli
Huawei Technologies Co.’s revenue growth accelerated in the first half as upgraded smartphones and network gear helped China’s largest vendor of telecommunications equipment counter deteriorating global demand. The world’s third-largest smartphone brand grew revenue 40 per cent to 245.5 billion yuan (US$37 billion) in the first six months, the Shenzhen-based company said in a statement. That’s up from the 30 per cent growth it managed in the first half of 2015. Founded in 1987 by former army engineer Ren Zhengfei, Huawei has sprung to the vanguard of a crop of Chinese smartphone vendors trying to compete with global leaders Samsung Electronics Co. and Apple Inc. The company used its business of selling networking gear to bankroll an expansion into premium phones, becoming China’s biggest mobile label last year. It plans to sustain its pace of investment in research as carriers prepare to build fifth-generation broadband networks in coming years. Competition, however, is weighing on profitability. Huawei’s operating
margin came to 12 per cent in the first half, narrowing from 18 per cent in the same period last year. Global smartphone vendors are scrabbling to safeguard their share of a market going through its worst downturn on record, as Western markets mature and China, the biggest by users, flat lines after years of industry-supporting growth.
“We are confident that Huawei will maintain its current momentum, and round out the full year in a positive financial position backed by sound on-going operations” Sabrina Meng, Huawei’s Chief Financial Officer
Huawei is “one of the few vendors that we’re expecting to grow, at least in the smartphone space, quite significantly this year,” said Bryan Ma, vice president of client devices research at IDC, told Bloomberg Television. But “there is quite a bit of competition. You’ve got local vendors in China, Oppo and Vivo, being examples of local vendors that are arguably even more aggressive than they are.” Huawei didn’t break out the performance of individual units of a business that also encompasses cloud computing and enterprise services. Its Consumer Business Group, which sells phones, watches and laptops, is scheduled to announce results today. That unit chalked up 73 per cent sales growth in 2015 to 129.1 billion
yuan, out of the corporation’s total revenue of about 395 billion yuan. Richard Yu, chief executive of the consumer business group, has said the company aims to eventually displace Apple and Samsung from the top spots in global smartphones. He’s hoping for revenue at his devices division to climb 50 per cent this year to $30 billion. As Huawei grows its business and portfolio of patents, it’s also begun to flex its muscle. Huawei sued Samsung in the U.S. and China this year after the pair failed to strike a licensing deal over the use of technology fundamental to how mobile networks operate. Samsung then filed a counter-suit in Beijing. “We are confident that Huawei will maintain its current momentum, and round out the full year in a positive financial position backed by sound on-going operations,” Chief Financial Officer Sabrina Meng said. Bloomberg News
Business Daily Tuesday, July 26 2016 11
Asia Trade
Japan exports fall less than expected Imports were down 18.8 per cent year-on-year versus a forecast for a 19.7 per cent annual decline. Stanley White
J
apan’s exports fell less than expected in June in a tentative sign that overseas demand could be recovering from persistent weakness that set in last year. A slowing decline in exports could ease concerns for Japan’s policymakers as they try to revive growth with stimulus spending on infrastructure after their structural reform plans failed to deliver hopedfor results. “Exports are showing signs that they have stopped deteriorating,” said Norio Miyagawa, senior economist at Mizuho Securities.
of economists, although it was the ninth consecutive monthly fall. In volume terms, exports rose 2.9 per cent in June from the same period a year earlier, the first increase in four months. The trade balance hit a surplus of 692.8 billion yen versus a 494.8 billion yen surplus seen in the poll. Exports fell in June on declines in shipments of cars and steel, the data showed. On a positive note, Japan’s exports of food, medicines
and finished metal products rose in June from a year ago. Exports to China - Japan’s largest trading partner - fell an annual 10.0 per cent in June due to falling shipments of chemicals and metal processing equipment. That was less than a 14.9 per cent annual decline in the previous month as an increase in shipments of cars to China helped offset a decline in other exports. U.S.-bound shipments fell 6.5 per cent year-on-year, considerably less than the 10.7 per cent annual decline of the previous month due to a pickup in food exports. The yen has risen around 13
per cent versus the dollar so far this year, and some Japanese policymakers are worried about further gains that would severely erode exporters’ earnings and increase deflationary pressure by lowering import prices. The government is crafting a massive spending package worth about 20 trillion yen (US$187.93 billion), three government sources told Reuters last week. The Bank of Japan is expected to ease monetary policy at a meeting ending on July 29, a Reuters poll of economists found, to boost anaemic inflation. Reuters
Key Points June exports -7.4 pct yr/yr vs f’cast -11.6 pct Imports -18.8 pct yr/yr vs f’cast -19.7 pct Export volumes rises for first time in four months “The U.S. economy is a bright spot and should help Japan’s exports recover. The (Japanese) government’s stimulus plan is designed to help domestic demand, but without broader reforms they are just buying time.” The 7.4 per cent annual decline in exports in June was less than the median estimate for a 11.6 per cent annual decline seen in a Reuters poll
Tokyo harbour with iconic Fuji Mountain in the background
Inflation outlook
Monetary authority says Singapore current policy appropriate Data yesterday showed headline inflation rate fell by a lower than expected 0.7 per cent on the year. Masayuki Kitano and Marius Zaharia
The Singapore central bank’s current monetary policy stance remains appropriate and only a marked worsening in the global economy or significant shift to the inflation outlook would prompt a change, its managing director said yesterday. The Monetary Authority of Singapore (MAS) expects headline inflation to turn positive in the near future and core inflation was seen closing in on the historical average of around 2.0 per cent next year from a likely average of 1.0 per cent in 2016. Economic growth was expected to remain sluggish, however, reflecting global weakness, and the 1-3 per cent forecast for this year was under review. The MAS said it also was closely watching risks related to Britain’s vote to leave the European Union, the U.S. economic recovery and the slowdown in China. “The current stance of monetary policy remains appropriate for overall economic conditions,” Ravi Menon said in the central bank’s annual report.
