Top leaders in China to act cautiously on the property market Politburo Page 9
Friday, July 29 2016 Year V Nr. 1097 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Health
Limitations on Traditional Chinese Medicine in the European market Page 2
www.macaubusinessdaily.com
Society
Regulator
Social Security Fund annual surplus surges as gov’t injection soars Page 5
Chinese authorities are resisting pressure to reduce banks’ loan buffers Page 8
Package tour visitors drop by one fifth Travel
The number of visitors on package tours declined by 20.7 pct y-o-y in June, totalling 571,000. However, South Korean package tour visitors increased 125.8 pct and the number of visitors from the MSAR to South Korea also saw a significant increase of 611.4 pct. Lower base numbers from the previous year due to an epidemic outbreak might explain this. Page 2
A town of two tales
News outlet All About Macau has reported another land swap between local businessman Sio Tak Hong and the government. Sio gained the plot where L’Arc Macau now stands by swapping it with a smaller parcel occupying some 3,633 square metres in Taipa village.
Land Page 3
HK Hang Seng Index July 28, 2016
Society While some overseas Macanese are returning home drawn by better working conditions and emotional ties, some Portuguese people living in Macau for a few years are choosing to return to Portugal, to ‘take a break’ from increasing living costs and a deteriorating quality of life. Pages 6 & 7
Ticket to ride
Ride-hailing rules China yesterday announced new rules governing ridesharing services, making clear for the first time that they are now legal in the giant market where USbased Uber is at loggerheads with local rival Didi. China has become the world’s largest online car-hailing market, vice transport minister Liu Xiaoming told a briefing. Page 9 22,174.34 -44.65 (-0.20%)
Worst Performers
Belle International Holdings
11.06%
Hang Lung Properties Ltd
1.79%
Want Want China Holdings
China Resources Power
2.46%
New World Development
1.57%
CNOOC Ltd
-1.75%
Hong Kong & China Gas Co
-0.96%
Sun Hung Kai Properties Ltd
2.08%
MTR Corp Ltd
1.27%
China Petroleum & Chemical
-1.73%
Bank of China Ltd
-0.92%
Wharf Holdings Ltd/The
1.89%
Li & Fung Ltd
1.02%
Sands China Ltd
-1.64%
Hong Kong Exchanges and
-0.83%
Link REIT
1.83%
Sino Land Co Ltd
1.00%
Lenovo Group Ltd
-1.37%
China Construction Bank
-0.75%
-4.29%
AIA Group Ltd
28° 33° 26° 34° 26° 32° 28° 33° 278° 35°
-1.21%
Today
Source: Bloomberg
Best Performers
Source: AccuWeather
Great bargain
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Sun
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2 Business Daily Friday, July 29 2016
Macau Gaming
Galaxy issues one-month bonus to employees
manager grade or below will benefit from the bonus scheme. ‘GEG would like to take this opportunity to thank Local gaming operator Galaxy all of the team members for their Entertainment Group is dispensing a continuous contributions and efforts,’ “special bonus award” to its workers today, with amounts equivalent to each the company wrote. Earlier this month, another gaming operator, Wynn Macau employee’s one-month base salary also issued nearly 9,000 of its workers and guaranteed tips. According to an a ‘summer bonus’ equivalent to their announcement from the corporation, salary for one month. all eligible full-time workers at senior
Tourism
South Korean package tour visitors increased 125.8 pct y-o-y in June
Package tour visitation down 20.7 pct in June Mainland China still the main origin of package tour visitors and guests in the city in June. Nelson Moura nelson.moura@macaubusinessdaily.com
The number of visitors on package tours declined by 20.7 per cent year-on-year for the month of June, totaling 571,000, according to the latest data released by the Statistics and Census Service (DSEC) yesterday. Mainland China was still the main country of origin of inbound visitors on package tours with 442,000 travellers, albeit registering a 24.1 per cent drop year-on-year for the month of June.
The region with the second highest number of visitors on package tours to Macau after Mainland China was Taiwan, at 34,000, with South Korea taking third place with 31,000 visitors throughout the month. Visitation on package tours in June from Hong Kong, Taiwan, and Malaysia tumbled when compared to last year, with visits falling by 40.8 per cent, 27 per cent, and 38 per cent year-on-year, respectively. On the other hand, the number of package tour visitors from South Korea in June increased by 125.8 per
cent year-on-year, while package tours from Thailand registered a 48.4 per cent rise. From January to June of 2016, the number of visitors on package tours from Mainland China, Hong Kong and Taiwan decreased by 33.7 per cent, 37.6 per cent and 32.9 per cent year-on-year, respectively. Japan and Thailand were the only two countries of origin to see the number of visitors to Macau on package tours increase in the first half of the year, with an 8.3 per cent and 20.2 per cent increase year-on-year.
Going to South Korea
Outbound tourists from Macau using services of travel agencies reached 94,000 in June 2016, while the number of residents travelling on package tours reached 37,000, a 20.9 per cent and 21.7 per cent decrease from the same period last year, respectively. Mainland China was the main destination for Macau outbound tourists in June, representing 64.9 per cent of the total, followed by South Korea with 11.1 per cent, and Taiwan with 7.3 per cent. The number of visitors from the MSAR to South Korea saw a significant increase year-on-year of 611.4 per cent, something the report explained as being due to last year’s low visitor numbers to the Asian country due to the outbreak of the Middle East Respiratory Syndrome.
Hotel guests and rooms increasing
In June, a total of 935,000 guests checked-in to hotels and guesthouses, a 16.5 per cent year-on-year increase, while the number of guest rooms went up by 2,500 to 32,000 and the total number of hotels and guesthouses
increased by five to 105. Guests from Mainland China accounted for 62.3 per cent of the total, or 583,000; guests from Hong Kong comprised 15.5 per cent of the total, at 144,600, and Taiwan guests accounted for 4.7 per cent at 44,000. The number of guests from Mainland China, Hong Kong and Taiwan registered double-digit growth in June year-on-year, at 17.2 per cent, 13.0 per cent and 39.2 per cent respectively. Five-star and four-star hotels accounted for 87.9 per cent of the total number of rooms in June, with 21,000 and 7,700 respectively. The average occupancy rate of hotels and guesthouses in June rose by 6.6 percentage points year-onyear to 82 per cent, with 4-star hotels having the best occupancy rate of 85.7 per cent, up by 12.4 percentage points year-on-year.
A good first half
In the first half year of 2016, the number of guests of hotels and guesthouses totaled 5.4 million, a 12.8 per cent increase year-on-year, while the average occupancy rate in the first six months of the year stood at 78.6 per cent, with the average length of stay at 1.4 nights. Of the total number of guests in the first half of 2016, those from Mainland China accounted for 63.5 per cent, or 3.4 million. Those from Hong Kong comprised 14.2 per cent of the total, at 774,900, and guests from Taiwan represented 4.2 per cent, at 233,800. The number of Taiwanese guests in Macau from January to June saw the biggest increase when compared to the same period last year, a 31.9 per cent rise, followed by Hong Kong with 23 per cent and Japan with 19.8 per cent.
Health Limitations on Traditional Chinese Medicine in the European market
Quantifiable medicine Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Just across the border in neighboring Zhuhai, an industrial complex for Traditional Chinese Medicine (TCM) is growing - eventually set to occupy 500,000 square meters. The purpose – the expansion of TCM to the world, utilizing Macau as a platform to expand into European markets and to take advantage of Portuguese-speaking countries as both source points for materials and research, and eventually sales points as well. Aside from addressing concepts of traditional medicine itself, yesterday’s 2016 China (Macau) Traditional Medicine International Cooperation Forum addressed the issues behind this expansion. “We still have a long way to go and we need to provide sufficient scientific evidence for our drugs [TCM] to be sold in Europe, otherwise they could be blacklisted,” notes Professor Mei Wang, Director of SU Biomedicine allied to the Netherlands Organization of Applied Scientific Research.
The professor points out that, a l th o u gh th e r e a r e “ 60 TCM medicines that are in the European pharmacopeia,” the main problem in selling these products to the European market is their licensing, which has to be done through a process of ‘national procedures’, in which “competent authorities of member states,” decide whether the product will be allowed in, based on an evaluation of the products. According to Professor Wang, currently 60 TCM products are in the European pharmacopeia, but only three products classified as TCM drugs have been “successfully registered in the European Union (EU).” The reason is due to a combination of factors. “In the EU, they have very stringent standards for medical products. You must provide quantifiable data to support your argument,” notes Wang, pointing out that there are differences between Western medicine and the TCM approach, which is more holistic. “It’s a very difficult issue for experts to define the frontier between the physiological effects and the pharmacological effects,” explains Maria Céu da Costa – Coordinator of
Applied Research at ERISA in Portugal and a speaker at the event, noting that the small number of traditional medicine products registered in Portugal are “related to patents”. To be able to distribute a product, oftentimes it has to be reclassified, notes da Costa. “Most TCM are in the market as food supplements,” she states, adding that the opportunity and demand for the types of products exist, but often the product can’t enter the market based on its classification. However, even once the licensing
issues are solved, the marketing issues then present themselves. Da Costa notes that from a sample of 71 products of TCM origin, only 50.7 per cent of them retained their original Chinese names and composition, while 49.3 per cent of the 71 had a similar composition but adopted a more western name and packaging. Despite this change for marketing purposes, da Costa notes that: “the European consumer is very fascinated with a different style of life associated with Chinese culture,” adding that: “it is a very good moment to make that bridge with the proper standards and high level quality,” to bring the products to market. The Forum concludes today.
Business Daily Friday, July 29 2016 3
Macau Crimes
Police crack a false employment case non-resident workers several times but then The Public Security Police Force (PSP) have cracked a false employment case and exposed two individuals who were profiting illegally by making use of the quota of nonresident workers to assist foreigners to obtain local visas. According to an announcement yesterday, the case took place in early July. The immigration department found a Macanese woman had applied to employ
cancelled them soon after. As a result of the investigation, a Vietnamese woman admitted that she benefited by cooperating with this Macanese woman in assisting others to get local visas easily through applications for non-resident worker quotas. The two suspects have been transferred to the Public Prosecutions Office for being involved in several “forged document” cases.
Land Sio Tak Hong exchanged a plot in Taipa village for L’Arc in 2003
From car park to L’Arc Local businessman Sio Tak Hong reportedly swapped a small parcel of land occupying some 3,633 square metres in Taipa village, for the larger L’Arc Macau plot in 2003.
A
company owned by local businessman Sio Tak Hong reached a land swap deal with the government in 2003 - by giving up a plot of land opposite Iec Long Firecracker Factory in Taipa for the site where L’Arc Macau is now located, Chineselanguage news outlet All About Macau has reported. According to official dispatch no.69/2003, the company named Companhia de Desenvolvimento Tong Ieong Limitada declared that they had returned a plot of land occupying 3,633 square metres on Rua Fernão Mendes Pinto in Taipa to the government. The aforementioned parcel, located in Taipa Village, includes the current site of an open-air public car park and part of the hillside behind it. The 2003-dispatch, signed by the disgraced former Secretary for Transport and Public Works Ao Man Long, also announced that the government compensated the company by offering it lot A2/j in NAPE covering 7,128 square metres, for the purposes of building a fivestar hotel, in addition to residential, c o m m e rci a l a n d ca r p a r ki n g purposes. The ex-official stated in the announcement that the original land use terms for the Taipa plot granted to the company, had to be halted due to the consideration of maintaining the consistency of the existing architecture in the district.
