CEPA exports to the Mainland double Trade Page 4
Tuesday, August 2 2016 Year V Nr. 1099 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Gaming
Report: gaming frontline services improved in Q2 Page 5
www.macaubusinessdaily.com
Ride-share apps
Consolidation
Sector moves to consolidation after China’s Didi announces it is buying Uber’s operations in the Mainland Page 8
Mergers in China could reshape steel sector to leave just two big players Page 9
Gaming slump continues Revenues
Macau’s gaming revenue in July fell less than analysts expected as the holiday season brought in tourists and leisure gamblers. Gross gaming revenue fell 4.5 pct to MOP17.8 bln (US$2.2 bln), marking 26 consecutive months of declines, according to data from Macau’s Gaming Inspection and Coordination Bureau. This follows an 8.5 pct decrease in June. Page 7
Nida power
Construction workers’ wages up
The average daily wages of the city’s construction workers increased by 1.2 pct compared to the previous quarter, to MOP788 in Q2, attributable to an increase in wages of non-resident workers, which increased 2.9 pct to MOP672.
Severe weather Flights and ferry services to and from Macau have been disrupted as Typhoon Nida heads for the region. According to the Macau International Airport’s website, as of yesterday, at least 50 flights scheduled to depart from or arrive in Macau between Monday and Tuesday had been affected. Page 2
Weaker demand
Labour Page 3
HK Hang Seng Index August 1, 2016
22,129.14 +237.77 (+1.09%) Worst Performers
Belle International Holdings
+3.51%
Power Assets Holdings Ltd
+2.57%
Link REIT
-1.90%
MTR Corp Ltd
-0.57%
Cheung Kong Infrastructure
+3.43%
China Mobile Ltd
+2.40%
Li & Fung Ltd
-1.29%
Sun Hung Kai Properties Ltd
-0.36%
Want Want China Holdings
+3.16%
Ping An Insurance Group Co
+2.35%
Tencent Holdings Ltd
-1.07%
Hong Kong & China Gas Co
-0.28%
China Construction Bank
+2.88%
Bank of Communications
+2.29%
China Merchants Holdings
-0.88%
CNOOC Ltd
China Mengniu Dairy Co Ltd
+2.62%
China Shenhua Energy Co
+2.29%
Swire Pacific Ltd
-0.59%
Hang Seng Bank Ltd
-0.22% -0.14%
27° 29° 27° 31° 27° 31° 28° 31° 27° 32° Today
Source: Bloomberg
Best Performers
Wed
Thu
I SSN 2226-8294
Fri
Sat
Source: AccuWeather
Official PMI China’s manufacturing sector posted a drop in July due to the flood season and weaker demand, official data showed yesterday. The purchasing manager's index came in at 49.9 in July, slightly lower than June’s 50, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing. Page 8
2 Business Daily Tuesday, August 2 2016
Macau Judiciary
Portuguese judges’ contracts renewed
Nominated by the Prosecutor General, the contract for Portuguese magistrate Joaquim Teixeira de Sousa has been renewed for another two years starting from September 1, according to the government’s official gazette published yesterday. In addition, tenures have been extended for another two years for Portuguese judges João Augusto Gonçalves Gil de Oliveira and Carlos
Armando da Cunha Rodrigues de Carvalho, at the Court of Second Instance and the Court of First Instance, respectively. The renewed contracts will come into effect on September 1, according to a dispatch signed by Chief Executive Fernando Chui Sai On and published in the Official Gazette yesterday. They are appointed through the Committee for the Nomination of Judges (CIIJ), which is responsible for the nomination of judges.
Severe weather
Flights and ferries disrupted due to Typhoon Nida Passengers advised to pay attention to announcements before heading to the airport or terminals. Annie Lao annie.lao@macaubusinessdaily.com
D
ue to the effects of tropical typhoon Nida, flights departing from and arriving at the Macau International airport yesterday and today have been rescheduled or canceled, according to a press release published by Macau International Airport Co. Ltd. (CAM) yesterday. This came after the Macau Meteorological and Geophysical
Bureau (SMG) hoisted Signal No.1 yesterday morning. At 7p.m. yesterday, SMG stated that Typhoon “Nida” (1604) was located about 330 km east-southeast of Macau and was gradually approaching the SAR. Ac c o r d i n g t o t h e M a c a u International Airport’s website, as of 11p.m. last night, at least 50 flights scheduled to depart from or arrive in Macau between Monday and Tuesday had been affected, among them 28 bound for Macau, and 22 departing Macau. CAM is advising passengers to check the updated flight information on the airport’s website before going to the airport.
Hong Kong International Airport to Macau (Outer Harbour), Hong Kong International Airport to Shenzhen Airport Fu Yong Ferry Terminal, and Shenzhen Airport Fu Yong Ferry Terminal to Hong Kong International Airport. T u rb o J E T i s a dv i si n g th e i r passengers to check the latest announcements by TurboJET before heading to the ferry terminals.
This came after the Hong Kong Observatory said it would consider raising the typhoon signal from a No. 3, issued at 11:40a.m., to a stronger No. 8 signal between 6p.m. and 10p.m. on Monday evening. A No. 8 signal means gale or storm force winds are blowing at sea level, at sustained speeds of 63 to 117km/h, with gusts that may exceed 180km/h.
Seaborne transport affected
In addition, three TurboJET ferry services have been suspended, according to an announcement issued by TurboJET yesterday. Affected service routes include
Construction
AL accepts proposal to debate spending for GP Museum Nelson Moura nelson.moura@macaubusinessdaily.com
The Legislative Assembly (AL) has accepted a proposal submitted by legislator Ng Kuok Cheong to stage a debate so that the government can answer questions in regards to the proposed budget for renovating the Grand Prix Museum (GP Museum), Portuguese-language TDM Radio reported. In a previous enquiry, Mr. Ng stated that the proposed MOP300 million (US$37.5 million) budget for the renovation works, slated for completion by November 2018, had created “many suspicions among the public” and that there was enough public interest in the topic to warrant
it being debated in the AL. The legislator wants the government to answer questions regarding what works and functions involved in the museum refurbishment would justify the proposed amount; what studies were conducted to predict the economic viability of the project; and what mechanisms will be put in place to avoid overspending. The budget was announced earlier in the month by the Director of the Macao Government Tourism Office (MGTO), Maria Helena de Senna Fernandes, who stated that the proposed budget would be used only “as a reference”. Secretary for Social Affairs and Culture Alexis Tam Chon Weng stated that the proposed budget
was proposed by architects and engineers. The Secretary added that the budget would be used for developing new elements across the five floors of the Tourism Activities
Centre, such as a car exhibition area, simulation games, a cinema and a wax museum. Meanwhile the Wine Museum would also have to be relocated.
Electoral law
No changes to electoral law SAFP says amending the electoral law is not urgent Annie Lao annie.lao@macaubusinessdaily.com
Legislator Ng Kuok Cheong submitted a written enquiry as to whether efforts will be made to improve the electoral law for electing the position of Chief Executive in the city. H e q u e s t i o n e d i f t h e SA R Government has the right and the responsibility to take on the preparations for modifying the method of election. He also
asked whether the nominees for Chief Executive would be elected through a public voting system in line with the Basic Law, in order to develop a more democratic political system. Chou Kam Chon, deputy director of the Public Administration and Civil Service Bureau (SAFP) replied to his enquiry stating that at this stage changes to the electoral law are not urgent. Based on legal procedures, any changes would have to be agreed on by a majority two thirds of the legislators at the Legislative Assembly (AL), together with the approval of the Chief Executive and the Standing Committee of the National People’s Congress.
Business Daily Tuesday, August 2 2016 3
Macau Wages Price index of construction materials marginally up
Wages of construction workers up by 1.2 pct During the second quarter, the average daily wages of local construction workers decreased, while those of non-resident workers increased. Kam Leong kamleong@macaubusinessdaily.com
T
he average daily wages of the city’s construction workers increased by 1.2 per cent to MOP788 (US$98.5) for the second quarter of the year, attributable to an increase in wages of non-resident workers, according to the latest data released yesterday by the Statistics and Census Service (DSEC). For the three months, non-resident construction workers saw their average daily wages increase by 2.9 per cent quarter-to-quarter to
MOP672. However, the daily pay of local construction workers decreased by 0.8 per cent quarter-to-quarter to MOP982 during the three months. According to a recent employment survey by the DSEC, the city had some 47,100 construction workers as at the end of June. According to skill level, the average daily pay of skilled and semi-skilled workers jumped by 1.8 per cent yearon-year to MOP801, due to nonresident workers in the segment receiving a 3.8 per cent quarter-toquarter raise in their daily salaries to MOP687. Meanwhile, the average daily
wages of unskilled workers were also slightly up by 0.3 per cent quarterto-quarter, to MOP393 in the three months.
Carpenters paid highest
Among all skilled and semi-skilled workers, carpenters enjoyed the highest daily salaries for the period, amounting to MOP1,110 on average, representing an increase of 3.4 per cent quarter-to-quarter. In particular, resident-carpenters earned on average MOP1,539 per day in the three-month period, despite the amount falling by 0.9 per cent quarter-to-quarter. Meanwhile, the daily wages of non-resident carpenters rose on average by 5.5 per cent quarter-to-quarter to MOP862. The average daily pay of airconditioning mechanics posted the highest increase during the period,
788 MOP Average daily wages of the city’s construction workers in Q2
to MOP823. In addition, concrete formwork carpenters also saw their average daily salaries grow by 4.6 per cent quarter-to-quarter to MOP889. Nevertheless, the daily salaries of bricklayers and plasterers dropped by 2.3 per cent and 1.6 per cent respectively quarter-to-quarter, amounting to MOP728 and MOP806 on average. After discounting the effect of inflation, the wage index of construction workers in the city amounted to 103.1 for April to June, a rise of 2.4 per cent quarter-toquarter. Yet, that of local construction workers was down by 1.3 per cent quarter-to-quarter to 127.3.
Construction material costs up
On the other hand, the price index of construction materials for residential buildings rose by 0.9 per cent quarterto-quarter to 133.3 in the threemonth period. Over the quarter, the average price of concrete went down marginally by 0.1 per cent quarter-to-quarter to MOP826 per cubic metre, following nine consecutive quarters of increases. The most significant price drop was apparent in the average price of electrical wire, which cost some MOP616 per single wire, a decrease of 6.9 per cent compared to MOP662 in the first quarter of the year. Meanwhile, the average price of spiral and round reinforcement steel bars jumped by 3.1 per cent quarterto-quarter to MOP4,421 per ton, while that of thick grey PVC water pipes also registered a quarter-to-quarter increase of 3.1 per cent to MOP29.9 per unit during the quarter.