“ U n l ess th e r e i s a m a r k e d deterioration in the global economy or significant shift to the inflation outlook, there is no need to change the monetary policy stance.” Data yesterday showed Singapore’s headline inflation rate fell by a lower than expected 0.7 per cent on the year in June after falling 1.6 per cent in May.
Brexit risk
“The Singapore economy is expected to continue on a modest and uneven
City’s panorama
growth path, with further uncertainty arising from recent developments in the UK and the Eurozone,” the MAS said in its report. Such Brexit-related uncertainty could lead to “further financial market volatility, with possible knock-on effects on financial intermediation and capital flows globally, and economic growth more generally.” The nominal effective exchange rate of the Singapore dollar remains within the policy band, notwithstanding the recent volatility in exchange rates, Menon said, adding MAS stood ready to curb excessive moves in the tradeweighted dollar.
Menon also said Singapore’s banking system was solid, though non-performing loans at 1.7 per cent in the first quarter were up from 1.3 per cent a year ago. Banks have set aside provisions of more than 100 per cent of the loans. The financial sector grew 5.3 per cent last year, compared with 2.0 per cent growth in gross domestic product, but this year “financial services and overall economic growth will be closer”, Menon said. Assets under management in Singapore grew 9 per cent last year to S$2.6 trillion ($1.9 trillion). MAS recorded a profit of S$0.2 billion in the 2015/16 financial year, down from S$0.3 billion the year before. Turning to the property market, the MAS said there has been a “measured decline” in property prices after the central bank introduced a series of property-cooling measures since 2009, but added that it wasn’t letting its guard down. After reaching a peak in the third quarter of 2013, private residential property prices have declined by an average 0.9 per cent each quarter over 10 consecutive quarters, the MAS said. “It is not time yet to ease the property cooling measures,” Menon said. Reuters
12 Business Daily Tuesday, July 26 2016
Asia In Brief Trade
S.Korea’s exports volume rises South Korea’s exports volume rose for two straight months through June despite a continued fall in exports in terms of value, central bank data showed yesterday. The exports volume index stood at 141.62 in June, up 3.9 per cent from a year earlier, according to the Bank of Korea. It kept rising after a 5.9 per cent increase in May, turning upward from a 3.3 per cent decline in April. Chemical product exports volume surged 15.8 per cent, with those for electronic products and precision machinery growing 9.4 per cent and 5.8 per cent respectively. CPI
Vietnam’s inflation hits 10-year low Vietnam’s Consumer Price Index (CPI) is estimated to post a modest increase of 0.13 per cent month-on-month in July, the lowest increase since February 2016, according to the country’s General Statistics Office (GSO) yesterday. The July index is likely to represent a year-on-year increase of 2.39 per cent, the lowest level in the past 10 years, Vietnam’s state-run news agency cited the GSO as saying. In the first seven months of 2016, the CPI is forecast to increase 1.82 per cent compared with the same period in the previous year.
Tankan survey
Japan monthly economic assessment unchanged The BOJ is expected to ease monetary policy at a meeting ending on July 29.