The report by the news outlet indicated that the developer had planned to build a tall residential building on the Taipa site in 2002, however the government later suspended the project due to objections of those in the neighbourhood. Following the land swap permit, the company was renamed L’Arc
Development Limited in 2004, when the executive director of SJM Holdings Ltd Angela Leong On Kei and Hong Kong-listed New Century Group became new shareholders of the company. In addition, the land swap deal in 2003 restricted the height of the project on the Nape plot to 27 storeys, but the restriction was loosened in 2009 by Ao’s successor Lao Si Io by 2.3 times, to allow for a building of 62 storeys. Sio Tak Hong was also involved in other deals surrounding a series of land swaps originating from the Iec Long factory, but such deals were
declared null and void by the graft watchdog the Commission Against Corruption earlier this month. A report by the anti-corruption body indicated that a unit controlled by Mr. Sio was able to exchange a 1,655 square metre plot that it owned inside the Iec Long factory, for a 152,073 square metre land plot in Baía da Nossa Senhora da Esperança, via a series of transactions and land swaps through various companies. The report also noted that these land swap deals were proposed by Mr. Sio’s company and dispatched by the then-director of the Land, Transport and Public Works Bureau, Jaime Roberto Carion, supposedly acting as a representative of the SAR Government.
Banking
Insurance
Banking
OCBC sees y-o-y profit decrease in Q1
AIA Group reports record growth
Standard Chartered elects new Chairman
Banking and insurance giant OCBC saw a three per cent quarter-on-quarter rise in profits for the second quarter of 2016 – amounting to S$885 million (MOP5.23 billion/ US$655.3 million), it announced yesterday in a filing to the Hong Kong Stock Exchange. The figure however represents a 15 per cent year-on-year decrease. The group attributes its drop in profit, compared to last year, as being due to a ‘lower insurance contribution and increased allowances which were largely set aside in the first quarter of 2016,’ it stated in the filing. Operating expenses for the period amounted to S$1.86 billion. By segment, OCBC’s Global Corporate/Investment Banking segment dominated its first half-year operating profit before tax (after allowances and amortization), making up 46 per cent, followed by the group’s Global Consumer/Private Banking sector, with a weight of 25 per cent. The company’s operations were dominated by its Singapore operations in the first half of the year, accounting for 50 per cent of the total profit before tax– at S$1.08 billion – a 25 per cent drop year-on-year. This was followed by its Greater China operations, at 22 per cent, of which eight per cent corresponds to the banks OCBC Wing Hang operations. Overall the Greater China segment generated S$475 million, a three per cent drop year-on-year. The group’s OCBC Wing Hang segment saw a three per cent year-on-year drop in profit for the second quarter of 2016, however a quarter-to-quarter increase of 10 per cent – amounting to S$601 million for the quarter.
AIA Group saw record growth in the value of new business (VONB) for the first six months of the year, ending May 31, it noted in a filing to the Hong Kong Stock Exchange. VONB grew 37 per cent for the period, totaling US$1.26 billion (MOP10.06 billion). The group earned a total of US$1.96 billion in operating profit for the period, a 14 per cent increase year-on-year, reflected in a 14 per cent increase in the group’s operating earnings per share. AIA, which operates a wholly-owned branch in Macau, saw a contribution of US$537 million in VONB from its Hong Kong and Macau segment for the group during the period, a 60 per cent increase. This was driven by ‘a significant increase in agent productivity, growth in the number of active agents and an excellent result from our partnership business,’ notes the release. The segment also earned the insurance giant US$670 million in operating profit after tax, as compared to US$585 million seen for the same period last year. “The strength of this performance reflects the disciplined execution of our growth strategy, the resilience of our operating model and our commitment to building a high-quality, sustainable business for the long term,” notes the group’s CEO and President Mark Tucker. “Asia is the most attractive and dynamic region in the world for life insurance,” states Tucker.
International banking group Standard Chartered’s current chairman Sir John Peace will be stepping down as Director and Chairman on December 1 of this year, to be replaced in the chairman role by José Viñals, the company announced yesterday in a filing to the Hong Kong Stock Exchange. “I am honored to be joining Standard Chartered. It’s a fabulous organization with a rich history and enormous potential,” commented Viñals. The appointment comes after an extensive search, notes the company’s Senior Independent Director Naguib Kheraj. “We are delighted to have concluded the search,” notes Kheraj, “he [Viñals] is widely acknowledged as an expert on the world financial and regulatory landscape and has a wealth of knowledge in the market in which Standard Chartered operates.” José Viñal currently acts as the Financial Counsellor and Director of the Monetary and Capital Markets Department of the International Monetary Fund (IMF), and as the IMF’s chief spokesman on financial matters. He began his career as an economist. In his new position, José Viñals is set to receive GBP1.25 million (MOP13.16 million) annually, as well as ‘standard benefits for the role’. The group operates in the Corporate and Institutional Banking, Private Banking, Commercial Banking and Retail Banking segments, achieving operating profit for 2015 amounting to US$4.96 billion, of which US$3.94 billion was derived from its Greater China/ North Asia and ASEAN/South Asia segments.
4 Business Daily Friday, July 29 2016
Macau Opinion
Society Public contributions account for less than one pct of the Fund’s total revenue
Social Security Fund annual surplus surges as gov’t injection soars Pedro Cortés The end of an incompetent era This Sunday, 31 of July 2016, is the last day of the term of the concessions of lands in the Nam Van Area. And they will expire, for sure, if we are to believe what was said by our Chief Executive in his latest address. Billions and billions of dollars will be requested from the Macau Special Administrative Region to compensate - in most of the cases - the incompetent (in) actions of the third Macau Government, including the person who has been responsible for Public Works since the Ao Man Long case. A huge amount of money from public reserves will be paid to the concessionaires who tried everything to have the land plots developed, but saw only inaction from a Secretary during almost eight years. He, together with members of the Legislative Assembly who voted in favour of the new land law, without reservation and without analyzing the outcome of the pending cases, must be also accountable for this. In case the Macau SAR is obliged to compensate the concessionaires – and I cannot believe it will not be, as I still believe in justice – then there is only one way to save our public funds and our population: initiate proceedings against the former Secretary and all who were involved in these cases, as well as the members of the Legislative Assembly who, instead of defending our SAR and pursuing the public interest and what was stated in the law, have driven the city to a situation whereby what has been done in the last 15 years could have very serious consequences. In this specific matter of the Nam Van Lake area, but also in relation to other plots of land, we may consider that the old Macau has come to an end an incompetent and painful end. This may be good news, of course. We now have a Secretary who not only abides by what is stated in the law, but can, at the same time, put aside hidden interests of powerful people and make things happen. On the other hand, I have to admit to myself that this case – among others – is a clear indication of the incompetence of most of our leaders, who, delighted by the piles of dollars generated by the gaming industry, have not prepared the city for the aftermath. I am of the view that now, high level officials in Beijing may be considering taking measures against them. Whether they are strong or not, I cannot tell. But, in some countries, this type of situation could have been a strong reason for Prime-Ministers or Ministers to resign. I guess it will not be the case in Macau.
Pedro Cortés is a lawyer and frequent contributor to this newspaper.
The 2015 annual report of the Social Security Fund shows that it is still heavily reliant on the MSAR government financially, as contributions remained low and the distribution of social benefits increased. Kam Leong kamleong@macauusinessdaily.com
T
he Social Security Fund (FSS) registered a jump of 45.6 per cent year-on-year in its surplus for the whole year of 2015, amounting to MOP16.2 billion (US$2 billion), driven by its extended financial reliance upon the government during the year, according to its 2015 annual report released yesterday. Last year, the Fund’s total revenue surged by 40.4 per cent year-on-year to MOP19.7 billion. Meanwhile total expenses increased by nearly 20 per cent year-on-year to MOP3.4 billion –primarily spent on supporting pensions and other social allowances. Of the total revenue of the autonomous body, some 94 per cent was gained from the SAR government’s own allocations, namely, the extra injection of last fiscal year, appropriations from gaming income, as well as the allocation of one per cent of the 2015 fiscal budget. As announced in the 2015 budget, the government injected an extra MOP13.5 billion to the Fund last year, 170 per cent more than the MOP5 billion in 2014. The 2015 budget plan stated that the increase aims “to ensure sustainable operation of [the Fund].” The MSAR government plans to inject an extra MOP37 billion in total into the social security body between 2013 and 2016. Despite the Social Security Fund relying heavily on government contributions, the government’s appropriation of the gaming income
to the Fund plummeted by 34.4 per cent year-on-year to MOP3.86 billion for 2015, whilst the transfer of one per cent of the 2015 fiscal budget also dived by 31.9 per cent year-on-year to MOP1.2 billion. The Fund noted in the report that the decreases are due to declines posted in the gaming revenue of the Special Administrative Region for the year, which dropped by 34.3 per cent year-on-year to MOP230.8 billion, according to the official data of the Gaming Inspection and Coordination Bureau (DICJ).
Minimal contributions, increased allowances
During the year, the Fund’s revenue from the contributions of local employers and employees was still minimal, not even accounting for one per cent of the total revenue, even though the amount of contributions registered a slight increase of 2.9 per cent year-on-year to MOP189.7 million. From 2015 until the present, monthly contributions to the fund by employees remained at MOP45, as there has been no consensus between the employer and employee parties on the Standing Committee for the Social Co-ordination of Social Affairs regarding how to increase the current contribution to MOP90. On the other hand, of the total expenses, nearly MOP3 billion were spent on social benefits, including some MOP2.6 billion on pensions for the elderly, which rose by some 15 per cent year-on-year. According to the annual report, a total of 85,012 eligible elderly residents received pensions last year.
The number includes some 51,988 of those withdrawing their pensions in advance, involving some MOP1.5 billion, which represents a year-onyear increase of 17.2 per cent and 20.7 per cent year-on-year, respectively. Currently, the Fund allows beneficiaries aged 60 but below 65 years of age, to withdraw their pensions in advance. Meanwhile, the amount of approved disability pensions during the year jumped by nearly 32 per cent yearon-year to MOP153.4 million, as the number of beneficiaries increased by 21 per cent to 3,842, compared to 3,181 one year ago. Other allowances, namely for unemployment, sickness, births, marriages and funerals, also went up by 17.8 per cent year-on-year to MOP42.6 million, benefiting a total of 17,448 residents. I n p a r t i c u l a r, t h e n u m b e r of approved applicants for unemployment allowances went up by 54.4 per cent to 4,162 during the year, totaling some MOP16.3 million, a jump of 61.4 per cent year-on-year.
Investment return rate dives
Meanwhile, the Fund’s financial investment return rate dropped by 4.78 percentage points to 1.2 per cent in 2015. It explained in the report that the decrease was due to “the global financial markets being extremely unstable” during the year. As at the end of last year, the total investment assets of the body amounted to MOP53.3 billion, of which nearly 60 per cent were bank deposits, amounting to MOP31.2 billion, while international financial investments accounted for some MOP21.5 billion. Its revenue from investment, meanwhile, declined by 91 per cent year-on-year to MOP39.9 million last year, down from MOP448.3 million in 2014, according to the report.
Law
Tightly controlled elections Election Law changes are to be presented “after summer” this year, while public consultation shows residents want tighter control of candidates’ expenses. Nelson Moura nelson.moura@macaubusinessdaily.com
Macau residents want stricter rules to be adopted through revisions to the Election Law, according to the final results of a public consultation report presented yesterday at the Public Administration and Civil Service Bureau (SAFP). F r o m M a rch thi s y ea r, th e government launched a 30-day public consultation on revisions to the Legislative Assembly Election Law. The goal is to have the revised law concluded before the next elections for the Legislative Assembly (AL) in 2017. During yesterday’s press conference to present the results of the consultation, Commission Against Corruption (CCAC) Assistant Commissioner, Lam Chi Long, stated they expected the changes would be presented to the AL “this year after summer”.
outside MSAR borders, and whether individuals committing infractions in the name of collective entities should be penalized under the law. In response, Lam Chi Long stated that the new electoral law revisions would be applied to infractions outside of the MSAR through cooperation between judicial systems, and that individuals
committing electoral law infractions for collective entities could be subject to legal penalties. During the consultation process, r esi d e n ts a l s o s u gg est e d th e government should focus more on reinforcing control of candidates’ expenses by reducing the maximum limit. It was recommended that a subsidy for auditing expenses could be provided. It was also proposed that the Electoral Affairs Commission (CAEAL) should become a permanent entity, and should include representatives from CCAC and the Public Prosecutor’s Office (MP).