4 Business Daily Tuesday, August 2 2016
Macau Trade
CEPA exports to Mainland double
T
he city’s exports of zerotariff goods to Mainland China under the Closer Economic Partnership Arrangement (CEPA) in July were more than double those of June, according to the latest official data released yesterday by the Economic Services Bureau (DSE). Last month, total CEPA exports to the Mainland amounted to MOP10.7 million (US$1.3 million), which is a jump of 122.6 per cent compared to MOP4.8 million one month ago. In addition, the amount is the second highest monthly value of this year, after April when exports of MOP11.2 million to the Mainland under the agreement were recorded. For the first seven months of the year, local zero-tariff exports to the country reached MOP52.9 million. Accumulatively, the total value of local zero-tariff exports since the agreement between the two parties was implemented in January 2014 stands at MOP720.2 million. As at the end of July, a total of 599 Macau Service Supplier certificates had been issued to local firms, an increase of one compared to the previous month. The certificates allow local companies and enterprises to operate their businesses on the Mainland and enjoy zero-tariff
treatment. According to the DSE data, half of the city’s suppliers in the country were providing transport services there, including freight forwarding
agencies, logistics, storage and warehousing. Meanwhile, 25 per cent of the local suppliers were providing medical and dental services in the Mainland,
followed by those offering real estate services and those engaged in the convention and exhibition field, accounting for six per cent and seven per cent of the total, respectively. K.L.
0.3 percentage points compared to the first three months of the year. For the first half of the year, total subsidies of MOP173.3 million were granted to local enterprises under the scheme, while the number of beneficiaries amounted to 46. The utilization rate of the approved subsidies was 28.9 per cent for the period. In terms of sectors, 15 companies engaged in transport and warehouse businesses were given subsidies of some MOP50.2 million during the first six months of the year, accounting
for 29 per cent of the total. Meanwhile, eight other companies in the wholesale industry were approved subsidies of some MOP45.5 million, representing 26.3 per cent of the total. Other beneficiaries during the period were mainly in the construction industry and the retail sector, receiving MOP24.2 million and MOP23 million from the government, accounting for 14 per cent and 13.3 per cent of the total granted subsidies, respectively. K.L.
Subsidies
MOP87.5 mln granted for firms’ bank loan interest in Q2 Macao Economic Services (DSE) approved MOP87.5 million (US$10.9 million) to subsidise bank loan interests of local enterprises during the second quarter of the year, a slight increase of two per cent compared to the first quarter of the year, according to official data. The Bureau’s “Interest Subsidized Scheme on Bank Loans to Enterprises”, implemented in 2009, aims to provide a maximum of four per
cent interest subsidies for local enterprises’ bank loans of between MOP300,000 and MOP10 million, while the maximum subsidized period is four years from the date of loan repayment. Between April and June, a total of 24 local firms filed applications for the subsidies, while 17 other applications were approved. The utilization rate of the subsidies amounted to some 14.6 per cent for the quarter, up by
Trade
MFE attracted 17,000 visitors Nelson Moura nelson.moura@macaubusinessdaily.com
Corporate
“Mid-Autumn Festival” the Grand Lapa Way
Mid-Autumn Festival is one of the most important festivals in Chinese society. To celebrate this holiday, Grand Lapa, Macau is offering classic Mooncakes with Lotus Seed Paste and Double Egg Yolk and innovative Mooncakes with
Coffee Paste and Double Egg Yolk. A Mooncake Gift Set is also available for gifting. Grand Lapa mooncakes are skilfully handmade using the best lotus seeds, freshest egg yolks and other ingredients, which are meticulously picked out of a wide selection.
This year’s Macao Franchise Expo (MFE) attracted 17,000 visitors throughout the three-day event, of which 2,600 were trade visitors, according to data released by the Macau Trade and Investment Promotion Institute (IPIM). This year’s MFE saw a total of 18 contracts signed for cooperation between franchises and attending companies, while 1,314 business matching sessions were also held. Last year’s MFE attracted a total of 14,500 visitors and 2,200 trade visitors, with 12 contracts signed and 1,042 business matching sessions having been held. The organisers explained that the increase in the number of visitors
in 2016 was due to the fact that, for the first time, the MFE was held at the same time and place as the Guangdong and Macao Branded Products Fair, which created better ‘synergy’ for the event. The event was attended by franchises from Mainland China, M aca u , P o rt u g u es e-s p ea ki n g Countries and Southeast Asian nations, with Mozambique and East Timor sending representatives for the first time. With new online franchise trends as the general theme, a series of events focusing on online entrepreneurship and online-to-offline business opportunities were held at the Expo. This year, businesses were invited to register at IPIM’s Online Business Matching Service Platform, with 198 companies joining the service.
Business Daily Tuesday, August 2 2016 5
Macau Business Almost 500 local SME’s attended SJM’s procurement programme
Win-win business SJM Holdings Ltd launched its Macau SME Procurement Partnership Programme hoping to find local business partners and suppliers. Nelson Moura nelson.moura@macaubusinessdaily.com
G
aming operator SJM Holdings Ltd has launched its Macau SME Procurement Partnership Programme, attracting around 500 local SME representatives for a networking and enquiry session at the Macao Chamber of Commerce (MCC). “We are actively looking for more outstanding local businesses to forge new paths with, and create winwin partnerships,” Angela Leong
No answers
On the sidelines of the event, Angela Leong didn’t provide a definite date for the re-opening of the Jai Alai complex, previously expected to open in around mid-2016, stating only that she hoped it would re-open in the next two months, but that it would probably be “within this year” depending on “how weather factors affect the revamping process.” During the event, the Grand Lisboa Palace, SJM’s future integrated resort in Cotai and the Jai Alai renovation project in the Outer Harbour were presented
On Kei, Managing Director and Chief Administrative Officer at SJM stated at the programme launch press conference.
Marrying gaming resorts with SME’s
The programme was presented as looking for local “Micro Enterprises”, “Made in Macau” and “Young Entrepreneurs” to become business partners and suppliers of services and products for the group’s hotel operations, information technology, gaming operations, marketing, maintenance services, and food and beverage.
as creating future business opportunities for local businesses. When questioned on the predicted number of gaming tables likely to be allocated to the Grand Lisboa Palace, Ms. Leong stated only that the project would include one shopping mall and “not many” gaming tables, but that it would “offer numerous opportunities to SMEs.” Previously, Chief Executive Officer Ambrose So Shu Fai stated that the opening of the Grand Lisboa Palace was projected for the fourth quarter of 2017 and that the group was planning to apply for 400 to 500 gaming tables.
“Micro Enterprises” were described as companies registered at the Financial Services Bureau (DSF), with over 50 per cent of their share capital held by Macau residents, with no more than 15 employees and having been in operation for more than a year. “Made in Macau” companies must have an industrial license, a Certificate of Origin and also have 50 per cent of their share capital held by Macau residents, however no limit for employees or number of years in operation. “Young Entrepreneurs” were described as Macau business owners aged between 21 and 44. Chan Tze Wai, Deputy Director of the Economic Services Bureau (DSE) stated at the event that over “80 per cent of SJM’s procurement is from local enterprises,” and that apart from implementing procurement measures to prioritise local products and services, the MSAR government will “continue to promote similar events, in order to create more opportunities for cooperation between integrated resorts and SME’s.” It was also announced that a Business Matching Session on Hotel Operating Supplies and Food and Beverage is going to be held on September 19 at the Grand Lisboa Hotel.
Hard but worthwhile
Networking and enquiry sessions and business matching sessions took place after the press conference, in order to inform local business people of the requirements and business opportunities.
Representatives from the Bank of China Macau Branch, Industrial and Commercial Bank of China (ICBC Macau) and Banco Nacional Ultramarine (BNU) were also present to advise SME’s on loan facilities. Joao Bruxo, Sales Manager at the Macau branch of Portuguese wineseller Topwines has already attended procurement events at the Galaxy, Wynn and MGM resorts, telling Business Daily “they are a good way for Macau SME’s to understand how hotels do business and a way to create bridges for future deals”. “It can be a long process and not very straightforward, but these events can explain how the system works. I’ll probably attend the event in September too,” Bruxo told Business Daily. For Lisa Acconci, from Party and Cakes Xpress, this is the second procurement event she has attended, after the Galaxy Entertainment Group Food and Beverage business matching session held last month. “We have been a distributor for cake related products in Macau for an American company called Wilton for almost seven years. Right now we are providing products for the Melco group hotels,” Acconci told Business Daily. Acconci agrees the application process can be challenging, describing the application forms as being “as big as a book”, but also agrees that procurement events are “a good idea and a great chance for business”. The procurement programme was organised by SJM, in cooperation with the Macao Chamber of Commerce and with support from the DSE, the Macau Trade and Investment Promotion Institute (IPIM) and the Macau Productivity and Technology Transfer Center (CPTTM).
Gaming Security department recorded best service levels
Report: gaming frontline services improved in Q2 Services provided by the frontline departments of local casinos recorded a general improvement during the second quarter of the year, when the gaming industry was still undergoing an adjustment phase, a report on the city’s gaming services conducted by the Macau Gaming Research Association finds. For April to June, the city’s overall gaming service index reached 123, rising by 12.8 per cent compared to that of 109 during the first quarter of the year, according to the report released yesterday. The association indicated that its research covered 13 casinos in the Special Administrative Region and nine of their frontline departments. It primarily analyzed smiling, proactiveness and tolerance of casino frontline workers. The smiling index of casino frontline workers improved 6.3 per cent quarter-to-quarter, to 118 during the three months. The association noted that the score ‘is the second highest’ in the history of the report. The tolerance index of gaming
workers increased by14 per cent quarter-to-quarter to 130 in the period, while the index of their proactiveness also grew by 20.4 per cent quarter-to-quarter to 118. For the first half of the year, the service index of security workers
at local casinos performed the best at 2.73 out of 3.5 points, increasing by two per cent compared to one year ago. Meanwhile, the service performance of dealers remained stable. Their overall service index amounted to
1.98 points as at the end of the first half, compared to 1.99 points during the same period last year. However, the service index of workers in the food and beverage area fell by 12.9 per cent year-on-year to 2.22 points, down from 2.55 points. In addition, that of casino-cashiers dropped by some 6.3 per cent to 1.77 points, compared to 1.89 points one year ago. K.L.