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apan’s government kept its assessment of the economy unchanged in July but said business sentiment has worsened after the Bank of Japan’s (BOJ) tankan survey showed the corporate mood stagnated in April-June due to a strengthening yen. The government left unchanged its assessment of exports and industrial production, but there are signs that corporate activity is losing momentum as exports decline. Overall, the report is unlikely to reduce uncertainty about the economy as the government drafts fiscal stimulus spending to boost growth and as expectations mount for more monetary easing to get the inflation rate up. “The economy remains in moderate recovery, but weakness in some areas can be seen,” the Cabinet Office said yesterday in its monthly economic assessment, which was unchanged from last month. Japanese companies are becoming
more cautious about the outlook, the Cabinet Office said, which marked a downgrade from last month’s assessment that there were some signs of caution. Confidence at big Japanese manufacturers was unchanged in June from three months earlier, the BOJ’s tankan survey showed earlier this month, but confidence at large automakers slipped in a warning that overseas demand could be weak. The vast majority of the companies the BOJ surveyed replied before Britain’s shock vote to leave the European Union. Some economists worry that when Brexit is fully factored in, sentiment in Japan could weaken further. The yen has risen around 13 per cent versus the dollar so far this year, and some Japanese policymakers are worried that further gains will erode exporters’ earnings and increase deflationary pressure by lowering import prices. The BOJ is expected to ease
monetary policy at a meeting ending on July 29, according to a majority of economists polled by Reuters, to boost anaemic inflation. The government is also crafting a massive spending package worth about 20 trillion yen (US$188.5 billion), three government sources told Reuters last week.
‘Japanese government is also crafting a massive spending package worth about 20 trillion yen’ However, economists worry that the benefits could be muted as spending will be spread over several years. Some economists also warn that focusing on stimulus spending will distract authorities from structural reforms. Reuters
Public tender
Two bids received for Ausgrid network At least two bids have been received for Australia’s biggest electricity network, the New South Wales government said on Monday, without confirming that one of them is from State Grid of China. State Grid, China’s dominant power distributor, and Hong Kong’s Cheung Kong Infrastructure Holdings Ltd were the only two bidders for Ausgrid, the network in Australia’s most populous state, sources previously told Reuters. Ausgrid could fetch more than A$10 billion (US$7.47 billion) to become Australia’s biggest privatisation sale on record, according to comparable valuations of other grid sales. M&A
Thai SCCC to buy Sri Lanka cement firm Siam City Cement Pcl (SCCC), Thailand’s second-largest cement maker, said yesterday it has signed a deal to buy a Sri Lankan cement company from Holderfin B.V., a unit of LafargeHolcim, for 13.1 billion baht (US$374 million). SCCC said in a statement that the deal will give it the largest share of the cement market in Sri Lanka, diversify its revenue sources and provide an opportunity to expand in South Asia. The acquisition, expected to be completed in the next two weeks, will be made via SCCC’s wholly unit INSEE Cement Holdings Co, which will buy the 98.95 per cent stake in Holcim (Lanka) Ltd, it said.
Modernization drive
Asia’s oldest railway plans more debt than GDP of some nations Prime Minister Narendra Modi’s administration is relying on government spending and debt for the bulk of the five-year upgrade. Rakshitha Arni Ravishankar and Anurag Kotoky
Indian Railways plans to rack up debt to help fund an unprecedented modernization plan. Some 2.5 trillion rupees (US$37 billion) of debt is required in the five years through 2020, according to Railway Minister Suresh Prabhu. That’s more than triple the 692 billion rupees of outstanding Indian Railway Finance Corp. bonds. The network is also exploring non-fare revenue streams from advertising and land holdings, Prabhu said. “Very soon we’d go out to the market to open up advertising and
“Cutting costs is also a major strategy going forward” Suresh Prabhu, Railway Minister
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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branding on most of our trains and stations,” Prabhu said in e-mailed replies to questions. “Indian Railways has various land banks which we are looking to monetize through longterm leases and other commercial development.” The world’s fourth-largest railroad aims to pour 8.6 trillion rupees into new tracks, faster trains and station redevelopment to drag a network with roots in British colonial rule into the 21st century. Indian Railways carries about as many passengers daily as Australia’s population, even as congestion and aging rolling stock slow speeds. Prime Minister Narendra Modi’s
administration is relying on government spending and debt for the bulk of the five-year upgrade. Roughly 1 trillion rupees is expected to come from the private sector, according to Prabhu. Some projects, such as a US$15 billion bullet train due to start operations in 2023, have funding options in place. But questions remain over India’s ability to find all the money needed for other railway improvements and to deliver projects on time.