Not enough
When it comes to preventing election law infractions, respondents questioned the dissuasive effect of the proposed fines, the reach of the new law on infractions made
Representatives from CCAC, the Public Administration of the Civil Service Bureau and the Secretary for Administration and Justice attended the media briefing.
Business Daily Friday, July 29 2016 5
Macau
Property
Industry insiders calling the bottom of Macau’s property market
Property market buoyed After having plunged by a third since 2014, Macau’s housing prices may get a boost amid signs that a two-year casino slump is near its end.
T
he worst may be over for Asia’s worst-performing property market. Macau’s housing prices, which have plunged by a third since 2014, may get a boost amid signs that a two-year casino slump in the Chinese gambling mecca is near its end. A private equity fund managed by Gaw Capital Partners sold almost 90 per cent of the units it offered on the first day at a development in early July, with evidence of buoyant demand from local buyers. Billionaire Sheldon Adelson, whose firm owns Macau’s largest casino operator, expressed optimism on a recovery in the hard-hit betting industry, fueled by recreational gamblers and tourists, joining analysts at JPMorgan Chase & Co. in predicting a turnaround. The fortunes of the former Portuguese colony are deeply entwined with gambling. The gaming industry, dominated by casino companies such as Adelson’s Las Vegas Sands Corp. and Wynn Resorts Ltd., accounts for half of gross domestic product and a large chunk of employment in city dubbed the Las Vegas of Asia. As China’s anti-corruption push in 2014 drove big spenders away, housing in Macau suffered a deeper and more prolonged slump than in Hong Kong, where prices are down 11 per cent from a peak in September. “There is almost a direct correlation between the decline in gross gaming revenues and pricing in the mass residential market,” said Macau-based Tom Ashworth, principal of Sniper Capital Ltd., which manages the London-listed Macau Property Opportunities Fund Ltd. “There are
signs of a pick up,” with the market potentially at a “bottom,” he said. Jones Lang LaSalle Inc.’s Jeff Wong is also calling the bottom of Macau’s property market amid strong demand from domestic buyers, who now account for virtually all home purchases. A 10 per cent tax on foreign buyers and banking regulations that restrict mortgages to 50 per cent of a property value has seen Chinese buyers and other speculators exit the market, according to Wong, head of JLL’s Macau residential practice. “We are at the bottom already,” Wong said. “Many undervalued properties are being absorbed by end users or long-term investors.” Though those demand curbing measures are likely to stay in place, there are signs the mood in the housing market is lifting. In April and May, sales transactions reached 2,123, the highest two-month period since 2013, and exceeding the 1,739 units sold in the same period in 2014 when prices hit their peak, according to data provided by Sniper Capital.
30pct discount
Gaw Capital sold 175 of 200 units on offer at the unveiling on July 2 of Oscar Crescent, a development in Macau’s Taipa district. Prices at the luxury development, which features Miele appliances and views of the Macau Jockey Club, range from HK$8,500 (US$1,095) to HK$11,500 per square foot. All but one were bought by locals. “These prices are 30 per cent off what we could have sold them for two years ago,” said Goodwin Gaw, chairman of Gaw Capital. “They are equivalent to most New Territory
prices,” he said, referring to a district of Hong Kong with the city’s least costly housing. Though direct comparisons aren’t possible, JLL’s Wong said that equivalent properties in Hong Kong’s upscale Mid-Levels district would cost more than two-and-a-half times as much. Prices for the most expensive units at Macau’s One Central, a waterfront luxury retail, residential and hotel complex developed by Hongkong Land Holdings Ltd. and Shun Tak Holdings Ltd., have dropped to about HK$13,000 per square foot from HK$20,000 at their peak, Wong said.
Macau’s boom
During Macau’s boom that peaked in 2014, housing prices more than quintupled over a six-year period, as Sands China Ltd., MGM China Holdings Ltd. and Galaxy Entertainment Group Ltd. opened casinos that lured high-stakes mainland gamblers. Then prices hit the skids as Chinese President Xi Jinping’s clampdown on corruption and tighter government restrictions on Chinese using credit cards to finance their wagers started to bite, depressing gaming revenue. Macau’s gross domestic product contracted 20.3 per cent in 2015, and shrunk 13 per cent in the first quarter of this year. Home prices have declined almost 35 per cent from a high in April 2014. In a July 24 note, JPMorgan said Macau’s gross gaming revenue will “finally” turn positive by the fourth quarter from a year earlier, increasing 2 per cent. New projects such as Wynn Palace, Wynn Macau Ltd.’s new casino on the Cotai Strip, and Sands China Ltd.’s Parisian have the “best chance” to underpin demand, JPMorgan said. Year-on-year gross gaming revenues fell in June for 25 consecutive months.
That could help improve demand for housing, which is dominated by Hong Kong developers such as Hongkong Land and Shun Tak and property funds. Grant Govertsen, an analyst at Union Gaming Group LLC, is among those closely watching the opening of Wynn Palace in August for any sign of a pickup in gambling activity that could feed through to the housing market. Macau Chief Executive Fernando Chui Sai On also said the economy may be turning the corner. “Macau’s gaming industry and
“There is almost a direct correlation between the decline in gross gaming revenues and pricing in the mass residential market” Tom Ashworth, Principal of Sniper Capital Ltd.
the whole economy will continue to adjust, but the decline may shrink to 7.2 per cent this year and even resume growth in 2017,” the city’s top government official said in a televised session of the city’s legislature Wednesday. “It’s a good time for Macau to re-position after a 25-month gaming revenue drop.”
Property ‘bear’
Not everyone is optimistic about the prospects for a gaming industry turnaround, as spending from Chinese high rollers, or the so-called “very important persons,” remains muted. “The two markets, property and gaming, go hand in hand,” said Alfred Lau, a Hong Kong-based analyst at BOCOM International Holdings Co. “We do expect a pick up in mass-gaming revenue to continue, but it is not strong enough to bring up overall gaming revenues,” because the VIP segment is still weak, he said. “I am not only a property bear, I am a gaming bear.” While prices are stabilizing, it will take some time for the market to claw its way back, Sniper Capital’s Ashworth said. “People are holding back and waiting,” he said. “This won’t be a V-shaped recovery. Confidence will return once gaming revenues stabilize.” Richard Yue, is the Hong Kongbased chief executive officer at fund manager Arch Capital Management Company Ltd., which is developing the seven-tower One Oasis project close to the Cotai Strip with Hong Kong builder Nan Fung Development Ltd., agrees. “For the time being, we believe the market has bottomed out,” he said. “We have a couple of phases left to go, and not in a rush to complete everything. The market will only get better with time.” Bloomberg
6 Business Daily Friday, July 29 2016
Macau From Macau to Portugal New trend of Portuguese people returning Portugal
Até já, Macau While previously a new wave of Portuguese were arriving in Macau, largely due to the European financial crisis, a reverse trend has now been observed – after a few years of residing here, many are choosing to leave - as some put it, “to take a break”. Joanne Kuai joannekuai@macaubusinesdaily.com
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or s o m e P o r t u g u e s e originally from Portugal, coming to Macau to live happened as some sort of an “accident”. With some curiosity during travelling, Geneveva Rodrigues postponed her return flight to Lisbon for three weeks to “explore”. A job opportunity then came up and she took it, and now she has lived in the city for around two and a half years. Currently working as the marketing manager at Pacha Macau, Ms. Rodrigues, however, has made plans to leave Macau in October. “I never liked the city itself besides my job, and I simply reached the saturation limit of this little ‘village’ without a soul, and I realised that I can’t stand staying here any more,”
Pledged help
Following the return of Macau’s sovereignty to China in 1999, hundreds of Portuguese and Macanese who were worried about the changes Chinese rule might bring, left the city. At the time there were reportedly some 25,000 Portuguese and Macanese residents. A new wave of Portuguese have arrived over the past few years, mostly due to the European financial crisis. Currently, according to Mr. Manuel Ricardo da Silva, Chancellor at the Consulate General of Portugal in Macau and Hong Kong, about 5,000 people originally from Portugal now reside in Macau, “according to our consular registration records”. “Although a slight increase [in the number of Portuguese residing in Macau] has been noted between 2012 and 2014, the evolution has been considerably stable throughout the last few years,” added Mr. Ricardo Silva. As some Portuguese complain about the ‘limited space’ while living in the SAR, and the increasing difficulty in obtaining a residency permit (also know
says Ms. Rodrigues. The city didn’t leave a good first impression on Geneveva, as “when I arrived in Macau, I was shocked with the bad customer service at the restaurants and shops … The people that work there act like they are doing us a favour with a bad face instead of being polite to the customers! I never saw something like this!” Geneveva believes Macau has “no lifestyle at all, no entertainment, no movement, no fashion”. In regards to nightlife, the expert in the field says “most of the people don’t know how to party and have fun...I just see the people in the VIP tables opening a lot of bottles but sitting there without any interaction between them, without dancing... So boring! It might be a culture thing!” Being a “beach girl” living in a city “without a decent beach”, and the “intolerable humidity” one can
as a BIR) or even a work permit (also known as blue card), the Chancellor told Business Daily that the Consul General of Portugal in Macau and Hong Kong, Mr. Vítor Sereno has been closely monitoring this issue and has established frequent meetings and contacts with the local authorities, specifically with the Office of the Secretary for Security, as well as the Secretary, Mr. Wong Sio Chak himself. “The cooperation between us and the said authorities has always been carried out in a positive way,” Mr. Ricardo Silva indicated. The Chancellor added that as mentioned by the Chief Executive, Fernando Chui Sai On during the celebration of the Portuguese National Day on June 10 at the Consular Residence, Macau is home to many Portuguese nationals who are living and working here. This is the place where many Portuguese have built their homes and they are always welcome. “The Chief Executive recognizes that the Portuguese community plays an important role in helping the Macau SAR to grow and prosper.”
hardly ever get used to, Geneveva has decided that “it is time to move on and have my life back in Lisbon next to my family and friends, to maintain my health, sanity, and overall happiness”.
Community
Born and raised in Macau, Mané Crestejo “tried not to have any expectations because Macau was different” when he returned to the SAR two years ago after living in Portugal for 18 years. “However, what I ended up finding was that although the Portuguese community was reduced compared to what it was before the handover, they’re still grateful for what Macau has provided, still provides and will continue to provide. It’s like the gift we can’t seem to let go of and give back,” says Mr. Crestejo. Quitting his job as a clerk at the Portuguese Consulate, Mané is planning to leave Macau by the end of July. During his stay, while “having a strong and friendly Macanese community that makes you feel integrated aside from having more and more people from the surrounding areas flood in,” on a negative side, Mr. Crestejo points out that “health care is too expensive” and “rents are also too high forcing most people to keep relocating from year to year, making long term planning very difficult”. The feeling is shared by lawyer and legal consultant Hugo Sousa, who says “the living conditions are deteriorating quickly due to soaring housing prices and cost of living… the lack of a modern and efficient public healthcare system and better public transportation is a social problem that needs to be tackled.”
Part of a journey
“This city has a lot to offer both to locals and expats although it can also be claustrophobic and overwhelming. Macau became a second home to me, my foothold in Asia,” says Hugo Sousa. First arriving in the spring of 2008, and being back and forth between Macau, Portugal and Beijing, Hugo Sousa’s most recent ‘long-term’ stay in town has lasted for two years as a legal advisor for a local company. “The overall experience of working and living in Macau in the last seven or eight years has been incredible to say the least. I have faced many challenges and hardships here, but looking back, I see it as an adventure and a great opportunity,” says Mr. Sousa. “Macau gave me the chance to discover different countries and cultures and explore fantastic professional opportunities. I’m very thankful to those who challenged me to come and gave me the support I needed.”
Exploring professional opportunities is among the most popular reason that people choose to come to Macau in the first place. With both Portuguese and Chinese being the official languages here in the SAR, Mr. Sousa “finds it really cool to be in China and to be able to speak my mother language in a court of law or take part in the Administration. It is such a privilege”. However, “as a lawyer, I’m concerned that the justice system is deteriorating and about the disdain some show towards the rule of law and human rights. There is clearly a long and arduous way to go towards a more equal and fair society and more quality of life for all who live here, residents and expats”.