6 Business Daily Tuesday, August 2 2016
Macau
Gaming
Sale further delayed as auditor can’t find sufficient supporting evidence
Savan Vegas sale pushed back to August 31 Auditors are unable to verify the finances of the casino hotel complex since 2013, and sufficient evidence to justify bonuses to consultants is yet to be found. A new agreement to be signed only between the Lao government and Macau Legend subsidiary will annul the previous one and include changes. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
I
n a further delay, which could stretch as far as September 10, the sale of the Savan Vegas Hotel and Entertainment Complex to Macau Legend Development Limited is now set for August 31, notes the company in a filing to the Hong Kong Stock Exchange. The Long Stop Date – the date of sale, pushed back to the end of August - will automatically be renewed to September if ‘any of the conditions precedent are unable to be satisfied’, notes the filing. Macau Legend Development, which operates the Pharaoh’s Palace and Babylon Casino in the SAR, has posted a series of delays for the purchase – for which it is set to pay US$42 million, based on its Initial Project Development Agreement established between Macau Legend and the Lao government on May 13. The delay comes about as ‘the Government of the Lao PDR (People’s Democratic Republic) and the Company (Macau Legend) are in the process of settling the transaction documents, and currently expect that the Project Company will replace the Company and sign before the Closing the Revised Project Development Agreement with the Government,’ notes the filing, referring to the fact that Macau Legend will set up a company in Lao under which to purchase the complex, and sign a new agreement for the sale, nullifying the current one. Under the revised agreement, Macau Legend will have to ‘enter into a performance guarantee to guarantee the payment obligations of the Project Company with an aggregate liability of not more than US$30 million,’ notes the filing. The revision also notes that Macau Legend expects the Lao government to specify the concession rights, lease of the Project Area, non-interference of the government in the project and management of the project as well as the ‘timely grant of authorisations to the Project Company’ and its lawful
status and operation. The US$42 million price tag also includes the assumed tax liability.
Unaccountable
In the Accounts’ Report on the complex – included in the filing the auditors (RSM Audit Services (Thailand) Limited) note that in regards to related party transactions and balances ‘RSM was unable to obtain any supporting documents’ for related party transactions for all of 2014, as well as for transactions from 1 January 2013 until 28 September 2015 - the day of seizure - ‘since the former management […] is currently under investigation by the Lao Government with the allegation of misappropriation’ of funds. In addition, the group was unable to determine acquisition costs relating to property, plant and equipment valued at HK$308.6 million (2014) and HK$273.5 million (2015) ‘since the management […] had not maintained appropriate supporting documents’.
Furthermore, neither revenues for the complex, titles of ownership of certain bank balances nor inventory were able to be verified by the auditor, leading it to state that ‘because of the significance of the possible effects of the limitations in the scope of our examination work […] we do not express an opinion as to whether the Financial Information gives […] a true and fair view of the financial position of the Relevant Business as at 31 December 2013, 2014 and of its financial performance and cash flows for the year ended 31 December 2013, 2014 and 2015’.
Bonuses
The Accounts’ Report on the Savan Vegas property additionally notes that the five highest paid individuals in the company received a total of HK$5.4 million in salary and benefits for the whole 2015, a period in which one of these individuals received between HK$2 million and HK$2.5 million. It also could not find ‘sufficient supporting evidence from the management of the Entities (SVL and SVC – Savan Vegas and Casino Co Limited) with respect to professional and consultant fees totalling approximately HK$15.1 million and HK$12.4 million’ for 2014 and 2015 until September 28, the date of the seizure of the complex by the government. Sanum Investments has repeatedly accused San Marco and Kelly Gass of receiving ‘nearly
US$2 million of Sanum and Lao Holdings’ (Sanum Investments’ subsidiary) money […] to operate and sell the gaming assets,’ Business Daily previously reported.
Value
The valuation report carried out on the complex valued it at US$42.4 million, however the project has suffered ‘significant deterioration of the financial performance’ during the past two years, for which the group cites a decline in the exchange rate for Thai Baht to US dollars, a decrease in visitors, the defaulting of two junket operators and resulting decrease in VIP volume, and an overall downturn in gaming revenue. However, in a letter from the board, the group later states that: ‘the deteriorated performance in 2015 is considered to be attributable to the mismanagement of the Project before the Operator takes it over’. It furthermore calls out former manager Sanum Investments, a Macau-based company, noting ‘previous incidences such as investigations into the former management for misappropriation of funds and the illegal and prohibited acts of the former owner’, but notes that these will not affect the future performance of the property as the acquisition will be made directly by a wholly-owned company of the Ministry of Finance of the Lao government – Savan Vegas Lao Limited (SVL).
Business Daily Tuesday, August 2 2016 7
Macau Revenues Analysts predict 26-month decline to break in September
Gaming revenue falls less than expected Gross gaming revenue fell 4.5 pct to MOP17.8 billion, marking 26 consecutive months of declines. Kelsey Wilhelm kelsey@macaubusinessdaily.com
G
aming revenue for the month of July fell less than analysts’ expectations for the period, dropping 4.5 per cent year-on-year to MOP17.8 billion (US$2.2 billion) and marking the 26th straight month of declines in gross gaming revenues for the SAR, according to the latest data from the Gaming Inspection and Coordination Bureau (DICJ). The results exceeded analysts’ expectations by a whole percentage point, as a 5.5 per cent year-onyear decline was expected for July, in line with Union Gaming analyst Grant Govertsen’s view of ‘declines becoming less worse’, and a significant improvement from June’s year-on-year 8.5 per cent decline. Analysts at Bernstein note that the gross gaming revenue for the month, ‘picked up during the course of the month as the Euro Cup ended earlier in the month and summer holiday visitation began to improve.’ An eight per cent month-on-month increase in gross gaming revenue per day was seen, as July saw MOP573 million in average daily gross gaming revenue – just three per cent below the average for the last 12 months. The last week of the month saw an increase in average daily revenue compared to the previous weeks, as noted by Bernstein analysts, due to ‘continued visitation and gaming volume sequentially improving’. “We’re starting to see gaming revenue declines easing as visitation is showing signs of inflection after a downturn,” reported Bloomberg Intelligence analyst Margaret Huang.
Divided views
Opinions are divided on August as Typhoon Nida is expected to disrupt
visitor flow both for the ferries and air traffic, leading Union Gaming analysts to predict ‘the first few days of August to experience lower-thanrecent-normal daily gross gaming revenue’, with the expectation that the first three weeks of August will also be ‘negatively impacted by some number of higher value customers deferring their trips to Macau as they wait for the openings of Wynn Palace on 22 August and Parisian Macao on 13 September,’ notes the firm. Analysts at Bernstein expect August gross gaming revenue to emerge from its decline and hit a two per cent yearon-year increase, as ‘the opening of Wynn Palace […] should provide a bump in gross gaming revenue, as will the pick up in seasonal base mass visitation.’ This sentiment is echoed by Grant Govertsen who predicts the ‘last week of August to be strong as it benefits from the opening of Wynn Palace and a likely boost in associated high end visitation.’ While Bernstein estimates revenue at MOP19 billion for the month, Govertsen foresees a ‘gross gaming revenue decline of three per cent to seven per cent in August, with the midpoint at MO17.5 billion,’ citing two fewer weekend days for the month this year. Govertsen expects positive revenue growth to return in
Gaming
StarWorld opens new gaming floor StarWorld Hotel officially opened its gaming floor on the third floor of the hotel yesterday, adding new gaming features to the property including a live e-Gaming stadium with the largest infotainment screen in Macau, complete with 108 gaming panels. The floor features 14 gaming tables and 159 slot machines, as noted in a company press release. “The opening of StarWorld 3/F represents the next level of entertainment service at StarWorld Hotel. The innovative new games,
fan-favorites and expanded, topnotch dining offerings show our ‘Asian Heart’ spirit and our commitment to giving players the best entertainment experience possible in Macau,” commented Mr. Raymond Yap, Director of International Premium and Mass Market Development for Galaxy Entertainment Group. A total of 5,998 gaming tables and 13,706 slot machines were recorded in the territory in the second quarter of this year, according to data from the Gaming Inspection and Coordination Bureau.
September and ‘largely stay positive from that point forward.’
Positivity
Recent announcements such as those by billionaire Sheldon Adelson, who reiterated his faith that tourists and recreational gamblers are driving Macau’s growth, helped assuage worries and aid stock prices for operators such as Sands China, in advance of its Parisian Macao September 13 opening, just weeks after Wynn Palace’s on August 22, leading Bernstein analysts to rate the two stocks as Outperform. Also classified as such were Melco Crown, MGM China and Galaxy Entertainment, with local operator SJM the only to receive a Market Perform classification from the analysts. ‘While the Macau gaming industry will remain uncertain over the
near-term, we view the industry as a secular growth story driven by the accelerating paradigm shift from VIP to Mass,’ note Bernstein analysts led by Vitaly Umansky. Currently the DICJ is evaluating the Parisian Macao’s request for gaming tables at the property, while additionally the DICJ’s director, Paulo Martins Chan, said late last month that the bureau had received Wynn’s application for gaming tables and slot machines and is analyzing the request. The operator noted last week that it had applied for and is expecting to receive 100 additional gaming tables, planning to shift tables from its Macau property to have a total of 350 tables in Wynn Palace and 270 in Wynn Macau. Bernstein analysts note that ‘more than 100 tables is still a possibility,’ although the 100 table allocation is ‘likely accurate’.
8 Business Daily Tuesday, August 2 2016
Greater China Official survey
Factory activity unexpectedly dips on softer orders An official poll on the services sector was more upbeat, showing growth accelerated to 53.9 in July from 53.7 in June. Sue-Lin Wong
A
ctivity i n C h i n a’ s m a n u fac t u r i n g s ec t o r eased unexpectedly in July as orders cooled and flooding disrupted business, an official survey showed, adding to fears the economy will slow in coming months unless the government steps up a huge spending spree. While a similar private survey showed business picked up for the first time in 17 months, the increase was only slight and the much larger official survey yesterday suggested China’s overall industrial activity remains sluggish at best. Both surveys showed persistently weak demand at home and abroad were forcing companies to continue to shed jobs, even as Beijing vows to shut more industrial overcapacity that could lead to larger layoffs. And other readings yesterday pointed to signs of cooling in both the construction industry and real estate, which were key drivers behind betterthan-expected economic growth in the second quarter. The official Purchasing Managers’ Index (PMI) eased to 49.9 in July from the previous month’s 50.0 and below the 50-point mark that separates growth from contraction on a monthly basis. Analysts polled by Reuters predicted a level of 50.0. While the July reading showed only a slight loss of momentum, Nomura’s
chief China economist Yang Zhao said it may be a sign that the impact of stimulus measures earlier this year may already be wearing off. That has created a dilemma for Beijing as the Communist Party seeks to deliver on official targets, even as concerns grow about the risks of prolonged, debtfuelled stimulus. “The government has realised the downward pressure is great but they’ve also realised that stimulus to stimulate the economy continuously is not a good idea and they want to continue to focus on reform and deleveraging,” Zhao said. Heavy flooding, particularly along the Yangtze River, contributed to July’s manufacturing contraction along with slowing demand and the cutting of overcapacity in some industries, the statistics bureau said. Falling activity at smaller firms also was a key reason for July’s poor figure, the statistics bureau said, but performance at larger companies improved, in a sign that the government is becoming more reliant on big state firms to generate growth.