Business Daily Tuesday, July 26 2016 13
Asia
Prices evolution
Australia inflation to make or break case for rate cut The CPI is seen rising 0.4 per cent in the second quarter. Australian inflation likely braked to all-time lows in the second quarter, if analyst forecasts prove right, cementing the case for another cut in interest rates as early as next month. When underlying inflation slowed surprisingly sharply to a record low of 1.5 per cent in the first quarter, the Reserve Bank of Australia (RBA) responded almost immediately by trimming the cash rate a quarter point to 1.75 per cent. Many analysts expect a repeat performance this time should core inflation dip to a fresh trough of 1.4 per cent as forecasted in a Reuters poll. The figures are out July 27. “Underlying inflation in line with expectations would reinforce the
weak trend, and in combination with softer labour and housing markets and a relatively elevated AUD, would be sufficient reasons for the RBA to cut,” said Felicity Emmett, head of Australian economics at ANZ. “The surprise would be a strongerthan-expected inflation outcome which would raise the possibility that disinflationary forces are abating,” she added. Analysts assume a quarterly increase of 0.6 per cent or higher might give the RBA reason to pause, while a result of 0.4 per cent or less would seal the deal on an easing. A rise of 0.5 per cent would make the call a close one. The central bank looks at several measures of core inflation but the market tends to focus on the trimmed
The network spends most of its revenues on operating costs. Raising passenger fares is politically challenging as more than half of India’s 1.3 billion people live on less than US$3.10 per day, based on World Bank data. Most cargo is shipped by road rather than rail, denting freightbased earnings. “Cutting costs is also a major strategy going forward,” Prabhu said. “We’re also focusing on increasing freight revenues by increasing the basket of goods we carry.” The railroad saved 100 billion rupees last year by paring expenses, he said. The prospective borrowing to fund Modi’s modernization project exceeds the gross domestic product of nations such as Serbia or Bolivia. Indian Railways has 638 billion rupees of local-currency bonds and US$800 million of dollar-denominated debt outstanding. Yields on the 8.88 per cent rupee bonds due 2029 fell to 6.08 per cent on July 15, the lowest since they were issued in 2014, according to Bombay Stock Exchange prices. Recent
speculation that the Reserve Bank of India may become more dovish under its next governor boosted the allure of bonds in Asia’s No. 3 economy. Modi’s government recognizes the potential impact of railway modernization on the country’s economy, but the scale of the network means it’s crucial to manage investment projects better, said Bharat Salhotra, managing director of transport operations at Alstom SA’s Indian unit near New Delhi. “When you’re looking at an organization with the size and scale of the railways, they need to develop the competence and tools to be able to assess and prioritize investments,” he said. Another challenge for Prabhu is implementing a pay increase of as much as 320 billion rupees for railway workers. The network employs around 1.3 million people. Prabhu said the current fiscal year’s budget provides 200 billion rupees for the wage increases, and that he’s looking to exploit newer sources of revenues, such as advertising, to help plug the gap. Bloomberg News
Wayne Cole
mean and weighted median, which strip out the largest falls and rises in any quarter to try and find the underlying pulse.
Key Points Q2 CPI forecast +0.4 pct q/q, slowing to 1.1 pct y/y Underlying inflation seen +0.4 pct q/q, 1.4 pct y/y Result as expected would reinforce case for RBA easing in Aug Data due at 01:30 GMT on July 27 The headline consumer price index (CPI) can be thrown around by changes in a few sectors, such as petrol and fresh fruit which were major drivers of a rare 0.2 per cent drop in the first quarter. The CPI is seen rising 0.4 per cent in the second quarter, though the annual pace
would still slow to 1.1 per cent. There are more fundamental forces behind the slowdown, including a global excess of supply over demand, a relatively resilient Australian dollar and record-low wages growth at home. Adding to the disinflationary trend is a price war in the retail sector as foreign entrants shake up the market and weakness in rents amid a record pipeline of new apartments. The longer this lasts the greater the danger of it becoming baked into firms’ price and pay decisions, a negative feedback loop that has already taken hold in neighbour New Zealand where annual inflation slowed to just 0.4 per cent last quarter. “Given our view that structural disinflationary forces have likely intensified in Australia, and the RBA’s revealed concern about the risk of persistent low inflation, we now look for another cut in August,” said Scott Haslem, an economist at UBS. Reuters
14 Business Daily Tuesday, July 26 2016
International In Brief Energy sector
Mozambique closes in on huge gas deal Mozambique’s long-delayed offshore gas project with Italy’s Eni could be approved within months, sources close to the deal said, sparking investments with the potential to transform one of the world’s poorest countries into a major energy player. Mozambique made one of the world’s biggest gas finds in a decade in 2010 but negotiations with operators Eni and U.S. firm Anadarko have dragged on for years due to disputes over terms and concerns about falling energy prices. But Eni has in recent weeks struck deals with contractors and Mozambique’s government which could help it to make a final investment decision on October 31, industry sources said. Central bank
Angola releases hard currency injection The weekly injection of hard currency into Angola’s banking system by its central bank (Banco Nacional de Angola - BNA) fell again last week almost 60 per cent to €106.2 million, just covering the needs of companies and credit card operations. The figures from the BNA are way lower than the €254.9 million the week before and the €315 million in the first week of the months, but all have been conducted only in euros. The official exchange rate remained practically unaltered at 166.713 kwanzas to the dollar and 186.267 kwanzas to the euro.
Corporate sentiment
German businesses shrug off fears Retailers and construction firms were looking to the future with continued confidence.