“I mostly enjoy the people and the local culture, although I have that funny feeling of never quite understanding what’s going on” Hugo Sousa
Taking a break
“I mostly enjoy the people and the local culture (although I have that funny feeling of never quite understanding what’s going on),” Hugo says. Upon his departure, there might be some things that he will miss: “the mix of cultures and cosmopolitanism, the religious and cultural tolerance towards foreigners, and of course the food, especially Cantonese cuisine and dim sum, apart from Asian cuisine and Portuguese as well.” Rather than the thought of ‘leaving Macau’, Hugo considers his next step more like ‘taking a break’. Planning to “enjoy a well-deserved rest with friends and family in sunny Portugal,” he is also mulling the possibility of continuing his studies in Law. “My plan is surely not written in ink, as I always follow my gut and my heart. I hope Macau, with all the good things and all the hardships, has made me a better and stronger human being, more able to face the challenges ahead,” says Hugo. Mané is now leaving for Portugal, but will still keep an eye open for opportunities around, to continue pursuing his career in music and acting. Resolute to leave, Geneveva nevertheless leaves with a nostalgic note: “I will miss all the friends that I made here and in Hong Kong, but they can always visit me in Portugal!”
Business Daily Friday, July 29 2016 7
Macau
From Portugal to Macau Emotional ties and better working conditions are leading Macanese to return home
Coming home A lack of career opportunities in Europe and homesickness has led many Macau natives who immigrated to Portugal to return to their hometown Nelson Moura nelson.moura@macaubusinessdaily.com
Macau immigrants to Portugal are returning to their hometown for better work opportunities and life quality, according to news agency Lusa. Portugal’s economy, badly hit by the 2008 financial crisis, has shown signs of slight improvements in the last few years, with gross domestic product growing 1.5 per cent at the end of 2015 and the unemployment rate falling to 11.9 per cent in the same period, according to Statistics Portugal (INE). However, growth stagnated in the first quarter of 2016, with work opportunities still scarce in the country’s weakened job market. For many Macanese who immigrated to Portugal, the lack of opportunities for career progression and time wasted commuting to work, are some of the main reasons which have led them to return to Macau.
Homesick
“I’ve always wanted to return. I’m a son of this land so it’s always been in the back of my mind,” Antonio Teixeira, a computer technician told Lusa. Like many residents of the territory at the time, who believed the territory’s economic situation would worsen after the city returned to Chinese sovereignty, Teixeira left Macau in 1999 to study in a Portuguese university. He started working in Portugal in 2007, but the poor job opportunities there took him to Spain in 2012. “In Spain, work conditions were better, but in the end I decided that if I was going to leave Portugal, I would rather go back home to Macau,” Teixeira told Lusa. Besides financial stability, Teixeira believes the city of his birth “offered a better post-work life, not just a house-work routine from Monday to Friday,” claiming in Portugal people “lose a lot of time commuting.” Since he visited Macau regularly throughout the years, adjusting to the “shock” of living again in a city
whose population has increased almost 50 per cent since the handover was “gradual”. “There’s a lot more people and confusion, and housing prices are a big concern. But there is still much that exists, there is still the old Macau,” Teixeira added.
Career city
With its double-digit economic growth since the handover, mainly due to the gaming boom, and an unemployment rate that went from 6.6 per cent in 2000 to 1.7 per cent by the end of 2014, suddenly the city seemed to offer better opportunities for these former residents. Macau natives generally enjoy the advantage of having a Resident Identity Card (BIR) in Macau, exempting them from having to get a work permit. In addition, besides already having families in the city, most have a knowledge of Portuguese and Cantonese, the two official languages. Henrique Siqueira, a clinical analyst specialist, left Macau to Portugal in 1995 when he was just eight-yearsold, as his family expected the situation in the territory to worsen after the handover. However, as he started to work in
Portugal, the realization of the lack of career opportunities there made him believe coming back to Macau could be a good move. “I had a job in Portugal, but as an ambitious person, I wanted more for my life. Since I started working in 2009, I felt it was time to move out. I still stayed six years, but there just wasn’t any career progression,” Siqueira told Lusa. When he came back, he realised he wasn’t the only former resident returning, as more and more Macau born people were also coming back to the city. “People are coming back since in Portugal there’s just no work and no future,” Siqueira added.
Never too late
Lawyer and President of the community group Associação dos Macaenses (Macanese Association), Miguel Senna Fernandes has noticed a return not only of younger Macau natives, but also of older former residents who were confronted with worsening conditions in Portugal and decided to come back. Young people come back for a “sense of adventure”, while Macau natives aged between 40 and 50 return because they “really know Macau and know how to work”. Retired ex-residents comeback for “sentimental reasons,” Senna Fernandes told Lusa. For Jorge Sales Marques, a 55-yearold doctor who had left Macau 16 years ago, it was the “right time” to come back to the city of his birth. “My kids are all grown-up, my
wife also likes Macau and I was offered a job in the Health Bureau. All the ingredients were in place,” the now President of the Macau Portuguese-language Doctors Association (AMLPM) told Lusa. Marques sees the workload in Portugal as too “heavy”, with work to home commutes too “wearing”. He hopes his sons will follow in his footsteps and come back to Macau.
“There’s a lot more people and confusion, and housing prices are a big concern. But there is still much that exists, there is still the old Macau” Antonio Teixeira “Everybody knows the financial situation [in Portugal] for young people is bad. Jobs are unstable and badly paid, with the fiscal authorities keeping half of the salary,” Marques told Lusa. And even with a city that has “practically doubled” in size since he was born, from 16 square kilometres to some 30 square kilometres, Marques still views Macau as a “small, welcoming city with good culture and food.”
8 Business Daily Friday, July 29 2016
Greater China
Bad debt
Bank regulator said to resist push to cut loan buffers The stance means banks may need to sacrifice profitability to restore buffers breached in the first quarter.
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hina’s banking regulator is resisting lobbying by the nation’s biggest lenders to lower a minimum threshold for bad-loan buffers which some of them breached earlier this year, people with knowledge of the matter said. The China Banking Regulatory Commission (CBRC) is instead urging banks whose provisions for covering nonperforming loans are below the 150 per cent minimum ratio to take steps to restore their buffers, said the people, who asked not to be named discussing private information. The CBRC’s move is another signal that China’s regulators are toughening their stance on curbing risks in the country’s highly-leveraged financial system. Credit has roughly doubled as
a proportion of gross domestic product over the past eight years to stand at 243 per cent by the end of 2015, according to Fitch Ratings. In a separate bid to clamp down on risks in China’s shadow banking sector, the CBRC has proposed tougher rules for the nation’s US$3.5 trillion market for wealth-management products, a person with knowledge of the matter said on Wednesday. The regulator’s stance means banks may need to sacrifice profitability to restore buffers that Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. breached in the first quarter. Some of the biggest lenders, which are due to report earnings next month, had been publicly arguing that the 150 per cent ratio should be lowered.
“Higher provision means lower profit, and lower profit means even lower valuation - and that’s bad news to equity investors,” said He Xuanlai, a Singapore-based analyst at Commerzbank AG. “But apparently CBRC believes the stability of the financial system matters most.”
Profits threatened
Banks which fail to meet the required ratio won’t be immediately penalized by the CBRC, the people said. Even so, the regulator is pushing them to accelerate bad-loan write-offs, the people said - a move that would boost the coverage ratio while hitting profits. More than a decade of profit growth at Chinese banks is threatened by slowing growth and an accompanying rise in nonperforming loans, hurting their ability to return money to shareholders. That prompted the nation’s largest lenders to urge the regulator to cut provisioning requirements earlier this year. A bad-loan coverage ratio
of about 120 per cent to 130 per cent would be “reasonable” and “possible,” the chairman of China Construction Bank Corp. Wang Hongzhang said in April. Despite boosting provisions in the first quarter, ICBC and Bank of China allowed bad-loan coverage ratios to slip below the regulatory minimum of 150 per cent, while Construction Bank and Bank of Communications Co. came close to the minimum.
Ratios slip
Some lenders whose bad-debt coverage ratios slipped below the regulatory minimum in the first quarter have since lifted the buffers back above the threshold, one of the people said, without naming the banks. The CBRC hasn’t made a final decision about whether to keep the ratio unchanged and could lower it in the future, the people said. The regulator didn’t immediately reply to a fax seeking comments. Combined profits at the top five banks may drop 3.4 per cent in 2016, the first decline since 2004, according to analysts surveyed by Bloomberg. ICBC shares were down 1.4 per cent as of midday in Hong Kong. Bank of China fell 0.9 per cent. Bloomberg News
New regulations
Authorities green lights ride-hailing services The ride-hailing sector has been an arena of intense competition between Uber, Didi and a raft of smaller rivals. Jake Spring
China has given the green light to online ride-hailing services, issuing guidelines that establish a long-awaited framework for the booming industry and remove uncertainty for firms such as Didi Chuxing and U.S. rival Uber Technologies Inc. The rules outlined yesterday take effect on November 1. They were
immediately welcomed by Uber and Didi, which have invested billions of dollars to attract riders with discounts while operating in a legal grey area in most of China. “In managing online ride hailing, on the one hand we want to promote its development, on the other hand we want to regulate its behaviour,” said Vice Minister of Transportation Liu Xiaoming.
The rules require drivers have a minimum of three years’ experience behind the wheel and pass a crime check. They also stipulate that cars used for rides must not be more than eight years old or have more than 600,000 km on the odometer. China has been soliciting feedback on draft regulations issued in October. Those issued yesterday left some of the regulatory decision-making to local authorities.
Key Points New rules come after govt solicited feedback Rules leave some regulatory decisions to localities Uber, Didi welcome new rules
For instance, cities where ride-hailing services operate can set minimum and maximum prices to control fares, Liu said. Local authorities would also be able to place additional requirements on vehicles, for example allowing only certain models. The ride-hailing sector has been an
arena of intense competition between Uber, Didi and a raft of smaller rivals. While globally Uber leads the sector, Didi claims 87 per cent of the Chinese market for private ride-hailing. “We welcome the new regulations, which send a clear message of support for ridesharing and the benefits that it offers riders, drivers, and cities,” Zhen Liu, senior vice president of corporate strategy with Uber China, said in a statement. “This is a welcome step ... and we look forward to working with policymakers around the country to put these regulations into practice.” Didi also welcomed the rules, saying they reflected an open mind on the part of the government with regard to car-hailing and the sharing economy. “DiDi will make an earnest effort to comply with the new rules and adopt its corresponding standards. Soon we will initiate the application for the appropriate licenses,” it said in an open letter. The rivals have raised massive sums to compete in China. Didi raised US$7.3 billion in its latest round of funding in June and Uber received nearly US$2 billion from Chinese backers in January. Reuters
Business Daily Friday, July 29 2016 9
Greater China Reform drive
In Brief
Politburo flags caution on property stimulus The pledge to curb asset bubbles underscores its determination to shift from debt- and stimulus-fuelled growth to consumption-led expansion. China’s top leaders signalled this week that they’re likely to be cautious on further easing measures even if the property market continues to cool. That’s the analysis by Goldman Sachs Group Inc. economists of a statement released this week following a Politburo meeting led by President Xi Jinping. The leaders also pledged to curb asset bubbles, according to a report from official Xinhua News Agency. “The mention of asset bubbles was new for a Politburo statement,” Song Yu, the Beijing-based chief China economist at Beijing Gao Hua
Securities Co., the mainland jointventure partner of Goldman Sachs, wrote in a research note yesterday. “The near-term implication of such a view is that the government is likely to be very cautious with property loosening measures in the future even if the property market continues to cool down, and financial regulators might be increasingly hawkish to minimize the risks of asset bubbles.” Top Communist Party leaders traditionally meet at the end of each quarter to review the economic outlook. The pledge to curb asset bubbles underscores their determination to
shift from debt- and stimulus-fuelled growth to consumption-led expansion while avoiding risks from a borrowing surge that boosted debt to 2.5 times gross domestic product. More than two dozen elite party officials met Tuesday to discuss the outlook for the second half after data released earlier this month showed growth in the first six months held steady at 6.7 per cent in both quarters. Authorities target maintaining at least 6.5 per cent growth through 2020. Economists surveyed by Bloomberg project the expansion will slow to 6.5 per cent this year and 6.3 per cent in 2017 and 2018. In the second half, China will continue proactive fiscal policy and keep credit growth reasonable and the yuan “basically stable”, according to the post-meeting statement. Bloomberg News
‘In the second half, China will continue proactive fiscal policy and keep credit growth reasonable and the yuan “basically stable”, according to the postmeeting statement’
Sectorial outlook
Insurance premium income up China’s insurance premium income continued its fast growth with a 37.3-per cent increase year-on-year in the first half of 2016, according to the country’s top insurance regulator. Premium income reached 1.88 trillion yuan (US$282.5 billion) in H1, according to recent statistics from the China Insurance Regulatory Commission (CIRC). Premium income of life insurance companies climbed 50.3 per cent to hit 1.4 trillion yuan. Property insurance companies’ premium income rose 8.5 per cent to hit 463 billion yuan. An expansion of marketing staff and increased profits for insurance products have led to the growth in life insurance premium income, said Ding Wenjie, an analyst with CMB International. Funding
ICBC likely to issue SDR-denominated bonds
Commodities
Mainland mills seek more cotton from state reserves
The overseas banking arm of Industrial and Commercial Bank of China Ltd, China’s biggest lender by assets, is considering issuing bonds denominated in special drawing rights, a state-run newspaper reported yesterday. The value of the bonds to be issued in the synthetic reserve asset created by the International Monetary Fund would not exceed 1 billion SDRs, or about US$1.38 billion, the Economic Information Daily said without identifying its sources. “There is a great possibility that these bonds will be formally issued before October this year,” the news report said. M&A
Beijing is unlikely to lift volumes given logistical constraints. Dominique Patton
China’s mills are urging the government to release more cotton from state reserves, as fewer quotas for low-tariff imports and higher demand for local yarn tighten supplies. Greater dependence on reserves at the world’s top importer could dent a rally in global cotton futures that hit a two-year high this month. But in the long term, it could be bullish for prices as China runs down its massive stockpiles.