While many analysts believe the world’s second-largest economy may be slowly stabilising, conditions still look patchy. Industrial profits rose at the fastest pace in three months in June, but gains were concentrated in just a few industries including electronics, steel and oil processing. Spurred by rebounding prices and stronger construction demand, China’s steel output and exports have been near record levels. But it one of the key sectors being targeted by officials for capacity cuts and tougher pollution controls. Indeed, the PMI showed factory
output in July still expanded solidly, though the pace cooled to 52.1 from 52.5 in June. Total new orders hovered just inside expansionary territory at 50.4, slightly down from June, but new export orders contracted as overseas demand remains weak and the impact of Britain’s vote to leave the European Union hurt sentiment. A private PMI survey by Caixin/ Markit was more mixed. Its 50.6 reading was stronger than expected and the first expansion since February 2015, sparking hopes that some of the government’s stimulus was starting to trickle down to smaller private firms which have been under greater stress than larger state-backed enterprises. But overall order growth was modest and export orders continued to fall.
Bumpy outlook
“Data do not bode well for GDP growth in the second half,” ANZ economists Louis Lam and David Qu wrote in a note. Fiscal policy would be the key tool for boosting growth in coming months, while the central bank was expected to keep its policy settings accommodative, they added.
M&A
Didi to buy Uber mainland business to consolidate sector Uber will continue to operate its own app in China for now. Eric Newcomer
Uber Technologies Inc. will sell its China business to Didi Chuxing, the dominant ride-hailing service in the country, according to people familiar with the matter. The deal ends a costly battle between the two companies, which competed for customers and drivers. The valuation of the combined
business will be US$35 billion, said the people, who asked not to be named because the details aren’t public. Investors in Uber China, an entity owned by San Francisco-based Uber, Baidu Inc. and others, will receive a 20 per cent stake in Didi, the people said. Uber will continue to operate its own app in China for now. In addition to Uber selling its Chinese subsidiary, the complex deal involves Didi making a US$1 billion investment in Uber, people familiar with the matter said. Didi had no immediate comment, and Uber declined to comment. “As an entrepreneur, I’ve learned that being successful is about listening
“I have no doubt that Uber China and Didi Chuxing will be stronger together” Travis Kalanick, chief executive officer of Uber
to your head as well as following your heart,” Travis Kalanick, chief executive officer of Uber, wrote in a blog post obtained by Bloomberg. “I have no doubt that Uber China and Didi Chuxing will be stronger together.” Last year, China’s ride-hailing leaders Didi and Kuaidi joined forces, creating a home-grown juggernaut. The merged company Didi Chuxing brought together backers Alibaba Group Holding Ltd. and Tencent Holdings Ltd., the country’s most valuable internet businesses. Apple Inc. joined in this year with a US$1 billion investment in Didi. The Chinese government passed a new rule last week that legalized ride-hailing services, paving the way for further expansion of these businesses. But Uber’s investors had been clamouring for the company to sell off its China assets. Both Uber and Didi have been spending significantly to compete in China. Uber has lost more than US$2 billion in the country, people familiar with the matter said. Meanwhile, Uber was profitable in developed markets in the first half of 2015, the people said. “Uber and Didi Chuxing are investing billions of dollars in China, and both companies have yet to turn a profit
there,” Kalanick wrote in the blog post. “Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term.” The purchase of Uber’s China business may complicate Didi’s alliance with other ride-hailing startups around the world. Didi had agreed to work with the U.S.’s Lyft Inc., India’s Ola and Southeast Asia’s Grab to create a global force to take on Uber. Grab CEO Anthony Tan said in a statement yesterday that the impending deal is a victory for Didi and underscores how the ride-hailing business favours domestic players. In China, Uber ventured where few U.S. technology companies have succeeded. In 2005, Yahoo! Inc. made a similar deal, selling its businesses in China to Alibaba, along with a US$1 billion investment - one of the Silicon Valley company’s best bets. While Uber will walk away from operations in China, it is taking a significant stake in the largest player there. By shedding its massive losses in China, the move will help Uber clear the path for an eventual initial public offering. Bloomberg News
Business Daily Tuesday, August 2 2016 9
Greater China Industry consolidation
The Caixin report tends to give more weight to light industry, whereas the official survey is skewed more toward heavy industries, said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, according to Caixin. An official survey on the services sector was more upbeat, showing growth accelerated to 53.9 in July from 53.7 in June. But it, too, contained several worrying notes, with construction services growth solid but cooling and the property services sector weakening, adding to worries that China’s housing boom may have peaked. Beijing has been counting on a strong services sector to pick up the slack as it tries to shift the economy away from a dependence on heavy industry and manufacturing exports. Reuters
In Brief
Authorities said to mull mergers to create two state steel giants Such combination would enhance government efforts to reduce overcapacity. China is considering a sweeping overhaul of its steel industry that would consolidate major steel producers into two giants, with one located in the north of the country and the other in the south, according to people familiar with the plan. Hebei Iron & Steel Group, the nation’s biggest mill by output, and Shougang Group will be combined into Northern China Steel Group, while No. 2 producer, Shanghai Baosteel Group Corp., and Wuhan Iron & Steel Group Corp. will be merged into Southern China Steel Group, said the people, who declined to be identified because the information is confidential. The combinations would give Chinese steel mills the scale to rival global giants such as ArcelorMittal SA. The State-owned Assets Supervision and Administration Commission didn’t respond to a request for comment, while a Baosteel Group spokesman declined to comment when reached by Bloomberg. Smaller steel companies could later be absorbed into the two new groups once they are established, although nothing has been decided, said the people familiar with the plan.
decades. China’s crude steel-producing capacity reached a record of 1.2 billion tons at the end of 2015, according to the China Iron & Steel Association. The plan “will help accelerate eliminating excess steel capacities as the companies will remove duplicated products,” Helen Lau, an analyst at Argonaut Securities Asia Ltd., said by phone from Hong Kong. “It will also boost their competitiveness and strengthen their customer bases and leave little room for non-competitive smaller mills.” Even though China’s steel output has peaked, the domestic market remains saturated, Chen Derong, general manager at Baosteel Group, told an industry conference in May. As the nation seeks to clear its surplus, exports are running at record levels, creating a global glut of the metal and drawing fire from competitors across the globe. Bloomberg News
Hospitality strategy
Domestic hotelier finds a way to dodge purge on extravagance
President Xi Jinping’s crackdown on fancy feasts and penthouse suites has decimated China’s hospitality industry. With one notable exception. China Lodging Group Ltd. is the only Chinese hotelier to have gained in 2016. The Shanghai-based hotel operator has risen 23 per cent to US$38.43 so far this year, making it the fifth-strongest performer within the Bloomberg-China Index, which tracks Chinese stocks traded in the U.S. Soon after assuming leadership of the Communist Party, Xi banned official extravagance as part of an effort to stamp out widespread corruption. Lavish spending on anything from showy cars to luxury hotel rooms was out, with far-reaching consequences to caterers, entertainment and lodging businesses not to mention alcohol giant Remy Cointreau SA. But China Lodging Group’s strong presence in major cities such as Shanghai and Beijing helped it adapt to the new consumption climate while competitors, more reliant on the party’s largess in far-flung provinces, got slammed. In inland cities like Xian, a glut of new supply, an economic slowdown and slashed expense accounts have taken a sizeable bite out of profit margins. “China Lodging’s presence in primary markets in China has certainly helped to fuel revenue per available room growth,” Margaret Huang, an analyst from Bloomberg Intelligence, said in an e-mail,
referring to an industry metric for gauging sales. With more than 12 per cent of its hotels in Shanghai, the company’s revenues will get a boost from a surge in tourists flocking to the newly opened Shanghai Disneyland, said Tian Hou, an analyst from TH Data Capital. Fifteen million visitors are expected to pass through the theme park’s turnstiles every year. The hotelier’s earnings have grown annually since 2011 as robust demand
The People’s Bank of China announced yesterday that it launched a series of targeted measures in July to regulate liquidity. The central bank said it injected 900 million yuan (US$135.8 million) through standing lending facility to ensure provisional liquidity demand from financial institutions. Meanwhile, the PBOC retrieved a net 43 billion yuan of liquidity from the financial system in July in open market operations via medium-term lending facility (MLF). The MLF tool was first introduced in 2014 to help commercial and policy banks maintain liquidity by allowing them to borrow from the central bank by using securities as collateral.
Regulator reins in guaranteed funds
Such combinations would enhance government efforts to reduce overcapacity in the world’s biggest steel producer as part of its drive to overhaul an inefficient state sector and bolster an economy growing at its slowest in
Sunny Oh
Central bank takes steps to regulate liquidity
Fund management
Reduce overcapacity
China Lodging’s earnings have grown annually since 2011 as robust demand for accommodation in Beijing and Shanghai made up for the shortfall in regional business.