B
ritain’s vote to leave the EU has had a limited impact on business confidence in Germany, with belief i n d o m e st i c st r e n g th still strong, a key survey showed yesterday. The closely-watched business confidence index from the Ifo institute in Munich fell to 108.3 points in July from June’s figure of 108.7. July’s reading was the first time pollsters had taken the pulse of Europe’s biggest economy since the shock British referendum result emerged on June 24. Falling confidence was due to “far less optimistic business ex p e c t a t i o n s o n t h e p a r t o f companies,” Ifo head Clemens Fuest said in a statement. But the result exceeded expectations, as analysts surveyed by Factset had forecast a decline to 107.5 points in July in the wake of the vote. Ifo calculates its headline index on the basis of companies’ assessments of the current business environment and the outlook for the next six months. The sub-index measuring current business hit 114.7, an increase of 0.2 points over June’s reading. But the figure for companies’ future
outlook dropped, falling 0.9 points to 102.2. The Ifo index didn’t plunge as sharply as investor sentiment in the ZEW survey released on July 19, buoyed by respondents’ faith in domestic demand.
“Germany is less vulnerable than others to the effects of the vote and we doubt that it will blow the recovery off course” Jennifer McKeown, Capital Economics analyst “The German economy proves resilient” in the face of the Brexit shock, Ifo president Fuest said. There were pessimistic expectations in Germany’s mighty car industry - which exports to Britain and operates factories there - and among wholesalers.
But retailers and construction firms were looking to the future with continued confidence. The service sector also offered a brightening outlook, with firms reporting improved expectations for the coming six months and plans to take on more staff.
Shrugging off fears
“German businesses do not seem to be extremely shocked by the Brexit vote,” economist Carsten Brzeski of ING Diba bank commented on the Ifo figures. Market watchers shouldn’t forget that the Ifo survey’s reactions have lagged ground-shaking world events in the past, he added. A survey in early July of German firms that trade with Britain found that respondents expected exports to the island to tumble by five per cent in 2017. But “given that the UK accounts for around seven per cent of all German exports, this damage still looks manageable,” Brzeski said. “Germany is less vulnerable than others to the effects of the vote and we doubt that it will blow the recovery off course,” said analyst Jennifer McKeown of Capital Economics. German business confidence hadn’t hit the lows it experienced in early 2016 when companies were concerned about slowing growth in China, she noted. But “there is a risk that softening business expectations damage growth in the months to come,” she went on. AFP
M&A
LVMH sells loss-making Donna Karan French luxury group LVMH is selling Donna Karan International, the parent of New York label DKNY, to U.S. clothing firm G-III Apparel Group in a deal valuing the loss-making fashion brand at US$650 million. The sale comes just over a year after a new design team had been put in place, showing how little patience LVMH has for underperforming businesses in the current tough trading environment. Analysts estimate DKNY’s annual sales at US$450 million to US$500 million, meaning G-III would be paying 1-1.5 times annual revenue, less than the 1.9 times LVMH paid when it bought the brand in 2001. Cash injection
Egypt to receive first tranche of Saudi loan Egypt will “soon” receive the first tranche of a US$1.5 billion loan from Saudi Arabia, an Egyptian minister said, a cash injection that could help to ease a dollar shortage that has weighed on economic growth. The first payment will be about US$500 million, Egypt’s Minister of International Cooperation Sahar Nasr said. The loan is one of a package of agreements worth US$25 billion signed during Saudi King Salman’s visit to Cairo in April, which include a US$16 billion investment fund and a plan to build a bridge connecting the two nations.
Private report
Brexit may erase US$1.6 trillion from global M&A New study forecasts a significant slowdown in Euro-zone growth and a 40 per cent drop in mergers in the region, excluding the U.K., in 2017. Ruth David
A disorderly exit by the U.K. from the European Union could wipe as much as US$1.6 trillion from future mergers and acquisitions, a new study says. The absence of a clear Brexit road map could lead to a cycle of political and market uncertainty and hit nearterm investment plans and business confidence, according to Baker & McKenzie’s Global Transactions Forecast, which is based on financial modelling by Oxford Economics. With growth forecasts for the U.K. economy halved to 1.1 per cent for 2017, merger volumes will also dip by at least US$240 billion in the next five years, according to the report. The uncertainty created by the U.K. June 23 vote to leave the European Union has already had an impact. Global M&A so far this year is down
16 per cent to US$1.5 trillion from the same period in 2016, according to data compiled by Bloomberg. Stock market sales have declined 63 per cent over the same period to US$206 billion, the data show. Yet it isn’t all gloom and doom. In the month since the U.K.’s referendum, about US$103 billion in deals involving European companies have been announced - including SoftBank Group Corp.’s US$32 billion bid for Cambridge, Englandbased ARM Holdings Plc and Parisbased Danone’s agreement to buy WhiteWave Foods Co. - according to data compiled by Bloomberg. “In the last few days we have seen evidence that the M&A market in the U.K. won’t come to a crashing halt even if it won’t be at its previous pace,” said Tim Gee, London merger partner at Baker & McKenzie. “London will also retain a remarkable
concentration of financial, legal and economic talent.” The impact of Brexit won’t lead to a global “Lehman moment,” and the study’s central scenario shows global merger activity “only modestly down for the next two years before fully recovering,” the report said.