Key Points Fewer import quotas prompt mills to seek cotton from reserves By Wednesday, more than 1.5 million tonnes had been auctioned Auction demand seen firm as mills have no other supply channel Beijing unlikely to lift daily offer, could extend period-trade “They need to sell more from the state reserves. The limited quantity is a major problem,” said Ashley Liang, general manager of import and export at the spinning division of Dahai Group, a conglomerate in eastern Shandong province. Already, 1.57 million tonnes have been sold via auctions, nearly 100 per cent of the volumes offered since sales started in May, but traders say more was needed to meet an annual demand of 7 million tonnes given output and imports are on the wane.
China’s January-June cotton imports more than halved from a year ago. Strong demand for reserve cotton, estimated at more than half of global stocks, follows last year’s dismal sales when the government shifted just 3.4 per cent of its stocks due to high pricing and a slowing economy. Bids from China’s mills, which cleared out stocks on hopes the government would sell at lower prices to attract buyers, as well as from traders have led to stronger sales this year. “We hear from most mills that demand is better than half a year ago. I visited clients last week and saw no yarn stocks lying around,” said another trader. China had said it would increase the daily volumes on offer to 50,000 tonnes if more than 70 per cent of the auctioned volume was sold three days in a row. However, the maximum cotton offered has remained at 30,000 tonnes.
Beijing is unlikely to lift volumes given logistical constraints, but it could extend the selling period by a month to September, offloading more than an initially expected 2 million tonnes, industry participants said. The National Development and Reform Commission, which manages the reserves, did not reply to a fax seeking comment. Firm demand has pushed up auction prices by 20 per cent since the sales began to 15,201 yuan (US$2,281.82) per tonne on Wednesday, versus Zhengzhou prices now around 15,050 yuan. Global futures are near US$1,625. Mills, which met in Beijing recently to discuss the reserve sales, said higher prices were threatening consumption. “The rise in cotton prices can’t be passed on downstream, leading to some companies being forced to limit or stop production,” said a China Cotton Textile Association report. Reuters
Fosun agrees to buy Indian drug maker Shanghai Fosun Pharmaceutical Group Co Ltd has agreed to buy Gland Pharma - backed by KKR & Co LP - for about US$1.4 billion, a person with direct knowledge of the matter said, in India’s largest inbound acquisition this year. The deal would be the first major move by the Fosun group since Guo Guangchang, founder of flagship holding firm Fosun International Ltd and one of China’s best-known entrepreneurs, briefly went missing late last year. The acquisition would also underscore the positive outlook for drugmakers in India, which is a major global supplier. Investment
Mainland firm funding NZ milk powder plant A state-owned Chinese agricultural company has taken a cornerstone share in small New Zealand dairy firm Mataura Valley Milk to enable a major expansion, the dairy company said yesterday. China Animal Husbandry Group (CAHG) will hold 71.8 per cent of Mataura Valley in exchange for funding the construction of a nutritional powders manufacturing plant, valued at 200 million NZ dollars (US$142.06 million), near the South Island town of Gore. The new plant was designed to tap into the growing global demand for nutritional powders, especially infant formula, Mataura Valley director said.
10 Business Daily Friday, July 29 2016
Asia In Brief Trade
Vietnam’s exports to China to rise Exports of Vietnamese products to China are estimated to increase 13.7 per cent year-onyear in the first seven months of 2016, according to Vietnam’s General Statistics Office yesterday. Specifically, during the period, Vietnam is expected to ship some US$10.7 billion worth of Vietnamese products to China, the office said in a report on socio-economic situation in the first seven months of 2016 posted on its website yesterday. During the period, Vietnam is estimated to spend some US$27.4 billion for imports from China, down 3.1 per cent year-on-year. In total, bilateral trade in sevenmonth period is expected to hit US$38.1 billion. Real estate
S.Korea’s mortgage loan rates fall to record low Rates for mortgage loan in South Korea fell to a fresh record low as Bank of Korea (BOK) cut its policy rate to an all-time low last month, central bank data showed yesterday. Home-backed loan rates extended by commercial banks averaged an annualized rate of 2.77 per cent in June, down 0.12 percentage points from a month earlier, according to the BOK. It marked the lowest since the bank began compiling relevant data in September 2001. The previous record low was 2.81 per cent tallied in April 2015. Cooperation
India asserts assistance to Sri Lanka based on priorities India yesterday said that India’s Development Cooperation with Sri Lanka is based on the choices and priorities set by the people, the leadership and the government of Sri Lanka. Indian Prime Minister Narendra Modi said yesterday that the partnership between India’s capacities and Sri Lanka’s needs is not only touching the lives of the people, it also shows the path of constructive regional cooperation. “India’s Development Cooperation with Sri Lanka enjoys a wide spread of projects throughout Sri Lanka in different areas of economic activities. But it must happen as per your aspirations,” he said. Overseas expansion
IE Singapore helps SMEs to innovate International Enterprise (IE) Singapore’s Going Global with Innovation (GGI) conference yesterday attracted over 400 participants from Small and Medium Enterprises (SMEs) to discuss innovative business operations for overseas growth. Innovation, a key focus of Singapore’s Committee on the Future Economy, is also the driving force for companies to prepare for the economy of the future, including SMEs. The GGI conference showcased how companies can adopt practical applications of innovation through business strategies as well as business operations, such as product or solution offerings, marketing and HR practices.
Logistics
With eye on China, India doubles down on container hub ports Government expects cargo traffic at its ports to jump by two-thirds by 2021. Nidhi Verma and Krishna N. Das
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n Indian conglomerate has started building the country’s first t ra n ssh i p m e n t p o r t, conceived 25 years ago, and the government will construct another US$4-billion facility nearby to create a shipping hub rivalling Chinese facilities in the region. New Delhi will grant billionaire Gautam Adani 16 billion rupees (US$240 million) so-called “viability gap” funding to help the new port at Vizhinjam, on India’s southern tip, win business from established hubs elsewhere in Asia. Once Vizhinjam, in the state of Kerala, is operational the federal government will start building the port of Enayam in neighbouring Tamil Nadu, said a senior shipping ministry official. Enayam alone will save more than US$200 million in costs for Indian companies every year, he said. India’s 7,500-km coastline juts into one of the world’s main shipping routes and Prime Minister Narendra Modi wants to capitalise on that proximity by developing ports that can shift freight on to huge vessels capable of carrying up to 18,000 20-foot containers. By bringing onshore cargo handling now done at entrepots in Sri Lanka, Dubai and Singapore, Modi’s government expects cargo traffic at its ports to jump by two-thirds by 2021 as India ramps up exports of goods including cars and other machinery. The lack of an Indian domestic transshipment port forces inbound and outbound containers to take a detour to one of those regional hubs before heading to their final destination. New Delhi expects the new ports to save Indian companies hundreds of millions of dollars in transport costs, as well as ease concerns over the growing strategic clout in South Asia
of rival China, which has invested hundreds of millions of dollars in Sri Lankan ports at Colombo and Hambantota. Adani wants the Vizhinjam port, which an arm of his Adani Group is building at a cost of around US$1 billion, to be operational in 2018. The port lies hard by the Gulf-to-Malacca shipping lane that carries almost a third of world sea freight. “The port can attract a large share of the container transshipment traffic destined for, or originating from, India which is now being diverted primarily through Colombo, Singapore and Dubai,” said an Adani Group executive who declined to be named. But officials acknowledge that it would be difficult for the new ports to win international clients unless they offered discounts.
Key Points Adani Group building India’s first transshipment port Indian government to build another US$4 bln port nearby India expects to save millions of dollars in detour costs Trans-shipment port to also have navy, coastguard berths May be hard for Indian ports to compete with Sri Lanka “A major part of transshipment is happening at nearby ports. We can win some of that business,” said A.S. Suresh Babu, who heads a government agency set up by Kerala to facilitate the construction of Vizhinjam. “There’s a viability issue in the first few years. Already the Chinese are operating there. So unless you give some discount you can’t attract these ships. So that’s why the government of India has approved the viability gap funding.”
Chinese threat
India is worried about China’s expanding reach in the region through port investments in Sri Lanka, Bangladesh and the Maldives.
China is also developing Pakistan’s Gwadar seaport as part of a US$46 billion China-Pakistan Economic Corridor. China had also wanted to partner with an Indian company to build the Vizhinjam port, but its proposal was rejected by the government on grounds of national security. India has not banned Chinese firms from investing in its ports, but takes a cautious approach as most ports are also used for “strategic purposes”, said the shipping ministry source. That is a euphemism for dualuse port facilities that could also be used by naval vessels. The docking of a Chinese nuclear submarine at Colombo’s commercial port in 2014 shocked India’s security establishment and has added urgency to New Delhi’s push to strengthen its port infrastructure. Vizhinjam port will have dedicated berths for India’s navy and coastguard, according to a government note seen by Reuters. India is also seeking to extend its commercial and strategic reach as it tries to catch up with China, pledging up to $500 million to develop the Iranian port of Chabahar to give it trade access to Iran, Afghanistan and the hinterlands of Central Asia, now largely blocked by Pakistan. “We want Indian ports to compete with the best ports in the world in various parameters like turnaround time, efficiency, lastmile connectivity, infrastructure etc,” India’s Shipping Ministry said in a statement to Reuters. But analysts remain sceptical that India can complete the transshipment ports, given that it has taken a quarter of a century to get the Vizhinjam port plan this far after legal disputes and lack of security clearance from the federal government delayed previous attempts to build it. “Very few days or weeks pass without news of a new hub port proposal in Southern India,” said Andy Lane, a partner at maritime and port consultant CTI Consultancy. He added that, as Colombo was a “low cost and highly efficient” port, container shipping lines were unlikely to easily consider a switch to India. Reuters
Business Daily Friday, July 29 2016 11
Asia Financial exposure
Singapore banks’ concerns grow about oil and gas sector Banks are being hit by both poor demand for loans from the sector and by more loans turning sour. Saeed Azhar
Two of Singapore’s top banks flagged mounting concerns about loans to the oil and gas sector, on the same day that a prominent local oilfield services firm announced it was winding up, under the weight of crushing debt. The dour outlook from OverseaChinese Banking Corp and United Overseas Bank, Singapore’s secondand third-largest lenders by assets, respectively, came as Swiber Holdings said yesterday it had filed for liquidation, making it the biggest local name to fall victim to the slump in oil prices. OCBC and UOB, along with Singapore’s No.1 lender DBS Group Holdings, have long maintained prudent lending standards and adequate capital levels to become some of the safest banks in the world. But oil’s 60 per cent slump over the past two years is beginning to impact them, as the lenders’ main activity is centred on Southeast Asia, a region for which oil and gas is a key industry. Banks are being hit by both poor demand for loans from the sector and by more loans turning sour. “The loan demand is very weak,” OCBC CEO Samuel Tsien told a quarterly earnings briefing, adding that the oil and gas services sector continues to be under pressure. “Our distressed indicators for this portfolio continue to deepen, but have not broadened,” Tsien said. Over the next year-and-a-half,
bonds totalling nearly S$1.2 billion (US$881 million) from energy and offshore marine issuers in Singapore will mature, with S$615 million due just over the next five months, according to IFR, a Thomson Reuters publication. OCBC’s total oil and gas exposure was S$12.6 billion, nearly half of which to the offshore oil services segment.