Monetary policy
for accommodation in Beijing and Shanghai made up for the shortfall in regional business. Industry revenues per available room in the two cities have risen at least two per cent over the last twelve months, data from Smith Travel Research shows. That’s not to say that China Lodging Group didn’t take a hit. It also expanded into smaller cities like Dalian during the heady days of credit-fuelled economic growth following the 2008 financial crisis. When the industry’s fortunes soured after the crackdown on graft, its hotel occupancy rates fell nine per cent for three years to 85 per cent in 2015. Nonetheless the company’s operating margins held strong, rising from 6.7 per cent in 2013 to 8.6 per cent in 2015. Bloomberg News
“China Lodging’s presence in primary markets in China has certainly helped to fuel revenue per available room growth” Margaret Huang, an analyst from Bloomberg Intelligence
China Lodging Group has more than 12 per cent of its hotels in Shanghai (pictured)
China’s funds regulator circulated draft rules that impose stricter controls over the country’s guaranteed funds, The Economic Observer reported. The move comes amid attempts to clamp down on the country’s poorly regulated fund management sector, which has been dogged by runaway managers and misappropriation of investments. The Asset Management Association of China, the self-regulatory body that oversees private funds, is seeking opinions on a set of draft rules that would prevent some funds from guaranteeing principal, the paper reported. The draft rules also set limits for fund allocation. Bond default
Wuhan Guoyu Logistics might be unable to make payment The company, an unlisted privately held logistics firm based in the Chinese city of Wuhan, said it may be unable to make payment on 400 million yuan (US$60.26 million) of one-year commercial paper maturing August 6. The firm posted a statement on the website of China’s interbank bond market operator yesterday. In the statement, the firm blamed cashflow problems on difficulties at its Yangzhoubased shipbuilding subsidiary. China’s shipbuilding industry, like that of many competitor nations, has been struggling with overcapacity and weak global trade for several years. Automotive industry
GM ‘bullish’ on mainland market General Motors Co is “quite bullish” about the recovering auto market in China and is responding to a shift in growth toward utilitarian models in smaller cities, a segment often ignored by foreign automakers, said GM China chief Matt Tsien. GM expects the market to grow to around 30 million vehicles by 2020 from 24.6 million last year, and that its local budget-car joint venture gives it an edge over global rivals in growth areas outside of major cities, Tsien said in an interview.
10 Business Daily Tuesday, August 2 2016
Greater China Investment halt
Amid Britain nuclear debacle, Xinhua decries “suspicion” The official agency said people might think Britain was trying to erect a wall of protectionism.
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hina will not tolerate “unwanted accusations” about its investments in Britain, a country that cannot risk driving away other Chinese investors as it looks for post-Brexit trade deals, China’s official Xinhua news agency said yesterday. British Prime Minister Theresa May was concerned about the security implications of a planned Chinese investment in the Hinkley Point nuclear plant and intervened to delay the project, a former colleague and
a source said on Saturday. The plan by France’s EDF to build two reactors with financial backing from a Chinese state-owned company was championed by May’s predecessor David Cameron as a sign of Britain’s openness to foreign investment. But just hours before a signing ceremony was due to take place on Friday, May’s new government said it would review the project again, raising concern that Britain’s approach to infrastructure deals, energy
supply and foreign investment may be changing. China General Nuclear Power Corp, which would hold a stake of about a third in the project, said on Saturday it respected the decision of the new British government to take the time needed to familiarise itself with the programme. Xinhua, in an English-language commentary, said China understood and respected Britain’s requirement for more time to think about the deal. “However, what China cannot understand is the ‘suspicious approach’ that comes from nowhere to Chinese investment in making the postponement,” it said.
The project will create thousands of jobs and create much needed energy following the closure of coalfired power plants, Xinhua added, dismissing fears China would put “back-doors” into the project. “For a kingdom striving to pull itself out of the Brexit aftermath, openness is the key way out,” it said.
“For a kingdom striving to pull itself out of the Brexit aftermath, openness is the key way out” Xinhua comment
British Prime Minister Theresa May intervened to delay Hinkley Point nuclear plant project
“If history offers any guide, many China-targeted suspicions have been boiled down to diffidence and distortion. China can wait for a rational British government to make responsible decisions, but can not tolerate any unwanted accusation against its sincere and benign willingness for win-win cooperation.” Such commentaries are not government statements, but offer a reflection of official thinking. Xinhua said people might think Britain was trying to erect a wall of protectionism. Britain and EDF first reached a broad commercial agreement on the project in 2013. China got involved two years later when Downing Street laid on a state visit for President Xi Jinping, designed to cement a “Golden Era” of relations between the two countries. Reuters
Analysts’ outlook
Hong Kong housing rebound may be short-lived There are many headwinds including looming supply, analysts said. Frederik Balfour
Hong Kong’s secondary property prices rose in the second quarter, marking a pause in a correction that analysts said may resume amid higher supply and weaker demand. Secondary property prices advanced 1.6 per cent in the three months ended June 30, compared with a drop of 4.8 per cent in the prior three months, according to figures released Friday by the Rating and Valuation Department. Analysts from Nomura Holdings Inc., CIMB Securities Ltd. and CLSA Ltd. are among those predicting that the rebound would be short-lived. Home prices in Hong Kong have fallen 11 per cent from a peak in September and sales have tumbled, amid slower growth and economic uncertainty. While diminished concerns about a rate hike by the U.S. Federal Reserve and a stock market rebound improved buyer sentiment in the second quarter, there are many headwinds including looming supply, analysts said. The government forecasts that 18,203 new units will be completed this year, part of a pipeline of 93,000 expected in the next three to four years. “This correction is multi-year, not several quarters,” said Jeffrey Gao, a property analyst at Nomura, who expects prices will need to drop 25 per cent to 35 per cent from last year’s
peak before the market stabilizes. “In the upcoming months sentiment will be better and volume and price could edge up, but it’s not really bottoming out.”
Improved sentiment
Raymond Cheng, a property analyst at CIMB Securities, said that the overall downward trend remains in place in light of the large expected increase in supply as part of government drive to make housing more affordable. “In the past two months sentiment has improved because of the equity
“In the upcoming months sentiment will be better and volume and price could edge up, but it’s not really bottoming out” Jeffrey Gao, a property analyst at Nomura
market and the U.S. didn’t raise rates, but on the fundamental side, especially the supply side, there haven’t been any changes,” Cheng said. Sellers of existing homes will also have limited pricing power in a market where they have to compete for buyers. Developers including Sun Hung Kai Properties Ltd., Cheung Kong Property Holdings Ltd. and Henderson Land Development Co. are engaging in aggressive marketing techniques offering discounts of as much as 20 per cent and mortgage financing of 120 per cent.
‘Relative stability’
Ronnie Chan, chairman of Hang Lung Properties Ltd., said the market is
entering a phase of “relative stability,” despite nervousness about conditions outside Hong Kong including the rise of terrorism, the pending U.S. election, a slowdown in China and Brexit. “Looking ahead, I don’t see prices rising sharply, nor do I see prices precipitously dropping,” he said. Nicole Wong, head of property research at CLSA in Hong Kong, said the second-quarter rebound was driven by people who jumped into the market when prices didn’t plunge as much as they’d expected. “People expected prices to keep falling and they were wrong, and then they panicked and came back,” said Wong, who projects prices will fall another 3 per cent this year, and 7 per cent in 2017. “By the third quarter they will think they have been wrong by rushing in, I guarantee you.” Bloomberg News
Business Daily Tuesday, August 2 2016 11
Asia Trade data
South Korea exports fall for 19th straight month The trade surplus fell to US$7.8 billion in July from a revised US$11.5 billion surplus in June. Christine Kim
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outh Korea’s July exports fell at the fastest annual rate in three months to record a 19th straight month of declining exports, trade ministry data showed yesterday. All South Korea’s top 13 export industries saw declines in July. With the exception of computers, exports to key trade partners, notably China, the U.S. and the European Union, all fell.
A strike at Hyundai Motor Co, the world’s fifth-biggest carmaker, bit into July exports. Exports fell 10.2 per cent on-year to US$41.0 billion while imports slumped 14.0 per cent to US$33.3 billion. Exports posted the biggest fall since April this year. In June exports and imports fell 2.7 per cent and 7.7 per cent, respectively. The trade surplus fell to US$7.8 billion in July from a revised US$11.5 billion surplus in June. Economists polled by Reuters had
expected a 4.6 per cent drop in exports and a 9.5 per cent fall in imports. South Korea is the first major exporting economy to report monthly trade data and is home to global suppliers such as Samsung Electronics and SK Hynix Inc. The average value of exports per working day was US$1.75 billion in July, less than a revised US$1.94 billion in June, Reuters calculations showed. July this year had 1.5 fewer working days than July 2015. The trade ministry said it saw little
prospect of an improvement in exports anytime soon, and planned to expand financial aid to exporters, including loans and a cut in insurance costs. However, it still hoped for exports to rebound in August, a ministry official told a news conference. “It’s imperative for exports to China to turn around,” said Lee Sang-jae, an economist at Eugene Investment & Securities.” South Korea may need a another interest rate cut to offset the drag from weak exports, he said. South Korea’s policy rate currently stands at 1.25 per cent after the Bank of Korea lowered it in June. A majority of economists polled by Reuters currently see at least one more cut by year-end. Reuters
Key Points July exports -10.2 pct y/y (Reuters poll -4.6 pct) July imports -14.0 pct y/y (Reuters poll -9.5 pct) Exports decline attributed to less working days, shipping lull Auto strikes bite into shipments Exports of ships, also part of the top 13, had fallen 42.5 per cent alone on-year, the trade ministry said. Exports to China, South Korea’s biggest trade partner, have fallen for more than a year as China restructures its economy and manufactures more products that South Korea previously supplied.
Forex
Dollar funding costs drop after monetary move Bank of Japan’s steps did reassure banks that the central bank is ready to help with dollar funding if they need it. Hideyuki Sano and Yoshiko Mori
Dollar funding costs for Japanese banks dropped considerably after the Bank of Japan (BOJ) last week enhanced its support for Japanese banks, a little-noticed success in the central bank’s otherwise underwhelming stimulus. The Bank of Japan said on Friday it would double the size of one of its dollar lending schemes to US$24 billion from the current US$12 billion. The facility was introduced in April 2012 to lend dollars for one year, with a maximum of up to four years after roll-overs. Friday’s unexpected decision reduced the so-called dollar/yen basis swap spreads, or the premium Japanese banks pay to borrow dollars. “The BOJ’s measures had a certain impact on the narrowing of the spreads. But this will not alleviate dollar funding pressure completely,” said Hiroko Iwaki, senior fixed income strategist at Mizuho Securities. “I would expect the spreads to remain at elevated levels.”