“London will also retain a remarkable concentration of financial, legal and economic talent.” Tim Gee, London merger partner at Baker & McKenzie In a similar report in 2015, Baker & McKenzie forecast that fallout from a Greek exit from the euro could wipe as much as US$1.4 trillion from future M&A. Bloomberg News
Business Daily Tuesday, July 26 2016 15
Opinion Business Wires
The Japan News The taxi industry is improving its services to prepare for fierce competition with emerging on-demand ride-hailing services and other start-up companies. Taxi companies in Tokyo have recently submitted an application to the Land, Infrastructure, Transport and Tourism Ministry to allow them to lower the minimum fare. The ministry is now processing the application, which aims to reduce the minimum fare from the current ¥730 to around ¥410, and a new fare could be introduced as early as this year. Some companies have introduced services targeting children and expectant mothers, and are interacting with customers in multiple languages.
Will robots upend Asia’s development model?
Thanh Nien News Bank of India has opened its first branch in Vietnam with a capital of US$15 million, a move that is expected to help increase the countries’ trade activities, local media has reported. The branch, located in downtown Ho Chi Minh City, is the 61st overseas branch of the lender run by the Indian government, news website Saigon Times Online said on Friday. Bank of India hopes its presence in Vietnam as a practical support for the two countries’ partnership and trade activities, CEO Melwyn Rego was quoted as saying.
The Jakarta Post (Indonesian) President Joko “Jokowi” Widodo (pictured) has called on small and medium enterprises (SMEs) to participate in the tax amnesty program, stressing that the program is not only aimed at repatriating the assets of conglomerates but also improving the tax system. “SMEs with turnover of below Rp 4.8 billion will only be charged a 0.5 per cent rate [of total declared assets]. Join immediately, don’t be late,” Jokowi said in Medan. He further said the program provided a good opportunity for people to participate as it had received support both politically and from the public.
Bangkok Post The (Thai) Finance Ministry has suggested that the Board of Investment (BoI) grant investment privileges on a project basis instead of its current practice of approving one privilege for several projects for a single company. Deputy permanent secretary Prapas Kong-ied said the legal dispute between the government agency with Japanese electronic component and parts manufacturer NMB-Minebea Thai Ltd on investment tax incentives should prompt the BoI to reconsider its strategy. The problem arose due mainly to the net-off issue for foreign investment companies, which are generally granted tax breaks under the BoI’s investment incentives for many projects.
W
hen the Chinese appliance maker Midea Group announced a bid for the German robotics manufacturer Kuka AG this spring, it seemed like something of an omen. Kuka makes robots that specialize in assembling goods on a factory floor - exactly the kind of work that has lifted millions of Chinese out of poverty. After opening up to the world in 1979, China focused on tapping its vast pool of cheap labour. From T-shirts to Christmas ornaments, Chinese manufacturers could undersell the world on most any basic product simply by drafting another migrant farmer into a factory. Investment flooded into Chinese cities. The factories got bigger, better and more advanced. Wages rose, poverty fell, and a middle class emerged and quickly expanded. This was a well-worn path of development. Japan, Hong Kong, Singapore and South Korea all advanced in much the same way: beginning with simple products, such as garments and textiles, and moving their way up to electronics and other cuttingedge goods and services. As their firms and workers grew more experienced and accumulated more knowhow, their economies diversified and their people grew richer. Today, many developing countries are still counting on this model. The problem is that robotics may fundamentally upend it. Even as global growth slowed, industrial robot sales grew 12 per cent between 2014 and 2015, and have grown fourfold since 2009. As robots get cheaper and better, the advantage of employing a low-skilled labourer starts to fade. Even a lowly sweatshop worker will struggle to compete with a robot’s productivity, not to mention its low rates of error and other advantages. In other words, where poorer countries could once use their cost advantage to lure manufacturers, now all cost advantages are disappearing in the robotics age. A robot costs the same to employ whether in China, the U.S. or Madagascar. That’s why Adidas is now making shoes in Germany - in a largely automated factory, closer to its customers and free from the risks, costs and complexities of a lengthy supply chain. It’s not alone. Rich countries are repatriating the production of everything from apparel to electronics. Wal-Mart wants to re-shore the manufacture of US$50 billion worth of goods over the next 10 years, relying on increased speed and lower costs as key competitive advantages. The implications of this shift shouldn’t be
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Christopher Balding a Bloomberg columnist