UOB expects that over the next one to two years the key concern for the bank will be companies in the oil and gas sector, its CEO Wee Ee Cheong told a briefing,
Quarterly results
OCBC posted a 15 per cent drop in quarterly profit, hit by lower insurance income, though UOB surprised with a 5.1 per cent jump in earnings on higher trading income. However, net interest income was
weak at both banks, which also saw bad-debt provisions climb. OCBC said its customer loans contracted 2 per cent from a year ago due to lower trade loans and reduced offshore borrowings of Chinese companies due to more favourable onshore borrowing rates in China. Shares of UOB were down 1.6 per cent in late afternoon trade, while OCBC fell 0.6 per cent. Shares of DBS, which will report results on August 8, were down 2.6 per cent. Reuters
Key Points OCBC Q2 net profit S$885 mln vs consensus of S$882 mln UOB Q2 net profit S$801 mln vs consensus of S$769 mln Both report flat to lower net interest income Singapore oilfield services firm Swiber says to liquidate
Stock market
Leveraged investors lose faith in Abenomics They are joining the exodus just as the Topix index recovers from its selloff after the U.K. voted to leave the European Union. Min Jeong Lee and Toshiro Hasegawa
The biggest local cheerleaders for Japan Prime Minister Shinzo Abe are losing faith in his economic policies even as the stock market rallies on expectations of further stimulus. Japanese individuals trading using borrowed money cut their bets on a rising equity market to the lowest since March 2013, shortly before central bank Governor Haruhiko Kuroda unleashed unprecedented bond-buying that sent the Nikkei 225 Stock Average to its biggest annual gain in four decades. Even as most economists predict the Bank of Japan (BOJ) will add to monetary easing when its two-day policy meeting ends today, leveraged investors are speculating this time won’t have the same effect. “Individuals’ hopes for higher share prices are receding,” Yutaka Miura, senior technical analyst at Mizuho Securities Co. in Tokyo, said by phone. “Stock indexes are mainly trading in a range, and they’re cautious about chasing them higher. They’ll buy
when they hit the bottom of the range but they’re selling whenever it gets near the top.” The difference between the outstanding balances of buys and sells in margin accounts at the Tokyo and Nagoya stock exchanges fell to 1.54 trillion yen (US$14.6 billion) as of July 22, the lowest since a 1.45 trillion yen figure on March 8, 2013, according to data from the Tokyo bourse. Foreign investors, buyers in the earlier years of Abe’s term, had already been heading for the exits, offloading 5 trillion yen in stocks over 13 straight weeks from the start of the year. Americans have pulled almost US$10 billion in 2016 from the two largest exchange-traded funds tracking the Japanese market. Leveraged investors are joining the exodus just as the Topix index recovers from its selloff after the U.K. voted to leave the European Union. The equity measure has gained 9.7 per cent from June 25 through Wednesday after plunging 7.3 per cent the previous day for its worst
loss since the aftermath of the 2011 earthquake and tsunami. The Topix slid 1.1 per cent yesterday. The gauge is down 16 per cent in 2016 for the second-worst performance among 24 developed markets tracked by Bloomberg, and much of that fall came after the BOJ added to stimulus by introducing negative interest rates. Leveraged
investors remain jaded as 32 of 41 analysts forecast that Kuroda and his board will expand their record program at the two-day meeting ending on July 29, while Kyodo News reported Abe plans economic stimulus of more than for 28 trillion yen (US$267 billion). “Expectations for further stimulus have already been priced in to some extent,” Mizuho’s Miura said. And “whether the BOJ eases or doesn’t ease, individuals think stocks will fall.” Bloomberg News
“Individuals’ hopes for higher share prices are receding” Yutaka Miura, senior technical analyst at Mizuho Securities
12 Business Daily Friday, July 29 2016
Asia Monetary stance
Pressure for Japanese central easing intensifies Sources familiar with the deliberations say finance ministry officials have been pressuring the BOJ behind the scenes to ease today to drive borrowing costs even lower. Leika Kihara
P
olitical pressure on the Bank of Japan (BOJ) to expand stimulus today is intensifying with the economy minister calling on the bank to work with the government to boost economic growth. Prime Minister Shinzo Abe sent a “powerful message” by announcing a 28 trillion yen (US$267 billion) stimulus package on Wednesday, Economy Minister Nobuteru Ishihara was quoted as saying by Japanese media hours after the announcement. The figure was larger than markets had expected. “I think people at the BOJ will take that into account and make an appropriate decision. I think (BOJ Governor Haruhiko) Kuroda understands that the world is watching,” he said in a television appearance on Wednesday evening, the Kyodo news agency reported. The remarks suggest the earlierthan-expected announcement of Abe’s economic package was an attempt by the government to pressure the BOJ into expanding stimulus at a two-day rate review ending on Friday. “Abe’s announcement is a squeeze play on the BOJ. The BOJ has to move
now. It is unavoidable,” said Hiroaki Muto, an economist at Tokai Tokyo Research Center. “There is a growing sense that the BOJ cannot move the market on its own, which is part of the reason why the government wants to combine fiscal and monetary policy.”
Inflated package
Ab e’ s a n n o u n c e m e n t o f t h e package boosted Japanese stocks on Wednesday and reinforced market expectations that the BOJ will match
fiscal stimulus with another dose of monetary expansion. But the package is inflated by 15 trillion yen of loans from quasigovernment financial institutions, loan guarantees and subsidies to private firms, sources briefed on the matter told Reuters. Direct fiscal spending would be only around 7 trillion yen, just a quarter of the total package, the sources said, which could disappoint some market players expecting bigger outlays. Another 6 trillion yen will be for a fiscal loan and investment programme aimed at spurring private-sector spending such as for construction of a “maglev” train line. There is near-consensus in markets the BOJ will sharply cut its inflation
forecasts and further ease policy by expanding its already massive assetbuying programme and possibly cutting interest rates deeper into negative territory. But the central bank appears in little mood to deploy radical steps to overwhelm hyped-up market expectations, even if it were to ease. Many BOJ policymakers prefer to hold off on easing on Friday, worried about the growing risks of further asset purchases, which are drying up bond market liquidity. But Ishihara’s remarks suggest that political considerations may nudge the BOJ into action, even as it struggles to revive the economy with dwindling ammunition. Kuroda, a former finance ministry bureaucrat, has ruled out the chance of adopting “helicopter money,” or direct underwriting of public debt. But he has also stated there was “nothing wrong” in coordinating fiscal and monetary action to boost the effect on growth. Reuters
Bank of Japan headquarters
Stimulating growth
South Korea to expand tax benefits for R&D spending A penalty tax on corporate income not spent on wages, investment and dividends will be modified to encourage wage increases. South Korea’s government plans to expand tax benefits for research and development of robotics and other technologies as it seeks out industries that could become new economic growth engines. Up to 30 per cent of R&D expenses will be tax deductible for companies across 11 key sectors starting 2017, the Ministry of Strategy and Finance said in its annual review of the tax
code yesterday. Spending on development of artificial intelligence technologies, flexible displays, 3-D printing, and hyper-plastics are some of the areas subject to the tax code revision, it said. “Regardless of company size, we’re trying to give benefits to those taking risks,” Vice Finance Minister Choi Sang-mok told reporters before the revisions were released.
“In a difficult economic situation with a lack of growth drivers, this could become a breakthrough in terms of taxation.” South Korean conglomerates such as Samsung Electronics Co Ltd and LG Electronics Inc spend billions of dollars a year on R&D investment, but smaller companies have been skittish in doing so due to limited resources and economic uncertainties, leading to a severe downturn in capex in the first quarter. The Park Geun-hye administration has also been increasingly looking to technological developments and the service sector to provide a new growth engine for the economy as China continues to challenge South Korea’s traditional strength in manufacturing. The government’s push for
“In a difficult economic situation with a lack of growth drivers, this could become a breakthrough in terms of taxation” Choi Sang-mok, Vice Finance 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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restructuring of indebted companies in shipbuilding and shipping industries is adding to growth woes when exports remain weak. Earlier this month, the government announced an 11 trillion won (US$9.73 billion) extra budget following the Bank of Korea’s decision to lower its policy rate to a record 1.25 per cent in June. Under revisions, an existing income tax benefit on credit card spending introduced to encourage consumption will be extended three years past a 2016 deadline, through 2019. A penalty tax on corporate income not spent on wages, investment and dividends will be modified to encourage wage increases. Companies using their cash reserves to raise wages will face less tax than those which use reserves to pay out dividends or make investments, a measure aimed at boosting household income. Benefits for childbirth and childcare support will also be expanded to boost the birth rate, currently at record lows. The maximum tax credit for those with a second child will be 500,000 Korean won (US$443) a year, up from 300,000 won, starting 2017. Nevertheless, the government sees its tax base expanding nearly every year until 2020 as tax breaks deemed unnecessary or ineffective will be allowed to expire. The special 17 per cent flat income tax rate for foreigners will expire in 2019 and be raised to 19 per cent from 2020 onwards, according to the statement. The finance ministry will submit the tax review to parliament on September 2 for approval from lawmakers. Reuters
Business Daily Friday, July 29 2016 13
Asia In Brief Consumption
S.Korea department store sales surge
Singapore’s skyline Jobless rate
Singapore job layoffs hit 7-year high Total employment grew by 5,500 in the second quarter. Job layoffs in Singapore hit a seven-year high in the second quarter while the jobless rate edged higher, in a sign of growing labour market slack at a time when economic growth has been sluggish. Singapore’s unemployment rate rose to 2.1 per cent in the second quarter, a level last seen in the first quarter of 2014, preliminary labour market data from the Ministry of Manpower showed yesterday. In January-March, the unemployment rate was 1.9 per cent. Job layoffs rose to 5,500 in the April-June quarter. That was the highest since 5,980 in the second quarter of 2009, when the city-state took a hit from the global financial crisis and the economy contracted. The number of layoffs in
manufacturing declined from the previous three months “while it increased in services and stayed relatively unchanged for construction”, the ministry said. Total employment grew by 5,500 in the second quarter, down from growth of 13,000 in the first quarter and an increase of 9,700 jobs in the second quarter of 2015.