The one-year dollar/yen basis swap spread, or the cost of swapping yen for dollars for a year, dropped to around 70 basis points from around 77 basis points before the BOJ decision. Spreads for shorter maturities also dropped following the BOJ’s decision. The one-year spread has been widening for many months from
around a low of 50 basis points earlier this year and about 15 basis points in early 2014, due to rising dollar demand from Japanese banks. Ja p a n e s e ba n ks h av e b e e n snatching up dollar-denominated assets, including U.S. Treasuries, mortgage bonds, corporate bonds and project finance, as they turn away from negative-yielding Japanese government bonds. While many Japanese banks are reluctant to use the BOJ scheme because of the potential stigma of relying on the central bank, the BOJ’s
steps did reassure banks that the central bank is ready to help with dollar funding if they need it. The spreads shrank also because the BOJ did not cut interest rates deeper into negative territory as some participants had feared, traders said. Many investors had been worried that deeper negative rates would make domestic bonds even less attractive and accelerate Japanese investors’ buying of foreign assets, and so increase their dollar funding needs. Most Japanese investors prefer to borrow dollars for overseas investments, rather than selling yen for dollars, because they do not want exposure to currency fluctuation risk. Reuters
12 Business Daily Tuesday, August 2 2016
Asia In Brief Real estate
Australia new home sales rebound sharply Sales of new homes in Australia rebounded strongly in June after two months of weakness, pointing to welcome resilience in the economically important housing market. The Housing Industry Association said its survey of large-volume builders showed new home sales jumped a seasonally adjusted 8.2 per cent in June, more than making up for a 4.4 per cent decline in May. Sales of detached homes climbed 7.2 per cent, while apartment sales surged 11.5 per cent. Strength in home building has proved a major plank for economic growth in recent years. CPI
Thai consumer prices rise again
India’s central bank
Monetary head wants policy panel before he departs The committee will be made up of three members from the RBI, including the governor, and three selected by the government.
I
ndia should quickly put in place a monetary policy committee (MPC) to institutionalise decision-making on interest rates and keep the focus on controlling inflation, outgoing Indian central bank governor Raghuram Rajan said yesterday. The Reserve Bank of India (RBI) governor wants to see a committee established before his three-year term ends in September. The government has yet to appoint a replacement for Rajan, a former International Monetary Fund chief economist whose appointment in 2013 had boosted investor confidence
in India’s management of its economy. The RBI and the government agreed last year to form a policymaking panel, and New Delhi has been expected to announce the final composition of the committee sometime this year. “I think this creates an institution which many other countries have adopted, which India was slow to adopt, but which will stabilize expectations about inflation in the future,” Rajan told a conference attended by central bankers and regulators in Indonesia. “It is important that this framework is in place. I’m working very hard to
Thailand’s annual headline consumer prices rose for a fourth straight month in July, driven by higher prices of food and cigarettes, the Commerce Ministry said yesterday. The headline CPI index edged up 0.1 per cent in July from a year earlier after rising 0.38 per cent in June. A Reuters poll had forecast a rise of 0.45 per cent in June. July’s annual core inflation, which strips out raw food and energy prices, was 0.76 per cent, slightly below the 0.80 per cent both in the poll and the June result.
get this in place before I leave.” The committee will be made up of three members from the RBI, including the governor, and three selected by the government. The governor will chair the committee and his vote will act as a tie-breaker. Rajan has championed the change, saying it would lead to more institutionalised decision-making process, rather than the current system which gives the governor wide discretion in setting interest rates and changes to other policy settings. The RBI has cut its benchmark interest rate by 150 basis points since January 2015, including a 25 bps cut in April. But it has held rates due to worries about rising inflation since then, and is widely expected to keep it on hold at a review next week. Reuters
“It is important that this framework is in place. I’m working very hard to get this in place before I leave.” Raghuram Rajan, Reserve Bank of India Governor
Stock market
ASX appoints new chief Australia’s ASX Ltd, the world’s 14th-largest stock exchange by traded shares, yesterday said it hired a new chief executive officer following the resignation of its former leader in the wake of corruption allegations. The exchange said it hired one of its non-executive company directors, Dominic Stevens, as its new of CEO, effective immediately. Stevens was CEO of financial services company Challenger Ltd from 2008 to 2012. “He is popular and highly-regarded by ASX’s board, staff and major stakeholders,” ASX Chairman Rick HollidaySmith said in a statement. Tourism
Indonesia’s foreign arrivals rises Indonesia attracted nearly 800,000 foreign tourists in June, up 0.78 per cent from a year earlier, the statistics bureau said yesterday. June’s pace of annual increase for tourist arrivals was slower than May’s 12 per cent. The total number of foreigners visiting in June, including those passing through Indonesia’s borders from neighbouring countries and foreign workers with permits for less than year, was 784,155. Indonesia’s government wants to expand tourism to help reduce the country’s reliance on exporting raw commodities. The government aims to attract 20 million visitors a year by 2019, more than double the 9.73 million last year.
Financial outlook
Moody’s says New Zealand banking system stable Despite the impact of a weaker dairy industry. Moody’s Investors Service yesterday said the outlook for New Zealand’s banking system is stable, despite weakness in the dairy sector and higher household leverage. “Over the next 12-18 months, the banks’ financial profiles will remain healthy on an absolute basis, and sound in relation to our expectations for their current ratings,” said Daniel Yu, a Moody’s vice president in a statement.
‘Moody’s rates eight of New Zealand’s 15 locally incorporated banks. These eight banks cover 89 percent of total system loans’
the dairy sector exposure, Yu said any deterioration will be contained. “Housing loans - which make up the largest part of the banks’ portfolios - will continue to be supported by low interest rates and stable employment conditions. In addition, the central banks’ macroprudential measures will support the performance of more recent loan vintages,” he added. Last month the central bank proposed changes to existing mortgage lending rules in order to mitigate risks to financial stability arising from the current boom in house prices . Moody’s rates eight of New Zealand’s 15 locally incorporated banks. These eight banks cover 89 percent of total system loans. Moody’s has maintained a stable outlook on New Zealand’s banking system since September 2010. Reuters
According to Yu, low dairy prices and rising leverage represent two key risks to the banks’ operating environment. Until recently, dairy was the backbone of New Zealand’s economy, representing around 25 percent of exports. But prices have tumbled by more than half since early 2014, hurt 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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by China’s economic slowdown and global oversupply. More than 85 percent of farmers are estimated to be operating at below break-even levels. Earlier yesterday, global dairy giant Fonterra Co-operative Group Ltd maintained its forecast pay-out for its farmer shareholders for the current season at NZ$4.25 ($3.06). The forecast marks the third year of low pay-outs and remains below an estimated breakeven level of around NZ$5.28. Yu said a key factor in New Zealand’s high leverage has been the rebound in household borrowing which is supporting overall credit growth. New Zealand’s official cash rate is currently at a record low 2.25 percent, leading to a significant increase in housing loans. While banks’ asset quality is expected to weaken, in particular
Business Daily Tuesday, August 2 2016 13
Asia Chronic weakness
Abe’s fiscal plan follows a long road of packages that failed Economists question how much of the headline announcement is new spending that will trickle into the economy, as opposed to existing spending pledges that have been repackaged. Prime Minister Shinzo Abe’s “bold” plan to revive the economy with a US$273 billion package leaves him traveling down a well-trod path: it marks the 26th dose of fiscal stimulus since the country’s epic markets crash in 1990, in a warning for its effectiveness. The nation has had extra budgets every year since at least 1993, and even with that extra spending, it has still had six recessions, an entrenched period of deflation, soaring debt and a rapidly aging population that has left the world’s third-largest economy still struggling to get off the floor. While some analysts say the latest round of spending may buy the economy time, few are convinced it will be enough to dramatically change the course. First off, much of the 28 trillion yen announced by Abe last week won’t be spending, but lending. And if previous episodes are any guide, an initial sugar hit to markets and growth will quickly fade amid a realization that extra spending does little to cure the economy’s underlying problems. A Goldman Sachs Inc. study found that markets gave up their gains in the first month after the cabinet approved the stimulus in 18 of the 25 packages it studied since 1990. Sceptics of Abe’s latest plan aren’t hard to find. Instead of adding to a debt pile already more than twice the economy’s size, more should be done to tackle thorny structural problems such as a declining labour force and protected industries, according to Naoyuki Shinohara, a former Japanese finance ministry official. “Looking at the history of the Japanese economy, there have been lots of fiscal stimulus packages,” according to Shinohara, who was a top official at the International Monetary Fund until last year. “But the end result is that it didn’t have much impact on the potential growth rate.”
There are other reasons to doubt the latest stimulus plan. Economists question how much of the headline announcement is new spending so-called “fresh water” - that will trickle into the economy, as opposed to existing spending pledges that have been repackaged. It’s likely that Abe’s net new spending will be much smaller than the headlines suggest, said Hideo Hayakawa, a former Bank of Japan official. “ W e d o n ’ t n e e d a n y fi sca l stimulus,” he said. “What we need
is enhancement in productivity, thereby raising potential growth.” Emboldened by a thumping upperhouse election win in July, Abe is doubling down the strategy that he unleashed in 2013 - extreme monetary easing and fiscal stimulus. Initially at least, the plan seemed to work. The yen dropped, exporter’s profits surged and stocks rallied, but that glow has since faded. A decision to introduce a sales tax increase in 2014 triggered a recession and plans for another increase - vital for raising government revenues - have been put back to 2019. The yen has strengthened16percentthisyear,cutting corporate profits. Wage growth has been slow, companies and households are still hoarding cash, and progress on the third arrow of Abenomics - structural reforms - remains slow.
The fact that a stimulus package is being discussed only a few months after the April start of the new fiscal year is an indication about how weak the government thinks the economy is. Usually, an extra budget isn’t created until the second half of the year. In truth, few predict a quick turnaround for Japan’s economy as the population shrinks and policy makers grapple with the rich world’s highest ratio of gross public debt to economic output. If history is any guide, this stimulus will just pile up more debt without really boosting long-term growth. “Looks to me like they have a 1990s diagnosis of a 2010s problem,” said Richard Jerram, the chief economist at Bank of Singapore Ltd. “I don’t really see the benefit of a short-term demand stimulus.” Bloomberg News
“We don’t need any fiscal stimulus... What we need is enhancement in productivity, thereby raising potential growth.” Emboldened by a thumping upper-house election win in July, Prime Minister Abe (pictured R) is doubling down the strategy that he unleashed in 2013
Hideo Hayakawa, a former Bank of Japan official
Automated transportation
Delphi, Singapore launch test of self-driving taxis Initially, the cars will have drivers ready to take over if the piloting systems fail, Delphi vice president of engineering said. Joseph White
Delphi Automotive Plc will launch a small test fleet of automated taxis in Singapore next year, aiming to ferry passengers around a city district in one of the first real-world tests of automated rides on demand, the company said yesterday. The project, run in partnership with the Singapore Land Transit Authority, will road test a concept that many companies investing in automated driving believe offers the fastest path to making such technology commercially viable. A cab ride in a dense urban area can cost US$3 to 4 a mile, Delphi vice president of engineering Glen DeVos said in an interview. “We think we can get to 90 cents a mile” with an automated vehicle. That drops the price of transporting goods and people, and allows for the costs of automated driving systems to be spread over hours of operation and multiple users. Initially, the cars will have drivers ready to take over if the piloting systems fail, DeVos said. But by 2019
or 2020, “we’ll have removed drivers from the car,” Glen DeVos, Delphi’s vice president of engineering said in an interview. By 2022, the Singapore authority plans to launch a regularly operating automated cab service, Delphi
An automated car test
said. The company said it plans similar projects in North America and Europe. A United States site could be selected later this year, DeVos said. Delphi plans to start the project with a fleet of Audi vehicles equipped with automated driving and mapping systems. Later, DeVos said the project will expand with the addition of electric vehicles. Other companies are studying the economics of using automated
driving systems to replace human drivers in taxi or ride-hailing services, including Uber Technologies Inc and Lyft, which is collaborating with General Motors Co.