underestimated. The days of international trade growing at near double-digit rates might be over. Trade has historically grown at twice the rate of gross domestic product, but in the past few years it has stagnated, leaving it 15 per cent lower than would be expected, according to the Peterson Institute for International Economics. It may well have permanently stagnated. In this new reality, development plans for poorer countries will have to be rewritten. But it isn’t at all clear how to do so. One step could be investing in “leapfrog technology.” Mobile phones are the much-cited example of this phenomenon: Thanks to cellular, poorer countries have been able to reap all the advantages that phones brought without the expense of laying land lines. In the digital age, it’s possible that other technologies could prove similarly transformative. China has become the largest buyer of industrial robots in the hopes that they’ll help manufacturers make the leap to advanced electronics. But such technology won’t do much good without a skilled workforce. A factory of robots will require minimal low-skilled labour, but it will need engineers and computer scientists. Investing in education - not just coding skills, but the ability to shift seamlessly between products and to create new products faster than competitors - will be critical. Developing countries should also consider programs to attract skilled labour. China and India, among others, have set up offices to lure home educated workers who have left for richer countries. Investment in people will be increasingly important, whether governments can afford it or not. Finally, countries trying to boost growth could improve governance and domestic policies. If trade is less important, they’ll need to encourage direct investment flows. If skilled workers are in demand, they’ll need to relax labour policies to attract educated migrants. And if ideas are more important than ever, they’ll need to make life easier for entrepreneurs. In short, they’ll need to solve their own problems. None of that is easy. And it may not even prove up to the challenge. But the robots are coming, one way or another. Developing countries are the least prepared for that shift - and have the most to lose. Bloomberg View
China has become the largest buyer of industrial robots in the hope that they’ll help manufacturers make the leap to advanced electronics
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16 Business Daily Tuesday, July 26 2016
Closing Cyber vision
SoftBank’s robot Pepper to be rolled out in Taiwan
island is also home of the robot’s contract maker Foxconn, formally known as Hon Hai Precision Industry Co. However, Pepper won’t be available SoftBank Corp’s human-like robot Pepper will for sale or to consumers yet in Taiwan, which like be rolled out in Taiwan later this year with about many other markets, has yet to widely adopt 100 rented units making their appearance in human-like robots as part of a regular lifestyle. The some banks and Carrefour SA shops, executives goal is to rent out 60 robots a month by sometime handling Pepper’s sales in the island said in the first half of 2017, Foxconn executive director yesterday. Taiwan is set to become one of the Lu Fang-ming told reporters at a briefing. Foxconn first markets outside of Japan to launch Pepper, unit Perobot Co, which is in charge of sales and a key plank in SoftBank founder Masayoshi Son’s vision of future technology centred on ‘internet of maintenance for Pepper in Taiwan, said Pepper things’, a network of devices, vehicles and building is available for lease in a two-year contract at T$26,888 (US$836.67) per month. Reuters sensors that collect and exchange data. The
Soccer push
In quest to conquer world, Chinese fans feel left behind Nation’s competition struggles to balance corporate participation with supporters’ values. David Stanway
B
ig money signings and investments in storied European clubs, and the backing of a president who is an avid soccer fan: things should be looking up for millions of Chinese supporting the ‘beautiful game’. Not so, say some long-time football enthusiasts like Bian Minming, who fear the game is being taken away from them. Chinese soccer’s new-found cash also means a deluge of heavy-handed corporate sponsorships, and Bian and others say that hampers Beijing’s aim of nurturing a grass-roots base for the sport and home-grown talent. All footballing nations have struggled to balance the interests of commercial sponsors with those of hard-core fans, but in China, encouraged by President Xi Jinping to become a soccer superpower,
investors hold all the cards. All 16 clubs in China’s top league have been forced to incorporate the names of new owners or sponsors in their team names - constant changes that irritate fans. Others clubs been forced to move home, sometimes more than once. “The football association needs to learn,” said Bian, who protested moves to rebrand Shanghai Shenhua, the club he follows. “The league shouldn’t allow clubs to keep changing names, because only then will they be able to attract more fans.” The Chinese football association did not respond to a request for comment. China is currently hosting some of Europe’s biggest clubs, who flock to China to tap a millions-strong pool of fans and some deep-pocketed investors. Manchester United had been due to take on Manchester City, now partChinese owned, in a pre-season match later yesterday at Beijing’s Bird’s Nest
Stadium - their first derby outside England - though the game was cancelled due to weather concerns and the state of the pitch. The buildup to that match, in the middle of a busy Chinese league season, had overshadowed even last week’s clash between Shanghai Shenhua and city rivals Shanghai SIPG. Buying foreign talent may increase interest - China spent more in the winter transfer window than the entire English Premier League - but as with the Gulf States, sports industry veterans warn it will do little to boost the home-grown talent that China needs if it is to achieve Xi’s ambition of one day winning the World Cup. China currently ranks 81st in the world, behind St Kitts and Nevis, whose population of 55,000 would fit into Shanghai SIPG’s stadium. “China’s top-down approach to everything does not fit football at all,” said Cameron Wilson, who runs Wild East Football, a news website devoted to Chinese soccer. “You need a solid and long-standing football culture to generate a supply of people who have grown up watching, playing and most importantly, loving football.”