Key Points Job redundancies in April-June highest since Q2 2009 Q2 unemployment rate 2.1 pct, up from 1.9 pct in Q1 Jobless rate matches levels last seen in Q1 2014 The increase in layoffs in the services sector is a worrying sign, given that it has been seen as a more stable component of job growth, said Joseph Incalcaterra, an economist for HSBC
in Hong Kong. Still, weakness in the labour market is probably something that the Monetary Authority of Singapore (MAS) has already assumed in its latest assessment on core inflation, which seemed to be higher than before, he said. “That ultimately all suggests that come this October, there is a very high bar to a change in (monetary) policy,” Incalcaterra said, referring to the next scheduled MAS policy review. 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 on Monday. MAS Managing Director Ravi Menon added that MAS expects core inflation to close in on the historical average of around 2.0 per cent next year from a likely average of 1.0 per cent in 2016. Reuters
Food imports
India seeks pulses from Myanmar, Africa to ease shortage The country consumes nearly 22 million tonnes of pulses annually India is looking to import pulses from Myanmar and African nations to counter a domestic shortfall of 7.6 million tonnes that has driven local prices of key pulses like chickpea to a record high, Food Minister Ram Vilas Paswan said. More purchases by India, the world’s top consumer of pulses, could help the country rein in its headline inflation, which hit a near two-year high in June on double-digit annual increases in prices of sugar, vegetables and pulses.
“The challenge of demandsupply gap of about 7.6 million tonnes (in pulses) is being addressed via public and private imports” Ram Vilas Paswan, India’s Food Minister
“The challenge of demand-supply gap of about 7.6 million tonnes (in pulses) is being addressed via public and private imports,” Paswan tweeted yesterday morning. Earlier this month, India said it would help Mozambique cultivate pulses and then import them through
government-to-government deals in the coming years. India consumes nearly 22 million tonnes of pulses annually, but relies heavily on imports to meet demand as production has been hit by uncertain monsoons and irrigation problems. In the year to March 2016, overseas purchases accounted for about a quarter of the country’s total consumption. As a result, pulses have become expensive in the country. Ch i c k p ea p r i c e s, t h e m o st consumed pulse in India, have more than doubled in a year after back-toback droughts curbed output in the country, prompting authorities to suspend futures trading in the protein rich food grain. Prices will remain high until supplies rise, said Paswan, adding
production is likely to increase this year due to good monsoon rains and the fact that farmers hiked the area under pulses cultivation due to better prices. As of July 22, Indian farmers had cultivated pulses on 9 million hectares, versus 6.5 million hectares during the same period a year ago, farm ministry data shows. State governments need to take measures to limit stock holdings and clamp down on hoarding to check the rise in prices, Paswan said. “States can take action against hoarders and black-marketer’s by imposing stock limits on traders. We can only give direction to states to take action against hoarders. We cannot do it ourselves because action-taking power rests with the states,” he added. Reuters
South Korea’s department store sales accelerated to a more than five year high in June, trade ministry data showed yesterday, thanks to a weak comparison base stemming from last year’s Middle East Respiratory Syndrome (MERS) outbreak. Combined sales at department stores run by Hyundai Department Store, Lotte Shopping and Shinsegae Co were estimated to have jumped 11.8 per cent from a year earlier, the trade ministry said, which would mark the sharpest gain since a 15.1 per cent spike in April 2011. This far eclipsed the 2.7 per cent decline in May. Industry data
Thai factory output rises marginally Thailand’s industrial output rose for a fourth straight month in June but just marginally and recovery remains fragile as exports and domestic demand remain weak. The Industry Ministry said yesterday its manufacturing production index (MPI) in June rose 0.8 per cent from a year earlier. A Reuters poll had forecast a rise of 2.0 per cent. In May, output rose a revised 2.7 per cent from a year earlier, instead of the 2.6 per cent reported earlier. Industrial goods accounted for 80 per cent of total exports in June, which fell 0.1 per cent from a year earlier, customs data showed. Central bank
Philippine sees no reason to change policy stance The Philippine central bank said yesterday it saw no need to change its monetary policy stance after the Federal Reserve said near-term risks to the U.S. economic outlook had diminished and left interest rates unchanged. “That (Fed) assessment should be overall positive for emerging market economies, including the Philippines, as it reflects a move towards normalization,” Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a text message sent to reporters. “That said, this would still not be reason enough for us to change the stance of monetary policy,” he said. Results
Nomura profit decreasing Japan’s largest brokerage, said its first-quarter profit fell nearly a third as investors held onto savings rather than bet on assets like stocks and bonds, hit by uncertain global markets and negative interest rates. Nomura said yesterday its April-June net profit dropped to 46.8 billion yen (US$447 million) from 68.7 billion yen in the same period a year earlier. The brokerage was reporting earnings for the first time since announcing deep job cuts in overseas businesses, long a drag on earnings, in the wake of posting its first quarterly loss since 2011.
14 Business Daily Friday, July 29 2016
International In Brief GDP
Russian economy edges near end of recession Russia’s economy contracted the least since it slipped into recession at the start of last year as industry and farming added to oil’s biggest quarterly gain since 2009 to steady the world’s biggest energy exporter. Gross domestic product shrank 0.6 per cent in the second quarter from a year earlier after a decline of 1.2 per cent in the previous three months, the Economy Ministry said yesterday in a monthly report on its website. The Federal Statistics Service will publish its first estimate next month. GDP in June slipped 0.5 per cent from a year earlier, according to the ministry. State budget
Angola to borrow more than foreseen this year Government expects to borrow US$18.1 billion (€16.4 billion) more in 2016 than foreseen in the state budget for the year, increasing public indebtedness to 71.4 per cent of gross domestic product, according to figures in an economic reform programme that is serving as the basis for the revision of the budget document. The revision has to be made because of the drop in receipts from exports of oil, whose price on international markets has all but halved in the past year. This indebtedness is on top of the initial financing needs for 2016, which were 2.913 billion kwanzas (€16 billion). Excessive deficits
Eurogroup president ‘disappointed’ with no fine The president of the Euro group of finance ministers of euro-zone member states, Jeroen Dijsselbloem, expressed disappointment on Wednesday at the decision by the European Commission to cancel sanctions against Portugal and Spain for their excessive budget deficits, warning that the two countries are still “in danger”. It is disappointing that there is no follow up on the conclusion that Spain and Portugal did not take effective action to consolidate their budgets,” Dijsselbloem said in a statement after the commission decision was announced. “It must be clear that despite all the efforts already taken, Spain and Portugal are still in danger.” Brexit shock
Lloyds to cut 3,000 jobs, close more branches Lloyds Banking Group said yesterday it would step up its cost cutting plans to help to offset a more testing economic environment caused by Britain’s vote to quit the European Union. Britain’s largest retail bank aims to save 400 million pounds (US$528.56 million) by end2017 by axing a further 3,000 jobs and closing an additional 200 branches to protect its earnings and dividends against the effects of lower-for-longer interest rates. Lloyds, rescued in a 20.5 billion pound taxpayer bailout during the financial crisis, is the first major British bank to report results since the referendum.
Bankers’ remuneration
EU Commission says may review bonus rules Bankers and investment firms, especially in the City of London, complained that the rules would limit their ability to attract talent.
E
uropean Union rules limiting remuneration of bankers and financial firms’ staff may be too costly for smaller companies and could be reviewed, the European Commission said yesterday, in a move that addresses concerns raised by banks. The rules were adopted in the aftermath of the 2007-08 financial crisis in response to public outcry at bankers pocketing large bonuses after taxpayers had contributed to the bailout of several lenders in Europe. Bankers and investment firms, especially in the City of London, complained that the rules would limit their ability to attract talent and would increase red tape. The Commission, which has the power to propose and amend EU legislation, said yesterday that the new provisions have been “effective in curbing excessive risk-taking behaviour and short-termism”, but added that “in certain cases, some of the rules may be too costly and burdensome to apply.”
“Our evaluation shows that there may be room to make remuneration rules more proportionate and less burdensome from an administrative perspective, in particular for smaller and less complex credit institutions and investment firms,” the commissioner responsible for pay policies Vera Jourova said, confirming earlier announcements. Before proposing any changes, Brussels will conduct a study to assess more thoroughly the impact of bonus rules. Proposals may come in November, when the Commission plans to review rules on banks’ capital requirements. Brussels will look at a possible review of rules concerning staff with low levels of variable remunerations and requirements on deferral and pay-outs instruments in smaller investment firms. The Commission did not address the wider issue of caps, a measure loathed by banks, which limit bonuses to no more than fixed pay or twice that amount with shareholder approval.
B r u s s e l s sa i d th at i t i s t o o early to assess the impact of this measure as it was introduced only in 2014.
“Our evaluation shows that there may be room to make remuneration rules more proportionate and less burdensome from an administrative perspective” Vera Jourova, commissioner responsible for pay policies
In March the European Banking Authority, the bloc’s banking watchdog, said caps on banker bonuses did not undermine financial stability and did not limit lenders’ ability to control costs. Reuters
Monetary meeting
Fed leaves rates unchanged but says US economy improving The Fed has repeatedly said it wants to see increasing job growth and signs of stronger inflation before it raises rates. Douglas Gillison
The Federal Reserve left key interest rates untouched Wednesday but acknowledged improved economic performance, suggesting a rate increase may still be on the horizon in 2016. Policy makers had not been expected to raise rates, out of concern that a hike could stifle fragile growth. Their improving view on economic conditions left open the possibility of an increase in the benchmark federal funds rate, currently at 0.25-0.50 per cent, by December.
“But it seems more likely that the critical mass of data to hike will not arrive until December” Tim Duy, Senior Director at the Oregon Economics Forum
Putting behind the surprise sharp downturn in job creation in May that had raised worries about the economy, the Federal Open Market Committee, which sets the monetary policy, said employment and economic growth had grown moderately since their mid-June meeting. They also appeared to see less threat to US growth from Britain’s vote to leave the European Union, which took place a week after the last FOMC meeting. “Near-term risks to the economic outlook have diminished,” the FOMC said in announcing the outcome of the closely watched two-day meeting in Washington.
Inflation rate hawks and doves had been split in June over how strong the economy was, and voted unanimously to hold off on raising rates until the situation became more clear. While Wednesday’s statement cited moderate increases in growth in employment, it said inflation was expected to remain low in the near term. As it had found in June, the committee said household spending was “growing strongly” while fixed investment from businesses remained “soft.” But in a departure from its last meeting, the committee noted that payroll and other labour market data “point to some increase in labor utilization in recent months.” Tim Duy, Senior Director at the Oregon Economics Forum, said a rate hike at the next FOMC meeting in September could not be ruled out. “But it seems more likely that the critical mass of data to hike will not arrive until December,” he told AFP.
Following the statement, Fed funds futures traded on the CME, a kind of betting pool showing investor expectations, implied a 46.5 per cent probability that the committee would increase rates before the end of the year, with the larger balance expecting the target rate to remain untouched through December. The results suggested investors had expected the Fed to produce a rosier statement than the one released on Wednesday. According to Steven Ricchiuto, chief US economist at Mizuho Securities USA, continued job growth could tip the balance in favor of a rate hike -especially given that the committee believes the threats to economic growth are now lower. “This suggests that the countdown to a rate hike in September/December will start in earnest if we get another strong jobs report for July on August 5th,” Ricchiuto said. Joel Naroff of Naroff Economic Advisers said the Fed appeared torn between optimism and fear. “One thing this group has been consistent about is its one-meetingthe-sky-is-falling, the-nextmeeting-the-sun-is-coming-out approach to economic analysis,” he said. “This was the good economy meeting that comes after the worrisome economy meeting.” As for Brexit, Naroff said, “the members seem to have said ‘never mind’ and dropped those issues into the factors they are monitoring.” AFP
Business Daily Friday, July 29 2016 15
Opinion Business Wires
The Asahi Shimbun Japanese women were knocked off their perch for life expectancy in 2015 as their Hong Kong counterparts took the crown with average longevity of 87.32 years, the health ministry said. Japanese women now rank second with a life expectancy of 87.05 years, a record for Japan. The average for Hong Kong women increased by 0.57 of a year from 2014. For men, Japan fell to fourth place last year -one notch down from the previous year - at 80.79 years, also a record for Japan.