‘Delphi plans to start the project with a fleet of Audi vehicles equipped with automated driving and mapping systems’ Delphi is working with other companies, including Israel’s Mobileye NV, to develop the sensor systems to enable vehicles to operate autonomously. The Singapore Land Transit Authority will supply infrastructure to help vehicles navigate safely. Delphi is doing its own mapping, but DeVos said “we are looking at mapping alternatives including a service offered by Mobileye. Th e Si n ga p o r e p r o j ect w as deliberately kept to a small scale, DeVos said. “We are going to do it incrementally in a very controlled manner,” he said. Reuters
14 Business Daily Tuesday, August 2 2016
International In Brief Orders Decline
Russian manufacturing unexpectedly contracts A gauge tracking Russia’s manufacturing industry unexpectedly returned to contraction in July while export orders fell, forcing companies to cut jobs in a sign the country’s industry faces an uneven recovery as recession persists. The Purchasing Manager’s Index fell to 49.5 from a 19-month high of 51.5 in June, according to a statement released by Markit Economics yesterday. That was the worst showing since April and below every forecast in a Bloomberg survey of five economists, whose median estimate was 51. A slowdown in manufacturing is the latest hurdle for the economy of the world’s biggest energy exporter. Pharma industry
GSK creates bioelectronics company with Alphabet GlaxoSmithKline said yesterday it had teamed up with Alphabet’s life sciences unit to create a new company focused on fighting diseases by targeting electrical signals in the body. Verily Life Sciences known as Google’s life sciences unit until last year - and Britain’s biggest drugmakers will together contribute 540 million pounds (US$715.12 million) over seven years to the new bioelectronics firm, based at GSK’s Stevenage research centre north of London. GSK first unveiled its ambitions in bioelectronics three years ago and believes it is ahead of Big Pharma rivals in developing medicines that use electrical impulses. Securities regulator
Zimbabwe approves debt listing requirements Zimbabwe’s securities regulator has approved rules allowing companies to raise debt capital on the nation’s stock exchange, including minimum requirements for amounts and maturities of bond sales. Companies will have to raise a minimum of US$1 million with a maturity of at least one year to qualify for a listing, according to draft regulations approved by the Securities and Exchange Commission last month, a copy of which was obtained by Bloomberg and confirmed by the regulator. The Zimbabwe Stock Exchange is looking to expand into debt instruments to generate additional revenue. PMI
Euro-Area factory output steady Activity in euro-area manufacturing slowed in July as uncertainty following the U.K.’s vote to leave the European Union damped new orders. A Purchasing Managers’ Index dropped to 52 in July from 52.8, slightly less than a July 22 estimate of 51.9, Markit Economics said yesterday. In Germany, the currency bloc’s largest economy, output expanded at the fastest pace in more than two years, while momentum faded in Italy and Spain and production declined in France and Greece. “The PMI points to steady manufacturing growth” but “dig deeper beyond the headline numbers and more worrying pictures appear,” said Chris Williamson, chief economist at Markit in London.
PMI
Brexit hit U.K. manufacturing harder than initially estimated Employment fell for a seventh month in July, with firms linking lower staffing to the drop in output and new orders. Jill Ward
U
.K. manufacturing shrank m o r e th a n i n i t i a l l y forecast in July, suffering its biggest drop in more than three years. A Purchasing Managers’ Index slumped to 48.2, below the oneoff flash reading of 49.1, Markit Economics said yesterday in London. The index has only fallen below the 50 mark - which separates expansion from contraction - one other time since early 2013. The index was at 52.4 in June. The report suggests that Britain’s decision to leave the European Union may have a harsher impact on the
economy than initially expected. Markit’s flash estimates published last month had already signalled that business activity was shrinking at its fastest pace since the last recession seven years ago. That prompted Bank of England official Martin Weale to change tack and back his colleagues’ call for easing this week. BOE policy makers kept the benchmark rate at a record-low 0.5 per cent in July and signalled that stimulus was likely in August. The nine-member Monetary Policy Committee announces its next decision on Thursday, when it will also publish new forecasts for growth and inflation. “The weak numbers provide
powerful arguments for swift policy action,” said Rob Dobson, an economist at Markit. “The downturn was felt across industry, with output scaled back across firms of all sizes and across the consumer, intermediate and investment goods sectors.” The decline in production was the steepest since October 2012, Markit said. New orders also contracted, suggesting uncertainty in the domestic market offset any boost to exports from the weaker pound. While manufacturing exports were the only bright spot in the initial report, Markit said that the improvement was “less marked than previously estimated” due to sluggish overseas demand. The drop in the currency pushed input-cost inflation to a five-year high. Employment fell for a seventh month in July, with firms linking lower staffing to the drop in output and new orders. Bloomberg News
“The weak numbers provide powerful arguments for swift policy action” Rob Dobson, an economist at Markit
A file photo dated 30 March 2016 showing Tata steel plant in Port Talbot, south Wales, Great Britain
Monetary policy
Fed’s Dudley urges caution on rate hikes Dudley called the recent U.S. GDP reading of 1.2 per cent annualized growth for the second quarter as “sluggish”. Gayatri Suroyo
The Federal Reserve should be cautious on interest rate increases due to lingering risks to the U.S. economy, one of its most influential policymakers said yesterday, appearing to signal the chance of a hike by the end of the year was fading. While New York Fed President Wi l l i a m D u d l e y sa i d i t w a s “premature” to rule out a policy tightening in 2016, he added that negative shocks were more likely than positive ones due to the unknown fallout from Britain’s vote to leave the European Union and a strong dollar. “All three of these reasons evidence that U.S. monetary policy is currently only moderately accommodative, the fact that U.S. financial conditions have been influenced by economic and financial market developments abroad, and risk management considerations argue, at the moment, for caution in raising U.S. short-term interest rates,” said Dudley, a close ally of Fed Chair Janet Yellen and a permanent voter on U.S. policy. The comments, including a reference to uncertainty around the November 8 U.S. election, suggested the central bank is leaning toward standing pat on rates until perhaps December - which would mark one year since it raised rates for the first time in nearly a decade. Dudley applauded recent investor expectations for a less aggressive U.S. tightening cycle going forward,
and warned that it was becoming increasingly clear that some postcrisis “headwinds” were likely to be permanent. In an otherwise dovish speech to a joint New York Fed-Bank Indonesia conference in Bali, he said it was possible that the U.S. economy would outperform expectations through year end, that financial conditions ease, or that other international risks fade. “For these reasons, I think it is premature to rule out further monetary policy tightening this year,” he said in prepared remarks for the speech at a resort hotel.
“I think it is premature to rule out further monetary policy tightening this year” William Dudley, New York Fed President If the economy and labour markets improve quickly, Dudley said, the Fed would react by raising rates sooner. “If that all happens very quickly, I can definitely see the Fed raising interest rates even prior to the election possibly,” he said. “But if that all happens very slowly, then we’re going to go very slowly.” Dudley was coy on just how many rate increases he envisioned,
saying only that he expected the central bank to move at least more aggressively than current futuresmarket predictions for only one rate increase by the end of 2017. While the world’s most influential central bank struck some confident tones in a policy statement last week, more recent data showing the U.S. economy has expanded at an annual rate of roughly 1 per cent so far this year emboldened those who think the Fed won’t tighten monetary policy any time soon. A Reuters poll of economists recently pointed to the December policy meeting as the most for a rate increase. But after weak U.S. growth data on Friday, Fed funds rate futures are pricing in only around 30 per cent chance of a rate hike by December, compared to about 50 per cent early last week. Dudley called the recent U.S. GDP reading of 1.2 per cent annualized growth for the second quarter as “sluggish” but stuck to his expectation that the economy would rebound to about 2 per cent growth over the next 18 months, an outlook he described as “positive” and “satisfactory”. He also said he was confident inflation would rise to the Fed’s 2 per cent goal in the medium term. Dudley added that aggressive monetary easing in Japan and Europe this year boosted the dollar and, together, helped convince the Fed it could not raise rates as aggressively as it imagined back in December. He said productivity in the United States and around the world was “quite disappointing” but it was up to governments and legislatures to construct the necessary reforms to make their economies more efficient. Reuters
Business Daily Tuesday, August 2 2016 15
Opinion Business Wires
Bangkok Post With more deposits than loans, commercial banks are awash with liquidity. Now they are seeking ways to control the cost of funds in a bid to maintain profitability. Among the methods banks use to control these costs are pushing current accounts and savings accounts, which have low, variable interest rates as opposed to fixed rates, and to stop offering new special deposit packages. Siam Commercial Bank is searching for investment opportunities in both local and international markets as another way to manage the liquidity surplus, president and chief executive Arthid Nanthawitthaya said.
Why China needs to learn to put the customer first
The Star The rapid growth of online businesses (in Malaysia) is spurring demand for larger warehouses, a segment of the market which most property players have yet to exploit fully. “Online sellers are going to need space to store their products,” Axis REIT Managers Bhd head of investments Siva Shanker said. “We should start going towards the development of large spaces in excess of 500,000 sq ft,” he said. Statistics showed that more than 20 million Malaysians, or two-thirds of the country’s population, are active Internet users. This high Internet usage is helping to fuel the boom in online shopping.
The Straits Times Swiber Holdings is unable to pay the upcoming coupon payment for the series 001 Trust Certificates due on August 2, 2016, its provisional liquidator Cameron Duncan, said yesterday. The S$150 million 6.50 per cent certificates due 2018 were issued by subsidiary Swiber Capital Pte Ltd. Swiber on Friday made a sudden late night announcement that it was withdrawing its shock windingup application to opt instead for judicial management. Its bid to survive averted what would have been the biggest collapse of an oil and gas related company in Singapore.