Hundred-year clubs
Last year, China drew up a far-reaching reform plan aimed at reinvigorating the domestic game, which it said was “lagging in all respects”. High on its agenda was creating “hundred-year clubs” rooted in local communities and nurturing a genuine grass-roots sporting culture. To achieve this, it said it would curtail the power of rich investors to relocate or rebrand teams on a whim. But for now, money speaks loudest.
Even as it called for a bottomup sporting culture, China also demanded the establishment of ‘competitive brands’ and set a target of swelling the sports industry to 3 trillion yuan (US$450 billion)- six times the estimated value of the existing global sports market - by 2020. Of course, without sponsorship, China’s clubs would have no chance of importing international stars such as former Arsenal and Roma striker Gervinho or Senegal’s Demba Ba. Such banner signings have fuelled lucrative TV deals - but not yet homegrown success. “There are differences in culture, in the national personality and tradition,” said Waley Ho, founder of Reds in Shanghai, a Manchester United supporters group. “It will still need time.” Fans say the removal of sponsors’ names from club crests would go a long way. Shanghai SIPG, formed in 2005 and explicitly modelled on Manchester United - founded in 1878 - has already undergone two relocations and two name changes. It is now named after the Shanghai International Port Group, a state backer with the resources to pay a Chinese record of more than 50 million euros (US$55.15 million) to sign Brazilian international Hulk from Zenit St Petersburg. Bian and other Shanghai Shenhua fans protested in 2014 after their new owners, the Greenland Group, announced plans to change the club’s name and put the group’s logo on the club crest. The club did not respond to requests for comment. Despite a compromise, which saw the club rebranded as Shanghai Greenland Shenhua, fans speaking after last Sunday’s derby against Shanghai SIPG said they still hope the owners’ name can be removed - even if they can see an upside. “Without them, we wouldn’t have Demba Ba,” shrugged Bian. Reuters
Results
Trade
Barrel fluctuations
Mainland’s state firms post milder decline in profits
Portugal pushed down on Angola’s import table
Dip in oil prices exacerbates supply worries
China’s state-owned enterprises (SOEs) posted a milder decline in profits in the first half of this year as the economy showed signs of stabilization, official data showed yesterday. Profits fell 8.5 per cent year on year to 1.13 trillion yuan (US$169 billion) in the first six months, narrowing from a 9.6-per cent slump in the January-May period, according to statistics from the Ministry of Finance (MOF). In the first half, profits of SOEs under central government control dropped 9 per cent from a year earlier, while those of locally administered SOEs slipped 7.1 per cent, both milder than the decreases in the first five months, the MOF said. SOEs in the coal industry reported profits for the first time this year, but steel and non-ferrous metal industries continued to suffer losses. SOEs in the oil and chemical sectors posted substantial profit declines compared with a year earlier, while pharmaceutical and real estate construction companies posted big profit increases. SOE revenues edged down 0.1 per cent to 21.4 trillion yuan, narrowing from the 0.6-per cent drop in the January-May period. Xinhua
The United States climbed to first place as the origin of Angola’s imports in the first quarter of 2016, overtaking China and pushing Portugal into third place, according to finance ministry figures compiled by Lusa yesterday. Overall, in the first quarter of the year Angola imported 494 billion kwanzas (€2.7 billion) worth of goods, a 41 per cent drop compared with the same period in 2015. US companies exported 80.9 billion kwanzas (€442 million) in goods, a 62 per cent increase. This jump took the USA to the top place on the list, but it is not expected to stay there, as the exports were one-offs regarding different kinds of gas turbines for the state-owned electricity producer Prodel. China, which was the biggest Angolan supplier in 2015, saw its exports to the country fall 47 per cent, in the first quarter to 69.7 billion kwanzas (€381 million). Portugal is now in third place in the table it led until 2014 and in the first three months of this year its sales to Angola were 19 per cent lower than in the same period in 2014 at 66.2 billion kwanzas (€362 million). Lusa
Oil prices dipped yesterday, extending last week’s losses on fresh worries about a global supply glut as more US rigs come back online and the dollar strengthens. Both contracts sank Friday after a report showed the number of active US installations rose for a fourth straight week as firms are tempted to reopen them by the relatively higher prices. However, the increase in production adds to an already painful oversupply crisis. “Crude oil markets have been under pressure as oil supplies have started growing with the resumption of output from the capacity lost due to wildfires in the Canadian oil sands,” EY oil and gas head Sanjeev Gupta said in a note, referring to blazes that hit the country’s key oil fields. Gupta said media reports of increased production from Iraq have also added to market pressure. Official US data last week showed that while crude supplies decreased, gasoline supplies remained high even during the crucial summer holiday driving season. Prices have fluctuated between US$43 and US$52 per barrel since early June after falling below US$30 in February on the back of the world supply glut and weak demand. AFP