Growth in a time of disruption Inquirer.net (Philippines’) Internal Revenue Commissioner Caesar R. Dulay has ordered the suspension of three allegedly erring tax examiners and endorsed the filing of administrative charges following a taxpayer complaint implicating them in corrupt practices. In a statement yesterday, the Bureau of Internal Revenue (BIR) said that despite being in office for less than a month, Dulay was “beginning to make good his promise to cleanse the [agency] of corrupt revenue personnel.” The BIR said the revenue officers were likewise slapped 90day preventive suspensions as well as ordered to turn over all public property they had been accountable for.
Jakarta Globe The Indonesian Young Entrepreneurs Association, or Hipmi, are over the moon that two of its senior members – Enggartiasto Lukita and Asman Abnur – are now part of President Joko “Jokowi” Widodo’s (pictured) cabinet, and expect they will help improve trade and roll in more reforms before long. “Hipmi would like to thank Jokowi and Vice President Jusuf Kalla for appointing two senior Hipmi members into the cabinet,” said Hipmi chairman Bahlil Lahadalia in a statement sent to the Jakarta Globe on Wednesday. Enggartiasto, who took over as trade minister from Thomas Lembong, was once the chairman of Hipmi Jakarta in 1988-1993.
The Star The Malaysian residential property sector is expected to remain flat going into 2017, weighed down by uncertainties in the global economies. However, this might not necessarily mean that things have taken a turn for the worst, said the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) organising chairman Elvin Fernandez. “We expect the local residential market to be flattish for a while, extending into next year. But this is not really a bad thing,” he said during a press conference yesterday at the Malaysian Property Summit mid-year review 2016.
D
eveloping countries are facing major obstacles – many of which they have little to no control over – to achieving sustained high growth. Beyond the headwinds generated by slow advanced-economy growth and abnormal post-crisis monetary and financial conditions, there are the disruptive impacts of digital technology, which are set to erode developing economies’ comparative advantage in labour-intensive manufacturing activities. With the reversal of these trends out of the question, adaptation is the only option. Robotics has already made significant inroads in electronics assembly, with sewing trades, traditionally many countries’ first entry point to the global trading system, likely to come next. As this trend continues, the imperative to build supply chains based on the location of relatively immobile and cost-effective labour will wane, with production moving closer to the final market. Adidas, for example, is already building a factory in Germany, where robots will produce high-end athletic shoes, and is planning a second one in the United States. Given all of this, developing countries need to act now to adapt their growth strategies. A sensible framework for doing so must account for several key factors. First, the problems in advanced countries – from slow economic growth to political uncertainty – are likely to persist, reducing potential growth everywhere for an extended period. In this context, developing countries must not succumb to the temptation to try to boost demand through unsustainable means, such as the accumulation of excess debt. Instead, developing countries, particularly those in the earlier stages of economic development, must find new external markets for their goods, by maximizing trade opportunities with their counterparts in the developing world, many of which have considerable purchasing power. While such demand will surely not offset the drop in advanced-country demand completely, it can help to soften the blow. Second, investment, both public and private, remains a powerful growth engine. In economies with excess productive capacity, targeted investment can yield a double benefit, generating short-run demand and boosting growth and productivity thereafter. Given this, shortfalls in investment that promises high social and private returns must be reduced, and even eliminated. These growth- and productivity-enhancing investments should be financed primarily from domestic savings, though some can also be financed with debt. Long-term, stable infrastructure investments can be financed at least partly by international development institutions. Third, it is critical to manage the capital account in a way that protects and enhances the real economy’s growth potential. Large inflows of capital from countries with low interest rates can easily push up exchange rates, putting the tradable part of the economy under pressure. At the same time, the prospect of a capital-flow reversal adds risk, deters investment, and can produce sudden
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Michael Spence a Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution.
credit-tightening events. In this context, selective capital controls and careful reserve management can help to stabilize the balance of payments and ensure that the terms of trade do not change too fast to be offset by productivity growth. In fact, successful developing countries were pursuing such policies even before the global economic crisis hit. Fourth, a realistic approach to the digital revolution is needed. On one hand, developing countries should recognize that disruption, while happening fast, will not render their growth models obsolete overnight. China’s continued growth and rising household income are creating opportunities for lower-income economies in low-cost manufacturing. On the other hand, developing countries must accept the inevitability of changes to their growth models caused by digital technologies. Instead of viewing these changes as a threat, and trying to resist them, developing economies should be getting ahead of them, by embracing disruptive innovations. This means investing in the capacity – physical and human – to support their use. Beyond upgrading manufacturing, developing countries should be preparing for the shift toward services that they will inevitably undergo as incomes rise (though the precise timing is hard to predict). Indeed, they should be seeking ways to exploit opportunities to boost their trade in services, much like India and the Philippines have done. Fifth, the distribution of gains from economic growth cannot be ignored. The advanced economies tried that, and the result has been rising political polarization, intensifying anti-establishment sentiment, declining policy coherence, and weakening social cohesion. In a low-growth environment, in particular, developing countries cannot afford to make the same mistake. Sixth, it is important to establish sustainable growth patterns early on. A “green” approach would not only stimulate additional growth; it would also be likely to increase the quality of growth, not to mention the lives of ordinary people. Moreover, it will lead to a far more resilient economy in the long run. Finally, entrepreneurial activity is vital to translate economic potential into reality. Policies that support such activity, such as by removing obstacles to new business creation and enhancing financing opportunities, cannot be left out of growth strategies. Opening channels for flows of information, ideas, expertise, and talent from abroad can only enhance these efforts. Developing economies may not have much control over the headwinds that they face today, but that does not mean that they are powerless. Much can be done not just to sustain moderate growth, but also to secure a more prosperous and resilient future. Project Syndicate
Developing countries must accept the inevitability of changes to their growth models caused by digital technologies
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16 Business Daily Friday, July 29 2016
Closing Real estate
Beijing to tighten fundraising rules for listed property firms
instead of buying land and paying back bank loans. “With supply-side reforms going forward, China’s stock regulator is preparing to the risk of company credit default and the tighten regulation of listed real estate downward pressure on the economy are companies using refinancing tools to rising,” the person was quoted as saying. supplement cash flows and pay off debt, An analyst quoted in the paper believed that according to comments by an unnamed closer scrutiny of these companies could official quoted in the official People’s Daily. The paper quoted an unnamed official from increase the relative cost of land purchases for these companies, discouraging them China’s Securities Regulatory Commission (CSRC) saying during an internal conference from the sort of speculation that has driven up real estate prices around the country, in on Monday that real estate companies particular in first-tier cities. Reuters should only raise capital for construction,
GIC annual report
Singapore state investor expects low-return decade Bond yields have turned negative in Europe and Japan as central banks struggle to lift inflation and revive debt-choked economies. Marius Zaharia and Saeed Azhar
S
ingapore’s biggest sovereign investor GIC Pte Ltd said its portfolio return slowed in its latest five-year period, and that growth would continue to be low over the course of a decade due to vanishing bond yields and weak global growth prospects. GIC also cited risks including China’s slowing growth and limited progress in reforming stateowned enterprises (SOEs), as well
as anti-globalisation rhetoric in the United States - a member, with Singapore, of the Trans-Pacific Partnership trade deal. Such concerns add to an already challenging environment. Bond yields have turned negative in Europe and Japan as central banks struggle to lift inflation and revive debt-choked economies, while any interest rate hikes in the United States are widely expected to be gradual. “These difficult investment conditions can stretch for the next 10
years,” Chief Investment Officer Lim Chow Kiat said in GIC’s latest annual report. “GIC is prepared for this protracted period of all-time low interest rates, modest global growth prospects and high valuations of financial assets.” GIC said in its annual report yesterday that its portfolio return was 3.7 per cent per annum in U.S. dollar nominal terms over the five years through March 2016, compared with 6.5 per cent in the five years to March 2015. That was below the 4.6 per cent return of a reference portfolio of 65 per cent global stocks and 35 per cent bonds. GIC has become more prudent over the past year, cutting the proportion of developed market stocks in its
portfolio to 26 per cent from 29 per cent, and increasing nominal bonds and cash to 34 per cent from 32 per cent. Lim said GIC would look for bargains during periodic spikes in market volatility, but also continued to see opportunities in private equity, real estate and infrastructure.
Change in China
GIC invested 20 per cent of its portfolio in Asia ex-Japan in the year ended March 31, the fund said in its annual report. It was invested in 42 mainland China-listed stocks valued at nearly US$5.2 billion, versus 52 at about US$7 billion a year prior, according to data analyst StreetSight based on a July 15 filing. Lim said services and technology sectors in China were attractive and that it was increasingly cautious about sectors with over-capacity.
Key Points GIC reports lower annualised five-year portfolio return Says risks include China SOE reform, U.S. election Researcher says GIC has cut China exposure “China is going through a very critical phase,” Lim said. “As long as they do not implement SOE reforms in a decisive way, risk will accumulate.” GIC is the 10th biggest sovereign investor, with about US$343 billion worth of assets, according to Sovereign Wealth Centre. It had a 20-year rolling rate of return of 4.0 per cent above global inflation for the year ended March 31. In nominal U.S. dollar terms, the annualised return over was 5.7 per cent, meaning US$100 invested in 1996 would have grown to US$303 today, GIC said in its report. Reuters
After-Brexit mood
Unviable companies
Results
Eurozone confidence unexpectedly improves
Report measures industrial SoftBank profit jumps 19 “zombies” percentage per cent on Alibaba sale
Euro-area economic confidence unexpectedly improved in July in a sign that the immediate impact on growth of Britain’s surprise vote to leave the European Union may be muted. An index of business and consumer confidence rose to 104.6inJulyfrom104.4thepreviousmonth,theEuropean Commission in Brussels said yesterday. Economists in a Bloomberg survey predicted a decline to 103.5. While the International Monetary Fund has warned that downside risks to global growth have increased significantly following the Brexit vote, policy makers from around the world haven’t succumbed to that kind of pessimism. European Central Bank President Mario Draghi has said that early estimates of the U.K. referendum’s economic impact need to be taken with a “grain of caution.” New growth and inflation forecasts are due in September. Sentiment improved across most sectors in July, with a gauge of confidence in industry rising to the highest since December. Consumers were less optimistic than in June. Euro-area economic growth probably slowed to 0.3 per cent in the second quarter from 0.6 per cent in the previous three months, according to a Bloomberg survey. Bloomberg News
Around 7.51 per cent of China’s industrial businesses are “zombie companies,” according to a recent research paper, which recommended deregulation to allow them to perish. “Zombie companies” are economically unviable businesses, usually in industries with severe overcapacity, keptaliveonlywithaidfromthegovernmentandbanks. A report released by Renmin University of China found that in 2000, about 30 per cent of China’s industrial firms were “zombies”. During 20052013, they represented around 7.51 per cent. Compiled on the basis of a survey of roughly 800,000 companies, the report said zombie firms are more prevalent in underdeveloped western and north-eastern China. State-owned enterprises and large and medium-sized companies have the highest ratio of zombie firms. The report asked the government to reduce regulation and be more cautious in applying industrial policies. Banks should be free from administrative influence when making lending decisions. Nie Huihua, an economics professor at Renmin University of China and a key author of the report, said the government should keep policy consistent to eliminate the companies’ hopes of receiving policy support in the future. Xinhua
Japan’s SoftBank said yesterday net profit jumped 19 per cent in its fiscal first quarter owing to gains from selling some of its stake in Chinese e-commerce giant Alibaba, offsetting losses at US mobile unit Sprint. The company, which also pointed to upbeat results in its domestic business, reported a 254.16 billion yen (US$2.4 billion) net profit in April-June. The profit largely came from booking some of its partial sale of Chinese ecommerce giant Alibaba. Softbank is looking to cut its stake in Alibaba from 32.2 per cent to about 28 per cent, which it expects to rake in about US$10 billion. Alibaba - often described as China’s equivalent to eBay - dominates online commerce in the country. SoftBank, which said its revenue in the quarter rose three per cent to 2.13 trillion yen, surprised markets this month when it announced the whopping US$32 billion purchase of British iPhone chip designer ARM Holdings. But its stock took a hammering as the huge deal aggravated concerns about SoftBank’s balance sheet after a string of earlier acquisitions - including the US$21.6 billion purchase of still-unprofitable Sprint several years ago. AFP