Viet Nam News The fight against unsafe food requires more joint drastic efforts by State agencies, food producers, suppliers and users, according to the director of the National Agro Forestry and Fisheries Quality Assurance Department, Nguyễn Như Tiệp. He warned that the fight against unsafe food in Việt Nam would not end soon despite recent efforts. Figures presented at the conference showed that in the first half of this year, 0.42 per cent of tested meat contained the banned chemical Sabutamol, almost four per cent of vegetables had excessive concentrations of pesticide, 1.3 per cent of meat contained excessive concentrations of chemicals.
C
hinese automakers are selling more cars than ever before. But Chinese drivers aren’t especially enjoying the experience. According to a new study from market research firm J.D. Power, Chinese satisfaction with the whole process of buying a new car - everything from the showroom to the salesperson - declined in the last 12 months. And those who bought local cars had the worst experiences: Only five Chinese brands made it into in the top 25 for overall sales satisfaction - in China. That’s probably not the sort of statistic that keeps Chinese leaders awake at night. But it should, given that China’s manufacturing-based economy is rapidly transitioning into one largely based on services. As Chinese consumers become richer and more sophisticated, their expectations for quality of service are rising as well. Meeting those demands is going to require a fundamental shift of mind-set across a whole range of industries, from cars to clothes. For most of China’s commercial history, consumers have fully expected service - whether in a hotel or an auto dealership to be terrible. Anything decent was a pleasant surprise, usually enjoyed only at the high end of the market. The issue wasn’t only cultural: China’s state-dominated economy provided few incentives for businesses to cater to the needs of their customers. In a country where service is often equated with servility, that often resulted in customerstaff encounters that ranged between hostile and indifferent. Sales clerks could be famously haughty, while banks and hospitals - places where long lines are still legendary - became opportunities to put pesky consumers in their place. China’s economic liberalization opened the door to changes. Five-star hotels and foreign fast-food restaurants brought customer-centric experiences to China’s biggest cities. For most Chinese consumers, though, price remained the biggest consideration when buying a product. That preference aligned with China’s low-cost manufacturing model: So long as Chinese brands competed as commodities, brand loyalty and expectations of service remained low. Over the last half-decade, the model has begun to shift dramatically. Many Chinese manufacturers now make products that meet the high standards for quality that China’s increasingly worldly customers demand. Geoff Broderick, Vice President and General Manager for Asia-Pacific at J.D. Power, says he expects that the quality gap between Chinese and foreign-made cars will vanish “over the next two to three years.” The key is whether Chinese car companies can create an equally good customer experience, too:
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Adam Minter Bloomberg columnist
“Closing that gap is important to the domestic brands if they want brand loyalty and future car purchases,” says Broderick. Right now, “loyalty is dropping,” and so are profits. In 2015, 75 per cent of China’s auto dealerships were unprofitable or just breaking even. Those that survive will have to focus on more than the quality of the cars they sell, which is increasingly uniform. Compared to figuring out how to better machine an engine block, the steps required to improve service seem oddly prosaic. But they add up. Among the 23 metrics that J.D. Power used in its newest China Customer Service Index study were whether a car was returned to a customer cleaner than when it was dropped off for service (international brands did it 80 per cent of the time compared to 60 per cent for domestic ones) and - in a very Chinese twist whether a massage device was available at the dealership (40 per cent of the time for international dealers, 20 per cent for locals). It’s not just the critical automotive industry that needs to work on improving service. In 2015, Forrester Research surveyed 9,000 Chinese consumers on 60 well-known brands. Of these, 80 per cent were ranked as delivering “mediocre” customer experiences, with retail and e-commerce scraping along the very bottom of the rankings. That’s a problem, but also a long-term opportunity for brands and businesses to begin differentiating themselves in a crowded market. For example, Air China, China’s national flag carrier, has long set itself apart from a slew of anonymous airlines with a focus on high-quality service, especially in its business cabin, which it’s marketed quite successfully. Replicating Air China’s success won’t be cheap or quick. Expensive training programs, much like those pioneered by foreign hotel and fast-food brands, will need to become a part of more industry cultures. Meanwhile, employers are going to have to work harder - and pay more - to retain the employees they’ve spent the resources to train. Finally, compensation and incentive programs will have to change. Currently, many Chinese employers remain focused on selling volume, often without regard to the client. More will need to start evaluating - and rewarding - employees on how well they treat customers, not just on how many units they sell. That is, if they want those customers to come back. Bloomberg View
As Chinese consumers become richer and more sophisticated, their expectations for quality of service are rising as well
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16 Business Daily Tuesday, August 2 2016
Closing Labour crackdown
Secretary Silvestre Bello told Reuters. Philippines cracks down on short-term, no frills job contracts Partial results of the inspection would be The Philippines has launched a crackdown on employers who hire workers short-term and without adequate benefits, the labour minister said yesterday. The pledge to end hiring schemes unfavourable to workers helped city mayor Rodrigo Duterte (pictured) win the presidency by a landslide in May. “Our regional offices are very busy making an inventory and inspecting the operations of many of these companies,” Labour
ready in two to three months, Bello said, without identifying the companies or business sectors under review. “Anybody violating ... I will close you,” Duterte told a media briefing yesterday. The Labour Department last week said it wanted to cut the practice of workers being hired for five months or less, without security of tenure, monetary, nonmonetary, and social protection benefits, by 50 per cent by the end of 2016. Reuters
Debt
Foreigners boost china bond holdings by most in two years Foreign investors’ holdings of Chinese debt have climbed for four consecutive months.
O
verseas investors increased their holdings of Chinese onshore bonds by the most in more than two years in June after regulators eased restrictions on foreigners accessing the interbank market. The amount of debt held by overseas entities rose 47.7 billion yuan (US$7.2 billion) to 764 billion yuan, latest available data from the People’s Bank of China show. That’s the biggest monthly increase since February 2014, according to Bloomberg calculations based on official figures.
the Qualified Foreign Institutional Investors program no longer have to apply for quotas to invest onshore. The U.K.’s vote to leave the European Union has also spurred a global rush for haven assets. “Global investors are keen to look for higher-yielding assets, and yuan bonds are good candidates,” said Becky Liu, Hong Kong-based senior rates strategist at Standard Chartered Plc. “This, along with a more transparent currency market and weak domestic fundamentals, are boosting demand for onshore debt. As private-sector foreign investors
have yet to set up everything to start trading, it’s likely to see more inflows in coming months.” Demand for safety has been buttressed by an economy projected to expand at the slowest pace in 26 years, and by a currency set to weaken for the third year in a row. The yield premium on China’s 10-year debt over U.S. Treasuries rose to 148 basis points on July 5, the most since April 2015, before narrowing to 130 basis points, data compiled by Bloomberg show. Foreign investors’ holdings of Chinese debt have climbed for four consecutive months, after falling 87.9 billion yuan in the first two months of this year, according to the PBOC data released late Friday. A separate set of figures released by the China
Central Depository & Clearing Co. show global funds boosted their holdings of government bonds for eight months in a row. PBOC Deputy Governor Pan Gongsheng said in June that the nation will push for the inclusion of domestic notes in global bond indexes such as those compiled by Citigroup, JPMorgan Chase & Co. and Barclays Plc. The comments came before the yuan officially joins the International Monetary Fund’s reserve basket in October. The yield on government notes due May 2026 rose one basis point to 2.79 per cent yesterday, National Interbank Funding Centre prices show. The PBOC drained a net 43 billion yuan via Medium-term Lending Facility in July, according to Bloomberg calculations based on the central bank data. That was the biggest withdrawal under the loan program since July 2015. Bloomberg News
“Global investors are keen to look for higheryielding assets, and yuan bonds are good candidates” Becky Liu, Hong Kong-based senior rates strategist at Standard Chartered The rising interest comes amid a widening yield advantage, and efforts to boost foreign participation and understanding of central bank policy. The authorities have since February allowed all types of medium- to long-term investors to access the interbank bond market, and said that approved fund managers under
Indonesian president
Fanya probe
Private report
Government to go ‘all out’ Beijing to prosecute 20 involved Mainlanders show rising to defend legality of tax amnesty in troubled metal exchange interest on self-driving cars Indonesian President Joko Widodo yesterday urged citizens to take part in the country’s new tax amnesty and pledged his government will “go all out” to keep the law behind it from potentially getting blocked in court. In line with low payment rates in a law passed in June, the government hopes that by March 2017, Indonesians will bring home billions of dollars parked outside the country. The tax amnesty program was initiated by Widodo’s government to cover a big shortfall in budget revenue and to widen Indonesia’s small tax base. The sooner people declare their assets, the lower rates they will pay. “We want this tax amnesty to be successful,” the president told a Jakarta audience including business executives yesterday. “I know now many are still doing their calculation, but in time, I believe at the third or fourth week of August, or early September, there will be a lot of inflow.” At Indonesia’s Constitutional Court, legal activists last month filed a request for ju dici al r evi ew o f th e law , c o n t e n ding that it protects money launders and tax evaders. Reuters
Police in the Chinese city of Kunming said yesterday they would prosecute 20 people involved with the Fanya Metals Exchange, which authorities and investors say was a multi-billion-dollar Ponzi scheme. After months of protests, dozens of investigators took over the Kunming-based Fanya exchange building late in 2015, and this year police arrested the head of the exchange, Shan Jiuliang. In a brief statement on their official microblog, police in the south-western city said that Shan, along with 19 others, had had their cases sent to the prosecutor for review on June 30, the next legal step in the process before they face trial. It has not been possible to reach Shan for comment and unclear if he has been allowed to retain a lawyer. Police said the investigation continued and they were working hard to recover stolen assets. “(We) hope that investors can positively cooperate, and create a good basis for the further handling of assets connected with this case,” Kunming police added, without elaborating. Police said in June they had impounded more than 70,000 tonnes of non-ferrous metals and other assets of the exchange. Reuters
Chinese consumers showed rising interest in self-driving cars despite concerns over safety, a ten-country report showed yesterday. In China, about 81 per cent of the surveyed consumers, roughly 500, were willing to try autonomous cars, an increase from 75 per cent last year, according to a report released by Boston Consulting Group (BCG) and the World Economic Forum. The report, “Self-Driving Vehicles, Robo-Taxis, and the Urban Mobility Revolution,” builds on earlier research by BCG and the World Economic Forum, including a survey conducted in August 2015 of more than 5,500 consumers in ten countries - the largest global survey on self-driving vehicles (SDVs) to date. In comparison with China’s rising interest, German consumers, who expressed the most reluctance of the three countries in the earlier research, were slightly more risk-averse this year with 41 per cent saying they would be willing to try a fully self-driving car, compared with 44 per cent in 2015. American consumers are slightly, but not significantly, less positive, with 48 per cent compared with 53 per cent last year. Xinhua